Process: 243/2018-T

Date: February 28, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (243/2018-T) involves a challenge by A... S.A. against IRS withholding tax assessments totaling €6,856.76 related to per diem allowances (ajudas de custo) paid in 2015. The dispute arose from a tax inspection that made corrections to travel allowances for both domestic and international trips, particularly affecting administrators. The core issue centers on the Tax Authority's application of Decree-Law 192/95, which regulates daily allowances for personnel transferred abroad. The company challenged the AT's methodology, arguing the inspection services applied a presumptive calculation method without proper documentation review. Specifically, the AT alleged the company cumulatively bore costs of daily allowances plus meal provision, triggering taxation. The company contested that the AT failed to prove legal limits were exceeded or that prerequisites for granting allowances weren't observed. The dispute involves the interpretation of Article 2(5) of DL 192/95, which requires 30% reduction per meal provided, with a minimum 20% floor. The company argued the AT's calculation methodology was legally unfounded, subtracting the minimum allowance (20% of €100.24) and adding non-deducted meal subsidies. The case also raised procedural issues regarding burden of proof under Articles 74-75 of the General Tax Law (LGT), with the company asserting declarations are presumed true and the AT must prove facts constituting taxation rights. The arbitration demonstrates employers' rights to challenge withholding tax assessments through CAAD, particularly when inspections rely on presumptive methods without comprehensive documentation analysis of each trip.

Full Decision

ARBITRAL DECISION

1. Report

On 10-05-2018, the joint-stock company A..., S.A, legal entity no. ..., with registered office at Avenue ..., ..., ...–..., ...-... ..., hereinafter designated as the Applicant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to declaring the illegality of the acts of collection of withholding tax on personal income tax (IRS) no. 2017 ... and compensatory interest nos. 2018 ... and 2018 ..., relating to the taxation period of 2015, in the total amount of €6,856.76.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 11-05-2018 and notified to the Respondent on the same date.

The Applicant did not proceed to appoint an arbitrator, therefore, pursuant to article 6, section 2, paragraph a) of the RJAT, Dr. Suzana Fernandes da Costa was appointed as arbitrator by the President of the Deontological Council of CAAD on 28-06-2018, the appointment having been accepted within the legally prescribed time and terms.

On the same date, the parties were duly notified of this appointment and did not express any intention to reject the appointment of the arbitrator, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT, in conjunction with articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of paragraph c), no. 1, article 11 of the RJAT, the Arbitral Tribunal was constituted on 18-07-2018.

On the same date, an order was issued requiring notification of the Respondent to, within a period of 30 days, submit its response and, if it wished, request the production of additional evidence and remit to the arbitral tribunal a copy of the administrative file within the deadline for submission of the response.

On 01-10-2018, the Respondent submitted its response, and on 09-10-2018 it attached to the proceedings the administrative file.

On 02-01-2019, an order was issued scheduling for 11-01-2019, at 14:30 hours, the meeting provided for in article 18 of the RJAT, the examination of the witness called by the Applicant, and the presentation of oral submissions.

On 11-01-2019, at 14:30 hours, the meeting of the arbitral tribunal took place in which were present His Excellency Dr. B..., Her Excellency Dr. C... and His Excellency Dr. D..., in their capacity as legal representatives of the Applicant, and Her Excellency Dr. E..., jurist in representation of the Director-General of the Tax and Customs Authority.

The witness indicated by the Applicant, F..., was examined.

The representative of the Respondent declared she would dispense with the examination of witness G..., called by herself.

The Tribunal notified the parties to submit written submissions simultaneously within a period of 20 days.

The Tribunal requested the parties to send the documents produced in word format, designated 12-02-2019 for the pronouncement of the arbitral decision, and warned the Applicant to, by that date, attach to the proceedings proof of payment of the subsequent arbitration fee.

Both parties submitted their submissions on 01-02-2019.

The Applicant attached proof of payment of the subsequent arbitration fee on 05-02-2019.

On 12-02-2019, an order was issued extending the decision to 28-02-2019, taking into account that judicial holidays are 60 days and that the deadline mentioned in no. 1 of the cited article expires on 16-03-2019.

The parties have legal personality and capacity and are legitimate (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

The arbitral request is timely, in accordance with article 10, no. 1, paragraph a) of Decree-Law no. 10/2011 of 20 January and article 102, no. 1, paragraph a) of the Code of Tax Procedure and Process.

The proceedings do not suffer from nullities and no preliminary matters were raised.

2. Cause of Action

In summary, the Applicant begins by stating that it was the subject of a general scope tax inspection action for the taxation period of 2015, and that corrections were made regarding travel allowances paid for trips abroad and in national territory, in the total amount of €16,768.55.

As for travel allowances for trips abroad, the Applicant states that it cannot understand the factual and legal grounds on which the Tax Authority (AT) determined an amount subject to IRS of €14,087.59.

The Applicant alleges that the AT did not request any documentation or clarifications regarding trips that occurred in 2014 (and paid in 2015).

In the Applicant's view, the only document invoked by the AT for the corrections made was the "accounting document 207004, recorded on 2015/07/31, Expense Sheet ... 2015". In the Applicant's understanding, the expense sheet analysed by the AT concerns exclusively the days 04.06.2015 and 05.06.2015, and it will remain to be explained on what documents the AT relied to apply the 50% limit to travel allowances with the following return dates: 10.04.2014, 29.09.2014, 17.06.2015, 11.09.2015 and 18.11.2015. The Applicant concludes that the AT merely assumed that the reality reflected in document no. 6 is replicable for all trips.

