CAAD 37/2018-T: IRC Expense Deductibility, Autonomous Taxation & Tax Havens Ruling

ENGLISH TRANSLATION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Vera Figueiredo and Dr. Cristina Coisinha (arbitrator members), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 05-04-2018, agree as follows:

1. Report (consult full version in PDF)

A..., S.A., Taxpayer no. ..., with registered office at Rua..., ..., no. ... ..., ..., ...-... ... (hereinafter referred to as "Claimant") submitted a request for constitution of a collective arbitral tribunal, in accordance with Decree-Law no. 10/2011 of 20 January (hereinafter RJAT), in which the TAX AND CUSTOMS AUTHORITY is respondent.

The Claimant seeks the annulment of the additional assessment of Corporate Income Tax (IRC) and compensatory interest relating to the tax year 2013 bearing number 2017... in the amount of €181,769.26, and requests the return of the amount paid, plus indemnification interest.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 29-01-2018.

In accordance with the provisions of paragraph a) of article 6, no. 2 and paragraph b) of article 11, no. 1 of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 15-03-2018, the parties were duly notified of this appointment and expressed no intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In compliance with the provisions of paragraph c) of article 11, no. 1 of the RJAT, the collective arbitral tribunal was constituted on 05-04-2018.

The Tax and Customs Authority responded, arguing for the dismissal of the request for arbitral determination.

On 14-06-2018, the meeting provided for in article 18 of the RJAT was held, in which witness evidence was produced and it was decided that the proceedings would continue with written submissions.

The parties presented arguments.

The Tribunal is competent and was regularly constituted and is competent.

The parties have legal personality and capacity, have standing, and are duly represented (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 nullities.

1. Statement of Facts

2.1. Proven Facts

The following facts are considered proven as relevant to the decision:

• The Claimant is a commercial company whose corporate purpose is the importation, exportation, agency and wholesale and retail trade of skins and leather and their substitutes, footwear and its components;

• The Claimant is classified with the CAE code 46240 - wholesale trade of skins and leather;

• A tax inspection was carried out on the Claimant relating to the tax year 2013, pursuant to service order no. OI 2017...;

• The Claimant made two fund transfers to Hong Kong in the course of 2013, summarized in the table below:

• As Hong Kong was clearly included in the list of countries, territories and regions with privileged tax regimes, the Tax and Customs Authority notified the Claimant in accordance with article 65, no. 4 of the IRC Code, through Office no. ..., dated 06-06-2017;

• In the aforementioned inspection, a Tax Inspection Report was drawn up which is part of the administrative file, the content of which is reproduced here, in which reference is made, among other things, to the following:

III. DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS

III.1. REGARDING CORPORATE INCOME TAX (IRC)

III.1.1. Year 2013

III.1.1.1. Amounts Paid or Owing to Non-Resident Entities

In accordance with article 65, no. 1 of the IRC Code, "the following are not deductible for purposes of determining taxable profit: amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, unless the taxpayer can prove that such expenses correspond to actually performed operations and do not have an abnormal character or excessive amount".

As for the definition of a clearly more favorable tax regime, and as provided in no. 2 of the cited legal provision, "a natural or legal person is considered to be subject to a clearly more favorable tax regime when their territory of residence appears on the list approved by ordinance of the Minister of Finance or when (...)".

For the purposes provided in law, Ordinance no. 150/2004, of 13 February, was subsequently published and amended by Ordinance no. 292/2011, of 8 November.

As the Preamble to Ordinance no. 150/2004, of 13 February, well states, "the fight against international evasion and fraud also requires the adoption of defensive measures, traditionally called anti-abuse measures, translated into restrictive practices in the field of income and property taxes, tax benefits and stamp duty, which target operations carried out with entities located in countries, territories or regions qualified as 'tax havens' or subject to privileged taxation".

In order to prevent the erosion of tax bases and allow greater control in this area, the legislator has created various mechanisms, such as the obligation of reporting by financial institutions, which is enshrined in article 63-A, no. 2 of the General Tax Law: "credit institutions and financial companies are obliged to communicate to the General Tax Administration by the end of July of each year, through a declaration in the official model approved by ordinance of the Minister of Finance, financial transfers whose recipient is an entity located in a country, territory or region with a more favorable privileged taxation regime that are not related to payments of income subject to any of the reporting schemes for tax purposes already provided for in law or operations carried out by legal entities governed by public law".

To fulfill this obligation, through Ordinance no. 1066/2009, of 18 September, a new declaration model and respective instructions were approved, designated as the declaration of cross-border transfers (model no. 38).

Thus, and according to elements in the Tax and Customs Authority database, A... made in the course of 2013, according to the following table, two fund transfers destined for Hong Kong, which is clearly included in the list of countries, territories and regions with privileged tax regimes.

The legislator also understood, in addition to the reporting obligations imposed on financial institutions, to request the taxpayers themselves to communicate to the Tax Administration the operations performed with non-resident entities subject to privileged tax regime, which should be done in the Annual Statement of Accounting and Tax Information/IES, referred to in article 17, no. 1, paragraph c) and article 121, both of the IRC Code, specifically in Annex H to said statement.

This dual reporting obligation, imposed on taxpayers and third parties, clearly demonstrates the importance the legislator attributes to the needs for prevention and control in order to protect the IRC tax base.

Consulting the Annual Statement of Accounting and Tax Information/IES filed by A..., relating to the year 2013, it is verified that Annex H was not filed.

As determined by article 65, no. 4 of the IRC Code, "the proof referred to in no. 1 must take place after notification of the taxpayer, made with a minimum advance notice of 30 days".

That is, considering that we are in a situation in which the burden of proof falls on the taxpayer, it is the taxpayer who must demonstrate unequivocally and in full that such expenses:

→ correspond to actually performed operations;

→ do not have an abnormal character;

→ are not of excessive amount.

A... was thus notified to produce the proof provided in the Law, through Office no. ..., dated 06-06-2017 (which is attached as Annex 1 to this report).

The response to the requested proof occurred at two distinct times.

