CAAD 395/2017-T: IRS Presumption of Advance on Profits Under Article 6(4) CIRS – Withholding Tax Ruling

ARBITRAL DECISION

I – REPORT

On 27 June 2017, A…, LDA, Tax ID…, with registered office at Rua do …, no. …, …, …-… …, filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the assessment act for Personal Income Tax (withholding at source) no. 2017 … and the assessment of compensatory interest nos. 2017 … and 2017 …, in the total amount of €259,699.66.

To substantiate its petition, the Claimant alleges, in summary:

• the non-applicability of the presumption provided for in Article 6, paragraph 4 of the Personal Income Tax Code to movements in the "partners" account made in 2014;

• the violation of the principles of pursuit of public interest, proportionality, justice and impartiality by the fact that the Tax Administration did not analyse the banking information for which the Claimant gave express authorization;

• the violation of law, by error in the assumptions of subsumption of facts to the rule of incidence, as well as of Article 68-A of the General Tax Law, by the fact that the Tax Administration concluded for the verification of the presumption provided for in Article 6, paragraph 4 of the Personal Income Tax Code and from there extracted the conclusion that the Claimant should have proceeded, at that moment, to withhold Personal Income Tax on such presumed profits, knowing that these were neither placed nor could be placed at the disposal of the Claimant's partners.

On 28-06-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Administration.

The Claimant did not proceed to appoint an arbitrator, therefore, under the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph a) of paragraph 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 14-08-2017, the parties were notified of these appointments, having manifested no desire to refuse any of them.

In accordance with the provision in subparagraph c) of paragraph 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 31-08-2017.

On 06-10-2017, the Respondent, duly notified for this purpose, presented its answer defending itself solely by impugnation.

On 20-11-2017, the meeting referred to in Article 18 of the RJAT took place, where witnesses presented by the Claimant were examined.

Having been granted a period for the presentation of written submissions, these were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for the pronouncement of final decision, after the presentation of submissions by the Tax Administration, a period that was extended until the end of the period set in Article 21/1 of the RJAT.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subparagraph a), 5, and 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceeding does not suffer from any nullities.

Thus, there is no obstacle to the examination of the case.

Everything considered, it is necessary to pronounce judgment.

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

The Claimant was constituted in 1997 and is, and was in 2014, a limited partnership company to which corresponds the Economic Activity Code – 86220, dedicating itself, from the beginning, to the practice of medical acts, namely ophthalmology medical services, provided exclusively by partner B….

For many years, prior to the constitution of the company now Claimant, partner B… carried out his activity on an individual basis, subsequently, after the constitution of the company, doing so in the same manner, as the sole clinician of the company.

The Claimant has a share capital of € 5,000.00, represented by two quotas valued at € 2,500.00 each, belonging to B… and C….

The Claimant is, and was in 2014, registered under the general regime for determination of taxable profit.

In the fiscal year 2014, the Claimant presented a taxable profit of €114,310.38.

In the fiscal year 2014, the Claimant recorded in the "Partners/Shareholders" account a value of € 856,405.41.

Since its constitution, the company now Claimant has not always been managed in full compliance with the principle of separation between individual assets and company assets, and it was common practice of the Claimant to make payments through available cash or withdrawals for that purpose, without requiring supporting documents, as well as the payment of personal expenses of partner B….

Over several years, the processing of the Claimant's accounting was done as follows: the "retained earnings and reserves" account was recorded directly by the difference between the actual balance of the "cash/deposits" accounts and the balance evidenced by bank statements.

As a result, the balance of the current account deposits shown in the accounting did not reflect the actual value of the amounts available in the bank accounts in question.

Similarly, the account "retained earnings and reserves" presented an artificial balance, without there being any determined distributable earnings capable of being incorporated into the legal reserve.

From the balance sheet of the Claimant for the fiscal year 2010 it appears that the accumulated balance of the deposit accounts on 31 December of that year was € 524,681.08, and that the balance of the accounts of retained earnings and reserves was € 298,583.07 and € 69,747.78, respectively.

From the balance sheet of the Claimant for the fiscal year 2011, it appears that the accumulated balance of the deposit accounts on 31 December of that year was € 594,310.50, and that the balance of the accounts of retained earnings and reserves was € 353,649.12 and € 169,747.78, respectively.

From the balance sheet of the Claimant for the fiscal year 2012, it appears that the accumulated balance of the deposit accounts on 31 December of that year was € 693,635.52, and that the balance of the accounts of retained earnings and reserves was € 395,477.53 and € 219,747.78, respectively.

During the year 2014, the Claimant decided to regularize its accounting, having for that purpose credited the excess of the said deposit accounts in exchange for "partners" accounts, doing so first to account 25 "Financing Obtained – Other Parties, Advances and Other Means" and, secondly to account 26 "Shareholders/Partners – advances on account of profits," in the following manner:

"26.3.10 –C…" – €683,591.68

"26.3.11 –B…" – €172,903.73

From the balance sheet of the Claimant for the fiscal year 2014, it appears that at the end of that fiscal year the company presented a value in the "partners account" of € 856,405.41, presenting the balance of the accounts of retained earnings and reserves a value of € 541,477.53 and € 269,778.62, respectively.

From the balance sheet of the Claimant for the fiscal year 2015, it appears that, after the effective distribution of results carried out in that fiscal year, the company presented a value in the "partners account" of € 849,805.41, presenting the balance of the accounts of retained earnings and reserves a value of € 548,867.16 and € 269,778.62, respectively.

On 28-09-2015 the Claimant was notified of the beginning of the external partial-scope inspection action, under Service Order no. OI2016…, concerning the year 2013.

From the balance sheet and Income Statement for the fiscal year 2013, it appears that the accumulated balance of the "deposits and cash" accounts on 31-12-2013 was € 649,051.85.

The value of cash deposit availabilities, according to the respective bank statements, amounted, at the end of 2013, to €34,230.28 (€501.95 at D…, and €33,728.33 at E…).

From then on, and until the date of presentation of the initial petition, the balance of the said bank accounts did not exceed the amount of € 50,000.00, considering all movements proper to the activity, none of which in favor of the partners.

