CAAD 9/2018-T: IRC Autonomous Taxation Deductions and SIFIDE Tax Credits – Arbitral Decision

ARBITRAL DECISION

The arbitrators José Poças Falcão (Presiding Arbitrator), João Taborda da Gama and Carla Castelo Trindade, appointed at the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree:

I – REPORT

A..., S.A., tax identification number ..., with registered address at street ... no. ..., ...-..., ..., filed a request for constitution of an arbitral tribunal, pursuant to article 2.º, no. 1, paragraph a), and articles 10.º et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tacit dismissal of the administrative complaint filed against the self-assessed Corporate Income Tax (IRC) act, concerning the 2015 tax year, insofar as it does not allow the deduction from the IRC collection of the amounts produced by the autonomous taxation rates of the fiscal benefits assessed under the System of Fiscal Incentives for Business Research and Development (SIFIDE) and special payments on account (PEC), in the amount of € 156,205.88.

The Claimant bases its request on the following grounds.

The Claimant holds fiscal credits relating to the tax years 2009, 2014 and 2015 under SIFIDE, with a total value of € 362,839.61, and made special payments on account in all tax years since 2010, with a total value of € 418,746.00, which were never deducted due to negative fiscal results between 2010 and 2013.

In the 2015 tax year, the Claimant determined a total amount of tax to be paid of € 129,775.82, from which it was not possible to deduct the fiscal credits regarding the IRC collection produced by autonomous taxation, resulting in an undue payment of € 156,205.88.

However, the autonomous taxation rates, although subject to a different form of determination as regards the taxable base and applicable rates, follow, in the Claimant's understanding, an identical procedure for tax assessment pursuant to article 90.º of the IRC Code.

The Claimant therefore argues that article 90.º of the IRC Code does not apply to autonomous taxation rates, and therefore the legality of the assessment of autonomous taxation rates should be declared illegal due to the absence of legal basis for its implementation, taking into account the provisions of article 103.º, no. 3, of the Constitution.

The Claimant further argues that the anti-abusive purpose of autonomous taxation rates does not preclude the procedure for IRC assessment nor frustrate the intended legal effect, since the taxpayer effects the payment of autonomous taxation rates through the offsetting of fiscal credits available to them by way of fiscal benefits or special payments on account. Otherwise, states the Claimant, the rule of article 90.º, no. 2, of the IRC Code would be contrary to the principle of fiscal equality insofar as it introduces limits to IRC deductions that are not applicable to all taxpayers.

The Claimant further argues that the rule of article 88.º, no. 21, of the IRC Code, introduced by Law no. 7-A/20216, of 30 March, does not preclude the deduction from the IRC collection of autonomous taxation rates, since it only provides that specific deductions cannot be made from the collection of autonomous taxation rates, and, in any case, the rule, by its interpretive nature, would be contrary to the principle of prohibition of retroactivity of fiscal law should it be understood as applicable to the 2014 tax year.

In this manner the Claimant concludes that the amounts disbursed as special payments on account may be deducted from the IRC collection resulting from autonomous taxation rates, as these constitute fiscal credits that may allow for the offsetting of tax owed.

Consequently, it requests the declaration of illegality of the decision dismissing the administrative complaint and the partial annulment of the IRC self-assessment concerning 2015, insofar as it did not permit the deduction from the collection produced by autonomous taxation rates of the fiscal benefit and special payments on account.

The Tax Authority, in its response, considers that the inclusion of autonomous taxation rates in the IRC Code, by their nature and purpose, has as its logical corollary the application of the general rules specific to that tax that do not conflict with its special form of incidence, conferring a dualistic nature on the normative system of the tax that is embodied in the separate calculation of the respective collections in accordance with different rules, concluding for the dismissal of the request.

In submissions, the parties reiterated their previous positions.

On 5 January 2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant appointed an arbitrator, appointing His Excellency Dr. João Taborda da Gama, pursuant to article 11.º, no. 2 of the RJAT.

Pursuant to no. 3 of the same article, the Respondent appointed as arbitrator Her Excellency Dr. Carla Castelo Trindade.

The arbitrators appointed by the parties were appointed and accepted their respective charges.

By order of 20 February 2018, and following the request presented by the arbitrators appointed by the parties that the presiding arbitrator be appointed by the Deontological Council, Judge José Poças Falcão was appointed presiding arbitrator, pursuant to article 6.º, no. 2, paragraph b), of Decree-Law no. 10/2011, of 20 January, who, within the applicable timeframe, also accepted the charge.

On the same day the parties were notified of the said appointments, having expressed no intention to file a request for challenge against any of them.

In accordance with the provisions of paragraph c) of no. 1 of article 11.º of the RJAT, the collective Arbitral Tribunal was constituted on 12 March 2018.

On 30 April 2018, the Respondent, duly notified for this purpose, filed its response defending itself by way of challenge.

Given that in arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply, pursuant to paragraphs c) and e) of article 16.º of the RJAT, the holding of the meeting to which article 18.º of the RJAT refers was dispensed with, as well as the presentation by the parties.

On 31 August 2018, an order extending the decision to 3 October 2018 was issued.

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

The parties have standing and capacity, are legitimate and are legally represented, pursuant to articles 4.º and 10.º of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March.

The proceedings are not affected by any defects of nullity.

Thus, there is no obstacle to the hearing of the case.

