CAAD 408/2018-T: IRC and IVA Expenses Deduction Challenged by Tax Authority Inspection

ARBITRAL DECISION

I. REPORT

A..., LDA., hereinafter "Claimant", with registered office at Street ..., no. ..., ..., ...-... ..., holder of the single registration number and collective person number ..., submitted a request for constitution of a singular Arbitral Tribunal, in accordance with the combined provisions of articles 2nd and 10th of Decree-Law no. 10/2011, of 20th January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter AT or Respondent) is summoned, with the objective of obtaining the annulment of the assessments of Corporate Income Tax ("CIT") for the tax years 2015 and 2016 and the corresponding interest assessments identified in the proceedings.

The request for constitution of the Arbitral Tribunal was accepted by the Hon. President of CAAD on 28.08.2018 and automatically notified to the AT.

In accordance with the provisions of article 11th, paragraph 1, letter c) of the RJAT, the singular Arbitral Tribunal was constituted on 7.11.2018.

The AT contests the admissibility of the request.

The meeting referred to in article 18th of the RJAT was dispensed with, given the nature of the matters contained in the proceedings.

II. FACTUAL MATTERS

Based on the elements contained in the proceedings and in the administrative proceedings attached to the file, the following facts are considered proven:

a) The Claimant is dedicated to the organization of events such as banquets, weddings, baptisms and similar activities with own supply, catering and hotel activities, namely, restaurant (CAE 56210 – PROVISION OF MEALS FOR EVENTS);

b) In 2017, the Claimant was subject to an inspection action by the Tax Inspection Services of the Finance Directorate of Coimbra, accredited by the numbers OI2017... and OI2017..., by orders of 26.09.2017 and 03.10.2017, from which resulted the preparation of a Tax Inspection Report (RIT);

c) Following the RIT, the Claimant was notified of the acts of additional assessment of VAT and CIT, identified in the proceedings, to proceed with voluntary payment until 07.05.2018 and 09.05.2018, regarding CIT for 2015 and 2016, respectively, and until 14.05.2018, regarding VAT, in the total amount of €20,966.44;

d) Invoices no. FT 2015/20, of 30.06.2015 and FT 2015/21, of 21.08 were issued by a taxpayer without an adequate CAE for the activity described in the document;

e) The payment of invoices no. FT 2015/20, of 30.06.2015 and FT 2015/21, of 21.08 was made before the invoices were issued;

f) Injunction no. .../16...YIPRT relates to the Claimant's debt concerning work accident insurance contracts relating to the year 2015;

Considering the positions taken by the parties, in light of article 110th, paragraph 7 of the CPPT and the documentary evidence attached to the proceedings, the above-listed facts are considered proven, with relevance to the decision.

This Tribunal established its conviction based on the consideration of the documents attached to the proceedings by the Parties.

III. LEGAL MATTERS

The main issue that arises in these proceedings concerns whether the acts of additional assessment of CIT, VAT and compensatory interest, which are the subject of this petition, are or are not valid, considering the arithmetical corrections made by the AT.

a. Position of the Claimant

In this regard, the Claimant alleges in its request for constitution of the Arbitral Tribunal, in summary, the following:

1. With respect to the corrections made in CIT, particularly regarding Invoice no. 668/2015 of 17.04.2015, the Claimant argues that the correction is not due, since the expense incurred and covered by the aforementioned invoice was, contrary to what the AT alleges, duly recorded in the maintenance and repair account, and as such taxed, taking into account the provisions in the final part of article 29th, paragraph 1 and 5 of the CIT Code, according to which: "Accepted as expenses are the depreciations and amortizations of asset elements subject to deterioration, considering as such: a) The tangible fixed assets and intangible assets; b) Non-consumable biological assets and investment properties recorded at acquisition cost", and "Are equally depreciable, in accordance with the above paragraphs, the components, major repairs and improvements and improvements recognized as asset elements subject to deterioration in accordance with paragraph 1";

2. In fact, the works carried out by the Claimant appear, due to their accessory nature to the equipment in question, to be works of maintenance and repair, making it clear that they can never be considered major repairs or improvements, as the AT alleges;

3. The AT failed to demonstrate the verification of the conditions imposed by paragraph 5 of article 5th of Regulatory Decree no. 25/2009, of 14th September, namely the increase in the value of the asset or its probable duration;

