Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. Alexandra Coelho Martins (presiding arbitrator), Dr. Augusto Vieira and Dr. Magda Feliciano (arbitrator members), designated by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to constitute this Arbitral Tribunal, constituted on 30 August 2018, hereby agree as follows:
I. REPORT
A..., S.A., legal entity number..., with registered office at Rua..., no...,...-... Lisbon, belonging to the jurisdiction of the Lisbon Tax Authority..., hereinafter referred to as "Applicant", requested the constitution of an Arbitral Tribunal and filed an application for an arbitral decision, under Articles 2, paragraph 1, subparagraph a) and 10 of the Legal Regime for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and Ordinance no. 112-A/2011, of 22 March, with a view to declaring the illegality and annulment of Corporate Income Tax ("IRC") assessments and related compensatory interest, relating to the tax year 2014, issued under numbers 2018..., of 7 February 2018 (€5,402.97), and 2018..., of 9 February 2018 (€6,411.32), respectively, whose account settlement statements resulted in a total amount payable of €71,270.86.
The Applicant further petitions for the award of compensation for improper provision of security pursuant to Articles 53 of the General Tax Law ("LGT") and 171 of the Tax Procedure and Process Code ("CPPT").
The Defendant is the Tax and Customs Authority ("AT").
As grounds for its claim, the Applicant alleges the following defects, both formal and material:
(a) Unfounded extension of the scope of the tax inspection procedure, in violation of Article 15, paragraph 1 of the Supplementary Regime for Tax and Customs Inspection Procedures ("RCPITA"), Articles 151 and 153, paragraph 2 of the Administrative Procedure Code ("CPA") and Article 77, paragraph 1 of the LGT;
(b) Defect of violation of law, on the grounds that the commissions incurred with the acquisition of Chinese clients are deductible, as they constitute expenses actually incurred in the course of its activity to obtain or secure income subject to IRC, the amount of which is not excessive and which do not present an abnormal character;
(c) Defect of violation of law, arising from the AT's failure to heed the evidentiary elements presented by the Applicant, demonstrating the requirements for tax deductibility, without proving the assumptions of the assessments, as was incumbent upon it, in accordance with Article 74, paragraph 1 of the LGT;
(d) Lack of reasoning of the assessment acts, with the AT not having expressed the factual and legal reasons that led it not to value the elements provided by the Applicant during the inspection action and at the prior hearing stage, as set out in Articles 77 of the LGT and 153, paragraph 2 of the CPA;
(e) With regard to the assessment of compensatory interest, lack of proof of culpable conduct attributable to the Applicant in delaying the allegedly due assessment.
The Applicant attached 27 documents and requested witness testimony and party statements.
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and followed normal proceedings, including notification to the AT on 28 June 2018.
In accordance with Articles 5, paragraph 3, subparagraph a), 6, paragraph 2, subparagraph a) and 11, paragraph 1, subparagraph a), all of the RJAT, the Ethics Council of CAAD designated the signatories as arbitrators of the Collective Arbitral Tribunal, who communicated their acceptance of the charge within the applicable period.
On 10 August 2018, the parties were notified of such designation and did not raise any objection, in accordance with Articles 11, paragraph 1, subparagraphs a) and b) and 8 of the RJAT, and Articles 6 and 7 of the CAAD Code of Ethics.
The Collective Arbitral Tribunal was constituted on 30 August 2018, as communicated by the President of the Ethics Council of CAAD, under Article 11, paragraph 1, subparagraph c) of the RJAT.
On 8 October 2018, the Defendant submitted its response and attached the administrative file ("PA"). It argues for the dismissal of the application for an arbitral decision ("ppa"), with the legal consequences thereof.
To that end, the Defendant considers that:
(a) There is no lack of reasoning regarding the alteration of the scope of the inspection action and, even if there were, the IRC corrections would not be affected, as they were encompassed within the initial scope which provided for IRC;
(b) The Applicant did not prove the actual performance of the services by the company based in Hong Kong, the invoice no. 319 descriptive being generic, not identifying the nature of the service provided. On the other hand, the accounts for the tax year (2014) do not reflect a sale to which that commission could correspond, nor could the expense be accepted fiscally in 2014 in virtue of the principle of specialization of tax years, inherent in Article 18 of the IRC Code;
(c) The Applicant did not demonstrate and continues to fail to prove the reasonableness of the payments, as required by Article 23-A, paragraph 1, subparagraph r) of the IRC Code, which establishes a clear reversal of the burden of proof as to whether the expenses correspond to real operations, do not have an abnormal character or represent an excessive amount;
(d) The TIR explicitly sets out the reasons why it considers that the facts alleged by the Applicant are not proven, whereby, reducing the alleged breach of the burden of proof to the defect of lack of reasoning, the latter cannot be found to exist;
(e) There is no lack of reasoning in the assessment of compensatory interest;
(f) In conclusion, the expenses were not proven and, consequently, are not deductible for IRC purposes, in accordance with Articles 23, paragraph 1 and 23-A, paragraph 1, subparagraph r) of the Code for this tax, and are subject to autonomous taxation at the rate of 35%, in accordance with Article 88, paragraph 8 of the same Code.
The Defendant requested dispensation from witness testimony, considering it to be a useless act.
By order of 11 October 2018, the Arbitral Tribunal determined the holding of the meeting provided for in Article 18 of the RJAT, with examination of witnesses and party statements, given their relevance for ascertaining the material truth.
On 5 November 2018, said meeting took place, at which two directors of the Applicant and four witnesses were heard. The parties were notified for successive written submissions, with a time limit of 15 days fixed, and the Applicant was warned of the payment of the subsequent arbitration fee.
Both parties submitted arguments and maintained their previously assumed positions, the Applicant raising ex novo the defect of preterition of the right to hearing regarding the assessment of compensatory interest.
By orders of 18 February and 26 April 2019, the time limit for issuance of the decision was extended, under Article 21, paragraph 2 of the RJAT, given the complexity of the issues raised.
II. CLARIFICATION
The Tribunal was regularly constituted and is competent ratione materiae, given the nature of the subject matter of the proceedings (see Articles 2, paragraph 1, subparagraph a) and 5 of the RJAT).
The application for an arbitral decision is timely, as it was submitted within the time limit provided for in Article 10, paragraph 1, subparagraph a) of the RJAT.
The parties enjoy legal personality and capacity, have legitimacy and are regularly represented (see Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).
III. REASONING
- FACTS
With relevance to the decision, the following facts are deemed proven:
A. A..., S.A., here the Applicant, is a company incorporated under Portuguese law, subject to the general IRC taxation regime, which engages in the construction of real estate for sale and has as its object the carrying on, on its own account, of civil construction activity and the trading of land or real estate for resale, using, demolishing or subdividing them, as well as the leasing of real property, urban and rural, for residential or commercial purposes, with CAE 42990-R3 – "Construction of other civil engineering works" – as per the Tax Inspection Report ("RIT") contained in the administrative file and commercial registration certificate attached as document 11.
