CAAD 8/2017-T: SIFIDE II Deduction vs Autonomous Taxation in IRC – Annulled Decision

TAX ARBITRAL JURISPRUDENCE

Case No. 8/2017-T

Date of Decision: 2019-11-28
Tax: IRC
Value of Claim: €37,852.09

Subject Matter: Autonomous Taxation – SIFIDE II – Deduction from Tax Collection – Reform of Arbitral Decision (attached to decision).

*Arbitral decision annulled by judgment of the Supreme Administrative Court of 8 July 2020, case no. 10/20.1BALSB which establishes jurisprudence.

ARBITRAL DECISION

I. REPORT

A... S.A. ("Claimant"), Tax Identification Number ..., with registered office at Rua ... ("Claimant"), pursuant to the provisions of Articles 2, paragraph 1, letter a), and 10 of Decree-Law No. 10/2011 of 20 January ("RJAT"), submitted a REQUEST FOR CONSTITUTION OF ARBITRAL TRIBUNAL to pronounce on the ILLEGALITY AND CONSEQUENT ANNULMENT OF THE IRC ASSESSMENTS described below.

The request was filed at the Administrative Arbitration Center ("CAAD") on 4 January 2017 and was accepted.

The respondent is the Tax and Customs Administration ("TCA").

The Claimant did not proceed with the appointment of an arbitrator. For this purpose, the President of the Deontological Board of CAAD appointed the Signatory, who expressly accepted the appointment. The parties were duly notified thereof and did not express any intention to reject it.

The Arbitral Tribunal was thus constituted on 29 March 2017.

The TCA timely filed its response. First, it upheld the lack of competence of arbitral tribunals to decide the arbitral pronouncement request, basing such exception on the fact that the arbitral pronouncement request resulted from the denial of an official revision request. Subsequently, it argued for the rejection of that request by disagreeing with the interpretation of the legal questions supporting the Claimant's claim.

The Claimant submitted a response to the exception, which was considered untimely, but for reasons of procedural economy it was decided to consider it, whereby the Claimant has already pronounced on such matter.

Oral arguments were waived and 1 September 2017 was set as the date for issuance of the arbitral decision, a deadline that could not be observed.

On 29 September 2017, the Arbitral Tribunal issued an arbitral decision from which it resulted that the exception of material incompetence raised by the Respondent was upheld and, as a consequence, the arbitral pronouncement request was dismissed.

Dissatisfied with the decision handed down by the Arbitral Tribunal, the Claimant filed an appeal of the arbitral decision before the South Central Administrative Court.

By judgment of 11 July 2019, the South Central Administrative Court granted the appeal, having ordered the reform of the arbitral decision.

In that judgment, the South Central Administrative Court held as follows: "This Court adopts a less restrictive perspective of the competence of tax arbitral tribunals, so that it includes the assessment of illegality arising from an act of denial of the request for revision of the tax act (...) By adopting (...) a broader interpretation of the aforementioned Article 2, it is understood that, having the Appellant previously to the arbitral pronouncement request resorted to the administrative channel to correct the self-assessment, through the filing of a revision of the tax act, it is unequivocal that the question placed before the Arbitral Tribunal is not non-arbitrable, and the Arbitral Tribunal may/should hear it. And as such is the case, the alleged defect of improper pronouncement invoked by the Appellant necessarily proceeds (...) All things considered, and without need for further considerations, the claim of nullity of the disputed arbitral decision proceeds, under Article 28, paragraph 1, letter c), of the RJAT."

The position of the parties is absolutely clear and there are no disputed questions of fact.

The Arbitral Tribunal was regularly constituted and is materially competent.

The parties have legal personality, legal capacity, and are legitimate.

The proceedings do not suffer from nullities.

II. MATTERS OF FACT

The Claimant's request is based on the tacit denial of an official revision request. The Claimant sought with that request to deduce certain amounts [corresponding to tax benefits for investment derived from the System of Fiscal Incentives for Business Research and Development II ("SIFIDE II")] from the autonomous taxation of Corporate Income Tax ("IRC") for the fiscal years 2011 and 2012.

That deduction was not made in the self-assessment, but was requested in official revision which was tacitly denied.

That official revision request leads the TCA to consider this tribunal incompetent to decide the request and this untimely for lacking prior and timely gracious claim (or judicial challenge).

There is abundant jurisprudence on this matter, which is, however, not uniform, with a decision of the Constitutional Court on the retroactivity of the amendment to the IRC Code that modified the text of the disputed provision.

Summary of Matters of Fact Relevant to the Proper Decision of the Case

The following facts are deemed proven:

A. The Claimant is a corporation whose business purpose is engineering and manufacture of apparatus and equipment for communications, being subject to the general system of taxation under IRC;

B. On 31 May 2012, the Claimant filed its IRC Form 22 declaration, relating to the fiscal year 2011, and at that moment, proceeded with the self-assessment of autonomous taxation in the amount of €19,613.86;

C. On 31 May 2013, the Claimant filed its IRC Form 22 declaration, relating to the fiscal year 2012, and at that moment, proceeded with the self-assessment of autonomous taxation in the amount of €38,073.48;

D. In the self-assessments of 2011 and 2012, the Claimant determined, as expenses incurred under SIFIDE II, the amounts of €377,814.33 and €397,461.88, respectively;

E. The unused values at the end of each fiscal year, available as SIFIDE II for deduction from the IRC tax collection, amounted to €974,954.29 and €1,372,416.17, respectively;

F. From the accumulated balance and appropriation of the periods only the amount of €13,733.03 was deducted in the fiscal year 2011;

G. In the fiscal year 2012 no amount was deducted due to insufficiency of IRC collection;

H. The programming of the TCA website did not permit, at the time of IRC self-assessment, the deduction of those SIFIDE II amounts from the amounts determined as collection of autonomous taxation;

I. Respectively in the fiscal years 2011 and 2012, the Claimant had autonomous taxation collection in the amounts of €19,613.86 and €38,073.48;

J. The arbitral pronouncement request was filed on 4 January 2017 following the tacit denial of the official revision request;

K. The latter was filed by the Claimant on 25 May 2016, having aimed at the annulment of the following tax acts:

(i) IRC self-assessment, relating to fiscal year 2011, with validation code no. ...;

(ii) IRC self-assessment, relating to fiscal year 2012, with validation code no. ...;

L. No express decision was issued regarding the official revision request;

M. In the fiscal years 2011 and 2012, tax credits were determined under SIFIDE II in the amounts mentioned above;

N. Said tax credits were not deducted from the collection of autonomous taxation;

O. The IRC determined in the fiscal years 2011 and 2012, which was limited to the collection of autonomous taxation, is fully paid;

P. In the fiscal years 2011 and 2012, the Claimant's taxable profit was not determined by the TCA using indirect methods;

Q. In such fiscal years, the Claimant was not indebted to the State or Social Security for any taxes or contributions.

Of the facts with interest for the decision of the case, all subject to concrete analysis, those not listed in the above-mentioned facts were not proven.

The proven facts are based on documents provided by the Claimant, whose correspondence with reality is not disputed.

III. QUESTIONS TO BE DECIDED

For this Arbitral Tribunal, the questions to be decided are essentially three:

(i) Is the Arbitral Tribunal competent (exception) to assess the tacit denial of the official revision request?

(ii) If so, may the taxpayer resort to official revision, with the deadline for gracious claim or judicial challenge having expired?

(iii) If so, and only in that case, may the tax credits related to SIFIDE II be deducted from the collection resulting from autonomous taxation under IRC?

