Autonomous Taxation Deductions Under Article 90 CIRC: Special Advance Payments and Compensatory Interest

ARBITRAL DECISION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Professor Doctor Francisco José Nicolau Domingos and Dr. Manuel Alberto Soares, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 02-03-2016, agree as follows:

1. REPORT

A… – …, S.A., NIPC …, with registered office at Rua … …, …-… Lisbon, hereinafter referred to as "A…" or "Claimant", submitted an application for the constitution of a collective arbitral tribunal, pursuant to Articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter RJAT) and Articles 1 and 2 of Ministerial Order no. 112-A/2011 of 22 March, in which the Tax and Customs Authority is named as Respondent.

The Claimant seeks to have declared the unlawfulness of the dismissal of the administrative appeal that it submitted against the self-assessments of Corporate Income Tax (IRC) for the financial years 2012 and 2013, with respect to the amounts of autonomous taxation rates in IRC of €58,505.98 (2012) and €26,508.36 (2013), respectively, with its consequent annulment in these parts due to improper exclusion of deductions from the assessment.

The Claimant further requests reimbursement of those amounts, increased by compensatory interest. Subsidiarily, should it be understood that Article 90 of the Corporate Income Tax Code (CIRC) does not apply to autonomous taxation, the Claimant requests that the unlawfulness of the assessments of autonomous taxation (and their consequent annulment) be declared due to the absence of legal basis for their execution, with the consequent reimbursement of the said amounts and the payment of compensatory interest.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 04-01-2016.

Pursuant to the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the appointment within the applicable period.

On 16-02-2016 the parties were duly notified of this appointment, and neither manifested an intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provision set out in paragraph c) of no. 1 of Article 11 of the RJAT, the collective arbitral tribunal was constituted on 02-03-2016.

The Tax and Customs Authority submitted its response, arguing for the dismissal of the arbitral pronouncement request.

By order of 11-04-2016, it was decided to dispense with the meeting provided for in Article 18 of the RJAT and that the proceedings continue with written arguments.

The parties submitted written arguments.

The Tribunal has jurisdiction, the parties possess legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, no. 2, of the same instrument and Article 1 of Ministerial Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no obstacle arises to the appraisal of the merits of the case.

2. STATEMENT OF FACTS

2.1. Facts Proven

The following facts are considered proven:

a) The Claimant filed on 28-05-2013 its Corporate Income Tax return Model 22 for the financial year 2012, and on 30-05-2014 its Corporate Income Tax return Model 22 for the financial year 2013, and at those times proceeded to self-assess autonomous taxation in IRC for those same years 2012 and 2013, in the amounts of €58,505.98 (2012) and €26,508.36 (2013) (Documents no. 1 and 2 attached to the arbitral pronouncement request, the contents of which are reproduced herein);

b) At the end of 2012 and at the end of 2013, the Claimant had special advance payments available for deduction from the Corporate Income Tax assessment (documents nos. 6 attached to the arbitral pronouncement request, the contents of which are reproduced herein);

c) The information system of the AT [Tax Authority], through which Corporate Income Tax is self-assessed, does not allow taxpayers to deduct, for the purposes of determining the Corporate Income Tax owed by them, from the tax resulting from autonomous taxation calculated, the amounts of special advance payments;

d) The Claimant submitted an administrative appeal against the said self-assessments relating to the financial years 2012 and 2013 (document no. 3 attached to the arbitral pronouncement request, the contents of which are reproduced herein);

e) On 28-09-2015, the Claimant was notified of the order of 22-09-2015 issued by the Head of the Tax Justice Division of the Finance Directorate of Lisbon, which dismissed the said administrative appeal (Document no. 3 attached to the arbitral pronouncement request, the contents of which are reproduced herein);

f) The said decision on the administrative appeal manifests agreement with the information the copy of which is contained in document no. 3 attached to the arbitral pronouncement request, the contents of which are reproduced herein, in which it is stated, among other things, the following:

4 - The appellant seeks the deduction from autonomous taxation of special advance payment, considering that the DSIRC admits the possibility of deduction taking into account its understanding of the nature of autonomous taxation or alternatively the annulment of autonomous taxation because they have no basis in the norm for the assessment of Corporate Income Tax (Article 90 of the CIRC).

