Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A..., CF..., resident at Rua..., ...–..., ..., ...-... Lisbon, in the capacity of representative of B..., Ltd., a dissolved company which had its registered office at ... nº..., ...-... Lisbon, filed a request for arbitral pronouncement, pursuant to paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT[1], requesting the ATA[2], against the assessment of Personal Income Tax (IRS) no. 2017..., concerning withholding tax for the year 2013, resulting from corrections made by the inspection services of the respondent, in the amount of € 80,072.35, of which € 67,475.05 in IRS, € 12,267.51 in compensatory interest and € 329.79 in default interest, the annulment of which it seeks, plus indemnificatory interest, in accordance with no. 2 of article 43 of the LGT and article 61 of the CPPT.
The request was filed without exercising the option of appointing an arbitrator, and was accepted by His Excellency the President of CAAD[3] on 29/01/2018 and notified to the ATA on the same date.
Pursuant to and for the purposes of no. 2, paragraph a) of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within legally applicable time limits, arbitrators of the collective tribunal were designated on 15/03/2018, with Judge José Poças Falcão as President and Professor Doctor Paulo Nogueira da Costa and Dr. Arlindo José Francisco as auxiliary arbitrators, who communicated their acceptance of the appointment within the legally stipulated time period.
The tribunal was constituted on 05/04/2018 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.
With its request, the petitioner aims to obtain the annulment of the assessment already identified, considering it unlawful, with the consequent return of the amounts also already referred to, plus indemnificatory interest.
It supports its position on the understanding that the calculation contained in the ATA's Internal Tax Report (RIT), which gave rise to the assessment in question, suffers from a series of sequential illegalities, which it summarizes as the absence of taxable matter, violation of the rules on statute of limitations and well-founded doubts concerning the quantification of the tax event.
As regards the absence of taxable matter, it alleges that in 2013 no sums were paid or placed at the disposal of the partners, nor were any assets of the company distributed, since it was dissolved and liquidated on 31 December 2012, as there was neither assets nor liabilities.
The possible placement at the disposal or payment to the partners of company assets which might possibly have exceeded the value of their respective quotas would have occurred on the last day of 2012, so if an assessment were to be issued, it should have been notified no later than the last day of 2016, which did not occur since the assessment in question is from 2017, with a payment deadline of 23/11/2017, thereby violating the rules on statute of limitations.
The petitioner also understands that the inspection procedure did not make it possible to determine the value attributed to each partner and, consequently, the value subject to withholding, to the extent that withholding only applies in situations where the value attributed exceeds the value of the quota, that is, the value subject to capital income, thereby giving rise to well-founded doubts concerning the quantification of the tax event.
For its part, the ATA considers that the assessment in question resulted from the inspection action carried out by its respective inspection services, as per the attached report, which concerned the operations related to the liquidation and distribution of the represented company.
Although accepting that in the 2013 financial year no income was obtained nor expenses incurred that would generate a positive or negative net income that altered the represented company's equity on the liquidation date, it considers that minute no. 9, approved at the general assembly of 31 December 2012, determined a positive result for the 2012 financial year of € 8,850.00 and determined its transfer to legal reserves of 5% and free reserves of 95%.
Thus, the 2012 trial balance allows the Balance Sheet data for 2013 to be extracted, the company presenting equity (assets minus liabilities) of € 245,982.31, consisting of € 5,000.00 of paid-up share capital, legal reserves € 9,375.39, other reserves € 231,606.92.
From this perspective, the liquidation of the represented company would have to take these values into account, observe in the distribution the provisions contained in no. 1 of article 81 of the CIRC, paragraph a) of no. 2 of the same article and effect withholding tax in accordance with articles 98 and 101 of the CIRS on the amount of € 240,982.31 corresponding to the difference between equity and paid-up capital, concluding not only that there is taxable matter and correct quantification, but also that the rules on statute of limitations were respected, and therefore the contested assessment should be maintained in the legal order, as it complies with the legal norms in force.
By order of 13-05-2018, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with simultaneous written submissions.
