Fifty Years of the Tax Constitution (V): Crisis Taxation, Retrospectivity in Periodic Taxes and Ability to Pay (2008–2019)

1. The debate over unauthentic retroactivity in periodic taxes and autonomous taxation

The 2008 international financial crisis and the subsequent Economic and Financial Assistance Programme, agreed in 2011 between the Portuguese State and the Troika (European Commission, European Central Bank, and International Monetary Fund), triggered a wave of emergency tax legislation. Severe fiscal imbalances and the pressing need to meet drastic budgetary consolidation targets led the ordinary legislature to enact emergency tax interventions, characterised by a generalised increase in the tax burden, the introduction of extraordinary surcharges on personal income, mid-year rate increases in corporate autonomous taxation (tributações autónomas), the creation of extraordinary solidarity contributions on pensions, and the proliferation of sectoral levies. Faced with this scenario of economic and fiscal emergency, the Constitutional Court was called upon to arbitrate the acute tensions between financial exigencies and the sustainability of the Social State, on the one hand, and the preservation of fundamental guarantees of the Tax State — such as non-retroactivity, tax equality, and ability to pay — on the other.

The first major debate centred on the application of Article 103(3) of the Constitution to amendments to periodic taxes enacted during the course of the calendar year itself. In Rulings nos. 128/2009, of 12 March 2009, and 399/2010, of 27 October 20101, the Constitutional Court drew a careful distinction between authentic or proper retroactivity and unauthentic or improper retroactivity, also termed retrospectivity. In those judgments, the Court held that the prohibition in Article 103(3) applies solely to authentic retroactivity, of automatic application, excluding retrospectivity or improper retroactivity from its scope. In the second of those rulings, dealing with periodic income taxes — whose taxable event continues to form throughout the calendar year and is completed only on 31 December — the majority of the Plenary held (against five dissenting opinions warning of the autonomous nature of income tranches already earned prior to the entry into force of the new law) that increasing tax rates during the tax year does not affect facts consummated in the past, leaving the validity of the rule subject to review under the proportionality and legitimate expectations tests derived from Article 2 of the CRP.

However, the temporal application of tax laws sparked a deep jurisprudential split within the Constitutional Court regarding mid-year increases in autonomous taxation rates under Corporate Income Tax (IRC). The divergence between Sections reached its breaking point in the clash between Ruling no. 18/2011, in which the 3rd Section qualified autonomous taxation as a mere component part of a periodic tax and therefore immune from the strict prohibition of retroactivity, and Ruling no. 310/2012, in which the 2nd Section, relying on the substantive autonomy of the figure vis-à-vis corporate income tax, held unconstitutional the rule that retroactively applied to 1 January of that same year an increase in autonomous taxation rates levied on vehicle expenses and representation expenses.2 In Ruling no. 310/2012, the 2nd Section classified autonomous taxation among single-obligation tributes, in which the tax obligation arises autonomously and immediately upon each expense incurred by the taxpayer, concluding that burdening previously incurred expenses directly infringes the prohibition of retroactivity in Article 103(3) of the Constitution.

This split was definitively resolved by the Plenary of the Constitutional Court in the landmark Ruling no. 617/2012, of 19 December 2012, subsequently reaffirmed by the Plenary in Ruling no. 85/2013 (and later by the 3rd Section in Ruling no. 387/2023)3, establishing that autonomous taxation falls upon instantaneous taxable events, detaching itself from the periodic logic of income taxation. Consequently, the Plenary held that, “since the taxable event giving rise to such autonomous taxation is exhausted in the act of incurring a given expense”, retroactively applying rate increases to prior expenses “amounts to applying a new law to a prior taxable event, resulting in a situation of authentic retroactivity prohibited by Article 103(3) of the Constitution”. It was thus made clear that Article 103(3) cannot be reduced to a weighable corollary of the protection of legitimate expectations, operating instead as a definitive command that fixes the temporal validity of burdensome tax norms and precludes any ad hoc balancing based on budgetary emergency grounds.

2. The ability-to-pay principle and the protection of the existential minimum

The second central domain of this period concerned the ability-to-pay principle as a refraction of the principle of tax equality (Articles 13 and 104(1) of the Constitution). Whereas in its earliest judgments on emergency legislation — upholding transitory public-sector pay cuts in Ruling no. 396/2011 and, in Ruling no. 353/2012, declaring the suspension of public-sector holiday and Christmas allowances unconstitutional for breach of proportional equality while nonetheless safeguarding the 2012 budget execution under Article 282(4) of the CRP4 — the Court had given weight to the exceptional nature of the financial crisis, Plenary Ruling no. 187/2013, of 5 April 2013, drew much tighter boundaries5.

