CAAD Case 154/2018-T: IRC Deductibility of Insufficiently Documented Expenses for Taxable Profit

ARBITRAL DECISION (consult full version in PDF)

Report

A - General

A..., S. A., NIPC-..., with registered office at ..., ..., ..., ...-... ..., (hereinafter referred to as "Claimant"), filed on 27.03.2018 a request for the constitution of a sole arbitral tribunal in tax matters, which was accepted, aiming, on the one hand, and in mediate terms, at the annulment of the additional assessment of Corporate Income Tax (hereinafter IRC), for the year 2012, identified with the number 2017..., in the amount of € 208,340.55 (two hundred and eight thousand three hundred and forty euros and fifty-five cents) and of the statement of account reconciliation identified with the number 2017... (Compensation Reference 2017...), in the amount of € 21,370.94 (twenty-one thousand three hundred and seventy euros and ninety-four cents).

Pursuant to the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the Legal Regime of Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter RJAT), the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned as arbitrator, and the Parties, having been duly notified, did not express opposition to this appointment.

By order of 11.04.2018, the Tax and Customs Administration (hereinafter referred to as "Respondent") proceeded with the appointment of Ms. B... and Ms. C... to intervene in the present arbitral proceedings, in the name and representation of the Respondent, the latter having been replaced by Ms. D..., by order of 17.10.2018.

In accordance with the provision of paragraph c) of section 1 of article 11 of the RJAT, the Arbitral Tribunal was constituted on 12.06.2018.

On 14.06.2018, the highest-ranking official of the Respondent's service was notified to, if willing, present a response within a period of 30 days, request the production of additional evidence, and attach a copy of the administrative file to the case.

On 03.09.2018, the Respondent presented its Response and attached the administrative file.

B – Position of the Claimant

The Claimant was the subject of an inspection covering the year 2012, pursuant to Service Order no. OI2016..., carried out by the Tax Inspection Services of the Finance Directorate of ..., which resulted in corrections to the IRC and withholdings at source.

Consequently, the Claimant was notified of the additional IRC assessment and the statement of account reconciliation referred to in 1.1.

Dissatisfied with the acts referred to in 1.8, the Claimant presented a request for administrative reconsideration, which was dismissed.

The Claimant was subsequently cited in tax enforcement proceedings no. ...2017..., in the amount of € 21,564.77 (twenty-one thousand five hundred and sixty-four euros and seventy-seven cents) relating to non-payment of the additional assessment above identified.

On 11.10.2017, the Claimant made payment of the amounts required in the context of the tax enforcement proceedings mentioned in 1.10, in the amount of € 21,834.90 (twenty-one thousand eight hundred and thirty-four euros and ninety cents).

The Claimant understands, however, that there are defects that vitiate both the additional assessment now contested and the dismissal of the request for administrative reconsideration timely presented.

The Claimant submits that there was a violation of the right to be heard in the context of the inspection procedure, since the right to be heard was relegated to the end of the report (after it had already drawn all conclusions and, including, already proposed all amendments) and the facts alleged in the Claimant's statement were completely disregarded, when it is certain that the Respondent should have attended to all the facts that the taxpayer decided to bring to the procedure, which in the present case, by its reading, will not have happened.

Also in the administrative reconsideration procedure, there was a violation of the Claimant's right to be heard and of the principle of cooperation, the same being tainted by nullity, for the reason that the three witnesses listed by the Claimant were not heard, and whose hearing it considered of essential importance, as there were relevant facts that could only be demonstrated by testimonial evidence.

The Claimant further submits that the decision on administrative reconsideration suffers from the defect of lack of reasoning, in that the decision is silent as to any possible reasons – if they existed at all – for not hearing the witnesses timely listed.

In the Claimant's accounting, invoices are recorded as accommodation expenses for workers that are issued in the names of other companies (E..., Lda. and F..., Ltda.), but that relate to expenses effectively borne by it.

The said invoices relate to accommodation expenses abroad for employees of the Claimant (and not for employees of the companies in whose names they were issued), which were paid in cash by agents of the Claimant, and which were essential for its employees to carry out the tasks associated with the provision of services for which the Claimant was contracted by its clients.

The Claimant deducts, in the pay slips of workers who are posted abroad, the sum of € 10 (ten euros) per day for accommodation expenses that are advanced by the company, so the effect of these expenses on the Claimant's accounting is neutral.

The companies in whose names the invoices were incorrectly issued confirmed that none of the aforementioned invoices were reflected in their accounting.

The Claimant concludes its request, further requesting the condemnation of the Respondent to the payment of indemnity interest, in accordance with article 43 of the General Tax Law (LGT).

C – Position of the Respondent

By way of response, the Respondent defends itself, arguing first that there was no violation of the Claimant's right to be heard and that this hearing, which did not adduce any new facts that could motivate a shift in the direction of the decision, was indeed taken into account by the services, being recorded in the said inspection report, offering no relevance to the circumstance that it was analyzed at the end of the said report.

As to the non-hearing of witnesses in the context of the Administrative Reconsideration, the Respondent submits that the admission of testimonial evidence could have been dismissed summarily, because it is up to the case instructor to decide which evidence it deems relevant and adequate for the pursuit of what it considers to be the correct subsumption of facts to the law.

Having regard to the provision of article 69(e) final part of the Code of Tax Procedure and Process (CPPT), the Respondent submits that despite the decision not to admit the testimonial evidence presented not requiring any reasoning, since this clearly results from the stated provision, the instructor of the Administrative Reconsideration proceedings based its exclusion on the ground that the documents were "the evidence necessary and sufficient to affirm the tax act, now claimed."

Both the reasoning of the Inspection Report and the content of the dismissal of the Administrative Reconsideration are clear, sufficient and congruent, and are comprehensible in light of the reasonable person and, more importantly, comprehensible upon the Claimant's own reading.

With regard to the alleged error in the assumptions, the Respondent submits that the argumentation, both factual and legal, set out in the inspection report, corresponds to a correct reading of the factual situation and the applicable legal norms.

As for the payment of indemnity interest, the Respondent submits that the act of assessment at issue does not suffer from a defect that should dictate its annulment/declaration of nullity, and therefore no indemnity interest is due.

D – Conclusion of Report and Case Management

By order of 27.11.2018, pursuant to section 2 of article 21 of the RJAT, the arbitral tribunal extended by two months the deadline for the delivery of its decision.

As the Claimant requested the hearing of witnesses, 31.01.2019 was set as the date for the holding of the meeting provided for in article 18 of the RJAT, a procedure that was carried out with respect to the three witnesses presented by the Claimant, and on that occasion 25.03.2019 was set as the date for the delivery of the arbitral decision.