IV. MATTERS OF LAW

i.) Position of the Parties

Position of the Claimant

The Claimant recalls that in 2011 and 2012 SIFIDE II was in effect, which had been approved by Article 133 of Law No. 55-A/2010 of 31 December (State Budget Law for 2011), and that in its Article 4 established that "1 — Taxpayers subject to IRC resident in Portuguese territory who carry out, as principal or ancillary activity, an agricultural, industrial, commercial or services activity and non-residents with a permanent establishment in that territory may deduct from the amount determined in accordance with Article 90 of the IRC Code, and up to its limit, the value corresponding to expenses with research and development, in the part that has not been subject to financial participation of the State on a non-refundable basis (...)"; for which reason it understands that, in accordance with that legal provision, the expenses incurred and accepted under SIFIDE II may be deducted from the IRC collection determined in accordance with Article 90 of the IRC Code.

In turn, Article 90 of the IRC Code established the forms of assessment of IRC, whether by the taxpayer or by the TCA, this provision applying to the determination of the tax due in all situations provided for in the IRC Code, stipulating that: "1 - The assessment of IRC is carried out as follows: a) When the assessment is to be made by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable income contained therein; b) In the absence of filing the declaration referred to in Article 120, the assessment is effected by 30 November of the following year to which it relates or, in the case provided for in paragraph 2 of said article, by the end of the 6th month following the end of the deadline for filing the declaration mentioned therein and is based on the annual amount of the minimum monthly remuneration or, when greater, the total taxable income of the closest fiscal year that is determined; c) In the absence of assessment in accordance with the preceding paragraphs, it is based on the elements available to the tax administration."

The Claimant further emphasizes that there is no other provision in the IRC Code that establishes a specific procedure for assessment applicable to autonomous taxation. On this point, it emphasizes that, in accordance with the arbitral decision of 5 October 2015, issued in case no. 219/2015-T, relating to an IRC case for fiscal year 2011, "The differences between the determination of the amount resulting from autonomous taxation and the amount resulting from taxable profit reside in the determination of the taxable base and the rates provided for in Chapters III and IV of the IRC Code, but not in the forms of assessment, which are provided for in Chapter V of the same code and are commonly applicable to autonomous taxation and the remaining taxable income of IRC". And it reiterates that the same CAAD decision concludes that "For this reason, since it is to Article 90, inserted in this Chapter V, that is referred to in Article 4, paragraph 1, of SIFIDE, there is no legal support to make a distinction between the collection from autonomous taxation and the remaining IRC collection, by the fact that the rates and the forms of determining the taxable base are different."

Thus, the autonomy of autonomous taxation in relation to IRC would be limited to the applicable rates and the respective taxable base, but the determination of the amount would already be effected in accordance with Article 90.

The Claimant further notes that in a recent decision issued in case no. 369/2015-T, dated 25 January 2016, which discussed the possibility of deducting the tax benefits of RFAI from the collection of autonomous taxation in fiscal year 2011, and where also a decision was issued in the sense of its admissibility, it was decided that "the fact that the deductibility of the tax benefit (...) is limited to the collection of Article 90 of the IRC Code, up to its limit, does not allow concluding that the tax credit is only deductible if there is taxable profit, because what that fact requires is that there is IRC collection, which may exist even without taxable profit, namely by virtue of autonomous taxation". And also in a decision of 28 April 2016, relating to an IRC case for fiscal years 2012 and 2013, issued in case no. 637/2015-T: "Thus is answered the question raised by the TCA which was at the basis of the denial of the gracious claim, namely: the question that must be assessed in the present case is whether the amount paid as autonomous taxation should be understood as an integral part of the IRC collection, for purposes of deducting the amount attributed under RFAI. That is, paragraph b) of paragraph 2 of Article 90 of the IRC Code allows deducting from the IRC determined in accordance with paragraph a) of paragraph 1 of Article 90 of the IRC Code, which includes the determination of IRC resulting from the application of the autonomous taxation rates provided for in Article 88 of the IRC Code, the tax benefits, as is the case with RFAI". In an even more recent decision, of 27 July 2016, relating to an IRC case for fiscal year 2012, it was argued in case no. 5/2016-T the following: "In the interpretation of the law, and without prejudice to the consideration of the various interpretative elements, the interpreter cannot reach a result that does not have a minimum of correspondence in the letter of the law. Now if the legislator determines expressly, in SIFIDE and in RFAI, that the deduction is made «to the amount determined in accordance with Article 90 of the IRC Code» or, which amounts to the same, «to the IRC collection», the interpreter cannot conclude that the ratio legis points to a deduction from the taxable income of IRC and not from the collection of this tax. Furthermore, we are dealing with technical terms, with a precise legal-tax meaning, presuming that they were intentionally employed by the legislator, especially since the legal regimes of SIFIDE and RFAI were created they have already extended their effects or altered some of their provisions, but the reference to deduction «to the amount determined in accordance with Article 90 of the IRC Code» (in SIFIDE) has never been altered nor the provision for deduction «to the IRC collection» (in RFAI). Therefore, the deductions provided for in SIFIDE and RFAI should be made after the determination of the total amount of IRC, which includes the result of the application of autonomous taxation rates, as provided for in Article 90 of the IRC Code. And the information system of the Tax and Customs Authority should accurately reflect the legislator's choices in this matter, allowing the deductions of SIFIDE and RFAI to be made to the IRC collection, globally considered (that is, after the application of autonomous taxation rates)".

Thus for the Claimant there is no doubt whatsoever that the collection from autonomous taxation is considered as IRC collection, being that an integral part of this tax, as various CAAD decisions have pronounced regarding the legal regime of autonomous taxation, considering that these only make sense in the context of taxation under IRC.

In accordance with the decisions issued in cases nos. 210/2013-T and 255/2013-T of CAAD, both of 12 May 2014, and relating to fiscal years 2008 to 2011: "although it is recognized that the regime of autonomous taxation constitutes, within the framework of IRC, a special regime as to the form of determining the taxation, this does not remove it from its intrinsic nature of a regime of taxation of the income of corporations. It is true that this regime may, through this integration and the process of complexification it has been undergoing, have become multifaceted and diversified in its mode of operation, but it nonetheless remains a regime dedicated to the taxation of the income of corporations and to obtaining tax revenue in that way. If this is, at times, obtained through the taxation of certain expenses that reduce taxable profit, it is still possible to discern a form of taxation of that same taxable profit that is characteristic of the objectives underlying the IRC - moreover, autonomous taxation itself is owed by virtue of this tax".

This position finds support in Doctrine, as the Claimant notes. In the understanding of Sérgio Vasques, autonomous taxation is an element of IRC, with only the particular characteristic of being single obligation and not having a progressive character. Also Guilherme de Oliveira Martins follows this position, stating that autonomous taxation is a mechanism for preserving the taxable base under IRC, being bound by the same principles and objectives of IRC.

Whereby, being autonomous taxation an integral part of IRC, being owed by virtue thereof, and there being no other specific provision for the form of assessment thereof, the rules of Article 90 of the IRC Code would apply. And, thus, no distinctions could be made, for purposes of deducting expenses incurred under SIFIDE II, between the IRC collection proper and the collection of autonomous taxation.

Still in accordance with the decisions issued in cases nos. 219/2015-T, of 5 October 2015, and 769/2014-T, of 8 April 2015, relating to fiscal year 2011, and regarding the anti-abuse nature of autonomous taxation, the Claimant understood that "one cannot see, in the eventual anti-abuse nature that some autonomous taxation assumes, an explanation for its removal from the respective collection from the scope of the deductibility of the SIFIDE benefit, since there is no legal support to remove the deductibility from the collection provided by corrections based on clearly anti-abuse provisions, such as, for example, those relating to transfer pricing or undercapitalization".

