Summary
Full Decision
ARBITRATION DECISION
I. Report
1. On 02-05-2017, the company A..., Unipessoal, Lda., NIPC..., submitted a request for the constitution of a single arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as RJAT), with a view to declaring the illegality of the additional IRC assessments and compensatory interest, relating to the tax period 2013 in the amount of €6,814.76, and to the tax period 2014, in the amount of €1,123.60, in the total amount of €7,938.36.
2. Pursuant to Article 6(1) of the RJAT, the Deontological Council of the Arbitration Centre appointed the undersigned arbitrator, notifying the parties.
3. The tribunal is duly constituted to examine and decide on the subject matter of the proceedings.
4. The arguments sustaining the Claimant's request for arbitral ruling are, in summary, as follows:
4.1. The Claimant was, as a result of Internal Service Orders relating to the years 2011, 2012 and 2013, the commercial company with the name "B..., Lda.", subject to internal inspection actions, having been, within the scope of Service Order No. OI2016..., in September 2016, notified by the Tax and Customs Authority, by the Tax Inspection Services of the Lisbon Finance Directorate, which projected to correct, as a result of the internal inspection action carried out for the year 2013, the taxable profit in terms of IRC, and by the undue deduction of the tax borne with the provision of services by the taxable person B..., Lda. NIF..., in accordance with Article 19(3) of the VAT Code, in the amount of €16,019.50 (2013/12T).
4.2. The claimant exercised the right to prior hearing against the project communicated to it, having subsequently been notified of the additional assessments that it now contests and which were paid on 02 February 2017 (relating to the year 2013).
4.3. In January 2017, it is notified by the Defendant of the Project of Corrections to the Internal Inspection Report carried out for the year 2014, as far as IRC is concerned, and the claimant exercised its right to prior hearing.
4.4. In February 2017, it was notified, under Service Order No. OI2016..., from the Lisbon Finance Directorate, which covered the year 2014, following the corrections made to the year 2014, in accordance with article 52 of the Corporate Income Tax Code, having subsequently been notified of the additional assessments that it now contests and which were paid on 07 April 2017 (relating to the year 2014).
4.5. The Claimant was contacted by its client, the company C..., CRL, for the execution of works in Matosinhos (...), and it is true that, by oversight then, the copy attached to the contract concluded with the Works Owner lacked the signature of the same, but it would have sufficed for the TA to have questioned the Claimant, which would have immediately proceeded to attach the Contracting Agreement, signed by the parties.
4.6. And because the Claimant, on the one hand did not want to lose the work, but on the other hand did not have sufficient human and technical resources for the execution of the entirety of the same, and given that they were clients of special interest, it resorted to other subcontractors for its execution.
4.7. In this context, among several subcontractors, Mr. D..., who presented himself with availability and means for the execution of the work through the company B..., Lda. - the Claimant having dealt with matters inherent to the work both with Mr. D... (who presented himself as a worker/service provider of "B..."), and with Mr. E..., managing partner, who represented the commercial company, oversaw the work (also worked) and to whom payments were made after submitting the respective invoices.
4.8. Nevertheless, the Claimant then researched the commercial company both on institutional websites and with the Finance Service itself for ..., whether the company B... was registered and whether it had tax debts, having been informed that the company NIPC No...., was registered and active and without any debts, it not being possible to obtain other information requested, as fiscal secrecy was alleged.
4.9. Also on the MJ Portal (https://publicacoes.mj.pt/pesquisa.aspx), it concluded, therefore, that the commercial company, NIPC..., was registered with the commercial purpose: "Civil Construction and Public Works, purchase and sale of goods and real estate and resale of those acquired for that purpose", as it still is now, despite the fact that now it is verified to have no activity whatsoever, namely without complying with the legal obligation of accounting disclosure since its constitution in 2010.
4.10. In view of this situation, and because the Claimant intended the execution of the subcontracting and to guarantee compliance with the contracting agreement, it awarded the work (part) to the commercial company B..., which always complied with its execution, and consequently the latter was able to comply with its client (C...).
4.11. The invoices put in question by the Defendant are invoices issued through a Certified Program (No. 19/DGCI) in accordance with compliance with legal requirements both in terms of substantive and formal requirements.