The Parties were invited to present, if willing, their submissions, which were presented by the Claimant and the Respondent, respectively, on 12.02.2019 and 19.02.2019.

In its submissions, the Claimant reiterates that the accommodation expenses for workers posted abroad were effectively borne by it, a conclusion that in its view resulted clearly from the testimony of the three witnesses heard.

The Respondent, in turn, reiterates in its submissions what it previously stated and concludes that from the hearing of the witnesses it results demonstrated that the Claimant does not comply with the law nor with accounting rules with respect to the amounts allegedly paid to its employees as travel allowances.

The Arbitral Tribunal is materially competent, pursuant to the provisions of articles 2, section 1, paragraph a) of the RJAT.

The Parties enjoy legal personality and capacity, have standing in accordance with article 4 and section 2 of article 10 of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22 March, and are regularly represented.

The proceedings do not suffer from any nullity.

Factual Matter

2.1. Proven Facts

The Claimant's corporate purpose is the importation, exportation and assembly of thermal equipment and respective materials. Representation, trade and application of anti-corrosion coating materials, industrial floors and industrial insulation, including importation and exportation of materials and services (permanent certificate that constitutes Annex 1 to the inspection report, which is in the Administrative File).

The Claimant is a recognized company operating in the field of installation and repair of refractory furnaces that operates worldwide, having in the year under review provided services in various countries, such as Portugal, Spain, France, Germany, England, the Netherlands, Saudi Arabia, India, Brazil and China (page 5/25 of the inspection report, which is in the Administrative File).

When the Claimant is contracted to provide services abroad, it must have its employees travel to the place where the works are executed.

The Claimant, for reasons of safety and well-being of its employees and operational efficiency of the works, endeavours to provide accommodation to its employees posted abroad.

The site managers for each project abroad have in their possession a debit card that they use to withdraw money or pay for expenses that need to be made, including those relating to accommodation for the Claimant's employees.

The Claimant debited in the pay slip of employees posted abroad € 10 (ten euros) per day in travel allowances.

The Claimant was the subject of an inspection covering the year 2012, authorized by Service Order no. OI2016..., of 14.03.2016, carried out by the Tax Inspection Services of the Finance Directorate of..., which resulted in corrections to the IRC (inspection report, which is in the Administrative File).

The Claimant was notified of the additional IRC assessment for the year 2012, identified with the number 2017..., in the amount of € 208,340.55 (two hundred and eight thousand three hundred and forty euros and fifty-five cents) and of the statement of account reconciliation identified with the number 2017... (Compensation Reference 2017...), in the amount of € 21,370.94 (twenty-one thousand three hundred and seventy euros and ninety-four cents) (Documents nos. 1 and 2, attached with the request for arbitral decision).

On 10.11.2017, the Claimant presented a request for administrative reconsideration against the assessment now contested (Document no. 3, attached with the request for arbitral decision).

On 30.11.2017, the Claimant was notified of the draft dismissal of the administrative reconsideration now contested (Document no. 4, attached with the request for arbitral decision).

On 15.12.2017, the Claimant exercised the right to prior hearing regarding the said draft decision (Document no. 5, attached with the request for arbitral decision).

The Claimant was notified of the order of 21.12.2017 which dismissed the administrative reconsideration (Document no. 6, attached with the request for arbitral decision).

The Claimant was cited in tax enforcement proceedings no. ...2017..., in the amount of € 21,564.77 relating to non-payment of the additional assessment now contested (Document no. 7, attached with the request for arbitral decision).

The Claimant made payment of € 169,872.67, a sum of various debts that it had before the tax and customs administration (Document no. 8, attached with the request for arbitral decision).

The inspection report contains the following, establishing as proven the underlying facts:

The Claimant was contracted to execute in ..., Germany, a project for client G... GmbH, which took reference number ..., which gave rise to invoice no. 217, of 21.12.2012, in the amount of € 90,576.00 (Document no. 9, attached with the request for arbitral decision).

With respect to the project ..., employee H... completed two expense sheets, dated 21.05.2012 and 16.08.2012, one containing a line item for personnel accommodation and another for personnel A... accommodation (Annex 5 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., Sweden, a project for client I... A/S, which took reference number ..., which gave rise to invoice no. 64, of 28.05.2012, in the amount of € 70,000.00 (Document no. 10, attached with the request for arbitral decision).

With respect to the project ..., employee H... completed an expense sheet, dated 21.05.2012, containing a line item for personnel accommodation (Annex 5 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., Netherlands, a project for client J... B. V. which took reference number ..., which gave rise to invoice no. 167, of 12.11.2012, in the amount of € 71,736.00 (Document no. 11, attached with the request for arbitral decision).

From invoice no. 167, of 12.11.2012, in the amount of € 71,736.00, it is noted that the services to which it refers were executed between 10.09.2012 and 09.11.2012 (Document no. 11, attached with the request for arbitral decision).

With respect to the project ..., employee H... completed two expense sheets, dated 10.10.2012 and 30.10.2012, containing a line item for personnel A... accommodation (Annex 5 of the inspection report, which is in the Administrative File).

Attached to the expense sheet dated 10.10.2012 referred to in the preceding number, there are two invoices, issued by the same entity and dated 31.08.2012 and 21.09.2012, relating to overnight stays occurring between 19.08.2012 to 31.08.2012 and 01.09.2012 to 21.09.2012, respectively (Annex 5 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., Sweden, a project for client K... AB, which took reference number ..., which gave rise to invoice no. 107, of 31.07.2012, in the amount of € 205,312.50 (Document no. 12, attached with the request for arbitral decision).

With respect to the project ..., employee H... completed an expense sheet, dated 16.08.2012, containing a line item for personnel A... accommodation (Annex 5 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., France, a project for client L..., which took reference number ..., which gave rise to invoice no. 42, of 09.04.2012, in the amount of € 68,402.00 (Document no. 13, attached with the request for arbitral decision).

With respect to project 1027, employee H... completed an expense sheet, dated 12.04.2012, containing a line item for personnel A... accommodation (Annex 5 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., Netherlands, a project for client J... B. V., which took reference number..., which gave rise to invoice no. 4, of 23.01.2012, in the amount of € 85,456.00 (Document no. 14, attached with the request for arbitral decision).

From invoice no. 4 of 23.01.2012, in the amount of € 85,456.00, it is noted that the services to which it refers were executed between 02.01.2012 and 22.01.2012 (Annex 5 of the inspection report, which is in the Administrative File).

With respect to the project ..., employee H... completed an expense sheet, dated 14.03.2012, containing a line item for personnel A... accommodation, in the amount of € 5,454.00 (Annex 5 of the inspection report, which is in the Administrative File).