B. During the years immediately preceding 2014, the real estate sector in Portugal was stagnated, with a sharp contraction in demand, and the Applicant had not managed to sell any real estate in the course of 2013 – as per documents 16 and 17 (profit and loss statements by nature), party statements and witness testimony.
C. In the said period, the Applicant had a very high level of indebtedness with banks and faced difficulties in meeting its obligations, so it had an urgent need to realize sales of the real estate in its portfolio and obtain the corresponding financial inflow – as per document 17, the RIT and party statements.
D. With the aim of attracting foreign investment, the Portuguese Parliament, under proposal of the Government, approved the creation of a legal framework known as "Golden Visas" or "Golden Visa" with Law no. 29/2012, of 9 August. This law made it possible for citizens of third countries, i.e., not belonging to the European Union, willing to invest in Portugal, to obtain a special residence authorization ("ARI" – residence authorization for investment) permitting its holder to enter and reside in Portuguese territory and, moreover, to circulate freely in European countries adhering to the Schengen agreement.
E. One of the investment activities through which such status could be obtained was the acquisition of real estate in Portugal with a value equal to or greater than €500,000.00 – as per Law no. 29/2012, of 9 August.
F. In this context, having come to the Applicant's knowledge that there were companies specialized in promoting real estate to Asian clients interested in obtaining the "Golden Visa" regime, it executed, on 15 July 2013, a contract called "Framework Agreement" with B..., a company of significant size with registered office in Hong Kong, whose activity consists in assisting Chinese clients wishing to obtain residence visas in European Union countries and which was distinguished by the Portuguese-Chinese Chamber of Commerce and Industry for the Business Merit Award – as per documents 13 and 18, http://...B....com and party statements.
G. The contract in question established a relationship of client acquisition service provision by B... to the Applicant comprising various tasks and activities aimed at the promotion and sale of the Applicant's real estate to them, including their travel to Portugal to carry out visits to available apartments and accompaniment until the conclusion of the sales process – as per document 13, party statements and witness testimony (Dr. C...).
H. For cultural, trust and distance reasons, Asian clients would very hardly reach Portugal by any other means – as per document 12, party statements and witness testimony.
I. According to the "Framework Agreement" contract executed by the Applicant, remuneration for services would only be due if the clients acquired by B... actually purchased one of the Applicant's real estate. Thus, in accordance with section 13 of the contract, if a sale of real estate to clients acquired by B... took place, the Applicant would be due a commission of:
(i) 17% on the net selling price of the real estate;
(ii) 17% on the value of the furniture package/other additional items subject to sale net of taxes
– as per document 13, party statements and witness testimony (Dr. C...).
J. Also in accordance with the "Framework Agreement", in addition to the aforementioned commission, for each client purchasing real estate from the Applicant, the latter would pay B... a sum to cover travel costs, of €2,000.00 to €4,000.00 – as per document 13, section 15).
K. Various companies engaged in real estate promotion activity similar to that of the Applicant and with reference to the same period (2013, 2014) contracted the services of B... and other similar companies for acquiring Chinese clients to promote the marketing of their respective real estate, with remuneration conditions identical to those agreed by the Applicant, the amount of commissions being set between 15% and 20% – as per party statements, witness testimony, Arbitral Decisions in proceedings nos. 198/2017-T, of 21.11.2017; 369/2017-T, of 12.02.2018, and 33/2018-T, of 15.04.2019.
L. The activity of Chinese "agencies", among which B..., is distinguished from that of Portuguese real estate agencies, as it consists of: disclosure and promotion of Portuguese real estate in the Chinese market; establishment of a network of partnerships with emigration agencies in China; disclosure and promotion of the "Golden Visa" regime, ensuring all documentation required by the Immigration and Borders Service ("SEF") and the authorizations and measures necessary for money transfers required by currency controls in force in China; ensuring all logistics involved in the travel of potential clients to Portugal, including the hiring of interpreters; and accompanying the process of obtaining residence in Portugal – as per party statements and witness testimony.
M. In 2014, dozens of potential Chinese clients acquired by B... and accompanied by representatives/employees of this company made visits to the Applicant's real estate, coming into direct contact with the Applicant's staff. These visits materialized into two effective sales of autonomous units – as per documents 14, the RIT, party statements and witness testimony.
N. Indeed, one of the Applicant's real estate was sold for the value of €905,940.00, approximately twice its book value, to Ms. J... – as per document 14, the RIT.
O. Sale which gave rise to payment of a commission, by the Applicant to B..., of €156,009.80, invoiced by B..., under number..., on 15.12.2014, with the description "Marketing Consulting". The tax deduction of this commission and the non-incidence of Autonomous Taxation were accepted by the AT, following exercise of the right to hearing by the Applicant – as per the RIT.
P. A second real estate was also sold for the value of €800,000.00 to Mr. D... – as per document 15, the RIT.
Q. With respect to which the Applicant incurred a commission, paid to B..., of €140,000.00, invoiced by B..., under number 319, on 29.08.2014, with the same description "Marketing Consulting" – as per the RIT.
R. The deed of purchase and sale of this latter real estate was initially scheduled in the promise-to-purchase contract for 2014, having been postponed to (until 28 February) 2015 due to client constraints, with the corresponding addendum to the promise-to-purchase contract – as per document 15.
S. The selling price of the real estate referred to above was paid in full in the course of 2014 – as per document 15 (including receipt of payment).
T. The Applicant was subject to a tax inspection action for the tax year 2014, under service order OI2017..., dated 18.07.2017, with the inspection acts being initiated on 21.09.2017 and completed on 04.12.2017. This action was motivated by the declaration of losses in three consecutive tax years and by the fact that the Applicant's certified accounts audit contained reservations or emphases – as per the RIT.
U. The inspection action was initiated with the scope of IRC-UNIVOCAL, having been altered to GENERAL-MULTIVALENT, which was communicated to the Applicant on 04.12.2017 – as per the RIT.
V. As a result of this inspection action, the Applicant was notified on 07.12.2017 of the Draft Tax Inspection Report, by letter no..., dated 06.12.2017, to exercise the right to hearing on the corrections recommended to the taxable matter of IRC declared in those tax years, to Autonomous Taxation and to the related compensatory interest – as per the RIT.
W. By request submitted on 08.01.2018, following extension of the time limit therefor, the Applicant exercised the right to hearing, in disagreement with the projected corrections. The AT maintained, however, the proposed adjustment to the taxable matter of IRC, including Autonomous Taxation, with respect to one of the commissions paid to B..., specifically that contained in invoice no. 319/2014, accepting the commission from invoice no. 505/2014 – as per the RIT.
