Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Poças Falcão (Presiding Arbitrator), Cristiana Maria Leitão Campos and José Ramos Alexandre, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:
I – REPORT
A..., S.A., taxpayer number ..., with registered office at Rua ..., ...-..., ..., filed a request for constitution of an arbitral tribunal pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December, seeking a declaration of illegality of the acts of additional assessment of Corporate Income Tax (IRC) and compensatory interest for the tax year 2013-A, numbers 2017..., 2017....; 2017...; for tax year 2013-B, 2017..., 2017..., in the total amount of €39,626.73 for the year 2013; for tax year 2014 – 2017...; 2017...; 2017..., in the total amount of €37,742.86; and for tax year 2015, 2017...; 2017...; 2017..., in the amount of €14,500.67, all in the global amount of €91,870.26.
1. The request for constitution of the arbitral tribunal was accepted on 2018/03/14 and automatically notified to the Tax Authority (AT).
2. The Claimant did not exercise the legal right to appoint an arbitrator, therefore, pursuant to the provisions of Article 6(2)(a) and Article 11(1)(a) of the Legal Regime for Arbitration in Tax Matters (RJAT), the President of the Ethics Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
3. On 04-05-2018, the parties were notified of these appointments and did not express any intention to refuse any of them.
4. In accordance with Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 24/05/2018.
5. The Tax Authority and Customs Authority (AT), after being notified for this purpose, presented its response on 26/06/2018.
6. By order of 2018/10/13, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, pursuant to Articles 16(c) and (e) and Article 29(2) of the RJAT.
7. Within the scope of the same order, a period was granted for the submission of written arguments, which were presented by the parties, expressing themselves on the evidence produced and reiterating and developing their respective legal positions.
8. In its Response, the AT requested suspension of the present arbitral proceedings pursuant to Article 272(1) of the Code of Civil Procedure (CPC), applicable ex vi Article 29(1)(e) of the RJAT, until the decision of the prejudicial matter to be decided in the judicial challenge filed under number .../15...B... which is pending before the Administrative and Tax Court of ....
9. It argues that the corrections made to taxable profit for the tax periods 2013-A and 2013-B to be analyzed in these proceedings are positive corrections that replicate those made by the AT to the taxable profit for the years 2010, 2011 and 2012, revealing a relationship of dependence between the different assessments, making the present proceedings a prejudicial matter in relation to those pending before the Administrative and Tax Court of ....
10. In turn, the Claimant considered that "notwithstanding, because it is still being penalized in the tax periods 2013-A and 2013-B by the erroneous conclusions of the inspection action which, for purposes of IRC, focused on the years 2010 and 2011, it impugns the matter in the context of this request for arbitral decision...".
II – REASONING
A. Matters of Fact
A.1 Facts Established as Proven
11. The Claimant is a commercial company registered to carry out activities of production of common and fortified wines, as well as manufacture of prepared spirits.
12. The Claimant, on 17-6-2015, instituted an action before the Administrative and Tax Court of ... seeking a declaration of illegality both of the institution of tax enforcement proceedings number ...2014... and of the additional assessment of IRC corresponding to an increase in the taxable result for the year 2010 of €210,979.53 (cf. Document attached to the claimant's arguments).
13. The Claimant, in the year 2013, for purposes of IRC, opted for a tax period not coinciding with the calendar year and whose tax period runs from 1 May to 30 April of the following calendar year.
14. Given this circumstance, the years under analysis, for purposes of IRC, became as follows:
15. Tax year 2013-A – from 1 January 2013 to 30 April 2013; Tax year 2013-B – from 1 May 2013 to 30 April 2014; Tax year 2014 - from 1 May 2014 to 30 April 2015; Tax year 2015 - from 1 May 2015 to 30 April 2016.
16. The additional IRC assessments mentioned above and now being challenged resulted from general scope external tax inspection procedures carried out pursuant to Service Orders No. OI2016... (2013), No. OI2016... (2014) and No. OI2016... (2015), dated 16.02.2016, by the Tax Inspection Services (SIT) of ....
17. The AT, within the scope of these procedures, made corrections to IRC which, in accordance with the content and conclusions of the Inspection Report (RIT contained in the administrative file), include:
a) for tax year 2013-A (period 01-01-2013 to 30-04-2013) the following were considered
i. inventory adjustments not accepted for tax purposes, which do not fall within Article 5(1) of Decree-Law No. 159/2009, of €145,283.04 (page 7 of RIT);
ii. adjustments relating to the derecognition of "personnel indemnification to be recognized in 2010" of liabilities that do not fall within Article 5(1) of Decree-Law No. 159/2009, combined with Article 17 of the IRC Code, in the amount of €15,696.50 (page 9 of RIT);
iii. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €16,666.68 (page 10 of RIT);
iv. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €50,562.25 (page 10 of RIT)
b) for tax year 2013-B (period 01-05-2013 to 30-04-2014) the following were considered
i. inventory adjustments not accepted for tax purposes, which do not fall within Article 5(1) of Decree-Law No. 159/2009, of €145,283.04 (page 7 of RIT);
ii. adjustments relating to the derecognition of liabilities that do not fall within Article 5(1) of Decree-Law No. 159/2009, combined with Article 17 of the IRC Code, of €15,696.50 (page 7 of RIT);
iii. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 8 of RIT);
iv. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €598,036.73 (page 13 of RIT);
c) for the entire 2013 period - Negative correction to tax (autonomous taxation)
i. elimination of the 10% increase in the autonomous taxation rate due to moving from tax loss to taxable tax profit – €6,957.67 (page 13 of RIT).
d) for tax year 2014
i. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 8 of RIT);
ii. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €171,727.74 (page 13 of RIT).
e) for tax year 2015
i. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 13 of RIT).
16. The Arbitral Tribunal is materially competent and is regularly constituted in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.
17. The parties have legal capacity and standing, are legitimate and are legally represented in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
18. The proceedings are not affected by nullities.
19. Thus, there is no obstacle to the hearing of the case.
A.2. Facts Not Established as Proven
There are no other facts with relevance to the object of these proceedings that should be considered proven or not proven.
