Process: 281/2016-T

Date: November 29, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 281/2016-T addresses autonomous taxation of IRC on travel allowances (ajudas de custo) and the procedural issue of supervening uselessness when a hierarchical appeal decision is issued after arbitration filing. The taxpayer challenged an additional IRC assessment of €5,505.99 in autonomous taxation on €110,119.82 of travel allowances that were not invoiced to clients. The Tax Authority argued that Article 88(9) of the IRC Code (formerly Article 81(9)) requires travel allowances to be charged to clients to avoid autonomous taxation. The taxpayer contended that Article 23-A only requires proper documentation through employee statements, not client invoicing, for expense deductibility. After the gracious complaint was dismissed, the taxpayer filed a hierarchical appeal on 23.12.2015. When no decision was received within 60 days, the taxpayer invoked CPPT Article 66(5) which establishes a presumption of silent dismissal (indeferimento tácito), enabling the arbitration request filed on 20.05.2016. However, a hierarchical appeal decision was subsequently issued on 18.07.2016 and joined to the arbitration proceedings, raising the issue of inutilidade superveniente da lide under RJAT Article 13(1). This supervening uselessness occurs when the challenged act ceases to exist during proceedings. The case illustrates the intersection of IRC autonomous taxation rules, documentary requirements for expense deduction, and procedural safeguards for taxpayers facing administrative delays in hierarchical appeals, while highlighting how subsequent administrative decisions can render arbitration proceedings moot.

Full Decision

ARBITRAL DECISION

PARTIES

Claimant: A…, Lda., NIPC PT …, with registered office at …–…– …-… – …

Respondent: Tax and Customs Authority (AT)

I. REPORT

a) On 20-05-2016, the Claimant filed with CAAD a request seeking, under the Legal Regime for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests the partial annulment of the additional Corporate Income Tax (IRC) assessment contained in the "IRC assessment statement - assessment no. 2015 … of 08.01.2015" which indicates an amount payable of 121,048.10 euros; the "account settlement statement – Document ID 2015 … – Compensation No. 2015 … of 12.01.2015" indicating an account balance of 10,361.87 euros and the "interest assessment statement - Compensation No. 2015 … of 12.01.2015" indicating total interest of 1,467.69 euros.

c) Specifying that "… the correction that is sought to be annulled relates to the autonomous taxation of IRC in the amount of 5,505.99, as it was considered that the amount of 110,119.82 of travel allowances paid and treated as an expense of the claimant were not charged to clients", as per line 24 of the "IRC assessment statement - assessment no. 2015 … of 08.01.2015".

d) The Claimant further seeks annulment of the compensatory interest assessment contained in the "interest assessment statement - Compensation No. 2015 … of 12.01.2015" indicating total interest of 1,467.69 euros.

e) Having paid the IRC and interest in question on 02.04.2015, the Claimant requests, in addition to reimbursement, the condemnation of AT to pay indemnifying interest calculated until the date of reimbursement.

f) The request for partial annulment of the IRC assessment is made indirectly, as the Claimant had filed a gracious complaint (reclamação graciosa) no. … against this assessment which was dismissed. Against this decision, the Claimant filed a hierarchical appeal (recurso hierárquico) on 23.12.2015, from which up to the date of registration of the present request for arbitral pronouncement in CAAD's Case Management System (SGP), no decision had been obtained, for which reason the Claimant considered that a silent dismissal (nº 5 of article 66º of CPPT) had occurred, and it is this act that the Claimant seeks to have annulled as the immediately challengeable act.

THE GROUNDS FOR THE CLAIM

g) The Claimant invokes the defect of violation of law due to possible legal error by AT (nº 9 of article 81º of the Corporate Income Tax Code, current article 88º of the Corporate Income Tax Code), disagreeing with the interpretation of the law that was applied in the assessment.

h) On the grounds that the Claimant considers that "for the amount of travel allowances to be considered as an expense, it is not necessary that its value be charged to clients, but only that the employer entity possesses, for each payment made, a statement in the conditions of subparagraph h) of nº 1 of article 23.-A (former subparagraph f) of nº 1 of article 42. of CIRC), as results (a contrario sensu) from the said norm".

i) And because the legislator "… only intended, for charges with travel allowances not to be subject to autonomous taxation, that they be invoiced to clients, as results from the provision in nº 9 of article 88.º (former article 81.º) of the Corporate Income Tax Code". "The condition that its value be expressly mentioned in the invoice does not appear in any norm".

