Summary
Full Decision
ARBITRAL DECISION
I – Report
1. On 13.06.2016, the Claimant, A… LDA, with the NIPC…, with registered office at …, …, …, requested from CAAD the constitution of an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), in which the Respondent is the Tax and Customs Authority, with a view to the annulment of the assessments of Value Added Tax concerning:
- Quarter 201103T in the amount of tax of €1,098.57 and compensatory interest of €205.75, with payment deadline of 30.04.2016;
- Quarter 201106T in the amount of tax of €603.61 and compensatory interest of €106.96 with payment deadline of 30.04.2016;
- Quarter 201109T in the amount of tax of €1,005.05 and compensatory interest in the amount of €167.97 to be paid by 30.04.2016;
- Quarter 201112T in the amount of tax of €381.74 and compensatory interest of €59.99 to be paid by 20.04.2016
- Tax quarter 201203T in the amount of tax of €3,115.24 and of €458.83 of compensatory interest to be paid by 20.04.2016;
- Quarter 201206T in the amount of tax of €1,059.30 and of €145.22 of compensatory interest to be paid by 20.04.2016;
- Quarter 201209T in the amount of tax of €1,002.09 and of €127.38 of compensatory interest to be paid by 20.04.2016;
- Quarter 201212T in the amount of tax of €598.83 and of €70.08 of compensatory interest to be paid by 20.04.2016.
And, also, from the following assessments of Corporate Income Tax:
- For 2011 in the amount of €16,034.06 including compensatory interest to be paid by 20.04.2016 and
- For 2012 in the amount of €11,225.25, including compensatory interest to be paid by 20.04.2016.
2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.
In accordance with and for the purposes of article 6, paragraph 1, of the LFATM, by decision of the President of the Ethics Council, duly communicated to the parties within the legally applicable periods, the undersigned was appointed arbitrator, who communicated to the Ethics Council and to the Centre for Administrative Arbitration the acceptance of the appointment within the regularly applicable period.
The Arbitral Tribunal was constituted on 06-09-2016
3. The grounds presented by the Claimant, in support of its claim, were, in summary, as follows:
- The Claimant was subject to a tax inspection action that concerned Corporate Income Tax and Value Added Tax for the years 2011 and 2012.
- From this inspection action resulted the determination of the Value Added Tax shortfall for the same years in the amounts of €3,088.97 and €5,775.46 respectively, with the taxable base for Corporate Income Tax purposes being fixed for those years in the amounts, respectively, of €66,278.75 and €42,621.97.
- As provided by article 60 of the Tax Inspection Code and article 60 of the General Tax Law, the Claimant was notified to exercise the right of hearing regarding the draft report that was sent to it.
- In light of the enormous injustice contained in the said draft report, the Claimant exercised, as was its responsibility, the right of hearing in the precise terms of article 60 of the Tax Inspection Code, refuting the proposed values and invoking all the reasons that led to the conclusion that the values contained in the draft report did not correspond to reality.
- The valid and consistent grounds presented were not taken into consideration and, without any coherent reason, the values contained in the draft report were maintained.
- Notified of the final report on 4 December 2015, the Claimant presented, within the period granted for such purpose, a request for review of such determinations in accordance with articles 91 and following of the General Tax Law, the grounds being those invoked herein.
- The report errs throughout in its difficult interpretation, being overly ambiguous and unfounded, this irregularity being manifested more markedly in the tables prepared and contained in Chapter V in which the source of such values is imperceptible and also because it did not attach any support for the same.
- Such irregularities had already been mentioned both in the context of the right of hearing and in the review request, but nothing further was added or clarified by the Tax Authority regarding the doubts that were evident.
- In addition to the difficult analysis of the report by the Taxpayer, the supports on which the values found were based were not attached to the report, nor were valid and sufficient grounds carried forward to the proceedings for the application of indirect methods.
- All the grounds invoked for recourse to indirect assessment are far too erroneous, inconsistent and unfounded and can only be justified by the absence of sufficient concern and sensitivity for determining the reasons that could underlie the differences found.
- The right to substantiation of the tax act or in tax matters constitutes a specific guarantee of taxpayers, which must comply with the requirements expressly set out in article 125 of the Code of Administrative Procedure, corresponding, moreover, in essential respects, to articles 1, paragraphs 1 and 2 of Decree-Law 256 A/77, of 17 June.
- The substantiation must be expressed, through a succinct exposition of the factual and legal grounds of the decision; clear, allowing that, through its terms, the facts and the law on the basis of which the decision is made can be grasped with precision; sufficient, enabling the taxpayer a concrete knowledge of the motivation of the act, that is, the factual and legal reasons that determined the body or agent to act as it did; and congruent, so that the decision constitutes a logical and necessary conclusion of the grounds invoked as its justification, involving between them a judgment of adequacy, with no contradiction being able to exist between the grounds and the decision.
- In the case at hand, in addition to the reasons of fact and law for the application of indirect assessment not being substantiated in an expressed, clear, sufficient and congruent manner, the calculations that served as the basis for determining the values determined were not evidenced in the report, thus contravening the technical criteria defined in article 77 of the General Tax Law in compliance with the provisions of articles 268, paragraph 3, of the Constitution of the Portuguese Republic, constituting a vice that invalidates the tax act and determines its annulment, an invalidity that is invoked here.
- But even if this were not understood, which by mere academic hypothesis is admitted, we will not fail to contest the corrections that were made and which led to the determination of the values now notified and which do not correspond to the reality of the company.
- The corrections made are combined in 4 families as identified:
a) - The corrections contained in Chapter III.1 in which specifically regarding the year 2012 the omissions of lubricant sales were determined.