II - PRELIMINARY RULING
The tribunal was regularly constituted, the parties have legal personality and capacity, demonstrate themselves to be legitimate and are regularly represented in accordance with articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities and no obstacle arises to the examination of the merits of the case.
No exceptions have been raised and there is no obstacle to the examination of the merits of the case, therefore a decision must be rendered.
III - REASONING
The issues to be determined, with relevance to the proceedings, are as follows:
The tribunal must decide whether the assessment for Personal Income Tax (IRS) no. 2017..., concerning withholding tax for the year 2013, in the amount of € 79,742.56 and € 329.79 in default interest, totaling € 80,072.35, to which the petitioner wishes to add indemnificatory interest in accordance with no. 2 of article 43 of the LGT and article 61 of the CPPT, an assessment resulting from corrections made by the inspection services of the respondent, as a consequence of the dissolution and liquidation of the represented company, which occurred on 31 December 2012, should or should not be annulled since, from the perspective of the represented company, the said assessment is unlawful, given the absence of taxable matter, its violation of the most elementary rules of statute of limitations and well-founded doubts concerning the quantification of the tax event, or whether, on the contrary, as the respondent argues, it should be maintained in the legal order, as it does not suffer from the aforementioned illegalities.
2 – Factual Matters
The following facts are considered proven:
The tax assessment for Personal Income Tax withholding tax for the year 2013 resulted from corrections made as a consequence of inspection action by the ATA's services, in accordance with service order OI2017... issued by the Financial Directorate of Lisbon on 19 May 2017.
The represented company was a limited liability company incorporated on 19 December 2007 whose business purpose was "Treatment and rehabilitation services in various areas of health" registered in the Commercial Registry Office of Lisbon, with share capital of € 5,000.00.
On 31 December 2012 the shareholders of company B... Ltd. held a General Assembly at the registered office to examine the financial statements for the 2012 financial year, which showed a positive result of € 8,850.00, accompanied by an opinion on the allocation of such result, with 5% to legal reserves and 95% to free reserves, which was approved by said assembly.
On the same date (31/12/2012), at 15:00 hours, the shareholders assembled again and unanimously resolved to dissolve the company, since it no longer carried on its business, there were neither assets nor liabilities, there were no assets to distribute, their respective accounts were closed and approved, and manager A... was appointed as custodian of the books, documents and other accounting records.
On 24/01/2013, the dissolution and closure of liquidation was registered, with activity ceased for VAT purposes as of 31/12/2012.
In the respondent's computer records, the cessation date for Corporate Income Tax (IRC) purposes is recorded as having occurred on 24/01/2013, and the income tax return for the 2013 financial year and the statement of accounting and tax information for that same financial year were received on 22/02/2013, considered within the legal time limit ending on 23/02/2013.
The inspection services notified the petitioner to provide documents relating to the 2012 and 2013 financial years, and the petitioner provided only 2012 documents, claiming that regarding 2013 there was nothing, since the dissolution of the company had occurred on 31/12/2012.
The tax in question was validly notified to the represented company in November 2017 and paid by it, as well as compensatory interest and default interest on 14/12/2017, in the total amount of € 80,072.35.
The facts described are proven by documents attached to the proceedings, have not been contested by the parties and are considered relevant to the decision of the case.
There are no facts relevant to the decision that have not been proven.
3 - Legal Matters
3.1 – Absence of Taxable Matter
The petitioner alleges that in 2013 no sums were paid or placed at the disposal of the shareholders nor were any company assets distributed given that the company was dissolved and liquidated on 31/12/2012, as there were neither assets nor liabilities, with dissolution and liquidation occurring simultaneously.
It follows from no. 2 of article 160 of the Commercial Companies Code that the extinction of the company only occurs with the registration of the closure of liquidation in the register (constitutive effect of the registration), see in this regard the Supreme Court of Justice (STJ) Judgment of 26/06, rendered in Case 08B1184, from which the following part of interest to the case is transcribed, with due deference:
"In fact, a dissolved company in liquidation is not extinct: extinction only occurs with the registration in the register of the closure of liquidation (art. 160/2). As Professor RAUL VENTURA notes, the extinction event of the company is complex, comprising a fact that places the company in the liquidation phase and a liquidation process broadly speaking (more or less complex): extinction is a legal effect of the registration of the closure of liquidation.