5 - It is the understanding of the Services that autonomous taxation has the same nature as Corporate Income Tax, given that it is the status of a taxpayer subject to this tax and consequently, the activities carried out subject to the legal regime of Corporate Income Tax, which are the prerequisites for subjection to autonomous taxation

Autonomous taxation taxes expenses and not income. These are taxes that penalize certain charges incurred by the company, and are therefore calculated independently of the calculation of the Corporate Income Tax assessment. The very designation evidences the autonomy that they possess in relation to Corporate Income Tax.

Autonomous taxation aims to combat fraud and tax evasion caused by such expenses, not only in relation to Corporate Income Tax or Personal Income Tax, but also in relation to the corresponding contributions both from employers and workers, to prevent companies from using these expenses to effect disguised distribution of profits, particularly dividends that are not thus taxed, and to encourage taxpayers subject to them to reduce as much as possible expenses whose necessity is difficult to verify and which negatively contribute to the formation of taxable profit and as such negatively affect tax revenue.

6 - The norm on autonomous taxation inserted in the Corporate Income Tax Code (Article 88 of the CIRC) is a tax provision

7 - Special advance payment is an anticipated tax payment, a payment on account of the tax that will be due finally, whose assessment or self-assessment will only be materialized at the end of the taxation period to which such payments pertain.

Article 93 of the CIRC establishes that the deduction of the amount paid is made from the amount calculated in the return referred to in Article 120 of the same taxation period to which it relates or, if insufficient, up to the fourth taxation period following, after the deductions referred to in paragraphs a) and b) of no. 2 and in compliance with no. 7, both of Article 90, have been made.

For the part that could not have been deducted, the taxpayer may request reimbursement in accordance with nos. 2 and 3 of the same provision (Article 93).

Paragraph a) of no. 1 of Article 90 of the CIRC establishes that the assessment for Corporate Income Tax is based on the taxable base determined in the income tax returns and paragraph c) of no. 2 provides for the deduction of tax benefits from the amount calculated in the assessment of Corporate Income Tax, as well as the place it occupies in the order of deduction.

In nos. 1 and 2 of Article 90 of the CIRC there is no reference whatsoever to autonomous taxation

8 - From the above, it seems to us that 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 CIRC, autonomous taxation would be stripped of that abusive character that presided over its implementation in the Corporate Income Tax system.

g) On 23-12-2015, the Claimant submitted the application for constitution of the arbitral tribunal which gave rise to the present proceedings.

2.2. Facts Not Proven

There are no material facts for the decision that have not been proven.

2.3. Grounds for Determination of the Facts

The facts were determined to be proven on the basis of the documents attached to the arbitral pronouncement request, with no controversy over them.

With regard to paragraph c) of the proven facts, relating to the information system, the Tax and Customs Authority does not contest what is affirmed by the Claimant in Articles 21 to 24 of the arbitral pronouncement request, but rather argues that this is the appropriate functioning (Articles 88 and following of the response).

3. MATTER OF LAW

The Claimant contends that it has the right to deduct the amounts paid as special advance payments from the Corporate Income Tax assessment resulting from autonomous taxation in the financial years 2012 and 2013.

The information system of the AT [Tax Authority], through which Corporate Income Tax is self-assessed, does not allow taxpayers to deduct, for the purposes of determining the Corporate Income Tax owed by them, from the tax resulting from autonomous taxation calculated, the amounts of special advance payments.

The Claimant submitted an administrative appeal against the said self-assessments made on the basis of Model 22 returns for the years 2012 and 2013, arguing, in summary, that the amounts paid by reference to special advance payments could be deducted from the amounts owed as autonomous taxation.

The Tax and Customs Authority dismissed the administrative appeal.

The question which is the subject of the present proceedings is, first and foremost, whether the amounts paid by reference to special advance payments are deductible from the amounts owed as autonomous taxation.

The Claimant makes an alternative request for the hypothesis of accepting this understanding of the Tax and Customs Authority, requesting that the self-assessment for the taxation periods of 2012 and 2013 be annulled, in the part corresponding to autonomous taxation, on the ground that these were assessed and collected without legal basis for so doing.

This question concerning the application of Article 90 of the CIRC to the assessment of autonomous taxation will be examined first, since its resolution depends on the appraisal of the question of the deductibility of special advance payments from the assessment of such autonomous taxation.