In the scope of this inspection procedure, the manager of the company was questioned by the Tax Administration about the destination of the amounts of € 9,852.19 and € 329,652.13, which were recorded in the accounts of D… and E… respectively, having stated that he did not know how to answer that question, being certain, however, that in the year in question "no money had left that account."

The partner-manager further declared the following:

The situation referred to was maintained in the year 2015, in which the company presented a value in the "partners" account of € 849,805.41.

In January 2016, already in the course of the inspection procedure, the Claimant proceeded to transfer the said amount to account 59 "Other variations in equity," canceling, in exchange, the account of retained earnings and reserves in the same value.

In April 2016, the Claimant was notified that the inspection procedure had been extended for a period of 3 months, due to the fact that the taxpayer had authorized the lifting of banking secrecy.

On 22 June 2016, the Claimant was notified of the conclusion of the inspection action procedure, with no tax act resulting therefrom.

On the same date, the Claimant was notified of the institution of a new external inspection procedure, of partial scope and with focus on the fiscal year 2014, through Service Order no. OI2016…, based on the Preliminary Investigation Report… where it states that "In the course of the OI2015… for the fiscal year 2013 it was found that the taxpayer had made, in the year 2014, advances on account of profits in the amount of €856,405.41 without having made and delivered the respective Personal Income Tax withholding."

From the Income Statement concerning the fiscal year 2014, namely from the balance sheet, it appears that part of the value recorded in the bank accounts had as destination the partners account.

From the analytical trial balance on 31-12-2014, in the account "Shareholders/partners – Advance on account of profits," the following debit balances appear:

• "26.3.10 –C…" – €683,591.68

• "26.3.11 –B…" – €172,903.73

From the analysis of the accounting extracts of these two accounts and the respective supporting documents, the following appeared:

• The account "26.3.10 –C…" in the fiscal year 2014 had only one debit movement on 31-12-2014, in the amount of €683,501.68, in exchange for the account "25.3.22 - Financing Obtained – Other Parties, Advances and Other Means –C…";

• The account "26.3.11 –B…", in the fiscal year 2014, had two movements, both debit. The first, on 31-01-2014, in the amount of €150,000 in exchange for the account "13.1 – Other bank deposits –E…" and, the second, in the amount of €22,903.73, made on 31-12-2014, in exchange for the account "25.3.21- Financing obtained – Other Parties, Advances and Other Means –B…".

The accounts of the Claimant for the fiscal year 2014 (in which the entries in question appeared) were unanimously approved by the partners in General Assembly on 31 March 2015.

The amount credited in the year 2014 in the "Partners/Shareholders" account corresponds exactly to the balance of the deposits account that had been accumulating over several years.

On 09-11-2016, the Tax Inspection Services met with the partner-manager who declared:

From the accounting documents it appears that the partner-manager earned a monthly salary of €750.00.

From the minutes of the company it results that until 31-12-2014 no decision was taken regarding the distribution of profits.

The Tax Administration understood that the Claimant should have proceeded to withhold at source on the amount declared in the "Partners/Shareholders" account, proposing the following correction:

The Claimant was notified of the content of official letter no. … of 29-11-2016, relating to the draft Tax Inspection Report, proposed by the Tax Inspection Services of the Finance Directorate of Lisbon.

The Claimant was, further, notified, in accordance with Article 60 of the Tax Procedure Regulations Code and Article 60 of the General Tax Law to, if it wished, exercise its right to a hearing, which it did not do.

The Tax Inspection Services issued the Final Tax Inspection Report, which contains the following:

[Content redacted in original]

The Claimant was notified of the assessment no. 2017… having been calculated an amount of tax payable as Personal Income Tax withholding, in the value of €239,793.51.

The Claimant was notified of the assessment of compensatory interest nos. 2017… and 2017…, in the total value of €19,906.15.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning on the Factual Matters Proven and Not Proven

With respect to factual matters, the Tribunal does not have to pronounce on everything that was alleged by the parties, it being incumbent upon it, rather, to have the duty to select the facts that matter for the decision and to discriminate between proven and not proven matters (cf. Article 123, paragraph 2, of the Tax Procedure Code and Article 607, paragraph 3 of the Civil Procedure Code, applicable by virtue of Article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and delimited based on their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (cf. former Article 511, paragraph 1, of the Civil Procedure Code, corresponding to the current Article 596, applicable by virtue of Article 29, paragraph 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure Code, the documentary evidence and the file attached to the records, the facts listed above were considered proven, with relevance to the decision, taking into account that, as stated in the Decision of the Central Administrative Court of the South of 26-06-2014, delivered in process 07148/13[1], "the probative value of the tax inspection report (…) may have probative force if the assertions contained therein are not impugned."

Facts contradictory with, or contained in, the proven facts were not given as proven or not proven, nor allegations made by the parties, and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose truthfulness must be assessed in relation to the concrete factual matters above established, such as, for example, what appears in points 48 and 50 of the initial petition.

B. ON THE LAW

At issue in the present arbitral action is the assessment of the legality of the application of the presumption in Article 6, paragraph 4 of the Personal Income Tax Code which provides that entries in the partner's current account, when they do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits, when the company did not have financial availability to place these values at the disposal of the partners.

With interest for the decision of the case, the applicable Article 6 of the Personal Income Tax Code provides:

"4 - Entries in any current account of partners, recorded in commercial or civil companies in commercial form, when they do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.

5 - The presumptions established in this article may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Taxes."

Also relevant to the situation sub iudice, Article 5 of the same Code provides:

"1 - Capital gains are considered revenues, namely the fruits and other economic advantages, whatever their nature or denomination, whether monetary or in kind, derived, directly or indirectly, from patrimonial elements, assets, rights or legal situations, of a property nature, as well as from their respective modification, transmission or termination, with the exception of gains and other revenues taxed in other categories.

2 - The fruits and economic advantages referred to in the preceding number include, in particular: (...)

h) The profits of entities subject to Corporate Income Tax placed at the disposal of their respective associates or holders, including advances on account of profits, with the exception of those referred to in Article 20."

Also relevant is Article 7 of the same Code, which provides:

"1 - The revenues referred to in Article 5 are subject to taxation from the moment they are due, if the due date is presumed, are placed at the disposal of their holder, are collected or from the date of determination of the respective quantitative, as the case may be. (...)

