Autonomous Taxation on Vehicle and Representation Expenses: CAAD Ruling 309/2016-T on IRC Business Purpose Test

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), José Nunes Barata and Francisco Pessoa Vaz, appointed by the Deontological Council of the Administrative Arbitration Center to form an Arbitral Tribunal:

I – STATEMENT

On June 7, 2016, A…, S.A., collective entity no. …, with registered office in the Zone…, P.O. Box…, …-… Anadia, filed an application for constitution of an arbitral tribunal, pursuant to the joint provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of January 20, which approved the Legal Framework of Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of December 31 (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the self-assessment act for Corporation Income Tax ("IRC") relating to the fiscal year 2011, in the amount of €86,527.91, as well as the decision dismissing the application for revision of the tax act that had that amount as its object.

To support its application, the Applicant alleges, in summary, that it improperly assessed and borne, as Autonomous Taxation, the amount of €86,527.91, relating to expenses incurred with light passenger vehicles and representation expenses, which should not have been subject to taxation given their essential nature and indispensability for obtaining the Applicant's taxable income and their "business" character, given that they were incurred with the purpose of promoting the Applicant's products and increasing sales and the existence of profits.

On June 8, 2016, the application for constitution of the arbitral tribunal was accepted and automatically notified to AT (Tax Authority).

The Applicant failed to appoint an arbitrator, so, pursuant to Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable period.

On August 10, 2016, the parties were notified of these appointments and did not express any wish to challenge any of them.

In accordance with Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on August 26, 2016.

On October 4, 2016, the Respondent, duly notified for this purpose, filed its response defending itself by way of objection.

On November 16, 2016, the meeting referred to in Article 18 of the RJAT was held, where the witnesses presented by the Applicant were heard.

Having been given a deadline for the submission of written arguments, these were submitted by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

A deadline of 30 days was set for delivery of the final decision, following the submission of AT's arguments.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of March 22.

The proceedings are not affected by nullity.

Thus, there is no obstacle to consideration of the merits of the case.

Having considered everything, it is necessary to render

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. The present APPLICANT is a Portuguese legal entity which pursues, within the scope of its corporate purpose, among others, the activity of marketing chemical products for construction.

2. With respect to the taxation period of 2011, the present APPLICANT filed the corresponding tax return (IRC Form 22), in which it determined the total amount of €86,527.91 relating to autonomous taxation, detailed as follows:

   a. €75,531.60 - corresponding to expenses with light passenger vehicles; and

   b. €10,996.31 - corresponding to representation expenses.

3. Subsequently, the Applicant considered that, with respect to the amounts of autonomous taxation, an amount higher than what would actually be due was determined and borne, so it filed an application for revision of the tax act, which was dismissed.

4. The dismissal order referred to above states, among other things, that:

   a. regarding charges with light passenger vehicles "(...) the thesis maintained by the applicant does not hold, that autonomous taxation will only arise if and when it is not proven that such character of business character is not proven, because, given the wording of the rule, it is not possible to support such interpretation, nor can it be concluded that this was the legislator's intention";

   b. "(...) the question of whether or not they have a business character does not arise, because as for this assessment the legislator only requires it for the deductibility of expenses in determining taxable profit."

5. The vehicles referred to in the expenses itemized in point a of item 2 above are used by salespeople and managers of the Applicant's group whose functions have inherent commercialization, advertising and presentation activities of its products.

6. The Applicant's line of business requires the constant relocation of means and people to the most diverse points of the Country.

7. The construction sector is not confined to a specific geographic region.

8. The supply of construction products for works carried out from north to south of the Country requires the Applicant's workers to travel to the most varied construction sites.

9. The relocations relate to the supply and delivery of materials, and for the purpose of advertising and promoting the … brand, as well as seeking to present the most appropriate solutions for each type of construction.

10. Of a total of twenty-five light vehicles assigned, eighteen were assigned to employees with commercial functions, namely sales technicians, commercial back-office manager and Commercial Director.

11. The functions of the employees referred to required relocation to clients for purposes of promoting the brand and selling its products, and otherwise it would not be possible to perform such functions with the same efficiency or effectiveness.

12. The use of public transportation would imply a reduction in their commercial efficiency and associated sales.

13. The relocation of any commercial employee by taxi would imply a considerable increase in the costs associated with relocation.

