Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Prof.ª Doctor Clotilde Celorico Palma and Prof. Doctor Paulo Jorge Nogueira da Costa (arbitrator-members) appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 02-05-2019, agree as follows:
1. Report
A..., LDA. (hereinafter designated as "Claimant"), Legal Entity No. ..., with registered office at Rua ..., No. ..., ..., ...-... Lisbon, legal representative of B..., LDA. (hereinafter designated as "B..."), legal entity no..., came, in accordance with Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal, with a view to annulling the assessment of income tax (IRS) withholdings at source No. 2017..., of 22-12-2017, and respective statement of interest assessment, relating to the tax period 2014, as well as the decision of the amicable claim No. ...2018... .
The Claimant also requests reimbursement of the amount paid unduly, plus compensatory interest.
The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Respondent.
The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 21-02-2019.
Pursuant to the provisions of paragraph a) of article 6, paragraph 2, and paragraph b) of article 11, paragraph 1, of the RJAT, the Deontological Council appointed as arbitrators the signatories, who communicated acceptance of the assignment within the applicable period.
On 09-04-2019, the parties were duly notified of such appointment, having not expressed any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provisions of paragraph c) of article 11, paragraph 1, of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 02-05-2019.
The Tax and Customs Authority responded, defending the inadmissibility of the claim.
By order of 14-06-2019 the meeting provided for in article 18 of the RJAT and arguments were waived.
The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, paragraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.
The Parties are duly represented, enjoy legal capacity and standing, are legitimate and are represented (articles 4 and 10, paragraph 2, of the same decree-law and article 1 of Order No. 112-A/2011, of 22 March).
The proceedings do not suffer from any nullities.
2. Statement of Facts
2.1. Proven Facts
A) B... was a Portuguese legal entity that carried on as its principal activity "ophthalmology health services", subject to the general regime for determination of taxable profit for corporate income tax (IRC) purposes and to the exemption regime for Value Added Tax (VAT) purposes.
B) On 22-09-2015, the merger by incorporation of company B... into company A..., LDA (NIF...) occurred, with global transfer of its assets, having in common the same partners and the business pursued, ophthalmological medicine;
C) In compliance with Service Order No. OI2016..., initiated on 16 May 2017, the date on which it was signed by the managing partner of the Claimant, B... was subject to an inspection of an external nature and with a partial scope of VAT and income tax withholdings at source, relating to the tax period 2014;
D) On 12-12-2017, the Claimant was notified of the Inspection Report, which is contained in document No. 2 attached to the request for arbitral pronouncement, whose content is reproduced below, inter alia, as follows:
III - DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS
3.1 - CORRECTIONS PROPOSED IN RESPECT OF WITHHOLDINGS AT SOURCE (IRS)
(...)
Having analysed the analytical balance sheets, the need to conduct a retrospective analysis of the balances shown by the current accounts identified in the following table 3 (cf. ANNEX 3), declared by the SP in the IES/DA for the fiscal year 2014, was confirmed, requiring their reconciliation with the other accounting elements of the company:
F) As a follow-up to the elements collected up to that point, on 08/09/2017, the SP was personally notified (cf. ANNEX 4), and the following clarifications were requested:
"1 - Identify the means of payment used by your clients in the year under review (cash, cheque or bank transfer).
2 - Were the bank transfers from clients processed to the company's bank accounts or to the personal accounts of the doctors?
3 - In whose name were the clients' cheques issued (in the name of the company or in the name of the doctors providing services on behalf of the company) and in which bank accounts were they deposited (the company's or the personal accounts of the doctors).
4 - Why were the cheques received from clients not deposited in the bank accounts of company B... LDA? Were the amounts deposited in other bank accounts subsequently transferred in any way to the bank accounts of the company?
5 - How was this transfer made? For the full or partial amount?
6 - In the fiscal years prior to 2014 did you also deposit and transfer to the company's bank accounts all amounts paid by clients?
7 - In the year under review, were all the company's monetary values deposited in banks or did the company hold cash on hand? If the company held cash on hand in that fiscal year, specify the locations where it was held and whether cash sheets were prepared?
8 - In the year under review, did the company hold liquid financial assets (liquid financial means) not reflected in the accounting records. If so, identify them and justify.
9 - What is the justification for the debit balance of accounts 26821 Current Assets/Loans to Partners in the company's accounting, as of 31/12/2014, in the amount of € 1,064,000.00?
10 - Were loan agreements entered into between the company and the partners or minutes of the General Meeting that justify the debit balance, on 31/12/2014, of €1,064,000.00 in accounts 26821 Current Assets/Loans to Partners, relating to debts of the partners to the company (268211 C... € 532,000.00; 268212 D..., € 532,000.00)? If so, you must identify them temporally and specify the amounts loaned.
11 - Were the loans to partners made in 2014 made in one lump sum or in instalments? By what means were the payments or withdrawals of money from the company made (cash, cheque or bank transfer), being hereby notified to attach copies of the supporting documents of the underlying financial flows.
12 - Were stamp duty payments made by the company with reference to that (those) loan(s)?
13 - Was a public deed of loan executed, as required under article 1143 of the Civil Code, for loans exceeding € 25,000.00, as in force?
14 - Having analysed the minutes book of the General Meeting of the company, we were able to verify that in Minutes No. 24 of 31/03/2014 the making of loans to partners C... and D... by way of loans is unanimously approved, with partner C... justifying his need "...in order to meet short-term financial commitments thus optimising the burdens borne by financing from external entities....". In this sense, specify the financial commitments arising from financing from external entities to which he referred.
15 - What is the nature of the current account "124 Banks to be Regularised'' in the company's accounting for 2014, with an opening balance of the fiscal year of € 1,110,417.90 and a nil closing balance on 31/12/2014?
16 - Did the company ever make a profit distribution?
17 - Who was authorised to operate the company's bank accounts in the fiscal year under review and in prior fiscal years?
18 - Specify for the year under review and for prior years what your role in the company was, as well as that of partner D..., and how you were remunerated by the company (form of payment), for the provision of dependent work or for the exercise of corporate offices, if applicable?"
It should be noted that the questions formulated in the personal notification of 08/09/2017 were contained in a Statement of Declarations which we proposed to execute on that same day (08/09/2017), faithfully reproducing the clarifications that would be provided by Dr. C... . However, because Dr. C... stated that he preferred to answer later, in order to consult his certified accountant (Dr. E...) and obtain the information that could be made available to him, the request was granted and these same questions were formulated in a personal notification.