3 - For the purposes of paragraph 1, the following are taken into account: (...)

1. The placing at the disposal, for the revenues referred to in subparagraphs h), i), j), l) and r), as well as of consignment certificates."

On the matter now in question, abundant case law has already been pronounced, especially of the Central Administrative Courts of the South, highlighting the following:

Decision of the Central Administrative Court of the South of 25-11-2008, delivered in process 02544/08, and of 13-10-2009, delivered in process 03221/09, where it can be read:

"II) - Concluding that the entries made in the current account of partners do not result from loans, the provision of work or the exercise of corporate offices, they must be presumed to be made as profits or advances on profits (paragraph 4, in fine, of Article 7 of the Personal Income Tax Code).

III) - The presumptions established in that legal provision may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Contributions and Taxes."

And further:

"the fact is that the appellants did not contest those movements, coming, however, to advocate that there was no advance on account of profits, and, even if they had existed, would have to be recorded in account 25 — Shareholder, in accordance with what is provided for in the Chart of Accounts. (...)

presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact, as provided by the rule of Article 349 of the Civil Code.

As the induction or inference is made by the law itself, which from the known fact presumes the existence of the unknown fact, without dependence on the judge's assessment, or is made by the judge through the rules of life (id quod plerumque accidit), the presumption is said to be legal, or simple natural (or judicial) - cf. Anselmo de Castro, Civil Procedure Law, 1960-1961, pp. 485 and 486.

The presumption that the said amounts received by the company should be considered "advances on profits" to the administrators is a legal presumption (established expressly and directly in law), and not a simple presumption, merely natural or judicial, based on the data of common experience - and which, as is known, is admitted only in the cases and terms in which the proof by testimony is admitted in accordance with Article 351 of the Civil Code.

Therefore, the rule contained in paragraph 2 of Article 350 of the Civil Code applies, proper for legal presumptions - which, in order to be destroyed (in cases where the law allows it) must be rebutted by contrary proof.

In the case of a natural presumption, it is not necessary to prove the contrary of the presumed fact, it being sufficient to shake the conviction resulting from the presumption, and not, necessarily, to prove the contrary of the fact to which it leads - cf. in this sense, among many others, the decisions of this Section of the Central Administrative Court of 16.12.1997 and 3.2.1998, appeals nos. 65 229 and 39/97, respectively.

Before this framework and given what was proven, we were led to conclude that the appellants failed to rebut the presumption or, at least, to shake the conviction resulting from the presumption, as was legally incumbent upon them.

Before the literal, logical and systematic elements of the regulations governing the taxation of income from category E, more specifically the cases in which income from that category can be presumed, the only situations in which presumptions regarding such income are permitted are those typified in Article 7, specifically and as matters in the case, nos. 4. Entries in any current account of partners, recorded in commercial or civil companies in commercial form, when they do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.

The presumptions established in this article may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Contributions and Taxes.

Analyzing the evidence, there result as proven, as initial proof or known fact giving rise to the presumed fact, the entries in current accounts recorded in the company, so it is lawful to conclude, as the Tax Administration did, that the sums in question were received as profits or advances on profits. (...)

Concluding that the entries made in the current account of partners do not result from loans, the provision of work or the exercise of corporate offices, they must be presumed to be made as profits or advances on profits (paragraph 4, in fine, of Article 7 of the Personal Income Tax Code).]"

Decision of the Central Administrative Court of the South of 11-01-2011, delivered in process 04357/10, where it can be read:

"IV) - Concluding that the entries made in the current account of partners do not result from loans, the provision of work or the exercise of corporate offices, they must be presumed to be made as profits or advances on profits (paragraph 4, in fine, of Article 7 of the Personal Income Tax Code).

V) - The presumptions established in that legal provision may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Contributions and Taxes."

And further:

"In accordance with the teaching of José Guilherme Xavier de Basto, in Real Incidence and Determination of Net Income, 2007, pp. 221 et seq.), pursuant to Article 7, paragraph 4, of the Personal Income Tax Code, it is presumed that the sums recorded in any current account of partners of commercial companies, which do not result from loans, the provision of work or the exercise of corporate offices, correspond to profits or advances on account of profits. With this presumption, a supplementary qualification is made of sums whose origin is not expressly stated in the current accounts in question. The law does not expressly refer to sums recorded in partners accounts as advances. What the law, with the presumption in analysis, sought to resolve was the qualification of sums recorded whose "legal cause" was not expressly declared.

And the fact is that the appellant did not produce documentary evidence in order to call into question the assessment that is the subject of these proceedings, so the said presumption contained in Article 7, paragraph 4 of the Personal Income Tax Code must be applied.

And the fact is that the appellant did not contest the said movements, coming, however, to advocate that there was no advance on account of profits, that that value does not constitute any patrimonial increase capable of being taxed in Personal Income Tax.

However, presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact, as provided by the rule of Article 349 of the Civil Code.

As the induction or inference is made by the law itself, which from the known fact presumes the existence of the unknown fact, without dependence on the judge's assessment, or is made by the judge through the rules of life (id quod plerumque accidit), the presumption is said to be legal, or simple natural (or judicial) - cf. Anselmo de Castro, Civil Procedure Law, 1960-1961, pp. 485 and 486.

The presumption that the said amounts received by the appellant, as administrator, should be considered "advances on profits," is a legal presumption (established expressly and directly in law), and not a simple presumption, merely natural or judicial, based on the data of common experience - and which, as is known, is admitted only in the cases and terms in which the proof by testimony is admitted in accordance with Article 351 of the Civil Code.

Therefore, the rule contained in paragraph 2 of Article 350 of the Civil Code applies, proper for legal presumptions - which, in order to be destroyed (in cases where the law allows it) must be rebutted by contrary proof.

In the case of a natural presumption, it is not necessary to prove the contrary of the presumed fact, it being sufficient to shake the conviction resulting from the presumption, and not, necessarily, to prove the contrary of the fact to which it leads - cf. in this sense, among many others, the decisions of this Section of the Central Administrative Court of 16.12.1997 and 3.2.1998, appeals nos. 65 229 and 39/97, respectively.

