Summary
Full Decision
ARBITRAL DECISION
A - REPORT
A…, taxpayer No…, resident at Street …, No…, …, in …, in Amadora, pursuant to the provisions of paragraph a) of No. 1 of article 2, paragraph b) of No. 2 of article 5 and No. 1 of article 6, all of Decree-Law No. 10/2011, of 20 January, hereby:
requested the CONSTITUTION OF AN ARBITRAL TRIBUNAL WITH A SOLE ARBITRATOR with a view to obtaining an arbitral decision declaring the illegality and consequent annulment of the tax assessment for Personal Income Tax (IRS), corresponding to the assessment for the year 2011, with No. 2015 … and in the amount of EUR 18,652.75 (eighteen thousand, six hundred and fifty-two euros and seventy-five cents), including extraordinary surtax and compensatory interest.
That request was filed with the Administrative Arbitration Center (CAAD) on 24 February 2016.
The respondent is the Tax and Customs Administration (AT).
The Claimant did not appoint an Arbitrator. To that end, the President of the Deontological Council of the Administrative Arbitration Center appointed the undersigned, who expressly accepted that appointment. The parties were duly notified thereof and did not manifest any wish to refuse it.
The arbitral tribunal was thus constituted on 6 May 2016.
The AT submitted the administrative file and timely presented its response, contesting the claim and sustaining the legality of the tax assessment in dispute, with the corresponding complete lack of merit thereof and the consequent dismissal of the Respondent.
The hearing referred to in article 18 of the Complementary Rules of Tax Inspection Procedure was appropriately dispensed with, as was the submission of arguments, all with the agreement of both parties.
The Claimant submitted the decision rendered in the tax arbitration proceeding that was heard at CAAD with No. 155-16-T, which is published and accessible on the CAAD website.
The Tribunal was regularly constituted and is substantively competent.
The parties have legal personality, legal capacity and are entitled to act.
The case has no defects.
CLAIM
As stated, the Claimant contests the tax assessment corresponding to the IRS assessment for the year 2011, with No. 2015…, in the total amount of € 18,652.75 (including extraordinary surtax and compensatory interest) and with a payment due date of 20 January 2016. In that contest the Claimant requests the annulment of the tax assessment, in summary, on grounds of defects in erroneous classification and quantification of the facts and tax income, as well as omission of legal formalities.
More specifically, the Claimant imputes the following defects to the assessment in dispute:
a) violation of law;
b) lack of sufficient basis, in that the rule invoked does not constitute a rule of incidence but merely stipulates an ancillary obligation;
c) omission of the principle of discovery of material truth (article 58 of the LGT and article 6 of the RCPIT);
d) presumption of truthfulness of the declarations of the taxpayer (article 75, no. 1 of the LGT);
e) existence of founded doubt (article 100, no. 1 of the CPPT).
B - FACTS
In the present case, it is considered proven, with relevance for the decision of the matter, the factual elements described below.
The additional assessment in dispute is based upon an external audit procedure, for the years 2011 and 2012, relating to IRS and VAT.
In that procedure the AT concluded that the Claimant did not have in his possession the supporting documents evidencing the amounts received from his client B…, allegedly as an advance of expenses in the name and for the account of the client, in accordance with article 116 of the CIRS.
This is the basis of the assessment in dispute.
And indeed the Claimant did not have such documents in his possession, nor ever produced them.
Those amounts were earned by the Claimant in the course of his self-employed activity as an expert appraiser (code … of the Table of Activities of article 115 of the CIRS).
In 2011 the Claimant was classified under the simplified regime for quantification of Category B income for IRS purposes (cf. article 31 of the CIRS).
For that year, the Claimant submitted the IRS income return form 3, including the corresponding Schedule B.
Therein the Claimant declared as other services rendered and other income (including capital gains) the amount of 14,278.38€.
The Claimant also declared as advances for the payment of expenses on behalf of and for the account of clients the amount of 71,113.71€, an amount that includes VAT.
At the time of the tax audit the Claimant did not have any document concerning the advances or reimbursements of expenses incurred on behalf of and for the account of the client that evidenced that amount.
The AT notified the Claimant to present, within a period of eight days, documents proving or justifying the expenses paid on behalf of and for the account of the client and relating to which the green receipts in question had been issued.
The Claimant provided a written clarification stating that "Despite efforts to obtain the documents/evidence concerning the amounts received as advances of expenses paid on behalf of and for the account of client B…, it has not been possible to obtain them to date. However, we await their obtaining, which we shall then submit to the Tax Authority services."
