IRC Tax Arbitration: Tourism Enterprise Billing Corrections for Unused Accommodation Services (CAAD 291/2016-T)

ARBITRATION AWARD

The arbitrators José Poças Falcão (presiding arbitrator), António Alberto Franco and Ricardo Jorge Rodrigues Pereira (substitute arbitrators), appointed by the Deontological Council of the Administrative Arbitration Centre to constitute the Arbitral Tribunal, hereby agree as follows:

I. STATEMENT OF FACTS

1. A…, LDA., [hereinafter "A"], Tax Number…, with registered office at Avenida…, …, …-… …, alleging tacit rejection of its gracious complaint regarding additional assessment notices for corporate income tax (IRC) bearing nos. 2015 … and 2015…, relating to 2012 and 2013, in the amounts of € 192,977.47 and € 70,545.85, respectively, including surcharge and compensatory interest, and bearing no. 2015…, also relating to 2013, in the individual amount of € 4,403.88, including surcharge and compensatory interest, (cf. docs. nos. 1, 1A, 2 and 2A, attached to the initial petition) hereby cumulatively, in accordance with the terms and for the purposes of article 2(1)(a), article 3(1) and articles 15 et seq. of the Legal Framework for Tax Arbitration (RJAT), submits a request for an arbitral award seeking the declaration of illegality and full annulment of the three additional IRC assessment notices, relating to 2012 and 2013, in the amounts of € 192,977.47, € 70,545.85 and € 4,403.88, with the inherent legal consequences, namely the condemnation of the State Treasury to refund to the claimant all the respective tax and corresponding interest already paid, plus compensatory interest in accordance with article 43 of the General Tax Code (LGT) accrued from 25 June 2015 and 24 July 2015, respectively.

It alleged, in essence and in summary, to support its claim:

In the year 2011, the claimant included in its invoices nos. …/2011 and …/2011, of 30 November 2011 and 31 December 2011, respectively, both issued to B…, under the heading reversal of uncoll accom serv fee negative values of
€ 57,203.25, € 24,230.08, € 74,623.46 and € 78,551.34, in the November invoice, and
€ 84,225.44 in the December invoice (cf. docs. nos. 8 and 9 which it hereby attaches and reproduces for all purposes).

These values are based on accommodation services that were not actually provided to members during 2011, itemised in the settlement schedules of B… which it hereby attaches and reproduces for all purposes as doc. no. 10.

The tax inspection services of the AT then corrected the amount of tax losses declared by the claimant in accordance with the aforementioned tax inspection report of 10 April 2014 (cf. doc. no. 4).

Adding to it the values underlying the accommodation services that were not actually provided to B… during 2011, included in invoices nos. …/2011 and …/2011 under the heading reversal of uncoll accom serv fee, in the total amount of € 318,833.54.

The claimant had declared in 2011 a tax loss in the amount of € 340,395.38, therefore accounting for no taxable income.

The inspection services corrected the amount of tax losses thus declared to € 21,561.84, thereby giving rise, in particular, to the additional IRC assessment of 2013 bearing no. 2015 … also challenged here, which results from the complete disregard of the tax losses carried forward from 2011.

Thus, the services corrected the tax losses computed by the claimant in the year 2011, considering that the amount of € 318,833.54 would correspond to a "gain arising from accommodation services."

To that end, the services concluded that this "gain" would contribute to the taxable profit of 2011, on the basis of articles 18 and 20 of the IRC Code (cf. pages 12 and 13 of the 2011 Report).

And that, in parallel, VAT would be due on the said amount of € 318,833.54, on the basis of article 78 of the VAT Code (cf. page 14 of the 2011 Report).

Furthermore, and although they recognised on page 13 of the 2011 Report, still under section III.1.1 headed "accommodation billing – the facts," that what the claimant refers to as disturbance allowance constitutes a "discount on the price charged," the services did not refrain from additionally levying VAT on the values thus designated.

Disturbance allowance designates, as the claimant's chartered accountant sought to explain to the services, a discount granted to B… which applies to the accommodation price for Club members in low season months (cf. page 9 of the 2011 Report).

Such discounts are reflected either only in the claimant's accounting or also in the invoices issued to B…, equally for mutual control by the parties.

Against the additional VAT assessment notice relating to period 1103T, issued with identical grounds set out in the 2011 Report, the claimant challenged through arbitral challenge proceedings that took place at the Administrative Arbitration Centre (CAAD), under case no. 741/2014-T.

On 05 June 2015 an award was issued by the Arbitral Tribunal constituted in that case, which found merit in the request for annulment of the additional VAT assessment of 1103T which precisely concerned identical discounts included in invoices no. …/2011 and no. …/2011 issued by the claimant to B… at issue in those proceedings (doc. no. 11 which it hereby attaches and reproduces for all purposes).

The Arbitral Tribunal then found proven, with particular relevance to the present proceedings, that:

· "When a Club member renounces that status or when he fails to make any payment due to B…, and therefore does not exercise or cannot exercise his accommodation right, no value is, in turn, owed by B…, inasmuch as no service is provided by the herein claimant" (item l) of the findings, page 14 of doc. no. 11);

· "The status of member and his inherent accommodation right is suspended or extinguished, should he fail to make any payment owed by him to B…" (item m) of the findings, ibid.);

· "The values corresponding to accommodation that members could not or did not wish to use, either because they did not pay or simply because they lost interest, are not charged by the Claimant to B…" (item n) of the findings, ibid.);

· (...) "These values [reversal of uncoll accom serv fee] are based on accommodation services that were not actually provided to members during 2011" (item r) of the findings, ibid.);

· "Disturbance allowance designates a discount granted to B… which applies to the accommodation price for Club members in low season months" (item s) of the findings, ibid.);

· "These discounts are reflected either only in the accounting of the herein claimant or also in the invoices issued to B…, equally for mutual control by the parties" (item t) of the findings, ibid.);

It was thus – on the basis, in particular, of the factual matters proven above – that the Arbitral Tribunal concluded that "the correction (...) made by the Tax and Customs Authority regarding the discounts granted on accommodations has no legal basis" (cf. in doc. no. 11, page 17).

By parity of reasoning, and as will be seen further below, the 2012/13 Report also contains, therefore, an incorrect interpretation and application, in particular, of the provisions of articles 18(1) and 20 of the IRC Code. In fact,

Not even eight months had elapsed from the date of preparation of the 2011 Report when the same tax inspection team launched a second inspection procedure, this time for the years 2012 and 2013.

Prepared by the same inspector and approved by the same team leader, division head and Finance Director, the 2012/13 Report came to propose corrections in the context of IRC identical to those proposed by the 2011 Report.

Thus, regarding all debits in the revenue account relating to accommodation services provided by the claimant to B…, the services levied additional IRC, again on the basis of articles 18 and 20 of the IRC Code (cf. page 17 of the 2012/13 Report).

However, such debits once again resulted from the discounts granted by the claimant to B… as reversal of uncoll accom serv fee and disturbance allowance.

That is, as the claimant's manager sought to explain to the inspection services, the claimant uses the practice of separately accounting for the total value of revenues it would obtain from B… if it did not have to grant any discounts – which it records as a credit in the respective revenue account – and the value of the discounts actually granted – which it records as a debit in the same account (cf. pages 12 and 13 of the 2012/13 Report).

In turn, the invoice value corresponds, naturally, to the value actually owed by B… – which therefore includes the discounts – that is, to the balance between maximum possible revenue and the discounts to be granted in accordance with the terms agreed between the parties. This procedure does not call into question the provisions of articles 18 and 20 of the IRC Code. On the contrary, it is a procedure of accounting and financial control that reflects the position of the claimant entity in relation to its principal client, B…, in each fiscal year.