G) On 15/09/2017, the managing partner sent an email (with receipt of entry at the DF of Lisbon No. 2017..., included in ANNEX 5), in which:
he informs that it will not be possible to present all the information listed in the personal notification within the period specified therein, ending on 18/09/2017;
requests extension of the period for 15 days, undertaking to deliver the requested information by 03/10/2017.
In response to what was requested, an email was sent to the managing partner, in which it was informed "...we consider that the period granted in the personal notification of 03/09/2017 be extended from 8 (eight) to 15 (fifteen) days, starting on 09/09/2017 and ending on 25/09/2017 (1st following business day)." (see ANNEX 5)
H) The response to the personal notification of 08/09/2017 was sent by email by the representative appointed by the SP in accordance with article 52 of the RCPITA on 25/09/2017 (with receipt of entry No. 2017..., included in ANNEX 4), containing in an attached file, named "B..., Lda. - Responses.docx", the clarifications presented, which are reproduced:
"1 - In the fiscal year under review, my clients used the available and usual means of payment for the type of services in question (e.g., cash and bank transfer).
2 - Bank transfers from clients were processed to the company's bank account.
3 - The clients' cheques were issued in my name and deposited in the company's account. If a cheque was possibly credited to my personal account, it was transferred to the company's account.
4 - Answered in point 3.
5 - Answered in point 3.
6 - First of all, it is important to note that, in accordance with paragraph 1 of article 45 of the General Tax Law "the right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years (...)". In this regard, paragraph 4 of the same article adds that "the lapse period is counted, for periodic taxes, from the end of the year in which the tax event occurred". In this way, we will only comment from 1 January 2013. In light of the above, and regarding the period in question, I also refer my comments to point 3.
7 - The company did not hold cash on hand.
8 - The company did not hold liquid financial assets that were not reflected in the accounting records.
9 - In accounts 26821 Current Assets/Loans to Partners are recorded loans granted to partners, arising from their financing needs, as mentioned in Minutes No. 24.
10 - Yes. In this regard I refer my comments to point 9. In parallel, I identify below both the amounts and the dates on which the loans to partners were formalised: C... - 2/1/2014 of €266,000.00, 8/2/2014 of €24,000.00, 19/3/2014 of €24,000.00, 19/4/2014 of € 24,000.00, 21/5/2014 of € 24,000.00, 20/6/2014 of € 24,000.00, 8/7/2014 of € 24,000.00, 10/8/2014 of € 24,000.00, 18/9/2014 of €24,000.00, 2/10/2014 of €24,000.00, 22/11/2014 of € 24,000.00 and 15/12/2014 of €24,000.00.
D... - 2/1/2014 of € 268,000.00 €, 20/2/2014 of € 24,000.00, 15/3/2014 of € 24,000.00, 19/4/2014 of €24,000.00, 15/5/2014 of €24,000.00, 19/6/2014 of € 24,000.00, 22/7/2014 of € 24,000.00, 2/8/2014 of € 24,000.00, 15/9/2014 of € 24,000.00, 16/10/2014 of € 24,000.00 €, 17/11/2014 of € 24,000.00 and 27/12/2014 of €24,000.00.
11 - Based on the actual cash outflows, in prior years, to the partners, we realised that the form of financing agreed was not properly recorded in the accounts and formalised. In this sense, the execution of the loan agreement aimed only to give legal substance to the financial flows channelled to partners prior to 1 January 2013, a period which, in light of the period provided for in article 45 of the General Tax Law, is closed for inspection and any assessments by the Tax and Customs Authority.
12 - No.
13 - No. It was only when the merger with Company A... Lda occurred.
14 - We do not understand the question, since, as referred to in point 9, we are talking about financing needs in the sphere of the partners.
15 - As the accounting did not properly reflect the reality of the facts that occurred, the loans made to partners were reflected in the "124 Banks to be Regularised" account, and in 2014 the option was made to formalise the execution of the loans, as referred to in our comments to point 11.
16 - No.
17 - The managing partners.
18 - I and D... were managing partners of the company and neither of us received any remuneration.
Lisbon 25 September 2017
E...
C..."
I) As part of the further proceedings undertaken, it is important to highlight that requests for cooperation were made to the SP's main client, F... LDA (NIF...), through notification under office No. ... of 15/05/2017, requesting a copy of the means of payment and statements of amounts paid to the SP under review, relating to medical fees provided by Dr. C... in the fiscal years 2014 and 2015. Having analysed the response obtained, it was confirmed that the invoices issued by the SP in these two fiscal years were always paid by this client through a cheque issued in the name of the doctor Dr. C... and not in the name of the company. It is worth noting that the circulation carried out with the SP's client company, through notification, also served to confirm the correct classification of the SP for VAT purposes.
J) Having analysed the accounting records of the financial flows of the fiscal year 2014 (cf. ANNEX 6) and the bank statements of the company at Bank G... (bank account No..., see ANNEX 7), made available by the SP, for that same fiscal year, the lack of correspondence between the two is confirmed, with the necessary bank reconciliation not having been carried out by the accounting department. To attest to this fact, the weaknesses found at this level are highlighted:
> In 2014, the account 124 Banks to be Regularised was created in the SP's accounting, as evidenced by the Opening Journal of the fiscal year (included in ANNEX 3), where this account did not appear, which recorded financial flow movements without any bank support.
In parallel, another accounting document was collected, the opening balance sheet for 2014, where the account 124 Banks to be Regularised already appears, with a debit balance of € 1,110,417.90, which proves that an accounting correction was carried out to the current account deposits, as shown in table 4, without ensuring bank reconciliation.
In the fiscal year 2014, the account 124 Banks to be Regularised, in addition to the opening debit balance (€ 1,114,417.90), only recorded credit movements relating to payments made by the Company to the Partners (loans from the company to the partners, documented with loan contracts and loan receipts) and accounting regularisations as a counterpart to the ... account (in order to provision the account balance), presenting a nil balance on 31/12/2014.