4. In fact, the work in question not only (i) did not relate to an element of tangible fixed assets, but also (ii) cannot be considered a "major repair";

5. In fact, the Claimant was not, at the date of the provision of the service in question, the owner of the oven, using all the equipment existing in these facilities, which included the same;

6. Given the above, in the case sub judice, the oven could never meet the definition of an asset provided in the Accounting and Financial Reporting Standard no. 7 ("Tangible Fixed Assets"), according to which they are "... tangible items that a) are held for use in the production or supply of goods or services, for lease to others, for administrative purposes; and b) are expected to be used for more than one period" (Claimant's emphasis), as the definition fails in the part concerning "holding";

7. In this sense, also the System of Accounting Standardization, in the explanatory note accompanying the aforementioned account 6226 – "Maintenance and Repair" states that "in this account are recorded the materials for maintenance and repair acquired, as well as the services of maintenance and repair provided by third parties that do not meet the criteria for asset recognition";

8. Thus, in the present case, since it has been verified that the repair of the MBM oven, in the amount of €1,236.60, did not increase the useful life of the asset, being merely a maintenance repair of the equipment, resulting from normal wear, and, as such, not susceptible to capitalization, nor depreciation, it must be concluded that it was duly recorded in the account in question, as an expense for maintenance and repair;

9. Regarding the assembly of a counter, the Claimant considers that the entire cost should be recorded in the year of acquisition based on an estimate of use;

10. Without prejudice, in case of disagreement – which is only set out as a matter of caution of representation, without conceding – should still, nevertheless, be recognized as an expense of the 2015 financial year depreciation corresponding to 50% of the total cost, which amounts to €3,036.00, and the remaining amount –, i.e., also 50% of the total cost – in the 2016 financial year, also subject to the inspection process referred to;

11. Invoices no. FT2015/20, of 30.06.2015 and FT2015/21, of 21.08.2015 constitute costs of the Claimant with the acquisition of management support services for Mr. B..., who was, at the date of the facts, manager of the company "C..., Lda.", having proceeded to contact and direct negotiation with some suppliers;

12. All payments related to the invoices in question were made by transfer to the account of the company issuing the invoice, and all services in question were effectively provided;

13. With respect to Invoice no. 54/2015, of 30.09.2015, it was issued by the company "D..., Lda.", with the designation "Assignment of personnel for the performance of catering services during the year 2015" and "Support and consultancy services", in the amount of €21,070.00, the invoice in question meeting all formal requirements provided for in the aforementioned rule, namely the "Quantity and usual designation of goods acquired or services provided", as provided for in letter c) of paragraph 4 of article 23rd of the CIT Code;

14. With respect to the Account "6881 – Corrections relating to Previous Periods", the AT did not prove, as it had a duty to do, in a clear, unequivocal and substantiated manner, that the expenses are not duly documented;

15. Regarding Injunction no. .../16...YIPRT, the Claimant was never previously called upon to pay any outstanding amount, so the AT cannot state, without knowledge of the reality of the facts, that "(…) it would not normally exist an injunction without there being prior notification of the debt" (cf. page 23 of the Report);

16. Without prejudice, it is also important to note that the AT should have refrained from acting in the present case, insofar as there is no prejudice to the Public Treasury, since all expenses were recorded – even though the AT considers that they were recorded in years different from those in which they should have been recorded;

17. As for Invoices nos. FT2015/20 and FT2015/21, as is clear from all the above, such services were provided and paid for by the Claimant, are documentally supported, and the corresponding VAT, previously deducted, should be maintained;

18. With respect to Invoice no. 54/2015, of 30.09.2015, the corrections suffer from illegality, as mentioned above, so, having been duly demonstrated the provision of services and payment therefor, the VAT incurred should be accepted, without further consideration;

19. With respect to Invoices nos. 882, of 11.08.2016, CFA 2014/159, of 27.02.2016, CFA 2014/172, of 30.04.2016 and CFA 2014/172, of 30.04.2016, those correspond to mere transfers of goods and not to any civil construction service;

20. There are no civil construction works – which is evident from the breakdown of the invoices – the Claimant acquired goods that were installed/assembled by the respective supplier;

21. The provision of services embodied in the placement of such movable goods by whoever supplies them, that is, their simple assembly, constitutes an extension of the supply, given that we are not in the presence of the previously defined concept of work, so in this case, there is no reversal of the taxpayer;

22. This only occurs when the materials are supplied by one taxpayer and the assembly is carried out by another taxpayer – a situation in which there is reversal of the taxpayer.