It has no doubt that autonomous taxation also aims to discourage certain potentially abusive behaviors, but it is far from being this the sole objective thereof. Quoting again Counselor Jorge Lopes de Sousa, the Claimant emphasizes that "it is also true that, as is implicit in that statement, these autonomous taxation only aim to protect or increase tax revenues, and the benefits granted, by definition, are «exceptional measures established for the protection of relevant extrafiscal public interests that are superior to those of the taxation itself that they prevent» (Article 2, paragraph 1, of the Tax Benefits Statute). And, in the case of the tax benefits of SIFIDE, the reasons of an extrafiscal nature that justify their precedence over tax revenues are, from the legislative perspective, of enormous importance, as inferred from the fact that these benefits are specifically excluded from the general limit on the relevance of tax benefits under IRC, which is indicated in Article 92 of the IRC Code. For this reason, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, inferring from that Article 92 that the legislative intention to incentivize investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit on the deductibility of the IRC collection, despite this tax regime having been created and applied in a period of notorious difficulty of public finances". And, in accordance with the decision in case no. 369/2015-T, "In the confrontation between these two objectives, it is the law itself that indicates to us what should prevail. The public interests that determined the creation of a tax benefit are, by nature, superior to those of the taxation they prevent. This is, furthermore, even more manifest regarding tax incentives for investment, since they constitute a true public promise, in the sense that to taxpayers who adopt certain behaviors, supposedly of the greatest economic and social interest, a certain tax reward is guaranteed". Whereby for the Claimant, a possible anti-abuse nature of autonomous taxation is not sufficient to prevent the possibility of deducting the tax benefits recognized to taxpayers.

In summary, for the Claimant, it is certain that the expenses incurred under SIFIDE II may be deducted from the collection of autonomous taxation.

Having the Claimant paid the IRC assessments within the deadline for voluntary payment and without such SIFIDE deductions, it considers such assessments to be illegal, due to error of the entity competent to make the assessment (see what is referred to regarding the TCA website), for which reason it understands that the Claimant's right to reimbursement of the amounts already paid should be recognized, plus the corresponding compensatory interest, in accordance with Articles 43 and 100 of the General Tax Law and 61 of the Tax Procedure Code. This because, although we are faced with self-assessment acts, made by the Claimant, it argues that the error affecting them is attributable to the TCA, because it has been proven that the structure of IRC Form 22 did not allow the Claimant to determine the self-assessment, deducting the SIFIDE II tax benefits from the amount of autonomous taxation.

Position of the TCA

For its part, the TCA takes a radically opposite position.

But, preliminarily, it alleges the incompetence of the Arbitral Tribunal to assess the request.

In this context, the TCA argues that the referral made by Article 2, letter a), of Regulation No. 112-A/2011 of 22 March, to Articles 131 to 133 of the Tax Procedure Code excludes the possibility of the Arbitral Tribunal hearing challenges to denials of official revision requests (in this case, following self-assessment acts).

Subsequently, because the arbitral pronouncement request derives from the denial of an official revision request of self-assessment acts of IRC for fiscal years 2011 and 2012, having been filed on 25 May 2016. That is, already after the deadline for the gracious claim referred to in Article 131 of the Tax Procedure Code had passed. This would result in the untimeliness of the request.

The incompetence to assess the request results from the provisions of Articles 2, paragraph 1, letter a), and 4, paragraph 1, both of the RJAT, and also from Articles 1 and 2, letter a), both of Regulation No. 112-A/2011 of 22 March. Imposing therefore the dismissal of the Respondent from the proceedings (cfr. Articles 576, paragraphs 1 and 2 and 577, letter a), of the Code of Civil Procedure, ex vi Article 29, paragraph 1, letters a) and e), of the RJAT). This because Law No. 3-B/2010 of 28 April (State Budget for 2010) contemplated, in its Article 124, a legislative authorization relating to arbitration in tax matters, providing that it should constitute an alternative procedural means to judicial challenge and to action for the recognition of a right or legitimate interest, both enshrined in the Tax Procedure Code. And, in the exercise of such legislative authorization, Decree-Law No. 10/2011 of 20 January was approved, which instituted the RJAT. But, under Article 2 of said decree-law, under the heading "Competence of arbitral tribunals and applicable law", it is determined that the competence of arbitral tribunals comprises, in particular the assessment and declaration of illegality of acts of assessment of taxes, self-assessments, withholding at source and installment payments (cfr. letter a). However, by virtue of the provision in paragraph 1 of Article 4 of the RJAT, "The binding of the tax administration to the jurisdiction of tribunals constituted under the terms of this law depends on a regulation of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered".

The aforementioned Regulation (No. 112-A/2011 of 22 March) defines, in its Article 2, letter a), that the TCA is bound to arbitral requests that have as their object the assessment of claims relating to taxes whose administration is entrusted to it, referred to in paragraph 1 of Article 2 of the RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at source and installment payment acts that have not been preceded by recourse to the administrative channel in accordance with Articles 131 to 133 of the Tax Procedure Code". Thus, the arbitral pronouncement request sub judice is directed, albeit mediately, at the declaration of illegality of a self-assessment act of a tax, in the case IRC. It happening that the claim is formulated without that self-assessment act having been preceded by administrative challenge "in accordance with Articles 131 to 133 of the Tax Procedure Code", which determines, inevitably, that its assessment is excluded in the arbitral forum. That is, the scrutiny of self-assessment acts of a tax would only be admitted in the arbitral forum if, at a prior moment, such acts had been administratively challenged, in accordance with Article 131 of the Tax Procedure Code. Indeed, Article 2, letter a), of the aforementioned Regulation literally excludes from the scope of the TCA's binding to arbitral jurisdiction "claims relating to the declaration of illegality of self-assessment acts, withholding at source and installment payment acts that have not been preceded by recourse to the administrative channel in accordance with Articles 131 to 133 of the Tax Procedure Code", without mention therein of the official revision mechanism provided for in Article 78 of the General Tax Law. That is, the legislator opted to restrict the cognition in arbitral jurisdiction to claims that, being related to the declaration of illegality of assessment/self-assessment acts, have been preceded by the gracious claim provided for in Article 131 of the Tax Procedure Code.

Moreover, if this were not so, for the Respondent it would suffice that the legislator had reduced the exclusion provided for in Article 2, letter a), of Regulation No. 112-A/2011 of 22 March to the expression "that have not been preceded by recourse to the administrative channel", distinguishing nothing further. What did not happen, there being instead an express reference to prior recourse to the administrative channel in accordance with, in this case, Article 132 of the Tax Procedure Code, that is, through the submission of a gracious claim if necessary, regardless of its grounds. For this reason, it would not be viable to include in the authorization granted the administrative procedure of official revision, in particular for two reasons.

Firstly, because such interpretation flows from the literal element inherent in the legal provision in question, as referred to above. And, regarding interpretation, it is established in Article 11, paragraph 1, of the General Tax Law that, in determining the sense of tax provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed. And in that framework the provision of Article 9 of the Civil Code applies ("CC"), where it is determined that: "1. - Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied. 2. - The legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot, however, be considered by the interpreter. 3. - In determining the sense and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in appropriate terms".

To interpret a law for the TCA is to fix its sense and the scope with which it should be valid, that is, to determine its decisive senses and scope. If the literal apprehension of the text is the starting point of all interpretation it is incomplete, because there will always be a need for a task of interconnection and assessment that escapes the literal domain. In this task of interconnection and assessment that accompanies the apprehension of literal sense, logical elements intervene, with doctrine pointing to elements of a systematic, historical and rational or teleological order.

The systematic element comprises, in the TCA's exposition, the consideration of other provisions that form the complex normative of the institute in which the provision to be interpreted is integrated. That is, that regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). This element also comprises the systematic place that belongs to the provision in interpretation in the overall legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order.

The historical element comprises all matters related to the history of the material provision of the same or identical question, the sources of the law and the preparatory work.

The rational or teleological element consists of the reason for being of the provision (ratio legis), the end sought by the legislator in enacting the provision, the solutions it has in view and which it intends to realize.

