Summary
Full Decision
ARBITRAL DECISION
The arbitrators José Poças Falcão (arbitrator-president), Henrique Nogueira Nunes and Leonor Fernandes Ferreira, appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 21 September 2017, agree as follows:
I. REPORT
A…, Lda., NIPC…, registered in the … Commercial Registry Office of Loures under no. …, with registered office at Rua …, No. …, …, …, in the Loures Tax Office …, having been notified of the additional assessments of Corporate Income Tax (IRC), Assessment no. 2017… of 2013 (AT) and Assessment no. 2017 … of 2014 (AT) relating to the years 2013 and 2014, respectively, in the amounts of € 172,835.24 and € 239,203.16, figures which include the compensatory interest accrued of € 17,789.86 and € 16,699.20, respectively, intends, with suspensive effect on enforcement, pursuant to article 199 of the Code of Tax Procedure and Process (CPPT), in order to declare the illegality of the additional IRC assessments above identified as they suffer from the following defects:
- Lack of legal basis due to erroneous qualification and quantification of taxable facts;
- Lack of competence due to lapse of the inspection action;
- Contradiction of the grounds and absence thereof in the report that determined the assessment;
- Unconstitutionality of the norms applied by the Tax Authority.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (hereinafter, AT) on 10-07-2017.
Pursuant to the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 1 of article 11 of the Legal Regime for Tax Arbitration (RJAT), in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.
On 01-09-2017, the parties were duly notified of this appointment, and neither manifested an intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, no. 1, subsections a) and b), of RJAT and articles 6 and 7 of the Ethics Code.
Thus, in accordance with the provisions of subsection c) of no. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, the Arbitral Tribunal was constituted on 21-09-2017.
The Claimant was subject to an inspection action, of which it was notified by letter sent by AT on 08-08-2016.
The Tax and Customs Authority, notified of the request for arbitral pronouncement presented by the Claimant and notified for such purpose, in accordance with the provisions of article 17 of the Legal Regime for Tax Arbitration (RJAT), presented, on 25-10-2017, its reply in which it defended the inadmissibility of the request for declaration of lapse of the inspection action, the annulment of the additional assessments petitioned and the restitution of the amount deposited as security increased by interest at the legal rate.
On 18-11-2017 an arbitral order was issued, notified on 20-11-2017 to the parties, indicating the date of 26-01-2018 for a Tribunal meeting with the parties, for the purposes of article 18 of RJAT and then to proceed with the taking of witness testimony with the witnesses to be heard presented by the Claimant, for the examination of witnesses. The Arbitral Tribunal determined that the Claimant, within 10 days, should indicate the disputed facts susceptible to witness testimony.
On 21-12-2017 the request presented by the Claimant on 20-12-2017 was admitted, which consists of the translation of documents in foreign languages, under the principle of cooperation (Docs. 5-7, 11-12, 14, 18-27).
AT did not present witness testimony nor did it make available its employee listed by the Claimant to appear for examination.
On 26-01-2018, the meeting provided for in article 18 of the Legal Regime for Tax Arbitration (RJAT) was held and witness testimony was taken.
At the hearing for discussion and judgment, six witnesses listed and presented by the Claimant were examined. The following witnesses were heard at this hearing, in the order in which they are mentioned: B…, C…, D…, E…, F… and G….
It was decided that the case would proceed with written pleadings.
The parties presented pleadings, with notification of the Claimant's pleadings occurring on 12-02-2018 and notification of AT's pleadings on 14-02-2018.
The Claimant thus intends that the illegality of the acts of additional IRC assessments Assessment no. 2017 … of 2013 (AT) and Assessment no. 2017 … of 2014 (AT) relating to the years 2013 and 2014, respectively, be declared.
The Arbitral Tribunal was constituted on 21 September 2017.
The Arbitral Tribunal was regularly constituted and is competent.
The parties enjoy legal personality and capacity, are legitimated (articles 4 and 10, no. 2, of the same diploma and article 1 of Order no. 112-A/2011, of 22 March) and are duly represented.
The case does not suffer from any nullities.
II. FACTUAL MATTER
Established Facts
The following facts are considered established:
- The Claimant is a limited liability company with registered office in national territory, has as its corporate object the construction and sale of properties acquired for such purpose, urban developments and the rental of real property, as per the Permanent Certificate.
