CAAD 287/2017-T: Autonomous Taxation on Undocumented Expenses - IRC Assessment Annulled for Factual Error

ARBITRATION DECISION

The arbitrators Counsellor Jorge Lopes de Sousa (arbitrator-president), Dr. José Joaquim Monteiro Sampaio e Nora and Dr. Sofia Cardoso (arbitrator-members), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Arbitration Tribunal, constituted on 07-03-2017, agree as follows:

1. Report

A…, LDA, legal entity no. … with registered address at Rua …, …, …-… …, parish and municipality of …, district of Aveiro (hereinafter referred to as the "Claimant"), filed, pursuant to Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "RJAT"), a request for arbitration award seeking the annulment of the additional corporate income tax assessment no. 2016…, of 16.12.2016, issued with reference to the fiscal year 2012, in the amount of €111,000.00, and the compensatory interest assessment no. 2016…, issued jointly, in the amount of €15,704.21.

The Respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The request for constitution of the arbitration tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority on 24-04-2017.

Pursuant to the provisions of article 6, section 2, paragraph a) and article 11, section 1, paragraph b) of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitration tribunal the signatories, who communicated acceptance of the appointment within the applicable deadline.

On 14-06-2017 the parties were duly notified of this appointment, and manifested no objection to the appointment of the arbitrators, in accordance with article 11, section 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Accordingly, in compliance with the provisions of article 11, section 1, paragraph c) of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitration tribunal was constituted on 03-07-2017.

The Tax Authority and Customs Authority filed a response in which it contended that the request should be dismissed.

On 18-10-2017 a hearing was held in which testimonial evidence was produced and it was decided that the proceedings would continue with written submissions.

The Parties filed submissions.

The arbitration tribunal was regularly constituted, pursuant to the provisions of articles 2, section 1, paragraph a), and 10, section 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The parties are duly represented and have legal capacity and standing (articles 4 and 10, section 2, of the same decree-law and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are free from defects.

2. Findings of Fact

2.1. Facts Established

Based on the evidence in the file and in the administrative file attached to the record, the following facts are established:

a) The Claimant has been engaged, since 1988, in the activity of "Retail trade in fuel for motor vehicles, service station (CAE 47300)" (copy of the Commercial Register Certificate attached to the request for arbitration award as document no. 4, whose contents are hereby reproduced);

b) The Claimant filed the periodic income statement (model 22), of CIRC, with reference to the fiscal year 2012;

c) The Claimant filed the annual simplified business information statement (IES), for the fiscal year 2012;

d) The Tax and Customs Authority conducted an inspection of the Claimant relating to the fiscal year 2012 in which it prepared the Tax Inspection Report contained in the administrative file, whose contents are hereby reproduced, which states, among other things, the following:

Clarifications Requested

To clarify the declared values, the following documents were requested from the taxpayer:

• Through Office no. … of 2015.09.04, the SAF-T(PT) files were requested, which the taxpayer sent to these Services on 2015.09.18;

• Following analysis of the SAF-T(PT) for 2012, through Office no. … of 2016.10.07, the presentation of supporting and justifying documents for the following transactions recorded in the company's accounting with date of 2012-02-29, Journal 10, document … and … was requested.

• On 2016.10.10, via email, the taxpayer's Certified Accountant, Mr. B…, sent a copy of minutes no. … dated 2012.02.28, to justify the aforementioned transactions.

Minutes no. … of 2012.02.28

According to minutes no. …, the partners met in Assembly to "Decide on the management proposal for regularization of the cash balance carried forward since 1988 and recognition of the value attributed to goodwill." The following proposal was presented:

"As all partners of the company are aware, payments were made to its employees, in the years 1988 to 2004, at their insistence, for overtime hours. The amounts that left for this reason were maintained as cash values. The Tax Authority noted this fact in the course of the inspection procedure concluded on 09/11/2010 and suggested regularization of the cash balance. Considering that regularization of the cash would reduce equity to values that would force it to fall within the scope of article thirty-five of the Commercial Companies Code, management's understanding was not to do so until a technical solution to the problem was found. In view of the Tax Authority's insistence in questioning the source of that cash balance, management requested a technical opinion on the matter, and it was suggested to evaluate the company's intangible assets such as the value of the establishment, the value of the existing customer base, the value of relationships with banking and suppliers and other types of intangible advantages. To this intangible value was assigned a value that ranged between one hundred and eighty and two hundred and twenty thousand euros. Thus, and taking into account the range of the valuation value, management proposes that this intangible be recognized in the accounts of the current month at an average value of two hundred thousand euros."

