Process: 784/2015-T

Date: May 13, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitral decision 784/2015-T addressed whether SIFIDE tax credits and special advance payments (pagamentos especiais por conta) could be deducted from autonomous taxation under Portuguese IRC Code. The taxpayer argued that prior to Law 7-A/2016, Articles 90 and 93 of the IRC Code permitted deduction of special advance payments from total IRC collection, including amounts derived from autonomous taxation. The tribunal analyzed the constitutional compatibility of autonomous taxation, concluding it represents an indirect form of taxing business income that complies with Article 104(2) of the Portuguese Constitution. The decision emphasized that autonomous taxation, despite its growing scope, must be understood as affecting corporate profits either directly or indirectly, as suggested by Article 23-A of the IRC Code. The tribunal acknowledged that the literal interpretation of pre-2016 law supported deductibility, given that special advance payments constitute forced loans creating taxpayer credits against the Tax Administration. However, Law 7-A/2016 introduced Article 88(21), expressly prohibiting deductions from autonomous taxation amounts. Critically, Article 135 of this law granted interpretative nature to the new provision, allowing retroactive application to prior tax periods without settled effects. The tribunal ruled this retroactive application did not violate non-retroactivity principles in tax law, as it concerned procedural calculation methods rather than creation of new taxes on completed taxable events. Consequently, the arbitral request was dismissed regarding the alleged illegality of self-assessments for 2012 and 2013. The decision noted insufficient reliable evidence existed to determine specific amounts of SIFIDE credits and special advance payments available for deduction, preventing the tribunal from ordering reimbursement with compensatory interest as requested by the claimant.

Full Decision

official model approved by order of the Minister of Finance, in accordance with Articles 117, no. 1, subparagraph b), and no. 2, of the IRC Code.

Thus, in light of the provision of subparagraph c) of no. 2 of Article 90 and no. 1 of Article 93 of the IRC Code, until Law no. 7-A/2016, nothing in the literal content of the IRC Code prevented the deduction of amounts paid as special advance payment by account from the total collection of IRC determined in accordance with that no. 1 of Article 90, including that derived from autonomous taxation, within the conditionality provided therein.

On the other hand, given that special advance payment by account has the nature of forced loan, which creates in the legal sphere of the taxpayer a credit over the Tax Administration, it does not seem unreasonable that it be taken into account in situations in which a credit of this is generated in relation to the taxpayer.

Furthermore, autonomous taxation in the context of IRC, given the growing breadth the legislator has been attributing to it, to be compatible with the constitutional principle of the taxation of companies falling fundamentally on their actual income (Article 104, no. 2, of the CRP), should be understood as indirect forms of taxing business income, through the taxation of certain expenses, as is inherent in subparagraph a) of no. 1 of Article 23-A of the IRC Code in the wording of Law no. 2/2014, of 16 January, by referring to "IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits". The statistics of the Tax and Customs Authority referred to above, as well as the case at hand, in which the Claimant had tax losses in 2012 and 2013 and in both presents only autonomous taxation of substantial value, are illustrative of the constitutional problem that arises.

In any case, as stated in the judgment of CAAD rendered in case no. 59/2014-T, autonomous taxation in IRC should be considered a form of taxation of business income: "The Statement of Reasons that is part of Bill no. 46/VIII, which led to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no doubt that this is a conscious and intended amplification of previously existing distortions, as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant tax fraud and evasion and thus increase the equity of the distribution of tax burden among citizens and businesses". (...) "autonomous taxation directly affecting certain expenses, within the scope of taxes that originally affected only income, are considered distortions of the system of direct taxation of income intended by IRC, but a value that legislatively was considered more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, as they are in keeping with the principles of equity, efficiency and simplicity. (...) However, this indirect taxation is still carried out within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as a corollary the application of the general rules of its own, that do not conflict with its special form of incidence. Thus, if it is true that autonomous taxation constitutes a different form of tax imposition on companies, which could consist of autonomous regulation or be arranged in the Tax Stamp Code, it is also not less true that the legislative choice to include such taxation in the IRC Code reveals an intention to consider such taxation as inserted in the IRC, which can be justified as they are an indirect form, but, in the legislative perspective, equitable, simple and efficient, form of taxing business income that escape the regime of taxation with direct incidence on income".

Indeed, it is a fact that the imposition of any expense without consideration to a legal entity has as a corollary a potential decrease in its income, so that the imposition of a unilateral tax obligation, even calculated on the basis of expenses incurred, constitutes a form of indirectly taxing its income.

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

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

On the other hand, if it is true that, in view of the regime in force before Law no. 2/2014, of 16 January, amended no. 3 of Article 93 of the IRC Code, amounts paid as special advance payment by account could not always be deducted, it is also true that that regime was changed by that Law, with reimbursement being admitted without conditions other than that the taxpayer request it within the prescribed period.

Therefore, the interpretation that most linearly follows from the text of Articles 93, no. 3, and 90, no. 1, of the IRC Code, prior to Law no. 2/2014, is that of deductibility of special advance payments by account from the total collection of IRC derived from autonomous taxation.

But it is also not less true that, in view of the previous regime of reimbursement of special advance payments by account, which revealed that special advance payment by account had inherent a presumption of undeclared income, a restrictive interpretation could be ventured, regarding special advance payment by account, in the sense that it is not deductible from the total collection of autonomous taxation, as was understood in the arbitral decision of 30-12-2015, rendered in CAAD case no. 113/2015-T.

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

Article 135 of Law no. 7-A/2016, of 30 March, by attributing an "interpretative" nature to that new no. 21 of Article 88, combined with Article 13 of the Civil Code, has inherent an intention legislatively of applying the new regime to previous situations in which there are not "effects already produced by the fulfillment of the obligation, by judgment final and binding, by settlement, even if not approved, or by acts of analogous nature".

