CAAD 99/2017-T: Autonomous Taxation vs SIFIDE Tax Credit Deduction in Corporate Income Tax (IRC)

ARBITRAL DECISION

The arbitrators José Pedro Carvalho (presiding arbitrator), Diogo Feio and João Pedro Dâmaso, appointed as arbitrators at the Centre for Administrative Arbitration, to form the Arbitral Tribunal, agree as follows:

I – REPORT

A…, S.A., NIPC…, with registered office at Rua …, …, …-…, … (hereinafter referred to only as "Claimant"), filed on 02-02-2017 a request for constitution of the arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), in conjunction with article 102 of the Tax and Customs Procedure Code (hereinafter referred to only as "CPPT"), in which the Tax and Customs Authority (hereinafter referred to only as "Respondent") is the Respondent.

The Claimant seeks the declaration of illegality of (i) the self-assessed Corporate Income Tax (hereinafter referred to only as "IRC") assessment No. 2016…, which originated from the self-assessed IRC act No. …, relating to the 2015 tax year, and (ii) the implied rejection of the administrative complaint subsequently filed to contest such tax act, with its consequent annulment.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 03-02-2017 and notified to the Tax and Customs Authority on 06-02-2017.

Pursuant to the provisions of item a) of paragraph 2 of article 6 and item b) of paragraph 1 of article 11 of the RJAT, the Ethics Council appointed the herein signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 21-03-2017 the Parties were duly notified of this appointment and did not express any intention to challenge the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, items a) and b) of the RJAT and articles 6 and 7 of the Ethics Code.

In compliance with the provisions of item c) of paragraph 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 05-04-2017.

Notified to respond to the request raised by the Claimant, the Respondent submitted a reply, arguing for the dismissal of the request raised by the Claimant.

Notified to inform, within a period of 10 days, whether, in light of the positions of the parties assumed in the pleadings, it maintained an interest in the examination of the witnesses it had listed, or whether it waived them, the Claimant waived the production of the witness evidence indicated, by request submitted on 24-05-2017.

By order of 25-05-2017, the holding of the meeting referred to in article 18 of the RJAT was dispensed with as well as the presentation of arguments by the parties, taking into account (i) the unnecessary production of additional evidence beyond the documentary evidence already incorporated in the proceedings; (ii) the fact that there was no matter of exception on which the parties needed to address; and (iii) the fact that the general procedural principles of procedural economy and prohibition of useless acts apply in the arbitral process.

The Claimant filed a request on 09-06-2017, under which it requested notification of the parties for presentation of their respective written arguments, under penalty of violation of the right to be heard and the principle of equality of the parties.

By order of 16-06-2017, the Arbitral Tribunal set aside the order issued on 25-05-2017 and gave the parties the opportunity to, if they wished, present written arguments, with the Claimant being able to do so within a period of 10 days, counted from notification of the order, and the Tax and Customs Authority within the same period, counted from notification of the Claimant's arguments, or from failure to present the same.

Both parties presented written arguments, reiterating their respective legal positions.

A period of 30 days was set for pronouncement of the final decision, after the presentation of arguments by the Respondent.

Pursuant to paragraph 2 of article 21 of the RJAT, an order was issued on 30-04-2017 extending by 30 days the period referred to in paragraph 1 of the same article.

OF THE CLAIMANT'S REQUEST

In the request for arbitral pronouncement that gave rise to the present proceedings, the Claimant requested the declaration of illegality of (i) the IRC assessment No. 2016…, which originated from the self-assessed IRC act No. …, relating to the 2015 tax year, and (ii) the implied rejection of the administrative complaint filed, with its consequent annulment.

To support such request, the Claimant alleged, in summary, that:

• Since 20 October 2006 it has been conducting its business in Portugal, which consists of the development of transport automation systems, with specialization in railway transport in the development of safety, control, command and supervision systems.

• It applies annually to the Fiscal Incentives System for Research and Business Development (SIFIDE), approved pursuant to Law No. 40/2005, of 3 August, having been granted tax credits in 2012, 2013, 2014 and 2015.

• In the 2015 tax year the total value of the available tax credit was € 881,175.15, as a result of the approval of the application submitted for reference to the 2013 and 2014 tax years and the remaining amount, not deducted, from tax credits granted in previous years.

• In the 2015 tax year it incurred expenses that were subject to autonomous taxation, pursuant to article 88 of the IRC Code, in the amount of € 217,655.94.

• It was unable to deduct the amounts of SIFIDE attributable to the collection assessed in the 2015 tax period, insofar as Form 22 and the computer system of the Tax and Customs Authority did not allow it at the date the IRC self-assessment was made.

• Autonomous taxation is integrated into the IRC system, "is IRC" and are applicable to it the general rules that apply to IRC.

• The determination of autonomous taxation is not carried out independently from the remainder of the IRC collection but rather with some differences, namely the applicable rate and the scope, with all these differences being expressly provided for in the IRC Code.

