Summary
Full Decision
ARBITRAL DECISION
The arbitrators José Baeta de Queiroz (arbitrator-president), José Rodrigo de Castro and Luís M. S. Oliveira (arbitrator-members), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Collective Arbitral Tribunal, agree as follows:
1. Report
A…, Lda., with headquarters at Rua…, … ..., …-… Lisbon, taxpayer no.…, registered in the Commercial Registry Conservatory of Lisbon under the same single registration number and Legal Entity number, filed, on 30 December 2016, a request for arbitral pronouncement for review of the legality of the administrative act imposing withholding tax on Income Tax for Individuals (IRS) no. 2016…, in the total amount of EUR 215,298.42, of which EUR 188,740.33 corresponds to withholding tax on IRS allegedly due and EUR 26,558.09 relates to compensatory interest.
The respondent is the Tax and Customs Authority (AT).
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to AT on 13 January 2017. Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January (RJAT), the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance within the applicable deadline. On 27 February 2017, the parties were duly notified of the appointment, and neither manifested an intention to refuse it. In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of RJAT, the parties were informed that the collective arbitral tribunal was constituted on 14 March 2017.
The request is timely, in light of the provisions of paragraph 1 of Article 10 of RJAT, and the collective arbitral tribunal is competent to decide it, pursuant to the provisions of subparagraph a) of paragraph 1 of Article 2 of the same legislation. The parties have legal personality and capacity, are legitimate and are duly represented. The proceedings do not suffer from nullities and there are no exceptions or obstacles to the consideration of the merits of the case.
In summary, the Petitioner alleges the following:
(1) It was notified by AT to send the SAF-T file relating to the year 2012, with reference to the last month that had been closed;
(2) In response to the notification, it sent the SAF-T file, which showed a cash balance of EUR 719,544.49;
(3) Following the inspection action under the Inspection Order 2014…, it was notified of the Tax Inspection Report (RIT), according to which tax corrections were made to the withholding tax on IRS relating to the tax period 2012, in the amount of EUR 188,740.33, which breaks down as follows: (a) distribution of profits, pursuant to subparagraph h) of paragraph 2 of Article 5 of the IRS Code (CIRS): taxable base: EUR 595,382.55; tax: EUR 157,776.38; (b) entries in partner accounts, pursuant to paragraph 4 of Article 6 of CIRS: taxable base: EUR 116,845.08; tax: EUR 30,414.43;
(4) Following the conclusions contained in the RIT, it was notified of the administrative imposition of withholding tax on IRS no. 2016…, in the total amount of EUR 215,298.42, of which EUR 188,740.33 corresponds to withholding tax and EUR 26,558.09 to compensatory interest;
(5) The cash balance amount of EUR 719,544.49 was regularized in the accounts in 2012, as the counterpart of accounts #55 (Reserves), #56 (Retained Earnings) and #2788102 (Other debtors and creditors);
(6) Between 2001 and 2009, it was subject to the simplified regime of Corporate Income Tax (IRC) and, notwithstanding the legal requirement to maintain organized accounting, because this simpler tax regime for determining taxable profit applied to it, it did not realize that the accounting entries had not been correctly made or recorded by the entity to which it had entrusted that service;
(7) During the application of the general regime for determining taxable profit, its accounting presented inconsistencies resulting from past situations that had not, until 2012, been detected and had not been regularized;
(8) It was only after the request for the SAF-T file that those responsible for accounting informed management that the financial statements showed a cash balance of EUR 719,544.49, "a situation that caused obvious surprise and consequently motivated the carrying out of an external audit";
(9) Because the nonconformity of the accounts with factual reality was verified, it proceeded with the regularizations mentioned above [in point 5], to reflect what had been the reiterated practice of profit distributions;
(10) There was no profit distribution - presumed or actual - in the fiscal year 2012;
(11) With reference to the tax periods between 2001 (year of incorporation) and 2012, the net results of the fiscal years break down as follows (minutes of account approval meetings attached as Docs. 4 to 18) (in EUR): 2001: 18,903.37; 2002: 56,201.47; 2003: 80,676.28; 2004: 74,813.92; 2005: 58,018.28; 2006: 87,089.21; 2007: 112,180.02; 2008: 127,374.73; 2009: 79,123.83; 2010: 6,935.57; 2011: 1,457.80; 2012: -930.46; with an aggregate value of EUR 701,844.02;
(12) According to the same minutes and with reference to the various fiscal years, the distribution of profits to partners was approved in the following amounts: 2001: 17,958.20; 2002: 54,646.64; 2003: 80,676.28; 2004: 74,813.92; 2005: 58,018.28; 2006: 87,089.21; 2007: 112,180.02; 2008: 127,374.73; 2009: 79,123.83; 2010: 6,000.00; 2011: -; 2012: -; with an aggregate value of EUR 697,881.11;
(13) Regarding the balance of the account of …, in the amount of EUR 719,544.49: it would be objectively impossible for it to have a minimum credibility, it would be manifestly improbable that a company of its size would have such a sum in cash, because, this amount resulting from the net result calculated in previous fiscal years (between 2001 and 2011), this assumption would mean that it would have been impossible for it, due to lack of financial means, to carry out the transfers and make the payments in favor of the partners that it actually made throughout those same fiscal years;
(14) It did not withhold taxes on the distribution of profits, but such distributions (such transfers) occurred between 2002 and 2011; the funds shown in cash were, throughout the various fiscal years prior to 2012, actually distributed (and used) by the partners; the managing partners never received salaries in all the mentioned fiscal years (2002 to 2011), which leads to the conclusion that the transfers made over the years did not occur on that basis; such transfers, as well as deposits directly made into the personal accounts of the partners, also were not loans, nor reimbursements of expenses incurred on behalf and for the account of the Petitioner; they had no other nature than that of profit distribution;
(15) The same conclusion applies to expenses that, through the use of its bank card, it incurred for expenses intended for personal use of the partners, which, notwithstanding their incorrect valuation as costs necessary for the activity, must be considered as profits or advances on account of these in the sphere of the respective beneficiaries;
(16) Until 2009, it was taxed, under IRC, by the simplified regime and this circumstance led to a lack of rigor in the accounting of operations and in the separation between its equity sphere and that of the partners;
(17) The modus operandi underlying the financial flow of the activity's revenues presupposed that: (a) the receipt of consideration for medical consultations was predominantly made in cash or by check; (b) such amounts were delivered to managing partner Dr. B… who, regularly at least twice weekly proceeded to deposit them in his personal bank accounts (predominantly the account "… …"), as well as in those of managing partner Ms. C…; (c) these values, recorded in cash in the Petitioner's accounting, were directly deposited into the personal accounts of the partners;
(18) Between 2002 and 2009, D… Lda. entered into a service provision contract with Dr. B… with consideration of EUR 1,995.20, which in 2004 increased to EUR 2,100.00 and in 2006 to EUR 2,500; although such contract was entered into with Dr. B…, the income derived therefrom was invoiced by the Petitioner, but the consideration for services provided to D… was deposited in Dr. B…'s personal bank account;
(19) Throughout the period under analysis, it was a reiterated practice to carry out bank transfers in favor of the partners without any documentary basis supporting them; bank transfers were made from the debit of account E… …, held by the Petitioner, to accounts F… … and E… … held by Dr. B…, throughout the various fiscal years considered; furthermore, "the reiterated transfer of significant amounts that corroborate the allegation that the cash balance does not correspond to reality";
(20) A considerable sum of the amounts recorded in cash, specifically the total amount of EUR 368,495.60, was distributed to the partners in the years 2005 to 2009, and such distributions predate the fiscal year 2012;
(21) It incurred, over the years, in expenses intended for the private sphere of the partners, through the use of a credit card, with "frequent use" for "purchase of goods such as cinema tickets, supermarket purchases, clothing, toys, sports items, children's clothing, among others"; such expenses, notwithstanding their incorrect valuation as costs necessary for the activity, as they were intended for the personal sphere of the partners, must be qualified as profits (or advances on account thereof) in the sphere of the beneficiaries; as can be inferred from the nature of the expenses, combined with the fact that the managing partners Dr. B… and Ms. C…, married and providers of the medical services charged by the Petitioner to its clients, are the quasi-totalitarian partners of the Petitioner, the bank account of the latter was, throughout the periods considered, used as a personal bank account of the partners; the funds in such bank account were used with a purpose that exceeded its corporate purpose or business scope that, strictly speaking, should underlie it.