- The Claimant is, for IRC purposes, classified under the general taxation regime, with the obligation to have accounting organized in accordance with accounting standards so as to reflect all transactions carried out and allow control of taxable profit.
- The Claimant carries out the activity under CAE 41200 and is registered, for VAT purposes, with the secondary activity of Real Property Rental, corresponding to CAE 68200.
- The Claimant is, for VAT purposes, classified under the exemption regime of article 9 of the Code of Value Added Tax (VAT Code) since it commenced its activity on 15-03-1994.
- The Claimant filed the periodic VAT declarations, relating to the periods 2013-12, 2014-02, 2014-03, 2014-04 and 2014-07.
- Based on these declarations, the Claimant paid the amounts of VAT for the services provided by entity H… (hereinafter referred to simply as H…), which is an entity with registered office in Hong Kong and without registered office, permanent establishment or domicile in national territory, pursuant to the application of subsection a) of no. 6 of article 6 of the VAT Code.
- All VAT paid by the Claimant is revenue of the State.
- In the purchases and sales carried out, with the intervention of H… and with the commissions charged to it, an additional € 239,745.86 was charged.
- The services provided by H… to the Claimant are supported by invoice (as per Doc. 10, attached to the Initial Petition).
- The Claimant paid H… for these services provided through bank transfers (As per Doc. 11, attached to the Initial Petition).
- The Claimant executed purchase and sale deeds of the units, with the buyers being Chinese citizens (as per Doc. 16, attached to the Initial Petition).
- The Claimant sold units constructed by it, located at Rua …, nos. …, … and …, …, … (former lots …, … and …), to Chinese citizens, having entered into prior preliminary contracts of purchase and sale (as per Doc. 12, attached to the Initial Petition).
- The contracts do not make reference to the existence of a real estate brokerage agency (as per Doc. 15, attached to the Initial Petition).
- The aforementioned sales by the Claimant were the following (as per TIR, p.13/43 and Doc. 15 attached to the Initial Petition):
[sales tables]
The Claimant's sales in 2014 were the following (as per TIR, p.14/43 and Doc.15 attached to the Initial Petition):
[sales tables]
- The income from the sales to Chinese citizens of units of Lots …, … and …, located at …, were the following for the years 2013 and 2014 (as per TIR, p.14/43):
[income tables]
- The Claimant entered into a contract with H… named Framework Agreement, dated 19 July 2013 (Doc. 6, attached to the Initial Petition).
- During the year 2013, the commission invoices issued by H… to the Claimant were the following (as per TIR, p.15/43 and Doc. 15 attached to the Initial Petition):
[commission tables]
- During the year 2014, the commission invoices issued by H… to the Claimant were the following (as per TIR, p.15/43 and Doc. 15, attached to the Initial Petition):
[commission tables]
- It is evident that, regarding both fiscal years, it is possible to establish an unequivocal correspondence between the unit sold and the expense with the commission allocated to the sale of the unit (See TIR, p.16/43)
- When filing the annual declarations, the Claimant declared its main customers, through the summary annex O, which lists Chinese citizens (as per TIR, p.9/33):
[customer tables]
- The TIR (pp. 22/43 and 23/43) indicates that the Claimant presented the following documents:
[documents list]
- The invoices for the services provided by H… to the Claimant refer in the description to "marketing consulting" and "travelling costs", except for invoice no. 245/2014, dated 17/07/2014, where the marketing services are more exhaustively detailed.
- Following Service Order no. OI2016… and OI2016…, issued on 06-04-2016, the Claimant was subject to external inspection actions, of general scope, which aimed at controlling its tax situation with reference (Doc. 1, attached to the Initial Petition).
- The Claimant was notified of the Draft Conclusions of the Tax Inspection Report (TIR), to comment on the proposed corrections, and exercised the right to prior written hearing on 31-03-2017, after AT, on 24-03-2017, authorized the extension of the period for exercising the right to prior hearing.
- The request for constitution of an arbitral tribunal was validated and accepted as a Case in the stage of arbitral procedure on 10-07-2017.
- The Claimant had the real properties at issue in the proceedings for sale since 2009 and with the support of two national real estate agencies only sold two apartments by 2013.
- The Framework Agreement was discussed and negotiated, in prior meetings and by electronic mail, both with the representatives of H… in Portugal and with their Lawyers (as per Doc. 7, attached to the Initial Petition and testimony of witness G…).
