CAAD Arbitration on IRC Autonomous Taxation, CFEI and RFAI Tax Credits (83/2017-T)

ARBITRAL DECISION

The arbitrators Councillor Maria Fernanda dos Santos Maçãs (President), Prof. Dr. Suzana Fernandes da Costa (Member) and Prof. Dr. Jónatas Machado (Member), appointed by the Deontological Council of the Centre for Administrative Arbitration (CAAD) to form the Collective Arbitral Tribunal, decided as follows:

I. REPORT

I.1.

On 23-01-2017, the company "A…, Lda" (hereinafter referred to as Claimant or A…), with registered office at Rua …, no. …, …-… …– …, holder of the collective person identification number (NIPC) …, came, pursuant to the provisions of paragraph a) of no. 1 of article 2, no. 3 of article 5, article 6 and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (RJAT), in conjunction with articles 99 and 102 of the Tax Procedure and Process Code (CPPT) – ex vi paragraph a) of no. 1 of article 10 of the aforementioned Decree-Law – to submit a request for the establishment of an arbitral tribunal for an arbitral pronouncement on the declaration of illegality of the acts of dismissal of the amicable complaints nos. …2016… and …2016…, issued by the Division of Tax Justice – Contentious of the Tax Authority of …, on, respectively, 11 October 2016 and 18 November 2016 (Documents nos. 1 and 2), relating to the tax periods of 2013 and 2014.

I.2.

The request for the establishment of the arbitral tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on 31-01-2017.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Honorable Councillor Maria Fernanda dos Santos Maçãs (President), Honorable Prof. Dr. Suzana Fernandes da Costa and Honorable Prof. Dr. Jónatas Machado, who communicated their acceptance of the office within the applicable period. The parties were notified of this appointment on 15-03-2017.

In accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, it is hereby communicated that the collective arbitral tribunal is constituted on 30-03-2017, following the relevant legal procedures.

2.

The Claimant's request for an arbitral pronouncement seeks to obtain an arbitral pronouncement concerning the declaration of illegality and consequent annulment of the acts of dismissal of the amicable complaints filed with reference to the assessments of Corporate Income Tax ("CIT") nos. 2015 … and 2016 …, issued on, respectively, 08 April 2015 and 16 June 2016 – which replaced the assessment notes no. 2014 …, issued on 31 July 2014, and no. 2015 …, issued on 15 July 2015 -, relating to the years 2013 and 2014 (cf. documents 3 to 6).

2.1.

To substantiate the request, the Claimant argues as follows:

a) In the tax year 2013, in fulfillment of the declaration obligations incumbent upon it, provided for in no. 1 of article 120 of the CIT Code, A… submitted the Model 22 CIT Declaration, relating to the tax year 2013, on 29 May 2014, to which was assigned the Identification Code no. … (cf. Document no. 9).

b) Following the submission of the aforementioned declaration, A… proceeded to replace it by submitting a new Model 22 CIT Declaration, which it did on 31 March 2015 (cf. Document no. 10), with no taxable income amount being determined for the tax year 2013, and A… having calculated tax losses of €2,490,866.69.

c) The assessment note no. 2014…, relating to the tax year 2013, was replaced by the Corporate Income Tax ("CIT") assessment no. 2015…, issued on 08 April 2015.

d) In that year, the amount of €79,738.54 (seventy-nine thousand, seven hundred and thirty-eight euros and fifty-four cents) was determined and paid as autonomous taxation.

e) The Claimant submits that it resulted from Table 07 of Annex D of the Model 22 income declaration (relating to tax benefits operating by deduction from the tax liability), that it possessed a balance of tax benefits determined in previous years and not yet lapsed, in the total amount of €724,711.59 (seven hundred and twenty-four thousand, seven hundred and eleven euros and fifty-nine cents), capable of deduction from the tax liability in the tax year 2013 and relating to tax credits determined under the Investment Support Tax Regime (hereinafter, IFTR).

f) In the tax year 2013, the Claimant determined the amount of €812,739.32 (eight hundred and twelve thousand, seven hundred and thirty-nine euros and thirty-two cents) as IFTR.

g) In addition to this amount, the Claimant determined, in consideration for investment expenses in assets used in the operation carried out and as Extraordinary Investment Tax Credit ("EITC"), the amount of €286,591.75 (two hundred and eighty-six thousand, five hundred and ninety-one euros and seventy-five cents).

h) In the tax year 2014, the Claimant submitted the Model 22 CIT Declaration on 28 May 2015, to which was assigned the Identification Code no. … (cf. Document no. 11).

i) Following the submission of the aforementioned declaration, the Claimant proceeded to replace it by submitting a new Model 22 CIT Declaration, which it did on 18 May 2016 (cf. Document no. 12).

j) In the replacement Model 22 Declaration, a total tax liability amount of €241,870.16 (two hundred and forty-one thousand, eight hundred and seventy euros and sixteen cents) was determined, relating to the tax year 2014.

k) In addition to the aforementioned total tax liability, the amount of €56,945.14 (fifty-six thousand, nine hundred and forty-five euros and fourteen cents) was also determined and paid as autonomous taxation.

l) From Table 07 of Annex D of the replacement Model 22 income declaration (relating to tax benefits operating by deduction from the tax liability), it results that the Claimant possessed a balance of tax benefits determined in previous years and not yet lapsed, in the total amount of €1,815,519.47 (one million, eight hundred and fifteen thousand, five hundred and nineteen euros and forty-seven cents), capable of deduction from the tax liability in the tax year 2014, of which part – in the amount of €1,537,450.91 (one million, five hundred and thirty-seven thousand, four hundred and fifty euros and ninety-one cents) – relates to tax credits determined under the IFTR; and the remainder – in the amount of €286,591.75 (two hundred and eighty-six thousand, five hundred and ninety-one euros and seventy-five cents) – relating to the EITC.

m) In the tax year 2014, the Claimant determined the amount of €1,613,694.01 (one million, six hundred and thirteen thousand, six hundred and ninety-four euros and one cent) as IFTR. Consequently, the Claimant had available for deduction from the tax liability in the tax year 2014 a total of €3,437,736.68 (three million, four hundred and thirty-seven thousand, seven hundred and thirty-six euros and sixty-eight cents), relating to the different tax benefits listed above.

n) Pursuant to the provisions of article 3 of the Investment Support Tax Regime, defined in accordance with Law no. 10/2009, of 10 March, which established the IFTR 2009, A… may (thanks to the extension provided by the State Budget laws for 2010 and 2013) enjoy the tax benefit, for investments made in regions eligible for support under the regional development incentives, of deduction from the CIT liability, and up to 25% thereof, of 20% of the relevant investment, in relation to the investment up to the amount of €5,000,000 and 10% of the relevant investment, in relation to the investment of value exceeding €5,000,000.

o) According to the provisions of article 23 of the Tax Code of Investment, which came to regulate the IFTR in 2014, A… may benefit from deduction from the CIT liability calculated in accordance with paragraph a) of no. 1 of article 90 of the CIT Code, of the amounts of relevant applications in the case of investments made in regions eligible under paragraph a) of no. 3 of article 107 of the Treaty on the Functioning of the European Union contained in the table provided for in no. 1 of article 43, namely, 25% of relevant applications, in relation to the investment made up to the amount of €5,000,000; 10% of relevant applications, in relation to the part of the investment made exceeding the amount of €5,000,000; in the case of investments in regions eligible under paragraph c) of no. 3 of article 107 of the Treaty on the Functioning of the European Union contained in the table provided for in no. 1 of article 43, 10% of relevant applications.