Once the company is dissolved, it enters liquidation (art. 146/1), still maintaining its legal personality (art. 146/2). Its administrators become liquidators, unless otherwise provided in the bylaws or by deliberation (art. 151/1), and it is their responsibility, in such capacity, to conclude pending transactions, fulfill the company's obligations, collect receivables, reduce to cash the residual assets and propose the distribution of company assets (art. 152/3). With the relevant proposal, they submit to the company's deliberation (art. 157/4) a complete liquidation report, accompanied by final accounts (art. 157/1). Once the deliberation is approved, the registration of the closure of liquidation will be requested – and it is with this registration that, finally, the company takes its last breath, that is, is considered 'extinct, even as between shareholders' and without prejudice to pending actions or subsequent liabilities or assets (3) [See PINTO FURTADO, Course on Company Law, 3rd ed., p. 546].
With extinction, the legal entity ceases to exist, losing its legal and judicial personality, but the legal relationships of which the company was the holder do not become extinct, as flows from the provisions of articles 162, 163 and 164".
However, in minute no. 10 of the represented company, there is only a deliberation of the shareholder body that needs to be executed, with procedures to be carried out, notably those provided for in article 27 of the Legal System for Administrative Procedures with a view to consolidating in the legal order the dissolution and liquidation of commercial entities, approved by Decree-Law 76-A/2006 of 29 March. Simultaneous dissolution and liquidation presupposes the absence of assets and liabilities.
Taking into account that precisely on 31 December 2012 minute no. 9 was also drawn up approving the financial statements for the 2012 financial year with a positive result for the financial year of € 8,850.00, with such amount allocated 5% to legal reserves and 95% to free reserves, an allocation also approved in the said minute. It is found that in the deliberation contained in minute no. 10, the situation existing regarding equity (assets minus liabilities) at the end of the 2012 financial year was not taken into account, which after approval of the financial statements was thus comprised of: Paid-up share capital € 5,000.00, legal reserves € 9,375.39 and other reserves € 231,606.92, which minute no. 9 of that same day reflects.
Now, the represented company does not explain how it moved from this situation on 31/12/2012, when minute no. 9 was approved, to that at 15:00 hours on the same day, when minute no. 10 was approved, without assets or liabilities. What became of the equity? Was it distributed to the shareholders before the dissolution took place? If this had happened, nothing is revealed about this distribution nor about the tax treatment that would be required.
With a view to controlling the simultaneous dissolution and liquidation operation, the ATA, in the exercise of the powers conferred upon it by law, opened an internal inspection procedure and requested documentation from the represented company, which provided part of it, claiming that regarding 2013 it provided nothing, declaring that nothing existed, given the immediate dissolution and liquidation on 31/12/2013.
As already stated, on 31/12/2012 a deliberation took place that would have to be executed and explained to the ATA, as well as the actions taken regarding the equity, which was not done, which led the ATA, in an official proceeding and in accordance with the declarations previously submitted and information provided by the represented company, to determine the taxable matter that gave rise to the tax in question.
Taking into account the legal provisions referred to, the Supreme Court of Justice jurisprudence and the fact that the represented company provides no explanation regarding what became of the equity, relying solely on minute no. 10 which states there are neither assets nor liabilities, when on the same date it was evident from the 2012 financial statements that these did exist, the argument of absence of taxable matter lacks merit.
3.2 – Violation of Statute of Limitations Rules
From the perspective of the represented company, the right to assessment was barred by statute of limitations, since, being a matter of an error evident in the returns, the applicable time period is 3 years as provided for in no. 2 of article 45 of the LGT, considering that any amounts eventually received by the shareholders of the represented company would necessarily have occurred by no later than 31/12/2012, the notification of the assessment in question should have been notified to the taxpayer by no later than 31 December 2016, which did not happen, as notification only occurred in November 2017.