14. With respect to the remaining seven vehicles (in relation to those mentioned in 10) these were assigned to Directors (Technical Director, Operations, Finance, Marketing and General Director), as well as to a technical assistance technician.

15. In the case of the technical assistance technician, the provision of respective services in the activity sector in question involves regular relocations to clients and/or works performed by them.

16. With respect to the Directors, their functions also involve relocation with considerable frequency to clients, namely due to frequent external meetings within the scope of their current representative functions.

17. It is practice in the Applicant's business sector to assign vehicles to Directors.

18. The construction sector was among the most affected by the financial crisis that began in 2008.

19. The crisis in that sector was felt and reflected in the Applicant's performance.

20. The need for promotion and advertising of the brand and products marketed by the Applicant was accentuated in the years following the crisis.

21. The commercial employees of the Applicant, to whom relocations to clients, potential clients or event locations fell, had the need to enjoy the use of vehicles.

22. The Applicant's employees promoted this brand and contacted clients and potential clients located in the most varied geographic areas of the Country.

23. The Applicant had clients with civil construction works underway throughout the country, and monitoring of such clients and the corresponding construction works was essential for the closeness of the client-supplier relationship.

24. The charges, in the total amount of €54,981.53, underlying the autonomous taxation referred to in point b of item 2 above, are properly accounted for in the SNC account… (Representation Expenses).

25. The representation expenses referred to include expenses relating to the communication and marketing strategy previously defined and scheduled by the international Group to which the present Applicant belongs.

26. The final objectives of such strategies included enhancing contact between the brands and the public, acquiring clients and making sales.

27. The holding of promotional events aimed at promoting the Applicant's products to clients and potential clients.

28. The representation expenses referred to include, among others, the rental of spaces for events, expenses with advertising costs, as well as catering expenses for such events.

29. The Applicant promoted the holding of various seminars and courses for construction professionals and related areas, as well as participation in various sector fairs, namely:

a. "…" – the largest construction and public works fair in Portugal, with an itinerant nature, which traveled through various cities in the country during 2011, whose main objective was to support companies, promoting the internationalization of the construction sector and the exploitation of opportunities existing in the international market;

b. "…" – a promotional event to enhance the sale of the Applicant's material aimed at wood treatment;

c. "..." - whose primary function was to highlight the construction company with the greatest national relevance, which met positive points in the most diverse areas, where interaction between various companies was promoted and where the exchange of knowledge and ideas was facilitated, thus allowing an improvement of the Applicant's products, through the collection of preferences and observation of client selection criteria;

d. "…" – the largest national architecture fair which in 2011 traveled through the country.

1. Such events were important for the dissemination of the Applicant brand, for adapting products to client preferences, and as a way to achieve future clients and positioning against competition, and participation in them aimed at the growth of the Applicant's brand and sales.

A.2. Facts Established as Not Proven

1. That the Applicant's employees who used the light passenger vehicles did not use them also for purposes of their personal life.

2. That representation expenses included only those referred to in items 25 to 31 of the proven factual matter.

A.3. Reasoning for Proven and Not Proven Factual Matters

With respect to factual matters, the Tribunal does not need to pronounce itself on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish the proven matters from the not proven ones (see Article 123(2) of CPPT and Article 607(3) of CPC, applicable by virtue of Article 29(1)(a) and (e) of RJAT).

Thus, the facts pertinent to adjudication of the case are chosen and selected based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former Article 511(1) of CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of CPPT, the documentary and witness evidence and the procedural file attached to the case, the facts listed above were considered proven, as relevant to the decision.

For the determination of the facts contained in items 5 to 23 and 25 to 30, the testimony of the witnesses examined was considered, who testified regarding them revealing direct knowledge and in a coherent manner, with no reason to question their veracity.

The facts established as not proven also derive from the witness evidence produced, which acknowledged that the possibility of personal use of the vehicles in question was not ruled out, with sampling control of their use being conducted, from which the directors were excluded, and that only if some anomaly, for example in terms of normal mileage, fuel supply or use of tolls, was detected would the use of the vehicles for personal purposes of the persons to whom they were assigned be questioned.