It is, moreover, an important management information tool that enables the claimant to assess the profitability of its operations with B… and evaluate in real time the development of a commercial relationship which, by virtue of its continued, long-term and significant character, both in relative and absolute terms, such control recommends.

Against the additional VAT assessment notices relating to periods 1112T, 2012 and 2013 issued with identical grounds set out in the 2012/13 Report, the claimant challenged through arbitral challenge proceedings that took place at the Administrative Arbitration Centre (CAAD), under case no. 556/2015-T.

On 09 March 2016 an award was issued by the Arbitral Tribunal constituted in that case, which found merit in the request for annulment of the additional VAT assessments of 1112T, 2012 and 2013 which precisely concerned the identical situation to the one at issue in the present proceedings (doc. no. 12 which it hereby attaches and reproduces for all purposes).

The Arbitral Tribunal then found proven, with identical relevance to the present proceedings, that:

· "When a Club member renounces that status or when he fails to make any payment due to B…, and therefore does not exercise or cannot exercise his accommodation right, no value is, in turn, owed by B…, inasmuch as no service is provided by the herein claimant" (item 15) of the findings);

· "According to the 'conditions established in the Membership Titles' the member's status and his inherent accommodation right is suspended or extinguished, should he fail to make any payment owed by him to B…" (item 18) of the findings);

· "The values corresponding to accommodation that members could not or did not wish to use, either because they did not pay or simply because they lost interest, were not charged by the Claimant to B…" (item 19) of the findings);

· "These values were reflected either only in the accounting of the herein Claimant or also in the invoices issued to B…, under the heading reversal of uncoll accom serv fee" (item 20) of the findings);

· "Such values were accounted for negatively in calculating the invoice value through the identification of all weeks that were not occupied by members during a given period for any one of the aforementioned reasons that led to the suspension or extinguishment of their accommodation rights in the Claimant's resort" (item 21) of the findings);

· "The Claimant included in its invoices nos. …/2011 and …/2011, of 30 November 2011 and 31 December 2011, respectively, both issued to B…, under the heading reversal of uncoll accom serv fee negative values of € 57,203.25, € 24,230.08, € 74,623.46 and € 78,551.34, in the November invoice, and € 84,225.44 in the December invoice" (item 27) of the findings);

· "Furthermore, the herein Claimant also included, in the same invoices nos. …/2011 and …/2011, under the heading disturbance allowance, negative values of € 25,306.95, in the November invoice, and € 26,150.52 in the December invoice" (item 28) of the findings);

· "The first values are based on accommodation services that were not actually provided to members during 2011, itemised in the settlement schedules of B…" (item 29) of the findings);

· "The second are based on a discount granted to B… which applies to the accommodation price for Club members in low season months" (item 30) of the findings).

In the year 2012, the claimant invoiced B… a total amount of € 4,218,999.12 (VAT excluded), divided among the 12 invoices issued in the twelve months of the year which it hereby attaches copies of under docs. nos. 13A to 13L and reproduces for all purposes.

The value of € 4,218,999.12 corresponds precisely to the account balance ascertained by the maximum possible revenue value of € 4,807,994.03 deducted from the total value of debits that, in 2012 now under analysis, amounted to € 588,994.90 (cf. annex no. 2 on page 28 of the 2012/13 Report, pages 1/2).

It was these € 588,994.90 that the services regarded as "unrecognised revenues," additionally levying IRC relating to 2012, now challenged here (cf. table no. 9 of the 2012/13 Report, page 17).

However, the amount of € 588,994.90 does not correspond to any revenues, because it is not based on any accommodation service that was actually provided by the claimant during 2012, and therefore cannot contribute to the formation of its taxable profit.

Taking as an example the case of March 2012, which the 2012/13 Report also relied upon (cf. in doc. no. 3, page 13), note how the debits in the revenue account relating to accommodation services provided to B… cannot be taxed:

On 29 March 2012 the claimant debited to B…'s account the amount of € 378,935.13 which corresponds to the total revenues it would obtain if no member had renounced that status or failed to make any payment due to B… (resignations and suspensions, respectively) and if March were not a low season month, as it is (disturbance allowance).

On the same day, the claimant debited to the same account the values of
€ 25,635.89, as disturbance allowance, and € 6,781.93 (suspensions) and
€ 5,542.91 (resignations), as reversal of uncoll accom serv fee.

Invoice no.…, of 29 March 2012, was therefore issued to B… for the amount of € 340,974.40, plus VAT, which corresponds precisely to the difference between the
€ 378,935.13 and the aforementioned discounts of € 25,635.89, € 6,781.93 and € 5,542.91 (cf. doc. no. 13C).

The value of € 340,974.40 thus constituted the consideration for services relating to March 2012. By contrast, the amounts of € 25,635.89, € 6,781.93 and € 5,542.91 did not form part of the respective consideration, and therefore cannot likewise be relevant as taxable income.

The same occurred in respect of the remaining months of that year. In June 2012, to name a second example, the claimant debited, on the 30th, an amount of € 438,562.18 (as a credit), deducted from an amount of € 4,904.80 (as a debit).

Once again, the amount of € 438,562.18 sets the total revenues that the claimant would obtain in that month if no member had renounced that status or failed to make any payment due to B….

The amount of € 4,904.80, in turn, reveals the revenues associated with members who were prevented from exercising their accommodation right, because they did not pay B… the amounts owed for that purpose.

Now, the values corresponding to accommodation that members could not or did not wish to use, either because they did not pay or simply because they lost interest, are not chargeable by the claimant to B… (cf., in doc. no. 11, item n) of the findings and, in doc. no. 12, item 19) of the findings).

Thus, on 2 July 2012 the claimant issued invoice no.… for the amount of € 433,657.38, plus VAT, which corresponds precisely to the difference between the € 438,562.18 and the aforementioned reduction of € 4,904.80 (cf. doc. no. 13F).

Given that June does not constitute a "low season" month, that invoice did not include any discount as disturbance allowance.

The values underlying the discounts which, as reversal of uncoll accom serv fee and disturbance allowance, were reflected in the 2012 invoices are itemised in the settlement schedules of B… which it hereby attaches and reproduces for all purposes as doc. no. 14.

The total value of discounts and reductions in 2012 came to € 272,772.95, thus verifying a difference of € 316,221.95 between the total debits in B…'s account and the total discounts (= € 588,994.90 – € 272,772.95).

This difference was timely explained to the tax inspection services during the hearing prior to the draft report (cf. doc. no. 15 which it hereby attaches and reproduces for all purposes).

In fact, the debit in B…'s account for the value of € 316,221.95 (cf. line 12, annex 2, page 28 of the 2012/13 Report) resulted from mere accounting reversal of a prior credit entry in the same account and for the same value (cf. line 1, ibid.).

This reversal arose from the circumstance that the claimant had promptly detected that the amount invoiced to B… in January 2012 was not correct, containing a parcel of € 60,862.11 that was not owed by B…, which gave rise to the corresponding reduction in the amount invoiced in February 2012.

Thus, the amount invoiced to B… of € 506,633.15, relating to January and February 2012 (cf. docs. nos. 13A and 13B), corresponds to the entry of € 267,576.42, deducted from the debits of € 1,534.15 ('resignations of members'), € 10,750.41 ('suspensions of members') and € 21,413.82 ('disturbance allowance'); plus the entry (as a credit) of € 312,181.30, to which in turn were deducted debits of € 2,295.93 ('resignations of members'), € 10,860.97 ('suspensions of members') and € 26,269.29 ('disturbance allowance').

Put perhaps more simply: the amount invoiced in January should have been
€ 233,878.04 – that is, the claimant invoiced "in excess" € 60,892.11 (= € 294,770.15 – € 233,878.04) – cf. docs. nos. 13A;

The amount to be invoiced in February, already including the aforementioned discounts as reversal of uncoll accom serv fee and disturbance allowance, would be € 272,755.11;

Thus, the February invoice was issued for the amount of € 211,863.00 (= € 272,755.11 – € 60,892.11) – cf. docs. nos. 13B;

Now, nothing prevents that in a provision of services of a continuing nature a parcel invoiced in excess in a given period may be reflected in the following one, to the benefit of the client.