The values hypothetically in default were determined on the basis of a simple technical correction of missing sales.
b) - The corrections contained in Chapter III.2 in which the values determined were also calculated through a simple arithmetic operation extracted from the accounting and the elements provided, consisting of a correction to the cost of goods sold.
c) - The corrections contained in Chapter III.3 concern credit notes that would not have been recorded, so they fall within the scope of mere technical corrections.
d) - As for the corrections contained in Chapter V.1 to V.5 they concern sales under the regime of … and, when already in the context of the right of hearing as well as in the review request, it had been stated that as for these sales they are not carried out by the Claimant but directly by B…, with the Claimant being a mere intermediary, receiving a commission for these operations. But even so and in the presence of the demonstrative elements of this procedure, such reality was not taken into consideration in the context of review in accordance with articles 91 and following of the General Tax Law.
- As for the correction contained in III.1 at the beginning of the year 2012, the codes of the articles were changed, with code 4000 being assigned with the title of illuminating petroleum when in fact it referred to heating diesel, which is why everything that appeared with that code referred to heating diesel and not petroleum.
- But the truth is that during the year 2012 no sales of illuminating petroleum were made, since the service station where it was commercialized was closed in September 2011.
- As for lubricants and the year 2012, the value of sales in January was €1,601.56, in February was €1,784.85 and in March was €1,428.07, which totals €4,814.48.
- This value was recorded in the accounting in March 2012, moreover, as was verified and confirmed in the context of the inspection.
- However, regarding the month of February and as per the table on page 7 of the report, sales of €3,379.91 of lubricants were determined in the context of the inspection, and we do not know how that value would have been determined, nor was the manner of determining it indicated in the report.
- As for the correction contained in III.2, the company for some time dedicated itself to the rental and sale of video cassettes and "cds" but chose to abandon the activity of renting such equipment, having decided to dedicate itself only to the sale of video cassettes and cds, which is why all the material that was in the establishment as fixed assets, became part of inventory.
- However, prior to 2011, it decided to completely close this activity and store all that material which is now completely deteriorated and is not even saleable.
- Therefore, there were no sales of such material in years after 2010.
- It is common knowledge that these articles ceased to be saleable, given that substitutes with much better characteristics have appeared on the market.
- To this date they are still kept there boxed and the solution will be in the short term to proceed with the destruction of the same as they are completely obsolete.
- With the help of a computer technician it was possible now to collect from the computer that was damaged all the information relating to the existence of this material which totaled on 31 December 2011 the amount of €70,228.38, an amount which was carried forward to the following years, given that there have been no more sales of this material since the year 2010.
- Being previously, as mentioned, that those assets elements of the fixed assets of the company, were transferred to the inventory account, once it was thought that some sales could still be made, but by mistake was never changed the header of the relationship that was drawn up, maintaining the title of the table.
- However, it was not possible to extract from the computer the list of cassette inventory for the end of 2010 and the end of 2012, but for the reasons already mentioned above, the difference existing between the final inventories of those years concerns the reduction that was necessary to make because a significant quantity of cassettes were sent to the landfill due to their complete deterioration resulting from water that fell on them.
- Therefore, this change in stock values results solely from this fact, which is why the correction contained in III.2 of the report should never have been made.
- As for the difference in sales contained in Chapter V, it is important to note that knowing that there are specific mechanisms at fuel stations that control the records of fuel outlet and that on the part of B… there is strict control of fuel consumption, it would be completely unthinkable that all fuel sales were not invoiced and recorded in the accounting.
- Sales under the regime … were not invoiced by the Claimant to the end consumer, but by B… directly to it, with the Claimant receiving only a very small commission that was granted by B… and which in the year 2011 amounted to €26,787.21.
- It is evident that, with fuel coming out of the pumps, the record in them, also evidences these sales, so they are also contained in the load map.
- It thus became necessary to purge from this map the sales relating to … which were invoiced directly by this to the end consumer.
- According to the table that was attached when exercising the right of hearing and which was provided by B… the sales under the regime … in the year 2011 were 190,340L of gasoline GF, 7,190,130L of gasoline SI, 1,266,900l of diesel GFO and 94,209,160l of diesel SIM.
- The differential found in table 9 on page 16 corresponds to sales under the system … .
- As for the correction contained in Chapter V regarding the year 2012, the values that were determined do not correspond to reality and, on the other hand, the discounts granted were €30,100.32 and not €24,148.65.
- In light of the foregoing it is concluded that there should be application of indirect methods, with disagreement also being expressed with the same that if this were not understood, with the corrections proposed regarding Chapters III.1, III.2 and V.
4. The Tax Authority — Tax and Customs Administration, called upon to respond, contested the claim of the Claimant, defending itself by objection, in summary, with the following grounds:
BY EXCEPTION
- The Claimant did not proceed to identify the tax acts that it intends to challenge, limiting itself to identifying the periods of VAT and the payment deadlines, making mention to Annex 1, which constitutes only and solely the VAT assessment for the period 201103T and which in accordance with the provisions of subparagraph b) of paragraph 2 of Article 10 of the LFATM, the request for arbitral pronouncement must necessarily contain the identification of the act or acts placed in question.
- Thus and as stated, it appears that there is a defect in the pleading, given the provisions of articles 10, paragraph 2, subparagraphs b) and d), of the LFATM, 89, paragraph 1, subparagraph a), of the Code of Administrative Procedure and Litigation, and 98, paragraph 1, subparagraph a), and paragraph 2, of the Code of Tax Procedure and Litigation (the latter by virtue of article 29, paragraph 1, subparagraph c), of the LFATM).
- From the claim and cause of action formulated by the Claimant it results that the acts subject to the request for arbitral pronouncement are not the assessments but rather the corrections made within the scope of the tax inspection report, which do not constitute final acts of the tax procedure and not being expressly provided in law that the corrections to the final tax inspection report be subject to independent contentious challenge, cannot they, in that measure, constitute, in any way, the subject of the arbitral petition sub judice, so there is the exception of non-challengeability of the challenged acts, in accordance with subparagraph c) of paragraph 1 of article 89 of the Code of Administrative Procedure and Litigation by virtue of article 29, paragraph 1, subparagraph c) of the LFATM, which determines the absolution of the Respondent from the instance, in accordance with article 278 of the Code of Civil Procedure.