A.3. Reasoning/Justification of the Decision on Matters of Fact
a) The judge (or the arbitrator) does not have the duty to rule on all matters of fact alleged, but rather has the duty to select those relevant to the decision, having regard to the cause of action supporting the claim filed by the claimant, and to decide whether they consider it proven or not proven (Article 123(2) of the Tax Procedure Code (CPPT) and Article 607(3) of the CPC, applicable by virtue of Article 29(1)(a) and (e) of the RJAT).
b) Furthermore, according to the principle of free assessment of evidence, the Tribunal must base its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation of the means of proof brought to the proceedings and in accordance with its experience of life and knowledge of people and circumstances.
c) In this case, the Tribunal formed its conviction based on critical analysis of the documents presented by the parties, including the certificate presented by the claimant following a Tribunal decision issued on 12-10-2018, which were not disputed, and on a copy of the administrative instructional file presented by the AT, while also taking into account that none of the matters of fact alleged were disputed or impugned.
d) Thus, having regard to the positions assumed by the parties, to the provisions of Article 110 of the CPPT, the documentary evidence and the administrative file attached to the proceedings, the facts listed above were considered proven as relevant to the decision.
The allegations made by the parties and presented as facts, consisting of predominantly conclusive statements not susceptible of proof and whose veracity must be assessed in relation to the concrete matters of fact consolidated above, were neither established as proven nor as not proven.
II – REASONING (cont.)
Object of the Proceedings and Request
The object of these proceedings is the request for a declaration of illegality and consequent annulment of the additional IRC assessments for 2013-A, 2013-B, 2014 and 2015, namely:
Nature Assessment Number Compensation Number Document Number Correction Amount Amount Due
IRC 2013-A 2017 ... 2017 ... n/a €3,197.08 n/a
Interest Assessment IRC 2013-A 2017 ... 2017 ... n/a €121.98 n/a
Account Settlement IRC 2013-A n/a 2017 ... 2017 ... n/a €0.00
IRC 2013-B 2017 ... 2017 ... n/a €48,870.10 n/a
Interest Assessment IRC 2013-B 2017 ... 2017 ... n/a €4,414.54 n/a
2017 ... 2017 ... n/a €27.95 n/a
Account Settlement IRC 2013-B n/a 2017 ... n/a €39,626.73
IRC 2014 2017 ... 2017 ... n/a €49,865.84 n/a
Interest Assessment IRC 2014 2017... 2017 ... n/a €2,968.56 n/a
2017 ... 2017 ... n/a €25.41 n/a
Account Settlement IRC 2014 n/a 2017 ... 2017 ... n/a €37,742.86
IRC 2015 2017 ... 2017 ... n/a €24,760.57 n/a
Interest Assessment IRC 2015 2017 ... 2017 ... n/a €26.79 n/a
2017 ... 2017 ... n/a €626.23 n/a
2017 ... 2017 ... n/a €14.65 n/a
Account Settlement IRC 2015 n/a 2017 ... 2017 ... n/a €14,500.67
Total amount due €91,870.26
The identified assessments include compensatory interest and default interest.
The Claimant seeks a declaration of illegality of those additional assessments, in summary and as it alleges, for the following reasons:
I - ADJUSTMENT FOR TRANSITION FROM POC TO SNC
• From the non-acceptance as a tax deduction of adjustments made to assets recognized in inventories and measured at net realizable value, within the framework of the adjustments for the transition from the Portuguese Chart of Accounts (POC) to the Accounting Standards and Financial Reporting Standards (SNC), pursuant to the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July
The claimant, taking into account the recommendations of its quality, oenology and commercial departments, which concluded that the raw materials (wines in bulk) corresponding to DOC wines (controlled designation of origin), VQPRD (quality wine produced in demarcated region) and regional IGP wines (protected geographical indication) no longer met the quality requirements required to be used in those categories - because they were wines from old vintages - reclassified them as common or table wines
The Claimant delivered to the Tax Inspection Division several documents demonstrating the price charged in the market in 2010 for the acquisition of raw materials (wine in bulk), with a view to its consumption as common or table wines.
The aforementioned documentation also includes inventory lists with identification of the accounting record of the annulment of the items/products declared in the final inventory relating to the 2009 tax year, named by the Claimant as "Output Conversion Adjustments", … and inventory lists with the accounting record of the new values of the items/products declared in the opening inventory of 2010, named by the Claimant as "Input Conversion Adjustments". The following were delivered, for what matters in these proceedings:
• Adjustments No. 1/2010 ("Output Conversion Adjustments" No. 1/2010 and "Input Conversion Adjustments" No. 1/2010) and No. 2/2010 ("Output Conversion Adjustments" No. 2/2010 and "Input Conversion Adjustments" No. 2/2010) relate to wines in bulk (raw materials) existing in the Claimant's facilities in ... and in ...;
• Adjustments No. 3/2010 ("Output Conversion Adjustments" No. 3/2010 and "Input Conversion Adjustments" No. 3/2010), No. 4/2010 ("Output Conversion Adjustments" No. 4/2010 and "Input Conversion Adjustments" No. 4/2010), No. 9/2010 ("Output Conversion Adjustments" No. 9/2010 and "Input Conversion Adjustments" No. 9/2010), No. 10/2010 ("Output Conversion Adjustments" No. 10/2010 and "Input Conversion Adjustments" No. 10/2010) and No. 11/2010 ("Output Conversion Adjustments" No. 11/2010 and "Input Conversion Adjustments" No. 11/2010), relate to finished products existing in the Claimant's facilities in ... and ....
• Adjustment No. 5/2010 ("Output Conversion Adjustments" No. 5/2010 and "Input Conversion Adjustments" No. 5/2010) relates to semi-finished bottled products existing in the Claimant's facilities in ...;
• Adjustment No. 8/2010 ("Output Conversion Adjustments" No. 8/2010 and "Input Conversion Adjustments" No. 8/2010) relates to goods existing in the Claimant's facilities in ... and ...;
• Adjustments No. 6/2010 ("Output Conversion Adjustments" No. 6/2010 and "Input Conversion Adjustments" No. 6/2010) and No. 7/2010 ("Output Conversion Adjustments" No. 7/2010 and "Input Conversion Adjustments" No. 7/2010) relate to semi-finished bottled products existing in the Claimant's facilities in ... and ...;
• Adjustment No. 12/2010 ("Output Conversion Adjustments" No. 12/2010 and "Input Conversion Adjustments" No. 12/2010) relates to wooden boxes existing in the Claimant's facilities in ... and ...;
The adjustments made to the Claimant's inventories in the year 2010 were made in accordance with Accounting Standard and Financial Reporting Standard (NCRF) 3, specifically paragraphs 5, 7 and 8, and NCRF 18, and pursuant to the transitional regime provided in Decree-Law No. 159/2009, of 13 July, referred to above.