Before this framework and given what was proven, the ineluctable conclusion must be drawn that the appellant failed to rebut the presumption or, at least, to shake the conviction resulting from the presumption, as was legally incumbent upon him.

Before the literal, logical and systematic elements of the regulations governing the taxation of income from category E, more specifically the cases in which income from that category can be presumed, the only situations in which presumptions regarding such income are permitted are those typified in Article 7, specifically and as matters in the case, nos. 4 and 5. Entries in any current account of partners, recorded in commercial or civil companies in commercial form, when they do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.

The presumptions established in this article may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Contributions and Taxes.

Analyzing the evidence, there result as proven, as initial proof or known fact giving rise to the presumed fact, the debit and credit movements of the account "2551.2 - Loans to shareholders," in the name of its principal shareholder and administrator, Mr. I…, the appellant and now appellant, so it is lawful to conclude, as the Tax Administration did, that the sums in question were received as profits or advances on profits.

Given the clarity of the legal text, the presumption of advances on profits could operate because there was an entry in the current account of the appellant and recorded in the company."

Decision of the Central Administrative Court of the South of 18-02-2016, delivered in process 08760/15, where it can be read:

"5. Article 5, paragraph 2, subparagraph h), of the Personal Income Tax Code, systematically inserted in the category of patrimonial gains (rules of actual incidence), establishes as capital gains subject to Personal Income Tax incidence profits, including advances on account of profits, placed at the disposal of their respective associates.

1. Article 6, paragraph 4, of the Personal Income Tax Code, establishes a presumption regarding capital gains, of which sums recorded in any accounts of partners of commercial companies or civil companies in commercial form, sums that do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits. With this presumption the legislator sought to resolve the qualification of sums recorded in current partners accounts, whose "legal cause" has not been expressly declared, thus leading to such amounts having the treatment of distributed profits. We are, therefore, before a legal presumption (established expressly and directly in law), being incident on the tax-generating fact.

2. Being at issue the presumed rebuttal of a relative legal presumption (iuris tantum), it was incumbent upon the appellant and now appellant, the burden of producing proof to the contrary (cf. Article 350, paragraph 2, of the Civil Code), that is, of developing probative action directed against the specific presumed fact, with the objective and in a manner to convince the judge that, despite the occurrence of the fact (entries in current partners accounts, recorded in commercial companies) that serves as the basis for the operation of the presumption invoked, the presumed fact did not occur and/or the presumed right does not exist. Moreover, being at issue the presumption provided for in Article 6, paragraph 4, of the Personal Income Tax Code, by virtue of what is expressly provided, in paragraph 5 of the same regulation, the inescapable necessity that it can only be rebutted by the four means of proof therein, taxatively, foreseen, court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Taxes, establishing the law specific probative procedure for this purpose in Article 64 of the Tax Procedure Code."

And further:

"Article 6, paragraph 4, of the Personal Income Tax Code, establishes the presumption that sums recorded in any accounts of partners of commercial companies or civil companies in commercial form, sums that do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits. With this presumption the legislator sought to resolve the qualification of sums recorded in current partners accounts, whose "legal cause" has not been expressly declared, thus leading to such amounts having the treatment of distributed profits. We are, therefore, before a legal presumption (established expressly and directly in law), being incident on the tax-generating fact (cf. Decision of the Central Administrative Court of the South, Second Section, 11/1/2011, case 4357/10; Decision of the Central Administrative Court of the South, Second Section, 5/2/2015, case 8216/14; José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Editora, 2007, p. 337 et seq.; Rui Duarte Morais, On Personal Income Tax, 2nd edition, Almedina, 2010, p. 109).

Being at issue the presumed rebuttal of a relative legal presumption (iuris tantum), it was incumbent upon the appellant and now appellant, the burden of producing proof to the contrary (cf. Article 350, paragraph 2, of the Civil Code), that is, of developing probative action directed against the specific presumed fact, with the objective and in a manner to convince the judge that, despite the occurrence of the fact (entries in current partners accounts, recorded in commercial companies) that serves as the basis for the operation of the presumption invoked, the presumed fact did not occur and/or the presumed right does not exist. Moreover, being at issue the presumption provided for in Article 6, paragraph 4, of the Personal Income Tax Code, by virtue of what is expressly provided, in paragraph 5 of the same regulation, the inescapable necessity that it can only be rebutted by the four means of proof therein, taxatively, foreseen, court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Taxes, establishing the law specific probative procedure for this purpose in Article 64 of the Tax Procedure Code (cf. Article 73 of the General Tax Law; Decision of the Central Administrative Court of the South, Second Section, 11/1/2011, case 4357/10; José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Editora, 2007, p. 338; Luís Filipe Pires de Sousa, Proof by Presumption in Civil Law, Almedina, 2nd Edition, 2013, p. 91 et seq.).

"In casu," given the factuality proven (cf. nos. 1 and 3 of the evidence), the Tax Administration proved the deposit in account 2551 - Loans of the company "A. – I. N., Ltd." of amounts relating to the fiscal year 2002 (€ 8,191.48), as well as to the fiscal year 2004 (€ 325,117.28), further having taken into account that the taxation in Personal Income Tax, as an advance on account of profits, through the option of aggregation of income by the appellant, all in accordance with Articles 5, paragraph 2, subparagraph h), and 40-A, paragraph 1, of the Personal Income Tax Code, only affected 50% of the value of the income earned.

With a view to rebutting the examined legal presumption the appellant could have used the mechanism provided for in the cited Article 64 of the Tax Procedure Code, a matter that does not find support in the evidence, which the appellee did not impugn, as highlighted above.

Consequently, having the Tax Administration demonstrated the legality of its action, it was incumbent upon the appellant the burden of rebutting the identified presumption, a burden that he did not fulfill, not at all (the attachment to the records of the declarations identified in nos. 6 to 11 of the evidence being of no avail)."