And that is precisely what happened in the particular case of January 2012.

However, the explanation provided in that regard by the claimant was entirely disregarded, the services not refraining from additionally levying IRC on the amount of € 316,221.95, as if it were a taxable profit.

It is not unimpressive that the same tax inspection team that subscribed to the 2011 Report shows surprise, in the 2012/13 Report, in the context of the appreciation of the right to be heard, in that "only at the right to be heard is it referred to for the first time by the SP that some of the values correspond to discounts..." (cf. 2012/13 Report, page 21).

In the year 2013, the claimant invoiced B… a total amount of € 4,492,685.26 (VAT excluded), divided among the 12 invoices issued in the twelve months of the year which it hereby attaches copies of under docs. nos. 16A to 16L and reproduces for all purposes.

Given that in the same year the claimant issued credit notes nos. …/127 and …128 to B… in the amounts of, respectively, € 65,796.54 and € 83,065.85 (VAT excluded), the annual net amount invoiced to B… resulted in € 4,343,822.88 (cf. table no. 5 of the 2012/13 Report, page 11).

As the services acknowledge, of those € 4,343,822.88 only € 4,005,036.53 relate to the matter at issue here, i.e., accommodation services (cf. with table no. 6 of the 2012/13 Report, page 11; the last paragraph of subsection III.1.3, page 17; and also annex 2, pages 2/2, page 29).

The value of € 4,005,036.53 corresponds precisely to the account balance ascertained by the maximum possible revenue value of € 4,394,678.11 deducted from the total value of debits that, in 2013 now under analysis, amounted to € 389,641.58 (cf. ibid.).

The services subtracted from these € 389,641.58 the value of credit notes of € 65,796.54 and € 83,065.85, and added the result (of € 240,779.19) to the taxable profit declared in 2013 (cf. table no. 10 of the 2012/13 Report, page 18).

However, once again and for the same reasons set out above, the amount of € 240,779.19 does not correspond to the consideration for any service provision, and therefore cannot constitute a taxable income in IRC. On the contrary, it corresponds to discounts, bonuses or reductions.

With greater detail:

In the year 2013, the final value of discounts to B…, in particular as reversal of uncoll accom serv fee, was, as in 2011, only finally determined by the parties in the last quarter of the year (cf., in doc. no. 12, item 31) of the findings).

For that reason, the amounts invoiced in January, February and March 2013 included merely the estimated disturbance allowance discounts, totalling € 74,756.10 (cf., in doc. no. 12, item 32) of the findings).

Thus, invoice no.…, of 31 January 2013, was issued to B… for the amount of
€ 225,153.66, plus VAT, which corresponds to the difference between the entry of
€ 247,493.96 (credit) and the entry of € 22,340.30 as disturbance allowance (debit) – cf. annex 2 to the 2012/13 Report, pages 2/2, page 29, and doc. no. 16A, also taking into account what was referred to in article 82, above.

In turn, invoice no.…, of 26 February 2013, was issued, as regards the matter in question (cf. table no. 7 of the 2012/13 Report, page 12), for the amount of € 280,207.56, plus VAT, which corresponds to the difference between the entry of € 307,272.03 (credit) and the entry of € 27,064.46 as disturbance allowance (debit) – cf. annex 2, ibid., and doc. no. 16B.

Finally, invoice no.…, of 31 March 2013, was issued to B… for the amount of € 344,430.67, plus VAT, which corresponds to the difference between the entry of € 369,782.00 (credit) and the entry of € 25,351.34 as disturbance allowance (debit) – cf. annex 2, ibid., and doc. no. 16C.

Now, the amount of € 74,756.10 (= € 22,340.30 + € 27,064.46 + € 25,351.34) did not thus clearly constitute consideration for any services relating to January, February and March 2013, and therefore the tax authority cannot make IRC apply to it. Continuing,

The amounts invoiced to B… between April and September 2013 did not include any discount, given that the final determination of discounts and reductions occurred, as we have seen, only at the end of October 2013 – cf. annex 2 to the 2012/13 Report, pages 2/2, page 29, and docs. nos. 16D to 16I, as well as cf., in doc. no. 12, item 33) of the findings).

Because they were subsequent to the issuance of the respective invoices, unlike all other cases at issue in the present proceedings, the discounts for April to September 2013 were included in credit note no. …/127, issued to B… on 31 October 2013, for the amount of € 65,796.54 plus VAT (cf. doc. no. 17 which it attaches and hereby reproduces for all purposes and, in doc. no. 12, item 34) of the findings).

The value of € 65,796.54 corresponds to the difference between the final total of discounts for the year through September 2013, inclusive, of € 140,552.64, and the estimated value of disturbance allowance discounts for January, February and March of € 74,756.10, to which reference was made above (cf., in doc. no. 12, item 35) of the findings).

That is, credit note no. …/127, of 31 October 2013, introduces the discounts from January to September 2013, totalling € 140,552.64 (cf. lines 17 to 23, 25, 27, 28, and 30 to 35, all of annex 2, page 29 of the 2012/13 Report) purged of the discounts already granted provisionally in January, February and March 2013, in the total value of € 74,756.10 (cf. lines 13 to 15 also of annex 2, page 29 of the 2012/13 Report).

Regarding the months of October, November and December 2013 the claimant resumed its prior procedure; that is, it immediately included in the respective invoices the value of the discounts to which B… is entitled (cf., in doc. no. 12, item 36) of the findings). Thus,

On 31 October 2013 the claimant debited to B…'s account the amount of € 377,600.32 which corresponds to the total revenues it would obtain if no member had renounced that status or failed to make any payment due to B… and if October were not a low season month, as it is (cf. line 16 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 37) of the findings).

On the same day, the claimant debited to the same account the values of € 2,862.95, as disturbance allowance, and € 10,602.99 (suspension of members) and € 3,574.88 (resignation of members), as reversal of uncoll accom serv fee (cf. lines 24, 26 and 29 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 38) of the findings).

Invoice no.…, of 31 October 2013, was therefore issued to B… for the amount of € 360,559.50, plus VAT, which corresponds precisely to the difference between the € 377,600.32 and the aforementioned discounts of € 2,862.95, € 10,602.99 and € 3,574.88 (cf. doc. no. 16J and, in doc. no. 12, item 39) of the findings).

In turn, on 28 November 2013 the claimant debited to B…'s account the amount of € 264,331.33 which corresponds to the total revenues it would obtain if no member had renounced that status or failed to make any payment due to B… and if November were not a low season month, as it is (cf. line 37 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 40) of the findings).

On the same day, the claimant debited to the same account the value of € 21,309.53, as disturbance allowance, and € 13,867.27 (suspension of members) and € 5,860.79 (resignation of members), as reversal of uncoll accom serv fee (cf. lines 38 to 40 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 41) of the findings).

Invoice no.…, of 28 November 2013, was therefore issued to B… for the amount of € 223,293.74, plus VAT, which corresponds to the difference between the € 264,331.33 and the aforementioned discounts of € 21,309.53, € 13,867.27 and € 5,860.79 (cf. doc. no. 16K and, in doc. no. 12, item 42) of the findings).

Finally, on 30 December 2013 the claimant debited to B…'s account the amount of € 176,845.88 which corresponds to the total revenues it would obtain if no member had renounced that status or failed to make any payment due to B… and if December were not a low season month, as it is (cf. line 41 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 43) of the findings).

