CAAD Case 13/2019-T: IRC Employment Tax Benefit and Deductibility of Expenses Under Article 23 of IRC Code

ARBITRAL DECISION

Arbitral Tax Jurisprudence

Case No. 13/2019-T

Decision Date: 2019-09-10

Corporate Income Tax (IRC)

Value of Claim: €91,220.44

Subject Matter: IRC - Tax benefit for job creation; Deductibility of expenses; proof and necessity of expenses; Article 23 of the Corporate Income Tax Code.

ARBITRAL DECISION (see complete version in PDF)

The Arbitrators, Fernanda Maçãs (President), Amândio Silva and Ana Luísa Cabral Basto, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, agree as follows:

I. Report

1. A..., UNIPESSOAL, LDA., a legal entity governed by Portuguese law with collective identification number ("NIPC") and tax identification number ("NIF") ..., with registered office at Rua ..., ...-... ... and registered at the Commercial Registry Office of Lisbon (hereinafter referred to as the Claimant), filed a request for the constitution of a Collective Arbitral Tribunal in tax matters and a request for arbitral pronouncement, pursuant to Decree-Law No. 10/2011 of January 20 (which establishes the Legal Regime of Arbitration in Tax Matters – hereinafter "LRAT"), in which the TAX AND CUSTOMS AUTHORITY (hereinafter also referred to as "TA") is the Respondent.

2. The request for constitution of the Collective Arbitral Tribunal aims at the annulment of the additional assessment act for Corporate Income Tax (IRC) and compensatory interest, numbered 2018..., in the amount of Euro 91,220.44 (ninety-one thousand two hundred and twenty euros and forty-four cents), relating to arithmetical corrections in the amount of Euro 330,421.39 (three hundred thirty thousand, four hundred twenty-one euros and thirty-nine cents) made to taxable profit for the fiscal year 2015 and corrections to Municipal Surtax and State Surtax in the amount of Euro 14,589.17 (fourteen thousand, five hundred eighty-nine euros and seventeen cents). The Claimant further petitions for reimbursement of amounts unduly paid and a judgment ordering the TA to pay compensatory interest for unduly paid tax obligations.

3. On January 8, 2019, the request for constitution of the Arbitral Tribunal was accepted by the Excellent President of CAAD and was immediately notified to the Respondent in accordance with legal requirements.

4. The Claimant did not proceed to appoint an Arbitrator.

5. Thus, pursuant to the terms and for the purposes provided in subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the LRAT, by decision of the Excellent President of the Deontological Council, duly communicated to the parties within legally prescribed timeframes, the signatories were appointed as arbitrators of the present Collective Arbitral Tribunal, which communicated to the Deontological Council and to the Administrative Arbitration Centre its acceptance of the responsibility within the timeframe stipulated in Article 4 of the Deontological Code of the Administrative Arbitration Centre.

6. In accordance with the provision of subparagraph c) of paragraph 1 of Article 11 of the LRAT, the Collective Arbitral Tribunal was constituted on March 18, 2019, followed by the pertinent legal procedures.

7. In summary, the grounds presented by the Claimant for the purpose of the request for arbitral pronouncement were as follows:

a) The Claimant is a society governed by Portuguese law which, as provided in Article 4 of its Bylaws, has as its corporate purpose the "sale of hearing aids, practice of hearing tests and training of technical operators of the articles to be sold".

b) For IRC purposes, the Claimant is subject to the general regime of taxation, with its taxation period coinciding with the calendar year.

c) Following Service Order No. OI2018..., issued on February 7, 2015, the Claimant was subject to an inspection procedure of an internal nature and unilateral scope (IRC), covering the fiscal year 2015.

d) As a result of this inspection procedure, corrections were made to the Claimant's taxable profit, changing it from Euro 5,899,228.56 (five million, eight hundred ninety-nine thousand two hundred twenty-eight euros and fifty-six cents) to Euro 6,229,649.95 (six million, two hundred twenty-nine thousand six hundred forty-nine euros and ninety-five cents).

e) The corrections in question, in the amount of Euro 330,421.39 (three hundred thirty thousand, four hundred twenty-one euros and thirty-nine cents), are based on alleged irregularities committed by the Claimant in IRC matters, relating to excessive increase of the tax benefit for job creation and relating to the deductibility of certain expenses which, according to the TA's understanding, should not contribute to the formation of taxable profit.

f) Thus, the amount mentioned above corresponds, in part, to corrections made to the increase of the tax benefit for job creation, enshrined in Article 19 of the Tax Benefits Code ("TBC"), in the amount of Euro 14,895.43 (fourteen thousand, eight hundred ninety-five euros and forty-three cents), as a result of a proportional adjustment of the annual limit of increase of expenses which, according to the TA, should have been made by the Claimant.

g) The remaining amount of Euro 315,525.96 (three hundred fifteen thousand, five hundred twenty-five euros and ninety-six cents) corresponds to corrections made to expenses incurred by the Claimant for a trip to Brazil provided to its employees, assigned in 2015 and carried out and invoiced in 2016, which the TA considers do not observe the conditions necessary for them to be assumed as fiscally deductible.

h) Indeed, with respect to the increase of the tax benefit for job creation, the Claimant deducted, in field 774 of Table 07 ("Tax Benefits") of Declaration Form 22, for the fiscal year 2015, the amount of Euro 83,066.14 (eighty-three thousand sixty-six euros and fourteen cents) from its net result for the fiscal year.

i) For the purposes of applying subparagraph c) of paragraph 2 of Article 19 of the TBC, the Claimant considered as expenses, per employee, those corresponding to their fixed annual remuneration and social security contributions borne by the Claimant.

j) Indeed, and as confirmed by the TA, the Claimant considered the annual increase relating to expenses for all employees who met the eligibility conditions of the tax benefit in question, despite "four of its employees (...) having worked for the company for periods of less than one year".

k) In this sense, the TA argues that, with respect to those employees, a proportional adjustment of the annual limit of increase of expenses should have been made only for the months in which they effectively met the conditions mentioned in Article 19 of the TBC.

l) The Claimant further notes that, in the scope of the tax inspection report, the TA bases its understanding, first, on the following argument: "if the employee worked for a period of less than one year, the maximum limit to be used will be proportional to the time spent in service of the company". In this sense, "The Tax Administration has understood that the annual limit of increase of expenses should be adjusted proportionally to the months in which the employee was effectively in a position of eligibility for the tax benefit".