3.1. Question of the Application of Article 90 of the CIRC to Autonomous Taxation

Articles 89 and 90 of the CIRC establish the following, in the version given by Law no. 3-B/2010, of 28 April:

Article 89

Competence to Assess

The assessment of Corporate Income Tax is carried out:

a) By the taxpayer himself, in the returns referred to in Articles 120 and 122;

b) By the Tax Authority, in other cases.

Article 90

Assessment Procedure and Form

1 - The assessment of Corporate Income Tax proceeds as follows:

a) When the assessment is to be carried out by the taxpayer in the returns referred to in Articles 120 and 122, it is based on the taxable base shown therein;

b) In the absence of submission of the return referred to in Article 120, the assessment is carried out by 30 November of the year following that to which it relates or, in the case provided for in no. 2 of that article, by the end of the 6th month following the end of the period for submission of the return mentioned therein and is based on the value of the annual minimum monthly remuneration or, when higher, the total taxable base of the nearest financial year found to be determined;

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

2 – From the amount calculated in accordance with the previous number the following deductions are made, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to special advance payment referred to in Article 106;

d) That relating to withholding at source not capable of compensation or reimbursement under applicable legislation.

3 – (Repealed by Law no. 3-B/10)

4 – From the amount calculated in accordance with no. 1, as regards the entities mentioned in no. 4 of Article 120, only the deduction relating to withholding at source is to be made when these have the nature of tax on account of Corporate Income Tax.

5 – The deductions referred to in no. 2 relating to entities to which the transparent taxation regime established in Article 6 applies are attributed to the respective partners or members in accordance with the terms established in no. 3 of that article and deducted from the amount calculated on the basis of the taxable base which has taken into account the allocation provided for in the same article.

6 – When the special taxation regime for groups of companies applies, the deductions referred to in no. 2 relating to each of the companies are made from the amount calculated in relation to the group, in accordance with no. 1.

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

8 – From the amount calculated in accordance with paragraphs b) and c) of no. 1 only 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 paragraph b) of no. 2 of Article 79 applies, assessments are made annually on the basis of the taxable base determined provisionally, and, in relation to the assessment corresponding to the taxable base relating to the entire taxation period, the difference ascertained is recovered or cancelled.

10 – The assessment provided for in no. 1 can be corrected, if appropriate, within the period referred to in Article 101, the differences ascertained then being recovered or cancelled.

As mentioned, in the decision on the administrative appeal, the Tax and Customs Authority understood that "Article 90 of the CIRC does not apply to autonomous taxation", "there being a strong incompatibility between that figure and this article".

However, in the present proceedings, the Tax and Customs Authority recognizes that this interpretation is erroneous, by stating in Articles 38 and 39 of its Response:

38.

It is appropriate to clarify that the assessment of autonomous taxation is carried out on the basis of Articles 89 and 90 no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax:

(1) in one case the assessment operates through the application of the rates of Article 87 to the taxable base determined in accordance with the rules of Chapter III of the Code and

(2) in the other case, various taxes are calculated depending on the diversity of facts that give rise to autonomous taxation.

39.

From which it follows that the amount calculated in accordance with paragraph a) of no. 1 of Article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which different purposes are associated, such that the deductions provided for in the paragraphs of no. 2 can only be made from the part of the Corporate Income Tax assessment with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax.

Thus, it is concluded that there is no even controversy between the Parties as to the application of Article 90 of the CIRC to the assessment of autonomous taxation, the divergence being limited to the manner of proceeding with the assessment, as the Tax and Customs Authority understands that various taxes are calculated depending on the diversity of facts that give rise to autonomous taxation and the deductions provided for in the paragraphs of no. 2 can only be made from the part of the Corporate Income Tax assessment with which there is a direct correspondence, understanding that it does not exist in relation to the tax resulting from autonomous taxation.

In any case, the said Articles 89 and 90 of the CIRC, as well as other provisions of this Code, such as those relating to the returns provided for in Articles 120 and 122, are applicable to autonomous taxation.

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

Now, Article 90 of the CIRC refers to the forms of assessment of Corporate Income Tax, by the taxpayer 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, that Article 90 also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Administration, following the submission or non-submission of returns, there being no other provision that provides for different terms for its assessment.

Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are limited to the determination of the taxable base and the applicable rates, which are those provided for in Chapters III and IV of the CIRC for Corporate Income Tax based on taxable profit and in Article 88 of the CIRC for Corporate Income Tax based on the taxable base of autonomous taxation and the respective rates.

But the assessment procedures provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remaining Corporate Income Tax base.

However, the fact that a self-assessment of Corporate Income Tax, carried out in accordance with no. 1 of Article 90, may contain various partial calculations based on various rates applicable to certain taxable bases does not imply that there is more than one assessment, as results from the very terms of that provision in referring to "assessment", in the singular, in all cases in which it is "carried out by the taxpayer in the returns referred to in Articles 120 and 122", having "as its basis the taxable base shown therein" (whether that determined on the basis of the rules of Articles 17 and following, or that determined on the basis of the various situations provided for in Article 88).

Moreover, it is not only the assessments provided for in Article 88 that may encompass various calculations of application of rates to certain taxable bases, as the same may occur in the situations provided for in nos. 4 to 6 of Article 87. ( [1] )

In any case, whatever calculations are made, the assessment which the taxpayer or the Tax and Customs Authority must carry out in accordance with Articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, is unitary, and it is on the basis of it that the total Corporate Income Tax is calculated, whatever the taxable bases relating to each of the types of taxation underlying it.

Moreover, as the Claimant correctly points out in formulating its alternative request, if this Article 90 were not applicable to the assessment of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no provision providing for its assessment, which would amount to unlawfulness, by violation of Article 103, no. 3, of the Constitution, which requires that the assessment of taxes be carried out "in accordance with the law".

It should also be noted that the new provision of no. 21 added to Article 88 of the CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, in no way alters this conclusion, as it establishes, concerning the manner of assessment of autonomous taxation, that it "is carried out in accordance with the terms provided for in Article 89 and is based on the values and rates that result from the provisions of the previous numbers".

Indeed, if it is true that this new provision comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the text of the various provisions of Article 88) and that competence falls to the taxpayer or the Tax Administration, in accordance with Article 89, it is also clear that it does not eliminate the need to use the procedure provided for in no. 1 of Article 90, particularly in the cases provided for in its paragraph c) in which the assessment falls to the Tax and Customs Authority, on the "basis of the elements available to the tax administration", which appears to be indisputable that it will encompass the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements proving its prerequisites.

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

3.2. Question of the Deductibility from Amounts Owed as Autonomous Taxation of Amounts Paid as Special Advance Payments

As already mentioned, in the present proceedings the Tax and Customs Authority recognized that "the assessment of autonomous taxation is carried out on the basis of Articles 89 and 90 no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax", being "various taxes calculated depending on the diversity of facts that give rise to autonomous taxation" (Article 38 of the Response).

The Tax and Customs Authority further stated, in Article 39 of the Response that "the amount calculated in accordance with paragraph a) of no. 1 of Article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which different purposes are associated, such that the deductions provided for in the paragraphs of no. 2 can only be made from the part of the Corporate Income Tax assessment with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax".

This position has no consistent basis, nor does the Tax and Customs Authority indicate any legal provision that would provide it with the minimum verbal correspondence necessary for the admissibility of an interpretation.

Namely, Article 105, no. 1, of the CIRC, in stating that "advance payments are calculated on the basis of the tax assessed in accordance with no. 1 of Article 90 relating to the taxation period immediately preceding that in which such payments are to be made, net of the deduction referred to in paragraph d) of no. 2 of the same article", refers to the totality of the tax assessed in accordance with that no. 1 of Article 90, which, as the Tax and Customs Authority recognized in the cited Article 38 of its Response, also applies to the assessment of autonomous taxation.

On the other hand, as already mentioned, before the new no. 21 of Article 88 of the CIRC, there was no legal provision establishing the manner of assessment of autonomous taxation, such that, on pain of unconstitutionality by violation of Article 103, no. 3, of the Constitution, resulting from lack of legal provision for assessment procedure, it would have to be understood that they were assessed in accordance with the provision of no. 1 of Article 90.

Thus, before Law no. 7-A/2016, the deductions provided for in no. 2 of Article 90 of the CIRC, which target the "amount calculated in accordance with the previous number", applied to that single amount resulting from such calculation, whenever one was not faced with one of the situations specially provided for in nos. 4 and following of the same article, which do not apply in the present case.

