CAAD 779/2015-T: Deduction of Autonomous Taxation from Special Payment on Account (IRC 2012)

ARBITRAL DECISION

I – REPORT

A…, S.A with the collective entity identification number…, with registered address at Rua …–…, 3rd Floor, Room…, … - … Lisbon, on 23/12/2015, pursuant to Articles 2, No. 1, paragraph a), and 10, Nos. 1 and 2, of Decree-Law No. 10/2011 of 20 January, and Articles 1 and 2 of Order No. 112-A/2011 of 22 March, (Legal Regime for Arbitration in Tax Matters, hereinafter "LRATM", which currently applies as amended by Article 228 of Law No. 66-B/2012, of 31 December), petitioned for the Constitution of an Arbitral Tribunal, to rule on the partial illegality of the Corporate Income Tax (IRC) assessment act No. 2013 - … relating to the tax year 2012, following the dismissal of the administrative appeal it submitted on 10/03/2015, insofar as it corresponds to the failure to deduct from the IRC tax collected the amounts resulting from the autonomous taxation rates on the special estimated payment (SEP) effected in IRC.

The petition for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and, pursuant to the provisions of paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the LRATM, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated as arbitrator of the Collective Arbitral Tribunal the undersigned, who communicated acceptance of such appointment within the applicable timeframe.

On 16 February 2016, the parties were notified of such designation and raised no objections.

The Arbitral Tribunal was constituted on 02 March 2016, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December.

The act subject to the petition for ruling by the Arbitral Tribunal is "the annulment of the decision dismissing the administrative appeal No. …/15 relating to the tax year 2012; the declaration of partial illegality of the IRC assessment act No. 2013 … relating to the tax year 2012, in the portion corresponding to the special estimated payments effected and available for deduction against autonomous taxation, in the amount of € 42,463.17; and also the reimbursement of the amount of € 42,463.17 unduly paid in excess by the Petitioner, as well as the payment of compensatory interest calculated on the amount unduly paid by the Petitioner".

The Tax Authority (TA) submitted its response on 11/04/2016.

By Order of the Tribunal of 19/04/2016, the meeting referred to in Article 18 of the LRATM was waived, and the parties were invited to submit written submissions, which both did within the fixed timeframe, the Petitioner on 03/05/2016 and the Respondent on 17/05/2016.

II – PRELIMINARY EXAMINATION

The Arbitral Tribunal was properly constituted.

The Parties are properly represented, are legitimate, possess legal standing and capacity (Articles 4 and 10, No. 2, of the same statute and Article 1 of Order No. 112-A/2011, of 22 March), namely with respect to the legitimacy of the Petitioner (which is not contested), which derives from the fact of being the holder of a legally protected interest since its legal sphere may be directly affected by what is decided in this proceeding, a situation in which legitimacy is ensured by Nos. 1 and 4 of Article 9 of the CPPT applicable to tax arbitration proceedings by virtue of the provisions of Article 29, No. 1, paragraph c), of the LRATM.

The proceeding does not suffer from nullities and no exceptions were raised, and therefore a decision must be rendered.

III – FACTUAL MATTER

A – PROVEN FACTS

The following factual matter is found to be proven and is relevant to the decision of the case:

On 9 May 2013, the Petitioner submitted the tax return Form 22 relating to the tax year 2012, with identification code …-… -…, of the group of companies subject to the Consolidated Tax Group Regime (RETGS) of which it is the parent company.

The group determined a tax loss of € 1,801,286.38 in Schedule 09-Field 382, and a total amount of tax due of € 62,550.59, in Schedule 10-Field 367, which results from the determination of the municipal surtax, in the amount of € 0.72, and autonomous taxation in the amount of € 62,549.87.

Nevertheless, there remained to be deducted, due to alleged insufficiency of tax collected, the amount of € 86,089.72, as special estimated payments effected.

However, the Petitioner requested the reimbursement of the amount of €43,626.55 through petitions for official revision of the IRC self-assessment acts of the group of companies relating to the tax years 2010 and 2011, which were expressly dismissed by the Tax Authority (TA) on 15 September 2015.