From the interpretative elements referred to, for the TCA, no other interpretative solution is reached for the situation sub judice than that the TCA only bound itself, under the terms of Regulation No. 112-A/2011 of 22 March, to the jurisdiction of arbitral tribunals if the request for declaration of illegality of a self-assessment act had been preceded by recourse to the administrative channel of gracious claim (in accordance with the aforementioned Article 132 of the Tax Procedure Code). And when the legislator refers to recourse to the administrative channel, it wants only to refer to the means provided for in Articles 131 to 133 of the Tax Procedure Code, given the literal element of Article 2, letter a), of Regulation No. 112-A/2011 of 22 March. From this it results that the letter of the law cannot be set aside, being the main reference and starting point of the interpreter.

Indeed, given the voluntary and conventional nature of arbitration (understood here in its broad sense, since the material competence of arbitral tribunals results from regulation of a public nature made in the RJAT), the interpreter could not expand the object fixed by the legislator regarding the TCA's binding to arbitral jurisdiction.

Now, the TCA argues that from the mere reading of Article 2, letter a), of Regulation No. 112/2011 of 22 March, the express obligation to submit a prior gracious claim process as a way to open the arbitral channel for assessment of this litigation follows.

In this sense, Jorge Lopes de Sousa understands (Tax Procedure Code, Annotated and Commented, Volume II, Áreas Editora, 6th Edition, 2011, page 420): "However, in accordance with the provision of Article 2, letter a), of Regulation No. 112-A/2011 of 22 March, regarding acts of withholding at source, the Tax Administration only bound itself to the jurisdiction of arbitral tribunals if the request for declaration of illegality of a withholding at source act had been preceded by recourse to the administrative channel, that is, a gracious claim. For this reason, if the taxpayer wishes to opt for the arbitral channel, it will always have to make use of a gracious claim".

The same understanding was adopted in the Arbitral Award issued in case no. 51/2012-T, where, in sum, it was decided: "Such material incompetence is reinforced in the case of tax arbitration, insofar as the mere reading of Article 2, letter a), of Regulation No. 112-A/2011 of 22 March, regulation published in accordance with the provision of Article 4 of Decree-Law No. 10/2011 of 20 January, expressly imposes such prior administrative procedure as a way to open the arbitral channel for assessment of the litigation. It thus appears indisputable, the incompetence in reason of the matter (and not of the procedural means) of the tax arbitral tribunal (...). Concluding: the arbitrability of a dispute relating to the claims referred to in Article 2 (object of binding) of Regulation 112-A of 22 March, is only recognized if, previously, a gracious claim had been filed (and not in any other forum, in particular, by process of revision of a tax act, which, constituting an available guarantee of taxpayers, has, however, its own specificities)".

And this was actually decided by the Signatory in the arbitral decision issued in the arbitral case that proceeded under no. 236/2013-T: "As for the alleged "deficient" wording of Article 2, letter a), of the Regulation it should be said that, regardless of the merits of broad arbitrability of tax acts, the fact is that: (a) there is, indeed in error of concordance when using the past participle "preceded" in plural masculine when it should be in plural feminine, to agree with "claims". Such grammatical lapse, however, does not prejudice nor affect the understanding of the following part of the text that is truly at issue here; (b) the expression "recourse to the administrative channel" constitutes a broad generic formula that in itself may encompass all means by which the taxpayer may defend its rights, before resorting to courts. It is a broad formula but not wrong nor susceptible to inducing error. Moreover, the Administration (Ministries of Justice and Finance) specified hereinafter, in a very precise manner, which provisions are in question indicating them in a clear enumeration that is not merely exemplary; (c) we have thus the generic designation "administrative channel" and a specific characterization: "in accordance with Articles 131 to 133 of the Tax Procedure Code". We are facing a technique that respects legal-juridical discourse, in perfect consonance with paragraph 3 of Article 9 of the CC; (d) to intend the interpreter to further add to this part of the sentence "and Article 78 of the General Tax Law", which manifestly is not there, constitutes a violation of the fundamental principles of legal hermeneutics applicable both to legal provisions and to legal acts".

The TCA further emphasizes that Regulation No. 112-A/2011 of 22 March was approved and published already after extensive and profuse jurisprudence reaffirming that, given the administrative nature of the official revision procedure, it is possible to equate it to the provision of Articles 131 to 133 of the Tax Procedure Code for purposes of subsequent challenge of the respective decision of denial. Thus, if jurisprudence has argued that the understanding that, given the administrative nature of the official revision procedure, it is possible to equate it to the provision of Articles 131 to 133 of the Tax Procedure Code for purposes of subsequent challenge of the respective decision of denial; such an equation would already be legally prohibited in the arbitral forum, being excluded from the material competence of arbitral tribunals the assessment of claims relating to the declaration of illegality of self-assessment acts, withholding at source and installment payment acts that have not been preceded by recourse to the administrative channel, in accordance with Articles 131 to 133 of the Tax Procedure Code, not including therein the official revision procedure provided for in Article 78 of the General Tax Law.

Confirming this understanding are, among others, the decisions issued at CAAD in cases nos. 48/2012-T, 51/2012-T, 73/2012-T, 236/2013-T, 603/2014-T, 669/2015-T, 584/2016-T - all decided in favor of the Respondent.

• Response to the Exception by the Claimant

The Claimant responded to the exception, as mentioned, disagreeing with the TCA. Because Article 2 of the RJAT does not foresee any type of limitation in this sense, insofar as the competence of arbitral tribunals comprises the assessment of the declaration of illegality of self-assessment acts, without any limitation to cases in which a prior claim has been filed - decision issued in case no. 704/2015-T, of 10 August 2016, a case where a question similar to that raised by the TCA was discussed and where it was concluded that "The provision in question should also be understood as being explained by the circumstance that, in its absence - and given the tenor of Article 2 of the RJAT - it would appear as possible the direct challenge of self-assessment acts, without precedence of prior administrative pronouncement. That is, taking into account that in light of the RJAT no prior administrative intervention was needed to challenge arbitrally a self-assessment, the content of the Regulation should be interpreted as equating - in this matter - the tax arbitral process to the judicial challenge process and not, as would follow from the position held by the Respondent, going from 80 to 8, taking an impugnability broader than possible in the Tax Tribunals, and transmuting it into a more restricted one".

Then because the literal element contained in the Regulation reveals an intention to submit to the scrutiny of the TCA acts regarding which such entity has not yet pronounced, as self-assessment acts. But, the official revision request would serve the purpose of that "administrative filter", by giving the TCA the opportunity to pronounce on the self-assessment act. Moreover, excluding access to arbitral tribunals only because the administrative means was not a gracious claim would constitute a violation of the principle of effective judicial protection provided for in Article 20 of the Constitution of the Portuguese Republic ("CRP"). This understanding was the one propounded in the decision issued in case no. 704/2015-T where it is clarified that "Indeed, no substantive reason is discerned - and the Respondent presents nothing in that sense - for that, given the conditions and specificities proper to each of the gracious means in question, in the same terms as the tax tribunals are bound, the legality of self-assessment acts subject to an official revision request, filed beyond the gracious claim deadline, is not cognoscible in the arbitral forum". And in the same sense see also the arbitral decision issued in case no. 630/2014-T where it is reaffirmed that "the formula «declaration of illegality of assessment acts of taxes, self-assessments, withholding at source and installment payment acts», used in paragraph a) of paragraph 1 of Article 2 of the RJAT does not restrict, in a merely declarative interpretation, the scope of arbitral jurisdiction to cases in which a self-assessment act of one of those types is directly challenged. In fact, the illegality of assessment acts may be declared jurisdictionally as a corollary of the illegality of a second-level act, which confirms an assessment act, incorporating its legality". And, also in accordance with this award, "In fact, the interpretation exclusively based on the literal tenor that the Tax and Customs Authority defends in the present case cannot be accepted, because in the interpretation of tax provisions the general rules and principles of interpretation and application of laws are observed (Article 11, paragraph 1, of the General Tax Law) and Article 9, paragraph 1, expressly forbids purely literal-based interpretations of provisions by establishing that «interpretation should not be limited to the letter of the law», rather should «reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied». As for the correspondence between interpretation and the letter of the law, it suffices to have «a minimum of verbal correspondence, even if imperfectly expressed» (Article 9, paragraph 3, of the Civil Code) which will only prevent interpretations that cannot at all be reconciled with the letter of the law, even acknowledging therein imperfection in the expression of the legislative intent".