For its part, the AT understands, summarily, the following:

1. The SIT corrected in the amount of €3,036.60 under CIT the invoice above identified. Now, the Claimant improperly recorded in account 6222613 the invoice sub judice when in fact, both the oven and the assembly of the counter relate to tangible fixed assets subject to depreciation;

2. Regarding Invoices nos. FT 2015/20 of 30/06/2015 and FT 2015/21 of 21/08/2015 identified by the taxpayer C..., lda, NIPC –..., and in accordance with a statement record signed on 12/01/2018 by the partner manager, E... and B..., de facto manager of the company in question, they stated that they are unaware of the invoices in question and that the issuing company did not provide the services described in the said invoices;

3. Regarding Invoice no. 54/2015 of 30/09/2015, it only indicates assignment of personnel for the performance of services and consultancy services, which does not meet the requirements of article 36th/5 paragraph b) of the VAT Code, namely, how many workers were assigned to those services, for how many hours and in what period;

4. As stated in the Inspection Report, on page 12, it is stated that "…the aforementioned documents of accounting support do not contain the respective noted Doc. Int – Annex II, pages 01 to 06.";

5. With respect to the injunction, the unpredictability or lack of knowledge referred to in paragraph 2 of article 18th of the CIT Code are not verified, insofar as before the injunction the insurance taker was previously notified, as is evident from the description of the respective injunction, namely on 28/04/2016 and 27/11/2015 regarding the policy ...;

6. Paragraph 2 of article 18th of the CIT Code states: "2 — Positive or negative components considered as relating to previous periods are only attributable to the tax period when, on the date of closure of the accounts of the period to which they should have been attributed, they were unpredictable or manifestly unknown." Thus, unpredictability or lack of knowledge do not exist;

7. If a company carries out installation of "ventilation systems" and these are connected to the property with a character of permanence, then we will be in the presence of a civil construction service, and VAT should be charged by the acquirer of the service, if this acquirer is a taxpayer in the Normal Scheme (even if they also carry out exempt operations that confer the right to deduction);

8. In order to determine whether a given operation is subject to this reverse charge regime, reference should be made to the two exemplary lists appended to Circular Notice no. 30101, of 24th May and to Ordinance no. 19/2004, of 10th January.

IV. DECISION

In the case under analysis, it is important to assess whether the corrections made under CIT, with respect to invoices no. 668/2015 of 17.04.2015, nos. FT 2015/20 of 30/06/2015 and FT 2015/21 of 21/08/2015, Account "6881 – Corrections relating to Previous Periods", to Injunction no. .../16...YIPRT, to Invoice no. 54/2015, of 30.09.2015, on the ground of the legal non-deductibility of expenses and the violation of the principle of specialization, are or are not illegal.

In relation to the lack of legal proof of the expenses mentioned above, it is also important to determine whether the corrections made under VAT by the AT suffer or not from illegality. Similarly, it will be analyzed whether the provision of services associated with invoices nos. 882, of 11.08.2016, CFA 2014/159, of 27.02.2016, CFA 2014/172, of 30.04.2016 and CFA 2014/172, of 30.04.2016 are or are not provision of civil construction services, for the purposes of applying the reverse charge rule.

1. Corrections under CIT

a. Invoice no. 668/2015 – Maintenance and Repair Works

In light of invoice no. 668/2015, which states that the repair of an MBM oven was carried out, accessories were consumed for the assembly of a counter and a cocktail counter was assembled, the AT understood that such expenses constitute, in fact, major repairs of assets of the Claimant, for which reason the cost is not fully deductible as an expense of mere maintenance and repair.

In this sense, the AT argues that, having regard to the provisions of article 29th, paragraph 1 and 5 of the CIT Code, according to which: "Accepted as expenses are the depreciations and amortizations of asset elements subject to deterioration, considering as such: a) The tangible fixed assets and intangible assets; b) Non-consumable biological assets and investment properties recorded at acquisition cost", and "Are equally depreciable, in accordance with the above paragraphs, the components, major repairs and improvements and improvements recognized as asset elements subject to deterioration in accordance with paragraph 1", the expenses contained in the invoice relate to tangible fixed assets subject to depreciation.