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

j) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 06-06-2016.

k) By CAAD's Ethics Council, the undersigned was appointed as arbitrator, with notification to the parties on 29-06-2016. The parties did not express any wish to challenge the appointment, in accordance with article 11.º nº 1 subparagraphs a) and b) of RJAT and articles 6.º and 7.º of the Ethics Code.

l) The Singular Arbitral Tribunal (TAS) has been duly constituted since 04-08-2016 to hear and decide the subject matter of this dispute (articles 2.º, nº 1, subparagraph a) and 30.º, nº 1, of RJAT).

m) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 04-08-2016, which is hereby reproduced.

n) On 04-08-2016, AT was notified in accordance with article 17º-1 of RJAT. It responded on 28.09.2016.

o) AT, together with its Response, did not submit the procedural file (PA). The TAS considers its submission unnecessary, and could even be considered redundant and futile, since the Claimant submitted all documentation supporting the assessment in question, including the Tax Inspection report that originated the tax act under discussion, documents whose authenticity in reproduction raised no objection.

p) By order of 28.09.2016, the TAS questioned the parties as to whether they waived the hearing provided for in article 18º of RJAT and also written arguments. By motion of 30.09.2016, the Respondent stated that it did not oppose the waiver of the party hearing and submission of written arguments.

q) Since the Claimant had formulated no position on the matter, by order of 12.10.2016, it was invited to state whether it agreed with the Respondent's position. It responded on 18.09.2016, not regarding AT's motion of 30.09.2016, but regarding the content of AT's response submitted on 28.09.2016, in the part relating to the futility of the dispute, as a decision expressing the hierarchical appeal that the Claimant presumed to have been dismissed on 20.05.2016 (date of filing of the present arbitral request with CAAD) was joined to this process on 18.07.2016.

r) In light of the foregoing, a deadline for successive written arguments was set by order of 24.10.2016. However, neither party submitted arguments.

s) Therefore, the party hearing provided for in article 18º of RJAT was not held, nor did the parties submit arguments, although they were invited to do so.

PROCEDURAL PREREQUISITES

t) Legitimacy, capacity and representation – The parties have legal personality, judicial capacity, are legitimate parties and are represented (articles 4.º and 10.º, nº 2, of RJAT and article 1.º of Order no. 112-A/2011, of 22 March).

u) Principle of adversarial proceedings - AT was notified as set forth in paragraph n) of this Report. All procedural documents and all documents joined to the process were made available to the respective counterparty in CAAD's Case Management System. Both parties were always notified of their submission. Likewise, regarding subsequent procedural management, the TAS followed what resulted from the express or tacit position of the parties as stated in paragraphs p) to s) above.

v) Dilatory exceptions - The arbitral procedure suffers no nullities and the arbitral pronouncement request is timely as it was presented within the prescribed period in subparagraph a) of nº 1 of article 10.º of RJAT, as results from the fact that the Claimant filed a hierarchical appeal (RH) against the decision dismissing the gracious complaint no.…, filed against the assessment here in question, on 23.12.2015, invoking the presumption of dismissal of the RH, as no decision was notified 60 days after its filing, in accordance with nº 5 of article 66º of CPPT. The arbitral request was filed with CAAD on 20.05.2016, well beyond the prescribed period in the legal provision that establishes a maximum period for adopting a decision in hierarchical appeal proceedings.