From the combined analysis of Articles 28(1), (2) and (4) of the IRC Code and paragraph 7 of NCRF 18, it is easy to see that the net realizable value assigned by the person responsible for measuring the asset is an estimate (or a sum expected to be realized), which may be based on official prices (or those imposed by authorities), on previous (last) prices charged by the taxpayer or on current market prices.
In the case at hand, the Claimant's quality, oenology and commercial departments measured the inventories in question, using for this purpose two of the criteria in Article 26(4) of the IRC Code: the last prices charged and current market prices.
And in doing so they also complied with the provisions of NCRF 18 which, in particular in paragraph 28, states: "The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete or if the selling prices have declined. (…) The practice of reducing the cost of inventories (write down) to net realizable value is consistent with the view that assets should not be written up by amounts above those which would be expected to result from their sale or use".
It should be noted that NCRF 18 in no place considers it essential to determine the net realizable value of raw materials to know the finished products into which they may be incorporated, especially when they are intended to be marketed directly, given that what paragraph 31 of NCRF 18 refers to is that the estimate for determining that value should also take into account the purpose for which the raw materials are held in inventory, so that this will be merely one more factor to be considered.
For all the foregoing there is no doubt that, within the framework of the adjustments for the transition from POC to SNC, adjustments to assets measured at net realizable value are to be considered as a tax deduction and, as such, eligible to benefit from the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July, since all legal requirements have been met and the estimates made have been properly demonstrated.
• From the non-acceptance as a tax deduction of assets derecognized at the value recorded in the inventory as at 31/12/2009, because they were considered obsolete or discontinued and, subsequently, destroyed, within the framework of the adjustments for the transition from POC to SNC, pursuant to the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July
The Claimant attached inventory lists, named "Output Conversion Adjustments", with identification of the items/products that were derecognized from the inventory line as of 01/01/2010, because they were subject to scrapping.
Such inventory lists of the Claimant were composed of dry materials that made up items corresponding to labels, back labels, capsules, self-adhesive tapes, boxes, stickers, necklaces and wrappers.
The Claimant's quality, oenology and commercial departments concluded that these dry materials, either because they were damaged or obsolete, or because they were intended to be applied to discontinued products, could no longer be used or applied.
As a result, it was decided that these dry materials would be derecognized and disposed of or sold for recycling.
The "Output Conversion Adjustments" No. 12/2010 relate to dry materials existing in the Claimant's facilities in ... and the "Output Conversion Adjustments" No. 14/2010 to 24/2010 to the dry materials existing in the Claimant's facilities in ... – cf. Documents already attached as No. 7.
It happens that the Claimant provided actual knowledge to the Tax Inspection of invoices for the sale of packaging material for scrap during the year 2010 — cf. Documents attached as No. 8.
The Claimant justified the write-offs carried out by means of two letters dated 08/01/2010, addressed to the Head of the Finance Department of ... with no reason for their non-acceptance as a tax deduction.
Article 23 of the IRC Code provided that "For the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or guarantee income subject to IRC are deductible".
It is evident that products derecognized from the inventory line and subject to write-off should have been accepted as expenses because they could no longer generate future income.
The Claimant received from the Head of the Finance Service of ... a letter, dated 01/04/2011, which referred to Circular Letter No. 35264, of 24/10/1986, issued by the VAT Services Direction, which informed the type of procedures to be adopted for the scrapping of goods.
The Claimant actually acted in accordance with the instructions of that circular letter, as is clear from the destruction records witnessed by employees of the Claimant, dated 28/01/2010 and 29/01/2010, so the Tax Inspection cannot conclude that it was not informed of the destination given by the Claimant to the goods derecognized from the inventory line.
For all the foregoing there is no doubt that, within the framework of the adjustments for the transition from POC to SNC, assets derecognized at the value recorded in the inventory as at 31/12/2009, which were considered obsolete or discontinued and subsequently destroyed, are to be considered as a tax deduction and, as such, eligible to benefit from the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July, since all legal requirements have been met and compliance with these has been duly demonstrated.
• From the non-acceptance as a tax deduction, in accordance with Article 5(1) of Decree-Law No. 159/2009, of 13 July, of personnel severance indemnifications.
41. The Claimant opted to defer expenses with severance indemnifications over three years, considering that - being expenses or charges of multi-year economic scope - the amount should be distributed over a minimum period of three years.
42. As of the date of transition from POC to SNC - taking into account the fact that the asset did not meet the recognition requirements in accordance with the new accounting standard, SNC – the Claimant proceeded to its derecognition and, as provided in Article 5(1) of Decree-Law 159/2009, to its deferral for tax purposes over five years.
43. From Article 5(1) of Decree-Law No. 159/2009, it is evident that the effects on equity resulting from the recognition or derecognition of assets and liabilities or changes in their measurement compete equally for the formation of taxable profit.
44. On the other hand, a change in the applicable rules cannot prejudice the taxpayer, who previously, by adopting a certain accounting procedure that is tax-relevant, and only because that is no longer possible by the application of another rule, ceases to be tax-relevant.
45. However, as provided in NCRF 3, in §5: "An entity shall prepare an opening balance sheet in accordance with NCRF at the date of transition to NCRF. This is the starting point for its accounting in accordance with NCRF and will serve for comparison in the first financial statements in accordance with NCRF."
46. In this way, entities are exempted from issuing an accounting document to reexpress the values in their accounting, provided it is the opening values.
47. The reconciliation of Equity and Net Result according to the previously "Generally Accepted Accounting Principles" and the NCRFs is demonstrated in note 0502-A, both in the "Notes to the Balance Sheet and Income Statement" and in the "Simplified Business Information".
48. Hence the conclusion that, within the framework of the adjustments for the transition from POC to SNC, personnel severance indemnifications are to be considered as a cost/tax deduction and, as such, eligible to benefit from the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July, since all legal requirements have been met.