Upon analysis of the invoice, it can be verified that it contains all the legal requirements provided for, and is therefore a fiscally valid document.

Having regard to the fiscal validity of the document, the recording of the expense made by the Claimant is protected by the principle of truthfulness.

According to DIOGO LEITE DE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA, "in these cases, if the tax administration does not demonstrate the lack of correspondence between the content of such declarations, accounting or records and reality, its content must be considered as true." (General Tax Law – Annotated and Commented, 4th Edition, Encontro da Escrita, Lisbon, 2012, p. 664).

In this way, it is understood that it would be incumbent upon the AT to demonstrate that the works carried out by the Claimant related to an asset, with the expense not being entirely deductible as an expense of mere maintenance and repair, but being depreciable, in accordance with the provisions of article 29th, paragraph 1 and 5 of the CIT Code and Regulatory Decree no. 25/2009, of 14th September.

Nevertheless, in light of the aforementioned document, the AT merely limited itself to considering the expenses improperly recorded, demonstrating nothing regarding the reason for this understanding, in light of the arguments put forward by the Claimant, in particular those concerning the fact that it was not the owner of the oven and the type of intervention/repair carried out, and it was certainly incumbent upon the AT to substantiate the qualification made (See, for example, CAAD Decision, case no. 362/2015, of 18.01.2015).

Thus, following CAAD Decision no. 204/2016, of 20.04.2017, "Whether in those cases or in other cases that may give rise to more doubts, the Administration would have to, in order to sustain the contrary of the recording by the Claimant – as expenses of the financial year, while annual maintenance works – have collected substantially different and more detailed evidence of the dimension and context of the works in question, as is required by the duty to substantiate tax acts (article 77th, paragraph 1, of the LGT)."

Thus, it is understood that, in light of the rules of burden of proof, the request for annulment of the correction made by the AT is well-founded.

b. Invoices nos. FT 2015/20 of 30/06/2015 and FT 2015/21 of 21/08/2015

With respect to Invoices nos. FT 2015/20 of 30/06/2015 and FT 2015/21 of 21/08/2015, during the inspection, the AT attached the "Statement of Declaration" of the manager B... of the company C..., where he declares his lack of knowledge of the invoices in question and that the issuing company did not provide the services described in the said invoices. The AT further verified that the issuing company of the invoices does not have an adequate CAE for the provision of services claimed to have been performed, there is no underlying contract for the provision of those services, and payments were made by the Claimant to C... before the invoices were issued.

With respect to the statements of the manager contained in the "Statement of Declaration" (Annex I, page 3 of the RIT), the Claimant attached opposing statements from the same manager to the proceedings, and therefore the testimony is hardly credible.

Considering what has been stated, it is important to know that the justification of costs must be assessed together with the issue of the burden of proof provided for in article 23rd of the CIT Code for the deductibility of expenses.

Thus, the deductibility of the expense presupposes the verification of the provisions of article 23rd of the CIT Code, in particular, the following:

Article 23rd

Expenses and losses

"1 – For the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or ensure income subject to CIT are deductible.

(…)

3 — The deductible expenses referred to in the above paragraphs must be documented, regardless of the nature or support of the documents used for this purpose.

4 – In the case of expenses incurred or borne by the taxpayer with the acquisition of goods or services, the supporting document referred to in the previous paragraph must contain, at least, the following elements:

a) Name or company designation of the supplier of goods or provider of services and the acquirer or recipient;

b) Tax identification numbers of the supplier of goods or provider of services and the acquirer or recipient, whenever these are entities with residence or stable establishment in the national territory;

c) Quantity and usual designation of goods acquired or services provided;

d) Value of the consideration, in particular the price;

e) Date on which the goods were acquired or on which the services were performed.

5 — (Repealed).

6 – When the supplier of goods or provider of services is obliged to issue an invoice or legally equivalent document in accordance with the VAT Code, the supporting document for the acquisition of goods or services provided for in paragraph 4 must necessarily assume this form."