p) With regard to the EITC, it results from the application of the provision of no. 1 of article 3 of Law no. 49/2013, of 16 July (law which establishes and regulates the EITC), that the tax benefit to be granted under the aforementioned normative "corresponds to a deduction from the CIT liability in the amount of 20% of investment expenses in assets used in the operation, which are made between 1 June 2013 and 31 December 2013.

q) Autonomous taxation should be considered "CIT", as results not only from the new wording given to article 23-A, no. 1, paragraph a) of the CIT Code (through Law no. 2/2014, of 16 January) and the literal tenor of article 12 of the same Code, but also from the numerous case law emanating from both the Supreme Administrative Court and the Arbitral Tribunals, which conveys this same understanding.

r) The Arbitral Decisions issued within the scope of cases no. 769/2014-T, of 8 April 2015, no. 369/2015-T, of 25 January 2016 and no. 370/2015-T, of 25 January 2016 (cf. Document no. 13), affirm the deductibility of tax credits determined as IFTR and EITC from the tax liability of autonomous taxation, as an integral part of the CIT tax liability and subject to the general rules for calculating CIT, provided for in article 90 of the CIT Code.

s) Article 90 of the CIT Code, referring to the manner of calculating CIT by the taxpayer and applying to all situations provided for in the Code, applies equally to the calculation of the amount of autonomous taxation determined by the taxpayer.

t) The deductibility of tax benefits from the amount determined in accordance with article 90 of the CIT Code does not require the existence of taxable income, because what it in fact requires is that there is CIT tax liability, which may exist even without taxable income, namely through autonomous taxation.

u) The deductibility of the EITC and IFTR from the tax liability of autonomous taxation finds a "minimum verbal correspondence" in the legislative text, as established by no. 2 of article 9 of the Civil Code.

v) The fact that autonomous taxation aims to ensure a minimum tax liability for companies that present losses (a question that does not arise in the present case), reduce the fiscal contribution for certain expenses and discourage their incurrence, does not mean that these objectives cannot give way, exceptionally, to tax benefits established to protect extrafiscal public interests superior to those of the taxation itself.

w) In view of the understanding endorsed by the aforementioned arbitral case law, within which the possibility of deduction of tax benefits from the tax liability of autonomous taxation is defended, as well as the legislation in force at the date of the facts in question (tax periods of 2013 and 2014), A… argues that there exists a gross error in its CIT self-assessments, which materially significantly distorted the tax to be paid.

x) Under the provisions of article 266 of the Constitution of the Portuguese Republic ("CPR"), the Tax Authority is subject to the principle of legality in the exercise of its activity, one of whose manifestations is subjection to the guidance emanated by arbitral and judicial tribunals, as direct control of the legality of its action.

y) The integration of the interpretive law in the law being interpreted, provided for in article 13, no. 1 of the Civil Code, cannot override constitutional rules, and the legislator cannot intend to attribute interpretive effect to a norm without that norm meeting, in itself, the conditions for it to be qualified as such.

z) For a norm to qualify as an interpretive norm, two requirements must be met: (i) the existence of a rule that is uncertain and controversial in its interpretation; (ii) the interpretive norm integrates a solution that case law could, by itself, have adopted.

aa) The interpretation introduced by the new no. 21 of article 88 of the CIT Code does not meet any of those requirements, and must necessarily be qualified as a truly innovative norm, not applicable to the years 2013 and 2014.

bb) With respect to the tax period 2013, to the amount of autonomous taxation determined in the amount of €79,738.54 (seventy-nine thousand, seven hundred and thirty-eight euros and fifty-four cents) should be deducted not only part of the IFTR balance from 2012 that carried over to the year 2013, but also part of the amounts determined as IFTR and EITC in the year 2013 itself.

cc) The Tax Authority should correct the amount of tax to be paid in that year and refund to the Claimant the amount unduly paid, due to the assessment note no. 2015…, which replaced the assessment note no. 2014…, against which a claim was filed in the past.

dd) With respect to the tax period 2014, the Claimant understands that to the total amount of tax liability of €241,870.16 (two hundred and forty-one thousand, eight hundred and seventy euros and sixteen cents) and the autonomous taxation determined in the amount of €56,945.14 (fifty-six thousand, nine hundred and forty-five euros and fourteen cents) should be deducted not only part of the IFTR balance from 2012 that carried over to the year 2014, but also part of the amounts determined as IFTR and EITC in the year 2013.

ee) The Tax Authority should correct the amount of tax to be paid in the year 2014 and refund to the Claimant the amount unduly paid, due to the assessment note no. 2016…, which replaced the assessment note no. 2015…, against which a claim was duly filed.

3.

The Tax and Customs Authority attached the administrative file and submitted its response, as follows:

a) Autonomous taxation pursues diverse objectives, ranging from the original purpose of preventing evasion and fraud practices – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of taxation of ancillary benefits in the form of representation expenses or attribution of vehicles to workers and members of governing bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" (cf. no. 11 of art. 88 CIRC) or of burdening, through taxation, the payment of income considered excessive (cf. no. 13 of the same provision).

b) The autonomous taxation mechanism of the set of situations provided for in article 88 of the CIRC aims, primarily, to safeguard the general balances of the fiscal system itself, the specific balances of the CIT and the revenue of the tax itself.

c) What is at stake is the discouragement of the incurrence / relevance of such expenses, first and foremost because, by their nature and purposes, they can more easily be diverted to consumption that, in essence, are private or correspond to charges that do not cease to have, also, as a specific and ultimate purpose, the avoidance of tax.

d) In the Portuguese tax system, there is coexistence between, on the one hand, the (special) regime of autonomous taxation and, on the other, the rule-system (pre-existing) of CIT.

e) 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 areas, the disregard or an adaptation of the general rules for the application of CIT.

f) The autonomy of the figure of autonomous taxation in relation to CIT has always been asserted with great intensity, since its creation by specific legislation, which defined its structural elements – taxable events and rates - naturally conditioned by the special objectives pursued.

g) Autonomous taxation has an absolutely "autonomous" calculation and distinct from the calculation of the tax liability processed in accordance with no. 1 of article 90 of the CIRC, so that although they are integrated into the CIT regime and are owed as such tax, they do not constitute CIT in the strict sense.

h) From the differentiation and autonomy, the necessary consequences must be drawn in the sphere of deductions provided for in the paragraphs, in the sense that they can only be made to the part of the CIT tax liability with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the rule-regime of the tax.

i) It is left to the care of the interpreter and the applicator of the law the task of, before the necessity of, for certain purposes – in particular the deductions provided for in no. 2 of art. 90 of the CIRC or the calculation of installment payments or the Liquidation Result (art. 92) – identifying the relevant part of the CIT tax liability, extracting from the applicable norms a useful meaning, literally possible, which allows a coherent solution consistent with the nature and functions attributed to each component of the tax.

j) The delimitation of the content of the expression used by the legislator in no. 2 of art. 90 of the CIRC, "amount determined in accordance with the preceding paragraph", and in no. 1 of art. 105 of the CIRC, "tax assessed in accordance with no. 1 of art. 90", should be made in a coherent and unambiguous manner, corresponding to the amount of CIT calculated by applying the rates of art. 87 to the taxable base determined on the basis of income and the rates of art. 87 of the Code.