Having duly considered all matters, we hereby render

II. DECISION

A. FACTUAL MATTERS

A.1. Facts established as proven

The Claimant filed IRC Form 22 Declaration, concerning the 2015 tax year, proceeding to self-assess autonomous taxation rates in the amount of € 156,205.88;

The amount of tax determined to be paid was € 129,775.82;

The Claimant holds fiscal credits relating to the tax years 2009, 2014 and 2015 under SIFIDE with a total value of € 362,839.61;

And it made special payments on account in all tax years since 2010 with a total value of € 418,746.00 which were not deducted due to negative fiscal results determined between 2010 and 2013;

The information system did not permit the deduction from the IRC collection, including that resulting from autonomous taxation rates, of the amounts of fiscal benefit recognized under SIFIDE and special payments on account;

The Claimant filed an administrative complaint against the self-assessment of autonomous taxation rates for the said 2015 tax year, which was not subject to assessment by the Tax Authority within the legally prescribed timeframe;

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the factual matters proven and not proven

Regarding factual matters, the Tribunal does not need to pronounce itself on everything that was alleged by the parties, but rather it has the duty to select the facts that matter for the decision and distinguish proven matters from unproven ones (cf. article 123.º, no. 2, of the CPPT and article 607.º, no. 3 of the CPC, applicable by virtue of article 29.º, no. 1, paragraphs a) and e), of the RJAT).

Accordingly, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) at issue (cf. former article 511.º, no. 1, of the CPC, corresponding to the current article 596.º, applicable by virtue of article 29.º, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110.º, no. 7 of the CPPT, the documentary evidence and the administrative proceedings attached to the case file, the facts listed above were considered as proven, with relevance to the decision.

B. LAW

The main question to be decided in the present proceedings, being, without doubt, of some complexity in its resolution, is nevertheless simple in its formulation, and concerns the question of whether or not the Claimant has the right to proceed with the deduction of SIFIDE credits and special payments on account from the amounts owed as autonomous taxation rates.

The question is eminently one of understanding the constitutional substratum underlying the four institutes: IRC, SIFIDE, Payments on account and Autonomous taxation rates. This is what will be attempted hereinafter.

The thesis sustained by the Claimant results in the attribution to the rules of SIFIDE and RFAI or, it is ventured, to any other rules of fiscal benefit that function through deduction from the collection, of a scope that is not compatible with their exceptional nature.

It should be stated from the outset that this Tribunal considers that the rules that govern benefits such as SIFIDE and RFAI possess an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, appropriate and proportionate to the extrafiscal purpose underlying them. And that is what will be seen hereinafter. For according to this Tribunal's understanding, a reading such as that resulting from the orientation defended by the Claimant could ultimately result in the unconstitutionality of the very regimes of fiscal benefits SIFIDE and RFAI. This is because from the thesis defended by the Claimant it follows that the purpose of these fiscal benefits is of such intensity that it justifies the disregard for the purposes of autonomous taxation rates, which is disturbing particularly when we consider cases in which the purpose of autonomous taxation is the prevention of fraud and fiscal evasion. This is assuredly not the intention of the legislator when it creates (or created) fiscal benefits. On the contrary: the use of fiscal benefits should bring with it reinforced accountability of the taxpayers who enjoy them.

With the success of a thesis such as that supported by the Claimant the community would lose doubly: through fiscal expenditure incurred with fiscal benefits and through the revenue that is lost in evasive practices.

The reading made by the Claimant is therefore unsustainable on the constitutional level, where perhaps it deserves to be clarified.

The reading made by the Claimant is further unsustainable on the constitutional level when by allowing deductions to autonomous taxation rates whether they result from SIFIDE credits or from special payment credits on account, the principle of fiscal equality is being violated. In fact, general deductions to the collection of the tax (IRC) are admitted, permitted by law by force (and imposition) of the principle of taxation of real and effective income as an element revealing taxpaying capacity.

Let us then look at the structure of IRC:

According to this Tribunal's understanding, deduction from the collection is a reality of IRC (and of IRS) as a tax legitimized by the principle of taxpaying capacity. However, the same does not occur with respect to the collection owed by autonomous taxation rates. In autonomous taxation rates to admit a deduction from its collection would contradict the principle of fiscal equality, this general deduction ceases to make sense because, not taxing income but expenses and, if you will, behaviors, no question of justice in apportioning the general burden of the tax arises, to which article 103.º, no. 1 of the CRP appeals. These are not the concerns and elements informing the tax. Quite the opposite. It would even be illogical to permit the deduction of charges from autonomous taxation rates when such deduction, in practice, would destroy the anti-abusive sense that characterizes them and which summarizes the disincentive for deviant behaviors that their institution represses or settles.

This Tribunal does not understand that autonomous taxation rates are autonomous because the legislator understood that the objectives underlying them could only be accomplished through the creation of fiscal aggravations on companies that were immune from the contingencies of IRC assessment. That they were immune from the contingencies necessary to fulfill the principle of taxation by real profit that characterizes IRC.

The objectives of autonomous taxation are, according to this Tribunal's understanding, essentially of two kinds: on the one hand, the fight against fiscal evasion and fraud, internal or international; on the other hand, the discouragement of certain behaviors for reasons of social order, such as the environment. In both cases, autonomous taxation and the protection of these legal interests is concretized by a fiscal aggravation. This Tribunal does not therefore follow an orientation pointing that the grand objective of autonomous taxation is the obtaining of fiscal revenue. The obtaining of fiscal revenue must be the result of any intention of subjecting a certain reality to taxes, not the objective or the foundation.