Furthermore, as the Supreme Administrative Court has argued, official revision requests should be understood as comparable to gracious claims, including in cases where the law requires a prior gracious claim to challenge an act. This position is contained in the Judgment of the Supreme Administrative Court issued in case no. 0402/06 of 7 December 2006, where it can be read that: "The denial, express or tacit, of a revision request, even in cases where it is not filed within the deadline of administrative claim but within the time limits in which the Tax Administration may revise the act on the basis of error attributable to the services, may be judicially challenged by the taxpayer [Article 95, paragraphs 1 and 2, letter d), of the General Tax Law]. The filing of an official revision request of the tax act may take place with respect to withholding at source acts, independently of whether the taxpayer has made a gracious claim in accordance with Article 152 of the Code of Tax Procedures (or 132 of the Tax Procedure Code), since this is necessary only for purposes of filing a judicial challenge. The procedural means of revision of the tax act cannot be considered as an exceptional means to react against the consequences of an assessment act, but rather as an alternative means to the administrative and contentious challenge means (when used at a time when those can still be used) or complementary to them (when the deadlines for use of the challenge means of the assessment act have already been exhausted)".

In the same sense, see also the judgment of the Supreme Administrative Court issued in case no. 565/07 of 14 November 2007, where it is concluded that: "paragraph d) of paragraph 2 of Article 95 of the General Tax Law' refers to acts of denial of revision requests among the potentially injurious acts, which are susceptible to being judicially challenged. No distinction is made here between acts of denial practiced following a request by the taxpayer made within the administrative claim deadline or beyond it, whereby the judicial impugnability to acts of denial of revision requests practiced in either of the situations, which, moreover, is a corollary of the constitutional principle of judicial impugnability of all acts that injure rights or legitimate interests of the administered (Article 268, paragraph 4, of the CRP). Thus, it is to be concluded that, the fact that the deadline for gracious claim and judicial challenge of the assessment act had elapsed, did not prevent the challenger from requesting official revision and judicially challenging the act of denial thereof. Having set out this regime of revision of the tax act and challenge of decisions issued (or omitted) in its scope, one arrives at the conclusion that the absence of the claim provided for in Article 152 of the Code of Tax Procedures does not prevent the possibility of judicial challenge."

In sum and for the Claimant, whether through interpretation in conformity with the Constitution propounded by the cited jurisprudence of CAAD, or through the support found in the jurisprudence of the Supreme Administrative Court here identified, in the sense of not discriminating between the two reaction means (claim and revision), the exception invoked by the TCA should be considered unsubstantiated, with all legal consequences.

ii) Position of the Arbitral Tribunal

Regarding the first question to be decided [Is the Arbitral Tribunal competent (exception) to assess the tacit denial of the official revision request?]

Faced with the position adopted by the South Central Administrative Court in the judgment of 11 July 2019, the Arbitral Tribunal changes its decision-making sense, reforming it, adhering to the understanding adopted in that award: "This Court adopts a less restrictive perspective of the competence of tax arbitral tribunals, so that it includes the assessment of illegality arising from an act of denial of the request for revision of the tax act (...). By adopting (...) a broader interpretation of the aforementioned Article 2, it is understood that, having the Appellant [Claimant] previously to the arbitral pronouncement request resorted to the administrative channel to correct the self-assessment, through the filing of a revision of the tax act, it is unequivocal that the question placed before the Arbitral Tribunal is not non-arbitrable, and the Arbitral Tribunal may/should hear it".

In the same sense, admitting recourse to the arbitral channel in a situation identical to the present, the Constitutional Court pronounces itself within the scope of Judgment No. 244/2018, issued on 11 May 2018: "It is thus concluded, by the non-unconstitutionality of the provision that considers official revision requests equivalent to situations where there was «recourse to the administrative channel in accordance with Articles 131 to 133 of the Tax Procedure Code», for purposes of interpreting letter a) of Article 2 of Regulation No. 112-A/2011, such situations being, as a result, covered by the jurisdiction of arbitral tribunals functioning in CAAD" [emphasis ours].

Consequently, the exception of material incompetence invoked by the Respondent fails, with no obstacles to the assessment of the remaining legal questions.

Regarding the second question to be decided [If so, may the taxpayer resort to official revision, with the deadline for gracious claim or judicial challenge having expired?]

Regarding the present question, it is important to note that the revision of the tax act still constitutes a gracious means available to taxpayers so that they may defend their rights and legally protected interests, even if the legal deadline for filing a gracious claim has already elapsed.

On this matter, particular attention is deserved by the Judgment of the Supreme Administrative Court of 12 July 2006, issued within the scope of case no. 0402/06, in which it was established that: "Even after the deadlines for gracious claim and judicial challenge have elapsed, the Tax Administration has the duty to revoke acts of assessment of taxes that are illegal, under the conditions and within the time limits referred to in Article 78 of the General Tax Law. The duty of the Administration to effect revision of tax acts, when it detects a situation of illegal collection of taxes, exists with respect to all taxes, because the principles of justice, equality and legality, which the tax administration must observe in the totality of its activity (Article 266, paragraph 2, of the CRP and 55 of the General Tax Law), require that errors in assessments that have resulted in the collection of amounts of taxes not owed in the face of the law be officially corrected, within the time limits fixed in Article 78 of the General Tax Law" [emphasis ours].

"Thus, the revision of the tax act on the basis of error attributable to the services must be effected by the Tax Administration on its own initiative, but, as concluded from paragraph 7 (previous paragraph 6) of Article 78 of the General Tax Law, the taxpayer may request that this duty be fulfilled, within the time limits in which the Tax Administration may exercise it. The denial, express or tacit, of a revision request, even in cases where it is not filed within the deadline of administrative claim, but within the time limits in which the Tax Administration may revise the act on the basis of error attributable to the services, may be judicially challenged by the taxpayer" [emphasis and highlighting ours] — cfr. Judgment of the Supreme Administrative Court of 12 July 2006, issued within the scope of case no. 0402/06.

In conformity, the procedural means of revision of tax acts cannot be considered as an exceptional means of reaction against the consequences of an assessment act, but rather as an alternative means to the administrative and contentious challenge means (when used at a time when those can still be used) or complementary thereto (when the deadlines for use of the other challenge means of the assessment act have already been exhausted).

In equal sense the jurisprudence of the Supreme Administrative Court pronounces itself, in particular the Judgments issued within the scope of cases nos. 1462/03, of 5 November 2003, 1237/03, of 12 November 2003, 1171/04, of 2 February 2005, and 0402/06, of 12 July 2006, from the content of which it results being "unequivocal that it is admitted, alongside the so-called revision of the tax act by initiative of the taxpayer (within the deadline of administrative claim), that it be done, also following his initiative, the "official revision" (which the Administration must also carry out on its own initiative). On the other hand, paragraph d) of paragraph 2 of Article 95 of the General Tax Law refers to acts of denial of revision requests among the potentially injurious acts, which are susceptible to being judicially challenged. No distinction is made here between acts of denial practiced following a request by the taxpayer filed within the deadline of the administrative claim for beyond it, whereby the judicial impugnability of acts of denial of revision requests practiced in either of the situations, which, moreover, is a corollary of the constitutional principle of judicial impugnability of all acts that injure rights or legitimate interests of the administered (Article 268, paragraph 4, of the Constitution of the Portuguese Republic). Thus, it is to be concluded that, the fact that the deadline for gracious claim and judicial challenge of the assessment act had elapsed did not prevent the challenger from requesting official revision and judicially challenging the act of denial thereof" [emphasis ours] - cfr. Judgment of the Supreme Administrative Court of 12 July 2006, issued within the scope of case no. 0402/06.