Regarding this fact, as part of a request for clarifications, on 17/05/2017 the SP was requested, through an email sent to the managing partner and the certified accountant/representative appointed by the SP in accordance with article 52 of the RCPITA, to explain in writing the nature of the current account "124 Banks to be Regularised" in the accounting for 2014 (see question C) of the email of 17/05/2017, included in ANNEX 8). On 23/05/2017, the SP's certified accountant responded that "The current account "124 Banks to be Regularised" is used when there are expenses in the name of the company whose amounts are paid from the personal accounts of the partners or when, possibly, the bank statements are not presented in a timely manner. Subsequently this account is reconciled with the bank accounts or with "Loans"." (included in ANNEX 8) In the personal notification of 08/09/2014 (see ANNEX 4), the managing partner was again questioned on this matter, in question 15, "What is the nature of the current account "124 Banks to be regularised" in the company's accounting for 2014, with an opening balance of the fiscal year of € 1,110,417.90 and a nil closing balance on 31/12/2014?", having received in response, "15 - As the accounting did not properly reflect the reality of the facts that occurred, the loans made to partners were reflected in the "124 Banks to be regularised" account, and in 2014 the option was made to formalise the execution of the loans, as referred to in our comments to point 11".
> The recording of financial flows in the company's accounting in the fiscal year 2014 is also ensured by the current account 121 Current Accounts/... (see ANNEX 6), with the following evidenced on the debit side, the income from the provision of medical services by the company and accounting regularisations to provision the account balance (as a counterpart to the 124 Banks to Regularise account), on the credit side. Payments to third parties (suppliers, State) and to partners (loans from the company to the partners recorded in December 2014, documented with loan receipts)!
> In the "final fiscal year responsibility statement", relating to the fiscal year 2014, issued at the request of the SP's certified accountant, the company's managing partner, Dr. C..., on 31/12/2014, acknowledges that "Adequate financial movements were not presented nor were some items found in accounts to be regularised justified" (included in ANNEX 2);
> By analysing the company's bank statements relating to the current account at bank G... (included in ANNEX 7), it is concluded that:
—> The accounting entries made in the current accounts 121 Current Accounts/..., relating to the current account at bank G..., in the name of the company (account no...), and in 124 Current Accounts/Banks to be Regularised, are not confirmed by the bank movements. Table 5 highlights the analysis performed in 2014, in terms of monthly balances, clearly showing the difference between the amount recorded by the accounting and by the bank:
—> In 2014, at the level of inflows to the company's current account at bank G..., financial flows are identified relating to bank transfers from customer accounts and personal accounts of the managing partner, as well as deposits ("multiple deposits);
—> At the level of outflows from the current account at bank G..., multiple payments were identified for various expenses to suppliers, to the State, bank transfers, cheques issued and ATM withdrawals, with no outflows being detected on the dates of the loan contracts and loan receipts that document the loans from the company to the partners, corresponding to the amounts loaned to the partners in the fiscal year 2014, in the total amount of € 1,064,000.00;
—> It should be noted that, in the fiscal year 2014, the company's current account was provided with the financial resources necessary to meet the company's obligations. The cash entries made by the managing partner into the company's bank account in this fiscal year are not repayments of the deliveries made by the company to the partner in this or other fiscal years, but rather liquidity contributions that the company needed to meet its responsibilities, which could be repaid to the partners once the company generated liquidity;
—> The accounting entries recorded in accounts 12 Current Accounts in the fiscal year 2014 are mere accounting regularisations of the bank balance, without being supported by evidence of actual deliveries of financial resources from the company's bank account to the partners throughout the fiscal year under review (2014), alleged in the contracts and loan receipts that support the loans from the company to the partners recorded in that year.
L) Throughout the fiscal year under review, in the SP's accounting, accounting entries are identified assuming loans from the company to the partners (cf. ANNEX 9), which are summarised below in table 6:
ACCOUNTING ENTRIES ASSUMING LOANS FROM THE COMPANY TO PARTNERS IN THE FISCAL YEAR 2014
In 2014, given the high opening balance of the "12 Current Accounts" account (€ 1,114,075.43), the company recorded in its accounting the existence of loans to partners C... and D..., crediting the current accounts 124 Current Accounts/Banks to be Regularised (from January to December) and 121 Current Accounts/... (in December) as a counterpart to the partner current accounts, 268211 Current Assets - Loans to Partners/C... and 268212 Current Assets - Loans to Partners/D... . Throughout the fiscal year 2014, the account 12 Current Accounts was thereby reduced in the total amount of € 1,064,000.00, as illustrated in table 6, with the two accounts indicating credits granted to partners coming to have a global debit balance, on 31/12/2014, precisely in the same amount.
Thus, in the fiscal year 2014, the accounting indicates that financial resources of the company recorded in accounts 12 Current Accounts, in the total amount of € 1,064,000.00 (€ 12,000.00 from account 121 Current Accounts/..., € 1,052,000.00 from account 124 Current Accounts/Banks to be Regularised), were mobilised, transferring them to the sphere of its partners, with the nature of loans or loans to partners.
As illustrated in table 6, each accounting entry recording the loans from the company to the partners has a "loan contract" or a "loan receipt" (included in ANNEX 9) as supporting document, as summarised:
Two loan contracts in the amount of € 268,000.00 each, entered into on 02/01/2014, in accordance with article 1142 of the Civil Code, between the company and each of the partners, C... and D..., which state in their clause 1, "The lender delivers on this date to the borrower the sum of 268,000.00 euros, (two hundred and sixty-eight thousand euros) as a loan, which sum the latter receives and in which he acknowledges himself as indebted". Both define as the loan amortisation period 36 months and the parties agree that the loan was not onerous in nature, not being subject to the payment of any interest, nor would it be subject to Stamp Duty. They also state in clause 5 the non-notarisation of the signatures and exempt the parties from the formalities provided for in article 1143 of the Civil Code. Both contracts were signed by Dr. C..., as the first contracting party (lender) and again, but in his personal capacity, as the second contracting party (borrower).
22 loan receipts, 11 signed by partner C... and 11 by partner D..., assuming monthly, throughout the fiscal year 2014, an amount paid to the borrower (to the partner in question) of less than € 25,000.00, an amount which each acknowledges having received and for which he confesses to being indebted, signing the respective loan receipt. As with the loan contracts, the loans formalised in the form of "loan receipt" would also not be subject to the payment of any interest, nor would they be subject to Stamp Duty.
Through these documents signed by the managing partners, the same acknowledge that a financial flow was transferred to their personal sphere.