The authentic interpretation made in Article 88, no. 21, of the IRC Code, in the part in which it leads to the non-deductibility of special advance payments by account in autonomous taxation, does not violate the principle of non-retroactivity in the creation of taxes, understood as relating only to authentic retroactivity, relating to taxable events that were completed and produced all their effects in the past.

The request for arbitral pronouncement is therefore dismissed, as to the illegality of the self-assessments, in this part.

4. Reimbursement of Amounts Paid and Compensatory Interest

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

Based on what was stated in the substantiation of the decision on the factual matters, there are no reliable elements in the proceedings as to the amounts of SIFIDE and special advance payments by account that were available for deduction from IRC collection at the end of the years 2012 and 2013, so the right to reimbursement should be determined in execution of this judgment.

With respect to compensatory interest, in accordance with the provisions of subparagraph 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 prescribed for appeal or challenge, and this must, in exact compliance with its content, proceed with the execution thereof.

5. Final Decision

In view of the foregoing:

  1. The request for arbitral pronouncement is granted with respect to the deductibility of SIFIDE tax benefit investments from the amount of IRC collection produced by autonomous taxation.

  2. The request for arbitral pronouncement is dismissed with respect to the deductibility of special advance payments by account from the amount of IRC collection produced by autonomous taxation.

  3. The reimbursement of the amounts paid and the compensatory interest shall be determined in execution of this judgment.

This judgment shall be executed by the Tax Administration in accordance with Article 24 of the RJAT.

Frequently Asked Questions

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Can SIFIDE tax credits and special payments on account be deducted from autonomous taxation (tributações autónomas) under Portuguese IRC?
Prior to Law 7-A/2016 (March 30, 2016), the literal interpretation of Articles 90(1) and 93 of the Portuguese IRC Code permitted deduction of SIFIDE tax credits and special advance payments (pagamentos especiais por conta) from autonomous taxation. However, Law 7-A/2016 introduced Article 88(21) of the IRC Code, which expressly prohibits any deductions from autonomous taxation amounts. Article 135 of Law 7-A/2016 gave this provision interpretative nature, applying it retroactively to prior tax periods where no settled effects existed. Therefore, under current law and its retroactive interpretation, such deductions are not permitted from autonomous taxation.
What is the legal basis for autonomous taxation (tributações autónomas) in Portuguese corporate income tax (IRC)?
The legal basis for autonomous taxation (tributações autónomas) in Portuguese IRC stems from provisions in the IRC Code designed to tax certain corporate expenses as indirect forms of taxing business income. According to CAAD jurisprudence cited in decision 784/2015-T, autonomous taxation constitutes a legislative distortion of direct income taxation, implemented to combat tax fraud and evasion while promoting tax equity. Article 23-A of the IRC Code characterizes IRC and autonomous taxation as taxes affecting profits directly or indirectly. Constitutional compatibility requires understanding autonomous taxation as indirect taxation of business income under Article 104(2) of the Portuguese Constitution, which mandates that corporate taxation fundamentally fall on actual income. Despite theoretical incoherence with pure income taxation principles, autonomous taxation serves values of equity, efficiency, and simplicity in the tax system.
How does Article 90 of the Portuguese IRC Code apply to autonomous taxation deductions?
Article 90 of the Portuguese IRC Code establishes the calculation method for total IRC collection. Article 90(1) determines the total amount to be collected, while Article 90(2)(c) addresses deductions including special advance payments. Prior to Law 7-A/2016, the literal interpretation allowed deduction of special advance payments from total IRC collection as calculated under Article 90(1), including amounts derived from autonomous taxation, subject to the conditions specified therein. The tribunal in decision 784/2015-T found nothing in the literal content of Article 90 that prevented such deductions. However, following the introduction of Article 88(21) by Law 7-A/2016, which prohibits deductions from autonomous taxation amounts, the application of Article 90 was modified to exclude deductibility of credits from the autonomous taxation component of total IRC collection.
What was the outcome of CAAD arbitral decision 784/2015-T regarding IRC autonomous taxation for 2012 and 2013?
CAAD arbitral decision 784/2015-T dismissed the claimant's request regarding the alleged illegality of IRC self-assessments for 2012 and 2013. The tribunal ruled that while the literal interpretation of IRC Code provisions prior to Law 7-A/2016 supported deductibility of special advance payments from autonomous taxation, the retroactive interpretative provision in Article 88(21) and Article 135 of Law 7-A/2016 applied to these prior tax years. The decision found this retroactive application did not violate non-retroactivity principles in tax law. The tribunal acknowledged the taxpayer had tax losses in both 2012 and 2013 with only substantial autonomous taxation, illustrating potential constitutional concerns, but ultimately upheld the Tax Administration's position following the legislative clarification. Regarding reimbursement claims, the decision noted insufficient reliable evidence existed to determine the specific amounts of SIFIDE credits and special advance payments available for deduction.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when autonomous taxation is unlawfully assessed in Portugal?
Compensatory interest (juros indemnizatórios) in Portuguese tax law is due when the Tax Administration unlawfully retains taxpayer funds. In decision 784/2015-T, the claimant requested reimbursement of amounts paid plus compensatory interest at the legal rate until full reimbursement. However, the tribunal's dismissal of the illegality claim regarding autonomous taxation self-assessments meant no unlawful assessment was established. Additionally, the decision specifically noted the absence of reliable elements in the proceedings to determine the amounts of SIFIDE and special advance payments available for deduction at the end of the relevant tax periods. Without establishing both unlawful assessment and quantifiable overpayment, entitlement to compensatory interest could not be determined. Therefore, taxpayers are only entitled to compensatory interest when autonomous taxation is proven unlawfully assessed and specific reimbursement amounts are reliably established.