In consequence, there are no obstacles to the assessment of the last legal question and, consequently, of the merits of the case.

Regarding the third question to be decided [If so, and only in that case, may the tax credits related to SIFIDE II be deducted from the collection resulting from autonomous taxation under IRC?]

On the application of the regime inherent in Article 90 of the IRC Code (including paragraph 2) to the collection resulting from autonomous taxation

As a preliminary matter, it is important to note that autonomous taxation constitutes mechanisms of taxation under IRC.

Indeed, autonomous taxation consists of the application of IRC rates - as is verified by its systematic location in the IRC Code - translating indirect mechanisms of taxation under this tax, occurring, in that context, on certain charges of taxpayers.

Underlying the autonomous taxation of a certain type of expenses is the difficulty of inspection and control of companies by the TCA and, equally, the need to tax expenses that do not possess a business purpose that is fiscally relevant within the meaning of Article 23, paragraph 1, of the IRC Code.

The notion that autonomous taxation is a component of IRC equally results from Article 12 of the IRC Code, under which "The companies and other entities to which, under the terms of Article 6, the transparent taxation regime applies are not taxed under IRC, except with respect to autonomous taxation" [emphasis ours].

From the wording of this legal provision it follows that autonomous taxation is integrated into IRC, this being the only justification for such express reference to autonomous taxation.

Indeed, the notion that autonomous taxation is an integral part of IRC has been the dominant position of the TCA in situations where, before the reform of IRC effected by Law No. 2/2014 of 16 January, taxpayers raised the question of the deductibility of autonomous taxation from taxable profit.

Indeed, for example in the counter-allegations filed within the scope of arbitral case no. 93/2014-T, the TCA argued: "D. In reality, formally, autonomous taxation is IRC presenting itself as a component thereof, a complement thereof (...) F. Both the legislator and the law, in Article 12 of the IRC Code, consider autonomous taxation a component of IRC. G. In this sense, autonomous taxation should be paid by taxpayers in accordance with the terms and deadlines provided for respectively in Articles 89 and following and 104 and following of the IRC Code, which, moreover, refer, indifferently, both to IRC on profit and to autonomous taxation under IRC. H. The new wording of Article 23-A/1 letter a), introduced by Law No. 2/2014 of 16 January, has a manifest clarifying scope for the future as to the following fact: autonomous taxation is a component included in the charges supported by title of IRC. (...) L. Both from a teleological, systematic and functional perspective, autonomous taxation is an authentic supplement of IRC and this because, by the nature of things, a tax cannot be deductible from itself (...). N. Autonomous taxation is functionally interwoven with IRC and, in parallel, there is a provision (88/14 of the IRC Code) that makes the rate of autonomous taxation depend on the circumstance of whether or not the taxpayer presents a fiscal loss" [emphases ours].

In an identical sense, see the counter-allegations filed within the scope of arbitral case no. 282/2013-T and also in cases nos. 0429/14 and 0525/14, which proceeded before the Supreme Administrative Court.

This same understanding received majority acceptance in jurisprudence, being an example the arbitral decision issued on 27 June 2014 in case no. 59/2014-T: "Autonomous taxation directly affecting certain expenses, within the framework of taxes that originally affected only income, are considered entorses of the direct taxation system of income that was aimed at with the IRC, but a value that was legislatively considered to be more relevant than the theoretical coherence of taxes, as is the implementation of fiscal justice, imposed a choice for these forms of taxation, because they are in consonance with the principles of equity, efficiency and simplicity (...). But, this indirect taxation does not cease to be effected within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as corollary the application of the general provisions proper to this tax, which do not conflict with its special form of effect" [emphasis ours].

Moreover, despite the differences in determining the taxable base and the rates applicable provided for in Chapters III and IV of the IRC Code, the forms of assessment set forth in Chapter V of the IRC Code, intended for the determination of autonomous taxation and taxable profit, are commonly applicable.

In this context, it is irrelevant the circumstance that the collection of IRC stricto sensu is determined under Article 90 and autonomous taxation under Article 88 of the IRC Code, since this last provision limits itself to defining the different autonomous taxation rates applicable and not any mechanism of assessment of the tax.

From which it is necessary to conclude that Article 90 of the IRC Code refers to the forms of assessment of IRC, whether by the taxpayer or by the TCA, applying to the determination of the tax due in all situations provided for in the IRC Code, including autonomous taxation, with not even any other provision foreseen for different terms for its assessment.

In the same sense the arbitral jurisprudence pronounces itself, emphasizing the following: "Article 90 of the IRC Code refers to the forms of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (paragraph 10). For this reason, it also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration in accordance with Article 90 of the IRC Code, with no other provision foreseen for different terms for its assessment. Its autonomy is limited to the applicable rates and to the respective taxable base, but the determination of its amount is effected in accordance with Article 90" - cfr. arbitral decision issued on 5 October 2015 in case no. 219/2015-T.

Thus, it is observed that the deduction relating to tax benefits provided for in Article 90, paragraph 2, of the IRC Code is applicable to the collection resulting from autonomous taxation.

The very systematization of the IRC Code points in that direction, insofar as Article 90, under the heading "Procedure and form of assessment", is inserted in Chapter V of the IRC Code, which regulates the matter of "Assessment" applicable to all the rates provided for in the preceding chapter.

In the sense that autonomous taxation is assessed in accordance with Article 90 of the IRC Code, the Constitutional Court judged, arguing in Judgment No. 267/2017 of 31 May 2017, issued in case no. 466/16, the following: "The autonomy of the taxation in question as to its base of effect, as to the rates applicable and even as to the moment of payment, alone, does not determine - neither logically nor legally - the irrelevance of the collection obtained with autonomous taxation within the scope of determining the collection of IRC itself - a matter regulated, in general, in Article 90, paragraph 1 of the IRC Code -, in particular as to the integration of that collection in this latter and, consequently, as to the admissibility of consideration of the value of said collection for purposes of effecting the deductions legally provided for in Article 90, paragraph 2, of the IRC Code. Such question, in the absence of a specific provision to the contrary - such as that which, for example, came to be enshrined in Article 88, paragraph 21, of the IRC Code - relates to the very legislative configuration of IRC, in this included the relevance or irrelevance, for purposes of determining the final IRC collection, of the amounts paid by title of autonomous taxation" [emphasis ours].

If Article 90 of the IRC Code were not applicable to the assessment of autonomous taxation provided for in the respective IRC Code, it would have to be concluded that there would be no provision that provided for its assessment in fiscal years 2011 and 2012.

Now, it flows from Article 103, paragraph 3, of the CRP that "No one can be obliged to pay taxes (…) whose assessment and collection are not made in accordance with the law".

Whereby, such interpretation would contravene the Fundamental Law and, as a result, would determine the annulment of autonomous taxation pure and simple.

In consonant sense the arbitral jurisprudence pronounces itself, referring to the following: "The principle of legality encompasses the form of assessment of taxes, with its assessment only being able to be effected 'in accordance with the law' [Article 103, paragraph 3, of the CRP and 8, paragraph 2, letter a), of the General Tax Law], whereby, if Article 90 of the IRC Code is not applicable to the assessment of autonomous taxation, it would have to be concluded that there would be no provision in the IRC Code on the form of assessment of this taxation, which would lead to the conclusion that it would suffer from unconstitutionality in its assessment, for violation of the principle of legality, which is not compatible with the assessment of taxes without the terms in which it is effected being foreseen in the law" - cfr. arbitral decision issued on 5 October 2015 in case no. 219/2015-T.

