CAAD Process 136/2019-T: IRC Expenses, Accrual Principle, Travel Allowances & Direct Tax Assessment

ARBITRAL TAX DECISION

Case No. 136/2019-T

Decision Date: 2019-10-04

IRC

Value of Claim: € 100,766.39

Subject Matter: IRC – Expenses – Principle of specialization of tax periods. Purchase. Allowances. Direct assessment of taxable income.

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Advisor Jorge Lopes de Sousa (arbitrator-president), Dr. Susana Cristina Constantino de Carvalho Furtado and Prof. Dr. Fernando Araújo (arbitrator-members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 08-05-2019, agree as follows:

1. Report

A..., LDA, NIF..., with registered office at ..., Rua dos ..., No...., ... ...-... ..., CAE 02200, hereinafter referred to as "Claimant", filed, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), a request for arbitral pronouncement with a view to assessing the "legality of corrections to the taxable income for IRC purposes for the tax years 2014, 2015 and 2016, resulting from the external inspection procedures authorized by service orders No. OI2017..., OI2018... and OI2018..., as well as on the acts rejecting gracious complaints Nos. ...2018... and ...2018... and concurrent repercussions on IRC assessments for the tax years 2013, 2014, 2015 and 2016".

The corrections and assessments referred to have the following values:

The respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority on 27-02-2019.

Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 16-04-2019 the parties were duly notified of this designation, having expressed no intention to refuse the designation of the arbitrators, in accordance with article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 08-05-2019.

The Tax Authority and Customs Authority filed a response in which it raised the exception of partial lis pendens and argued that the claim should be judged unfounded.

By order of 22-06-2019 it was decided to dispense with the meeting provided for in article 18 of the RJAT and arguments.

By order of 19-09-2019, the parties were notified to pronounce themselves on the question of timeliness of the request for constitution of the arbitral tribunal regarding the assessment relating to the year 2014. The Claimant pronounced itself recognizing the untimeliness of the request it had submitted regarding the assessment for the tax year 2014.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.

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

The proceedings do not suffer from nullities.

It is necessary to assess as a priority the question of timeliness of the request for constitution of the arbitral tribunal regarding the assessment relating to the tax year 2014 and the question of lis pendens.

2. Question of timeliness of the request for constitution of the arbitral tribunal regarding the assessment relating to the tax year 2014

Assessment No. 2018..., relating to the tax year 2014, had as its deadline for voluntary payment the day 26-03-2018, as can be seen from the initial petition in the judicial challenge proceedings, attached by the Tax Authority and Customs Authority.

Pursuant to article 10, paragraph 1, subparagraph a) of the RJAT, "the request for constitution of an arbitral tribunal is submitted: a) Within the period of 90 days, counted from the facts provided for in paragraphs 1 and 2 of article 102 of the Code of Tax Procedure and Process, regarding acts susceptible of autonomous challenge and, as well, from the notification of the decision or the end of the statutory deadline for decision of hierarchical appeal".

In accordance with the provisions of article 102, paragraph 1, subparagraph a) of the CPPT, when there is a deadline for voluntary payment of assessments, it is from the end of that deadline that the period for challenge is counted.

Thus, regarding the 2014 assessment, the deadline for submission of a request for constitution of the arbitral tribunal commenced on 27-03-2018.

Having the request for constitution of the arbitral tribunal been submitted on 26-02-2019, it is manifest that it was submitted long after the end of the 90-day statutory period.

Therefore, the exception of untimeliness is verified regarding the 2014 assessment, without prejudice to what is decided on the rejections of the gracious complaints, regarding the effects of the corrections made for the tax year 2014.

3. Exception of lis pendens

The Claimant raises the question of lis pendens between the present arbitral proceedings and the judicial challenge proceedings No. .../18...BEAVR., which has for its object the challenge of assessment No. 2018..., relating to the tax year 2014.

The Claimant was notified to pronounce itself, but came forth with nothing.

As the submission of the request for constitution of the arbitral tribunal regarding the said assessment is untimely, the examination of the question of lis pendens is prejudiced, regarding the assessment relating to the tax year 2014.

In fact, the exception of lis pendens presupposes the repetition of a cause; if the cause is repeated while the previous one is still pending, there is lis pendens [article 580, paragraph 1, of the CPC, applicable to tax arbitral proceedings by force of the provisions of article 29, paragraph 1, subparagraph c), of the RJAT].

The exception of lis pendens has the purpose of preventing the court from being placed in the alternative of contradicting or reproducing a previous decision (paragraph 2 of the article).

In accordance with article 581 of the CPC, "a cause is repeated when an action identical to another is brought as to the subjects, the claim and the cause of action", "there is identity of subjects when the parties are the same from the point of view of their legal status", "there is identity of claim when in both cases the intention is to obtain the same legal effect" and "there is identity of cause of action when the assertion made in both actions".

Although the gracious complaints had for their object claims that effects of the corrections made in 2014 should be reflected in the tax years 2013 and 2015, the decisions on the gracious complaints are not challenged in the proceedings pending before the Administrative and Tax Court of ..., whereby identity of claim is not verified regarding those decisions.

Therefore, excluding from the subject matter of the present proceedings, by untimeliness, the assessment relating to the tax year 2014, it must be concluded that lis pendens is not verified.

The exception of lis pendens raised by the Tax Authority and Customs Authority is therefore unfounded.

4. Statement of facts

4.1. Proven facts

The following facts are considered proven:

A) Inspections were carried out on the Claimant relating to the tax year 2014 (hereinafter "first inspection procedure") carried out under Service Order OI2017... of 20-03-2017) and to the tax years 2015, 2016 and 2017 (hereinafter "second inspection procedure"), carried out under Service Orders OI2018..., of 23-03-2018, OI2018... of 03-04-2018 and OI2018... of 03-04-2018;

B) In the first inspection procedure corrections were made to the taxable income for 2014 which relate to expenses that the Tax Authority and Customs Authority understood that, in accordance with the principle of economic periodization, should have been recognized as a negative component of taxable profit in 2013, in the amount of 24,088.51 euros and in 2015, in the amount of 42,500.00 euros;

C) In the Report of the Tax Inspection relating to the inspection for the tax year 2014, the contents of which are given as reproduced, in which the following is mentioned, among other things:

III.1.2. Expenses of other periods

In the analysis carried out in II.3.6.6, the following were found in the accounting records: entries in supplies and external services of values not belonging to the economic period of 2014.