• This determination is closely related to the result determined in the tax period in question, insofar as paragraph 14 of article 88 of the IRC Code determines that autonomous taxation rates "are increased by 10 percentage points for taxpayers presenting a tax loss in the period to which any of the tax facts relate (…) related to the exercise of a commercial, industrial or agricultural activity not exempt from IRC."

• Autonomous taxation, as well as other IRC, is a tax of successive formation, with the determination of both dependent on the final result of a given tax year being reconsidered as taxable profit or a tax loss.

• The assessment of autonomous taxation is also not carried out separately, independently or differently from what is provided in article 90 of the IRC Code, for accepting such fact would mean accepting the existence of an assessment made without a legal basis, in violation of the principle of legality and suffering from unconstitutionality.

• Given that the determination of the collection of autonomous taxation is carried out under article 90 of the IRC Code, this should be considered for all legal purposes as IRC collection and, in that measure, the deduction of the tax credit resulting from SIFIDE should be admitted to collections derived from autonomous taxation.

• The rules establishing tax benefits such as SIFIDE are rules of an exceptional character that derogate from the general principles governing taxation and find justification only in the protection of publicly relevant constitutional interests, superior to taxation itself.

• The public interests that determine the creation of a tax benefit are, by nature, superior to those of taxation that they prevent.

• In the case of SIFIDE tax benefits, the reasons of an extrafiscal nature that justify the overlay on tax revenue are, in the legislative perspective, of enormous importance and, also for this reason, the Claimant's right to deduct its tax credit granted through SIFIDE to the collection of autonomous taxation should be recognized.

In view of the above, the Claimant concludes on the illegality of the implied rejection of the administrative complaint and of the IRC assessment No. 2016 … which originated from the self-assessed IRC act No. …, so such acts should be annulled. Beyond the amount corresponding to the tax illegally assessed, the Claimant believes that it should be compensated through the payment of default interest, calculated from the date of underpayment of the tax until full payment, at the rate of 4% per annum, pursuant to articles 35, paragraph 10, 43, paragraph 4 of the General Tax Code (LGT), 559 of the Civil Code and Ordinance No. 291/03, of 8 April.

Despite the fact that this concerns a self-assessed act, the Claimant believes that the error affecting this act is attributable to the Tax and Customs Authority, due to the fact that the structure of Form 22 of the IRC does not allow the Claimant to effect the self-assessment deducting the SIFIDE tax benefit from the amount of autonomous taxation, this being admissible under the applicable legislation.

OF THE RESPONDENT'S REPLY

The Respondent argues for the dismissal of the request raised by the Claimant, alleging briefly that:

• It results from article 4 of Law No. 40/2005, of 3 August that the amounts translating into SIFIDE are deducted from the amounts determined pursuant to article 90 of the IRC Code, and up to their amount.

• The collection referred to in article 90, when the assessment must be made by the taxpayer, is determined on the basis of the taxable matter that appears in such assessment/self-assessment (cf. article 90, paragraph 1, item a) of the IRC Code).

• The provision of article 5, item a) of the law regulating SIFIDE, which prevents credits resulting from it from being deducted when taxable profit is determined by indirect methods, is illustrative of the circumstance that this credit is only deducted from the collection determined on the basis of taxable matter.

• Given that autonomous taxation constitutes a surrogate for the regime of non-deductibility previously provided in the IRC Code, with the non-fiscal acceptance of a percentage of certain expenses at its genesis, it would not be reasonable that, through deduction from taxable profit, as an expense, the basis for the existence of the same would be eliminated.

• The inclusion of the term "including" in the new wording of item a) of paragraph 1 of article 23-A of the IRC Code, which expressly states that the following are not deductible for purposes of determining taxable profit "IRC, including autonomous taxation", intends to say that previously, when the rule only contained a reference to IRC, it already encompassed autonomous taxation.

• The very designation of autonomous taxation evidences its autonomy in relation to IRC.

• Contrary to the provisions of articles 12 and 23-A, paragraph 1, item a) of the IRC Code, in paragraphs 1 and 2 of article 90 of the same statute there is no reference to autonomous taxation, which, given the dual nature of the system, raises well-founded objections as to the consideration of the value of autonomous taxation for purposes of the deductions provided for in paragraph 2 of said article 90.

• It would be contrary to the spirit of the system to allow that, by force of the deductions referred to in paragraph 2 of article 90 of the IRC Code, autonomous taxation would be deprived of, or at least distorted from, the anti-abusive character that presided over its implementation in the IRC system.

• Therefore, autonomous taxation should not be considered for purposes of the deductions referred to in paragraph 2 of article 90 of the IRC Code.

• The computer system of the Tax and Customs Authority cannot permit or establish what the law does not provide, and should be merely a reflection of the legal provisions in force at each moment.

The Respondent therefore concludes on the dismissal of the request formulated by the Claimant.

However, and without conceding, the Respondent argues that, in case of acceptance of the request regarding the payment of default interest, its calculation would have as its starting date the date on which the decision notifying the rejection of the administrative complaint occurred, and never at an earlier moment.

