Summary
Full Decision
The Arbitrator Marisa Almeida Araújo, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form this Singular Arbitral Court, constituted on 25/09/2018, renders the following,
Arbitral Decision
1. Report
A..., LDA., with registered office at ..., ..., ..., ...-... ..., Tax ID Number ... (hereinafter referred to as "Claimant"), pursuant to Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), submitted a request for arbitral pronouncement in which the AUTHORITY FOR TAX AND CUSTOMS (hereinafter referred to as "AT" or "Respondent") is named as respondent.
The Claimant petitions that the illegality be declared and, consequently, annulled,
- the tax act for additional assessment of Corporate Income Tax (IRC) No. 2017..., of 26/07/2017, relating to the tax year 2014, in the amount of EUR 53,411.41 (fifty-three thousand, four hundred and eleven euros and forty-one cents),
- the act of dismissal of the Administrative Appeal that sustained that assessment in the context of file No. ...2018....
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Authority for Tax and Customs on 17-07-2018.
Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
On 05-09-2018 the parties were duly notified of this designation and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.
Thus, in compliance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, the Arbitral Tribunal was constituted on 25-09-2018.
The Authority for Tax and Customs submitted a response in which it defended the lack of merit of the claim.
On 23-01-2019, a hearing was conducted for the production of witness evidence, party statements and oral arguments.
The Parties are duly represented, enjoy legal personality and capacity and have standing (Articles 4 and 10, paragraph 2, of the same legal instrument and Article 1 of Order No. 112-A/2011, of 22 March).
The proceedings are not affected by nullities and no exceptions were raised.
2. Factual Matters
The Claimant supports its position by alleging, in summary, that,
The assessment in question in the proceedings was based on the tax inspection conducted by the Authority for Tax and Customs through service order No. OI2016... and which culminated in the tax inspection report of 06/06/2017 (hereinafter referred to as "RIT"), through which corrections were made to the taxable base and the subsequent calculation of tax, in the context of IRC, for the tax year 2014, among which the Claimant does not accept the correction of payments to entities resident outside Portuguese territory and subject there to a clearly more favorable tax regime – an increase of € 106,000.00 relating to a commission paid to an entity resident in Hong Kong, which was not accepted for tax purposes under subparagraph r) of paragraph 1 of Article 23-A of the IRC Code and autonomous taxation on the expense incurred with payment to entity resident in Hong Kong, under paragraph 8 of Article 88 of the IRC Code.
Alleging that the said assessment violates the principle of deductibility of expenses and manifests an error in the application of the factual requirements of subparagraph r), of paragraph 1, of Article 23-A of the IRC Code (at the time of the facts); the principle of the pursuit of substantive truth – see Article 55 of the General Tax Law (LGT); and manifests an error in the factual requirements for the application of paragraph 8 of Article 88 of the IRC Code (Autonomous Taxation).
The Claimant supports this position by alleging that it is a company that develops its activity within the civil construction industry, public and private works, purchase and sale of properties and resale of those acquired for that purpose and, within the scope of its activity, the Claimant constructs real estate and proceeds to its sale.
During the year 2014, within the scope of the activity referred to, particularly regarding real estate development and sale of real estate, the Claimant resorted to a foreign real estate brokerage and intermediation entity in order to seek to attract investors who would acquire the property with the purpose of benefiting from the favorable circumstances for attracting Asian buyers that existed at that time, due to the Golden Visa program.
The Claimant resorted to a company based in Hong Kong, "B...", with whom it entered into a contract for the provision of the said brokerage and intermediation services and with whom it agreed to pay a commission equivalent to 18% of the sale value of the property.
On 24/06/2014, the Claimant sold the autonomous fraction designated by the letter "B", corresponding to the ground floor and basement, intended for residential use, with entrance through Rua..., No.... and grounds, integrated in the urban property constituted in condominium located on Rua..., No.... and..., ..., parish and municipality of... under the number ... of the said parish and registered in the respective registry under provisional article....
The said property was sold at the price of €590,000.00 to C..., a natural of China, Chinese nationality.
Between February and June 2017, following service order No. OI2016..., the Claimant was subject to external tax inspection by AT regarding the 2014 fiscal year.