m) With respect to this argument, the Claimant counters, arguing that it is not found in the text of paragraph 3 of Article 19 of the TBC an obligation on the interpreter to effect the adjustment of the increase, that is, that the maximum limit thereof be reduced proportionally to the duration of the eligible open-ended employment contracts in the initial and final fiscal years to which the five-year period described in paragraph 5 of Article 19 of the TBC pertains. On the contrary, the legislator, in paragraph 3 of Article 19, refers to the "maximum amount of increase".

n) According to the Claimant, since the legislator is obliged to "(...) use precise language in norms that grant benefits, using the concepts that it uses in the traditional sense" (referencing, in this regard, the decision of the Supreme Administrative Court, rendered in the scope of case No. 0152/10, of May 5, 2010), there is no way to conclude that the adjustment in the increase should be made based on the actual duration of the eligible open-ended employment contracts, because if the legislator intended such adjustment, it would have expressly provided for it.

o) This conclusion is reinforced by recourse to the historical element of interpretation, when it is noted that, with the State Budget of 2003 (referencing, in this regard, Law No. 32-B/2002, of December 30), the maximum amount of tax benefit to be considered no longer related to monthly expenses per job position and came to refer to the annual amount of increase thereof.

p) The Claimant alludes to the understanding rendered by the Excellent Counselor Jorge Lopes de Sousa, in the scope of the decision of the Arbitral Tribunal in case No. 212/2013-T, of February 26, pursuant to which the only reason that could, in the abstract, explain limitations of increase "would be the maximization of tax revenues, and that reason does not hold when interpreting norms that provide for tax benefits, which are justified by extrafiscal reasons. In truth, underlying the establishment of the tax benefit cannot exist a legislative design to increase tax revenues, since we are dealing with situations in which the law considers that this fiscal interest should be superseded by 'relevant extrafiscal public interests superior to taxation itself' (Article 2, paragraph 1 of TBC)".

q) Thus, the Claimant understands that, even if the teleological purpose inherent in this tax benefit is compatible with either of the interpretations at issue, it is not opposed to its interpretation.

r) The TA's second argument to justify the proportional adjustment of the annual limit of increase of expenses proceeds from the following reasoning: "as the benefit can only be used for 5 years of employment contract, the maximum limit of the increase must necessarily be limited, proportionally, to the months of actual work, under penalty of the company benefiting from this same benefit for a period longer (6 years) than legally provided (5 years)".

s) In this sense, the Claimant understands that, considering that the legislator refers, in paragraph 3 of Article 19 of the TBC, to calendar years, as can be inferred from the fact that the benefit is annual and calculated according to the national minimum wage (which is set annually), the increase always has a maximum duration of five years from the beginning of the contract's validity, pursuant to paragraph 3 of Article 19 of the TBC, therefore it is difficult to understand how it can be concluded, as the TA argues, that the tax benefit would occur "for a period longer (6 years)" (in this regard, the Claimant references the Decision of the Arbitral Tribunal No. 212/2013-T, of February 26).

t) Finally, the Respondent further states that the Claimant's interpretation, that the increase refers to the annual amount, regardless of the duration of the eligible open-ended employment contracts, conflicts with "the principle of material equality (Article 13 of the Constitution), in relation to other employees who remained in position throughout the entire fiscal year".

u) With respect to this argument, the Claimant counters that, if tax benefits already configured a departure from the rules that ensure taxation according to contributive capacity, the requirements of the constitutional principle of material equality do not translate into an obstacle to the provision of fiscally privileged regimes.

v) In this regard, the Claimant invokes Arbitral Decision No. 662/2016-T, of July 20, 2017, which clarifies that "the provision of tax benefits, although justified by the pursuit of ends of public interest, does not cease, on the normative level, to establish particular regimes of taxation and, as such, treats dissimilarly situations subject to the same tax".

w) Indeed, the Claimant understands that access to the tax benefit in question depends on the conduct of the taxpayer, who is free to choose whether to meet the normatively established conditions and thus benefit from this, or not comply and, consequently, not enjoy the measure. In this sense, if the effects of the tax benefit change according to when its conditions are met, it will be up to the taxpayer to efficiently manage that moment, in order to optimize its effects.

x) Once again, the Claimant alludes to the aforementioned Arbitral Decision, according to which "in tax benefits dependent on the options of taxpayers, there will be no discriminatory treatment, offensive of the principle of equality, by the norm that establishes these effects, but only if there is arbitrary distinction without any legal basis in the conditions of access".

y) By the foregoing, the Claimant considers that the corrections to taxable profit made by the TA, in the amount of Euro 14,895.43, are illegal, due to errors regarding the legal and factual presuppositions on which they are based.

z) With respect to the expense incurred for a trip to Brazil provided to its employees, assigned in 2015 and carried out and invoiced in 2016, the Claimant qualified it as deductible for the purposes of determining its taxable profit in the fiscal period 2015, whose value of Euro 315,525.96 was recorded in account #6372 ("Social Action – Personnel Events"), which comprised, in its entirety, the amount of Euro 348,483.92 (three hundred forty-eight thousand, four hundred eighty-three euros and ninety-two cents) – as recorded in the trial balance, a copy of which the Claimant attached as Document No. 9 to the petition for constitution of Collective Arbitral Tribunal.

aa) According to the Claimant, the aforementioned amount of Euro 315,525.96 pertains to a team building activity carried out outside the country, such that: (i) Euro 19,708.32 (nineteen thousand, seven hundred eight euros and thirty-two cents) pertain to an adjustment of the amount of the expense relating to the team building activity assigned in 2014, which took place and was invoiced in 2015; and (ii) Euro 295,817.64 (two hundred ninety-five thousand, eight hundred seventeen euros and sixty-four cents) pertain to the amount of recognition of the expense of the trip assigned in 2015 that took place and was invoiced in 2016.

bb) As the Claimant notes, according to the TA, these expenses should not be fiscally deductible, pursuant to Article 23 of the IRC Code, because:

cc) "the beneficiaries of the trip are not identified, so one cannot assess its real utility/necessity for obtaining or ensuring the revenues subject to IRC (...) [Thus] this expense cannot be accepted fiscally pursuant to Article 23 of the CIRC".

dd) Secondly, the TA justifies that "the expense in question does not have a direct or indirect relationship with obtaining or ensuring revenues subject to IRC".

ee) As the Claimant notes, pursuant to paragraph 1 of Article 23 of the IRC Code, "for the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or ensure revenues subject to IRC are deductible".