4.12. The invoices were issued by the subject who provided services to the Claimant, with a valid taxpayer number, by whom civil construction services are provided (as follows from the commercial purpose of the entity) by whoever contracts them and applies them to their taxable operations (articles 1, 2 and 20 of the VAT Code).
4.13. And it should be added that it is not incumbent upon the Claimant to control or be provided with documents relating to the legal nature of the taxable person who provides services to it and issues invoices to it (articles 19 and 36 of the VAT Code).
4.14. From the invoices issued, it appears, in accordance with item b) of Article 36(5) of the VAT Code, the usual denomination of the services provided by company B... to the Claimant, in accordance with the subcontracting agreement concluded between the parties and known to the Defendant.
4.15. Still adding that, notwithstanding, the Claimant would not have had the right to deduct the tax, since in light of the reversal of the subject of taxation, it would be incumbent upon it as the purchaser of the service to liquidate and pay the tax to the state coffers.
4.16. And it is clear that this entire procedure of additional assessments arises only and exclusively because the entity B... did not pay the assessed tax to the State, otherwise nothing more was relevant, as happened with other subcontractors contracted by the Claimant for the same work (in another phase).
4.17. It would be essential, for the success of the Defendant Authority in this claim, in its decision that it was faced with simulated operations, that it prove unequivocally and objectively the lack of structure for the company B... to exercise the activity and the services invoiced, that the invoices issued varied from client to client or that the activity in which the taxable person is registered is "Building Construction and purchase and sale of real property", as well as to prove that these lacks and alleged irregularities mentioned were or should have been known to the Claimant, were associated with the failure to pay the tax and/or the consideration of the same as a cost.
4.18. And this, in accordance with article 74(1) of the General Tax Law and as has been the dominant position of jurisprudence, would be incumbent upon the Tax Authority itself now Defendant, upon whom falls the burden of proof.
4.19. The Defendant Authority did not pursue its inspection and supervision duties of economic agents and merely limited itself to taxing the Claimant, and moreover violated, among other principles, that of the presumption of taxpayer declarations contained in article 75 of the General Tax Law, thereby violating the principle of legality of administrative action, the principle of justice and good faith.
4.20. However, despite the attempts to demonstrate and provide proof presented by the Claimant, namely under prior hearing, and with documents that contradict the thesis of fictitious operations carried out by the Defendant, the latter always refused such arguments made or even evidence presented, and it is certain that nothing relevant was brought to the Report, which is not without being indicative of the non-existence of serious and objective evidence supporting the thesis of the Defendant.
4.21. The Claimant presented all possible evidence so that with the TA the thesis that the services provided titled by the invoices known on the present date did not have real and effective implementation would be refuted, thus were strong the indications that those documents purported to title, in the same measure fictitious operations, it attached contracts, documents that for it proved the effective existence of regular taxable persons now in question, furthermore demonstrating that the work is done and that it is a work of large dimension in Matosinhos, including control and supervision by the central administration.
4.22. It is the responsibility of the TA the effective control of this type of economic agents, for only it is endowed with power of command, it would be incumbent upon it, especially, to officially declare the cessation of activity when it is manifest that this is not being exercised nor is there intention to continue to exercise it or whenever the taxable person has declared the exercise of an activity without having an adequate business structure capable of exercising it (article 8(6) of the Corporate Income Tax Code).
4.23. In fact, only by complying with what is provided in Article 8(6) of the Corporate Income Tax Code, the tax authority will prevent the occurrence of situations of this nature, preventing AF not only the proliferation of situations conducive to fraud and tax evasion and on the other hand the legal certainty of economic agents who intend to operate with compliance with their tax obligations.
4.24. The invoices in question should be admitted and considered as expenses, for the purposes of determining taxable profit, since the said expenses are proven and are indispensable for the realization of the income of the Claimant.
5. In turn, the Defendant Tax and Customs Authority presented a response, in which it defended itself, in summary, in the following terms:
5.1. On 02.06.2016, Service Order No. OI2016... was issued, initiating an internal inspection action in the name of the Claimant, following the inspection action to the taxable person B..., Lda, holder of NIF..., and carried out under Service Orders OI2015..., OI2015... and OI2015..., relating to the years 2011, 2012 and 2013.
5.2. The Claimant is a limited partnership company, registered in the Commercial Registry Office of ..., has share capital of €66,400.00 and is 100% owned by F..., its managing partner.