- In accordance with the provisions of Article 2 of Ordinance no. 112-A/2011 of 22 March, the Respondent entity is not bound by the jurisdiction of arbitral tribunals that have as their object:
"b) Claims relating to acts of determination of collective income and acts of determination of taxable base, both by indirect methods, including the decision of the review procedure".
- Therefore, the incompetence of the Arbitral Tribunal results from the fact that pursuant to Ordinance no. 112-A/2011 of 22 March, it is prohibited from having competence to appreciate the "Claims relating to acts of determination of collective income and acts of determination of taxable base, both by indirect methods (…)"
- Thus, the arbitral tribunal is materially incompetent to settle the present dispute, since we are faced with acts outside the scope of the Binding Ordinance which excludes the binding of the Respondent entity to claims relating to acts of determination of collective income or taxable base by indirect methods.
- From Article 3, paragraph 1 of the LFATM, it is clear that, without the same circumstances of fact and the interpretation and application of the same rules of law being in question in all assessments, these cannot be challenged cumulatively.
- There is a question of the interpretation and application of different rules of law as it is clear that the request for pronouncement on the legality of Corporate Income Tax and VAT acts do not depend (essentially) on the interpretation and application of the same rules of law, so the cumulation in question is not permitted by Article 3, paragraph 1 of the LFATM.
- In the context of the exercise of the right of hearing, the Claimant came to object to the corrections made by the Respondent, set out in points III.2 and V and which at no moment during the exercise of the prior right of hearing did the Claimant initiate or manifest any disagreement with the correction proposed in point III.1, having not wielded any factual or legal motivation that would prevent the maintenance of the correction made.
- Having the Claimant reacted contentiously to the tax inspection report without having raised such matters by way of the administrative remedy, it follows that the Respondent entity never pronounced itself on the arguments now invoked in the request for arbitral pronouncement, from which results the incompetence of the Arbitral Tribunal in light of the provisions of paragraph 1 of Article 2 of the LFATM and of the Binding Ordinance.
BY OBJECTION ON THE MERITS
- Substantiation is a relative concept, which varies according to the specific legal type of administrative act, and the legal requirement must be understood in able terms, given the functionality of the institute and the essential objectives to be pursued.
- The tax inspection report explicitly stated in a clear, sufficient and congruent manner the reasons that were at the origin of the application of indirect methods.
- The substantiation is sufficiently clear and unequivocal, all the more so because the Claimant through the present request for arbitral pronouncement not only demonstrates, in light of the arguments explained throughout its pleading, to have fully understood the factual and legal framework on which the Respondent's decision was based, as it attempts to refute, point by point, all of its actions.
- In the context of the tax inspection report omissions were detected in the exercise of 2012, namely regarding lubricants and liters of petroleum not being in the accounting the invoices issued to customers filed as they were not even printed.
- This fact is clearly proven through the "load maps" extracted from the invoicing software.
- The information from the "Load Maps – Lubricants" comes from invoices issued to customers and analyzed during the inspection action, resulting in the Claimant's arguments being unfounded, since it was never called into question that the invoices were not issued, as in fact the correction results from the difference between the accounting records and the "Load Maps – Lubricants".
- As follows from the correction set out in point III.2 of the tax inspection report, it was ascertained that the financial statements showed an incorrect cost of goods consumed, due to the fact that the goods recorded in the accounting were higher than those of the inventories provided.
- The Claimant alleges that it presented a statement with all the information regarding the existence of such material which until 31.12.2011 totaled €70,228.38, thus the statement presented, and as its name indicates consists of the depreciation schedule, relating therefore to tangible fixed assets and not to inventory as alleged.
- Even if it were admitted as the Claimant proposes that it is inventory, it is clear from the outset that the same should be included in the 2012 year inventory but this does not occur.
- Thus, the corrections for the years 2011 and 2012 of €11,522.48 and €19,827.56, come from the difference between the values of goods recorded in the accounting and those of the inventories of goods (inventory of goods at year-end), with the divergence being duly proven by the accounting trial balance and inventories.
- It follows from the tax inspection report that nine grounds were invoked for the application of indirect methods, with the taxable value of fuels being recalculated and the divergences determined with impact on results, namely; in the value of fuel sales at … and its merchandising margin.
- Thus, the value of fuel sales at the … facilities to be recognized in the accounting, pursuant to Articles 69 to 75 of the VAT Code, should be what appears in the lists of "Discriminated Sales of Invoices" (this corresponds to that of the "Load Maps of invoices" deducted from the discounts shown in columns 6 and 8 of tables 1 and 2) processed by the invoicing software, deducted from the VAT on the margin (column 12 of tables 1 and 2), however, in the account "71. Sales" the value of fuels at the … facilities is lower than what results from the application of the applicable legislation, as is evident in the tables presented in the Inspection Report.
- The liters of fuel sold from the "Load Maps" extracted from the invoicing software were different from those determined through purchases and inventories, as from the cross-referencing of the liters of fuel sold from the invoicing maps and those consumed determined through purchases and inventories are divergent.
- Not having been presented clarification for the divergences pointed out, it is presumed that these are due to accounting errors which have an impact on the calculation of the taxable result as they imply changes in the cost of goods sold recognized in the accounting, and the valuation of such divergences has been carried out using the average purchase price in a similar manner to the costing method used by the company in calculating the taxable value of fuels.
- The liters of fuel sold from the "Load Maps" extracted from the invoicing software are superior to those consumed determined through purchases and the variation of inventory goods, resulting from this difference after its valuation at the average purchase price expenses higher than those reflected in the accounting, in the account "61. Cost of goods sold and consumed", the omission in question being, in the years 2011 and 2012 of €114,961.32 and €12,693.66 in accordance with the provisions of Articles 17, paragraph 3, subparagraph a) and 23, paragraph 1, both of the Corporate Income Tax Code.