As for trips abroad, the Applicant alleges that the AT, applying a presumptive method, decided that the Applicant paid to its administrators for trips abroad income subject to taxation under IRS, on the grounds that it allegedly always cumulatively bore the costs of daily allowances and the provision of one or both daily meals, which does not correspond to reality.

The Applicant states that, as the AT stated, in accordance with article 2, no. 1 of Decree-Law no. 192/95 of 28 July, personnel transferred abroad have the right, alternatively, to the granting of a daily allowance or accommodation in a hotel establishment. And, further, in accordance with no. 5 of the same legal provision, the daily allowance shall be reduced by 30% for each meal, if the transfer includes the provision of one or both daily meals.

Now, the Applicant understands that at no time in the inspection report did the AT succeed in demonstrating that, as it alleges, the legal limits were exceeded or the prerequisites for the granting of the aforementioned allowances were not observed.

The Applicant also alleges that the inspection services invented a calculation to determine the difference subject to IRS that has no legal correspondence whatsoever.

In the Applicant's understanding, the tax inspection determined the difference subject to IRS by subtracting from the paid allowance the amount that corresponds, in accordance with article 2, no. 5 of Decree-Law 192/95, to the minimum amount of the allowance (corresponding to 20% of €100.24 per day) and adding the value of the meal subsidy not deducted.

For the Applicant, what no. 5 of article 2 of Decree-Law no. 192/95 provides is that for each meal the amount of the daily allowance shall be reduced by 30%, and in any case, the daily allowance can never be less than 20% of the amount provided for in the table in force (read: €100.24 per day).

The Applicant alleges that the correction made is illegal, as it is based on erroneous factual and legal premises and, consequently, the withholding tax collection on personal income tax corresponding thereto should be annulled.

The Applicant further alleges that the declarations of taxpayers presented in accordance with the law are presumed to be true and made in good faith, in accordance with article 75 of the General Tax Law (LGT). The Applicant also states that if this presumption of veracity ceases, the burden of proof of facts constituting the rights of the tax administration or of the taxpayers falls upon whoever invokes them, in accordance with article 74 of the LGT.

Thus, for the Applicant, it was incumbent on the AT to first prove the existence of facts constituting its right to taxation (that is, to evidencing the existence of omissions, errors, inaccuracies in tax declarations and accounting or indications that these do not reflect reality, with consequences for the collection and recovery of tax), and on the taxpayer subsequently to demonstrate facts relevant for the purposes of determining taxable income (and preventing the AT's right to taxation).

However, the Applicant understands that the AT determined, based on a superficial analysis and mere estimation of the documents available in the accounting of the now Applicant, the subjection to IRS of sums paid to administrators, without demonstrating the concrete fulfilment of the prerequisites for such taxation.

For the Applicant, the AT has the duty to ascertain material truth, in accordance with article 58 of the LGT, and did not present the proper elements, documents or evidence that the Applicant bore, in the situations referred to in the inspection report, expenses with accommodation and meals for trips made abroad, cumulatively with the payment of allowances (and therefore these amounts exceeded the legal limits).

The Applicant also states that the AT did not present elements, documents or evidence that the Applicant paid, in the situations referred to in the inspection report, the full amount of daily allowance for trips in national territory, without taking into account the specific circumstances of the trips (namely whether the trip was on successive days or daily trips, the days and hours of return and whether it had also assumed the expense of some of the meals of the administrators).

For these reasons, the Applicant understands that the AT violated article 75, no. 1, of the LGT, and consequently also violated articles 2, no. 3, paragraph d) of the IRS Code and article 104, no. 2, of the CRP.

From which the Applicant concludes that there was a violation of the principles of material truth and of the inquisitorial principle.

Finally, the Applicant requests that the AT be condemned to reimburse the tax paid, as well as the payment of compensatory interest, in accordance with article 43 of the LGT, since there was an error attributable to the services.

3. Response of the Respondent

The Tax and Customs Authority presented a response alleging the legal conformity of the tax acts subject to the arbitral request.

The Respondent begins by stating that the Applicant paid, in 2015, to its administrators, both for trips in national territory and for trips abroad, €16,768.44 as travel allowances recorded in accounts 63205 – personnel costs – travel allowances.

The AT states that, in accordance with clarifications provided by H... and F..., and confirmed by analysis of the documents supporting the accounting records, the Applicant has as a policy to bear the expenses for accommodation and meals for trips made abroad, due to the high cost of living in the countries to which personnel are transferred, such as the USA. The AT further states that the said expenses were accounted for in account 6251 – trips, stays and transport – trips and stays, which in 2014 amounted to €28,114.24 and in 2015 to €62,180.92. And concluded that the Applicant paid to the administrators for trips abroad income subject to taxation under IRS, since these exceeded the legal limits, and in some cases did not even observe the prerequisites for their granting to state employees.

Regarding travel allowances paid for trips in national territory, the AT alleges that the Applicant always paid the full amount of daily allowance, without taking into account whether the trip was on successive days or daily trips, the days of return and the hours at which that return occurred, and/or whether it had also assumed the expenses with lunch and/or dinner of the administrators.

