CAAD 120/2015-T: Per Diem Allowances for Temporary Workers and IRS Withholding Tax Legality

TRANSLATION

Case Number 120/2015-T

The Arbitrators Counselor Jorge Lopes de Sousa, Dr. Hélder Faustino and Dr. Ricardo Marques Candeias, appointed by the CAAD Deontological Council to form the Arbitral Tribunal, constituted on 04-05-2015, agree as follows:

1. Report

A…, S.A., legal entity number …, with registered office at Rua …, no. …, 1st floor, …-… …, notified of the Dispatch of the Deputy Director-General of Taxes, dated 24-10-2014, which determined the rejection of the administrative appeal filed against the assessment of Personal Income Tax – IRS (Withholdings at Source) number 2012 … and the corresponding Compensatory Interest numbers 2012 … to 2012 …, in the total amount of € 208,778.10, came to submit, pursuant to articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter "LFTA"), a request for arbitral award with a view to the annulment of such acts.

The respondent is the TAX AND CUSTOMS AUTHORITY (TA).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 23-02-2015.

The CAAD Deontological Council appointed as Arbitrators the undersigned signatories who communicated acceptance of the charge within the applicable period.

Pursuant to article 11, no. 7, of the LFTA, the President of CAAD informed the Parties of this appointment on 15-04-2015.

Thus, in compliance with the provisions of article 11, no. 7 of the LFTA, following the expiration of the period provided for in article 13, no. 1 of the LFTA without the Parties presenting any objection, the Collective Arbitral Tribunal was constituted on 04-05-2015.

The Tax and Customs Authority submitted a Response, defending the lack of merit of the request for arbitral award.

By dispatch of 04-09-2015, it was decided to dispense with the meeting provided for in article 18 of the LFTA and, with the agreement of the Parties, that the witness evidence produced in the arbitral proceedings number 118/2015-T and the respective recording be used in the present case.

It was further decided that the proceedings continue with successive written submissions.

The Parties submitted their submissions.

The arbitral tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.

The proceedings do not suffer from nullities and no obstacles to the examination of the merits of the case are raised.

2. Statement of Facts

2.1. Established Facts

a) The Claimant is a corporation that engages in the activity of temporary transfer in favor of user companies of workers whom the Claimant contracts and remunerates for that purpose;

b) The user company which, by means of a contract for the use of temporary workers that it enters into with the Claimant, employs the temporary worker under its authority and direction;

c) In carrying out its activity, the Claimant entered into various temporary work contracts with temporary workers, in which were stipulated the location where the workers in question would perform their respective functions, and in which provision was also expressly made for the payment of, in addition to the basic monthly remuneration, certain amounts in the form of travel allowances;

d) On 22-02-2012, a tax inspection action commenced pursuant to Service Order no. 01 …, of general scope, relating to the fiscal year 2010;

e) In that tax inspection action, the Tax Inspection Report was drawn up which constitutes the document of the administrative file named "RG6.pdf", the contents of which are reproduced herein and which states, among other things, the following:

From the analysis of the trial balance before the determination of results for the fiscal year 2010, it is verified that A… recorded therein, in various sub-accounts of the POC account "63-Expenses with Personnel", amounts paid in the form of travel allowances to its employees, in the annual amount of 1,766,666.13€ excluding those which it already considered as Category A IRS income, in the annual amount of €457,800.00.

From the consultation of Model 10 declarations (former Annex J) for the year 2010 submitted to the Tax Administration by A…, it is verified that, regarding dependent employment income (Category A IRS), it declared the following data:

From the analysis of the annual values contained in this table, and comparing with the total travel allowances not considered as Category A IRS income shown in the last line of the table, it is verified that the travel allowances attributed represent 83% in 2008, 69% in 2009 and 51% in 2010, of the total income that A… considered as Category A IRS income, in which are included from the outset certain travel allowances which the taxpayer considered from the start as income of Category A IRS.

(...)

1.3 - Work Contracts and Itinerary Schedules of Temporary Workers

1.3.1 - Work Contracts

The work contracts entered into by A… with temporary workers normally establish, in clause six, the place of work of the temporary worker, a place which corresponds to the necessary work location provided for in Decree-Law no. 106/98, of 24 April, and Decree-Law no. 192/95, of 28 July.

The payment of amounts in the form of travel allowances is governed by the same regime applied to public administration personnel (Decree-Law no. 106/98, of 24 April, and Decree-Law no. 192/95, of 28 July).

In the contracts for the provision of services entered into with its clients, the transferred workers are not identified, with a reference salary being established for each worker category (all-inclusive), as well as the hourly rate to be charged by A… per category per each transferred worker.

In the invoices issued to its clients, A… does not mention the number of transferred workers and does not identify them and does not itemize the amounts invoiced in respect of service provision and in respect of travel allowances for each of them, appearing in its invoices only a single item "Transfer of personnel for works at your site no. —" with an indication of the period to which the invoice relates, and in the lower portion of its invoices appears a stamp with the title "Declaration" followed by the following text "For the purposes of the provision in paragraph f) of article 42 of CIRC, with new wording given by no. 1 of article 30 of Law no. 87-B/98, of 31 December, we declare that the present invoice includes expressly Travel Allowances in the amount of ---" appearing manually inserted, in a space provided for that purpose, the value of travel allowances supposedly included in the total invoiced.

1.3.2 - Itinerary Schedules

A… has monthly itinerary schedules prepared by the company itself and without the signature of the employees to whom they relate, identifying the worker (name and professional category) and demonstrating the typical days of service, the location and daily compensation that gave rise to its attribution.

In the analysis carried out jointly with Dr. B…, an employee of A… designated to accompany us during our inspection, we verified that a large part of the aforementioned travel allowances aims to compensate workers for displacements made by them to their homes necessary, localities in which they had contractually agreed to perform their work activity, and therefore these compensations mentioned above actually constitute effective remuneration within the meaning of paragraph d) of no. 3 of article 2 of the IRS Code, combined with Decree-Law no. 106/98, of 24 April, which should have been, at the time of their attribution, subject to withholding at source, and A…, pursuant to no. 4 of article 103 of the IRS Code, is jointly and severally liable for the payment of the amounts not withheld.

A…, by the mere fact that workers go to work at a certain site of the temporary work user company and this implies displacements, considers that from this fact flows the right to the payment of travel allowances.

However, compensation for displacement in service only occurs if a certain worker, from a certain company, having a certain workplace, has to be displaced in the service of the company to another location, not contractually fixed, to there, exceptionally, perform any task or function, and then return to his contractually fixed workplace, which is manifestly not the case.

Therefore, given that A… and the workers knew that the place of work would be at a location different from the worker's residence or even in a foreign country, when signing the work contracts they had the opportunity to adjust the salary in function of this constraint, and the worker's residence, the seat of the temporary work company or the seat of the temporary work user company is not relevant for this purpose, and therefore these are not expenses incurred in service and in favor of the employer.

Therefore, in light of what is established in paragraph d) of no. 3 of article 2 of the IRS Code, Decree-Law no. 106/98, of 24 April, it is verified that the aforementioned amounts are not susceptible to being considered travel allowances, but rather, as has already been stated, constitute effective work remuneration subject to IRS.

(...)

1.5 - Corrections

In light of the above, we cannot but conclude that the payments received in the form of 'travel allowances' which correspond to displacements to the workplace evident in the work contracts were included in the respective attribution or remuneration for work, constituting a supplement thereto, as they were attributed to the worker regardless of the existence on those same days of any casual displacements made in service and in favor of the employer, and therefore these amounts should be considered as dependent employment income subject to IRS, pursuant to article 2 of the IRS Code and Decree-Law 106/98.