SUMMARY OF THE CLAIMANT'S POSITION

w) The Claimant disagrees with the additional IRC assessment that resulted from various corrections proposed in the Tax Inspection report, in compliance with Service Order no. OI2012.../… .

x) And especially disagrees with the arguments invoked in the said Inspection Report, namely:

· "That for travel allowances to be considered as not subject to autonomous taxation, it is necessary that they have been charged to clients, and that this charge be expressly mentioned in the invoices issued";

· With the "… Binding Information relating to Case no. 71/08, in which nº 2 considers that: "This is an anti-abuse norm, as is known, expenses with travel allowances are difficult to prove and often correspond to true worker salaries, therefore, the legislator understood that these expenses would only be accepted as tax costs if their amount was allocated to clients and expressly mentioned in the invoicing issued";

· With the fact that to "demonstrate that travel allowances were not charged to clients, the Inspector, as stated at the beginning of page 22 of the report" … requested "… that elements be provided containing the description and valuation of expenses and respective documentary support, as well as the identification of the personnel who provided the services and indication of the time period in which they occurred";

· It considers, contrary to the inspection report, that having "… taxpayer only … mentioned in some of the invoices issued that the amount charged included travel allowances, this is proof that in invoices where this reference was entered does not mean that travel allowances had in fact been charged to clients", "Despite considering that the amounts of travel allowances expressly stated in the invoice "form an integral part of the value of services provided, as do other expenses such as transport, accommodation, tools, etc"".

y) The Claimant advocates for another interpretation of the norm contained in nº 9 of article 81º of the Corporate Income Tax Code (current article 88º of the Corporate Income Tax Code), and should consider that

· "for the amount of travel allowances to be considered as an expense, it is not necessary that its value be charged to clients, but only that the employer entity possesses, for each payment made, a statement in the conditions of subparagraph h) of nº 1 of article 23.-A (former subparagraph f) of nº 1 of article 42. of CIRC), as results (a contrario sensu) from the said norm".

· And because the legislator "… only intended, for charges with travel allowances not to be subject to autonomous taxation, that they be invoiced to clients, as results from the provision in nº 9 of article 88.º (former article 81.º) of the Corporate Income Tax Code".

· Being that "The condition that its value be expressly mentioned in the invoice does not appear in any norm".

z) Even if this were not the case, the Claimant understands "that it made expressly state in its invoices (even though this was not necessary) the amount of travel allowances invoiced to its clients". "This would only not be so if the claimant merely stated in its invoices a vague expression such as "The amounts charged include travel allowances"". "But as the report states, particularly from page 21, its invoices contain the expression "Includes travel allowances in the amount of ----€", and the respective amount is expressly mentioned".

aa) And concludes: "… the invoices expressly state the amount of travel allowances charged to clients".

bb) It further objects to the fact that, according to the Report, it is intended "… that this amount appear, autonomously, in its own line on the invoice", concluding "It would make no sense to charge in a separate line travel allowances, as has been stated, what service providers charge to their clients is only the price of their services".

cc) And further states: "But the claimant could have merely stated in its invoices that the billed amount included travel allowances, without quantifying its value, without this meaning that it was not charging the client the respective values, as was decided in the Judgment of the Central Administrative Court of the South, of 2009.07.15, in Case no. 02014/07, at www.dgsi.pt". "Or as stated in nºs 1 to 3 of the conclusions of the Judgment of the Central Administrative Court of the North, of 2015.03.12, in Case no. 00005/04.2BEPNF, at www.dgsi.pt".

dd) It concludes by pleading for the annulment of the assessments in question (tax and interest). It invokes in defense of its point of view the CAAD decision Case 85/2012-T of 20.12.2012 and the judgment of the Supreme Administrative Court in case no. 21717, at www.dgsi.pt.

ee) After the arbitral request was notified to the Respondent on 23.05.2016, AT came, on 18.07.2016, to join a decision adopted by the Finance Department of Aveiro, dated 30.06.2016, which revokes the act that on 2015-11-23 dismissed the gracious complaint no. … 2015 … and replaces it with another that wholly approves it. In light of this decision, by motion of 18.10.2016 and regarding AT's position in the Response, invoking the futility of the dispute (with costs to the Claimant) for the hierarchical appeal having been allowed (citing article 13º of RJAT), the Claimant opposes the following:

· "In fact, when the Claimant made the request for constitution of the Arbitral Tribunal, the Tax Authority had not yet taken a position on the Hierarchical Appeal filed by the Claimant". "It only did so after becoming aware of the request made to this Arbitration Center". "For that reason, it joined on 18/07/2016 its position by issuing an Order regarding the Hierarchical Appeal to the present proceedings".

