Summary
Full Decision
ARBITRAL DECISION
The Arbitrators Fernanda Maças (Arbitrator President), Nuno Cunha Rodrigues and Artur Maria da Silva, designated by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, agree as follows:
I – REPORT
On 16 July 2016, A…, LDA., NIF…, with registered office at …, …, …-… …, submitted an application for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, with the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), against the tax assessment demonstration of corporate income tax (IRC) which established its tax losses relating to the year 2011, in the amount of € 21,561.84.
On 18-07-2016, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authorities (AT).
The Applicant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of paragraph (a) of Article 6, No. 2 and paragraph (a) of Article 11, No. 1 of the RJAT, the President of the Ethics Council of the CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable timeframe.
On 29-09-2016, the parties were notified of such designations, and neither manifested any intention to refuse any of them.
In accordance with the provisions of paragraph (c) of Article 11, No. 1 of the RJAT, the Collective Arbitral Tribunal was constituted on 19-10-2016.
To substantiate its application, the Applicant alleges, in summary, that:
a) The Applicant is engaged in the commercial operation of a tourist accommodation development located at …, in …, in the Algarve, denominated B…;
b) The development incorporates all the typical elements that characterize an establishment intended for tourist accommodation and the services provided therein are not distinguished, in their nature, from services provided in an ordinary hotel;
c) The Applicant provides all its services to the general public, but offers more advantageous conditions to the designated members of B…- … (Club), managed by C… (C…), a company incorporated under English law;
d) According to the terms contained in the Inspection Report, C… holds certain rights, including accommodation in the village, in exchange for consideration that it pays to the Applicant, updated annually and established by mutual agreement;
e) The status of a member of B…- … (Club) depends on the timely payment made by such member to C… and which exempts him from payment of any other consideration for accommodation in a certain dwelling in the village during a certain week of each year;
f) If the member fails to make any payment charged to him by C…, he will lose this status and will be treated as any other client, being able to occupy a dwelling only available by payment of the price to the Applicant due by any non-member client;
g) The Applicant invoices periodically to C… the weeks that are being used by Club members in accordance with the values that are fixed for such purpose each year;
h) When a member of the Club renounces this status or when he fails to make any payment due to C…, and for this reason does not exercise or cannot exercise his right to accommodation, no value is, in turn, due by C…, because no service is provided by the Applicant;
i) Thus, the values corresponding to accommodation that members were unable or unwilling to use, because they did not pay or simply because they lost interest, are not – nor could they be – charged to C…;
j) However, for mutual monitoring of C… and the Applicant, these values are reflected – in accordance with the determination that annually is made by the former and verified by the latter – in the invoices issued to C…, usually in the last one of the year, under the designation of "reversal of uncoll accom serv fee";
k) Such values are thus deducted usually in the last invoice of the year because only then is it possible for C… to identify all weeks that were not occupied by members during that year for any of the mentioned reasons that led to the suspension or extinction of their accommodation rights in the Applicant's village;
l) In the year 2011 the Applicant included in its invoices nos. …/2011 and …/2011, dated 30 November 2011 and 31 December 2011, respectively, both issued to C…, under the heading reversal of uncoll accom serv fee negative values of € 57,203.25, € 24,230.08, € 74,623.46 and € 78,551.34, in the November invoice and € 84,225.44 in the December invoice (which are hereby reproduced for all purposes);
m) These values are based on accommodation services that were not actually provided to members during 2011;
n) The Applicant declared in 2011 a tax loss in the amount of € 340,395.38, thus determining no taxable income;
o) The tax authority corrected the value of the tax losses, adding to it the values underlying accommodation services that were not actually provided to Club members during 2011, included in invoices nos. …/2011 and …/2011 under the designation reversal of uncoll accom serv fee, in the total amount of € 318,833.54;
p) The AT corrected the tax losses determined in the year 2011, considering that the value of € 318,833.54 would correspond to a "gain arising from accommodation services" and that the same would contribute to the taxable profit of the year 2011, on the basis of Articles 18 and 20 of the IRC Code (see pages 12 and 13 of the Report);
q) The Applicant considers that the total value of € 318,833.54 does not correspond to any tourist accommodation services that were actually provided by the Applicant during 2011, since the designation of "reversal of uncoll accom serv fee" corresponds to the dwellings/weeks in respect of which members lost, in 2011, the right to actually use them;
r) Whereby, the total value of € 318,833.54 does not correspond to any tourist accommodation services that were actually provided by the Applicant during 2011;
s) The ground on which the tax authority based the corrections to the Applicant's tax losses being lacking;
t) Consequently, the tax authority should not have allowed them to contribute to the determination of the fiscal result of 2011, or any other year because, purely and simply, there is no income within the meaning of Article 20 of the CIRC, nor a revenue within the meaning of NCRF 20;
u) The Applicant invokes in its favor the arbitral decisions derived from proceedings nos. 741/2014-T and 556/2015-T, both of which have become final;
v) Thus the Applicant considers that the act of correction of the tax losses declared by the Applicant in the year 2011, in the corrected amount of € 318,833.54, should be declared illegal and annulled, as should the decision of rejection of the official review petition presented at that time, which confirmed it, with all legal consequences.