In accordance with no. 1 of article 103 of the IRS Code, in case of tax substitution, the entity obligated to withhold, in this case A…, is liable for the amounts withheld and not delivered to the State treasury, with the substituted persons being discharged from any liability for their payment.

However, pursuant to no. 4 of article 103 of the IRS Code, as these are income subject to withholding that have not been recorded nor communicated as such to the respective beneficiaries, the substitute, A…, assumes joint and several liability for the unwithheld tax, in the amount of €194,355.00 for the year 2010, as shown in Column Y of the sheet ("Ajudas_Custo_Tributáveis_2010") of the Excel file titled "OI2012 …_Ajudas_Custo_Tributáveis" contained in the CD titled OI2012 …, which is attached to this report, a file in which can be seen all the items related to the consideration of the compensation attributed to workers as income of Category A IRS pursuant to paragraph d) of no. 3 of article 2 of the IRS Code.

f) On 09-08-2012, the Tax and Customs Authority issued the assessment of Personal Income Tax – IRS (Withholdings at Source) number 2012 … and the corresponding Compensatory Interest numbers 2012 … to 2012 …, in the total amount of €208,778.10, consisting of €194,355.00 of IRS and €14,423.10 of compensatory interest (document no. 2, attached with the request for arbitral award, the contents of which are reproduced herein);

g) The Claimant was notified, on 09-08-2012, of the aforementioned assessment acts and compensatory interest acts, in the following terms:

[notification details]

h) The Claimant filed a gracious complaint regarding the aforementioned assessment which was rejected;

i) The Claimant filed an administrative appeal against the decision rejecting the gracious complaint, and it was rejected by dispatch of the Deputy Director-General of Taxes dated 24-10-2014 (document no. 1 attached with the request for arbitral award, the contents of which are reproduced herein);

j) The decision rejecting the administrative appeal manifests agreement with the Opinion no. …/14 reproduced in document no. 1 attached with the request for arbitral award, the contents of which are reproduced herein), in which is stated, among other things, the following:

B. EXAMINATION OF THE ADMINISTRATIVE APPEAL

B.1. The appellant has standing (cf. no. 1 of art. 9 of TCPT), the Administrative Appeal was filed within the time limit and to the competent entity in accordance with what is established in art. 66 of TCPT, and no judicial challenge was filed regarding the assessment object of the case.

B.2. Travel Allowances:

B.2.1. Are amounts attributed by the employer to its dependent workers when they are displaced in the service of the employer, intended to compensate for increased expenses from such displacement (meals and lodging) without presentation of expense documentation, and it is essential that the company can prove the charges actually incurred regarding travel allowances through an itinerary schedule and it is necessary to make known the name of the beneficiary, the location and date of the displacement, time and purpose of stay, as well as the daily amount that was attributed, in order to determine whether it exceeds the legal limits of subjection to IRS.

B.2.2. Have the nature of dependent employment income to the extent that they exceed legal limits or do not comply with the requirements for their attribution to civil servants (cf. paragraph d), no. 3, of article 2 of the IRS Code), with the burden of proof falling on the Tax Administration to establish such excess as well as that the amounts received by the worker in the form of travel allowances are not intended to cover the increase in expenses incurred by him as a result of displacement from his usual residence.

B.3. In terms of the legal-tax framework of the remuneration earned through temporary work contracts, the Binding Opinion issued in Case no. …/2002, with concordant dispatch dated 2003-10-25, from the Director-General of Taxes, applies as follows:

B.3.1. The activity of temporary work companies is regulated (currently by Law no. 13/07, of 22/5) in Decree-Law no. 358/89, of 17/10, amended by Law no. 146/99, of 1/9. Law no. 99/2003, of 27/8, which approved the Labor Code, in effect since 2003-12-01, repealed articles 26 to 30 of Decree-Law no. 358/89, of 17/10.

B.3.2. The entering into of a work contract under this statute is, from the outset, conditioned by the verification of one of the situations provided for the entering into of the user contract.

B.3.3. The temporary work contract is merely instrumental to the user contract: the temporary work company enters into work contracts when it has the prospect of entering into a user contract and in this the workplace must be identified.

B.3.4. And even though these workers have no contractual relationship with the user, it is the location where the latter intends the user contract to be performed that constitutes their workplace and, as such, must be identified in the temporary work contract, as the law requires, and should be assumed as their necessary workplace.

B.3.5. It is, exactly, this concept of necessary workplace that justifies the payment of Travel Allowances to workers who, having the center of their activity previously defined, are occasionally sent by their employer outside the locality where it is situated, to perform their work there, incurring expenses that the remuneration does not take into account.

B.3.6. Essential to assess the existence of a displacement is always a prior determination of a location for the performance of the work, and therefore considering that this corresponds to the headquarters of the temporary work company would constitute a way of fictionalizing a displacement.

B.3.7. Such understanding would lead to the conclusion that almost all workers hired by temporary work companies would be entitled to travel allowances, ultimately receiving part of the consideration for their work under that designation.

B.3.8. Given that the entering into of a temporary work contract always presupposes the existence of a client with whom the temporary work company has entered into a user contract, at the moment of entering into that contract, the Temporary Work Company already knows the workplace of the contracted worker and therefore the remuneration must be agreed upon in function of the additional expenses that the same will have to bear, namely, if the workplace is in a different country.

B.3.9. The remuneration, thus determined, is considered consideration and, as such, is subject to taxation as income of Category A of the IRS, in this sense the jurisprudence contained in the ruling of the Administrative Court, Case no. 01006/04.6BEBRG, of 2007-11-08.

B.4. Having established the legal-tax framework of the remuneration earned through the entering into of temporary work contracts, it is important to decide on each of the allegations formulated by the appellant, as follows:

Regarding the Illegality of the Inspection Procedure

B.4.1. The issue is to determine whether possible irregularities attributable to the tax inspection procedure instituted against the appellant affect the assessment object of the case, in particular due to the fact that the Inspection Note was notified to the appellant after the date of drawing up and sanctioning the Tax Inspection Report, in violation of the provisions of articles 60 and 61 of CTIP.

B.4.2. It has been doctrine and jurisprudence sanctioned by the Courts, even in the context of the exercise of the right to be heard, that the pretermission of formality can, in certain and specific cases, degrade into non-essential formality, without resulting in any illegality determining the annulment of the assessment act.

Thus, and in the case at hand, it is verified that the appellant was personally notified on 2011-11-28 (cf. fls. 133 to 136 of RG) of the draft Tax Inspection Report, the same date on which the Inspection Note was notified to it, which relates to the conclusion of the inspection acts, and this did not result in any restriction on the exercise of the subsequent right to be heard, which was exercised by the appellant and whose arguments were identified and taken into account in the decision contained in the final Tax Inspection Report, and therefore this allegation is without merit.

Regarding Pretermission of Essential Legal Formality

B.4.3. In the petition for gracious complaint, two allegations are invoked, one relating to non-compliance with the provisions of article 40 of TCPT, because the representatives were not notified of the assessment object of the case, the other, because the notification in question made to the appellant in its capacity as a commercial corporation was not made in personal form, as results from article 41 of TCPT.