With respect to the tax year 2012, it submitted an administrative appeal on 10/03/2015, which was dismissed by notification of 25/09/2015.

In this regard, the Petitioner submitted an administrative appeal relating to the tax year 2012, aimed at correcting the IRC self-assessment act of that tax year, having requested the reimbursement of the tax overpaid, in the amount of € 42,463.17, regarding the deduction from the value of autonomous taxation of the amount of special estimated payments available on the date (cf. Doc. 6).

On 25 September 2015, the Petitioner was notified of the final decision dismissing said appeal (attached as Doc. 7), with which the Petitioner cannot agree.

Not accepting the decision of the TA, the Petitioner requested the constitution of an Arbitral Tribunal with a view to the declaration of partial illegality of the IRC assessment act No. 2013…, relating to the tax year 2012, as well as to determine the reimbursement of IRC overpaid, in the amount of € 42,463.17, plus compensatory interest.

B – UNPROVEN FACTS

No other facts relevant to the decision on the arbitral petition were proven.

C – JUSTIFICATION OF THE DECISION ON THE FACTUAL MATTER

The proven facts were based on critical analysis of the administrative file and other documents attached to the record, whose authenticity and veracity were not contested by either party, as well as the consensual positions of the parties.

IV – LEGAL MATTER

The Petitioner submits to the Tribunal's review the legality of the dismissal of the administrative appeal identified above and of the IRC self-assessment act relating to the tax year 2012, insofar as it corresponds to the failure to deduct from the portion of IRC tax collected the amounts resulting from autonomous taxation rates on the special estimated payment (SEP) effected in IRC with the consequent reimbursement of the same amount and the payment of compensatory interest calculated from the same dates, insofar as the assessment of autonomous taxation is improper.

For the substantiation of its claims, the Petitioner alleges, briefly, the following:

• According to paragraph a) of No. 1 of Article 90 of the IRC Code, when the assessment of such tax must be effected by the taxpayer in the periodic tax return, the same is based on the taxable matter contained in said return; additionally, No. 2 of the same article (as worded at the date of the facts) provides that, "to the amount determined under the previous number, the following deductions are effected, in the order indicated:

  · that corresponding to the credit for relief from international double taxation;

  · that relating to tax benefits;

  · that relating to special estimated payment;

  · that relating to withholding at source not subject to compensation or reimbursement under applicable legislation."

• Thus, special estimated payments effected constitute one of the deductions to the IRC tax collected, because special estimated payments correspond to an advance payment of the IRC due ultimately.

• On the other hand, autonomous taxation is an integral part of IRC, and therefore is deductible from the respective tax collected.

• In fact, it has been argued in various arbitral decisions and even by the TA that autonomous taxation levied on deductible expenses in IRC is part of the regime and is due under this tax and, as such, is covered by paragraph a) of No. 1 of Article 45 of the IRC Code, as worded at the date (i.e., is not deductible in IRC, as an integral part of this tax).

• In fact, the conclusion that autonomous taxation is IRC can only lead to one consequence, which is that autonomous taxation is an integral and inseparable part of the IRC tax collected.

• Thus, the amount of special estimated payments that failed to be deducted due to insufficiency of IRC tax collected (so-called normal) could, after all, have been deducted up to the amount of autonomous taxation paid by the Petitioner (since this amount should have been considered as an integral part of the IRC tax collected).

• Indeed, in light of those understandings, the Petitioner determined an IRC tax collected of € 62,549.87 (portion corresponding to the value of autonomous taxation), and therefore could have deducted the value of special estimated payments available for deduction in the tax year 2012, in the amount of € 42,463.17.

• In summary, the fact that the determination of autonomous taxation is effected in a different manner does not deprive autonomous taxation of its nature as IRC, and therefore should be considered an integral and inseparable part of the IRC tax collected.