In response, the Respondent Tax Authorities (AT) presented its defense in the following terms:
A) By way of objection:
a) The application for arbitral decision has as its subject the act of dismissal of the application for official review submitted, pursuant to Article 78 of the General Tax Code (LGT), against the assessment of corporate income tax (IRC) no. 2014…, which determined, for the year 2011, a tax loss in the amount of € 21,561.84;
b) The impugned assessment results from the conclusions reached by the Tax Inspection Services (SIT) in the course of the inspection action carried out pursuant to service order no. OI2012…, from the Finance Directorate of Faro, whose report is attached to the Administrative Process (hereinafter AP), with the Applicant ultimately petitioning that it be "declared illegal and annulled the act of correction of the tax losses declared by the now impugning party in the year 2011, in the corrected amount of € 318,833.54, and likewise the decision of rejection of the official review petition presented at that time, which confirmed it, with all legal consequences";
c) The Applicant, incorporated in the form of a limited liability company, began the activity of "Tourist Villages with Restaurant", CAE 55117, on 01-12-1987, being classified for IRC purposes under the general taxation regime, and the corporate purpose of the Applicant includes the "Promotion, construction, management and operation of own tourist developments, purchase and sale of real estate";
d) The Applicant is the owner of a tourist development, located at …, denominated "B…", composed of 77 terraced dwellings and 55 apartments, where in addition to accommodation, ancillary services are provided in the fields of sport, leisure, food, with the Applicant having conferred the occupation rights of the development to a company called C…, with registered office at …, United Kingdom, which manages the development through a members' club;
e) The right to accommodation in the development belongs to the club members, on the terms contracted between them and C…;
f) The invoicing of such accommodation is carried out by the Applicant to the company C…, based on values stipulated in the contract concluded between both entities;
g) The Applicant directly operates the club's equipment and facilities, including the facilities designated as "…" which comprise the restaurant, hairdresser, shops and the bar;
h) The Applicant was subject to a general inspection action for the year 2011, authorized by service order no. OI2012…, in the course of which corrections were made to the taxable income of IRC in the amount of € 318,833.54 and corrections in the context of VAT in the amount of € 216,156.34, these corrections giving rise to the IRC assessment act no. 2014…, which established the Applicant's tax losses, relating to the year 2011, in the amount of € 21,561.84, as well as the acts of additional assessment of value added tax (VAT) relating to the periods 1103T, 1106T and 1109T, in the amounts of, respectively, € 32,625.91, € 35,728.94 and € 26,541.80;
i) The Applicant filed an arbitral action which took place at the Administrative Arbitration Centre (CAAD) under proceeding no. 741/2014-T, which had as its subject the IRC assessment no. 2014… which established the tax losses in the amount of € 21,561.84, as well as the VAT assessment acts referred to in the preceding paragraph, where the AT invoked the exception of lack of timeliness of the petition relating to the IRC assessment no. 2014…, the Arbitral Tribunal having decided, in its Decision dated 5 June 2015, that the exception was sustained;
j) On 18 September 2015, the Applicant submitted an application for official review identifying as the subject of the petition the notification "of the tax assessment demonstration of corporate income tax (IRC) (…) which established its tax losses, relating to the year 2011, in the amount of € 21,561.84";
k) Reserving everything that may be invoked in the Response that contradicts the Applicant's arguments, the facts contained in Articles 10, 14, 15, 25, 26, 27, 28, 29, 32, and 35 of the arbitral petition are specifically disputed;
l) In Article 10 of the arbitral petition application the Applicant states that "If the member fails to make any payment charged to him by C…, he will lose this status and will be treated as any other client, being able to occupy a dwelling available only by payment of the price to the now impugning party due by any non-member client and states, in Article 14, "Being certain, as we have seen, that in accordance with the 'conditions established in the Membership Documents' the status of member and his inherent right to accommodation is suspended or extinguished, if he fails to make any payment charged to him by C…", concluding in Article 15 that "the values corresponding to accommodation that members were unable or unwilling to use, because they did not pay or simply because they lost interest, are not – nor could they be – charged to C…";
m) Such statements are totally contradicted by the content of the "D…", from which it appears that the suspension process is not automatic and implies a period of suspension, with the suspension of members or the renunciation of this status not having as an automatic consequence that the occupation rights assigned to such members are not used by them or by other persons, Rule 12.1 establishing "The club may at any time suspend your Occupancy Rights or your rights as an Associate Club Member: a. If you fail to pay when due any Money payable by you to the Club or any Money due to A… Lda including the management charge and/or the Associate" and Rule 12.4 providing that "The Club may at its discretion attempt to let your occupancy rights if they have been suspended and shall account to you for any amounts received by it less: a. any sums due from you to the Club; b. and reasonable commission as decided by the Club on any sums received (…); and c. any reasonable expenses incurred", that is, the failure to pay timely by the Club member of maintenance fees does not imply the loss of membership status, but rather a suspension, with the Club retaining the right to use the suspended member's occupation rights and, with the revenue obtained, offset the amount owed;