The proposal was approved unanimously, whereby:

"As a consequence of the decision made, the cash balance corresponding to payments made to employees in the years 1988 to 2004 should be regularized by debiting retained earnings, and the goodwill value of two hundred thousand euros should be recognized." (emphasis added)

Attached are:

• Copy of Minutes no. … of 2012.02.28 - Annex no. 2

• Office no. … of 2015.09.04 - Annex no. 3

• Office no. … of 2016.10.07 - Annex no. 4

The singularity of this cash balance "regularization" led to the need to obtain from the company and its management, explanation and proof of the situation.

However, apart from minutes no. …, there is no other document in the accounting that validly supports the aforementioned transactions. Only the managing partner Mr. C… and his Certified Accountant Mr. B… presented a six-page document dated 2011.09.12, under the title "ECONOMIC VALUATION – A…, IDA - The Goodwill of A…, Lda", a photocopy of which constitutes Annex no. 5.

In that document an "Estimate of the company's value" is made through the "DCF Method" and "Multiples Method", based on the income statement for the periods 2007 to 2010.

The DCF method or Discounted Cash Flow method is a method of valuation of companies, assets or projects, which uses the concept of Present Value, to determine the value of the sum of all cash flows estimated to be generated by the company, plus the Residual Value (considering perpetual growth), discounted at an appropriate rate (normally the rate determined for Weighted Average Cost of Capital) which represents the risk premium of the asset and the value of money over time.

The valuation by this method resulted in a value of €331,867.00.

The Multiples method was based on the EBIT for 2010 in the amount of €43,454.00, to which the factor 10 was applied, resulting in a value of €434,537.00.

In addition to these calculations, which resulted from assumptions with no justification or demonstration, the aforementioned document concludes that "Based on historical data and assumptions and expectations disclosed by the concessionaire brand of the operation, we project for the company, using the DCF and multiples methods a value that ranges between 330 thousand and 430 thousand euros."

There is no reference in the aforementioned document to the economic and financial analysis of the company itself, to the economic and social context in which the valuation is conducted, circumstances that promote its necessity, definition and justification of the parameters and variables of the valuation models applied, determination of the company's residual value at the end of the forecast period, etc. However, as early as the year of the valuation (2011) the results turned to losses, remaining so until 2014, a fact which, by itself, reveals the inconsistency thereof and its inadequacy for any purpose other than that of restoring the company's equity capital after the transfer of the balance from the "11 - Cash" account to Retained Earnings.

Thus, it was on the basis of that document that they carried out the accounting recognition of an intangible asset which they designated as goodwill, in the amount of €200,000.00 (a value far removed even from those resulting from the "valuation").

But even if the valuation had been carried out in a consistent manner, it could never have had as its objective the accounting recognition of goodwill. This is because, in accordance with NCRF 6 - Intangible Assets, sections 47 to 49, internally generated goodwill is not recognized as an asset because:

• it is not an identifiable resource (i.e., it is not separable nor does it result from contractual rights or other legal rights);

• it is not controlled by the entity;

• it cannot be reliably measured by cost.

Therefore, the accounting recognition of this "valuation", in addition to being prohibited by NCRF 6, negatively affects the true and fair view which, in accordance with section 46 of the EC of SNC, financial statements should present regarding the financial position, performance and changes in the financial position of an entity. Although the Conceptual Framework does not directly address such concepts, it recognizes that only the application of the main qualitative characteristics and appropriate accounting standards can achieve such purpose, which is not the case in the accounting of the taxpayer who, for the reasons stated, violated the applicable accounting regulations.

As already stated, this accounting transaction had as its sole objective to conceal the effect caused to equity by the "regularization" of the cash balance of €185,000.00, which was withdrawn from cash in counterpart to the debit of account 56 - Retained Earnings (SAFT accounting - transaction recorded with date of 2012-02-29, Journal 10, Doc. 2020), as is admitted in minutes no. 27 aforementioned - "...Considering that regularization of the cash would reduce equity to values that would force it to fall within the scope of article thirty-five of the Commercial Companies Code." This "regularization" of the cash balance reflects the withdrawal of money from cash without the respective documentary justification, regarding which the recipient(s) and the purpose for which it was applied are unknown.