On 2017-06-12, the sole administrator of A..., accompanied by their certified accountant, went to the Tax Inspection Services of the Finance Office of ... and proceeded to deliver various documentation, whose receipt was registered on 2017-06-13 (entry no. 2017..., attached as Annex 2).

On 2017-07-07, postal communication was received from A... in response to the notification made (entry no. 2017..., Annex 3).

Considering that article 65, no. 1 of the IRC Code determines, a priori, the non-deductibility of expenses associated with amounts paid or owing, in any capacity, to entities resident outside Portuguese territory and subject there to a clearly more favorable tax regime, it is necessary to verify whether the taxpayer has proven the effectiveness of the operations and that they do not have an abnormal character, nor an excessive amount.

OF THE TRANSFER OF €234,422.45

According to the notification made and corresponding responses to the requested proof, the first transfer reported by the financial institution, in the amount of €234,422.45, was based on payment of invoice no. SHC2013-0050, in the amount of USD 308,440.22, issued on 2013-05-29, by entity B..., with registered office in Hong Kong.

Said invoice concerns the supply of "pig skins for footwear" (according to customs document), originating from Thailand, and loaded aboard the ship by company C..., Ltd., (based in that country), which was recorded in A...'s books in account 311313 (sub-account for Purchases) for the amount of €230,537.12. The differences in amounts will respect exchange rate differences, being relevant to analyze the amount recorded in A...'s books and which came to negatively affect the determination of taxable result for IRC purposes.

OF THE TRANSFER OF €32,536.29

The second transfer reported by the financial institution, in the amount of €32,536.29, had as its purpose payment of invoice no. SHC2013-0046, in the amount of USD 41,522.21, issued on 2013-05-22 by the aforementioned entity B....

This invoice likewise concerns the supply of "pig skins for footwear" (according to customs document), also originating from Thailand, and loaded aboard by the same entity C... Ltd., recorded in A...'s books in the same account 311313 for the amount of €31,034.90. Again, it is noted that differences in amounts will respect exchange rate differences, so it will be relevant to analyze this latter amount, since it negatively affected the determination of taxable result for IRC purposes.

REGARDING PROOF FOR THE PURPOSES OF NO. 1 OF ARTICLE 65 OF THE IRC CODE

Regarding the effectiveness of the operations, the elements presented form the conviction that merchandise imports have occurred and that such goods, declared at customs according to the respective documentation, are consistent with the activity of A....

However, it was not demonstrated or explained why an entity resident in Hong Kong appears as supplier, a territory that is not known for the production of pig skins, particularly since the elements presented clearly demonstrate that the merchandise originates from Thailand.

It is important to note that the statement made by the administration of A... in point 12 of its communication contains some inaccuracies ("12. Also the inventory control carried out by Your Excellency in inspection prior to the same year allowed to confirm the conformity of inventories (which result from the purchases supported by the invoices here in question").

Consulting the final report relating to the previous inspection procedure, which took place under Service Order no. 012015..., it is possible to verify that it then concluded on "Improper inventory valuation", on "Non-existence of permanent inventory and recourse to generic descriptions", and on "Inventory errors".

As for demonstrating that the operations do not have an abnormal character, no proof was provided, from which it may be inferred that A... considers it perfectly normal to interpose a third entity resident in, colloquially, a tax haven, when the merchandise in question is loaded by company C..., based in Thailand.

Regarding demonstrating that the operations do not have an excessive amount, A... merely presents other merchandise purchase invoices from different suppliers, which warrant detailed analysis.

The invoice issued by entity "D..., Lda", TAX ID no. ..., cannot be considered as comparable, given the manifest discrepancy between the situations under analysis. In fact, company S/maca is a company with registered office in the Industrial Zone of ..., about 5 km from A...'s facilities, which operates in the same sector of activity, that is, a direct competitor, which will probably make its merchandise purchases in the Asian area (from where most of the pig skin destined for shoe production will originate).

That is, the sale price practiced by D... already incorporates its usual business margin, and surely does not intend to favor a direct competitor. Although sporadic business transactions between companies may occur, such transactions will aim to meet specific merchandise supply gaps, as the quantities involved in the transactions compared well demonstrate: about 400,000 square feet purchased from B..., and about 2,150 square feet purchased from D....

On the other hand, the merchandise purchased from D... is anilina pig of brown elk color, with no merchandise of similar color designation appearing in the invoices from B..., so it is not possible to compare the color, let alone the specific nature of the merchandise of each of the invoices (pig skin, being a natural product, presents various specificities, whether of quality, thickness, finish, color, etc.).

That is, the argument that the non-excessive nature of the invoice from the tax haven is demonstrated with a non-comparable invoice issued by a direct competitor does not merit acceptance.

To prove that the amount is not excessive, an invoice issued by company "E...", TAX ID ES-..., with registered office in ..., Spain, is also presented. This situation cannot likewise be compared with the acquisition of merchandise originating from Thailand.

In fact, the E... invoice indicates the customs code 41132000, so it will likewise be prepared leathers after tanning or after drying and chamois and hides of other animals, depilated, and leathers prepared after tanning and chamois and hides of hairless animals, even divided, of swine and, given this reference, it will be lawful to presume that it concerns merchandise with origin external to the European Union.

But it is not possible to validate the nature of the merchandise, its real origin (if it is from Thailand), what its characteristics are, or specificities. Indeed, it suffices to note the description of the merchandise from E... ("ZFE-PECARI FLOR WOND SUP"), to attest to the lack of comparability with the merchandise listed in the invoice issued in Hong Kong.

Also the fact that these merchandise are being transacted by a European operator (and not directly by an operator from the area of origin of the goods), rules out comparability, being equally important to highlight the disparity in quantities between the two operations: the invoices under analysis reaching about 400,000 square feet, and that of E... with about 16,778 square feet.

The third element presented by A... to demonstrate that the amount is not excessive is an alleged email message, dated 2013-02-14 and presumed to be sent by F... of company G..., based in ..., Italy.