k) The common trait to all the situations reflected in the deductions referred to in no. 2 of art. 90 of the CIRC lies in the fact that they relate to income or expenses incorporated in the taxable base determined on the basis of the income of the taxpayer or anticipated payments of the tax, being, therefore, entirely unrelated to the situations that constitute the taxable events of autonomous taxation.

l) For deductions from tax liability as tax benefits, the amount to which they are made can only relate to the tax assessed on the basis of the taxable base, determined in accordance with the rules of Chapter III and the rates provided for in art. 87 of the CIRC.

m) Making the deduction of tax benefits that are still available for deduction to the amount relating to autonomous taxation is a sense that finds no support whatsoever in the legal text, since it does not result from nos. 1 and 2 of article 90 of the CIRC any reference to autonomous taxation, and, therefore, such interpretation cannot be accepted, as advocated by article 9, nos. 2 and 3 of the Civil Code.

n) No. 5 of art. 90 of the CIRC – through which the legislator provides a clear indication that the amount of the 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 – provides that the deductions that are imputed to partners or members of entities covered by the tax transparency regime established in art. 6 (entities that are subject to the payment of autonomous taxation, by force of art. 12) are «deducted from the amount determined on the basis of the taxable base that took into account the imputation provided for in the same article».

o) The integration of autonomous taxation into the CIT Code (and IRS) conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, namely, in the framework of paragraph a) of no. 1 of art. 90 of the CIRC, in separate calculations of the respective tax liabilities, by force of obeying different rules.

p) There are two distinct calculations which, although carried out in accordance with paragraph a) of no. 1 of art. 90 of the CIRC, in the declarations to which articles 120 and 122 of the same code refer, are made on the basis of different parameters, since each one is materialized in the application of its own rates, provided for in articles 87 or 88 of the CIRC, to the respective taxable bases determined equally in accordance with its own rules.

q) The norm added by way of no. 21 of article 88 of the CIRC, in settling or clarifying a controversy of legal interpretation regarding the possibility of deduction of tax benefits and/or other deductions (ex: installment payments) from the tax liability of autonomous taxation, has an interpretive character, not innovative, merely making explicit an understanding that already resulted from the relevant legal provisions and that was only called into question as a result of certain recent arbitral case law.

r) The case law issued in the arbitral cases nos. 722/2015-T, 727/2015-T and 785/2016-T, establishes that, regardless of the interpretive effect conferred by article 135 of the State Budget Law for 2016, through the introduction of no. 21 of article 88 of the CIRC, no other interpretation would be capable of being made than that conveyed by the Tax Authority.

s) The very interpretive effect conferred by that Law would, per se, be unnecessary, since no other interpretation would be capable of being made taking into account the teleology and hermeneutics of the norms in question.

t) It is unconstitutional the decision that admits the deduction of tax benefits in the context of CIT from the part of the CIT tax liability produced by the autonomous taxation rates, by violation of the principles of legality, contained in art. 103, no. 2 of the CPR, of the separation of powers, set forth in art. 2 of the CPR, of the protection of trust provided for in art. 2 of the CPR, and of equality, in its positive formulation of taxpaying capacity, arising from art. 13, no. 2 and 103, no. 2, both of the CPR.

u) The right to compensatory interest depends on the existence of an error, of fact or law, attributable to the services, from which resulted the payment of the tax debt in an amount greater than legally due, that is, the law intended to deem relevant, for the purpose of payment of compensatory interest, the error that led the Tax Authority to an illegal definition of the taxpayer's tax relationship.

v) The Tax Authority limited itself, therefore, to applying the legal consequences, which, from the fiscal point of view, were required given the occurrence of the factual presuppositions underlying the correction made, so that the challenge regarding the requested interest should also be judged as unsubstantiated.

w) Being the Tax Authority a hierarchical institution, it is not bound by judicial or Tax Arbitration decisions issued in cases other than those under scrutiny, with there being no "figure of legal precedent" in Portugal.

4.

With no exceptions having been raised and no provision for testimonial evidence, the Tribunal, by order of 17 May 2017, dispensed with the meeting provided for in art. 18 of the RJAT, which it did under the principles of autonomy in conducting the case. The date of 30 September 2017 was also set for the pronouncement of the arbitral decision.

5.

Final submissions were made by both parties, limiting themselves essentially to reiterating the arguments from the earlier procedural documents.

II. PROCEDURAL MATTERS

1.

The request for an arbitral pronouncement is timely, since it was submitted within the period provided for in paragraph a) of no. 1 of article 10 of the RJAT.

2.

The parties have legal personality and capacity, are legitimate as to the request for an arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

3.

Under the provisions of no. 1 of article 3 of the RJAT, "The joinder of claims, even if relating to different acts and the joinder of claimants are admissible when the success of the claims depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law".

Although, in this case, the assessment of different tax acts is sought (concerning acts of dismissal of amicable complaints filed with respect to the years 2013 and 2014, which have as their basis CIT assessments relating to two distinct tax periods), the success of the claims for annulment of the CIT assessments in question depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

Not only is the reality that serves as the basis for the issuance of the CIT assessment statements in dispute coincident, arising from the same taxable event, but the legal grounds used to support the request for declaration of illegality of the corresponding tax acts are the same, based on the discussion about the nature of autonomous taxation (which should be considered "CIT", thereby enabling, by virtue of that, the deduction from the amount determined as such of the tax benefits relating to EITC and IFTR), as well as the alleged interpretive nature of no. 21 of article 88 of the CIRC, introduced by Law no. 7-A/2016, of 30 March.

In sum, the joinder of claims made here by the Claimant is legal and valid, in accordance with the provisions of article 3, no. 1 of the RJAT, given that the success of the claims depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

4.

No exceptions worthy of consideration were raised.

5.

No nullities are verified, so it is necessary to proceed, next, with the merits of the claim.

IV. MERITS

IV.1. FACTUAL MATTERS

§1. Proven Facts

The following facts are deemed proven:

a) The Claimant is a company governed by Portuguese law, which pursues, within the scope of its corporate purpose, the production, commercialization and export of footwear, as well as the development, production, commercialization and export of moulds and forms for footwear and other activities related thereto.

b) For tax purposes, the Claimant is subject to the general taxation regime under Corporate Income Tax (CIT), whose tax period coincides with the calendar year.

c) The Claimant submitted the Model 22 income declaration for the year 2013 on 29-05-2014, as documented in document 9 attached to the arbitral request.

d) The Claimant submitted a replacement declaration to the Model 22 income declaration for the year 2013 on 31-05-2015, in which the amount of €79,738.54 was determined as autonomous taxation, as documented in document 10 attached to the arbitral request.

e) In the year 2013, the Claimant determined the amount of €812,739.32 as IFTR, and the amount of €286,591.75 as EITC.

f) The Claimant submitted the Model 3 income declaration for the year 2014 on 28-05-2015, as documented in document 11 attached with the arbitral request.

g) The Claimant submitted a replacement declaration to the Model 22 income declaration for the year 2014 on 18-05-2016, in which the amount of €56,945.14 was determined as autonomous taxation, as documented in document 10 attached to the arbitral request.

h) The Claimant possessed a balance of tax benefits determined in previous years and not yet lapsed, in the total amount of €1,815,519.47, of which part relates to tax credits determined under the IFTR and the remainder in the amount of €286,591.75 refers to EITC, as well as the amount of €1,613,694.01 of IFTR determined in the year 2014, capable of deduction from the tax liability in the year 2014.

i) The Claimant submitted two amicable complaints against the CIT assessment acts for the years 2013 and 2014, on 20-05-2016 and 05-07-2016, respectively.

j) The Claimant was notified of the decisions of dismissal of the amicable complaints regarding the CIT assessments of 2013 and 2014, on 11-10-2016 and 18-11-2016, respectively.