In substance, in autonomous taxation rates, we are faced with a mechanism of negative stimuli, which intends to alter the behavior of companies with a view to the protection of interests and values with constitutional dignity. It cannot be conceived that over these shall prevail without reservation the interests and values that lie behind rules of fiscal benefits such as SIFIDE or RFAI, which assuredly do not possess greater dignity.

In this manner, the thesis defended by the Claimant is not accompanied, also and firstly, because this conclusion results from a legal interpretation that does not take into account the teleological and rational elements of the figures of autonomous taxation and IRC by admitting that it follows from article 4.º, no. 1 of the respective SIFIDE and RFAI statute, in conjunction with article 90.º of the IRC Code, that the calculation of autonomous taxation rates is effected in accordance with article 90.º of the IRC Code and therefore fiscal benefits may be deducted from the amount to be paid for autonomous taxation rates.

To understand what is said and, consequently, why the Claimant's request is denied, we shall therefore begin by briefly explaining the structural and dogmatic distinction between the figures of IRC and autonomous taxation. All in order to then conclude that in the calculation of autonomous taxation rates no deductions are possible, being the assessment of autonomous taxation rates effected in accordance with articles 88.º and 89.º of the IRC Code, resorting solely to no. 1 of article 90.º of the Code for purposes of the procedure of assessment. Never to no. 2 and following of article 90.º of the Code since these contain instruments applicable solely to IRC.

This is to then look at the figure of special payments on account and its theoretical substratum to conclude that PEC also has an anti-abusive nature that does not accord with the interpretation the Claimant makes of it.

Then to move forward to the analysis of the SIFIDE and RFAI regime to then conclude what was stated above. That support regimes for investment that are accomplished through deductions from the IRC collection relate to the IRC collection strictly speaking for whose assessment autonomous taxation rates do not concur. They do not concur nor could they concur because the regime rewards and wants to reward the profitability of the investment. The more profit a company has the more it can deduct from its profit the expenses with investment. It does not reward nor want to reward companies that, having no profit and having autonomous taxation rates, for example, resulting from representation expenses, can deduct from this amount the expenses with investment. But it is also the very foundation of the SIFIDE and RFAI regime that denies the possibility of deductions of investment expenses from the amounts of autonomous taxation. For to admit this, as follows from the position defended by the Claimant, one would be admitting that the purpose of these fiscal benefits is of such intensity that it justifies the disregard for the purposes of autonomous taxation rates and a reading such as this could ultimately result in the unconstitutionality of the very regimes of fiscal benefits SIFIDE and RFAI. To admit this is further to subvert the entire mechanism of functioning of the two taxes – IRC and autonomous taxation rates – bringing to a tax that wants to be punitive by imposition of the principle of fiscal equality (autonomous taxation rates) instruments such as deductions from the collection or special payments on account characteristic of IRC by imposition of the principle of taxation by real profit.

Given this, let us then look at each question in particular.

Everything begins with the (fundamental) divergence regarding the nature of autonomous taxation rates.

Here this Tribunal follows the uniform and reiterated position both of the jurisprudence of the Constitutional Court and of the Supreme Administrative Court and of the Doctrine.

Autonomous taxation rates are a tax on expenses different and distinct from IRC which, indisputably, is a tax on income. This without discussing whether autonomous taxation rates have or not similarities with IRC. For regardless of possible similarities there is no doubt that they are different taxes.

This jurisprudence was initiated some 7 years ago in the Constitutional Court with the dissenting vote of His Excellency Counselor Vítor Gomes, appended to Decision no. 204/2010. In Decision no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Decision no. 18/11 approaching the then dissenting vote of Counselor Vítor Gomes.

This jurisprudence was later reaffirmed by the Plenary, in Decision no. 617/2012, case no. 150/12, of 31/1/2013 and, recently, in Decision no. 197/2016, rendered in the context of case no. 465/2015.

In the same sense the Supreme Administrative Court has proceeded as will be confirmed, among others, in the Decision of 21/3/2012, case 830/11, of 21/3/2012.

The doctrine also follows this position.

From Sérgio Vasques, in footnote 60, page 342, of his Manual of Fiscal Law, Almedina, 2015, to Rui Morais in Notes to the IRC, Almedina, 2009, pp. 202-203, through Professor Casalta Nabais in his Fiscal Law, 8th ed., Almedina, Coimbra, 2015, p. 542 and by Professor Ana Paula Dourado in Fiscal Law, Lessons, 2015, pp. 237 et seq. All reiterate the position already supported by Portuguese courts. Autonomous taxation and IRC are different taxes.

This thesis was transposed into law, unequivocally, by the legislator itself when in the redaction introduced to article 23.º-A, no. 1, paragraph a), of the IRC Code by Law no. 2/2014, of 16 January, it begins to state that "they are not deductible for the purpose of determining taxable profit" "IRC, including autonomous taxation rates". What sense would it make to make clear in law that autonomous taxation and IRC are not deductible from taxable profit if autonomous taxation were part of IRC? If so, the Agreements for Avoidance of Double Taxation would have autonomous taxation rates included where IRC is referred to, which, as is known, does not occur. That is moreover the reason why Portugal has been including autonomous taxation rates in the list of taxes covered. Thus, in light of the foregoing it can be concluded from the outset, in a simple manner, that if the fiscal legislator understood that IRC included autonomous taxation rates it would not have needed to distinguish the two realities, for that IRC would already necessarily include autonomous taxation rates.

And it is not because autonomous taxation is inserted in the IRC Code that the two realities should be confused.