(22) The same patrimonial confusion is reflected in the fact that funds existing in the personal accounts of the partners also served to pay for the Petitioner's expenses, as occurred, by way of example, in the case of the payment of IRC for 2007 (EUR 7,742.71, on 03.09.2007) and 2008 (EUR 10,444.55, on 01.10.2008), the amounts of which were paid directly through the balance of account F… no.…, whose holder is Dr. B…, partner of the Petitioner;
(23) The sampling exercise carried out relating to the tax periods mentioned is applicable, on the same terms, to the remaining years;
(24) AT alleges that profit distributions occurred in 2012 upon verifying that the balance shown in cash in the Petitioner's accounting had already left its equity sphere; not appearing in any asset account of the Petitioner, no other conclusion can be drawn than that such amounts were distributed prior to the year 2012;
(25) In 2012, the Petitioner had two bank accounts: one at E… (which on 01.01.2012 showed a credit balance of EUR 239.44 and on 31.12.2012 a credit balance of EUR 87.68) and another at G… (which on 01.01.2012 had a credit balance of EUR 201.20 and on 27.12.2012 a credit balance of EUR 427.95); thus, and having positive net results been calculated throughout the various fiscal years, if the amount corresponding to EUR 719,544.49 is not in cash, if it is equally not recorded in any bank account held by the Petitioner, and if it is also not reflected in any other asset account, no other conclusion can be drawn than that such value had already been previously distributed;
(26) Having been such amounts actually assigned to the partners at a date prior to 2012, it is not possible to sustain any correction or imposition based on the "fact" that they were made available in that year 2012;
(27) The only minutes that can be authentic are those duly signed by the partners and only these can support that the profit distributions were carried out at a date prior to 2012;
(28) The points to be clarified concern the moment of preparation of the minutes and not so much the distributions which these enabled or attested, and as to which minutes should actually be considered; on this second point, due to the informality that guided the Petitioner's accounting and the negligence inherent to the conduct of the Certified Public Accountant(s) responsible in the periods considered from 2001 to 2011, there was not, also in the chapter of the preparation of the minutes that were required, any rigor; this absence of rigor was not to the point that the partners, over the years, prepared minutes under which the entire net result of the fiscal year was allocated to Free Reserves and/or Retained Earnings; such minutes (if they existed) were never prepared by the partners, never were of their knowledge and were never signed by them;
(29) It was because it became aware of the absence of formal support for the profit distributions of fiscal years 2002 to 2011 that it proceeded with the preparation of the minutes, which reflect the reality that occurred in previous years and which, consequently, demonstrate the (actual) assignment of profits at a time prior to 2012;
(30) The address contained in the minutes, with reference to the period between 2002 and 2004, is not coincident with that which, only on 27.10.2004, was communicated to the competent Tax Office, but the untimeliness of the communication does not constitute sufficient grounds to call into question the authenticity of the minutes duly signed by the Partners, nor can it be elevated to a decisive or extremely relevant issue; the change of headquarters of the Petitioner occurred before 2004, which is evidenced, for example, by the Declaration, issued by Bank E…, which states that since 25.06.2002 the Petitioner requested the change of address for sending its correspondence to Rua …, …, …, Lisbon, and correspondence sent to the Petitioner shows, at a date prior to 27.10.2004, that it was already being sent to the current address;
(31) The allegation that the minutes presented, and which justify the distributions made between 2002 and 2011, are not authentic does not hold;
(32) The lack of authenticity is evidenced in minutes not signed by the partners, who were unaware of them and who, allegedly, were prepared by the CPA;
(33) The underlying issue is to determine whether the legal prerequisites for taxation in 2012 of the attribution of profits to partners in the amount of EUR 712,227.63 are actually met, which, if so, would determine an obligation of tax due by way of Withholding Tax on IRS in the amount of EUR 188,740.32;
(34) There is no basis to sustain that, in 2012, it attributed or made available assets to the partners, for which reason it considers that the imposition is illegal due to the nonexistence of a taxable fact;
(35) AT alleges that the Petitioner had high cash balances in its accounting, having used such funds to effect profit distributions to the partners in 2012, but is unable to demonstrate how there would have been sufficient funds capable of having simultaneously permitted such attributions and also, between 2002 and 2011, allowed distributions of funds on the same order of magnitude, because over a decade such distributions occurred with a character of informality;
(36) AT advances that in December 2012 the partners resolved to distribute the amount of available reserves, at the date when the minutes of profit distribution were accounted for and prepared, as well as that, as to the accounting (withdrawal) of the amount of EUR 116,845.08 with destination to partner accounts, also accounted for in December 2012, with minutes drafted on that date, the requirements of paragraph 4 of Article 6 of CIRS are met, but AT's assertion would only be in accordance with the law invoked if at the moment of accounting of the dividends the respective funds had not previously been made available (which is presumed when accounting is made in favor of the partners). That is, there should only be withholding tax on IRS at the moment of accounting if it had not yet, in fact, occurred the distribution - which was not the case;
(37) The formalization of accounting entries relating to past facts cannot, without more, trigger taxation;
(38) Even if there were no accounting support and the Petitioner's minutes of application of results did not succeed in reflecting such distribution decisions, once the attribution of funds was verified the presumption provided for in paragraph 4 of Article 6 of CIRS would always apply, whereby the distribution of profits would never have occurred in 2012, but in previous tax periods; if the said provision determines that when there are entries made in partner accounts that do not result from loans, dependent work or the exercise of corporate positions, the same are presumed to be made as profits (or advances on account thereof), then, by a majority argument, it must be granted that the distribution of funds made previously (in the amount of EUR 595,382.55) will have the same nature;
(39) The same rationale applies, without any adaptation, to the amount of EUR 102,498.66, relating to minutes nos. 11, 12, 13 and 14, relating to distributions of profits and advances on account of these from the tax periods of 2008, 2009 and 2010;
(40) The profit distributions in question could not have occurred in 2012 - in material terms there would be no liquidity to operate such distributions - which leads to the conclusion that they would already have occurred between 2002 and 2011 and at those moments of "making available" the withholding tax obligation occurred (point 2 of subparagraph a) of paragraph 3 of Article 7 of CIRS);
(41) In light of the provisions of Article 45 of the General Tax Law (LGT), we are in the presence of an act whose right to issue has already lapsed, because facts that occurred between 2002 and 2011 are at issue; having the taxable fact occurred in 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010 and 2011, the right to its assessment has already lapsed; the lapse of the right to assessment constitutes a defect generating illegality of the act, generating voidability; facts that are prior to the year 2012 are at issue, that is, the premise of taxation (the distribution in 2012) is not true, so, if maintained, would mean that the AT would be allowed the right to assess taxes beyond the period that the said provision of the LGT consents;