The taxpayer alleges in minutes no. … that such cash balance did not exist in reality, as it was used for payment of "overtime to its employees between 1988 and 2004". That is, that its accounting, its financial statements and its tax returns showed through the beginning of 2012 a high cash balance, but that in fact it does not exist because it was channeled to the payment of "overtime to its employees between 1988 and 2004".

Now, giving credence to the information of the taxpayer, given that it did not provide the respective proof:

• It would have violated the principle of truthfulness that must guide the preparation of accounting, financial statements and the completion of tax returns;

• It must also be concluded that such payments of "overtime to its employees between 1988 and 2004" will have been omitted from the accounting and were not subject to any taxation for personal income tax purposes and Social Security contributions, that is, they will have remained outside the reach of the law because they were concealed in the accounting;

• And by referring such conduct to the years 1988 to 2004, already barred under article 45 of the LGT, it knows that it prevents that, from a legal point of view, any verification of the accounting and the documents that were at the origin of the situation under analysis be carried out and any corrections that would, a priori, be unfavorable to it be proposed;

• For which reason, the consequences of non-compliance with the principle of truthfulness embodied in the intentional falsification of accounting records and the values entered in tax returns (with the aim of avoiding payment of taxes and contributions relating to the payment of remuneration), can only fall upon the taxpayer, since, if this were not the case, one would be rewarding the violation of the principle of truthfulness;

Or, put another way, the taxpayer cannot now seek to benefit from its own omissions and inaccuracies under penalty of incurring the prohibition of "venire contra factum proprium": it benefited in the years in which it alleges to have paid overtime to its employees outside of accounting and tax returns, thereby avoiding payment of taxes and contributions due, and seeks to benefit again when it now invokes the lack of adherence to reality of the statements and records effected by it relating to the cash balance, so that the withdrawal of financial means from the company is not taxed at the moment when such fact was evidenced in the accounting, that is, in 2012.

But in reality, the taxpayer does not prove that "overtime was paid to its employees between 1988 and 2004", and that, for this reason, the balance shown by the accounting "is not real":

• Without prejudice to what has been stated before, it would always be the burden of the taxpayer to prove that the payments for overtime occurred effectively and in those years, thus undermining the presumption of truthfulness that rests on the organized accounting and its supporting documents – cf. Article 75 of the LGT;

• But the taxpayer does not demonstrate the factuality it alleges, and which, in its view, would justify the "disregard" of this accounting item (cash balance) in counterpart to "Retained Earnings";

• The fact is that the accounting and tax returns reveal a surplus of cash availability through 2012, and that in February of that year most of it was transferred to retained earnings, decreasing these and, consequently, the company's equity, without any acceptable accounting support that would make it possible to determine, without ambiguity, the characteristics of the transaction (what, why and for whom, specifically). That is, there is a withdrawal of cash, with the destination of the respective amount not being determined or determinable because the underlying transaction(s) are unknown, as there is no admissible supporting document (and no proof was produced that it was spent between 1988 and 2004, in overtime paid to staff).

The irregularities detected as a result of the analysis carried out and their respective tax impact will be reported in the following section (section III).

III. DESCRIPTION OF THE FACTS AND BASIS FOR PURELY ARITHMETIC CORRECTIONS

III. 1. REGARDING CORPORATE INCOME TAX - FISCAL YEAR 2012

III. 1.1. Autonomous Taxation of Undocumented Expenses

As referred to in the previous section, there was accounting recognition of a withdrawal of cash, in counterpart to results (negatively affecting the results, not those of the period, but retained earnings), without any supporting document that reveals its nature and its beneficiary, something that conforms to the letter of section 1 of article 88 of CIRC and to the purpose of autonomous taxation established therein for undocumented expenses.

As to the letter, expense means: "1. Act of spending money, of disbursing. 2. Sum that is spent, amount to be paid to another" (Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon).

As to the spirit of the provision, it is written in the Decision of the Constitutional Court no. 18/2011, of 12 January 2011, Case no. 204/2010, that: "The fiscal logic of the regime [non-consideration as an expense - which does not now arise - and autonomous taxation] is based on the existence of a presumptive prejudice to the Public Treasury, because it is not possible to prove, due to lack of documentation, whether there was payment of VAT or other taxes that were due in relation to the transactions carried out, or whether the income that third parties have been obtaining through the commercial relations maintained with the taxpayer were declared for purposes of the tax on income. Furthermore, autonomous taxation, not directly applying to a profit, will have inherent the idea of discouraging a practice which, in addition to affecting equality in the distribution of public burdens, may involve situations of criminal illegality or lesser tax transparency" (see also the decision of the same Court no. 310/2012, of 20 June 2012, Case no. 150/12). And it is also written in the Decision of the Supreme Administrative Court, of 21 March 2012, Case no. 0830/11: "Regarding the reason for autonomous taxation, according to prevailing doctrine, the legislator created autonomous taxation rates intended to apply to certain types of expenses with a view to dissuading corporations, in the case of corporate income tax, from presenting them regularly and in significant amounts, to prevent taxpayers subject to corporate income tax from using certain expenses to effect disguised distribution of profits and to prevent fraud and tax evasion".