§2. Facts Deemed Not Proven

There are no facts relevant to the decision that have not been proven.

§3. Reasoning as to Factual Matters

With regard to the proven factual matters, the conviction of the Arbitral Tribunal was based on the free assessment of the positions assumed by the Parties (on factual matters) and on the tenor of the documents attached to the file, not contested by the Parties, as well as on the analysis of the administrative file attached by the Respondent.

IV.2. LEGAL MATTERS

The question to be decided consists in determining whether the Claimant is correct when it argues for the deduction of the amounts paid as EITC and IFTR from the tax liability produced by autonomous taxation in the years 2013 and 2014, respectively in the amounts of €79,738.54 and €56,945.14, on the grounds that the latter constitute CIT.

The answer to the problem posed presupposes, from the outset, that one analyzes the evolution of the figure of autonomous taxation in order to ascertain whether its legal regime (comprising nature and raison d'être) is compatible with the Claimant's claim or, if, on the contrary, the Respondent's position is correct.

IV.2.1.1. On the Nature of Autonomous Taxation in National Case Law and Doctrine

As the position adopted in Arbitral Decision no. 722/2016-T, of 28 June 2016, whose collective was presided over by the here also Arbitrator President (and to whose tenor we hereby refer), autonomous taxation taxes the expense and not the income, a position that is assumed by Honorable Councillor Vítor Gomes (dissenting vote appended to Decision no. 204/2010 of the Constitutional Court), in accordance with which he states, referring to autonomous taxation, that "although formally inserted in the CIRC and the amount it permits to collect is assessed in its sphere and as CIT, the norm in question respects a fiscal imposition that is materially distinct from the taxation in this schedule (….)".

"Indeed, we are faced with autonomous taxation (…) and that makes all the difference. It is not a matter of taxing income at the end of the tax period, but certain types of expenses in themselves, for understandable reasons of tax policy that the decision points out".[2]

And he adds that "thus, the fact revealing taxpaying capacity that is sought to be achieved is the simple carrying out of that expense, at a certain moment. Each expense is, for this purpose, an autonomous taxable fact, to which the taxpayer is subject, whether or not he is to have taxable income in CIT at the end of the period, with it being irrelevant that this portion of tax is only later liquidated and jointly with the CIT" (our emphasis).

In the same sense, see the case law of the Supreme Administrative Court (SAC) where it is stated that "under the designation of autonomous taxation there are hidden very diverse realities, including, in accordance with no. 1 of (then) art. 81 of the CIRC, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses made by taxpayers who are wholly or partially exempt, or who do not exercise, as their principal activity, commercial, industrial or agricultural activities (no. 2 of [then] art. 81) and which are not considered as a cost in calculating the taxable income in CIT. It should be noted, however, that representation expenses and those related to light vehicles, in accordance with the provision of (then) art. 81, no. 3 of the CIRC and travel allowances are affected to the business activity and indispensable so they are fiscally accepted in some cases even if within certain limits".[3]

With regard to the position assumed by the Constitutional Court, cite Decision no. 18/11, in accordance with which reference is made to "taxable events subject to autonomous taxation, which correspond to charges that are proven to be indispensable to the realization of profits and (…) this means that autonomous taxation also falls on charges that correspond to the core of the concept of real income, net income and compliance with accounting obligations" (our emphasis).

With regard to this Constitutional Court argument, it is only of interest to us to emphasize that the Court recognizes that this regime constitutes a limitation on the taxation of real income (which is guaranteed by art. 104, no. 2 of the CPR).

More recently, the Constitutional Court has reformulated the doctrine of Decision no. 18/11 (mentioned above), moving closer to the then dissenting vote of Councillor Vítor Gomes and the SAC Decision no. 830/11, in the sense of understanding that "contrary to what happens in the taxation of income under IRS and CIT, in which the aggregate of income earned in a given year is taxed (which implies that only at the end thereof can the tax rate and the bracket in which the taxpayer falls be determined), in this case each expense carried out is taxed, considered in itself, and subject to a certain rate, autonomous taxation being determined independently of the CIT owed in each year, by not being directly related to obtaining a positive result, and thus being subject to taxation. Therefore, and in the case of CIT, 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 occurs on the last day of the tax period (cf. article 8, no. 9, of the CIRC). As far as autonomous taxation in CIT is concerned, the taxable event is the carrying out of the expense itself, with we not being faced with a complex event, of successive formation throughout a year, but with an instantaneous taxable event" (our emphasis).

Furthermore, according to this Constitutional Court Decision "this characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable event is produced in a successive manner, by the passage of a certain period of time, as a rule annually, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose taxable event is produced in an instantaneous manner, emerges isolated in time, generating on the taxpayer an obligation to pay with an avulsive character). In autonomous taxation, the taxable fact that gives rise to the tax is instantaneous: it is exhausted in the act of carrying out a certain expense that is subject to taxation (although the determination of the amount of tax resulting from the application of the various autonomous taxation rates to the various acts of carrying out of expense considered, is to be carried out at the end of a given tax period). But the fact that the liquidation of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character. That liquidation operation is merely translated into the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with there being no influence whatsoever of the volume of expenses incurred in determining the rate" (our emphasis).[4]

As to doctrine, we find that the concept and nature of autonomous taxation do not depart substantially from the understanding embodied in the case law of the Constitutional Court, which we above briefly reproduced.

Indeed, as RUI MORAIS states, "what is at issue is a taxation that falls on certain expenses of taxpayers, which are had as constituting taxable facts. It is difficult to discern the nature of this form of taxation and, even more so, the reason why it appears provided for in the codes of taxes on income".[5]

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO asserts that "it is not really CIT – which aims to tax the income of collective persons and not expense carried out by them – but the substitution of a taxation of 'implicit' income of natural persons, which is considered not directly enforceable".[6]

Indeed, some doctrine and the case law of national superior courts and the Constitutional Court consider that autonomous taxation are autonomous taxable events that fall on the expense so that, despite being formally inserted in the CIT Code, they relate to a taxation distinct from income tax.

Additionally, it should be noted that it is also accepted by the generality of doctrine and case law that autonomous taxation aims to prevent abusive practices in the remuneration of workers, managers and partners/shareholders of the company.