Having been challenged by AT the expenses recorded by the Claimant with the commission paid to the Broker, the Claimant presented documentation, namely the contract entered into between the Claimant and the Broker, a certificate issued by the Hong Kong Special Administrative Region certifying that entity B... is resident in that territory; proof of the payment order made by the Claimant in the amount of €106,200.00
The Authority for Tax and Customs concluded that regarding the commission paid to the Broker:
1) Regarding the effectiveness of the transaction, it is accepted that proof of its actual performance was provided, although the fact that the bank statements of A... Lda. were not provided to us raises "some doubts" regarding the contours of the transaction;
2) As for the absence of abnormal character or exaggerated amount of expenses, the due proof was not provided, in particular by demonstrating that the contract is balanced and that the amount paid is fair remuneration for the advantages gained thereby, particularly by comparison with the costs of analogous services (we are faced with the payment of an 18% commission on the value of the property sale for client acquisition).
Being so, it is concluded that the conditions required by subparagraph r) of paragraph 1 of Article 23-A of the IRC Code are not met, so the amount of €106,200.00 is not deductible for purposes of determining taxable profit.
The expense in question in the amount of €106,000.00 is further subject to autonomous taxation at the rate of 35%, as provided by paragraph 8 of Article 88 of the IRC Code, so there will be a correction to the calculation of tax in the amount of €37,170.00 (€106,200.00 x 35%).
On 26/06/2017, not agreeing with the proposed corrections, regarding the non-acceptance of the cost incurred with the payment of commissions to the Broker, the Claimant exercised its right of hearing.
On 24/07/2017, the Claimant was notified of the RIT relating to the 2014 fiscal year, containing the grounds and conclusions of the tax inspection process for the said fiscal year.
In that report, AT found the allegations made by the Claimant in exercise of the right of hearing to be without merit, reiterating in the RIT the arguments previously put forward by it and maintained the corrections in the context of IRC indicated in the Draft Tax Inspection Report, which result in an increase to the taxable base of the Company in the total amount of EUR155,484.14, of which EUR106,000.00 relate to expenses with payment to the Broker which AT considers not tax deductible and €37,170.00 relating to autonomous taxation levied on that payment.
The RIT culminated in the issuance of IRC Assessment No. 2017..., relating to the 2014 fiscal year, in the amount of €53,411.41.
On 25 January 2018, the Claimant filed an Administrative Appeal against the aforementioned assessment, and by order dated 16/04/2018, the Claimant was notified of the decision dismissing the Administrative Appeal.
The Claimant alleges that it has knowledge that other companies, in particular Company E..., S.A., in the same 2014 fiscal year, paid various commissions ranging between 15% and 18% to 4 different entities resident in Hong Kong, for intermediation in the sale of various properties.
By the position assumed, the Claimant concludes that the said assessment and subsequent acts are affected by violation of the principle of deductibility of costs and error in the factual requirements of subparagraph r), of paragraph 1, of Article 23-A of the IRC Code; violation of the principle of the pursuit of substantive truth – see Article 55 of the LGT; Defect of violation and error in the factual requirements for the application of paragraph 8 of Article 88 of the IRC Code (Autonomous Taxation).
Petitioning, accordingly, its declaration of illegality and consequent annulment in accordance with paragraph 1 of Article 163 of the Code of Administrative Procedure.
For its part, the Respondent, which responded to the initial pleading on 29/10/2018 and submitted the respective administrative file on the same date, concludes for the lack of merit of the arbitral request, supporting, in summary, its position in the following terms,
By referring to the tax inspection report, AT submits that the corrections in question in the proceedings have their origin in the partial scope inspection procedure (IRC and VAT), relating to the 2014 fiscal year, authorized by Service Order No. OI2016..., and in Administrative Appeal No. ...2018....
The Claimant began on 22-09-1998 the activity identified with the Economic Activity Code (CAE) 41200 – Construction of Buildings (Residential and Non-Residential), was subject to the general regime for determining taxable profit.
From the examination of the accounting records, the Respondent found that the amount of €106,200.00 was recorded in the expense account and concludes that it was an invoice relating to commissions issued by "B...", with registered office in Hong Kong.
According to the Respondent, under subparagraph r) of paragraph 1 of Article 23-A of the IRC Code, amounts paid or due, for any reason, to natural or legal persons resident outside the national territory and subject there to a tax regime identified by order of the government member responsible for the financial area as a clearly more favorable taxation regime are not deductible for the purpose of determining taxable profit, unless the taxpayer proves that such expenses correspond to operations actually performed and do not have an abnormal character or an exaggerated amount.