Thus, as to document no. …, Journal 10, with date of 2012-02-29, reflects a decrease of 185,000.00 euros in the recorded cash balance, so that, the failure to identify the recipient(s) and the failure to prove the nature of the transaction and the purpose for which the aforementioned amount was applied, shall have to be considered as undocumented expense with uncertainty, which embodies a taxable fact subject to autonomous taxation, at the rate of 60%, in accordance with the combined provisions of sections 1 and 14 of article 88 of CIRC.

Thus, the amount of €111,000.00 (€185,000.00 x 60%) shall be added to the amount of autonomous taxation declared by the taxpayer for the fiscal year 2012, obtained by applying the rate of 60% to the value of undocumented expenses of €185,000.00.

With this conduct, it violated the provision of section 1 of article 88 of CIRC.

(...)

VIII. RIGHT TO A HEARING - REASONING

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VIII.2. RESPONSE OF THE TAXPAYER - ANALYSIS

In section II, the taxpayer pronounces itself on the non-existence of the taxable fact, arguing that the Tax Authority acted arbitrarily, since the taxable fact corrected was already known to the TA on 09-11-2010, when the previous inspection action carried out on the taxpayer took place.

Let us then examine the approach taken to the cash balance in the TIR concerning the fiscal years 2007 and 2008, concluded on 2010.12.03:

The taxpayer finally alleges in its right to be heard the following:

"9. In a tax procedure concluded on 9/11/2010 the TA became aware that in the period from 1988 to 2004 the company made payments to its employees that it did not recognize as expenses of those periods.

1. By not recording these expenses as expenses of each of the periods in which they occurred, it recognized results higher than those it actually had in those periods.

2. For reasons, essentially, of a financial nature the company maintained from 2004 a cash balance that was overvalued, without conditions to adjust it.

3. The TA conducted a verification of the fact in 2010 and suggested its regularization.

4. At that date - 2010 - no tax consequences were drawn from that fact."

First, as a mere matter of analytical precision, it is important to clarify that, contrary to what the taxpayer seeks to suggest in points 9 and 10 of its submission, the payment of salaries outside the law has underlying the omission of income for purposes of personal income tax and Social Security contributions, resulting in a tax advantage in an amount greater than the corporate income tax that it may have paid in excess due to the possible overvaluation of results arising from the non-declaration of such salaries as an expense.

But that is not even the question that is important to assess here.

What is effectively at issue are the conclusions that, in this regard, the taxpayer draws from the analysis of the TIR concluded on 2010.12.03, and which do not at all correspond to the facts stated therein. Regarding the cash balance, the aforementioned TIR only states that the TA merely:

• concluded regarding the inconsistency of such a high cash balance, and;

• recorded the explanation given by the company's managing partner to the effect that it would be influenced, among other things, by the payment "under the table" of overtime to its collaborators over several previous years.

That is, the conclusion is obvious in view of the existence of economically more profitable options for investment of funds. As for the explanation given by the managing partner of the company, nothing more appears in the TIR than its transcription, especially since, both in the course of that inspection action and in the course of the one now being conducted, such explanation is too vague and accompanied by no element of proof or justification relevant for the intended purpose of proving that that balance recorded in its accounting and which resulted from its business operations, does not correspond to reality.

Thus, without the taxpayer having presented real and objective proof capable of calling into question that cash balance, and without the possibility of going back to those years to conduct a physical count in order to validate or refute it (the inspection action to the years 2007 and 2008 took place in 2010), no tax consequences could be drawn at that time.

Under these circumstances, any suggestion for regularization of the cash balance, if it did not present in conformity with the values of the accounting and tax returns, would necessarily have to have tax consequences or pass through its physical restitution in case it had been used for any purposes not documented and not evidenced, for that reason, in the accounting.

Because in reality, nothing prevents that there actually exists and the accounting reflects a high cash balance for several years. Even if one might question the economic congruence of such an option for the investment of funds, that is not sufficient to undermine the presumption of truth to which article 75 of the LGT refers.