Recall that autonomous taxation was introduced by article 4.º of Decree-Law no. 192/90, of 9 June, and was not immediately inserted in the IRC Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it in the IRC Code through Law no. 30-G/2000 of 29 December. What the legislator sought with this systematic approach was an anesthetizing effect, since, notwithstanding autonomous taxation rates being assessed independently of IRC, they are self-assessed together with the IRC declaration, through Form 22. On this question the Constitutional Court considered, in Decisions nos. 18/2009 and 85/2010, that autonomous taxation could be inserted in any other code or independent statute.

And the realities are different from the start because the objectives are different.

In IRC the taxation of income is aimed at under the scrutiny of taxpaying capacity.

Autonomous taxation, on the other hand, had, at least originally, two quite different objectives always under the legitimation of the principle of fiscal equality.

The first, that of taxing in the sphere of companies what cannot be taxed in the sphere of IRS, and the second that of discouraging the realization of certain expenses or certain behaviors. On this point Professor Saldanha Sanches even went so far as to state that "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the fiscal regime that is found in the zone of intersection of the personal sphere and the business sphere," further adding that in the "designation of 'autonomous taxation rates', very diverse realities are hidden" (Manual of Fiscal Law, 3rd edition (2007), Coimbra Editor, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation rates "(…) fulfill, in essence, two functions: on the one hand, to prevent the erosion of the taxable base in the sphere of IRC, by imposing taxation on charges that may be deducted by IRC taxpayers but which, if so, transform themselves into an aggravation of taxation, thus intending to serve as a disincentive to such charges; other types of autonomous taxation rates aim, purely and simply, to penalize presumptively evasive or fraudulent behaviors of taxpayers, embodying an anti-abusive mechanism."

Autonomous taxation thus aims to tax a patrimonial advantage obtained, typically through the realization of an expense and which consequently translates into the reduction of taxable profit. IRC on its part aims to tax the real income of the taxpayer taking into account their taxpaying capacity.

It should be recalled that it is unanimously accepted both by jurisprudence and by doctrine that autonomous tax rates of IRC (and IRS) are a tax of single obligation distinct from IRC and IRS themselves, taxes of successive formation. It should also be recalled that the autonomy of autonomous tax rates results from their possessing a substantially different fact generator from IRS/IRC, from obeying their own assessment rules and from serving very specific purposes.

Indeed, the purposes of autonomous taxation are today varied but, in what they have of utmost importance, it is insisted, they serve to guarantee fiscal equality by guaranteeing the subjection to tax of values that, being expenses in the sphere of companies, prefigure income in the sphere of third parties and preventing abusive planning through recourse to tax havens. These objectives are of superlative importance to guarantee the just distribution of income and wealth to which article 103.º, no. 1, CRP appeals.

In light of the foregoing it is recalled what was stated above: if there are reasons that justify the admission of general deductions from the collection of the tax (IRC), permitted by law by force of the principle of taxation of real and effective income as an element revealing taxpaying capacity, the same does not occur with respect to the collection owed by autonomous taxation rates. Deduction from the collection is a reality of IRC (and of IRS) as a tax legitimized by the principle of taxpaying capacity. In autonomous taxation rates, these are not the concerns and elements informing the tax. It would even be illogical and, it is ventured, contrary to the principle of fiscal equality, to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that characterizes them and which summarizes the disincentive for deviant behaviors that their institution represses or settles.

In sum, autonomous taxation rates, which are imposed on certain expenses, function differently from what constitutes the essential scope of IRC, which taxes income, and, notwithstanding the systematic insertion and functional connection to IRC, the truth is that they are collected within the process of assessment of this tax without, however, losing their characteristic and being divested of their own dogmatic roots.

Having visited the theoretical substratum, let us now look at the law.

Nothing is stated in the law as to whether what is in article 90.º of the IRC Code, under the heading "Procedure and Form of assessment," applies to both realities – IRC and autonomous taxation – or to only one and which one. However, in this Tribunal's understanding, from a teleological and systematic interpretation of the law it is clear that no. 1 of article 90.º - which contains the procedure for assessment – applies to both IRC and autonomous taxation rates. Already no. 2 of the same article – which contains the form of assessment – refers to cases of the taxable matter mentioned in article 15.º of the IRC Code, that is to IRC.

To better understand this conclusion it will be necessary to understand what was established in the then no. 6 of article 109.º of the IRC Code, current article 117.º, that the obligation to present the periodic declaration of income covers entities exempt from IRC, when they are subject to autonomous taxation. And for certain purposes – namely for the purposes of the deductions provided for in no. 2 of article 90.º of the IRC Code or the calculation of payments on account or again the Result of Assessment (article 92.º) - the task of identifying the relevant part of IRC collection was left to the care of the interpreter and the applicator of the law. This by extracting from the applicable normative provisions a useful sense, literally possible, that permits a coherent solution conforming with the nature and functions attributed to each component of the tax. Well, it is here that caution must be exercised.

When it comes to the deductions provided for in no. 2 of article 90.º of the IRC Code, it seems the Claimant argues that the expression "amount determined in accordance with the preceding number" should be understood as encompassing the sum of the amount of IRC, determined on the taxable matter determined in accordance with the rules of Chapter III and at the rates provided for in article 87.º of the same Code, and the amount of autonomous taxation rates, calculated on the basis of the rules provided for in article 88.º. Now, the result of this interpretation would imply from the start and in a very simple manner that in the basis of calculation of payments on account defined in no. 1 of article 105.º of the IRC Code, and in terms identical to those used in no. 2 of article 90.º, autonomous taxation rates were included. Indeed, for the basis of calculation of payments on account only IRC determined on the basis of taxable matter determined in accordance with the rules of Chapter III and the rates of article 87.º of the respective Code is considered. And here there is no difference either in Doctrine or in jurisprudence. For it should be noted that the coherence and adequacy of this understanding is founded on the very nature of payments on account of the tax ultimately owed, which, in accordance with the definition of article 33.º of the LGT are "pecuniary advances that are made by taxpayers in the period of formation of the tax fact," constituting a "(…) form of approximation of the moment of collection to that of the perception of income so as to fill situations where that approximation cannot be accomplished through withholdings at source". Therefore, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of IRC collection resulting from the taxable matter that is identified with the profit/income of the taxpayer's tax year.