ff) Indeed, in the wording introduced by the IRC reform, which occurred in 2014 (Law No. 2/2014, of January 16), this legal provision established a general principle whereby, in the determination of taxable profit, all expenses related to the activity of the taxpayer are deductible, provided they are incurred or borne by that taxpayer.

gg) Consequently, in the Claimant's understanding, even though the wording of the aforementioned article, which was in effect until Law No. 2/2014, of January 16, made the deductibility of expenses dependent on densification of the indeterminate concept of "necessity", creating various interpretative difficulties and implementation issues, that understanding is now outdated.

hh) The Claimant further points out that non-identification of the beneficiaries of the trip does not constitute a relevant indication for the purposes of paragraph 1 of Article 23 of the IRC Code.

ii) Nevertheless, the Claimant notes that the beneficiaries of the trip are the Claimant's employees, although, exceptionally, some family members also benefited, whose expenses were partially borne by themselves.

jj) Moreover, on the other hand, the Claimant considers that, if the TA had arguments substantiating its position, it would have had to conclude its reasoning in accordance with the rules provided in the IRC Code: the cost is not accepted due to lack of documentation, and additionally, proceed to levy autonomous taxation with respect to these undocumented or poorly documented costs, pursuant to Article 88 of the IRC Code.

kk) With respect to, in concrete terms, the TA's argument that "the expense in question does not have a direct or indirect relationship with obtaining or ensuring revenues subject to IRC", the Claimant considers it unequivocal today that, according to the current legal text, it is not required for the relevance of expenses that these have generated income, it being sufficient that these have been incurred in the interest of the company, with the intention to obtain or ensure its revenues (in this sense, the Claimant invokes the Arbitral Decisions relating to Cases No. 607/2017-T and 585/2014-T), it is possible to ascertain, through objective data, that the expenses incurred by the Claimant are necessary for the realization of its revenues.

ll) To corroborate its understanding, the Claimant invokes the decision of the Central Southern Administrative Court, in the matter of deductibility, pursuant to Article 23 of the IRC Code, of trips, of a recreational character, paid by a company to its employees in the commercial area, stating that, if it results with clarity that "the objective purpose that led the appellant to bear such expense had its genesis in the social interest of the company, translated into a stimulus to achieve better performance in the commercial area on the assumption that all salespeople aspire to recognition and material compensation", the expense is qualified as deductible (in this sense, the Claimant also invokes the Decision of the Central Southern Administrative Court, Case No. 2918/05.5BELSB, of November 16, 2017, as well as Arbitral Decision No. 795/2014-T, of July 7, 2015, particularly point 3.2.).

mm) In this sense, the Claimant disagrees with the argument presented by the TA, which states that "the company's sales are subject to the rules of supply and demand (...) [and] it is customers who, ultimately, decide whether to buy the product or not. Accordingly, the obtaining of revenues is dependent [exclusively] on customers' willingness to purchase".

nn) In this sense, the objective reason that led the Claimant to incur the trip in question had its genesis in the social interest of the company.

oo) On the other hand, the Claimant argues that the norms for determining taxable matter that develop the rules of incidence – as clearly happens with those that delimit the notion of fiscal cost – directly shape the fiscal result, therefore where the law does not expressly provide for deviations from the principle of relevance of costs, these cannot fail to be fiscally accepted.

pp) In this context, the Claimant alludes to the constitutional principle whereby companies must be fundamentally taxed according to their actual profit, such that, under this principle, all charges borne by companies in the pursuit of their statutory objectives have fiscal relevance.

qq) Now, in accordance with the formulation of Article 23 of the IRC Code, a fiscal cost, to be accepted, must cumulatively meet 5 requirements:

1. Actuality/existence (objective (actual existence) and subjective (cost borne by a taxpayer));

2. Bookkeeping (entered in accounts and supported by invoices);

3. Proof (must be a documented cost);

4. There is no express legal provision denying deductibility of the cost;

5. Cost properly allocated (from a temporal perspective).

rr) With respect to the application of this regulation, the Claimant emphasizes that subjective criteria, such as the necessity of the cost or the connection to revenues and gains subject to tax, have already been removed from the letter of the law (Article 23 of the IRC Code) and have long been dismissed by relevant doctrine and also by Portuguese tax jurisprudence.

ss) Indeed, the Claimant understands that Article 23 of the IRC Code cannot be used as a mechanism for controlling the validity, depending on the corresponding profitability, of the acts of company management: in a legal order that expressly recognizes freedom of economic initiative and the right of private property, the merit of business choices cannot be reviewed by the Administration, unless they are suspected of being illegal.

tt) On the other hand, the Claimant emphasizes that a cost cannot be disregarded by the TA based on its ability to immediately generate a gain, nor based on its importance for the company's capacity for subsistence.

uu) Being that the application of paragraph 1 of Article 23 of the IRC Code to disregard a cost actually incurred is therefore limited to situations of confusion between the business assets and the personal assets of the partners, as well as to those in which the company, to the detriment of its assets, intends to benefit a third party (in this sense, the Claimant not only alludes to Ludwig Schmidt, Einkommensteuergesetz Kommentar, 1995, 14th edition, note 483 to § 4, but also references jurisprudence that has recognized this understanding – e.g., decision rendered by the Central Southern Administrative Court in Decision No. 6350/02 of June 24, 2003).

vv) Thus, the cost incurred by the Claimant complies with Article 23 of the IRC Code, therefore it should be considered as fiscally deductible.

ww) It being noteworthy that this same cost was incurred by the Claimant and recorded in the accounts, as can be ascertained by analysis of the trial balance (attached by the Claimant as Document No. 9 attached to the request for constitution of Collective Arbitral Tribunal).

1. In light of the foregoing, the Claimant considers that the additional IRC assessment and compensatory interest numbered 2018..., in the amount of Euro 91,220.44, relating to arithmetical corrections in the amount of Euro 330,421.39 made to taxable profit for the fiscal year 2015 and corrections to Municipal Surtax and State Surtax in the amount of Euro 14,589.17, are unequivocally tainted with illegality due to error in the factual and legal presuppositions on which they are based, cannot validly remain in the legal order and should, consequently, be annulled, with all legal consequences.