The alleged suggestion for regularization of the cash balance to which the taxpayer refers would necessarily have had implications at the level of taxation, a hypothesis that the taxpayer did not consider when it opted for a solution that was incorrect from the point of view of accounting and tax law. From an accounting standpoint, it recognized internally generated goodwill, which negatively affects the true and fair view of the company and violates NCRF 6. From a tax standpoint, the withdrawal of cash without documentary justification and without identification of the recipients has implications at the level of taxation, being considered an undocumented expense, subject to autonomous taxation at the rate of 60%, in accordance with sections 1 and 14 of article 88 of CIRC.

e) As a consequence of the inspection action, the Tax and Customs Authority issued the corporate income tax assessment no. 2016…, dated 16-12-2016, for the fiscal year 2012, whose contents are hereby reproduced, in which the value of autonomous taxation is increased by €111,000.00 and compensatory interest is assessed in the amount of €15,704.21;

f) In 2010, an inspection action was conducted on the Claimant, relating to the fiscal years 2007 and 2008, in which a Draft Report was prepared, partially reproduced in document no. 6 attached to the request for arbitration award, whose contents are hereby reproduced, which states, among other things, the following:

1. analysis of account 111 • Cash in the fiscal years 2007 and 2008, its transactions and respective balances; verification was made, as already mentioned in section II.3.5, of the existence of extremely high debit balances, which the managing partner recognized to be fictitious and influenced, among other things, by the payment "under the table" of overtime to its collaborators over several previous years; in terms of balances, this account had the following behavior between 2006 and 2008:

[...]

g) Undocumented expenses in the amount of €185,000.00 were not incurred by the Claimant in the fiscal year 2012, with some of the expenses to which that amount relates having been incurred before 2010, at the earliest;

h) On 12-04-2017, the Claimant filed the request for constitution of an arbitration tribunal that gave rise to the present proceedings.

2.2. Facts Not Established and Reasoning Regarding the Findings of Fact

The facts established are based on the documents attached by the Claimant to the request for arbitration award and on the administrative file.

It was not proved that the amount of €185,000.00 that was subject to "regularization" of the cash balance in 2012, had been withdrawn from the Claimant's available funds in the year 2012 or corresponds to payments relating to its activity in that fiscal year.

In fact, the fact that in the inspection action the Tax and Customs Authority found "the existence of extremely high debit balances" accompanied by the reference to the explanation that was then given by the managing partner who "recognized them to be fictitious and influenced, among other things, by the payment 'under the table' of overtime to its collaborators over several previous years", leads to the conclusion that the values of the cash balance found in 2012 related, at least in part, to periods prior to 2010.

The witness examined corroborates this conclusion.

No proof was produced that that amount of €185,000.00 corresponds to expenses incurred in 2012, specifically on 29-02-2012, with only the aforementioned accounting transaction appearing.

The presumption of truthfulness of the Claimant's declarations and accounting, established in article 75, section 1, of the LGT is set aside, in accordance with paragraph a) of section 2 thereof, when it results with evidence from the proof produced that the accounting is not properly organized, specifically with all the entries that should have been made and respective supporting documents, as required by article 123, sections 1 and 2, paragraph a), of CIRC.

In any event, in the case at hand, the fact that already in the inspection conducted in 2010 it was found that there existed an abnormally high cash balance allows the conclusion that at least part of the amount of €185,000 related to expenses incurred before the year 2012, specifically before the inspection conducted in 2010.

3. Law

3.1. Defect of Error as to Factual Premises

The first defect imputed by the Claimant to the challenged act is error as to factual premises, on the grounds that it was not "proved that in the fiscal year 2012 expenses were recorded and that these are not supported by documents issued in legal form".

Error as to factual premises occurs when there is divergence between reality and the factual matter used as a premise in the performance of the act.

Error as to factual premises constitutes a defect of violation of law, since, given that the legal powers exercised in the administrative act are assigned to be exercised under certain conditions, their use in factual situations that do not correspond to those underlying the assignment of such powers is in dissonance with the law. ([1])

In the case at hand, as the basis for the assessment, it is stated in the Tax Inspection Report that the Claimant's accounting "reflects a decrease of 185,000.00 euros in the recorded cash balance, so that, the failure to identify the recipient(s) and the failure to prove the nature of the transaction and the purpose for which the aforementioned amount was applied, shall have to be considered as undocumented expense with uncertainty, which embodies a taxable fact subject to autonomous taxation, at the rate of 60%, in accordance with the combined provisions of sections 1 and 14 of article 88 of CIRC".