n) On the other hand, the loss of membership status, in the situations provided for in Rule 13, namely when the reason relates to non-payment for a period exceeding 24 months, the Club makes efforts to find and appoint a candidate to replace the member who, upon becoming a member, must pay the amounts owed by the preceding member (see Rule 13.3);
o) The Applicant mentions in Article 25 of the arbitral petition that it filed an arbitral impugnation action which took place at the Administrative Arbitration Centre (CAAD), under proceeding no. 741/2014-T "against the act of additional VAT assessment relating to the period 1103T, issued with identical ground thus set forth in the Report". Now, as we mentioned above, proceeding no. 741/2014-T had as its subject the same IRC assessment now impugned which established the tax losses, relating to the year 2011, in the amount of € 21,561.84, as well as the acts of additional VAT assessment relating to the periods 1103T, 1106T and 1109T, in the amounts of, respectively, € 32,625.91, € 35,728.94 and € 26,541.80 and corresponding compensatory interest, all arising from the conclusions reached by the Tax Inspection Services (SIT) in the course of the inspection action carried out pursuant to service order no. OI2012…;
p) The AT defended itself by invoking the peremptory exception of lack of timeliness of the petition relating to the IRC, the Arbitral Tribunal having decided in favor of the exception;
q) Contrary to what the Applicant wishes to make believe, no judgment, of fact or law, was made on the corrections made by the Tax Inspection regarding IRC, nor did the Tribunal decide anything whatsoever on the application of the provisions of Articles 18, No. 1 and 20 of the CIRC, as the Applicant's right to impugn the IRC assessment lapsed as a result of the untimely presentation of the petition. In fact, the facts established in the Arbitral Decision only supported the decision of partial grant of the petition for annulment of the additional VAT assessment of 1103T, which concerned discounts made to accommodations, concluding that "Thus, having the invoices referred to been issued when there was no longer a basis for the reduction, this rule [Article 16, No. 6, paragraph b), of the VAT Code] provides legal support for the non-consideration of the value of the reduction, to the value of the transaction", whereby, contrary to what the Applicant states in Article 32 of the arbitral petition, no decision was issued by the arbitral tribunal considering it illegal the IRC assessment relating to the year 2011, in the amount of € 21,561.84, on the basis of error attributable to the services;
r) The same shall apply to the invocation, in Articles 28 and 29 of the arbitral petition, of the Decision issued in proceeding no. 556/2015-T, which decided that the petition for annulment of the additional VAT assessments of 1112T, 2012 and 2013 was sustained, and the statement that the assessments are "precisely on the identical situation that is here at issue in the present proceedings", given that in proceeding 556/2015-T there was no IRC assessment at issue, carried out on the basis of Articles 18, No. 1 and 20 of the CIRC, but rather the application of the rules of the VAT Code which provide for specific formalities in case of reduction of the taxable value of transactions and of VAT regularization, whose non-compliance implies the nullity of the rectifications, namely Article 16 and Article 78 of the VAT Code. Thus, also in this arbitral action, the matter of fact was determined in order to be subsumed to the regime of VAT regularizations in effect, being the same relevant for the fulfillment of the respective regulatory provisions, the Arbitral Tribunal not having been called upon to judge the legality of an IRC assessment made pursuant to the provisions of Articles 18, No. 1 and 20 of the CIRC;
s) The Applicant wishes to make believe (see Articles 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 100, 101 and 102 of the arbitral petition) that the legality of the corrections made by the AT in the context of IRC would have already been the subject of a decision in the course of proceedings that took place at the Administrative Arbitration Centre (CAAD) under nos. 741/2014-T and 556/2015-T, considering that it is a matter of assessing the same disputed issue, incurring in an essential error which is to consider, without any legal basis, that because the same factual circumstances that form the basis of corrections in the context of VAT and in the context of IRC were found in the same inspection action, such circumstance would not entail any specificity for purposes of impugning the assessments, notwithstanding the petition formulated to the tribunal relating to the annulment of assessments of different taxes based on different cause of action;
t) Being substantially different the petition and the cause of action, it is necessary to conclude that in each of these actions there is a different disputed material relationship, whereby the decision that determines the annulment of the additional VAT assessment does not have the effect of a matter judged that could extend to an action whose decision, limited by the petition and cause of action, will determine the annulment or maintenance of the IRC assessment.