On the same day, the claimant debited to the same account the value of € 12,900.70, as disturbance allowance, and € 13,867.27 (suspension of members) and € 6,420.61 (resignation of members), as reversal of uncoll accom serv fee (cf. lines 42 to 44 of annex 2, page 29 of the 2012/13 Report and, in doc. no. 12, item 44) of the findings).

Invoice no.…, of 30 December 2013, was therefore issued to B… for the amount of € 143,657.30, plus VAT, which corresponds to the difference between the € 176,845.88 and the aforementioned discounts of € 12,900.70, € 13,867.27 and € 6,420.61 (cf. doc. no. 16L and, in doc. no. 12, item 45) of the findings).

Only the values of € 360,559.50, € 223,293.74 and € 143,657.30 thus constituted consideration for services relating to October, November and December 2013, which the claimant properly included, as it should, in determining its taxable profit.

The values underlying the discounts which, as reversal of uncoll accom serv fee and disturbance allowance, were reflected in credit note no. …/127, of 31 October 2013, and in the invoices of October, November and December 2013 are itemised in the settlement schedules of B… which it hereby attaches and reproduces for all purposes as doc. no. 18.

The first two additional assessments now challenged are based on the provisions of the tax inspection report of 30 April 2015, issued under service order no. OI2014… (cf. doc. no. 3 which it attaches and hereby reproduces for all purposes, hereinafter abbreviated to 2012/13 Report).

The third additional assessment now challenged, bearing no. 2015…, shall be based on the provisions of the tax inspection report of the Finance Directorate of…, of 10 April 2014, issued under service order no. OI2012… (cf. doc. no. 4 which it attaches and hereby reproduces for all purposes, hereinafter abbreviated to 2011 Report).

The taxable income of € 33,126.27 entered in its self-assessment IRC 2013 resulted from the computed taxable profit of € 132,505.07, deducted from prior year tax losses of € 241,674.43 (limited to 75% of the taxable profit, in the case of € 99,378.80) – cf. form 22 which it attaches as doc. no. 5 and reproduces for all purposes.

The new taxable income now fixed corresponds to those € 132,505.07, inasmuch as the services entirely disregarded the tax losses deductible thus deducted.

The three additional IRC assessments now challenged were entirely paid by the claimant on 24 July 2015 and 25 June 2015, respectively (cf. doc. no. 19 which it attaches and hereby fully reproduces for all purposes).

On 26 October 2015 the claimant filed two gracious complaints, having as their object precisely the three additional assessments challenged here, which it presented, under postal registration, at the Finance Office of ... … (cf. docs. nos. 1 and 2).

To date the claimant has been unable to obtain any decision.

The three additional IRC assessment notices relating to the years 2012 and 2013 (docs. nos. 1A and 2A) challenged here thus remain in the legal order in view of the silent conduct of the tax authority.

1. The request for constitution of the arbitral tribunal was accepted and automatically notified to AT on 15 June 2015.

2. The Claimant did not appoint an arbitrator, whereupon, in accordance with article 6(2)(a) and article 11(1)(b) of the RJAT, the President of the Deontological Council of CAAD appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated their acceptance of the appointment within the applicable period.

3. On 28 July 2015, the parties were duly notified of such appointment, having manifested no intention to refuse the appointment of the arbitrators, in accordance with articles 11(1)(a) and (b) of the RJAT and articles 6 and 7 of the Deontological Code of CAAD.

4. Thus, in accordance with article 11(1)(c) of the RJAT, the collective arbitral tribunal was constituted on 12 August 2015.

5. On 1 October 2015, the Respondent, duly notified for that purpose, filed its Answer, concluding for the lack of merit of the present action and its consequent dismissal of the claim.

The AT alleged, in essence:

The Claimant, constituted as a limited partnership, commenced the activity of "Tourist Villages with Restaurant," CAE 55117, on 01-12-1987, and is classified for IRC purposes under the general taxation system (cf. page 5 of the tax inspection report no. OI2014…, hereinafter RIT, which is fully reproduced).

The corporate purpose of the Claimant comprises "Promotion, construction, management and operation of own tourism enterprises, purchase and sale of real property" (cf. page 5 of the RIT).

The Claimant is the owner of a tourism enterprise [which shall hereafter be referred to as "Enterprise" or "Resort"], located in…, called "D…" [abbreviatedly, "…"], consisting of 77 townhouses and 55 apartments, where in addition to accommodation, ancillary services are provided in the areas of sports, leisure and food (cf. page 6 of the RIT and contract attached to the PI).

The Claimant granted special occupation rights of the enterprise to the company called B…, with headquarters in…, United Kingdom, which manages the enterprise through a members' club [hereinafter abbreviatedly referred to as "Club"] (cf. page 9 of the RIT and contract attached to the PI).

The accommodation right in the enterprise belongs to the club members, in accordance with the terms contracted between them and B… (cf. page 9 of the RIT and contract attached to the PI).

The billing of such accommodation is carried out by the Claimant to company B…, based on values stipulated in the contract concluded between both entities (cf. page 9 of the RIT and contract attached to the PI).

The Claimant directly operates the club's facilities and installations, including the facilities designated by "…" which comprise the restaurant, hairdresser, shops and bar (cf. RIT and contract attached to the PI).

From the "…", it appears that the suspension process is not automatic and involves a period of suspension, and that the suspension of members or the renunciation of that status does not automatically result in the occupation rights pertaining to such members not being used by them or by other persons;

That is, the failure to make timely payment by the club member of maintenance fees does not result in the loss of membership status, but rather a suspension, with the Club retaining the right to use the suspended member's occupation rights and, with the revenue obtained, amortise the outstanding amount.

On the other hand, the loss of membership status, in the situations provided for in Rule 13, namely when the reason relates to non-payment for a period exceeding 24 months, the Club makes efforts to find and appoint a replacement candidate who, upon becoming a member, must pay the outstanding amounts of the predecessor member (cf. Rule 13.3).

The arbitral process no. 741/2014-T had as its object the IRC assessment that set the tax losses, relating to fiscal year 2011, at the value of € 21,561.84, as well as the additional value added tax (VAT) assessment notices relating to periods 1103T, 1106T and 1109T, in the amounts of, respectively, € 32,625.91, € 35,728.94 and € 26,541.80 and corresponding compensatory interest, all arising from the conclusions reached by the Tax Inspection Services (SIT) in the framework of the inspection action carried out under service order no. OI2012….

The AT defended itself by invoking the peremptory exception of untimeliness of the claim relating to IRC, the Arbitral Tribunal having decided for the merit of the exception, with the following reasoning:

«But, as the Tax and Customs Authority stated and was accepted by the Claimant when pronouncing itself on the untimeliness question, at the meeting held, that notification refers to the correction of losses relating to 2013, which changed from the declared value of € 99,378.80 to € 0.00 (documents nos. 2 and 3, attached by the Tax and Customs Authority in response to the document presented by the Claimant) and the IRC assessment challenged in the present process relates to 2011, and its electronic notification has the electronic notification code number, identified by the code (…) (document no. 4 attached by the Tax and Customs Authority and document no. 1, attached with the request for arbitral award, whose contents are hereby reproduced). The Claimant's access to this assessment identified by the code (…) occurred on 19-05-2014, as seen from document no. 5 attached by the Tax and Customs Authority. Thus, it must be concluded that the request for arbitral award, received at CAAD on 27-10-2014, was not presented within the 90-day period from the notification, provided for in article 10(1)(a) of the RJAT. The thesis defended by the Claimant at the meeting held, to the effect that the period for challenging all acts based on the Tax Inspection Report should be those applicable to VAT assessments, the last to be made based on it, has no legal support, since article 10(1)(a) of the RJAT provides for the counting of periods for challenging assessment acts from "the events provided for in articles 1 and 2 of article 102 of the Code of Tax Procedure and Process, as regards acts susceptible of autonomous challenge," therefore it is in relation to each of the independently challengeable acts that the respective period for presentation of the request for arbitral award must be counted. As regards the correction of the request for arbitral award, considering that what is challenged in it is the correction act relating to 2013, instead of 2011, which the Claimant also raised in the said meeting, this also has no legal support. In fact, in accordance with article 10(2)(b) of the RJAT, the identification of the act that is the object of the request for arbitral award is mandatory, and this identification is of paramount importance, since the arbitral processes were created following the objective contentiousness model of process against an act, which characterizes the process of judicial challenge. Therefore, a process against a different act from that indicated in the request for arbitral award is a different process. Thus, it is concluded that the request for arbitral award was presented in a timely manner as regards the IRC assessment relating to 2011, and it is not in a situation where correction is viable. Thus, the exception of untimeliness is successful, and the Tax and Customs Authority is to be absolved of the instance, as regards the request for annulment of the IRC assessment and dependent claims.» (emphasis ours).