X. The Applicant was notified of the Final Report ("RIT"), on which a favorable order from the Division Chief was issued on 20.01.2018, and which, with reference to the tax year 2014:
(a) Disregards the tax deduction, under Article 23-A, paragraph 1, subparagraph r) of the IRC Code, of the amount of €140,000.00, relating to expenses recorded as specialized work, corresponding to service provision by B... (invoice no. 319/2014);
(b) Subjects the said amount of €140,000.00 to Autonomous Taxation at the rate of 35%, plus 10 percentage points as it is a tax year in which the Applicant presented tax losses, amounting to €63,000.00, in accordance with Articles 23-A, paragraph 7 and 88, paragraphs 8 and 14 of the IRC Code;
(c) Subjects to Autonomous Taxation expenses with travel and accommodation of €9,297.72, which it qualified as representation expenses, applying the rate of 10%, plus 10 percentage points, as provided in Article 88, paragraphs 7 and 14 of the IRC Code, which resulted in a tax amount of €1,859.54; and
(d) Determines the assessment of compensatory interest, in accordance with Articles 35 of the LGT and 102 of the IRC Code.
Y. The detailed grounds for these corrections are set out in the RIT, which is hereby incorporated for all relevant purposes, from which the following more relevant excerpts are transcribed:
"[…]
2.1.1.1.1 Analysis of income
i) Sales
The taxable person recorded in the account ... V/PROD.ACAB. M/NACIONAL the following values:
Date Description B No. Doc Ref Cost Center Debit Credit
30-04-2014 INVOICE 8 ... 100414 5107 169,591.00
31-12-2014 ACCOUNTING ENTRY ... 8 ... 5100 905,940.00
TOTAL 1,075,531.00
In the tax year under analysis, in accordance with the "IMI – Matrix Update – Mod. 11 – Acts by Grantor" computer system, the total amount of deeds in which the company participated as seller coincides with the amount recorded.
[…]
2.1.1.1.2 Analysis of main expenses
[…]
i) Specialized services
A... SA recorded expenses with specialized services that include advertising and publicity in the amount of €296,009.80€.
Of the total of this line item, SNC account 62 02 02 000003 ADVERTIS/PUBLICITY-EXEMPT VAT, the total amount, 296,009.80€, corresponds to invoices from supplier B..., LIMITED, with registered office in HONG KONG, territory referred to in ordinance no. 292/2011, of 8 November (extract of this account on pages 37 of the attachment).
Considering that this cost should only be allocated to the real estate sold to a Chinese national and, the income derived from that sale being €905,940.00, the direct margin results in (€296,009.80/€905,940.00 = 33%).
Given the fact just described, the company was notified, pursuant to paragraph 8 of Article 23-A of the CIRC, in the person of its representative […], for a period of 30 days (which were later extended, at its request, by a further ten days)
"…submit documents proving actual compliance with the requirements established in Article 23-A, paragraph 1, subparagraph r) of the CIRC, for purposes of accepting the tax deductibility of the following expenses incurred:
Doc. No. (invoice) Date Entity Issuing SNC Account for recording Amount
505/2014 29/8 B... 62 02 02 000003
ADVERTIS/PUBLICITY-EXEMPT VAT 156,009.80
319/2014 15/12 140,000.00
You must submit proof that the expenses correspond to actually carried out operations and do not have an abnormal character or an excessive amount, in particular contracts executed with the issuing entities, description of service provision, copy of documents evidencing the performance of the services, copy of documents evidencing payment, among others considered relevant.
You are further requested that with respect to expenses associated with the related documents, you identify the income to which they are associated, as well as their necessity for the realization thereof".
In response to the notification issued, the same company representative informed that, having had the need to request from the service provider the sending of some documents and additional information, the same have not yet been received, even fearing that said request will not be attended to at all (paragraphs 4 and 5 of the pleadings).
To address said problem, he opts for submitting a copy of said invoices as well as the respective payment vouchers, informing that the payments are sufficient to prove the services provided to him, as without such performance his payment would not be justified.
As for the detailed description of the services provided, he informs having contracted the services of company B..., LIMITED in order to create new business opportunities, in this case, the sale of real estate to Chinese nationals, a fact that he says did actually come to pass, as per supporting document which he attaches.
[…]
III. DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS TO TAXABLE MATTER
III.1 IRC
III.1.1 Corrections to taxable matter
III.1.1.1 Expenses not accepted for tax purposes
Paragraph 1 of Article 23 of the IRC Code, in the version applicable to the tax year 2014, establishes the general conditions that expenses must comply with in order to be tax deductible:
[…]
For its part, Article 23-A added to the IRC Code by Law no. 2/2014 of 16 January, which republished this Code, and applicable in 2014, determines:
[…]
These provisions clearly aim to combat a type of evasive or fraudulent operations, through payments to non-resident entities and established in jurisdictions of more privileged tax treatment, so as to transfer income generated and located in Portugal to places with more favorable tax regimes, with reduced or non-existent taxation, and traditionally resistant to collaboration in providing information for tax purposes.
The establishment thereof immediately determines the general principle of non-deductibility of expenses incurred with this type of payments.
Enshrining, however, a safeguard clause, which operates through demonstration by the taxable person of cumulative compliance with two conditions:
-
The expenses correspond to real operations;
-
They do not have an abnormal character or an excessive amount.
It is a dual proof whose production shall be incumbent upon the taxable person […].
In the absence of proof of these requirements, it is concluded that the expenses in question are not deductible and the corresponding amounts are added to the taxable result.
The production of such proof should be made by the taxable person before the AT, presenting it with the means of proof of the actuality of the expense and of the normal and not excessive character, to whom it shall fall to appraise them with a view to forming an administrative judgment on the validity of the payments.
This is, therefore, a legislative solution in which an "onus probandi" is reverted to the taxpayer in which, by virtue of the provisions in reference, in the field of payments to entities domiciled in territories of low taxation, the presumption of veracity of the taxpayer's statements set out in paragraph 1 of Article 75 of the LGT is set aside, to the effect that statements by taxpayers presented in accordance with the law, as well as data and calculations recorded in their accounts or books, when these are organized in accordance with commercial and tax legislation, are true and made in good faith. And if the taxpayer fails to produce such proof, the expense is not tax-accepted, the taxable matter being increased for taxation purposes.
(i) As to the existence of more favorable tax regime
From the outset, it must be determined whether the privileged tax jurisdiction is included in the provision of paragraph 1 of Article 23-A of the IRC Code in force for the tax year 2014.
The taxable person recorded as expenses, in Specialized Work, supplies from the entity B... with registered office in HONG KONG
Now, HONG KONG is a jurisdiction listed in paragraph 31 of Ordinance no. 292/2011, applicable in the tax year under analysis 2014.
That is, noting that amounts are being paid to an entity, in this case the legal person B..., resident outside Portuguese territory and located in a jurisdiction listed in said Ordinance, the condition occurs that determines the verification of the assumption for subsumption into the concept of clearly more favorable tax regime.