Regarding this message, the following considerations should be made resulting from a balanced analysis:

• the email message is merely a price quotation request, without binding character;

• the price proposed by the supplier concerns specific merchandise, named Beige 103, the specificities of which are not known (material, thickness, finish, etc.), and even the color is not verifiable compared to the colors listed in the invoices issued in Hong Kong ("Middle Beige", "Golden Beige", "Light Beige");

• the price proposed concerns February 2013, while the shipments in question occurred at the end of May / beginning of June 2013, so price fluctuation may have occurred (even without knowing what merchandise is being proposed by company G...)',

• the price is proposed with forecasts of imminent stock depletion (the color beige is running out) so it may be inflated due to assured placement with customers in Italy;

• the origin of the goods will be different (Taiwan, "a good Taiwan quality"), which may imply different quality and different acquisition costs;

• acquisition from a European operator, who will in turn resort to an Asian exporter, does not allow price comparability to be established;

• even admitting - and only in theory - that the merchandise proposed by the Italian company is comparable to the merchandise with one of the designations "(...) Beige", the quantities are quite different, from Italy about 21,500 square feet vs. about 121,000 square feet invoiced in Hong Kong.

In these terms, the alleged email message does not prove that the amount invoiced by B... is not excessive.

Given the foregoing, having analyzed the proof presented by A..., it is verified that it does not demonstrate that the expenses in question, which globally amount to €261,572.02, correspond to actually performed operations and do not have an abnormal character or excessive amount, and therefore such amount cannot affect the determination of taxable result, as determined by article 65, no. 1 of the IRC Code.

The correction in terms of taxable result for IRC purposes for the year 2013 is as follows:

[Table omitted]

III.1.1.2. Amounts Paid or Owing to Non-Resident Entities - Autonomous Taxation

In accordance with article 88, no. 1 of the IRC Code, "undocumented expenses are subject to autonomous taxation at the rate of 50% (...)".

In turn, no. 2 of that article provides that "the rate referred to in the preceding number is raised to 70% in cases where such expenses are incurred by taxpayers totally or partially exempt, or that do not exercise, as principal activity, activities of a commercial, industrial or agricultural nature and also by taxpayers that obtain income falling under article 7".

Further, no. 8 of the same article states that "the regime of no. 1 or no. 2 is applied, as applicable, the applicable rates being, respectively, 35% or 55%, to expenses corresponding to amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, as defined in accordance with the Code, unless the taxpayer can prove that they correspond to actually performed operations and do not have an abnormal character or excessive amount".

Being at issue bank transfers that fall within the provisions of article 88, no. 8 of the IRC Code, as referred and listed in point III.1.1.1 of this report regarding the payments made to entity B..., taxpayer A... was notified to prove that the amounts paid, totaling €261,572.02 [1], correspond to actually performed operations and do not have an abnormal character or excessive amount (Annex 1).

Said notification requested that proof be presented both regarding the avoidance of autonomous taxation assessment in accordance with article 88, no. 8 of the IRC Code, as well as regarding the avoidance of the legal regime established in article 65, no. 1 of that statute.

In the response, according to documents and elements delivered on 2017-06-12 (Annex 2) and documents and elements received on 2017-07-07 (Annex 3), A... does not establish any distinction as to the proof in accordance with article 65, no. 1 or article 88, no. 8, both of the IRC Code.

In these terms, the analysis of that proof is equally single and has already been made throughout point III.1.1.1 of this report, being necessary to maintain the position that such proof was not effectively and fully presented, and therefore autonomous taxation should be assessed on these amounts, as determined by article 88, no. 8.

Given that A... does not meet the conditions of article 88, no. 2 of the IRC Code (taxpayers totally or partially exempt, or that do not exercise, as principal activity, activities of a commercial, industrial or agricultural nature, and also taxpayers that obtain income falling under article 7), the rate of autonomous taxation to apply is 35%.

Thus there is autonomous taxation in the amount of €91,550.21.

The following table presents the previous values of autonomous taxation assessed, the proposed correction and the corrected values.

[Table omitted]

(...)

IX. RIGHT TO BE HEARD – JUSTIFICATION

(...)

X.2. APPROACH TO THE TAXPAYER'S RESPONSE

It is thus necessary to analyze the documents sent by the taxpayer for purposes of exercising the right to be heard.

IX.2.1. From the first communication - received on 2017-07-27 (Annex 4)

In this communication, A... considers that the notification it received (for purposes of nos. 1 and 4 of article 65 and no. 8 of article 88, both of the IRC Code), by requesting "documentary proof" is limiting the possibilities of proof to be presented, particularly since the IRC Code does not provide for such limitation.

On this matter, it is important to note that, being the inspection procedure authorized by Service Order no. OI 2017..., an internal inspection procedure, and considering that the elements to be presented must prove that the expenses correspond to actually performed operations and do not have an abnormal character or excessive amount, it follows that the proof will be essentially documentary in nature.

That is, there was never any question of, nor could there be, any limitation of the proof to be presented, with A... not having requested the presentation of (or actually presented) any other type of proof.

In the right to be heard, A... states in its § 9 that "it is not understood (?) the necessity to add to the legal text the requirement that the proof be made 'unequivocally' and, more still, 'in full'".

As can be verified by analyzing the Draft Report and by analyzing this Final Report (which is identical in all respects except on this point IX), no amendment was made to the legal text of article 65, no. 1 of the IRC Code, which moreover is considered transcribed ipsis verbis on page 2 of the report.

The expressions in question, which appear on page 4 of the report, serve only to present the three requirements that the proof to be presented must verify, and to reinforce the specificity of this rule that reverses the burden of proof. Moreover, the location in the report where such expressions were inserted is not even related to the analysis of the proof presented, such analysis only beginning on page 5 of the report.

Furthermore, there is nothing in the Draft Report that provides justification for the proposed corrections alleging that no proof was made "unequivocally" or "in full".

It further considers in the right to be heard (§ 19) that the constitutional freedom conferred on economic agents allows it to conduct business with whomever it wishes, so in its perspective "(...) it is not abnormal to interpose an entity between the initial seller and the final buyer".