- Through the cross-referencing of the VAT declared in the periodic statements, referring to that levied on the margin of fuels, the VAT shortfall in the years 2011 and 2012 results in €3,088.97 and €3,956.53.
- Regarding the regime …, it is clarified that in the report there is no reference to it, because it was understood to be unnecessary as, during the inspection action, it was verified that the invoices for purchases of fuel from C… contained the total value of the liters acquired, which was recorded in the account "31. Purchases" and a deduction from the global amount, not reflected in the accounting.
- Following this, clarifications were requested from the managing partner, in the context of the inspection procedure regarding this deduction, and the latter informed that it came from "credit notes to be deducted"
- Since the values of deductions from C… invoices were high and were not reflected in the accounting, clarifications were requested from the referred supplier (see point III.3), and after analysis of the current account statement sent by C… and following a telephone conversation, it was informed that the deductions from its invoices concerned customer payments by the modality of the regime … (the customer had a card and fuel consumption was paid by the same directly to C… which discounted this value in the payments to be made by the Claimant), which did not include the issuance of credit notes regarding the fuel acquired, nor of sales invoices on the part of C…, in that only the payment modalities of the transactions were in question.
- Therefore, there were no deductions to be made in the accounts "31. Purchases", nor in the load maps of the Claimant as is invoked in the request for arbitral pronouncement.
- Note that the tables in Chapter V of the tax inspection report are duly prepared containing the description of the columns and rows, as well as the calculation formulas.
- Moreover, in the inspection action report only the totals appear, with the support thereof being the maps extracted from the company's Software and the maps for the imputation of discounts of extra-accounting sales prepared by the person responsible for accounting, filed in the folders made available.
5. Notified to respond in writing to the matter of exception raised by the Respondent, the Claimant pronounced itself, in summary, in the following terms:
REGARDING THE DEFECT IN THE PLEADING
- Since the annexes to be sent with the request for arbitral pronouncement were too extensive to be sent through the official CAAD page, the Claimant sent them via electronic mail to geral@caad.org.pt on 13 June 2016 at 13.24 as per the e-mail that is attached as Annex 1, with no indication having emerged of the non-acceptance of that e-mail.
- On 3 January 2017 a request was made justifying the timely sending of that Annex 1 and sending proof, a request that is already in the proceedings as can be verified by accessing the CAAD portal.
- In any case, the assessments subject to the challenge are abundantly identified in the petition, it being known that all assessments were issued by the tax authority which alone would be sufficient to comply with the provisions of subparagraph b) of paragraph 2 of article 10 of the LFATM.
- In this measure there is no reason for the Respondent as regards this exception.
REGARDING THE NON-CHALLENGEABILITY OF THE ACTS CONCERNING THE CORRECTIONS SET OUT IN POINTS III.1, III.2 AND V.
- According to subparagraph a) of article 1 of Decree-Law no. 10/2011 of 20 January which established the legal regime for arbitration in tax matters, the competence of arbitral tribunals comprises the appreciation, among others, of the declaration of acts of tax assessment.
- The principle of unitary contentious challenge of the final act of the procedure prevails in tax litigation, with the acts interlocutory to the procedure not being able to be the subject thereof, being able however to be invoked in the challenge all the illegalities previously committed (articles 54 of the Code of Tax Procedure and Litigation and 66 of the General Tax Law) it being quite evident that what was requested in the present proceedings was the annulment of the assessments with no reason assisting the Respondent regarding this exception.
REGARDING THE PARTIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL RELATIVE TO THE CLAIM FORMULATED BY THE CLAIMANT
- What is scrutinized in the petition is only the annulment of the assessments identified in the pleading and which appear in Annex 1 to the same petition, assessments which had underlying the illegalities scrutinized therein.
- Therefore such matter is within the competence of tax arbitral tribunals in accordance with subparagraph a) of article 1 of Decree-Law no. 10/2011 of 20 January which established the legal regime for arbitration in tax matters, with no reason assisting the Tax Authority.
REGARDING THE ILLEGAL CUMULATION OF CLAIMS
- Notwithstanding the petition concerning various assessments, the success of the claims depends essentially on the application of the same circumstances of fact and the interpretation and application of the same principles and rules of law, in accordance with article 3, paragraph 1, of the LFATM.
- In the case at hand the premises and grounds that led to the Corporate Income Tax assessments were the same as those that grounded the VAT assessments, as can be verified by the order of determination resulting from the inspection report, so also regarding this exception, the Respondent has no reason.
REGARDING THE MATERIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL TO SCRUTINIZE THE QUESTIONS RAISED IN THE CONTEXT OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT THAT WERE NOT PREVIOUSLY RAISED IN THE CONTEXT OF THE RIGHT OF HEARING.
- All the corrections made and which were the subject of determination in accordance with articles 87 to 90 of the General Tax Law, by referral of article 57 of the Corporate Income Tax Code and 90 of the VAT Code, having been the subject of a review request, were appreciated by the Tax Authority as is verified by the order of the Director of Finances of … dated 26 January 2016.
- The grounds that underpin the invocation of the present exception do not apply to the case at hand, as the realities are different, namely because no assessments provided for in articles 131 and 133 of the Code of Tax Procedure and Litigation are in question as erroneously stated in the invocation of the present exception.
- By which it is concluded by the lack of merit of the exception raised.
6. Verifying the non-existence of any situation provided for in article 18, paragraph 1, of the LFATM, that would make necessary the arbitral meeting provided for therein, was dispensed with the holding of the same, on the ground of the prohibition of the practice of useless acts.
An arbitral meeting was held in order to examine a witness called by the Claimant.
The holding of oral arguments was also dispensed with, in accordance with article 18, paragraph 2, of the LFATM, "a contrario".