• From the procedure and form of IRC assessment, under Article 90 of the IRC Code which establishes the form of "IRC assessment", with respect to autonomous taxation, these must naturally be covered by this norm.

• In fact, if this were not the case, the assessment of amounts due under autonomous taxation would not occur due to the absence of a norm determining and regulating it.

• Simply, the legislator refrained from making reference to autonomous taxation, since, following the various arbitral decisions relating to this matter, these are implicitly included in the concept of IRC.

• Given the recognition of autonomous taxation as IRC, both by jurisprudence, and by the TA itself, and more recently by the legislator itself, the Petitioner cannot accept that the TA now argues that express mention of autonomous taxation in Article 90 of the IRC Code is necessary for these to be included within the scope of deduction of special estimated payments.

• In fact, if it were admitted that, for purposes of Article 90 of the IRC Code, autonomous taxation is not IRC, there would be no norm in said Code that defines the form of assessment of autonomous taxation.

• In fact, Article 88 of the IRC Code only determines the form of determination of the IRC tax collected under autonomous taxation, defining the tax base of this tax and the rates to apply, a role played by Articles 3 and 87 of the same Code with respect to the IRC tax collected resulting from taxable income.

• In this sense, there is a norm in the IRC Code that determines the assessment of autonomous taxation: its Article 90.

• In light of the foregoing, the Petitioner considers it unambiguous that autonomous taxation is an integral part of the IRC tax collected, for purposes of Article 90 of the respective Code, and therefore is covered for purposes of the deduction of special estimated payments referred to in paragraph d) of No. 2 of said article.

• On the other hand, autonomous taxation is levied both on deductible expenses and on non-deductible expenses for purposes of determining taxable matter.

• Both forms of application of autonomous taxation, which were the subject of an expansion process culminating in the current Article 88 of the IRC Code, are an instrument aimed at increasing the fairness of the distribution of the tax burden, through discouragement of expenditures with a risk of lack of business character (non-association with business activity), that is, expenses that may be incurred for private purposes, which reduce tax revenue, or even of "disguised" distribution of profits.

• Now, according to the TA's understanding in its decision dismissing the appeal, "it would be contrary to the spirit of the system to allow that, by force of the deductions referred to in No. 2 of Article 90 of the IRC Code, the anti-abuse character of autonomous taxation that presided over its implementation in the IRC system be removed."

• In the Petitioner's view, this cannot be the reason why the deduction of special estimated payments against autonomous taxation contravenes the spirit of the law.

• The fact that a norm aims to prevent the tax base from being reduced by the deduction of expenses incurred for private purposes or other purposes unrelated to business activity does not imply that the tax collected resulting from the application of that norm is not available for purposes of the deduction of special estimated payments.

• In this sense, the Petitioner understands that, notwithstanding its nature as an anti-abuse norm, since autonomous taxation is an integral part of IRC and its tax collected and special estimated payments are an advance of IRC, nothing prevents these from being deducted against special estimated payments.

• Thus, by virtue of the fact that (i) special estimated payments constitute the advance payment of the tax paid ultimately, (ii) autonomous taxation is an integral and inseparable part of the IRC tax collected, and (iii) the deduction of special estimated payments does not compromise the anti-abuse objectives underlying the creation of autonomous taxation, the Petitioner does not accept the TA's position that this deduction cannot be effected.

For its part, the TA, expressing its disagreement with these conclusions of the Petitioner, in its response defends, essentially, the following:

• The integration of autonomous taxation into the IRC Code (and IRS), conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, in particular, within the framework of paragraph a) of No. 1 of Article 90 of the IRC Code, in separate determinations of the respective tax collected, by force of being subject to different rules.

• In one case, it is the application of the rate(s) of Article 87 of the IRC Code to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of taxable matters relating to the different situations contemplated in Article 88 of the IRC Code.

• That is, there is not a single assessment of IRC, but rather two determinations;

• That is, two distinct calculations which, although processed, under paragraph a) of No. 1 of Article 90 of the IRC Code, in the returns referred to in Articles 120 and 122 of the same code, are effected based on different parameters, since each materializes in the application of its own rates, provided for in Articles 87 or 88 of the IRC Code, to the respective taxable matters determined equally according to its own rules.