The deduction of special advance payments from the entire amount calculated in accordance with that Article 90, no. 1, paragraph a), also resulted from the explicit text of Article 93, no. 1, of the CIRC, in the version prior to Law no. 2/2014, of 16 January, in establishing that "the deduction referred to in paragraph c) of no. 2 of Article 90 is made from the amount calculated in the return referred to in Article 120 of the same taxation period to which it relates or, if insufficient, up to the fourth taxation period following, after the deductions referred to in paragraphs a) and b) of no. 2 and in compliance with no. 7, both of Article 90, have been made". ( [2] )

The amount calculated in the return referred to in Article 120 includes the amounts relating to autonomous taxation, there being no other specific return for this purpose, neither before nor after Law no. 7-A/2016.

In fact, the returns provided for in Article 120 of the CIRC are prepared in a single official model approved by order of the Minister of Finance, in accordance with Articles 117, no. 1, paragraph b), and no. 2, of the CIRC.

Thus, in light of the provision of paragraph c) of no. 2 of Article 90 and no. 1 of Article 93 of the CIRC, up to Law no. 7-A/2016, nothing in the literal text of the CIRC prevented the deduction of the amounts of special advance payments from the total Corporate Income Tax assessment that was determined in accordance with that no. 1 of Article 90, including that derived from autonomous taxation, within the conditions provided for therein.

On the other hand, since special advance payment has the nature of a forced loan ([3]), which creates in the legal sphere of the taxpayer a credit against the Tax Administration, it does not appear unreasonable that it should be taken into account in situations in which a credit of this is generated in relation to the taxpayer.

Furthermore, autonomous taxation for Corporate Income Tax purposes, in light of the growing scope the legislator has been according to it, in order to be compatible with the constitutional principle of taxation of companies fundamentally based on their real income (Article 104, no. 2, of the Constitution), should be understood as indirect forms of taxing business income, through the taxation of certain expenses, as is implicit in paragraph a) of no. 1 of Article 23-A of the CIRC in the version of Law no. 2/2014, of 16 January, in referring to "Corporate Income Tax, including autonomous taxation, and any other taxes that directly or indirectly affect profits".

In any case, as referred to in the arbitral decision of the CAAD issued in case no. 59/2014-T, autonomous taxation for Corporate Income Tax purposes should be considered a form of taxation of business income:

"The Preamble contained in the Bill no. 46/VIII, which resulted in Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no room for doubt that this is a conscious and intended amplification of the previously existing distortions, as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant fraud and tax evasion and, thus, to increase the equity of the distribution of the tax burden between citizens and companies".

(...)

"autonomous taxation incident directly on certain expenses, within the scope of taxes that originally affected only income, are considered distortions of the income tax system aimed at by Corporate Income Tax, but a value that was legislatively considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, because they are in consonance with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation continues to be carried out within the scope of Corporate Income Tax, as results from the inclusion of autonomous taxation in the respective Code, which has as its corollary the application of the general rules specific to this tax, which do not conflict with its special form of incidence.

Thus, while it is true that autonomous taxation constitutes a different form of imposing taxes on companies, which could be contained in autonomous regulation or be arranged in the Stamp Tax Code, it is also true that the legislative choice to include such taxation in the CIRC reveals an intention to consider such taxation as inserted in Corporate Income Tax, which may be justified by being an indirect form, but, from the legislative perspective, equitable, simple and efficient, way of taxing business income that escapes the regime of taxation with direct incidence on income".

Moreover, it is a fact that the imposition of any expense without consideration on a legal entity has as its corollary a potential decrease in its income, such that the imposition of a unilateral tax obligation, even if calculated on the basis of expenses incurred, constitutes a form of indirectly taxing its income. ( [4] )

The new Article 23-A of the CIRC, introduced by Law no. 2/2014, of 16 January, in stating that "the following charges are not deductible for the purposes of determining taxable profit, even when recorded as expenses of the taxation period: a) Corporate Income Tax, including autonomous taxation, and any other taxes that directly or indirectly affect profits", gives to understand that, from the legislative perspective, Corporate Income Tax and autonomous taxation are taxes that directly or indirectly affect profits, as it is this understanding that can justify the inclusion of the expression "any other taxes", which presupposes that Corporate Income Tax and autonomous taxation are also taxes of these types.

