Autonomous Taxation Deductions Under Article 90 CIRC: PEC and SIFIDE Credits in IRC Self-Assessments

Arbitral Decision

The members of this Arbitral Court hereby agree as follows:

I. REPORT

A…, S.A., legal entity number …, with registered office at …, …-…, municipality of …, with share capital of € 500,000.00, hereinafter referred to as "A..." or "Applicant", covered by the local peripheral services of the Tax Office of …,

came, pursuant to articles 2, no. 1, subsection a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January, and articles 1 and 2 of Ministerial Order no. 112-A/2011 of 22 March, to request the constitution of an Arbitral Court, requesting:

a) That the illegality be declared and annulled the dismissal of the administrative complaint to the extent that it refused the annulment of the illegal part of self-assessed corporate income tax (IRC), which it identifies, in the portions produced by autonomous taxation rates, for the fiscal years 2012 and 2013, thereby allegedly violating the principle of legality;

b) That the illegality of these self-assessments be declared (and consequently annulled), in the portions corresponding to the amounts of € 44,151.89 (2012) and € 28,934.15 (2013);

c) That, consequently, recognition be given of the right to reimbursement of these amounts and, furthermore, the right to compensatory interest for the payment of tax unlawfully assessed, calculated, until full reimbursement, with respect to € 44,151.89 (2012), from 31 May 2013 as to € 42,306.19, and from 1 September 2013 as to € 1,845.70, and calculated with respect to € 28,934.15 (2013), from 30 May 2014 as to € 27,552.10, and from 1 September 2014 as to € 1,382.05;

d) Subsidiarily, should it be understood that article 90 of the Corporate Income Tax Code (CIRC) does not apply to autonomous taxation, that the illegality of the assessments of autonomous taxation be then declared (and consequently annulled) for absence of legal basis for their implementation [cf. article 8, no. 2, subsection a), of the General Tax Law, and article 103, no. 3, of the Constitution], with the consequent reimbursement of the same amounts and the payment of compensatory interest calculated from the same dates.

The Applicant thus requests that be declared, both the illegality of the dismissal of the administrative complaint and the illegality of the partial acts of self-assessment identified (cf. Docs. nos. 1 to 3) – and that they be consequently annulled –, pursuant to article 2, no. 1, subsection a), of Decree-Law no. 10/2011, more specifically as concerns the portion of the aforementioned self-assessment acts that reflects the non-deduction from the corporate income tax base produced by autonomous taxation rates of the special prepayment (PEC) made for corporate income tax purposes and, as well, of SIFIDE, which resulted in an amount of tax unlawfully assessed in the amount of € 44,151.89 for 2012 and € 28,934.15 for 2013, or, subsidiarily, to the extent that it reflects allegedly unwarranted autonomous taxation.

The request for constitution of the Arbitral Court was accepted by the President of CAAD and immediately notified to the Respondent, all in accordance with legal requirements.

Pursuant to the provisions of subsection a) of no. 2 of article 6 of the Rules of the Arbitral Tribunal (RJAT), by decision of the President of the Deontological Council, duly communicated to the parties, within the prescribed timeframes, the following were designated as arbitrators: Judge Dr. José Poças Falcão as president, and, as members, Professor Dr. João Ricardo Catarino and Dr. Armando Tavares, who communicated to the Deontological Council and to the Administrative Arbitration Centre their acceptance of the assignment within the timeframe stipulated in article 4 of the Deontological Code of this Administrative Arbitration Centre.

The Collective Arbitral Tribunal was constituted on 2-3-2016, in accordance with the requirement of subsection c) of no. 1 of article 11 of the RJAT.

The meeting of the Tribunal with the parties (article 18 of the RJAT) was, without objection from these, dispensed with, the case proceeding with the granting of a timeframe for final written submissions.

Both parties filed their final submissions within their respective timeframes and wherein they developed and updated their arguments in light of the jurisprudence meanwhile produced.

Grounds of the Request

To support its request, the Applicant alleged, in summary and with relevance:

The Applicant filed on 27 May 2013 its Model 22 corporate income tax return for fiscal year 2012, and on 21 May 2014 the Model 22 corporate income tax return for fiscal year 2013, and it further presented the amended return on 6 May 2015, with reference to the taxation period of 2013 (cf. Docs. nos. 1 to 3).

According to the tax return filed, in fiscal year 2012 A… calculated a tax amount payable of € 42,306.19, which has been paid (Doc. no. 5), which resulted from a collection of autonomous taxation in corporate income tax of € 44,151.89, reduced by withholding taxes borne in the amount of € 1,845.70, to which reimbursement A… was entitled (Doc. no. 1).

And with respect to fiscal year 2013, according to the tax return filed, A… calculated a tax amount payable of € 27,552.10, which has been paid (Doc. no. 5), which resulted from a collection of autonomous taxation in corporate income tax in the amount of € 28,934.15, reduced by withholding taxes borne in the amount of € 1,382.05, to which reimbursement A... was entitled (Docs. nos. 2 and 3).

It happens that, as regards what is now at issue, with respect to the tax resulting from the application of autonomous taxation rates in corporate income tax, the AT's computer system reveals anomalies embodied in the flagging of discrepancies ("errors") that prevent the Applicant from entering the value relative to the aforementioned autonomous taxation rates in corporate income tax, purged, i.e., deducted, within the limits of the corporate income tax collection resulting from the application of these rates, (i) either the amounts of tax benefit recognized under SIFIDE[1], in the form of a tax credit deductible from the corporate income tax collection, (ii) or the amounts of accumulated PEC, which resulted in an excess of tax paid by reference to the fiscal years 2012 and 2013, at issue here.

The SIFIDE amount attributed/obtained, available for use at the end of fiscal year 2012 amounted to € 98,622.51, as per the certification accompanied by Declarations from the SIFIDE Certifying Commission attached hereto as Doc. no. 6.

On the other hand, with regard to PEC there remains an accumulated amount to be deducted from the corporate income tax collection that amounted in 2012 to € 67,407.62, and that in 2013 amounted to € 72,054.90, as per the certification and proof of the PECs made taken directly from the tax authority portal (Docs. no. 7 attached hereto and Doc. no. 5 previously attached).

In summary, the Applicant has corporate income tax credits for deduction from its respective collection, and as well PEC, in an amount far superior to the collection of autonomous taxation in corporate income tax for fiscal years 2012 and 2013, this collection which, as mentioned above, amounted to € 44,151.89 and € 28,934.15, respectively, and that deduction (which the AT's computer system does not allow) should be made beginning with the tax benefits acquired the longest time ago and only subsidiarily reach the PEC, following the deduction order provided in the law.

Continuing with the description of relevant facts, it should be noted that the AT did not calculate or appraise the taxable income of A… by indirect methods: it was calculated in the normal manner, via the filing of the Model 22 (cf. Docs. nos. 1 to 3).

Moreover, A... is not and was not then a debtor entity to the State and social security of any taxes or contributions (cf. certificates attached as Doc. no. 8 and articles 5, subsection a) and 6, no. 2, second part, of Law no. 40/2005, of 3 August).

Also attached is the Model 22 of A… for fiscal year 2014 (cf. Doc. no. 9).

It happens that, with respect to the tax resulting from the application of autonomous taxation rates in corporate income tax, the AT's computer system prevents the Applicant from entering the value relative to the aforementioned autonomous taxation rates in corporate income tax, purged, i.e., deducted, within the limits of the corporate income tax collection resulting from the application of these rates, the amounts of the tax benefit of deduction from the corporate income tax collection which is SIFIDE (beginning with the oldest), and as well the amounts of PEC still available (also beginning with the oldest) for deduction from the corporate income tax collection, which were detailed above, which resulted in an excess of tax paid by reference to the fiscal years 2012 and 2013 at issue here.

I.e., the AT's computer system, through which corporate income tax is self-assessed, does not allow taxpayers to deduct, for purposes of calculating the corporate income tax due by them, from the corporate income tax resulting from autonomous taxation calculated, the SIFIDE or the PEC.

That system does not allow, therefore, deducting the SIFIDE credits, nor a portion of the advance payments made on account of corporate income tax that will be due finally – the PEC – from a portion of the corporate income tax finally actually calculated – the autonomous taxation.

It should be recalled (see facts above) that, in the specific case, such corporate income tax credits by SIFIDE and accumulated PEC are more than sufficient to offset, through their use, the collection of autonomous taxation in corporate income tax for fiscal years 2012 and 2013 at issue here.