(42) In view of the accounting discrepancy detected, AT cannot, in an arbitrary manner, fictively create attributions of profits by reference to a moment when they did not occur;
(43) The mechanism that AT would have at its disposal would be the recourse to indirect assessment (Article 88 of LGT); not having opted for this route, it is not legitimate for it to resort to other expedients that do not allow it, within a framework of legality, to exercise this right to assessment;
(44) There exists insufficient, erroneous and contradictory substantiation of the tax act: (a) the insufficiency of substantiation stems from the fact that the imposition rests on a taxable fact that manifestly did not exist in the period that AT chose - in 2012 no profit or reserve distribution occurred on the part of the Petitioner; (b) the substantiation is erroneous because it would be impossible to reconcile the existence of the aforementioned cash balance and the continued verification, between 2002 and 2011, of profit distributions to the partners; (c) the substantiation is contradictory, since the legal provisions on which it is based are not capable of justifying the withholding tax obligation, because the facts - the provision - did not even permit their invocation. The facts mobilized by AT have no adhesion to reality, which implies that the imposition in question is marred by a defect of substantiation, whereby it is illegal, and should be annulled, or, at minimum, subject to annulment due to a defect of, now, obscure substantiation;
(45) In the scope of the tax enforcement proceedings instituted by reference to the imposition here in issue, it adhered to the Special Plan for Reduction of Indebtedness to the State, approved by Decree-Law no. 67/2016, of 3 November, whereby it requests the full reimbursement of the amounts paid, plus the respective legal interest.
The Tax and Customs Authority (AT) responded, arguing that the request should be judged unfounded. In summary:
(46) In the course of a gathering of information, in the scope of Dispatch DI2013…, in December 2013, concerning the fiscal year 2012, and regarding the project of "high cash balances", the tax inspection services (SIT) detected accounting regularizations of the Petitioner's cash balance at the end of 2012, allegedly based on minutes from years prior to 2009 and other documents, in which they found strong evidence that the same were elaborated following the notification made pursuant to the request for collaboration made by AT, having resulted in the proposal for inspection that gave rise to Inspection Order no. 2014…;
(47) The origin of the situation was a notification made by the Computer Audit Team of Department A of Tax Inspection, in November 2012, requesting the sending of the SAF-T file "relating to the accounting of fiscal year 2012 up to the last month that had been closed";
(48) In response to this notification, the SAF-T file was sent up to October 2012, which contained in that month an amount in cash, account 11, of EUR 719,544.49;
(49) In the course of this information, Dispatch DI2013… was issued, in order to analyze and frame the situation; in the analysis of the elements sent by the Petitioner's CPA relating to fiscal year 2012 and in the scope of said Dispatch, AT detected the accounting regularizations reported to 31/12/2012, crediting Cash Account 11 in EUR 595,382.55, offset by accounts 55 – Reserves, 56 – Retained Earnings, that is, this regularization allowed "consuming" EUR 230,530.62 of Reserves and EUR 364,851.93 of Retained Earnings;
(50) When questioned by AT regarding the documentary support of the entries in question, the Petitioner sent an Excel spreadsheet, with the indication of accounting movements by account and with the designation in all of them of "miscellaneous operations" (Annex II of RIT); since the aforementioned document (Excel spreadsheet), per se, did not fiscally justify the regularization made, it was again requested justification for the accounting entries, and 9 minutes were remitted (from minute no. 2 to minute no. 10) (Annex III of RIT), supposedly from periods between 2002 and 2008, all of them with proposal and approval of application of results, which in some way justify to the penny the total regularization of EUR 595,382.55 of the cash account, offset by reserves and retained earnings;
(51) The year of fiscal analysis of the situation was 2013, when the taxpayer was questioned about the matter, the fiscal year 2008 would be the 1st fiscal year of lapse, should there effectively have been partner resolutions in the sense of profit distributions being made;
(52) The tax inspection services (SIT) considered the minutes sent to be doubtful, having taken steps to test their authenticity, having found the existence of duplication of the numbering of "minute no. 2";
(53) They also heard, by way of statements, two of the Petitioner's former CPAs, Mr. H…, CPA responsible for closing the accounts of fiscal year 2012, and Ms. I…, CPA responsible for accounting in the periods to which the minutes in question relate. Both do not recognize and find strange the minutes in question (minutes nos. 2 to 8), and Mr. H…, also managing partner of J…, Lda., stated in hearing on 8 September 2014, that the minutes were sent to him by the company K…, "they have the header and footer of the program I use", that is, they have the licensing assigned to J…, Lda., however they were not prepared by him, just as they had not been prepared by Ms. I… (CPA in the periods of reference of the minutes), according to her statements. Ms. I…, on 13 July 2015, in an inquiry already in the scope of investigation process no. …/15… IDLSB, when confronted with minutes 2 to 10, stated that, "with absolute certainty, none of the minutes now shown were seen by her while she was CPA of A… Lda., and with absolute certainty, also did not pass through anyone at J…, Lda., because if they had been prepared and appeared there certainly would have been prepared payment guides for withholding tax on advances on account of profits."; Mr. H… also attached a copy of the exchange of emails between him (through L…, employee of J…, Lda.), the company K… (represented by M… and N…) and B… (managing partner of A…), related to the matter in question and which also resulted in the change of accounting responsible, to a CPA who provided services to K…, in the case O…. From the exchange of emails it was clear that instructions were given to Mr. H… by Mr. B…, which he should respect and follow the indications of K… as to the regularizations to be made relating to the cash balance.
(54) The SIT also verified in an email of 28 May 2013, that Mr. H… (through L…) sent a simulation of IRC model 22 of fiscal year 2012, where an amount to be paid of EUR 161,035.86 appeared, since he would have precisely considered the EUR 595,382.55 that would need to be justified in the cash balance as a negative patrimonial variation, that is, Mr. H… recognized that tax should have been paid for that amount which was accounted for in cash, by withdrawal of this asset from the company. That is, on this date, there was a clear recognition by the CPA responsible at the time, that the company had that accounted cash balance and that, not existing the same physically in the possession of the company, it would have to have a consequence and tax framework.
(55) Subsequently and in the scope of investigation process no. …/15… IDLSB, the following documents were sent to the SIT, made available by the current CPA, Mr. O… on 30 July 2015: (a) minutes book, which contains photocopies of the cover, internal document, opening statement, stamp tax settlement and minutes nos. 1 to 18; (b) folder with the spine "Official Documents A…", which contains photocopies of the folder spine, opening statement of minutes book and minute no. 2; (c) folder with the spine "Tax Dossier A…, Lda", which contains photocopies of the folder spine and minutes nos. 3 to 9, which are not signed (there are two minutes with no. 5).