It should be noted that the decision by unanimity of the decision to make loans to the two partners by way of loan, in a General Assembly meeting of the company, only occurred later, on 31/03/2014, in accordance with Minutes No. 24 of the General Assembly (included in ANNEX
M) Some excerpts relating to the justification of the loans from the company to the partners are also reproduced, taken from the clarifications provided by the managing partner, in response to the personal notification of 08/09/2017 (included in ANNEX 4):
—> "9 - In accounts 26821 Current Assets/Loans to Partners are recorded loans granted to partners, arising from their financing needs, as mentioned in Minutes No. 24.", financing needs which he did not specify when questioned, responding "14 - We do not understand the question, since, as referred to in point 9, we are talking about financing needs in the sphere of the partners." (responses to questions 9 and 14);
—>"11 - Based on the actual cash outflows, in prior years, to the partners, we realised that the form of financing agreed was not properly recorded in the accounts and formalised. In this sense, the execution of the loan agreement aimed only to give legal substance to the financial flows channelled to partners prior to 1 January 2013, a period which, in light of the period provided for in article 45 of the General Tax Law, is closed for inspection and any assessments by the Tax and Customs Authority." (response to question no. 11). This was the response presented by the SP when notified to present copies of the supporting documents of the financial flows underlying the loans made by the company to the partners in 2014, having not presented proof of any financial flows;
—> "15 - As the accounting did not properly reflect the reality of the facts that occurred, the loans made to partners were reflected in the "124 Banks to be regularised" account, and in 2014 the option was made to formalise the execution of the loans, as referred to in our comments to point 11." (response to question 15).
Having undertaken the documentary survey, it is proposed that the documents supporting the loans from the company to the partners (loan contracts, loan receipts) be examined, analysing the underlying accounting movements in partner current accounts and in current accounts, accompanying their coherence with the company's bank statements.
Analysis of the facts
It is important to list the facts indicating the lack of withholding at source of IRS on income of the company charged to debit in the current account of loans to partners in the fiscal year 2014 (credits in favour of the partners):
1) Having the company started its activity in 1997, a summary table with some relevant information from 2003 to 2014, extracted from the IES/DA submitted by the SP, is reproduced below.
2) From the analysis of the amounts declared by the SP in the IES/DA, it results that:
> In the years prior to 2014, it is verified that, in successive years and with a growing trend, final accumulated balances were always declared in the company's balance sheet in the "Bank deposits and cash" account, with no balance declared throughout the years in the loans to partners account, under the "Other Current Assets" heading;
> In the IES for the fiscal year 2014, the company declared in its balance sheet, € 1,116,150.00 in "Other Current Assets" (according to the analytical balance sheet it indicates € 1,064,000.00 of loans to partners *- € 52,150.00 of income accruals), a nil closing balance of "Cash" and a balance of "Current Accounts" of € 17,986.20;
> The SP practised a profit retention policy (never distributed profits), accumulating them in "Other Reserves" and "Retained Earnings" over the various years of the company's existence;
> In the fiscal year under review, the personnel expenses declared relate to the remuneration and charges incurred with the sole employee (H..., NIF...).
3) From the accounting elements collected in the SP's accounting for the fiscal year under review, the following was verified:
=> The company's liquidity ceased to be ensured by high amounts in the "12 Current Accounts" account (opening debit balance 2014 = € 1,114,075.43; final debit balance 2014 = € 17,986.20), as evidenced by tables 3, 4 and 5 of the report, distributed by two current accounts (121 Current Accounts/... and 124 Current Accounts/Banks to be Regularised) that had no connection to the company's associated bank account, making various accounting entries throughout the fiscal year 2014, as summarised in table 6, whose amounts totalled € 1,064,000.00, crediting accounts 121 Current Accounts/... and 724 Current Accounts/Banks to be Regularised, as a counterpart to the partner loan account, 26827 Current Assets – Loans to Partners (268211 Current Assets - Loans to Partners/C... €532,000.00; 265272 Current Assets - Loans to Partners/D..., € 532,000.00), which comes to have a global debit balance on that same date of 31/12/2014.
=> That is, the accounting for the fiscal year under review altered the accounting procedures followed in prior years (accumulation of debit balances in "bank deposits", with a growing trend), directly transferring the total amount of € 1,064,000.00 in 2014 from "Current Accounts" to the sphere of the partners, as a "debt" of the partners to the company, documented only by "loan contracts" and "loan receipts."
4) Indeed, the accounting verification carried out on the fiscal year under review confirms that:
=> There are no documents in the accounting for the fiscal year 2014 proving the financial flows underlying the actual deliveries of liquidity from the company to the partners, alleged in the loan contracts and loan receipts executed. From the analysis of the company's bank statements for this fiscal year, it is verified that the company's bank account held the financial resources necessary to ensure the company's obligations;
=> In 2014, inflows were identified in the company's current bank account relating to bank transfers from customers/personal accounts of the Managing Partner or multiple deposits (of cheques that would have been issued in the name of the doctor, as the SP acknowledges in response to question 3 of the personal notification of 08/09/2017, see ANNEX 4), which ensured the company's responsibilities towards third parties;
=> It should be noted that these bank inflows of financial resources, coming from the managing partner's personal accounts or cheque deposits, are not repayments of deliveries made by the company to the partner in this or prior fiscal years, but rather liquidity contributions to the company's current account to meet its responsibilities, which could be repaid to the partners once the company generated liquidity.
5) On 08/09/2017, the managing partner was notified to provide clear clarification on these matters, but in the response he presented (see ANNEX 4), he confirmed the existence of loan or loan contracts from the company to the partners, as was approved in Minutes No. 24 of the General Meeting of the company dated 31/03/2014, formalised on the dates and in the amounts that the accounting reproduces, to justify the actual outflows of financial flows to the partners over the years. When questioned to specify the financial commitments arising from financing from external entities that justified the need to make loans from the company to the partners by way of loans, as set out in Minutes No. 24 of 31/03/2014, he did not specify them, acknowledging that they referred to financing needs in the sphere of the partners. Having been notified to present copies of proof of the financial flows underlying the loans from the company to the partners, he presented nothing.
6) The decision to make "loans to partners" was never decided by the company in a General Assembly until Minutes No. 24 of 31/03/2014, as was required. Therefore, the existence of the aforesaid "loans" and the consequent making available of liquidity from the company to the partners was not mentioned up to that point in any financial statement communication to the Tax Administration, the Commercial Registry, or other entity.