2. The TA contested the Claimant's claim, presenting a defense by way of objection, based on the following grounds which, in summary, are set forth below:

a) Before contesting the investigation advocated by the Claimant regarding the correction carried out by the Tax Inspection (TI) related to the tax benefit for net job creation, the Respondent alludes to the text of the applicable norm in the case – Article 19 of the TBC – in the version on the date of the facts:

"1 - For the determination of taxable profit of IRC taxpayers and IRS taxpayers with organized accounts, expenses corresponding to the creation of net job positions for young people and for long-term unemployed, hired by open-ended employment contract, are considered at 150% of their respective amount, recorded as an expense of the fiscal year. (...)

3 - The maximum amount of annual increase, per job position, is equivalent to 14 times the guaranteed minimum monthly remuneration. (...)

5 - The increase referred to in paragraph 1 applies for a period of five years from the beginning of the employment contract's validity, and is not cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided in other diplomas, when applicable to the same employee or job position. (...)" (emphasis by the Respondent).

b) The Respondent states that, in the course of the inspection procedure, on this specific matter, the TI verified that the Claimant, regarding four of its employees, had recorded the maximum limit of €7,070.00 for purposes of enjoying the benefit, despite these having worked for the company for periods of less than one year: 183 days in the case of B...; 97 days in the case of C...; 60 days in the case of D..., and 351 days in the case of E....

c) According to the Respondent, paragraphs 3 and 5 of the aforementioned Article 19 of the TBC must be read and interpreted together and, in this way, if paragraph 5 of the said norm stipulates a time limit for the tax benefit, which is calculated based on the period of the contract's validity, the maximum increase referred to in paragraph 3 must also be based on the same period.

d) That is, the annual limit of increase must be proportionally adjusted to the months in which the employee was effectively in a position of eligibility for the tax benefit, not only to ensure that the benefit is only enjoyed for the legally provided period (5 years), but also under penalty of conflicting with the principle of material equality (Article 13 of the Constitution of the Portuguese Republic – CRP), in relation to other employees who remained in position throughout the entire fiscal year.

e) However, the Respondent reiterates that such reality cannot produce tax advantages superior to those of other taxpayers in which there is coincidence between the period during which the benefit is enjoyed and the period of taxation.

f) And that equality of treatment before the law is only obtained if, in the year in which the beginning or end of the employee's eligibility conditions for purposes of the tax benefit in question occurs, the maximum limit of increase is adjusted proportionally to the time in which these conditions are verified. In this sense, the Respondent invokes the Decision rendered by the TCA South, on 02.06.2014, in case 07437/14. In the same sense, the Claimant alluded to the decision of the STA, of 20-02-2019 (case No. 095/16.5BESNT 0823/17).

g) Consequently, the Respondent concludes that on this matter, the assessment is not tainted by any defect.

h) With respect to the non-acceptance of expenses, related to trips to Brazil, in the total value of €315,525.96, as appears in the TIR, that amount, recorded in account 6732, comprises the recognition of the increase in expense relating to a trip assigned in 2015, but which was carried out and invoiced in 2016, and also adjustments of expenses relating to another trip carried out and invoiced in 2015, but which was assigned in 2014 and whose expense was recognized mostly by increase in that fiscal year of 2014.

i) The Respondent begins by referring to the wording in effect in 2015 of Article 23 of the IRC Code, pursuant to which paragraph 1 of this article provided that "for the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or ensure revenues subject to IRC are deductible". (emphasis by the Respondent).

j) Since the norm in question was the subject of amendment following the IRC reform, the Respondent mentions what is said in the Final Report of the Commission for the Reform of IRC - 2013, where, on page 128, it is stated that "(...) in doctrine it is today quite consensual that the necessity of expenses should, on a general level, be understood as considering deductible those incurred in the interest of the company, in the pursuit of its respective activities. The interpretation of the concept of necessity as meaning a necessary causal link between expenses and revenues has thus been departed from. Jurisprudence has consistently established a line of interpretation in which it is argued that the criterion of necessity was created to prevent the fiscal consideration of expenses that do not fall within the scope of the activity of companies subject to IRC. That is, charges that were incurred in the scope of the pursuit of interests foreign to the company, notably those of the partners.(…)" (emphasis by the Respondent).

k) Thus, the Respondent reiterates that this new wording of paragraph 1 of Article 23 of the IRC Code "(...) comes to establish as a general principle that, for the determination of taxable profit, expenses related to the activity of the taxpayer incurred or borne by this taxpayer are deductible".

l) Indeed, according to the Respondent, pursuant to the aforementioned norm, expenses must comply with two principles, which must be verified cumulatively – being duly documented (pursuant to paragraphs 3, 4, and 6 of Article 23 of the IRC Code), and being incurred or borne by the taxpayer to obtain or ensure revenues subject to IRC.

m) Consequently, the Respondent concludes that, if it is certain that the expenses are documented, it is also certain that the Claimant did not identify – in the inspection procedure or now, in arbitration – even the beneficiaries of the trips, therefore it is not possible to ascertain whether the said expenses were "incurred or borne by the taxpayer to obtain or ensure revenues subject to IRC".

n) In this context, the Respondent understands that the exclusion of the mention "demonstrably necessary" existing in the previous wording of paragraph 1 of Article 23 of the IRC Code does not mean a radical change in deductibility rules, to the point that any expense made and recorded can be accepted without more.

o) What was intended, with the removal of that expression from the norm, was to ensure that the assumption of the charge was motivated by a genuine business purpose and not some other (personal interest of partners, creditors, group companies), for only then can that expense be necessary.

p) In this regard, the Respondent invokes the decision rendered by the STA, in the decision rendered on 15.11.2017, in case 0372/16, and the decision of the TCA South, rendered in case 74/01.7BTLRS on 14.02.2019.

q) According to the Respondent, not recognizing a given expense does not imply any appraisal of the opportunity or merit of the management exercised, but only and solely the recognition of the impossibility of achieving the ends that a company intends to achieve – revenues.

r) In the case at hand, despite having been questioned, the Claimant never identified the actual beneficiaries of that expense, which makes impossible the establishment of any link between the expense and the company's activity, or the perception of whether these were incurred to obtain or ensure revenues subject to IRC as the law expressly states.

s) Indeed, the Respondent understands that nothing guarantees that these expenses were incurred by the Claimant with the company's employees and not with the partner/manager and family members or others, and in that case, the objective that it claims presided over their existence, namely "the strengthening of professional relationships, the increase of employee motivation and the incentive to their productivity", has no place in the spirit and letter of the law.

t) The Respondent concludes that it is not because the company is well-positioned in the market compared to competitors, or because it alleges the importance of team building (which is not disputed), that the material connection of the trips made with the activity exercised by the Claimant is demonstrated.

u) Consequently, not having done so, as it was incumbent upon it given the burden of proof accruing to it pursuant to Article 74 of the GTL, cannot that amount be accepted fiscally.

v) In light of the foregoing, it is the conviction of the Respondent that the request for arbitral pronouncement should be judged not well-founded and, consequently, absolved of all claims, all with the due and legal consequences.