(iii) As to the requirement of actual performance of operations
It is incumbent upon the taxpayer to demonstrate that operations involving payments to non-residents subjected to a more favorable tax regime were actually carried out. This reversal of the burden of proof materializes in demonstrating the actuality of the performance of the operation, which, if not supplied, implies that the expenses arising therefrom are not deductible.
Now, from documentary analysis it was noted that the taxable person A... SA, has the deed of purchase and sale of the real estate and also:
– Invoices issued by said service provider; and
– Means of payment of invoices through bank transfers.
However, although this set of documents provides the operation with the fulfillment of formal requirements, it lacks substantial proof, a failure that was not filled for the following reasons:
– It was not demonstrated that any action, advertising campaign or equivalent, concrete and actual, was carried out by said service provider aimed at selling units;
– That, if it had occurred, the same was appropriated and directed at the objective, that is, in the eventuality of having been carried out it was intended to attempt to sell units or rather any other product;
– Proof that the service was actually provided by presenting, namely, market prospecting studies, investment advantages, marketing campaigns, since no evidence thereof was presented in paper, recordings, video, computer support, digital or any other support;
– And even if physical evidence of the work performed were exhibited, it would still be necessary to demonstrate the adequacy of each of them to the requirements of Article 23 of the IRC Code;
– And that, besides the contract, it was not demonstrated that any exchange of correspondence or contact with the alleged service provider was made, related to the services it allegedly mediated.
It is not enough, therefore, the existence of a contract (in this case not exhibited), invoices or bank transfers; evidence is necessary of a whole set of actions, conducts or for example concrete advertising campaigns, that is, of complementary justifying elements to tax-relevant documentation, so as to conclusively set aside founded doubts about the actual performance of the operations that the invoices purport to evidence.
It will, therefore, be necessary to ascertain the possible compliance with the requirements that prevent disregard as expenses of the tax year of the advertising (Marketing Consulting, as stated in the description of the invoices issued by the non-resident entity B...) in which the company records as having incurred, the amount of which, without VAT, was €296,009.80€.
In this context, and in compliance with the formality of paragraph 8 of Article 23-A (for 2014) of the IRC Code, the company was notified on 19 September 2017 to submit, within 30 days (extended by a further 10, at the taxable person's request), documents proving actual compliance with the requirements established regarding the materiality of operations and absence of their abnormal character and excessive amount (Page 34 of Annex).
Within the time allowed in the notifications, a response was received composed of 3 pages of text; Annex no. 1 (copy of invoices and means of payment) and Annex no. 2 (Profit and Loss Statements by Nature 2013 and 2014), (pages 36 to 45 of the annex to this report).
The said response contains in particular:
"…,
4th) … the applicant saw itself in the need to request the sending of some documents and additional information to company B... .
5th) However, such elements have not yet been sent and the applicant fears that the request made may not be attended to at all.
6th and 7th) In these paragraphs, it refers to attaching copies and means of payment, so that through the same the expenses and the actuality of the operations can be proven.
8th) In this item, the company with respect to the requested detailed description of the services provided, informs having contracted the services of company B... in order to create new business opportunities, in this case, the sale of real estate to Chinese nationals, a fact that it says did actually come to pass, as per supporting document which it attaches (Profit and Loss Statements for 2013 and 2014).
In the following numbers, it comes to demonstrate the causality between the contracted services and the increase in sales.
In this way it was left unproven and unidentified the services that were actually carried out by the contracted company, and consequently, that the same do not have an abnormal character, nor that their amount is not excessive.
In summary, there is no proof whatsoever of the material performance of the service provision (advertising/commissions) by the company based in HONG KONG.
Indeed, the very invoices of said company are sparse in designation as they only refer to "Marketing Consulting", without any discrimination or allusion to the concrete marketing acts allegedly practiced.
Now, emphasizing that under the legislation already cited, it is incumbent upon the taxable person to demonstrate the material evidence sustaining that such service provision was carried out and having the same failed to do so, this requirement for deductibility is not met.
(iv) As to abnormal character
In this field it is concluded that, the taxable person having failed to produce any material proof permitting assessment of the intrinsic nature of the expense, or of its consonance with business activity, it is not possible to assess its normal character in light of the activity developed.
That is, if the taxable person failed to prove the substance of the expense, it is not possible to assess whether what is qualified as advertising and commissions or "Marketing Consulting" has a normal character in light of the activity developed.
Also in this regard the taxable person failed to fulfill the burden that the law imposes on it.
(v) As to excessive amount
For assessment of this characteristic, that is, that payments are adequate to the actual value of the services provided, it appears that the cost-benefit relationship would be appropriate, the condition being deemed met provided that income compensates for the respective expenses, that is, that future income is of such magnitude as to justify the respective charge, saving cases in which the attempt to penetrate other markets was not successful and the service inherent to the expense was actually performed.
Now, in situations involving human intervention with studies, projects or advertising in the case in question, the taxable person should have in file elements that would permit judgment of the adequacy of the amount to the purpose and allow assessment of the possible excess, namely:
- identification of human resources involved, hours applied and hourly rates per consultant;
- evidence of meetings, "surveys";
- travel expenses;
- whether the executor has professional experience;
- whether quotes were requested in the national or international market for comparative purposes and, if so, why the quote of an entity resident in a privileged tax jurisdiction was preferred over others with other locations.
There should equally be means to assess whether the amount of services charged is appropriate, having regard to the market and the risk of the operation, by comparison with those that would be applied by other entities in an equivalent context, in compliance and in fulfillment of the "at arm's length" principle, which also did not occur, as no relevant elements were presented aimed at this objective.
In light of the foregoing, it is concluded that the elements presented by the taxable person are insufficient to assess that the expenses correspond to actually carried out operations and that they do not have an abnormal character or an excessive amount, as provided by Article 23-A (for 2014) of the CIRC and, therefore, the amount of €296,009.80€ cannot be considered an expense of the tax year.
[…]
III.1.1.3 Corrections to tax – Autonomous Taxation
a) Autonomous Taxation-Supplier resident outside Portuguese territory and there subject to more favorable taxation
The unproven expenses mentioned in the previous chapter, and corresponding to payments made to persons resident outside Portuguese territory and there subject to more favorable taxation, are subject to autonomous taxation at the rate of 35%, in accordance with paragraph 8 of Article 88 of the IRC Code, this taxation being burdened by 10 percentage points, in accordance with paragraph 14, in the event that a tax loss is presented.
This provision establishes the following:
[…]
Since the taxable person did not proceed with the proof mentioned above, the expenses in question are subject to autonomous taxation at the rate of 35%, in accordance with paragraphs 1 and 8 of Article 88 of the IRC Code.