For the AT, the legal limits for granting travel allowance for the following days would be:

  • 2015/06/05 (H...) – return day occurring after 20 hours but with lunch expense borne by the entity (accounting document 207004, recorded on 2015/07/31, "Expense Sheet ... 2015", item 2 with the following description: Date: 05-Jun; Description "Lunch LX"; Value: €29.70) – 25%;

  • 2014/04/10; 2014/09/29; 2015/06/17; 2015/09/11; 2015/11/18 (H...) and 2015/04/10; 2015/09/29 (I...) – return day occurring after 20 hours – 50%; 2015/06/04 (H...) – day of departure for a trip on successive days, occurring before 13 hours, but with dinner expense borne by the entity (accounting document 207004, recorded on 2015/07/31, "Expense Sheet ... 2015", item 1 with the following description: Date: 04-Jun; Description "Dinner Lx"; Value: €109.40) – 75%;

Thus, the AT concluded that the values subject to IRS and not exempt, for trips in national territory in 2015, are as follows:

In the AT's position, income subject to IRS and not exempt, by payment of travel allowances for trips in national territory or abroad, above the limits fixed for state employees, were not taken into account by the company, for the purposes of determining the withholding tax rate to be applied in each salary processing and for each employee covered by such compensations, therefore did not proceed to withhold the amounts of tax owed by law, including that resulting from the application of the 3.5% surtax, as stated in article 191 of Law no. 82-B/2014 of 31 December (State Budget 2015).

The AT further states that the Applicant did not include the annual amount paid relating to these same remunerations in the declaration of communication of income and withholdings, provided for in paragraph b) of no. 1 of article 119 of the IRS Code, and consequently the workers did not mention these remunerations in the annual income declaration provided for in article 57 of the IRS Code.

For the AT, the Applicant was obliged to withhold the tax at the moment of its payment or making available to the respective holders.

In the AT's understanding, the amounts of taxes owed, not withheld and not delivered to the state coffers, in the amount of €6,722.00, were demanded from the Applicant in its capacity as tax substitute, as the joint and several liability provided for in no. 4 of article 103 of the IRS Code was verified.

The AT further alleges that the conclusions of the tax inspection services, reflected in the inspection report and which gave rise to the contested collections, were based on the analysis of accounting records, the documents supporting the accounting records, such as travel maps, credit card statements used by the administrators, hotel invoices, internal documents, in addition to clarifications provided by H... and F..., these being persons with sufficient knowledge of the management of the Applicant, as they held respectively the positions of President of the Board of Administration and Financial and Administrative Director.

The AT states that from that documentary analysis, it was found that payment of the full amount of travel allowance was made to H... and I..., administrators of the Applicant, as the trips abroad made by employees J... and K... were paid at the minimum amount of travel allowance allowed by law, in accordance with no. 5 of article 2 of decree-law no. 192/95 of 28 July with the amendments introduced by Decree-Law no. 137/2010 of 28 December.

Regarding the clarifications provided by the Applicant's representatives and the fact that documents relating to 2014 were not analysed, the AT alleges that in one of the requests for clarification on the payment of travel allowances, which also included explanation on the fact that these exceeded the legal limits, invoices FA 2014/1 and FA2014/2, both of 30/07/2014, were presented by F... as a way to justify their granting, always being mentioned that the Applicant bore, in addition to said allowances, the value of meals and accommodation.

Regarding testimonial evidence, the AT alleged that the Applicant did not demonstrate the necessity of producing testimonial evidence, nor the facts it intended to prove with it, and requested that it be dispensed with. As a precaution, if this is not the case, it indicates as a witness Tax Inspector G..., exercising functions at the Finance Department of Oporto.

4. Factual Matter

4.1. Proven Facts:

Having analysed the documentary evidence produced and the position of the parties contained in the procedural documents, the following facts are considered proven and of interest for the decision of the case:

  1. The Applicant was the subject of a general scope tax inspection action for the taxation period of 2015.

  2. The Applicant was notified of the draft inspection report by way of official letter no. 2017... of 20-11-2017, as per document 1 attached to the arbitral request.

  3. The Applicant exercised the right to be heard on the draft inspection report on 11-12-2017, as per document 2 attached to the arbitral request.

  4. On 27-12-2017, the Applicant was notified of the tax inspection report, as per document 3 attached to the arbitral request.

  5. The said inspection report states that:

"From the analysis of personnel expenses it was found that the taxpayer paid in 2015, to the following administrators, both for trips in national territory (Lisbon), and for trips abroad (USA (Houston, New Orleans and Austin), Scotland (Aberdeen) and United Kingdom (London)), €16,768.44 as travel allowances, recorded in the accounting accounts 63205 - Personnel Expenses - Travel Allowances (€18,218.07):

[TABLE 1 - TRIPS ABROAD]

[TABLE 2 - TRIPS IN PORTUGAL]

  1. In accordance with paragraph d) of no. 3 and no. 14 of article 2 of the IRS Code, "travel allowances and amounts received from the use of one's own car in service of the employer entity, insofar as both exceed the legal limits or when the prerequisites for their granting to state employees are not observed, and sums for expenses for trips, journeys or representation for which accounts have not been rendered until the end of the financial year", are considered income from dependent work, and as such subject to withholding at source, defining "legal limits" as those annually set for state employees.