• The assessment of autonomous taxation is effected based on Articles 89 and 90, No. 1 of the IRC Code but, applying different rules for the calculation of the tax: (i) in one case the assessment operates through the application of the rates of Article 87 to the taxable matter determined in accordance with the rules of Chapter III of the Code and (ii) in the other case, various tax collected amounts are determined depending on the diversity of facts giving rise to autonomous taxation.

• Following the integration of autonomous taxation into the IRC Code, through Law No. 30-G/2010, of 29/12, the legislator does not appear to have felt the need to explicitly and comprehensively state – i.e., in all norms where they are manifested – the consequences of the coexistence of two forms of taxation within the IRC system, limiting itself to safeguarding situations where IRC exemption did not extend to autonomous taxation.

• It falls to the interpreter and applicant of the law the task of, faced with the need to, for certain purposes – namely the deductions provided for in No. 2 of Article 90 of the IRC Code or the calculation of estimated payments –, identify the relevant part of IRC tax collected, extracting from the applicable norms a useful, literally possible meaning, which permits a coherent solution consistent with the nature and functions assigned to each component of the tax.

• Bearing in mind the nature of estimated payments of the tax ultimately due, according to the definition in Article 33 of the General Tax Code (CGT), these are "advance cash payments made by taxpayers during the period of formation of the tax event", constituting a "(…) means of bringing closer the moment of collection to the moment of receipt of income so as to remedy situations where this approximation cannot be achieved through withholding at source".

• In sound logic, it only makes sense to conclude that the calculation base of estimated payments corresponds to the amount of IRC tax collected resulting from the taxable matter identified with the profit/income of the taxpayer's tax year.

• The delimitation of the content of the expression used by the legislator in No. 2 of Article 90 of the IRC Code, "amount determined under the previous number", and in No. 1 of Article 105 of the IRC Code, "tax assessed under No. 1 of Article 90", must be done coherently, being consequently assigned to it, in both provisions, a univocal meaning.

• 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 based on profit and at the rates of Article 87 of the Code.

• The interpretation of the expression "amount determined under the previous number" is the only one consistent with the nature of the deductions referred to in the paragraphs of No. 2 of Article 90 of the IRC Code, relating to:

  • credits for relief from international double taxation, both legal and economic;

  • tax benefits;

  • special estimated payment;

  • and withholding at source;

• In reality, the common feature to all the situations reflected in the deductions referred to in No. 2 of Article 90 of the IRC Code resides in the fact that they relate to income or expenses incorporated into the taxable matter determined based on the taxpayer's profit or advance payments of the tax, being, therefore, entirely unrelated to the situations that constitute the tax events for autonomous taxation.

• By simple consequence of the preceding considerations that led to the conclusion that the deductions referred to in paragraphs a) and b) of No. 2 of Article 90 of the IRC Code are effected to the "amount determined under the previous number", understood as the amount of IRC determined based on the taxable matter determined in accordance with the rules contained in Chapter III and the rates of Article 87 of the same Code, and descending to the specific case, it is possible to extend such conclusion to the deduction relating to special estimated payments.

• It suffices, for this purpose, to invoke the provision of No. 7 of the same article, according to which "The deductions effected under paragraphs a), b) and c) of No. 2 cannot result in a negative value".

• In any case, it is also possible to reach the same conclusion by noting the nature of special estimated payment (SEP), defined as being an advance delivered to the State on account of the tax ultimately due, which can be effected in two installments (Article 106, No. 1, IRC Code) and whose calculation takes as its starting point the sales volume of the taxpayer for the previous tax period (No. 2).