Decision of the Central Administrative Court of the South of 04-06-2015, delivered in process 07453/14, where it can be read:

"the appellants argue in the following terms.

i) As was reiterated by the witness F…………., the divergence of €246,500.00, in the cash values in relation to the accounting balance of the company G… Ltd. is justified by the fact that the appellants, in their capacity as managers of the company, carried out, during the fiscal years 1991 to 1995, various expenses, relating to travel abroad, representation and promotion expenses, using for that purpose sums from the company, of which they never presented the respective vouchers.

ii) After considering various possibilities and with a view to regularizing the accounting balance of said company, the appellants decided, through minutes no. 21, of 20 January 2005, that such sums would consist of advances on account of profits.

iii) The appellants only resorted to this situation, because, in their view, it proved to be the only way to correct the accounting balance of the company; indeed, this situation was expressly addressed by the witness F……………., who stated that it was never the intention of the appellants to prejudice the State, but only to regularize a situation that was not correct.

iv) They further state that, absent any patrimonial increase in their legal sphere, the taxation of the amount in question incurs a violation of the principle of contributory capacity.

From the evidence it results that, by decision of the company, dated 20.01.2005, it was recognized that there was a divergence of €246,500.00, in the partners account, in favor of the now appellants; it was further determined that the said divergence would be computed as withdrawals as advances on account of the profits belonging to the partners, now appellants, with effect from 31.12.2004.

Article 6/4 of the Personal Income Tax Code provides that "[e]ntries in any current account of partners, recorded in commercial or civil companies in commercial form, when they do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits. // 5. The presumptions established in this article may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Taxes."

"The procedure to make the proof required for the rebuttal is contained in Article 64 of the Tax Procedure Code and constitutes a specific contradictory procedure." "With [the presumption of paragraph 4 of Article 6], a supplementary qualification is made of sums whose cause is not expressed in the current accounts in question. (…) What the law, with that presumption, sought to resolve was the qualification of sums recorded whose "legal cause" was not expressly declared." In this sense, case law emphasizes that "[c]oncluding that the entries made in the current account of partners do not result from loans, the provision of work or the exercise of corporate offices, they must be presumed to be made as profits or advances on profits (paragraph 4, in fine, of Article 7 of the Personal Income Tax Code).]" [Decision of the Central Administrative Court of the South, of 11.01.2011, Process 4357/10]. In the case, the elements existing in the records point to the fact that the amount in question constitutes a patrimonial increase of the appellants; the assertion that the divergence detected corresponds to sums spent on representation expenses, on behalf of the company, without any documentary support justifying it and having against it the statement of the shareholders themselves, who assume, in the minutes of the decision, that such sums were paid as advances on account of profits, does not succeed in rescinding the settled understanding. For it must be recalled, even if the representation expenses paid with company funds in the years 1991 to 1995 have actually occurred, it does not result from the records that the sums in question, in the total amount of €246,500.00, were withdrawn to cover such expenses [subparagraphs O, P, Q, and R, of the evidence]."

Decision of the Central Administrative Court of the South of 15-12-2016, delivered in process 09929/16, where it can be read:

"11. The definition of capital gains, introduced by Law 30-G/2000, of 29/12, in Article 5, paragraph 1, of the Personal Income Tax Code, translates and incorporates a rule of incidence so broad that it is capable of encompassing any situation, involving property values, that is not taxed in any of the other categories of income in which Personal Income Tax operates.

1. Article 5, paragraph 2, subparagraph h), of the Personal Income Tax Code, systematically inserted in the category of patrimonial gains (rules of actual incidence), establishes as capital gains subject to Personal Income Tax incidence profits, including advances on account of profits, placed at the disposal of their respective associates.

2. For its part, Article 7 of the Personal Income Tax Code defines the moment of subjection to taxation of capital gains, that is, it defines the moment when the tax becomes due.

3. The amounts paid to the banking entity resulting from the assumption of debt by the respondent company are considered capital gains as profits and/or advances on account of profits and as such subject to taxation under Personal Income Tax. This taxation is carried out through withholding at source, as final, at the liberating rates established in Article 71 of the Personal Income Tax Code, it being incumbent upon the respondent company to proceed with the said withholding at source."

And further:

"The definition of capital gains, introduced by Law 30-G/2000, of 29/12, in Article 5, paragraph 1, of the Personal Income Tax Code, translates and incorporates a rule of incidence so broad that it is capable of encompassing any situation, involving property values, that is not taxed in any of the other categories of income in which Personal Income Tax operates. (cf. Decision of the Central Administrative Court of the South, Second Section, 20/12/2012, case 3410/09; José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Editora, 2007, p. 226 et seq.).

Article 5, paragraph 2, subparagraph h), of the Personal Income Tax Code, systematically inserted in the category of patrimonial gains (rules of actual incidence), establishes as capital gains subject to Personal Income Tax incidence profits, including advances on account of profits, placed at the disposal of their respective associates (cf. José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Editora, 2007, p. 258 et seq.; Rui Duarte Morais, On Personal Income Tax, 2nd edition, Almedina, 2010, p. 112 et seq.).

For its part, the cited Article 7 of the Personal Income Tax Code defines the moment of subjection to taxation of capital gains, that is, it defines the moment when the tax becomes due, it being that, in the specific case, paragraphs 1 and 3, subparagraph a), 2), of the rule in question are relevant (cf. José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Editora, 2007, p. 332 et seq.)."

Also relevant to the case are the following decisions, invoked by the Claimant:

Decision of the Central Administrative Court of the South of 05-02-2015, delivered in process 08216/14, where it can be read:

"5. Article 5, paragraph 2, subparagraph h), of the Personal Income Tax Code, systematically inserted in the category of patrimonial gains (rules of actual incidence), establishes as capital gains subject to Personal Income Tax incidence profits, including advances on account of profits, placed at the disposal of their respective associates.

1. For its part, Article 7 of the Personal Income Tax Code defines the moment of subjection to taxation of capital gains, that is, it defines the moment when the tax becomes due.

2. Article 6, paragraph 4, of the Personal Income Tax Code, establishes a presumption regarding capital gains, of which sums recorded in any accounts of partners of commercial companies or civil companies in commercial form, sums that do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.";

Decision of the Supreme Administrative Court of 15-12-2004, delivered in process 01187/04, where it can be read:

"A court decision, rendered in judicial challenge, according to which the taxpayer did not receive interest in a loan contract in which he was the creditor constitutes sufficient basis for the rebuttal of the presumption contained in Article 7 no. 5 of the Personal Income Tax Code."