B.4.4. Regarding these allegations, the reasoning provided in the draft decision rejecting the Gracious Complaint (cf. item 8 at fls. 156-157 of RG), was not subject to contest in the context of the exercise of the right to be heard materialized on 2012-06-29, nor again alleged in the petition of Administrative Appeal, except that the appellant was not notified in accordance with the terms provided in paragraph a) of no. 1 of article 60 of TLG - lack of prior hearing before assessment, which is without merit as this is not the appropriate means to analyze what was requested given that it was not subject of the decision rejecting the Gracious Complaint.

Regarding Lack of Reasoning of the Assessment Act

B.4.5. In doctrine and jurisprudence, it is settled that the reasoning must be:

B.4.5.1. Express: succinct exposition of the grounds of fact and law of the decision.

B.4.5.2. Clear: allowing through its terms that the facts and the law on which the decision is based are understood with precision.

B.4.5.3. Sufficient: enabling the administered party/taxpayer concrete knowledge of the motivation of the act, the reasons of fact and law that determined the agency or agent to act as it acted.

B.4.5.4. Congruent: so that the decision constitutes a logical and necessary conclusion of the reasons invoked as its justification, involving among them a judgment of adequacy, and there cannot be contradiction between the grounds and the decision (cf. SAC, Case 0759/06, of 15-11-2006).

B.4.5.5. Reasoning is a relative concept that varies according to the legal type of act, which aims to respond to the need to clarify the administered party/taxpayer, seeking to inform them through it of the cognitive and evaluative path of the act and allow them to know the reasons, of fact and law, that determined and why the decision was made in one sense and not another, and therefore an act is reasoned always when the administered party/taxpayer, in the position of normal recipient, is duly clarified about the reasons that motivated it, consequently being enabled to challenge it appropriately in terms of paragraph c) of article 99 of TCPT.

B.4.5.6. However, the reasoning does not need to be an exhaustive description of all the reasons that were at the basis of the decision, it is sufficient that it translates into a "succinct exposition of the grounds of fact and law" or into a "mere statement of agreement with the grounds of earlier opinions, Information or proposals which will constitute in this case an integral part of the respective act, pursuant to article 125 of CPA, which is designated reasoning by adhesion or referral (cf. SAC Case 742/03, of 26-05-2004, Case 0759/06, of 15-11-2006, Case 0247/08 of 04-06-2006).

B.4.6. The acts performed by TA in the course of the tax inspection action, clearly inform the appellant of the reasons that motivated the corrections, then, being at issue acts of IRS assessment, the law requires for that purpose only the compliance with the general requirements of reasoning contained in nos. 1 and 2 of article 77 of TLG, materialized in a "standardized" and "computerized" form, given the nature of "mass process" of these assessments (cf. SAC, Case 0246/09, of 17-08-2009).

But even though the note of Personal Income Tax Withholdings at Source assessment for the year 2010 (cf. fls. 25 of RG), does not expressly state for informational purposes that its origin was in the inspection action, these documents are always capable of being implicitly correlated, and since the appellant is notified of the Tax Inspection Report, it was informed therein of the prompt performance of the respective assessment, with the Tax Inspection Report containing the values for fixing taxable income, equally set forth in the respective assessment note, since this circumstance of express absence for informational purposes, would not prevent the appellant from filing a Gracious Complaint regarding the assessment, given that it was always provided with the reasoning contained in the Tax Inspection Report (including the draft), which was at its genesis, and it cannot be said that prejudice resulted to its defense (cf. SAC, Case 0246/09, of 17/6).

Regarding Nullity of the Assessment Due to Non-Existence of the Taxable Event

B.4.7. It results from the case that we are in the presence of remuneration resulting from the entering into of temporary work contracts, which even provide for the payment of travel allowances (Cf. fls. 37 of RG), and regarding this type of payments, as was referred to in item B.3., in light of the legal-tax framework established in the Binding Opinion (Case …/2002), with concordant dispatch dated 2003-10-25, from the Director-General of Taxes, the remuneration (travel allowances), thus determined, is considered consideration and, as such, is subject to taxation as income of Category A of the IRS, and therefore taking into account the provision of no. 1 of article 68-A of TLG, this framework is binding on TA.

B.4.8. A different question relates to the attribution of joint and several liability, pursuant to no. 4 of article 103 of the IRS Code, regarding the value of the withholdings at source not effected on the aforementioned payments, on which the appellant presented extensive reasoning, let us see:

B.4.8.1. Being at issue withholdings at source with the nature of payment on account, the mechanism of tax substitution operates when the law determines that the tax liability be demanded from a person different from the taxpayer (cf. article 20 of TLG), with the substituted person - person as to whom the taxable events are verified (true taxpayer or worker) bearing the original liability for the unwithheld tax and the substitute - linked to the taxpayer by an underlying relationship of private law, under which it is the debtor of the provision of income (understood as the person making the payments of the income), bearing subsidiary liability, and this is still subject to compensatory interest due from the end of the delivery period to the end of the period for filing the declaration by the original liable person or to the date of delivery of the withheld tax, whichever is earlier (cf. no. 2 of article 27 of TLG).

B.4.8.2. However, in the wording given by Law no. 53-A/2006, of 29 December, entering into force on 2007-01-01, the State Budget Law for 2007 added no. 4 to article 103 of the IRS Code, providing that "In the case of income subject to withholding that have not been recorded nor communicated as such to the respective beneficiaries, the substitute assumes joint and several liability for the unwithheld tax."

B.4.8.3. Regarding the scope of this norm, the State Budget Report for 2007 references that this concerns the institution of a regime of joint and several liability of the substitute for the unwithheld tax to the beneficiaries of the income in situations qualified as fraudulent practices related to the omission or reduction of the amount of remuneration paid, whether by its non-recording, whether by its characterization as income not subject to taxation (e.g. travel allowances).

B.4.8.4. Citing Manuel Faustino, this amendment provided legal basis for immediate assessment of the amount of withholdings that should have been effected and were not to the entity itself owing them, naturally increased by the corresponding compensatory interest, but it should have been defined the substitute also as subsidiarily liable and defined subsidiary liability as joint and several, which is not even new, because subsidiarily liable persons are, as a rule, jointly and severally liable among themselves, not establishing the amendment in question, for the holders of the income, the right to invoke, in the tax return declaration, which necessarily they will subsequently have to present if they have not done so before, the value of the "withholding" that TA will have "assessed" to the substitute, under penalty of collecting the same tax from two distinct taxpayers, incurring, apparently, in what technically is denominated "duplication of collection".

B.4.8.5. Taking into account the wording established in no. 4 of article 103 of the IRS Code, the allegation that joint and several liability operates in the phase of enforcement is without merit, as it does not fall to TA, pursuant to article 281 of the CRP, to examine the vice of unconstitutionality relating to the constitutional principle of taxpayer capacity, by violation of the provisions of nos. 1 and 2 of article 104 of the CRP.

Regarding Illegality of the Assessment of Compensatory Interest

B.4.9. Regarding compensatory interest, these are due when, due to a fact attributable to the taxpayer, the assessment of part or all of the withheld or to be withheld tax is delayed within the scope of tax substitution (cf. no. 1 of article 35 of TLG, and no. 1 of article 91 of IRS Code), and is counted day by day from the end of the period for delivery of the withheld or to be withheld tax, until the cessation of the failure that caused the delay in the assessment (cf. no. 3 of article 35 of TLG), being integrated into the tax debt itself, with which they are jointly assessed (cf. no. 8 of article 35 of TLG), and the assessment must always clearly show the principal amount of the liability and the compensatory interest, explaining with clarity the respective calculation and distinguishing them from other liabilities due (cf. no. 9 of article 35 of TLG).