We describe below the comments that justify the disregard of these values as from the year 2014. Thus, for the comment:

A - Acquisitions, recorded in maintenance and repair, whose acquisition invoice is dated 2013;

B, C and D - Subcontracting of transport carried out in 2013;

E - Acquisitions (Refrigerator and Microwave), recorded in office material, whose acquisition invoice dated 2013;

F - Amount recorded in tools and quick-wear utilities, whose document of "Container Pledging No. ..." is dated 24-09-2011;

G - Cleaning services, whose acquisition invoice dated 2013;

H - Acquisition of fuel, whose acquisition invoice is dated 2013;

I - Advance payment made to timber supplier, recorded as subcontracting;

J - Receipt for rental of accommodation corresponding to December 2013;

K - Various food and beverage acquisitions, dated 2013;

L - Acquisitions, recorded in tools and quick-wear utilities, whose acquisition invoice dated 2013;

M - Food and beverage acquisition, dated 2013;

N - Acquisition, recorded in office material, whose acquisition invoice is dated 2013;

O - Bank charges for non-payment dated and relating to the year 2013;

P - Acquisitions, recorded in office material, whose acquisition invoices date from 2013.

With the exception of the advance payment commented on in I, all acquisitions relate to corrections for prior periods of taxation, particularly 2013, and should, in respect of the provisions of paragraphs 1 and 2 of Article 18 of the IRC Code, be disregarded for purposes of determining the taxable result of the economic period of 2014.

With regard to the amount paid to SOC. B... (comment I), in the amount of € 42,500.00, the same represents a mere advance for a supply of timber from that company to A..., to be extracted in future economic periods. According to circularization carried out with that company, it was found that there was no extraction of timber in 2014 for which the aforementioned advance was made. This amount represented a mere financial movement, and should therefore be disregarded, at least for purposes of determining the taxable result of the economic period of 2014.

(...)

III.1.4. Personnel expenses

As previously stated, in point II.3.6.7, A... pays its employees, simultaneously:

• Meal allowance (€ 45,744.66) and travel allowances (€ 139,722.78), recorded in personnel expenses;

• Expenses for food and accommodation (recorded in travel and accommodation, account 6.2.5.1.1.2, the value of which amounts to € 122,156.52), passed on directly from food and accommodation suppliers, examples of which are shown in the table below:

A... records in its accounting other expenses related to the travel and stay of its employees, such as expenses related to the rental of real estate or the acquisition of furniture for habitability of such/other real estate (for example, acquisition of "...", for house..., as per accounting entry 2014-04-01...).

We point out that travel allowances have as their presupposition and exclusive purpose the granting of compensation and should be understood as a supplement to remuneration, motivated by an increase in expenses to be incurred by the worker as a result of travel from his usual place of work, carried out on behalf of the company and which are intended to compensate for the increased expenses from that travel (food and accommodation).

Travel allowances should only occur when the employee actually travels and incurs expenses (food and accommodation) as a result of that travel on behalf of the employer.

The rules established by Decree-Law No. 106/98, of 24 April, a decree intended to regulate travel on public service, apply to private law employment relationships. Its article 37 (meal allowance) conveys the following to us:

"The amount corresponding to the daily meal allowance grant is deducted from travel allowances when the expenses subject to compensation include the cost of lunch."

Thus, with regard to employees' meals supported by the company, it should be noted that there cannot be simultaneous payment of meal allowance or travel allowances including food with payment of expenses borne by the employee in the name and on account of the company (invoices issued by the company's travel and accommodation suppliers). A situation which is found to exist in A..., as shown in the table above.

This duplication (or even triplication - meal allowance, travel allowance and expenses paid by the company) of expenses borne by the company is not accepted for tax purposes.

The exception to this non-acceptance for tax purposes for IRC purposes would be if such expenses with meal allowance or travel allowance or expense paid by the company were taxed in IRS in the employee's sphere, even if they are amounts below statutory limits.

In fact, with this duplication existing, the concepts of meal allowance or travel allowance will not be met, as it will no longer serve the function of compensating the employee for expenses, becoming instead treated as some other form of allowance to be taxed in the Category A sphere of IRS.

If the travel involves accommodation, under article 8 of Decree-Law No. 106/98, a value up to 50% of the statutory limit can be granted to compensate for that charge. This, provided that the employer does not directly pay the accommodation charge, through an invoice/rental in the name of the employer.

Whether through the payment of travel allowances or through payment of invoices from food and accommodation establishments, it is possible to generate the conviction that A... assumes this legal employment obligation to ensure the meals of its employees ( ).

Therefore, the food allowance processed in the payslip does not have any character other than taxable income, in the employee's sphere, in income tax, which did not occur, given the characterization that A... gave to such expenditures.

Given that, as a result of law, part of the amounts characterized as food allowance is already subject to IRS, being declared (in the monthly remuneration declarations delivered to the AT) jointly with base remuneration, we will consider it appropriate to correct only the amounts processed to employees classified, in those declarations, with the code "A21 - Meal allowance (part not subject)".

Such amounts total, in 2014, € 36,461.53.

And, for the reasons invoked, they will be disregarded in determining the taxable result of A... .

III.1.5. Summary of arithmetic corrections in IRC and corrected taxable result

The purpose of this sub-point is to present the taxable result of A..., for the year 2014, after the arithmetic corrections characterized in the previous sub-points.

We have therefore the following table:

From which it is concluded that there is an increase in fiscal profitability to 4.51% (instead of the declared 2.69%) which compares with the 5.10% declared for the year 2013.

D) With regard to "expenses of previous periods" the following is stated in the Report of the Tax Inspection of the second inspection procedure:

III.2.1. Expenses of previous periods - articles 17 and 18 of the IRC Code

In the analysis carried out on the company's accounting records, various entries were detected in supplies and external services of values not belonging to the economic year 2015 and 2016. In accordance with the provision of paragraph 1 of article 18 of the IRC Code "Income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are obtained or incurred, regardless of their receipt or payment, in accordance with the economic periodization regime." That is, expenses actually incurred in a given year can only be accepted as a fiscal expense of that same year, contributing to the determination of the taxable result of that same year under article 17 of the IRC Code.

In view of the values detected and having verified that the company proceeded to increase and deduction - in table 7 of form 22 - of amounts relating to corrections of previous years, it was requested that we be provided with information about the amounts that gave rise to the declared correction, since this information was not included in the tax file that was made available to us on 21 June 2018. From the analysis of the documents that were made available to us (Annex 13) we verified that the increases made by the company, in table 7 of form 22, relating to corrections of previous years, did not relate to the entries detected by us and which are listed in the summary map of expenses relating to previous years, improperly recorded as expenses in the years 2015 and 2016 (Annex 14).

Copies of some exemplary documents of those entries are attached (Annex 15), with copies/images of all documents/entries referred to in the summary map being recorded on digital media.