And, further:

"Article 7 no. 2 of the Personal Income Tax Code provides that it is presumed that loans are remunerated.

For its part, no. 5 of this legal provision establishes that this presumption may be rebutted based on a court decision, administrative act, declaration of the Bank of Portugal or recognition of the General Directorate of Taxes.

This legal provision finds parallelism in former Article 14 of the Capital Gains Tax Code which, besides establishing an identical presumption, prescribed that the same could only be rebutted "by court decision rendered in an action brought by the taxpayer against the State, in which it is declared that it has been proven that interest was not received in advance, nor were or are due or, being due, have a different rate, or by declaration issued by the Bank of Portugal in which the interest rate effectively practiced or its absence is confirmed."

From the comparison of these legal provisions results, from the outset, that it is not now necessary, as it was, a court decision rendered in a civil action brought by the taxpayer against the State, with a view to rebutting such presumption.

Thus, nothing prevents the court decision to which Article 7 no. 5 of the Personal Income Tax Code now alludes from being rendered, as in this case it was, in a judicial challenge process.

On the other hand, from such comparison results also that, as there is no provision in the former regime for any limitation as to the means of proof of which the interested party could make use for this purpose, one does not see, given the current legal framework, what prevents the process of formation of the said court decision from being able to rely, contrary to what the Tax Administration asserts, on testimonial and/or documentary evidence.

For that matter, as André Salgado de Matos affirms (Personal Income Tax Code, annotated, 1999, fls. 148/149) this presumption is rebuttable, under penalty of unconstitutionality, and the proof that it does not correspond to reality can be made by the taxpayer through any legally admissible means, in accordance with the general rules of Law, namely those which the Tax Administration, in the appeal, understands are not admissible.

In sum, returning to the case of the records, there are no grounds for objection to the decision appealed, in the point now in analysis, being an adequate basis for rebuttal of the said presumption, since it is, obviously, a court decision, having been rendered in judicial challenge which is an appropriate means for that purpose, based on means of proof admitted in accordance with the general rules of Law."

Given this, it is incumbent, in light of the understandings above established, to assess the merits of the case.

First, the Claimant alleges that the presumption on which the tax act that is the subject of the present arbitral action is based should be considered rebutted.

As peacefully results from the case law cited above, in consonance with the legal text, the rule of Article 6, paragraph 4, of the Personal Income Tax Code applicable, establishes a presumption regarding capital gains, according to which sums recorded in any accounts of partners of commercial companies or civil companies in commercial form, which do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.

In the case, it results from the proven facts that the said recording occurred, and that the sums in question do not result from loans, the provision of work or the exercise of corporate offices, are presumed to be made as profits or advances on profits.

Thus, without any doubt whatsoever, the assumptions of the presumption in question are met, and therefore it operates its respective legal effects, which is a legal presumption (established expressly and directly in law), and not a simple presumption, merely natural or judicial, based on the data of common experience - and which, as is known, is admitted only in the cases and terms in which proof by testimony is admitted in accordance with Article 351 of the Civil Code, and in which it is not necessary to prove the contrary of the presumed fact, being sufficient to shake the conviction resulting from the presumption, the rule contained in paragraph 2 of Article 350 of the Civil Code applying, proper for legal presumptions - which, in order to be set aside (in cases where the law allows it) must be rebutted by contrary proof.

Being at issue the rebuttal of a relative legal presumption (iuris tantum), the burden then rests on the Claimant to produce proof to the contrary, that is, to develop probative action directed against the presumed fact, with the objective and in a manner to convince the judge that, despite the occurrence of the fact that serves as the basis for the operation of the presumption invoked (entries in current partners accounts, recorded in commercial companies), the presumed fact did not occur.

Such proof, being at issue the presumption provided for in Article 6, paragraph 4, of the applicable Personal Income Tax Code, by virtue of what is expressly provided, in paragraph 5 of the same regulation, the same can only be rebutted by the four means of proof therein, taxatively, foreseen, court decision, administrative act, declaration of the Bank of Portugal or recognition by the General Directorate of Taxes.

The first question that arises, then, is whether this rebuttal is possible in the judicial challenge and/or arbitral process itself, which, as is well known, was legally configured as a direct alternative thereto.

Given what was decided in the Decision of the Supreme Administrative Court of 15-12-2004, delivered in process 01187/04, invoked by the Claimant and cited above, there will be no doubt that the answer to such a question should be affirmative, concluding that nothing prevents the court decision to which Article 6 no. 5 of the applicable Personal Income Tax Code alludes from being rendered in a judicial challenge process or in a tax arbitration process, and that, absent any limitation as to the means of proof of which the interested party may make use for this purpose, the process of formation of the court decision in such processes can rely on testimonial and/or documentary evidence.

Given this, it must then be ascertained, given the factual matters established as proven, whether or not the presumption in question is rebutted.

Before such operation, however, it becomes necessary to specifically define what the proof to be made entails, so that the said presumption can be considered rebutted.

As already seen, the presumed fact consists in considering that entries in current partners accounts were made as profits or advances on profits.

Thus, from the outset, it will not be relevant to the infirmation of the presumption in question the non-existence of profits capable of distribution, since the sums recorded in the terms in question are also presumed as advances on profits.

Given that the case law cited above, including that mentioned by the Claimant, has considered that with the presumption now in analysis the legislator sought to resolve the qualification of sums recorded in current partners accounts, whose "legal cause" has not been expressly declared, it should be considered that the Claimant failed to produce sufficient proof permitting the conclusion of non-occurrence of the presumed fact, the situation sub iudice being analogous to that judged in the decision of the Central Administrative Court of the South of 04-06-2015, delivered in process 07453/14, cited above.

Indeed, the Claimant confesses that since the beginning of its activity the financial availabilities it was generating were used to the personal benefit of its partners.

It is true that the Claimant further alleges that these availabilities were also used for payments to suppliers and other third parties, without supporting documentation.

However, the Claimant did not produce any proof regarding the amount of values used to the benefit of the partners, namely that such value was less than that resulting from the presumption applied by the Tax Administration in the assessment against which it is challenging.