The refusal by the AT, which has been observed, of these deductions of SIFIDE and PEC from the collection of autonomous taxation in corporate income tax is all the more surprising since recently the AT took a position on this matter having excluded only the deduction from the collection of autonomous taxation in corporate income tax of tax credits for international double taxation, which is now contradicted by this decision of the administrative complaint filed by A….

As previously stated, at issue is the impossibility of reflecting in Model 22 declarations the deduction of PEC and SIFIDE by reference, also, to the collection resulting from autonomous taxation rates in corporate income tax, as detailed in the same with respect to fiscal years 2012 and 2013, attached hereto as Doc. no. 10.

That is, intentionally or inadvertently, the Model 22 declaration for corporate income tax and its articulation with the programming of the AT's computer system prevents deduction from the collection related to autonomous taxation rates in corporate income tax, entered in field 365 of table 10 of the Model 22 declaration (cf. Docs. nos. 1 to 3), the PEC and SIFIDE still to be deducted from the corporate income tax collection, beginning with the oldest.

Thus, the question that is intended to be clarified is: does or does not the Applicant have the right to proceed with the deduction, also from the corporate income tax collection produced by the application of autonomous taxation rates, of the aforementioned SIFIDE and PEC?

Now, taking into account the overwhelming arbitral jurisprudence that today qualifies autonomous taxation as corporate income tax, the Applicant absolutely sees nothing in the law that excludes the deduction of these corporate income tax credits by SIFIDE, and as well PEC, also from the portion of the corporate income tax collection produced by autonomous taxation.

But in the year of filing of the Model 22 declaration at issue, the AT's computer system had not yet thought so.

And in the administrative complaint proceedings, the AT continued to not think so, contradicting its earlier opinion on this matter, as mentioned above and developed below.

Should the main request made here fail, which is not conceded, further subsidiary relief is sought, to which attention is called from now on.

In the same manner as jurisprudence has understood, in a practically unanimous way, that the corporate income tax collection provided in (in effect until 2013) article 45, no. 1, subsection a), of the CIRC, includes, without need of any additional specification, the collection of autonomous taxation in corporate income tax, it must also be understood that the corporate income tax collection provided in the same code a few meters further ahead (article 90, no. 1, and no. 2, subsections b) and c), of the CIRC, in the wording in effect in 2013) also covers the collection of autonomous taxation in corporate income tax.

Whence the denial of the deduction of SIFIDE and PEC from the corporate income tax collection of autonomous taxation violates subsections b) and c) of no. 2 of article 90 of the CIRC (prior to 2010, article 83; and from 2014 became subsections c) and d) of the aforementioned no. 2 of article 90 of the CIRC).

It is public and notorious the position and understanding of the AT, for which it fought and won in countless arbitral processes, that autonomous taxation is corporate income tax, in order to apply to the collection of autonomous taxation the rule applicable to the corporate income tax collection, more specifically subsection a) of no. 1 of article 45 of the CIRC (in the wording in effect between 2010 and 2013; prior to 2010, article 42).

And regarding the possibility of deducting tax credit for tax benefit (SIFIDE) or PEC from the collection of autonomous taxation, the Directorate of Services for Corporate Income Tax (DSIRC) ruled recently at the request of (another) taxpayer, having then excluded deductions from the collection of autonomous taxation only with respect to tax credits for international double taxation (Doc. no. 12).

Whence the legitimacy, viewed from the perspective of law in action (tribunal decisions on the concept of corporate income tax and AT positions to the same effect), of the deduction of the PEC at issue from the collection of autonomous taxation of A….

However, when analyzing the administrative complaint, the AT moved away from this recent past, denying the deduction from the corporate income tax collection of autonomous taxation of the corporate income tax credits of SIFIDE and PEC in corporate income tax, there petitioned.

The Applicant further invoked at least 24 arbitral decisions to support its position in which (allegedly) it was concluded that autonomous taxation has the nature of corporate income tax: proceedings nos. 187/2013-T, 209/2013-T, 210/2013‑T, 246/2013-T, 255/2013-T, 260/2013-T, 282/2013-T, 292/2013-T, 298/13-T, 6/2014-T, 36/2014-T, 37/2014-T, 59/2014-T, 79/2014-T, 80/2014-T, 93/2014-T, 94/2014-T, 163/2014-T, 166/2014-T, 167/2014-T and 211/2014-T, 659/2014-T, 697/2014-T and 769/2014-T.

The arbitral jurisprudence grounded its conclusion with the idea – beginning by making, provisionally, a generalization by approximation – which follows, on which the DSIRC has also relied and relies: autonomous taxation relating, at least, to expenses with vehicles, travel allowances and representation expenses, is a substitute (or complement) for the non-deductibility of costs in corporate income tax, whence the nature of corporate income tax of the collection produced by these autonomous taxation.

And it is on the basis of this conclusion, thus grounded, that jurisprudence concluded that because the collection produced by these autonomous taxation is corporate income tax collection it was, for that very reason, subject to the regime provided for in the corporate income tax collection in subsection a) of no. 1 of article 45 of the CIRC (in the wording in effect until 2013): non-deductibility of this collection in the operation of calculating taxable income.

For the very same reason, this taxpayer requests that, consistently, it be concluded that the corporate income tax collection constituted by these autonomous taxation is available, along with the remaining corporate income tax collection, in the operation of deductions from collection provided in article 90 of the CIRC, among which is found the deduction of SIFIDE and PEC.

The reasoning used by the AT to decide unfavorably on this specific case is contained in the draft decision to dismiss, attached hereto as Doc. no. 13, which preceded the decision previously attached as Doc. no. 4.

In summary, and in total contradiction with everything it had been defending up to that date regarding the qualification of autonomous taxation as corporate income tax, namely for purposes of qualifying the collection of autonomous taxation as corporate income tax collection for purposes of article 45, no. 1, subsection a), of the Corporate Income Tax Code, in the wording in effect until 2013, and in total contradiction with the overwhelming arbitral jurisprudence that systematically favored it in the qualification of the collection of autonomous taxation as corporate income tax collection, the AT now says in the dismissal of the administrative complaint, if we understand correctly, that:

a) being although corporate income tax, not applying autonomous taxation to taxable income, but rather to expenses, it would after all be a taxation distinct from corporate income tax;

b) whence further that, in consequence, when article 90 refers to corporate income tax, it would not include autonomous taxation (for not being corporate income tax), whose collection, consequently, would not be subject to the deductions provided therein.

Nor should it be said either, as the AT does (cf. § 5, page 8, and page 9, of Doc. no. 13), that there would be no legal support in article 90 of the CIRC for making the deductions from the corporate income tax collection provided therein, as concerns the collection produced by autonomous taxation rates.

In fact (and this is evident), being an indisputable premise for the AT and for the courts[2], that with autonomous taxation rates corporate income tax is at issue, why does the AT feel enabled to say that they cease to be so when the CIRC refers to the corporate income tax collection in its article 90?

Taxable matter is not an exclusive concept of the specific taxable matter of article 15 of the CIRC. Beyond this, and thinking only of corporate income tax still, we have the distinct taxable matter of the state surcharge, provided in article 87-A of the CIRC, which, contrary to that of article 15, fixes the taxable matter in taxable income[3], and the taxable matter of the various autonomous taxation, provided in the following article, i.e., in article 88 of the CIRC.

State surcharge and autonomous taxation these which are assessed in the form that operationally implements article 90 of the CIRC, the form for corporate income tax!

It is absurd, and causes astonishment, the attempt at defense now by the AT that in article 88 of the CIRC would be contained everything that autonomous taxation needs to exist: the indication of the taxpayer, the description of the taxable matter and the fixing of the rate, that is all that autonomous taxation would need.

That is, contrary to all other known taxes, autonomous taxation would not need normative provisions relating to the competence for its assessment, to the timings for that assessment, to the mode of processing that assessment (on any sheet of paper, freely? Delivered how and to whom?), etc. It will be, therefore, at the pleasure of the customer (taxpayer) or of the house (AT), one of the two.

As the Professor Dr. Leonor Fernandes Ferreira crystallinely writes in her dissenting vote to the decision in proceedings no. 697/2014-T:

To accept that the assessment of autonomous taxation is outside article 90, no. 1 of the CIRC would be to oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contrary to no. 3 of article 103 of the Constitution of the Portuguese Republic and the principle of tax legality that the General Tax Law, in its article 8, no. 2, subsection a), establishes.

If the Tax Authority and Customs Authority assumed that the collection of autonomous taxation was calculated outside article 90 of the CIRC, it should indicate on the basis of which assessment norm it did so. With no separate norm on assessment of autonomous taxation, it seems it must be accepted that the corporate income tax collection encompasses it, being included in article 90, no. 1 of the CIRC.