Attached to the expense sheet referred to in the preceding number, there are five invoices, all issued by the same entity and dated 27.01.2012, 31.01.2012, 06.02.2012, 09.02.2012 and 14.02.2012 relating to the periods between 22.01.2012 to 13.02.2012 and in the total amount of only € 3,484.50 (Annex 5 of the inspection report, which is in the Administrative File).

All invoices or equivalent documents attached to the expense sheets mentioned in points 2.1.17 to 2.1.31 were issued in the name of E..., Lda.

E..., Lda. did not reflect the invoices referred to in the preceding point in its accounting (Document no. 15, attached with the request for arbitral decision).

The Claimant was contracted to execute in ..., Brazil, a project for client L... France, which took reference number ..., which gave rise to invoice no. 20, of 29.02.2012, in the amount of € 370,000.00 (Document no. 16, attached with the request for arbitral decision).

With respect to the project ..., employee M... completed an expense sheet, undated, containing a line item for personnel A... accommodation (Annex 6 of the inspection report, which is in the Administrative File).

The Claimant was contracted to execute in ..., Brazil, a project for client L..., which took reference number ..., which gave rise to invoice no. 49, of 30.04.2012, in the amount of € 403,846.15 (Document no. 17, attached with the request for arbitral decision).

With respect to the project ..., employee M... completed two expense sheets, undated, containing a line item for personnel A... accommodation (Annex 6 of the inspection report, which is in the Administrative File).

Still with respect to the project ..., employee N... completed two expense sheets, dated 29.10.2012 and 15.11.2012, containing a line item for personnel A... accommodation (Annex 6 of the inspection report, which is in the Administrative File).

All invoices or equivalent documents attached to the expense sheets mentioned in points 2.1.35 to 2.1.38 were issued in the name of F..., Ltda.

F..., Ltda. did not reflect the invoices referred to in the preceding point in its accounting (Document no. 18, attached with the request for arbitral decision).

2.2. Facts Not Proven

2.2.1 It was not proven that the invoices attached to the expense sheet dated 10.10.2012 in the total amount of € 1,897.20, referred to in 2.1.22, relate to the project referred to in invoice no. 167, of 12.11.2012, in the amount of € 71,736.00 (project with reference...), since the expenses refer to a period not coinciding with that of the execution of the works.

2.2.2 It was not proven that the invoices attached to the expense sheet dated 14.03.2012 in the total amount of € 3,484.50, referred to in 2.1.31, relate to the project referred to in invoice no. 4 of 23.01.2012, in the amount of € 85,456.00 (project with reference 1017), since the expenses refer to a period not coinciding with that of the execution of the works.

2.2.3 There are no other relevant facts for the appraisal of the merits of the case that have been established as not proven.

2.3. Reasoning for the Establishment of Factual Matters

The facts were established as proven on the basis of critical appraisal and evaluation of the documents attached to the case by the Parties, on the objective, consistent and credible testimony of the witnesses heard, who proved to be reliable and knowledgeable about the matters on which they were questioned, and on the positions assumed by the Parties in the pleadings presented.

Legal Matter

3.1. Issues to be Decided

It results from what has been stated above that the issues to be considered are, in essence, the following:

• Whether there was a violation of the Claimant's right to be heard in the context of the inspection procedure;

• Whether there was a violation of the Claimant's right to be heard in the context of the Administrative Reconsideration, by reason of the Respondent not having heard the witnesses listed by the Claimant;

• Whether the decision on administrative reconsideration is silent as to the reasons why the listed witnesses were not heard, and if such silence is confirmed, whether the said decision suffers from the defect of lack of reasoning, in which case its validity would be tainted;

• Whether the contested assessment suffers from the defect of error in the assumptions, that is to say, whether expenses documented by invoices issued in the names of third parties, allegedly relating to accommodation costs for the Claimant's employees posted abroad and effectively borne by it, should or should not be deductible for purposes of determining taxable profit;

• Whether, in the event that the request for annulment of the contested assessment act is upheld, the Claimant may, within the scope of the present arbitral proceedings, obtain the condemnation of the Respondent to the payment of indemnity interest regarding the amount it unduly paid to satisfy an illegally demanded tax obligation.

3.2. Regarding the Violation of the Claimant's Right to be Heard in the Context of the Inspection Procedure

The Claimant submits that there was a violation of the right to be heard in the context of the inspection procedure, since the right to be heard was relegated to the end of the report (after it had already drawn all conclusions and, including, already proposed all amendments) and the facts alleged in the Claimant's statement were completely disregarded, when it is certain that the Respondent should have attended to all the facts that the taxpayer decided to bring to the procedure, which, in its understanding, will not have happened.

The Claimant's argument is not sound. In fact, the Inspection Report shows that the right to be heard was indeed taken into account by the Respondent's services, with the report containing considerations regarding the exercise of this right by the Claimant. Moreover, the said Report contains a section specifically dedicated to the analysis of the right to be heard, offering no relevance to its systematic placement in the said Report. As long as the Inspection Report addresses the arguments raised by the taxpayer, the requirement that the Claimant considers to have been postponed is met.

Thus, the Claimant's right to be heard in the context of the inspection procedure was not violated.

3.3. Regarding the Violation of the Claimant's Right to be Heard in the Context of Administrative Reconsideration

The Claimant argues that in the administrative reconsideration procedure there was equally a violation of the right to be heard and of the principle of cooperation, because the Respondent's services did not proceed with the hearing of the three witnesses listed by the Claimant and whose hearing was, in the Claimant's view, of essential importance.

As the Respondent correctly points out in its response, it is up to the case instructor to conduct it, which implies adopting in the procedure the acts that it considers adequate to the objectives to be achieved, in accordance with the principles of proportionality, efficiency, practicability and simplicity, pursuant to article 46 of the CPPT. As article 50 of the same code provides, the instructing body shall use all legally provided means of evidence that are necessary for the correct ascertainment of facts, which also follows from article 72 of the LGT. It will be up to the case instructor to choose the means of evidence he considers most adequate to the discovery of material truth. This does not mean that all probative procedures suggested or offered by the taxpayer must be admitted. Their admissibility depends on a judgment of adequacy and this judgment belongs to the case instructor and to him alone.

As is evident, the burden of proof is directed towards the discovery of material truth, and if the instructor does not achieve it, deciding wrongly, it is necessary to accept the scrutiny of that decision. If the tax administration decides wrongly, it is the wrongfulness of the decision that should be attacked, and within the scope of the impugning of that decision, the correct application of the law to the facts will again be sought, which will always involve reconstructing the desired material truth. Thus, it is within the powers of the case instructor to decide whether it is or is not necessary, for the correct application of the law, to hear the listed witnesses or to conduct any other probative procedures. The instructor may do this. What is forbidden to him, in this sense, is not to achieve material truth and, consequently, to promote an inadequate application of the law to the facts.