The Claimant submitted the annual declaration issued by B… and dated 20 January 2012, which states as the value of fees paid in 2011 the amount of 14,278.38€, equal therefore to the sum of the amounts of fees shown in the green receipts issued by the Claimant in the year 2011 (14,278.38€).
That declaration makes no mention of the sum of the amounts of receipts relating to the disputed expenses (71,113.71€).
By official notice of 20-11-2015, delivered by hand, the Claimant was notified to exercise, if he so wished, the right to be heard, within a period of fifteen days.
The Claimant did not exercise that right.
The IRS assessment is based on the amount of 71,113.71€, subsequently cleared of the corresponding VAT and, subsequently, further reduced by 30% of the resulting amount.
It was the amount net of VAT and of 30% of presumed expenses that gave rise to the quantification of additional IRS and surtax and compensatory interest.
This reduction stems from the Claimant's choice to be taxed in accordance with the simplified regime for IRS.
20 January 2016 was the due date for payment of the disputed additional assessment.
The arbitration claim was filed with CAAD on 24 February 2016.
There are no facts relevant to the proper decision of the matter that should be considered unproven.
The facts established as proven arise from the documents submitted to the case and from the statements of the parties, which are not disputed.
C - ON THE LAW
Parties' Positions - Claimant
The Claimant acknowledges that the tax assessment in dispute arises from the failure to produce the supporting documents of the expenses allegedly incurred in the name and for the account of the client and reimbursed by the latter. Upon careful consideration, and in broad summary, the Claimant contests that from the failure of this obligation there can arise a tax assessment, from which arises erroneous classification and quantification of the income and tax facts and also omission of legal formalities.
The decision of the singular arbitral tribunal that functioned at CAAD mentioned above and already published, relates to facts entirely identical to those of the present case, but there relating to the year 2012 and not 2011. There it was decided in favor of the Claimant's claim, on the understanding that the AT did not comply with the principle of discovery of material truth, by not contacting B… to attempt to obtain the missing documentation.
Parties' Positions – Respondent
The AT, for its part, advocates the maintenance in the legal order of the contested assessment, on the understanding that it corresponds to a correct application of the law to the disputed material reality, considering it not to be incumbent upon it to promote the obtaining of the requested and missing documentation, as it was incumbent on the Claimant, in accordance with the law, to have the same in his possession, in order legitimately to attribute to those amounts the tax treatment that he conferred upon them in IRS. And that by not producing those documents, he did not overcome the burden of proof that was incumbent upon him.
In its response the AT refers to a number and amount of tax assessment that are different, which is noted as a manifest error, probably concerning the reference and amounts for 2012.
JUSTIFICATION
Having considered all matters, we must decide.
On the Documentation
Recapitulating, the disputed assessment arises from an external audit procedure, at the conclusion of which the AT concluded that the Claimant did not have in his possession evidence of the supporting documents of the amounts received from his client B… in the course of his activity as an expert appraiser, and the green receipts for which said they related to an advance (or reimbursement) of expenses incurred by him but in the name and for the account of his client, in accordance with article 116 of the CIRS. It being the case that, as we have seen, this factual matter is not disputed and constitutes the basis of the tax assessment.
Thus, with respect to the year 2011, the services determined that: "From the analysis carried out on the taxpayer's records and the AT computer system, it was verified that in the period of 2011 green receipts/electronic green receipts were issued relating to amounts received as advances for the payment of expenses on behalf of and for the account of the client, in the amount of 71,113.71€ (amounts with VAT). Because, as is verified, no other amounts were received beyond those indicated in the receipts, then these include VAT which is to be cleared, thus establishing the amount subject to taxation, in the amount of 57,816.02€ (71,113.71€ /1.23). It is concluded that the omitted income subject to taxation for purposes of IRS and VAT are in the amount of 57,816.02€"; but that "The taxpayer, as referred to in II.3.1, is classified for IRS purposes, for Category B income – Business Income, under the simplified taxation regime, for which reason the Category B income shall be ascertained in accordance with the rules of the simplified regime, in accordance with that stipulated in no. 2 of article 31 of the CIRS, applying to the omitted income the coefficient ... of 0.70 ....", thus establishing an amount additionally subject to taxation of 40,471.21€, "resulting from the application of the coefficient (0.70) provided in article 31 of the CIRS to the amount of 57,816.02€".