Tax legislation, namely the IRC Code, has already had this tax contingency resulting from article 65 for several years. In fact, through Decree-Law no. 198/2001, of 3 July, a profound revision of the tax codes was carried out, which moreover was already provided for by Law no. 30-G/2000, of 29 December (which reforms the taxation of income and adopts measures intended to combat tax evasion and fraud), causing the IRC Code to determine in its article 59 (then) no. 1 the following:

"The following are not deductible for purposes of determining taxable profit: amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, unless the taxpayer can prove that such expenses correspond to actually performed operations and do not have an abnormal character or excessive amount".

That is, this tax contingency is not particularly a novelty. And this same tax contingency was strengthened in 2004 with the publication of the aforementioned Ordinance no. 150/2004, of 13 February.

Obviously, the matter at issue is not the economic agents preferred by IRC taxpayers. The matter at issue is proving that the choice of a taxpayer resident in countries, territories or regions qualified as 'tax havens' or subject to privileged taxation regimes is not abnormal.

Knowing that the territory of Hong Kong is not known for the production of pig skins, and being certain that the skins in question originate from Thailand, it is necessary to present the reasons for interposing another economic agent between the supplier C..., a tannery company based in Thailand (and the entity that appears in the maritime bill of lading as loader - Shipper), and A....

In the right to be heard, A... presents a document stamped by company "H...", resident in China, in which it declares itself to be the holder of company "B...", resident in Hong Kong (supplier to A...), and holder of company "C...", the aforementioned tannery company from Thailand. The declaration merely states that the Hong Kong company's purpose is to buy raw skins and export pig skins more efficiently and easily (free translation).

Now, if the owners of the tannery company (Thailand) and the trading company (Hong Kong) are identical, the abnormal character of the operation is even more reinforced.

What is the purpose of interposing that Hong Kong company? Was A... prevented from acquiring the merchandise in question directly from the Thailand supplier? Considering the tax contingency, was that question posed to said owners? What value does the mere issuance of invoices via Hong Kong add to the business, given that the merchandise travels from Thailand to Portugal?

It is also important to note that A... is a purchaser of entire containers of merchandise, as results from the documents presented, which, at the outset, would allow it to negotiate directly with the tannery company.

Given the foregoing, the right to be heard does not alter the conclusion reached in the Draft Report regarding the proof "do not have an abnormal character".

Regarding the proof "correspond to actually performed operations", A... understands that the legal rule will aim only at services and not at purchase and sale operations (§ 22 to § 25).

The restriction alleged by A... is not apparent in the wording of article 65, no. 1 and no. 8 of the IRC Code, both.

Nor is such restriction visible particularly in the preamble of Ordinance no. 150/2004, of 13 February: "The fight against international evasion and fraud also requires the adoption of defensive measures, traditionally called anti-abuse measures, translated into restrictive practices in the field of income and property taxes, tax benefits and stamp duty, which target operations carried out with entities located in countries, territories or regions qualified as 'tax havens' or subject to privileged taxation regimes'".

(...)

At the national level, the fight against international evasion and fraud has, by means of the noted revenue shortfalls with serious implications on the balance of external transactions, which distort international competition and capital movements, been triggering the emergence of the traditionally called anti-abuse measures, which are nothing more than restrictive practices implemented, mainly, at the level of income taxes and tax benefits.

From a practical standpoint they translate into the provision of more restrictive criteria regarding the acceptance of operations conducted between entities based in national territory and natural or legal persons, based in countries, territories or regions holding a more favorable tax regime, for determining the taxable profit for the fiscal year.

We highlight what is provided in the CIRC and its articles 63 to 68, giving special emphasis to:

• Article 65 of the CIRC, no. 1 - which are not considered deductible, for purposes of determining taxable profit, amounts paid or owing, in any capacity, to natural or legal persons based outside Portuguese territory and subject there to a clearly more favorable tax regime;

• The legislator created an exception providing that they may nevertheless be accepted, provided the taxpayer can prove that such expenses correspond to actually performed operations not presenting an abnormal character or excessive amount, with the burden of proof falling on the taxpayer resident in national territory - that is to say the specific anti-abuse measure introduced with the objective of dissuading the use of the so-called tax havens was the reversal of the burden of proof;

(...)

Now one of the ways to conduct operations through offshore companies is through the colloquially named triangulation of operations. There is transmission of property of merchandise, but these never leave the physical availability of the company based in national territory, with everything being a "paper transaction".

(...)

The right to be heard seeks to extrapolate conclusions from what was mentioned in the Draft Report regarding proof of the effectiveness of the operations. What was stated, and what is repeated, is that "the elements presented form the conviction that merchandise imports have occurred and that such goods, declared at customs according to the respective documentation, are consistent with the activity of A...".

However, effectiveness also passes by demonstrating that - in fact - the business was conducted as presented (purchase of skins from B...), when everything points to the business being different (purchase of skins from C...), all the more so as the owners of the tannery company and the trading company will, as A... wishes to demonstrate in the right to be heard, be the same.

A... understands in its right to be heard (§ 33) that "it is a supplier like any other".

Although this statement may be true from a business perspective, for tax purposes it is certainly not a supplier like any other. As a starting point, in article 65, no. 1, the IRC Code begins by stipulating, in a very clear manner, that amounts paid or owing to suppliers (entities) resident in, colloquially, tax havens, are not deductible for purposes of determining taxable profit. It is not an indifferent treatment.

It further states in the right to be heard (§ 34) that resort to the supplier in question is due to the "simple and decisive reason that its prices were the most competitive", but does not factually demonstrate this claim with objective and comparable data. Just as it had not demonstrated when notified in accordance with nos. 1 and 4 of article 65 of the IRC Code.

Regarding the grounds considered by the Tax Inspection for non-acceptance of the proof presented, A... understands that this position goes beyond the legislator's understanding (§ 42). But it does not contest in concrete terms this justification, which clearly supports that the comparison must be made between effectively comparable operations, which is considered elementary.