B.4.9.1. In the jurisprudence of the Courts, it is given as settled that the minimum reasoning required in the matter of compensatory interest assessment acts does not even mention the legal norm under which the compensatory interest was assessed, as it is common knowledge that if the delay in assessing the Tax due is attributable to the taxpayer there is place for the assessment of compensatory interest, and the same is satisfied with the mere reference to the omitted act that originated it, to the amount of tax on which compensatory interest was assessed, to the rate or rates applied and to the period of time in which such compensatory interest is due (cf. SAC, Case 0928/11, of 29-02-2012), with all the elements previously referenced appearing in the assessment note, including the reference that for consultation, in its entirety, of the assessment calculations, should be directed to a Finance Service, also appearing in the Tax Inspection Report, a specific chapter for the violations verified, and the allegations invoked in this matter are without merit, and the allegation relating to pretermission of essential legal formality is not examined, contrary to the provisions of article 60 of TLG, as it was not subject to the decision rejecting the Gracious Complaint.

k) The Claimant provided a bank guarantee up to the limit of €265,473.98, to suspend fiscal enforcement proceedings number … 2012 …, instituted for collection of the assessed amount of €208,778.10, plus default interest in the amount of €921.83 and costs in the amount of €762.09 (documents nos. 7 and 8, attached with the request for arbitral award, the contents of which are reproduced herein);

l) On 20-02-2015, the Claimant submitted the request for arbitral award that gave rise to the present proceedings.

2.2. Unestablished Facts

It was not established that the Claimant had provided the "security deposit" which in article 159 of the request for arbitral award it sought to prove with document no. 8, as this document makes no reference to it.

2.3. Reasoning of the Decision on the Statement of Facts

The facts established as proven based on the documents attached with the request for arbitral award and the administrative file, with no controversy regarding them.

The witness evidence obtained through recording does not appear relevant to examine the questions that are raised by the Claimant.

3. Matter of Law

3.1. Order of Examination of the Defects

In accordance with the provisions of article 124 of TCPT, subsidiarily applicable by virtue of the provisions of article 29, no. 1, of the LFTA, not being attributed to the challenged acts defects that lead to the declaration of non-existence or nullity, nor indicated a relationship of subsidiarity, the order of examination of the defects should be that, according to the prudent judgment of the arbitrator, most stable or effective for the protection of the injured interests.

In the case at hand, interpreting the request for arbitral award, it can be inferred that the Claimant wishes to have examined, in the first place, the defect of lack of reasoning and, then, the defect of pretermission of the right to be heard.

Subsequently, the Claimant states that "however, as a mere precaution, while making no concessions, it is still important to state and consider the following:" (article 38 of the request for arbitral award), going on to attribute to the challenged acts defects of non-existence of the taxable event and of violation of constitutional and statutory principles, illegality of the administrative procedure and illegality of the assessment of compensatory interest (by defect of form and by defect of violation of law).

From the expression used, "as a mere precaution," one could infer, in an initial analysis, that the Claimant only attributes this latter defect subsidiarily, as a precaution in the event the first two defects prove to lack merit.

However, in article 47 of the request for arbitral award the Claimant states that "as results from the Tax Inspection Report drawn up by reference to the fiscal year 2010 - whose relationship with the assessment act now contested is unknown, but is admitted, as a matter of precaution, even though without conceding -, the corrections made therein are related to the following facts," which allows the conclusion that the Claimant does not intend that the defects of violation of law which it subsequently attributes to the assessments challenged not be examined.

In the case at hand, what the Claimant primarily defends is that, in the absence of an express referral in the assessment act to the Tax Inspection Report, it cannot be understood that it is based on it, but, if it is not thus understood, the act should be annulled by defect of violation of the norms of TLG, IRS Code and the constitutional principles and norms it invokes, in addition to illegality of the inspection procedure.

The defects will be examined taking into account this position assumed by the Claimant, but the question of the lack of reasoning of the assessments of compensatory interest will be examined together with the question of the lack of reasoning of the IRS assessment, given their affinity.

3.2. Defect of Lack of Reasoning

The Claimant attributes to the challenged act the defect of lack of reasoning in two respects: in one of them, it refers to the entirety of the assessment act, which includes the amount of compensatory interest, arguing, in summary, that there is no indication therein of the legal norms on which it is based nor any express referral to any document that contains that reasoning; furthermore, regarding the assessments of compensatory interest, the Claimant attributes the defect further because no "reference is made to the supposed delay in the assessment of the tax resulting from a fact attributable to the taxpayer."

3.2.1. Question of the Lack of Reasoning Regarding the Part of the Assessment Relating to IRS (Withholdings at Source)

The requirement for reasoning of harmful administrative acts is contained in no. 3 of article 268 of the CRP, which establishes that "administrative acts are subject to notification to the interested parties, in the form provided by law, and require express and accessible reasoning when they affect rights or legally protected interests."

Especially for the reasoning of tax acts, article 77, nos. 1 and 2, of the TLG, establishes that "the decision of the procedure is always reasoned by means of a succinct exposition of the reasons of fact and law that motivated it, and the reasoning can consist of a mere statement of agreement with the grounds of earlier opinions, information or proposals, including those that make up the tax inspection report" and that "the reasoning of tax acts can be done in a summary manner, and must always contain the applicable legal provisions, the qualification and quantification of the taxable events and the operations for determining the taxable matter and the tax."

The Supreme Administrative Court has uniformly understood that the reasoning of an administrative or tax act is a relative concept that varies according to the type of act and the circumstances of the specific case, but that reasoning is sufficient when it allows a normal recipient to perceive the cognitive and evaluative path followed by the author of the act to render the decision, that is, when he can know the reasons why the author of the act decided as it decided and not differently, so as to be able to trigger administrative or judicial mechanisms of challenge. ( [1] )

Although it is necessary to distinguish between the act of assessment and the act of notification through which it is communicated to the recipient, in the case at hand it was not established that there is any other document relating to the assessment act other than the one reproduced in document no. 2 attached with the request for arbitral award, and therefore one must proceed on the premise that it is a copy of the act that was performed, which will have no other content beyond what it contains.

From the document referred to, it is verified that it contains only, regarding the tax:

– the year to which it relates;

– an indication that it is "WITHHOLDINGS AT SOURCE OF IRS" and of "dependent employment";

– the amount assessed;

– a reference to the "period to which the tax relates" in which the numbers 01 to 12 are indicated.

Regarding compensatory interest, the manner in which they were calculated is indicated, namely the base values, the periods to which they relate, the rate applied and the value corresponding to each period.

No reference is made to any prior inspection act, or any tax inspection report or any other document that can be considered as reasoning for the assessment act.

It is, thus, manifest that the assessment act is not reasoned in the terms required by article 77, nos. 1 and 2, of the TLG, as, besides not containing "exposition of the reasons of fact and law" on which it is based, it does not even contain any statement of agreement with the grounds of any other act, namely the Tax Inspection Report referred to in the case.

In fact, as the Tax and Customs Authority correctly states in its Response, the reasoning "must be clear, sufficient and congruent, demonstrative of the reasons of fact and law of the decision, so as to allow a normal recipient to understand the sense and scope of this."

In the case at hand, even if it were considered that the indication of the months to which the "withholdings at source" relate and the indication that it is tax on income derived from "dependent employment" constitute sufficient exposition of the reasons of fact on which the assessment is based, it is inescapable the lack of reasoning regarding the reasons of law that motivated it, whose exposition must appear in the act, directly or through a statement of agreement with that which appears in another document.