Analyzing the invoices in question, it can be verified that the description of the service provided is insufficient, and therefore the provisions of letter c) of paragraph 4 of article 23rd of the CIT Code are not met. Even assuming that the proof of the expense can be demonstrated through another document, such as the underlying service provision contract, it can be verified that such proof was not provided.

Considering that the good faith of taxpayers is presumed (article 59th, paragraph 2 of the LGT), it is important to verify the provisions of article 75th of the LGT, according to which:

Article 75th

Declaration and other elements of taxpayers

"1 – The declarations of taxpayers presented in accordance with the provisions of law, as well as the data and calculations recorded in their accounting or records, are presumed true and in good faith, when these are organized in accordance with commercial and tax legislation, without prejudice to the other requirements upon which the deductibility of expenses depends. (Amendment by Law no. 80-C/2013 of 31st December)

2 – The presumption referred to in the previous paragraph does not apply when:

a) The declarations, accounting or records reveal omissions, errors, inaccuracies or well-founded indications that they do not reflect or prevent the knowledge of the real taxable matter of the taxpayer; (…)"

In light of the provisions of article 23rd of the CIT Code and the provisions of article 75th, paragraph 2 of the LGT, it is understood that the AT succeeded in rebutting the presumption of truthfulness of the invoices under analysis, based on the testimony given by the manager (Statement of Declaration) and the verification of the divergence between the CAE of the provider and the description of the service contained in the document.

As results from the Judgment of the Central Administrative Court North, handed down within case no. 1550/05, of 12th October, "Once these indications have been collected, the burden of confirming the data declared by the taxpayer and refuted by the Administration falls on the taxpayer, ceasing to enjoy the presumption of what was declared.", in accordance with article 74th, paragraph 1 of the LGT which provides: "The burden of proof of the facts constituting the rights of the tax administration or of taxpayers falls on whoever invokes them."

In light of the insufficiency of documentary support, the Claimant failed to prove the legality of the deduction of the expense invoked, and it has been demonstrated that there is a divergence between the CAE of the provider and the activity described in the document.

Therefore, this Tribunal understands that the expense underlying the invoices analyzed should not be considered deductible because it is not clear whether or not it was performed and whether or not it was necessary for the development of the Claimant's economic activity, given the insufficiency of documentary evidence of the expense and the divergence between the CAE of the provider and the description of the service contained in the document.

In sum: the request for annulment of CIT, in the part concerning the cost above identified, is not well-founded.

c. Invoice no. 54/2015, of 30.09.2015

With respect to Invoice no. 54/2015, of 30.09.2015, issued by the company "D..., Lda.", with the designation "Assignment of personnel for the performance of catering services during the year 2015" and "Support and consultancy services", in the amount of €21,070.00, the Claimant alleges that the invoice meets all formal requirements provided for in the aforementioned rule, namely the "Quantity and usual designation of goods acquired or services provided", as provided for in letter c) of paragraph 4 of article 23rd of the CIT Code. For its part, the AT argues that the invoice only indicates assignment of personnel for the performance of services and consultancy services, which does not meet the requirements of article 36th, paragraph 5 letter b) of the VAT Code, namely, how many workers were assigned to those services, for how many hours and in what period.

In light of the provisions of article 23rd of the CIT Code and the provisions of article 75th, paragraph 2 of the LGT, already described above, it is considered that regarding the expense with assignment of personnel for the performance of catering services during the year 2015, the expense is documented in accordance with the requirements of article 23rd, paragraph 4 of the CIT Code, which is the applicable legal basis here (See Judgment of the South Central Administrative Court, handed down within case no. 7833/14, of 21.05.2015), since it expressly appears in the description of the document the designation of the service provided. Furthermore, the facts related to the personnel assignment service are also proven through document no. 14 attached to the proceedings.

In this way, regarding the expense with assignment of personnel for the performance of catering services, it is understood that the AT failed to rebut the presumption of truthfulness of the invoice under analysis, since nothing is alleged or demonstrated that sufficiently indicates the non-provision of that service, and it is certain that, in light of the provisions of article 23rd, paragraph 4 c) of the CIT Code, the expense is duly proven.

With respect to the expense relating to the support and consultancy service, the AT alleges that the invoice is insufficient, not describing the quantity of services provided, and it is certain that no contract or other document exists that sufficiently describes the elements of the operation covered by the invoice.