PRELIMINARY RULING

The Arbitral Tribunal was regularly constituted and is competent.

The parties have tax and legal capacity and are legitimate (articles 4 and 10, paragraph 2, of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to the assessment of the merits of the case.

II - REASONING

FACTUAL MATTER

A. Proven Facts

The following facts are considered proven:

• The Claimant has been conducting its business in Portugal since 20-10-2006.

• The Claimant's business consists of the development of transport automation systems, with specialization in railway transport in the development of safety, control, command and supervision systems.

• The Claimant applies annually to the Fiscal Incentives System for Research and Business Development (SIFIDE), approved pursuant to Law No. 40/2005, of 3 August.

• The following tax credits were granted to it: (i) € 65,938.28 in the 2012 tax year, (ii) € 552,570.13 in the 2013 tax year and (iii) € 530,758.00 in the 2014 tax year.

• The Claimant is an entity subject to and not exempt from IRC.

• The Claimant made the IRC self-assessment by means of the filing of Form 22, relating to the 2015 tax year.

• The Claimant used in the 2013 and 2014 tax years part of the available credits, namely a credit in the amount of € 165,945.78, deducted in the 2013 tax year and a credit in the amount of € 102,145.48, deducted in the 2014 tax year.

• The total value of the available tax credit in 2015 was € 881,175.15.

• In the 2015 period the Claimant met all the conditions provided for in Law No. 40/2005, of 3 August, for the attribution of the tax credit in question.

• On 31-12-2015 the Claimant had its tax and social security situation regularized.

• The Claimant included in the fiscal documentation process a document demonstrating the method of calculation of the tax credit declared by it.

• The Claimant incurred, in the 2015 tax year, expenses that were subject to autonomous taxation, pursuant to article 88 of the IRC Code in the amount of € 217,655.94.

• The Claimant was unable to deduct the amounts of SIFIDE attributable to the collection determined in the 2015 tax period.

• The Claimant filed an administrative complaint on 06-07-2016.

• The administrative complaint was not decided up to the date of the request for constitution of the arbitral tribunal, with the Claimant being able to presume the implied rejection for purposes of submitting it.

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

C. Reasoning of the Factual Matter

The factual matter given as proven is based on the documentary evidence presented and not contested.

LEGAL MATTER:

The central question to be decided, as posed by the Claimant, is whether the self-assessment of IRC (including its autonomous taxation rates) relating to the 2015 tax year, suffers from the material defect of violation of law, object of challenge because, according to the Claimant's understanding, the deduction of SIFIDE to the part of the IRC collection corresponding to autonomous taxation rates should not be precluded.

The answer to the problem posed presupposes, from the outset, analysis of the nature of the autonomous taxation figure in order to ascertain whether its legal framework is compatible with the Claimant's claim.

There is abundant arbitral jurisprudence on this matter, particularly the decisions underlying arbitral cases Nos. 5/2016-T and 578/2016-T, which we will follow very closely.

Let us proceed.

The Nature of Autonomous Taxation

Autonomous taxation, during the tenure of IRC, was created by article 4 of Decree-Law No. 192/90, of 9 June, which was intended to introduce amendments to the IRC Code, as results from its preamble. This Decree-Law implemented the legislative authorization granted to the Government by paragraph 3 of article 25 of Law No. 101/89, of 29 December, whose heading is "Income Tax for Legal Entities (IRC)".

From the documents referred to, in particular from the enabling law, no indication emerges that the legislator intended to create a new tax. On the contrary, what is evidenced is the legislator's intention to introduce adjustments to the taxation of business income.

With the approval of Law No. 30-G/2000, of 29 December, which was intended to effect a "reform of income taxation", Decree-Law No. 192/90, of 9 June, was repealed, with article 69-A being added to the IRC Code, under the heading "Autonomous Taxation Rate", which indicates that we are dealing with the application of a rate, in the context of IRC, distinct from the general rates provided for in article 69. Note that the heading refers to "autonomous taxation rate"[1] and not "autonomous taxation", which shows that what the legislator intended was to provide for a rate distinct from the general rates, for certain situations described therein.

From this it follows that the express establishment of "autonomous taxation rates" was made in the context of the reform of income taxation.

The provision contained in article 69-A introduced by Law No. 30-G/2000, of 29 December, as is the case with the provision contained in article 88 of the IRC Code in force at the date of the facts in the case sub judice, does not contain rules on subjective scope, nor on assessment and payment of autonomous taxation. Consider, by way of example, current item a) of paragraph 1 of article 88, which establishes the following: "Undocumented expenses are taxed autonomously, at the rate of 50%, without prejudice to their non-consideration as expenses under article 23". If we understood that we are dealing with a provision that creates a new tax, we would always have to ask: who is the taxpayer? how is assessment made?; what are the rules of payment?, this without mentioning the question that concerns whether what would be the material presumption of taxation that would legitimize such a tax.