Here, this Tribunal follows what the Respondent argues, insisting that the only (and consistent) interpretation of the expression "amount determined in accordance with the preceding number" with the nature of the deductions referred to in paragraphs of no. 2 of article 90.º of the IRC Code, relating to:

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

• fiscal benefits (current paragraph c));

• special payment on account (current paragraph d));

• and withholding at source (current paragraph e)).

In reality, it is noted that the common feature to all the realities reflected in the deductions referred to in no. 2 of article 90.º of the IRC Code lies in the fact that they relate to income or expenses incorporated in the taxable matter determined on the basis of the taxpayer's profit or advance payments of the tax, being, therefore, entirely foreign to the realities that integrate the facts generators of autonomous taxation rates.

And it is said thus because for this Tribunal it is clear that the assessment to which the legislator wanted to refer in no. 2 is to the taxable matter referred to in article 15.º of the IRC Code. Or, put differently, the "original sin," never well resolved it is true, lies in the fact that (one must) understand, interpreting teleologically and systematically the law, that no. 1 of article 90.º applies to autonomous taxation rates, a situation that is maintained even with the most recent amendment which only established that there will be no deduction from the amount of the assessment resulting from autonomous taxation rates. The most adequate solution would have been ab initio for the legislator to have precluded the application of no. 2 of article 90.º of the IRC Code to cases of autonomous taxation, but as this did not occur it ended up making patches with the interpreter having to arrive at the most adequate solution through a teleological and systematic interpretation as set forth above.

Thus, in the calculation of autonomous taxation rates no deductions are possible, being the assessment of autonomous taxation rates effected in accordance with articles 88.º and 89.º of the IRC Code and no. 1 of article 90.º of the Code. Never in accordance with no. 2. The provisions of no. 2 of article 90.º apply to the only tax whose functioning and theoretical-constitutional substratum permits its application – IRC. The procedure for assessment provided for in no. 1 of article 90.º of the IRC Code also applies to autonomous taxation rates. However, to say this does not mean accepting that the same applies to no. 2 of the same article. No. This precept applies solely to IRC.

Now as was seen, the Claimant further maintains the illegality of the self-assessment of the tax insofar as it does not allow the deduction of special payments on account from the collection of autonomous taxation rates. The special payment on account constitutes – it asserts – a forced loan or an autonomous tax and the anti-abusive purpose of autonomous taxation rates does not preclude the possibility of deduction of these payments from the IRC collection, including that resulting from autonomous taxation rates, through the offsetting of the fiscal credits that such advance payments represent.

Regarding this question a note to refer entirely to the argument advanced for this purpose in Case 7/2018 in which the reporting arbitrator was Counselor Carlos Cadilha and where it may be read that:

"Also in this case it is of interest to begin by characterizing the figure of special payment on account, following the consolidated orientation of arbitral jurisprudence.

The special payment on account was instituted by Decree-Law no. 44/98, of 3 March, through the addition of article 83.º-A to the IRC Code, being justified through its preamble as a measure to combat "evasive practices of concealment of income or inflation of costs" understood as "manifestly generating serious distortions of the principles of equity and fiscal justice and of economic efficiency itself and harmful to the stability of fiscal revenue" and from which "results an unjust apportionment of the tax burden".

The provisory character of the payment of the tax resided in the possibility of deducting the amounts paid as PEC from IRC, determined in accordance with the general terms, established in article 71.º of the then-current IRC Code, although this deduction was only possible if, despite this operation, the value of the tax to be paid was positive (article 71º, no. 6 of the IRC/1998).

There being no tax to be paid in accordance with the general terms, the value of the PEC satisfied could be carried forward to the following year (article 74º-A, no. 1) or reimbursed later (article 74º-A, no. 2). It sought to guarantee that the generality of taxpayers would satisfy an amount on account of IRC, calculated provisionally on the volume of business of the previous year (article 83º-A).

In essence, it was fictioned that all companies would have by tendency a taxable profit, calculated in accordance with the general parameters, equivalent to 1% of their business volume of the prior year, the account being settled later if this was not so.

The reform of IRC carried out in 2000-2001, through Law no. 30-G/2000, of 29 December, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in activity and imposed that the carrying forward of the amounts satisfied be done only up to the fourth subsequent tax year (article 74º-A, no. 1, of the IRC/2001).

From this restrictive rule resulted, for the first time, the possibility of PEC transforming itself into minimum collection when it was not possible to deduct the amounts satisfied, by exhausting the carrying forward period (in this sense, Teresa Gil, "Special Payment on Account," Magazine Fisco, Year XIV (March 2003) no. 107-108, p. 12).

In synthesis, it is possible to affirm that the alterations introduced in this reform not only maintained but accentuated the emphasis of combating fiscal evasion that had motivated the introduction of PEC. However, despite autonomous taxation rates already existing at that time, no mechanism of articulation between the two instruments was provided for.