OF AMORTIZATION OF INTANGIBLE FIXED ASSETS
49. In the "Draft Corrections of the Inspection Report", the Tax Inspection considered that the amortization practiced in the amount of €50,000 of the trademark "..." should not be accepted for tax purposes, basing this understanding on the third clause of the "Trademark Purchase and Sale Agreement" that titled this transfer, in particular on the fact that it stated that the transfer of the trademark is made "with all rights inherent thereto without any restrictions" and "for all the time of its duration"; concluded that these two phrases translate an exclusive use of the trademark and for an unlimited period.
50. The estimate of the useful life of this intangible asset was calculated by the Claimant as 20 years (and not 10 years, as stated by the Tax Inspection).
51. And as an estimate that it is – and, consequently, without the possibility of unequivocal demonstration – was based on foreseeable future sales declines in products (spirits) identified under that trademark, resulting from the change in habits of consumer populations of this type of product (it is a matter of public knowledge and common knowledge that brandy is a type of alcoholic beverage whose consumption has been declining gradually over recent years due to the emergence of new and more attractive products and the aging of the typical consumer), with the resulting loss of trademark notoriety which may lead to its disuse.
52. From this it follows that it is absolutely irrelevant from the perspective now under consideration, the fact that the trademark in question is almost a century old, and consequently, no elements can be drawn from it to support the conclusion expressed by the Tax Inspection.
53. And so much so that Law No. 2/2014, of 16 January, added Article 45-A to the IRC Code, which came to accept as a tax deduction, over a period of 20 years, the cost of acquisition of trademarks, regardless of their duration.
54. Hence it is acceptable to consider, for tax purposes, the amortization of the trademark "...".
OF EXPENSES NOT ACCEPTED FOR TAX PURPOSES
• Of Contracts between Company B..., S.A. and A... S.A.
55. Within the framework of the group's business organization, the Claimant entered into an agreement with B..., a provider of administrative and marketing services within the group, a service provision contract on 29/11/2011, the same as all other companies in the group listed in annex (doc 16);
56. The main terms of the contract would be the list of the various services specifically provided and the allocation of costs among all companies.
57. And in Article 2 thereof, the stipulation that the prices of the services would be determined in accordance with Annex I, valid for the tax period 2013-A, from January to April 2013 (a copy of which constitutes doc. 17).
58. This contract was valid for the tax period 2013-A.
59. For this tax period - beginning in May 2013 and ending in April 2014 (period 2013-B) - a new allocation of cost allocation was agreed among the various group companies, through a new annex to the contract (doc. 18)
60. For the tax period 2014 (May 2014 to April 2015), a new contract and respective annex were made, in which a new allocation of cost allocation among the various group companies was agreed (doc. 19).
61. Invoices were issued for payment of such services, on the basis of allocation and distribution of costs incurred by B... for the provision of services among each other group company for which it worked, and all invoices contained the identification elements of the service provider, B..., the identification elements of the service recipient, the Claimant, as well as the corresponding tax identification numbers of both entities.
62. They also contained (i) the consideration for the service, net of tax and other elements included in the taxable amount; (ii) the applicable rates and the amount of VAT due, the rate being always the normal one due to the nature of the services provided; (iii) the date on which the services were provided or made available to the recipient.
63. And they also contained the extent and nature of the services provided, although this is the essential point of disagreement in the case sub judice.
64. With regard to the extent of the services provided, it should be noted that all invoices are issued with reference to the period coinciding with the calendar month.
65. As to the nature of the services provided, as can be seen from each invoice issued, all have as a description of their nature, "Administrative Services" and "Marketing Services".
66. A note was placed for each of these descriptions, in which it is mentioned that the "Administrative Services" consist of "bookkeeping, IT services, financial management, collection control, supplier management and human resources management."
67. "Marketing Services" are described as "trademark registration management, labeling designation, packaging and catalogues, fair preparation, institutional communication contests".
68. On the other hand, all invoices were accompanied by supporting documentation that contained (i) tables summarizing the cost analysis statement and (ii) cost analysis statements of B... relating to the period on which the cost allocation was based.
69. Well: for a global and effective understanding and control of the provision of intra-group services, one must consider (i) the service provision contracts between the Claimant and B..., (ii) the annexes forming part of those contracts, in which the allocations to each group company are regulated, (iii) the invoices issued when these services are paid, (iv) the documents supporting the invoicing, namely cost statements for the reference period of each invoice
70. It appears from the file that invoices were issued for the provision of services contained in the aforementioned contracts which are itemized in doc. 20 attached to the Claimant's arguments, always in accordance with the provisions of the contracts and respective annexes, to whose amounts VAT was added at the normal rate.
71. However, the AT considered that the Claimant made payments, deducting these expenses, but whose invoices "do not comply with the requirements and conditions imposed by Article 23 of the IRC Code, that is, the services provided are not itemized and quantified 'per se' (sic) in the invoices, referring only in a general way to 'administrative and marketing services'."
72. In its reasoning, the AT invokes articles that either were not in force at all for the 2013 tax year or whose wording was changed for the 2014 tax year.
73. The years under analysis (from 2013 to 2015), have as tax periods, for purposes of IRC, as well as for the entire organization of the Claimant and in particular in accounting terms, the following:
• Tax year 2013-A – from 1 January 2013 to 30 April 2013; Tax year 2013-B – from 1 May 2013 to 30 April 2014; Tax year 2014 - from 1 May 2014 to 30 April 2015;
• Tax year 2015 - from 1 May 2015 to 30 April 2016.
74. It is a matter of public knowledge and notoriety that Law No. 2/2014, of 16 January, made a thorough reform of the IRC Code.
75. With regard to the temporal application of this law, its Article 14, under the heading "Effective Date", provided as follows: "Without prejudice to the provisions of Article 8, this law applies to tax periods that begin, or to taxable events that occur, on or after 1 January 2014."
76. This legislative amendment is of extreme importance for the analysis of the case sub judice, taking into account that the substantive analysis of the RIT focused simultaneously on periods both before and after the entry into force of Law No. 2/2014, of 16 January.
77. From the legislative evolution, it follows that the AT correctly applies, for the years 2013-A and 2013-B, Article 23(1) of the IRC Code (in the wording of the law in force before the effective date of Law No. 2/2014, of 16 January).