The answers must be found in the context of IRC. Note, in keeping with what has just been said, that "autonomous taxation rates" do not even give rise to a tax obligation that should be paid to the State. The application of autonomous taxation rates is reflected in the IRC collection and it is the IRC obligation that, under the law, must be paid by the taxpayer. So much so that advance payments referred to in item a) of paragraph 1 of article 104 of the IRC Code are also deductible from the amount determined in the context of autonomous taxation, that is, they are deducted from the final tax payment or discounted for purposes of refund.

On this point, see the IRC assessment, object of analysis, in which the value of autonomous taxation is determined in the total amount of 217,655.94 €, and for the same tax period, advance payments were made in the amount of 96,348.00 €, and due to this fact the result of this assessment is 121,307.94 €; that is, the value of autonomous taxation is precisely deducted from the amount of advance IRC payments, referred to in item a) of paragraph 1 of article 104 of the IRC Code.[2]

Distinct from "autonomous taxation rates" is, in particular, the state surtax, provided for in article 87-A. The difference begins to be noted in the very heading – "State Surtax" and not "state surtax rates", which points to a tax figure distinct from IRC, although related to it. This is not merely an autonomous application of a rate, distinct from general rates. Furthermore, article 87-A of the IRC Code clearly provides for subjective scope, objective scope, rates, and the applicable assessment procedure, resulting in a collection distinct from that of IRC, and further providing rules specific to the payment of state surtax (article 104-A). Now, none of this occurs with "autonomous taxation rates".

The application of autonomous taxation rates is made within the context of IRC assessment, and the respective result is reflected in the IRC collection. The tax obligation to be paid to the State is that relating to IRC.

In accordance with article 104 of the IRC Code, the payment of this tax is made through advance payments, which are generally three in number, with payment of "autonomous taxation" not standing out in relation to IRC payment. For purposes of IRC payment, it is irrelevant whether or not autonomous taxation rates were applied.

There is place for IRC refund under paragraph 2 of the same article 104 of the IRC Code when the "amount determined in the return, net of deductions referred to in paragraphs 2 and 4 of article 90, is negative, for the amount resulting from the sum of the corresponding absolute value with the amount of advance payments" or "the amount determined in the return, net of deductions referred to in paragraphs 2 and 4 of article 90, not being negative, is less than the value of advance payments, for the respective difference". That is, in case there is an IRC assessment due to autonomous taxation, the IRC advance payment, made under item a) of paragraph 1 of article 104 of the IRC Code, is also deductible in this determination.

Thus, the IRC payment rules also point to "autonomous taxation" being integrated into IRC.

It is not comprehensible, for the reasons set forth, that autonomous taxation could be viewed as a tax distinct from IRC. Simply, there is no legal foundation or even any indication that allows this thesis to be sustained.

As stated in the Arbitral Decision rendered in case No. 79/2014-T, "ontologically, autonomous taxation does not configure itself as a type of tax distinct from IRC".

We also subscribe to the Arbitral Decision rendered in case No. 95/2014-T, when it states that "it is not the judge's role to alter by his initiative the political and technical choice of the legislator in configuring this type of tax as IRC, even if the judge may not technically agree with the solution found by the legislator. This would constitute a corrective interpretation, known to be barred by the imperative of compliance with law".

In effect, it is not enough that a normative provision provides for the application of a rate to a given fact to conclude that we are in the presence of a tax. This would represent an emptying of the concept of tax. If we applied this minimalist conception of the "tax" figure to the taxation of natural persons, which the Constitution imposes must be sole (article 104, paragraph 1, of the Constitution of the Portuguese Republic), we could identify 5 "distinct taxes" on the income of natural persons, although formally included in the Personal Income Tax Code (CIRS), as many as the types of rates provided for therein: the IRS itself, through the application of the general rates of article 68, and also the "taxes" corresponding to the application of the solidarity surcharge rate (article 68-A of the CIRS), liberatory rates (article 71 of the CIRS), special rates (article 72 of the CIRS) and autonomous taxation rates (article 73 of the CIRS). This is without mentioning the case of the surtax (provided for in the Budget Law, outside the CIRS, therefore).

Let us proceed.

The importance of the consideration of expenses in the context of IRC (and IRS) results from the constitutional principle of taxation of real income, which is net income. This is the reason why expenses and losses are considered in the determination of taxable profit in IRC (article 23 of the IRC Code). However, the legislator expressly excludes the deductibility of certain expenses, namely, among others, in some situations, for reasons related to the prevention of tax evasion (article 23-A). But in some cases, the legislator, for reasons of operability, in the assessment of the tax, in particular, given the impracticability of the tax authority in controlling all IRC assessments, goes so far as to provide for the increase in the tax collection, through the application of rates that burden taxpayers who incur certain expenses, not limiting itself to the non-consideration of expenses for purposes of determining the taxable result.[4] This is what occurs with autonomous taxation rates, provided for in article 88 of the IRC Code.