- The Framework Agreement established that for each sale the Claimant would pay a commission of 15 percent of the sale price, as provided in clause 11 of the Framework Agreement, plus travel costs of € 2,000 per person and a maximum of € 4,000 for each property as provided in clause 12 of the Framework Agreement (as per Doc. 7, attached to the Initial Petition).
- Between September 2013 and December 2013 H… made dozens of visits with its clients to its properties (as per testimony of witnesses B…, C…, F… and G…)
- The units that the Claimant sold between September 2013 and December 2013 were all sold to Chinese clients who were introduced to it by H… (as per Doc. 10, attached to the Initial Petition and testimony of witnesses F… and G…).
- These units were sold at a value approximately 20 percent above their value for the national market (as per Doc. 8 and Doc. 22, attached to the Initial Petition and testimony of witness G…).
- In 2013, regarding the real properties sold with the intermediation of national companies, namely I…, Lda, the commissions practiced ranged between 2.2% and 2.5%, commissions being charged on only two units (article…, fraction C – Value of Act: € 195,000.00 – Commission € 5,000.00, VAT included; article…, fraction D – Value of Act: € 226,550.00 – Commission €5,000.00, VAT included)
- The services of H… comprised the promotion and acquisition of clients in China through contacts with its sub-agents, seminars, meetings with clients, production of promotional material, internet advertisements etc. (as per Doc. 9, attached to the Initial Petition and testimony of witness F…).
- The value of commissions charged was that practiced by these Chinese agencies in the national market, at the value of 15 percent, this value being reflected in the value of the real property.
- Once the client accepted the service provided by H…, this company provided full support to the clients (as per testimony of witness F…).
- For each concluded sale H… participated in the negotiation, accompanied the execution of each contract concluded, whether reservation, preliminary purchase and sale or final contract (as per Doc. 9, attached to the Initial Petition and testimony of witness F…).
- In the execution of each purchase and sale contract concluded between the Claimant and the Chinese Clients, employees of H… intervened as translators and signed the same (as per Doc. 12 and Doc. 13, attached to the Initial Petition and testimony of witness F…).
- The complexity and volume inherent to the service provided by H… to Chinese clients are much superior to the service of national real estate agencies and in view of national clients (as per Doc. 7, attached to the Initial Petition and testimony of witnesses F…, E… and G…).
- H… worked intensively in promoting its apartments in China, with the preparation of promotional materials, seminars, contacts with local agents etc. (as per testimony of witnesses F… and G…).
- Since 2009 they had the apartments for sale in two national real estate agencies which only sold two apartments (as per testimony of witness G…).
- The prices established for the national market were increased to be able to include the costs of H…'s commission and with the furnishing of the properties, this increase being on the order of 20 percent (as per testimony of witness G…).
- The Claimant, with the support of H…'s services, sold all the apartments that had not been sold in the four previous years, at a value higher than they would have sold in the national market, and in a space of three months (as per testimony of witness G…).
- National real estate agencies did not provide the services rendered by H…, they did not do client acquisition abroad, did not transport clients, paying their accommodation expenses, did not sell apartments at prices higher than those the Claimant had on its list, did not have translators to accompany foreign clients, nor did they provide after-sales assistance to the client (as per testimony of witness D…).
- The Claimant paid on 10-7-2017 the amount of 13,287.16 corresponding to the value of the additional IRC assessment (Doc. 29, with the initial request).
Foundation for the Determination of the Factual Matter
The facts were established based on the documents attached with the request for arbitral pronouncement and with the administrative proceedings and supported by the testimony given at the hearing by the witnesses examined, who confirmed the generality of the facts alleged by the Claimant.
All witnesses appeared to testify with impartiality and with knowledge of the facts they referred to, the Tribunal being convinced that they testified with impartiality and truthfulness.
In particular, witness F… described with precision the conduct and services provided by H…, from its conduct in China to the renewal of residence authorization visas.
Position of AT
AT recognizes that the service existed. AT concludes that all elements only prove formally the provision of the service, but do not prove the substance of the operations.
AT alleges that the adequacy of the service to the result obtained was not demonstrated.
AT understands that the Claimant did not produce sufficient material evidence that allows ascertaining the intrinsic nature of the expense, or its consistency with the business activity, being impossible to ascertain its normal character in light of the activity developed.