7) By examining the documents supporting the loans recognised in the company's accounting in the fiscal year 2014, it is concluded that:
—> The loan contracts executed in 2014 (2 contracts executed on 02/01/2014, valued at € 268,000.00 each, with each partner) are contracts executed by simple private document, signed by the managing partner, Dr. C..., always as the first contracting party (lender). It is noteworthy here that in one of them, the first and second parties to the contract are represented by the same person, Dr. C... and in the other contract, the second contracting party (borrower) is the managing partner D..., wife of the managing partner;
—> It should be noted that with respect to these loan contracts no Stamp Duty was paid, which would always have been due if the true nature was that, nor was any interest payment arising from them recorded in the accounts. Although provided for in the Civil Code, it is important to consider that it is not common for the absence of interest in a loan contract, since if the contracts were entered into between independent entities, these would certainly not be the assumptions. On the other hand, by making available to the partners the liquidity generated by the company, it prevented the company from benefiting from the interest associated with any investment it could have made;
—> We cannot fail to mention that the alleged "loan contracts", executed between related entities, should have been executed as public deeds, as provided for in article 1143 of the Civil Code, thus attacking their validity. Thus, verified the alleged loan contracts, and considering their amount, having not been subjected to public deed, it is concluded that these are contracts in which the lack of legal form implies the nullity of the legal transaction, as provided for in article 220 of the Civil Code;
—> Regarding the 11 loan receipts signed by partner C... and the 11 loan receipts signed by partner D... (in a total of 22 loan receipts), assuming monthly throughout the fiscal year 2014 an amount paid to the borrower (to the partner in question) of less than € 25,000.00, it is verified that, given the amount loaned for each receipt, its formal validity is not diminished in light of the provisions of article 1143 of the Civil Code, however, they question themselves for the fact that these "loans" are not onerous, as is commonly found in loans between independent entities, since if the loans were entered into between independent entities, these would not be the assumptions. On the other hand, by making available to the partners the liquidity generated by the company, it prevented the company from benefiting from the interest associated with any investment it could have made;
—> In addition, since it is not possible to confirm in the company's bank statements the financial outflows underlying the operations described in the documents that supported the loan loans from the company to the partners (loan contracts and loan receipts), the same will be considered circumstantial documents, intended to give the appearance of loans to partners;
—> These operations recorded in the accounting in 2014, regardless of the nature they assumed, should always presuppose a corporate decision, appearing in minutes of the decision-making bodies, justifying and identifying the operations, a decision that only occurred on 31/03/2014;
8) Finally, reflecting the amounts shown in the accounting, the SP, with the submission of the IES/DA relating to the fiscal year 2014, in the company's balance sheet, declares that, on 31/12/2014, it held assets relating to loans granted to partners (cf. summary table 6 of this report), taking this opportunity to correct the amounts declared in bank deposits, abandoning the policy of accumulating the company's bank balances, without correspondence to the balances actually deposited in the company's account in banking institutions.
Legal Framework of Income Attributed to Partners in 2014
Systematising the facts observed, the following was determined:
The company generated income in the fiscal year under review as a result of the professional activity carried on by the managing partner, an ophthalmologist, Dr. C..., who never distributed profits. The sole service provider was its managing partner, who formally worked in the company free of charge and from which he withdrew no income;
It was demonstrated that until the fiscal year 2013 the SP's accounting did not reflect the existence of any "loan" from the company to the partners;
By examining the IES/DA of the years prior to 2014, it was verified that accumulated debit balances were always declared in the company's balance sheet under "Bank deposits and cash", totalling that asset of the company € 1,114,075.43 in 2013, with no loan to partners being declared throughout the years;
However, on 01/01/2014 the company's cash recorded in current accounts, in the amount of € 1,114,075.43 (in account 121 Current Accounts/... according to the opening journal of the fiscal year 2014), which accounts for the retained earnings accumulated by the company over several years, was in fact not in the company, since the opening balance of the company's bank statements at that banking institution (G...), on that date, only accounts for € 8,332.20;
The managing partner, in the statements he made on 25/09/2017 (see ANNEX 4), in response to question 7 of the personal notification of 08/09/2017, "In the fiscal year under review, were all the company's monetary values deposited in banks or did the company hold cash on hand? If the company held cash on hand in that fiscal year, specify the locations where it was held and whether cash sheets were prepared?", acknowledged that "7 - The company did not hold cash on hand. ";
In 2014, accounting entries were being made, where the SP sought to demonstrate deliveries to the partners (directly transferring amounts from "current accounts" to the partners' assets and recording them directly as a credit granted to the partners), which occurred as a result of loan contracts and loan receipts, executed between the company and the partners throughout this fiscal year;
Not verifying the characteristic elements of loans, despite loan contracts and loan receipts being presented, due to the weaknesses that have been highlighted (lack of proof of the financial outflows in favour of the partners alleged in the loan contracts and loan receipts; lack of setting of a price - interest - that would allow compensation for the unavailability of the money and the associated risk; no provision of personal or real security; non-payment of Stamp Duty as the respective Code provides), it is concluded that this is not the nature of the operations;
As a result of the analysis conducted in the context of this inspection procedure, from all the facts observed, the documents evaluated and the clarifications provided, it is concluded that the company did not execute any loans to the partners. What the deliveries of financial resources made by the company to the partners objectively reflect, with origin in "Current Accounts", is the making available to the partners of income, constituting an increase in the patrimony of their income. Also, the requirements are not met for such making available to be considered work income (in particular, the fact that there is no connection between the amounts in question and the work performed). Indeed, it can only be concluded that one is faced with capital income, in the form of profit distribution or advance on account of profits;
Having demonstrated the non-existence of loans from the company to the partners, and in the absence of any other valid basis to rebut the presumption provided for in article 6, paragraph 4, of the CIRS (as arising from the provision of work or the exercise of corporate offices), the dates of recording of the loans expressed by the accounting shall have to prevail;
In this sense, it was demonstrated that in the fiscal year under review, the company recognised in its balance sheet the total amount of loans granted to the partners of € 1,064,000.00, recorded in the accounting in partner loan current accounts, as per table 8 below, declaring them in the IES/DA for the fiscal year 2014 (statement with identification No. 2014...), which it submitted on 13/07/2015, a statement which transposes the company's financial statements for that fiscal year, which were subject to deliberation and approval by the partners in a General Assembly, already communicated to both the Tax Administration and the Commercial Registry, making known the financial information about the management and financial position of the company for that fiscal year.
In this way, the necessary elements are gathered, on the basis of which it is concluded that the making available to the partners of the amounts that the company held in "Current Accounts" refers to the distribution of profits or advances on account of profits, and cannot in any way be characterised as loans/loans or work income.
It is concluded that the SP sought to take from the company in favour of the partners, its results, avoiding the taxation thereof, both at the level of the company and of the partners.
The distribution of profits and the advance on account of profits occurred at the moment when, in an objective way, its making available to the partners was recognised in the accounting, which occurred by crediting the "current accounts" by debiting the partners.