In that case, the Constitutional Court was called upon to review the validity of a package of exceptional budgetary measures — namely the suspension of holiday allowances in the public sector, the design of the Extraordinary Solidarity Contribution (CES) on pensions, and the increase in Personal Income Tax (IRS) rates — formulating a decisive synthesis of the ability-to-pay principle. In the judgment, the Plenary emphasised the constitutional requirement that personal income taxation take account of the “needs and income of the household”, linking it “to the idea of ‘personalisation’ of the tax as well as the need to give tax recognition to the family household”, and establishing that “legal equality is always proportional equality”. Declaring unconstitutional the measures that disproportionately curtailed public salaries and pensions, the Court warned that the gravity of the financial conjuncture does not authorise the legislature to cross the threshold of reasonable sacrifice or to impose a differentiation of burdens that proves excessive in relation to the measure of difference. Even so, in Ruling no. 572/20146, while recalling that the exceptional validation of the CES in 2013 had weighed “the exclusion of those whose pension was below €1,350”, the majority of the Plenary held that such threshold did not constitute “an insurmountable limit” and ultimately declined to declare unconstitutional the extension of the CES to pensions starting from €1,000, despite dissenting opinions censuring it for exceeding the limits of demandable sacrifice.

In that same Ruling no. 187/2013, in alignment with the doctrinal reflections of J. Casalta Nabais and J. L. Saldanha Sanches7, the Court recognised that allowing tax credits linked to essential household expenses — such as health, education, and housing expenses — leads to the “effective personalisation” of the tax, and that compressing or eliminating them in higher income brackets represents “objectively a disregard of ability to pay (...), contributing to diminishing the degree of personalisation of the tax”8, even though it ultimately declined to declare the measure unconstitutional on the ground that it fell within the legislature's margin of appreciation. Revisiting the classic maxim of Ruling no. 57/1995, according to which “the principle of equality is breached when persons in equal conditions pay unequal taxes”, a dissenting opinion nonetheless stressed that “the same principle is likewise breached in the symmetrical situation: when persons in unequal conditions pay equal taxes”, since the blind elimination of personal deductions for certain brackets de-personalises the tax.

During this phase, alongside the personalisation of income, the guarantee of the existential minimum definitively asserted itself as an inalienable and absolute tax immunity, directly anchored in the principle of respect for human dignity contained in Article 1 and in the Social State model provided for in Article 2 of the CRP. Developing the pioneering line of Ruling no. 509/2002 — which gave autonomous status to the “minimum core of the right to a dignified existential minimum, postulated first and foremost by the principle of respect for human dignity” — projected into the tax domain by Rulings nos. 396/2011, 187/2013, and 572/2014 (and recalled in Ruling no. 680/2022 regarding the “tax exemption of the subsistence minimum and, at the same time, the prohibition of a confiscatory maximum”)9, the Constitutional Court consolidated the thesis that the portion of income indispensable to subsistence constitutes an absolute tax immunity. Conceived as the minimum of minimums, the dignified existential minimum operates as an insurmountable negative limit on the taxing power, barring the collection of any tax or levy that reduces the vital resources of the individual or their family to a level incompatible with basic standards of human survival.

3. The proliferation of financial contributions and sectoral levies

Beyond the economic emergency, this fourth phase was also marked by the expansion of the regulatory State and the consequent proliferation of extraordinary financial contributions levied on specific sectors of the economy. Faced with the need to finance systemic public costs without resorting to general taxation, the legislature enacted sectoral levies such as the Extraordinary Contribution on the Energy Sector (CESE), the Banking Sector Contribution (CSB), and various regulatory fees.

Judicial scrutiny of the constitutional legitimacy of these sectoral contributions was foreshadowed by judgments such as Ruling no. 152/2013 and Ruling no. 539/201510, but reached its culmination in Ruling no. 7/2019, delivered by the 2nd Section on 8 January 201911 concerning the Extraordinary Contribution on the Energy Sector (CESE). Rejecting the qualification of the levy as a tax, the Court placed it within the tertium genus of financial contributions, clarifying that, “although it does not presuppose a direct, specific, and effective consideration — for which reason it cannot be qualified as a fee — the CESE displays characteristics of bilaterality (…) by virtue of the connection between the origin of the revenues and their destination”. From the standpoint of the judgment, within the framework of the regulatory State, the commutativity of the tribute is grounded in a “causal relationship between the State, in its capacity as guarantor of the efficient and socially and environmentally sustainable functioning of the energy system”, and the body of economic operators, finding its formal guarantee in the earmarking of revenues to the Fund for the Systemic Sustainability of the Energy Sector (FSSSE), which prevents the funds from being “diverted to finance general public expenditure”. However, in upholding the tribute in its initial year (2014), the Court expressly warned that qualifying the measure as “extraordinary” constituted a “decisive” factor in ruling out its disproportionality in the crisis conjuncture, leaving open the assessment of the effects of its subsequent prolongation over time.