Starting with the analysis of travel allowances paid for trips abroad (table 1), article 1 of Decree-Law no. 106/98 of 24 April, with amendments introduced by Decree-Law no. 137/2010 of 28 December and by Laws no. 64-B/2011 of 30 December, 66-B/2012 of 31 December and 82-B/2014 of 31 December, provides that when transferred abroad and in foreign territory, workers are entitled to travel allowances, these being regulated by specific legislation, as provided in article 15 of the same legislation, Decree-Law no. 192/95 of 28 July with amendments introduced by Decree-Law no. 137/2010 of 28 December being the legislation regulating the granting of travel allowances for transfers abroad and in foreign territory.

Thus, from the inspection acts, it was found that:

■ Travel allowances paid in November and December relate, for the most part, to trips that occurred in 2014, as per the table below:

[TABLE - PAYMENT DATES AND AMOUNTS]

  1. There is no itinerary bulletin presented by I..., to justify the payment of 34 days of transfer abroad in a total of €3,408.16, therefore this amount was considered in its entirety for the purposes of withholding at source, as it does not respect the prerequisites for granting to state employees;

  2. In accordance with clarifications provided by H... and F..., and confirmed by analysis of the documents supporting the accounting records, the company has as a policy to bear the expenses for accommodation and meals for trips made abroad, due to the high cost of living in the countries to which personnel are transferred, such as the United States of America. The said expenses were accounted for in SNC account 6251 - Trips, stays and transport - Trips and Stays, which in 2014 amounted to €28,114.24 and in 2015 to €62,180.92.

Given this, in accordance with paragraphs a) and b) of no. 1 and no. 5 of article 2 of Decree-Law no. 192/95 of 28 July with amendments introduced by Decree-Law no. 137/2010 of 28 December, personnel transferred abroad have the right, alternatively and in accordance with their wish:

  • Either to the "granting of daily allowance, on all days of the transfer, in accordance with the table in force", or;

  • To "accommodation in a hotel establishment of three stars, or equivalent, plus the amount corresponding to 70% of daily allowance, on all days of the transfer, in accordance with the table in force."

However, "if the transfer includes the provision of one or both daily meals, the daily allowance shall be reduced by 30% for each one, and the daily allowance to be granted cannot be of value less than 20% of the amount provided for in the table in force."

Furthermore, and in accordance with article 37 of Decree-Law no. 106/98 of 24 April, "the amount corresponding to the daily granting of meal subsidy is deducted from travel allowances, when the expenses subject to compensation include the cost of lunch."

Thus, having analysed the documents presented, in light of the legislation set out above, it was found that the taxpayer paid to the administrators for trips abroad income subject to taxation under IRS, since these exceeded the legal limits, and in some cases did not even observe the prerequisites for their granting to state employees, as shown in the summary table presented below (see annex 1 - Travel Allowances for Trips Abroad Paid Above the Legal Limit).

[TABLE - FOREIGN TRIPS BREAKDOWN]

  1. Regarding travel allowances paid for trips in national territory, these are intended to compensate the worker for the expenses incurred for meals (lunch and dinner) and accommodation, the conditions for granting being defined in articles 8 and 37 of Decree-Law no. 106/98 of 24 April, stipulating the same:

  • On daily trips the following percentages of daily allowance are granted:

  • 25% of daily allowance, if the trip covers, even partially, the period between 13 and 14 hours;

  • 25% of daily allowance, if the trip covers, even partially, the period between 20 and 21 hours;

  • 50% of daily allowance if the trip involves accommodation.

  • On trips on successive days the following percentages of daily allowance are granted:

Day of departure:

  • Up to 13 hours - 100%
  • After 13 hours up to 21 hours - 75%
  • After 21 hours - 50%

Day of return:

  • Up to 13 hours - 0%

  • After 13 hours up to 20 hours - 25%

  • After 20 hours - 50%

  • On the remaining days - 100%.

  • The amount corresponding to the daily granting of meal subsidy is deducted from travel allowances, when the expenses subject to compensation include the cost of lunch.

Thus, from the analysis of the documents supporting said expense, it was concluded that the entity always paid the full amount of daily allowance, without taking into account whether the trip was on successive days or daily trips, the days of return and the hours at which that return occurred, and/or whether it had also assumed the expense of lunch and/or dinner of the administrators. Thus the legal limits for granting of allowance for the following days would be:

  • 2015/06/05 (H...) - return day occurring after 20 hours but with lunch expense borne by the entity (accounting document 207004, recorded on 2015/07/31, "Expense Sheet ...2015", item 2 with the following description: Date: 05-Jun; Description "Lunch LX"; Value: €29.70) - 25%;

  • 2014/04/10; 2014/09/29; 2015/06/17; 2015/09/11; 2015/11/18 (H...) and 2015/04/10; 2015/09/29 (I...) - return day occurring after 20 hours - 50%;

  • 2015/06/04 (H...) - day of departure for a trip on successive days, occurring before 13 hours, but with dinner expense borne by the entity (accounting document 207004, recorded on 2015/07/31, "Expense Sheet ... 2015", item 1 with the following description: Date: 04-Jun; Description "Dinner Lx"; Value: €109.40) - 75%;

Therefore, the values subject to IRS and not exempt, for trips in national territory, are as follows (see annex 2 - Travel Allowances for Trips in National Territory Paid Above the Legal Limits):

[TABLE - DOMESTIC TRIPS BREAKDOWN]

Thus, income subject to IRS and not exempt, by payment of travel allowances for trips in national territory or abroad, above the limits fixed for state employees, were not taken into account by the company, for the purposes of determining the withholding tax rate to be applied in each salary processing and for each employee covered by such compensations, therefore did not withhold the amounts of tax owed by law, including that resulting from the application of the 3.5% surtax, as stated in article 191 of Law no. 82-B/2014 of 31 December (State Budget 2015).