78. However, it does not do so correctly when it seeks to apply this same wording to the years 2014 and 2015, since the rule on temporal application of law determines that for tax periods that begin on or after 1 January 2014, Article 23(1) of the IRC Code applies, in the wording introduced by Law No. 2/2014.
79. With the legislative amendment resulting from Law No. 2/2014, of 16 January, the deductibility of expenses and losses ceases to be conditional on indispensability, while it is still required that expenses and losses be incurred or borne to "obtain or guarantee" income subject to IRC, that is, the requirement of indispensability of costs regarding their deductibility has disappeared.
80. Thus, by applying Article 23(1), in the wording of the law in force in 2013, to tax years that began after 1 January 2014, such as was the case for the tax year of the Claimant, which began on 1 May 2014, the AT makes an error in the application of law resulting from the application of repealed law to taxable events occurring within the validity of the new law, in violation of Article 12 of the General Tax Law and Article 12 of the Civil Code, an illegality that affects the tax assessments sub judice, rendering them voidable in accordance with Article 163 of the Administrative Procedure Code (CPA), applicable ex vi Article 2(d) of the CPPT.
81. Indispensability does not mean, therefore, a mandatory nexus of causality with income/revenue, nor that, subsequently, economic results necessarily demonstrating lucrative effects resulting from such expenses should be verified or proven.
82. As long as the expenses result from management acts that, based on the information known at the time of their execution, could have had as the expected objective the obtaining of income or the maintenance of the source producer (physical, intangible, financial or other), this should lead to acceptance of their deductibility.
83. As results from the factual exposition above, the business relationship within the same corporate group between the Claimant and B... is unequivocal.
84. In a perspective of specialization and optimization of the division of labor within the corporate group, especially regarding the centralization of administrative and marketing services, B... was the company entrusted with providing these services to the other units of the group.
85. Now, we cannot accept that the question of the need that the claimant had for the provision of auxiliary services to support its activity should be called into question.
86. The judgment on the opportunity and convenience of expenses is exclusive to the corporate group as a whole. It is not for the AT to make any judgment on the organization of the group, nor on the manner in which the various companies in the group collaborated with one another in pursuit of their objectives.
87. From an economic-business perspective, the services that B... provided were necessary and essential in supporting the activity of the corporate group as a whole, especially the productive activity of the Claimant.
88. Thus, by excluding the deduction of charges and expenses of the Claimant from the provision of services by B..., considering that such expenses incurred or borne for the obtaining or guarantee of income subject to tax, the AT makes an error in the application of law resulting from the violation of Article 23(1) of the IRC Code, with the wording given by Law No. 2/2014, of 16 January, an illegality that affects the tax assessments sub judice, rendering them voidable in accordance with Article 163 of the CPA, applicable ex vi Article 2(d) of the CPPT.
89. The same error of application of law in time occurs in the reasoning in light of Article 23-A of the IRC Code for tax periods for which this article did not even exist.
90. Article 23-A of the IRC Code was added by Law No. 2/2014, of 16 January, and only entered into force for tax periods beginning on or after 1 January 2014.
91. In this sense, by applying that article to the tax periods 2013-A and 2013-B, that is, prior to the entry into force of the rule, the AT proceeds or intends a retroactive application of Article 23-A of the IRC Code, added by Law No. 2/2014, of 16 January.
92. Thus, whether by applying Article 23-A, its paragraph 2, or any other paragraph or subparagraph of this article, in a wording in force only as of 1 January 2014, to tax years prior to that date, namely the tax periods 2013-A and 2013-B, or by applying Article 23(3) and (4) of the IRC Code, with the wording of Law No. 2/2014, of 16 January, to tax years prior to its entry into force, the AT makes an error in the application of law resulting from the retroactive application of law to taxable events occurring before its effective date, in violation of Article 103(3) of the Constitution of the Portuguese Republic, and in violation of Article 12 of the General Tax Law and Article 12 of the Civil Code, an illegality that affects the tax assessments sub judice, rendering them voidable in accordance with Article 163 of the CPA, applicable ex vi Article 2(d) of the CPPT.
93. And, for the tax period 2014, for which Article 23(3) and (4) of the IRC Code already applied, with the wording of Law No. 2/2014, of 16 January, the AT again errs in the interpretation and application of the same.
94. In fact, the legislator created a cross-reference, in terms of documentary proof of expenses incurred or borne for purposes of IRC, to the formal requirements of invoices under the VAT Code (CIVA)
95. However, the formal requirements for invoice issuance under VAT are more stringent than those contained in Article 23(4) of the IRC Code.
96. However, Article 365 of the CIVA results from the transposition into national law of Article 226 of Directive 2006/112/CE of the Council, of 28 November 2006, on the common system of value added tax, hereinafter "VAT Directive".
97. Given the prevalence of derived EU law in this field, national rules must be interpreted and applied in accordance with that regulatory framework, complying, whenever necessary, with the meaning that has been given to that law by the case law of the Court of Justice of the European Union, hereinafter "CJEU".
98. Well, all invoices show the identification elements of the service provider, B..., the identification elements of the service recipient, the Claimant, as well as the corresponding tax identification numbers of both entities — thus fully meeting the formal requirements of Article 36(5)(a) of the VAT Code.
99. And, moreover, the aforementioned invoices also contained (i) the price, net of tax and other elements included in the taxable amount; (ii) the applicable rates and the amount of tax due, the rate always being the normal one due to the nature of the services provided; (iii) the date on which the services were provided or made available to the recipient — thus complying with the formal requirements of Article 36(5)(c), (d) and (f) of the VAT Code.
100. And they also referenced the extent and nature of the services provided, establishing that the formal requirements of Article 36(5)(b) of the VAT Code are also fully met.
101. Now the teleological interpretation of Article 36(5)(b) of the VAT Code, supported by extensive case law of the CJEU, is that the mention of the nature and extent of the services provided is, by definition, generic and abstract, and there is no need (and sometimes it is not possible) for an exhaustive description.
102. Therefore, by excluding the deduction of charges and expenses of the Claimant from the provision of services carried out by B..., considering that such expenses are not documented by documentation that meets the formal requirements, whether those arising from Article 23(3) and (4) of the IRC Code or those arising from Article 36(5) of the VAT Code, the AT made an error in the application of law resulting from the violation of these same articles, an illegality that affects the tax assessments sub judice, rendering them voidable in accordance with Article 163 of the CPA, applicable ex vi Article 2(d) of the CPPT.