Following the documentary analysis, and taking into account the corrections made by the company, the amounts not accepted as expenses of the period, for not complying with the provisions of the aforementioned articles 17 and 18 of the IRC Code, total the annual amounts of:

E) Of the "expenses of previous periods" referred to in the preceding paragraph, the Tax Authority and Customs Authority understood that an expense should be attributed to the tax year 2013 in the amount of € 68.73 which was recognized by the Claimant in the tax year 2015 and the expense in the amount of € 298.88 which was recognized by the Claimant in the tax year 2016, with the Tax Authority and Customs Authority understanding that the remaining expenses recognized in 2015, in the global amount of € 6,708.71, should have been attributed to the tax year 2014 (annex 14 to the TIR of the second inspection procedure, on page 48 of the part of the administrative file designated as "Rel. Inspeção-5.pdf");

F) The Tax Authority and Customs Authority, regarding each of the corrections based on violation of the principle of specialization of tax periods, did not make corresponding corrections to the taxable income of the tax years which it understood they should be attributed to;

G) On 11-12-2014 the Claimant entered into a contract - Annex 1 - with Company B... S.A., with registered office at Rua ..., No...., ...-... ..., NIF ..., which is included in Annex I to the request for arbitral pronouncement, the contents of which are given as reproduced;

H) This contract has as its object the purchase by the Claimant from that company of timber existing in the rural property located in the parish and municipality of ..., registered in the respective rural property registry under Article ..., the Claimant carrying out the clear-cutting of 100% of the trees, at the price of 17€/tonne + VAT;

I) It was agreed by both parties the payment in the following manner:

i. Initial payment of 42,500.00 €+VAT at the statutory rate, corresponding to 2,500 tonnes before the start of cutting work and upon presentation of the respective invoice;

ii. After the cutting and removal of the first 2,500 tonnes of timber by the First Party (the Claimant), it shall make to the Second Party (B... S.A) a further advance of 42,500€ +VAT at the statutory rate, before proceeding with the cutting and removal of the timber;

iii. Before initiating any other cutting of a further 2,500 tonnes, the First Party shall make to the Second Party payment of an additional 42,500€ +VAT at the statutory rate;

iv. If in any case the timber still existing on the Property does not reach 2,500 tonnes, the First Party shall make to the Second Party the remaining payment at the rate of 17€/tonne + VAT at the statutory rate;

J) In execution of the aforementioned contract, A... S.A., issued the following invoices, which are included in Annexes 2, 3 and 4, to the request for arbitral pronouncement, the contents of which are given as reproduced:

• Issue of invoice FT 14/1 on 19-12-2014, in the amount of 42,500.00 euros +VAT - Annex 2:

• Issue of invoice FT 15/10 on 16-12-2015, in the amount of 42,500.00 euros +VAT - Annex 3:

• Issue of invoice FT 17/11 on 10-11-2017, in the amount of 463.93 euros +VAT - Annex 4:

K) The documentation relating to the cutting and sale of timber referred to in the contract is included in the documents attached in Annex V to the request for arbitral pronouncement, the contents of which are given as reproduced;

L) Regarding the corrections related to this contract the following is stated in the second inspection procedure:

III.2.2. Expenses of other years - advance payment to supplier recorded as subcontracting (articles 17 and 18 of the IRC Code)

The accounting entry OD ... refers to the registration of invoice FT 15/10 of 16-12-2015 from B..., SA, to A..., Lda, Paços – Moulds, which indicates in the description "Amount corresponding to a new advance, in accordance with b) of point 1 of clause 3 of the Purchase Agreement between us entered into on 11/12/2014.".

That "advance", in the amount of 42,500.00€ (Annex 16 – Invoice 15/10), was recorded as an expense of the year 2015 in sub-account 62111 – Subcontracting (Annex 17).

With regard to the amount "invoiced" by B..., SA, in the amount of 42,500.00 €, we found that the same represents a mere advance for a supply of timber from that company to A..., to be extracted in future economic periods. That is, in addition to the fact that it is only a financial movement/advance, it could never be recorded as an expense with "subcontracting" since, in fact, the invoice states "purchase agreement" and therefore is not a subcontracting of services.

Having analyzed the current accounts of that "supplier" – 2.7.8.2.001027 - Company B..., SA (Annex 18) - we found that, at the beginning of 2015 the payment of the first advance made in 2014 was recorded (subject to correction in the inspection action carried out in that year, because it is a mere "advance", that is, a financial movement without the "purchase" being effectively made). At the beginning of 2016 the payment of the "advance" made in 2015 was recorded. There were no other entries in the current account of that supplier.

The advance amount represented only a mere financial movement, which should be disregarded, at least for purposes of determining the taxable result of the economic period 2015, in the amount of 42,500€, because it is an expense that has not yet actually occurred, that is, it is an expense for a purchase/acquisition that will occur in future economic periods and should therefore only be recognized when it occurs, and also because it is not any subcontracting of services as the company recorded and declared in 2015.

Therefore, and for not complying with the provisions of the aforementioned articles 17 and 18 of the IRC Code, the amount of 42,500.00 € will be added to the taxable result declared in 2015.

M) In the second inspection procedure the following is stated regarding corrections relating to travel allowances and food allowances:

III-2.5. Personnel expenses - travel allowances and meal allowance (article 23-A of the IRC Code)

III.2.5.1. Legal framework

The regime for granting travel allowances, regulated in Decree-Law No. 106/98, of 24 April, has as its presupposition and exclusive purpose the granting of compensation and should be understood as a supplement to remuneration, motivated by an increase in expenses to be incurred by workers and/or managing partner as a result of travel from their usual place of work, carried out on behalf of the company and which are intended to be reimbursed/refunded for that travel.

Travel allowances should not be used as a simple increase in remuneration, and their granting should only occur when the worker effectively incurs expenses with food and accommodation as a result of travel from the so-called address necessary for the employer's service. This, provided that the employer does not directly pay the expenses with food and accommodation, through invoices duly issued in the name of the company.

It is important to note here that private law employment relationships are subject to the rules established by Decree-Law No. 106/98, of 24 April, a decree intended to regulate travel on public service. Its article 37 (meal allowance) states the following: "The amount corresponding to the daily meal allowance grant is deducted from travel allowances when the expenses subject to compensation include the cost of lunch."

If the travel involves accommodation, under article 8 of Decree-Law No. 106/98, a value up to 50% of the statutory limit can be granted to compensate for that charge. This, provided that the employer does not directly pay the accommodation charge, through an invoice/rental in the name of the employer.