For example, at the time of introduction of an autonomous taxation rate on representation expenses, in the year 2000, corresponding to the rate of 6.40%, given the amendment introduced by Law No. 3-B/2000, of 4 April, which added paragraphs 3 to 6 to article 4 of Decree-Law No. 192/90, of 9 June.

In order to better understand the reason for the introduction, in the year 2000, of an autonomous taxation rate of 6.40% on representation expenses, we would have to go back to the year 1999, and analyze, in the part that now concerns us, article 41 of the IRC Code, under the heading "expenses non-deductible for tax purposes", which established in item g) of paragraph 1 that "the following expenses are not deductible for purposes of determining taxable profit, even when recorded as costs or losses of the year: (…) representation expenses, recorded under any heading, in the proportion of 20%". Subsequently, by Law No. 3-B/2000, of 4 April, this item was repealed. It was, precisely, this law that introduced the new autonomous taxation rate of 6.40% on representation expenses.

In order to find an explanation for the determination of said rate of 6.40%, it is necessary to ascertain what the maximum IRC rate was, in force in the year 2000, which corresponded to 32%.[5]

In this context, it is verified that, at an initial moment, for the determination of taxable result, as established in item g) of paragraph 1 of article 41 of the IRC Code, in force until 31 December 1999, the value corresponding to 20% of the total amount of representation expenses would have to be added.

Subsequently, on 1 January 2000, the same representation expenses became subject to the autonomous taxation rate of 6.40%, which corresponded to an increase in the tax collection. Now, the rate of 6.40% results from the product of 20% with 32%; that is, the effect intended was precisely the same, for taxpayers presenting taxable matter, given that adding to the net result of the year 20% of the value of representation expenses, for purposes of determining taxable matter, or adding the value corresponding to the tax that could be deductible, by not adding the amount corresponding to the same 20% of representation expenses, one would obtain the same result. With this modification, there was a single objective, which was to place all taxpayers paying tax on the value underlying 20% of representation expenses.

It is also emphasized that autonomous taxation relating to both representation expenses and passenger vehicle expenses, in 2003, benefited from a reduction to 6%, which results, precisely, from the reduction of the maximum IRC rate to 30%. By again applying the multiplication test of 20% by 30%, the value of the rate in reference of 6% is obtained.

The same situation occurs with the expenses for allowances and kilometers in private vehicle, autonomously taxed at the rate of 5%, with effect commencing on 1 January 2005, given the amendment of paragraph 9 of article 81 of the IRC Code, by Law No. 55-B/2004, of 30 December.

From what has been said it is concluded that the provision of the application of autonomous taxation rates appears as a legislative technique in tax matters that translates into an operation of reverse sense to that of deduction, which we can designate as fiscal increase.

That is, the expense constitutes a decisive element in the determination of taxable profit in IRC, and the legislator expressly provides for three forms of differentiated treatment of the same: i) deduction, from which will result a decrease in IRC collection; ii) non-deductibility, in which the expenses in question have a null effect on IRC collection; iii) increase, through the application of rates on certain expenses, from which will result an increase in the taxpayer's IRC collection.

Deductions Provided for in the Legal Framework of SIFIDE

Let us now examine the terms under which deductions are provided for in the context of SIFIDE.

In the case at hand, the Tax and Customs Authority does not contest that the Claimant meets the subjective and objective requirements to be able to benefit from SIFIDE, however, it believes that the expenses in question cannot be deducted from the amounts it paid as autonomous taxation, because the deduction can only be made from the IRC collection resulting from the application of the IRC rate to taxable profit.

The legal framework of the System of Fiscal Incentives for Research and Business Development (SIFIDE), in its various versions, provides for deduction "…from the amount determined under Article 90 of the IRC Code…".[6]

Now, autonomous taxation is assessed in accordance with the rules provided for in article 90 of the IRC Code.

On this assessment, we subscribe to the reasoning contained in the Arbitral Decision rendered in case No. 673/2015-T, expressed in the following terms:

"Now, article 90 of the IRC Code refers to the forms of IRC assessment, by the taxpayer or by the Tax Authority, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (paragraph 10).

Therefore, that article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Authority, following the submission or non-submission of returns, with no other provision providing for different terms for its assessment.

Thus, the differences between the determination of the amount resulting from autonomous taxation and the amount resulting from taxable profit are restricted to the determination of the taxable matter and the applicable rates, which are those provided for in Chapters III and IV of the IRC Code for IRC based on taxable profit and in article 88 of the IRC Code for IRC based on taxable matter of autonomous taxation and the respective rates.

But the forms of assessment provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remainder of the taxable matter of IRC.

However, the fact that a self-assessment of IRC, carried out under paragraph 1 of article 90, may contain several partial calculations based on various rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that provision when referring to "assessment", in the singular, in all cases where it is "made by the taxpayer in the returns referred to in articles 120 and 122", taking "as its basis the taxable matter that appears in them" (whether determined on the basis of the rules of articles 17 et seq. or determined on the basis of the various situations provided for in article 88).