On the other hand, it is certain that the values that, in the fiscal year to which the tax act that is the subject of the present arbitral action pertains, were recorded in the accounts of the partners, result from the Claimant's own accounting, nothing indicating that, prior to their accounting in favor of the partners, such values had not actually entered the Claimant's assets.

Thus, one is precisely before the situation described by Xavier de Basto[2], when he refers to the fact that the "provision of presumptions derives from the very nature of capital gains, some of which are of relatively easy evasion."

That is: from the proven factual matters it does not result that, in fact, there was not a patrimonial disposition of the Claimant in favor of its partners (and, much less, that the same occurred as a loan, provision of work or exercise of corporate offices), underlying the accounting entry in their respective accounts, leaving, at least, a reasonable doubt in this regard, a doubt that, through the operation of the rules of burden of proof, above referred in the sequence of the cited case law, must be resolved to the detriment of the Claimant.

A distinct question, which will be analyzed below, is whether the said patrimonial disposition occurred, or should be considered as having occurred, in the fiscal year to which the tax act now in crisis pertains.

Thus, in the assessment of the proof that the accounting movement triggering the presumption established in paragraph 4 of Article 6 of the applicable Personal Income Tax Code did not occur, it will not be decisive the circumstance, on which the Claimant focused, that the availabilities in the bank accounts (and, notably, in cash) do not contain the values accounted for in favor of the partners, since this will be relevant, solely, to demonstrate that in the fiscal year in question that transfer of values did not occur, not being, however, apt to demonstrate that in prior fiscal years such transfer did not occur, as, indeed, the Claimant ends up acknowledging, and also occurred in the situation assessed in the supra-cited case 01187/04 of the Central Administrative Court of the South.

Also not deemed to assume relevance for the question at issue is the circumstance that the accounting entry that constitutes the fact index of the presumption was subsequently (after the start of the inspection procedure) cancelled in accounting by the Claimant.

Indeed, although in accounting terms the record in question was eliminated, the fact is that, as a fact itself, it did not cease to have occurred in reality and the presumption in question rests, precisely, on that fact. For that matter, the Claimant itself, in its submissions, states that "it is not a matter of questioning the legitimacy of the conclusion drawn by the Tax Inspection Services from that accounting movement." Thus, being uncontroverted the occurrence of the assumptions of the presumption at issue, and being uncontroverted that what is at issue is to ascertain whether the Claimant succeeded in rebutting that, the subsequent circumstance that the accounting movement on which the same rests was replaced by another, says nothing regarding the correctness of either one, all the more so since the Claimant does not even demonstrate, in the records, the substantial correctness of the subsequent record that it operated.

Thus, the presumption not appearing to be infirmed on which the tax act that is the subject of the present arbitral action is based (and, much less, any violation of the principles of pursuit of public interest, proportionality, justice and impartiality, in its application by the Tax Administration, all the more so since only based on the elements listed in paragraph 5 of Article 6 of the Personal Income Tax Code could the Tax Administration fail to draw the consequences of the said presumption), the first ground of the arbitral petition should fail.

The Claimant also alleges that the assessment against which it is challenging suffers from error in the factual assumptions, because, in its view, even if it is considered that the presumption on which that is based was not infirmed, the presumed capital gains would not have been placed at the disposal of the partners in the fiscal year to which the same pertains, and the Claimant is consequently not obligated to proceed to the withholding at source calculated in that fiscal year.

With respect to this argument of the Claimant, it should be stated from the outset that the same is oriented in a manner contrary to the reality of the facts ascertained.

Indeed, the Claimant orients its submissions in this matter, in the sense that "there would be no ground for the obligation of withholding at source except at the moment when it actually made available to its partners the amounts that were entered in its current account," thus assuming that the values it accounted for in favor of its partners were values to be made available in the future ("possibility of future receipt of profits by the partners"), when what is ascertained, as, for that matter, the Claimant itself confesses, is that such values were being made available throughout past fiscal years ("this came to happen gradually over approximately 20 years of the company, thus justifying the absurd accumulated value in the said accounts").

Which, for that matter, has full correspondence with the accounting entry made by the Claimant, which forms the basis of the presumption applied by the Tax Administration.

Indeed, as the Respondent notes in its answer, what was done by the Claimant was a debit entry in the partners account, which means that the value has already been delivered to the partner, and not a credit entry to the partners account, which would mean that the partner had a credit (yet to be satisfied) against the company, for not yet having received what was due to him.

Thus, it is judged that the Claimant's submissions to the effect that the obligation of withholding at source would only be generated when, in the future, it made available to its partners the values it had recorded in their respective accounts have no ground whatsoever.

What must be assessed, in order to verify the fulfillment of the assumptions of the obligation of withholding at source of the tax calculated, at issue in the records, is, not whether the values accounted for, presumed as profits or advances on account of profits, should be considered, in light of the rules of Articles 5/1 and 2/h), and 7/1 and 3/2), of the applicable Personal Income Tax Code, as placed at the disposal of the Claimant's partners in the fiscal year to which the assessment now in crisis pertains, or in a prior fiscal year, given that it effectively results, and beyond any reasonable doubt, evidenced in the records that:

• in the fiscal year 2014 the Claimant did not have liquidity to make payments to the partners in the amount accounted for;

• that the use by the partners of the values accounted for in their respective accounts in 2014 occurred, at least for the most part, throughout the prior fiscal years.

It should be stated from the outset that, being at issue a presumed fact, the occurrence thereof should be considered as included in the scope of the presumption at the time of verification of the respective fact-index. Indeed, the presumption that, in the case, the distribution of profits or amounts on account of these occurred, should be considered as encompassing not only the occurrence of the presumed fact, but also its temporal location, contemporaneous with the fact generating the presumption of such occurrence, under penalty of removing, entirely, any useful effect from the rule that establishes that presumption.

Indeed, if it were not so, and if it were to be understood, with the Claimant, that the Tax Administration bears the burden of "taking care to know whether such 'presumed profits' were actually made available to the shareholders of the company," this would be equivalent to imposing on the Tax Administration the burden of demonstrating the occurrence of the presumed fact, since it is not possible to demonstrate that the presumed profits have actually been made available to the partners, without demonstration that there was actual disposition of profits.