Position of the Claimant
The Claimant alleges that the operation of the taxpayer with the commission agent was absolutely legal and requests that the lapse of the inspection action be declared.
It understands that the impugned assessments should be annulled, for lack of legal and constitutional basis, and requests that the amount deposited as security be returned to the Claimant increased by legal interest at the applicable commercial rate owed between the date of constitution of the security and its actual return.
In summary, the Claimant alleges that the service was provided, that it was justified economically, without prejudice to the State's interests, quite the opposite, and that the expense deducted is adequate to the complexity of the service provided and the results obtained.
The Claimant understands that the commission charged by H… is adequate and fair in function of the high costs it bore, as well as in function of its excellent results obtained.
The Claimant understands that it demonstrated the truthfulness of the operation. The operations of purchase and sale and provision of services by H… and J…, Lda. were not simulated to obtain unlawful advantages.
The Claimant understands that it also demonstrated the economic rationality of the operation and the adequacy of the proportion and the results obtained. It argued that the teleology of these anti-abuse norms is rooted in the prevention of use of more favorable tax regimes to exempt profits generated from their just taxation.
The Claimant understands that this operation did not have an abnormal or exaggerated character that determines its disregard for tax purposes as an expense.
III. LEGAL MATTER
Lapse of the Inspection Action
The Claimant invokes that, in this case, the lapse of the inspection action occurred, inasmuch as the inspection procedure would have to be concluded within 6 months after its start, on 15/10/2016.
And that the consequence of such invoked lapse is the "non-existence" of the inspection action, whereby all subsequent acts, including the additional assessments at issue in the proceedings, should fall.
For its part, AT comes to deny that such lapse occurred, inasmuch as it says that the start of the inspection procedure only takes place with the signature of the Service Order by the taxpayers or their representatives and that this only occurred on 05/09/2016, whereby the period for conclusion of the procedure only ended on 05/03/2017, and with the extension for an additional 3 months and the inspection procedure ending on 05/05/2017, the 6-month period was respected.
It further states that even if the said period had been exceeded, the consequence would not be the non-existence due to lapse of the inspection procedure and of the assessments at issue in the proceedings, but only the cessation of the suspensive effect of the period of lapse of the right to levy.
Let us see.
As to what is alleged by AT that the inspection procedure only starts with the signature of the Service Order by the taxpayers, such corresponds to what is provided in the law. In fact, the external inspection procedure begins with the signature, by the taxpayer or tax obligor, or its representative, of the service order or the order that determines it, and a copy must be delivered to them (art. 51, nos. 1 and 2 of RCPIT).
Whereby on this point the Claimant is not correct, and is equally not correct when petitions for the lapse of the inspection action and all acts following it.
In fact, it is now established jurisprudence that the lapse of the inspection procedure has as its sole consequence the cessation of the suspensive effect of the period of lapse of the right to levy.
In this sense, see the Judgment of the TCA-South, delivered in case 02961/09 (at http://www.dgsi.pt/jtca.nsf/a10cb5082dc606f9802565f600569da6/98e192b38dc26177802575bb002c0f29) to which we adhere, when in that judgment it is referred "The non-observance of the legally fixed periods for inspection only have direct bearing regarding lapse of assessment, not offending this interpretation the constitutional principles of legality, proportionality and impartiality".
Whereby on this point the contention invoked by the Claimant equally lacks merit.
Deductibility of Expenses with Payment of Commissions to Company H…
The main issue under examination in the proceedings concerns the deductibility of expenses for IRC purposes regarding payments to company H….
It should be noted that we will follow very closely the decision delivered by the Arbitral Tribunal in case CAAD no. 198/2017-T, which examined an issue in all respects similar to that in the present proceedings and to whose grounds and decision this Arbitral Tribunal adheres in its fundamental lines.
The Respondent did not accept the deductibility of the Claimant's expenses relating to payments made to company H…, based on articles 65 of CIRC, in the wording given by Law no. 64-B/2011, of 30 December (in force in 2013) and 23-A of the same Code, in the wording of Law no. 2/2014, of 16 January (in force in 2014), which establish the following, as relevant here:
"Article 65
Payments to Non-Resident Entities Subject to a Privileged Tax Regime
1 – The amounts paid or owed, of any kind, to natural or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime shall not be deductible for purposes of determining taxable profit, unless the taxpayer can prove that such charges correspond to operations actually carried out and do not have an abnormal character or an exaggerated amount.