Whence it results that, contrary to what the Claimant seeks to make believed, no judgment was made on the corrections made by the Tax Inspection in the context of IRC, nor did the Tribunal decide anything regarding the application of the provisions of articles 18(1) and 20 of the IRC Code;

The factual matters recorded in the arbitral award only supported the decision of partial merit of the request for annulment of the additional VAT assessment of 1103T, which concerned discounts granted on accommodations, concluding that "Thus, having the aforementioned invoices been issued when there was no longer any basis for the reduction, this rule [article 16(6)(b) of the VAT Code] provides legal support for the non-consideration of the value of the reduction, to the value of the transaction." (emphasis ours) Therefore, there is no "parity of reasoning," as the Claimant claims in article 38 of the arbitral request, inasmuch as the decision of partial merit of the requests for declaration of illegality of the VAT assessments resulted from the application of the principles and rules of law peculiar to this tax, substantially different from those in force in the context of IRC.

In process 556/2015-T, there was no question of any IRC assessment, made on the basis of articles 18(1) and 20 of the IRC Code, but rather the application of the norms of the VAT Code that provide for specific formalities in case of reduction of the taxable value of operations and regularisation of VAT, the breach of which implies the nullity of corrections, in particular article 16 and article 78 of the VAT Code.

The factual matters ascertained in the framework of arbitral actions in which matters relating to VAT regularisations were discussed, in accordance with articles 16 and 78 of the VAT Code, and in which the annulment of VAT assessments was petitioned, are in no way relevant to the decision to be rendered in the present arbitral action, in the framework of which the annulment of an IRC assessment made under the provisions of articles 18(1) and 20 of the IRC Code is petitioned.

Being substantially different the claim and the cause of action, it is necessary to conclude that in each of those actions there is a different material relationship at issue.

The amounts of the corrections made to taxable profit, in the amounts of € 603,403.13 (2012) and € 240,779.19 (2013) are reflected in tables 9 and 10 contained in section III.1 of the RIT, to which reference is made giving its content as fully reproduced.

With respect to fiscal year 2012 the corrections made by the Tax Inspection comprise:

a) Correction of € 14,408.23, under article 18(2) of the IRC Code resulting from debits made in supplier accounts which had old balances by counterpart of a revenue account, which the Claimant deducted from taxable profit and the AT did not accept, this correction not being the object of challenge;

b) Non-consideration of the deductions to the invoiced values, in the amount of € 588,994.90.

Furthermore, the amount of tax losses deducted was corrected in € 77,379.47 (€ 98,941.31 – € 21,561.84), as a result of the corrections to the taxable matter of fiscal year 2011, which resulted in the reduction of the declared tax losses, from € 340,395.38 to € 21,561.84;

The corrections relating to fiscal year 2013 concern only the non-fiscal consideration of the deductions to the invoiced values, which amounted to € 240,779.19.

The Tax Inspection ascertained, through analysis of the Claimant's accounting, in particular balance sheets, account extracts, entry journals and respective supporting documents, that the Claimant recognises in account SNC 7222 – Accommodation 23%, whose extracts make up annex 1 of the RIT, the income arising from the contract with B... (B).

The elements analysed made it possible to conclude that the income subject to the invoices, referenced in tables 4, 5 and 6 (pages 10 and 11) of the RIT, issued by the Claimant to customer B..., and relating to the service provided under the contract concluded between the parties, are recognised in account SNC 72.22 – Accommodation 23%;

However, upon analysis of the extract of said account, the Inspection found that debits and credits were made that do not correspond to the amounts mentioned in the invoices.

On 05-02-2015, the Claimant was notified, in the person of the manager Mr. C…, to provide clarifications, including:

"…4- Clarify, proving documentarily, how the price of the services designated as "Accommodation services" contained in all invoices issued to B… in years 2012 and 2013 was formed. Justify proving documentarily, the difference between the amounts contained in said invoices and the amounts recorded as debit and credit in account 7222 – accommodation 23%. For example, invoice … of 23-09-2012 has as its tax base the amount of € 413,486.20, however, in accounting terms it was subject to the following treatment: Credit entry of € 425,920.98 and debit € 12,438.78 (document …/journal 51)..." (cf. page 12 of the RIT).

In response, the Claimant clarified (cf. page 13 of the RIT):

"4) The price of the services "Accommodation Services" contained in the invoices of 2012 and 2013 come from the amount to be invoiced based on all active members who hold the rights of use of our resort, as per the identification list contained in the annexes of section 1.

As for the explanation of the second part of section 4, for purposes of better management information the total value of management fees is recorded as a credit, and as a debit the value of management fees of suspended members, for whom therefore no service was provided, as there was no occupancy.

The invoice value is the same, although the entry in the revenue account will serve to identify the situation described above.

In sum, it is a mere accounting operation for information purposes only."

Now, the analysis of the invoices and the clarifications provided thereon made it possible for the Inspection to conclude that regarding the invoicing of "accommodation services" income owed by B..., the Claimant operates from a cash basis perspective, recognising as gain only the net value of the transaction (cf. page 14 of the RIT).

On the other hand, as regards situations of deductions to the revenue value, which according to the Claimant's clarifications, refer to reductions to accommodation services due to suspension or resignation of club members, the Tax Inspection understood, and rightly so, that this deduction to gains should not be made by the Claimant, since its customer is the company B..., and not the members of the members' club, who enjoy the accommodation services and complementary services provided by the Claimant but have entered into a contract with B….

In fact, the right to accommodation of club members arises from the contractual relationship established between them and "B...", the Claimant merely limiting itself, in accordance with the contract concluded between the two companies, to provide complementary services of restaurant, hairdresser, shops and bar and "to provide its partners/clients of B…, with accommodation in the villas of the tourism enterprise of A… Lda, in … in Portugal…", as stated in the transfer pricing dossier of 2011, page 17 (cf. page 15 of the RIT).

Thus, the Inspection concluded:

"In accordance with what is recommended in NCRF 20, revenue is recognised when it is probable that future economic benefits will flow to the entity and those benefits can be reliably measured. The same concept is adopted in article 18(1) of the IRC Code, according to which income is imputable to the tax period in which it is obtained, regardless of its receipt, in accordance with the regime of economic periodisation.

Therefore, it is considered that the gain arising from services designated as "accommodation services" should be recognised in the fiscal year in which the member has the right to enjoy the property/week and, should the respective payment not be made, the measures provided for in the IRC Code should be taken, in particular in articles 36 or 41, when the conditions set out therein are met.

Now, even considering the hypothesis that such type of deduction to gains is the responsibility of the SP (which is not accepted for the reasons set out in the preceding paragraphs), the incorrectness in the level of recognition of gains remains, by violation of the provisions of article 18(1) and NCRF 20." (cf. page 15 of the RIT).