The Claimant submitted to the Respondent a series of documents, in particular, the contract entered into between it and entity "B...", the certificate issued by the Hong Kong Special Administrative Region certifying that such entity is resident in that territory and proof of the transfer order made by the Claimant in the amount of € 106,200.00 to a bank account based in Hong Kong, whose beneficiary was F....
The Respondent accepts that proof of the actual performance of the transaction was provided.
The Respondent concludes, on the other hand, that proof was not made of the absence of abnormal character or exaggerated amount of expenses since, in comparison with analogous services, according to the Respondent, the payment in question corresponds to an 18% commission, so it concludes that the requirements of subparagraph r) of paragraph 1 of Article 23-A of the IRC Code are not met, so the amount of € 106,200.00 is not deductible for purposes of determining taxable profit and this expense is, further, subject to autonomous taxation at the rate of 35%, as provided by paragraph 8 of Article 88 of the IRC Code, with a correction to the tax calculation of €37,170.00 being in order.
The Claimant exercised the right of hearing concluding the Respondent that no new facts or evidence were presented that contradict the draft report, maintaining the proposed corrections.
For disagreeing in part with the correction made by the tax inspection services, namely as to the corrections relating to "payments to entity resident in Hong Kong" and respective autonomous taxation, the Claimant filed an administrative appeal, to which file No. ...2018... was assigned.
AT maintained its position and reiterates it.
Not contesting the effectiveness of the transaction, as it had not done before, the Respondent understands that the Claimant omitted the burden of proof of the legal regime applicable in the segment of demonstrating that the transaction does not have an abnormal character or an exaggerated amount. Arguing that the legislator, knowing of the difficulties in disclosing operations undertaken by offshore companies, adopted the solution of reversing the burden of proof, being thus indispensable, in accordance with the legal norms in question, that the taxpayer debtor provide proof that such expenses correspond to real operations and do not possess an abnormal character or an exaggerated amount.
Falling thus to the taxpayer, according to AT, the burden of proof of the reality, normality and non-exaggeration of these expenses under penalty of not being able to benefit from the corresponding deduction in determining taxable profit and subjection to the corresponding autonomous taxation.
The Claimant cannot overlook, according to the Respondent, that it is incumbent upon it to demonstrate that the payments made to that non-resident entity, subject to a clearly more favorable tax regime, do not have an abnormal character or an exaggerated amount, which the Claimant never managed to prove or clarify from the Respondent's perspective.
Consequently, having regard to the provisions of paragraph 8 of Article 88 of the IRC Code, the subjection to autonomous taxation of payments made to an entity resident outside the national territory and there subject to a clearly more favorable tax regime does not depend on the basis upon which the payments are made, but rather on the proof, by the entity making them, that such payments correspond to operations actually performed and do not have an abnormal character or an exaggerated amount.
It further concludes that it did not violate any principle of the pursuit of substantive truth.
Thus, the Respondent contends for the lack of merit of the arbitral request.
2. Factual Matters
As to the factual matters, the Tribunal does not have to rule on everything alleged by the parties, but rather it is incumbent upon it to select the facts that are relevant to the decision and distinguish the proven facts from the unproven ones (see Articles 123, paragraph 2, of the Code of Tax Procedure and Process (CPPT) and 607, paragraph 3 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, paragraph 1, subparagraphs a) and e), of the RJAT).
Thus, the pertinent facts for judgment of the case are selected and delineated according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (see former Article 511, paragraph 1, of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29, paragraph 1, subparagraph e), of the RJAT).
Thus, having regard to the positions assumed by the parties, in light of Article 110, paragraph 7 of the CPPT, the documentary evidence and the administrative file joined to the proceedings, as well as witness evidence, the following enumerated facts were considered proven as relevant to the decision.
2.1. Proven Facts
The Claimant is a company that develops its activity within the civil construction industry, public and private works, purchase and sale of properties and resale of those acquired for that purpose and, within the scope of its activity, the Claimant constructs real estate and proceeds to its sale.
Within the scope of the activity referred to, the Claimant resorted to a company based in Hong Kong, "B...", with whom it entered into a contract for the provision of real estate brokerage services and with whom it agreed to pay a commission equivalent to 18% of the sale value of each property of the Claimant whose sale it brokered.
On 24/06/2014, the Claimant sold the autonomous fraction designated by the letter "B", corresponding to the ground floor and basement, intended for residential use, with entrance through Rua..., No.... and grounds, integrated in the urban property constituted in condominium located on Rua..., No.... and..., ..., parish and municipality of Moita under the number ... of the said parish and registered in the respective registry under provisional article P....