B) By way of exception
B)1. The exception of res judicata
a) The Applicant filed an application for arbitral decision, which took place at the CAAD, under proceeding no. 741/2014-T, which had as its subject the same IRC assessment no. 2014… now impugned, which established the tax losses in the amount of €21,561.84;
b) In support of its claim, the Applicant invoked the same grounds of fact and law adduced in the present action, where it petitioned, as in the present arbitral action, the annulment of the act of correction of the tax losses declared in the year 2011, in the corrected amount of €318,833.54;
c) In the arbitral action no. 741/2014-T, the AT invoked the peremptory exception of lack of timeliness of the petition relating to the IRC assessment no. 2014…, the Arbitral Tribunal having decided in favor of the exception, considering that "the application for arbitral decision was presented in an untimely manner, as regards the IRC assessment for the year 2011";
d) It is established jurisprudence of the Supreme Administrative Court (STA) that the lack of timeliness of the initial petition prevents the production of the legal effect of the facts alleged by the claimant and determines the lapse of the right to impugn, the judgment that rules on the lapse of the right of action having the force of res judicata as to that question, pursuant to the provisions of Articles 619, No. 1 and 621 of the CPC (see Decision of the STA, of 17/6/2015, proceeding no. 0194/15);
e) Thus, the question of the lapse of the right to impugn the IRC assessment of the year 2011 was definitively decided in the arbitral action no. 741/2014-T, with the decision issued there having binding force of res judicata.
B)2. The Incompetence of the Collective Arbitral Tribunal ratione valoris
a) Given that the present arbitral petition has as its subject, mediately, the IRC assessment no. 2014…, which determined, for the year 2011, a tax loss in the amount of €21,561.84, this should be the amount to be considered as the value of the case, pursuant to the provisions No. 1, paragraph a), of Article 97-A, CPPT, applicable by virtue of Article 29 of the RJAT;
Thus, in accordance with Article 5, No. 2, paragraph a), of the RJAT, the arbitral tribunal should have been constituted with a single arbitrator and not a collective one.
On 24 February, in accordance with Article 18 of the RJAT, a hearing was held, at which the witness evidence requested was produced, in accordance with the respective record. The Tribunal set 3 April 2017 as the deadline for issuance of the Arbitral Decision. This date was extended to 3 June 2017, by order of the Tribunal of 3 April.
The Applicant, in exercise of the right to reply, sustained the lack of merit of the exceptions of res judicata and incompetence ratione valoris invoked by the Respondent.
Both parties offered written arguments.
II. CASE MANAGEMENT AND PRELIMINARY RULINGS
11. Analysis of the matter of exception
11.1. The exception of res judicata:
As stated, the Respondent invokes the exception of res judicata, requesting, in consequence, its dismissal from the proceedings.
It alleges, essentially, that the present action constitutes an action equal to that which was brought, by the same Applicant, in Proceeding no. 741/2014-T, which also took place under the aegis of the CAAD.
Heard on this matter, the Applicant stated that such exception should be dismissed.
It is necessary to assess.
The prerequisites for sustaining the exception of res judicata are met when, after a judgment becomes final in a given action, an identical action is brought, such identity of actions being verified if the parties, petitions and cause of action are identical.
In the words of Antunes Varela, Miguel Bezerra and Sampaio e Nora, the exception of res judicata "consists of the allegation that the same issue was already raised in another proceeding and therein decided by a judgment on the merits, which does not admit ordinary appeal" (see Manual de Processo Civil, 2nd Edition, p. 307).
It does not appear, however, that such requirements are met in the present case.
In fact, and in the first place, the decision that took place in the first proceeding was not a decision on the merits, but rather a decision on a preliminary matter, with regard to IRC there having been a dismissal of the proceedings on the basis of lack of timeliness.
Such circumstance alone prevents the sustaining of the exception alleged in the present proceedings.
Moreover, and notwithstanding the coincidence of parties, the two actions in question do not appear to be overlapping as regards the object of the proceedings.
In fact, the cause of action must be understood as the set of facts legally conformed by the Claimant (here Applicant), and, for purposes of evaluating such legal conformity, consideration must be given to the nature of the legal-procedural means to which the party resorts.
Now, the legal conformity of the factual circumstances, to which the Applicant proceeds, in both actions, is not coincident, as results from the very fact that the same Applicant resorts to distinct procedural means (impugning the assessment, in the first action, and official review, in the present proceeding), designed and intended for legally distinct situations.
There is, therefore, no identity of actions, nor, in consequence, the repetition of an action (an essential prerequisite for concluding that the invocation of the exception of res judicata may be sustained in the case at hand).
It should be noted, moreover, and as a consequence of what has just been stated, that the reason for being of the figure of res judicata does not appear to be verified in the present case.
In fact, it aims to prevent courts from being confronted with the possibility of issuing different decisions, in the same action, on the same subject.
Now, the terms in which the question of timeliness is legally addressed within the scope of impugning the assessment – where there is a 120-day period for recourse to judgment – is completely different from the terms in which the same question is legally resolved within the scope of official review – where the general 4-year period is relevant. A reason that well equally confirms that, even if the first decision had been a decision on the merits, there are no identical actions at issue, the exception of res judicata should not proceed, because the requirements for its verification are not met.