III.2.5.2. Amounts recorded by the company

The annual expenses/costs recorded by the company, relating to travel expenses, travel allowances and meal allowance, in the years analyzed, were as follows:

This summary table clearly demonstrates that the company recorded expenses/costs relating to rental/accommodation and food of its employees and, furthermore, paid meal allowances to workers and recorded expenses with travel allowances that, legally and as we mentioned in the previous point, has the objective of reimbursing/compensating the worker for expenses incurred by the worker itself with travel on behalf of the company. From the previous table, and from the documentary analysis carried out, it is easy to conclude that the expenses with travel are borne by the company itself, not verifying, therefore, the presupposition of reimbursement of the same to the employee through the payment of travel allowances.

It is also worth noting that the travel allowance maps do not even indicate the deduction of the meal allowance amount, that is, the expenses recorded in the company reflect a triplication in expenses relating to food of its employees and duplication of expenses with accommodation of the same.

III.2.5.3. Meal allowance

From the analysis carried out on the accounting entries/documents of the company we verified that it records, monthly/daily various expenses incurred with the food of its workers (Annex 3), as well as the payment of meal allowance, which is not even deducted in the daily travel allowance that is paid to employees.

The numerous documents relating to meals, both at food establishments near the company's facilities and at the places where workers are traveling, do not indicate to whom those meals relate, making it impossible to quantitatively prove to whom the meals relate. With regard to expenses with food incurred in France, essentially in hypermarkets/supermarkets, which are recorded monthly in "bundles", we are also unable to identify to whom these expenses are destined, concluding by their coverage to all employees. By way of example, we are attaching some entries of expenses with food and accommodation (Annex 25).

It is thus clear that the company, in addition to the payment of meal allowance, bears numerous expenses with food for its employees, which results in a duplication of expenses.

Following all that was previously stated, the meal allowance processed on the payslip does not have any character other than taxable income, in the employee's sphere, in income tax, which did not occur, given the characterization that A... gave to such expenditures.

A small part of the amounts paid and recorded as meal allowance was subject to IRS. By consultation carried out on the monthly remuneration declarations (DMR) delivered monthly by the company, we collected the amounts processed with the code "A21 - Meal allowance (part not subject)" which are indicated below:

The amounts previously indicated, "part not subject" of the meal allowance, and following what was previously stated, will therefore not be accepted as a fiscal expense of the respective years as it is verified that the company recorded expenses with food of its employees and, simultaneously, expenses with the payment of meal allowance.

III.2.5.4. Travel allowances - improperly recorded as an expense

From the analysis carried out and following what was already referred to in the previous points, we verified that the presupposition of payment of "travel allowances" by compensation of expenses borne by employees with their travel is not fulfilled, since there is the existence of expenses borne by the company itself, both with food and with accommodation of its employees traveling on behalf of the company.

Also with regard to "travel allowances", and in response to the initial notification made on 14 June 2018, the company made available the maps drawn up. From the analysis of the same we can verify that part of the maps are not even signed by the respective employee and the tax identification number of the beneficiary of the travel allowances is not indicated (Annex 26).

In the notification made, the indication of invoices issued to customers to whom those travel allowances might have been charged was also requested.

After analyzing the travel allowance maps that were made available to us, and regarding the indication of invoices issued to customers, we verified that they mentioned the invoice number relating to the travel carried out. By checking the invoices indicated we verified that only the service itself is invoiced, for example "provision of services - grinding and sieving stumps", "chips", "biomass", etc. (Annex 26), therefore those travel allowances are not considered invoiced/charged to customers, in accordance with the provisions of article 23-A of the IRC Code.

An analysis of the accounting entries of the travel allowance maps was also carried out and we verified that, for example, the maps relating to travel allowances from January to April 2015 were all entered in the company's accounting on 12-June-2015 (SystemEntryDate) (Annex 27). For example, the monthly entries relating to January had been made, essentially, during February, however the travel allowances, despite indicating effective transaction date on 31-01-2015, were only recorded in accounting on 12-June-2015.

In 2016 we also verified that, for example, the entries of the travel allowance maps from January to July were entered, effectively, on 2-September-2016, that is, much later than the dates of entry of the remaining monthly documents.

We thus conclude that the travel allowance maps are normally entered in the accounting at dates much later than the dates of their issue. Unlike the remaining documents and personnel expenses which are normally recorded in the following month, travel allowances are, in fact, recorded many months after the month to which they relate. There is therefore no standardized pattern between the recording of so-called normal company expenses and the recording of travel allowance maps.

All the facts and evidence found throughout this inspection procedure point clearly to the existence of the accounting of travel allowances that, in fact, cannot be considered as such given that they do not meet the objective thereof which is the compensation or reimbursement to the worker of expenses incurred by the latter with travel carried out on behalf of the company. Therefore, expenses for the payment of those travel allowances are not fiscally accepted since the company already bears and records the expenses incurred with travel and accommodation of its employees.

III.2.5.5. Conclusion - proposed corrections

Following what was previously stated, taking into account the accounting and payment, by the company, of the numerous invoices from food establishments, as well as those relating to accommodation, it is possible to generate the conviction that A... assumes the legal employment obligation to ensure, both the meals of its employees and the accommodation expenses.

With regard to employees' meals supported by the company, it should be noted that there cannot be, in addition to the expense already incurred with meals and accommodation, simultaneous payment of meal allowance and travel allowances. A situation which is found to exist in A..., as was demonstrated and according to the own travel allowance bulletins, payment of meal allowance and numerous records of expenses with meals and accommodation throughout the year, including in restaurants located near the company's facilities.

This duplication, that is, triplication of expenses - expenses paid by the company with food and accommodation, meal allowance and travel allowances - is not accepted for tax purposes.

The exception to this non-acceptance for tax purposes, in IRC, would be if the expenses with meal allowance or travel allowance or expense paid by the company were taxed in IRS in the employee's sphere, even if it is amounts below statutory limits. In fact, with this duplication existing, the concepts of meal allowance or travel allowance are not met, as it will no longer serve the function of compensating the employee for expenses, becoming instead treated as some other form of allowance to be taxed in the Category A sphere of IRS.