• Although SEP differs, in terms of calculation rules, from estimated payments – as these have as their calculation base the tax assessed under No. 1 of Article 90 of the IRC Code, relating to the immediately preceding tax period (No. 5 of Article 105 IRC Code) –, it is noteworthy that these regimes have in common the nature of advance payment of IRC;

• This, all the more so because it can be stated that, in certain circumstances, they even exclude each other, in that to the amount resulting from the SEP calculation, estimated payments effected in the preceding tax period are deducted.

• The institution of SEP, by Decree-Law No. 44/98, of 03.03, which added Article 83-A to the IRC Code, was part of a set of fiscal policy measures directed against tax evasion and tax fraud, whose motivation is explained in the Preamble of this statute, as follows: "(…). Statistics show that the income of legal entities subject to IRC taxation is frequently, and without any plausible reason, the subject of an assessment much lower than the real. Evasive practices of income concealment or cost inflation are manifestly generating serious distortions of the principles of tax equity and 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 IRC taxpayers, during successive years, contributed little or nothing to the State Budget, while continuing, moreover, to sometimes enjoy in a privileged manner the economic and social rights provided for in the Constitution. In this context, this statute establishes a special estimated payment, through a new mechanism, on the income of 1998 and subsequent years, for legal entities subject to IRC. The calculation formula used for its determination and the mechanism employed permit bringing the moment of income production closer to the moment of its taxation."

• Thus, and in conclusion, we have that the legal nature of SEP, revealed by its configuration as an "instrument or guarantee of payment of the tax for which it is required, and not as a self-standing tax" (cf. Judgment of the Constitutional Court No. 494/2009, of 29/09/2009), as well as by the function assigned to it in combating tax evasion and fraud, inseparably links this payment to the amount of IRC determined on the taxable matter determined based on profit (Chapter III of the Code).

• Being, therefore, manifestly devoid of any basis the pretension of the now Petitioner to deduct the amount borne under special estimated payment from the tax collected resulting from autonomous taxation in the year 2012.

The parties also submitted written submissions, reinforcing the same theses they defended, one in the Petition and the other in the Response, adding no new arguments or facts, except what relates to the amendment introduced to the IRC Code by the State Budget for 2016, with the addition of No. 21 to Article 88 of the IRC Code, as well as its Article 135, which establishes 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 Nos. 20 and 21 of Article 88 and to No. 8 of Article 117 of the IRC Code is interpretative in nature."

V – THE PETITION

The subject of this petition is the arbitral ruling on the legal possibility of deducting the amount of special estimated payments (SEP), against the value of the tax collected from autonomous taxation determined in the self-assessment of IRC for the tax year.

That is, "is the amount of IRC advanced as special estimated payment deductible from the tax collected from autonomous taxation in IRC"?

The question of deductions to the tax collected in the assessment of autonomous taxation has already been addressed in various decisions issued by CAAD for some time, mainly regarding the deduction of tax benefits and the deduction of special estimated payments in IRC from the tax collected from autonomous taxation.

The established jurisprudence has been consistent in holding that amounts relating to tax benefits are deductible from the tax collected from autonomous taxation, as is the case of SIFIDE or CFEI, given their respective legal nature resulting from the provision of Article 2 of the Tax Benefits Statute, since these are "measures of an exceptional nature instituted to protect relevant extraterritorial public interests that are superior to those of the tax itself that prevents them".

With respect to SEPs, the sense of arbitral decisions initially had the same direction, but, for some time now, the jurisprudential orientation points to the fact that there is no illegality in the self-assessment in which the value of SEPs borne in the same tax year could not be deducted from the tax collected from autonomous taxation.

The undersigned has already taken a position on the matter in proceeding 670/2015-T, following the thesis that argues that SEPs are not deductible from the value of the tax collected from autonomous taxation determined in a given tax year. The decision had a dissenting vote. The arguments more recently expressed in Judgments No. 113/2015-T, 535/2015-T and 673/2015-T were decisive for personal conviction.

In fact, today both the TA and the Petitioner understand that, in the sense, moreover, of the arbitral jurisprudence cited, the assessment of IRC resulting from Article 90 unequivocally includes autonomous taxation, particularly because if this were not the case "there would be no norm providing for its assessment, which would lead to illegality, by violation of Article 103, No. 3, of the CRP, which requires that the assessment of taxes be done 'under the terms of the law'".