Therefore, since autonomous taxation provided for in the CIRC is, in the final analysis, a form of taxing business income, it is not seen that there is necessarily an incompatibility between it and the general rules that provide for the manner of carrying out payment of Corporate Income Tax.

On the other hand, if it is true that, faced with the regime in force before Law no. 2/2014, of 16 January modified no. 3 of Article 93 of the CIRC, the amounts paid as special advance payment could not always be deducted ( [5] ), it is also true that this regime was altered by that Law, with reimbursement being admitted without conditions other than that of the taxpayer requesting it, within the prescribed period.

Therefore, the interpretation that flows most straightforwardly from the text of Articles 93, no. 3, and 90, no. 1, of the CIRC, prior to Law no. 7-A/2016 is that of the deductibility of special advance payments from the Corporate Income Tax assessment derived from autonomous taxation.

But it is also true that, given the previous reimbursement regime for special advance payments, which revealed that special advance payment had inherent a presumption of undeclared income, one could venture a restrictive interpretation, regarding special advance payment, to the effect that it should not be deductible from the assessment of autonomous taxation, as was understood in the arbitral decision of 30-12-2015, issued in CAAD case no. 113/2015-T, which invokes considerable reasons, derived from the purposes that the legislator sought to legislatively achieve with the creation of special advance payment, which could justify a restriction of the reference made in Article 93, no. 1, of the CIRC to the "amount calculated in the return referred to in Article 120":

As was seen, the SAP [special advance payment] became part of the Corporate Income Tax system whose assessment enshrined in Article 83 was conceived to determine the tax directly applicable to declared income. When there is a tax loss the taxpayer still has to bear the SAP; this was indeed the reason for its introduction. If a certain company has successive tax losses, it will systematically bear the tax, as the system doubts its possibility of operating in a permanently deficit situation, requiring it to satisfy provisionally (on account) a determined value. It can request reimbursement if it proves that this situation is common in its sector of activity or if the AT [Tax Authority] verifies the regularity of its returns. This was the balance that the CIRC required to maintain a system based on returns filed by taxpayers.

On the other hand, the tax resulting from autonomous taxation is based solely on the pursuit of tax evasion through transfer of income and has a dissuasive and compensatory effect.

If deduction of the SAP from the tax resulting from autonomous taxation is allowed, the purposes of the system in which the norm of 83-2-e of the CIRC is inserted will be frustrated, as the product of the special advance payment that should remain "stationary" in the ownership of the Public Treasury will be affected to the extinction of the debt of the taxpayer resulting from autonomous taxation, thereby easing the intended pressure to avoid "declarative" tax evasion. There is indeed an irreconcilable conflict between the ratio of the SAP – the combat against evasion or the pressure for correction of returns – and the allocation of its credits to the satisfaction of other obligations that are not those resulting from the calculation of Corporate Income Tax calculated on the taxable result.

The new no. 21 of Article 88 of the CIRC added by Law no. 7-A/2016, of 30 March, is in tune with this arbitral understanding, as it comes to establish expressly that from the amount calculated of autonomous taxation no "deductions whatsoever" are made.

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 provision that defines the concept of interpretative law), has inherent an intention on the part of the legislator to apply the new regime to previous situations in which there is no "effects already produced by performance of the obligation, by judgment that has become final, by settlement, even if not homologated, or by acts of analogous nature".

BAPTISTA MACHADO teaches concerning interpretative laws:

Now the reason why an interpretative law applies to previous facts and situations is fundamentally that it, coming to establish and fix one of the possible interpretations of the old law with which the interested parties could and should have counted, is not susceptible to violating secure and legitimately founded expectations. We can consequently say that those laws are interpretative in nature which, on points or questions on which the applicable legal rules are uncertain or their meaning controversial, come to establish a solution that the courts could have adopted. It is not necessary that the law come to establish one of the previous jurisprudential currents or a strong previous jurisprudential current. All the more so as the interpretative law often emerges before such jurisprudential currents have even come to form. But, if this is the case, and if in the meantime a uniform jurisprudential current has formed that made the meaning of the old norm practically certain, then the new law that comes to establish an interpretation different from the same norm can no longer be considered truly interpretative (although it may be so perhaps by determination of the legislator), but innovative.