5.3. And it has had, since 17.04.2001, the business purpose of "provision of services in the field of civil construction, contracts and subcontracts for public and private works, namely construction, reconstruction and remodeling of residential buildings, as well as specialized construction activities such as assembly and coating of floors or walls, sale and rental and assembly and disassembly of scaffolding. Purchase and sale of properties, real estate, tourist and urban land, as well as rental of its real property, resale of acquired real estate"
5.4. Since that date it has been classified for the main activity of "Other installations in constructions", which corresponded to CAE 43290 and for the secondary activities of "Floor and wall coatings", "Painting and glazing" and "Purchase and sale of real property" which correspond to CAE 43330, 43340 and 68100, respectively.
5.5. For VAT purposes, it has been subject to the normal periodic regime of quarterly periodicity since 01.01.2013 and, for IRC purposes, to the general taxation regime, since 01.01.2009.
5.6. Between 23.04.2001 and 06.11.2015, Mr. G..., holder of NIF..., was its certified accountant, from which date Mr. H..., holder of NIF..., assumed the same functions.
5.7. In the years under analysis (2013 and 2014) it was found that the Claimant declared, through the Annex P of the annual declarations, the acquisition of services/goods from suppliers holding NIF..., ..., ..., ..., ... and ....
5.8. The latter NIF belongs to company B..., Lda, which the SIT had already found to be a taxable person issuing false invoicing.
5.9. For which reason they requested that the Claimant provide proof that the service provisions, titled in the invoices in which the issuer was that taxable person, corresponded to operations actually carried out.
5.10. It happens that the Claimant, in view of the insufficiency of the documents presented, failed to provide that proof.
5.11. Hence the SIT ended up concluding that, evidencing the invoices founded indications of simulated operations, they could not constitute expenses capable of contributing to the formation of the tax result.
5.12. Notified to exercise the right of prior hearing, the Claimant did not add any new elements capable of reversing the reasoning contained in the draft decision, it not corresponding minimally to the truth that the same had not been heeded as mentioned in point 2 of the Initial Petition.
5.13. The taxable profit of legal entities is calculated by the algebraic sum of the net result for the year and the positive and negative changes in equity verified in the period that are not reflected in the result.
5.14. Expenses "which have been proven to be indispensable for the realization of income or gains subject to tax or for the maintenance of the source of production" contribute to that result, see article 23 of the Corporate Income Tax Code.
5.15. In the absence of a precise definition of the concept of tax expense, the Corporate Income Tax Code considers expenses, for tax purposes, those that are borne by the company and indispensable for the realization of income or for the maintenance of the source of production.
5.16. The company B... Lda, subcontractor that the Claimant allegedly contracted to provide service in the work in Matosinhos was already indicated in the scope of another inspection procedure as a service provider issuing false invoices.
5.17. Therefore, in order to assess whether the service provisions titled by the invoices in the Claimant's possession had, or did not have, underlying operations actually carried out, the SIT initiated the competent inspection procedure.
5.18. In the context of the inspection action carried out against Society B..., Lda the SIT had already collected evidence that it lacked an adequate technical, human and logistic business structure for the work described in the invoices, a lack of structure that would allow it to realize the invoiced amounts.
5.19. In view of such premises, the TA could not fail to consider that being the Claimant a customer of that supplier, as appeared from its own declarations submitted to the TA, there would be a strong possibility that the invoices in its possession did not title real operations.
5.20. And for that reason, by means of the letter No..., of 16.03.2016, the Claimant was notified to present, in relation to the supplier B..., Lda, holder of NIF... and with office at Rua ..., No.... - ...-... QUELUZ, the elements relating to copies of invoices/receipts, the accounting entries, the account statements, photocopies of the means of payment, namely checks (front and back) issued by the bank or proof of bank transfers as well as budgets, budget proposals and contracts relating to the years 2012 and 2013.
5.21. It was also requested to identify the workers related to the execution of work and works mentioned in the invoices and also to identify the subcontractors by the same SP and/or the actual collaborators and employees who had worked on the said works.
5.22. In compliance with the requested, the Claimant proceeded to deliver some of the required documents, namely the copy of the contracting agreement concluded, on 01.09.2013, between itself and that taxable person, in the amount of €69,650.00 and copies of extracts of accounts 12.1.1, 22.1.1, 24.3.2, 31.2.1, 62.2.1 and copies of checks (front only).