(…)

To consider that the assessment of autonomous taxation is outside the collection that is calculated by article 90, no. 1 of the CIRC, is to accept that such understanding would be provided in another legal provision and, as this does not exist, the assessment cannot fail to be made within the scope of article 90 of the CIRC. Thus, the deduction of SIFIDE tax credits from the corporate income tax collection must be accepted, necessarily including therein the portion coming from autonomous taxation".

The Applicant paid tax in an amount greater than that legally due (cf. Docs. nos. 1, 3 and 5), therefore, with the illegality of the (self-) assessments declared in the portion here petitioned, the Applicant has the right not only to the respective reimbursement, but, also, pursuant to article 43 of the General Tax Law ("LGT"), to compensatory interest.

This interest calculated on the following amounts and from the following dates, until full reimbursement of the amount of tax (autonomous taxation in corporate income tax) unlawfully paid:

i) fiscal year 2012: interest on € 42,306.19 unlawfully paid on 31 May 2013 (Doc. no. 5), calculated from this date, and interest on the remaining € 1,845.70, which should have been reimbursed by 31 August 2013 (Doc. no. 1 and article 104, no. 6, of the CIRC), calculated from 1 September 2013, in a total basis for interest calculation of € 44,151.89;

ii) fiscal year 2013: interest on € 27,552.10 unlawfully paid on 30 May 2014 (cf. Doc. no. 5), calculated from this date, and interest on the remaining € 1,382.05, which should have been reimbursed by 31 August 2014 (Doc. no. 2 and article 104, no. 6, of the CIRC), calculated from 1 September 2014, in a total basis for interest calculation of € 28,934.15.

Response of the AT

The AT, in its response, sustaining a position contrary to that presented by the Applicant, and in consonance with the position it had already assumed in the administrative complaint proceedings, alleged, in summary and in essence, that:

• the figure of autonomous taxation has been instrumentalized for the pursuit of diverse objectives, which range from the original purpose of avoiding tax evasion and fraud practices –, through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of taxation of accessory advantages under the form of representation expenses or attribution of vehicles to workers and members of corporate bodies, in the sphere of the respective beneficiaries –, to the purpose of preventing the phenomenon designated as "dividend laundering" (cf. no. 11 of article 88 CIRC) or of burdening, through taxation, the payment of income considered excessive (cf. no. 13 of the same provision);

• the autonomous character of these taxation, resulting from the special configuration given to the material and temporal aspects of the taxable events, imposes, in certain domains, the exclusion or an adaptation of the general rules of application of corporate income tax;

• in reality, the integration of autonomous taxation into the Corporate Income Tax Code (and Income Tax Code), conferred a dualistic nature[4], in certain respects, to the normative system of this tax, which was embodied, namely, in the context of subsection a) of no. 1 of article 90 of the CIRC, in separate calculations of the respective collections, by force of obeying different rules.

• and that, since, in one case, it is a matter of the application of the rate(s) of article 87 of the CIRC to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is a matter of the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of the CIRC;

• contrary to what is stated in point 9 of the dissenting vote attached to the Arbitral Decision rendered in proceedings no. 697/2014-T, there is not a single assessment of corporate income tax[5], but rather two calculations, that is, two distinct computations which, although processed, pursuant to subsection a) of no. 1 of article 90 of the CIRC, in the declarations to which articles 120 and 122 of the same code refer, are made based on different parameters, since each one is materialized in the application of its own rates, provided in articles 87 or 88 of the CIRC, to the respective taxable matters determined equally according to its own rules;

• the integration of autonomous taxation into the Corporate Income Tax Code (and Income Tax Code), conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, namely, in the context of subsection a) of no. 1 of article 90 of the CIRC, in separate calculations of the respective collections, by force of obeying different rules, since, in one case, it is a matter of the application of the rate(s) of article 87 of the CIRC to the taxable matter determined according to the rules contained in Chapter III of the Code, i.e., having as basis the profit and, in another case, it is a matter of the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of the CIRC;

• the assessment of autonomous taxation is made based on 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 matter calculated according to the rules of Chapter III of the Code and

(2) in the other case, diverse collections are calculated according to the diversity of the facts that give rise to autonomous taxation;

• whence it results that the amount calculated pursuant to subsection a) of no. 1 of article 90 does not have a unitary character, since it contains values calculated according to different rules, to which are associated purposes also differentiated, therefore the deductions provided in the subsections of no. 2 can only be made to the portion of the corporate income tax collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the rule-regime of the tax;

• In the sequence of the integration of autonomous taxation into the Corporate Income Tax Code, through Law no. 30-G/2010, of 29/12, the legislator does not appear to have felt the need to explicitly clarify, in a comprehensive manner – i.e. in all the normative provisions where they manifest themselves – the consequences of the coexistence of two forms of taxation within the system of corporate income tax, limiting itself to safeguarding the situations in which the corporate income tax exemption did not extend to autonomous taxation;

• This translated into the amendment made to the wording of article 12 of the CIRC[6] in order to clarify, with interpretative character, that companies and other entities covered by the tax transparency regime are not taxed in corporate income tax, except as concerns autonomous taxation;

• Beyond that, it was further established (cf. the then no. 6 of article 109 of the CIRC, current article 117) that the obligation to file the periodic income return covers entities exempt from corporate income tax, when subject to autonomous taxation;

• It was thus left to the care of the interpreter and applier of the law the task of, faced with the need to, for certain purposes – namely the deductions provided in no. 2 of article 90 of the CIRC or the calculation of advance payments –, identify the relevant portion of corporate income tax collection, extracting from the applicable normative provisions a useful meaning, literally possible, which permits a coherent solution and in conformity with the nature and functions attributed to each component of the tax;

• Well then, when it comes to the deductions provided in no. 2 of article 90 of the CIRC, the Applicant intends – anchoring itself, with all due respect, in a simplistic and decontextualized reading of this normative provision – that the expression "amount calculated pursuant to the preceding number" must be understood as encompassing the sum of the amount of corporate income tax, calculated on the taxable matter determined according to the rules of Chapter III and to the rates provided in article 87 of the same Code, and the amount of autonomous taxation, calculated based on the rules provided in article 88;

• Now, the result of this interpretation would imply that, in the basis of calculation of advance payments defined in no. 1 of article 105 of the Corporate Income Tax Code – and in terms identical to those used in no. 2 of article 90, namely:

«Advance payments are calculated based on the tax assessed pursuant to no. 1 of article 90 (…)» –, autonomous taxation be included;

• In fact, for the basis of calculation of advance payments only the corporate income tax calculated based on the taxable matter determined according to the rules of Chapter III and the rates of article 87 of the respective Code is considered;

• The delimitation of the content of the expression used by the legislator in no. 2 of article 90 of the CIRC, "amount calculated pursuant to the preceding number", and in no. 1 of article 105 of the CIRC, "tax assessed pursuant to no. 1 of article 90", must be made in a coherent manner, that is, being consequently attributed to it, in both provisions, a univocal meaning;

• Which is equivalent to saying that it corresponds to the amount of corporate income tax calculated through the application of the rates of article 87 to the taxable matter determined based on profit and to the rates of article 87 of the Code;

• Being the only (and consistent) interpretation of the expression "amount calculated pursuant to the preceding number" with the nature of the deductions referred to in the subsections of no. 2 of article 90 of the Corporate Income Tax Code, relating to:

• tax credits for international legal and economic double taxation (current subsections a) and b));

• tax benefits (current subsection c));

• special advance payment (current subsection d));

• and withholding taxes (current subsection e)).