The fact that the salespeople, technicians and directors took the company's vehicles for the weekend instead of leaving them parked at the company already implies personal use, unless the expenses associated with personal trips were charged and deducted from the remuneration earned. However, without rigorous and systematic control, supported by route reports and mileage records, such accounting becomes impractical.

Regarding representation expenses, it also emerged from the witness evidence that they included not only those in the proven facts, which would correspond to little more than 50% of the amount incurred with them, but others, namely lunches and trips with clients.

B. ON THE LAW

The questions that arise in the present proceedings are, firstly, whether the rules on which the autonomous taxation contested by the Applicant is based have underlying a presumption, if in the affirmative, whether it will be legally possible to rebut such presumption, and finally, whether in the concrete case, the Applicant succeeded in doing so.

Let us proceed.

The autonomous taxation in question in the present proceedings concerned expenses of the Applicant with vehicles and representation expenses.

In this respect, Article 81 of the IRC Code in force on the date of the taxable event in question in the proceedings (current Article 88), insofar as relevant here, provided:

"3 - The following are subject to autonomous taxation, excluding vehicles powered exclusively by electric energy:

a) At the rate of 10%, deductible charges relating to representation expenses and those related to light passenger vehicles or dual-purpose vehicles, motorcycles or motor scooters, incurred or borne by taxable persons not exempted from a subjective perspective and who exercise, as their main activity, commercial, industrial or agricultural activity;

b) At the rate of 5%, deductible charges borne by taxable persons mentioned in the preceding item, relating to light passenger vehicles or dual-purpose vehicles whose approved CO2 emission levels are below 120 g/km, in the case of gasoline-powered vehicles, and below 90 g/km, in the case of diesel-powered vehicles, provided that, in both cases, a certificate of conformity has been issued. (...)

5 - Charges related to light passenger vehicles, motorcycles and motor scooters shall be deemed to include, in particular, depreciation, rents or leases, insurance, maintenance and conservation expenses, fuel and taxes incurred on their possession or use. (...)

7 - Deductible charges relating to representation expenses are subject to autonomous taxation at the rate of 10%, being deemed as such, in particular, expenses incurred with receptions, meals, travel, trips and entertainment offered in the Country or abroad to clients or suppliers or to any other persons or entities."

Thus, and in sum, what is at issue is to determine the ratio legis of the normative provisions transcribed, ascertain whether they are based on a presumption and, if the answer is affirmative, whether such presumption was, or was not, rebutted in this case.

These questions have already been addressed in the context of case 628/2014T of CAAD[1], whose reasoning will be followed closely here.

When speaking of autonomous taxation, as is the case here, it is useful to have in mind that what is at issue is a set of disparate situations, which will include at least three distinct types, namely:

• Autonomous taxation of certain income (e.g., items 3, 5 and 6 of the IRS);

• Autonomous taxation of certain deductible charges (e.g., items 3 and 4 of Article 88 of the IRC);

• Autonomous taxation of other charges regardless of their deductibility (e.g., Articles 1 and 2 of Article 88 of the IRC).

This precision becomes important because it is understood that, given the disparity and heterogeneity of the situations subject to autonomous taxation, it will be unnecessary in this regard, but even counterproductive, to endeavor to synthesize and seek a unique legal nature common to all those situations.

The nature of the specific autonomous taxation in question in the proceedings has been the subject of extensive discussion in recent doctrine and case law.

A strong current has regarded them as a tax on spending, which would tax certain types of expenses in a manner completely disconnected from income, to the point where some maintain that they constitute a own tax, which would only be incidentally integrated into the IRS and IRC codes.

Nevertheless, understanding has been recurring in CAAD case law[2] that autonomous taxation on deductible charges, such as those at issue in the present proceedings, still integrate the regime of taxes regulated by the codes in which they are integrated, aiming, albeit in a convoluted manner, at the income taxed by those codes.

Naturally, whoever considers the autonomous taxation now occupying us a tax directly inciding on expenditure will conclude that the interpretation rules under review, of Article 81, items 3/a) and 7 of the IRC in force on the date of the taxable event, will not integrate any presumption, directly formulating the object of its incidence – the expenditure.