SALDANHA SANCHES states that "in this type of taxation, the legislator seeks to respond to the recognized difficulty of the tax regime of expenses that are in the zone of intersection of the personal sphere and the business sphere, in order to avoid in-kind remuneration that is more attractive for exclusively fiscal reasons or hidden distribution of profits. The norm presents a characteristic similar to that which we will find in the legal sanction against undocumented costs, with an increase in rate when the situation of the taxpayer does not correspond to a situation of fiscal normality."[7]

Indeed, "it is a taxation that is explained by the need to prevent and avoid that, through such expenses, companies proceed with the disguised distribution of profits, especially dividends, which would thus be subject to CIT as profits of the company, as well as to combat the fraud and tax evasion that such expenses occasion (…)".[8]

III.2.1.2. On the Evolution of the Figure of Autonomous Taxation

Regarding the evolution of the figure of autonomous taxation, it must be noted that, in the initial wording of the CIT Code (Decree-Law no. 442-B/88, of 30 November), there was no express or implicit reference to autonomous taxation. Only with Law no. 101/89, of 29 December (diploma which approved the State Budget for 1990), did a first reference to autonomous taxation appear within the scope of CIT, through the legislative authorization contained in no. 3 of its article 15, in accordance with which it was provided that the Government was authorized to autonomously tax at CIT or IRS, as appropriate, at an aggravated rate of 10% and without prejudice to the provision of paragraph h) of no. 1 of article 41 of the CIRC, undocumented or confidential expenses carried out in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who own or should own organized accounting or by CIT taxpayers not included in articles 8 and 9 of the respective Code.

The origin in the Portuguese tax legal system of autonomous taxation dates back to 1990, with the publication of Decree-Law no. 192/90, of 9 June, in accordance with which (in its article 4), an autonomous taxation was established:

a) At the rate of 10% relating to confidential or undocumented expenses; and

b) At the rate of 6.4%, with respect to representation expenses and charges relating to light passenger vehicles.

Indeed, it was with the approval of Decree-Law no. 192/90 (and implementing that legislative authorization), that a norm on autonomous taxation was included, on the margins of the IRS and CIT codes, in accordance with which "undocumented or confidential expenses carried out in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who own or should own organized accounting or by CIT taxpayers not included in articles 8 and 9 of the respective Code are autonomously taxed in IRS or CIT, as appropriate, at a rate of 10% without prejudice to the provision of paragraph h) of no. 1 of article 41 of the CIRC".

This norm was subsequently subject to various amendments, notably through successive modifications, either of the rates, either of the systematization and wording given to them in the respective codes on taxes on income (that is, either in the CIT Code, or in the IRS Code).

With the approval of Law no. 30-G/2000, of 29 December, the decree which established "autonomous taxation" was repealed, adding to the CIT Code article 69-A [corresponding to the date of the facts underlying (2013 and 2014) to article 88] in which, in addition to the maintenance of the incidence of these to undocumented expenses, representation expenses and vehicle expenses, it was extended to other situations of diverse nature.

In consequence of this analysis of the evolution of the figure of autonomous taxation, we understand that it is possible to draw, from the outset, two conclusions:

(i) The first is that autonomous taxation falls on both deductible and non-deductible charges under CIT;

(ii) The second is that autonomous taxation aims to prevent erosion of the tax base under CIT, by imposing taxation on charges that may be deducted by CIT taxpayers but that, in doing so, transform into an aggravation of taxation, thus intending to serve as a deterrent to expenditure on such charges.

Thus, the following presuppositions can be considered established, and for what will be relevant in terms of the decision to be handed down in the scope of the present case:

(i) Autonomous taxation of CIT anchored in the various numbers and paragraphs of article 88 of the CIT Code translate diverse situations, to which different taxation rates also apply;

(ii) Autonomous taxation of CIT falling on certain charges of CIT taxpayers should be understood as payments independent of the existence or non-existence of taxable base;

(iii) Interpreted as payments, associated with CIT, or with this at least related, they can be understood as an exception with respect to the principle of taxation of collective persons according to the real and effective income calculated (article 3 of the CIT Code);

(iv) In autonomous taxation, the taxable fact giving rise to taxation is instantaneous: it is exhausted in the act of carrying out of certain expenses that are subject to taxation (although the determination of the amount of tax resulting from the various rates of taxation applied to the various acts of carrying out of expenses considered, is to be carried out at the end of a given tax period);

(v) The fact that the liquidation of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character, since that liquidation operation is merely translated into the aggregation, for collection purposes, of the set of operations subject to that taxation, whose rate is applied to each expense, with there being no influence of the volume of expenses incurred in determining the rate;

(vi) Autonomous taxation is not equivalent to the non-deductibility of expenses carried out by the CIT taxpayer.

On the other hand, and as regards the characteristics of autonomous taxation, the following are recognized here, which doctrine has been pointing out for some years:

a) Autonomous taxation only makes sense because costs/expenses are relevant as negative components of the taxable income of CIT, which is what motivates CIT taxpayers to report a value as high as possible of such expenses to reduce the taxable base of CIT, the tax liability and, consequently, the tax to be paid;

b) With the associated tax regime, it is intended to discourage this type of expenses in taxpayers that present negative results but that, regardless, continue to show consumption structures little or not at all compatible with the financial health of their businesses;

c) It is, in a more general thesis, a matter of shaping the tax system so that it reveals a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component that corresponds to private consumption, and with respect to which the general practice of abuse in their reporting is known.

III.2.1.3. On the Cause and Function of Autonomous Taxation under CIT

It is uncontroversial that autonomous taxation is rooted, as has been touched upon, in the need to prevent abuses regarding the reporting of certain charges or expenses that may easily be diverted to private consumption or that, in some way, are susceptible to formally configuring an expense of a collective person but that, substantially, represent or may configure abuses in order to minimize the real measure of tax.

Mindful of this difficulty of often effecting a rigorous separation of these two realities, a regime of autonomous taxation of certain expenses, in whole or in part undesired and undesirable, which contaminate the terms of the tax obligation, has been successively "grafted", as described above, to the regime of taxation of real and effective income established in the CIT Code, as a general standard, and thus, the tax obligation emerges configured below the real taxpaying capacity of the entity that reports it as such.

In these terms, it can be stated that autonomous taxation emerges integrated into the CIT regime, are determined and owed within the scope of the tax relationship of taxation of income of collective persons and it is, in this framework, that their determination is effected.

But they are not "CIT", tout court, as the Claimant wishes to define and conclusively state.

Indeed, for them to be thus considered, they would, from the outset, have to tax income and that, as we have seen, is not what occurs, at any time. In truth, although there is an evident instrumentality between CIT and the model of taxation of income in Portugal and autonomous taxation (a fact that is moreover well evidenced in the case law of the Superior Courts and, in particular, of the Constitutional Court), the understanding prevails that autonomous taxation taxes expenses.

Indeed, autonomous taxation is an instrument that (departing from and introducing some distortion into a system that declares itself to tax real and effective income), after all also taxes expenses, whether or not deductible in CIT, without this violating constitutional precepts, since the applicable norm (art. 104, no. 2 of the CPR) declares it imperative the taxation of businesses "fundamentally" on their real income, without prejudice to both situations of taxation according to income or real income (when determined by indirect methods), as well as situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (such as is the case of special installment payment) and rules specific thereto for their return.

Within this scope, it is worthwhile to recall that neither tax systems nor concrete models of taxation correspond to pure models, free from elements foreign to the foundational system itself, its values, or to the general regime of any tax abstractly considered. Indeed, all taxes have characteristics or solutions that, when viewed in isolation, may objectively represent a de-characterization of the model as conceived in the purity of concepts, but that, when articulated with the model, it is found that they contribute to its effectiveness, and confer or reinforce its coherence on it.

These solutions, more pragmatic or specific, do not violate such essential evaluative dictums, whether they be protection of revenue or densification of general evaluative ideals (of the tax order) or specific to the tax (such as the need to prevent abuses), provided that, they themselves, are not of such relevance that they abjure the model of taxation-rule or structurally falsify the values on which it is based.