Section 1 of this article 88 establishes that "undocumented expenses are autonomously taxed at the rate of 50%, without prejudice to their non-consideration as expenses in accordance with article 23".

Section 14 of the same article establishes that "the autonomous taxation rates provided for in this article are increased by 10 percentage points for taxpayers presenting a fiscal loss in the taxation period to which any of the taxable facts referred to in the preceding sections relate".

The corporate income tax, which includes the autonomous taxation provided for in article 88 of CIRC, "is due for each taxation period, which coincides with the calendar year" (article 8, section 1, of CIRC) ([2])

Thus, the undocumented expenses that are autonomously taxed with reference to the fiscal year 2012 are those incurred in that year, those which, pursuant to section 1 of article 88, are not considered as expenses of that taxation period and which are subject to an increase, pursuant to section 14, because in that taxation period there was a fiscal loss. ([3])

Interpreting the reasoning invoked by the Tax Authority and Customs Authority for the ACE of the legal framework that was given to it, it is concluded that it understood that the "decrease of 185,000.00 euros in the recorded cash balance" and "the failure to identify the recipient(s) and the failure to prove the nature of the transaction and the purpose for which the aforementioned amount was applied" which is considered "as an undocumented expense with uncertainty" shall have occurred in the year 2012, as only expenses incurred in this taxation period can be taxed with reference to that fiscal year.

The Tax Authority and Customs Authority in the Tax Inspection Report understood that "the withdrawal of financial means from the company at the moment when such fact was evidenced in the accounting, that is, in 2012", but such conclusion could only be based on a presumption of correspondence of the accounting to reality which, in this case, was rebutted, as it was proved that the withdrawal of, at least, part of the financial means whose lack was evidenced in the accounting in 2012, occurred in prior years.

Being thus, it must be concluded that the autonomous taxation assessment impugned is based on error as to factual premises, as the proof produced leads firmly to the conviction that at least part of the amount of €185,000 of the cash balance recorded in February 2012 related to undocumented expenses incurred in prior years, at least prior to the inspection conducted in 2010.

For the foregoing, it is concluded that the impugned assessment is defective due to violation of law, on account of error as to factual premises.

This defect justifies the annulment of the assessment impugned, in accordance with the provisions of article 163, section 1, of the Administrative Procedure Code, subsidiarily applicable, by virtue of the provision of article 2, paragraph c), of the LGT.

3.2. Questions Rendered Unnecessary

Assuring the defect of error as to factual premises effective and stable protection of the Claimant's interests, the examination of the remaining questions raised in the request for arbitration award is rendered unnecessary, as it is moot.

4. Decision

For the foregoing reasons, the arbitrators of this Arbitration Tribunal agree to:

a) Uphold the request for arbitration award;

b) Annul the additional corporate income tax assessment (autonomous taxation) no. 2016…, of 16-12-2016, issued with reference to the fiscal year 2012, in the amount of €111,000.00, and the compensatory interest assessment no. 2016…, issued jointly, in the amount of €15,704.21.

5. Value of the Proceedings

In accordance with the provisions of article 306, section 2, of the CPC and 97-A, section 1, paragraph a), of the CPPT and section 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €126,704.21.

6. Costs

Pursuant to article 22, section 4, of the RJAT, the amount of costs is set at €3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, payable by the Tax Authority and Customs Authority.

Lisbon, 11-12-2017

The Arbitrators

(Jorge Lopes de Sousa)

(José Joaquim Monteiro Sampaio e Nora)

(Sofia Cardoso)

([1]) MARCELLO CAETANO, Manual of Administrative Law, volume I, 10th edition, page 503, states that "it is implicit in the law or constitutes a general principle of law the norm according to which the facts that serve as the basis for an administrative act must always be true".

In the same vein, SÉRVULO CORREIA, Notions of Administrative Law, page 467, and MÁRIO AROSO DE ALMEIDA, General Theory of Administrative Law, page 303.

([2]) Without prejudice to exceptions that are not relevant to the case at hand.

([3]) In the sense that undocumented expenses are "charges or expenses incurred by the taxpayer which in accounting terms affect the net result of the fiscal year, reducing it", see the decision of the Full Court of the Tax Litigation Section of the Supreme Administrative Court of 28-01-2009, case no. 0575/08.