(56) Regarding the folder with the spine "Official Documents A…" analyzing the minutes included therein, the SIT found: minute no. 2, dated 2004/10/20, where the change of registered office was made, which was filed by the taxpayer in the Lisbon tax office –…; focusing on the folder with spine "Tax Dossier A…, Lda" analyzing the minutes included therein, the SIT found: (a) minute no. 3, dated 2004/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2003, of EUR 80,676.28 with allocation to free reserves of EUR 80,676.28, as stated in IES submitted on 2004/06/22, table 07; (b) minute no. 4, dated 2005/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2004, of EUR 74,813.92, with allocation in legal reserves of EUR 750.00 in free reserves of EUR 74,063.92, as stated in IES submitted on 2005/06/24, table 07; (c) minute no. 5, dated 2006/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2005, of EUR 58,018.28, with allocation in legal reserves of EUR 1,000.00 in free reserves of EUR 57,018.28, as stated in IES submitted on 2006/03/30, table 07; (d) another minute no. 5, dated 2007/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2006, of EUR 87,089.21, with allocation in retained earnings of EUR 87,089.21, as stated in IES submitted on 2008/06/27, table 0540 – field A0587; (e) minute no. 6, dated 2008/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2007, of EUR 114,339.41, with allocation in retained earnings of EUR 114,339.41, as stated in IES submitted on 2009/07/10, table 0540 – field A0587; (f) minute no. 7, dated 2009/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2008, of EUR 127,374.73, with allocation in retained earnings of EUR 127,374.73, as stated in IES submitted on 2010/06/29, table 0540 – field A0587; (g) minute no. 8, dated 2010/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2009, of EUR 79,123.83, with allocation in retained earnings of EUR 79,123.83, as stated in IES submitted on 2011/09/01, table 0531-A – field A6091; (h) minute no. 9, dated 2011/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2010, of EUR 6,935.57, with allocation in retained earnings of EUR 6,935.57, as stated in IES submitted on 2012/07/07, table 0531-A – field A6091, in Annex IX pp. 2 of RIT;
(57) The minutes are not signed, but were presented by the current CPA O….
(58) The SIT concluded that the 'other' minutes 2 to 10, of profit distribution from the years 2001 to 2008 which support the regularization of the cash balance in the amount of EUR 595,382.55, were prepared not on the dates mentioned therein, but later with the sole purpose of preventing the taxation of the withdrawal of income from the company to the benefit of its partners without any taxation, because: (a) they appear following a notification of November 2012, pursuant to the principle of collaboration, the SAF-T File having been presented from October 2012, where the cash account shows a balance of EUR 719,544.49; (b) they were provided for the first time, by email response of 16 December 2013, by Mr. O…, to a notification pursuant to the principle of collaboration of 3 December 2013;
(59) Although the 'other' minutes were provided for the first time on 16 December 2013, the SIT could verify that the same appear mentioned for the first time in an email of 2013/03/23, sent by Mr. M… requesting Mr. H…, "… the favor of clearing the cash account as of 31.12.2012…", "…as per partner resolutions in minutes 2 to 10 (attached)…", emails that Mr. H… provided only on 2014/09/08, when he was heard by way of statements;
(60) The presentation of the 'other' minutes 2 to 10, where profit distributions are approved, until the year 2008, appears in 2013, the year in which the analysis was taking place, the year 2008 being the 1st year of lapse of the right to assessment;
(61) The CPA responsible for the preparation of accounting in the periods of the minutes in question, Ms. I…, as well as the CPA responsible for accounting in 2012, Mr. H…, stated that the 'other' minutes in question were not prepared by either of them; Ms. I… said to have "absolute certainty" that the minutes would never have been seen by her, nor have they passed through anyone at J…, Lda., (the company where the accounting was prepared) "because if they had been prepared and appeared there certainly would have been prepared payment guides for withholding tax on advances on account of profits".
(62) Once that, apart from the balance of EUR 595,382.55, in which the cash account was cleared, there was another balance of EUR 116,845.08, which had left the cash account - 11 with destination to accounts 2788102 – B… (EUR 57,254.09), 2788103 – C… (EUR 57,254.09) and 2788104 – P… (EUR 2,336.90), the SIT personally notified the managing partner Dr. B… on 24/09/2015 to explain on what basis such amounts would have been transferred, to identify the nature of the transfers from the company to the partners and to attach a copy of the documents supporting the transfers. In response to the request, an email was sent by Dr. B… to the Respondent with the response to said notification. From the analysis of the email that was sent, the SIT identified as the author of the same Mr. Q…, from K…, who drafted an email response that was forwarded by Dr. B…, in which it was stated that the value could not be correct and that he had verified that minutes nos. 11 to 14 would not be accounted for. and attached the following minutes, in an email attachment of 5 October 2015: minute 11: distribution of EUR 17,374.83, fiscal year 2008; minute 12: distribution of EUR 70,000.00, fiscal year 2009; minute 13: distribution of EUR 9,123.83, fiscal year 2009; minute 14; distribution of EUR 6,000.00, fiscal year 2010; in the total of EUR 102,498.66; the remainder (difference of EUR 116,845.08 accounted for in accounts 27 and the distribution of EUR 102,498.66), relating to the operating cash in the custody of Dr. B… would have been entirely used for the payment of expenses in the year 2013. It also justified that the amounts transferred to the partners are documented by the minutes attached.
(63) Besides the finding that these are minutes that come in the sequence of the minutes presented for lapsed periods, minutes nos. 2 to 10, one can notice again the care that was taken in their preparation, in particular in their chronological relation to the moment they were requested. That is, as had already been noticed by the SIT, minutes nos. 2 to 10 appeared in the sequence of a request from the year 2013, the last minute corresponding to a supposed profit distribution to its partners in the year 2008, precisely the first year of lapse of the right of assessment, with reference to the year of analysis 2013, now minutes nos. 11 to 14 appear in the sequence of a notification of the year 2015, the last minute corresponding to a supposed profit distribution to its partners in the year 2010, precisely the first year of lapse of the right of assessment, with reference to the year of analysis 2015.
(64) In conclusion of the SIT: (a) in the scope of the Project "high cash balances" the taxpayer was notified to present a set of elements that would justify that asset; (b) despite no proof of profit distribution in previous years and as a way to prevent taxation, minutes were prepared relating to lapsed periods, with the objective of justifying the withdrawal of income from the company for the benefit of its partners without any taxation; (c) it is only in December 2012 that the partners decide to distribute the available amounts, the total equity amounted to EUR 702,476.08, being the items other reserves of EUR 230,530.62 and retained earnings of EUR 464,945.46, taking into account the accounting movements made; (d) the moment of distribution occurred thus on the date when the minutes of profit distribution were accounted for and prepared, in December 2012, distribution over which IRS is levied, pursuant to subparagraph h) of paragraph 2 of Article 5 of CIRS, at the liberatory rate provided in subparagraph c) of paragraph 1 of Article 71 of CIRS, this rate during the period in question being 26.5%; (e) as to the accounting (withdrawal) of the amount of EUR 116,845.08, with destination to partner accounts, also accounted for in December 2012, with minutes drafted on that date, the requirements of paragraph 4 of Article 6 of CIRS are met, to apply the presumption relating to income of category 'E', income over which IRS also falls under the same terms as in the preceding paragraph; (f) as evidence indicating the practice of tax crime was found, the lifting and Preliminary Information was proceeded with, with evidence of crime, having been sent to the Division of Tax Criminal Proceedings of the Finance Department of Lisbon, giving rise to the institution of process no. …/15… IDLSB, which is in the stage of accusation for tax fraud, provided for in Article 103 of RGIT; (g) having notified the Petitioner by mail to exercise within fifteen days the right of hearing provided for in Articles 60 of the General Tax Law and 60 of the Complementary Regime of Tax Inspection Procedure, the same did not make use of that right, thus maintaining the grounds and the respective corrections that were contained in the Draft Inspection Report.