7. As a preliminary matter, the exceptions of material incompetence of the arbitral tribunal raised by the Respondent must be decided.
Question of the competence of the arbitral tribunal concerning acts of assessment whose taxable base has been determined by indirect methods
Article 2, paragraph 1, of Decree-Law no. 10/2011 of 20 January, in its original wording, had the following text:
1- The competence of arbitral tribunals comprises the appreciation of the following claims:
a) The declaration of illegality of acts of tax assessment, of self-assessment, of withholding at source and of payment on account;
b) The declaration of illegality of acts of determination of taxable base, of acts of determination of collective income, and of acts of determination of property values;
c) The appreciation of any question, of fact or of law, relating to the draft decision of assessment, whenever the law does not provide for the ability to bring the claim referred to in the preceding subparagraph.
In turn, article 4, paragraph 1 of the same Decree Law provides that "The binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice".
This binding was implemented through Ordinance no. 112-A/2011 of 22 March, whose article 2 (with the heading "Object of the binding"), provides:
"The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals operating at CAAD that have as their object the appreciation of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:
a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Litigation;
b) Claims relating to acts of determination of collective income and acts of determination of taxable base, both by indirect methods, including the decision of the review procedure;
c) Claims relating to customs duties on imports and other indirect taxes that apply to goods subject to import duties; and
d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or measures to be taken by another Member State within the framework of administrative cooperation in customs matters."
Law no. 64-B/2011, of 30 December repealed subparagraph c) of paragraph 1 of article 2, paragraph 1, of Decree-Law no. 10/2011 of 20 January and gave new wording to subparagraph b) of the same paragraph which came to have the following text:
"b) The declaration of illegality of acts of determination of taxable base when this does not give rise to the assessment of any tax, of acts of determination of collective income and of acts of determination of property values."
The question to be decided consists in knowing whether from subparagraph b) of article 2 of Ordinance no. 112-A/2011 of 22 March, results only the exclusion of the binding of the Respondent concerning "acts of determination of collective income and acts of determination of taxable base, both by indirect methods, including the decision of the review procedure" or whether it also covers the "tax act of assessment in which the taxable base has been determined based on indirect evaluation" (expression from article 86, paragraph 4 of the General Tax Law).
The Respondent understands that, from the mentioned subparagraph b) of article 2 of the identified ordinance results that it is not bound, interpreting the same in the sense of the exception that the subparagraph translates including the tax act of assessment in which the taxable base has been determined based on indirect evaluation and not only the acts of determination of collective income and acts of determination of taxable base, both by indirect methods properly speaking (in addition to the decision of the review procedure).
In the sense of the applicability of the exception in question, also, to the tax acts of assessment in which the taxable base has been determined based on indirect evaluation and not only to the acts of determination of collective income and acts of determination of taxable base with recourse to indirect methods, several arguments can be invoked.
In the first place, pursuant to article 62, paragraph 1, of the Code of Tax Procedure and Litigation "In case of determination or revision of the taxable base must take place, by its own procedure, the assessment is effected in accordance with the decision of the referred procedure, except in case of manifestly violating legal competences".
It is the case of the determination of the taxable base by indirect methods whose review is subject to the specific regime of articles 91 and following of the General Tax Law.
Thus, except in case of manifest violation of legal competences, the decision of determination of the taxable base by indirect methods determines the content of the subsequent assessment, and it makes sense to submit to the same procedural regime the acts of determination of the taxable base by indirect methods, properly speaking and the tax acts of assessment in which the taxable base has been determined based on indirect evaluation, since the essential matter on which the arbitral pronouncement will focus is, in both cases, identical.
In this sense decided the arbitral tribunal of CAAD in proceedings 17/2012-T[1], where it can be read:
"(…) the act of tax assessment is the direct consequence of the decision of
the review procedure, which constitutes its foundation and which is excluded from this jurisdiction.
Such act of assessment substantively adds nothing, limiting itself to materializing the decision of the procedure, to concretize the value of tax that derives arithmetically from this decision and to extern it, so that it can produce the legal effects of the legal relationship constituted.
Now, if the appreciation of claims relating to the decision of the review procedure, whose object is that of the determination of the taxable base by indirect methods, is prohibited, and if the cause of action of the present action is precisely the excess in the quantification of that base (the core of the review procedure itself), then there can be no doubt that the appreciation of the act of assessment, based on such excess in quantification, is excluded from the jurisdiction of this tribunal.
Indeed, if this were not understood, since the grounds and cause of action of the request for arbitral pronouncement relate precisely to the excess in quantification, endorsing the position of the Claimant would mean allowing, through the said appreciation of the act of assessment, the judgment of a claim relating to "acts of determination of collective income (…) by indirect methods, including the decision of the review procedure" expressly prohibited by the Binding Ordinance, in particular by its article 2, subparagraph b)."
In the preamble of the ordinance in question it can be read that "with the present ordinance, the tax administration binds itself also to the jurisdiction of CAAD (…) associating itself with this mechanism of alternative dispute resolution and in accordance with the terms and conditions established here, taking into account the specificity and value of the matters in question".
Beyond the value, the criterion of binding in the ordinance thus consisted in taking into account the specificity of the matters in question.
It seems therefore, that the legislative intent was that of the binding taking into account the substantive criterion of the matters to be appreciated by the tribunal, excluding from the binding claims relating to acts of determination of collective income or taxable base by indirect methods, whether the claim focuses directly on the administrative act of determination, or focuses indirectly through the challenge of the subsequent act of assessment in which collective income or taxable base has been determined by indirect methods.[2][3]
We thus understand that the respondent is not bound by the jurisdiction of CAAD regarding this matter.
We consider that it is an unnamed dilatory exception and not material incompetence[4] since the ordinance did not repeal the norm of competence attributed to the arbitral tribunal by Decree-Law no. 10/2011 of 20 January. The norm of this Decree-Law that attributed competence continues in force. What is verified is the absence of binding of the Respondent, regarding the type of acts in question. In any case, the consequence is the same: the absolution of the arbitral instance.