2 – A natural or legal person is considered to be subject to a clearly more favorable tax regime when the territory of residence thereof appears on the list approved by order of the Minister of Finance or when it is not taxed there in an income tax identical to or analogous to IRS or IRC, or when, regarding the amounts paid or owed mentioned in the preceding number, the amount of tax paid is equal to or less than 60% of the tax that would be due if the said entity were considered resident in Portuguese territory.
3 – For purposes of the preceding number, taxpayers must possess and, when requested by the Directorate-General of Taxes, provide the supporting documents of the tax paid by the non-resident entity and the calculations made for determining the tax that would be due if the entity were resident in Portuguese territory, in cases where the territory of residence thereof does not appear on the list approved by order of the Minister of Finance.
4 – The evidence referred to in no. 1 must take place following notification of the taxpayer, made with a minimum advance of 30 days."
(...)
"Article 23-A
Charges Not Deductible for Tax Purposes
1 The following charges shall not be deductible for purposes of determining taxable profit, even when accounted for as expenses of the taxation period:
(...)
r) The amounts paid or owed, of any kind, to natural or legal persons resident outside Portuguese territory, and there subject to a tax regime identified by order of the member of the Government responsible for the area of finance as a regime of clearly more favorable taxation, unless the taxpayer proves that such charges correspond to operations actually carried out and do not have an abnormal character or an exaggerated amount."
The territory of Hong Kong was (and still is) included, in 2013 and 2014, in the "list of countries, territories and regions with privileged taxation regimes, clearly more favorable", which appears in Order no. 292/2011, of 8 November, which amended Order no. 150/2004, of 13 February.
Following notification for such purpose, the Claimant presented extensive documentary evidence to prove the operations carried out by company H….
AT understood that the payments made to company H… are not deductible, alleging as results from its position expressed above.
From the evidence produced in the proceedings, it results that the Claimant managed to prove, both the carrying out of the operations and the fact that the same do not suffer from the defect that is imputed to it by AT of its abnormal and/or exaggerated character.
As follows.
It resulted from the evidence produced that the Claimant, in order to address the crisis felt in the national real estate market in the years at issue in the proceedings, contracted with company H…, a company based in Hong Kong, which exercised a global activity of acquisition of Chinese citizens wishing to invest in real property in Portugal, the acquisition of Chinese clients for the purchase of the Claimant's real properties, in the said years of 2013 and 2014.
This acquisition activity included actions of publicity and disclosure in China about the advantages and benefits of the acquisition of real property in Portugal, payment of travel, accommodation and meals expenses, as well as other expenses related to their stay and visit to the Claimant's properties, assistance to Chinese citizens in obtaining visas for entry and stay in Portugal and their accompaniment in visits to the Claimant's properties, hiring of drivers to make the travel of Chinese citizens in Portugal, namely between the airport and the hotel, to foreign services and borders offices, banks and restaurants and visit to the main tourist points of Portugal.
Within the scope of this acquisition activity, company H… accompanied the Chinese citizens in Portuguese territory, by it acquired, providing them with personalized treatment, which from the perspective of business conduct is something normal and traditional in that country, as was proven by the examination of witnesses at the judgment hearing.
There are no grounds for doubts about the carrying out of this activity, not only because commercial documentation and correspondence exchanged between the Claimant and company H… was attached, relating to these activities, but also because this was the tenor of the witness testimony produced at the judgment hearing, by those who had direct contact in Portugal with this operation, in particular the testimony of witness F…, who was the manager of the operations of company H… at the time of the taxable facts at issue in the proceedings.
Indeed, the fact, which is not disputed, that the Claimant sold in the space of 4 months 14 units, whereas previously to achieve the sale of the same number of units it needed 4 and a half years, it is clear to the Tribunal the decisive importance of the existence of this acquisition activity, for without it we cannot see how Chinese citizens, in China, would have knowledge that the Claimant had real properties for sale in Portugal, if it directly made no publicity for such.
On the other hand, the fact that the remuneration of company H… is only paid, as a rule, upon the execution of the real property acquisition transactions of the Claimant, ensures an actual link between the payments made and the underlying acquisition activity carried out by said company.