Indeed, in tax legislation that could be invoked to establish a parallel, the following is stated: "(...) the degree of comparability between a related-party transaction and an unrelated-party transaction must be assessed, taking into account, in particular, the following factors:

a) The specific characteristics of the goods, rights or services which, being the subject of each operation, are likely to influence the price of the operations, in particular the physical characteristics, quality, quantity, reliability, availability and volume of supply of the goods, the form of negotiation, the type, duration, degree of protection and the benefits anticipated by the use of the right and the nature and extent of the services;

b) The functions performed by the entities involved in the operations, having regard to the assets used and the risks assumed;

c) The contractual terms and conditions that define, expressly or implicitly, how responsibilities, risks and profits are allocated among the parties involved in the operation;

d) The economic circumstances prevailing in the markets in which the respective parties operate, including their geographic location and size, the cost of labor and capital in the markets, the position and phase of the marketing circuit, the existence of goods and overall development of markets;

e) The strategy of the companies, including among the aspects likely to influence their normal operation and conduct, the pursuit of activities for research and development of new products, the degree of diversification of activity, risk management, market penetration schemes or maintenance or strengthening of market share and, as well, the life cycles of products or rights;

f) Other characteristics relevant to the operation in question or to the companies involved".

Within the scope of exercising the right to be heard, A... requests, invoking nos. 1 and paragraphs c) and f) of no. 3, both of article 59 of the General Tax Law, various confirmations regarding the status of the proof presented, as well as "indication of how it is possible to prove, in the case of these merchandise purchases, that the price practiced was not excessive".

Regarding the duty of cooperation of the Tax Administration, it should be noted that in the contact held at the Tax Inspection Services on 2017-06-12, with the Sole Administrator and Certified Accountant of A..., the reversal of the burden of proof was explained and the three areas that the proof should ensure were explained (correspond to actually performed operations; do not have an abnormal character; are not of excessive amount).

Without prejudice to the foregoing, and although it may be arguable whether the exercise of the right to be heard on the Draft Report is the proper forum to invoke the duty of cooperation and "the necessary assistance in fulfilling accessory duties", as well as "the regular and timely clarification of well-founded doubts about the interpretation and application of tax norms"^, particularly since the Draft Report properly explained and justified all positions taken, an Information dated 2017-08-01 was prepared, which was the subject of a concordant Opinion and Order (Annex 5), having been sent to A... through Office no. ..., of 2017-08-02.

A... in this right to be heard did not present any new facts. It merely made vague considerations on the matter under analysis, discussed semantics, attempted to alter the reader's perception of the Draft Report ("9 - it is not understood the necessity to add to the legal text the requirement that the proof be made (...)", made interpretations of the Law ("25 - Note that no. 1 of article 65 and no. 8 of article 88 of the IRC Code, (...) speak of 'charges' and 'expenses', respectively, which indicates that they would not intend to cover simple purchases and sales of goods", and attempted to pass the responsibility and burden that rests on it to the Tax Administration by wanting it to be indicated what proof is to be produced.

IX.2.2. From the second communication - received on 2017-08-10 - Annex 6

In this second communication, as an exercise of the right to be heard, A... alleges that it did not obtain a response to the requests presented.

It considers that the documents presented "(...) unequivocally demonstrate that the operations occurred, specifically customs documents and documents of insurance of the goods" (page 3).

Regarding the analysis of the proof presented on whether the expenses correspond to actually performed operations, the Draft Report, as well as this Final Report, concluded very clearly on page 5 in the following terms: "the elements presented form the conviction that merchandise imports have occurred and that such goods, declared at customs according to the respective documentation, are consistent with the activity of A...". That is, there is not, nor has there ever been, an issue regarding the physical importation of merchandise intended for the company's activity. The statement cannot be considered vague or imprecise.

In a manner that is deemed strange, A... now comes, after a first exercise of the right to be heard, in which this matter was not even touched upon, to question the Opinion of the Team Chief, transcribing only a part of that Opinion.

With interest to the debate, the Team Chief then stated: "Because the taxpayer, after being notified, did not demonstrate the effectiveness of the operations - payment of invoices to company B..., with registered office in Hong Kong, for supply of pig skins for footwear, originating from Thailand, and loaded aboard the ship by company based in Thailand, and that they do not have an abnormal character, nor an excessive amount".

The underline concerns only the part transcribed by A....

Without wishing to discuss grammatical or semantic questions, it seems very clear that what was intended to be stated was that the taxpayer, after being notified, did not demonstrate the effectiveness of the operations and that they do not have an abnormal character, nor an excessive amount. That is, it did not make the proof in accordance with the requirements of the final part of article 65, no. 1 of the IRC Code of what was at issue: "payment of invoices to company B..., with registered office in Hong Kong, for supply of pig skins for footwear, originating from Thailand, and loaded aboard the ship by company based in Thailand".

In this right to be heard, A... alleges that it requested confirmation of the effectiveness of the operations given that the Team Chief's Opinion concludes contrary to what was stated in the Draft Report. And that the response obtained to this request "was evasive".

Now not only was the request not made in these terms (but rather in the context of "duties of cooperation" as per point IX.2.1 of this report), but the Team Chief's Opinion does not contradict the Draft Report, nor was the response evasive. The response referred to the Draft Report which is very clear on this matter, so it is repeated: "the elements presented form the conviction that merchandise imports have occurred and that such goods, declared at customs according to the respective documentation, are consistent with the activity of A...".

But this does not mean, as is inferred from what is stated in the Draft Report, that the operations occurred in the terms presented by A.... It merely means that the elements presented demonstrate the physical importation of merchandise intended for the company's activity.

A... also alleges in this right to be heard that the Tax Administration did not present, under the principle of cooperation, "an indication of how it is possible to prove, in the case of these merchandise purchases, that the price practiced was not excessive". Further stating that the response was "laconic and evasive".

Now the response (Annex 5) was neither laconic nor evasive. How could the Tax Administration define the proof to be presented, if on the one hand that burden falls on the taxpayer, and on the other hand it is not within the prerogatives of the Tax Administration to limit the proof to be presented?

A... justifies that "it only asked this question because it brought to the proceedings evidence that it understood to be complete, specifically documents evidencing other purchase operations, where the price is even higher than that practiced in purchases from Hong Kong. This alone demonstrates that the amount is not excessive".