Thus, providing Article 90, paragraph 2, of the IRC Code that deductions are made "to the amount determined in accordance with the preceding number" and referring paragraph 1 of the same provision to the operation of assessment of IRC, which includes autonomous taxation, from which results the determination of collection, the deductions listed in the various paragraphs of paragraph 2 of Article 90 of the IRC Code cannot fail to be effected to this amount.

Consequently, in cases where the amount of tax benefits is greater than the collection resulting from taxable profit, the remainder of the tax credit will also be deductible, from the collection resulting from autonomous taxation up to its limit.

Terms in which, concluding that the collection of IRC, resulting from taxable profit and autonomous taxation, is determined in accordance with Article 90 of the IRC Code - as is observed and the TCA itself has already held in the cases listed above - doubts cannot remain as to being indistinctly applicable to such collection the deductions provided for in paragraph 2 of said provision, given that they relate to "the amount determined in accordance with the preceding number".

Furthermore, added to the foregoing is that the possibility of deduction of SIFIDE II is the interpretation that best accords with the very nature of tax benefits.

From the purpose underlying the creation of the SIFIDE II regime, given its (non)susceptibility to deduction from the collection of autonomous taxation

Indeed, provisions that create tax benefits have an exceptional nature, as results from Article 2, paragraph 1, of the Tax Benefits Statute ("TBS"), which dictates that tax benefits are, by definition, "exceptional measures established for the protection of relevant extrafiscal public interests that are superior to those of the taxation they prevent."

In the same sense, by way of example, the judgment issued by the Supreme Administrative Court in case no. 0529/12 of 3 July 2018 pronounced itself: "Tax benefits, among which exemption from taxation, are, by nature, of exceptional character, since they contain a derogation from the general principles that govern taxation, given that, in a certain way, they derogate the principles of contributory capacity, generality and equality of taxation and find justification only in the protection of constitutionally relevant public interests, superior to those of the taxation itself, whether of a political, economic, social or cultural character (Manual of Tax Law, 11th edition with annex, 2000, pages 323/326, Nuno de Sá Gomes, cited in the opinion of His Excellency the Attorney General)".

The exceptional nature of the provisions that enshrine the tax benefits in reference reinforces the understanding that these may be deducted from autonomous taxation, given that the extrafiscal motivations that determined them take precedence over the motivations for raising revenue propelling the generality of autonomous taxation.

Put differently, being autonomous taxation an instrument of IRC that aims to prevent taxpayers from evading payment of the tax owed and, with tax benefits taking precedence over the objective of raising revenue, it would be systematically incoherent to prevent the deduction of tax benefits from autonomous taxation so as to protect an objective of raising revenue that the legislator set aside, in favor of extrafiscal motivations, when creating the tax benefits themselves.

In concrete terms, regarding SIFIDE II, the reasons of an extrafiscal nature that justify its precedence over tax revenues are of great relevance, insofar as the legislator considered that increased R&D is decisive for the competitiveness of companies and the country, as well as for long-term productivity and economic growth.

Indeed, it explicitly follows from the Report on the State Budget for 2011 the following: "Bearing in mind that one of the assets of competitiveness in Portugal passes through the commitment to technological capacity, scientific employment and conditions of assertion in the European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (System of Fiscal Incentives for Business Research and Development), now in the SIFIDE II version, to be in effect in the periods from 2011 to 2015, making possible the deduction from the IRC collection for companies that invest in R&D (research and development capacity). Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system of other countries, it was decided to review and reintroduce for another five taxation periods this support system. Business R&D is a decisive factor not only of its own assertion as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in various recent international reports. It is in this context that, in the international panorama, the OECD has considered since 2001 Portugal as one of the three countries with the most significant progress in business R&D. Being the national system currently in force, comparatively to other systems that use deduction from collection and the distinction between base rate and incremental rate, is one of the most attractive and competitive".

The relevance that the legislator attributes to SIFIDE II finds further expression in Article 92, paragraph 2, letter b), of the IRC Code, insofar as this provision expressly excludes the benefit in reference from the calculation of the general limit on deduction of tax benefits under IRC.

It follows from Article 92 of the IRC Code that the objective of promoting investments in R&D under the scope of SIFIDE II is so relevant that the legislator opted not to foresee any limit to the deductibility of the collection under IRC.

Thus, the reasons underlying the establishment of SIFIDE II were considered by the legislator more relevant than the obtaining of tax revenues.

Overriding this benefit the raising of revenues, it must be considered irrelevant that the tax revenues that might be lost in order to realize the incentive in question come from taxation under IRC, including from autonomous taxation.

Indeed, being autonomous taxation a way to prevent taxpayers from avoiding taxation under IRC in certain respects - configuring, for this reason, a way of protecting tax revenue - it is not perceived how these taxation can override the deductibility of this tax benefit that, by virtue of its exceptional nature, prevails over that purpose of raising revenue.

Taking into account the legislator's purpose to privilege the incentive for business R&D, there is no legal basis for setting aside the deductibility of the tax benefit of SIFIDE II from the collection of autonomous taxation that results directly from Articles 36, paragraph 1 of the Investment Tax Code (republished by Decree-Law No. 82/2013 of 17 June).

Moreover, the interpretation now expounded, by allowing the application of SIFIDE II to taxpayers who, although presenting fiscal losses, support IRC by title of autonomous taxation, increases the number of potential beneficiaries and, consequently, appears to be the most apt to promote the extrafiscal objectives underlying its creation, translating itself, for this reason, into the most accurate solution in light of Article 9, paragraph 1, of the CC.

There thus exists no basis that obstructs the deductibility of SIFIDE II from IRC, whereby the corresponding expenses are deductible from the totality of IRC collection, in particular that resulting from autonomous taxation.

On the non-applicability of Article 88, paragraph 21, of the IRC Code, in the wording of Article 135 of Law No. 74/2016 of 30 March

Moreover, the wording given to Article 88, paragraph 21, of the IRC Code by Law No. 74/2016 of 30 March (State Budget Law for 2016) is not susceptible to leading to the adoption of a different understanding in fiscal years 2011 and 2012, as will hereinafter be explained.

By virtue of Law No. 74/2016 of 30 March (State Budget Law for 2016), paragraph 21 of Article 88 of the IRC Code came to provide: "the assessment of autonomous taxation in IRC is effected in accordance with the terms provided for in Article 89 and is based on the values and rates that result from the foregoing numbers, with no deductions being made to the total amount determined" [emphasis ours].

It happens that the legislator attributed a purportedly interpretative nature to this legislative amendment, resulting from Article 135 of the State Budget Law for 2016 the following: "The wording given by this law to paragraph 6 of Article 51, to paragraph 15 of Article 83, to paragraph 1 of Article 84, to paragraphs 20 and 21 of Article 88 and to paragraph 8 of Article 117 of the IRC Code has an interpretative nature".

In the sense that the attribution of interpretative nature to such legislative amendment is unconstitutional, on the basis of violation of the principle of non-retroactivity provided for in Article 103, paragraph 3, of the CRP, the Constitutional Court pronounced itself in Judgment No. 267/2017 issued on 31 May 2017 in case no. 466/16.