Upon analysis of the document, it can be verified that the description contained in the invoice is indeed insufficient to consider this expense duly documented, and it is certain that the Claimant did not attach to the proceedings any other supporting document for the operation, such as a support and consultancy service provision contract or a record of the activities provided for this purpose.

In light of the insufficiency of documentary support, the Claimant failed to prove the legality of the deduction of the expense invoked.

In sum: the request for annulment of CIT, in the part concerning the expense with assignment of personnel for the performance of catering services, is well-founded, although the request for annulment of the expense relating to the support and consultancy service is not well-founded.

d. Account "6881 – Corrections relating to Previous Periods – 2016"

The AT made a correction in the identified account on the ground of the lack of documentation of the amount of €6,528.84, alleging for this purpose the following:

"In account 6881 - Corrections relating to Previous Periods – there are recorded 3 documents, totaling the amount of €6,528.84, being doc. Int nos. ... – Diary "operations", relates to corrections of accounting errors and doc. Int ... – Diary "Payments", evidences regularization of supplier balances, not complying with the formal requirements of the documents required in paragraph 4 of article 23rd of the CIRC, for which they are considered expenses not duly documented. It should be noted that the aforementioned documents of accounting support do not contain noted the respective Doc. Int. – Annex II, pages 01 to 06."

Upon consultation of the marked documents, it can be verified that with respect to the correction, in the amount of €3,128.93, relating to Injunction no. .../16...YIPRT, the AT understood the principle of specialization of the financial year to be violated, insofar as that expense cannot be considered unpredictable or unknown in 2016, given that it corresponds to a payment obligation for insurance previously contracted. The Claimant alleges that, in any event, there is no prejudice to the Public Treasury, since all expenses were recorded – even though the AT considers that they were recorded in years different from those in which they should have been recorded.

Upon analysis of the document referred to, it can be verified that it concerns the amount charged for the resolution of work accident insurance contracts, due to non-payment of premium premiums, relating to the year 2015.

With relevance for the assessment of the legality of the correction, it is important to consider the provisions of article 18th of the CIT Code, which provides, with relevance for the present assessment, the following:

Article 18th

Periodization of taxable profit

"1 — Income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are obtained or incurred, independently of their receipt or payment, in accordance with the regime of economic periodization.

2 — Positive or negative components considered as relating to previous periods are only attributable to the tax period when, on the date of closure of the accounts of the period to which they should have been attributed, they were unpredictable or manifestly unknown."

As taught by Manuel Henrique de Freitas Pereira, in Cadernos de Ciência e Técnica Fiscal (152), Centro de Estudos Fiscais, Lisbon – 1988, "p. 138 "The basic rule on the timing of cost attribution is that for the determination of profit, costs that became necessary to incur should be deducted from income realized in a financial year. This is what (…) Anglo-Saxons prefer to call the matching concept, in order to reflect the cause and effect relationship that exists between costs and income.

Furthermore, the aforementioned author teaches that "Remuneration to staff, as well as charges borne by the company related to the same, are costs of the period in which the work on which they are based was performed." – See Idem, pp, p. 142.

Thus, having regard to the fact that the expenses under analysis should, under the terms of the articles above identified, have been attributed to the covered tax period, that is, in 2015, and not in the 2016 period, the violation of the provisions of article 18th, paragraph 1 of the CIT Code is verified. Such rule would be inapplicable if the Claimant had demonstrated the unpredictable or unknown character of the expenses, which did not occur, as it results from the documents attached to the proceedings that such expenses correspond to expenses previously assumed.

In this way, the request for annulment of this correction proposed by the AT is not well-founded.

With respect to the remaining corrections made by the AT, relating to previous years, there is no statement of fact and law, the AT merely limiting itself to arguing that it is unaware of "what substantiation the Claimant needs for verifying that the amount of €6,528.84 is not duly documented." (See article 23rd of the Response).

Considering the regime of deductibility of costs and the rules of burden of proof applicable, contained in articles 23rd of the CIT Code and article 75th, paragraph 2 of the LGT, it is considered that the AT failed to demonstrate the factual reasons underlying the proposed correction, the documents serving as the basis for the correction being, by themselves, in no way revealing of any lack of truth in the accounting records made by the Claimant.

In sum: the request for annulment of CIT, in the part concerning the correction above identified, is considered well-founded.