5.23. However, the Claimant did not attach to the proceedings any element evidencing the existence of a permit by the Company B..., Lda, having subsequently clarified, via email, that the representatives of that company had been present at the work site.
5.24. Having further justified that it was not possible for it to identify the workers who had intervened there, given that those representatives were currently emigrated to Germany.
5.25. Now, taking into account that the company issuing the invoices was referenced as a fraudulent taxable person, the Claimant objectively did not identify any of the workers of the said work, so as to evidence the human structure assigned to the executed work.
5.26. In fact, the Claimant merely sustains that the work materialized but did not attach any elements that would allow concluding its real execution and therefore showed itself incapable of complying with what was requested.
5.27. Nevertheless, it still had one possibility left to prove the effectiveness of the work that it reiterates took place, if it could demonstrate the payment of goods/services to company B..., Lda, which was also not proven.
5.28. It is certain that the accounting records revealed that the payments were made by A..., through checks in the amount of €89,669.50 (VAT included), the Claimant in the inspection procedure presented a certified copy by Bank J..., S.A of check No..., of 14.10.2013, in the amount of €22,078.50, not proving the remaining amount of €67,521.00, through photocopies front and back of checks and/or presented other elements such as financial evidence of movement of the bank accounts, in accordance with article 63-C of the General Tax Law.
5.29. This position is not understood, because it would have been enough for the Claimant to request the bank, as the holder of those accounts, the statement of the accounts on which the checks had been drawn, which would certainly lead to effective proof of the beneficiaries of the payments.
5.30. Furthermore and certainly, by oversight, the Claimant attached to the Initial Petition as document 5 the check from Bank J..., SA of check No..., of 14.10.2013, in the amount of €22,078.50, which was mentioned above when it knows perfectly well that, having been considered proven that payment, it merely remained to prove the payment of the remaining amount of €67,521.00.
5.31. The fact that it is a certified program did not prevent the coexistence of the issuance of invoices processed according to that program with or without signature and/or of the company and of invoices printed by printing press with or without signature/stamp of the company.
5.32. Now, both the invoices and corrective documents of invoices, as well as transport guides, remittance slips and any other documents serving as transport documents are of mandatory signature, in accordance with articles 6 and 7 of Ordinance No. 363/2010, of 23 June, as amended by Ordinance No. 22-A/2012, of 24 January.
5.33. To which is added that invoices or equivalent documents may only be issued manually in case of inoperability of the program (pursuant to article 8 of Ordinance 363/2010).
5.34. As regards the question of the inclusion and mandatory disclosure of the services provided in the invoices required by article 36 of the VAT Code, it is certain that in the context of IRC, the formal requirements are not so severe, and jurisprudence has understood that only a written document is sufficient, in principle external and with mention of the fundamental characteristics of the operation.
5.35. Here, however, the Claimant titles the cost not through another external document but through an invoice.
5.36. And if so, it is not a matter of detail the requirement in the invoice of the disclosure of the services, since without these descriptions it is not possible to identify what type of work was carried out by the invoice issuer, namely whether only labor was provided and, in that case, one does not know how many hours, or whether raw materials were supplied or even both services, only in this way being possible to conclude whether the same were, or were not, indispensable for the realization of taxable income or for the maintenance of the source of production.
5.37. In fact, by virtue of Decree Law 21/2007, of 29.01, in the case of provision of this type of services (civil construction), the corresponding invoice should not make any other mention of VAT, beyond the expression "VAT owed by the purchaser".
5.38. This is because it is the purchaser who, upon accounting for said invoice, should proceed to the liquidation of VAT, in this case, a self-assessment and, to the extent that such service is also deductible, will evidence this fact, by the deduction of the corresponding VAT.
5.39. And only in these cases, where the VAT is self-assessed by the purchaser by virtue of the provision of a civil construction service, may the tax be deducted.
5.40. It is merely a recording operation in which the amounts self-assessed in the VAT statement are the same as those which are deducted in the same statement.
5.40. As for the assessment of the year 2014, it stems from the arithmetic corrections of the year 2013 in the amount of €69,650.00, therefore, the tax loss declared by the taxable person of - €17,655.00 was corrected to the amount of €51,994.99.
