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Article
Publication date: 12 November 2018

António Martins, Ana Dinis and Cidália Lopes

Autonomous taxation of expenses (ATE) is a special and contentious feature of corporate income taxation in Portugal. By taxing of an expanding set of corporate expenses, it has…

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Abstract

Purpose

Autonomous taxation of expenses (ATE) is a special and contentious feature of corporate income taxation in Portugal. By taxing of an expanding set of corporate expenses, it has caused many conflicts between the Portuguese tax authority and corporate taxpayers. Many of these conflicts emerged from the legal interpretation of ATE’s clauses, while others derived from frequent, and difficult to apply, legislative changes. The purpose of this paper is to focus on the following research question: does the recent evolution of the rules on ATE show an efficient process of making and interpreting tax law in Portugal? The authors intend to analyze the process of making and changing ATE’s rules, as well as to study how interpretative complexity increases conflicts between tax authorities (TA) and taxpayers.

Design/methodology/approach

The methodology used is a mix of the legal research method, namely, doctrinal methodology, with an analysis of jurisprudential and arbitration trends in litigation rulings, blended with the case study analysis of ATE in Portugal. Arbitration rulings will have a particular relevance to the analysis.

Findings

The main conclusion is that, urged by the need of revenues, and sensitive to the TA’ argument of ATE’s loopholes, the government hastened to close them. However, given the procedure adopted, new legal questions aroused, creating additional layers of complexity for companies, courts and tax auditors. Constitutional issues were highlighted by companies based on the prohibition of retroactive application of tax laws.

Research limitations/implications

The paper has a conceptual nature and its conclusions cannot be automatically extended to other tax controversies or processes of amending tax laws. However, for the legal and accounting professions it offers valuable lessons in law interpretation and political lobbying to change tax laws. Also, in the international tax scene, some countries also introduced ATE, with potential for similar problems.

Practical implications

Regarding ATE’s streamlining, the process recently observed in Portugal was not, in authors’ view, managed in the best way, leaving a significant number of difficulties to be solved by courts. The change in ATE’s legal framework could have been more carefully managed, avoiding costly and time consuming disputes, in order to minimize compliance costs.

Originality/value

The paper contributes to the literature because this Portuguese experience, while highlighting the difficulties in making tax law, can be seen as a lesson on how to improve these processes, avoiding time and costs for business, TA and courts. Moreover, arbitration is a way of solving tax disputes that has been gaining ground in Portugal. In this respect, the paper also contributes to a better perception of the tax arbitration scenario in anEuropean Union country. It is also important for the accounting profession, whose members have often to deal with tax topics and the interpretative complexities they originate.

Details

Journal of Applied Accounting Research, vol. 19 no. 4
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 10 July 2017

Ana Dinis, António Martins and Cidália Maria Lopes

The purpose of this paper is to discuss the following research questions: Is the Portuguese corporate income tax (CIT) losing its internal consistency by extending the autonomous…

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Abstract

Purpose

The purpose of this paper is to discuss the following research questions: Is the Portuguese corporate income tax (CIT) losing its internal consistency by extending the autonomous taxation of expenses (ATE)? Are receipts derived from autonomous taxes so relevant that what began as an exception is gradually becoming a permanent feature of the income tax? Given the constitutional principle that corporate taxation should be fundamentally based on income, is the taxation of expenses unconstitutional? Is Portugal an international outlier, in applying this type of taxation to corporate expenses?

Design/methodology/approach

The methodology used in the paper is a blend of legal research method and case study analysis. The interpretation of legal texts and the ratio legis discussion (hermeneutical side), the evaluation of advantages and disadvantages of autonomous taxes (argumentative approach) and the use of aggregate data to gauge an impression of autonomous taxes’ impact on global tax receipts (empirical side) will, jointly, be used to analyse the topic. Autonomous taxation is a case study on how a (albeit distortive) solution is being applied in an European Union (EU) country to significantly enhance corporate-related tax revenue.

Findings

The authors conclude that autonomous taxation is a relevant source of revenue and its elimination is not foreseeable, at least in the medium term. Moreover, the extension of the tax base is gradually transforming CIT in a kind of dual tax, by charging profits and some expenses. The Constitutional Court, stressing the equity principle, has not ruled autonomous taxation unconstitutional, invoking usefulness against tax evasion. Finally, with the exception of some Portuguese-speaking countries, no other comparable international experience is observed.

Practical implications

The autonomous taxes (ATE) and its progressive enlargement imply, on the one hand, that the CIT has been slowly, but inexorably, losing its sole purpose of taxing profits, and imposing a tax penalty on an increasing set of accounting expenses. On the other hand, the growing number of expenses subjected to taxation leads some authors to ponder if the Portuguese tax regime is losing attractiveness. By increasing ATE’s scope, the effective rate tends to move upwards, countering reductions in the statutory rate. Finally, tax law will increasingly influence managers’ daily decisions, given the set of expenses targeted by autonomous taxes.

Originality/value

Taking into account the aim of this study, the discussion of a Portuguese particular feature of corporate taxation can highlight useful policy points to a broader audience. Many Organization for Economic Cooperation and Development (OECD) countries face a dire situation in public finances. Therefore, given the pressure to increase tax receipts, the ATE can be a case study on how a (albeit distortive) solution is being applied in an EU country to significantly enhance corporate-related tax revenue.

Details

International Journal of Law and Management, vol. 59 no. 4
Type: Research Article
ISSN: 1754-243X

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