Considering further that, contrary to what the Claimant had stated and in accordance with section 4 of the "Club Rules" the definition of the amount of the "management charge" depends on the estimated costs of the Club for a given period, deficits from prior years and the value of reserves to be established (cf. page 16 of the RIT);

Therefore, "the maintenance fee (translation of 'management charges') is not intended solely to cover expenses with the use of the property, as if it were a rent or simple hotel-type accommodation, but to remunerate a set of differentiated service provisions, including for the creation of reserves." (cf. page 16 of the RIT).

In view of the facts ascertained and the documents analysed, the Tax Inspection rightly decided that the Claimant's income "arising from 'accommodation services' owed by B… and accounted for in account SNC 7222 – accommodation 23% were induly reduced by € 588,994.90 and € 240,779.19 in 2012 and 2013, respectively, therefore this amount constitutes income of the SP to be recognised in said fiscal years, by application of articles 18 and 20 of the IRC Code." (cf. pages 16 and 17 of the RIT, emphasis ours).

The occupation rights of the enterprise are held by "B…" which manages them through a Members' Club.

The status of club member is only granted to those who acquire occupation rights of weeks in the D…–… enterprise, not depending solely, as is stated in article 12 of the arbitral request, "on the timely payment made by them to B…".

In any case, there is clear identification between the enterprise itself and the Club managed by B…, which stems, in particular, from the very designation B…, as well as the fact that the capital of the Claimant is held 50% by that entity.

The failure to make timely payment by the club member of maintenance fees does not result in the loss of membership status, but rather a suspension, with the Club retaining the right to use the suspended member's occupation rights and, with the revenue obtained, amortise the outstanding amount.

On the other hand, the loss of membership status, in the situations provided for in Rule 13, namely when the reason relates to non-payment for a period exceeding 24 months, the Club makes efforts to find and appoint a replacement candidate who, upon becoming a member, must pay the outstanding amounts of the predecessor member (cf. Rule 13.3).

When the Claimant argues (cf., article 53 of the claim) that the subtraction of € 588,994.90 to the amounts invoiced to B…, in 2012, and € 240,889.19, in 2013, results from such values not corresponding to any income, because they are not based on any accommodation service that was actually provided, it seems to intend to say that the occupation reserves of the properties/apartments of the resort, in the weeks pertaining to certain club members, were not used either by their rightful holders or by other persons who might have substituted them.

But, to draw that conclusion, there must be sufficient proof, it not being sufficient to present a list of names of club members suspended for delay in paying maintenance fees or for renouncing membership status, it becoming necessary to prove the cancellation of the reserves.

For these situations are within the knowledge of B…, then, it is ill-understood why that entity insisted on making the reserves for weeks whose occupation right was pertaining to club members suspended, rather than, in the context of good management of occupation rights, promote the operation of those weeks by other interested persons.

In accordance with what can be extracted from Rule 5 and the form attached to the … (Appendix II (a) Part 1 –B… …), the club member who resigns can appoint another person to assume his rights and in the situation of suspension the Club can lease the occupation rights to other persons (Rule 12.4).

Now, in the RIT (page 13) it is stated, with reference to the debit movements in account SNC 72.22 for the month of March 2012, that «according to the SP's response, the deductions to revenue accounted for as debit of account 72.22 correspond to 'the value of management fees of suspended members, for whom therefore no service was provided, as there was no occupancy'», which would lead to the understanding that B… made the reserves in the name of suspended club members and that they would not be used, as if there existed an automatic effect between a member's suspension status and the non-use of the occupation rights of which he was holder, when it is certain that B… itself, in these circumstances, could take the initiative to operate the occupation right with other interested parties.

The contractual relationships between the Claimant and B… do not translate into transparent procedures, whether in the plan of accounting for operations or in the processing of invoices, whose issuance is made for the net value of service provisions, thus not evidencing the reality of the operations performed, as is noted in the RIT.

Add to this, moreover, that it is also not transparent from the values accounted for and invoiced to B… the commission on the prices of the occupation of accommodation units which, according to the 2011 Transfer Pricing Report (end of section 5.3.2), is charged by B…, normally being 5%, but possibly higher.

It is stated in article 132 of the arbitral request that the values debited in B…'s account, under the designations of "disturbance allowance" and "reversal of uncoll accom serv fee" (in the mode of 'suspension' or 'resignation' were mutually accepted by the contracting parties, however, the Contract concluded between the two parties makes no specific mention in that regard.

The corrections made by the AT are based on the verification that the values entered as a credit in said account, corresponding to service provisions relating to the occupation reserves of the occupation rights valued according to the agreed prices were subject to reduction, through debit entries in the same account, because they related to club members suspended, due to failure to pay maintenance fees or renunciation, without, however, being proven that the reserves in the name of those suspended club members were cancelled and that the accommodation services were not provided by the Claimant to those members or to other persons in their substitution, in accordance with the terms provided for by the ….

As regards the disturbance allowances, as is stated in the RIT, their non-consideration in 2012, is based on the absence of supporting documents that justify the basis on which the calculation of the accounted amounts rests.

Amounts cannot be subtracted from income arising from accommodation service provisions corresponding to the reserves contracted monthly by B…, through debit entries in account 72.22 without any supporting documentation justification, as required by article 123(2)(a) of the IRC Code, solely on the basis that club members did not wish or were unable to exercise their rights of use of the weeks that were pertaining to them or because they were in debt to the Club for maintenance fees (management charges).

Whence it results that the practice adopted by the Claimant is not in accordance with the accounting principle of realisation – NCRF 20 – nor does it comply with the provisions of the IRC Code on the rules of article 18 relating to the allocation of income and expenses to each tax period, nor in the documentary plane, the supports evidence clear and sufficient information to conclude with a minimum of certainty that accommodation services were not provided in certain weeks of the year.

As fully demonstrated in the RIT, the motivation for the correction relates to the fact that the Claimant proceeded to determine its accounting and tax result by making deductions to the services invoiced in a given month of various amounts, either in the invoices or directly in the accounting entry, adopting a cash basis perspective, which attends only to amounts received or paid.

Now, such a procedure is incorrect, whether from the accounting or the tax point of view.

The accrual basis applies in the accounting order, which is enshrined in paragraph 22 of the Conceptual Framework of the System of Accounting Normalisation (SNC), in which it states: "In order to satisfy their objectives, financial statements are prepared in accordance with the accrual basis (or economic periodisation). Through this basis, the effects of transactions and other events are recognised when they occur (and not when cash or cash equivalents are received or paid) being recorded accounting and reported in the financial statements of the periods with which they relate." (emphasis ours).

In accordance with the model of partial dependence of tax law on accounting law adopted by the legislator, the starting point for determining tax profit is the accounting result, accounting playing an instrumental function, as results from article 17 of the IRC Code, which establishes:

"The taxable profit of legal entities and other entities mentioned in article 3(a)(1) is constituted by the algebraic sum of the net result of the fiscal year and the positive and negative variations in assets verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code."

And in view of the instrumental function performed by accounting in the calculation of taxable profit, article 17(3)(a) of the IRC Code requires that it be organised in accordance with accounting normalisation and other legal provisions in force for the respective sector of activity, which makes mandatory for the generality of enterprises the application of the SNC, without prejudice to compliance with the provisions set out in the IRC Code.

Establishes, in turn, article 18(1) of the IRC Code, that income and expenses, as well as the other positive or negative components of taxable profit, are imputable to the tax period in which they are obtained or incurred, regardless of their receipt or payment, in accordance with the regime of economic periodisation;

This provision enshrines, in the tax order, the principle of specialisation of fiscal years, determining that the net result of the fiscal year, which constitutes the starting point for the fiscal result, is computed, in accordance with the rule of annuality, in an economic perspective and not a financial or cash basis, in harmony with the accounting principle of accrual or economic periodisation.