The ATA, for its part, disregards the declaration of absence of assets and liabilities declared and approved in minute no. 10, given the approval of the financial statements for the 2012 financial year carried out precisely on 31/12/2012 and therefore the distribution of the represented company's equity would have occurred in January 2013, concluding that no violation of statute of limitations rules is apparent.
As already stated, minute no. 10 approved a deliberation that had to be executed, which could only have occurred in January 2013 and thus the distribution of equity could only have occurred in January 2013 as well as the combination referred to in no. 1 of article 81 of the CIRC and the determination of the difference between equity and paid-up share capital, subject to IRS in accordance with paragraph i) of no. 2 of article 5 of the CIRS, at the moment it was placed at the disposal of the shareholders, as per no. 2 of paragraph a) of no. 3 of article 7 of the same Code.
The represented company thus had the obligation to effect withholding tax as a final withholding, at the rate of 28% of the IRS due, in accordance with paragraph c) of no. 1 of article 71 of the CIRS and to remit it to the State Treasury with reference to January 2013.
The statute of limitations for the right to assess is regulated in article 45 of the LGT, with its no. 1 establishing a general time period of 4 years for its valid notification to the taxpayer. In the case of withholding tax as final withholding, as is the case in this matter, the said time period is counted from the beginning of the calendar year following the year in which it occurred, that is, in the situation at hand from January 2014 and ending on 31 December 2017, as per the final part of its no. 4.
It cannot be said that no. 2 of the same article applies to this case, that is, the 3-year period, applicable in situations of error evident in the returns, in truth, there was no tax return presented by the represented company concerning payment of tax, and therefore the said period is ruled out.
The argument regarding violation of statute of limitations rules therefore lacks merit.
3.3 – Well-founded Doubts Concerning Quantification of the Tax Event
Finally, the represented company alleges that the taxable income on which withholding tax was based would have been calculated from an incorrect premise, and could suffer from incorrect quantification, emphasizing that the internal inspection procedure does not make it possible to determine whether in the distribution any of the shareholders exceeded the value of their respective quota, which would prevent, if such were the case, subjecting the entire determined amount to withholding tax, given that there could also be capital gains income not subject to withholding, considering that the internal procedure would have prevented correct quantification of the income to be taxed, given that it had not rigorously determined the distribution value for each shareholder.
As to this argument, the ATA states only that it likewise is not correct, since the taxable value determined corresponds to the difference between equity and paid-up share capital.
In fact, the determination of the taxable value determined corresponds to this difference and is in keeping with the provisions contained in article 81 of the CIRC, namely its no. 2, and there has been no determination of any excess subject to capital gains.
This viewpoint of the represented company also lacks merit.
In view of the foregoing, the tribunal concludes that the petition is entirely without merit, and the assessment in question should be maintained in the legal order, since the legal norms in force at the time were complied with.
IV – DECISION
In view of the foregoing, the tribunal decides:
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To declare the petition for arbitral pronouncement entirely without merit and consequently to maintain in the legal order the tax assessment identified and in question in the present proceedings;
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To fix the value of the proceedings at € 80,072.35, taking into account the provisions contained in articles 299 no. 1 of the CPC, 97-A of the CPPT and 3 no. 2 of the RCPAT;
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To fix the costs at € 2,754.00 in accordance with the provisions of Table I referred to in article 4 of the RCPAT; and
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To condemn the Petitioner to payment of the costs, in accordance with no. 4 of article 22 of the RJAT.
Notify.
Lisbon, 14 August 2018
Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by reference from article 29, no. 1, paragraph e) of the RJAT, with blank verses and reviewed by the tribunal.
The Collective Tribunal,
José Poças Falcão
(President)
Paulo Nogueira da Costa
(Member)
Arlindo José Francisco
(Member)
[1] Acronym for Legal System for Arbitration in Tax Matters
[2] Acronym for Tax and Customs Authority
[3] Acronym for Administrative Arbitration Centre
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