For all that was previously stated we conclude that, both the meal allowance (in the part not subject) and travel allowances, recorded as expenses of the tax years 2015 and 2016, are not accepted for tax purposes, and therefore the amounts indicated below shall be increased to the taxable result declared:

N) By disregarding travel allowances, the Tax Authority and Customs Authority also corrected in favor of the Claimant the amounts of autonomous taxation that had been calculated in self-assessment;

O) The Tax Authority and Customs Authority issued on 09-09-2014, IRC assessment No. 2014..., relating to the tax year 2013;

P) Following the inspection procedures, the Tax Authority and Customs Authority issued the following assessments, copies of which are attached to the case file and are given as reproduced:

– No. 2018..., relating to the tax year 2014, dated 12-02-2018;

– No. 2018..., relating to the tax year 2015, dated 18-10-2018;

– No...., relating to the tax year 2016, dated 18-10-2018;

Q) Following the first inspection procedure, the Claimant submitted on 28-05-2018 a gracious complaint of the assessment relating to the tax year 2013, which came to have No. ...2018..., requesting "the rectification of the IRC assessment act No. 2014... of 2014-09-09 reducing the taxable income from 229,429.06 euros to 205,260.55 € integrating in its calculation the 24,168.51 euros which according to the report of the inspection procedure were fiscal costs of the year 2013 (and not 2014)";

R) The gracious complaint relating to the tax year 2013 was rejected with the grounds of an opinion the contents of which are given as reproduced, in which the following is mentioned, among other things:

2.2. Opinion

The claimant argues that, according to the Report of the Tax Inspection under OI2017..., corrections were made in the amount of €24,168.51 (accepting the correction of €80.00 for being materially irrelevant) which relate to expenses recorded in 2014 that should have been accounting recognized in 2013, without for this purpose having complied with the general guidance contained in circular letter No. 14, of 23/11/1993, of the IRC Services Department under the heading "Costs and Revenues of Previous Years", and Nos. 1 and 2 of article 18 of the IRC Code.

The technical corrections made by IT for the year 2014 which in terms of IRC amounted to €180,340.97, which includes the €24,168.51 now complained of, were subject to judicial challenge - case No. .../18... BEAVR-.

Given the interconnection of the factual matter, after the judgment becoming final of the said judicial challenge, and if the decision is in your favor, you may file a complaint under paragraph 4 of article 70 of the CPPT.

1. Conclusion

In view of the facts set out, we are of the OPINION that this petition should be rejected.

S) On 29-05-2018, the Claimant submitted a gracious complaint of the assessment relating to the tax year 2015, which had No. ...2018..., requesting "the rectification of the IRC assessment act No. 2017..., of 2017-93-01, reducing the taxable income from 97,099.94 euros to 54,599.94 € integrating in its calculation the 42,500.0 euros which according to the report of the inspection procedure were fiscal costs of the year 2015 (and not 2014)";

T) The gracious complaint relating to the tax year 2015 was rejected with the grounds of an opinion the contents of which are given as reproduced, in which the following is mentioned, among other things:

2.2. Opinion

The claimant argues that, according to the Report of the Tax Inspection under OI2017..., a correction was made in the amount of €42,500.00 referring to an advance for a supply of timber from SOC. B... to A... to be extracted in future economic periods, which relate to fiscal costs of the year 2015 (and not 2014), without for this purpose having complied with the general guidance contained in circular letter No. 14, of 23/11/1993, of the IRC Services Department under the heading "Costs and Revenues of Previous Years", and Nos. 1 and 2 of article 18 of the IRC Code, requesting thus the rectification of the aforementioned tax assessment act reducing the taxable income from €97,099.94 to €54,599.94, integrating in its calculation the €42,500.00 for being fiscal costs of the year 2015 (and not 2014).

The Tax Inspection (IT) under OI2018... made corrections to the taxable income for IRC purposes of the tax year 2015 in the total amount of €259,294.98, which includes the correction concerning "Expenses not accepted for tax purposes in the period: advance payment to supplier recorded as subcontracting" in the value of €42,500.00, the grounds of which are contained in points III.2.2 of the Final Inspection Report, at page 9 of the proceedings and which are summarized as:

"That "advance", in the amount of 42,500.00€ (...), was recorded as an expense of the year 2015 in sub-account 62111 - Subcontracting (...).

With regard to the amount "invoiced" by Company B..., SA, in the amount of 42,500.00€, we found that the same represents a mere advance for a supply of timber from that company to A..., to be extracted in future economic periods.

(...)

Having analyzed the current accounts of that "supplier" - 2.7.8.2.001027 - Company B..., SA - we found that, at the beginning of 2015 the payment of the first advance made in 2014 was recorded (subject to correction in the inspection action carried out in that year, because it is a mere "advance", that is, a financial movement without the "purchase" being effectively made) (...)". (...) The advance amount represented only a mere financial movement, which should be disregarded, at least for purposes of determining the taxable result of the economic period 2015, in the amount of 42,500€, because it is an expense that has not yet actually occurred, that is, it is an expense for a purchase/acquisition that will occur in future economic periods and should therefore only be recognized when it occurs, and also because it is not any contracting of services as the company recorded and declared in 2015". The technical corrections made by IT for the year 2014 which in terms of IRC amounted to €180,340.97, which includes the €42,500.00 now complained of, were subject to judicial challenge - case No. .../18... BEAVR-.

Given the interconnection of the factual matter, after the judgment becoming final of the said judicial challenge, and if the decision is in its favor, the claimant may file a gracious complaint under No. 4 of article 70 of the CPPT.

On the other hand, such cost, declared and recorded by the claimant, was not accepted in either 2014 or 2015 because it is an expense that has not yet actually occurred, that is, it represented only a mere financial movement, so only in the year in which the purchase/acquisition takes place should the cost be recognized.

U) Case No. .../18...BEAVR is pending before the Administrative and Tax Court of Aveiro, in which the Tax Authority and Customs Authority was notified to contest by letter sent on 19-09-2018, and in which assessment No. 2018..., relating to the tax year 2014, is challenged, the initial petition of which is given as reproduced;

V) On 23-11-1993, the IRC Services Department issued Circular Letter No. 14 with the following contents:

COSTS AND REVENUES OF PREVIOUS YEARS

Circular Letter 14, of 23/11/1993 - IRC Services Department

COSTS AND REVENUES OF PREVIOUS YEARS

The IRC Services Department has been questioned about the treatment of costs and revenues of previous years, notably with regard to the non-attribution of costs to the year to which they relate, when they have not been accepted as a negative component of taxable profit of the year in which they were recorded, a procedure contrary to what, as a rule, is adopted regarding revenues.

Considering that such fact results in an incorrect quantification of the actual income which should constitute the basis of taxation, the matter was submitted to higher consideration, and by a dispatch of 93.03.29, from H.E. the Deputy Secretary of State of the State Secretary and Budget, the following understanding was sanctioned:

1. Under article 18 of the IRC Code, revenues and costs, as well as other positive or negative components, of taxable profit are attributable to the year to which they relate, in accordance with the principle of specialization of tax periods.