• The position defended by the AT has explicit support in the provision of no. 5 of article 90 of the CIRC – through which the legislator provides a clear indication that the amount of tax assessed, to which the deductions referred to in no. 2 of the same article are made, does not include the amount corresponding to autonomous taxation –, by establishing that the deductions that are imputed to partners or members of entities covered by the tax transparency regime established in article 6 (entities which are subject to the payment of autonomous taxation, by force of article 12) are «deducted from the amount calculated based on the taxable matter which took into consideration the imputation provided in the same article»;

• Given that the command of this normative provision is directed to partners or members of transparent entities – which, in the process of calculating their respective taxable income, must integrate therein the values (relating to taxable income/tax loss or to taxable matter, depending on the case) which are imputed to them – what the legislator indicates, in an entirely clear manner, is that the deductions provided in no. 2 of article 90 of the CIRC, which are equally imputed to partners or members, must be made to the amount of tax calculated based on the taxable matter in which is reflected the imputation provided in article 6 of the CIRC and not, note and be underlined, to the amount relating to autonomous taxation;

• and if this is the procedure to be adopted by subjects of corporate income tax who are partners or members of transparent entities, relatively to the deductions relating to the transparent entity in which they participate, it would be entirely incongruous, besides having no support in the law, to defend the thesis that, for the deductions referred to in no. 2 of article 90 of the CIRC, which directly relate to those taxpayers, the same could be made to the amount calculated with autonomous taxation;

• the rules that regulate the deduction of tax benefits, in this case, SIFIDE, are integrated, by the manner in which they operate and by the purposes attributed to the benefits, in the structure of the rule-regime of corporate income tax, therefore they are not reconcilable with the ratio legis of autonomous taxation nor with the respective taxable events, and the proof is that the legislator itself was careful to mark that dividing line in article 3, no. 5, subsection a), of Law no. 49/2013;

• Checked the norms that governed the system of tax incentives for research and development in business[7], commonly known as SIFIDE, in the circumstances of time that are relevant for the present proceedings, we verify that, according to article 4 (scope of deduction) of the diploma:

«Corporate income tax taxpayers resident in Portuguese territory who exercise, as main activity or not, an activity of agricultural, industrial, commercial and services nature and non-residents with permanent establishment in that territory may deduct from the amount calculated pursuant to article 90 of the Corporate Income Tax Code, and up to its amount, the value corresponding to research and development expenses, in the part that has not been subject to financial contribution from the State on a grant basis, carried out in the taxation periods from 1 January 2011 to 31 December 2015, in a dual percentage:

a) Base rate - 32.5% of expenses incurred in that period;

b) Incremental rate — 50% of the increase in expenses incurred in that period in relation to the simple arithmetic average of the two previous fiscal years, up to the limit of (euros) 1,500,000.

1. • (...)
2. • The deduction is made, pursuant to article 90 of the Corporate Income Tax Code, in the assessment relating to the taxation period mentioned in the preceding number.
3. • Expenses which, due to insufficiency of collection, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the 6th immediately following fiscal year».

Meanwhile, article 90 of the CIRC provides:

«1. The assessment of corporate income tax is made under the following terms:

a) When the assessment is to be made by the taxpayer in the declarations to which articles 120 and 122 refer, it is based on the taxable matter contained therein;

b) (...)

c) In the absence of assessment under the preceding subsections, it is based on the elements available to the tax administration.

2 - To the amount calculated pursuant to the preceding number are made the following deductions, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

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

d) That relating to withholding taxes not capable of compensation or reimbursement under the terms of applicable legislation.

(...)

1. When the special taxation regime of groups of companies is applicable, the deductions referred to in number 2 relating to each of the companies are made in the amount calculated relating to the group, under the terms of no. 1.

(...)».

• That is, in summary: the values that translate the tax benefit under SIFIDE are deducted "from the amounts calculated pursuant to article 90 of the Corporate Income Tax Code, and up to its amount" and in the assessment relating to the taxation period in which the expenses eligible for that purpose are incurred and, in the absence or insufficiency of collection calculated in those terms, the expenses which cannot be deducted in the fiscal year in which they were incurred «may be deducted up to the 6th immediately following fiscal year»;

• Well then, the collection to which article 90 refers when the assessment is to be made by the taxpayer (situation which occurs in the present case), is calculated based on the taxable matter contained in that assessment/self-assessment [cf. article 90, no. 1, subsection a) of the CIRC], and the credit in which SIFIDE translates is deducted only from the collection so calculated, that is, from the collection calculated based on the taxable matter [as provided in article 5, subsection a), of the Law governing SIFIDE, expressly preventing its resulting credits from being deducted when taxable income is determined by indirect methods].

• With respect to autonomous taxation, reiterating in consonance with everything that has already been said herein, that these are calculated in an autonomous and distinct manner from that processed pursuant to article 90 of the CIRC;

• In fact, it is reiterated that it is evident that the mechanism of autonomous taxation of the set of realities provided in article 88 of the CIRC aims, primordially, to safeguard the general balances of the tax system itself, the specific balances of corporate income tax and the revenue of the tax itself, that is, it aims to prevent that through significant manifestation of expenses as those provided in article 88, distortions affecting the system are not introduced and the expectation about what should be the "normal" revenue of the tax is not dashed;

• By simple consequence of the considerations established in the preceding points, which led to the conclusion that the deductions referred to in subsections a) and b) of no. 2 of article 90 of the Corporate Income Tax Code are made to the "amount calculated pursuant to the preceding number", understood as the amount of corporate income tax calculated based on the taxable matter determined according to 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 advance payments (PEC);

• It would suffice, for that, to invoke the provision of no. 7 (in the 2013 version) of the same provision, according to which «the deductions made pursuant to subsections a), b) and c) of no. 2 cannot result in a negative value»;

• although PEC distinguishes itself, in terms of calculation rules, from advance payments – since these have as basis of calculation the tax assessed pursuant to no. 1 of article 90 of the CIRC, relating to the taxation period immediately preceding (no. 5 of article 105 CIRC) –, it is to be noted that these regimes have in common the nature of advance payment of corporate income tax;

• the institution of PEC, by Decree-Law no. 44/98, of 03.03, which added article 83-A to the Corporate Income Tax Code, was inscribed in a set of tax policy measures directed against tax evasion and fraud, whose motivation is explained in the Preamble of this diploma, in the following terms: «(…) Statistics show that the income of legal entities subject to taxation in corporate income tax is frequently, and without any plausible reason, subject to a collection much lower than the real. The evasive practices of concealment of income or increase in costs are manifestly generative of serious distortions of the principles of equity and tax justice and of economic efficiency itself and harmful to the stability of tax revenue. From these results an unfair distribution of the tax burden, all the more felt since many subjects of corporate income tax, for successive years, contributed little or nothing to the State Budget, continuing, however, to enjoy, sometimes in a privileged manner, the economic and social rights provided in the Constitution. In this context, the present diploma establishes a special advance payment, through a new mechanism, on the income of the years 1998 and following, for legal entities subject to corporate income tax. The calculation formula used for its determination and the mechanism used permit bringing the moment of production of income closer to the moment of its taxation.»;

• finally, the AT formulates the following conclusions:

a - autonomous taxation, contrary to what comes supported in the learned arbitral jurisprudence and in the AT's argumentation, albeit being a collection in corporate income tax, distinguishes itself by applying not to profits but, instead, to expenses incurred by the taxpayer or by third parties who have relations with it;

b - autonomous taxation, as a fiscal anti-abuse instrument, would be emptied of any practical-fiscal content in the eventuality of acceptance of the thesis defended by the Applicant in its extremely lengthy and prolix discussions – which would only be conceded by mere academic exercise;

c - Under penalty of subverting the purposes of autonomous taxation, by conferring upon it, with this interpretation, a null effect, in conformity with what the AT has exhaustively contended;

d - Now, the law and its interpretation are not compatible with mere appearances or evaluative judgments constructed around the conveniences of the theses of those who defend them, without bearing in mind the hermeneutics of the teleology of the normative provision in question…

e - It should be reiterated, that the admissibility of an interpretation of this type, would permit an inadmissible limitation of the freedom of conformation of the initiative of the legislator, which in creating autonomous taxation did so with a purpose that belongs to the plane of the evident, i.e.,

a) the fight against tax evasion;

b) the intention to tax income of third parties whose increase in income, otherwise, would be beyond taxation;

c) the penalization, through taxation, of the payment of income considered excessive in light of the economic crisis situation of which, still today, there are remnants.

f - To permit interpretative wanderings that would result in the admissibility of deduction of PEC's, or tax benefits, such as SIFIDE from the collection of autonomous taxation – similarly to what the law permits to the corporate income tax collection – as the Applicant requests, inexorably amputates autonomous taxation in that which were the principles and purposes on which its creation by the legislator was based.

g - Accordingly, the claims made are based, with all due respect, on a fanciful and fallacious construction without any legal support, relying on a forced attempt at interpretation ab-rogating the existing normative provision, terms in which the arguments wielded by the Applicant wholly fail.

Final Submissions

Both parties filed, in writing, their final submissions of fact and law, in which they reiterated, in essence, their positions reflected in their respective pleadings.

Preliminary Determination

The Arbitral Court is materially competent and is regularly constituted, pursuant to articles 2, no. 1 subsection a), 5 and 6, no. 1 of the RJAT.

The parties enjoy personality and judicial capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ministerial Order no. 112-a/2011, of 22 March.