We see, therefore, that the AT, even though it did not have the documents in its possession, estimates that the expenses were subject to VAT at the normal rate, a fact that can only benefit the Claimant (in that those expenses might have been subject to VAT at a lower rate or even exempt from VAT).
The Claimant argues that he could not have had the documents in his possession, as the same were issued in the name of B… and that he, the taxpayer, did what would be possible to demonstrate the truthfulness of the facts, by requesting clarifications from B… in the course of the audit procedure and by producing the annual declaration issued by B….
Now, one cannot agree with the Claimant's thesis in this part. He manifestly "did not do everything that was within his power" to comply with the legal provision cited above, nor did he even adopt the behavior that would be expected of a normally diligent professional: to keep simple copies of those documents, in order if necessary to demonstrate the non-compensatory nature of the amounts earned and their nature as mere reimbursement of the significant expenses incurred in a professional relationship. Indeed, it would have been appropriate for him to have kept copies of those documents, precisely in order to deliver them to the AT in the event of an audit procedure, as they were the reason for considering the amounts earned as excluded from the taxable base. This, when such amounts exceed 70 thousand euros and more than three times the fees earned (that is to say the annual turnover), being therefore material, both in absolute terms and in relative terms.
Article 116 of the CIRS – Disclosure and Documentation
And there is no doubt that the Claimant was obliged to do so, even though he raises doubts about that obligation. Let us examine this then.
Under the heading "Record Books", article 116 of the CIRS provides that:
"1. The holders of Category B income are obliged:
a) To keep the books referred to in paragraphs a), b), and c) of No. 1 of article 50 of the VAT Code, in the event that they do not possess organized accounting; and
b) To disclose separately in their respective record book the amounts concerning reimbursements of expenses made in the name and for the account of the client, which, when duly documented, do not affect the determination of income, when they do not possess organized accounting."
As both the Claimant and the Respondent peacefully acknowledge, the record book of income earned must, therefore, disclose separately, on the one hand the actual income – arising from services rendered, and on the other hand, the other income earned by the taxpayer – which is intended to reimburse expenses made in the name and for the account of clients.
These expenses, when duly documented, do not affect the determination of the overall income of the taxpayer. The parties also understand, equally without dispute, that the law requires that such other receipts, earned by the taxpayer for the reimbursement of expenses made in the name and for the account of the client, be duly documented (that is, be supported by receipts issued in legal form, where it is expressly shown that these are sums received for reimbursement of expenses), on pain that those receipts be considered, also they, true consideration for services rendered, thus contributing to the determination of the overall income of the taxpayer.
And indeed so the paragraph in question tells us (article 116, no. 1, paragraph b): the expenses, recorded separately, when duly documented, do not affect the calculation of taxable income.
But the Claimant argues that he has fully observed this requirement by issuing receipts with the mention that these were amounts corresponding to expenses on behalf of the client (and, consequently, not relating to fees). The AT understands that this procedure is not sufficient, and that the taxpayer, to comply with the rule, must still keep the external documents underlying those amounts.
Now, "duly documented" cannot mean merely the issuance of a receipt that qualifies the amount as a reimbursement (downstream justification, relating to outputs, internal in nature therefore, because issued by the taxpayer). That phrase must rather relate, necessarily, to the documents evidencing the expenses attributed (by third parties) to the client benefiting from the service rendered by the professional taxpayer (upstream justification, relating to inputs, external in nature, because issued by a third party, in this case the supplier of the taxpayer for the benefit of the taxpayer's client). This is what follows from the letter of the law and the principle that, except in exceptional cases, postulates the documentation of expenses with external documentation.
Moreover, as also follows from the VAT Code and was analyzed in the decision given in the case that was heard at CAAD with no. 29/2015-T.
And it is precisely that censure of the AT with respect to the Claimant: the fact that he does not possess the documents that evidence such expenses, thus basing the tax assessment precisely on that absence of proper documentation. From which it follows that the Claimant breached the provisions of the article invoked by the AT to base the tax assessment.
Article 120, no. 1 of the RGIT - Ancillary Obligations
As we have seen, the Claimant does not prove that the amounts received and here disputed were received as an advance on behalf of and for the account of the client, when he should have done so.
Nevertheless, for the Claimant, from that absence of proof there would not arise sufficient basis for the assessment in question, due to the absence of a rule of incidence that permits the taxation of those amounts. From which would arise a defect of violation of law and error in the reasoning.