For this reason, it results from the evidence produced that the expenses incurred by the Claimant with payments to company H… correspond to operations actually carried out.
In this context, it appears manifestly unjustified to require of the Claimant, to prove the effectiveness of the activity developed by company H… that this (without the AT, however, questioning the existence of services rendered, or saying what evidence it seeks in concrete) come to dispel the "reasonable doubts about the extent of the services actually rendered", for, in addition to constituting an indeterminate request, the Claimant only made payments based on the results obtained by company H…, that is, always and only when the acquisition transactions of its properties were executed, not thus running any business risk.
Thus, it is to be considered proven that the payments correspond to operations actually carried out.
As regards the abnormal character of the said expenses or their exaggerated amount, a defect which AT imputes, it is important to say as follows.
The precepts in question (identified above) are, in their essence, normative provisions that are normally designated as special anti-abuse norms, insofar as they prevent taxpayers from, in a specific situation, using a determined conduct to obtain a tax advantage. It relates to payments or amounts owed to entities resident outside Portuguese territory and there subject to a clearly more favorable tax regime, disregarding them for purposes of determining taxable profit, unless the taxpayer proves that such charges correspond to operations actually carried out and do not have an abnormal character or an exaggerated amount.
This norm, despite affinities with the dynamics of presumptions, and having similar effects, since it relieves AT of proving certain facts, in fact does not consist of a presumption, for it is not a matter of accrediting a reality based on another distinct fact, but merely of dispensing with proof of certain facts, regarding which mere allegation will trigger the legal effects proper to it, unless other facts are proven that are incompatible with those.
Thus, when a given taxpayer makes payments to a non-resident entity subject to a privileged tax regime, must prove that the payment was actually made and that it has a normal character or else that it is not exaggerated.
Regarding the burden of proof inherent in this precept, it must be said that this, although falling essentially on the taxpayer, does not dispense AT from collaborating in the evidentiary effort, given that evidence in tax proceedings has some specificities.
Having made this brief introduction regarding the nature of this type of norm in tax matters, we also adhere to the position expressed by the Arbitral Tribunal, in the already mentioned case no. 198/2017-T, which examined a case in all respects similar to that in the present proceedings and of which the relevant excerpt is now transcribed:
"Regarding the normality of payments for the provision of services of acquisition of clients for the acquisition of real property, it is evident, as it is a regulated activity of provision of services, precisely as regards real property (Decree-Law no. 69/2011, of 15 June) and, like any professional activity, is remunerated. What would constitute abnormality would be the provision of services free of charge to the Claimant, the (…) bearing the expenses of the activity.
Regarding the amount of commissions, it concerns the requirement of 'non-exaggeration' and not that of 'non-abnormality' for purposes of said articles 65 and 23-A of CIRC.
To decide whether or not there is exaggeration cannot take as comparison terms the percentages of commissions that the Tax and Customs Authority says are habitually charged by real estate companies, between 3% and 5%, as the activity developed by (…) is not limited to what is normally carried out in real estate brokerage, which does not involve expenses of the order of those that were proven to be borne by (…) (payment of travel, accommodation, food, transport, interpreters, etc.).
On the other hand, the assessment of the requirement of non-exaggeration should be made taking into account the situation of the taxpayer, seeking to ascertain whether the payment should be considered excessive, from its perspective, in the context in which it must decide to pay for the services. From this perspective, the payment would be exaggerated when it is demonstrated that the taxpayer could obtain the same service for a lower amount.
It results from the evidence produced that the Claimant intended to sell the real properties as quickly as possible, as it was foreseen that the process of construction and sale of the real properties would be completed by 2010, five years after the start of the construction process, and had still not managed to sell them by 2013 and 2014, due to the situation of economic and financial crisis affecting Portugal.
(...)
Under these conditions the payment cannot be considered exaggerated, as it is justified by the need to obtain the acquisition services and there being no alternative at a lower price. The reasonableness of the payments made to (…) is further strengthened by the fact that the Claimant was not affected by the payments it made to it, as it only paid it when it materialized the sale of the real properties and what it paid to (…) added to the sale price that the Claimant itself set and intended to obtain for itself."
It is important, thus, to determine the meaning of the elements that must be proven.