1. By order of April 30, 2019, it was decided to dispense with the meeting provided for in Article 18 of the LRAT and to proceed with the process to the phase of optional written submissions.

2. The Claimant submitted submissions on May 14, 2019, and the Respondent submitted counter-submissions on May 24, 2019.

II – Factual Matters

II.1. Proven Facts

With respect to the factuality with relevance to the decision of the case, the following facts are considered proven:

1. The Claimant is a company governed by Portuguese law which, as provided in Article 4 of its Bylaws, has as its corporate purpose the "sale of hearing aids, practice of hearing tests and training of technical operators of the articles to be sold" (a copy of which was made available as Document No. 3 attached to the request for constitution of Collective Arbitral Tribunal).

2. The Claimant is subject to the general regime of taxation, with its taxation period coinciding with the calendar year.

3. The Claimant was subject to an inspection procedure of an internal nature and unilateral scope (IRC), covering the fiscal year 2015, in compliance with the provision of Service Order No. OI2018..., issued on February 7, 2015.

4. As a result of this inspection procedure, corrections were made to the Claimant's taxable profit, in the amount of Euro 330,421.39, based on irregularities committed by the Claimant in IRC matters, relating to excessive increase of the tax benefit for job creation (in the amount of Euro 14,895.43) and relating to the deductibility of expenses incurred by the Claimant for a trip to Brazil (in the amount of Euro 315,525.96) which, according to the Tax Inspection Services ("TIS"), are not eligible for purposes of determining taxable profit.

5. The Claimant was notified of the additional IRC assessment and compensatory interest numbered 2018..., in the amount of Euro 91,220.44.

6. The Claimant settled the amount of tax improperly assessed and compensatory interest of Euro 91,220.44 (ninety-one thousand, two hundred twenty euros and forty-four cents).

7. The Claimant made full payment of the amounts required, within the voluntary payment period thereof, although such payment does not imply agreement with its assessment.

8. In field 774 of Table 07 ("Tax Benefits") of Declaration Form 22, for the fiscal year 2015 (a copy of which was attached, under the designation of Document No. 4, to the request for constitution of Collective Arbitral Tribunal), the Claimant deducted Euro 83,066.14 (eighty-three thousand sixty-six euros and fourteen cents) from its net result for the fiscal year, relating to the increase of the tax benefit for job creation.

9. The Claimant considered as expenses, per employee, those corresponding to their fixed annual remuneration and social security contributions borne by the Claimant (as reflected in the calculations in the document attached to the request for constitution of Collective Arbitral Tribunal, under the designation of Document No. 5).

10. With respect to four of its employees, the Claimant recorded the maximum limit of €7,070.00 for purposes of enjoying the benefit, despite having worked for the company for periods of, respectively, 183 (one hundred eighty-three), 97 (ninety-seven), and 60 (sixty) days.

11. With respect to employee E..., despite having conducted her activity for the company for the entire fiscal year 2015, she only met the eligibility conditions of the tax benefit for job creation for a period of 351 (three hundred fifty-one) days.

12. The Claimant incurred charges for a trip to Brazil – as results from invoice No. FAC 01.A/29233, of April 7, 2015, issued by F... and Tourism, Ltd., in the amount of Euro 324,320.00 (a copy of which was attached by the Claimant as Document No. 11 attached to the request for constitution of Collective Arbitral Tribunal), which has the following content:

[Invoice details not reproduced in translation]

1. The Claimant qualified as deductible, for purposes of determining its taxable profit in the fiscal period 2015, the entire amount recorded in account #6372 ("Social Action – Personnel Events"), corresponding to Euro 348,483.92 (as recorded in its trial balance, a copy of which was attached to the request for constitution of Collective Arbitral Tribunal, under the designation of Document No. 9).

2. In the account statement of account #6372 ("Social Action – Personnel Events") several tranches relating to the trip to Brazil were recorded, whose counterpart was account #272257 ("... Contingencies – Competitions").

3. Nevertheless, the expenses relating to the invoice issued in 2015 by F... were recognized, mostly, in 2015 through increases in expenses.

4. The total amount of expenses for trips to Brazil, recorded by the Claimant as an expense in the fiscal year 2015 amounted to Euro 315,525.96, with the following breakdown:

(i) Euro 19,708.32 pertaining to an adjustment of the amount of the expense relating to the trip assigned in 2014, which took place and was invoiced in 2015; and (ii) Euro 295,817.64 relating to the amount of recognition of the expense of the trip assigned in 2015 that took place and was invoiced in 2016.

II.2. Facts Not Proven

1. There are no facts relevant to the decision of the case that have not been proven.

II.3. Grounds for Determination of Factual Matters

1. The proven facts are based on documents attached by the Claimant with the request for arbitral pronouncement and on the administrative file.

III – Preliminary Determination

1. The Tribunal was regularly constituted in accordance with the LRAT.

2. The request for arbitral pronouncement is timely, as it was presented within the period provided in subparagraph a) of paragraph 1 of Article 10 of the LRAT.

3. The parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, paragraph 2 of the LRAT and Article 1 of Regulatory Order No. 112-A/2011, of March 22).

4. The process is not tainted by nullities.

IV – Legal Matters

1. Tax Benefit for Net Job Creation

The first disputed issue is to determine whether the tax benefit provided for in Article 19 of the TBC should be adjusted proportionally in cases where eligible employment contracts have a duration of less than one year, by commencing or ceasing during the taxation period.

The Claimant considers that the maximum limit of increase refers to the annual amount, regardless of contract duration; the Respondent argues that the actual duration of contracts should be taken into account.

The wording of Article 19 of the TBC, in effect on December 31, 2015, established the following:

"1 - For the determination of taxable profit of IRC taxpayers and IRS taxpayers with organized accounts, expenses corresponding to the creation of net job positions for young people and for long-term unemployed, hired by open-ended employment contract, are considered at 150% of their respective amount, recorded as an expense of the fiscal year.