However, despite now accepting that autonomous taxation is IRC, the TA comes arguing that even if its assessment is included within the scope of Article 90, it should be considered that such assessment corresponds to two calculations, one of which results from the application of the normal IRC rate to income generated during the tax year, and that only to the part of IRC tax collected relating to this calculation is special estimated payment deductible.

In turn, in contrast, the petitioner argues that, even if there are two calculations of IRC, the two tax collected amounts resulting converge into a single amount of IRC tax collected, and that there is no legal impediment to the deduction of special estimated payment against that total amount determined.

However, with all due respect, this will not be the decisive argument to find the solution to this question, as, conversely, we also do not find any legal provision that expressly provides for such deduction.

The answer must therefore be sought in the pertinent analysis of the ratio legis of each of these legal figures, that of autonomous taxation and that of special estimated payment, a matter that CAAD jurisprudence has addressed in theoretically quite developed terms, and which we shall follow closely in the various decisions already issued in this sense.

Autonomous taxation does not levy on the taxpayer's income, but rather on certain miscellaneous expenses, which constitute autonomous tax events subject to different rates depending on their respective nature (Judgment of the Supreme Administrative Court No. 830/01, of 21/03/2012), which the legislator understood should be done also autonomously, with autonomous taxation being determined independently of the IRC due in each tax year, because it is not related to the achievement of a positive result, and thus subject to taxation (Judgment of the Constitutional Court 310/12, of 20/6). Autonomous taxation, therefore, are anti-abuse measures and fiscal evasion deterrents.

SEP, for its part, is an advance delivery on account of the tax relating to the normal activity of the taxpayer, calculated based on the sales volume relating to the previous tax period, and payments are made during the period of formation of the tax event.

This form of IRC payment also relates to fraud and tax evasion, that is, here what is relevant will be the possible reduction in sales volume or profit, guaranteeing the State a kind of minimum tax collected.

In line with this reasoning, it is understood that, even though both special estimated payment and autonomous taxation pursue the same objective of combating tax evasion, they aim to prevent two distinct behaviors of taxpayers: the first prevents the non-declaration of continuing income that is presumed to exist, as only thus is the continuity of activity understood; the latter, find justification as dissuasive and compensatory measures for the transfer of income from the personal sphere or the consideration of expenses without business cause. And thus it is understood that one defends that, with the coexistence of both behaviors, there must also coexist the two figures of combating evasion: a business that does not declare income bears special estimated payment; a business that overloads expenses so as to minimize IRS (or to decrease/increase its taxable profit/loss) bears autonomous taxation; a business that practices both behaviors bears both special estimated payment and autonomous taxation.

Therefore, autonomous taxation aims to "… prevent that through significant revelation of expenses as provided for in Article 88, distortions affecting the system and the expectation of what should be the 'normal' revenue of the tax are not introduced. In this case, as is equally well known, what it is about is discouraging the performance/revelation of these expenses, primarily because, by their nature and purposes, they can be more easily diverted to consumption that, in essence, is private or correspond to expenses that do not cease to have, also, as a specific and ultimate purpose, the avoidance of the tax. These are realities that, as was previously noted, present some measure of reprehensibility since, not directly violating the law, they generate significant and important imbalances on the general idea of justice, on the fundamental duty to contribute in proportion to one's assets, of equality, of sacrifice, of proportionality of the measure of the tax in light of possible manifestations of wealth, of taxation of real income and of justice.

Operating in a different manner from what constitutes the essential scope of IRC – which taxes income – autonomous taxation, it is reaffirmed, taxes certain specific expenses or charges – and constitute an instrumental, accessory reality of this tax, to the extent that it is in function of it that they were instituted and are, therefore, capable of being recognized as having an instrumentality or accessoriality of purposes, rooted in the safeguarding of the purposes of the tax itself where they are manifested.