On the other hand, the thesis defended by the Tax and Customs Authority that "the circumstance that therein the assessments were identified as relating to withholdings at source and compensatory interest of the year 2008, in the total amount of €127,763.02, allowed any recipient, with the level of technical knowledge and advice of the Claimant, to associate them to the Report of the Inspection Services, of whose reasoning it had been recently notified" ( [2] ) does not allow for the correction of the lack of reasoning which consists of there being no allusion to the Tax Inspection Report that can be considered as a "statement of agreement" with it, as, in light of the constitutional requirement that reasoning be express (article 268, no. 3, of the CRP), it is essential that such "statement" have a minimum textual support.

Furthermore, regarding compensatory interest, the Tax Inspection Report itself is completely silent as to the reasons of fact and law why the Tax and Customs Authority understood them to be due and the mere indication of the periods and rate that were used in their calculation, even if it clarifies some of the factual presuppositions, reveals nothing about the grounds of law.

In this context, being manifest that the challenged assessment suffers from the defect of lack of reasoning, the question that arises, which the Tax and Customs Authority addresses in article 24 of the Response, is to know the relevance that can be attributed to the fact that, from the request for arbitral award, one can conclude "that the Claimant well understood the essence of all the presuppositions that sustained the tax acts examined" and that "there was assimilation of the entire decision path of TA in the corrections and subsequent assessments that it promoted."

In fact, it follows from the request for arbitral award and the administrative challenges that preceded it that the Claimant realized that the Tax Inspection Report was underlying the corrections effected, whose reasoning was expressly assumed in the decisions of gracious complaint and administrative appeal, which preceded the submission of the request for arbitral award.

It is certain that successive or a posteriori reasoning of tax or administrative acts is not admissible, as has been widely settled. ( [3] )

However, it is admissible, within the respective legal conditionalism, the revocation of valid administrative acts (art. 140 of CPA) or invalid ones (art. 141 of the same Code), and their replacement with others with different reasoning, which, in the case where the original act suffers from the defect of lack of reasoning or it is erroneous, will configure ratification-sanation.

In fact, the possibility of convalidation of acts that suffer from formal defects due to lack of reasoning has been admitted by the Supreme Administrative Court ( [4] ), namely through a subsequent act performed by an entity with powers of reexamination that maintains the challenged act with alteration of the reasoning, which has legal support in the generic provision of the possibility of ratification of voidable acts, provided for in art. 137 of the CPA of 1991 and in art. 79, no. 1, of the TLG. However, such possibility can only be recognized in the cases in which the objectives are satisfied that are aimed at with the legal imposition of the reasoning of administrative acts, namely at the level of the deliberation of the author of the act and the guarantees of judicial challenge. Therefore, convalidation of the act based on the reasoning later adopted by an entity with powers of reexamination can only be accepted if, on the one hand, the elements invoked therein are not subsequent to the performance of the act and are not elements that were not considered by its author when it performed it and, on the other hand, if such reasoning is brought to the knowledge of the recipients in time so as not to prejudice their right of judicial challenge. ( [5] )

In tax contentious proceedings the powers of entities competent for the examination of administrative challenges, namely gracious complaint and administrative appeal, always encompass the entirety of the decision appealed, as can be inferred from no. 3 of art. 47 of TCPT, when it speaks of "reexamination of the decision." Therefore, the administrative appeal in tax contentious proceedings assumes "the nature of a reexamination-type appeal and not review-type appeal (reexamination appeals are those which, bearing on a broader reality, effectively imply a new examination of the case, and review-type appeals are those which have only the appealed act as their object)." ( [6] )

In the case at hand, despite the lack of express reference to reasoning in the assessment act, the Claimant challenged it through gracious complaint and administrative appeal, in whose decisions it became clear that the reasoning of the assessment act is that which appears in the Tax Inspection Report that preceded the assessment, which was adopted, in essential respects, finally, in the decision of the administrative appeal as is seen from the partial reproduction of its decision that is included in paragraph j) of the statement of facts established.

On the other hand, as for the IRS, the amount assessed is exactly that which was indicated in the Tax Inspection Report, and therefore there is no reason to doubt that it was based on this Report that the assessment was effected and, having the request for arbitral award been presented following notification of the decision of the administrative appeal, it must be concluded that the assessment act for IRS can be considered convalidated, in line with the cited jurisprudence.

Furthermore, this reasoning was brought to the knowledge of the Claimant in time to exercise adequately the right of judicial challenge, which the Claimant effectively exercised, as is evidenced by the request for arbitral award.

Thus, the IRS assessment should be considered convalidated regarding the lack of reasoning, by the decision of the administrative appeal, and therefore the original defect of the assessment does not have invalidating effect.

3.2.2. Question of the Lack of Reasoning Regarding the Part of the Assessment Relating to Compensatory Interest

Regarding the assessments of compensatory interest, it is also verified that there is lack of reasoning, as those are limited to mentioning the periods and the rate that were considered to calculate the interest and the Tax Inspection Report states nothing about compensatory interest.

The requirement for compensatory interest does not necessarily follow from the finding of the existence of a correction to be effected.

In fact, article 35, no. 1, of the TLG establishes that "compensatory interest is due when, due to a fact attributable to the taxpayer, the assessment of part or all of the tax due or the delivery of tax to be paid in advance, or withheld or to be withheld within the scope of tax substitution, is delayed."

Objective liability is exceptional, only occurring in the cases specified in the law (art. 483, no. 2, of the Civil Code) and, therefore, it should be understood that, for purposes of liability for compensatory interest, one is only faced with a "fact attributable to the taxpayer" when a judgment of censure can be made regarding his conduct.

In this line, the Supreme Administrative Court has uniformly understood that the attributability required for liability for the payment of compensatory interest depends on the existence of fault on the part of the taxpayer. ( [7] )

In the face of the lack of indication in the assessment and in the Tax Inspection Report of the reason why it was understood that compensatory interest is due, one is left without knowing whether the Tax and Customs Authority understood that liability for compensatory interest is automatic, flowing from the very fact that corrections have been effected, or whether it concluded that a judgment of censure regarding the performance of the Claimant can be formulated, capable of meeting the requirement of attributability, a situation in which the reasoning should contain indication of the facts underlying that judgment of censure.

On the other hand, the clarification in the administrative appeal of the reasons for the assessment of compensatory interest, without any indication allowing the conclusion that they were weighed by the entity that performed the assessment, is a posteriori reasoning, which is widely settled as being irrelevant for purposes of assessing the legality of tax acts.

Moreover, containing article 35 various situations in which the assessment of compensatory interest can be justified, express and sufficient reasoning would require that it be indicated in which part of that article the Claimant's performance was understood to be framed.

In any case, there is lack of reasoning regarding the verification of all the requirements provided for in article 35, no. 1, of the TLG, and therefore the assessment of compensatory interest suffers from the defect of lack of reasoning.

As there is no reference in the Tax Inspection Report to compensatory interest, the referred possibility of convalidation does not arise regarding the assessments of compensatory interest, as it is indispensable for this to be viable that one can conclude that the reasons invoked in the administrative challenge were effectively weighed by the author of the act.

Therefore, the assessments of compensatory interest challenged suffer from the defect of lack of reasoning.

3.3. Pretermission of the Right to be Heard

The Claimant attributes the defect of procedural violation to the challenged act, for not having been provided prior hearing, in accordance with article 60, no. 1, paragraph a), of the TLG.