The third configuration of PEC was introduced by Law no. 32-B/2002, of 30 December, which in its article 27.º established a new regime of deductibility of PEC in article 87.º, no. 3, of the IRC Code, restoring the possibility of reimbursement of the amounts delivered as PEC and not deducted in the annual IRC assessment. The character of a measure to combat fiscal evasion was further maintained, although it has been alleviated, without abolishing it completely, the feature of minimum collection, in light of the tight conditions imposed for reimbursement.

In the current regime, article 106.º of the IRC Code, in the redaction resulting from Law no. 2/2014, of 16 January, with effects from 1 January 2014, provides that "without prejudice to the provisions of paragraph a) of no. 1 of article 104.º, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates or, in the case of adopting a tax period not coinciding with the civil year, in the 3rd and 10th months of the respective tax period".

The caveat contained in the opening segment of the precept intends to refer to the rules of payment of the tax applicable to entities that exercise, as their main activity, activity of a commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, and that, pursuant to that article 104.º, no. 1, paragraph a), must effect the payment of the tax (…) in three payments on account, with due dates in July, September and 15 December of the year to which the taxable profit relates or, in the cases of nos. 2 and 3 of article 8.º, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective tax period (…)".

Still referring to the special payment on account, article 93.º clarifies that the "deduction to which paragraph d) of no. 2 of article 90.º refers is effected from the amount determined in the declaration to which article 120.º of the same tax period to which it relates refers or, if insufficient, up to the 6th subsequent tax period, after the deductions referred to in paragraphs a) to c) of no. 2 are effected and with observance of no. 9, both of article 90.º"

That is, the deduction relating to the special payment on account – just like the deduction relating to fiscal benefits – is effected on the amount of IRC determined in accordance with that article 90.º, having as a basis the declaration of income of the taxpayer. And, on the other hand, the deductions relating to the special payment on account are only considered after the deductions corresponding to international legal double taxation, international economic double taxation and fiscal benefits, and in any case, a negative result cannot result therefrom, this being the caveat that justly results from no. 9 of article 90.º of the IRC Code.

As can be seen, in the current regime – applicable to the situation at hand - the special payment on account maintains its anti-abusive function. Not only is the deduction effected subsidiarily, but it is also only considered – after other deductions are discounted - up to the limit of IRC collection determined in the tax period, implying that deductions may occur up to six subsequent economic years.

In final analysis, the special payment on account may not be reimbursed either because the taxpayer demonstrates negative fiscal results or because it presents successively insufficient results to absorb the deduction, this being because – as was said – the deduction cannot dispense the taxpayer from a payment of tax that, at minimum, is embodied in the special payment on account itself."

Thus, even though payments on account correspond to a fiscal technique of advance collection of fiscal revenue, there remain no doubts for this tribunal that its specific purpose is also anti-abusive, thus being a means of preventing fiscal evasion and guaranteeing the payment of tax by companies in activity.

This purpose was noted in the Tribunal's decision no. 494/2009, where it can be read that:

"Notwithstanding that generic matrix, a reading of the legal regime of PEC that is attentive to its genesis and evolution leads to the conclusion that it does not obey primarily the typical logic of a payment on account – that is, primarily, to assure the public treasury regular treasury inflows and, secondarily, to protect the Tax Authority against fortunes variations of the debtor and to produce a certain fiscal 'anesthesia' –, rather being indissolubly linked to the fight against fiscal evasion and fraud."

In the same sense, points the doctrine that in this decision appears amply referenced: Teresa Gil, "Special payment on account," Magazine Fisco, no. 107-108, Year XIV, March, 2003, p. 11; Luís Marques, "The special payment on account within the scope of the special regime of taxation of groups of companies," Magazine Fisco, no. 107-108, Year XIV, March, 2003, p. 3; José João de Avillez Ogando, "The constitutionality of the special payment on account regime," Magazine of the Order of Lawyers, vol. 62, Volume III, 2002, pp. 806 and also 821); Saldanha Sanches/ André Salgado de Matos, "The special payment on account of IRC: questions of constitutional conformity," Magazine of Law and Fiscal Management, July, 2003, p. 10.

Accordingly, the arbitral request proves to be unfounded in this part.

Now there will be need to look at the regimes of SIFIDE and RFAI to then conclude what was stated above, that is, that the regimes of support for investment that are accomplished through deductions from the IRC collection relate to the IRC collection strictly speaking for whose assessment autonomous taxation rates do not concur. They do not concur nor could they concur because although article 4.º, no. 1 of the respective statute refers to the amount of tax determined in accordance with article 90.º of the IRC Code it is referring to the amounts determined in accordance with no. 2 of article 90.º of the IRC Code. And in these we have, as we know, cases of the taxable matter referred to in article 15.º of the same Code, i.e. IRC.

To reinforce this position it is necessary to look at the Report of the Working Group constituted by Dispatch no. 130/97-XIII of the Ministry of Finance where it can be read that the fiscal credit or deduction from the collection constitutes one of the modalities, among those provided for in no. 2 of article 2.º of the EBF, that have been adopted especially in measures of fiscal incentives to investment. And there are fundamentally two reasons: one, linked to the operability of the benefit through the transparency and simplicity of the calculation of the fiscal expenditure associated that, as is known, represents the (IRC) fiscal revenue foregone; and another, which is linked to the philosophy underlying the benefits, that is, their indexing to the profitability of the investment according to which "the deduction of a certain percentage of an investment from the collection of a tax on profits is only realized if there is profit, which rewards the profitability of the investment" (Reevaluation of Fiscal Benefits in Notebooks of Science and Fiscal Technique, no. 180, 1998, pp. 46-47).