The said property was sold at the price of €590,000.00 to C..., a natural of China, Chinese nationality, having this client been acquired by "B..." within the scope of the contract entered into with this entity and referred to in subparagraph b).
The property had been placed for sale at €650,000.00.
The property had been for sale for more than two years before the brokerage contract with "B..." was executed.
The sale of the property was being promoted by various Portuguese real estate brokerage companies and the Claimant accepted, to increase the chances of sale, to negotiate the price and/or exchange it for built property or land for construction.
The Claimant financed the construction of the property through a construction loan granted by G..., having already, at the date of execution of the brokerage contract referred to in b), the period of exemption from interest expired.
Within the scope of the contract referred to in subparagraph b), for the effective acquisition of a client for the property, the contracted commission of 18% on the sale price was due.
Between February and June 2017, following service order No. OI2016..., the Claimant was subject to external tax inspection by AT regarding the 2014 fiscal year.
On 09/06/2017, the Claimant was notified of the Draft Tax Inspection Report.
On 26/06/2017, the Claimant exercised its right of hearing.
On 24/07/2017, the Claimant was notified of the RIT relating to the 2014 fiscal year.
The RIT culminated in the issuance of IRC Assessment No. 2017..., relating to the 2014 fiscal year, in the amount of €53,411.41 (fifty-three thousand, four hundred and eleven euros and forty-one cents).
On 25 January 2018, the Claimant filed an Administrative Appeal against the aforementioned assessment, and by order dated 16.04.2018, the Claimant was notified of the decision dismissing the Administrative Appeal.
Other companies, in particular Company E..., S.A., in the same 2014 fiscal year, paid commissions of 18% to different entities resident in Hong Kong, for intermediation in the sale of various properties.
Other Asian real estate brokerage companies, at the time of the facts, charged brokerage commissions of 18%.
Portuguese real estate brokerage companies charged, in 2014, commissions between 3% and 5%.
The brokerage company did acquisition of potential clients, to whom it provided advice and follow-up, with interpreters, in addition to translations, transported them from the airport, hotel, in visits to the properties it had in its portfolio and accompanied the acquired client in the deed of purchase and sale referred to in c), where it provided translation and interpreter services.
The Claimant paid, by bank transfer, the amount of € 106,200.00 to a bank account based in Hong Kong, whose beneficiary was F..., corresponding to the commission due under the brokerage contract entered into for the acquisition of the client who purchased the property of the former as per subparagraph d).
The Claimant filed a request for arbitral pronouncement on 16-07-2018.
2.2. Unproven Facts
There are no facts relevant to the decision of the case that have not been proven;
2.3. Reasoning of the Factual Decision
The facts were found proven on the basis of the documents contained in the administrative file and those joined with the request for arbitral pronouncement. The position assumed by the parties was also considered, specifically, considering the admission by agreement of the fact of the actual performance of the transaction, that is, the Respondent accepts and admits that the expenses in question in the proceedings correspond to real operations, endowed with legal and material existence.
The clarifications provided at the hearing were also considered, in particular for the facts described in subparagraphs a), b), d), e), f), g), h), i), p), q), r) and s) of the proven facts, by H..., I... and J..., who confirmed the facts alleged by the Claimant and to which witness evidence was indicated.
All witnesses testified with impartiality, without constraints, in a clear and clarifying manner and with knowledge of the facts they stated.
Witness K..., Secretary General of group E..., who has cross-cutting knowledge of various departments of this group, presents no connection to the Claimant and from which no interest in the outcome of the case results, confirmed – having direct knowledge as he has access to the brokerage contract – that within his own group there was a brokerage contract with another Hong Kong company, for services similar to those in question in the proceedings, and that the average rate charged for brokerage was also 18%. The circumstances, the Gold Visa program and the "novelty" of these transactions with Asian clients provided for those rates, as the witness explained.
Witness I..., daughter of the owners of the Claimant, gave her testimony, regardless of the family connection, in an impartial and clear manner. She clarified that she identified this Asian brokerage company – with a branch in Parque das Nações – which presented itself with clients in its portfolio interested in properties such as the one the Claimant had for sale (allied to the investment requirements of the Gold Visas) and with projection of a quick sale. She further clarified that the property that the Claimant included in the transaction – and which had already been on the market for sale for more than 2 years without success – already had associated interest costs since the exemption period of the construction loan had expired. She explained that the brokerage rate, while high in comparison with Portuguese companies in the sector (3% to 5%), was not different from that of other similar Asian companies charged, and she had even conducted an internet search where she concluded that the percentage charged was, on average, identical and in some cases higher.