(65) In the request, the Petitioner adds a specific situation stemming from a contract entered into between D…, Lda. and partner B…; the Petitioner states, but does not prove, that income was earned which was invoiced by it and deposited in Dr. B…'s personal accounts. No proof is made: of the existence of invoices issued by the Petitioner to D…, Lda.; of invoices issued by the Petitioner to D… having been accounted for in revenue accounts of the Petitioner; of inflows in the accounting of the Petitioner resulting from invoicing issued to D… having been accounted for; of the annual quantification and actual evidence of financial flows resulting from receipts from the provision of services to D… in Dr. B…'s bank accounts.
(66) The request for arbitral pronouncement and respective documents in no way alter the conclusions drawn in the inspection procedure, the explanations and evidence elements that substantiate the taxable facts now in question being found in the RIT; throughout the inspection report, next to PA, all the legal prerequisites for the determination of the tax assessed for the lack of assessment and payment of tax, relating to withholding tax, at the liberatory rate, in violation of the provisions of Articles 71, 98 and 102 of CIRS were exposed.
(67) Although not alleged by AT in the Response, but because it appears in the RIT (p. 4) and is a matter of Law that the tribunal could and should always invoke, as to the lapse period, whenever the right to assessment concerns facts in relation to which a criminal inquiry was instituted, the period referred to in paragraph 1 of Article 45 of LGT (4-year period) is extended until the dismissal or final judgment in the case, plus one year (paragraph 5 of Article 45 of LGT). The taxable facts under analysis are included in the inquiry process with the no. …/15… DLSB.
Instruction and allegations
On 22 May 2017, a tribunal meeting was held, in which evidence was produced by statements of party, partner and manager of the Petitioner, B…, and testimonial evidence, by deposition of R…, administrative employee, between 2000 and 2005, of the practice where B… exercised his profession as a physician, and of M…, Certified Accountant of the Petitioner since 2013, Tax Consultant of K…, current provider of accounting services to the Petitioner.
At the same meeting, it was decided that the proceedings would continue with written allegations.
The parties presented allegations.
2. Findings of Fact
2.1. Facts proven
The following facts are considered proven:
(A) The Petitioner, A…, Lda., was incorporated in 2001 and carries out its activity in the area of provision of medical services.
(B) It has as partners, since its incorporation, B… (holder, at the date of incorporation, of a share with a nominal value of EUR 2,450.00 corresponding to 49% of the capital stock), C… (holder, at the date of incorporation, of a share with a nominal value of EUR 2,450.00 corresponding to 49% of the capital stock) and P… (holder, at the date of incorporation, of a share with a nominal value of EUR 100.00 corresponding to 2% of the capital stock).
(C) On 29 November 2012, the Petitioner was notified by the Computer Audit Team of Department A of Tax Inspection, pursuant to the principle of collaboration provided for in Article 59 of LGT, requesting the sending of the SAF-T file "relating to the accounting of fiscal year 2012 up to the last month that had been closed".
(D) In response to this notification, the Petitioner sent the SAF-T file, stating 'October balances" [of 2012], which contained in that month an amount in cash, account 11, of EUR 719,544.49.
(E) It was only after receiving the request for the SAF-T file that those responsible for the Petitioner's accounting informed its management that the financial statements showed the cash balance of EUR 719,544.49, a situation that motivated the carrying out of an "external audit", requested by the Petitioner from K….
(F) The cash balance amount of EUR 719,544.49 was regularized in the accounts in 2012, offset by accounts #55 (Reserves), #56 (Retained Earnings) and #2788102 (Other debtors and creditors), because "the nonconformity of the accounts" with what the Petitioner considered "factual reality" was verified.
(G) In the course of receiving the SAF-T file, Dispatch DI2013… was issued, in the sense that AT Services analyze and frame the situation. In the analysis of the elements sent by the Petitioner's CPA relating to fiscal year 2012 and in the scope of said Dispatch, AT detected the accounting regularizations reported to 31/12/2012, crediting Cash Account 11 in EUR 595,382.55, offset by accounts 55 'Reserves', 56 'Retained Earnings': EUR 230,530.62 of Reserves and EUR 364,851.93 of Retained Earnings.
(H) When questioned by AT regarding the documentary support of the entries in question, the Petitioner sent an Excel spreadsheet with the indication of accounting movements by account and with the designation in all of them of "miscellaneous operations", all dated 31/12/2012;
(I) When requested by AT to justify the accounting entries, the Petitioner sent 9 minutes (with ordinal numbers 2 to 10), mentioning periods between 2002 and 2008, all of them with proposal and approval of application of results, supporting the total regularization of EUR 595,382.55 of the Cash account.
