Fifty Years of the Tax Constitution (II): Constitutional Demilitarisation and the Affirmation of Democratic Self-Taxation (1976–1989)

1. The 1982 constitutional revision and the creation of the Constitutional Court

The first stage of constitutional tax case law unfolded under the impact of the First Constitutional Revision, enacted by Constitutional Law no. 1/82, of 30 September, which marked the abolition of the military oversight structure and the consolidation of democratic institutions. By abolishing the Council of the Revolution and ending military tutelage over civilian institutions, the derived constituent power promoted the demilitarisation and de-ideologisation of the State apparatus and reshaped the organisation of sovereign bodies, aligning the architecture of political power with the standards of Western constitutionalism and the representative democratic model.1

On the plane of constitutional review, the 1982 Revision abolished the Constitutional Commission and established the Constitutional Court, which commenced operations in 1983 as a concentrated and specialised judicial organ responsible for reviewing the constitutionality of laws.2 Upon commencing its functions in 1983, the Constitutional Court built upon the body of opinions and case law produced by the Constitutional Commission between 1976 and 1982 — reflected in pronouncements such as Opinions nos. 25/79, 5/81, 16/81, 25/81, 28/81, and 14/82.

Confronted with litigation arising from fiscal measures enacted in a context of severe financial constraints, the Constitutional Court was called upon to test and develop the hermeneutic heritage of the founding period in shaping the Portuguese Tax Constitution.

2. Early case law on the retroactivity of tax laws

The Constitutional Court's initial intervention in the temporal application of tax laws took place in Ruling no. 11/1983, delivered by the Plenary on 12 October 1983.3 Requested by the President of the Republic in preventive review proceedings to assess the constitutionality of Articles 1 and 3 of Decree no. 32/III of the Assembly of the Republic — a statute creating an extraordinary tax on taxable income from 1982 and 1983 subject to property tax, capital income tax, and professional tax — the Court examined the validity of intentionally retroactive taxation.

Following the orientation established by the Constitutional Commission, the majority of the Constitutional Court held in Ruling no. 11/1983 that the 1976 Constitution had not enshrined, either in its original wording or following the 1982 Revision, a prohibition of retroactive tax norms, since Article 106(2) and (3) contained no such express command. In this ruling, the Court decided that the bar on tax retroactivity derived solely, by implicit inference, from the principle of protection of legitimate expectations and legal certainty arising from Article 2 of the constitutional text. Consequently, in holding that the protection of legitimate expectations precludes retroactivity only “where one is faced with intolerable retroactivity that affects in an inadmissible and arbitrary manner the legitimately founded rights and expectations of citizen-taxpayers”, the Court explicitly embraced the teaching of Sousa Franco — according to whom “neither this nor any other provision constitutionally prevents or prohibits the retroactivity of tax law”4 — establishing a balancing-of-interests review. However, as Justice Vital Moreira warned in his dissenting opinion, this test ran the risk of rubber-stamping fiscal arbitrariness whenever the State invoked financial needs without demonstrating “that there were no means of achieving the same result (…) without resorting to retroactive measures”.5

Weighing the context of budgetary emergency and the pressing need to address the public accounts deficit, the Constitutional Court held the provisions of Decree no. 32/III not to be unconstitutional, prompting two dissenting opinions signed by Justices Mário de Brito and Vital Moreira, who maintained that retroactive taxation on past income intolerably undermines legal certainty and the predictability of pecuniary burdens imposed upon taxpayers.

Confirmation of this jurisprudential approach in successive abstract review came in Ruling no. 66/1984, delivered by the Plenary on 3 July 19846, following a petition filed by the Ombudsman challenging Article 1 of Law no. 37/83. Reaffirming the finding of non-unconstitutionality in successive review of Law no. 37/83, the Plenary acknowledged the existence of “manifest” and “intentional retroactivity”, yet issued a prescient warning regarding the technique of exceptional taxation: “a tax does not become ‘extraordinary’ merely because the legislature christens it so”. By pointing out that the successive renewal of exceptional levies in subsequent financial years would strip them of their extraordinary character, the Court planted the seeds of the case law that, decades later, would reverse judicial scrutiny over continuously renewed extraordinary contributions.

The Court relied on the thesis that no burden rests upon the democratic legislature to demonstrate the indispensability of a retroactive solution, presuming the constitutionality of legislative acts unless an arbitrary infringement of taxpayers' legitimate expectations is proven. The dissenting opinions appended to the ruling drew upon extensive legal scholarship — citing Alberto Xavier, Afonso Queiró, Jorge Miranda, Diogo Leite de Campos, Sousa Franco, and Soares Martinez7 — to argue that non-retroactivity must operate as an individual rule of guarantee against taxation.