In the case under analysis, although the option of the fundamental law and of ordinary law, in consequence, has been clearly in the sense of taxing the income of collective persons and, in the possible forms of determining this, has chosen the taxation of real and effective income as a manifestation of the highest standard of tax justice, the truth is that the system has always known more or less relevant deviations, whether because certain expenses are not considered as such by tax law (although objectively they may be attributable to a commercial activity), or because tax law, recognizing such essentiality, fears the occurrence of abuses (as is the case with autonomous taxation, generally speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of the relations of life, whether because pure tax imposition models are more costly to implement and manage since they require much more precise relevant information, or because in the field of taxes, as in other fields of life, the ideal of justice enshrined must be tempered with solutions of normative reasonableness in the qualification of relevant facts and technique in the solutions and requirements to be established, with the objective of preventing tax models from being excessively complex and costly ceasing to reach realities and practices that mitigate the tax burden or contribute to a poor distribution thereof.

Now, from this balancing of the values that support the obligation to establish / bear tax with the realities of life may result the need to establish limits (fiscal or otherwise) to the behavior of taxpayers, with the objective of maintaining within general patterns of balance the legal solutions of the system.

On the other hand, it is important to bear in mind (because this is relevant for the purposes of the decision to be taken) that autonomous taxation configure anti-abuse norms directed at rationalizing specific behaviors of taxpayers (vis-à-vis the tax obligation) through which, traditionally, they were able to achieve a measure of tax lower than what their actually revealed taxpaying capacity evidenced but which, by virtue of these abusive behaviors, was capable of being mitigated or eliminated, with evident violation or postergation of the principle of justice, of fair distribution of the tax burden by those who reveal taxpaying capacity.

Consequently, it makes sense to admit that general deductions are made from the tax liability, which are permitted by law to give effective meaning to the principle of taxation of real and effective income. However, as far as the tax liability owed by autonomous taxation is concerned, such general deduction ceases to make sense because, not taxing profits, but expenses, the question of justice in the distribution of the general tax burden does not arise with respect to them, so it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that permeates them; the discouragement of aberrant behaviors that its institution represses or resolves.

Now, autonomous taxation, as appears clear, does not have a markedly revenue-raising purpose, that is, they do not, primarily, aim at obtaining (more) tax revenue, although this may not be a negligible aspect, verifiable.

Indeed, they aim to dissuade behaviors, practices or options of companies rooted in reasons essentially of a nature of tax saving, revenue-raising and, on the other hand, preserve the balances peculiar to the regime of taxation of collective persons, avoiding distortions not only at the level of taxable results, as waves of aberrant behaviors, affecting the legal expectation of revenue, in each economic year.

And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between the volumes of business, the taxable profits and the tax ultimately owed by entities subject to CIT, in line with the levels of average effective tax burden that falls on the different groups of taxpayers, within the Portuguese tax system and, even, comparatively with that of member states of the OECD or otherwise.

Thus, autonomous taxation, including those provided for in paragraph b), of no. 13, of art. 88 of the CIT Code have, therefore, a general disciplinary function that is not unrelated to the systemic purposes of the tax, also because, as an anti-abuse mechanism, autonomous taxation is not unrelated to the general purposes of the tax system.

In these terms, the adoption of legal regimes that limit the harmful effects resulting from behaviors affecting the balanced distribution of the tax burden on different groups of taxpayers does not constitute merely an option of the legislator but is rather a strict obligation, resulting in the obligation to design and make the system function as a whole in a balanced manner.

Indeed, autonomous taxation introduces taxation mechanisms that, naturally, will displease their recipients, but prevent or limit the harmful effects of abusive practices that would prejudice others and are, therefore, necessary for the preservation of the balances of the system.

Now, companies, just like natural persons, are also subject, with the same intensity, to the general obligation to pay taxes and, in this measure, tax law cannot fail to establish mechanisms that limit aberrant procedures since each one must bear tax according to what they can, that is, according to what their revealed taxpaying capacities are.

It is also important to note that, in our day, the regime of taxation according to real and effective income has been adopted, as a general rule, for collective persons, not constituting this a mere option of operation of the tax system among several other possibilities.

Indeed, it is rather a concrete manifestation of the modernity and maturity of a tax system that demands of its recipients/beneficiaries a maturity of the same stature since it also represents a new form of ethical and social responsibility before the phenomenon of taxation.[9]

As SALDANHA SANCHES opportunely stated (cited in Arbitral Decision 187/2013-T, pp. 28), autonomous taxation constitute a way of preventing abusive acts: "(...) that the normal functioning of the taxation system was incapable of preventing, and others, including forms more burdensome for the taxpayer, were possible. This anti-abuse character of autonomous taxation will be not only coherent with its "anti-systemic" nature (as occurs with all norms of the kind), but with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the case law that cites it. They will then materially have an underlying presumption of partial entrepreneurship of the expenses on which they fall, in function of the aforementioned circumstance of such expenses being on a line that separates what is entrepreneurial, productive expense, from what is private, consumption expense, with it being notorious that, in many cases, the expense will even in reality have a dual nature (part entrepreneurial, part individual)".[10]

All these considerations invoke what appears to us to be the true sententia legis, since the discovery of the true meaning of the law constitutes an imperative, since it is important to ensure that the activity of the interpreter attains an interpretive sense by which the law demonstrates its most beneficial, most fruitful and most salutary sense, in the words of FRANCESCO FERRARA.[11]

On the other hand, the logical sense of interpretation does not lead us except in the sense that autonomous taxation is based on a logic according to which the law intends to prevent or discourage such collective persons from reporting (abusively) as expenses amounts relating to bonuses or variable remuneration. Thus, it is the reporting as an expense for CIT purposes, in its entirety, that is intended to be discouraged.

Appealing to the ratio legis it is clear that autonomous taxation are collected in the context of the process of calculation of CIT in accordance with a root and its own dogmatics that lead to the total tax liability not being a unitary reality but composed.[12]

Thus, it is possible to discern in it the tax liability proper, resulting from the general mechanics of calculating CIT, which is owed on the basis of a constitutional foundation anchored in the general obligation of each one (in which are included collective persons) to contribute to public expenditure according to their means (art. 103, no. 1 of the CPR). All in respect of and in compliance with the principles of justice, equality and the obligation to pay tax according to the revealed taxpaying capacity. And from which are deducted the amounts referred to in article 90 of the CIT Code and in accordance with the terms and manner referred to therein.

To this general tax liability, rooted in this foundational basis, is added the specific tax liability, owed by autonomous taxation, which has, as has been made clear, a root, a sense and its own foundation, which is to discourage the adoption of behaviors by them taxed, listed in art. 88 of the code, which configures an anti-abuse norm, which allows us to invoke here all the dogmatics that is its foundation.

In this case, since it is a matter of fulfilling purposes that go beyond the purely revenue-raising purposes of the tax, to be situated in the field of behaviors that the law considers abusive and/or undesired, it appears clear that it makes no sense for deductions to be made to it, under pain of emptying, in practice, of any sense the anti-abusive regime created.

Thus, in light of the foregoing, we are now in a position to analyze the Claimant's request, regarding the legality of the deduction of IFTR and EITC from the part of the CIT tax liability of the Claimant corresponding to the autonomous taxation rates in each of the years 2013 and 2014.