[…]

In any case, whatever calculations have to be made, it is the unitary self-assessment that the taxpayer or the Tax Authority must carry out under articles 89, item a), 90, paragraph 1, items a), b) and c), and 120 or 122, and on its basis that global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it may be".

In the interpretation of law, and without prejudice to the consideration of the various interpretative elements, the interpreter cannot arrive at a result that does not have a minimum correspondence in the letter of the law. Now, if the legislator expressly determines, in SIFIDE, that the deduction is made "from the amount determined under article 90 of the IRC Code" or, what amounts to the same, "from the IRC collection", the interpreter cannot conclude that the ratio legis points to a deduction from IRC taxable matter and not from the collection of this tax. Moreover, we are dealing with technical terms, with a precise legal-fiscal meaning, and it is presumed that they were employed by the legislator intentionally, particularly since the legal framework of SIFIDE was created, already several legal acts have extended its effects or altered some of its provisions, but the reference to deduction "from the amount determined under Article 90 of the IRC Code" (in SIFIDE) has never been changed.

Therefore, deductions provided for in SIFIDE must be made after the determination of the total amount of IRC, which includes the result of the application of autonomous taxation rates, under the terms provided for in article 90 of the IRC Code. And the computer system of the Tax and Customs Authority should faithfully reflect the legislator's choices on this matter, allowing SIFIDE deductions to be made from IRC collection, globally considered (that is, after the application of autonomous taxation rates).

In fact, if this article 90 were not applicable to the assessment of autonomous taxation provided for in the IRC Code, we would have to conclude that there would be no provision for its assessment, which would be reconsidered as illegality, by violation of article 103, paragraph 3 of the Constitution of the Portuguese Republic, which requires that the assessment of taxes be made "in accordance with the law".

Thus, with the literal content of the legal framework underlying SIFIDE pointing to the deduction also applying to the IRC collection derived from autonomous taxation determined under article 90 of the IRC Code, only through a restrictive interpretation could the application of this tax benefit to the IRC collection derived from autonomous taxation be precluded.

The viability of a restrictive interpretation encounters, from the outset, a general obstacle, which is that the rules creating tax benefits have the nature of exceptional rules, as follows from the express content of article 2, paragraph 1, of the Tax Benefits Statute (EBF), so, in the absence of a special rule, they should be interpreted in their precise terms, as is settled jurisprudence.[7] In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for, in article 10 of the Tax Benefits Statute, but not of restrictive interpretation, so, as a rule, the tax benefit should not be interpreted with less amplitude than that which, in a declarative interpretation, results from the content of the provision establishing it.

In any case, a restrictive interpretation is only justified when "the interpreter arrives at the conclusion that the legislator adopted a text that betrays his thinking, insofar as it says more than he intended to say. Here too the ratio legis will have a decisive word. The interpreter should not be drawn by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative thinking, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends, its scope ends)".[8]

As a basis for a restrictive interpretation, it can be argued that some autonomous taxation aims to discourage certain taxpayer behaviors susceptible to affecting taxable profit, and consequently reducing tax revenue, and its discouraging force will be attenuated with the possibility that the respective collection could be subject to deductions.

But the discouragement of such behaviors is justified only by concerns for protection of tax revenue, and tax benefits granted are, by definition, "exceptional measures established for the protection of relevant extrafiscal public interests that are superior to those of taxation itself that they prevent" (article 2, paragraph 1, of the EBF).

And, in the case of SIFIDE tax benefits, the reasons of an extrafiscal nature that justify their overlay on tax revenue are, in the legislative perspective, of enormous importance, as can be inferred from the reasoning in the Report of the State Budget for 2011:

II.2.2.4.4. System of Fiscal Incentives for Research and Business Development II (SIFIDE)

Given that one of the assets of competitiveness in Portugal passes through the investment in technological capacity, in scientific employment and in conditions of assertion in the European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (System of Fiscal Incentives for Research and Business Development), now in the SIFIDE II version, to be in force in the periods 2011 to 2015, enabling the deduction from the IRC collection for companies that invest in R&D (research and development capacity).

Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system of other countries, it was decided to review and reintroduce for another five tax periods this support system. The R&D of companies is a decisive factor not only in their own assertion as competitive structures, but also of productivity and long-term economic growth, a fact, moreover, expressly recognized in the XVIII Government Program, as well as in several recent international reports.

It is in this context that, in the international panorama, the OECD has considered Portugal since 2001 as one of the three countries with the most significant advances in business R&D. With the current national system, comparatively to other systems that use deduction from collection and the distinction between base rate and incremental rate, being one of the most attractive and competitive.

Given that the research and development of companies is "a decisive factor not only in their own assertion as competitive structures, but also of productivity and long-term economic growth", it is understood that preference was given to the incentive of investment in technological capacity, in scientific employment and in conditions of assertion in the European space, which, in due course, lead to the achievement of greater tax revenues.