She clarified that the property was placed for sale at €650,000.00 and sold within a few weeks, at €590,000.00.
Finally, with relevance, she further clarified that the Asian company handled all the follow-up of potential clients, including transportation from the airport, to and from the hotel, accompaniment in visits and in the deed, with interpreter services.
Finally, the Tribunal valued the statements of J... who, having clarified that she is a managing partner of the Claimant, the same were considered as party statements in accordance with Article 466 of the CPC (by virtue of Article 29, paragraph 1, subparagraph e) of the RJAT), which the tribunal freely assessed, with the express warning that those statements constituting admission would be excluded from that principle.
The aforementioned managing partner gave her statements freely and with knowledge of the matter, clarifying and without contradictions or hesitations that could compromise her testimony, so it was valued by the tribunal in a positive manner.
She confirmed the facts stated and for which she gave statements, consistent with the documentary content and with the testimony of the other witnesses, in particular J..., confirming that the property in question had been on the market for years to be sold (since the beginning of construction), without success, and that they were already paying interest on the construction loan they had entered into. She further confirmed that the property, after the brokerage contract with the Asian company was executed, was sold quickly, albeit with a price reduction, and described that the translator of the real estate brokerage company was present at the deed of purchase and sale of the property making the respective translation thereof and accompaniment of the acquired client.
3. Legal Matters
3.1. Question of Deductibility of Expenses Relating to Payment to Entity "B..."
The Authority for Tax and Customs did not accept the deductibility of the Claimant's expenses relating to payment to B..., on the basis of subparagraph r) of paragraph 1 of Article 23-A of the same Code, in the wording of Law No. 2/2014, of 16 January (in force in 2014), which provides as follows, insofar as relevant:
Article 23-A
Non-deductible expenses for tax purposes
1 - The following expenses are not deductible for purposes of determining taxable profit, even when recorded as expenses of the tax period:
(...)
r) Amounts paid or due, for any reason, to natural or legal persons resident outside the Portuguese territory and subject there to a tax regime identified by order of the government member responsible for the financial area as a clearly more favorable taxation regime, unless the taxpayer proves that such expenses correspond to operations actually performed and do not have an abnormal character or an exaggerated amount.
The territory of Hong Kong was included, in 2014, in the "list of countries, territories and regions with privileged taxation regimes, clearly more favorable," which appears in Order No. 292/2011, of 8 November, which amended Order No. 150/2004, of 13 February (Article 1, paragraph 31)).
The Authority for Tax and Customs understood that, even though proof of the effective performance of the transaction was demonstrated, the amount paid is not deductible because proof was not made of the absence of abnormality and non-exaggeration.
As to the amount of the commission, it is related to the requirement of "non-exaggeration" and not to "non-abnormality." For the purposes of that Article 23-A of the IRC Code, "abnormality" would relate to the fact that the contract is gratuitous or not synallagmatic, which is not at all the case.
We are faced with a bilateral, synallagmatic contract that is consistent with commercial practice.
As to whether the amount is or is not exaggerated.
To determine whether or not there is exaggeration, one cannot use as terms of comparison the percentages of commissions that the Authority for Tax and Customs states are commonly charged by Portuguese real estate companies and which varied, at the time of the facts, between 3% and 5%.
These percentages are common for Portuguese brokerage companies, but both the activity developed by the brokerage company B... is different and is not comparable with the activity of national real estate brokerage since, from the outset, it does not involve expenses of the order of those borne by B... (transportation, client follow-up during their stay in Portugal and interpreters mostly); and the client portfolio and the position of acquisition in which it finds itself, since it acts directly in the Asian market among this "target public," make the activity of these brokerage companies not comparable with the services provided by their Portuguese counterparts.
Comparison between the services of some and the others is not possible, as it would be comparing the incomparable.
On the other hand, the assessment of the requirement of non-exaggeration should be made taking into account the concrete situation of the taxpayer, seeking to ascertain whether the payment should be considered excessive from its perspective, in the context in which it must decide to pay for the services.
This position results directly from the decision rendered in the context of file No. 198/2017 of CAAD, whose position we endorse here.
From this perspective, payment would be exaggerated when it is demonstrated that the taxpayer could obtain the same service for a lower amount. But from the evidence produced we conclude exactly the opposite.