Thus it is that paragraph e) of article 69 of the CPPT assumes as a fundamental rule of the administrative reconsideration procedure the limitation of means of evidence to documentary form and to official elements of which the services have available. Of course, in light of the principles that should govern the procedure, as we have seen, it is not denied to the instructor the right to order other complementary measures manifestly indispensable to the discovery of material truth, which, in the present case, does not appear to be the case, and it is therefore acceptable that the instructor understood to be in possession of everything that was necessary to decide the reconsideration correctly.[1]

It is clear that if the taxpayer is of the opinion that the decision on its reconsideration does not achieve a correct application of the law to the facts, already because the required material truth has not been ascertained, it can react against that decision, as the Claimant has indeed done with the present request for arbitral decision.

Thus, the tribunal finds that in the administrative reconsideration procedure there was no violation of the right to be heard or of the principle of cooperation, by reason of the Respondent's services not having heard the three witnesses listed by the Claimant.

3.4. Regarding the Lack of Reasoning of the Administrative Reconsideration Decision

The Claimant argues that the decision on administrative reconsideration suffers from the defect of lack of reasoning, in that the decision is silent as to any possible reasons – if they existed at all – for not hearing the witnesses it timely listed.

The Claimant's argument is also not sound. In fact, Document no. 4 accompanying the request for arbitral decision is the draft dismissal of the administrative reconsideration, and it expressly sets out the reasons why the Respondent did not admit the conducting of testimonial evidence. One may disagree with the reasoning presented, however disagreement with existing reasoning cannot be assumed as synonymous with absence of reasoning. Point 10 of the aforementioned Document no. 4 expressly contains the explanation that the Respondent understood to give for not admitting testimonial evidence.

As the Respondent correctly points out, citing JOSÉ OSVALDO GOMES, "the reasoning must, above all, be clear, that is, it must allow that, through its terms, there may be a perfect understanding of the logical and legal process that led to the decision." Both the reasoning of the Inspection Report and the content of the dismissal of administrative reconsideration are clear, sufficient, congruent and comprehensible to the Claimant.

Thus, the alleged defect of lack of reasoning of the administrative reconsideration decision does not stand.

3.5. Regarding Error in the Assumptions

The inspection report contains a point III.1.1.2. – Inadequately documented expenses – which refers to the fact that from the analysis of accommodation expenses borne by A... several invoices were detected in the names of third parties, namely E..., Lda and F..., Ltda, concluding that "since the aforementioned expenses are not adequately documented, as provided for in paragraph g) of section 1 of article 45 of the Corporate Income Tax Code (CIRC), they are not deductible for purposes of determining taxable profit," and accordingly an adjustment was made.

Let us then examine what paragraph g) of article 45 of the CIRC provided, applicable at the date to which the facts relate:

Article 45
Expenses non-deductible for tax purposes

1 — The following expenses are not deductible for purposes of determining taxable profit, even when recorded as expenses for the tax period:

(…)

g) Expenses not adequately documented.

Thus, it is important, in light of what is contained in the Inspection Report (and which was the basis for the correction that gave rise to the present proceedings), to understand the meaning and scope of the concept of "expenses not adequately documented."

As we have seen, the legislator invokes this type of expense to clarify that they are not deductible for purposes of determining taxable profit.

The determination of taxable profit is made in accordance with article 17 of the CIRC, which reads as follows:

Article 17
Determination of Taxable Profit

1 — The taxable profit of corporate entities and other entities mentioned in paragraph a) of section 1 of article 3 is constituted by the algebraic sum of the net result of the period and of the positive and negative variations in equity verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code.

(…)

3 — In order to allow the appraisal referred to in section 1, accounting must:

a) Be organized in accordance with accounting normalization and other legal provisions in force for the respective sector of activity, without prejudice to the observance of the provisions set out in this Code;

b) Reflect all operations carried out by the taxpayer and be organized so that the results of operations and variations in equity subject to the general IRC scheme may be clearly distinguished from the rest.

Taxable profit is thus constituted by the algebraic sum of the net result of the relevant period and the variations in equity not reflected in that result. In this sense, the net result has a differential nature and consists precisely in the difference between gains (or revenues) and expenses (or losses). Gains, or revenues, pursuant to article 20 of the CIRC, are those resulting from operations of any nature, as a consequence of a normal or occasional action, basic or merely accessory to the enterprise. In turn, pursuant to article 23 of the same code, fiscally relevant expenses are those that are provably indispensable for the realization of revenues subject to tax or for the maintenance of the source of production, including in particular those relating to the production or acquisition of any goods or services, such as materials used, labour, energy and other general production, conservation and repair expenses. From revenues, therefore, expenses are deducted to determine taxable profit.

As we have seen, pursuant to paragraph g) of section 1 of article 45 of the CIRC, expenses not adequately documented will not be deductible for purposes of determining taxable profit.

From article 17 of the CIRC it further follows that the taxable profit of corporate entities is determined, without prejudice to the corrections that must be made in accordance with the same instrument, on the basis of accounting.

Let us then examine what accounting obligations are imposed by the CIRC on companies.[2] On this matter, article 123 applies, which provides as follows:

Article 123
Accounting Obligations of Companies

1 — Commercial or civil companies in commercial form, cooperatives, public enterprises and other entities exercising, as their main activity, a commercial, industrial or agricultural activity, with seat or effective management in Portuguese territory, as well as entities that, although not having seat or effective management in that territory, possess a permanent establishment there, are required to have accounting organized in accordance with the law, which, in addition to the requirements indicated in section 3 of article 17, permits control of taxable profit.

2 — In executing accounting, the following must be observed in particular:

a) All entries must be supported by supporting documents, dated and capable of being presented whenever necessary;

b) Operations must be recorded chronologically, without amendments or erasures, any errors being subject to accounting regularization as soon as discovered.

3 — Delays in accounting execution of more than 90 days, counted from the last day of the month to which the operations relate, are not permitted.

4 — Books, accounting records and respective supporting documents must be kept in good order for a period of 10 years.

5 — When accounting is established by computerized means, the conservation obligation referred to in the previous number extends to documentation relating to the analysis, programming and execution of computerized processing.

6 — Supporting documents provided for in section 4 that are not authentic or authenticated documents may, after three tax periods have elapsed following the one to which they relate and having obtained prior authorization from the Director-General of Taxes, be replaced, for tax purposes, by microfilms that constitute their faithful reproduction and comply with the conditions that will be established.

7 — It is also permitted the filing in electronic support of invoices or equivalent documents, sales receipts or any other documents with tax relevance issued by the taxpayer, provided they are processed by computer, in accordance with the terms defined in section 7 of article 52 of the VAT Code.