Now in light of all that has been stated, and contrary to what is argued by the Claimant, there is not, thus, any conceptual error nor any contradiction between what has just been exposed and the fact that the SIFIDE and RFAI regimes establish that the same are accomplished through deductions from the collection of IRC of the amount determined in accordance with article 90.º. It is that although the article of SIFIDE refers to article 90.º as a whole it refers to the amount determined in accordance with no. 2 of article 90.º, and this only applies, as is already known, to IRC.

The deduction relating to fiscal benefits (paragraph b) of no. 2 of article 90.º), when it is a matter of benefits to investment - as is the case with SIFIDE - has underlying the philosophy that the benefit constitutes a reward whose amplitude varies with the profitability of investments, for the higher the profit/taxable matter of IRC the greater the capacity to effect the deduction. And it is this logic of the SIFIDE fiscal benefit that justifies and legitimizes the derogation to the principle of fiscal equality.

SIFIDE II permits companies to obtain a fiscal benefit, in the context of IRC, proportional to the expense of investment in research and development (at the level of processes, products and organizational) that they can demonstrate, in the part that has not been subject to financial participation of the State on a non-refundable basis (See Law no. 55-A/2010 of 31 December, Decree-Law no. 82/2013 of 17 June and Law no. 83-C/2013 of 31 December). Concretely, the benefit to be obtained with SIFIDE II translates into the possibility of deducting from the collection of IRC determined in the tax year, an amount of fiscal credit that results from the sum of the following parts: Base rate: 32.5% of expenses realized in the tax year; Incremental rate: 50% of the increase in expenses realized in the tax year compared to the simple arithmetic average of expenses realized in the two previous years, up to the limit of € 1,500,000. That is, and in summary: the values that express the fiscal benefit in the context of SIFIDE are deducted "from the amounts determined in accordance with article 90.º of the IRC Code, and up to their amount" and in the assessment relating to the tax period in which the expenses are made for which they are eligible and that, in the absence or insufficiency of collection determined in those terms, the expenses that cannot be deducted in the year in which they are made "may be deducted up to the 6th subsequent year".

That is, the legislator of the SIFIDE regime, in making this express reference to the amount determined in accordance with article 90.º of the IRC Code, is referring to the collection of IRC proper for whose assessment autonomous taxation rates do not concur precisely because they do not enter into the assessment of either taxable profit or taxable matter, and, as a consequence, do not concur to the IRC assessed.

Thus, there is not any conceptual error nor any contradiction between what has just been exposed and the fact that the SIFIDE and RFAI regimes establish that the same are accomplished through deductions from the collection of amounts determined in accordance with article 90.º of the IRC Code, i.e. of IRC. It is because, in this Tribunal's understanding, both autonomous taxation rates and IRC are assessed in accordance with no. 1 of article 90.º of the IRC Code. However of the two realities the only one that is susceptible of deduction from the collection – that is of accomplishment of the benefit - is, both for literal reasons (because no. 2 of article 90.º applies solely to IRC) and for material reasons (the benefit is only realized if there is profit so as to reward the profitability of the investment), the collection of IRC that as we have seen is different and distinct from autonomous taxation. The result of autonomous taxation rates, determined in an autonomous/independent/separate manner does not concur to the IRC collection, on the contrary, it must be added to the IRC assessed for purposes of determining the amount to be paid or recovered, which embodies a very different result. Note that autonomous taxation rates (heightened) are immediately owed in the case of taxpayers presenting fiscal losses.

In light of all the foregoing, and taking into account in particular the nature and raison d'être of autonomous taxation rates, it is not possible to admit the deduction of fiscal benefits from the collection of autonomous taxation, under penalty of violation of the principle of fiscal equality.

To admit this possibility leads to a taxpayer being able to effect the deduction as of SIFIDE or other fiscal benefits such as RFAI from the amount of autonomous taxation rates incident on undocumented expenses completely subverting the function of these taxation rates in the prevention or avoidance of fiscal and socially undesired behaviors.

Indeed, given that the regime of autonomous taxation rates has maxime a discouraging function of abusive behaviors, this Tribunal sees no logical reason why this discouragement could, thereafter, vanish in favor of a fiscal benefit. It is not seen how behaviors such as those of relations with tax havens can be disregarded and taken advantage of by virtue of fiscal benefits to investment which will occur by permitting the deduction from the collection of autonomous taxation rates of fiscal incentives as points out the present decision: This result is at minimum paradoxical.

For here, there is still to be recalled that fiscal benefits are absolutely exceptional rules in the fiscal system, insofar as they contain a derogation to the principle of fiscal equality, resulting from article 13.º CRP. They can therefore only survive a test of unconstitutionality if the derogation they bring to the principle of equality proves to be necessary, appropriate and proportionate to the protection of the extrafiscal purposes at stake. Thus, for the deduction from the IRC collection of credits generated by SIFIDE fiscal benefits to be admitted it is necessary that they be recognized as having sufficient intensity to derogate from the equality that should prevail in the taxation of companies. This exercise is in itself not easy nor can it be taken lightly, since equality is the most important material principle of the Fiscal Constitution. Now, if it is admitted, however, that fiscal benefits such as SIFIDE can be deducted not only from the collection of IRC but also from autonomous taxation rates this proportionality control takes on very different contours. Indeed, to admit that IRC taxpayers can neutralize the autonomous taxation rates of which they are debtors by mobilizing fiscal benefits such as SIFIDE would result in recognizing that the promotion of investment in science by companies should prevail over the principle of fiscal equality even when what is at issue are payments and operations that evidence the most serious practices of abusive planning and fiscal evasion. The interpretation of the law sustained by the Claimant degrades the principle of fiscal equality to a minor principle of the system and permits companies that realize confidential expenses, evasive remuneration practices or operations with offshore territories to escape entirely the consequences that the law associates with them, as long as their activity involves significant research and development (R&D) expenses. In truth, this interpretation of the law has even more serious consequence, for the qualification of autonomous taxation rates as IRC collection for purposes of the deduction of fiscal benefits is doctrine that will necessarily apply to any other fiscal benefits that operate by deduction from the collection and is doctrine that will necessarily also apply in the context of IRS and not only IRC.