In determining the accounting result and, consequently, the tax result, it did not comply with the accounting and tax rules, in particular it violated the rule of annuality since it proceeds to invoice accommodation revenues owed by B..., recognising as gain only the net value of each operation, departing from the economic perspective underlying the computation of the results of the fiscal year.

In summary, the AT disregarded the effect of the reductions to the amounts of service provisions accounted for corresponding to the holders of occupation rights who find themselves suspended due to being in default on payment of maintenance fees, the decisive element that could justify in a solid manner such reductions being the demonstration that the reserves of the weeks of which those suspended club members were holders were cancelled and that the corresponding accommodation services were not provided either to those members or to other persons who could substitute them, which the Claimant failed to prove. [emphasis by the Tribunal].

I.7. Notified for that purpose, the parties submitted written submissions in which, in essence, they maintained the positions and arguments set out in their respective pleadings.

I.7.1 The Claimant presented the following conclusions:

A. Revenue constitutes the increases in economic benefits verified in an accounting period in the form of inflows or improvements of assets or reductions of liabilities of the enterprise and which lead to an increase in its own capital, with the exception of contributions from the respective holders.

B. IRC does not apply to components that do not reveal any gross inflow of economic benefits or any net asset increase, but to the profit of enterprises, even if this is determined by net income in the broad sense, thus including net income – the net asset increase arising from or not from productive activity and independent of any period delimitation.

C. The values itemised by the claimant as reversal of uncoll accom serv fee (in the mode of 'suspensions' or 'resignations') and disturbance allowance do not constitute any taxable income since they do not correspond to any sale of goods or provision of services or to any taxable gain in accordance with the IRC Code.

D. Consequently, the tax authority could not have made them contribute to the determination of the fiscal results of 2012 and 2013.

E. The authority of res judicata aims at the legal certainty of decisions, binding the courts to decisions already rendered regarding essential issues, even if with different causes of action.

F. There are already two arbitral decisions where such entries were already defined as concerning either services that were not provided, or discounts on the accommodation price of Club members in low season months which, in both cases, do not constitute income.

G. Nor should this Tribunal reappraise this question which is already decided in prior court proceedings, with the same parties and concerning the same corrections resulting from the same tax inspection reports.

I.7.2 And the following conclusions were presented by the AT:

A. It demonstrates, fully, the proven factuality that the Claimant, in the determination of its accounting result and, consequently, its tax result, did not comply with the accounting and tax rules, in particular it violated the rule of annuality since it proceeds to invoice accommodation income owed by B..., recognising as gain only the net value of each operation, departing from the economic perspective underlying the computation of the results of the fiscal year.

B. It is perfectly legal to disregard fiscally the effect of the reductions to the amounts of service provisions accounted for corresponding to the holders of occupation rights who find themselves suspended due to being in default on payment of maintenance fees, since the decisive element that could justify in a solid manner such reductions would be the full demonstration that the reserves of the weeks of which those suspended club members were holders were cancelled and that the corresponding accommodation services were not provided either to those members or to other persons who could substitute them, which the Claimant failed to prove.

C. Although the club members, in default of payment to B… of maintenance fees, or to whom the cancellation of their registration as a club member is made (by suspension or resignation), are holders of the weeks invoiced to the Claimant, nothing indicates, nor was proven, that the right of occupation of the properties/apartments in those weeks was not used by other club members or by other persons, in the exact terms in which the Club Rules permitted in these circumstances.

D. Now, the Claimant fails to adduce grounds, of fact or law, that justify the accounting procedures, with tax consequences, adopted, or that permit it the deduction, in its legal sphere, of amounts relating to reductions of services provided by B..., to its customers, club members.

E. The insufficiency of documentation supporting the accounting records of operations (in addition to the crucial question of non-compliance with the burden of proof of verification of its claim) means that one must question: the Claimant carrying out the functions of manager of the enterprise and provider of accommodation services, what is the reason for not being the one to detect the reserves of accommodation units not used and what is the reason that leads it to make the negative correction of its revenues based solely on a list of suspended members provided by B…, with which it maintains special relationships?

F. The testimony of the Claimant's witnesses addressed only the functioning of the Club, in no way clarifying the accounting procedures adopted, being, at times in contradiction with the content of the documents (contracts and Club Rules) therefore are not sufficient to contradict the conclusions reached by the Tax Inspection and the legality of the corrections made.

G. In this manner, the testimonial evidence produced, as a means of proof that requires a purely subjective evaluation and assessment, shall have to yield before the reasoning and proof of the corrections contained in the RIT, which demonstrates the verification of the requirements demanded by the legislator for the corrections to the taxable matter and the strict compliance with the provisions of the IRC Code applicable to them.

H. Whence results, without doubt, that the Claimant failed to contradict the legality of the disputed assessments, it being proven instead, in the present arbitral action, that the amounts in question constitute income obtained as a consequence of the provision of accommodation services to B..., during fiscal years 2012 and 2013, in accordance with articles 18 and 20 of the IRC Code.

II. PRELIMINARY ISSUES

II.1 The Arbitral Tribunal was regularly constituted and is competent.

II.2 The proceedings do not suffer from nullity.

II.3 The parties have legal personality and capacity, are duly represented and are legitimate.

II.4 Preliminary Issue: the alleged res judicata

Article 580 of the Code of Civil Procedure provides:

"1 - The exceptions of lis pendens and res judicata presuppose the repetition of a cause; if the cause repeats itself while the former is still pending, there is lis pendens; if the repetition occurs after the first cause has been decided by a judgment that no longer admits an ordinary appeal, there is res judicata.

2 - Both the exception of lis pendens and that of res judicata are intended to prevent the court from being placed in the alternative of contradicting or reproducing a prior decision.

3 – (…)"

In turn article 581 of the same act reads as follows:

"1 - A cause repeats itself when an action identical to another is proposed as to the subjects, the claim and the cause of action.

2 - There is identity of subjects when the parties are the same from the point of view of their legal status.

3 - There is identity of claim when in both causes the same legal effect is sought.

4 - There is identity of cause of action when the claim set out in both actions proceeds from the same legal fact. In real actions the cause of action is the legal fact from which the real right derives; in constitutive and annulment actions it is the concrete fact or the specific nullity invoked to obtain the desired effect."

Preliminarily, it should be noted that res judicata is formed on the decision and not on the grounds of it.

Subsuming:

The Claimant invokes, for that purpose and in essence, the existence of res judicata based on the circumstance that there were allegedly two court decisions that defined as concerning services not provided and/or discounts on the accommodation price of "Club" members – and, as such, not constituting income of the Claimant – accounting entries also at issue in the present proceedings.

It alleges, to that extent, that the Tribunal cannot or should "(...)reappraise this question (...) decided in prior court proceedings (...) with the same parties and concerning the same corrections resulting from the same tax inspection reports (...)" [cf. conclusions of the final submissions].

It does not have reason, however, inasmuch as there is not, in particular, manifest identity of the cause of action and claim in both situations.

The preliminary issue raised is therefore groundless.

There are no other issues or exceptions to appraise, that prevent the knowledge of the merits and of which it is appropriate to know.

III. GROUNDS

III.1. FACTS

§1. PROVEN FACTS

Regarding the factual matters, it is important first and foremost to point out that the Tribunal does not have to pronounce on everything alleged by the parties, it being its duty, rather, to select the facts that are important for the decision and to distinguish the proven facts from the unproven ones (cf. article 123(2) of the Code of Tax Procedure and Process and articles 607(3) and (4) of the Code of Civil Procedure, applicable ex vi article 29(1)(a) and (e) of the RJAT). In this way, the facts pertinent to the judgment of the cause are chosen and defined according to their legal relevance, which is established in consideration of the various plausible solutions of the question(s) of Law.