However, the Claimant's thesis cannot be upheld in these terms, according to which the recalculation of the income subject to tax would be unviable, but only the mere application of a fine for violation of a mere ancillary obligation (there being no rule of incidence enabling the intended taxation). Indeed, for the Claimant, there would only be grounds for an additional tax assessment in the case of non-payment of the tax debt (not previously assessed or self-assessed, it is presumed, on pain of confusing additional assessment with enforcement). But, in his view, it would no longer be possible to proceed to an additional tax assessment in cases of violation of mere ancillary obligations for ascertainment of the amount of the tax obligation, named and precisely, the submission of returns, the production of tax-relevant documents, including accounting or records and the provision of information (No. 2 of article 31 of the LGT, cited by the Respondent). Thus, for the Claimant, the breach of that requirement corresponds to the violation of a mere ancillary obligation, which would lead to the imposition of a fine, but never to the legitimate alteration of taxable income, precisely because the article in question would not have the nature of a rule of incidence. That is, its breach would not have the effect of turning an amount not subject to tax into an income to be included in the taxable base.
Now, this is manifestly not the meaning of the rule, and the Claimant has no reason. The amounts received from clients are positive components of income. From these must be deducted the expenses and costs incurred for the exercise of the activity (in the case of organized accounting), or 30% of the amounts earned (in the case of election for the simplified regime for income). Nevertheless, exceptionally, amounts incurred in the name and for the account of the client, but only these, will not be included in the positive component of income, provided, but only if, the discipline of article 116 of the CIRS is observed.
This corresponds to saying that there is a compression of the taxable base, as long as a burden falling on the taxpayer is observed. It is not, therefore, a matter of taxing what would otherwise not be taxed, but rather of subtracting from the positive components of income subject to tax certain amounts of non-compensatory character, once the legal requirements are met, in particular the demonstration of their nature as exclusive reimbursement of expenses actually incurred in the name and for the account of a third party, as occurs in the VAT regime and was analyzed in the decision referred to above.
It is therefore, first and foremost, a matter of proof and not of a rule of incidence.
Distribution of the Burden of Proof
Now, the burden of proof falls to whoever invokes the fact (mere reimbursement of expenses and not consideration for services rendered) in his favor (non-inclusion in taxable income), so it would fall to the Claimant to prove the facts he alleges (reimbursement) – see for this purpose the decisions taken in the cases that were heard at CAAD under the numbers 840/2014-T, 82-2015-T and 568/2015-T.
In addition, there is the clarity of article 116 of the CIRS (if there is proof of the amounts earned constituting mere reimbursement of expenses incurred in the name and for the account of the client, the amount received will not be considered in the calculation of the income earned and subject to tax).
It is not apparent that there is any relevance here to a historical argument, according to which there would be a new rule of incidence for taxpayers without organized accounting, corresponding to the new no. 7 of article 3 of the CIRS, which did not have an interpretive nature, and which now considers as income the amounts advanced for expenses, if by the end of the following year a final account relating to the service rendered is not presented. The factual situation envisaged by the new number corresponds to advances by the client on which no account is rendered, aimed at preventing the nature of the monetary payments earned from remaining eternally undefined. But that is not what occurred in this case, as services were rendered and final accounts were delivered. Indeed, in the present case there is indeed a reimbursement by the client of advances made by the service provider, of which final accounts were delivered, but the statements of those accounts were not preserved (copies or originals of the expenses allegedly incurred).
It is therefore not valid to argue that this article is not sufficient basis for the disputed assessment because it does not constitute a rule of incidence and imposes only a mere ancillary obligation. Especially because it falls within the scope of the burden of proof and the taxpayer does not overcome that proof.
Article 6 of the RCPIT
The Claimant further invokes the application of article 6 of the Complementary Regime of Tax Inspection Procedure (RCPIT), to argue that it would have sufficed for the AT, to certify itself of the truthfulness of the tax declarations issued by both taxpayers (B… and the Claimant, thus referring both to its form 3, and to the annual declaration of that one), to request the documents supporting the movements recorded in the credit side of the accounting statement of B….
The question here is therefore whether the AT would have the burden to overcome the absence of sufficient proof on the part of the Claimant, when the latter could and should have that proof in his possession, or at least a beginning of proof (copies of the documentation in question).