2. Thus, and as it falls to the Inspection Services within the scope of internal or external analysis to control the collectible income determined based on the taxpayer's declaration, they should, without prejudice to the applicable penalty, make the appropriate corrections to the net result of the year to which the costs or revenues relate, when, under article 18 of the IRC Code, they are not considered negative or positive components of taxable profit of the year of their accounting.

3. This procedure does not apply to provisions, reinstatement and depreciation when not recorded as costs or losses of the year to which they relate.

The Director-General

C...

W) The Claimant made the timber supplies referred to in the documents attached with the request for arbitral pronouncement as an annex, the contents of which are given as reproduced;

X) On 26-02-2019, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

4.2. Unproven facts and justification for the fixing of the statement of facts

The proven facts are based on the documents attached by the Claimant, those contained in the administrative file and subsequently attached by the Tax Authority and Customs Authority.

It was not proven that the Claimant did not make the payments recorded relating to travel allowances and meal allowances, nor that there was duplication or triplication of expenses.

The conclusion drawn by the Tax Authority and Customs Authority in the sense of duplication or triplication is not based on any effective proof, being only an inference it draws from the cumulative accounting of "Rents for worker accommodation", "Expenses for food and travel", "Meal allowance" and "Travel allowances".

In fact, as the Claimant states, "nothing prevents an employer, in its management powers, from choosing in certain circumstances to pay travel allowances to the worker, giving them complete freedom to find in the area where they are traveling the places where they can eat and stay overnight (...) and in other situations for the employer itself to agree with local operators the conditions under which those services are provided to its employees".

The lack of proof of the reality underlying these expenses is ultimately implicitly assumed by the Tax Authority and Customs Authority in the footnote contained in the TIR relating to the second inspection procedure in which it states:

"We could read that A... fulfills this legal obligation through the processing of meal allowances, considering as surplus all amounts paid by the invoices received from food establishments. Given the difference in values between both amounts in question (the sum of amounts invoiced by food suppliers is significantly higher), we will not consider this interpretation, which would be significantly more burdensome, in terms of taxation, for A..."

The Tax Authority is obliged to "undertake all necessary procedures to satisfy the public interest and the discovery of material truth" (article 58 of the LGT), whereby taxpayers must be taxed on the basis of the reality of tax facts and not on the basis of options by interpretations of facts that could not be determined on the basis of assumptions based on greater or lesser prejudice to the taxpayer.

Having failed to establish what the reality underlying these expenses is, the legal solution that imposes itself on this Arbitral Tribunal is not to give this matter of fact as proven.

5. Matter of law

5.1. Question of the rejection of gracious complaints

The Tax Authority and Customs Authority, in point III.1.2. of the Report of the Tax Inspection relating to the first inspection procedure, understood that expenses that were recorded as relating to the tax year 2014 should have been attributed to the tax year 2013 (in the global amount of € 24,168.51) and an expense should be attributed to the tax year 2015 (in the amount of € 42,500.00), having disregarded those expenses in the tax year 2014, without, at the same time, having made the corresponding favorable corrections to the Claimant regarding the tax years 2013 and 2015.

The Claimant, following the inspection for the tax year 2014, filed gracious complaints of the self-assessments relating to the tax years 2013 and 2015, with the objective of seeing attributed to these tax years the respective expenses not accepted by the Tax Authority and Customs Authority in the tax year 2014.

In the decisions on the gracious complaints, the Tax Authority and Customs Authority understood, in sum, that, because the assessment relating to the tax year 2014 has been judicially challenged and the factual matter is interconnected, the Claimant's claims should be the subject of a gracious complaint under paragraph 4 of article 70 of the CPPT, after the judgment becoming final of the judicial proceedings.

The question of whether the Tax Authority and Customs Authority's understanding that expenses considered in the tax year 2014 should be attributed to the tax years 2013 and 2015 is well-founded is the subject of the judicial challenge proceedings pending before the Administrative and Tax Court of Aveiro, whereby it cannot be assessed in the present proceedings.

Thus, the question that arises for this Arbitral Tribunal is only whether, before the correction relating to the tax year 2014 is consolidated in the legal order, the Tax Authority and Customs Authority should have made the corresponding corrections relating to the tax years 2013 and 2015.

The text of Circular Letter No. 4/93 points to the fact that favorable and unfavorable corrections resulting from the application of the principle of specialization of tax periods should be concomitant and made by the initiative of the services, as there is reference to "Inspection Services within the scope of internal or external analysis to control the collectible income" (and not to action by any services of the Tax Authority following the corrections becoming final) and it is stated that the corrections that should be made in the year to which the costs or revenues relate should be made "when, under article 18 of the IRC Code, they are not considered negative or positive components of taxable profit of the year of their accounting".

The case law of the Supreme Administrative Court is also in this sense, as can be seen from the judgment of 21-11-2012, case No. 0809/12, in which it is stated: "Finally, having the Taxpayers declared the aforementioned amount of € 10,000.00 as income from the year 2006, it is hard to understand that the AT, having proceeded with the correction of income from the year 2003 (adding that amount to the declared taxable income), did not proceed with the corresponding correction in the opposite direction (reducing the same amount from the declared taxable income) in the year 2006, which appears to us to be a violation of the principle of justice".

In the same vein, it is stated in the judgment of the Central Administrative Court of the South of 21-06-2003, case No. 05616/01: "However, if the AT only proceeded with the correction regarding that year, and no longer with the corresponding corrections in the following years (from which lower IRC taxation would result), and such corrections can no longer be made, there may be a violation of the principle of justice, determining the annulment of the assessment".

Thus, in line with this case law, it is to be understood that favorable corrections to the taxpayer that are the reflection of unfavorable corrections resulting from the application of the principle of specialization of tax periods stated in article 18 of the IRC Code, interpreted in the light of the principle of justice whose observance by the Tax Authority is imposed by article 55 of the LGT, must be made concomitantly, by the initiative of the services, and cannot be deferred and be dependent on future gracious complaints to be filed by the taxpayer, who is imposed without any deferment the payment of the increase in tax resulting from unfavorable corrections.

Therefore, the annulment of the decisions on the gracious complaints is justified, under article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable under article 2, subparagraph c), of the LGT, as well as the assessments relating to the tax years 2013 and 2015, in the parts where they did not include the expenses not accepted regarding the tax year 2014, in the amounts of € 24,168.51 and € 42,500.00, respectively (€ 66,668.51, in total).