Thus, it is concluded that the demonstration that in the fiscal year in which the entry occurs in the current account of the partners no distribution of profits or amounts on account of this occurred, is included in the scope of infirmation of the presumption that such operation took place, in the terms of paragraph 4 of Article 6 of the Personal Income Tax Code.

Given this, the situation of the present records, with respect to this matter, is analogous to that decided in the arbitral process 3/2017T[3], where it was judged that:

"What is at issue is the legal-tax treatment of cash regularizations, in the aggregate value of EUR 595,382.55, and the exit of the value of EUR 116,845.08, with destination to the accounts of partners, both accounted for in December 2012.

In the understanding of the Tax Administration, as explained in the Tax Inspection Report and replicated in the Answer presented, there occurred, in December 2012, both the tax-generating fact of the distribution of profits and reserves in the value of EUR 595,382.55, in terms of subparagraph h) of paragraph 2 of Article 5 of the Personal Income Tax Code, and the presumed tax-generating fact (iuris tantum) of being profits or advances on profits the entries in their favor, in any current accounts of partners, recorded in commercial companies, when they do not result from loans, the provision of work or the exercise of corporate offices.

In the understanding of the Claimant, such tax-generating facts existed actually in the legal world, but in the fiscal years in which the partners were making, by the various forms above referred, appropriations of values of the Claimant, for which reason the administrative assessment based on the existence of such tax-generating facts in 2012 is vitiated by illegality.

As was seen, the tribunal establishes as proven the withdrawal of values, not specified, by the partners – namely, by the two partners who are also managers. Such values should have been subject to taxation in Personal Income Tax, by withholding at source, by reference to each of the fiscal years in which the withdrawals occurred. The Claimant did not proceed to the withholding at source, nor, consequently, to the payment of the tax due into the coffers of the State. (...)

Now, the decision by the partners (...) of the said distributions generates, itself, the tax-generating fact foreseen in subparagraph h) of paragraph 2 of Article 5 of the Personal Income Tax Code.

Had the Claimant proceeded to the withholding of Personal Income Tax at source throughout the fiscal years in which the managing partners were appropriating values generated by the activity of the Claimant, as should have occurred, this tax-generating fact, when later distributed, although really existing, would not entail new calculation of tax. At most, new calculation of tax would generate duplication of collection, in terms of paragraph 1 of Article 205 of the Tax Procedure and Process Code, with effect of illegality of the tax act.

Conversely, decisions to distribute profits (or reserves), such as those adopted by the partners of the Claimant in 2012 or 2013, generate a tax-generating fact on the date in which such cash exits are accounted for, on which – not having been previously calculated Personal Income Tax, when appropriations or withdrawals occurred – there must be calculation, either by withholding at source made by the tax substitute, or administratively, upon verification of the failure of that, without generation of duplication of collection, because the Claimant failed to fulfill the obligation of Personal Income Tax withholding at source due in function of tax-generating facts that had occurred in prior fiscal years.

It is not judged, therefore, by verified any illegality of the assessment act that is the object of the request for arbitral decision, namely that of lapse of the right to calculate, for which reason the Claimant's petition fails.

Moreover, it is important to add that it would be repugnant to the very axiology of taxation that the obligation to pay tax on a contributory capacity generated by the appropriation by the managing partners of the availabilities of cash of the Claimant could be avoided by a 'formula' so 'basic' as that of the omission, over years sufficient for the lapse of the right to calculate, of entries in the Cash account corresponding to the acts of appropriation, followed by one or more retroactive accounting regularizations, made on a date already beyond the period of exercise of the right to calculate. And it would be even more repugnant if that 'formula' that proved apt to evade taxation made recourse to minutes in which it is falsely stated the realization, on certain days and at certain hours of years already covered by the lapse of the right to calculate, of General Assembly meetings "with dispensation of prior formalities," in which distributions of results from those years are decided."

The grounds of the transcribed decision are subscribed hereto, considering that the presumed tax-generating fact should be situated temporally in the fiscal year in which the accounting entry of values occurs in the partners account, intended, precisely, to regularize withdrawals of values that occurred in prior periods and were not properly accounted for.

Indeed, until that moment the Claimant had not, by any means, formalized the will to attribute patrimonially to the partners the value that it ended up accounting for in their respective accounts. The accounting entry made by the Claimant externalizes the purpose (at least presumed) of making definitive the use, until then precarious, by the partners, of the financial availabilities generated by it over the years, legitimizing such use as profits, or advances on profits, since until that time the said use of the company's own funds by the partners, for lack of title, was abusive, thus generating in those partners a patrimonial increase equivalent, which materializes at that time.

That is, and in summary: it is not demonstrated in the case that the use of the company's own funds for the benefit of the partners during the course of the years prior to the fiscal year sub iudice, confessedly verified, has been previously regularized (in accounting, legal and/or tax terms) by the Claimant (which would have implied, beyond everything else, its taxation), only such regularization being verified, presumedly as profits or advances on profits, in 2014, and thus the corresponding tax-generating fact should be considered verified in that year, no violation occurring, therefore, of Article 68-A of the General Tax Law, contrary to what was argued by the Claimant.

Thus, and for the reasons set forth, it is judged that this ground of the arbitral petition should also fail.

C. DECISION

For these reasons, this Arbitral Tribunal decides to render the arbitral petition wholly unsuccessful and, in consequence:

• To absolve the Respondent of the petition;

• To condemn the Claimant in the costs of the proceeding, as fixed below, and taking into account amounts already paid.

D. Case Value

The case value is set at € 259,699.66, in accordance with Article 97-A, paragraph 1, subparagraph a), of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is set at € 4,896.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax Administration, since the petition was wholly successful, in terms of Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the cited Regulation.

Let notification be made.

Lisbon 28 February 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(José Nunes Barata)

The Arbitrator Member

(Ricardo Marques Candeias)

[1] Available at www.dgsi.pt, as with the remaining case law cited without mention of source.

[2] "Personal Income Tax: Real Incidence and Determination of Net Income," Coimbra, Coimbra Editora, 2007, p. 338.

[3] Available at: https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=3%2F2017&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=2853.