8 — Entities referred to in section 1 that organize their accounting using computerized means must have the capacity to export files in the terms and formats to be defined by decree of the Minister of Finance.

9 — Computerized billing programs and equipment depend on prior certification by the Directorate-General of Taxes, and are of mandatory use, in accordance with the terms to be defined by decree of the Minister of Finance.

This article is part of section I (accessory obligations of taxpayers) of chapter VII (accessory obligations and fiscal supervision) of the CIRC and imposes on commercial companies with seat or effective management in Portuguese territory the obligation to have accounting organized in accordance with the law, which, in addition to the requirements indicated in section 3 of article 17, permits control of taxable profit.

These accounting obligations, as can be seen, are finalisticallu oriented. Accounting must permit, in the final instance, the control of taxable profit. In the same sense, section 2 of article 31 of the LGT provides that accessory obligations of the taxpayer are those aimed at enabling the ascertainment of the tax obligation, including in particular the presentation of declarations, the display of fiscally relevant documents, including accounting or records, and the provision of information. Also the principle of collaboration, adopted by the LGT in article 59, notably in its section 4, requires, with respect to taxpayers, the fulfillment of the accessory obligations provided for in law and the provision of clarifications that it requests regarding their tax situation, as well as regarding the economic relationships they maintain with third parties.

Section 1 of article 123 of the CIRC imposes that the required accounting organization meet the requirements indicated in section 3 of article 17, which are these:

a) Be organized in accordance with accounting normalization and other legal provisions in force for the respective sector of activity, without prejudice to the observance of the provisions set out in this Code;

b) Reflect all operations carried out by the taxpayer and be organized so that the results of operations and variations in equity subject to the general IRC scheme may be clearly distinguished from the rest.

Section 2 of the same article provides that in executing accounting the following must be observed in particular:

a) All entries must be supported by supporting documents, dated and capable of being presented whenever necessary;

b) Operations must be recorded chronologically, without amendments or erasures, any errors being subject to accounting regularization as soon as discovered.

Thus, accounting entries must be supported by supporting documents reflecting the reality that they purport to depict,[3] and operations must be recorded chronologically, without amendments or erasures, still admitting the existence of errors, which must be regularized as soon as discovered.

As easily follows from the norms just examined, tax law imposes certain formal requirements on the treatment of the company's economic information, assigning to them, in return, important consequences, beginning with the presumption of veracity of the records, which is referred to in article 75 of the LGT.[4] "From formal regularity springs substantive truth."[5]

At the date to which the facts relate, this article provided, insofar as it is relevant to retain, as follows:

Article 75
Declaration and Other Elements of Taxpayers

1 — Declarations by taxpayers presented in accordance with the terms provided for in law are presumed to be true and made in good faith, as are the data and calculations recorded in their accounting or records, when these are organized in accordance with commercial and tax legislation.

2 — The presumption referred to in the preceding number does not apply when:

a) The declarations, accounting or records reveal omissions, errors, inaccuracies or well-founded indications that they do not reflect or prevent knowledge of the actual taxable base of the taxpayer;

b) The taxpayer does not fulfill the duties incumbent upon it to clarify its tax situation, unless, in accordance with the present law, the refusal to provide information is legitimate;

As is evident, the presumption that the above provision establishes is of the utmost important evidentiary relevance,[6] since it allows, on the one hand, to relieve the taxpayer of the need to prove that he obtained no other revenue beyond that declared, and on the other, to relieve him of the need to prove that all costs recorded in his accounts were actually borne by him.[7] This presumption, it is insisted, depends on the taxpayer's accounting or records being organized in accordance with commercial and tax legislation.[8]

Paragraph a) of section 2 of article 75 of the LGT expressly states that the presumption referred to in section 1 does not apply when the accounting or records reveal omissions, errors, inaccuracies or well-founded indications that they do not reflect or prevent knowledge of the taxpayer's actual taxable base. Note that for the decline or degradation of this presumption, any omission, error or inaccuracy does not matter, but only those that reasonably suggest that the taxpayer's accounting or records do not reflect or prevent knowledge of his actual taxable base. Here too one detects an emergence of the structuring principles of taxpaying capacity and taxation on real profit.

Tax law, by manifest constitutional inspiration, beginning with that which results from the provision of section 2 of article 104 of the Fundamental Law,[9] is dominated, as it could not but be, by the principle of taxpaying capacity. This dominion, however, does not suffice itself with a mere empty enunciation of meaning. Inherent to this principle is the character of reality of wealth or revenue. In order for this reality to be attained, it is important that criteria be fixed for the determination of taxable matter that permit achieving it.[10] Of course, the principle of taxpaying capacity is a manifestation of another equally structuring principle of our tax system: that of fiscal equality, which has always been inherent to the idea of generality or universality, in accordance with which all taxpayers are bound by the fundamental duty to pay taxes, and of uniformity, by requiring that this duty be assessed, with respect to all, by a single criterion, that of taxpaying capacity.[11]

Alongside the principles of fiscal equality and taxpaying capacity, it is important to highlight also accounting principles[12] that dominate the art of bookkeeping.[13] The official accounting plan mentioned the qualitative characteristics of financial information, notably reliability, which imposed that this information appropriately show the operations and other events that it aimed to represent, in accordance with their substance and economic reality and not merely with their legal form, this very prevalence of substance over form being, moreover, one of the accounting principles indicated.[14] The System of Accounting Normalization, approved by Decree-Law no. 158/2009, of 13 July, establishes the duty for financial statements to appropriately present the financial position, financial performance and cash flows of an entity, which implies faithful representation, that is, worthy of trust, of the effects of transactions and other financially relevant events. In essence, the activity of accounting record and description must be oriented towards obtaining real results.[15]

The protection that should be conferred on material truth admits the possibility of correcting errors, even in cases where the entry of an accounting record is made on the basis of documentary supports marked by insufficiency.

Taking the accounting and records, solely with regard to data that positively serve the construction of a certain understanding about the qualification of the tax situation, omitting or rejecting those that constitute a negative or preventing effect of that understanding, not considering the unitary character of accounting, refusing what results from it because an entry was made with which the tax administration does not agree or because a datum is missing that, in its view, should support it, may constitute a serious error of perception about the evidentiary instrumentality of accounting records.[16]

As we have seen, paragraph g) of section 1 of article 45 of the CIRC resorted to the expression "expenses not adequately documented," and paragraph a) of section 2 of article 123 of the same instrument expressly states that accounting entries must be supported by supporting documents. Now, this requirement, understood in light of the considerations above, suggests that one elaborate on the concept of "supporting document."