The case does not suffer from nullities, and no exceptions were raised, it being incumbent to appraise and decide on the merits of the request.

II. REASONING

Established Facts

1. The Applicant filed on 27 May 2013 its Model 22 corporate income tax declaration for fiscal year 2012 (document no. 1 attached with the request for arbitral pronouncement, whose contents are given as reproduced);

2. The Applicant filed on 21 May 2014 its Model 22 corporate income tax declaration for fiscal year 2013 (document no. 2 attached with the request for arbitral pronouncement, whose contents are given as reproduced);

3. The Applicant presented on 6 May 2015 an amended Model 22 corporate income tax declaration, with reference to the taxation period of 2013 (document no. 3 attached with the request for arbitral pronouncement, whose contents are given as reproduced);

4. In fiscal year 2012 the Applicant calculated a tax amount payable of € 42,306.19, which has been paid (document no. 5 attached with the request for arbitral pronouncement, whose contents are given as reproduced), which resulted from a collection of autonomous taxation in corporate income tax of € 44,151.89, reduced by withholding taxes borne in the amount of € 1,845.70 (document no. 1 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

5. In fiscal year 2013 the Applicant calculated a tax amount payable of € 27,552.10, which has been paid (document no. 5 attached with the request for arbitral pronouncement, whose contents are given as reproduced), which resulted from a collection of autonomous taxation in corporate income tax in the amount of € 28,934.15, reduced by withholding taxes borne in the amount of € 1,382.05 (documents no. 2 and no. 3 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

6. The AT's computer system, through which corporate income tax is assessed, does not allow taxpayers to deduct, for purposes of calculating their corporate income tax, from the tax resulting from the autonomous taxation calculated, the amounts of special advance payments (PEC) and the amount of SIFIDE tax benefit.

7. In the declarations referred to the Applicant did not deduct special advance payments (PEC) nor tax benefits from the corporate income tax collection.

8. With respect to PEC there remains an accumulated amount to be deducted from the corporate income tax collection that amounted in 2012 to € 67,407.62, and that in 2013 amounted to € 72,054.90 (documents no. 5 and no. 7 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

9. The amount of SIFIDE, available for use at the end of fiscal year 2012 amounted to € 98,622.51 (document no. 6 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

10. In the fiscal years referred to, the Tax Authority and Customs Authority did not calculate the taxable income of the Applicant by indirect methods, it having been calculated based on documents nos. 1 to 3, attached with the request for arbitral pronouncement.

11. The Applicant is not and was not an entity debtor to the State and social security of any taxes or contributions (document no. 8 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

12. On 26 May 2015 the Applicant filed an administrative complaint against the aforementioned self-assessments relating to fiscal years 2012 and 2013.

13. On 14 October 2015 the Applicant was notified of the dismissal of the aforementioned administrative complaint (document no. 4 attached with the request for arbitral pronouncement, whose contents are given as reproduced).

14. On 26 December 2015 the Applicant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

Facts Not Established

There are no facts relevant to the decision, whether established or not established.

Reasoning for the Establishment of the Facts

The facts were considered established based on the documents attached with the request for arbitral pronouncement and in the administrative file, there being no controversy about them, namely as to the amounts which the Applicant understands could be deducted as special advance payments (PEC) and SIFIDE tax benefit.

As concerns fact 6 above, relating to the AT's computer system, the Tax Authority and Customs Authority does not question what is stated by the Applicant in the request for arbitral pronouncement, defending that the computer system cannot allow or consecrate what the law does not provide (as per paragraphs 123 to 127 of the response).

II. REASONING (cont)

THE LAW

Given the learned profusion of arguments and criticisms formulated by the Applicant in its initial pleading and, subsequently, in the written submissions, it is necessary to recall what has been understood by Jurisprudence for years, namely, that the Courts do not have to appraise all the arguments formulated by the parties (Cf inter alia, Decision of the Plenary of the 2nd Section of the Supreme Administrative Court, of 7 June 95, appeal 5239, in Official Gazette – Appendix of 31 March 97, pages 36-40 and Decision STA – 2nd Sec – of 23 Apr 97, Official Gazette/Appendix of 9 Oct 97, p. 1094).

This jurisprudential understanding is currently supported by the provision of articles 607-2 and 3 of the Code of Civil Procedure and 123 - first part, of the Code of Tax Procedure, when they impose only on the Judge (or on the Court) that, after identifying the parties and the object of the dispute and enunciating the questions to be decided, ground the decision by discriminating the established and non-established facts and indicate, interpret and apply the corresponding norms for its final conclusion (decision).

The RJAT (Decree-Law no. 10/2011, of 20 January and amendments) also endorses this understanding when, in article 22, no. 2, of the RJAT, it provides that "(…) to the arbitral decision is applicable the provision of article 123, first part, of the Code of Tax Procedure, relating to the judicial sentence (…)".

Questions to be Decided

It is intended, in summary, to submit to the appraisal of the Court the question of the application (or not) of the provision of article 90 of the CIRC (wording of Law no. 3-B/2010, of 28-4, applicable in the case object of the present proceedings) to autonomous taxation provided in article 88 of the same diploma, as well as to special advance payment (PEC) and SIFIDE.

Subsidiarily, in the event it is understood that article 90 of the CIRC does not apply to autonomous taxation, "(…) that the illegality of the assessments of autonomous taxation be then declared (and consequently annulled) for absence of legal basis for their implementation [cf. article 8, no. 2, subsection a), of the General Tax Law, and article 103, no. 3, of the Constitution], with the consequent reimbursement of the same amounts and the payment of compensatory interest calculated from the same dates (…)".

In other words: what is essentially at issue is the appraisal of the question of the (dis)consideration of the collection deriving from autonomous taxation for purposes of the limit of the deductions provided in article 90 of the CIRC (taxation periods of 2012 and 2013).

Let us see:

The Applicant contends that it has the right to deduct the amounts paid as special advance payment and SIFIDE from the corporate income tax collection produced by autonomous taxation in fiscal years 2012 and 2013.

The AT's computer system, through which corporate income tax is self-assessed, does not allow taxpayers to deduct, for purposes of calculating the corporate income tax due by them, from the tax resulting from the autonomous taxation calculated, the amounts of special advance payments and the amounts of SIFIDE tax benefit.

The Applicant filed an administrative complaint against the self-assessments made based on Model 22 declarations for the years 2012 and 2013, arguing, in summary, that could be deducted from the amounts due as autonomous taxation the sums paid as special advance payments and the investments it made covered by SIFIDE.

The Tax Authority and Customs Authority dismissed the administrative complaint.

The questions that are the object of the present case are, in the first place, those of knowing whether the sums paid as special advance payments and the investments the Applicant made covered by SIFIDE are deductible from the sums due as autonomous taxation.

We will begin by appraising this question of the application of article 90 of the CIRC to the assessment of autonomous taxation, since the appraisal of the question of the deductibility of SIFIDE and special advance payments from the collection of autonomous taxation depends on its solution.

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 wording given by Law no. 3-B/2010, of 28 April and which is applicable to the case in the present proceedings:

Article 89

Competence for Assessment

The assessment of corporate income tax is made:

a) By the taxpayer itself, in the declarations to which articles 120 and 122 refer;

b) By the Directorate-General of Taxes, in the remaining cases.

Article 90

Procedure and Form of Assessment

1 - The assessment of corporate income tax is processed under the following terms:

a) When the assessment is to be made by the taxpayer in the declarations to which articles 120 and 122 refer, it is based on the taxable matter contained therein;

b) In the event of failure to file the declaration to which article 120 refers, the assessment is made by 30 November of the year following the one to which it relates or, in the case provided in no. 2 of that article, by the end of the 6th month following the end of the period for filing the declaration mentioned therein and is based on the annual amount of the minimum monthly compensation or, when greater, the totality of the taxable matter of the fiscal year closest in time that is determined;

c) In the absence of assessment under the preceding subsections, it is based on the elements available to the tax administration.

2 – To the amount calculated pursuant to the preceding number are made the following deductions, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

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

d) That relating to withholding taxes not capable of compensation or reimbursement under the terms of applicable legislation.

3 – (Repealed by Law no. 3-B/10)

4 – To the amount calculated pursuant to no. 1, as concerns the entities mentioned in no. 4 of article 120, only the deduction relating to withholding taxes 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 tax transparency regime established in article 6 is applicable are imputed to their respective partners or members under the terms established in no. 3 of that article and deducted from the amount calculated based on the taxable matter that took into consideration the imputation provided in the same article.

6 – When the special taxation regime of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount calculated relating to the group, under the terms of no. 1.