On this matter, the Draft Report was clear and properly justified. There must be a minimum of comparability, which was not ensured with the presentation of three operations: - from "D..." (competitor); - from "E..." from Spain (which can be equally considered a competitor, as shown by consultation of the company's website - Annex 7); - price quotation request.

The justification for not accepting such proof as definitively demonstrating that the amount of the operations is not excessive is clear and sufficient. What A... intends is to impute to the Tax Administration the burden of proof. In fact, it continues to fail to refute any arguments or grounds presented for disregarding the proof presented.

In this "second" right to be heard, A... presents another supplier invoice, this time from company "I...", with registered office in Italy (VAT no.: IT-...), concerning the purchase of about 10,800 square feet of "Fodere di Pelle Suine Avorío".

The unit purchase price in square feet will be €0.75 and, from A...'s perspective, higher than the price of €0.683 practiced by B..., in the supply of "Pig Grain Lining / Light Beige", according to invoice no. SHC2013-0050 (Annex 2).

Again, it is noted that this example is not comparable. The origin of the skin is not indicated, nor its specific characteristics. In the case of the B... invoice, it is known that the skin originates from Thailand, which has associated certain logistics costs, and various characteristics of the skins are known (size, quality, thickness, cuts, dyeing, finishes, etc.). Regarding the skin from Italy, nothing is known.

And the very question of color does not allow stating with absolute certainty that the skin is comparable. It suffices to analyze the invoice in question to understand the importance of color and the variants it may take. For example, the color "Golden Beige" is transacted at 0.875 USD, and the color "Light Beige" is transacted at 0.855 USD. And only in the "Beige" type colors do three variants appear (Middle, Golden and Light).

Also the quantity denotes a different purchase, with a purchase of about 10,800 square feet being compared to another of about 352,951 square feet.

Being a purchase in Europe, and even admitting in theory that the origin is identical (Thailand), naturally the purchase from "I..." incorporates a marketing margin. Compared to the prices invoked by A..., the price of €0.75 is only about 9.8% more expensive than the price of €0.683. Will this be the margin practiced by the Italian company? And without prejudice to the foregoing, it is not the same to acquire a container of merchandise from a supplier in the far east as to acquire a small batch of skin from a reseller located in the European Union.

What is important to highlight is that the operations are not comparable.

Still based on the wrong presupposition that the operations are comparable, A... establishes a comparison between the sales margins of skins purchased from I... and the sales margins of skins purchased from B..., concluding that the margins obtained in the second case are higher. Now, as the purchase prices are different, naturally the margins are different.

But the analysis presented by A..., in terms of gross marketing margins is not elucidative. On the one hand, the table presented, as an extract from the movement of article 164PRBEIGE1 - PORCO SKIN BEIGE 1, includes the purchases of the article "Light Beige" and "Middle Beige", from invoice SHC2013-0050. But more relevant is the fact that the extract ends on 2013-06-27, without understanding why. All the more so as the quantity purchased (and underlined in the extract) amounts to 21,697.25 square feet and the selected sales amounted to 14,054.94 square feet. And worse still if one considers the two purchases that total 55,165.00 for selected sales of only 14,054.94.

A..., based on that deficient analysis, considers that the margins obtained in the commercialization of "Light Beige" skin are between 12.7% and 20.1%. And what conclusion can be drawn from these values? From A...'s perspective, none, as it says nothing on this matter, only that they are higher than those obtained in purchases from I....

However, the gross margin on cost obtained by A... in 2013 amounted to about 24.97%, which demonstrates that the marketing margin on this item is clearly below (and in some cases well below) the margin obtained in the generality of operations.

To end the right to be heard, A... presents correspondence exchange by email with a supplier from China, J... Ltd., for loading of an entire container, in which the response obtained presents prices between 0.850 USD and 0.870 USD.

Regarding this quotation, it is important to note that there are limitations to comparability. The quotation does not indicate the origin of the merchandise, nor the size of the skins.

But even admitting a transaction identical in all respects, it is verified that the prices practiced are always lower than the prices practiced by "B...", whatever the group of tones.

If everything is equal in terms of merchandise, knowing of the tax contingency of nos. 1 and 4 of article 65 and no. 8 of article 88, both of the IRC Code, why opt for the more expensive supplier and even residing in, colloquially, a tax haven?

Given the foregoing, it can be concluded that this second right to be heard also failed to present facts that would allow reversal of the position defended by the Tax Inspection and already presented in the Draft Report.

In addition to not validly contesting the arguments and grounds set forth in the Draft Report and contained in this Final Report, the taxpayer continued to insist in an attempt to impute to the Tax Administration the burden of proving that the expenses incurred and the payments made correspond to actually performed operations, do not have an abnormal character or are not of excessive amount.

And it continues to present individual documents as proof, despite that proof having long since been required, which the Tax Inspection analyzed and concluded do not allow ruling out the tax disregard and autonomous taxation.

Although it presented an analysis of the commercialization margins of merchandise that represents a small part of the purchases made from B..., and although that analysis suffers from serious limitations, such analysis only manages to demonstrate that the margin obtained is clearly lower than the average margin obtained by A... in the generality of purchase and sale operations.

A price quotation was also presented by a supplier based in China, with values lower than those practiced by B..., which raises even greater doubts about the choice of this supplier.

In these terms, the corrections proposed for IRC purposes should be maintained, both as regards the increase in taxable matter and as regards the additional autonomous taxation assessment.