Response of the AT
The Tax Authority and Customs Authority, in its Response, alleges, in summary, the following:
103. The corrections advocated, made to the taxable profit of the tax periods 2013-A and 2013-B, under the transitional regime provided for in Article 5 of Decree-Law No. 159/2009, which concern adjustments to inventories, designated as "Inventory adjustments", in the amount of €145,283.04 (= €726,415.20/5), and adjustments relating to personnel severance indemnifications, of €15,696.50 (=€78,482.46/5), are, as the Claimant is keen to point out, positive corrections that replicate those made by the AT to the taxable profit for the years 2010, 2011 and 2012.
104. The first three grounds cited by the Claimant as motivating the request for a declaration of illegality of the assessments analyzed here were initially raised in the context of another inspection procedure – OI2013... for the year 2010 – and were still discussed in the context of an administrative appeal.
105. Following the rejection of that administrative appeal, the Claimant herein filed a judicial challenge which is still pending before the Administrative and Tax Court of ... under number .../15...B....
106. Since the appraisal of the arbitral request is dependent, in part, on the action pending before the Administrative and Tax Court of ..., the suspension of the proceedings should be ordered, in accordance with Article 272(1) of the CPC, applicable ex vi Article 29(1)(e) of the RJAT, until the decision of the prejudicial matter.
107. Even if the request for suspension of proceedings is not considered warranted, the Respondent considers that the challenge does not merit acceptance.
108. In accordance with the transitional regime, as defined in Article 5(1) and (5) of Decree-Law No. 159/2009, the effects on equity resulting from the recognition or derecognition of assets or liabilities, or from changes in their measurement, which are considered tax-relevant in accordance with the IRC Code and complementary legislation, contribute to the formation of taxable profit, in equal parts, in the tax period in which such rules are adopted and in the four following periods.
109. Given that the Claimant changed its tax period in 2013, the transition adjustments were made to the tax periods 2010, 2011, 2012, interim tax period 2013 and annual period 2013.
110. The correction relating to "inventory adjustment" comprises the derecognition of assets at the amount recorded in inventories as at 31.12.2009, of €120,836.65, and subsequently recognized at net realizable value (NRV); and also €24,446.39, concerning derecognition of assets that were considered obsolete and discontinued.
111. As regards the adjustments designated as "inventory adjustments", in addition to the grounds advanced by the inspection services in the reports of the inspection actions to support the corrections (to which reference is made and which is fully reproduced herein), which relate to the absence of suitable, reliable and sufficient evidence, it should also be noted that the adjustments made by the Claimant do not fall within the transition adjustments from POC to SNC.
112. In fact, this is not a change in the measurement of assets (cf. paragraph 7(d) of Accounting Standard and Financial Reporting Standard 3 – First-time Adoption of Accounting Standards and Financial Reporting Standards (NCRF)).
113. Effectively, with regard to the criteria for measuring inventories, the POC (Point 5.3.4 – Valuation Criteria) already provided, similar to NCRF 18 - Inventories, §9, that when the cost of acquisition or production of inventories was higher than the market price, the latter would be used, understanding "market price" (Point 5.3.7) as "The cost of replacement or the net realizable value, depending on whether they are goods acquired for production or goods for sale."
114. Although the terminology of the accounts to be moved to reflect the loss of value of inventories has changed - in POC, account 39 Provision for inventory depreciation or Inventory adjustments and in SNC, account 339 Accumulated impairment losses - in substance and informational value of the accounting, it has not changed.
115. In line with accounting, the IRC Code (in the version up to 31.12.2009) in Article 34(1)(b), provided for the deduction of provisions intended to cover losses of value that inventories would suffer and Article 36 defined the calculation rules for the provision.
116. As of 01.01.2010, Article 28 of the Code provides for the deduction of inventory adjustments recognized in the tax period up to the limit of the difference between the cost of acquisition or production of inventories and the net realizable value.
117. Thus, contrary to what the Claimant argues, the adjustments made to inventory amounts, in the amount of €604,183.27 do not meet the necessary requirements to be covered by the transitional regime provided in Article 5 of Decree-Law No. 159/2009.
118. As for adjustments to inventories due to write-offs, which resulted in a negative equity variation of €122,231.97, to be spread over five years, in addition to the considerations already made by the Tax Inspection Services regarding evidence elements about the destination of the goods, it is not clear why they were recorded as transition adjustments from POC to SNC, since there already existed the account (POC) 693- Losses on inventories which became account (SNC) 684 Losses on inventories.
119. Furthermore, the letters addressed to the Head of Finance Services of ... communicating, for purposes of Article 86 of the VAT Code, that "(…) that we intend to proceed with the destruction/write-off of packaging and products from our stocks that are obsolete for the purpose they were intended", are dated 15.03.2011, so there is no legal basis, whether by virtue of Article 23(1) of the IRC Code or pursuant to the transitional regime provided in Article 5 of Decree-Law No. 159/2009, for the acceptance of deductibility for the taxable profit of the tax periods 2013-A and 2013-B, of the amount of €24,446.39.
120. As for the corrections made regarding the amortization of intangible assets, the Respondent considers that Article 29(1) of the IRC Code provides that "Depreciation and amortization of elements of assets subject to depreciation (…) which systematically suffer losses of value resulting from their use or the passage of time are accepted as expenses".
121. However, when it comes to elements of industrial property, Article 16(2)(b) of Regulatory Decree No. 25/2009, of 14/09, specifies that they are amortizations when: (i) acquired onerous, and (ii) whose exclusive use is recognized for a limited period of time.
122. Although the first requirement is met, the same does not happen with the second, since the acquisition of the trademark gives the right to use it for a period of time that is not limited.
123. In fact, it results from the trademark purchase and sale agreement itself that no period of exclusive use of defined duration is provided for, and as explained in §87 of NCRF 6.
124. In accordance with §90 "The term 'indefinite' does not mean 'infinite'. (…)" revealing, however, that there are no parameters or factors that make it possible to predict the duration of the period of time during which the asset will provide economic benefits to its holder.