Now, the claimant not even having those copies, it appears that there is fault on the part of the claimant in the non-observance of the provisions of article 116. And it was incumbent on the Claimant to demonstrate that it was not due to a cause attributable to him, or at least that it was not attributable to him on the basis of fault, that he found himself in that situation of impossibility of producing the legally required documentation.
For if it is to be understood otherwise, not only would there be an imposition of an excessive and disproportionate burden on the AT, but it would be said that such a conclusion would be unsustainable in terms of the Kantian maxim: imagine that all taxpayers omit the fulfillment of their ancillary obligations, with the AT having to take the initiative to observe them in substitution for all of them to overcome that collective inertia. The tax machinery would be paralyzed, as is obvious. Moreover, the Claimant not having demonstrated that the fact is not attributable to him (burden of proof once more), the imposition of this requirement on the AT would even constitute an abuse of right, in the form of venire contra factum proprium, in seeking to impute to another the consequences of one's own inertia.
In this sense, the Respondent invokes the tenor of the Decision of the Court of Administrative Appeals (TCA) South, rendered in case 06418/13 of 05/07/2013: "In other words, as in the case law with which we agree, it will not be incumbent upon the Tax Authority the burden of proof of the non-existence of the tax facts whose tax it considered deduc unjustly by the taxpayer, but rather it falling to the taxpayer himself the burden of proof of the existence of the tax facts on which he based the deduction that he declared. Before proof of the circumstantial elements that lead to conclude the simulation of the operations described in the invoice, it falls upon the taxpayer the burden of proof of the prerequisites on which depends the right to the deduction (of the VAT paid upstream), that is, the existence of the transaction and its quantitative expression. In these terms, when the act of VAT assessment is based on the non-recognition of the deductions declared by the taxpayer, it falls to the Administration only the burden of proof of the verification of the legal prerequisites that legitimate its action, contained in article 82, no. 1, of the VAT Code, and to the taxpayer the burden of proof of the existence of the tax facts that he alleged as basis of his right to deduction of the tax in accordance with article 19 of the same diploma."
Although relating to facts not entirely similar, it must be recognized that the Decision alludes to a central principle of the system: that of the distribution of the burden of proof, a matter analyzed in the decisions referred to above and which were heard in arbitral courts functioning within the scope of CAAD. It was incumbent on the Claimant to prove that the amounts earned did not correspond to remuneration for services rendered. And, for that purpose, he needed to observe a set of ancillary obligations, in particular that of being able to demonstrate, or at least make a beginning of proof, that he actually incurred expenses in the name and for the account of his client and that the amounts he seeks to subtract from taxation arise from reimbursement of those concrete expenses.
And, in truth, the obligation to prove the elements of the declarations falls on the taxpayers, as follows from article 128 of the CIRS which under the heading "Obligation to Prove the Elements of the Declarations", established at the time that:
"1 - Persons subject to IRS must present, within the period fixed for them, the documents evidencing the income earned, the deductions and reductions and other facts or situations mentioned in their respective declaration, when the Directorate-General of Taxes demands it.
2 - The obligation established in the previous number is maintained for the four years following that to which the documents relate.
3 - The loss of the documents referred to in No. 1 for a reason not attributable to the taxpayer does not prevent him from using other elements of proof of those facts."
That is, the law imposes on the taxpayer a burden of proof, a proof that must be documentary, only alternative proof being admitted if that is not possible for a reason not attributable to the taxpayer. And as we have seen, the taxpayer also does not allege, nor demonstrate, that it was for a reason not attributable to him that he found himself prevented from producing to the AT the documents to which he was legally bound. Of course, the taxpayer might not have the originals of the documents. But he should always have kept copies of the same. Especially for amounts so high, both in absolute terms and in relative terms, when compared with the fees earned. If that were the case, the Claimant would have made a beginning of proof, and could then with legitimacy and without abuse, seek to impose on the AT the burden of contradicting that proof, legitimately requiring it to conduct an additional investigation with a view to discovering material truth. A principle that it is recognized that the AT is indeed bound, as that material truth constitutes the ultimate objective of the tax procedure, as only that material truth allows the capacity to contribute to be determined with precision individually.
But from the inertia of the taxpayer there cannot arise for the AT a burden of substitution, completely unviable in a context of mass administration, especially as in the case alternative means were admitted, with the Claimant not having achieved success in those inquiries, having limited itself to presenting the declaration of B…, manifestly inconclusive.