III.2.2. On the Possible Deductibility of IFTR and EITC from the Tax Liability of Autonomous Taxation

It was concluded above that the tax liability of autonomous taxation has a different root, which cannot, under pain of subversion of the order of values, permit the deduction of tax benefits, under pain of de-characterization of the principles that are specifically intended to be pursued.

Indeed, given that the regime of autonomous taxation has a discouraging function of abusive behaviors, there is no logical reason why this discouragement could later vanish, which would happen if it were possible to deduct from the tax liability of autonomous taxation fiscal incentives, as the Claimant contends, since that possibility would result in a dual strange effect, that is, on the one hand could, in the limit, eliminate the tax liability resulting from autonomous taxation and, on the other, would provide the deduction of a certain tax benefit (in the present case, what is at issue are the EITC and IFTR, by compliance with the objectives or adoption of behaviors established in the norm granting the right to the tax benefit) to tax that has a specifically anti-abuse function, of mitigation of behaviors that are fiscal and socially undesired.

From the combination of these possibilities would result a contradictory, illegal and unethical result, precisely because the same tax law would permit, within the framework of the same tax system, to relieve the taxpayer of the burden of payment of a tax that is precisely owed by the adoption of abusive, undesired and discouraged behaviors (reporting as expenses the expenses provided for in art. 88 of the CIT Code).

The arbitral understanding now endorsed, in the direction of the orientation followed in Arbitral Decisions nos. 722/2015-T, 443/2016-T, and 733/2016-T, is in harmony with the new no. 21 of article 88 of the CIRC added by Law no. 7-A/2016, of 30 March, by establishing that the amount determined for autonomous taxation is not «made any deductions».

Also in this case, the legislator limited itself to accepting, clarifying it, a solution that courts, with recourse to the rules in force and by application of the criteria of legal hermeneutics were in a position to extract from the regime applicable, what this collective limited itself to doing, in the case of the file.

In light of the foregoing, it is concluded that there is illegality in the deductibility of EITC and IFTR from the tax liability of autonomous taxation, without the need to resort to the interpretive character given by article 135 of Law no. 7-A/2016, of 30 March (State Budget for 2016), to article 21 of article 88 of the CIT Code, in accordance with which "the calculation of autonomous taxation in CIT is carried out in accordance with the terms provided for in article 89 and is based on the values and the rates that result from the foregoing numbers, no deductions being made to the global amount determined."

Therefore, the analysis of any illegalities or unconstitutionalities attributed by both parties to the application of these norms is moot, in particular by violation of the principle of equality, the protection of trust and article 103, no. 3, of the CPR, to the extent that such norms are not even invoked for the resolution of the case in question.

In these terms, this Arbitral Tribunal understands that the Claimant is not correct, for the reasons and grounds invoked above, as regards the possibility of deduction of the tax benefit relating to EITC and IFTR from the tax liability of autonomous taxation relating to the years 2013 and 2014.

In these terms, the Claimant's request is unsuccessful, and the dismissal of the amicable complaints now challenged is to be upheld.

III.2.3. On the Other Claims

Since the request for declaration of illegality of the disputed liquidations relating to the years 2013 and 2014 is unsuccessful, the claims made by the Claimant for refund of the amounts paid and respective interest are likewise moot.

III.2.4. On Responsibility for Payment of Arbitral Costs

In accordance with the provisions of article 527, no. 1 of the Code of Civil Procedure (CCP), applicable by force of article 29, no. 1, paragraph e) of the RJAT, it should be established that the losing party or, in the absence of success on the action, whoever derived benefit from the case shall be condemned to costs.

In this respect, no. 2 of the referred article specifies the expression "gave cause to", in accordance with the principle of setoff, understanding that the losing party gives cause to the costs of the case, in the proportion in which it loses.

In the present case, having regard to the foregoing, the principle of proportionality requires that full responsibility for costs be assigned to the Claimant, in accordance with the provisions of article 12, no. 2 of the RJAT and article 4, no. 4 of the Regulation of Costs in Tax Arbitration Processes.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

a) To judge the arbitral request for declaration of illegality of the Claimant's CIT self-assessments, in the parts produced by autonomous taxation, for the years 2013 and 2014, object of the present case, as entirely unsuccessful, absolving the Respondent of this request;

b) To judge the request for reimbursement of the amount of CIT paid by the Claimant, relating to the years 2013 and 2014, plus compensatory interest, as formulated by the Claimant, as unsuccessful, since this request is moot due to the unsuccessfulness of the arbitral request referred to above in a), absolving the Respondent of the respective request and, in consequence,

c) To uphold the decisions of dismissal of the amicable complaints of the tax acts of CIT self-assessment relating to the years 2013 and 2014;

d) To condemn the Claimant to pay the costs of the present case.

V. VALUE OF THE CASE

In accordance with the provisions of article 306, no. 2, of the CCP, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Processes, the value of the case is set at €136,683.68.

VI. COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is set at €3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Processes, at the charge of the Claimant.

Let notification be made.

Lisbon, 07 September 2017

DISSENTING OPINION

The disagreement that separates us from the orientation that prevailed in the present Decision relates, in a first moment, to the subtlest question of the nature of autonomous taxation and, subsequently, to the constitutional propriety of the building of a specific regime for the same, distinct from the general regime of CIT. In accordance with article 104 of the CPR, CIT aims to tax, fundamentally, real income. In the realization of this objective, one seeks a practical conciliation of the objectives of justice, simplicity and effectiveness that preside over tax activity. These last two objectives justify the adoption of tax norms through which one seeks to reduce the complexity of the system and enable the tax administration to collect and process a high amount of fiscally relevant information or to reduce such information if this does not compromise the principles and purposes of the tax system. Systems of simplified taxation or by presumptions constitute examples of responses to this type of challenges.

From the point of view of tax justice, the legislator seeks to achieve a determination as precise as possible of taxable income (i.e. real income), important from the point of view of horizontal and vertical equity. For this purpose, it becomes necessary to take into account the different categories of income earned by taxpayers and the expenses incurred by them. Among these, the legislator may consider, on the basis of reasonable objective criteria, that some expenses necessary and suitable for the exercise of business activity are deductible from income earned while others should not be deductible, on the grounds that they are not absolutely essential to economic activity.

Equally important, in this context, are the objectives of formalization of all economic activity, incentive or disincentive of certain types of investment and guarantee of the separation between the assets of the business collective person and the assets of the respective partners, administrators or workers, preventing hidden, disguised and abusive transfers of income from the former to the latter or the adoption of consumption standards generally associated with a certain social and economic status that the legislator qualifies as not strictly business and sees fit to tax.

The regulatory purposes of formalization of the economy, incentive or disincentive to certain expenses, prevention of abuses, preservation of the tax base and combat against fraud and tax evasion are transversal to the entire tax system and to all CIT, and cannot be autonomized and associated only to this or that sector of the tax legal order. It is in the context of the exercise of the regulatory function of CIT and the integrated, articulated and dynamic promotion of its different objectives, that the introduction, in our legislative framework, of the so-called "autonomous taxation" is understood.

Notwithstanding its designation, it is integrated in the code and system of CIT (and IRS), establishing with all its material and operational norms semantic connections characterized by total interdependence (whole-part) and partial interdependence (part-part), which appear relevant in hermeneutic concretization. At least in considerable measure, autonomous taxation does not cease to be configured as an adaptation of the incentive structure inherent in CIT to the constitutional purpose of fundamentally taxing real income. The same points to notions, dear to the tax system globally considered, of available income and ability to pay, with the same being here indirectly induced, presumed or inferred, in a reasonable and not arbitrary manner, from the carrying out of certain expenses, deductible and non-deductible, considered unacceptable, not essential or not justified from the point of view of the formalization of the economy or business rationality.