Terms in which, in this part, it is judged verified the unnamed dilatory exception due to lack of binding of the Respondent to the arbitral tribunal, with the consequent absolution of the instance regarding the part of the tax acts of assessment in which collective income was determined by indirect methods.
The claimant also petitions for the annulment of the assessment to the extent that it is based on purely arithmetic corrections.
As Jorge Lopes de Sousa writes "The Supreme Administrative Court has generally understood that administrative acts which impose the obligation to pay a sum, namely acts of tax assessment, are naturally divisible, also being legally divisible, as the law provides for the possibility of partial annulment of the same" (article 100 of the General Tax Law and previously, article 145 of the Tax Code) (Code of Tax Procedure and Litigation, annotated and commented, 2006, 1st Vol., pages 720-721)
Article 100 of the General Tax Law expressly provides for this divisibility by allowing the possibility of partial annulment of the tax act.
In this aspect, in addition to the arbitral tribunal not being incompetent, the unnamed exception of lack of binding of the Respondent does not occur.
Question of the material incompetence of the arbitral tribunal in order to scrutinize the questions raised in the context of the request for arbitral pronouncement that were not previously raised in the context of the right of hearing.
The Respondent alleges that in the context of the exercise of the right of hearing the Claimant came to object to the corrections made by the Respondent set out in points III.2 and V and that at no moment during the exercise of the prior right of hearing did the Claimant initiate or manifest any disagreement with the correction proposed in point III.1, not having wielded any factual or legal motivation that would prevent the maintenance of the correction made.
For the Respondent "having the Claimant reacted contentiously to the tax inspection report without having raised such matters by way of the administrative remedy, it implies that the Respondent entity never pronounced itself on the arguments now invoked in the request for arbitral pronouncement" which would imply "incompetence of the Arbitral Tribunal in light of the provisions of paragraph 1 of Article 2 of the LFATM, and of the Binding Ordinance".
The lack of merit of the exception in question is manifest, which, even if the Respondent were correct, would not configure material incompetence of the tribunal.
On the one hand, the prior right of hearing constitutes a right of taxpayers whose non-exercise does not imply the acceptance of the draft decision and the impossibility of reacting by administrative remedy and contentiously against the same.
On the other hand, with point III.1 of the inspection report dealing with technical corrections and not being in the presence of acts of self-assessment, withholding at source or payments on account, there is no obligation to react previously by way of the administrative remedy against the same by force of article 2, subparagraph a) of Ordinance 112-A/2011 of 22 March, and it is certain that, in this case, the position of disagreement of the Claimant was even manifested with the explication of the respective factual and legal reasons in the request for review of the collective income determined by indirect methods, despite being purely arithmetic corrections.
Terms in which, without need for further considerations, it is decided to judge the exception in question to lack merit.
8. The tribunal is materially competent and is regularly constituted in accordance with the LFATM.
The parties have legal personality and capacity, are legitimate and are legally represented.
The proceedings do not suffer from vices that would invalidate it.
9. It is necessary to resolve the following questions:
a) Whether the exception of defect in the pleading occurs.
b) Whether the exception of non-challengeability of the acts concerning the corrections set out in points III.1, III.2 is verified as they do not constitute the final acts of the tax procedure.
c) Whether there is illegal cumulation of claims.
d) Whether the tax acts subject to the present proceedings are illegal, to the extent that the collective income underlying the assessments was determined by the direct method.
II – The relevant factual matter
10. The following facts are considered proven:
1. The Respondent made the following tax assessments to the Claimant, with the respective notifications being made:
A) Value Added Tax assessments.
- Regarding quarter 201103T in the amount of tax of €1,098.57 and compensatory interest of €205.75, with payment deadline of 30.04.2016;
- Regarding quarter 201106T in the amount of tax of €603.61 and compensatory interest of €106.96 with payment deadline of 30.04.2016;
- Regarding quarter 201109T in the amount of tax of €1,005.05 and compensatory interest of €167.97 to be paid by 30.04.2016;
- Regarding quarter 201112T in the amount of tax of €381.74 and compensatory interest of €59.99 to be paid by 20.04.2016
- Regarding tax quarter 201203T in the amount of tax of €3,115.24 and compensatory interest of €458.83 to be paid by 20.04.2016;
- Regarding quarter 201206T in the amount of tax of €1,059.30 and compensatory interest of €145.22 to be paid by 20.04.2016;
- Regarding quarter 201209T in the amount of tax of €1,002.09 and compensatory interest of €127.38 to be paid by 20.04.2016;
- Regarding quarter 201212T in the amount of tax of €598.83 and compensatory interest of €70.08 to be paid by 20.04.2016.
B) Corporate Income Tax assessments:
- For 2011 in the amount of €16,034.06 including compensatory interest to be paid by 20.04.2016 and
- For 2012 in the amount of €11,225.25, including compensatory interest to be paid by 20.04.2016.
2. The assessments were made following an inspection action to which the Claimant was subject that concerned Corporate Income Tax and Value Added Tax for the years 2011 and 2012.
3. From this inspection action resulted the determination of the Value Added Tax shortfall for the same years in the amounts of €3,088.97 and €5,775.46 respectively, with the taxable base for Corporate Income Tax purposes being fixed for those years in the amounts, respectively, of €66,278.75 and €42,621.97.
4. Notified of the final report the Respondent presented, within the period granted for such purpose, a request for review of such determinations in accordance with articles 91 and following of the General Tax Law where the purely arithmetic corrections and the corrections based on the application of indirect methods of determination of the taxable base contained in the same report were challenged, having not obtained approval for the claims of the Claimant in the decision of the referred procedure.
5. The taxable base from which the assessments subject to the present proceedings resulted was determined on the basis of purely arithmetic corrections and corrections based on the application of indirect methods of determination of the taxable base contained in the same report.