The importance that, in the legislative perspective, was recognized to this tax benefit provided for in SIFIDE II is decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, indicated in article 92 of the IRC Code.

Therefore, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, and it follows from that article 92 that the legislative intention to encourage investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit to the deductibility of the IRC collection, despite this tax regime having been created and applied in a period of notorious difficulties of public finances.

Thus, no legal basis is found, in particular in light of the legislative intention that is possible to detect, to, on the basis of a restrictive interpretation, preclude the deductibility of the SIFIDE tax benefit from the collection of autonomous taxation that results directly from the letter of article 4, paragraph 1, of the respective act, combined with article 90 of the IRC Code.

On the other hand, any eventual limitation of the application of the tax benefit to companies that presented taxable profit in 2015 would be reconsidered as a very strong restriction of its field of application, given that, as is a public fact, the majority of companies, in that year and in the previous ones, presented tax losses, although they paid IRC by other means.

In truth, according to statistics published by the Tax and Customs Authority, in the year 2011 (the last year whose data would be available when the Proposed State Budget for 2012 was presented, so it is presumed that it was considered in weighing the scope of the tax benefit), more than half of IRC returns presented a negative net value and in the 2011 tax period only 26% of taxpayers presented Assessed IRC (table 7), and approximately 71% of taxpayers made IRC payments (table 8), through special advance payment or other positive components of the tax (autonomous taxation, surtax, state surtax, IRC from previous tax periods, etc.).[9]

Therefore, it is manifest that the applicability of the tax benefit to companies that, although presenting tax losses, paid IRC, including as autonomous taxation, greatly expanded the number of potentially beneficiary companies and, consequently, is more compatible with the legislative intention underlying SIFIDE II than that defended by the Tax and Customs Authority.

On the other hand, as mentioned, it cannot be overlooked that autonomous taxation aims to protect or increase tax revenue and that tax benefits granted are, by definition, "exceptional measures established for the protection of relevant extrafiscal public interests that are superior to those of taxation itself that they prevent" (article 2, paragraph 1, of the EBF).

That is, in the case at hand, in establishing a tax benefit by deduction from the IRC collection, the legislator chose to forego the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this weighing of relative interests (tax revenue versus strong stimulus to investment) it is irrelevant whether that revenue comes from calculations made on the basis of article 87 or article 88 of the IRC Code. In truth, whatever the form of calculation of that tax revenue, we are dealing with money the collection of which the legislator considered to be less important than the pursuit of the economic purpose referred to. Of the two alternatives that presented themselves to the legislator regarding the incentive to investments provided for in SIFIDE II, which were, on one hand, to keep intact the revenues from IRC (including those from autonomous taxation) and not see the investment incentivized, and on the other hand, to effect that incentive with loss of IRC revenues, the weighing that is necessarily underlying SIFIDE II is that of opting for the creation of the incentive with prejudice to revenues. And, naturally, given that the creation of the investment incentive is better, in the legislative perspective, than the collection of revenues, it is not seen how it can be relevant that the IRC revenues that are lost to effect the incentive come from general IRC taxation provided for in paragraph 1 of article 87 or from taxation at special rates provided for in paragraphs 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenues and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC of which one foregoes to create the incentive.

And, in the case of the SIFIDE tax benefit, the reasons of an extrafiscal nature that justify the incentive with loss of revenue are very strong, as one considers that the incentivized investments are a decisive factor in the country's future competitiveness.

Therefore, it is certain that we are dealing with tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues from IRC, whatever the basis of its calculation may be, because what is at stake is always whether or not to forego a certain sum of money to create an investment incentive.

In this context, the nature of autonomous taxation and the solutions legislatively adopted, in general, in relation to them, have no relevance for the assessment of this question, because it must be assessed in light of the specific interests that clash in its weighing.

In truth, what is at issue is exclusively determining the scope of SIFIDE II, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, which supersedes the objective derived from the maintenance of IRC assessment, in particular on the basis of autonomous taxation rates.

OTHER REQUESTS:

The Claimant requests, in addition to the refund of the amount of € 217,655.94, corresponding to autonomous taxation rates in IRC, relating to the 2015 tax year, default interest, at the legal rate, counted from 11 May 2016, until the moment of full refund.

Paragraph 1 of article 43 of the General Tax Code provides that:

"[d]efault interest is owed when it is determined, in administrative complaint or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount higher than legally due".

As written by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, "[t]he error attributable to the services that carried out the assessment is demonstrated when they proceed to administrative complaint or challenge of that same assessment and the error is not attributable to the taxpayer" (General Tax Code. Annotated and Commented, 4th ed., Lisbon, 2012, p. 342).

The law further provides, in article 100 of the General Tax Code, that:

"The tax administration is obligated, in case of total or partial acceptance of administrative complaints or appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full reestablishment of the situation that would have existed if the illegality had not been committed, including the payment of default interest, under the terms and conditions provided for in law".