Such an interpretation of the rules of the IRC Code not only obscures the fact generator and procedure of assessment very specific to autonomous taxation rates, but above all, such an interpretation of the rules of the IRC Code attributes to the rules of SIFIDE and to fiscal benefits in general a constitutional dignity that they do not possess in confrontation with the principle of fiscal equality. Interpreted in this manner, the rules of the IRC Code and SIFIDE seem manifest that the injury they bring to article 13.º of the CRP does not prove to be necessary, appropriate nor proportionate to the objective of promotion of science underlying SIFIDE.

Thus, the Tribunal does not perform a restrictive interpretation of article 4.º of SIFIDE II but only a teleological and systematic interpretation of what is provided both in SIFIDE and in the IRC Code so as to save the regime from the test of constitutional conformity namely in what concretely respects the violation of the principle of fiscal equality. For we can never forget that the rules that govern benefits such as SIFIDE and RFAI possess an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, appropriate and proportionate to the extrafiscal purpose underlying them.

It is therefore not worth entering into the discussion, as it is immaterial, of knowing whether we are or are not faced with a fiscal benefit whose justification is legislatively considered more relevant than the obtaining of fiscal revenue. Of course we are, otherwise the SIFIDE or RFAI regime would not have been approved. The question is one of knowing what fiscal revenue was foregone as a function of investment? Revenues deriving from a tax that admits deductions and that obeys the principle of taxpaying capacity and that rewards those who invest but who generates tax admitting that the more profit one obtains the more one can invest. Or what was intended (and admitted) was to forego revenue deriving from a tax on expenses that under the umbrella of the principle of fiscal equality requires those who have deviant behaviors – such as payment with cost allowances or representation expenses, or even payments to entities resident in tax havens – to cease to pay that tax by virtue of having investment expenses?

There is no doubt that it was the first.

So much so that the amendment introduced by the Budget Law of the State for 2018 altered the redaction of article 88.º of the IRC Code in the sense that no deductions are made from the amount owed of autonomous taxation rates even if these come from special legislation such as SIFIDE and RFAI. Now, even without resorting to the interpretive character given by the legislator again to no. 21 of article 88.º of the IRC Code it is clear that the legislator – which recall, is always the same, the National Assembly –, wanted to clarify what in any case already resulted from the law.

And until here, if there was no sign, either in Law no. 7-A/2016, nor in the Report on the Budget for 2016, nor in its discussion, that with the addition in article 88.º of the IRC Code of a general rule prohibiting deductions from the overall amount determined of autonomous taxation rates, it was intended to narrowly interpret the expression "deduct from the amount determined in accordance with article 90.º of the IRC Code" that appears in a special rule of a separate statute, such as SIFIDE II, it is now clear with the new redaction of no. 21 of the article that no deductions are permitted from the collection of autonomous taxation rates even if these come from special legislation.

In the thesis that this Tribunal supports, the legislator, in adding this no. 21 to article 88.º of the IRC Code with the content mentioned merely limited itself to adopting and reinforcing the interpretive sense that already resulted from the rules in force. Adopted, therefore, the only possible reading in light of the constitutional body of law applicable to the realities at issue here: distinction between the figures of autonomous taxation and IRC; application of no. 1 of article 90.º to both realities; application of article 90.º no. 2 solely to IRC; referral of the SIFIDE regime to article 90.º refers to amounts determined in article 90.º no. 2.

Accordingly, the arbitral request proves to be unfounded also in this part.

Thus, for the reasons exposed, this Tribunal denies the granting of the arbitral request for declaration of illegality of the self-assessment of IRC, in the part produced by autonomous taxation rates with its consequent maintenance in the legal order. The request for declaration of illegality of the acts of assessment that are subject to challenge being unfounded, the requests advanced by the Claimant with a view to the reimbursement of the amounts paid and the payment of indemnity interest are rendered moot.

C. DECISION

Accordingly, it is decided:

• To judge the arbitral request for declaration of illegality of the self-assessment of IRC, relating to the 2015 tax year, as entirely unfounded, and

• To judge the requests for reimbursement of the amounts claimed and the payment of indemnity interest as moot.

D. VALUE OF THE CASE

The Claimant indicated as the value of the case the amount of € 156,205.88, which was not contested by the Respondent and corresponds to the value of the assessment that it sought to prevent, for which reason this amount is fixed as the value of the case.

Notify.

Lisbon, 3 October 2018

The Presiding Arbitrator of the Tribunal

(José Poças Falcão)

The Arbitrator Member

(João Taborda da Gama –
dissenting, in accordance with the grounds set forth, among others, in Case no. 428/2017-T subscribed by me)

The Arbitrator Member

Carla Castelo Trindade