Doctrine classifies supporting documents as from external source – those issued by third parties, suppliers, in the case of acquisition of goods and services – and from internal origin – produced by the taxpayer itself with the purpose of justifying the sale of goods or the provision of services.[17] The non-existence of an external document when it should exist affects, as it cannot but do, the evidentiary value of the accounting, and this absence cannot, in principle, be remedied by an internally sourced document. However, what has just been said does not mean to assert that the absence of this document is, in the context of the determination of taxable profit, absolutely irremediable.[18] When the normal justifying means is missing, the taxpayer cannot rely on the evidentiary value of the records, and thus the burden falls on him to prove the veracity of the underlying operation[19] in its various components.[20] What is said about the absence of a document is equally valid, a fortiori, in cases where the document exists yet appears insufficient or deficiently issued.

Attention is called again to the circumstance that the norms applicable to the issue before us in the present proceedings did not, at the date to which the facts relate, have the wording with which we read them today. One of the concerns of the Commission for the reform of the IRC, which came to be enshrined by Law no. 2/2014, of 16 January, was precisely that of clarifying the conditions for the deductibility of expenses, seeking to eliminate interpretative divergences, and consequent litigation, on the issue of documentary proof of expenses recorded. This effort of clarification resulted in legislative amendments, of an innovative nature.

Today, and after the amendments that occurred, which not only clarified but above all tightened the enforcement of accessory obligations, it is established, in section 3 of article 23 of the CIRC, the reasonable principle that deductible expenses must be comprovably documented, independently of the nature or support of the documents used for that purpose.

As is evident, an invoice, issued in accordance with the VAT Code, with all elements that today appear in section 4 of article 23 of the CIRC, is, also for purposes of deduction of expenses in the context of the IRC, a supporting document.[21] A different issue, and it is the one we now have to elucidate, is whether there can be "supporting documents" that are not, in the strict sense, invoices, or, to put it another way, whether other documents might be admitted, regardless of their support, that demonstrate, in material terms, the existence of the operations subject to accounting record.[22] The answer, in light of the norms currently in force and, a fortiori, of those that applied at the date to which the facts relate, can only be affirmative.

"It is relatively frequent for the taxpayer not to have the document that, in principle, should prove the existence of the cost (…) or, having it, to have it suffer from formal irregularities. (…) "the taxpayer should be admitted to complement the proof of the existence of the cost through resort to any means admitted in law. For the non-acceptance, for reasons of merely formal nature, of the deductibility of a cost that was effectively borne, would correspond to taxation on profit that does not exist, a tax for which there is no corresponding taxpaying capacity".[23] It is worth also paying attention to the "lines of force," as RUI DUARTE MORAIS calls them, of the jurisprudence of Portuguese courts on this matter. One is that "the absence of certain formal requirements of the supporting document does not necessarily imply its disregard as a means of proof." Another is that "the insufficiencies of documentary proof (…) and/or the doubts that the underlying transaction whose issuance gave rise to it may raise can be clarified through resort to other means of proof, in particular testimonial." Finally, this one: "the principle of deductibility of costs effectively borne by the taxpayer must be tempered with the requirements of prevention and combat of tax evasion".[24]

In the context of the IRC, the supporting document for expenses, for purposes of their deduction, does not have to assume the essential formalities required for invoices in the context of VAT, since the requirement of documentary proof does not confound itself nor is exhausted in the requirement of an invoice, sufficing merely a written document, in principle external and with mention of the fundamental characteristics of the operation, since unlike what happens with VAT, in the context of the IRC, the justification of the cost constitutes a probative formality and is thus replaceable by any other type of proof.[25] Moreover, in proper terms, more than speaking of a document, one should speak of documents and other means of proof, since the demonstration of the effectiveness of an expense does not exempt the existence of a document, but, as one has sought to demonstrate, is not limited to it.

Thus, descending now to the case that falls to be concretely considered, the conclusion expressed in the Inspection Report does not seem premature, which states that "since the aforementioned expenses are not adequately documented, in accordance with paragraph g) of section 1 of article 45 of the CIRC, they are not deductible for purposes of determining taxable profit." In truth, the judgment that would have fallen to the tax and customs administration to make is not merely that relating to the external characteristics of the document under analysis. Even if one concludes that the document in question does not meet the requirements upon which depends the evidentiary force offered by accounting, because it does not contain the essential elements of identification (date, description, values, identification of supplier and buyer),[26] the consequence of this conclusion should only be that one cannot accept, unaccompanied by other means of proof, the said document for purposes of deduction of the expenses for purposes of determining taxable profit.[27]

Note that what is ultimately at stake is the deductibility of the expenses properly speaking, and not the mere formal appraisal of the external characteristics of an isolated document.[28]

The opinion of the Team Head who conducted the inspection was this:

In the present case, it is therefore important to know whether there is any document, albeit insufficient or deficiently issued, that seeks to justify the expense relating to the accommodation of employees posted abroad, and if so, whether there are any doubts as to whether the Claimant effectively bore the said accommodation costs.

One cannot understand that there is no document, since we have the expense sheets and the invoices and equivalent documents attached to them. Documents, therefore, there are. It must equally be concluded that the said documents are insufficiently and/or deficiently issued, which is why they cannot, in themselves, per se, benefit from the presumption of truth associated with formally irreproachable accounting.

However, this judgment, as we have endeavored to demonstrate, does not necessarily imply that the expenses that these documents, more poorly than well, seek to represent are purely and simply disregarded. Now, if the documents, in themselves, in isolation, do not fully fulfill their probative vocation, we see no good reasons to prevent the relationship governed by tax law from still gravitating, as it must always happen, around material truth, that is to say the taxpayer's actual taxpaying capacity.[29]

For it is to admit that the Claimant operates abroad, that it provides services to its clients outside the country, implies accepting as plausible and even reasonable the transfer of employees and the necessity for them to sleep outside their homes during the period they are absent from Portugal, in the service of the Claimant. It is evident that the employees are abroad and that therefore they also sleep abroad, being the overnight stay of these employees posted onerously. From the body of proof, documentary and testimonial, that has been brought to the proceedings, it results with meridian clarity that the Claimant has in its service employees abroad, through whom it provides services outside the country for which it was contracted, making accommodation available to them, which the site managers pay, with the same token a daily amount of € 10 being deducted from the salary of each of these employees to meet this payment. One may even question the practicability of the procedure adopted by the company, however, one should not, for reasons of mere formality, feign income where it manifestly does not exist, a feint that would be imposed if the deduction of inadequately or deficiently documented costs were categorically prevented,[30] but indisputable in their existence and quantification, in light of other means of proof, as the Respondent appears to do.

Thus, from the testimony of the witnesses, from the expense sheets and from the invoices or equivalent documents attached to them, it results demonstrated, with two exceptions, that the Claimant effectively bore the costs associated with the accommodation of its employees posted abroad and did so for the amounts declared and recorded in its accounting.