(J) The Tax Inspection Services (SIT) took steps to test the authenticity of the minutes, having heard, by way of statements, two of the Petitioner's former CPAs, H…, responsible for closing the accounts of fiscal year 2012, and I…, responsible for accounting in the periods to which the minutes in question relate. It appears from the statements and documents accompanying them, in summary and with interest for the proceedings: (a) that all accounting entries and annual closings of the Petitioner's accounts passed through the aforementioned CPAs, with the exception of the Cash adjustment entries made at the end of 2012, these being made at the indication of K… and the managing partner Dr. B…; (b) that the Petitioner had high balances at the end of each fiscal year and that the explanation for this fact results from it being then framed in the simplified IRC regime and from having presented revenues without corresponding expenses, leading to the accumulation of the Cash balance throughout practically the entire life of the Petitioner; (c) that, after the Petitioner was notified to present the SAF-T file of the accounting of fiscal year 2012, the Cash adjustment was made, by advice of K… and indication of Management, as well as Declaration mod. 22 of fiscal year 2012 was replaced, at the indication of the same K…, removing the increase that had been initially included as a negative patrimonial variation (field 704) in the amount of EUR 595,382.55; (d) that, as to fiscal year 2012, the various movements to credit in account …, imputed to 31/12/2012, in a total amount of EUR 724,916.49, had as underlying documents an email from K…, dated 23 March 2013, and minutes numbered 2 to 10, attached thereto, that is, were not prepared by the CPAs responsible for the Petitioner's accounting in fiscal years 2001 to 2008; (e) that instructions were given to CPA H…, in emails of 28 and 30 May 2013, by the partner and managing partner of the Petitioner B…, to follow the indications of K…, in particular as to removing the increase that had been included in Declaration Mod. 22 as a negative patrimonial variation, and as to the IES declaration relating to the year 2012, consequently also as to the regularizations relating to the Cash balance;
(K) It appears from the Administrative File that, in the scope of Investigation Process no. …/15… IDLSB, were sent to the SIT, on 30 July 2015, by the current CPA of the Petitioner, O…, various documents, from which follows, in summary and with interest for the proceedings, that there are several minutes, numbered 3 to 9 (with duplication of number 5), not signed by the partners of the Petitioner, which support the values inscribed in the IES declarations submitted in the name of this: (a) Minute no. 3, dated 2004/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2003, of EUR 80,676.28, with allocation entirely to free reserves, as stated in IES submitted on 2004/06/22; (b) Minute no. 4, dated 2005/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2004, of EUR 74,813.92, with allocation to legal reserves of EUR 750.00 and to free reserves of EUR 74,063.92, as stated in IES submitted on 2005/06/24; (c) Minute no. 5, dated 2006/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2005, of EUR 58,018.28, with allocation to legal reserves of EUR 1,000.00 and to free reserves of EUR 57,018.28, as stated in IES submitted on 2006/03/30; (d) Another minute no. 5, dated 2007/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2006, of EUR 87,089.21, with allocation entirely to retained earnings, as stated in IES submitted on 2008/06/27; (e) Minute no. 6, dated 2008/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2007, of EUR 114,339.41, with allocation entirely to retained earnings, as stated in IES submitted on 2009/07/10; (f) Minute no. 7, dated 2009/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2008, of EUR 127,374.73, with allocation entirely to retained earnings, as stated in IES submitted on 2010/06/29; (g) Minute no. 8, dated 2010/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2009, of EUR 79,123.83, with allocation entirely to retained earnings, as stated in IES submitted on 2011/09/01; (h) Minute no. 9, dated 2011/03/30, corresponds to the resolution of approval of accounts and allocation of results of the year 2010, of EUR 6,935.57, with allocation entirely to retained earnings, as stated in IES submitted on 2012/07/07.
(L) Until 2009, the Petitioner was taxed, under IRC, by the simplified regime, with lack of rigor in the accounting of operations, in particular without accounting of expenses, and with confusion between its equity sphere and that of the partners, including a pattern of receipt of consideration for services of the Petitioner directly by the managing partner Dr. B…, who proceeded to deposit them in his personal bank accounts, as well as in those of managing partner Ms. C…. Therefore, such values, recorded in Cash in the Petitioner's accounting, were directly deposited into the personal accounts of the two managing partners. Throughout the period under analysis, it was a reiterated practice to carry out bank transfers in favor of the partners without any documentary basis supporting them. The Petitioner incurred, over the years, in expenses intended for the private sphere of the partners, through the use of a credit card, with "frequent use" for "purchase of goods such as cinema tickets, supermarket purchases, clothing, toys, sports items, children's clothing, among others".
(M) It appears from the Report of Management relating to the fiscal year 2012, dated 31 March 2013 signature by the managers (Doc. 3 attached by the Petitioner): "According to the Balance Sheet as of 31 December 2012, the equity of the Company changed from EUR 701,018.28 at the end of 2011 to EUR 104,705.27 at the end of 2012. Management informs and clarifies that the aforementioned reduction in equity resulted from a regularization of an accounting nature, during the fiscal year 2012, of the amount of the item "cash and bank deposits". Indeed, due to manifest negligence, the external accounting services of the Company had not recorded, in previous fiscal years, the profit distributions made since the incorporation of the company."
(N) In the statement of party of the partner and managing partner of the Petitioner, B…, he stated that the minutes were prepared, "after the external audit" carried out following the sending of the SAF-T file, "to reflect what had happened in previous years" and that "they were all prepared in 2012".
(O) All the minutes in which the distribution of results of fiscal years 2001 to 2008 is recorded, for regularization of the Cash balance reported in the SAF-T file of October 2012, were prepared after the sending of that file by the Petitioner (therefore, in 2012 or even in 2013). That is, although they state that, on the days 31.03.2002, at 19h (Minute no. 2), 31.03.2003, at 19h (Minute no. 3), 31.03.2004, at 17h (Minute no. 4), 31.03.2005, at 17h (Minute no. 5), 31.03.2006, at 22h (Minute no. 6), 31.03.2007, at 13h (Minute no. 7), 2.12.2007, at 18h (Minute no. 8), 31.03.2008, at 11h (Minute no. 9) and 7.12.2008, at 22h (Minute no. 10): "met in General Assembly, with waiver of prior formalities", there is no evidence that the said General Assembly meetings actually took place on those dates, and at the times so carefully mentioned therein, rather the tribunal forms the solid conviction that such references are false, in particular in light of the facts referred to in points E, F, H, I, J, K, M and N.
(P) Apart from the balance of EUR 595,382.55, in which the Cash account was cleared, there was another balance of EUR 116,845.08, which had left the Cash account with destination to accounts 2788102 – B… (EUR 57,254.09), 2788103 – C… (EUR 57,254.09) and 2788104 – P… (EUR 2,336.90).
(Q) When the managing partner Dr. B… was personally notified on 24/09/2015, to explain on what basis such amounts would have been transferred, to identify the nature of the transfers and to attach a copy of the documents supporting them, an email was sent by him, of 05/10/2015, in which he states that the value could not be correct and that he had verified that minutes nos. 11 to 14 would not be accounted for, which he attached to the same. From them it appears that, on the days 31.03.2009, at 12h (Minute no. 11), 31.10.2009, at 19h (Minute no. 12), 31.03.2010, at 22h (Minute no. 13), 31.03.2011, at 12h (Minute no. 14), "met in General Assembly, with waiver of prior formalities" the partners of the Petitioner and resolved the following distributions: in Minute no. 11, EUR 17,374.83, of fiscal year 2008; in Minute no. 12, EUR 70,000.00, of fiscal year 2009; in Minute no. 13, EUR 9,123.83, of fiscal year 2009; in Minute no. 14, EUR 6,000.00, of fiscal year 2010; in the total of EUR 102,498.66. The remainder (difference of EUR 116,845.08 accounted for in accounts 27 and the distribution of EUR 102,498.66), relating to the operating cash in the custody of Dr. B…, would have been entirely used for the payment of expenses in the year 2013.
2.2. Facts not proven
The Petitioner did not prove – nor did it attempt to – that, on the days and at the hours referred to in minutes numbered 2 to 10, in which it is recorded that there were resolutions of profit distribution of fiscal years 2001 to 2008, the General Assembly meetings of partners, "with waiver of prior formalities", which such minutes are ex lege supposed to record, actually took place.
The Petitioner did not prove – nor did it attempt to – that, on the days and at the hours referred to in minutes numbered 11 to 14, in which it is recorded that there were resolutions of profit distribution of fiscal years 2008 to 2010, the General Assembly meetings of partners, "with waiver of prior formalities", which such minutes are ex lege supposed to record, actually took place.
There are no other facts relevant to the decision of the case that have not been proven.
The tribunal's conviction about proven and unproven facts results from critical examination of the documents attached and the testimony of the witnesses, which demonstrated knowledge of the facts and testified with impartiality.