5.41. But as this loss was used in its entirety in 2013, in 2014 the balance of tax losses was already non-existent, for which reason the profit for 2014 of €8,851.33 could no longer be allowed to deduct any loss, which gave rise to the present correction.
5.42. The legal-tax relationship established between the TA and the company B..., LDA is covered by the duty of confidentiality to which all TA employees, particularly the SIT, are subject.
5.43. What seems important to us to convey is that the principle of cooperation does not bind only the TA and that this exhausted in this case all diligences in collecting the evidence that it brought to the records seeking to give expression to the principle of material truth.
5.44. Given that compensatory interest is owed, by the delay in the assessment of part of the tax due by a fact attributable to the Claimant, that is, by the difference between what has already been paid and the remaining amount.
5.45. In this case, it cannot fail to conclude regarding the attributability, on a negligent basis, of the delay of the entirety of the tax owed, to the Claimant, to the extent that ignorance of the law does not justify its non-performance (article 6 of the Civil Code), and therefore cannot, consequently, favor it.
6. On 17 October 2017, at 11 am, the meeting provided for in article 18 of the RJAT took place.
6.1. The witnesses D... and K... of the Claimant were heard.
6.2. A period of 10 days was granted by the Arbitral Tribunal for the Claimant to declare in the proceedings whether it had managed to locate witness E..., with a new meeting of witness examination scheduled for 30 October 2017.
6.3. The Arbitral Tribunal notified the Claimant and the Defendant to, in this order and successively, submit written pleadings within 10 days, with the period for the Claimant to begin counting on 27 October 2017 or from the meeting scheduled for 30 October 2017, if it took place. The period for the Defendant would begin to count with the notification of the joinder of the Claimant's pleadings.
6.4. Pursuant to article 18(2) of the RJAT, 14 January 2018 was set for the purpose of rendering the arbitral decision.
7. On 27 October 2017, the Claimant submitted a request, informing the Arbitral Tribunal of the impossibility of locating witness E....
8. The parties submitted written pleadings, in which they reaffirmed what had previously been alleged.
II – Findings of Fact
9. With interest for the decision of the case, the following facts are found to be proven:
9.1. The Claimant is a limited partnership company, registered in the Commercial Registry Office of ... a, has share capital of €66,400.00 and is 100% owned by F..., its managing partner.
9.2. And it has had, since 17.04.2001, the business purpose of "provision of services in the field of civil construction, contracts and subcontracts for public and private works, namely construction, reconstruction and remodeling of residential buildings, as well as specialized construction activities such as assembly and coating of floors or walls, sale and rental and assembly and disassembly of scaffolding. Purchase and sale of properties, real property, tourist and urban land, as well as rental of its real property, resale of acquired properties".
9.3. Since that date it has been classified for the main activity of "Other installations in constructions", which corresponded to CAE 43290 and for the secondary activities of "Floor and wall coatings", "Painting and glazing" and "Purchase and sale of real property" which correspond to CAE 43330, 43340 and 68100, respectively.
9.4. For VAT purposes, the Claimant has been subject to the normal periodic regime of quarterly periodicity since 01.01.2013 and, for IRC purposes, to the general taxation regime, since 01.01.2009.
9.5. Between 23.04.2001 and 06.11.2015, Mr. G..., holder of NIF..., was its certified accountant, from which date Mr. H..., holder of NIF..., assumed the same functions.
9.6. In the years 2013 and 2014, the Claimant declared, through the Annex P of the annual declarations, the acquisition of services/goods from suppliers holding NIF..., ..., ..., ..., ... and ....
9.7. The tax identification number ... belongs to company B..., Lda.
9.8. Company B..., Lda. issued invoices Nos. 119, 120, 131 and 136, issued on the 1st and 2nd on 04.10.2013, the 3rd on 11.11.2013 and the 4th on 02.12.2013, in the total amounts of €22,078.50, €15,642.00 and €23,995.00 the 3rd and 4th, containing VAT of €4,128.50, €2,921.00 and €4,485.00 the 3rd and 4th.
9.9. On 02.06.2016, Service Order No. OI2016... was issued, initiating an internal inspection action in the name of the Claimant, following the inspection action to the taxable person B..., Lda., holder of NIF..., and carried out under Service Orders OI2015..., OI2015... and OI2015..., relating to the years 2011, 2012 and 2013.