Two exceptions are mentioned because although the principle above referred to is accepted, there must be minimal documentary correspondence with respect to the facts alleged, it being certain that the Claimant bears, given the insufficiency or deficiency of the documents supporting the records, the invoices, the burden of proving that it effectively bore the costs invoked.

Now, in the reading that this tribunal makes, it was not proven that the invoices attached to the expense sheet dated 10.10.2012 in the total amount of € 1,897.20, referred to in 2.1.22, relate to the project referred to in invoice no. 167, of 12.11.2012, in the amount of € 71,736.00 (project with reference...), since the expenses refer to a period not coinciding with that of the execution of the works. The same applies to the invoices attached to the expense sheet dated 14.03.2012 in the total amount of € 3,484.50, referred to in 2.1.31, which relate to the project referred to in invoice no. 4 of 23.01.2012, in the amount of € 85,456.00 (project with reference...).

Consequently, of the invoked accommodation costs in the amount of € 57,301.47 (fifty-seven thousand three hundred and one euros and forty-seven cents), € 5,381.70 (five thousand three hundred and eighty-one euros and seventy cents) cannot be established as proven, but the others should be considered demonstrated, having regard to the available elements and that the Respondent could have, in the administrative phase, if willing, accessed.

A less clear solution appears to apply, despite everything, to the problem of the invoices or equivalent documents issued in the name of F..., Ltda., regarding the projects executed in Brazil. As has been said, the issue of the deductibility of inadequately documented costs always implies that the interests at stake be weighed, on one side, material truth and, on the other, the fight against tax evasion and evasion, which are indisputably associated with requirements of a formal nature and the documentation of costs. As appears clear, it cannot be admitted that the same expenses be reflected in the accounting of more than one entity. In truth, they could only be reflected in the one that actually bore the expense. That is why the Claimant felt the need to request from the entities in whose names the invoices of accommodation expenses borne by the Claimant and relating to its employees were issued, declarations attesting that they did not reflect these documents in their records. Now, there is no doubt that it becomes easier for Portuguese tax authorities, if willing, to confirm what is declared by tax resident entities in Portugal. However, it should not be lost sight of that the entities that issued the documents are foreign, possibly subject to invoicing duties different from those we know in Portugal, and there are no reasons to believe that the projects in Brazil were executed on the basis of organizing principles different from those used in the projects in Europe. Thus, it does not seem to this tribunal reasonable to grant the projects carried out in Brazil an understanding different from that used in those executed in Europe.

Thus, having arrived at the concrete situation at the unequivocal conclusion that the expenses were effectively incurred by the Claimant in the exercise of its activity, are supported by documents (albeit not by invoices) and that there is no risk of fraud, it appears that they should be considered deductible.[31]

Therefore, the request for arbitral decision should be partially upheld, since this tribunal endorses the understanding that the deduction of accommodation costs in the amount of € 51,919.77 (fifty-one thousand nine hundred and nineteen euros and seventy-seven cents) should be admitted for purposes of the determination of the Claimant's taxable profit in the 2012 fiscal year.

3.6. Regarding Indemnity Interest

Paragraph b) of section 1 of article 24 of the RJAT provides that "the arbitral decision on the merits of the claim for which there is no appeal or impugnation binds the tax administration from the end of the period provided for the appeal or impugnation, the latter having to, in the exact terms of the upholding of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of judgments of the tax court, restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been executed, adopting the acts and operations necessary for that purpose," which is in harmony with what is provided for in article 100 of the LGT, applicable by virtue of the provision in paragraph a) of section 1 of article 29 of the RJAT.

It is not overlooked that the legislative authorization granted to the Government by article 124 of Law no. 3-B/2010, of 28 April, on the basis of which the RJAT was approved, determines that the tax arbitral process constitutes an alternative procedural means to the judicial impugnation process and to the action for the recognition of a right or legitimate interest in tax matters. Although paragraphs a) and b) of section 1 of article 2 of the RJAT base the competence of arbitral tribunals on "declarations of illegality," it seems reasonable to understand that their competences include the powers that in judicial impugnation proceedings are attributed to tax courts, it being certain that in judicial impugnation proceedings, in addition to the annulment of tax acts, claims for indemnification may be considered, beginning with those relating to indemnity interest.

In fact, the principle of cognoscibility of claims for indemnification, in administrative reconsideration or in judicial proceedings, is justified whenever the damage whose compensation is sought results from a fact attributable to the Tax and Customs Administration. Moreover, pursuant to section 5 of article 24 of the RJAT, "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the General Tax Law and the Code of Tax Procedure and Process," which refers to the manifestations of this principle that we find in section 1 of article 43 of the LGT and article 61 of the CPPT.

Thus, the consideration of the claim for payment of indemnity interest filed by the Claimant is justified.

Indemnity interest is due when it is determined, in administrative reconsideration or judicial impugnation, that there was an error attributable to the services from which the payment of the tax debt in an amount higher than legally due results.

Now, having the Claimant paid the tax that by the contested assessment and now partially annulled was, by error attributable to the services, demanded of it, it has the right not only to reimbursement of everything it paid in excess, but also to receive indemnity interest counted from the date of payment of the excess until its integral reimbursement.

Decision

In accordance with and on the grounds stated, the Arbitral Tribunal decides:

1. To uphold in part the request for arbitral decision, condemning the Respondent to consider, for purposes of determining the Claimant's taxable profit in the 2012 fiscal year, the deductibility of accommodation expenses, in the amount of € 51,919.77 (fifty-one thousand nine hundred and nineteen euros and seventy-seven cents), which the Respondent had considered incapable of deduction, and consequently to partially annul the act of assessment identified with the number 2017..., in the amount of € 208,340.55 (two hundred and eight thousand three hundred and forty euros and fifty-five cents);

2. To also uphold in part the request for arbitral decision with regard to the annulment of the act of dismissal of the administrative reconsideration filed against the additional tax assessment act; and

3. To uphold the claim for condemnation of the Respondent to the payment of indemnity interest, at the legal rate, such interest to be counted on the amount unduly paid, from the date of payment of the undue tax obligation until its integral reimbursement;

Value of the Proceedings

When an assessment act is contested, the value of the cause is that of the importance whose annulment is sought, which corresponds to the economic utility of the claim. Thus, in harmony with the provision of section 2 of article 306 of the Civil Code of Procedure, article 97-A of the CPPT and also section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings is assigned the value of € 21,770.55 (twenty-one thousand seven hundred and seventy euros and fifty-five cents), the amount that the Claimant indicated as the value of the cause and which was not contested by the Respondent.

Costs

For the purposes of the provision in section 2 of article 12 and section 4 of article 22 of the RJAT and section 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I annexed to the said Regulation, to be borne by the Parties in proportion to their respective failure to succeed: 9.4% (nine point four percent) by the Claimant and 90.6% (ninety point six percent) by the Respondent.