The Tax and Customs Authority understands that the Claimant does not have grounds, invoking, in summary, the dispensation that follows from no. 3 of art. 60 of the TLG, since the Claimant exercised the right to be heard in the inspection procedure.

Article 60 of the TLG establishes the following:

Article 60

Principle of Participation

1. The participation of taxpayers in the formation of decisions that concern them can be effected, whenever the law does not prescribe otherwise, by any of the following forms:

a) Right to be heard before assessment;

b) Right to be heard before the total or partial rejection of requests, complaints, appeals or petitions;

c) Right to be heard before the revocation of any benefit or administrative act in tax matters;

d) Right to be heard before the decision to apply indirect methods, when there is no tax inspection report;

e) Right to be heard before the conclusion of the tax inspection report.

2 - Hearing is dispensed in the case:

a) If the assessment is effected based on the taxpayer's declaration or the decision on the request, complaint, appeal or petition is favorable to him;

b) If the assessment is effected officially, based on objective values provided for in the law, provided that the taxpayer has been notified to submit the missing declaration, without having done so.

3 - Having the taxpayer been previously heard in any of the phases of the procedure referred to in paragraphs b) to e) of no. 1, the hearing before assessment is dispensed, except in the case of invocation of new facts on which he has not yet pronounced himself.

1. The right to be heard must be exercised within the period set by the tax administration in a registered letter to be sent for that purpose to the taxpayer's tax address.

2. In any of the circumstances referred to in no. 1, for purposes of exercising the right to be heard, the tax administration must communicate to the taxpayer the draft decision and its reasoning.

3. The period for the exercise orally or in writing of the right to be heard is 15 days, and the tax administration may extend this period to a maximum of 25 days depending on the complexity of the matter.

4. The new elements raised in the hearing of the taxpayers are mandatorily taken into account in the reasoning of the decision.

The right to be heard has constitutional roots, being postulated by article 267, no. 5, of the CRP, which establishes that "the processing of administrative activity will be subject to a special law, which will ensure the rationalization of the means to be used by the services and the participation of citizens in the formation of decisions or deliberations that concern them."

But, as results from this norm, the Constitution does not regulate the regime of the right to be heard, relegating to the "special law" the definition of the terms in which such right will be exercised, terms in which various factors, including economic and practicability factors, can be taken into account.

It is in this context that no. 3 of article 60 of the TLG, invoked by the Tax and Customs Authority in the present proceedings, provides situations in which prior hearing before assessment is dispensed.

In the case at hand, it is not disputed in the present proceedings that paragraph a) of no. 1 of article 60 of the TLG guarantees taxpayers the right to be heard before assessment, which results from the express tenor of this norm, and therefore the question to be examined reconditions itself to knowing whether one is faced with a situation in which hearing before assessment is dispensed by no. 3 of the same article.

This no. 3 dispenses the right to be heard before assessment if the taxpayer has been previously heard in any of the phases of the procedure referred to in paragraphs b) to e) of no. 1, except in the case of invocation of new facts on which he has not yet pronounced himself.

In the case at hand, the Claimant had the possibility to exercise the right to be heard based on the draft Tax Inspection Report, which is a situation that can be framed in paragraph e) of no. 1 of article 60 of the TLG, and therefore, in principle, one is faced with a potential situation of application of the dispensation of the right to be heard before assessment.

Therefore, the necessity of ensuring the right to be heard before assessment can only result from the exception provided for in the final part of no. 3, that is, from new facts having been invoked on which the taxpayer has not yet had the prior opportunity to pronounce himself.

Examining the assessment and the draft Tax Inspection Report, which served as the basis for the exercise of the right to be heard, it is verified that the only point on which the Claimant did not have the opportunity to pronounce himself is that of compensatory interest, as the Claimant did not include in the draft Tax Inspection Report any reference to compensatory interest, only introducing it in the final part of the Tax Inspection Report itself, after the Claimant had already exercised the right to be heard.

As the Tax and Customs Authority clarifies in the decision of the administrative appeal, the assessment of compensatory interest was based on the understanding that there was a delay in the assessment of IRS attributable to the Claimant, and therefore it must be concluded that in the assessments of compensatory interest the Tax and Customs Authority took into account new facts, inherent to the formulation of judgments about the existence of the nexus of causality and fault.

Therefore, it must be concluded that, regarding the assessments of compensatory interest, one is not faced with a situation of dispensation of hearing before assessment, and therefore its pretermission constitutes pretermission of legal formality, as the Claimant contends.

It should be noted that, although the consideration of new facts inherent to the imposition of compensatory interest is what justifies the dismissal of the dispensation of the right to be heard before assessment, being a formality of the assessment procedure that should precede the final act, its pretermission implies the invalidity of the very final act of the assessment procedure, not arising regarding this defect the possibility of division of the act, for purposes of annulment.

That is, it not being a case of dispensation, the right to be heard had to be ensured before the assessment act, by virtue of paragraph a) of no. 1 of article 60 of the TLG, and, therefore, the pronouncement of this act is globally illegal.

Thus, the request for arbitral award proceeds regarding this defect.

3.4. Question of the Illegality of the Assessment Due to Non-Existence of Taxable Event

Within the scope of the attribution of this defect to the challenged assessments, the Claimant argues, in summary, that, being a substitute, it cannot be required to pay the tax in the phase of voluntary payment.

The question is raised by the Claimant regarding the IRS and not compensatory interest.

Article 21 of the IRS Code establishes that "when, through tax substitution, this Code requires the payment of all or part of the IRS to a person other than the one in relation to whom the respective presuppositions are verified, the substitute is considered, for all legal purposes, as the principal debtor of the tax, with the exception of the provisions of article 103." ( [8] )

In this article 103, which is in consonance with article 28 of the TLG, various situations are distinguished.

In its no. 1, situations are provided for in which withholding occurred without delivery by the substitute of the withheld amounts, a case in which the substitute is the sole liable for the payment of the tax and therefore that rule of article 21 applies fully.

In no. 2 of the same article, for cases where withholding is effected merely as payment on account of tax ultimately due, the rule is established that "the substitute is liable for the original liability for the unwithheld tax and the substitute for subsidiary liability," which reconditions to a departure from that rule of article 21.

For the remaining cases, was provided, in no. 3 of article 103, the rule that "the substituted person is only subsidiarily liable for the payment of the difference between the amounts that should have been deducted and those that were actually deducted." In these situations the rule of article 21 also applies.

Law no. 53-A/2006, of 29 December, added to article 103 of the IRS Code a no. 4, in which it establishes that "in the case of income subject to withholding that have not been recorded nor communicated as such to the respective beneficiaries, the substitute assumes joint and several liability for the unwithheld tax."

It was in this no. 4 that the Tax and Customs Authority based itself to assess the IRS and compensatory interest and notify the Claimant for its payment.

This norm specifically aims at payments of income that constitute "remuneration" as was made clear by the State Budget Report for 2007, in which is stated, on page 29, the following:

Joint and Several Liability

Institution of a regime of joint and several liability of the substitute for the unwithheld tax to the beneficiaries of the income in situations qualified as fraudulent practices related to the omission or reduction of the amount of remuneration paid, whether by its non-recording, whether by its characterization as income not subject to taxation (e.g. travel allowances).

It is, thus, a provision potentially applicable to the situation at hand, as it was attributed to the Claimant the failure to withhold IRS regarding amounts that were recorded and paid as travel allowances, when, in the understanding of the Tax and Customs Authority, should be considered as remuneration for its workers.