9.10. The Claimant was, as a result of Internal Service Orders relating to the years 2011, 2012 and 2013, the commercial company with the name B..., Lda., subject to internal inspection actions, having been, within the scope of Service Order No. OI2016..., in September 2016, notified by the Tax and Customs Authority, by the Tax Inspection Services of the Lisbon Finance Directorate, which projected to correct, as a result of the internal inspection action carried out for the year 2013, the Taxable Profit in terms of IRC, and by the undue deduction of the tax borne with the provision of services by the taxable person B..., Lda., NIF..., in accordance with Article 19(3) of the VAT Code, in the amount of €16,019.50.
9.11. The Claimant exercised the right to prior hearing against the project communicated to it, having the Tax Administration maintained its position and notified the Claimant, in November 2016, of the corrections resulting from the aforementioned inspection action.
9.12. The additional assessments relating to the year 2013 were paid by the Claimant on 2 February 2017.
9.13. The Claimant was notified, in January 2017, of the Project of Corrections to the Internal Inspection Report carried out for the year 2014, as far as IRC is concerned.
9.14. The Claimant exercised the right to prior hearing against the project communicated to it, having the Tax Administration maintained its position.
9.15. In February 2017, the Claimant was notified, under Service Order No. OI2016..., from the Lisbon Finance Directorate, which covered the year 2014, following the corrections made to the year 2014.
9.16. The additional assessments relating to the year 2013 were paid by the Claimant on 7 April 2017.
9.17. The Claimant concluded, in its capacity as second party, with the company C..., CRL., a contracting agreement relating to a work of "roof replacement", in Matosinhos on 30 April 2013.
9.18. The Claimant concluded, in its capacity as first party, with the company B..., Lda., a contracting agreement, dated 1 September 2013, relating to the execution of a work of formwork, concreting, iron reinforcement, concrete finishing, located in Matosinhos.
9.19. In accordance with a handwritten amendment to the contract itself, the subject matter of the same was altered, adding "roof replacement: installation of roof structure and related work".
III – Unproven Facts
10. The following facts are found to be unproven:
10.1. The company B..., Lda. possesses an adequate technical, human and logistic business structure for the work described in the invoices, a structure that allows it to carry out the invoiced amounts.
10.2. Company B..., Lda. possesses the permit necessary for carrying out the contracted work.
10.3. The work described in the contracting agreement concluded between the Claimant and company B..., Lda. was effectively carried out.
IV – Reasoning of the Factual Decision
11. The facts result from the documentation attached to the case file. The unproven facts result from the witnesses presented not having been able to demonstrate what was referred to by the Claimant. In fact, witness D... was unable to identify where company B..., Lda was located, and witness K... stated that they paid workers directly without receipt.
V – On the Law
12. At issue is only the examination of the illegality of the additional IRC assessments and compensatory interest relating to the tax period 2013 and 2014.
Article 23(1) of the Corporate Income Tax Code provides: "For the determination of taxable profit, all expenses and losses incurred or borne by the taxable person to obtain or guarantee income subject to IRC are deductible."
Article 23(4) of the same Code states:
"In the case of expenses incurred or borne by the taxable person with the acquisition of goods or services, the supporting document referred to in the preceding number must contain, at least, the following elements:
a) Name or business designation of the supplier of goods or provider of services and of the purchaser or recipient;
b) Tax identification numbers of the supplier of goods or provider of services and of the purchaser or recipient, whenever these are entities with residence or stable establishment in the national territory;
c) Quantity and usual denomination of goods purchased or services provided;
d) Value of the consideration, namely the price;
e) Date on which the goods were purchased or on which the services were provided."
As stated in Article 23(6) of the same Code: "When the supplier of goods or provider of services is obliged to issue an invoice or legally equivalent document in accordance with the VAT Code, the supporting document for the acquisition of goods or services provided for in No. 4 must necessarily assume that form."
It is noted, however, that the indications of services provided in the invoices are generic and repetitive and, in their generality, are formulated in a manner similar to what appears in the purpose of the contract, and this was even altered by handwritten amendment, with no knowledge of which party made the alteration and on what date.