· "It happens that the position assumed in the Order issued regarding the Hierarchical Appeal does not address the totality of the request filed with CAAD". "… in order to restore the legality of its tax situation, the Tax Arbitration Center must take a position on the totality of what was requested". And adds: "Therefore, not having been given effect to the recognition of indemnifying interest and as these were requested upon the constitution of the Arbitral Tribunal together with the appreciation of the legality of the tax act, the learned Tax Arbitration Center must take cognizance of the Request".

ff) And concludes: "It happens that at no time was the Claimant notified by the Senior Director of the Tax Administration Service granting it a 10-day period to make representations". "In fact, the claimant was only notified by the Tax Authority in the context of the Hierarchical Appeal, as if the request for constitution of the arbitral tribunal did not exist, regarding the revoked tax act". "This Order having been issued by the Division Chief of the Finance Department of …".

SUMMARY OF THE RESPONDENT'S POSITION

Futility of the Dispute

gg) The Respondent opens its Response by invoking the futility of the dispute in the following terms: "The present arbitral pronouncement request is filed against the presumption of dismissal of the Hierarchical Appeal". "However, this Appeal was allowed by order of 2016/06/30, a document already joined by AT on 2016/07/18, and duly notified to the now Claimant on 2016/07/09". "Thus, given that this is the grounds for the present case, we find that the pretension of the now Claimant is satisfied, and there is futility of the present dispute".

Regarding Procedural Costs

hh) As a corollary of the above, regarding the futility of the dispute, AT states in its Response: "Now, considering that the act here in question was revoked in accordance with article 13º of RJAT". "This decision having been timely notified to the now Claimant, and to the president of the Administrative Arbitration Center", concluding: "AT should not be held responsible for procedural costs arising from the constitution of the Arbitral Tribunal, in that effect was given to the Claimant's pretension before that same constitution".

Regarding Indemnifying Interest

ii) AT contends for the dismissal of the request for condemnation to pay indemnifying interest, stating: "… the conduct of the Tax Authority was guided by strict compliance with the legal provisions to which it is bound". "It cannot be considered that there was error attributable to the services in the issuance of the assessment in question, a condition essential for condemnation to payment of indemnifying interest".

jj) And concludes: "Inasmuch as the arbitral process, under the terms defined in RJAT, aims at mere review of the legality of the impugned assessment, it cannot determine that there was "error attributable to the services" when through a legally sustained interpretation of a tax fact subject to IRC costs were considered not accepted for tax purposes". "Thus, no indemnifying interest is owed for there being no error attributable to the services generating any obligation to indemnify". "Finding that ... the possibility of recognition of the right to indemnifying interest is excluded, in accordance with nº 1 and nº 2 of article 43º of LGT".

kk) It concludes by reiterating the merit of the exception invoked and the dismissal of the request for condemnation to pay indemnifying interest, with costs to the Claimant.

II - ISSUES FOR THE TRIBUNAL TO RESOLVE

The issues to be resolved are as follows:

1. The futility of the dispute, taking into account the joining by AT to this process, on 18/07/2016, of the decision that allowed the Hierarchical Appeal that the Claimant presumed dismissed when it filed with CAAD the present arbitral request. And to assess whether this joining corresponds to the act referred to in nº 1 of article 13º of RJAT.

2. Procedural costs, in light of what is stated in the previous point.

3. The request for condemnation of AT to pay indemnifying interest, not satisfied in the decision of AT that expressly allowed the hierarchical appeal.

III. PROVEN AND NOT PROVEN FACTS.
REASONING

Regarding the facts, the Tribunal need not pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish the proven facts from the unproven (as per article 123.º, nº 2, of CPPT and article 607.º, nº 3 of CPC, applicable by virtue of article 29.º, nº 1, subparagraphs a) and e), of RJAT).

Thus, the relevant facts for adjudication of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions to the legal issue(s) (as per former article 511.º, nº 1, of CPC, corresponding to current article 596.º, applicable by virtue of article 29.º, nº 1, subparagraph e), of RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the procedural file joined to the proceedings, the following facts were considered proven, with relevance to the decision, and otherwise not disputed by the parties, with reference to the respective documents (proof by documents):

Proven Facts

1) The Claimant was subject to a tax inspection procedure in accordance with article 62º of RCPIT, external, of general scope regarding IRC, for the fiscal years 2011 and 2012, ordered by Service Order OI 2012 …/… – Document no. 7 in annex to the arbitral request, article 3º of the arbitral request and article 4º of the response.