This taxation is burdened by 10 percentage points in accordance with paragraph 14 of the same article, in virtue of having presented a tax loss, whereby the following applies:
€296,009.80 x (0.35+10) = €133,204.41
b) Autonomous Taxation-Representation expenses
In addition to the account "620606000003-'REPRES. EXP.-EXEMPT VAT'", the account "62.5.1.1.2 – Travel and Accommodation (domestic)" (pages 48 to 100 of the annex) was also used, to record expenses whose supporting documents are invoices issued by cinemas-cascais (page 49 of the annex) restaurants, highway concessionaries, and taxi service, almost entirely in the Cascais and Lisbon area, and hotels, in the Algarve.
It should be noted here that the registered office of the taxable person is RUA..., NO...–..., ...-... LISBON, and that the domicile of its chairman of the board is R..., NO..., ..., ...-... CASCAIS, and that the company is not known to have any business in the Algarve area.
As for invoices issued by passenger transport companies (Taxi), they do not possess essential requirements, namely the start and end points of transportation, as well as identification of persons transported.
From the definition of the concept of travel allowances it stands out that they aim to compensate employees for expenses with travel and accommodation, in domestic or foreign territory, for reasons of work.
The accounts relating to the recording of expenses with travel and accommodation are intended for expenses with transport, accommodation and food incurred with company employees, due to displacement of these outside the normal place of work, through presentation of a supporting document.
Now, as stated, the documentation analyzed relates to expenses with food and others in the Algarve, with no known relationship to the activity carried out by the company, with no map or other element justifying travel attached to them, nor could it exist, since there is no true displacement outside the normal place of work.
On the other hand, the accounts relating to representation expenses are intended to record expenses made for representation of the company before third parties, such as clients, suppliers and other entities. In this sense, Article 88, paragraph 7 of the CIRC provides, subjecting this type of expense to autonomous taxation.
In light of the foregoing, we conclude that the expenses with meals, trips, outings and entertainment in question do not fit the concept of travel and accommodation, but rather that of representation expense, whereby all those expenses previously identified as travel and accommodation should be subject to autonomous taxation, pursuant to said legislation, given their nature.
Thus, given the amounts recorded in account 62.5.1.1.2 – Travel and Accommodation (domestic)" (pages 48 to 100 of the annex), tax is lacking in the amount, which is quantified as follows
Account SNC 62.5.1.1.2 – Travel and Accommodation
Total recorded Rate (paragraph 7, art. 88) Increase for losses IRC/Autonomous Taxation
9,297.72 10% 10% 1,859.54
[…]
Regarding the corrections now proposed, compensatory interest shall also be assessed as due, in accordance with the provisions of Article 35 of the General Tax Law and Article 102 of the IRC Code.
[…]
IX RIGHT TO HEARING
[…]
Regarding the Intervention of B...:
-The plaintiff here wishes to emphasize the enormous contribution of company B... in partnerships with the taxable person and with many other companies in the real estate sector, to such an extent, according to its assertion, that are already known by the AT, as a result of various inspections already carried out, both its mode of operation, and the way in which it came to the Portuguese real estate market.
-It comes at a given point to refer that the conduct of said company not only made it possible to carry out sales of real estate that were burdened with high charges for this type of undertakings (condominiums, financial charges, taxes and others), but to sell them at prices of the order of two or three times their taxable book value.
-We ascertained in this field that the real estate in question was recorded in the matrix in the year 2009, and that indeed significant amounts are assumed in the rubrics of financial charges, stamp duty derived therefrom, IMI, condominium expenses.
-And we ascertained that the initial property value was €466,680.00, having been subject to alteration to €401,330.00 in 2016, whereby it could be said that the sale value was in the order of two times the book value.
-It further presents the argument that there is no known alternative to the mediation of B... in penetrating the markets in question, namely because of the importance of cultural and linguistic barriers, a fact which gives it a position of absence of competition.
It follows from the foregoing by the taxpayer that, in summary, the services provided by B..., contrary to the description of the corresponding invoices (marketing consulting), would consist of acquiring customers of Chinese nationality to purchase real estate in Portugal.
To give substance to this statement it attaches a copy of a document, dated 15-07-2013, designated "FRAMEWORK AGREEMENT" which regulates the commercial relationships between A... and B... and, under which, B... had/knew clients with intention to purchase real estate in Portugal and was prepared to assist them in the realization of their respective purchases, on the other hand, for the services provided (acquisition of clients) A... would pay B... a "fee" corresponding to 17% of the selling price of each real estate, plus the amount of €2,000.00 relating to travel costs, which could reach a maximum of €4,000.00.
Faced with this reality we proceed to analyze how it fits with what is reflected in the A...'s accounts.
From the outset it is emphasized, as already referred, that the description of B...'s invoices mentions this is (marketing consulting) and that, since it is a generic description whose payment was made for territory with more favorable taxation, the company was requested to produce the proof required by subparagraph r) of paragraph 1 of Article 23-A of the CIRC. It should also be noted that no substantive evidence was produced of which "marketing..." services B... provided to A... .
However, as the taxpayer now comes to say that it would be client acquisition, taking into account the principle of substance over form, we proceed to analyze whether this is actually the reality reflected in the accounts.
In the year 2014 A... recorded two invoices issued by B..., one (319/2014) dated 29-08-2014 in the amount of €140,000.00 and another (505/2014) dated 15-12-2014 in the amount of €156,009.80.
On 16-12-2014 A... sold real estate to a Chinese female citizen for the amount of €905,940.00, it being admitted that this purchaser may have been a client acquired by B... .
In January 2015, A... paid B... the amount of €156,009.80, a value which corresponds to the amount mentioned in said invoice 505/2014 and which, on the other hand, corresponds to 17% of the real estate sold, referred to above, plus €2,000.00 (156,009.80=905,940.00*0.17+2,000.00).
Combining the facts described it is verified that, in 2014, a Chinese client was acquired and that the payment made by A... on account of that acquisition is in accordance with the "FRAMEWORK AGREEMENT" referred to, resulting thus, from this reality, substantive evidence that, in the case of said invoice 505/2014, services were provided leading to the obtaining of income proportionally acceptable and, in that measure answers to what is required by Articles 23 and 23-A of the CIRC to be considered as a tax-deductible expense.
Considering that subjection to autonomous taxation, under Article 88, paragraphs 1 and 8 of the IRC Code, flows directly from the qualification under consideration, the same will not, in consequence, be due with respect to invoice no. 505/2014.
With respect to payment of the amount of €140,000.00, in principle corresponding to invoice 319/2014, the elements and clarifications sent by the taxpayer continue to be insufficient to support the qualification as a fiscal expense, in light of what is required in particular in subparagraph r) of Article 23-A of the CIRC, the proposal in the draft report being maintained, in the part relating thereto.
As to the remaining corrections mentioned in the draft report (VAT and autonomous taxation on travel and accommodation), although the taxpayer refers to them in his submission, it alleges nothing to justify their non-acceptance or the lack of proper reasoning, whereby these also remain as per the draft.