On the other hand, with regard to the documentary evidence presented, it is noted that certain invoices correspond to more than one check, that only one check (dated 14/10/2013, with the amount of €22,078.50, is presented front and back (Document No. 5, attached with the Initial Petition), that the three checks corresponding to the payment of invoice No. 131 and partial payment of invoice No. 136 were issued in 2014, despite their validity having ended on 29 October 2010 (Document No. 2.2, p. 29, attached with the Initial Petition). It is further noted that the check which is referred to as having been issued for payment of invoice 120 has the incomplete date, only referring to the year 2013 (Document No. 2.2, p. 26, attached with the Initial Petition).
It is further noted that the invoices issued by company B..., Lda. do not contain the mandatory mention "VAT - self-assessment", legally required in the provision of services and/or goods connected with civil construction, in accordance with articles 36(13) and 2(j) of the VAT Code.
The witnesses presented failed to prove the existence of the work or the human and material capacity for the execution of the work by company B..., Lda.
It is not therefore verified that the Claimant has managed to prove the execution of the work by company B..., Lda., nor the total payment of the invoices.
As stated in the Decision of the Supreme Administrative Court dated 7 May 2003, Proc. No. 01026/02, relating to a similar situation of VAT deduction:
"Article 78 of the Code of Tax Procedure provided that 'when the accounting or records of the taxable person is shown to be organized in accordance with commercial or tax law, the truthfulness of the data and findings arising therefrom is presumed, except if there are errors, inaccuracies or other founded indications that it does not reflect the actual taxable matter of the taxpayer'. Now, as whoever has a presumption established in law in their favor is exempted from the burden of proving the presumed fact (see articles 349 and 350(1) of the Civil Code (CC)), the appellant, having its records organized in accordance with legal requirements, does not need to prove that the data arising therefrom are true. Except if there are errors, inaccuracies or other founded indications that it does not reflect the actual taxable matter. That is, the presumption ceases when, although the records or accounting is organized in accordance with the law, it suffers from errors or inaccuracies, or there are "founded indications" that, despite its correct organization, it does not reflect the actual taxable matter. This clearly covers the case where the accounting, impeccably organized, when evaluated from a technical-accounting point of view, nevertheless omits operations carried out; and it covers the reverse case - that of including operations not carried out. The latter is that which is commonly being called "false invoices", that is, the accounting considers (and treats in an accounting correct manner) documents issued in legal form, but which do not correspond to any reality, because the operations that were supposed to be reflected, in fact, did not take place. And here, the law requires only "founded indications", that is, it does not impose on the Administration the "proven proof" that behind the documents there is not the reality that they normally reflect and prove, it suffices with founded indications to make the presumption in favor of the taxpayer cease. And to the latter, deprived of the protective shield of the presumption, there remains only to demonstrate the truthfulness of its accounting elements, and their respective supports, thus put in doubt, in view of those "founded indications". We therefore hold that, when it is the Tax Administration that performs an act, in particular, a tax act of assessment, based on the existence of a certain tax fact, for hypothesis not revealed by the taxpayer's records, it is they who must prove such existence, the presupposition of their action. We are in the presence of a corollary of the principle of administrative legality, in accordance with which the Administration can only act if the law permits it, and cannot act against it. The presuppositions of its action are, therefore, constitutive facts of its right to act, whose proof is incumbent upon it, for that reason that it is the agent. In the case of the appealed decision, however, the Tax Administration did not act based on the existence of any tax fact invoked by it. Rather, it intends that the appellant has no right to deduct the VAT contained in the invoices in question, based on the understanding that, in view of the indications collected, the commercial operations that such invoices allegedly titled would not have, in fact, been carried out. In accordance with article 82(1) of the VAT Code, 'the head of the competent Finance Branch shall proceed to rectify the declarations of taxable persons when they reasonably consider that they contain a lower tax or a higher deduction than due, by additionally assessing the difference'. As such, it is the appellant who appropriates itself a right that it intends to exercise - the right to deduct VAT - that is not recognized by the Tax Administration, which in the proceedings demonstrated there were serious indications that the operations titled by those invoices would not have occurred. Thus, it is not the Administration that affirms a positive fact with tax consequences - it is the taxpayer that invokes its right to deduct the VAT paid upstream. Therefore, it is they who must prove the verification of the presuppositions on which such right is based."