As a result of what was referred to above, it is concluded that the income thus distributed to the partners constitutes capital income (category E) by virtue of paragraph 1 of article 5 of the CIRS, whose classification is specified in paragraph h) of paragraph 2 of the same article 5 of the CIRS. According to this rule, the following are subject to IRS, by classification in category E, "The profits of entities subject to IRC made available to their respective associates or titulars, including advances on account of profits...".
Thus, on the basis of paragraph h) of paragraph 2 of article 5 of the CIRS, the making available by the company to the partners of amounts that the company had recorded in "current accounts" and which totalled the amount of € 1,064,000.00 in 2014, will be considered to have occurred as a form of distribution of profits or advance on account of profits.
Having collected the accounting evidence, the legal basis of the presumption established in article 6, paragraph 4, of the CIRS was deemed to have been met, according to which "Entries in any current accounts of partners, recorded in commercial or civil companies in commercial form, when not resulting from loans, the provision of work or the exercise of corporate offices, are presumed to have been made by way of profits or advance on account of profits" (wording in force on the date of the tax events - 2014, prior to the republication of the CIRS by Law No. 82-E/2014, of 31 December). In this sense, the amount of € 1,064,000.00 constitutes the amount of income entered in the SP's accounting throughout the fiscal year 2014 in the current accounts of the partners, which were based on transfers of amounts from "current accounts" (121 Current Accounts/... and 124 Current Accounts/Banks to be Regularised), assuming the nature of distribution of profits or advances on account of profits classifiable as income of category E (article 5, paragraph 2, paragraph h) of the CIRS).
The distribution of profits and advances on account of profits are subject to withholding at source, as a final charge, at the liberatory rate of 28%, for IRS purposes, as provided for in article 71, paragraph 1, paragraph c) of the CIRS, which in accordance with paragraph 3 of article 98 of the same law-decree shall be paid into the State treasury by the 20th day of the month following the month to which it relates.
It should be noted that the inspected company did not withhold the IRS due, to which it was obliged under article 101, paragraph 2, paragraph a) of the CIRS.
Timing of Taxation and Allocation of Capital Income to be Taxed by Period
In summary, € 1,064,000.00 constitutes the amount of total deliveries by the company to the partners recorded in the fiscal year 2014, which were considered by the SP as loans to the partners, a qualification that must be disregarded, as was previously verified, as they constitute a distribution of profits or advance on account of profits (tax event), classifiable under article 5, paragraph 2, paragraph h) and article 6, paragraph 4, both of the CIRS.
The facts described reflect the existence of amounts recorded in "current accounts" that were undoubtedly delivered to the partners, with the transfer of ownership of such amounts being completed for the benefit of the partners, who thus saw their assets increase.
With respect to the amounts subject to taxation, the value corresponding to the amounts made available to the partners was fixed, as reflected in the company's accounts, as if they were loans to the partners.
Article 7, paragraph 1 and paragraph 3, paragraph a), paragraph 2 of the CIRS provide that the moment from which capital income (category E) becomes subject becomes subject to tax corresponds to the date of making available.
Thus, based on the facts already presented and having verified the tax event, any eventual doubts as to the timing of delivery of capital income to the partners are dissipated taking into account that the information contained in the financial statements declared by the SP over the years (whether relating to its assets, where the "bank balances" are found, whether relating to the "reserves" and results obtained, or even the operations relating to deliveries of amounts from "current accounts" to the partners) constitutes information approved and certified by the partners annually, in a General Assembly and communicated to various entities.
In light of all the evidence previously presented, it is considered that the distribution of profits or advance on account of profits occurred at the moment when its making available to the partners was recognised in the accounting, recording the actual deliveries of balances from "current accounts" to specific partner loan accounts. That is, as to the timing of taxation, the month in which deliveries of amounts occurred was set - article 7 of the CIRS, defining this moment as when the tax becomes exigible.
The following table presents the allocation of capital income - profits and advance on account of profits - distributed to the partners, by period (month), subject to withholding at source at the rate of 28%, without having been carried out by the SP, determining the respective amount of withholding in default.
From table 9, we conclude that the amounts of withholding in default determined in the fiscal year under review, for having been made available to the partners' capital income, amount to € 297,920.00.
Reference to Case Law Related to the Facts in Question
It is important to highlight some case law established in tax litigation, which in some way relates to the case in question, contributing to the support of this proposed correction in several of its aspects, which is identified below:
- Court of Appeal (TCA) South Decision - Case No. 01429/06 of 24/04/2007;
- TCA South Decision - Case No. 02371/08 of 15/07/2008;
- TCA South Decision - Case No. 02544/08 of 25/11/2008;
- TCA South Decision - Case No. 03221/09 of 13/10/2009;
- TCA South Decision - Case No. 04357/10 of 11/01/2011;
- TCA South Decision - Case No. 04487/11 of 22/02/2011;
- Arbitral Decision of CAAD - Case No. 130/2012-T 14/06/2013;
- Arbitral Decision of CAAD - Case No. 131/2012-T 25/06/2013.
- TCA South Decision - Case No. 07384/14 of 27/03/2014;
- Court of Appeal (TCA) North Decision - Case No. 279/09.2BEPRT of 27/11/2014.
(...)
X - CONCLUSION
The AT throughout the Tax Inspection Report exhaustively described and proved the basis of the legal presumption established in article 6, paragraph 4, of the CIRS and the grounds for disregarding the loans from the company to the partners, allowing the actual nature of the amounts made available to the partners to prevail, over the documentary form that involved this transfer.
Having concluded that the period granted has expired, it is verified that the taxpayer did not exercise the Right to a Hearing, having not proceeded to regularise its tax situation regarding withholdings at source of IRS, wherefore the corrections proposed in this Final Inspection Correction Report should be maintained, in accordance with the facts and grounds described in chapter III (point 3.1) of the report.
In light of the above, the closure of this service order is proposed, reflecting the proposed corrections regarding withholdings at source of IRS.
For this purpose, correction documents regarding withholdings at source have been prepared.
In accordance with articles 62 of the RCPITA and 77 of the LGT, the taxpayer will be notified of the conclusion of the inspection action.