In these terms, the invoked exception of res judicata is judged to be without merit and, in consequence, equally without merit the request for dismissal of the Respondent from the proceedings on that basis.
11.2. As to the incompetence of the Collective Arbitral Tribunal ratione valoris
As explained above, the Respondent invoked, in its response, that, given that the present arbitral petition has as its subject, mediately, the IRC assessment no. 2014…, which determined, for the year 2011, a tax loss in the amount of €21,561.84, this should be the value of the case, whereby the arbitral tribunal should have been constituted with a single arbitrator and not a collective one.
In reply, the Applicant argued for the lack of merit of the invocation of the mentioned exception.
Pursuant to the provisions of Article 97-A, No. 1, a), of the CPPT (applicable by virtue of the provisions of Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings), when an assessment is impugned the value of the case corresponds to the "amount whose annulment is sought".
In the present proceeding, the correction made by the AT to the tax losses, in the context of IRC, relating to the year 2011 is at issue. Having the Applicant declared as tax losses the amount of €340,395.38, the AT corrected such amount, reducing it to €21,561.84.
The value of the case coincides, thus, with the economic benefit arising from the annulment, this being equal to the difference between the amounts above indicated (€340,395.38 and €21,561.84) that is, €318,833.54.
In these terms, and as results from the provisions of Article 5, No. 3, paragraph a) of the RJAT, the arbitral tribunal must assume a collective nature.
The exception of incompetence invoked by the Respondent is therefore without merit.
12. The Tribunal is materially competent and is regularly constituted in accordance with the RJAT.
13. The parties have legal personality and capacity, are legitimate parties and are legally represented (Articles 4 and 10, No. 2, of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).
14. The proceedings are not affected by any nullities.
15. There are no other circumstances that prevent the Tribunal from ruling on the merits of the case.
III. MERITS
III.1. FACTS
A.1. Proven facts
1. The Applicant, incorporated in the form of a limited liability company, began the activity of "Tourist Villages with Restaurant", CAE 55117, on 01-12-1987, being classified for IRC purposes under the general taxation regime (see report of the inspection action, hereinafter RIT);
2. The corporate purpose of the Applicant includes the "Promotion, construction, management and operation of own tourist developments, purchase and sale of real estate" (see page 5 of the RIT);
3. The Applicant is the owner of a tourist development, located at …, denominated B…, composed of 77 terraced dwellings and 55 apartments, where in addition to accommodation, ancillary services are provided in the fields of sport, leisure, food (see pages 6 of the RIT and contract attached to the AP);
4. The Applicant conferred the occupation rights of the development to a company called C…, with registered office at …, United Kingdom, which manages the development through a members' club (see pages 6 of the RIT and contract attached to the AP);
5. The share capital of the Applicant is held 50% by C… (see contract attached to the AP);
6. The right to accommodation in the development belongs to the club members, on the terms contracted between them and C… (see pages 6 of the RIT, contract attached to the AP and testimony of the witnesses);
7. The occupation rights in weeks 1-12 and 44-52 benefited from an additional discount, on account of greater intensity of renovations/refurbishments (see Transfer Price Report 2011, attached to the AP);
8. The discount is granted according to two modalities: (i) old holders, only part of the discount is considered in the maintenance fee; (ii) recent holders, the discount is fully granted in the maintenance fee (see Transfer Price Report 2011, attached to the AP);
9. The definition of the amount of the maintenance fee paid by Club members ("management charge") depends on the Club's estimated costs for a given period, deficits from previous years and the value of reserves to be established (see paragraph 4 of the D…);
10. The maintenance fee paid by Club members is not intended only to cover expenses relating to the use of the property (see paragraph 4 of the D…);
11. The invoicing of accommodation is carried out by the Applicant to the company C…, based on values stipulated in the contract concluded between both entities (see contract attached to the AP and testimony of the witnesses);
12. The only supporting document of the accounting records of the operations that allows verification of the reductions of the values appearing in the invoices in the terms resulting from paragraph 26 of the present list of proven facts, is the determination schedule prepared by C…, attached to the case as doc. no. 8 (see RIT and testimony of the witnesses);
13. The Applicant can only accommodate third parties in cases and conditions specially provided for and authorized by C… (see contract attached to the AP);
14. The status of Club member is only granted to those who acquire occupation rights for weeks in the development B… (see D…);
15. The failure to pay the maintenance fees does not imply that Club members automatically lose this status (see rule 12.1 of the D…);
16. In case of non-payment of maintenance fees, Club members have their membership suspended for a period of 24 months (see D…);
17. The Applicant invoices periodically to C… the weeks that were previously established to be occupied by Club members in accordance with the values that are fixed for this purpose each year (see testimony of the witnesses);
18. When a member of the Club renounces this status or when he fails to make any payment due to C…, and for this reason does not exercise or cannot exercise his right to accommodation, no value is, in turn, due by C…, because no service is provided by the Applicant (see testimony of the witnesses);
19. For mutual monitoring of C… and the Applicant, these values are reflected – in accordance with the determination that annually is made by the former and verified by the latter – in the invoices issued to C…, usually in the last one of the year, under the designation of reversal of uncoll accom serv fee (see testimony of the witnesses);
20. In accordance with the "conditions established in the Membership Documents" the status of member and his inherent right to accommodation is suspended or extinguished, if he fails to make any payment charged to him by C… (see testimony of the witnesses);
21. However, for mutual monitoring of C… and the Applicant, the values corresponding to accommodation that members were unable or unwilling to use, because they did not pay or simply because they lost interest, are not charged to C… and are reflected – in accordance with the determination that annually is made by the former and verified by the latter – in the invoices issued to C…, usually in the last one of the year, under the designation of reversal of uncoll accom serv fee (see testimony of the witnesses).