2) Following the Inspection Report, duly notified, AT proposed amendments to the IRC for 2011, subsequently notifying the Claimant of the assessment contained in the "IRC assessment statement - assessment no. 2015 … of 08.01.2015" which indicates an amount payable of 121,048.10 euros, the "account settlement statement – Document ID 2015 … – Compensation No. 2015 … of 12.01.2015" indicating an account balance of 10,361.87 euros and the "interest assessment statement - Compensation No. 2015 … of 12.01.2015" indicating total interest of 1,467.69 euros – Documents nos. 1, 2 and 3 joined with the arbitral request, preamble of the arbitral request and articles 2º and 3º of the response.

3) The Claimant filed a gracious complaint against the assessment, no. …2015…, which was dismissed. Against this dismissal, it filed a hierarchical appeal, no. …2015… on 23.12.2015 – Documents nos. 4, 5 and 6 joined with the arbitral request, article 1º of the arbitral request and article 6º of the response.

4) On 20-05-2016, the Claimant filed with CAAD the present arbitral request "against the presumption of dismissal of the hierarchical appeal" invoking nº 5 of article 66º of CPPT – registration of entry in CAAD's SGP of the arbitral request and communication of constitution of TAS.

5) On 06-06-2016, the Respondent was notified by CAAD through electronic notification, with the following appearing in the SGP record of CAAD for this case: "on this date AT (Tax Services) was notified of the filing of the request" – Record of 06.06.2016 in CAAD's SGP - case 281/2016-T.

6) On 18.07.2016, AT registered in CAAD's SGP a document designated as "communication 13º-1 of RJAT", whose electronic file is designated "revocation order P … –A…", which states: "it is proposed to revoke the act that on 2015-11-23 dismissed the gracious complaint no. … 2015 … and its replacement with another that, with the grounds set out above, allows it in its entirety", which was sanctioned by an order of 30.06.2016 by the Division Chief of the Finance Department of … – Record of 18.07.2016 in CAAD's SGP – case 281/2016-T.

7) The Claimant paid on 02.04.2015 the IRC and interest assessment, in the context of enforcement proceedings … 2015 … – Documents nos. 8 and 9 joined with the arbitral request and article 99º of the arbitral request.

Unproven Facts

There is no other factual allegation that was not considered proven and that is relevant to the composition of the procedural dispute.

IV. ASSESSMENT OF THE ISSUES FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

Subsequent Futility of the Dispute

The Code of Civil Procedure applies subsidiarily to tax arbitral proceedings, by virtue of subparagraph e) of article 2º of CPPT and nº 1 of article 29º of RJAT.

Under subparagraph e) of article 277º of the CPC, extinction of the instance is a cause of "subsequent impossibility or futility of the dispute".

"When the instance is judged to be extinct due to subsequent impossibility or futility of the dispute, the judge need only declare the instance extinct, without judicial pronouncement (which is even precluded) without condemning or absolving any of the parties, except regarding payment of costs". (Judgment of the Supreme Court of Justice of 23.11.1982: BMJ 321 – 368).

AT contends for complete futility of the present dispute in which the request is for annulment of the IRC assessment and its condemnation to pay indemnifying interest.

However, the Claimant argues that the Respondent only revoked the decision adopted regarding the gracious complaint, and from that decision and the position adopted by AT in this process, it cannot be inferred that it intends to pay the interest to which the Claimant believes it is entitled.

We find that the Claimant is correct.

In fact, as stated in paragraph 6) of the proven facts, what AT decided was only to allow the hierarchical appeal filed by the Claimant referred to in paragraph 3) of the proven facts. Nothing is stated in that decision regarding the payment or non-payment of indemnifying interest.

Therefore, the invoked subsequent futility of the dispute is partly upheld, but only partially, that is, only with respect to the request for annulment of the IRC assessment act and compensatory interest (and naturally the prior annulment of the decision dismissing the gracious complaint). This is a matter already resolved.