• Following the inspection, the Tax and Customs Authority issued additional IRC assessment no. 2017..., dated 01-09-2017, in the amount of €181,769.26, which includes the amount of €91,550.21 relating to the correction of autonomous taxation and the amount of €21,831.18 of compensatory interest;

• The merchandise to which the invoices underlying the corrections refer were imported by the Claimant and used in the Claimant's activity;

• The merchandise was purchased from B..., with the latter sending it to the Claimant from Thailand;

• The aforementioned merchandise which was purchased at an average price of €0.683 (exchange rate at the time USD/EUR=1.251) per square foot from B..., was sold between €0.77 and €0.82 per square foot (document no. 16, page 2, attached to the request for arbitral determination, the content of which is reproduced);

• On 08-08-2013, the Claimant purchased from supplier D..., located in ..., Portugal pig skin at €0.83 per square foot with characteristics of the skins identical to the merchandise purchased from B... (document no. 13 attached to the request for arbitral determination, the content of which is reproduced);

• On 15-07-2013, the Claimant purchased from supplier E..., located in ..., Spain, pig skin at €0.83 per square foot with characteristics identical to the skins purchased from B... (document no. 14 attached to the request for arbitral determination, the content of which is reproduced);

• On 05-04-2013, the Claimant purchased from supplier I..., located Italy, pig skins identical to those purchased from B... at the price of €0.75 per square foot (document no. 16, page 1, attached to the request for arbitral determination, the content of which is reproduced);

• In March 2013, a proposal was presented to the Claimant by company J..., LTD, located in ..., China, for supply of the same type of pig skin (thickness 0.5-0.7mm) with proposed price of USD 0.85 for light colored skins, USD 0.86 for medium colored skins and USD 0.87 for dark colored skins, per square foot (document no. 17 attached to the request for arbitral determination, the content of which is reproduced);

• On 30-10-2017, the Claimant paid the sum of €180,605.85 as tax (document no. 1 attached to the request for arbitral determination, the content of which is reproduced);

• On 29-01-2018, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

2.2. Unproven Facts and Justification of the Statement of Facts

There are no facts relevant to the decision of the case that have not been proven.

The proven facts are based on documentary evidence, statements of the parties and depositions made at the meeting, with the persons heard having appeared to testify with impartiality and with knowledge of the facts they stated.

As for the proof that the operations were carried out and that the Claimant received the merchandise and paid for it, there is agreement from the Tax and Customs Authority, which in the Tax Inspection Report stated that "there was never an issue regarding the physical importation of merchandise intended for the company's activity" and states in article 27 of the Response that "the elements presented form the conviction that merchandise imports have occurred and that such goods, declared at customs according to the respective documentation, are consistent with the activity of A...".

1. Legal Matters

The Tax and Customs Authority did not accept the deductibility of the Claimant's expenses relating to transfers of amounts made to B..., with registered office in Hong Kong, concerning two invoices issued by it:

– no. SHC2013-0046, in the amount of USD 41,522.21, issued on 22-05-2013

– no. SHC2013-0050, in the amount of USD 308,440.22, issued on 29-05-2013.

The non-acceptance of the deductibility of these expenses was based on article 65 of the CIRC in the wording of Law no. 64-B/2011, of 30 December (in force in 2013), which establishes the following, to the extent relevant:

Article 65

Payments to Non-Resident Entities Subject to a Privileged Tax Regime

1 – The following are not deductible for purposes of determining taxable profit: amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, unless the taxpayer can prove that such expenses correspond to actually performed operations and do not have an abnormal character or excessive amount.

2 – A natural or legal person is considered to be subject to a clearly more favorable tax regime when their territory of residence appears on the list approved by ordinance of the Minister of Finance or when they are not taxed there in an income tax identical or similar to IRS or IRC, or when, regarding the amounts paid or owing mentioned in the preceding number, the amount of tax paid is equal to or less than 60% of the tax that would be due if said entity were considered resident in Portuguese territory.

3 – For purposes of the preceding number, taxpayers must possess and, when requested by the General Tax Administration, provide evidence of tax paid by the non-resident entity and calculations made for determining the tax that would be due if the entity were resident in Portuguese territory, in cases where its territory of residence does not appear on the list approved by ordinance of the Minister of Finance.

4 – The proof referred to in no. 1 must take place after notification of the taxpayer, made with a minimum advance notice of 30 days.

(...)

Cumulatively, the Tax and Customs Authority applied autonomous taxation as provided for in article 88, no. 8, of the CIRC which establishes the following:

8 – The regime of no. 1 or no. 2 is applied, as applicable, the applicable rates being, respectively, 35% or 55%, to expenses corresponding to amounts paid or owing, in any capacity, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, as defined in accordance with the Code, unless the taxpayer can prove that they correspond to actually performed operations and do not have an abnormal character or excessive amount.

The territory of Hong Kong was included, in 2013 and 2014, in the "list of countries, territories and regions with privileged tax regimes, clearly more favorable", which appears in Ordinance no. 292/2011, of 8 November, which amended Ordinance no. 150/2004, of 13 February.

As Gustavo Lopes Courinha teaches, "In these cases, we are faced with a special reaction of an anti-abusive character, which clearly contemplates situations of manifest tax simulation – 'actually performed operations' – and others of abusive planning – 'operations (with) abnormal character or excessive amount'. In the first case, non-real or false operations are targeted, the veracity of which would always be difficult to contest at the level of proof by the Tax Administration; in the second, real operations intended by the parties, although sometimes structured to obtain an undue tax advantage. Being that, for both cases, non-deduction of such amounts for purposes of determining taxable profit was determined as punishment, unless demonstration to the contrary by the taxpayer (reversal of the burden of proof)." ( [2] )

The exclusion of the deductibility of payments that appear in the accounts as having been made to companies subject to a privileged tax regime carries with it a presumption that these are operations totally or partially simulated, aimed at avoiding taxation of income in national territory. ( [3] )

It is because this regime is based on a presumption that it is admitted, with the consequent reversal of the burden of proof, that the deduction of such expenses if the taxpayer proves that the payments correspond to actually performed operations and do not have an abnormal character or excessive amount.

As referred to in the justification of the statement of facts, the Tax and Customs Authority does not question that the Claimant acquired the merchandise from B..., that it was sent from Thailand to the Claimant, and that it used it in the exercise of its activity.

Thus, it is established that the operations to which the invoices in question refer were performed and, accordingly, it can also be concluded that it cannot be considered "abnormal" that the Claimant made the payments to B....

In truth, accepting the Tax and Customs Authority that we are not faced with totally simulated operations, it cannot be considered "abnormal" that the Claimant made payments, as what would be abnormal is that the merchandise were free.