22. The designation of "Reversal Of Uncoll Accom Serv Fee" corresponds to deductions relating to Accommodation Services Fees. This reduction to Accommodation Services occurs, commonly, because the suspension of members is verified, as a consequence of the existence of outstanding amounts, as well as deductions relating to Accommodation Services (Accommodation Services Fees), as a consequence of the resignation of members. The values of the Accommodation Services, charged for the year are thus reversed to the extent that they would not be due, because the suspension or resignation had previously occurred (see testimony of the witnesses);
23. The designation of 'reversal of uncoll accom serv fee' corresponds to the dwellings/weeks that members did not use, because they lost or renounced, in 2011, the right to actually use them (see testimony of the witnesses);
24. In situations where the deducted values refer to suspensions and resignations of members, which the Applicant designates as "Reversal Of Uncoll Accom Serv Fee", it is understood that this deduction from the revenue does not fall to the Applicant, because the customer of the Applicant is the English law company C… and not the members of the members' club, who enjoy the accommodation services and complementary services provided by the Applicant and who entered into a contract with C… (see testimony of the witnesses);
25. Such values are thus deducted usually in the last invoice of the year because only then is it possible for C… to identify all weeks that were not occupied by members during that year for any of the mentioned reasons that led to the suspension or extinction of their accommodation rights in the Applicant's village (see testimony of the witnesses);
26. In the year 2011, the Applicant included in its invoices nos. …/2011 and …/2011, dated 30 November 2011 and 31 December 2011, respectively, both issued to C…, under the heading reversal of uncoll accom serv fee negative values of € 57,203.25, € 24,230.08, € 74,623.46 and € 78,551.34, in the November invoice and € 84,225.44 in the December invoice (see documents attached to the case);
27. These values are based on accommodation services that were not actually provided to members during 2011, detailed in the determination schedules of C… (see testimony of the witnesses).
A.2. Unproven facts
With relevance to the decision, there are no facts that should be considered as unproven.
A.3. Substantiation of the proven and unproven facts
The Tribunal has the duty to select the facts that matter for the decision and to distinguish the proven facts from the unproven ones (see Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable ex vi Article 29, No. 1, paragraphs a) and e), of the RJAT).
The facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established having regard to the various plausible solutions of the legal question(s) (see former Article 511, No. 1, of the CPC, corresponding to current Article 596, applicable ex vi Article 29, No. 1, paragraph e), of the RJAT).
Thus, the position assumed by the parties was taken into consideration, in light of Article 110, No. 7 of the CPPT, the documentary evidence and the AP attached to the case, the testimonies given at the hearing of 24 February 2017 and the use of evidence produced at the hearing of 09 April 2015 of proceeding no. 741/2014-T, and the witnesses examined appeared to testify with impartiality and with knowledge of the facts upon which they pronounced.
B. ON THE LAW
It is established jurisprudence of the Supreme Administrative Court that "It is exclusively in light of the reasoning expressed by the AT when making the assessment (…) that the legality of such tax act should be assessed" (Decision of the STA of 23-09-2015, issued in proceeding 01034/11). In the case at hand, the assessment of the legality of the act practiced by the Respondent shall thus be made, considering exclusively the reasoning contained therein.
The central issue being analyzed in the present proceedings consists of determining whether the assessment to which the Respondent proceeded (following the reduction of tax losses from €340,395.38 to €21,561.84), on the basis on which it did so, is or is not in conformity with the legal regime.
The value corresponding to the said assessment resulted from the addition (by the Respondent) of the amounts that were included in invoice no. …/2011, of 30.11 (with the values of €57,203.25; €24,230.08; €74,623.46; €78,551.34 in a total of €234,608.13) and in invoice no. …/2011, of 31.12 (with the value of €84,225.41), in a total of €318,833.54, and under the common designation of "reversal of uncoll accom serv fee".