This no. 4 constitutes an exception to the rule of no. 2, applicable to the remaining situations of withholding at source of income effected merely as payment on account of tax ultimately due, in which is established that "the substituted person bears the original liability for the unwithheld tax and the substitute the subsidiary liability." ( [9] )

But, as is seen from the fact that in this no. 4 the substitute's liability is provided for as joint and several, the original debtor of the unwithheld tax continues to lie with the substituted person, and the exceptional regime of no. 4 is confined to the nature of the substitute's liability which, instead of being subsidiary, is joint and several, in addition to the substitute being exclusively liable for the "compensatory interest due from the end of the delivery period to the end of the period for the filing of the declaration by the original liable person or to the date of delivery of the withheld tax, whichever is earlier."

In fact, must be distinguished the situations of original joint and several debtors and of joint and several liability for debts of others.

The solidarity among original debtors is provided for in situations where "the presuppositions of the taxable event are verified in relation to more than one person," in which, as a rule, "all are jointly and severally liable for the performance of the tax debt" (article 21, no. 1, of the TLG).

Different from this is the situation of the "joint and several liable," who is a "person extraneous to the constitution of the tax relationship who, by his particular connections with the original debtor or with the object of the tax, the law considers as a guarantor of the payment of the tax debt, in a position of legal guarantor." ( [10] )

This distinction appears clear in article 22 of the TLG, relating to "Tax Liability" in which is stated that "apart from the original taxpayers, tax liability can encompass solidary or subsidiarily other persons," which evidences that the joint and several liable (as well as the subsidiary liable) does not become considered an original taxpayer.

It is a situation of joint and several liability that is provided for the substitute in no. 4 of article 103 of the IRS Code, as the presuppositions of the taxable event are verified in relation to the IRS taxpayers who are the workers of the Claimant.

Thus, as article 21 of the IRS Code, although establishing the rule that the substitute is considered "as the principal debtor of the tax," reserves the provisions of article 103, it must be concluded that in these situations framed in no. 4, the substitute is not considered as the principal debtor of the unwithheld tax, but rather as joint and several liable, that is, is in a situation of guarantor of the payment of the tax debt, in a position of legal guarantor.

The question that the Claimant raises is whether, in these situations of joint and several liability of the substitute, it can be required to pay the tax debt in the phase of voluntary payment, namely by it and not the original debtor being notified for voluntary payment of the assessed amount.

The reason why in no. 2 of article 103 of the IRS Code, for cases of withholding "effected merely as payment on account of tax ultimately due," the rule of its article 21 of considering the substitute as the principal debtor of the tax is departed from, is that, in light of the general regime of the IRS, following the payments that occurred in a given year, there will, in the subsequent year, be a settlement of accounts, based on the entirety of income from various categories subject to aggregation, after deductions and legal deductions are made (article 22, no. 1 of the IRS Code) and also in the withheld tax. And in this assessment relating to the entirety of the income of a given year, it is the respective IRS taxpayer who is the original debtor, if there is tax to be assessed and to the extent there is tax to be assessed.

Therefore, in these cases of withholding effected as payment on account of the tax ultimately due, it is only after the IRS assessment is effected that one can know whether or not there is tax to be paid by the taxpayer and can know whether it will be necessary or not to hold the substitute liable for the unwithheld tax.

It is in light of this that the regime of requiring payment from joint and several liable for debts resulting from non-performance of the duty to withhold at source must be determined.

Neither the TLG nor the TCPT explicitly provide that regime, and therefore it must be inferred from the norms that relate to joint and several liable.

Article 9, no. 2, of the TCPT establishes that "the standing of joint and several liable results from the requirement in relation to them of the performance of the tax obligation or any tax duties, even together with the principal debtor."

From this norm it is concluded that the tax obligation can be required to be performed by joint and several liable even without being required of the principal debtor, as revealed by the final expression "even together with the principal debtor," which reveals that the requirement can be made to the joint and several liable, without it also being made to the principal debtor.

However, if it is certain that from this norm it is concluded that the requirement of the debt to the joint and several liable can be effected without being made to the principal debtor and it is certain that such possibility exists in the case of coercive payment, it is also certain that this norm does not allow the conclusion that that "requirement" can also be made in the phase of voluntary payment.

There is, however, another norm that allows the conclusion that the joint and several liable can also be notified for voluntary payment of the debt, which is no. 4 of article 22 of the TLG, which establishes that "the persons jointly or subsidiarily liable may appeal or challenge the debt for which liability is attributed to them in the same terms as the principal debtor, and for that purpose, the notification or citation must contain the essential elements of its assessment, including the reasoning in legal terms."

In fact, the requirement for payment of the debt in relation to the subsidiary liable is always made through "citation" in the fiscal enforcement proceeding [art. 23, nos. 1 and 4 of the TLG and art. 191, no. 3, paragraph b), of the TCPT], and therefore the reference to "notification" contained in that no. 4 of art. 22 can only relate to joint and several liable, and only takes place before fiscal enforcement, as the summoning of the joint and several liable to the fiscal enforcement proceeding is also effected through citation and not notification as is seen from the aforementioned art. 191, no. 3, paragraph b), of the TCPT.

Moreover, this possibility is in keeping with the primary rule of joint and several liability, stated in cited art. 512, no. 1, of the Civil Code, which is applicable both to the requirement of the debt either through judicial or extrajudicial means. ( [11] )

However, regarding the requirement of the tax obligation, one must heed the specificity of the tax norms that provide for notification of assessment, as they presuppose that notification of the assessment to the original debtor, as can be inferred from the references to "taxpayer" and not also to joint and several liable, which are made in art. 86, nos. 2 and 7, of the TCPT and in art. 45, no. 1, of the TLG. ( [12] )

In the tax codes reference is also made to notification of assessment to "taxpayers," using this expression to allude to original debtors, as can be seen, namely, by arts. 2 and 110 of the IRS Code, 13 and 104 of the IRS Code, 2, 91 and 92 of the VAT Code, 4, 31, no. 4, and 43 of the Stamp Tax Code. ( [13] ) In the same sense that the intervention of the joint and several liable cannot substitute, before the fiscal enforcement proceeding, the intervention of the principal debtor, point the norms that provide for the possibility of intervention of the "taxpayers" and not also of joint and several liable in the tax procedure, as is the case of the arts. 59 and 60 of the TLG.

Therefore, it is to be concluded that the possibility of voluntary payment of the tax debt must always be provided to the principal debtor, following notification of the assessment.

Thus, if it is certain that the joint and several liable can also be notified for voluntary payment of the debt, before fiscal enforcement is instituted, it should also be understood that his notification should be subsequent to that of the original debtor, only taking place in the case where voluntary payment by him is not effected.

Moreover, this will be the interpretation that is compatible with the constitutional principle of proportionality, since, being joint and several liability a liability for debts of others and being only in relation to the original debtor that the taxpaying capacity is verified that justifies taxation, it is not reasonable to require its payment without a situation of necessity being verified, which only occurs in the case of non-performance by the original debtor within the period of voluntary payment.

Being this the understanding that should be adopted in general regarding the requirement for payment to the joint and several liable, its adoption is all the more justified in the exceptional situation of joint and several liability provided for in article 103, no. 4, of the IRS Code, from the outset, because, before anything else, it is essential to determine whether there is any tax due by the original debtor and, if so, what is its amount, which, in the case of income subject to aggregation for determining the IRS, is obvious that it does not have to coincide with the amount that would be withheld at source if withholding at source were effected.