125. However, Article 16(3) of the same article still allows for tax acceptance of the amortization of industrial property elements, when the conditions referred to in Article 16(2)(b) are not met, in case of actual depreciation duly proven and recognized by the AT.
126. Now, it must be acknowledged that the reduction in sales from 2010 to 2011 does not allow a trend of decreasing utility to be delineated in a sustained manner, since a period of twelve months is not sufficient for it to be recognized as having a "systematic" character.
127. Similarly, regarding changes in consumer habits for a product advertised as being of quality, these are also not proven with (for example) the conduct of any market study that provides indications about the foreseeable evolution of demand for this type of product.
128. In this sense, the actual depreciation of the trademark "..." cannot be recognized, so the amortization practiced is not accepted as a deductible expense, on the basis of Article 16 of Regulatory Decree No. 25/2009 and Article 34(1)(a) of the IRC Code.
129. As for the correction regarding expenses not accepted for tax purposes, the AT equally intends for the arbitral request to be dismissed due to the non-compliance of the invoices with the provisions of law.
130. It considers that the invoices "contain a description that is too vague and generic," which, in itself, would not be sufficient for the disregard of the deductibility of expenses if the invoices and the supporting documents had contained elements that evidenced the pool of expenses borne by B... for the provision of the services invoiced, i.e., the criteria used in the distribution of expenses and the identification of work performed or services provided.
131. However, in the absence of these documents it is not possible to verify whether, in the tax periods 2013-A and 2013-B, the requirements of indispensability of expenses for the obtaining of income or for the maintenance of the source producer (cf., Article 23(1) of the IRC Code) are met and whether, in the tax period 2014, such expenses are borne to obtain or guarantee income subject to IRC, insofar as their identification is not made in a way as to assess its real nature (cf., Articles 23(1), (3) and (4) of the same Code).
132. From analysis of the service provision contract it appears that only the percentages charged to each company in the group are mentioned, as well as a general description of the services qualified as "administrative services" and "marketing services".
133. Note also that, in accordance with Article 16(2) of Ordinance No. 1446-C/2001, of 21/12, the documentation of intra-group service provision agreements entered into between related entities must contain, in addition to the contract, a description of the services provided and the identification of the charges that are allocated to the services, as well as the criteria used for their provision.
134. The contracts entered into on 29.12.2011 and 27.12.2012, between B... and six group companies, entering into effect on 01.01.2012, contemplates a varied range of services, listed in 19 subparagraphs, providing in Annex I the percentages to be applied in the distribution, among the recipient entities of the expenses, of the services provided arranged in six categories, and that the price of the services to be provided contained in subparagraphs l) to s) will be determined in accordance with the expenses incurred in each operation, and may be increased by a margin to cover operating costs.
135. The cost allocation keys, established in all annexes, do not appear clear, to allow verification of whether they adequately reflect the nature and use of the services provided, since they do not take into account any identifiable indicator, in particular those provided for in Article 12(7) of Ordinance No. 1446-C/2001, namely: sales volume, gross profit margin, personnel expenses, and units produced or sold.
136. In fact, by comparing the allocation criteria presented it is not possible to draw any valid conclusion.
137. Thus, the AT is correct when it states that the description of the services does not appear to correspond to their real nature, since the typology of these goes beyond the administrative and marketing services mentioned in the contracts and, moreover, the criteria for allocating the percentages lack justification that would allow concluding on their adequacy and validity.
138. Hence, since the conditions on which law – Articles 23(1), (3) and (4) and Article 23-A(1)(c) of the IRC Code – makes the deductibility of these expenses depend are not met, in the amount of €50,562.25 (interim tax period 2013-A), €598,036.73 (tax period 2013-B) and €171,727.74 (tax period 2014), the corrections to the taxable profit made by the AT should be maintained in the legal order."
Final Arguments of the Parties
The parties presented arguments in which they both maintained the essence of the positions assumed in previous pleadings, with the Claimant also expressing its position on the claim raised by the Tax Authority regarding the existence of a prejudicial matter justifying the suspension of the proceedings.
Case Management Order
The Tribunal is competent, the petition is timely and no legal impediment is apparent in the accumulation of claims since in their appraisal the same circumstances must be considered for all tax years as regards matters of fact and as regards the interpretation and application of the same legal principles, all based on the same Inspection Report.
The Prejudicial Matter. Suspension of Proceedings
The Tax Authority and Customs Authority argues that the proceedings should be suspended until the judicial challenge pending before the Administrative and Tax Court of ... is decided.
In its view, the corrections made here to the taxable profit of the tax periods 2013-A and 2013-B, under the transitional regime provided in Article 5 of Decree-Law No. 159/2009, which concern adjustments to inventories, designated as "Inventory adjustments", in the amount of €145,283.04 (= €726,415.20/5), and adjustments relating to personnel severance indemnifications, of €15,696.50 (=€78,482.46/5), are positive corrections that replicate those made by the AT to the taxable profit for the years 2010, 2011 and 2012". Therefore, there is a clear relationship of dependence between the request for arbitral decision relating to the tax years 2013 to 2015 and the challenge relating to 2010 which is pending before the Administrative and Tax Court of ....
Deciding this Matter:
For purposes of Article 272 of the CPC, a case is dependent on the judgment of another already filed when the decision in this other case may affect and/or prejudice the judgment of the first, removing its foundation or reason for being, which occurs, in particular, when, in the prejudicial matter, there is being reviewed a question whose resolution may modify a legal situation that must be considered for the decision in the other case. Furthermore, it may also be a preliminary question not capable of being decided or reviewed in another Court, because the latter is not materially competent to do so (e.g., a question of a criminal nature essential to a civil, administrative, tax decision, etc.).
A prejudicial matter is thus understood as one in which a fact or situation is discussed and sought to be established that is an element or prerequisite of the claim formulated in the dependent case, in such a manner that the resolution of the question being reviewed and discussed in the prejudicial matter will interfere with and influence the dependent case, destroying or modifying the foundations on which it is based.
As in situations of lis pendens or res judicata, the aim here is also, although not exclusively, to avoid the risk of substantive incompatibility between the decisions to be rendered in both actions and that could result from their simultaneous pursuit.