Similarly, it did not include the annual amount paid relating to these same remunerations in the declaration of communication of income and withholdings, provided for in paragraph b) of no. 1 of article 119 of the IRS Code, and consequently the workers did not mention these remunerations in the annual income declaration provided for in article 57 of the IRS Code.

In accordance with article 99 of the same legislation, entities owing income from dependent work are obliged to withhold the tax at the moment of its payment or making available to the respective holders. Thus, the amounts of tax owed, not withheld and not delivered to the state coffers will be demanded from the company in its capacity as tax substitute, as the joint and several liability provided for in no. 4 of article 103 of the IRS Code is verified, according to which:

"Where income subject to withholding has not been accounted for or communicated as such to the respective beneficiaries, the substitute assumes joint and several liability for the tax not withheld".

In this manner, the amount of annual tax owed amounts to €6,722, falling on the monthly amounts paid as travel allowances, as follows detailed (see Annex 3 - Calculation of Missing Withholding Tax by Month and by Employee):

[TABLE - MONTHLY BREAKDOWN OF MISSING WITHHOLDING TAX]

  1. The Applicant proceeded to payment as travel allowances in 2015 of the following values:

  • to H..., trip of 04-06-2015 to 05-06-2015, to Lisbon, with return occurring at 23 hours and with lunch expense borne by the employer entity, in the amount of €138.38 (2 X €69.19);

  • to H..., trip to Lisbon on 17-06-2015, with return occurring at 23 hours, in the amount of €69.19;

  • to H..., trip to Lisbon on 18-11-2015, with return occurring at 23 hours, in the amount of €69.19;

  • to I..., trip to Lisbon on 29-09-2014, with return occurring at 23 hours, in the amount of €69.19;

  • to I..., trip to Lisbon from 09-04-2014 to 10-04-2014, with return occurring at 23 hours, in the amount of €138.38 (2 X €69.19).

  1. On the days 2014/04/10; 2014/09/29; 2015/06/17; 2015/09/11; 2015/11/18 (H...) and 2015/04/10; 2015/09/29 (I...) the workers returned after 20 hours, but the allowances were paid by the Respondent in full.

  2. The Applicant was notified of the demonstration of collection of withholding tax on personal income tax no. 2017 ... and compensatory interest nos. 2018 ... and 2018 ..., for the year 2015, in the total amount of €6,856.76, with payment deadline of 09-02-2018, as per document 4 attached to the arbitral request.

  3. The Applicant proceeded to payment of the tax on 15-02-2018, as per document 5 attached to the arbitral request.

  4. On 10-05-2019, the Applicant submitted the present arbitral request.

No other facts of relevance for the decision of the case were proven.

4.2. Unproven Facts

No facts given as unproven were verified.

4.3. Reasoning of the Proven Factual Matter:

The arbitrator's conviction was based on the documents attached to the proceedings by the Applicant, in the administrative file (in the inspection report, attached documents and tables attached with the right to be heard), on testimonial evidence and on the position of the parties.

5. Matters of Law:

5.1. Object and Scope of the Present Proceedings

The essential legal issue that arises in this proceeding is whether the income paid as travel allowances for trips abroad and in national territory exceeded or did not exceed the limits set for state employees, and whether the collections made are or are not tainted by a defect in reasoning.

Travel Allowances for Trips Abroad

Article 2, no. 3, paragraph d) of the IRS Code states that are considered income from dependent work: "d) travel allowances and amounts received from the use of one's own car in service of the employer entity, insofar as both exceed the legal limits or when the prerequisites for their granting to state employees are not observed, and sums for expenses for trips, journeys or representation for which accounts have not been rendered until the end of the financial year".

No. 14 of the same article 2 of the IRS Code states that "the legal limits provided for in this article shall be those annually fixed for state employees".

This referral by the IRS Code to the regime of travel allowances paid to state employees aims to set the daily quantitative limits considered reasonable by the legislator for compensation of expenses with trips actually undertaken, in service of public or private entities.

As for travel allowances for trips abroad, article 1 of Decree-Law no. 106/98 of 24-04, with amendments introduced by Decree-Law no. 137/2010 of 28-12 and by Law no. 64-B/2011 of 30-12 and Law no. 66-B/2012 of 31-12 and Law no. 82-B/2014 of 31-12, provides that when transferred abroad and in foreign territory, workers are entitled to travel allowances, these being regulated by specific legislation, as provided in article 15 of the same legislation.

The legislation that disciplines the granting of travel allowances for transfer in service abroad is Decree-Law no. 192/95 of 28-07, updated by Decree-Law no. 137/2010 of 28-12.