It results from the evidence produced that what is at issue in the proceedings is not the provision of real estate brokerage services (cases in which the Claimant paid commissions that ranged between 2.2% and 2.5%) but rather the provision of a service much more comprehensive than that and which passed through the provision of an acquisition service (with company H… bearing the costs of travel and accommodation of these potential Chinese clients in the visits they made in Portugal, translation costs, legal advice in China and Portugal, the collection and legalization of documents, etc…) in the Chinese territory of Chinese clients and of promotion of the stock of the Claimant's real properties, and without the Claimant having incurred expenses with it, only doing so when the acquisition transactions of its properties were executed, thus not running any business risk.
On the other hand, the very units sold in the space of 4 months were sold at a value approximately 20% higher than that practiced in the national market, this increase being reflected in the final Chinese clients, to allow absorbing, in part, the commission of 15% that the Claimant would contractually have to pay to company H…, but still achieving the sale of the units at a value higher than they would have been sold with the intervention of national mediators.
Not being in question in the proceedings the provision of a real estate brokerage service, as was proven, cannot be making comparisons with the same, as the AT did, for these are diverse services and much more comprehensive than a simple real estate brokerage.
Under these conditions the payment cannot be considered exaggerated, as it is justified by the need to obtain the acquisition services (which "translated" into the sale in record time of 14 units, proving to be a correct bet from the commercial and financial perspective) and there being no alternative at a lower price. The reasonableness of the payments made to company H… is further strengthened by the fact that the Claimant was not affected by the payments it made to it, as it only paid it when it materialized the sale of the real properties and what it paid to company H…, as was said, added to the sale price that the Claimant itself set and intended to obtain for itself.
From the foregoing, it is concluded that the Claimant proved that the payments made to company H… were not abnormal nor exaggerated, complying with the tax legislation in force.
It is concluded, thus, that the acts of additional assessment at issue in the proceedings suffer from the defect of violation of law due to error in the factual and legal presuppositions, whereby they cannot subsist in the legal order.
Issues of Precluded Examination
Given that the request for arbitral pronouncement is based on violation of law, which provides effective protection of the Claimant's interests, the examination of the alleged unconstitutionality of article 23-A, no. 1, r) and article 88, no. 8, both of CIRC, invoked by the Claimant, is precluded as being futile (article 130 of CPC).
Regarding the Request for Compensatory Interest
As for the request for payment of compensatory interest petitioned by the Claimant, the same cannot be judged favorably as petitioned, inasmuch as the payment of the additional assessments at issue in the proceedings was not made, but only the payment was proven, on 10-7-2017, of an additional IRC assessment in the amount of €13,287.16 (see doc 29, attached with the request) without it being demonstrated that such payment is related to the amounts of the additional assessments object of this impugnation.
In fact, under these conditions of evidence, AT cannot be condemned to return the "amount unduly paid increased by the respective compensatory interest", pursuant to the provisions of article 43 of the General Tax Law (LGT).
IV. DECISION
For which reason the Arbitral Tribunal agrees to:
- judge the request for arbitral pronouncement as favorably decided, and, in consequence:
- determine the annulment of the additional IRC assessments no. 2017…, relating to the fiscal year 2013 and Assessment no. 2017…, relating to the fiscal year 2014, in the respective amount of € 172,835.24 and € 239,203.16, amounts which include the compensatory interest accrued of € 17,789.86 and € 16,699.20;
- judge the request for compensatory interest as unfavorably decided; and
- judge the examination of the other issues raised as precluded.
V. VALUE OF THE PROCEEDINGS
In accordance with the provisions of articles 306, no. 2, of CPC and 97-A, no. 1, subsection a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 398,681.88.
VI. COSTS
Pursuant to article 22, no. 4, of RJAT, the amount of costs is fixed at € 6,426.00, to be borne by the Respondent, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.
Lisbon, 15 March 2018.
The Collective Arbitral Tribunal
(José Poças Falcão)
(Henrique Nogueira Nunes)
(Leonor Fernandes Ferreira)
(The text of this decision was prepared by computer, pursuant to article 131, no. 5 of the Code of Civil Procedure, applicable by operation of article 29, no. 1, subsection e) of Decree-Law no. 10/2011, of 20 January (RJAT), being its wording, by choice of the majority of the arbitrators, governed by the spelling prior to the Orthographic Agreement of 1990.)
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