3. Legal Issues
The legal issue, relative to the principal claim, is of simple statement, taking into account that tax arbitration is not of full jurisdiction: is there illegality in the administrative act imposing withholding tax on Income Tax for Individuals (IRS) no. 2016…, in the total amount of EUR 215,298.42, of which EUR 188,740.33 corresponds to withholding tax on IRS allegedly due and EUR 26,558.09 relates to compensatory interest?
The Petitioner argues that such an act is marred by illegality. It is based on the following evaluative premises of the facts:
(a) The profit distributions to the partners took place on dates prior to 2012, through all direct appropriations, withdrawals and use of the Petitioner's bank card, which were being made by the partners as reflected in minutes numbered 2 to 10, identified in point 'O' of the factual issues fixed, even though the minutes in question were prepared at a later date, e.g., in 2012;
(b) It did not withhold taxes on the distribution of profits, but such distributions (such transfers) occurred between 2002 and 2011; the funds shown in cash were, throughout the various fiscal years prior to 2012, actually distributed (and used) by the partners; the managing partners never received salaries in all the mentioned fiscal years (2002 to 2011), which leads to the conclusion that the transfers made over the years did not occur on that basis; such transfers, as well as deposits directly made into the personal accounts of the partners, also were not loans, nor reimbursements of expenses incurred on behalf and for the account of the Petitioner; they had no other nature than that of profit distribution;
(c) There was no profit distribution - presumed or actual - in the fiscal year 2012;
(d) Having been such amounts actually assigned to the partners at a date prior to 2012, it is not possible to sustain any correction or imposition based on the "fact" that they were made available in that year 2012;
(e) The allegation that the minutes presented, and which justify the distributions made between 2002 and 2011, are not authentic does not hold;
(f) Although AT alleges that the Petitioner had high Cash balances in its accounting, having used such funds to effect profit distributions to the partners in 2012, it does not demonstrate how there would have been sufficient funds capable of simultaneously permitting such attributions and also, between 2002 and 2011, allowing distributions of funds on the same order of magnitude, because over a decade such distributions occurred with a character of informality;
(g) Although AT alleges that in December 2012 the partners resolved to distribute the amount of available reserves, at the date when the minutes of profit distribution were accounted for and prepared, as well as that, as to the accounting (withdrawal) of the amount of EUR 116,845.08 with destination to partner accounts, also accounted for in December 2012, with minutes drafted on that date, the requirements of paragraph 4 of Article 6 of CIRS are met, such assertion of AT would only be in accordance with the law invoked if at the moment of accounting of the dividends the respective funds had not previously been made available (which is presumed when accounting is made in favor of the partners);
(h) There should only be withholding tax on IRS at the moment of accounting if it had not yet, in fact, occurred the distribution - which was not the case;
(i) The formalization of accounting entries relating to past facts cannot, without more, trigger taxation;
(j) Even if there were no accounting support and the Petitioner's minutes of application of results did not succeed in reflecting such distribution decisions, once the attribution of funds was verified the presumption provided for in paragraph 4 of Article 6 of CIRS would always apply, whereby the distribution of profits would never have occurred in 2012, but in previous tax periods;
(k) If the said provision determines that when there are entries made in partner accounts that do not result from loans, dependent work or the exercise of corporate positions, the same are presumed to be made as profits (or advances on account thereof), then, by a majority argument, it must be granted that the distribution of funds made previously (in the amount of EUR 595,382.55) will have the same nature;
(l) The same rationale applies, without any adaptation, to the amount of EUR 102,498.66, relating to minutes nos. 11, 12, 13 and 14, relating to distributions of profits and advances on account of these from the tax periods of 2008, 2009 and 2010;
(m) The profit distributions in question could not have occurred in 2012 - in material terms there would be no liquidity to operate such distributions - which leads to the conclusion that they would already have occurred between 2002 and 2011 and at those moments of "making available" the withholding tax obligation occurred (point 2 of subparagraph a) of paragraph 3 of Article 7 of CIRS);
(n) In light of the provisions of Article 45 of the General Tax Law (LGT), we are in the presence of an act whose right to issue has already lapsed, because facts that occurred between 2002 and 2011 are at issue;
To conclude that the lapse of the right to assessment constitutes a defect generating illegality, generating voidability of the respective act.
It further argues that there is insufficient, erroneous and contradictory substantiation of the tax act: (i) insufficiency of substantiation, because the imposition rests on a taxable fact that manifestly did not exist in the period that AT chose - in 2012 no profit or reserve distribution occurred on the part of the Petitioner; (ii) erroneous substantiation because it would be impossible to reconcile the existence of the aforementioned cash balance and the continued verification, between 2002 and 2011, of profit distributions to the partners; (iii) contradictory substantiation, since the legal provisions on which it is based are not capable of justifying the withholding tax obligation, because the facts - the provision - did not permit their invocation: the facts mobilized by AT have no adhesion to reality, which implies that the imposition in question is marred by a defect of substantiation, whereby it is illegal, and should be annulled, or, at minimum, subject to annulment due to a defect of, now, obscure substantiation.
The Respondent proposes the nonexistence of illegality of the act and the unfoundedness of the request:
(i) The moment of distribution [of EUR 595,382.55] occurred on the date when the minutes of profit distribution were accounted for and prepared, in December 2012, distribution over which IRS is levied, pursuant to subparagraph h) of paragraph 2 of Article 5 of CIRS, at the liberatory rate provided in subparagraph c) of paragraph 1 of Article 71 of CIRS, this rate during the period in question being 26.5% (Article 1 of Law no. 55-A/2012, of 29 October);
(ii) As to the accounting (withdrawal) of the amount of EUR 116,845.08, with destination to partner accounts, also accounted for in December 2012, with minutes drafted on that date, the requirements of paragraph 4 of Article 6 of CIRS are met, to apply the presumption relating to income of category 'E', income over which IRS also falls under the same terms as in the preceding paragraph.
Legal Assessment
What is at issue is the legal-tax treatment of cash regularizations, in the aggregate amount of EUR 595,382.55, and the withdrawal of the amount of EUR 116,845.08, with destination to partner accounts, both accounted for in December 2012.
In the understanding of AT, as explained in the RIT and replicated in the Response presented, there occurred, in December 2012, both the taxable fact of the distribution of profits and reserves in the amount of EUR 595,382.55, pursuant to subparagraph h) of paragraph 2 of Article 5 of CIRS, and the presumed taxable fact (iuris tantum) of being profits or advances on profits the entries in favor thereof, in any current accounts of the partners, recorded in commercial companies, when not resulting from loans, dependent work or the exercise of corporate positions.
In the understanding of the Petitioner, such taxable facts actually existed in the legal world, but in the fiscal years in which the partners were making, through the various forms mentioned above, appropriations of values of the Petitioner, whereby the administrative imposition based on the existence of such taxable facts in 2012 is marred by illegality.
As was seen, the tribunal gives as proven the withdrawal of amounts, not specified, by the partners – more properly, by the two partners who are also managing partners. Such amounts should have been subject to taxation in IRS, by withholding at the source, by reference to each one of the fiscal years in which the withdrawals occurred. The Petitioner did not withhold taxes at the source, nor, consequently, did it pay the tax due to the State's treasury.