Article 2, nos. 1 and 5 of the referred Decree-Law no. 192/95 of 28-07 establishes that:

"1. Personnel transferred abroad and in foreign territory, for reasons of public service, are entitled, alternatively and in accordance with their wish, to one of the following benefits:

  • Granting of daily allowance, on all days of the transfer, in accordance with the table in force;

  • Accommodation in a hotel establishment of three stars, or equivalent, plus the amount corresponding to 70% of daily allowance, on all days of the transfer, in accordance with the table in force.

  1. If the transfer includes the provision of one or both daily meals, the daily allowance shall be reduced by 30% for each one, and the daily allowance to be granted cannot be of value less than 20% of the amount provided for in the table in force".

Article 37 of Decree-Law no. 106/98 of 24-04 states that "the amount corresponding to the daily granting of meal subsidy is deducted from travel allowances, when the expenses subject to compensation include the cost of lunch".

The value of travel allowances paid by the Applicant for trips abroad, in the year 2015, totals the amount of €15,983.16.

The AT alleges that the Applicant has as a policy to bear the expenses for accommodation and meals for trips made abroad, and that the said expenses were revealed in account 6251 – trips, stays and transport - Trips and stays, which in 2014 amounted to €28,114.24 and in 2015 amounted to €62,180.92.

For that reason, the AT understands that the value of travel allowances paid not subject to IRS cannot exceed the value of 20% of the value attributed to state employees and must be deducted from that value the value of the meal subsidy, and that the part paid that exceeded that limit is subject to IRS, and consequently to withholding at source.

In accordance with article 75 of the LGT, the declarations of taxpayers are presumed to be true and made in good faith. Thus, the declarations of taxpayers have special evidentiary value.

On the other hand, the burden of proof of facts constituting the rights of the tax administration or of the taxpayers falls upon whoever invokes them, as required by article 74, no. 1 of the LGT.

As stated in the arbitral award in process no. 155/2018-T, "the rules of substantive law of evidence resulting from articles 74 and 75 of the LGT cannot be overlooked".

It falls upon the Tax Administration to prove facts constituting the existence of the excess of the limits applicable to travel allowances (article 74, no. 1 of the LGT). We understand that, in the present proceedings, such proof by the AT was provided.

Indeed, the annex to the inspection report evidences both the legislation that served as the basis for the corrections (also mentioned in the report) and the documents that served as the basis for the calculations made by the AT: the travel allowance maps and salary receipts contained in the accounting records of the Respondent.

The AT attaches to the administrative proceeding documents 7 and 8 which correspond to two invoices from 2014, invoices FA 2014/1 and FA 2014/2, both of 30-07-2014, issued by the Applicant to a company in the USA, with the description "onsite visit and consulting".

As for these trips, the witness made reference to the company's policy on expenses but did not convincingly contradict what was mentioned in the aforementioned documents contained in the company's accounting.

Thus, we understand that the inspection report and the subsequent withholding tax collections on personal income tax are properly founded, both factually and legally, in accordance with article 77 of the LGT.

Travel Allowances for Trips in National Territory

Regarding travel allowances for trips in national territory, these are intended to compensate the worker for the expenses incurred for meals and accommodation.

Article 8 of Decree-Law no. 106/98 of 24-04 establishes that:

"1 – The granting of travel allowance corresponds to the payment of part of the daily amount that is fixed or of its entirety, as provided in the following sections.

2 – On daily trips, the following percentages of daily allowance are granted:

  • If the trip covers, even partially, the period between 13 and 14 hours – 25%;

  • If the trip covers, even partially, the period between 20 and 21 hours – 25%;

  • If the trip involves accommodation – 50%.

3 – Accommodation expenses are only considered in daily trips that do not extend to the following day, when the employee does not have regular collective transport available that allows him to return to his residence by 22 hours.

4 – On trips on successive days, the following percentages of daily allowance are granted:

  • Day of departure:

Hours of departure Percentage

Up to 13 hours . . . . . . . . . . . . . . . . . . . . . . 100

After 13 up to 21 hours . . . . . . . . . . . . . . 75

After 21 hours . . . . . . . . . . . . . . . . . . . . 50

  • Day of return:

Hours of arrival Percentage

Up to 13 hours . . . . . . . . . . . . . . . . . . . . . . . 0

After 13 up to 20 hours . . . . . . . . . . . . . . 25

After 20 hours . . . . . . . . . . . . . . . . . . . . . . 50

  • Other days – 100%.

5 – Given that the percentages mentioned in nos. 2 and 4 correspond to the payment of one or two meals and accommodation, there shall be no place for their respective allowances when the corresponding benefit is provided in kind".

Article 38 of the same legislation states that "the amount corresponding to the daily granting of meal subsidy is deducted from travel allowances, when the expenses subject to compensation include the cost of lunch".

As for these trips in national territory, the AT alleges that the Applicant always paid the full amount of travel allowance, which is €69.19, without taking into account whether the trip was on successive days or daily trips, the days of return and the hours at which that return occurred, and/or whether it had also assumed the expense of lunch and/or dinner of the administrators.

The value of travel allowances paid for trips in Portugal totalled the amount of €830.28 in 2015.