Since, taking into account the clarifications that the taxpayer came to provide within the scope of the right to hearing, led to acceptance as a tax-deductible expense the amount of €156,009.80.
In this way, the corrections proposed as of the IRC hearing, for purposes of the final report, now become those contained in the following tables:
TAXABLE RESULT Declared Correction Corrected
2014 -865,337.55 71,917.75 a) -793,419.80
Autonomous Taxation – tax amounts Declared Correction Corrected
2014 Various 7,156.61 7,156.61
Supplier ordinance 292/2011 63,000.00 b) 63,000.00
Travel and accommodation 1,859.54 c) 1,859.54
TOTAL 7,156.61 64,859.54 72,016.15
a) From invoice 319/2014 B...– (Amount €140,000.00 - VAT €68,082.25)
b) From invoice 319/2014 B...- €140,000.00 x (0.35+0.1)
c) Unchanged as of the right to hearing"
Z. Following the conclusion of the inspection procedure, the Applicant was notified of the following tax acts:
a. IRC Assessment Statement no. 2018..., dated 07.02.2018, including autonomous taxation and interest, with amount payable of €5,402.97, relating to the tax year 2014;
b. Compensatory Interest Assessment Statement no. 2018..., dated 09.02.2018, in the amount of €6,411.32, relating to the tax year 2014. This document contains references: (i) to the tax period "2014-01-01 to 2014-12-31", (ii) to the base IRC assessment "2018...", (iii) to the base amount on which interest accrues "€64,859.54", (iv) to the calculation period "2015-07-30 to 2018-01-16", and (v) to the rate "(%) 4.000";
c. Account Settlement Statement no. 2018..., dated 09.02.2018, which resulted in the total amount payable of €71,270.86, with payment due date of 21.03.2018 – as per document 1.
AA. The Applicant provided a bank guarantee up to the amount of €90,336.16, to stay the tax enforcement proceedings no. ...2018..., initiated for collection of debts of IRC (including Autonomous Taxation) and compensatory interest contained in the tax acts identified above, having incurred, until the date of filing of the present arbitration action, expenses in the amount of €793.73 – as per documents 8 to 10.
BB. In disagreement with the IRC assessments, Autonomous Taxation and compensatory interest relating to the tax year 2014 identified above, the Applicant filed with CAAD, on 19 June 2018, the request for constitution of the Collective Arbitral Tribunal which gave rise to the present proceedings.
MOTIVATION
The facts relevant for judgment of the case were selected and identified for their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of Articles 123, paragraph 2 of the CPPT, 596, paragraph 1 and 607, paragraph 3 of the Code of Civil Procedure ("CPC"), applicable by reference of Article 29, paragraph 1, subparagraphs a) and e) of the RJAT.
Allegations made by the parties and presented as facts consisting of strictly conclusive assertions incapable of proof and whose validity must be assessed in relation to the concrete fact matter consolidated were not deemed proven nor unproven.
With respect to proven facts, the conviction of the arbitrators was based on critical analysis of the documentary evidence attached to the case and, whenever applicable, on the party statements made by E... and F..., as well as on the testimony of the four witnesses heard, two of whom were employees of real estate promotion companies which, like the Applicant, were clients of B... – G... and H... .
The parties and witnesses testified with objectivity and direct knowledge of the facts reported and of the real estate market. They confirmed that B... performed the activity of acquiring Chinese clients for Portuguese real estate and that its intervention was fundamental to the recovery of business, managing, in one of the promoters, to mediate some 70 successful real estate sales, following a period of total stagnation. The promoting companies paid commissions that began in 2012 at 15%, later rising to 20%. In one case, the Portuguese promoter went to China to attempt to acquire clients directly, but without any success.
Witnesses C... and I..., in both cases employees of the Applicant (one in the commercial area, another janitor of the building in question), were consistent and likewise demonstrated detailed knowledge of the facts, attesting to the visits of Chinese clients to the Applicant's building, the way such visits proceeded, the condition of the real estate and the lack of sales, at the time.
UNPROVEN FACTS
With relevance to the decision there are no facts alleged that should be considered unproven.
-
OF THE LAW
2.1. DELIMITATION OF THE QUESTIONS TO BE DECIDED
At issue in the present action is the deductibility in IRC of a commission charged by company B..., with registered office in Hong Kong, relating to the sale to a Chinese client, acquired by this entity, of real estate of the Applicant.
The fact that the service provider B... is based in Hong Kong determines the classification of the expenses incurred by the Applicant under Article 23-A, paragraph 1, subparagraph r) of the IRC Code, which establishes a rule reversing the burden of proof and the possible incidence of Autonomous Taxation at the rate of 35%, plus 10 percentage points, as provided in Article 88, paragraphs 8 and 14 of the same Code.
Also to be noted is that the disputed assessment includes a value of €1,859.54 of Autonomous Taxation inciding on travel and accommodation expenses incurred by the Applicant (not related to service provision by B...) which the AT classified as representation expenses – as per Article 88, paragraphs 7 and 14 of the IRC Code.
The Applicant raises various defects invalidating the tax acts, which are assessed below, except insofar as they are prejudiced by the determination of others:
(a) Procedural defects – related to the inspection action;
(b) Material defects – of violation of law by error in the assumptions, both factual and legal; and
(c) Formal defects – of lack of reasoning and preterition of the right to hearing, in the latter case, relating only to the assessment of compensatory interest.
2.2. PROCEDURAL DEFECTS – UNFOUNDED EXTENSION OF INSPECTION
The Applicant alleges that the alteration of the scope of the inspection procedure, which initially was partial – limited to IRC – and was expanded to "General-Multivalent", did not observe the legal formalities, in particular Article 15, paragraph 1 of the RCPITA, according to which "[t]he purposes, scope and extent of the inspection procedure may be altered during its execution, by reasoned order of the entity that ordered it, and shall be notified to the entity inspected".
In this context, the Applicant invokes the non-compliance with the duty to reason, the AT limiting itself to stating that "in the course of the inspection procedure the need to carry out a global verification of the taxpayer's tax situation was confirmed", which clarifies nothing about the motivation and the cognitive and evaluative itinerary underlying the alteration of the scope of the inspection action, equivalent to lack of reasoning under Article 153, paragraph 2 of the CPA.
According to the Applicant, this omission by the AT violates Articles 151 of the CPA, 77, paragraph 1 of the LGT and 268, paragraph 3 of the Constitution ("CRP"), with the consequent invalidation of the subsequent acts, which are decisory of the procedure, in particular, of the tax acts of IRC assessment (including Autonomous Taxation) and compensatory interest, subject to this arbitration action.