Regarding the request for condemnation of AT to pay indemnifying interest, it is a matter that the TAS must assess, as the dispute in this aspect remains unresolved.

The Joining by AT on 18.07.2016 of a Document Designated "Communication 13º-1 of RJAT"

As stated in paragraph 4) of the proven facts: "on 20-05-2016, the Claimant filed with CAAD the present arbitral request "against the presumption of dismissal of the hierarchical appeal" invoking nº 5 of article 66º of CPPT".

And according to paragraph 5): "On 06-06-2016, the Respondent was notified by CAAD through electronic notification, with the following appearing in the SGP record of CAAD for this case: "on this date AT (Tax Services) was notified of the filing of the request"".

Finally, paragraph 6) of the proven facts states: "On 18.07.2016, AT registered in CAAD's SGP a document designated as "communication 13º-1 of RJAT", whose electronic file is designated "revocation order P … –A…", which states: "it is proposed to revoke the act that on 2015-11-23 dismissed the gracious complaint no. … 2015 … and its replacement with another that, with the grounds set out above, allows it in its entirety", which was sanctioned by an order of 30.06.2016 by the Division Chief of the Finance Department of …".

Nºs 1 and 2 of article 13º of RJAT state: 1 — In requests for arbitral pronouncement that have as their object the review of the legality of the tax acts provided for in article 2.º, the senior director of the tax administration service may, within 30 days of becoming aware of the request for constitution of the arbitral tribunal, proceed to revoke, ratify, reform or convert the tax act whose illegality was raised, enacting, when necessary, a substitute tax act, and must notify the president of the Administrative Arbitration Center (CAAD) of its decision, whereupon the period referred to in subparagraph c) of nº 1 of article 11.º begins to run.

2 - When the tax act that is the object of the arbitral pronouncement request is, under the terms of the previous number, wholly or partly altered or replaced by another, the senior director of the tax administration service notifies the taxpayer to, within 10 days, make representations, and the procedure continues regarding this latter act if the taxpayer states nothing or declares that it maintains its interest.

Now, not only was the decision joined to the present process not adopted on the basis of prior hearing of the Respondent in accordance with nº 2 of article 13º of RJAT, but also the decision in question (which allowed the hierarchical appeal) was not notified to CAAD (joined to the process) within the 30-day period as required by nº 1 of article 13º of RJAT.

Therefore, the joining to the process of the decision of AT that allowed the hierarchical appeal after the Claimant, on 20-05-2016, registered with CAAD the present arbitral request filed "against the presumption of dismissal of the hierarchical appeal" invoking nº 5 of article 66º of CPPT, cannot be integrated into the concept of revoking decision regarding the assessment, as provided for in nº 1 of article 13º of RJAT, but rather a decision on a hierarchical appeal in accordance with article 66º of CPPT and article 80º of LGT, especially since the decision in question is dated 30.06.2016 and the arbitral request was filed with CAAD on 20.05.2016, and on 06.06.2016 AT was notified of the filing of the present arbitral request.

This means that from 06.06.2016, AT was aware of the filing of the arbitral request based on the presumption of dismissal of the hierarchical appeal.

Therefore, the allegation that the tax act that is the object of the present arbitral request was revoked under the regime of article 13º nº 1 of RJAT is not upheld.

Regarding Responsibility for Costs (in the part of the request configured as subsequently futile)

"The Code of Civil Procedure maintained, regarding costs, the principle of causality: the party that caused the costs pays the costs" … (Judgment of the Supreme Court of Justice of 18.11.76 BMJ 261º-153). This principle continues to be expressed in the various rules of the current CPC that deal with this matter.

Article 536.º of the current CPC (article 450.º CPC 1961), under the heading "distribution of costs", states in its nº 3 "In other cases of extinction of the instance due to subsequent impossibility or futility of the dispute, responsibility for costs falls on the claimant or requester, unless such impossibility or futility is attributable to the respondent or requested party, in which case the latter is responsible for all costs".

Now, as stated above, the Claimant, in the exercise of the rights granted by law, not having obtained a decision on the hierarchical appeal it filed on 23.12.2015 within the period of nº 5 of article 66º of CPPT, filed the present arbitral request on 20.05.2016.