7 – The deductions made pursuant to subsections a), b) and c) of no. 2 cannot result in a negative value.

8 – To the amount calculated pursuant to subsections b) and c) of no. 1 only are the deductions made of which the tax administration has knowledge and which can be made pursuant to nos. 2 to 4.

9 – In cases where the provision of subsection b) of no. 2 of article 79 is applicable, annual assessments are made based on the taxable matter determined with provisional character, and, facing the assessment corresponding to the taxable matter relating to the entire assessment period, the difference ascertained must be collected or canceled.

10 – The assessment provided in no. 1 may be corrected, if appropriate, within the period to which article 101 refers, the differences ascertained then being collected or canceled.

Be it noted from the outset that the essential question is not whether autonomous taxation is or is not corporate income tax, being clear that the assessment of autonomous taxation is made based on articles 89 and 90, no. 1 of the Corporate Income Tax Code but, in truth, 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 matter calculated according to the rules of Chapter III of the Code and

(2) in the other case, diverse collections are calculated according to the diversity of the facts that give rise to autonomous taxation.

From this results that the amount calculated pursuant to subsection a) of no. 1 of article 90 does not have a unitary character, since it contains values calculated according to different rules, to which are associated purposes also differentiated, therefore the deductions provided in the subsections of no. 2 can only be made to the portion of the corporate income tax collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the rule-regime of the tax.

It is concluded from this, if we understand correctly, that there is not 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, since the Tax Authority and Customs Authority understands, if we understand correctly, that diverse collections are calculated according to the diversity of the facts that give rise to autonomous taxation and the deductions provided in the subsections of no. 2 can only be made to the portion of the corporate income tax collection with which there exists a direct correspondence, understanding that it does not verify itself in relation to the corporate income tax collection that results from autonomous taxation.

In any case, the aforementioned articles 89 and 90 of the CIRC, as well as other norms of this Code, such as those relating to the declarations provided in articles 120 and 122, are applicable to autonomous taxation.

From the outset – it is reaffirmed -, it is today settled, following countless arbitral jurisprudence (much of it cited by the Applicant itself) and the positions assumed by the Tax Authority and Customs Authority, that the tax levied based on autonomous taxation provided in the CIRC has the nature of corporate income tax.

Moreover, beyond the unanimity of jurisprudence, article 23-A no. 1, subsection a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, leaves today no room for any reasonable doubt, corroborating what had already resulted from the literal tenor 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 Authority, applying to the calculation of the tax due in all situations provided in the Code, including additional assessment (no. 10).

For this reason, that article 90 also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Authority, following the filing or non-filing of declarations, 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 income are restricted to the determination of the taxable matter and the applicable rates, which are those provided in Chapters III and IV of the CIRC for corporate income tax based on taxable income and in article 88 of the CIRC for corporate income tax based on the taxable matter of autonomous taxation and the respective rates.

But, the forms of assessment provided in Chapter V of the same Code are of common application to autonomous taxation and to the remaining corporate income tax matter.

However, the circumstance that a self-assessment of corporate income tax, made pursuant to no. 1 of article 90, may contain various partial calculations based on various rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm when making reference to «assessment», in the singular, in all cases in which it is «made by the taxpayer in the declarations to which articles 120 and 122 refer», having «as basis the taxable matter contained therein» (whether that determined based on the rules of articles 17 and following or that determined based on the various situations provided in article 88).

Indeed, it is not only the assessments provided in article 88 that may encompass various calculations of application of rates to certain taxable matters, since the same may occur in the situations provided in nos. 4 to 6 of article 87.

In any case, whatever calculations are to be made, it is the unitary self-assessment that the taxpayer or the Tax Authority and Customs Authority must make pursuant to articles 89, subsection a), 90, no. 1, subsections a), b) and c), and 120 or 122, and based on it that the global corporate income tax is calculated, whatever the taxable matters relating to each of the types of taxation that underlie it.

Indeed, if this article 90 were not applicable to the assessment of autonomous taxation provided in the CIRC, we would have to conclude that there would be no provision that provided for its assessment, which would be reducible to illegality, by violation of article 103, no. 3, of the Portuguese Constitution, which requires that the assessment of taxes be made «under the terms of the law».

It should further be noted that the new norm of no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, regardless of whether it is or is not truly interpretative, in no way alters this conclusion, since there it is established, as concerns the form of assessment of autonomous taxation, that it «is made pursuant to the terms provided in article 89 and is based on the values and rates that result from the provision of the preceding numbers».

In fact, if it is certain that this new norm comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the text itself of the various provisions of article 88) and that the competence falls to the taxpayer or to the Tax Authority, pursuant to article 89, it is also clear that it does not set aside the need to use the procedure provided in no. 1 of article 90, designedly in the cases provided in its subsection c) in which the assessment falls to the Tax Authority and Customs Authority, based «on the elements available to the tax administration», which appears to be unquestionable that will encompass the possibility of assessing based on autonomous taxation, if the Tax Authority and Customs Authority has elements that prove its presuppositions.

For this reason, both before and after Law no. 7-A/2016, of 30 March, article 90, no. 1, of the CIRC is applicable, under the terms referred to, to the assessment of autonomous taxation, that is, with calculation in an autonomous and distinct manner from that processed pursuant to the cited article 90.

The Question of the Deductibility of Research and Development Investment Expenses Provided for in SIFIDE from the Sums Due as Autonomous Taxation

Checked the norms that governed the system of tax incentives for research and development in business[8], commonly known as SIFIDE, in the circumstances of time that are relevant for the present proceedings, we verify that, according to article 4 (scope of deduction) of the diploma:

«Corporate income tax taxpayers resident in Portuguese territory who exercise, as main activity or not, an activity of agricultural, industrial, commercial and services nature and non-residents with permanent establishment in that territory may deduct from the amount calculated pursuant to article 90 of the Corporate Income Tax Code, and up to its amount, the value corresponding to research and development expenses, in the part that has not been subject to financial contribution from the State on a grant basis, carried out in the taxation periods from 1 January 2011 to 31 December 2015, in a dual percentage:

a) Base rate – 32.5% of expenses incurred in that period;

b) Incremental rate – 50% of the increase in expenses incurred in that period in relation to the simple arithmetic average of the two previous fiscal years, up to the limit of (euros) 1,500,000.

2 – (...)

3 - The deduction is made, pursuant to article 90 of the Corporate Income Tax Code, in the assessment relating to the taxation period mentioned in the preceding number.

4 - Expenses which, due to insufficiency of collection, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the 6th immediately following fiscal year».

SIFIDE allows companies to obtain a tax benefit, in corporate income tax, proportional to the investment expense in research and development (at the level of processes, products and organizational) that they can evidence, in the part that has not been subject to financial contribution from the State on a grant basis (Cf Law no. 55-A/2010 of 31 December, Decree-Law no. 82/2013 of 17 June and Law no. 83-C/2013 of 31 December.[9]

SIFIDE aims to increase the competitiveness of companies, supporting their efforts in Research and Development through deduction from the corporate income tax collection of the respective expenses.

It was created as a measure to stimulate participation of the business sector in the overall effort of research and development. The experience resulting from its application permits concluding that this mechanism has contributed to an effective increase in research and development activity by Portuguese companies.

This incentive system underwent various reviews. In the regime in effect from 2011 onwards (SIFIDE II) the introduction of some amendments to the legislation previously in force aimed to make this regime more attractive to companies.

The benefit to be obtained with SIFIDE II translates to the possibility of deducting from the corporate income tax collection calculated in the fiscal year, an amount of tax credit that results from the sum of the following items:

• Base rate: 32.5% of expenses incurred in the fiscal year;

• Incremental rate: 50% of the increase in expenses incurred in the fiscal year compared to the simple arithmetic average of expenses incurred in the two preceding fiscal years, up to the limit of € 1,500,000.

That is: it is in essence the possibility of deducting from the corporate income tax collection calculated in the fiscal year, the amount of tax credit verified. Expenses which, due to insufficiency of collection, cannot be deducted in the fiscal year in which they were incurred can be deducted up to the eighth immediately following fiscal year.

The preliminary question in this respect and with a view to the object of the dispute, is knowing how to calculate the amount to which article 90 of the CIRC refers to which the value corresponding to research and development expenses should then be deducted, in the part that has not been subject to financial contribution from the State on a grant basis, in a dual percentage: 32.5% of expenses incurred in the taxation period and 50% of the increase in expenses incurred in the taxation period in relation to the simple arithmetic average of the two preceding fiscal years, up to the limit of 1,500,000 euros.