To this end, the Respondent invoked the violation of the provisions of Articles 18 and 20 of the IRC Code.
Let us see.
With respect to the mentioned Articles 18, No. 1 and 20 of the IRC Code, it should be clarified that, pursuant to the first:
"Revenues 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, regardless of their receipt or payment, in accordance with the regime of economic accrual".
In accordance with the second:
"1— Revenues and gains arising from operations of any nature, as a result of normal or occasional action, basic or merely accessory, are considered, namely:
a) Those relating to sales or provision of services, discounts, bonuses and allowances, commissions and brokerage;
b) Revenues from real property;
c) Of a financial nature, such as interest, dividends, discounts, premiums, transfers, exchange differences, bond issue premiums and those resulting from the application of the effective interest method to financial instruments valued at amortized cost;
d) Revenues from industrial property or other similar;
e) Provision of scientific or technical services;
f)(*) Gains from increases in fair value in financial instruments; (As amended by Rectifying Act No. 18/2014, of 13 March)
g)(*) Gains from increases in fair value in consumable biological assets that are not multi-annual forestry operations; (As amended by Rectifying Act No. 18/2014, of 13 March)
h) Realized capital gains;
i) Indemnities received, for whatever purpose;
j) Operating subsidies.
2 — It is further considered as revenue the value corresponding to products delivered as payment of tax on petroleum production that is due under the applicable legislation.
3 — Revenue earned from his participation share in the association, corresponding to the value of the benefit owed to him by the associate, does not contribute to the formation of the taxable profit of the associate in the association to the share.
4 - It is further considered as revenue the positive difference between the amount paid to the partners as a result of the reduction of share capital and the acquisition value of their respective shares in capital".
With respect to the second rule transcribed, it is relevant, for the present purpose, paragraph a) of its No. 1: "1— Revenues and gains arising from operations of any nature, as a result of normal or occasional action, basic or merely accessory, are considered, namely:
a) Those relating to sales or provision of services, discounts, bonuses and allowances, commissions and brokerage".
It is thus necessary to determine whether or not the Applicant infringed such legal provisions and, in consequence, whether the correction made by the Respondent based on such rules is or is not legally correct.
To this end, it is necessary to begin by analyzing the contractual legal regime in force between the Applicant and C… - ….
As results from the proven facts, following a contract concluded between both, the Applicant invoices periodically to C… the weeks that were previously established to be occupied by Club members in accordance with the values that are, for this purpose, fixed each year.
However, for mutual monitoring of C… and the Applicant, the values corresponding to accommodation that members were unable or unwilling to use, because they did not pay or simply because they lost interest, are not charged to C… and are reflected – in accordance with the determination that annually is made by the former and verified by the latter – in the invoices issued to C…, usually in the last one of the year, under the designation of reversal of uncoll accom serv fee.
That is, the parties proceed, at the end of the year, to a settlement of accounts between them, in the sense that the former only pays the Applicant the value corresponding to the services actually provided.
The provision, contractually established by the parties, to the effect that payments occur, in a first moment, in accordance with an estimate as to what the occupancy rate will be throughout the year and that, subsequently, such values are settled in accordance with the provision of services actually provided, corresponds to a regime that legally may be established by the parties, on the basis of the principle of private autonomy in the dimension of freedom to establish the content of legal transactions (Article 405 of the Civil Code).
What is at issue is a bookkeeping practice of the Applicant in accordance with which it invoices periodically to C… the weeks that are being used by Club members, in accordance with the values that are, for this purpose, fixed each year.
Such practice is not contrary to the principle of economic accrual of the tax year provided for in the referred Article 18, No. 1, of the CIRC.
In fact, in accordance with this latter rule, revenues should be attributed to the tax period in which they are obtained or incurred, regardless of their receipt or payment, in accordance with the regime of economic accrual.
Criterion also adopted in NCRF 20, according to which revenue is recognized when it is probable that future economic benefits will flow to the entity and such benefits can be reliably measured.
In the case, the revenue of the Applicant results from the actual occupation of the development, by members of C…, the Applicant being obliged to recognize in its financial statements and reflect in its tax result the services that it actually provides to C…, at the value it receives from it or has to receive, in accordance with what is agreed between the parties.
As was proven, when a member of the Club renounces this status or when he fails to make any payment due to C…, and for this reason does not exercise or cannot exercise his right to accommodation, no value is, in turn, due by C…, because no service is provided by the Applicant.
Consequently, the values corresponding to accommodation that members were unable or unwilling to use, because they did not pay or simply because they lost interest, are not charged to C…. Such values are only reflected in the invoices issued to C…, usually in the last one of the year, because only then is it possible for C… to identify all weeks that were not occupied by members during that year, under the designation of "reversal of uncoll accom serv fee".
This factual reality was assessed, in a rigorously identical manner, and considered proven, as we have seen, in proceedings nos. 741/2014-T and no. 556/2015-T, judged at the CAAD and previously referred to, already having become final, although, in those two cases, the same facts were being assessed in light of the VAT Code.