In this framework, it is clear that in a context of fair distribution of the burden of documentation of the quantification of tax, in an environment of mass administration, it is not required of the AT to substitute itself for the action of the taxpayer, to overcome the burden that was incumbent upon him and which the latter did not observe, having therefore breached an ancillary obligation specifically imposed by law. Especially when he does not invoke, nor is it demonstrated, that this non-production arises from an impossibility that does not arise from his fault, or even that is not objectively attributable to him.
Material Truth and Burden of Proof
The AT is therefore right when it argues that there is no "alleged violation of the principle of material truth", as it is incumbent on "the taxpayer to provide the tax administration with the indispensable elements for the verification of his tax situation", corresponding this burden to a "fundamental component for the balance of the system", for which reason "in situations in which the declarations, accounting or records reveal omissions, errors, inaccuracies or founded indications that they do not reflect or prevent the knowledge of the actual taxable matter of the taxpayer, the presumption does not occur", as follows from paragraph a) of No. 2 of article 75 of the LGT, thus it being incumbent on the Claimant, in accordance with article 74 of the LGT, to prove that the declaration had been made "in accordance with the law" and, therefore, was in reality truthful."
For that conclusion, the following author is cited: Anselmo de Castro: "The burden of proof can be understood in a subjective sense and in an objective sense. In the first meaning, the burden of proof refers to the requirement imposed on the parties to prove the facts on which their claim or defense is based, and which will be defined, in each case, according to the criteria for distribution of the burden of proof that are established in articles 342 and following of the Civil Code. The objective burden of proof, on the other hand, relates to the consequences of the failure to realize the proof by the party that is burdened with it, making it possible to determine the sense or content of the decision to be rendered by the judge when, having finished the hearing of the case, one arrives at a situation of uncertainty or of non liquet as to the relevant facts. (...) if there is a situation of lack or insufficiency of proof with respect to any one or more of the alleged facts indispensable for the decision of the case, these should be considered as non-existent, in that they cannot be considered as proven or as unproven." (in, Lessons of Civil Procedure, Vol. 4 (photocopied), p. 114). For the same effect the author also cites Carlos Alberto Fernandes Cadilha (who in turn cited the previous author): "The solution may be, in this type of cases, in distributing the burden of proof, not as a function of the position that the parties occupy in the procedural relationship, but rather by reference to the positions that correspond to them in the material legal relationship that is underlying the case. Thus there would need to be distinguished essentially between acts of positive content in which the Administration imposes commands, prohibitions and takings, in which it is justified that it be the administrative entity that proves the existence of the legal prerequisites of its action, and acts of negative content, by which the Administration denies a claimed interest of the administered, and in which it would correspond to the latter to demonstrate, in jurisdictional proceedings, that it fulfills the legal requirements of the authorization or benefit that it seeks to obtain." - in Dictionary of Administrative Litigation, Coimbra, Almedina, 2006.
And for the same conclusion the following Counselor Jorge Lopes de Sousa is cited (in annotation to article 100 of the CPPT): "This is the practical implementation of the elimination in the field of tax litigation of the presumption of legality of acts of the tax administration, replaced by a presumption of truthfulness of the acts of the citizen-taxpayer, which was announced in section 1 of the preamble of the CPT. This rule embodies an application in the procedure of challenging the general rule on burden of proof in tax procedure stated in article 74, no. 1 of the LGT, in which it is established that the burden of proof of the facts constituting the rights of the tax administration or of the taxpayers falls on whoever invokes them. Although this rule is provided for in the tax procedure, its content should be transposed to the judicial process that follows it, so that whoever had the burden of proof of certain facts in the tax procedure has the respective burden in the tax judicial case"; for which reason "the burden of proof of facts shall be imposed on the taxpayer, in the judicial process, when it is imposed on him in the tax procedure, (...) harmonizing it with the rule of no. 1 of article 100 of the CPPT, it must be concluded that, in cases in which one of these situations occurs in which in the tax procedure the burden of proof is attributed to the taxpayer, the doubts that in the judicial process subsist on the factual matter cannot be considered as founded doubts for purposes of, in accordance with that no. 1, justifying the annulment of the contested act" - cfr. Code of Tax Procedure and Procedure Annotated and Commented, Lisbon, Áreas Publisher, 6th Ed., 2011.