2 - For the purposes of the provision in the preceding paragraph, the following are considered:

a) 'Young people' workers aged more than 16 and less than 35 years, inclusive, ascertained on the date of the employment contract's execution, with the exception of young people under 23 years of age who have not completed secondary education, and who are not attending an education-training offering that allows raising the level of education or professional qualification to ensure completion of that level of education;

b) 'Long-term unemployed' workers available for work, pursuant to Decree-Law No. 220/2006, of November 3, who are unemployed and registered at employment centers for more than 9 months, without prejudice to having been entered into fixed-term contracts for periods of less than 6 months during that period, whose total duration does not exceed 12 months;

c) 'Expenses' amounts borne by the employing entity with the worker, as remuneration and social security contributions borne by that same entity;

d) 'Net job creation' the positive difference, in a given fiscal year, between the number of eligible hires in accordance with paragraph 1 and the number of departures of workers who, on the date of their hiring, were in the same conditions.

3 - The maximum amount of annual increase, per job position, is equivalent to 14 times the guaranteed minimum monthly remuneration.

4 - For purposes of determining net job creation, workers forming part of the employing entity's family unit are not considered.

5 - The increase referred to in paragraph 1 applies for a period of five years from the beginning of the employment contract's validity, and is not cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided in other diplomas, when applicable to the same employee or job position.

6 - The regime provided for in paragraph 1 can only be granted once per worker hired by that entity or by another entity with which there are special relationships in accordance with Article 63 of the IRC Code."

The question has been treated in different ways by jurisprudence, and it is stated in advance that we will follow closely the sense and reasoning of arbitral decision No. 212/2013-T, of 26/02/2014, in which the collective was presided over by Counselor Jorge Lopes de Sousa, as well as the most recent decisions Nos. 249/2018, of 25/03/2019, and 662/2016, of 20/07/2017. Jurisprudence confirmed in a recent Decision of the STA of May 8, 2019 (Proc 01054/17.6BALSB).

This regime was created with the objective of encouraging the increase of job positions for young people and, later, long-term unemployed, through open-ended employment contracts, with the obligation to maintain these employment contracts in the following years. To this end, the legislator allows the employing entity to increase the expenses with hiring of workers in the taxable matter, for purposes of determining taxable profit in IRC.

The increase of expenses permits a tax relief that assumes the nature of a tax benefit, in the sense referred to in Article 2, paragraph 1, of the TBC: "measure of an exceptional character established to protect relevant extrafiscal public interests superior to taxation itself which prevent." The benefit is granted for a period of five years from the date of the contract's validity.

In interpreting the sense of fiscal norms and the qualification of facts, the rules and general principles of interpretation and application of laws must be observed, pursuant to paragraph 1 of Article 11. It is added in paragraph 2 that "Whenever fiscal norms employ terms specific to other branches of law, they must be interpreted in the same sense as those given therein, unless otherwise directly follows from the law." Finally, if doubt about the sense of norms persists, regard must be had to the economic substance of the facts (paragraph 3).

Pursuant to the general rules of interpretation provided in Article 9 of the Civil Code, the letter of the law is the starting point of the interpreter's work, in which the legislative thought that does not have minimal correspondence in the law cannot be considered. Without prejudice, among other factors, regard must be had to the teleology of the norm, to the sense and objective of the legislator. In the case, the extrafiscal objectives of job creation are clear for two specific types of workers and the stability that is intended to be ensured.

Because it is a tax benefit, analogy is not admitted, pursuant to Article 10 of the TBC, although extensive interpretation is admitted.

In the case at hand and bearing in mind the applicable rules of hermeneutics, there is no indication in the text of Article 19, paragraph 3 of the TBC of an obligation on the interpreter to reduce proportionally the period of duration of the eligible employment contracts in the initial and final fiscal year to which the five-year period described in paragraph 5 of the same article pertains. On the contrary, the legislator in Article 19, paragraph 3 expressly refers to the "maximum amount of annual increase".

There is no, in light of the letter of the law, any evidence that adjustment in the increase should be made based on the actual duration of the employment contracts.

Moreover, in light of the legislative purpose of promotion of employment and stability of the employment relationship, as teleological elements, there is no incompatibility between these objectives and the literal interpretation of the norm. As stated in arbitral decision No. 212/2013-T, of 26/02/2014 and in which Counselor JORGE LOPES DE SOUSA served as arbitrator-president: "...the only reason that could, in the abstract, explain other limitations of increase, not expressly provided, would be the maximization of tax revenues, and that reason does not hold when interpreting norms that provide for tax benefits, which are justified by extrafiscal reasons. In truth, underlying the establishment of the tax benefit cannot exist a legislative design to increase tax revenues, since we are dealing with situations in which the law considers that this fiscal interest should be superseded by 'relevant extrafiscal public interests superior to taxation itself which prevent'...".

Nor is there reason to invoke violation of the principle of equality because the increase operates in absolute rather than in proportion in the fiscal years of beginning and end of the benefit. First and foremost, because the criterion is homogeneous and equal for all those who, in the same circumstances, enjoy the benefit. On the other hand, tax benefits, by their nature, create particular regimes of taxation, compatible with the principle of equality in light of the ends and interests pursued.

In this sense, it is stated in arbitral decision No. 628/2016-T, of 06/04/2017, that "the principle of equality, as a limit on legislative discretion, does not require equal treatment of all situations, but rather implies that those in equal situations be treated equally and those in unequal situations be treated unequally, so as not to create arbitrary and unreasonable discriminations, because devoid of objective and rational justification.

(...)

Moreover, in tax benefits that are based on conduct norms, whose compliance produces favorable fiscal effects, the question of the principle of equality must be posed regarding the conditions of access to the benefit and not the terms in which it is provided.

With respect to this type of benefits that depend on conduct of the taxpayer, this is free to choose whether to meet the established conditions and enjoy them, to the extent it deems appropriate, or not to meet them and not benefit from the fiscal advantage. And, if the effects of the tax benefit vary according to when the conditions are met, it will also depend on the taxpayer's choice whether or not to meet the conditions in a way that allows it to optimize its effects.

From this perspective, in cases of tax benefits dependent on the options of taxpayers, in which the optimization of the variable effects of the tax benefit is placed within their reach, there will be no discriminatory treatment violating the principle of equality by the norm that fixes these effects, but only if there is arbitrary distinction without any legal basis in the conditions of access to the benefit.

In the case at hand, there is no indication of any arbitrary discrimination imposed by law in access to the tax benefit: taxpayers may choose to hire young people or long-term unemployed or not; may hire on the basis of remunerations that allow them to optimize the tax benefit or not; may hire at the beginning of the fiscal year or at any other phase thereof.