For a new law to be truly interpretative two requirements are necessary, therefore: that the solution of the prior law be controversial or at least uncertain; and that the solution defined by the new law be located within the framework of the controversy and be such that the judge or interpreter could reach it without exceeding the limits normally imposed on interpretation and application of the law. If the judge or interpreter, faced with old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative.

In light of this position, which has substantial grounds, in view of the legislation in force in 2012 and 2013, the attribution of interpretative nature to no. 21 of Article 88 of the CIRC which is made in Article 135 of Law no. 7-A/2016, of 30 March, can be accepted, in light of the teachings of BAPTISTA MACHADO, since the solution provided for therein of non-deductibility of special advance payment from the total amount of autonomous taxation passes the test enunciated by this Author:

– the solution that resulted from the literal text of Article 93, no. 1, of the CIRC was controversial, as is evidenced by that arbitral decision and the solution defined by the new law is located within the framework of the controversy;

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

On the other hand, contrary to what occurs with tax benefits that depend on the realization of investments, there is, concerning the deductibility of special advance payments, no concern for protection of legitimate expectations, as special payments are connected to the volume of business, not depending on any specific conduct that the taxpayer would be led to adopt by having created in them the expectation of obtaining in return a tax advantage.

Furthermore, it is not seen that the regime resulting from Article 88, no. 21, of the CIRC contains any contradiction: according to this new provision, the provisions of the CIRC relating to the manner of assessment of autonomous taxation should be interpreted as provided therein and as regards that part of the assessment of Corporate Income Tax no deductions are made.

Moreover, it was precisely with this sense that the Model 22 of Corporate Income Tax return was prepared and it was by applying the regime now explicit in no. 21 of Article 88 that the Claimant completed the returns referred to in the case, without any perceptible contradiction.

But, being so, as the Claimant argues, the obstacle to the application of the regime resulting from this no. 21 of Article 88 would only be its eventual unconstitutionality, namely in light of the rule of prohibition of taxes with retroactive nature contained in no. 3 of Article 103 of the Constitution, which establishes that "no one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have retroactive nature or whose assessment and collection are not made in accordance with the law".

The Constitutional Court has adopted a restrictive interpretation of the scope of this prohibition of taxes that have retroactive nature, understanding that the "legislator of the constitutional revision of 1997, who introduced the current version of Article 103, no. 3, only intended to establish the prohibition of authentic retroactivity, or own, of tax law, covering only cases in which the tax fact that the new law seeks to regulate has already produced all its effects under the old law, excluding from its scope of application situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still endure in the present" (Decisions no. 18/2011, of 12-01-2011, which follows case law adopted in Decision no. 399/2010).

The provisions that provided for special advance payments were not, in principle, provisions on the incidence of Corporate Income Tax, but rather on its assessment and payment, such that, to that extent, they would not be covered by the constitutional prohibition of retroactivity. But, before the version given by Law no. 2/2014, of 16 January, to no. 3 of Article 93 ( [6] ), in the non-deductibility of special advance payments in the period to which they relate and in subsequent periods, those provisions could end up creating a situation of incidence of Corporate Income Tax, autonomous in relation to any other tax fact, if reimbursement was not to be allowed in accordance with no. 3 of Article 93 of the CIRC, which depended on the fulfillment of conditions.

However, with the version given to that no. 3 of Article 93 by Law no. 2/2014, those conditions were no longer required for reimbursement, such that special advance payments only imply, by themselves, the final payment of tax when the taxpayer does not take action to obtain reimbursement, within the prescribed period.

And, even in this hypothesis, one would be faced with a complex tax fact of successive formation, which is constituted by the volume of business in the year to which the special advance payments relate combined with the non-deductibility in the periods provided for by law and the non-reimbursement in accordance with the terms provided for in Article 93, no. 3, of the CIRC.

In light of this regime, the legal situation created with special advance payments made in the years 2012 and 2013 has not yet been stabilized, which, from the outset, eliminates the violation of the prohibition of retroactivity of tax laws, in the view of the Constitutional Court, as the tax fact that the new law seeks to regulate has not occurred in full nor produced all its effects under the old law: "one case in which the tax fact that the new law seeks to regulate has already produced all its effects under the old law and another case in which the tax fact occurred under the old law, but its effects, namely those relating to assessment and payment, have not yet been completely exhausted will not necessarily have the same constitutional weight, since the first situation is from the point of view of the eventual effect on the taxpayer's legal situation more serious than the second" (Decision of the Constitutional Court no. 399/10, of 27-10-2010).