In fact, the Claimant could not obtain this service, under the conditions in which it was realized, with companies – in particular Portuguese ones – that charged lower commissions.
From the evidence produced it is evident that the Claimant intended to sell the property in question in the proceedings as quickly as possible, and this in particular that triggered the brokerage contract sub judice.
The property, with characteristics of a luxury property and therefore with greater cost, had been for sale for more than two years without success and despite being in the portfolio of various Portuguese real estate brokerage companies since the beginning of its construction. The Claimant offered sale options, in addition to price negotiation, accepted exchanges, but the truth is that there were no interested parties, particularly considering the period of economic crisis through which Portugal was passing.
Furthermore, the property was financed by G..., with a construction loan, but the period of exemption from interest had already expired, so the Claimant, contrary to what had happened with its history of construction and sale of properties constructed for that purpose, already bore interest on a loan and had no sale prospects given the time gap in which the property had already been in circulation.
The Claimant intended a quick sale, which is understandable, but from the history and example it already had with Portuguese real estate brokerage companies, it did not seem possible.
Such was its need and urgency in the sale of the property that, even within the scope of the brokerage contract in question in the proceedings, it accepted reducing the sale price to aim for (even) greater speed, having reduced the sale price to €590,000.00 (whereas the property was placed for sale at €650,000.00).
The evidence produced is also to the effect that the Claimant could not obtain client acquisition, by itself or through Portuguese brokerage companies. B... offered a quick sale, and already had clients in its portfolio – which is what the Claimant wanted and needed – but with an 18% commission. Certainly, no Portuguese brokerage company provided it with even potential interested parties.
Under these conditions, the payment cannot be considered exaggerated, as it is justified by the need to obtain brokerage services and the absence of an alternative at a lower price.
The reasonableness of the payments made to B... is further reinforced by the fact that the Claimant was not adversely affected by the payments it made to it, as it only paid it when it completed the sale of the property.
As to other Asian brokerage companies, the values of the commissions were identical to those charged by B..., and in fact, other companies in Portugal resorted to Asian brokerage companies and the value of the commissions is not disparate from that which the Claimant paid.
Thus, comparing with other companies that could resemble the conditions that B... presented – since with Portuguese companies there is no parallelism that can fulfill this comparison exercise – the commissions charged were also in the order of 18%.
As stated above, it is concluded that the Claimant proved that the payment made to B... was neither abnormal nor exaggerated.
The requirements of subparagraph r) of paragraph 1 of Article 23-A of the IRC Code are thus met, and the amount of € 106,200.00 is deductible for purposes of determining taxable profit.
Consequently, given that not only the actual performance of the transaction has been demonstrated, but also that the expense does not have an abnormal character or is of an exaggerated amount, this expense is not subject to autonomous taxation at the rate of 35%, as provided by paragraph 8 of Article 88 of the IRC Code, and thus there is no correction to the tax calculation of €37,170.00.
Thus, it is concluded that the assessment act relating to the 2014 fiscal year is affected by a defect of violation of Article 23-A, paragraph 1, subparagraph r) and paragraph 8 of Article 88 of the IRC Code, in the respective versions that were in force in that year.
3.2. Questions of Prejudiced Knowledge
As the request for arbitral pronouncement is based on a defect of violation of law, which provides effective protection for the interests of the Claimant, knowledge of the other questions raised becomes prejudiced, as it is useless (Article 130 of the CPC).
4. Decision
In these terms, the Arbitral Tribunal decides:
– to find the arbitral request well-founded, declaring illegal and, consequently, annulling the tax act for additional assessment of Corporate Income Tax (IRC) No. 2017..., of 26/07/2017, relating to the tax year 2014, in the amount of EUR 53,411.41 (fifty-three thousand, four hundred and eleven euros and forty-one cents), and the act dismissing the Administrative Appeal that sustained that assessment in the context of file No. ...2018...;
- to condemn the Respondent to pay the costs of the proceedings.
5. Value of the Proceedings
In accordance with the provisions of Article 306, paragraph 2, of the CPC and 97-A, paragraph 1, subparagraph a), of the CPPT and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 53,411.41.
6. Costs
In accordance with Article 22, paragraph 4, of the RJAT, the amount of costs is set at € 2,142.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be charged to the Authority for Tax and Customs.
Lisbon, 30-01-2019
The Arbitrator
Marisa Isabel Almeida Araújo
Frequently Asked Questions
Automatically Created