In any case, the different effects that can be obtained are attributable to the taxpayer itself and not to a discriminatory law.

In conclusion, it is illegal, due to error in the legal presuppositions, the additional tax assessment in the part relating to the correction made by the TA of the increase deducted by the Claimant from expenses with net job creation charges.

2. Deductibility of Expenses for "Team Building" Activities

The Claimant also impugned the non-acceptance of deductibility of expenses relating to a trip to Brazil justified with the purpose of developing relationships among employees (team building). To support its decision, the Respondent alleges, in summary, that the Claimant never identified the actual beneficiaries of the expense, which makes impossible the establishment of any link between the expense and the company's activity.

The essential issue is, therefore, to verify whether these expenses can be framed within Article 23 of the IRC Code.

The current wording of Article 23, introduced by Law No. 2/2014, of January 16, which proceeded to reform the taxation of income of legal entities, establishes the following:

"1 - For the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or ensure revenues subject to IRC are deductible.

2 - The following expenses and losses are considered to be covered by the preceding paragraph, in particular:

a) Those relating to production or acquisition of any goods or services, such as materials used, labor, energy and other general production, conservation and repair expenses;

b) Those relating to distribution and sale, covering expenses for transportation, advertising and placement of goods and products;

c) Of a financial nature, such as interest on foreign capital applied in operation, discounts, premiums, transfers, exchange differences, expenses with credit operations, debt collection and issuance of bonds and other securities, redemption premiums and those resulting from the application of the effective interest method to financial instruments valued at amortized cost;

d) Of an administrative nature, such as remunerations, including those attributed as participation in profits, allowances, current consumption materials, transportation and communications, rents, litigation, insurance, including life, illness or health insurance, and 'Life' line operations, contributions to pension savings funds, contributions to pension funds and to any complementary social security schemes, as well as expenses with termination of employment benefits and other post-employment or long-term benefits of employees;

e) Those relating to analyses, rationalization, investigation, consultation and development projects;

f) Of a fiscal and parafiscal nature;

g) Depreciation and amortization;

h) Impairment losses;

i) Provisions;

j) Losses from fair value reductions in financial instruments;

k) Losses from fair value reductions in consumable biological assets that are not multi-annual silvicultural operations;

l) Realized losses;

m) Indemnities resulting from events whose risk is not insurable.

3 — The deductible expenses pursuant to the preceding paragraphs must be documented, regardless of the nature or support of the documents used for that purpose.

4 - In the case of expenses incurred or borne by the taxpayer with the acquisition of goods or services, the supporting document referred to in the preceding paragraph must contain, at least, the following elements:

a) Name or corporate designation of the supplier of goods or provider of services and the purchaser or recipient;

b) Tax identification numbers of the supplier of goods or provider of services and the purchaser or recipient, whenever these are entities with residence or permanent establishment in the national territory;

c) Quantity and usual designation of the goods acquired or the services provided;

d) Value of the consideration, in particular the price;

e) Date on which the goods were acquired or on which the services were provided.

5 — (Repealed).

6 - When the supplier of goods or provider of services is obliged to issue an invoice or document legally equivalent pursuant to the VAT Code, the supporting document of the acquisition of goods or services provided in paragraph 4 must necessarily assume that form.

7 - Expenses relating to non-voting preferred shares classified as financial liability in accordance with the accounting standards in effect, including expenses with the issuance of these securities, are deductible for purposes of determining the taxable profit of the issuing entity."

The alteration introduced, in the view of the Commission for the Reform of Income Tax of Legal Entities, was intended to bring the legal text closer to the interpretation of jurisprudence and doctrine regarding the concept of necessity. The Final Report states the following:

"...in doctrine, it is today quite consensual that the necessity of expenses should, on a general level, be understood as considering deductible those incurred in the interest of the company, in the pursuit of its respective activities. The interpretation of the concept of necessity as meaning a necessary causal link between expenses and revenues has thus been departed from. Jurisprudence has consistently established a line of interpretation in which it is argued that the criterion of necessity was created to prevent the fiscal consideration of expenses that do not fall within the scope of the activity of companies subject to IRC." – Commission for the Reform of Income Tax of Legal Entities, Final Report, Lisbon, Ministry of Finance, 2013, pp. 97 and 98.

Although the final version of the wording differs from the version presented by the Commission, it seems clear that the application of the provision is clearly based on the need for a relationship between expenses and business activity.

As we have stated, this wording approaches the sense already defended by jurisprudence. By way of merely exemplary example, see Decision of the STA of 15/11/2017, rendered in Proc. 0372/16, which skillfully synthesizes STA's thinking on this matter:

(…) But how should the concept of necessity be ascertained?

We consider definitely eliminated a finalistic view of necessity (as a requirement for costs to be accepted as fiscal costs), according to which a cause-and-effect relationship, of the type conditio sine qua non, would be required between costs and revenues, so that only costs in relation to which it is possible to establish an objective connection with revenues may be considered deductible (Criticizing this restrictive understanding of necessity, ANTÓNIO MOURA PORTUGAL, Deductibility of Costs in Portuguese Tax Jurisprudence, p. 243 et seq., and TOMÁS CASTRO TAVARES, On the Relationship of Partial Dependence between Accounting and Tax Law in the Determination of Taxable Income of Legal Entities: Some Reflections at the Level of Costs, Science and Tax Technique No. 396, pp. 131 to 133, and On the Deductibility of Costs in IRC, Tax No. 101/102, January 2002, p. 40.).

We understand necessity as referred to the link of costs to the activity developed by the taxpayer. «Essential costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumed in a profit profile. [...] The essential expense is equivalent to any cost undertaken with a view to obtaining income and which represents an economic decline for the company. As a rule, therefore, fiscal deductibility depends only on a causal and justified relationship with the company's productive activity» (TOMÁS CASTRO TAVARES, On the Relationship..., loc. cit., p. 136.). In other words, only costs that have no causal and justified relationship with the company's productive activity will not be essential. This is the understanding that has been followed by this Section on Tax Litigation of the Supreme Administrative Court (Among many others, providing exhaustive treatment of the subject, see the decision of November 30, 2011, rendered in case No. 107/11, available at

http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/c0debd9869a94ea78025795f003be743.

More recently, the decision of June 28, 2017, rendered in case No. 627/16, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/9ff886014e34df8d80258152004d86f8.).