Within this framework, the following facts are considered proven:

a) The Claimant, which was constituted as a limited partnership, commenced the activity of "Tourist Villages with Restaurant," CAE 55117, on 01-12-1987, and is classified for IRC purposes under the general taxation system (cf. page 5 of the tax inspection report no. OI2014…, hereinafter RIT, which is fully reproduced).

b) The corporate purpose of the Claimant comprises "Promotion, construction, management and operation of own tourism enterprises, purchase and sale of real property" (cf. page 5 of the RIT).

c) The Claimant is the owner of a tourism enterprise [which shall be hereinafter referred to and abbreviated as "Enterprise" or "Resort"], located in…, called "D…" [abbreviatedly, "…"], consisting of 77 townhouses and 55 apartments, where in addition to accommodation, ancillary services are provided in the areas of sports, leisure and food (cf. page 6 of the RIT and contract attached to the PI);

d) The Claimant granted special occupation rights of the enterprise to the company called B…, with headquarters in…, United Kingdom, which manages the enterprise through a members' club [hereinafter abbreviatedly referred to as "Club"] (cf. page 9 of the RIT and contract attached to the PI and doc 6, attached with the RI).

e) The accommodation right in the enterprise belongs to the club members, in accordance with the terms contracted between them and B… (cf. page 9 of the RIT and contract attached to the PI).

f) The billing of such accommodation is carried out by the Claimant to company B…, based on values stipulated in the contract concluded between both entities, of which the following clause stands out:

        II Activities Developed by the Parties

• A… is the owner and manager of the tourism enterprise located in…, in Portugal called D…, hereinafter referred to as the enterprise;

• B… is the holder of the occupation rights of the D… enterprise which it manages through a members' club;

• The accommodation right in the enterprise belongs to the club members in accordance with the terms contracted between them and B…, the A… only being able to lodge third parties in the cases and conditions specifically provided for and authorised by B…;

• A… directly operates the club's facilities and installations, including the facilities designated as "…" which comprise the restaurant, hairdresser, shops and bar, charging the respective price to the users when applicable;

(cf. page 9 of the RIT and contract attached to the RI – doc 6).

g) Membership of the Club entails the periodic (annual) payment of an amount to B… and exempts the partner from any other consideration for accommodation in a given property of the enterprise during one or more pre-determined weeks of each year

h) The failure to make timely payment by club members of maintenance fees does not result in the loss of membership status, but rather a suspension lasting at most two years, with the Club retaining the right to use the suspended member's occupation rights and, with the revenue obtained, amortise the outstanding amount.

i) During this suspension period, the partner, as long as he does not make the overdue payment, is treated as any other non-partner client, being able to occupy available accommodation upon payment of the respective price [doc 7, attached with the RI – Clauses 12 and 13.2].

j) The Claimant directly operates the club's facilities and installations, including the facilities designated as "…" which comprise the restaurant, hairdresser, shops and bar (cf. RIT and contract attached to the PI).

k) In the enterprise, services are provided to the general public on less advantageous conditions than those offered to Club members;

l) The assessments which are the object of these proceedings (no. 2015… and no. 2015…) resulted from the inspection procedure carried out by the Finance Directorate of … accredited by Internal Order (OI) no. OI2014… referring to fiscal years 2012 and 2013, the Claimant being notified of the Final Inspection Report on 15.05.2015 through official letter no. … dated 09.05.2015.

m) Following the correction made in 2011, correction document no. … was issued for 2013, which gave rise to assessment no. 2015…, corresponding to the assessment notice no. 2015 … issued on 29.04.2015, in the amount of € 4,403.88.

n) This assessment [no. 2015…, relating to 2013, in the amount of € 4,403.88] was replaced by assessment no. 2015 … dated 21-05-2015 [no longer in effect] (cf. Doc. no. 1, attached by AT with the Answer).

o) In the year 2011, the claimant included in its invoices nos. …/2011 and …/2011, of 30 November 2011 and 31 December 2011, respectively, both issued to B…, under the heading reversal of uncoll accom serv fee negative values of € 57,203.25, € 24,230.08, € 74,623.46 and € 78,551.34, in the November invoice, and € 84,225.44 in the December invoice (cf. docs. nos. 8 and 9 attached with the initial claim of the claimant [RI);

p) These values are based on accommodation services that were not actually provided to members during 2011, itemised in the settlement schedules of B… as per doc. no. 10 attached with the RI;

q) The tax inspection services of AT corrected the amount of tax losses declared by the claimant in accordance with the tax inspection report of 10 April 2014 (cf. doc. no. 4)...

r) ... adding to it the values underlying the accommodation services that were not actually provided to B… during 2011, included in invoices nos. …/2011 and …/2011 under the heading reversal of uncoll accom serv fee, in the total amount of € 318,833.54.

s) The claimant had declared in 2011 a tax loss in the amount of € 340,395.38, therefore accounting for no taxable income.

t) The inspection services corrected the amount of tax losses declared to € 21,561.84, thereby giving rise, in particular, to the additional IRC assessment of 2013 bearing no. 2015 … [now challenged] which results from the complete disregard of the tax losses carried forward from 2011, considering that the amount of € 318,833.54 would correspond to a "gain arising from accommodation services."

u) The Respondent's inspection services concluded that this "gain" would contribute to the taxable profit of 2011, on the basis of articles 18 and 20 of the IRC Code (cf. pages 12 and 13 of the 2011 Report).

v) And that, in parallel, VAT would be due on the said amount of € 318,833.54, on the basis of article 78 of the VAT Code (cf. page 14 of the 2011 Report).

w) These inspection services, although acknowledging [page 13 of the Report] that what the claimant refers to as disturbance allowance constitutes a "discount on the price charged," additionally levied VAT on the values thus designated.

x) Disturbance allowance designates a discount granted to B… applying to the accommodation price for Club members in low season months [cf page 9 of the 2011 Report].

y) These discounts are reflected either only in the accounting of the Claimant, or also in the invoices issued by it to B…, equally for mutual control of both entities;

z) Against the additional VAT assessment notice relating to period 1103T, the claimant challenged through arbitral challenge proceedings that took place at the Administrative Arbitration Centre (CAAD), under case no. 741/2014-T;

aa) On 05 June 2015 an award was issued by the Arbitral Tribunal constituted in that case, which found merit in the request for annulment of the additional VAT assessment of 1103T which concerned discounts included in invoices no. …/2011 and no. …/2011 issued by the claimant to B… at issue in those proceedings (doc. no. 11 which it hereby attaches and reproduces for all purposes).

bb) The Arbitral Tribunal found proven, in particular, that:

· "When a Club member renounces that status or when he fails to make any payment due to B…, and therefore does not exercise or cannot exercise his accommodation right, no value is, in turn, owed by B…, inasmuch as no service is provided by the herein claimant" (item l) of the findings, page 14 of doc. no. 11);

· "The status of member and his inherent accommodation right is suspended or extinguished, should he fail to make any payment owed by him to B…" (item m) of the findings, ibid.);

· "The values corresponding to accommodation that members could not or did not wish to use, either because they did not pay or simply because they lost interest, are not charged by the Claimant to B…" (item n) of the findings, ibid.);

· (...) "These values [reversal of uncoll accom serv fee] are based on accommodation services that were not actually provided to members during 2011" [item r) of the findings, ibid.];

· "Disturbance allowance designates a discount granted to B… which applies to the accommodation price for Club members in low season months" (item s) of the findings, ibid.);

· "These discounts are reflected either only in the accounting of the claimant, or also in the invoices issued to B…, equally for mutual control by the parties" (item t) of the findings, ibid.);

cc) On the basis, in particular, of the factual matters proven above, the Arbitral Tribunal concluded in that case that "the correction (...) made by the Tax and Customs Authority regarding the discounts granted on accommodations has no legal basis" [cf. in doc. no. 11, page 17].

dd) In tax inspection relating to the Claimant's fiscal years 2012 and 2013 the respective Report proposed [... to be continued as per the document ...]