For that purpose the AT further refers to the Decision of the Supreme Tax Court (STA), rendered in case 0338-07, on 31 July 2007: "it has been the settled understanding of the case law that 'it is incumbent upon the Tax Administration only, taking into account the principle of administrative legality and in terms corresponding to the provisions of article 342 of the CC, the burden of proof of the verification of the respective indications or prerequisites of taxation, that is, of the legal prerequisites of its action. It falls to the taxpayer to prove the existence of tax facts that he alleged as basis of his right, that is, the actual existence of the alleged transactions" (decision of this Section of the STA of 23/5/07, in appeal no. 128/07). As was written in the Decision of this Section of the STA of 17/4/02, in appeal no. 26.635, "it falls to the administration the burden of proof of the verification of the legal prerequisites (binding) of its action, that is, ... of the existence of the facts on which it legally depends that it must act or can act in a certain sense", as constitutive facts of such a right, in terms of that principle of legality, according to its current understanding, understood as a mere limit to the activity of the administration but as the basis of all its activity. What corresponds to the teaching of Vieira de Andrade, in Administrative Justice, 2nd edition, p. 269: "it must in principle fall to the Administration the burden of proof of the verification of the legal prerequisites (binding) of its action, in particular if aggressive (positive and unfavorable); in return, it will fall to the administered to present sufficient proof of the illegality of the act, when those prerequisites are shown to be verified." Thus "when the act of the Administration amounts to the affirmation of the practice, by the taxpayer, of the tax fact and of its quantitative expansion, it is to it that the burden of proof of its verification falls, the doubt being resolved by the court against it"" (decision cited of 23/5/07)".
What implies, in this case, that an unfavorable pronouncement must be issued against the party (Claimant, in this case) on whom it was incumbent to make the proof of those facts (mere reimbursement of expenses and not true remuneration), it not being incumbent on the AT to investigate the truthfulness of the expenses with a third party (B…), as that burden would be disproportionate. And it was incumbent on the Claimant to proceed to the proof of the alleged facts, which he did not do, when invited to do so. This is because, recovering the terminology above, the Claimant seeks an act of negative content: the AT proceeds to the quantification of taxable income, the Claimant seeking to proceed to a negative reduction of the tax base, for which he needs to demonstrate the prerequisites of that reduction.
The argument that it would be unreasonable to expect the AT that the Claimant had not incurred any euro in expenses, e.g., to pay a certificate of registration of a property, or to pay a certified copy of any document, on behalf of his client B…, does not hold, as the Claimant was taxed under the simplified regime (those expenses were already presumptively quantified in 30% of the value of gross income by choice of the taxpayer). Thus, once more, it was incumbent on the Claimant, and only on him, to demonstrate the classification of the expenses (expenses in the name and for the account of a third party, i.e. other expenses than his operating expenses) and their quantification. Now as we have seen, the Claimant does not overcome either of these burdens. Moreover, the Respondent could not, on pain of violation of the principle of legality, arbitrarily propose a supposedly reasonable value, even if lower than the amount sought by the Claimant. Thus, in the case, either the Claimant demonstrates the nature of the expenses and demonstrates the quantification of the value, or the tax authority cannot, discretionarily, estimate a value that in accordance with the rules of experience, is public and notorious to be a minimum that the taxpayer would always incur (this, because, beyond the mentioned binding to the principle of legality, there is no value that could be reasonably proposed). The question is, therefore, as has been mentioned, in the distribution of the burden of proof. And from the non-overcoming of that burden does not arise any founded doubt about the truthfulness, nature and value of the tax fact.
Thus, as follows from the above, it is understood that the Claimant is not right when he invokes in favor of the annulment of the tax assessment the binding of the AT to the discovery of material truth, although in this sense goes the decision given in the case that was heard at CAAD under no. 155-16-T. For the Claimant this duty would be concretized, in the concrete case, in the obligation of the AT to undertake, sua sponte, the necessary initiatives for the discovery of material truth, in particular, that of notifying B… to obtain an account statement, to then conclude if the expenses advanced by the Claimant were recorded there. But, as was seen, it is understood that the binding to the discovery of material truth will have to be concretized within a limit of reasonableness, of measure of the effort legitimately required of the administration, in a context of non-compliance by the taxpayer. What is equivalent to reconduct ourselves once more to the distribution of the burden of proof and not to the principle of material truth. And as was already seen, the Claimant breached the burden of proof that was incumbent upon him.