2. Corrections under VAT

a. Invoices no. FT 2015/20 and FT2015/21

As results from the substantiation expressed in 1. b) of this Decision, this Tribunal understands that the expense underlying the identified invoices should not be considered deductible under CIT. Consequently, the VAT underlying the said invoices is not legally deductible.

In sum: the request for annulment of VAT concerning the expense above identified is not well-founded.

b. Invoice no. 54/2015, of 30.09.2015

As results from the substantiation expressed in 1. c) of this Decision, this Tribunal understands that the expenses underlying the invoice above identified are partially deductible.

Consequently, the VAT underlying that invoice is also partially deductible, considering that the request for annulment of CIT, in the part concerning the expense with assignment of personnel for the performance of catering services, is well-founded, although the request for annulment of the expense relating to the support and consultancy service is not well-founded.

In sum: the request for annulment of VAT concerning the expense above identified is partially well-founded.

c. Invoices no. 882, of 11.08.2016; CFA 2014/159, of 27.02.2016; CFA 2014/172, of 30.04.2016; CFA 2014/172, of 30.04.2016

The Claimant argues that the aforementioned invoices correspond to mere transfers of goods and not to any civil construction service, as results from the breakdown of the invoices. For its part, the AT alleges that if a company carries out installation of "ventilation systems" and these are connected to the property with a character of permanence, then we will be in the presence of a civil construction service, and VAT should be charged by the acquirer of the service, if this acquirer is a taxpayer in the Normal Scheme (even if they also carry out exempt operations that confer the right to deduction).

Upon analysis of the documents, it can be verified that they contain all the legal requirements provided for, and are therefore fiscally valid documents.

Having regard to the fiscal validity of the documents, the recording of the expenses made by the Claimant is protected by the principle of truthfulness.

As already cited in 1.b "in these cases, if the tax administration does not demonstrate the lack of correspondence between the content of such declarations, accounting or records and reality, its content must be considered as true." (General Tax Law – Annotated and Commented, 4th Edition, Encontro da Escrita, Lisbon, 2012, p. 664)."

In this way, it is understood that it would be incumbent upon the AT to demonstrate that the acquisition of goods and services carried out by the Claimant constitute civil construction services.

Nevertheless, in light of the aforementioned documents, the AT merely limited itself to considering the expenses improperly recorded, based on the understanding expressed in Circular Notice no. 30101, of 24th May and in Ordinance no. 19/2004, of 10th January, demonstrating nothing regarding the reason for this understanding, and it was certainly incumbent upon the AT to substantiate the qualification made (See, for example, CAAD Decision, case no. 362/2015, of 18.01.2015).

Thus, not resulting from the documents in question that the expenses relate to civil construction services, it is understood that, in light of the rules of burden of proof, the expenses should be entirely deductible, in accordance with the provisions of article 23rd of the CIT Code.

In sum: the request for annulment of the corrections made above referred to is considered well-founded.

Terms by which this Arbitral Tribunal decides:

A) To judge partially well-founded the request for annulment of the Corporate Income Tax assessment act no. 2018...;

B) To judge partially well-founded the request for annulment of the Corporate Income Tax assessment act no. 2018...;

C) To judge partially well-founded the requests for annulment of the Value Added Tax assessment acts no. 2018..., 2018..., 2018..., 2018..., no. 2018..., no. 2018..., in accordance with this decision.

V. VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 306th, paragraph 2 of the Code of Civil Procedure, 97th-A, paragraph 1 a) of the CPPT and article 3rd, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is €20,966.44.

VI. COSTS

In accordance with the provisions of articles 12th, paragraph 2 and 22nd, paragraph 4, both of the RJAT, and article 4th, paragraph 4 of the Regulation of Costs of Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €1,224, in accordance with Table I of the aforementioned Regulation, 50% to be borne by the Claimant, and 50% to be borne by the Respondent.

Let notification be made.

Lisbon, 28th February 2019

The Arbitrator,

Magda Feliciano

(The text of this decision was produced by computer, in accordance with article 131st, paragraph 5, of the Code of Civil Procedure, applicable by reference in article 29th, paragraph 1, letter e) of Decree-Law no. 10/2011, of 20th January (RJAT), and its drafting is governed by the spelling prior to the 1990 Spelling Agreement.)