The possibility of suspension of proceedings in a prejudicial matter – as a way to avoid incompatible judgments – is reinforced in situations where the grounds invoked for the claim put forward in the prejudicial matter are the same as those already invoked in the defense of the dependent case, to prevent the success of the claim there or, in the more common situation, where there is being discussed in the Court competent for this purpose (e.g., a criminal, tax, arbitral, labor court) a question with clear interest for the decision of a dispute pending in another Court.
Now in the specific case of these proceedings it does not appear necessary/useful to suspend the proceedings since both actions – the arbitral and the administrative – with diverse grounds and claims, do not constitute, reciprocally, a prejudicial matter one of the other insofar as the decision (whatever it may be) of one of these actions will not result in any consequences for the other, particularly in terms of a decision contradicting the other in terms different from those that occur daily within the freedom of judgment of all Courts, except for the exceptions (which is not the situation of these proceedings) of res judicata outside the concrete material relationship in dispute.
Recall that the questions raised in the present proceedings concern the assessment of the legality of IRC assessments for 2013-A, 2013-B, 2014 and 2015 and, naturally, there is no dependence or prejudicial nature for the decision to be taken of any question which only the other court has competence to decide, even if the reasons that are reviewed in the scrutiny of the legality of tax acts relating to various prior years may be the same, in particular because they originate and are based on the same Inspection Report.
On the other hand, waiting for the outcome of an action in which a decision is sought on the legality of an administrative act with repercussions or binding nature in the future in the sense of binding interpretation for the AT of a rule in situations occurring after the situation of these proceedings, would be little more than a useless act and would seriously, unnecessarily and inevitably delay the decision in a proceeding entirely informed, among other things, by the principle of expedition as is the arbitral process.
The request for suspension of proceedings filed by the AT is therefore dismissed without further ado (Cf., e.g., Decision of the Coimbra Court of Appeal No. 131/13.7, of 15/09/2015).
The Merits of the Claim
The object of the proceedings is, in essence and as noted above, the alleged illegality of acts of additional IRC assessment, compensatory interest and default interest, relating to tax periods between January 2013 and 30 April 2016.
The AT based these assessment acts, in essence, in the following manner:
(i) The Claimant made inventory adjustments not encompassed in light of Article 5(1) of Decree-Law No. 159/2009;
(ii) Adjustments were made relating to "derecognition" of liabilities that do not fall within the provisions of Article 5(1) of Decree-Law 159/2009, combined with Article 17 of the IRC Code;
(iii) The Claimant practiced amortization of intangible fixed assets not accepted as a tax deduction in accordance with Articles 16 of Regulatory Decree No. 25/2009 and 34 of the IRC Code;
(iv) The claimant deducted expenses that should not be accepted for tax purposes for non-compliance with Article 23(4) of the IRC Code.
The essential proven facts are recalled:
a. The Claimant is a commercial company registered to carry out activities of production of common and fortified wines, as well as manufacture of prepared spirits.
b. The Claimant, in the year 2013, for purposes of IRC, opted for a tax period not coinciding with the calendar year and whose tax period runs from 1 May to 30 April of the following calendar year.
c. Given this circumstance, the years under analysis, for purposes of IRC, became as follows:
Tax year 2013-A – from 1 January 2013 to 30 April 2013; Tax year 2013-B – from 1 May 2013 to 30 April 2014; Tax year 2014 - from 1 May 2014 to 30 April 2015; Tax year 2015 - from 1 May 2015 to 30 April 2016.
d. The additional IRC assessments mentioned above and now being challenged resulted from general scope external tax inspection procedures carried out pursuant to Service Orders No. OI2016... (2013), No. OI2016... (2014) and No. OI2016... (2015), dated 16.02.2016, by the Tax Inspection Services (SIT) of ....
e. The AT, within the scope of these procedures, made corrections to IRC which, in accordance with the content and conclusions of the Inspection Report (RIT contained in the administrative file), include:
- "(...) for tax year 2013-A (period 01-01-2013 to 30-04-2013) the following were considered
i. inventory adjustments not accepted for tax purposes, which do not fall within Article 5(1) of Decree-Law No. 159/2009, of €145,283.04 (page 7 of RIT);
ii. adjustments relating to "derecognition of personnel indemnification to be recognized in 2010" of liabilities that do not fall within Article 5(1) of Decree-Law No. 159/2009, combined with Article 17 of the IRC Code, in the amount of €15,696.50 (page 9 of RIT);
iii. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €16,666.68 (page 10 of RIT);
iv. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €50,562.25 (page 10 of RIT)
for tax year 2013-B (period 01-05-2013 to 30-04-2014) the following were considered
i. inventory adjustments not accepted for tax purposes, which do not fall within Article 5(1) of Decree-Law No. 159/2009, of €145,283.04 (page 7 of RIT);
ii. adjustments relating to derecognition of liabilities that do not fall within Article 5(1) of Decree-Law No. 159/2009, combined with Article 17 of the IRC Code, of €15,696.50 (page 7 of RIT);
iii. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 8 of RIT);
iv. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €598,036.73 (page 13 of RIT)
- for the entire 2013 period - Negative correction to tax (autonomous taxation)
i. elimination of the 10% increase in the autonomous taxation rate due to moving from tax loss to taxable tax profit – €6,957.67 (page 13 of RIT).
for tax year 2014
i. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 8 of RIT);
ii. expenses not accepted for tax purposes due to non-compliance with Article 23(4) of the IRC Code, of €171,727.74 (page 13 of RIT).
for tax year 2015
i. amortization of intangible fixed assets not accepted as a tax deduction in accordance with Article 16 of Regulatory Decree No. 25/2009, of 14 September, combined with Article 34 of the IRC Code, of €50,000.00 (page 13 of RIT).
The Law: Questions Raised and their Framework
Recalling the questions that are raised, the following addresses and frames them.
1st The non-acceptance as a tax deduction of adjustments made to assets recognized in inventories and measured at net realizable value, within the framework of adjustments for the transition from POC to SNC, pursuant to the transitional regime provided in Article 5(1) of Decree-Law No. 159/2009, of 13 July
The Claimant made various adjustments to inventories, not corrected or disputed by the Tax Inspection in its final Report.
What is contested by the AT in this matter is solely the criterion or criteria used by the Claimant to set the values assigned to the assets in question.
There are, however, no elements in the file that permit calling into question the amounts mentioned.
In fact, the adjustments made to the Claimant's inventories in the
Frequently Asked Questions
Automatically Created