Thus, from the practice agreed upon and developed between the Applicant and C…, in no way results that the Applicant did not respect such economic accrual, whereby the mentioned regulatory provisions are not infringed.
Moreover, this principle must be understood and applied in conjunction with another legally and tax-relevant legal principle – the principle of economic substance – under which operations should be considered having regard to their substance and financial reality and not merely their legal form. This principle is, in turn, associated with the principle of taxation according to real income.
In these terms, if, by force of the first principle, the Applicant has the duty to attribute revenues to the period in which the rights corresponding to those revenues have arisen, by force of the second it also has the guarantee of being taxed only for rights that have effectively arisen in its legal sphere.
Now, the first duty was not shown to be infringed in the case under analysis.
Without prejudice to, as was stated, the Tribunal having to adhere, in assessing the legality of the tax act at issue, to the grounds, both of fact and law, expressed therein, it shall always be said that it was on the Respondent that the burden lay of proving that the Applicant effectively provided such services and, thus, that credit rights would have been constituted, whose invoicing would have been omitted.
In fact, and as results from Article 74 of the LGT, the burden of proof of the facts constituting the rights of the tax administration or the taxpayers rests on whoever invokes them", whereby it was on the Respondent that the duty would lie to prove the fact constituting the right to correct the assessment, adding to such calculation the new values that it alleges correspond to revenues earned by the Applicant.
To the circumstance that such results from the said legal rule, is added the fact (although not decisive) that the said distribution of the burden would prove, in this case, to be the most adequate, under penalty of imposing on the Applicant the proof – exceedingly difficult – of a negative fact (of non-constitution of credit rights to the revenues that the Respondent attributes to it). Consequently, in case of doubt, should always be decided in favor of the Applicant, that is, against the party on whom the burden of proof would lie.
On the other hand, in the present situation, the position of the Applicant would always be reinforced by the legal presumption that the content of the accounting records organized by the taxpayer corresponds to the truth (see Article 75, No. 1, of the LGT), the Respondent having failed to prove the contrary.
In sum, the conduct of the Applicant proves to be admissible because it is contractually defined and tax-wise permitted.
Understanding that is also reflected in what is recommended in Proc. no. 556/2015-T, where it was decided that "even taking into account the Applicant's procedure, of invoicing provisional values monthly, and settling, at the end of the year the value of the overall benefit owed to it, or of discounts, by "disturbance allowance", as is the case, there being no indication that it is a fraudulent situation or aiming at the erosion of the tax base, it must always be concluded that it is a contractual procedure and, consequently, tax-wise permitted, within the scope of the faculty recognized to the parties of conforming their respective economic relations in the manner that, from their point of view, appears to them more practical or adequate, there being no justification whatsoever to impose, as the Tax Authority desires, a different procedure".
Further, in the same Arbitral Decision, on the legitimacy of the Applicant's conduct, the Tribunal considered that "(…) notwithstanding the relation of the members of the suspended or discharged club being with C (…), nothing prevents that, as happens, this being the agreement of the parties, the price of the services to be provided by the Applicant to C…, be adjusted in accordance with the suspensions and discharges that, at each moment, occur".
Not being able, thus, to conclude that the Applicant has violated the regulatory provisions invoked by the AT as a basis for the correction of the assessment to which it proceeded, the same proves to be legally untenable, and should be annulled.
In such terms, as a consequence of what has been stated, it is necessary to conclude that there has occurred an error as to the presuppositions of fact and law, which implies the voidability of the additional assessment, in the part relating to the correction of tax losses, determined by the AT, when it added to them the values underlying accommodation services included in invoices nos. …/2011 and …/2011 under the designation reversal of uncoll accom serv fee, in the total amount of € 318,833.54.
C. DECISION
In such terms, the Tribunal decides:
a) To rule that the exceptions invoked by the Respondent AT are without merit;
b) To rule that the petition for a declaration of the illegality of the act of additional corporate income tax (IRC) assessment, which reduced the Applicant's tax losses, relating to the year 2011, to € 21,561.84, by correction of tax losses reported for the same period, in the amount of € 318,833.54, is sustained and, in the sequence thereof,
c) To annul the act of rejection of the application for official review;
d) To order the Respondent AT to pay the costs of the proceedings, in the amount fixed below.
D. VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at € 318,833.54, pursuant to Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of Article 29, No. 1 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
E. COSTS
The value of the arbitration fee is fixed at € 5,508.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the petition was entirely sustained, pursuant to Articles 12, No. 2 and 22, No. 4, both of the RJAT, as well as Article 4, No. 4, of the said Regulation.
Notification required.
Lisbon, 5 May 2017.
The Arbitrator President
(Fernanda Maças)
The Arbitrator Member
(Nuno Cunha Rodrigues)
The Arbitrator Member
(Artur Maria da Silva)
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