"It is thus taken as certain that autonomous taxation does not constitute IRC in the strict sense, but finds itself embedded in it (IRC), and should be contained in the 'other taxes' of which we are informed by the final part of paragraph a) of No. 1 of Article 45 of the IRC Code (wording in force in 2013).

Manifestations of this link of functionality, and within the framework of the legislator's intention as a whole, emerge, for example, from the discipline of Article 12 of the IRC Code regarding entities subject to the transparent tax regime, in not taxing them in IRC, 'except for autonomous taxation', a relationship that also manifests itself in light of No. 14 of Article 88 of the IRC Code, in the sense that autonomous taxation rates take into account the fact of the taxpayer presenting or not a tax loss.

Analyzed still under another perspective, autonomous taxation must be considered in the context of specific anti-abuse norms and its similarity to the regime provided under No. 1 of Article 65 of the IRC Code, ('amounts paid or owed, for any reason, to natural or legal persons resident outside Portuguese territory and subject thereto to a clearly more favorable tax regime are not deductible for purposes of taxable profit, except if the taxpayer can prove that such expenses correspond to actually conducted operations and do not have an abnormal character or an exaggerated amount').

Aiming autonomous taxation to reduce the tax advantage achieved with the deduction to taxable profit of the costs on which it is levied and also to combat tax evasion that this type of expense, by its nature, promotes, it itself cannot, through its deduction to taxable profit as an expense of the tax year, constitute a factor in reducing that diminishment of advantage intended and determined by the legislator. (Judgment 535/2015-T).

In the said judgment to which we subscribe, we permit ourselves to cite the substantiation for the option, invoking the theses of Judgment 113/2015 of CAAD, on the legal nature of the figures in question, that is, "(…) SEP became part of the IRC system whose assessment enshrined in Article 83 was conceived to determine the tax directly levied on declared income. When there is a tax loss, the taxpayer must still bear SEP; that was precisely the reason for its introduction. If a given business has successive tax losses, it will systematically bear tax, as the system doubts its ability to function in a permanently deficit situation, requiring it to provisionally satisfy (on account) a determined value. It may obtain reimbursement if it proves that this situation is common in its sector of activity or if the TA verifies the regularity of its returns. This was the balance that the IRC Code required to maintain a system based on declarations made by taxpayers. On the other hand, 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.

If deduction of SEP from the tax collected resulting from autonomous taxation is permitted, the purposes of the system in which the norm of Article 83-2-e IRC is inserted will be frustrated, because the product of special estimated payment that should remain 'static' in the ownership of the Tax Authority will be allocated to the extinction of the taxpayer's debt resulting from autonomous taxation, thus lightening the intended pressure to avoid 'declarative' tax evasion. There is indeed an irreconcilable conflict between the ratio of SEP – combating evasion or pressure for correction of declarations – and the allocation of its credits to the satisfaction of other obligations other than those resulting from the determination of IRC calculated on taxable result."

Therefore, being in question the doubt about the deductibility or not of SEP from the tax collected from autonomous taxation determined in a different and separate manner from the normal tax collected of the tax year, in the wording of Article 90 of the IRC Code, we understand that the matter will have been further clarified with the publication of the 2016 Budget Law.

"The new No. 21 of Article 88 of the IRC Code added by Law No. 7-A/2016, of 30 March, is in harmony with this arbitral understanding, as it comes to expressly establish that to the amount determined from autonomous taxation no 'deductions of any kind' are effected.

On the other hand, Article 135 of Law No. 7-A/2016, of 30 March, in attributing 'interpretative' nature to that new No. 21 of Article 88, combined with Article 13 of the Civil Code (which is the only norm that defines the concept of interpretative law), has inherent an intentional legislative intention to apply the new regime to prior situations in which there is no 'effects already produced by fulfillment of the obligation, by judgment having become final, by transaction, even if not approved, or by acts of analogous nature'.