It is not considered, however, that this is the most correct understanding, believing instead that the autonomous taxation in question may be configured as a "hybrid" tax, inciding on the income of natural and legal persons, and not on consumption or spending, as they will not present the main characteristics of this form of taxation, nor will they incide equally on assets, and being framed in a problematic of income taxation with respect to which the legislator understood to act at two levels (separately or simultaneously): not to accept the deductibility of some expenses, in whole or in part, and/or to tax them autonomously.

In this framework, the autonomous taxation now in question in the proceedings will integrate, among other things, the list of specific anti-abuse rules, and the similarity is evident, for example, with the rule of current Article 65/1 of the IRC, which provides:

"Amounts paid or owed, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime are not deductible for purposes of determining taxable profit, except if the taxable person can prove that such charges correspond to effectively carried out operations and do not have an abnormal character or an exaggerated amount."

That is, in the cases to which the autonomous taxation borne by the Applicant in the proceedings refer, the legislator could have opted for a regime similar to that established in the transcribed rule, simply prohibiting the respective deductibility, or conditioning it in the same terms as that rule, or in others it deemed appropriate. Instead, the legislator opted not to go so far, with the IRC legal regime on the expenses in question remaining at a level below that, by allowing the deductibility of the charges in question, against immediate payment of a part of the taxable profit that, presently or in the future, will be affected by such deduction.

Nevertheless, the similarity of the regimes, as well as the concerns and purposes underlying them, will still be undeniable.

What has just been said is thus based on the finding that autonomous taxation, including that in question in the proceedings, owes much of its reason for being to the circumstance that it will be, objectively, unviable to tax integrally on a rigorous basis, in the IRS context, in the potential beneficiaries of the expenses subject to such taxation (which would be equivalent to a taxation of fringe benefits as it was conceived and applied in Australia and New Zealand). It is not thus ignored that the autonomous taxation of the type now occupying us has a dimension directed directly to the income of natural persons. Nor does it fail to have, moreover, a punitive dimension – in the sense of imposing unfavorable treatment – with respect to the type of expenses that trigger it. However, these dimensions do not empty, much less prevent, another dimension, equally (if not more) relevant, indissolubly interlinked with income, in the case of legal entities.

It is understood, then, that, by means of the impositions in question, it is also aimed, at least in equal measure, to regulate the use by companies of expenses that may be necessary, in part, to pursue normal activity, but that – based on a standard of normalcy – will also be for the benefit of natural persons who end up enjoying them on a personal rather than professional basis. However, as the Tax Authority does not have any "measuring tape" to make such separation, the legislator has been opting, for quite some time, for the introduction into the IRC Code of this charge that it already considered, objectively, at the time of the proceedings, an imposition, at minimum, similar to the IRC, even if such provision is considered questionable (as well as the current wording, regarding the inclusion in the IRC, of autonomous taxation in Article 23-A of the IRC Code).

Recognized here are thus those characteristics that doctrine has been pointing to autonomous taxation in question for some years now, such as:

a) autonomous taxation only makes sense because costs/expenses are relevant as negative components of the taxable profit of the IRC. This is what motivates IRC taxable persons to report as high a value as possible of such expenses to reduce the taxable basis of the IRC, the collection and, consequently, the tax to be paid;

b) it is intended to discourage this type of spending in taxable persons who present negative results but who, regardless thereof, continue to show consumption structures little or no compatible with the financial health of their companies;

c) it is, in a more general thesis, a matter of modeling the tax system so that it reveals a certain balance with a view to better distribution of the effective tax burden among taxpayers and types of income;

d) certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component corresponding to private consumption, and with respect to which the general practice of abuse in their reporting is known.

Better or worse, the autonomous taxation now occupying us should thus be understood as a way to prevent certain abusive actions that the "normal" functioning of the taxation system was unable to prevent, and other ways of combating such actions, including forms more onerous for the taxpayer, were possible.

This anti-abuse character of the autonomous taxation now occupying us will be not only coherent with its "anti-systemic" nature (as happens with all rules of this kind), but with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by case law that frequently cites him.

From the perspective that is understood to be correct, the autonomous taxation now under analysis will then have materially underlying a presumption of "partial" business character of the expenses on which they incide, based on the above-mentioned circumstance that such expenses are located in a gray line that separates what is business expense, productive, from what is private expense, consumption, and that, notably, in many cases, the expense will have effectively in reality a dual nature (part business, part personal).