Thus, it must be concluded that the authentic interpretation that is made in Article 88, no. 21, of the CIRC, in the part in which it is reduced to the non-deductibility of special advance payments in autonomous taxation, does not offend the principle of non-retroactivity in the creation of taxes, understood as relating only to authentic retroactivity, relating to tax facts that were completed and produced all their effects in the past.

However, that rule of non-retroactivity of provisions creating taxes does not exhaust the constitutional concerns of legal certainty, imposed by the principle of democratic rule of law, as taught by CASALTA NABAIS:

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

But the principle in question undoubtedly has a much broader foundation. That is, it also serves as a criterion for weighing in situations of improper, inauthentic or false retroactivity, as well as in situations in which, without any retroactivity, proper or improper, occurring, there is a need to protect the confidence of taxpayers placed in the conduct of state bodies". ( [7] )

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

Thus, it cannot be concluded that the authentic interpretation that is 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, concerning the part of that provision that relates to the non-deductibility of special advance payments from the assessment of autonomous taxation.

Therefore, the arbitral pronouncement request is not well-founded.

4. REIMBURSEMENT OF AMOUNTS PAID AND COMPENSATORY INTEREST

The Claimant requests reimbursement of the amounts paid, increased by compensatory interest at the legal rate, counted until full reimbursement.

Reimbursement of the amounts and the right to compensatory interest depend on the merits of the request for declaration of unlawfulness of the self-assessments.

Therefore, as this request is not well-founded, the requests for reimbursement and compensatory interest are necessarily not well-founded.

5. DECISION

The Arbitral Tribunal hereby agrees to:

– dismiss the arbitral pronouncement request as not well-founded;

– acquit the Tax and Customs Authority of the requests.

6. VALUE OF THE PROCEEDINGS

In accordance with the provision of Article 305, no. 2, of the Code of Civil Procedure and Article 97-A, no. 1, paragraph a), of the Tax Procedure Code and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €85,014.34.

7. COSTS

Pursuant to Article 22, no. 4, of the RJAT, the amount of costs is set at €2,754.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 04-05-2016

The Arbitrators

(Jorge Lopes de Sousa)

(Francisco José Nicolau Domingos)

(Manuel Alberto Soares)

[1] No. 6 of Article 87 of the CIRC was repealed by Law no. 55/2013, of 8 August, which is not relevant for this purpose of demonstrating that outside the scope of autonomous taxation there were and are partial calculations of Corporate Income Tax based on special rates applicable to certain taxable bases.

[2] With Law no. 2/2014, of 16 January, the deduction of amounts paid as special advance payment can be deducted up to the 6th taxation period following.

[3] In this sense, reference can be made to CASALTA NABAIS, Tax Law, 7th edition, page 541, accompanied by the Supreme Administrative Court in decisions of 18-2-2009, case no. 0926/08, and 13-5-2009, case no. 0927/08.

In the same sense, FREITAS PEREIRA, Taxation, 3rd edition, page 45.

[4] One must not forget, in this context of identifying the nature of a tax, that, taking the analysis to its limit, as the late Professor SALDANHA SANCHES taught, "the recipient of the tax is always the natural person - the taxation of the commercial company is instrumental and its taxation is always a payment on account of the tax that will later be borne by the holder of the capital of the company".

[5] Given no. 3 of Article 93 of the CIRC, in the version resulting from the republication carried out by Decree-Law no. 159/2009, of 13 July, if there were insufficient Corporate Income Tax assessment to deduct special advance payments up to the fourth taxation period thereafter, reimbursement could only occur if the conditions provided for in that no. 3 of Article 93 of the CIRC were met (there being no deviation, in relation to the taxation period to which the special advance payment to be reimbursed relates, of more than 10%, for less, from the average of the profitability ratios of companies in the sector of activity in which they operate, to be published in an order of the Minister of Finance and the situation that gave rise to the reimbursement be considered justified by inspection action made at the request of the taxpayer filed within 90 days following the end of the period for submission of the periodic return relating to the same taxation period).

[6] The previous version is that of Decree-Law no. 159/2009, of 13 July, which renumbered and republished the CIRC and in which Article 93 corresponds to the previous Article 87.

[7] Tax Law, 7th edition, page 151.