Nevertheless one might ask, once more, if there is a beginning of relevant proof in the annual declaration of B…. What would lead to the attribution of a subsequent burden on the AT, namely, by invocation of the adherence of the latter to the discovery of material truth. The Claimant argues that yes, in particular on the understanding that if the AT made use of article 59, no. 4 of the LGT, B… would have to respond, something which he, the Claimant, does not have the legitimacy to demand of his client, in addition to the fact that he could never have in his possession the originals of the documents.
Now, the fact is that the taxpayer should have kept a copy of the same, which could then constitute a sufficient beginning of proof – being mere copies, they could not constitute full or sufficient proof of the truthfulness of the alleged facts, but only a beginning of proof, with the effect, however, of reversing the corresponding burden, imposing it then on the AT. Nevertheless, the Claimant did not proceed in that diligent manner. And the law only in the case of absence of responsibility admits alternative proof. In addition, the declaration of B… does not permit the conclusion sought by the Claimant (it is merely stated that there was an amount paid as fees, and silence is maintained as to the disputed matter).
Thus, with this argument, the Claimant's claim does not hold.
Article 75, No. 1 of the LGT
The declarations of the taxpayers are presumed to be true, if the rules emanating from accounting legislation and tax legislation are complied with and without prejudice to the rules on the deductibility of expenses.
Now it was already seen that the tax rules were not observed, for which reason that presumption does not occur, leading us to the institute of distribution of the burden of proof.
The alleged audit conducted on the accounts of B… by C… is not relevant for that presumption, especially because: the amount of the expenses is manifestly immaterial for purposes of audit, the expense would always be documented in an accounting manner validly by the receipt issued by the Claimant and manifestly C… does not pronounce on the inconclusive declaration of B… submitted to the case, and it would not have had to do so.
Nor is it apparent how the supposed (but already refuted) non-existence of a rule of incidence that includes reimbursement of expenses (as for the Claimant article 116 would have the scope of a mere ancillary obligation, the breach of which would be sanctioned with a fine, but having no impact on the determination of the tax quantum – a view of which we disagree, for the reasons set out), could have any relation with the presumption of truthfulness (article 75, no. 1 of the LGT), neutralizing the distribution of the burden of proof, or even reversing that presumption (article 116 of the CIRS).
That is, once more, positioning ourselves in the field of the distribution of the burden of proof, it must be concluded that the Claimant's argument is without merit.
Article 100, No. 1 of the CPPT
The Claimant argues, as was already seen above, that it is public and notorious fact that an appraiser incurs expenses and that the AT does not consider a single euro as an expense in its professional relationship with B…, which would lead to founded doubt about the quantification of the tax fact.
But as was also seen here the Claimant is not right. The legislator considers that 30% of the amounts correspond to expenses. And so the AT did, which considered only 70% of the amount as subject to IRS (after deduction of a presumed VAT and, possibly, higher than that incurred). Thus, the AT cannot propose any other amount.
It is, once more, moreover, a matter of knowing whether or not the discipline of article 116 of the CIRS was complied with and how the burden of proof is distributed. But that was already analyzed, against the Claimant.
The argument connected with founded doubt is therefore without merit.
D - DECISION AND ITS REASONING
Having considered all matters, we must decide.
In summary, it must be decided on the lack of merit of the claim, as it was not proven by the Claimant, when such was incumbent upon him, the nature of expenses in the name and for the account of third parties of the amounts earned in 2011 in the exercise of his self-employed activity as a professional, for which reason those amounts are to be classified as income for Category B purposes, with the other consequences, as was correctly understood in the tax assessment in question, which thus does not deserve any censure.
E - OPERATIVE PART
As a result of the above, it is decided to deem the request for annulment of the IRS tax assessment totally without merit, as unproven.
F - VALUE
The amount of the collection in dispute and subject to the claim (IRS, extraordinary surtax and compensatory interest) amounts to the total amount of € 18,652.75 (eighteen thousand, six hundred and fifty-two euros and seventy-five cents), being therefore this the value of the action and of the claim.
Thus, in accordance with the provisions of articles 306, nos. 1 and 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the aforementioned value of € 18,652.75.
G - COSTS
In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 1,224.00 (one thousand, two hundred and twenty-four euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, entirely at the expense of the Claimant.
Lisbon, 4 November 2016
Text prepared by computer, in accordance with the Code of Civil Procedure (CPC), applicable by reference of article 29, no. 1, paragraph e) of the RJAT, with blank verses, reviewed and signed by the undersigned arbitrator.
The Arbitrator
(Jaime Carvalho Esteves)
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