Let us examine:

Corrections on Days When Dinner Expenses are Borne by the Applicant

The Applicant states that the only document invoked by the AT to sustain this correction was accounting document 207004, recorded on 2015/07/31, "Expense Sheet ... 2015", and that the said document contains a table and a lunch invoice for 05.06.2015:

In the Applicant's view, the expense sheet analysed by the AT concerns exclusively the days 04.06.2015 and 05.06.2015.

Now, regarding those days, the corrections were made correctly by the AT, insofar as the Respondent company cannot pay travel allowances in full and also bear expenses with meals.

  • As to 04/06/2015, day included in the travel map for June/2015, presented by H..., it is a trip on successive days (04/06 and 05/06), being this the day of departure occurring before 13 hours, which in accordance with article 8 of decree-law no. 106/98 of 24 April grants an amount of travel allowance at 100%. However, as the entity bore the dinner expense (accounting document 207004, recorded on 31/07/2015, "Expense Sheet ... 2015", item 1 with the following description: Date: 04-Jun; Description "Dinner LX", Value: €109.40), the value of travel allowance to be considered is 75% of the value, in accordance with article 8, in conjunction with article 37 of Decree-Law no. 106/98 of 24 April.

  • As regards 05/06/2015, day included in the travel map for June/2015, presented by H... - It is a trip also on successive days (04/06 to 05/06), being this the return day, occurring after 20 hours, which would grant an allowance (cf. Accounting document 207004, recorded on 31/07/2015, "Expense Sheet ... 2015", item 2 with the following description: Date: 05-Jun; Description "Lunch LX"; Value €29.70), therefore in this situation the travel allowance is reduced to 25%, in accordance with article 8, in conjunction with article 37 of Decree-Law no. 106/98 of 24 April.

As to the two days when there is evidence of dinner or lunch, we understand that the correction made by the AT is correct.

As for the witness's testimony, it did not contradict what was alleged in the inspection report.

Corrections Relating to Trips on Successive Days and Returns After 20 Hours

According to the Respondent, it will remain to be explained on what documents the AT relied to apply the 50% limit to travel allowances of the other days when there was a correction.

Such would be the case of the correction made to I... of the trip to Lisbon from 09-04-2014 to 10-04-2014, with return occurring at 23 hours, where the amount paid by the Respondent was €138.38 (2 X €69.19).

From the analysis of the report and attached documents it is verified that the correction was made based on the travel allowance maps made available by the Respondent, maps which evidence that the trips were made on successive days, as they contain the dates of the departure and return of the worker.

The same applies to the corrections to the payments made on the days when workers returned after 20 hours, facts which are contained in the travel allowance maps. That correction was made on the days:

2014/04/10; 2014/09/29; 2015/06/17; 2015/09/11; 2015/11/18 (H...) and 2015/04/10; 2015/09/29 (I...)

The law establishes a maximum legal limit based on the time of departure and the time of return of the worker, as we analysed above.

Thus, the AT was correct in alleging that the Applicant proceeded to payment of travel allowances of value superior in relation to the legal limit. In fact, the Applicant always paid, in trips in national territory, the maximum value of €69.19, without taking into account whether the trip was on successive days, at what time the return occurred, whether there was payment of meals or not.

As is said in the award of the Supreme Administrative Court handed down in process 0901/14 of 28 January 2015, "the burden of proof that the value of travel allowances exceeds the legal limits rests with the Tax Administration" and that proof, in our view, was made.

6. Compensatory Interest

The Applicant further requests that the Respondent be condemned to reimburse the improperly paid tax, plus compensatory interest, in accordance with article 43, no. 1, of the LGT.

In accordance with paragraph b) of article 24 of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the Tax Administration from the end of the deadline provided for appeal or challenge, and this, in the exact terms of the merit of the arbitral decision in favour of the taxpayer and until the end of the deadline provided for voluntary compliance with decisions of the tax judicial courts, "re-establish the situation that would exist if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with the provision of article 100 of the LGT, applicable by virtue of paragraph a) of no. 1 of article 29 of the Legal Regime of Tax Arbitration.

Now, in accordance with no. 5 of article 24 of the Legal Regime of Tax Arbitration, by stating that "payment of interest is owed, regardless of its nature, in accordance with the provisions of the General Tax Law and of the Code of Tax Procedure and Process" is nothing more than the recognition of the right to compensatory interest in the arbitral proceeding.

Article 43, no. 1 of the LGT establishes that "compensatory interest is owed when it is determined, by means of administrative reconsideration or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount superior to that legally owed".

In the matter at hand, since the request for annulment of the collections subject to the present proceedings is dismissed, the request for condemnation of the AT to payment of compensatory interest must also be dismissed.

7. Decision

Having regard to the foregoing, it is determined:

  1. To declare without merit the request formulated by the Applicants, maintaining in the legal order the collection of withholding tax on personal income tax no. 2017 ... and compensatory interest nos. 2018... and 2018...;

  2. To declare without merit the request for payment of compensatory interest;

  3. To condemn the Applicant to payment of the costs of the present proceeding.

8. Value of the Proceeding:

In accordance with article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is set at €6,856.76.

9. Costs:

In accordance with article 22, no. 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €612.00, to be borne by the Applicant, in accordance with article 22, no. 4 of the RJAT.

Notify.

Lisbon, 28 February 2019.