The extension of this framework to corporate income taxation was consolidated in Ruling no. 141/1985, decided by the Plenary on 25 July 1985.8 The judgment examined Article 33 of Decree-Law no. 119-A/83, which had instituted an extraordinary tax on corporate profits earned during the 1982 financial year. In extending the validation of extraordinary taxes to legal persons through the industrial tax surcharge on 1982 profits, the Plenary reiterated that “from no principle or rule of the current Fundamental Law can one extract a (generic) prohibition of retroactive tax laws”. Nevertheless, the rift within the Court — clearly visible in Vital Moreira's insistence that constitutional review cannot abdicate testing the “consistency of the motivation” and the proportionality between the public interest and the taxpayer's sacrifice — exposed the weaknesses of the arbitrariness test, underscoring the need for a categorical prohibition that would eventually be enshrined in the 1997 Constitutional Revision.

3. Defence of the parliamentary statutory reserve and the definition of categories of tributes

Alongside the controversy surrounding the prohibition of tax retroactivity, the Constitutional Court's first decade of operation was characterised by enforcement of the reserve of formal parliamentary statute and by the earliest attempts to establish a doctrinal classification of categories of tributes. The Court assumed the fundamental task of drawing the boundary between parliamentary legislative power and the regulatory activity of the Public Administration.

The initial landmark in this field was Plenary Ruling no. 24/1983, of 23 November 19839, in which the Court declared with general binding force the unconstitutionality of paragraphs 1 and 2 of Ministerial Order (Portaria) no. 1023-B/82 of the Ministry of Social Affairs, which had created, by a mere regulatory act, a “fixed co-payment” consisting of an outpatient user fee (taxa moderadora) payable upon the acquisition of medicines by users of the Medical-Social Services. Without needing to settle the tax classification of the levy, the Constitutional Court established the doctrine that creating user fees or altering the conditions of access to benefits provided for in the National Health Service Act constitutes the development of general bases of legal regimes (Article 201(1)(c) and (3) of the Constitution) and therefore cannot be enacted by ministerial order, requiring the legislative form of a development decree-law. As the Court emphasised, the Constitution forbids removing the normative fleshing-out of framework laws from parliamentary scrutiny and relegating it to a simple ministerial order, requiring intervention by decree-law.

The democratic foundation of the parliamentary reserve in tax matters was refined in Ruling no. 48/1984, delivered by the Plenary on 31 May 198410, concerning a government decree that altered deductions and rate brackets in the Complementary Tax (Imposto Complementar). Although the majority of the Court ultimately declined to make a finding of unconstitutionality because it considered the statute covered by a generic legislative authorisation contained in Article 16(7) of the State Budget Law — over five dissenting opinions that censured the breach of specific limits set by Parliament — the Plenary squarely rejected the Government's thesis that the principle of no taxation without representation did not apply when the Executive encroached upon parliamentary competence in order to benefit taxpayers, holding that the reserve in Article 168(1)(i) rests upon the democratic idea of participation in the sharing of public burdens and encompasses tax amendments that are more favourable to taxpayers.

Subsequently, in Ruling no. 274/1986, delivered by the Plenary on 8 October 198611, the Constitutional Court broadened the scope of the statutory reserve, declaring that the parliamentary reserve laid down in Article 168(1)(i) of the Constitution — in its 1982 wording — covers not only the creation of taxes and the definition of their incidence and rates, but also the enactment of the regime governing tax benefits and exemptions, inasmuch as they constitute derogations from the principle of universality and negative delimitations of tax incidence, barring the Executive from any autonomous legislative intervention or development decree-law without prior parliamentary authorisation statute in this domain. With these three decisions (Rulings nos. 24/1983, 48/1984, and 274/1986), the Constitutional Court's first decade consolidated the reach of democratic self-taxation, establishing that both the increase and the reduction or exemption of the tax burden require parliamentary legitimation.

Finally, during this first phase the Constitutional Court laid the foundations for the doctrinal construction of tributes in Portugal. In Rulings nos. 348/1986, 205/1987, and 461/198712, the Court crystallised the classical dichotomous matrix between tax (imposto) and fee (taxa), establishing that the distinguishing criterion between those two figures lies in the presence or absence of an individualised synallagmatic consideration. Whereas a tax is a unilateral, coercive payment devoid of synallagma, intended to finance the general expenses of the community and governed by ability to pay, a fee is a bilateral payment grounded in the principle of equivalence, compensating the provision of a divisible public service, the use of a public domain asset, or the removal of a legal obstacle to the activities of private parties.