The Decision of the Central Administrative Court South, dated 4 June 2013, Proc. No. 06478/13, further states:
"In fact, given that the taxpayer bears the burden of proof of the truthfulness of the operations in question, it is not enough for them to create doubt about its truthfulness, even if founded, for in this case article 100 of the Code of Tax Procedure does not apply. On this point, it should be said that the burden established in article 100(1) of the Code of Tax Procedure, against the tax administration (that the doubt regarding the existence and quantification of the tax fact should be decided against the TA: in dubio contra Fisco) only exists when it is the latter that affirms the existence of the tax facts and their respective quantification. On the other hand, notwithstanding the position assumed by the objector, claiming the effective performance of all transactions referenced in the invoices put in question by the TA, it is found that none of that relevant factuality was demonstrated by the production of evidence, maxime, the testimonial evidence, which they offered in the context of this judicial review process. In fact, regarding the testimonial evidence, the Court was clear and direct in referring that 'the statements of the witnesses called do not make it possible to prove that the operations carried out concerned the services specifically disregarded by the Tax Administration'.
As further stated by the same Decision: 'Thus, and to the extent that the Respondent failed to prove the truthfulness of the transactions in question, here, just as was assumed by the TA, we can only point out and accept the procedure of disregarding the costs corresponding to the amounts registered in the invoices deemed "false", to the extent that the same, purely and simply, were not borne, paid, by the objector, to the extent that only in this way is the requirement concretized and respected, namely, the legal requirement that only costs or losses can be considered 'those which have been proven to be indispensable for the realization of income or gains subject to tax or for the maintenance of the source of production...' - see article 23(1) of the Corporate Income Tax Code, which means that the sentence appealed against cannot be upheld, its revocation being necessary.'
As stated in the Decision of the South Administrative Court, dated 16 October 2014, Proc. No. 06964/13:
"In the case under examination, it is a question of the technical correction relating to the disregard of cost entered in the accounting of a taxable person, who opted for organized accounting, for which reason it is subject to the rules of the Corporate Income Tax Code for determining taxable profit (article 32 of the Individual Income Tax Code). Under article 23(1) of the Corporate Income Tax Code, '[c]osts or losses are considered those that have been proven to be indispensable for the realization of income or gains subject to tax or for the maintenance of the source of production'. To this end, it is emphasized that: '[t]he costs or losses of the company constitute, therefore, the negative elements of the profit and loss account, which are deductible from the tax point of view when, being duly proven, they are indispensable for the realization of income or for the maintenance of the productive source of the company in question. The absence of any of these requirements implies the non-consideration of said elements as costs, and therefore the respective amounts should be added to the accounting result' (1). In other words, faced with founded doubt about the credibility of the accounting entry of the cost (= tax declaration of the taxpayer), created by the Tax Administration, the burden of demonstrating the effectiveness of the cost is borne by the taxpayer (2). Hence it follows that the doubt created by the Tax Administration may not be founded or consistent, which determines, from the outset, the prevalence of the declarative principle. Conversely, such principle may have been correctly or foundedly set aside by the tax act and, nevertheless, recover its vigor with the demonstration, by the taxpayer, of the effectiveness of the cost, in the context of the tax proceedings, notwithstanding the loss of credibility of the accounting generated by the tax act that disregarded the cost. It is an established point that the deductibility of the cost depends on the verification in relation to the same of the following characteristics: i) being effective (existing, real); ii) duly recorded as such; iii) in obedience to criteria of temporal allocation; iv) proven (justified); v) indispensable; vi) incurred for the purpose of obtaining income or gains subject to tax; vii) provided that there is no provision that negates directly or indirectly its deductibility.'
It is verified, therefore, that, given that the Claimant bears the burden of proof regarding the existence of the costs it intends to deduct and that the Tax Administration has founded indications that the operations in question did not take place, the Claimant failed to prove their effective execution, as was incumbent upon it, and therefore the arbitral request must be judged to be without merit.
VI – Decision
The request for declaration of illegality of the additional IRC assessments and compensatory interest, relating to the tax period 2013 in the amount of €6,814.76, and to the tax period 2014, in the amount of €1,123.60, in the total amount of €7,938.36, is judged to be without merit.
The value of €7,938.36 (amount stated and not contested) is fixed to the proceedings and the value of the corresponding arbitration fee is fixed at €612.00 in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings.
Costs to be borne by the Claimant.
Lisbon, 5 January 2018
The Arbitrator
(Luís Menezes Leitão)
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