E) Following the inspection action, the Tax and Customs Authority issued the withholding at source assessment for the year 2014 No. 2017..., of 22-12-2017, in the amount of € 297,920.00, and the respective compensatory interest assessments Nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., in the total amount of € 42,048.59, determining the total amount to be paid of € 339,968.59 (document No. 1 attached to the request for arbitral pronouncement, whose content is reproduced);
F) On 23-01-2018, the Claimant paid the assessed amount of € 339,968.59 (document No. 3 attached to the request for arbitral pronouncement, whose content is reproduced);
G) The Claimant filed an amicable claim against the aforementioned assessments which was rejected with the reasoning set out in the information reproduced in document No. 4 attached to the request for arbitral pronouncement, whose content is reproduced below, referring, inter alia, to the following:
> Regarding the Illegality of the Inspection Procedure
The claimant invokes the illegality of the inspection procedure, requesting the annulment of the claimed assessment, alleging that such procedure exceeded the maximum period of six months provided for in paragraph 2 of article 36 of the Supplementary Regime for Tax and Customs Inspection Procedure (RCPITA).
Now, regarding what is alleged by the claimant, the following considerations must be made.
Article 36 of the RCPITA provides for the moment until which tax inspection procedure may be initiated (cf. paragraph 1) and also for the period for its conclusion (cf. paragraphs 2 et seq.).
Indeed, in accordance with paragraph 2 of the referred legal provision: "The inspection procedure is continuous and must be concluded within a maximum period of six months from the notification of its commencement."
However, in any case, non-compliance with the maximum six-month period, by itself, has no invalidating effect on assessment acts resulting from the conclusions of the tax inspection procedure, so it appears to be of a purely ordering, indicative or disciplinary nature.
In the same vein, paragraph 7 (added by Law No. 756-A/2014, of 30 September) provides that the expiry of the inspection procedure period does not affect the right to assess taxes, not determining any other consequence than the end of the realisation of external inspection acts.
Whereby it is concluded that the claimant's allegation regarding the illegality of the inspection procedure does not hold.
> Regarding the Lapse of the Tax Event
In accordance with paragraph 4 of article 63-C of the LGT, the AT may access all information or banking documents relating to the account or accounts in which IRC taxpayers, as well as IRS taxpayers who have or should have organised accounting, are held, without dependence on the consent of the respective account holders.
The claimant states that from the analysis of the bank statement made available by the present Claimant, it is possible to conclude that in 2014 there were no financial outflows from the company's account to the partners, nor even in an amount approximating to €1,064,000.00.
However, this does not mention that in the inspection proceeding a circulation was carried out with client F..., Lda, NIF..., from which it was verified that payments made through cheque were issued in the name of doctor Dr. C... and not in the name of the company.
In the inspection proceeding, an analysis was carried out of the company's bank statements relating to the current account at bank G..., with the accounting entries made in the current accounts 121 Current Accounts/... and in account 124 Current Accounts/Banks to be Regularised, from which it was concluded that the referred entries are not confirmed by the bank movements.
It should be noted that in 2014, the account 124 Banks to be Regularised was created in the Claimant's accounting, which recorded financial flow movements without any bank support, verifying and proving that an accounting correction was made to the current accounts, without ensuring bank reconciliation.
The claimant states that given the documentary evidence provided, from which it follows that the financial outflows from B... to the partners did not occur in 2014, but rather, for greater reason, in prior fiscal years, it can be concluded that the tax event (i.e., the making available) occurs in periods that are closed for inspection by any assessments by the AT.
In accordance with article 123 of the CIRC, those are obliged to maintain organised accounting, which in accordance with paragraph 2 must comply with certain requirements, and in accordance with paragraph 3 delays in its execution greater than 90 days are not permitted, in turn and in accordance with paragraph 3 of article 17 of the CIRC the accounting must reflect all operations carried out by the SP, reflect the exact financial position and the result actually obtained.
From this it follows that in accordance with article 75 of the LGT that in cases where the taxpayer's statement is in conformity with the elements in his accounting and this proves to be organised in accordance with the law and there are no errors, inaccuracies, or other well-founded indications that it does not correspond to reality, it is presumed that the declared taxable matter is the real one.
This fact is a result of our legal system being based on the declarative principle for the determination of taxable matter. According to this principle, the truthfulness of the data and calculations in its accounting or records is presumed, provided that these are organised in accordance with commercial and tax legislation.
Although the claimant states that in the inspection proceeding that following the additional clarifications requested by the AT, "the execution of the loan contract aimed only to give legal substance to financial flows channelled to partners prior to 1 January 2013 (...), that situation was not reflected in the accounting for the year 2014, all the movements that gave rise to the correction are entered and reflected in the year 2014, with it being demonstrated that until the fiscal year 2013 the claimant's accounting did not reflect the existence of any "loan" from the company to the partners, and the AT cannot decide otherwise than what was carried out.
H) The bank statements for B...'s account at Bank G..., S.A., are those contained in document No. 5 attached to the request for arbitral pronouncement);
I) The following movements were made in A...'s account, Lda., at Bank G..., S.A., contained in document No. 6 attached to the request for arbitral pronouncement, whose content is reproduced two transfers carried out by partner Dr. C... to company A..., Lda, one in the amount of €320,000.00, made on 11-01-2018, and another of € 372,301.02 made on 22/01/2018;
J) On 20-02-2019, the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings.
2.2. Unproven Facts and Justification of the Statement of Facts
The facts were proven based on the documents attached to the request for arbitral pronouncement and on the administrative file.
It was not proved that the Claimant's bank account at G... referred to in the proceedings is the only and even main bank account through which the movements relating to the Claimant's billing are processed, since, as referred to in the Tax Inspection Report, the Claimant's main client, F... LDA (NIF...), confirmed that "the invoices issued by the SP in these two fiscal years were always paid by this client through a cheque issued in the name of doctor Dr. C... and not in the name of the company".
It was not proved that these amounts that were not paid in the name of B... were transferred to it, in particular prior to the year 2014, in which they were not found in it, nor that with respect to them there existed any act of this company that reveals the intention to make them available to partners, in particular the amount of € 1,064,000.00 that was subject to accounting entries in 2014.
The managing partner of B... was notified to present proof of the bank movements corresponding to the making available of those amounts and did not present them.
In this context, there is no proof that "the actual cash outflows, in prior years, to the partners" that the managing partner of B... confesses to have occurred came about as a result of making available by this company.
It was not proved that the payments made in 2018 to A...'s account, Lda., at Bank G..., S.A., referred to in document No. 6 attached to the request for arbitral pronouncement constitute partial reimbursement of loaned amounts. Indeed, no proof was presented of the purpose of those transfers.