It is concluded, thus, that for these reasons, the Claimant is right to argue that there is non-existence of taxable event, regarding the assessment of IRS, as the taxable event that generates joint and several liability is constituted by the non-voluntary payment by the original debtors of the amounts of IRS not withheld that could be required of each of them (and not by the amount that should have been withheld, which is only the maximum limit of the joint and several liable's liability, at the level of the tax), a situation which has not occurred.

In fact, as the Claimant argues, should the amounts paid in the form of travel allowances be considered remuneration, it is the situation of those to whom the income was paid without withholding that needs correction and only after determining what the amount of the tax to be paid by all of them is that there can exist a situation of the Claimant as joint and several liable, regarding the amount that is to be determined, to the extent it is not paid voluntarily.

It is justified, therefore, the annulment of the assessment of IRS, on the ground of defect of violation of law, due to non-existence of taxable event.

Proceeding with the request for arbitral award regarding the IRS assessment, due to defect of violation of law, the examination of the questions of constitutionality that the Claimant raises, regarding the norm of article 103, no. 4, of the IRS Code, becomes unnecessary, as it is pointless.

3.5. Illegality of the Inspection Procedure

The Claimant attributes a defect to the inspection procedure, for, in summary, having exceeded the period provided for in article 62, no. 2, of the Supplementary Rules for Tax Inspection Procedure (SRTIP).

Article 62, no. 2, of the SRTIP establishes that "the report referred to in the previous number must be notified to the taxpayer by registered letter within 10 days following the end of the period referred to in no. 4 of article 60, and the procedure is considered concluded on the date of notification."

This is, manifestly, an organizational period, intended to impart celerity to the tax inspection procedure, as its non-observance does not affect the exercise of any procedural right of the recipient of the notification.

Excess of periods for performance of acts by the Tax and Customs Authority in the tax inspection procedure does not have the effect of invalidating the procedural decision. ( [14] )

Therefore, the request for arbitral award regarding this defect is without merit.

3.6. Question of the Illegality of the Assessment of Compensatory Interest

In the notification effected to the Claimant for voluntary payment, an IRS assessment was included, with number 2012 …, and eight assessments of compensatory interest, with consecutive numbers from 2012 … to 2012 ….

Article 103, no. 2, of the IRS Code, in effect in 2010, establishes, in consonance with article 28, no. 2, of the TLG, that "when withholding is effected merely as payment on account of tax ultimately due, the substituted person bears the original liability for the unwithheld tax and the substitute the subsidiary liability, and the latter is still subject to compensatory interest due from the end of the delivery period to the end of the period for filing the declaration by the original liable person or to the date of delivery of the withheld tax, whichever is earlier."

As is seen, this final part relating to compensatory interest, does not establish a joint and several or subsidiary liability of the entity that should proceed to withholding, establishing instead a liability of this as principal debtor of compensatory interest, as the Claimant itself recognizes in article 88 of the request for arbitral award.

Beyond the question of lack of reasoning, to which reference has already been made, the Claimant attributes the defect to the assessments of compensatory interest, for not having had the opportunity to participate in prior hearing, in the decision to assess compensatory interest, and therefore the assessments referred to will be illegal "not only due to lack of reasoning, but also due to pretermission of essential legal formality, and therefore, pursuant to the terms and for the purposes of the provisions of article 135 of the Code of Administrative Procedure, should be annulled" (articles 156 and 157 of the request for arbitral award).

These defects have already been examined above, in points 3.2.2. and 3.3. of this award, and therefore there is nothing to add.

3.7. Illegality of the Dispatch Rejecting the Administrative Appeal

The dispatch rejecting the administrative appeal, insofar as it maintained the acts of assessment of IRS and compensatory interest, is affected by the same defects from which it suffers, and therefore its annulment is also justified.

4. Indemnity for Unwarranted Guarantee

The Claimant formulates a request for recognition of the right to indemnity for provision of unwarranted guarantee.

As results from paragraph k) of the statement of facts established, the Claimant provided a bank guarantee up to the amount of €265,473.98, to obtain suspension of the fiscal enforcement proceeding relating to the collection of the VAT debt assessed.

In accordance with the provisions of paragraph b) of art. 24 of the LFTA the arbitral decision on the merits of the claim for which there is no appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and this must, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of the decisions of the tax courts, "restore the situation that would exist if the tax act object of the arbitral decision had not been performed, by adopting the acts and operations necessary for that purpose."

Regarding the request for condemnation to the payment of indemnity for provision of unwarranted guarantee, art. 171 of the TCPT, establishes that "indemnity in case of bank guarantee or equivalent unwarrantedly provided will be requested in the proceedings in which the legality of the debt to be enforced is disputed" and that "indemnity must be requested in the complaint, challenge or appeal or in case its ground is subsequent within 30 days of its occurrence."

Thus, it is unequivocal that the judicial challenge proceedings encompass the possibility of condemnation to payment for unwarranted guarantee and it is, in principle, the adequate procedural means to formulate such request, which is justified by evident reasons of procedural economy, as the right to indemnity for unwarranted guarantee depends on what is decided about the legality or illegality of the assessment act.

The request for constitution of the arbitral tribunal and for arbitral award has as a corollary the passing over to the arbitral proceedings of what is to be discussed regarding "the legality of the debt to be enforced," and therefore, as results from the express tenor of that no. 1 of the aforementioned art. 171 of the TCPT, the arbitral proceedings is also the adequate one to examine the request for indemnity for unwarranted guarantee.

The regime of the right to indemnity for unwarranted guarantee is contained in art. 52 of the TLG, which establishes the following:

Article 53

Guarantee in Case of Unwarranted Provision

1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent will be indemnified wholly or partially for the prejudices resulting from its provision, if he maintained it for a period exceeding three years in proportion to the favorable ruling in administrative appeal, challenge or opposition to enforcement which have as their object the debt guaranteed.

2. The period referred to in the previous number does not apply when it is verified, in gracious complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The indemnity referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in the present law and can be requested in the very proceeding of gracious complaint or judicial challenge, or autonomously.

4. The indemnity for provision of unwarranted guarantee will be paid by offset against the revenue of the tax in the year in which payment was made.

In the case at hand, it is manifest that the defects affecting the acts of assessment of IRS and compensatory interest are attributable to the tax administration, as the corrections were of its initiative and the Claimant in no way contributed to such errors being committed.

Therefore, the Claimant has the right to indemnity for the guarantee provided.

As there are no elements allowing determination of the amount of the indemnity, the condemnation will have to be effected with reference to what is to be assessed in execution of the present award (arts. 609, no. 2, of the Code of Civil Procedure and 565 of the Civil Code).

5. Decision

In light of the foregoing, the members of this Arbitral Tribunal agree to:

a) Find the request for arbitral award to have merit;

b) Annul the assessment of IRS number 2012 … and the assessments of compensatory interest numbers 2012 …, 2012 …, 2012 …, 2012 …, 2012 …, 2012 …, 2012 … and 2012 …

c) Find the request for arbitral award to have merit regarding the recognition of the right to indemnity for unwarranted guarantee and condemn the Tax and Customs Authority to pay the amount to be determined in execution of the present award.

6. Value of the Proceedings

In accordance with the provisions of article 306, no. 2, of the CCP of 2013, article 97-A, no. 1, paragraph a), of the TCPT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €208,778.10.

7. Costs

Pursuant to art. 22, no. 4, of the LFTA, the amount of costs is set at €4,184.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 20 September 2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Hélder Faustino)

(Ricardo Marques Candeias)