Summing up:

The reapplicant requests that the tax credits which, in the years 2012 and 2013, were recognized to it under SIFIDE be deducted from the collection produced by autonomous taxation that burdened it in those fiscal years.

Now, checked the norms that governed SIFIDE II, it is verified that, according to article 4 (scope of deduction) of the diploma in conjunction with article 90 of the CIRC, the values that translate the tax benefit under SIFIDE are deducted "from the amounts calculated pursuant to article 90 of the Corporate Income Tax Code, and up to its amount" (underlined) and in the assessment relating to the taxation period in which the expenses eligible for that purpose are incurred and that, in the absence or insufficiency of collection calculated in those terms, the expenses which cannot be deducted in the fiscal year in which they were incurred «may be deducted up to the 6th immediately following fiscal year».

Well then, the collection to which article 90 refers when the assessment is to be made by the taxpayer (situation which occurs in the present case), is calculated based on the taxable matter contained in that assessment/self-assessment [cf. article 90, no. 1, subsection a) of the CIRC].

In this manner, the credit in which SIFIDE translates is deducted only from the collection so calculated, that is, from the collection calculated based on the taxable matter (cf. article 5, subsection a), of the Law governing SIFIDE) and not from the collection resulting from autonomous taxation.

That is: there exists an express legal impediment in the Corporate Income Tax Code for its (SIFIDE) resulting credits to be deducted from autonomous taxation.

Autonomous Taxation

With respect to autonomous taxation, it is reaffirmed that these are calculated in an autonomous and distinct manner from that processed pursuant to article 90 of the CIRC.

As decided in the Decision of the Constitutional Court no. 310/2012, corporate income tax and autonomous taxation are distinct taxes, with different bases of incidence and subject to specific rates. Corporate income tax applies to income obtained and profits directly imputable to the exercise of a certain economic activity, by reference to the annual period, and thus taxes the aggregation of all income obtained in the taxation period. Conversely, in autonomous taxation in corporate income tax - according to constitutional jurisprudence itself -, the taxable event is the very performance of the expense, characterizing itself as an instantaneous tax fact that arises isolated in time and generates an obligation to pay with an isolated character. For this reason it is understood that we are faced with a single-obligation tax, as opposed to periodic taxes, whose taxable event is produced successively over time, generating the obligation to pay tax with a regular character.

Thus autonomous taxation, although provided in the CIRC and assessed, as seen, jointly with corporate income tax for purposes of collection, has nothing to do with taxation of income or with profits imputable to the economic exercise of the company, since it applies to certain expenses that constitute autonomous tax facts that the legislator, for reasons of tax policy, wished to tax separately through subjection to a predetermined rate that has no relationship with the volume of the company's business (cf. Decision of the Supreme Administrative Court of 12 April 2012, Proceedings no. 77/12).

Developing and better historicizing the question of the nature of autonomous taxation and its degree of connection with corporate income tax:

One must go back to 1990 to find the first intervention by the legislator in order to subject certain expenses to autonomous taxation which occurred with the publication of Decree-Law no. 192/90, of 9 June, whose article 4 provided that «undisclosed or undocumented expenses made in the course of commercial, industrial or agricultural activities by subjects of personal income tax who own or should own organized accounting or by subjects of corporate income tax not covered in articles 8 and 9 of the respective Code are taxed autonomously in personal or corporate income tax, as the case may be, at a rate of 10%, without prejudice to the provision of subsection h) of no. 1 of article 41 of the CIRC.»

This norm was subject to various subsequent amendments which successively increased the taxation rate provided therein.

With this type of taxation it was intended, on one hand, to encourage the taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue and, on the other hand, to prevent that, through these expenses, companies proceed to disguised distribution of profits, especially dividends which, thus, would only be subject to corporate income tax as profits of the company, as well as to combat tax fraud and evasion that such expenses occasion not only in relation to personal or corporate income tax, but also in relation to the corresponding contributions, both of employer entities and of workers, for social security.

Saldanha Sanches (Manual of Tax Law, 3rd Edition, Coimbra Publishing, 2007, page 407), regarding autonomous taxation provided in article 81, no. 3, of the CIRC, wrote the following: "(…) In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime for expenses that are in the zone of intersection of the personal sphere and the business sphere, in order to avoid remuneration in kind more attractive for exclusively fiscal reasons or the hidden distribution of profits. The norm presents a characteristic similar to that which we will find in the sanction against undocumented costs, with an increase in the rate when the taxpayer's situation does not correspond to a situation of fiscal normality. If in the taxpayer's declaration there is no profit, the cost can be the object of a negative valuation: for example, we have a rate of 15% applied when the taxpayer had losses in the two preceding fiscal years and a passenger vehicle was purchased for more than € 40,000 (article 81, no. 4).

With this provision, the system shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations which it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles which in principle are too costly when losses exist. A kind of presumption is created here that these costs do not have a business cause and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since, here, the basis of incidence is not a net income, but, rather, a cost transformed – exceptionally – into an object of taxation (...)" (underlined).

Contrary to what occurs in the taxation of income under personal or corporate income tax, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be calculated, as well as the bracket in which the taxpayer falls), in the case each expense incurred is taxed, in itself considered, and subject to a certain rate, autonomous taxation being calculated independently of the corporate income tax due in each fiscal year, by not being directly related to the obtaining of a positive result, and therefore, subject to taxation.

Thus, and in the case of corporate income tax, we are faced with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, the law considering that the taxable event is deemed to have occurred on the last day of the taxation period (cf. article 8, no. 9, of the CIRC).

Already as concerns autonomous taxation in corporate income tax, the taxable event of the tax is the very performance of the expense, not being faced with a complex fact, of successive formation over a year, but faced with an instantaneous tax fact.

This characteristic of autonomous taxation thus points us to the distinction between periodic taxes (whose taxable event is produced successively, through the lapse of a certain period of time, as a rule annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and single-obligation taxes (whose taxable event is produced instantaneously, arises isolated in time, generating on the taxpayer an obligation to pay with an isolated character).

In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of performance of a certain expense that is subject to taxation (although the calculation of the amount of tax resulting from the application of the various autonomous taxation rates to the various acts of performance of expense considered, is to be made at the end of a certain tax period). But the fact that the assessment of the tax is made at the end of a certain period does not transform the same into a periodic tax, of successive formation or of lasting character. That operation of assessment translates only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses incurred in the determination of the rate.

In this case we are faced with a tax of single obligation, applying to operations that are produced and exhausted instantaneously, in which the taxable event of the tax arises isolated in time, originating, for the taxpayer, an obligation to pay with an isolated character. That is, the autonomous taxation rates here under analysis do not refer to a period of time, but to a moment: that of the isolated operation subject to the rate, without prejudice to the calculation of the amount due by economic agents subject to the aforementioned "rate" being made periodically, in a given moment, jointly with other similar operations, without the joint assessment influencing its result.

For this reason, Sérgio Vasques (Manual of Tax Law, Almedina, 2011, page 293, note 470) calls attention to the circumstance that income taxes contemplate elements of single obligation, such as the tax-exempt rates of personal income tax or the autonomous taxation rates of corporate income tax.

Autonomous taxation, according to its initial regulation, constituted as a substitute for the regime of non-deductibility previously provided in the CIRC.

In fact, in its genesis was the non-acceptance by the tax administration of a percentage of certain expenses, autonomous taxation constituting an alternative and more effective form of correction of costs whenever it is a matter of areas more prone to tax evasion (travel allowances, representation expenses, vehicle expenses, etc.).

Thus, it would not be reasonable, indeed contrary to the reason that led the legislator to autonomously tax those expenses, that through their deduction from taxable income as expenses, the basis for the existence of autonomous taxation would be eliminated.

Arbitral jurisprudence has decided in the sense that autonomous taxation belongs, as a rule, systematically, to corporate income tax, and not to value added tax, personal income tax, or any other tax of the Portuguese fiscal system. This is the case, among others, of the Arbitral Proceedings nos. 166/2014-T, 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T, 36/2014-T and 697/2014-T.

They are, therefore, strongly linked to the taxpayers of the income tax respective, and, more specifically, to the economic and business activity carried out by them. What is at issue, in autonomous taxation is, in fact, taxing certain expenses or charges (costs), viewed these in their relation to the general idea of real and effective profit and taxation of income.