As affirmed in the Decision of the Supreme Administrative Court of 11/02/2009, case No. 1003/08,

"Given that the legislator adopted the indemnification in the form of default interest, following a decision annulling an assessment act, presuming the patrimonial prejudice resulting from the privation of the sum paid following an illegal assessment act, the interpretation of article 100 of the General Tax Code in accordance with the Constitution is that it recognizes the right to default interest from the date on which the privation of the illegally assessed sum occurred and not only from the end of the period of execution of the annulling decision".

In accordance with paragraph 1 of article 61 of the Tax and Customs Procedure Code (CPPT), "[d]efault interest is counted from the date of the underpayment of the tax until the date of the processing of the respective credit note, in which they are included".

It occurs that, despite the fact that the tax was self-assessed, it should be considered that default interest is owed from the moment of underpayment of the tax because in making impossible, through computer systems, the determination of the tax owed by the taxpayer, the Tax Administration incurred an error resulting in indemnification, under article 43, paragraphs 1 and 2 of the General Tax Code. In the present case, the Claimant paid tax in an amount higher than legally due, so, with the illegality of the (self-)assessment declared in the part here requested, the Claimant has the right not only to the respective refund but also to default interest. Such interest calculated on € 217,655.94, underpaid on 11 May 2016, as per document 3, of the administrative complaint filed on 6 July 2016, attached to the administrative proceedings.

DECISION

The Arbitral Tribunal therefore decides as follows:

1. To declare as well-founded the arbitral request for declaration of illegality of the IRC self-assessment in the part produced by autonomous taxation, relating to the 2015 tax year, object of challenge, with its consequent annulment;

2. To declare as well-founded the request for refund of the amount of € 217,655.94, plus default interest, at the legal rate, counted from the moment of payment, until full refund, all under the terms to be determined in execution of judgment.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 306, paragraph 2, of the Code of Civil Procedure (CPC), 97-A, paragraph 1, item a), of the Tax and Customs Procedure Code (CPPT) and 3, paragraph 2, of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 217,655.94.

COURT COSTS

In accordance with article 22, paragraph 4, of the RJAT, the amount of court costs is fixed at € 4,284.00, in accordance with Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notification ordered.

Lisbon, 18/10/2017

The Presiding Arbitrator

José Pedro Carvalho
(dissenting as per the attached dissenting opinion)

The Adjunct Arbitrator

Diogo Feio

The Adjunct Arbitrator

João Pedro Dâmaso

DISSENTING OPINION

I voted in dissent in the present decision because, by the arguments contained, among others, in the decisions that prevailed in arbitral cases 34/2016T, 174/2016T, 122/2016T, 567/2016T and 587/2016T, I consider that article 90, paragraph 2 of the IRC Code, in the wording prior to the entry into force of the wording given by Law 7-A/2016, of 30 March, should be subject to a corrective interpretation, limiting its scope to IRC strictly speaking, thereby excluding autonomous taxation and thus maintaining its original meaning, which was the one it had before the introduction of autonomous taxation in the IRC Code.

I do not contend with the understanding exposed, nor with the nature of IRC recognized to autonomous taxation in the decision that prevailed (as mentioned in various places, autonomous taxation should be understood as integrating IRC broadly speaking, however its own nature implies a relevant distinction with traditional IRC, or strictly speaking, including in the matter sub iudice), nor with the considerations made in the decision regarding corrective interpretation, given that, on one hand, it is generally admissible in tax law (where, as is understood to be the case, its respective requisites are met), and, on the other, the application thereof to the matter of tax benefits is not at issue, but to the applicable provision of paragraph 2 of article 90 of the IRC Code.

The question being raised stems – exclusively – from the lack of foresight of the legislator when introducing autonomous taxation in the IRC Code, which did not allow him to perceive all the implications of such operation, which led to, among others, article 90, paragraph 2 of the IRC Code having remained unchanged and that it has to be jurisprudence that, casuistically, determines the parts of the IRC regime that apply to autonomous taxation.[11]

For that matter, the position that prevailed sustains the conclusion – totally contrary to the presumption of a reasonable legislator – that it will be possible to carry out deductions provided for in article 90, paragraph 2 of the IRC Code to the collection of autonomous taxation relating to undocumented expenses or to payments to entities subject to privileged tax regime, among others.

To these two questions, which the position adopted in the prevailing decision does not answer, is added another – equally disregarded therein – which is that, among the various purposes underlying autonomous taxation, resulting, among other things, from its essential heterogeneity, prevention of fraud and tax evasion stands out (notably in autonomous taxation on undocumented expenses and on payments to entities subject to privileged tax regime), which was also not considered.

Thus, taking into account the nature and the teleology proper to autonomous taxation, as developed in the arbitral decisions above-cited, as well as the historical evolution of its emergence within the framework of IRC, I have no doubt that that provision was not created, nor maintained, having in view its application to autonomous taxation, and therefore requiring that its letter be interpreted correctively, in the sense pointed out above.

Lisbon, 18-10-2017

José Pedro Carvalho (President)