Confronted with such difficulty[3], the legislator, instead of simply disallowing its deductibility, or reversing the burden of proof of the business character of the expenses in question (imposing, for example, the demonstration that "they do not have an abnormal character or an exaggerated amount", as it does in Articles 65/1 and 88/8 of the IRC[4]), opted to enshrine the currently existing regime, which, nevertheless, has precisely the same foundation, the same purpose, and the same type of result, as other forms used in other typical situations of the regime (in this case) of the IRC.

Thus, from the known fact that a certain type of expense is incurred, the legislator draws the unknown fact, which is the assessment of the degree of business affectation of the product of such expenses.

And it is this unknown fact, presumed by the legislator, that triggers and justifies the autonomous taxation in question in the present proceeding. Indeed, it was by presuming that the expenses on which such autonomous taxation incides have, as a rule, a mixed affectation, there being, therefore, an unjustified benefit in their full deduction, that the legislator began, in a first phase, by limiting the percentage of those it admitted as deductible. Subsequently, for reasons that matter little to the case, but which will involve budgetary constraints, on one hand, and the need to ensure the taxation of possible benefits that individuals might derive from such expenses, the legislator adopted the current model of autonomous taxation of the expenses now occupying us. But such did not exclude, rather complemented, that primitive motivation to tax, appropriately, the income of legal entities, distorted by the deduction of expenses, which the legislator presumes of affectation not entirely business. That is: the budgetary purposes and, possibly, fringe benefits taxation, which may assist the current regime of the autonomous taxation occupying us, do not exclude, rather rest on, the stated presumption of "partial business character" of the expenses on which they fall (and, complementarily, on the distortion of the taxation of the income of legal entities resulting therefrom).

Given the conclusion that has just been reached, it is necessary to then ascertain whether the presumption identified is, or is not, susceptible of being rebutted.

In this regard, Article 350/2 of the Civil Code provides:

"Legal presumptions may, however, be rebutted by proof to the contrary, except in cases where the law prohibits it."

In coherence, Article 73 of the LGT (General Tax Law) provides:

"The presumptions enshrined in the provisions of tax incidence always admit proof to the contrary."

In light of the legal framework indicated, it must be concluded that the presumption of "partial business character" in question should, in coherence, be considered as covered by the possibility of rebuttal generally enshrined in Articles 350/2 of the Civil Code and 73 of the LGT[5], either by the taxpayer or by the Tax Authority, which appears, moreover, to be in line with a proportional and adequate distribution of the burden of proof, in that insofar as the autonomous taxation in question incides on expenses of integral business character not self-evident at the outset, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concreto.

On the other hand, the Tax Authority itself, if it so wishes and considers that the case justifies the inherent expenditure of resources, may always demonstrate that, regarding the expenses in question, and even though autonomous taxation has incided on them, the general requirement of Article 23/1 of the IRC is not met, namely its indispensability for the realization of the income subject to tax or for the maintenance of the producing source[6].

Thus, and in sum, the autonomous taxation whose charges the Applicant seeks to subtract from its taxable profit may be viewed as a kind of consensual anti-abuse rule, in which the legislator proposes to the taxpayer one of three alternatives, namely:

a) not to deduct the expense[7];

b) to deduct but pay the autonomous taxation, dispensing both itself and the Tax Authority from discussing the measure of the business character of the expense;

c) to prove, in concreto, the effective integral business character of the expense, and deduct it fully, not bearing the autonomous taxation[8].

Note here, also in view of some confusion that seems to be rife, that the integral business character spoken of here is not identified with the business character to which Article 23 of the IRC refers. Rather, the fulfillment of the requirements of Article 23 of the IRC, with respect to the expenses in question, is a presupposition of the autonomous taxation itself.

Indeed, by requiring that they be deductible "charges (...) relating to representation expenses and those related to light passenger vehicles or dual-purpose vehicles, motorcycles or motor scooters" to subject them to autonomous taxation, naturally the legislator is referring to the general criterion of Article 23 of the IRC, as a requirement for the autonomous taxation in question to operate.

Hence, from the outset, the "business character" (partial) presumed by the autonomous taxation in question is special, in relation to the business character of Article 23, which they presuppose.