For this reason, autonomous taxation does not necessarily constitute grafts, deviations or anomalies to the CIT system, representing instead one among various regulatory techniques with which it can be made compatible. Still less should they be conceived as punitive taxes, located at the margins of the CIT system. They are an integral part of the incentive structure through which CIT realizes its various purposes.

It does not necessarily follow from a literal, systematic and teleological interpretation of the CIRC that autonomous taxation should be considered as a distinct tax from CIT, in which they are inserted and whose formally and materially just realization is at the basis of its raison d'être, and that from this the consequences are drawn in the sphere of deduction from the tax liability of tax credits determined as IFTR and EITC.

From the material, operational and temporally relevant legal framework for the decision of the case in question, it does not necessarily follow that the regulatory objectives of CIT have to be pursued through adherence to an unveiled theory of the dual impact of autonomous taxation, namely, first impact: taxation of expenses and not of income; second impact: non-deductibility of tax credits from the tax liability of autonomous taxation. Indeed, it is important to underline that only the first impact was expressly provided for in positive law, which is not insignificant from the point of view of legality, typicality, clarity, precision, determinability and fiscal predictability.

The interpretive derivation and on the margins of express legal provision, of a specific legal regime (e.g. liquidation, tax liability, deductions, retroactivity) for autonomous taxation, distinct from the general regime of CIT in which the same are inserted, may inadmissibly impair these principles, and should not be encouraged.

Furthermore, in the present case, it compromises the pursuit of the parafiscal objectives of public interest underlying the IFTR and EITC, the putative fiscal gains that such orientation could generate for the public treasury in a first moment fade away in the next when it is observed that collective persons dedicated to business activity economically pass on the taxes they are called to bear to shareholders, investors, administrators, workers, suppliers, consumers and, when business activity becomes more difficult or unviable, to the tax administration and social security.

On the contrary, it appears to be entirely legitimate and reasonable, from the point of view of the canons of hermeneutics generally accepted, the understanding that the general deduction from the CIT tax liability encompasses the tax liability owed in the context of autonomous taxation, as was sustained by the Arbitral Decisions issued within the scope of cases no. 769/2014-T, of 8 April 2015, no. 369/2015-T, of 25 January 2016 and no. 370/2015-T, of 25 January 2016, in accordance with the terms set forth therein and to which we refer.

Naturally it is not forbidden to the legislator to adopt expressly a solution of contrary meaning, even in the exercise of the regulatory function inherent to CIT, as indeed it came to do with the addition to article 88 of no. 21 by articles 133 and 135 of Law no. 7-A/2016, of 30 March (State Budget). The point is that with this the fundamental principles of taxation of real income, proportionality in a broad sense and legal certainty and protection of the confidence of individuals are not violated, in accordance with the provisions of articles 18/2 and 103/3 of the CPR, with the qualification of the norm of article 88/21 of CIT as merely interpretive being more than problematic. The applicable regime at the time of the relevant facts admitted the deduction from the tax liability of autonomous taxation of the tax credits in question, with it being constitutionally prohibited to retroactively apply a regime of separation of tax liabilities that was only expressly established by the legislator in March 2016. In these terms, for the reasons set forth, we would grant the arbitral request.

Jónatas Machado

Text prepared by computer, in accordance with the provision of article 131, no. 5, of the CCP, applicable by referral of article 29, no. 1, al. e), of the RJAT.

[1] The wording of the present decision is governed by the spelling of the Agreement of 1990, except with regard to transcriptions made.

[2] In the same sense see also the dissenting vote of the same Arbitrator President, appended to Arbitral Decision no. 5/2106-T, of 27 July 2016 (and to whose tenor we hereby also refer).

[3] See case no. 830/11, of 21-03-2012 (2nd section).

[4] In this sense, see Decision no. 310/12, of 20 June (Rapporteur Councillor João Cura Mariano), case law reiterated by the Plenary Decision, in Decision no. 617/2012 (case no. 150/12, of 31 January 2013) and in Decision no. 197/2016 (case no. 465/2015, of 23 May 2016).

[5] See RUI DUARTE MORAIS, in "Notes to CIT", Almedina, 2009, pp. 202-203.

[6] Also CASALTA NABAIS considers that it "is a taxation on the expense and not on the income" (in "Tax Law, 6th Ed., p. 614) and, in the same sense, cf. ANA PAULA DOURADO (in "Tax Law, Lessons", 2015, p. 237).

[7] See SALDANHA SANCHES, in "Manual of Tax Law", 3rd Ed., Coimbra Editora, 2007, p. 406.

[8] See CASALTA NABAIS, Idem, p. 614.

[9] With respect to questions about the limits of morality before taxation see SUSANNE LANDREY, STEF VAN WEEGHEL and FRANK EMMERINK). With regard to the deep and indisputable interconnection between law and morality, see JOÃO BAPTISTA MACHADO, Introduction of Law and to the Discourse of Legitimation, Almedina, 9th Reprint pp. 50 et seq.

[10] The Arbitral Decision of CAAD no. 210/13-T states that the "expenses (…) share between them a risk of non-entrepreneurship, that is, a risk of not being carried out for business purposes, but for extrabusiness or private purposes".

[11] In "Interpretation and Application of Laws", Arménio Amado, editors, 1978, p. 137 et seq.

[12] See MANUEL DE ANDRADE, Essay on the theory of interpretation of laws.

[13] The Extraordinary Investment Tax Credit (EITC) aims to increase the competitiveness of companies, supporting their efforts in Research and Development through the deduction from the CIT tax liability of the respective expenses. This incentive system was created in 1997 as a measure to stimulate the participation of the business sector in the overall R&D effort. Experience resulting from its application allows the conclusion that this mechanism has contributed to an effective increase in R&D activity by Portuguese companies.

[14] The Tax Code of Investment (originally approved by Decree-Law no. 249/2009, of 23 September and amended and republished by Decree-Law no. 162/2014, of 31 October), sought to synthesize a set of fiscal supports of an investment-related nature both to productive investment and to research and development, intending to contribute to the promotion of the competitiveness of the national economy and to the maintenance of a favorable fiscal context for investment, the creation of employment and the strengthening of the equity capital of companies. Within the scope of that Code, various incentive regimes / fiscal benefits were established, in particular the Investment Support Tax Regime (IFTR). This regime established a fiscal benefit for investment in tangible fixed assets and intangible assets, embodied in deductions from the CIT tax liability (of the tax period in which the relevant applications are made and, when it cannot be made in full, due to insufficient tax liability, it can be in the liquidations relating to the ten following periods, with certain limits), exemption from Stamp Duty and exemption or reduction of Real Estate Tax and Real Estate Transfer Tax with respect to real property acquired or constructed within this scope, being applicable to CIT taxpayers who exercise, as their principal activity, an activity in certain sectors [classified in accordance with the Portuguese Classification of Economic Activities, Revision 3 (CAE-Rev.3), as defined in Ordinance no. 282/2014 of 30 December].

The IFTR is not cumulative with other benefits of the same nature, for the same relevant applications, except those provided for in the regime of retained and reinvested earnings deduction, with the maximum limits applicable to aids with a regional purpose.