In this context, adhering to the understanding adopted by the Constitutional Court, it is important to emphasize: "The regulatory solution of Article 88, paragraph 21 of the IRC Code resulting from the amendment introduced by Article 133 of the 2016 State Budget Law is innovative and diminishes the possibilities of the taxpayer to effect deductions from the IRC collection, that is, aggressively worsens the manner of calculating the quantum annually owed by title of IRC. The determination of the application of such solution to fiscal years prior to that of the entry into force of the 2016 State Budget Law provided for in Article 135 of this same Law makes it, consequently, substantially retroactive and, in that same measure, incompatible with the prohibition on the imposition of retroactive taxes of Article 103, paragraph 3, of the Constitution. In the domain of concrete inspection of constitutionality, the interpretation of infraconstitutional law made by the court heard is, in principle, binding on the Constitutional Court, already since to this, as mentioned above, there falls the duty to "judge unconstitutional or illegal the provision that the decision heard, as the cases may be, has applied or to which it has refused application" (Article 79 C of the Constitutional Court Law). However, this does not prevent the Constitutional Court, if it so understands justifiably, from departing from the interpretation embraced by the decision heard, and from replacing it with another, insofar as in accordance with the Constitution (cfr. Article 80, paragraph 3, of the Constitutional Court Law). Indeed, such possibility is inherent to the nature of the Constitutional Court and ensures that the purifying function proper to the concrete inspection of constitutionality in its charge is exercised on norms of infraconstitutional law resulting from interpretations that are not unilateral and, insofar as possible, shared by the generality of courts. In the case sub iudice, however, there are no reasons to doubt the accuracy of the characterization as innovative of the regulatory solution of Article 88, paragraph 21 of the IRC Code resulting from the amendment made by Article 133 of the 2016 State Budget Law. The decision heard founded, based on arguments of literal, teleological and systematic order the such innovative character and evidenced the existence of, at least, four other jurisdictional decisions in the same sense. Thus, should not the Constitutional Court correct the interpretation of the provision refused application by the court a quo nor invert the judgment of unconstitutionality for this formulated" [emphasis ours]

Furthermore, the Constitutional Court added in that award the following: "From the point of view of the Constitution, for a regulatory discipline self-qualified as merely interpretative to be considered constitutive (of new law) and, as such, substantially retroactive, it suffices the verification that to the provision interpreted in its primitive version could have been imputed by courts a sense that, in the sequel of the interpretative provision, became necessarily excluded (cfr. the decisions of the German Federal Constitutional Court of 2.5.2012 and of 17.12.2013, in BVerfGE 131, 20[37-38] and 135, 1 [16-17], respectively). Indeed: 'The clarifying discipline is constitutive already in cases in which it aims to exclude the interpretation [of the preexisting law] made by a lower court — even not being the case of a superior court - with respect to past situations. The legislator confers on the retroactive law a constitutive efficacy, insofar as it intends to clarify for the past, through a law with a univocal sense, certain assertion that originated, as to applicable law, an apparently non-univocal understanding or, at the least, a non-uniform application of the same (...). Decisive is that the legislator has the intention to correct or exclude a given interpretation [made by the courts]' (v. BVerfGE 135, 1 [18-19]) It is that precisely the effect of Article 135 of the 2016 State Budget Law, in qualifying as 'interpretative law' paragraph 21 added by Article 133 to Article 88 of the IRC Code. In fact, and as well referred to in the decision now appealed from, that which represented a certain jurisprudential understanding as to the admissibility of deductions from the total amount of IRC collection, including in this the value of autonomous taxation - as that held in the decisions of CAAD issued within the scope of cases nos. 769/2014-T, 163/2014-T, 219/2015-T and 370/2015 -, ceased to be admissible in light of the cited paragraph 21. Thus it is unequivocal the substantially retroactive character of that provision understood as interpretative law. Given the burdensome content for taxpayers of the new legal solution - given that it tends to aggravate the quantum owed by title of IRC -, the claim that it apply to fiscal years prior to that of the beginning of its validity shows itself flagrantly incompatible with the constitutional prohibition of retroactive taxes (cfr. Article 103, paragraph 3, of the Constitution)" [emphasis ours].

In light of the foregoing it is necessary to conclude that Article 135 of the State Budget Law for 2016, which attributed an interpretative nature to the new wording of paragraph 21 of Article 88 of the IRC Code, is materially unconstitutional by violation of the principle of prohibition of retroactivity provided for in Article 103, paragraph 3, of the CRP, when interpreted in the sense of dictating, in periods prior to the entry into force of that law, the setting aside of the right to deduction from the IRC collection (derived from autonomous taxation) of tax benefits.

Thus being, it is observed not to be applicable to the periods in reference (fiscal years 2011 and 2012) Article 88, paragraph 21, of the IRC Code, in the wording of Article 135 of the State Budget Law for 2016, whereby this regime does not appear apt to obstruct the deduction of SIFIDE II from the collection derived from autonomous taxation.

Finally, note that the understanding above expounded - in the sense of the deductibility of tax benefits from the IRC collection determined by title of autonomous taxation - has merited relevant acceptance by jurisprudence, being an example the following arbitral decisions:

• Arbitral decision issued on 15 June 2018 in case no. 45/2018-T;
• Arbitral decision issued on 20 April 2018 in case no. 490/2017-T;
• Arbitral decision issued on 5 March 2018 in case no. 474/2017-T;
• Arbitral decision issued on 12 February 2018 in case no. 433/2017-T;
• Arbitral decision issued on 18 December 2017 in case no. 428/2017-T;
• Arbitral decision issued on 14 November 2017 in case no. 381/2017-T;
• Arbitral decision issued on 6 November 2017 in case no. 216/2017-T;
• Arbitral decision issued on 15 December 2017 in case no. 193/2017-T;
• Arbitral decision issued on 18 October 2017 in case no. 99/2017-T;
• Arbitral decision issued on 28 September 2017 in case no. 61/2017-T;
• Arbitral decision issued on 10 August 2017 in case no. 60/2017-T;
• Arbitral decision issued on 28 June 2017 in case no. 59/2017-T;
• Arbitral decision issued on 1 June 2017 in case no. 679/2016-T;
• Arbitral decision issued on 14 August 2017 in case no. 672/2016-T;
• Arbitral decision issued on 13 June 2017 in case no. 669/2016-T;
• Arbitral decision issued on 3 April 2017 in case no. 630/2016-T;
• Arbitral decision issued on 15 March 2017 in case no. 596/2016-T;
• Arbitral decision issued on 10 May 2017 in case no. 578/2016-T;
• Arbitral decision issued on 11 May 2017 in case no. 576/2016-T;
• Arbitral decision issued on 17 January 2018 in case no. 385/2017-T;
• Arbitral decision issued on 1 June 2017 in case no. 565/2016-T;
• Arbitral decision issued on 20 February 2017 in case no. 536/2016-T;
• Arbitral decision issued on 27 March 2017 in case no. 530/2016-T;
• Arbitral decision issued on 1 February 2017 in case no. 503/2016-T;
• Arbitral decision issued on 5 January 2017 in case no. 456/2016-T;
• Arbitral decision issued on 16 February 2017 in case no. 360/2016-T;
• Arbitral decision issued on 26 January 2017 in case no. 326/2016-T;
• Arbitral decision issued on 6 October 2016 in case no. 31/2016-T;
• Arbitral decision issued on 27 July 2016 in case no. 5/2016-T;
• Arbitral decision issued on 13 May 2016 in case no. 784/2015-T;
• Arbitral decision issued on 16 May 2016 in case no. 740/2015-T;
• Arbitral decision issued on 28 April 2016 in case no. 673/2015-T;
• Arbitral decision issued on 28 April 2016 in case no. 637/2015-T;
• Arbitral decision issued on 25 January 2016 in case no. 370/2015-T;
• Arbitral decision issued on 25 January 2016 in case no. 369/2015-T;
• Arbitral decision issued on 5 October 2015 in case no. 219/2015-T.

For all that which has been expounded, the position held by the Respondent does not merit acceptance within the present proceedings, the IRC self-assessments for fiscal years 2011 and 2012 suffering from illegality, generating voidability in accordance with Article 163 of the Code of Administrative Procedure ("CAP"), by virtue of the impossibility of deduction from the collection resulting from autonomous taxation of tax benefits, in particular those relating to SIFIDE II.

On the error attributable to the services of the TCA and, concomitantly, on the Claimant's right to perceive compensatory interest

Whereas the above-identified self-assessments of tax will not have been annulled, they will continue to produce effects in the legal order under the principle of immediate executoriness of administrative acts, to the extent that the filing of the request for [...]