It is important to note first that the contested tax acts refer to one tax, IRC (including Autonomous Taxation), which already fell within the scope of the initial inspection action, the expansion having affected the other taxes that do not constitute the subject matter of this action. Thus, even if the defect of lack of reasoning for the decision to expand the scope of the inspection procedure were verified, it would not be capable of affecting the inspection action as it relates to the IRC segment, nor the final decision act of IRC assessment and of related compensatory interest, here in question.
Indeed, as stated above, this tax (IRC) was, from the beginning, covered by the Service Order that determined the inspection, its motivation and scope having been duly communicated, so there was no, in this regard, omission of essential formality, the purpose of the legislator being fulfilled that it could be understood, questioned and scrutinized by the entity inspected, now the Applicant.
Moreover, the omission of the formality embodied in the lack of reasoning for the alteration of scope relating to other taxes could not have any influence on the result to be achieved in matters of IRC.
That is, only the part affected by the expansion, if illegal, would be vitiated, whereby only the conclusions relating to the expansion of the scope of the inspection would be struck by invalidity, which has no effect in the case sub iudice, since the grounds and conclusions of the Tax Inspection Report, as well as the subsequent assessment acts under discussion in these proceedings, relate to IRC, subject matter comprehended in the scope of the inspection procedure from its inception, whose original scope delimitation and respective notification are not affected by any illegality.
This position is in line with the jurisprudence of the Supreme Administrative Court ("STA"), which considers that only the "conclusions relating to the inspection report, relating to such expansion are illegal" – as per the Decision (cited by the Applicant) of 15.06.2016, rendered in proceedings no. 1101/15, and, in the same sense, the Decision of 19.09.2018, rendered in proceedings no. 1460/17.
Given the foregoing, the procedural defect invoked by the Applicant is dismissed as grounds for invalidity of the IRC assessment and compensatory interest acts at issue.
2.3. DEDUCTIBILITY OF THE CLIENT ACQUISITION COMMISSION CHARGED BY B...– ARTICLES 23, PARAGRAPH 1 AND 23-A, PARAGRAPH 1, SUBPARAGRAPH R) OF THE IRC CODE
LEGAL FRAMEWORK
The AT disallowed the tax deduction of the commission incurred by the Applicant, in relation to the services provided by B..., on the grounds of lack of proof of the actuality of the expense, its normal character and that it is not of an excessive amount, in light of Articles 23, paragraph 1 and 23-A, paragraph 1, subparagraph r), both of the IRC Code, combined with Article 63-D of the LGT and with the provisions of Ordinance no. 150/2004, of 13.02, as amended by Ordinance no. 292/2011, of 08.11, which below are transcribed in the applicable parts:
"Article 23 of the IRC Code
Expenses and losses
1 – For the determination of taxable profit, all expenses and losses incurred or borne by the taxable person to obtain or secure income subject to IRC are deductible. […]"
"Article 23-A of the IRC Code
Expenses non-deductible for tax purposes
1 – The following expenses are not deductible for purposes of determining taxable profit, even when recorded as expenses of the tax period:
[…]
r) Amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory, and there subject to a tax regime identified by ordinance of the government member responsible for the area of finances as a clearly more favorable tax regime, unless the taxable person proves that such expenses correspond to actually carried out operations and do not have an abnormal character or an excessive amount. […]"
"Article 63-D of the LGT
Countries, territories or regions with a clearly more favorable tax regime
1 – The government member responsible for the area of finances approves, by ordinance, the list of countries, territories or regions with a clearly more favorable tax regime. […]"
"Article 1 of Ordinance no. 292/2011, of 08.11
Amendment to Ordinance no. 150/2004, of 13 February
For the purposes provided by law, the list of countries, territories and regions with privileged tax regimes, clearly more favorable, contained in Ordinance no. 150/2004, of 13 February, is amended as follows:
[…]
31) Hong Kong;
[…]"
From the comparison of the applicable rules, there emerges a reversal of the burden of proof, the general regime of Article 74 of the LGT and the presumption of veracity of taxpayers' statements in Article 75 of the LGT being set aside. It thus becomes incumbent upon the taxable persons to prove the actuality of charges and expenses owed to entities resident in territories with a clearly more favorable tax regime, a category in which the company providing services B... established in Hong Kong, a special administrative region belonging to the People's Republic of China, is included.
These provisions contain a marked anti-abuse purpose and establish additional requirements relating to the normal character of expenses and the reasonableness of the respective amount, the burden of which likewise falls on the taxpayer.
It is thus appropriate to assess whether the Applicant satisfied this burden of proof of the assumptions of actuality, normality and that the amount is not excessive of the expenses borne in relation to client acquisition charged to it by B... in invoice no. 319/2014, with the value of €140,000.00.
ACTUALITY OF THE CLIENT ACQUISITION SERVICES PROVIDED TO THE APPLICANT
It is unambiguous from the proof produced in the case that, in the tax year 2014, B... provided the Applicant with services of acquiring Chinese clients, with a view to the acquisition of the real estate assets thereof, with dozens of visits to the property whose units were being marketed, by potentially interested parties of Chinese origin, which culminated in two actual sales totaling €1,705,940.00, one in the amount of €905,940.00, whose deed of purchase and sale was executed in 2014, and another of €800,000.00, whose deed was carried out already in 2015, although scheduled for 2014, having been postponed due to client constraints, the entire purchase price being paid in the course of 2014.
These services were based on a properly formalized agreement between the parties and materialized in the disclosure and promotion of the Applicant's property in the Chinese market to potential clients with profile and purchasing capacity, the travel and accompaniment of those potential clients to the Applicant's property and in the administrative and bureaucratic procedures necessary to conclude the sales processes of the real estate, associated with obtaining residence in Portugal.
The description "Marketing Consulting" appearing on the invoices issued by B..., not being the most appropriate representation of the services rendered of client acquisition, must be evaluated together with other complementary evidence, such as the content of the services described in the contract and other evidence permitting conclusion, without difficulty, that we are dealing with a client acquisition activity in the context of real estate intermediation.
Once the materiality of the operations is demonstrated, any (partial) non-conformity of the description, non-conformity which in this case is not even attributable to the Applicant, as invoice issuance is the responsibility of the service provider, constitutes non-compliance with a formal requirement that cannot have the effect of disregarding the expense in the computation of the IRC taxable matter of the Applicant.
As RUI MORAIS states, "non-acceptance, for reasons of merely formal nature, of the deductibility of a cost that actually was borne, would correspond to taxation on profit that does not exist, to a tax that has no underlying corresponding tax capacity." – as per Annotations on IRC, Almedina, 2007, pp. 79-80. In the same sense points the jurisprudence of the STA, as, for illustrative purposes, that contained in Decisions of 05.07.2012, proceedings no. 658/11, and of 14.09.2011, proceedings no. 433/11. Although prior to the 2014 IRC Reform, we believe these considerations remain valid.