However, the tribunal also gives as proven that all the minutes (numbered 2 to 10) in which the distribution of results of fiscal years 2001 to 2008, in the aggregate amount of EUR 595,382.55, for regularization of the Cash balance reported in the SAF-T file of October 2012, were prepared after the sending of that file by the Petitioner (therefore, in 2012 or even in 2013), as well as that the minutes (numbered 11 to 14) in which the distribution of the aggregate amount of EUR 102,498.66 is recorded, all accounted for in December 2012, were prepared at a date necessarily no earlier than that of the first ones.
Now, the resolution by the partners – made in 2012 or 2013, although made to appear in falsely antedated minutes – of the said distributions generates, it itself, the taxable fact provided for in subparagraph h) of paragraph 2 of Article 5 of CIRS.
Had the Petitioner made the withholding of IRS at the source throughout the fiscal years in which the managing partners were appropriating values generated by the Petitioner's activity, as should have occurred, this subsequent taxable fact, when distribution resolutions are made, although really existing, would not entail new assessment of tax. At most, a new assessment of tax would generate duplication of collection, pursuant to paragraph 1 of Article 205 of the Code of Tax Procedure and Process (CPPT), with the effect of illegality of the tax act.
Conversely, profit (or reserve) distribution resolutions, such as those adopted by the Petitioner's partners in 2012 or 2013, generate a taxable fact on the date when such cash withdrawals are accounted for, over which – there not having been prior assessment of IRS, when of the appropriations or withdrawals – there must be assessment, either by withholding at the source made by the tax substitute, or administrative, in the verification of the lack thereof, without generating duplication of collection, because the Petitioner failed to meet the obligation to withhold IRS at the source due in function of taxable facts that had occurred in previous fiscal years.
Thus, it is not considered that any illegality of the assessment act that is the object of the request for arbitral pronouncement has been verified, in particular that of lapse of the right to assess, whereby the Petitioner's request is unfounded.
Moreover, it is important to add that it would repugn to the very axiologyof taxation that the obligation to pay tax on a contributive capacity generated by the appropriation by the managing partners of the available cash of the Petitioner could be set aside by a 'formula' as 'basic' as that of omission, over years sufficient for the lapse of the right to assess, of entries in the Cash account corresponding to the appropriation acts, followed by one or more retroactive accounting regularizations, made at a date already beyond the period of exercise of the right to assess. And it would repugn even more if that 'formula' that revealed itself apt to evade taxation made recourse to minutes in which it is falsely recorded the realization, on certain days and at certain hours of years already covered by the lapse of the right to assess, of General Assembly meetings "with waiver of prior formalities", in which profit distributions of those years are resolved.
Regarding the defects alleged by the Petitioner regarding the substantiation of the tax act:
Paragraphs 1 and 2 of Article 77 of LGT set as the metric of the obligation to substantiate the brief exposition of the reasons of fact and law that motivate the act, which can consist of mere declaration of concordance with the grounds of prior opinions, information or proposals, including those that integrate the report of the tax inspection, as well as provide that the substantiation must always contain the applicable legal provisions, the qualification and quantification of the taxable facts and the operations for determining the taxable matter and the tax. Paragraph 2 of Article 153 of the Code of Administrative Procedure – applicable in a supplementary manner to tax procedure, by virtue of subparagraph d) of Article 2 of CPPT – is equally pertinent, by adding to the regulatory corpus the equivalence to the lack of substantiation of the adoption of grounds that, by obscurity, contradiction or insufficiency, do not concretely clarify the motivation of the act. Let us examine each of the Petitioner's arguments.
It first alleges that the substantiation is insufficient, which results from the fact that the imposition rests on a taxable fact that manifestly did not exist in the period that AT chose – "in 2012 no profit or reserve distribution occurred on the part of the Petitioner". There is here manifest confusion about what the institute of substantiation is. The Petitioner can disagree – and disagrees – with the legal interpretation made by AT, which subsumes the factuality, in its circumstances of time, to the provision of CIRS that provides that there is a taxable fact therein. However, it does not allege, nor does it appear, that it had difficulty in the reconstruction of the iter underlying that interpretation, rather it seeks to lucidly contradict it. Upon review of the Administrative File, in particular the RIT, no insufficiency of substantiation is concluded, in its legally fixed sense.
It then alleges that the substantiation is erroneous because it would be impossible to reconcile the existence of the said cash balance and the continued verification, between 2002 and 2011, of profit distributions to the partners. Once again, what is at issue is that the Petitioner disagrees with the legal construction made by AT, but the assessment of IRS does not rest on the ground of the existence of a cash "balance" – this was the trigger for the inspection action – but rather on the fact that the moment of distribution of EUR 595,382.55 occurred on the date when the minutes of profit distribution were accounted for and prepared, in December 2012, which subsumes to the provision of subparagraph h) of paragraph 2 of Article 5 of CIRS, and that the accounting (withdrawal) of the amount of EUR 116,845.08 with destination to partner accounts, also accounted for in December 2012, with minutes drafted on that date, subsumes to the provision of paragraph 4 of Article 6 of CIRS, with the corollary of the presumption of being as profit or advance on profits. The Petitioner understands that the moment of distribution is prior, throughout the years 2001 to 2008 and 2008 to 2010, respectively. However, knowing whether there is a legally relevant distribution at the time of the elective preparation of the minutes with the distribution resolutions is a question of law, not resolved solely by there having been throughout those years the appropriation by the managing partners of values of the Petitioner.
It finally alleges that the substantiation is contradictory, since the legal provisions on which it is based are not capable of justifying the withholding tax obligation, because the facts - the provision - did not permit their invocation. It says, in other words, that the facts mobilized by AT have no adhesion to reality, which implies that the imposition in question is marred by a defect of substantiation. Let us see if this is so. The facts "mobilized by AT", laid out, in their evaluation by the tribunal, in points 58 to 64, support the conclusion for the existence of the obligation of withholding of IRS at the source, as well as, in the lack of compliance therewith by the Petitioner, the realization of the administrative assessment whose annulment is requested by the Petitioner. The contradiction alleged is not considered verified.
4. Decision
Thus, they agree in this Arbitral Tribunal to judge unfounded the request for arbitral pronouncement of annulment of the administrative act imposing withholding tax on IRS no. 2016….
5. Request for reimbursement of amounts paid pursuant to the Special Plan for Reduction of Indebtedness to the State
Regarding the request for full reimbursement of the amounts paid by the Petitioner, pursuant to the regime approved by Decree-Law no. 67/2016, of 3 November, plus the respective legal interest, the same is prejudiced by the decision on the principal request.
6. Process value and costs
In accordance with the provisions of subparagraph a) of paragraph 1 of Article 97-A of CPPT, paragraphs 1 and 2 of Article 306 of the Code of Civil Procedure, subparagraphs a), b), c) and e) of paragraph 1 of Article 29 of RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the process is assigned a value of EUR 215,298.42 (two hundred fifteen thousand, two hundred ninety-eight euros and forty-two cents).
Pursuant to paragraph 4 of Article 22 of RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at EUR 4,284.00 (four thousand, two hundred eighty-four euros), at the charge of the Petitioner.
28 July 2017.
The Arbitrators
(José Baeta de Queiroz)
(José Rodrigo de Castro)
(Luís M. S. Oliveira)
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