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral from article 29, no. 1, paragraph e) of the Tax Arbitration Legal Regime, as reviewed by me.

The sole arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What are the IRS withholding tax rules for per diem allowances (ajudas de custo) in Portugal?
IRS withholding tax rules for per diem allowances in Portugal are governed primarily by Decree-Law 192/95 of 28 July. Under Article 2(1), personnel transferred abroad are entitled alternatively to daily allowances or hotel accommodation. The daily allowance must be reduced by 30% for each meal provided (breakfast, lunch, or dinner), as established in Article 2(5). Importantly, even after reductions for meals, the daily allowance cannot fall below 20% of the reference amount (€100.24 per day in this case). Amounts paid within these legal limits are generally exempt from IRS withholding tax. However, when employers simultaneously provide both daily allowances and meals without proper reductions, or exceed statutory limits, the excess becomes taxable income subject to withholding obligations. The Tax Authority may challenge allowances that don't meet legal prerequisites or documentation requirements, treating non-compliant payments as taxable compensation.
Can employers challenge IRS withholding tax assessments on employee travel allowances through CAAD arbitration?
Yes, employers can challenge IRS withholding tax assessments on employee travel allowances through CAAD (Centro de Arbitragem Administrativa) arbitration. As demonstrated in this case, companies have legal standing and legitimacy under Articles 4 and 10 of the RJAT (Tax Arbitration Legal Regime) to contest collection acts related to withholding tax and compensatory interest. The arbitration request must be filed within the statutory deadline established in Article 10(1)(a) of Decree-Law 10/2011 and Article 102(1)(a) of the Tax Procedure Code. Employers can challenge both the factual and legal grounds of AT assessments, particularly when inspections rely on presumptive methods or insufficient documentation. The burden of proof is crucial: under Articles 74-75 of the General Tax Law (LGT), taxpayer declarations are presumed true and made in good faith, placing the burden on the Tax Authority to prove facts constituting taxation rights. CAAD arbitration provides an alternative to judicial courts for resolving withholding tax disputes efficiently.
How does the Portuguese Tax Authority (AT) assess withholding tax obligations on ajudas de custo payments?
The Portuguese Tax Authority assesses withholding tax obligations on ajudas de custo payments through inspection procedures that verify compliance with legal limits and documentation requirements. In this case, the AT conducted a general scope inspection for the 2015 taxation period, examining expense sheets and accounting documents to identify corrections totaling €16,768.55. The AT's methodology involved: (1) reviewing documentation for trips abroad and domestically; (2) applying the limits established in Decree-Law 192/95, particularly the 30% meal reduction rule under Article 2(5); (3) calculating taxable amounts by comparing payments made against statutory allowances; and (4) determining whether employers cumulatively provided both daily allowances and meals without proper reductions. The AT may apply presumptive methods when documentation is incomplete, extrapolating findings from sample documents to similar situations. However, this approach is controversial, as taxpayers can challenge whether the AT adequately proved legal violations. The AT calculated the difference subject to IRS by subtracting the minimum allowance (20% of the daily rate) and adding non-deducted meal values, though this methodology itself became subject to legal challenge.
What is the procedure for filing a tax arbitration request at CAAD for IRS withholding tax disputes?
The procedure for filing a tax arbitration request at CAAD for IRS withholding tax disputes follows specific steps outlined in the RJAT. First, the applicant submits a formal request to the Administrative Arbitration Centre within the statutory deadline (generally, the same deadlines applicable to judicial court appeals under Article 102 of the Tax Procedure Code). The request must identify the contested acts (collection documents, compensatory interest assessments) and their amounts. Upon acceptance by the CAAD President, the respondent (Tax Authority) is notified. The applicant may appoint an arbitrator; if not, the President of the Deontological Council appoints one. Parties have the right to reject the arbitrator appointment under Articles 6-7 of the Code of Ethics. Once the arbitral tribunal is constituted (typically within two months), the Tax Authority has 30 days to submit a response and remit the administrative file. The tribunal may schedule hearings for witness examination and oral arguments under Article 18 of RJAT. Parties submit written submissions, and the arbitrator issues a decision within the legally prescribed period. The applicant must pay both initial and subsequent arbitration fees, with proof required before the decision.
Are compensatory interest charges (juros compensatórios) applicable to IRS withholding tax corrections on per diem allowances?
Yes, compensatory interest charges (juros compensatórios) are applicable to IRS withholding tax corrections on per diem allowances. In this case, the contested acts included not only the withholding tax collection (no. 2017...) but also compensatory interest assessments (nos. 2018... and 2018...), totaling €6,856.76 for the 2015 taxation period. Compensatory interest is regulated by Article 35 of the General Tax Law (LGT) and serves to compensate the State for delayed tax collection resulting from taxpayer conduct. When the Tax Authority determines through inspection that withholding tax obligations were not met—such as failing to withhold on taxable portions of travel allowances—compensatory interest accrues from the date the tax should have been paid until actual collection. The rate and calculation method follow statutory provisions. Importantly, when challenging the underlying withholding tax assessment through CAAD arbitration, taxpayers can simultaneously contest the associated compensatory interest. If the arbitral tribunal annuls the withholding tax collection as illegal, the compensatory interest assessments dependent on that collection also fall. The joint challenge is procedurally efficient and addresses the complete financial impact of the AT's corrections.