3. Legal Matters
3.1. Positions of the Parties
The Tax and Customs Authority carried out an inspection of the Claimant, which included the fiscal year 2014, and understood, among other things, in summary, that:
– on 01/01/2014 the company's cash recorded in current accounts, in the amount of € 1,114,075.43 which accounts for retained earnings accumulated by the company over several years, was in fact not in the company;
– in 2014, accounting entries were being made, where the SP sought to demonstrate deliveries to the partners, following loan contracts and loan receipts, executed between the company and the partners throughout this fiscal year;
– the company did not execute any loans to the partners;
– what the deliveries of financial resources made by the company to the partners objectively reflect is the making available to the partners of income, constituting an increase in the patrimony of their income;
– the requirements are not met for such making available to be considered work income, so it can only be concluded that one is faced with capital income, in the form of profit distribution or advance on account of profits;
– having demonstrated the non-existence of loans from the company to the partners, and in the absence of any other valid basis to rebut the presumption provided for in article 6, paragraph 4, of the CIRS, the dates of recording of the loans expressed by the accounting shall have to prevail;
– the company recognised in its balance sheet the total amount of loans granted to the partners of € 1,064,000.00, recorded in the accounting in partner loan current accounts, declaring them in the IES/DA for the fiscal year 2014;
– the distribution of profits and advance on account of profits occurred at the moment when, in an objective way, its making available to the partners was recognised in the accounting, which occurred by crediting the "current accounts" by debiting the partners;
– the income thus distributed to the partners constitutes capital income (category E) by virtue of paragraph 1 of article 5 of the CIRS, whose classification is specified in paragraph h) of paragraph 2 of the same article 5;
– the facts described reflect the existence of amounts recorded in "current accounts" that were undoubtedly delivered to the partners, with the transfer of ownership of such amounts being completed for the benefit of the partners, who thus saw their assets increase;
– it is considered that the distribution of profits or advance on account of profits occurred at the moment when its making available to the partners was recognised in the accounting, recording the actual deliveries of balances from "current accounts" to specific partner loan accounts;
The Claimant imputes the following defects to the correction and assessment under challenge:
– illegality of the inspection procedure, in light of article 36, paragraph 2, of the Supplementary Regime for Tax and Customs Inspection Procedure (RCPITA), for having lasted more than 6 months without any extension;
– lapse of the right to assess tax, as the making available to the partners of the amounts in question occurred prior to the year 2014;
– having the AT alleged that the tax event of advances on account of profits to the partners of B... occurred in 2014, it was incumbent on it to prove the constitutive facts of the right it invoked - which it did not manage to do, nor could it, since, as has been proven, no advances on account of profits occurred in 2014;
– there is no basis for presuming that the making available of income to the partners of the Claimant occurred on the date on which the entries were made;
– (partial) reimbursement of the loaned amount occurred.
3.2. Question of the Illegality of the Inspection Process for Having Lasted More Than Six Months
Article 36, paragraphs 2 and 3, of the Supplementary Regime for Tax and Customs Inspection Procedure (RCPITA) establishes that "the inspection procedure is continuous and must be concluded within a maximum period of six months from the notification of its commencement", a period which may be extended for two further periods of three months.
The Service Order No. OI2016... on which the inspection procedure was based was signed by the Claimant's managing partner on 16-05-2017, a date which, in accordance with article 51, paragraph 2, of the RCPITA, determines the commencement of the external inspection procedure.
The Claimant was notified of the Tax Inspection Report on 12-12-2017, the date on which, in accordance with article 62, paragraph 2, of the RCPITA, the inspection procedure is deemed to be concluded.
Thus, the procedure was not concluded within six months from its commencement and there was no extension.
As the Supreme Administrative Court has come to understand, the excess of the tax inspection period does not, by itself, have the effect of invalidating the notification, only implying the cessation of the suspensive effect of the lapse of the right to assess provided for in paragraph 1 of article 46 of the LGT. ( )
Article 36 of the RCPITA currently includes a provision that enshrines this case law understanding, which is paragraph 7, added by Law No. 75-A/2014, of 30 September, which establishes that "the expiry of the inspection procedure period determines the end of external inspection acts, not affecting, however, the right to assess taxes".
Thus, the Claimant is not correct regarding this issue, whereby the request for arbitral pronouncement fails regarding this defect.
3.3. Question of the Lapse of the Right to Assess
3.3.1. Lapse Period of the Right to Assess Relating to Tax Events Occurring in 2014
The lapse period of the right to assess is four years (article 45, paragraph 1, of the LGT).
This period may be suspended in accordance with article 46 of the LGT.
In this case, the external inspection procedure does not have a suspensive effect on the lapse period of the right to assess, since the six-month period provided for in paragraph 1 of that article 46 was exceeded and none of the situations provided for in paragraph 5 of article 36 of the RCPITA are verified, which establishes the suspension of the period for concluding the inspection procedure.
The period for issuing assessments for lack of withholding at source as a final charge, when taxation is to be carried out by withholding at source as a final charge, is counted from the beginning of the civil year following the one in which the tax event occurred (article 45, paragraph 4, of the LGT).
For this reason, the period for issuing assessments for lack of withholding at source that should have been carried out in 2014 ended on 31-12-2018.
The assessment relating to withholding at source was issued on 22-12-2017, so it was issued before the expiry of the 4-year period.
For this reason, the impugned assessments do not suffer from the defect of lapse of the right to assess that the Claimant attributes to them, to the extent that they are based on tax events that occurred in 2014.
3.3.2. Lapse of the Right to Assess Relating to Facts Prior to 2014
The Claimant argues, however, that the lapse would have occurred of the right to assess as the making available to the partners of B... of the advances on account of profits did not occur throughout 2014, which it seeks to substantiate with the bank statement of B... for the year 2014, which does not present "outflows of financial resources from the company in an amount even approximately to Euro 1,064,000.00 - the amount of advances on account of profits that the AT alleged to have occurred in that year" (articles 77 to 79 of the request for arbitral pronouncement).
However, as was stated in the justification of the decision on the statement of facts, it was proven that payments relating to part of B...'s billing, including payments made by its most important client, were not made in the name of B..., but rather in the personal name of its managing partner, and no proof was made that the amounts received by the latter were delivered to the company.
On the other hand, no banking documentation relating to years prior to 2014 was presented that would allow concluding that in them transfers to partners were made by the decision of B... .
The proof of these transfers, if they existed, would certainly be easy for the Claimant to produce, so the fact of not presenting them induces, in light of the rules of common experience, the procedural conclusion that they would not have existed.
It is worth noting in this context that the making available to the associates of profits or advances on account of profits that paragraph h) of paragraph 2 of article 5
Frequently Asked Questions
Automatically Created