6. From the tax inspection report, in addition to corrections to the taxable base made through indirect methods, the following purely arithmetic corrections to the taxable base appear: [table as in original]
UNPROVEN FACTS
1) That during the year 2012 no sales of illuminating petroleum were made.
2) That as regards lubricants and the year 2012, the value of sales in February was €1,784.85 and not €3,379.91, as was considered by the Respondent.
3) That the Claimant company transferred from fixed assets to inventory the video cassettes and "cds" and that all this material was deteriorated and not saleable at the date of the tax facts in question in the present proceedings.
4) That it was not possible to extract from the computer the list of cassette inventory for the end of 2010 and the end of 2012 and that the difference existing between the final inventories of those years concerns the reduction that was necessary to make because a significant quantity of cassettes were sent to the landfill due to their complete deterioration resulting from water that fell on them.
11. The tribunal's conviction regarding the decision of the proven facts was based on the documents contained in the proceedings, as well as on the pleadings presented.
Regarding the matter of fact considered unproven in 1) 2) and 3) for proof of such matter the Claimant called one witness, who stated to be the current accountant of the company but who was not its Authorized Tax Accountant at the date of the facts, although collaborated with the same, in an office located at … .
The absence of conviction of the tribunal regarding the proof of such matter through the testimony of this witness relates to the fact that the same did not reveal direct knowledge of the facts in question.
As for the question relating to illuminating petroleum and the alleged mistake with its respective code, the witness's testimony did not reveal direct knowledge of the fact, namely of the concrete circumstances and the authorship of such alleged error.
Similarly, direct knowledge was not revealed regarding the absence of sales of illuminating petroleum in the year 2012, nor did concrete circumstances emerge from the testimony that would allow the tribunal's direct knowledge of the facts in question to be anchored, moreover occurring in a location very distant from the witness's place of work and residence.
It should also be noted that, having the Respondent exercised the right of hearing following the draft inspection report, the facts in question were not alleged in that context.
Also regarding the other unproven facts, the same absence of knowledge of the facts by the witness emerged, in addition to the documentary appreciation inherent to its professional functions.
In particular, as regards the facts alleged to have been sent to the landfill a significant quantity of cassettes due to their deterioration resulting from water that would have fallen on them, no proof of such matter was produced by the Claimant.
III – The Applicable Law
EXCEPTIONS
12. Exception of defect in the pleading.
The Respondent alleges that in the request for arbitral pronouncement the Claimant did not proceed to identify the tax acts that it intends to challenge, limiting itself to identifying the periods of VAT and the payment deadlines, making mention to Annex 1, which constitutes only and solely the VAT assessment for the period 201103T and which in accordance with the provisions of subparagraph b), of paragraph 2, of article 10 of the LFATM, the request for arbitral pronouncement must necessarily contain the identification of the act or acts placed in question, so in consequence, the defect in the pleading is verified, given the provisions in articles 10, paragraph 2, subparagraphs b) and d), of the LFATM, 89, paragraph 1, subparagraph a), of the Code of Administrative Procedure and Litigation, and 98, paragraph 1, subparagraph a), and paragraph 2, of the Code of Tax Procedure and Litigation (the latter by virtue of article 29, paragraph 1, subparagraph c), of the LFATM).
The Respondent's objection has no merit, however.
In effect, the request for arbitral pronouncement contains the identification of the acts of assessment of value added tax with reference to each quarter and respective values and the acts of assessment of corporate income tax with reference to the tax periods and respective values (with the respective payment period also being indicated for each assessment) thus complying with the provisions of article 10, paragraph 2, subparagraph b) of the LFATM.
The exception of defect in the pleading raised by the Respondent thus lacks merit.
13. Non-challengeability of the acts concerning the corrections set out in points III.1, III.2 as they do not constitute the final acts of the tax procedure.
The Respondent alleges that it follows from the claim and cause of action formulated by the Claimant that the acts subject to the request for arbitral pronouncement are not the assessments but rather the corrections made within the scope of the tax inspection report, which do not constitute final acts of the tax procedure and not being expressly provided in law that the corrections to the final tax inspection report be subject to independent contentious challenge, cannot the same, in that measure, constitute, the subject of the arbitral petition sub judice, so the exception of non-challengeability of the challenged acts is verified, in accordance with subparagraph c) of paragraph 1 of article 89 of the Code of Administrative Procedure and Litigation by virtue of article 29, paragraph 1, subparagraph c) of the LFATM, which determines the absolution of the Respondent from the instance, in accordance with article 278 of the Code of Civil Procedure.
However, the acts of assessment whose annulment is, moreover, expressly petitioned, were clearly identified in the request for arbitral pronouncement as the subject matter of the proceedings, so, also here, the Respondent manifestly lacks reason.
Thus, it is decided, also, to judge the exception in question to lack merit.
14. Illegal cumulation of claims.
The Respondent also alleges that, from Article 3, paragraph 1 of the LFATM, it is clear that, without the same circumstances of fact and the interpretation and application of the same rules of law being in question in all assessments, these cannot be challenged cumulatively and that in the case sub judice there is a question of the interpretation and application of different rules of law, as it is clear that the request for pronouncement on the legality of Corporate Income Tax and VAT acts do not depend (essentially) on the interpretation and application of the same rules of law, so the cumulation in question is not permitted by article 3, paragraph 1 of the LFATM.
For its part, the Claimant sustains that notwithstanding the petition concerning various assessments, the success of the claims depends essentially on the application of the same circumstances of fact and the interpretation and application of the same principles and rules of law, in accordance with article 3, paragraph 1, of the LFATM and that in the case at hand the premises and grounds that led to the Corporate Income Tax assessments were the same as those that grounded the VAT assessments.