It is worth noting, moreover, that in the course of the inspection procedure, when notified under Article 23-A, paragraph 8 of the IRC Code, the Applicant promptly came to clarify and identify the nature of the services provided, stating that it contracted the services of B... to create opportunities for selling real estate to Chinese nationals, an explanation which it reiterated later, at the right to hearing stage, and which is verified to correspond to reality.
It is thus unfounded the allegation by the Defendant that it had not been brought to the AT's knowledge that the services related to mediation in the sale of real estate and that, therefore, it would have been misled and abuse of rights occurred.
Additionally, it is unreasonable to suppose that the influx of Chinese clients, thousands of kilometers away from Portugal and with notable linguistic and cultural differences, could occur without the intervention of intermediation agencies with presence in the Chinese market, which identified potential interested parties mindful of their investment profile, organized and ensured their travel to Portugal, selected the real estate appropriate to the intended purposes (recall that the minimum real estate investment for purposes of "Golden Visas" amounted to €500,000.00) and supported such clients in the legal-administrative procedures necessary to realize the operations which, as a rule, also involved simultaneous obtaining of the ARI.
Incidentally, the AT ended up acknowledging at the right to hearing stage that the services were substantiated with respect to the first real estate sold, it being unclear what the grounds for rejection of the second real estate, here in question, would be, given that it is an exactly identical situation, whose only difference was that the deed of purchase and sale was postponed some months at the client's request.
The Defendant argues in its response that this is a justification "not referred to at the [inspection] procedure stage" and that the real estate sale operation was only carried out in 2015, subsequent to the 2014 tax year on which the inspection focused. It concludes that, with that sale not being reflected in 2014 accounts, there is no operation to which B...'s commission could be attributed or correspond.
For this purpose, it invokes the principle of specialization of tax years and the provisions of Article 18, paragraph 6 of the IRC Code, according to which "[t]he determination of results in work carried out on its own account sold in installments is effected as they are completed and delivered to purchasers, even if the total costs thereof are not exactly known."
However, the question of apportionment of taxable profit, i.e., of allocation of the commission in question to the 2015 tax year and not to the 2014 tax year, with consequent disregarding of the expense in 2014, was not raised in the inspection procedure, nor does it appear in the reasoning of the disputed tax acts set out in the RIT. This is, therefore, a ground subsequent to issuance of the assessment acts. Our legal order does not give relevance to subsequent reasoning, only the contextual reasoning of such acts can be considered in assessing their validity, which is externalized until the moment of assessment and which integrates the acts themselves, having been appropriated by them – as per Article 153, paragraph 1 of the CPA (former Article 125, paragraph 1) and the jurisprudence of the STA, referring by way of example to Decisions of 04.10.2017, proceedings no. 406/13; of 06.07.2017, proceedings no. 1436/15; of 27.01.2016, proceedings no. 43/16; of 16.09.2015, proceedings no. 156/15; of 09.09.2015, proceedings no. 1173/14; of 26.03.2014, proceedings no. 1674/13, and of 23.04.2014, proceedings no. 1690/13.
The sole grounds that preceded the IRC assessment here in question relate to the actuality, normal character and amount of the services provided to the Applicant by B..., nothing having been invoked relating to the moment when the commission was recorded and the specialization of tax years.
It seems equally that the AT's allegation of "unawareness" does not constitute an acceptable argument and is not impeditous of the consideration by the Tribunal of the material reality acquired (procedurally), in addition to which the AT pointed out no conduct by the Applicant violating the duty of cooperation in the course of the inspection procedure.
Obiter dictum, it is further noted that the interpretation of Article 18, paragraph 6 of the IRC defended by the Defendant, to the effect that the expense with the commission could only be considered in 2015, is not inevitable, as, with the full payment of the sale operation of the real estate having occurred still in 2014 and only the formalization of the contract (deed of sale) lacking due to the purchaser's schedule availability, it could be concluded that economic allocation ("delivery") of that to the purchaser occurred at a time prior to formalization of the contract transferring the right of property, e.g., at the moment of full payment of the price. In this context, the Accounting and Financial Reporting Standard ("NCRF") 20, on revenue, in section 14, does not require that recognition of the sale occur only with the legal transfer of property in the good, being based rather on transfer to the purchaser of significant risks and benefits of ownership, among other criteria. On the other hand, even if the sale was not recorded in accounts for 2014, that does not mean it should not have been, whereby, a priori, the Defendant's thesis cannot be corroborated.
In light of the foregoing, it is verified that the services of acquiring Chinese clients were rendered by B..., that the expenses incurred by the Applicant occurred with the realization of the sales of the real estate and by reason thereof, and that such sales represented income of approximately 1.75 million euros, in a circumstance affected by years of contraction in demand and stagnation of the real estate market. In the previous year, 2013, the Applicant had not managed to sell any real estate despite being heavily indebted to banks and bearing substantial financial charges, these sales representing a financial inflow essential for the viability and continuity of its activity.
Add to this that the financial flows relating to payments and monetary transfers are coincident with the values of the operations and invoices declared by the Applicant.
The actual realization of the operations does not mean, as the Defendant argues, that the expenses incurred translate into obtaining income, although in the case at issue there is no doubt that they did.
Actuality is a distinct condition relating to the real and materialized provision of services and not to the success or failure of the contribution thereof to the intended objectives. Such a meaning would imply that the AT could assess the management decisions of taxable persons, which would be contrary to the principle of "freedom of management and autonomy of the will of the taxable person" – as per Decision of the STA (en banc), of 15.06.2011, proceedings no. 49/11.
It is thus concluded that such expenses, i.e., the commission charged to the Applicant by B..., correspond to actual operations and that there is a causal nexus between the respective services rendered and the real estate activity developed, as postulated by Articles 23, paragraph 1 and 23-A, paragraph 1, subparagraph r), both of the IRC Code.
NORMAL CHARACTER OF THE SERVICES
The marketing of real estate situated in Portugal to Asian clients entailed the provision of international intermediation and agency services, which in this case were rendered by B..., with various Portuguese real estate promoters using the services of said company (and other similar ones) to successfully sell their real estate to Chinese clients. As already mentioned, it does not appear feasible that the acquisition of Chinese clients would be carried out by national mediators who had no presence or representation in China, as they would hardly be able to reach potential clients and bring them to Portugal enabling sales.
It is important not to forget the economic circumstances experienced in Portugal in the preceding years, of contraction in demand and lack of liquidity, with companies in the real estate sector leveraged (indebted), under pressure and with great urgency in marketing the real estate held to be able to meet the financial commitments assumed.
In these circumstances, resort to intermediary companies such as B..., acquirers of international clients with purchasing capacity to buy the real estate that promoters were unable to sell, is not only normal but a prudent management measure, especially, as in the case of the Applicant, when it does not involve assumption of any fixed costs, with payment to the acquirers only occurring upon realization of sales. It would be abnormal that, faced with the unfavorable economic circumstances that had persisted in previous years, companies in the real estate sector would not attempt to reverse them
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