The decision joined by AT to this process was adopted (on 30.06.2016) already after the Respondent had been notified of the filing of the arbitral request on 06.06.2016.

Therefore, we must conclude that the futility of the dispute is attributable to the Respondent, as it did not decide the hierarchical appeal within the maximum legal period of article 66º nº 5 of CPPT, which under nº 3 of article 175º of the old CPA, article 198º nº 4 of the new CPA, and nº 5 of article 57º of LGT permitted the Claimant to file the present arbitral request.

Therefore, it is the Respondent that is responsible for procedural costs regarding the request that became subsequently futile in this process (revocation of the additional IRC assessment and interest) in accordance with the final part of nº 3 of article 536º of CPC.

Request for Indemnifying Interest

The following was proven: "The Claimant paid on 02.04.2015 the IRC and interest assessment, in the context of enforcement proceedings … 2015 …". And that "On 18.07.2016, AT registered in CAAD's SGP a document designated as "communication 13º-1 of RJAT", whose electronic file is designated "revocation order P … –A…", which states: "it is proposed to revoke the act that on 2015-11-23 dismissed the gracious complaint no. … 2015 … and its replacement with another that, with the grounds set out above, allows it in its entirety", which was sanctioned by an order of 30.06.2016 by the Division Chief of the Finance Department of …".

This signifies that the Respondent recognized, by allowing the hierarchical appeal, that it had intended to annul the additional assessment, that there was no legal basis for the enactment of the impugned act.

Article 43.º, nº 1, of LGT provides that «indemnifying interest is owed when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services that resulted in payment of the tax debt in an amount greater than that legally due».

As results from the literal wording of this norm, the right to indemnifying interest depends on «payment of the tax debt in an amount greater than that legally due».

In the present case, the Claimant paid the additional tax and the interest illegally assessed, so the annulment of the assessment, in addition to the duty to reimburse, may result in the payment of indemnifying interest, if there was error attributable to AT's services in the assessment.

The error in the assessment is attributable to the Respondent as results from the circumstance that it subsequently recognized, having fulfilled the taxpayer's burden of challenge, that it was in dissonance with the law and therefore, in respect for the principle of legality, allowed the hierarchical appeal.

The taxpayer paid the debt assessed for principal and interest, in the context of a notification made to it by AT (which is equivalent to a general instruction by AT), in dissonance with its position. It is this assessment that AT recognized had no legal support.

Consequently, the Claimant is entitled to indemnifying interest, calculated in accordance with article 43.º, nº 1, of LGT and article 61.º of CPPT from the date it made the payment in question (02-04-2015), until actual reimbursement.

V. OPERATIVE PART

In accordance with and for the reasons set forth above:

1. The instance is declared partially extinct due to subsequent futility of the dispute, in the part of the arbitral request concerning the annulment of the act assessing additional IRC and compensatory interest, identified in b) of the Report of this arbitral decision, with the Respondent responsible for costs (subparagraph e) of article 277º of CPC and final part of nº 3 of article 536º of CPC);

2. The request for condemnation of AT to pay indemnifying interest is upheld, calculated from the date of payment of IRC and interest (02.04.2015) until the date of restitution.

Value of the case: In accordance with the provision in article 3.º, nº 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of nº 1 of article 97ºA of CPPT), the value of the case is fixed at 6,973.68 euros.

Costs: In accordance with the provision in article 22.º, nº 4, of RJAT, the amount of costs is fixed at 612.00 € according to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 29 November 2016

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared on computer in accordance with article 131.º, nº 5, of CPC, applicable by cross-reference to article 29.º of RJAT.