In other words, and making explicit the normative articulation between the regimes in question, in general and as a rule, the fulfillment of the criteria of Article 23 of the IRC confers upon the taxpayer the right to fully deduct from taxable profit the corresponding expenses.

However, with respect to the expenses subject to autonomous taxation, now in question, such right is burdened with the obligation to bear the corresponding autonomous taxation, fundamentally because the legislator, as seen above, understands that, within the framework of normalcy, which is also underlying the regime of Article 23 of the IRC, such expenses have special characteristics, which indicate not integral business character, unlike what happens with the generality of expenses that meet the presuppositions of Article 23 of the IRC.

Hence, in order to justify the non-incidence of autonomous taxation on the expenses in question, the taxpayer must, not attempt to demonstrate the fulfillment of the presuppositions of that Article 23, but rather demonstrate beyond any reasonable doubt that, in concreto, the expenses of the kind in question, which it seeks to deduct fully without subjecting to autonomous taxation, had an exclusively business affectation.

The recognition of this presumptive nature of the autonomous taxation in question in the proceedings, in the terms exposed above, will be, beyond everything else, a safeguard of its constitutionality, in that it will be guaranteed both the possibility of its full deduction by the taxpayer and its non-deduction, depending on the side to which the presumption underlying them is, concretely and in each case, infirmed, thus properly ensuring the conformity of the legal regime in question with the principles of tax equality and contributory capacity, which would be unnecessarily (and, occasionally, as is the case, disproportionately) truncated, by the establishment of an irrebuttable presumption of the partiality of the business affectation of the expenses in question.

It is thus not subscribed to, on the contrary, the understanding argued by the AT, according to which the interpretation in question will be materially unconstitutional by violation of the principle of tax legality, in the aspect of generality and abstraction, deriving from the principle of legality and also as instruments of tax equality, and therefore, equally by violation of the principle of tax equality, which derive, in particular, from the provisions of Articles 13 and 103 of the CRP.

Indeed, unconstitutional will be, with all due respect, the interpretation according to which deductible expenses comprovably borne exclusively in the company's interest will be burdened with autonomous taxation, since such, in addition to integrating a taxation without any basis in real contributory capacity, would transform the autonomous taxation in question into a tax exclusively inciding on spending (and not, even indirectly, on income), and would create a situation of effective inequality, between taxpayers who can derive from the expenses in question private utilities, and those who, by force of the nature of their activity, effectively and demonstrably wholly affect such expenses to business purposes[9].

Having arrived here, it then becomes necessary to assess whether, in concreto, the presumption of Article 81, items 3/a) and 7, of the IRC in force on the date of the taxable event, determined above, was, or was not, rebutted.

Beginning with item 3, letter a), given the proven and not proven facts, it is verified that the expenses in question concern light vehicles that did not have an exclusively business affectation.

Indeed, it was verified, expressly resulting from the witness evidence produced, that the use of the vehicles in question by the Applicant's employees was not limited, exclusively, to professional purposes, with such use being possible in their private life, provided within certain limits, limits that, with respect to the Directors, did not exist, even.

Hence, it has not been proven that the workers of the Applicant who used the light passenger vehicles did not use them also for purposes of their personal life, a circumstance that prevents it from being considered that the presumption of partial business character of the expenses in question has been rebutted, which in the case is seen confirmed.

Indeed, and notwithstanding the Applicant's allegation that, by allowing its employees the use of the vehicles it assigns, it is pursuing business objectives, the fact is that, concomitantly, it is providing them with income in kind, that is, genuinely attributing to them fringe benefits.

It is understood, therefore, that the judgment of business character underlying the presumptions in question is of an objective nature, that is, formulated in light of the factual situation as it is configured in its entirety legally relevant, and not of a subjective nature, attending solely to the purpose of the taxable person(s) involved.

From the perspective that is understood to be correct, it will then be inescapable that by allowing the use of the vehicles in question to its employees in their private lives, the Applicant was also granting them a patrimonial benefit, untaxed, a fact that it could not ignore, and thus placing, albeit partially, the product of the expenses in question, at the service of private purposes and, as such and to that extent, not exclusively business, a situation which, as has been seen, constitutes, precisely, the material foundation of the autonomous taxation in question.