On the other hand, in transactions with companies that develop their activity in various countries, it is not abnormal that the merchandise transacted does not originate from the country or territory where the company's registered office is located.

Thus, the support for the position of the Tax and Customs Authority rests solely on the invocation of the lack of proof that the amount paid is not excessive.

"Now as for the proof of the non-existence of abnormal or excessive character in the expenses, this must be established by demonstrating that the contract, the veracity of which was proven, is presented as balanced. For this purpose, the taxpayer should demonstrate the real importance of the advantages conferred by the contract and prove that the charges established constitute fair compensation for those advantages, particularly by comparison with the costs of similar services in the market. No formalism is required, on the other hand, in these proofs, with the system of free proof also applicable here" ( [4] ) ([5] )

In the case at hand, the proof produced leads to the conclusion that the payments made are reasonable and balanced prices for the merchandise purchased, appreciably lower than those proven to be obtained by the Claimant when purchasing similar merchandise in Portugal or in Italy, and with a minimal difference of about 1.5% compared to those that, four months earlier, it could have obtained from Chinese company J..., according to a proposal presented to it.

Therefore, it should be considered that the proof has been made that the amounts paid were not excessive.

Thus, it is concluded that there is no foundation, in light of article 65, no. 1, of the CIRC for not accepting the deductibility of the expenses in question, as the proof required there has been made.

Consequently, there is also no foundation for the application of autonomous taxation as provided for in article 88, no. 8 of the CIRC, which also underlies the same lack of proof.

The assessment of compensatory interest has as prerequisites the IRC assessment and autonomous taxation, so it suffers the same defects affecting the latter.

Based on the foregoing, the IRC assessment, autonomous taxation and compensatory interest suffer from a defect of violation of law, due to error in the factual presuppositions and error in the legal presuppositions, which justifies its annulment, in accordance with article 163, no. 1, of the Code of Administrative Procedure, as a matter of subsidiarity applied in accordance with article 2, paragraph c), of the General Tax Law.

1. Reimbursement of Amount Paid and Indemnification Interest

In accordance with the provisions of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter, in the exact terms of the favorable arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of sentences by tax courts, must "restore the situation that would exist if the tax act subject to the arbitral decision had not been made, adopting the acts and operations necessary for this purpose", which is in line with what is provided in article 100 of the General Tax Law [applicable by force of paragraph a) of no. 1 of article 29 of the RJAT] which provides that "the tax administration is obliged, in case of total or partial acceptance of a complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of indemnification interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at CAAD, making no reference to condemnatory decisions, it should be understood that it includes in its competences the powers that in judicial challenge proceedings are attributed to tax courts, this being the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first directive, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to payment of indemnification interest, as is apparent from article 43, no. 1, of the General Tax Law, which provides that "indemnification interest is due when it is determined, in gracious objection or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due" and article 61, no. 4 of the Code of Tax Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which provides that "if the decision recognizing the right to indemnification interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT, in stating that "payment of interest, regardless of its nature, is due in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process", must be understood as allowing recognition of the right to indemnification interest in the arbitration process.

On the other hand, since the right to indemnification interest depends on the existence of an amount to be reimbursed, it is concluded that the arbitration process is also an appropriate means for assessing the request for reimbursement.

In the case at hand, it is manifest that, as a result of the illegality of the assessment act and its annulment, reimbursement is due of the amount improperly paid increased by indemnification interest, as the assessment is attributable to the Tax Administration, which, on its own initiative, carried it out without legal support.

Thus, as a consequence of the annulment of the assessment, the Claimant is entitled to reimbursement of the amount paid and to indemnification interest, in accordance with article 43, no. 1, of the General Tax Law and article 61 of the Code of Tax Procedure and Process, calculated on the amount it paid, from the date of payment (30-10-2017), until the date a credit note is processed, in which they are included (article 61, no. 5, of the Code of Tax Procedure and Process).

Indemnification interest is due at the legal default rate (articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April).

1. Decision

In these terms, this Arbitral Tribunal agrees to:

– judge the request for arbitral determination as well-founded;

– annul the IRC assessment no. 2017..., dated 01-09-2017, in the amount of €181,769.26, which includes the amount of €91,550.21 relating to the correction of autonomous taxation and the amount of €21,831.18 of compensatory interest;

– judge as well-founded the request for arbitral determination regarding the reimbursement of the sum of €180,605.85, increased by indemnification interest, and condemn the Tax and Customs Authority to pay the Claimant said sum with the indemnification interest to be determined in accordance with point 4 of this decision.

1. Value of the Proceedings

In accordance with the provisions of articles 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €181,769.26.

1. Costs

In accordance with article 22, no. 4, of the RJAT, the amount of costs is set at €3,672.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 16-07-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Vera Figueiredo)

(Cristina Coisinha)

[1] Although the amounts actually transferred are higher, this will be the amount to be considered for tax purposes, since the remainder is attributed to exchange rate differences, and this was the value considered relevant both for purposes of determining taxable result by the taxpayer and for purposes of corrections by the tax inspection in accordance with article 65, no. 1 of the IRC Code. This criterion is not prejudicial to the taxpayer.

[2] GUSTAVO LOPES COURINHA, in The General Anti-Abuse Clause in Tax Law – Contributions to its Understanding, Almedina, April 2004, page 93.

[3] That presumption, possibly, will have statistical foundation, as LUÍS MENEZES LEITÃO suggests, The control and fight against harmful tax practices, in Science and Tax Technique no. 409/410, page 125.

[4] LUÍS MENEZES LEITÃO, aforementioned work and location, whose doctrine is followed in the decisions of the Central Administrative Court South of 19-02-2015, case no. 08126/14 and 05-11-2015, case no. 07022/13.

[5] However, the assessment of the requirement of non-excessiveness should be made taking into account the situation of the taxpayer, seeking to determine whether the payment should be considered excessive from its perspective, in the context in which it must decide to pay for the services. From this perspective, the payment will be excessive when it is demonstrated that the taxpayer could obtain the same service for a lower amount (arbitral decision of 12-02-2018, case no. 369/2017-T).