Lisbon, 11 March 2019

The Arbitrator

(Nuno Pombo)

Text prepared by computer, pursuant to section 5 of article 131 of the Civil Code of Procedure, applicable by reference of paragraph e) of section 1 of article 29 of the RJAT and with the spelling prior to the said Orthographic Agreement of 1990.

[1] SUZANA FERNANDES DA COSTA, On the Relationship between Accounting and Tax Law, SFC Lawyers, 2016, p. 285.

[2] See JOSÉ CASALTA NABAIS, Tax Law, 2nd ed., Almedina, 2003, pp. 240 et seq.

[3] See VÍTOR FAVEIRO, The Status of the Taxpayer – the Person of the Taxpayer in the Social State of Law, Coimbra Publisher, 2002, pp. 511 et seq.

[4] SUZANA FERNANDES DA COSTA, On the Relationship between Accounting and Tax Law, SFC Lawyers, 2016, pp. 43 et seq and 291 et seq.

[5] See TOMÁS MARIA CANTISTA DE CASTRO TAVARES, On the Relationship of Dependence between Accounting and Tax Law in Determining the Taxable Revenue of Corporate Entities: Some Reflections at the Level of Costs, in Science and Tax Technique, no. 396, p. 115.

[6] See SUZANA FERNANDES DA COSTA, On the Relationship between Accounting and Tax Law, SFC Lawyers, 2016, pp. 294 et seq.

[7] See J. L. SALDANHA SANCHES, The Quantification of the Tax Obligation – Duties of Cooperation, Self-Assessment and Administrative Assessment, LEX, 2000, pp. 259 et seq.

[8] Law no. 80-C/2013, of 31 December, amended the wording of section 1 of article 75 of the LGT, which thereafter read as follows: "1 — Declarations by taxpayers presented in accordance with the terms provided for in law are presumed to be true and made in good faith, as are the data and calculations recorded in their accounting or records, when these are organized in accordance with commercial and tax legislation, without prejudice to other requirements upon which the deductibility of expenses depends." Note that the final part of the provision ("without prejudice to other requirements upon which the deductibility of expenses depends") did not appear in the wording in force at the date to which the facts in the present proceedings relate.

[9] Which establishes that "the taxation of companies is based fundamentally on their real profit."

[10] See DIOGO LEITE DE CAMPOS and MÔNICA HORTA NEVES LEITE DE CAMPOS, Tax Law, 2nd ed., p. 128.

[11] See JOSÉ CASALTA NABAIS, Tax Law, 2nd ed., Almedina, 2003, pp. 149 et seq and, by the same Author The Fundamental Duty to Pay Taxes, Almedina, 1998, pp. 443 et seq.

[12] See ANTÓNIO MOURA PORTUGAL, The Deductibility of Costs in Portuguese Tax Jurisprudence, Coimbra Publisher, 2004, pp. 79 et seq.

[13] In the sense that accounting is a system of principles ordered to certain values, see J. L. SALDANHA SANCHES, Legal Problems of Accounting, in From One to All – 75 Years of Coimbra Publisher, Coimbra Publisher, 1998, pp. 477 et seq. See also J. L. SALDANHA SANCHES, The Quantification of the Tax Obligation – Duties of Cooperation, Self-Assessment and Administrative Assessment, LEX, 2000, pp. 189 et seq.

[14] See J. L. SALDANHA SANCHES, The Quantification of the Tax Obligation – Duties of Cooperation, Self-Assessment and Administrative Assessment, LEX, 2000, pp. 227 et seq.

[15] See J. L. SALDANHA SANCHES, The Quantification of the Tax Obligation – Duties of Cooperation, Self-Assessment and Administrative Assessment, LEX, 2000, p. 182.

[16] See VÍTOR FAVEIRO, The Status of the Taxpayer – the Person of the Taxpayer in the Social State of Law, Coimbra Publisher, 2002, p. 501.

[17] Seeming to reduce supporting documents to those from external source, see ANTÓNIO MOURA PORTUGAL, The Deductibility of Costs in Portuguese Tax Jurisprudence, Coimbra Publisher, 2004, p. 189.

[18] Against this understanding seems to be the Arbitral Decision rendered in the context of Process no. 144/2014-T of the CAAD, which argues that "in the context of the IRC, an expense may be documented, it may be proven that it was realized and even that it was indispensable for the obtaining of revenues and not be relevant for purposes of determining taxable profit, by mere legislative policy choice, such choices being those that underlie most, at least, of the situations of non-deductibility listed in article 42 of the CIRC." See also in that arbitral decision the enlightened dissenting declaration, whose doctrine is adopted.

[19] SUZANA FERNANDES DA COSTA, On the Relationship between Accounting and Tax Law, SFC Lawyers, 2016, p. 295.

[20] See M. H. DE FREITAS PEREIRA, Relevance, in Terms of Determining Taxable Profit, of Internal Supporting Documents for Purchase of Inventories, in Science and Tax Technique, no. 365, pp. 346 and 347.

[21] See J. L. SALDANHA SANCHES, The Quantification of the Tax Obligation – Duties of Cooperation, Self-Assessment and Administrative Assessment, LEX, 2000, p. 243 and ANTÓNIO MOURA PORTUGAL, The Deductibility of Costs in Portuguese Tax Jurisprudence, Coimbra Publisher, 2004, p. 189.

[22] See on this point the very enlightening arbitral decision rendered in the context of Process no. 217/2018-T. Although on a matter not exactly coinciding with the one that falls to be considered in the present proceedings, it offers much utility the following passage: "Nevertheless, it appears that the inclusion of this new formal requirement – the possession of an invoice – which came to appear in article 23, section 6 of the Corporate Income Tax Code, places itself in the plane of the proof of operations, ad probationem, and not in that of its material assumptions, ad substantiam, and has the purpose of complementing the measures to combat fraud and tax evasion."

[23] See RUI DUARTE MORAIS, Notes to the IRC, Almedina, 2009, pp. 79 and 80.

[24] RUI DUARTE MORAIS, Notes ..., p. 80.

[25] See Ruling of the Administrative Supreme Court of 05.07.2012 (case 0658/11). In the sense that in the insufficiency of documents, when they are necessary, the court should be able to resort to complementary means of proof, ANTÓNIO MOURA PORTUGAL, The Deductibility of Costs in Portuguese Tax Jurisprudence, Coimbra Publisher, 2004, p. 203.

[26] M. H. DE FREITAS PEREIRA, Relevance, in Terms of Determining Taxable Profit, of Internal Supporting Documents for Purchase of Inventories, in Science and Tax Technique, no. 365, p. 347.

[27] ANTÓNIO