In light of all the foregoing, it is incumbent to judge that the Applicant did not meet the burden that fell upon it of rebutting the presumption of partial business character of the expenses in question, so that, in this part, the arbitral application must be judged unfounded.

With respect to the expenses subject to autonomous taxation pursuant to item 7 of Article 81 of the applicable IRC, it was proven that they also refer, but not exclusively, to the purposes stated in items 25 to 30 of the facts established as proven.

It was not thus proven, the contrary resulting from the witness evidence, that the amount of expenses that the Applicant seeks to be subtracted from autonomous taxation referred exclusively to the purposes stated therein, in terms that it could be considered demonstrated, beyond any reasonable doubt, as occurring in an exclusively business context, not including others that granted to its employees, corporate bodies, partners or third parties benefits for personal purposes.

In this context, it is then concluded that it will not be considered that the presumption of Article 81/7 of the IRC in force on the date of the taxable event has been rebutted, so that, in that it is not demonstrated that the expenses on which the autonomous taxation in question incided had 100% business affectation, they cannot cease to be subject to the incidence of such taxation.

In light of the foregoing, in the part in question, the present arbitral action should also be judged unfounded and, consequently, the tax act that is the object of the present proceeding should be maintained.

C. DECISION

For these reasons, this Arbitral Tribunal decides to judge the arbitral application filed as unfounded and, in consequence, to maintain the tax act that is the object of the present tax arbitral proceeding, and to condemn the Applicant for the costs of the proceeding, fixed below.

D. Case Value

The value of the case is fixed at €86,527.91, pursuant to Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Article 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €2,754.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, since the application was entirely unfounded, pursuant to Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the cited Regulation.

Let it be notified.

Lisbon, January 16, 2017

The Arbitrator President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(José Nunes Barata)

The Arbitrator Member

(Francisco Pessoa Vaz)

[1] Available at www.caad.org.pt.

[2] See, e.g., decisions of cases 187/2013-T, 209/2013-T, 246/2013-T, 260/2013-T, 292-2013T, 37/2014-T, 94/2014-T and 242/2014-T.

[3] Note that it would hardly be justified that on the basis of this difficulty of proof it would be prevented, essentially telling the interested party that as it will be very difficult for him to make proof of the measure/exclusivity of business use, he is prevented from doing so.

[4] The discretion of the legislative process would authorize the legislator to apply the same mechanism it deemed appropriate for spending in favor of off-shore entities to other expenses, particularly those in question here.

[5] It being certain that the rule in question will, without doubt, be an objective rule of tax incidence, since it provides that certain facts – the expenses with certain assets that are presumed to have mixed affectation (business and personal) – imply a determined tax obligation.

[6] In such case, moreover, it should be understood that the amount eventually liquidated as autonomous taxation should be annulled, and any amount paid restituted/compensated, thus also affirming by this channel, the manifest intertwining of autonomous taxation with the IRC regime that they integrate.

[7] It is not being sustained here, obviously, that autonomous taxation is optional. Rather, what will be (in a certain sense, at least) is the classification or not of a certain charge as deductible, in that it presupposes its necessity for the maintenance of the producing source, and such judgment is incumbent, primarily, on the taxable person (in this sense, see, e.g., the Decision of the Supreme Administrative Court of November 30, 2011, delivered in case 0107/11, available at www.dgsi.pt).

It is not similarly a matter of suggesting that "expenses may be omitted." Indeed, the accounting of a certain charge as non-deductible implies, precisely, its relevance in accounting, which is precisely the opposite of its omission.

In this respect, reference may be made to the Decision delivered in case 2714/2016T of CAAD.

[8] This admissibility will not be contradictory with the recognition, made above, that the presumption underlying Article 81/3 of the IRC in force on the date of the taxable event (current 88/3), rests on a judgment of difficulty of proof. Indeed, the circumstance that in a concrete case proof of a difficulty is achieved does not mean that such proof is not, as a rule, difficult, and this even if in the concrete case such proof was easy. That is, an exception does not invalidate the rule, and it is certain that it may not even be an exception, having, with actual difficulty, achieved the proof.

[9] For being particularly expressive in this regard, reference is made here, again, to the situation sub iudice in case 628/2014T of CAAD, already cited.