The matter of cumulation of claims in the context of tax arbitration is regulated in Article 3, paragraph 1 of the LFATM in the following terms:
"The cumulation of claims even if relating to diverse acts and the joinder of claimants are admissible when the success of the claims depends essentially on the appreciation of the same circumstances of fact and the interpretation and application of the same principles or rules of law."
On this question Fernando Lança Martins tells us that "It will then be verified that the objective connection required by article 3, paragraph 1, of the LFATM, for the cumulation of claims that concern different tax acts is present to the extent that the legal-fiscal question within which the legality of the acts is appreciated is essentially similar.
It should be noted, however, that, given the literal tenor of the provision in question, such objective connection does not require that the factual and legal grounds be absolutely identical. Thus, while it is certain that the cumulation of claims requires that the declaration of illegality of the acts depends on the appreciation of facts and similar principles or rules of law, it is not, however, a requirement of such cumulation that all the factual and legal grounds be the same"[5]
Jorge Lopes de Sousa also tells us that "The fact that article 3, paragraph 1, of the LFATM does not make reference to the identity of taxes reveals that there is no limitation relative to the identity of the tax in tax arbitration tribunals as is made in article 104 of the Code of Tax Procedure and Litigation, so that, for example, a request can be made to an arbitral tribunal for the declaration of illegality of acts of assessment of VAT and Corporate Income Tax that have underlying the same factual materiality detected in an inspection action".[6]
In the case at hand, it is effectively the same factual materiality that gave rise to the assessments in the context of Corporate Income Tax and VAT, with no particular legal specifics of each tax in the case, beyond those that result from the incidence rules being diverse, as the taxes are different.
Thus, it is concluded that the cumulation of claims in question is permitted by article 3, paragraph 1, of the LFATM, and in consequence, the exception in question is judged to lack merit.
15. Appreciation of the Legality of the tax acts subject to the present proceedings, to the extent that the collective income underlying the assessments was determined by the direct method.
The Claimant came to question the purely arithmetic corrections reflected in the assessments invoking illegalities that are reduced to error in the factual presuppositions.
As regards lubricants and the year 2012, it alleges that the value of sales in February was €1,784.85 but that sales of €3,379.91 of lubricants were determined in the context of the inspection, not knowing how that value would have been determined.
However, it appears from the inspection report that such data result from the so-called "load maps" extracted from the Claimant's invoicing software, without this having been called into question by the Claimant and this not having produced proof of the lack of correspondence of such elements with reality.
In this measure, the allegation of illegality pointed to this correction cannot fail to lack merit.
An identical situation occurs regarding the allegations of illegality concerning the other arithmetic corrections as, in light of the absence of proof of the facts alleged by the Claimant, the alleged illegalities are not demonstrated.
Terms in which, the request for annulment of the tax acts lacks merit in its entirety regarding the corrections that are purely arithmetic.
IV – Decision
Terms in which, it is decided:
a) To absolve the Respondent from the instance regarding the request for annulment of the tax acts of assessment, to the extent that the collective income was determined by indirect methods.
b) To absolve the Respondent from the claim regarding the request for annulment of the tax acts of assessment, to the extent of the purely arithmetic corrections.
Value of the claim: €37,465.92 (thirty-seven thousand four hundred and sixty-five euros and ninety-two cents) in accordance with the provisions of article 306, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Litigation and article 3, paragraph 2, of the Regulation of Costs in Arbitration Proceedings.
Costs by the Claimant, in the amount of €1,836.00 (one thousand eight hundred and thirty-six euros) in accordance with paragraph 4 of article 22 of the LFATM.
Let it be notified.
Lisbon, CAAD, 27.02.2017
The Arbitrator
Marcolino Pisão Pedreiro
[1] Available at http://www.caad.org.pt/userfiles/file/P17_2012T%20-%202012-05-14%20-%20JURISPRUDENCIA%20Decisao%20Arbitral.pdf
[2] In this sense, in addition to the arbitral decision delivered in proceedings 17/2012-T, were the arbitral decisions delivered in proceedings nos. 52/2012-T of 22 October 2012, 70/2012-T, of 31 October 2012, 175/2013-T of 16 January 2013, 310/2014-T, among others.
[3] On this matter Jorge Lopes de Sousa writes:
"Although subparagraph b) of paragraph 1 of article 2 of the LFATM includes in the competences of arbitral tribunals the declaration of illegality of acts of determination of taxable base and determination of collective income in which indirect methods were used, the Tax Administration excluded this possibility by expressly excluding from its binding to those tribunals the «claims relating to acts of determination of collective income and acts of determination of taxable base, both by indirect methods, including the decision of the review procedure» [subparagraph b) of article 2 of Ordinance no. 112-A/2011, of 22 March].
If, eventually, this restriction on binding were to be eliminated, it should be noted that in paragraph 5 of article 86 of the General Tax Law a condition is imposed for the judicial challenge of the assessment based on error in the quantification or in the presuppositions of the determination of collective income by indirect methods, a «prior complaint», which in article 91 of the same enactment is implemented as a review procedure of collective income.
Guide to Tax Arbitration, Coord.: Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, Pages 138-139.
In doctrine, supporting the arbitrability of the acts of assessment resulting from the determination of collective income in which indirect methods were used, Carla Castelo Trindade, in Legal Framework for Tax Arbitration Annotated, Almedina, 2016, pages 108-112 and Francisco Geraldes Simões, THE ARBITRABILITY OF ACTS OF ASSESSMENT BY INDIRECT METHODS, in journal Tax Arbitration no. 1, Coord.: Nuno Villa-Lobos-Tânia Carvalhais Pereira, 2014, pages 18-21.
[4] This was understood in the decision delivered in proceedings 70/2012-T, among others.
[5] THE CUMULATION OF CLAIMS IN TAX ARBITRATION, in journal Tax Arbitration no. 1, Coord.: Nuno Villa-Lobos-Tânia Carvalhais Pereira, 2014, page 28.
[6] Guide to Tax Arbitration, Coord.: Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, Pages 145-146.
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