In fact, it seems to us beyond doubt that the mechanism of autonomous taxation of the set of realities provided in article 88 of the CIRC aims, primordially, to safeguard the general balances of the tax system itself, the specific balances of corporate income tax and the revenue of the tax itself. That is, it aims to prevent that through significant manifestation of charges as those provided in article 88, distortions affecting the system are introduced and the expectation about what should be the "normal" revenue of the tax is not dashed. In the case, as is equally well-known, what is at issue is to discourage the performance / manifestation of these expenses, since, by their nature and purposes, they can be more easily subject to diversion to consumptions which, in essence, are private or correspond to charges which also have, as a specific and final purpose, the avoidance of tax. Realities that present some measure of culpability since, not directly violating the law, 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 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 corporate income tax – which taxes income – autonomous taxation, it is reaffirmed, taxes certain specific expenses or charges – and constitute an instrumental reality, accessory to that tax, to the extent that it is in function of that which they were instituted and are, therefore, capable of being recognized as having an instrumentality or accessoriness of purposes, rooted in the safeguarding of the purposes of the tax itself where they manifest themselves.

It is thus held as certain that autonomous taxation does not constitute corporate income tax in the strict sense but are interwoven with this (corporate income tax), and should be contained in the "other taxes" of which the final part of subsection a) of no. 1 of article 45 of the CIRC gives us account [wording then in effect and current article 23-A/1-a) of the CIRC) (underlined).

As was weighed in the very recent decision of the Constitutional Court in recourse from an arbitral tax decision, "(…) autonomous taxation, although regulated normatively under an income tax heading, is materially distinct from corporate income tax taxation, to the extent that it applies not directly to the taxable income of the company, but to certain costs that constitute, in themselves, a new taxable event (which refers not to the perception of income but to the performance of expenses). And, in that manner, autonomous taxation has inherent the idea of discouraging a practice which, besides affecting equality in the distribution of public charges, may involve situations of less fiscal transparency, and is explained by a legislative intention to encourage companies to reduce as much as possible the expenses that negatively affect tax revenue (…)" [Cf Decision no. 197/2016 of the Constitutional Court, in Official Gazette, 2nd Series, no. 99, of 23 May 2016].

Revelations of that link of functionality, and within the context of the legislator's intention as a whole, stand out, for example from the regulation of article 12 of the CIRC as concerns entities subject to the tax transparency regime, by not taxing them in corporate income tax, "except as concerns autonomous taxation", a relationship that equally manifests itself in light of no. 14 of article 88 of the CIRC, in the sense that the autonomous taxation rates take into consideration the fact that the taxpayer presents or does not present a tax loss.

"Although formally inserted in the CIRC and the amount that permits collecting being assessed in its context and as corporate income tax, the norm in question respects a fiscal imposition that is materially distinct from taxation in this heading, (….). In fact, we are faced with autonomous taxation, [text continues as truncated]

Bearing in mind the above, autonomous taxation is not a modality of corporate income tax taxation, but rather a distinct, though instrumentally connected form of taxation, which, although formally contained in the Corporate Income Tax Code and the resulting collection being raised within it and as corporate income tax, materially constitutes a distinct tax, as the Constitutional Court has established.

This means that autonomous taxation, while being formally part of the corporate income tax system, constitutes, for material and substantive purposes, a distinct tax that has its own specificity, its own structure, and its own fundamental purposes.

From the preceding analysis, and bearing in mind the principle of the legality of taxation and the specific nature of autonomous taxation, the following conclusions can be drawn:

1. Autonomous taxation constitutes, materially, a distinct taxation from corporate income tax, though intimately connected with it;

2. The system of autonomous taxation is characterized by applying fixed rates to specific expenses, the determination of the tax base not being dependent on the profitability of the company;

3. The purposes of autonomous taxation – to discourage certain expenditures, to prevent the hidden distribution of profits, to combat tax evasion and fraud – are specific and distinct from those pursued by the general system of corporate income tax;

4. The system of autonomous taxation has been conceived as a complementary mechanism to the non-deductibility of certain expenses and as an instrument of tax policy to achieve the aforementioned purposes.

Given this characterization, the question arises as to whether deductions provided for in article 90, no. 2, of the CIRC, which apply to the general corporate income tax collection calculated on taxable income, should equally apply to the collection resulting from autonomous taxation.

The answer must be negative, for the following reasons:

First, the deductions referred to in article 90, no. 2, are conceived as mechanisms for adjusting the normal taxable income to the taxable base, taking into account certain circumstances that modify the tax capacity of the company or that aim to avoid double taxation. Such mechanisms presuppose a calculation based on the company's real economic results and aim to adapt the taxation to the actual manifestation of wealth.

Autonomous taxation, by contrast, does not operate on the basis of the company's real economic results. Rather, it is a system that applies predetermined rates to specific expenses, regardless of the company's profitability. It is a system designed to fulfill specific policy objectives, namely to discourage certain expenditures and to combat tax evasion and fraud.

Second, applying the deductions of article 90, no. 2, to the collection from autonomous taxation would lead to a situation where the purposes of autonomous taxation would be substantially undermined. The system of autonomous taxation would be rendered ineffective if companies could offset the tax burden resulting from it through deductions based on their general tax situation or through advance payments. This would be contrary to the specific policy objectives that justify the existence of autonomous taxation.

Third, there is a significant difference between the nature of the deductions in article 90, no. 2, and the nature of the obligations created by autonomous taxation. The deductions in article 90, no. 2, apply to the tax resulting from the normal calculation of corporate income tax, while the collection from autonomous taxation constitutes a distinct obligation, with its own tax base and its own purposes, which should not be subject to the same adjustments.

Fourth, the structure of article 90 itself, when read as a unified provision, suggests that the deductions referred to in no. 2 apply to the "amount calculated pursuant to the preceding number" – which in the context of the provision refers specifically to the corporate income tax calculated on the basis of taxable income determined according to the general rules of the Code. The assessment of autonomous taxation follows a different path and is calculated separately based on different rules and different taxable bases.

Fifth, this interpretation is supported by the express provisions of article 90, no. 5, which specifically concerns the imputation of deductions to partners or members of entities subject to the tax transparency regime. That article states that the deductions are «deducted from the amount calculated based on the taxable matter which took into consideration the imputation provided in the same article» – thereby clearly indicating that the deductions apply to the amount calculated on the basis of the taxable income that took into account the specific transparency rules, not to the amount calculated under autonomous taxation rules.

Sixth, the provisions regulating SIFIDE itself explicitly indicate that the deduction is to be made «to the amount calculated pursuant to article 90 of the Code of Corporate Income Tax», and that «the expenses that, by insufficiency of collection, cannot be deducted in the fiscal year in which they were made, may be deducted up to the sixth fiscal year following». This language clearly contemplates a deduction from the main corporate income tax collection, not from the autonomous taxation collection.

Seventh, the express reference in article 90, no. 5, to the transparent entities provision of article 12, which specifically excludes autonomous taxation from the exemption granted to such entities (providing that they are not taxed «except as concerns autonomous taxation»), shows that the legislator was aware of the distinction between the general corporate income tax and autonomous taxation, and deliberately chose to treat them differently in the various provisions of the Code.

In conclusion, the deductions provided for in article 90, no. 2, of the CIRC do not apply to the collection resulting from autonomous taxation. This conclusion is grounded on:

(a) The distinct nature of autonomous taxation, both formally and materially;

(b) The distinct purposes of autonomous taxation, which would be undermined if the deductions were allowed;

(c) The structure of article 90 itself, which contemplates separate treatment for autonomous taxation;

(d) The explicit provisions of related norms, such as articles 90, no. 5, and the SIFIDE regulations, which clearly limit the application of deductions to the main corporate income tax collection;

(e) The need to preserve the coherence and rationality of the tax system, by ensuring that provisions are interpreted in a manner consistent with the overall structure and purposes of the tax law.

Therefore, the Applicant does not have the right to deduct the amounts paid as special advance payments (PEC) or the tax credits recognized under SIFIDE from the collection resulting from autonomous taxation.

Regarding the subsidiary request, since it is clear that article 90, no. 1, of the CIRC applies to the assessment of autonomous taxation, and the procedures established therein have been followed, there is no absence of legal basis for the implementation of the autonomous taxation assessments in question.

Therefore, the subsidiary request must also be dismissed.

DECISION

For all the preceding reasons, we hereby DISMISS the request filed by A..., S.A., in its entirety, and consequently we MAINTAIN the administrative complaint dismissal decision of 14 October 2015, issued by the Tax Authority and Customs Authority.

The Tribunal condemns the Applicant to pay the procedural costs of these arbitration proceedings, without prejudice to other applicable provisions.

Lisbon, [date]

The Arbitrators:

[signatures]