The Petitioner, however, in its submissions stresses the fact that the new law only applies prospectively given that its character is innovative. If not thus understood, one will be faced with the retroactive application of law in tax matters, which is constitutionally prohibited.

We think this is not the best reading of the said legal provisions. On this matter we follow what is written in the decision we are following:

BAPTISTA MACHADO teaches on interpretative laws:

"… We can consequently say that those laws whose nature is interpretative are those which, on points or questions on which the applicable legal rules are uncertain or their meaning is controversial, come to establish a solution that courts could have adopted. It is not necessary that the law comes to establish one of the prior jurisprudential currents or a strong prior jurisprudential current. All the more so because interpretative law often emerges before such jurisprudential currents have even formed. … For a new law to truly be interpretative two requirements are necessary: that the solution of prior law be controversial or at least uncertain; and that the solution defined by the new law situates itself within the framework of the controversy and is such that the judge or interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law. If the judge or interpreter, in face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then the latter is decidedly innovative".

In light of this position, whose substantiation is weighable, in face of the legislation in force in 2012 and 2013, the assignment of an interpretative nature to No. 21 of Article 88 of the IRC Code made in Article 135 of Law No. 7-A/2016, of 30 March, can be accepted in light of the teachings of BAPTISTA MACHADO, because the solution provided therein of the infeasibility of deduction of special estimated payment from the total amount of autonomous taxation passes the test set out by this Author: – the solution that resulted from the literal wording of Article 93, No. 1, of the IRC Code was controversial, as evidenced by that arbitral decision and the solution defined by the new law situates itself within the framework of the controversy; – the judge or interpreter could reach that solution without exceeding the limits normally imposed on the interpretation and application of law, as restrictive interpretation is admissible when there are reasons to conclude that the scope of the legal text betrays the legislative thought or it is necessary to optimize the harmonization of conflicting interests that two norms aim to protect.

Furthermore, it is not seen that the regime resulting from Article 88, No. 21, of the IRC Code contains any contradiction, contrary to what the Petitioner argues: according to this new norm, the norms of the IRC Code relating to the form of assessment of autonomous taxation must be interpreted as provided therein and with respect to that part of the assessment of IRC no deductions are effected.

However, specifically in the case of special estimated payments, it cannot be concluded that one is not faced with a truly interpretative law, because there was not a consolidated jurisprudence in the sense of its deductibility from the tax collected resulting from autonomous taxation and, conversely, the solution adopted in No. 21 of Article 88 could already previously be adopted by courts, as happened in various proceedings that took place before CAAD.

Thus, it cannot be concluded that the authentic interpretation made in that Article 88, No. 21, by force of Article 135 of Law No. 7-A/2016, of 30 March, violates the constitutional principle of legal certainty, regarding the part of that norm that relates to the non-deductibility of special estimated payments from the tax collected from autonomous taxation (Judgment 673/2015-T).

The review of the controversy relating to retroactivity and the unconstitutionality of this norm as well as the illegality of the self-assessment due to the absence of a norm permitting the assessment of autonomous taxation, contained in the alternative petition, is therefore precluded.

The petition for arbitral ruling regarding the illegalities of the self-assessment is entirely rejected.

VI – DECISION

Considering the factual and legal elements gathered and presented, this arbitral tribunal decides to find the petitions for arbitral ruling, both principal and alternative, not well-founded. Consequently the TA is absolved of the petitions.

In view of the decision rendered, the review of the petitions for restitution of tax paid and compensatory interest claimed is precluded.

The Petitioner is condemned to pay the costs determined below.

VII – VALUE OF THE PROCEEDING AND COSTS

In accordance with the provisions of Article 305, No. 2, of the CPC and Article 97-A, No. 1, paragraph a), of the CPPT and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceeding is valued at € 34,185.32.

Pursuant to Article 22, No. 4, of the L.R.A.T.M., the amount of costs is fixed at € 1,836.00 (one thousand eight hundred thirty-six euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Petitioner.

Lisbon, 2016/07/20

The Arbitrator

José Ramos Alexandre