5.2. Question of expenses in the amounts € 6,777.44 and € 298.88 not accepted in the tax years 2015 and 2016 for relating to previous years

The Tax Authority and Customs Authority understood that expenses recognized in the tax year 2015 in the global amount of € 6,777.44 and an expense in the amount of € 298.88 recognized in 2016 could not be accepted as expenses of these years, as they should be attributed to the tax year 2013 (regarding an expense in the amount of € 68.73 recognized in 2015 and the expense of € 298.88 recognized in 2016) and other expenses recognized in 2015 in the global amount of € 6,708.71 should be attributed to the tax year 2014.

The considerations made in the preceding point regarding the obligation of the Tax Authority and Customs Authority to make corrections in the years to which expenses that are accepted in a given year should be attributed by force of the principle of specialization of tax periods apply here.

However, as knowledge cannot be taken of the legality of the assessment relating to the tax year 2014, due to untimeliness, only the claim for arbitral pronouncement regarding the expenses that should be attributed to the tax year 2013 is proper.

Thus, the claim for arbitral pronouncement regarding the amounts of € 68.73 and € 298.88, which should be attributed to the tax year 2013, is proper and no knowledge is taken of the question of attribution to the tax year 2014 of expenses in the amount of € 6,708.71.

5.3. Question of non-consideration of expenses in the tax year 2015, relating to the timber purchase contract

On 11-12-2014, the Claimant entered into a contract with Company B... S.A. for the purchase of timber existing on a property, the Claimant carrying out the clear-cutting of 100% of the trees, at the price of 17€/tonne + VAT.

It was agreed by both parties the payment in the following manner:

i. Initial payment of 42,500.00 €+VAT at the statutory rate, corresponding to 2,500 tonnes before the start of cutting work and upon presentation of the respective invoice;

ii. After the cutting and removal of the first 2,500 tonnes of timber by the Claimant, it shall make to that company a further advance of 42,500€ +VAT at the statutory rate, before proceeding with the cutting and removal of the timber; and before initiating any other cutting of a further 2,500 tonnes, the Claimant shall make an additional payment of 42,500€ +VAT at the statutory rate;

iii. If in any case the timber still existing on the Property does not reach 2,500 tonnes, the Claimant shall make to that company the remaining payment at the rate of 17€/tonne + VAT at the statutory rate.

That company issued 3 invoices to the Claimant under the aforementioned contract, being in question here only the second, with No. FT 15/10, dated 16-12-2015, in the amount of 42,500.00 euros +VAT. ( )

In the second inspection procedure, the Tax Authority and Customs Authority understood, in sum, the following:

– "With regard to the amount "invoiced" by Company B..., SA, in the amount of 42,500.00 €, we found that the same represents a mere advance for a supply of timber from that company to A..., to be extracted in future economic periods. That is, in addition to the fact that it is only a financial movement/advance, it could never be recorded as an expense with "subcontracting" since, in fact, the invoice states "purchase agreement" and therefore is not a subcontracting of services";

– "Having analyzed the current accounts of that "supplier" – 2.7.8.2.001027 - Company B..., SA (Annex 18) - we found that, at the beginning of 2015 the payment of the first advance made in 2014 was recorded (subject to correction in the inspection action carried out in that year, because it is a mere "advance", that is, a financial movement without the "purchase" being effectively made). At the beginning of 2016 the payment of the "advance" made in 2015 was recorded. There were no other entries in the current account of that supplier";

– "The advance amount represented only a mere financial movement, which should be disregarded, at least for purposes of determining the taxable result of the economic period 2015, in the amount of 42,500€, because it is an expense that has not yet actually occurred, that is, it is an expense for a purchase/acquisition that will occur in future economic periods and should therefore only be recognized when it occurs, and also because it is not any subcontracting of services as the company recorded and declared in 2015";

– "the invoice states "purchase agreement" and therefore is not a subcontracting of services".

The Tax Authority and Customs Authority did not accept the attribution of this expense to the tax year 2015, nor did it understand that the same should be attributed to the tax year 2016, having made the respective correction.

The Claimant argues that there is an error by the Tax Authority and Customs Authority in considering that there are "advances", as these are "true purchases".

It appears that the Claimant is right, as the contract does not provide for any service of supply of timber to be performed by that company, and the contract should be interpreted as relating to the acquisition of timber by the Claimant, the latter subsequently becoming owner of 2,500 tonnes of timber which it would itself extract.

In fact, no proof was made that there was an activity of providing timber supply services by said company, nor even any act of delivery of the timber, there being only indications in the case file, namely those provided by the contract, that it was a sale.

Thus, it is to be concluded that, by force of the contract, with the execution of each of the payments, the Claimant acquired 2,500 tonnes of timber which, having become its property, it could withdraw from the property without any intervention from the selling company.

As it is a sale of 100% of the trees existing on the property, there is a sale of a determined thing, whereby the transfer of ownership is effected by the mere effect of the contract, under articles 408, paragraph 1, and 879, subparagraph a), of the Civil Code.

In these circumstances, by force of the provision in subparagraph a) of paragraph 3 of article 18 of the IRC Code, the expenses are considered incurred "on the date on which the transfer of ownership operates". In fact, there was not even a physical "delivery or shipment of goods" that would allow the framing of the situation in question in the first part of this statutory provision.

On the other hand, the Claimant presented dozens of documents relating to transport provided by it, whereby, at a minimum, there would have to be well-founded doubts about its relationship with the aforementioned contract, which must be valued procedurally in favor of the Claimant, by force of the provision in article 100, paragraph 1, of the CPPT.

Thus, the expense in question corresponds to a sale that should be attributed to the tax year 2015.

Therefore, this correction is affected by a defect due to error on the legal presuppositions and also on the factual presuppositions, as it is based on the erroneous assumption that there is a "supply of timber (...) to be extracted in future economic periods", as there is a purchase contract for timber made by the Claimant and not any service of timber supply.

Therefore, the annulment of the assessment relating to the tax year 2015, in the respective part, is justified.

On the other hand, the fact invoked by the Tax Authority and Customs Authority that the expense was recognized in accounting terms as relating to the acquisition of supplies and external services, specifically in account 62111 – Subcontracting, does not appear to be relevant to the assessment of this question, as, for tax purposes, the materiality of the facts is relevant, which is established, and not the qualification given to them by the taxpayer, as is inferred from paragraph 4 of article 36 of the LGT.

Thus, the claim for arbitral pronouncement regarding this correction in the amount of € 42,500.00 is proper.