The present decision is written according to the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What is autonomous taxation on per diem allowances (ajudas de custo) under Portuguese IRC?
Autonomous taxation (tributações autónomas) on per diem allowances under Portuguese IRC is a special taxation regime established in Article 88 of the IRC Code that applies to certain business expenses independently of their deductibility. Unlike normal IRC taxation based on taxable profit, autonomous taxation applies fixed rates to specific expense categories regardless of whether they constitute tax-deductible expenses. For travel allowances (ajudas de custo), the key issue is whether amounts paid to employees but not recharged to clients are subject to this autonomous taxation. The Tax Authority in this case argued that travel allowances must be invoiced to clients to avoid autonomous taxation, imposing €5,505.99 in autonomous tax on €110,119.82 of unreinvoiced allowances. This autonomous taxation operates as an additional tax burden on companies, designed to discourage certain expense behaviors and ensure tax collection on potentially non-business-related expenditures.
Must per diem allowances be invoiced to clients to qualify as deductible expenses under Article 23-A of the IRC Code?
Under Article 23-A of the IRC Code (formerly Article 42), per diem allowances do NOT need to be invoiced to clients to qualify as deductible expenses. The taxpayer argued correctly that Article 23-A subparagraph h) only requires the employer to possess a statement for each payment made to employees, establishing documentary requirements rather than client invoicing conditions. The confusion arises from Article 88(9) of the IRC Code regarding autonomous taxation, not expense deductibility. The Tax Authority conflated two separate issues: (1) whether travel allowances are deductible expenses under Article 23-A (requiring proper employee statements), and (2) whether they are subject to autonomous taxation under Article 88. The taxpayer's position was that the legislator only intended travel allowances to be exempt from autonomous taxation when invoiced to clients, but this condition does not appear in Article 23-A regarding expense deductibility. The distinction between deductibility criteria and autonomous taxation triggers is critical in Portuguese IRC law.
What happens when a hierarchical appeal (recurso hierárquico) is not decided within the legal deadline under CPPT Article 66(5)?
Under CPPT Article 66(5), when a hierarchical appeal (recurso hierárquico) is not decided within the legal deadline, a presumption of silent dismissal (indeferimento tácito) arises. The standard deadline is 60 days from the filing of the hierarchical appeal. Once this period expires without notification of a decision, the taxpayer may consider the appeal tacitly dismissed and proceed to challenge this deemed decision through either judicial appeal or tax arbitration at CAAD. In Process 281/2016-T, the taxpayer filed the hierarchical appeal on 23.12.2015 and, receiving no decision within 60 days, filed for arbitration on 20.05.2016 invoking the silent dismissal presumption. The arbitral tribunal confirmed this was a valid challengeable act under RJAT Article 10(1)(a). This procedural safeguard prevents the administration from indefinitely delaying taxpayer rights through administrative inaction, ensuring access to judicial or arbitral review even absent an express decision.
Can a taxpayer request arbitration at CAAD after deemed silent rejection of a hierarchical appeal?
Yes, a taxpayer can request arbitration at CAAD after deemed silent rejection of a hierarchical appeal. RJAT Article 10(1)(a) expressly allows arbitration requests against acts resulting from hierarchical appeal proceedings, which includes both express decisions and silent dismissals under CPPT Article 66(5). In this case, the arbitral tribunal confirmed the request was timely filed and properly constituted the singular arbitral tribunal to hear the dispute. The tribunal stated that the arbitration request was presented within the prescribed period since the hierarchical appeal was filed on 23.12.2015, no decision was notified within 60 days, and the arbitration was filed on 20.05.2016, well beyond the legal period establishing the presumption of dismissal. This demonstrates that silent administrative acts are equally challengeable as express decisions, protecting taxpayer rights against administrative delays. The arbitration proceeded validly based on the presumed silent dismissal as the immediately challengeable act.
What is supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration, governed by RJAT Article 13(1), occurs when the object of the dispute ceases to exist or becomes moot during the arbitration proceedings, rendering the case purposeless. In Process 281/2016-T, this issue arose because the arbitration was filed on 20.05.2016 based on the presumed silent dismissal of a hierarchical appeal, but on 18.07.2016 an actual express decision on that hierarchical appeal was issued and joined to the arbitration file. This meant the challenged act (the silent dismissal) no longer existed, having been replaced by an express administrative decision. The AT raised this issue in its response, arguing the proceedings had become futile. When supervening uselessness occurs, the arbitral tribunal must typically declare the proceedings terminated without a decision on the merits, as there is no longer a valid challengeable act before it. The taxpayer would then need to challenge the new express decision if desired, resetting procedural deadlines and potentially requiring a new arbitration request.