Thus, the control to be exercised by the TA on the verification of this necessity requirement must be by the negative, that is, the TA should only disregard as fiscal costs those which clearly do not have the potential to generate increase in gains, and cannot "the administrative agent competent to determine the taxable matter arrogate to himself the role of manager and qualify necessity at the level of good and bad management, according to his feeling or personal sense; it is sufficient that it be an operation conducted as an act of management, without entering into appraisal of its effects, positive or negative, of the expense or charge assumed for the results of the realization of revenues or for the maintenance of the productive source" (VÍTOR FAVEIRO, Fundamental Notions of Portuguese Tax Law, volume II, page 601.).

That is, being the rule freedom of economic initiative and taxation of companies must fundamentally be based on their actual income (cf. the aforementioned art. 104, paragraph 2 of the CRP), the norm of paragraph 1 of art. 23 of the CIRC, in the wording in effect at the time, by limiting the relevance of costs to "those demonstrably essential for the realization of revenues or gains subject to tax or for the maintenance of the productive source" must be understood as allowing the fiscal relevance of all expenses actually incurred that are potentially suitable for providing revenues or gains, regardless of the result (success or failure) that they concretely provided."

Also noteworthy is the decision of CAAD, in the scope of case No. 12/2013-T, in which the sole arbitrator Tomás C. Tavares states that "The necessity between costs and revenues is ascertained in an economic sense: essential costs are those incurred in the interest of the company, which relate to its capacity, by insertion in its profit purpose (in a mediate or immediate manner) and in the exercise of its concrete activity.

The Tax Authority cannot review the merit and opportunities of the economic decisions of company management. It cannot interfere in the freedom and autonomy of management of the company. A cost will be accepted fiscally if it is suitable to the company's productive structure and to the obtaining of profits, even if it turns out to be a fruitless or economically ruinous economic operation."

Beyond this requirement provided for in paragraph 1, paragraphs 3, 4, and 6 of Article 23 establish as a cumulative requirement documentary proof. Regardless of the nature or support of the documents used, expenses must be documented. Paragraph 4 establishes the minimum elements that the supporting document must contain:

a) Name or corporate designation of the supplier of goods or provider of services and the purchaser or recipient;

b) Tax identification numbers of the supplier of goods or provider of services and the purchaser or recipient, whenever these are entities with residence or permanent establishment in the national territory;

c) Quantity and usual designation of the goods acquired or the services provided;

d) Value of the consideration, in particular the price;

e) Date on which the goods were acquired or on which the services were provided.

Paragraph 6 provides that, where there is an obligation to issue an invoice, this should be the supporting document for the expense, thus bringing it closer to the rules provided in the VAT Code.

This second requirement is intended to prove, by an appropriate document, that expenses are directly related to the normal activity of the taxpayer, that is, to demonstrate unequivocally that the requirement provided in paragraph 1 is met. If not, we are faced with charges not duly documented. As the Central Southern Administrative Court states, in the Decision of 30/01/2007, relating to Proc. 01486/06, "charges are undocumented when they are not duly supported in external documents, in a manner allowing easy, clear and precise knowledge of the operation, showing its cause, nature and amount".

In the concrete case, the Respondent alleges that, despite being expressly called upon to do so, the Claimant did not identify the actual beneficiaries of that expense, which makes impossible the establishment of any link between the expense and the company's activity, or even the perception of whether these were incurred to obtain or ensure revenues subject to IRC.

The argument presented by the Respondent is valid, in our opinion.

Indeed, in light of the concept of fiscal expense explained above, it must be concluded that expenses with "strengthening of professional relationships, increase of employee motivation and incentive to productivity", commonly called "team building", will, as a rule, be accepted in fiscal terms, provided they are duly documented.

It was therefore the responsibility of the taxpayer to demonstrate that those expenses were intended to actually cover the costs of trips for the company's employees. Otherwise, we have only an expense with trips which, per se, does not meet the requirement of connection with the company's activity and purpose, since it has not been proven who were the actual beneficiaries of the trip. Especially since, even if connected with the company's activity, these expenses may assume distinct natures: representation expenses with clients, suppliers or third parties (subject to autonomous taxation) or expenses with employees and members of the corporate bodies.

In summary, despite the existence of a document, this is not sufficient to prove that it is related to the company's activity by not having proven the "cause" of that concrete expense. Since the company that provided the service and issued the respective invoice had to proceed with the reservation and booking of trips in the name of each of the passengers, the Claimant could easily prove who were the beneficiaries, which, incomprehensibly, in light of what was alleged, it did not do. In light of Article 74 of the GTL, it was incumbent upon the Claimant to prove these facts.

In conclusion, the charges for trips to Brazil, in the total value of €315,525.96, are not deductible in fiscal terms, as they are not duly documented, pursuant to paragraph 3 of Article 23 of the IRC Code.

VI – Decision

In these terms, the Collective Arbitral Tribunal decides:

a) To rule partially well-founded the request for arbitral pronouncement regarding the issue referred to in point IV.1 of this decision, relating to the tax benefit for job creation;

b) To rule not well-founded the request for arbitral pronouncement regarding the issue referred to in point IV.2 of this decision, relating to the deductibility of trip expenses;

c) To rule partially well-founded the request for restitution of tax paid and compensatory interest, plus compensatory interest, regarding the amount corresponding to the corrections to taxable matter referred to in subparagraph a), which shall be determined in execution of judgment.

VII – Value of the Process

In accordance with the provisions of Articles 306, paragraph 2 of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a) of the CPC and paragraph 2, Article 3 of the Regulation of Costs in Tax Arbitration Processes ("RCTAP"), the value of the process is fixed at €91,220.44.

VIII – Costs

Pursuant to Article 22, paragraph 4 of the LRAT, the amount of costs is fixed at €2,754.00, in accordance with Table I attached to the RCTAP.

The Claimant obtains a favorable judgment regarding the annulment of fiscal corrections to taxable profit in the value of €14,895.43, out of a total of corrections of €330,421.39, therefore the responsibility for costs is divided in the proportion of 95.5%, to be borne by the Claimant and 4.5%, to be borne by the Respondent.

Notify.

Lisbon, September 10, 2019

[Text prepared by computer, pursuant to Article 131, paragraph 5 of the CPC, applicable by reference from Article 29, paragraph 1 subparagraph e) of the LRAT]

The Arbitrators,

Fernanda Maçãs

Amândio Silva

Ana Luísa Ferreira Cabral Basto