5.4. Question of personnel expenses relating to the tax years 2015 and 2016

The Tax Authority and Customs Authority disregarded as a negative component of taxable profit, the expenses recognized by the Claimant with travel allowances and meal allowances in the tax years 2015 and 2016, in the following amounts:

This correction was based, in sum, on the finding that:

– "the company recorded expenses for rental/accommodation and food of its employees and, furthermore, paid meal allowances to workers and recorded expenses with travel allowances";

– "the expenses with travel are borne by the company itself, not verifying, therefore, the presupposition of reimbursement of the same to the employee through the payment of travel allowances";

– "the travel allowance maps do not even indicate the deduction of the meal allowance amount, that is, the expenses recorded in the company reflect a triplication in expenses relating to food of its employees and duplication of expenses with accommodation of the same";

– "the numerous documents relating to meals, both at food establishments near the company's facilities and at the places where workers are traveling, do not indicate to whom those meals relate, making it impossible to quantitatively prove to whom the meals relate. With regard to expenses with food incurred in France, essentially in hypermarkets/supermarkets, which are recorded monthly in "bundles", we are also unable to identify to whom these expenses are destined, concluding by their coverage to all employees";

– "it is thus clear that the company, in addition to the payment of meal allowance, bears numerous expenses with food for its employees, which results in a duplication of expenses".

– "following all that was previously stated, the meal allowance processed on the payslip does not have any character other than taxable income, in the employee's sphere, in income tax, which did not occur, given the characterization that A... gave to such expenditures";

– "the payment of "travel allowances" by compensation of expenses borne by employees with their travel is not fulfilled, since there is the existence of expenses borne by the company itself, both with food and with accommodation of its employees traveling on behalf of the company";

– "part of the maps are not even signed by the respective employee and the tax identification number of the beneficiary of the travel allowances is not indicated";

– "regarding the indication of invoices issued to customers, we verified that they mentioned the invoice number relating to the travel carried out";

– "the entries of the travel allowance maps from January to July were entered, effectively, on 2-September-2016, that is, much later than the dates of entry of the remaining monthly documents";

– "all the facts and evidence found throughout this inspection procedure point clearly to the existence of the accounting of travel allowances that, in fact, cannot be considered as such given that they do not meet the objective thereof which is the compensation or reimbursement to the worker of expenses incurred by the latter with travel carried out on behalf of the company. Therefore, expenses for the payment of those travel allowances are not fiscally accepted since the company already bears and records the expenses incurred with travel and accommodation of its employees".

The Claimant says the following about these corrections, in sum:

– there is a violation of the principle of equality, in the sphere of contributory capacity, by discrepancy of understandings/procedures relating to matters that are entirely identical, propagated by the two tax inspectors, because in the report of the inspection procedure directed to the tax year 2014, excluding from the negative component of income only expenses with meal allowances, and in the report of the inspection procedure(s) directed to the tax years 2015 and 2016, it was understood to correct as a negative component of income, in addition to expenses with meal allowances, expenses with travel allowances;

– the Tax Authority and Customs Authority does not present any example demonstrating cost overlap;

– using the Tax Authority and Customs Authority direct assessment, the burden of proof of the constitutive facts falls on whoever invokes them (paragraph 1 of article 74 of the LGT);

– in a clear violation of the inquisitorial principle, the Tax Authority and Customs Authority did not examine financial movements (or at least completely overlooked them in its report), whereby nothing therein contained indicates that the Claimant has recorded expenses in which it has not incurred;

– nothing prevents an employer, in its management powers, from choosing in certain circumstances to pay travel allowances to the worker, giving them complete freedom to find in the area where they are traveling the places where they can eat and stay overnight;

– and in other situations for the employer itself to agree with local operators the conditions under which those services are provided to its employees;

– and there are "situations in which meal allowances are granted purely and simply because the employees were not traveling away from their necessary home – cf. article 2 of Decree-Law No. 106/98, of 24 April cited by IT - a matter that IT itself overlooked addressing";

– such facts demonstrate the insufficiency (did not demonstrate duplication or triplication of expenses), obscurity (one is left without knowing the reasons for the corrections – duplication of expenses, undocumented expenses or false documentation) of justification, equivalent to its lack – paragraph 2 of article 153 of the CPA;

– the Tax Authority and Customs Authority makes reference to Decree-Law No. 106/98, but, as far as the grounds of a tax nature, only inopportunely, and without specifying, is a reference made to a tax standard in its title and sporadically throughout the exposition – article 23-A of the IRC Code;

– there is no reference in the justification to any reference that permits the factual matter described to be subsumed to the tax standard invoked in the epithet, and to conclude on the manner in which this explicitly or implicitly enables IT to achieve that objective (to disregard those expenses for purposes of calculating the taxable income for IRC purposes for the years 2015 and 2016);

– in point III.2.5. of the TIR, there is always a reference to the same tax standard of such amplitude that it becomes impossible to understand the motivation for the act;

– having article 23-A of the IRC Code (the standard invoked) seven paragraphs and paragraph 1, eighteen subparagraphs [subparagraph a) to s)] this justification of law would lack at a minimum being "more surgical";

– which demonstrates its insufficiency – and we are once again ex novo back to lack of justification under paragraph 2 of article 153 of the CPA;

– cannot discern in which specific norm of that article, IT and the agents responsible for the inspection procedure (a universe that includes not only the inspector and author of the report, who in situ executed the inspection, but also all her hierarchical superiors who confirmed and sanctioned it) relied to fiscally disregard that expense;

– if the AT refers to subparagraph h) of paragraph 1 of article 23-A, it does not mention in the report that the Claimant does not have "... for each payment made, a map through which it is possible to control the travel to which those charges relate, namely the respective locations, time of stay, objective and, in case of travel in the worker's own vehicle, identification of the vehicle and its owner, as well as the number of kilometers traveled..." (precisely because the Claimant has them);

– since justification is one of the essential elements of the tax act, this determines the consequent annulment (defect of form due to lack of justification);

– in order to disregard the expenses the AT would have had to demonstrate that those amounts were not paid to the workers, whereby they would be disregarded under article 23 of the IRC Code - a norm which was not even addressed, or:

– or as previously stated that "... for each payment made, a map through which it is possible to control the travel to which those charges relate, namely the respective locations, time of stay, objective and, in case of travel in the worker's own vehicle, identification of the vehicle and its owner, as well as the number of kilometers traveled..." under the cited subparagraph h) of paragraph 1 of article 23-A of the IRC Code - a matter of fact which was also not addressed;

– with both requirements being met (actual payment and documentation) what IT could question is the qualification given to them by the Claimant and requalify them as remuneration – through application of article 36, paragraph 4 of the LGT - taxing them in IRS in the employees' patrimonial sphere and concomitant penalization of the employer entity here Claimant under the RGIT (for having failed to proceed with any withholding tax on those amounts);

– but all this only if IT, observing the inquisitorial principle, had demonstrated that underlying the recorded expenses in the accounts was the factual framework that it considered which it failed to do;

– if the Claimant's accounting is affected by so many def