IRC Tax Deductibility of Daily Allowances and Untimeliness of Request – CAAD Decision 434/2015-T

ARBITRATION DECISION

I – REPORT

1. On 13 July 2015, A…, Lda, with corporate identification number…, with registered office at Rua…, nº…, …, …, …, (…-…), came, pursuant to the provisions of paragraph a) of item 1 of article 2, paragraph a) of item 2 of article 5, item 1 of article 6 and paragraph a) of items 1 and 2 of article 10, all of the Legal Regime for Arbitration in Tax Matters (RJAT), governed by Decree-Law nº 10/2011, of 20 January, to request the constitution of an arbitral tribunal with a view to issuing an arbitral pronouncement of declaration of illegality and consequent annulment of the tax act embodied in the supplementary IRC assessment nº 2014…, dated 30/06/2014, relating to the financial year 2011, in the amount of € 2,249.61 (two thousand, two hundred and forty-nine euros and sixty-one cents). With the initial Application were attached, in addition to the powers of attorney and proof of payment of the arbitration fee, eleven documents.

2. In the Request for arbitral pronouncement, the Applicant opted not to appoint an arbitrator and it was by decision of the President of the Deontological Council, pursuant to item 1 of article 6 of the RJAT, that the signatory was appointed as sole arbitrator, who accepted the position within the legally prescribed period.

3. With the parties notified and there being no refusal of such appointment (article 11, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code), the arbitral tribunal was constituted on 22 September 2015, in accordance with the provision of paragraph c) of item 1 of article 11 of the RJAT, and on the same date, an arbitral order was issued notifying the Tax and Customs Administration (AT or Respondent) pursuant to article 17 of the RJAT.

4. The Tax and Customs Administration (AT or Respondent) sent, on 22 and 23 October 2015, the administrative file (PA) and the Reply, and the Applicant presented, on 3 November 2015, a response to the exception raised by the Respondent.

5. Pursuant to article 18 of the RJAT, the tribunal scheduled a meeting for 16 February 2016, with a view to witness examination, which the Applicant failed to attend although reiterating the indispensability of witness examination, whereupon, with the consent of the other Party, by order of 7 March, a new meeting was scheduled for 31 March 2016 and the decision period was extended by two months.

6. On the eve of the 31 March 2016 meeting, the Applicant communicated the impossibility of attendance by one of the witnesses indicated by it, absent abroad, proposing a new adjournment. The meeting was maintained for hearing of the witness (JJ…) presented by the Respondent, with a new date being set - 19 April 2016 - for examination of the witnesses to be presented by the Applicant.

7. On 19 April 2016, two witnesses (B…, as a substitute for the one initially indicated, and C…) indicated by the Applicant were heard, with the Parties undertaking to submit their respective written submissions within a period of 15 days, successively, which occurred on 5 May and 18 May, respectively. Having regard to the successive adjournments, the period for decision was further extended by two months, and it was informed that the decision would be issued by the end of that period.

8. The Request for Pronouncement

In the initial Request, the Applicant sustains, in summary (our responsibility):

• From the provisions of item 1 of article 23 results the deductibility of costs incurred by the company as travel allowances and from paragraph f) of item 1 of article 45 of the IRC Code no additional formal requirement results regarding the documents that may be presented by the taxpayer for purposes of fiscal deductibility of expenses with travel allowances.

• The documents referred to in the law are, regardless of the form they take, sufficient to permit control of the travel and indispensability thereof, with an itinerary map not being required that would permit control of the locations, time of actual stay and daily amount assigned, in accordance with the case law of tax courts.

• The maps submitted by the Applicant permit determination of date, vehicle, route and number of kilometres and the invoices contain mention of the travel allowances and the kilometres, although the values are only itemized in the map.

• The Respondent only disputes the insufficiency of the information contained in the documentation and not the truthfulness of the documents nor the indispensability of the expenses, but the existing documentation permits judgment, with no justified reason being given for the non-acceptance of the costs by the AT.

• Indispensability must take into account the case law and doctrinal guidance that only excludes acts inconsistent with the social purpose and the burden of proof of indispensability, it being the case that the AT did not rebut the presumption of truthfulness of the accounts.

• The costs corresponding to the value of travel allowances to workers, totalling € 3,764.95 should be considered indispensable for obtaining the profit of the Applicant.

• As well as the amount paid as travel allowances and compensation for travel in the personal vehicle of partner D…, in the amount of € 10,000.00, since the Applicant must travel frequently to its client "E…" to define strategies and adopt any contractual alterations, as well as to possible clients, with a view to business expansion, it not being an obstacle to the consideration of costs that were only recorded on 31-12-2011.

• The travel by the partners of the Applicant to company "F…", in May, October and December, is also justified by declaration of company "F…", with the objective of assessing possible partnerships between both companies.

• Not having the AT justified the reason why it did not consider the existing documentation sufficient, it must be concluded that the travel allowances proved indispensable for maintenance of the income source and realization of gains subject to tax, since according to article 342 of the Civil Code, item 1 of article 100 of the CPPT and item 1 of article 74 of the LGT it was its duty to prove that the amounts disbursed by the partners for travel do not constitute travel allowances.

• The corrections made by the IT must be considered illegal, proceeding to their revocation and annulment of the IRC assessed, as well as to the reimbursement to the Applicant of the amount seized which was applied to payment of the enforceable debt and to the conviction of the Respondent in the payment of indemnity interest.

1. The Reply

The Respondent states, in summary (our responsibility):

As a preliminary matter, it raises the exception of non-compliance with time limits:

• The subject matter of the present proceedings, as results from the tenor of the request formulated by the Applicant, are the assessment acts and not the act of rejection of the gracious complaint, which constitute different acts in content, form and legal requirements, being procedurally distinct and differentiated interventions.

• The time period for presentation of the request for arbitral pronouncement is 90 days counted from the date of the deadline for payment of the assessment which occurred on 22.09.2014, whereby the present request for arbitral pronouncement, presented on 13.07.2015, is manifestly untimely, with expiration of the right of action being verified, an exception which determines the absolution of the Respondent from the proceedings (paragraph h) of item 1 of article 89 of the CPTA and paragraph e) of item 1 of article 287 of the CPC, applicable ex vi article 2 of the RJAT).

Regarding the legality of the assessment:

• Considering the facts analyzed in the inspection procedure relating to the financial year 2011, it was found that regarding expenses with travel allowances to workers, the prerequisites for fiscal deductibility are not met for tax purposes pursuant to paragraph f) of item 1 of article 45 of the IRC Code (…) and regarding "expenses with travel allowances and compensation for travel in personal vehicle" of the partner (…) there was not presented (…) sufficient proof of the actual travel by the partners in service and therefore in the interest of the respondent, not having consequently demonstrated the necessary causal relationship of indispensability so as to be encapsulated in item 1 of article 23 of the IRC Code.

• This situation led to the rejection of the gracious complaint of the assessment because the Applicant did not demonstrate during the inspection procedure that the accounting documents, embodied in itinerary maps, ensure control of the travel in question and that such costs appeared indispensable for obtaining profit having regard to the type of activity of the Applicant.

• The expenses with travel allowances relating to workers are documented only by declarations thereof and regarding the expenses relating to "travel allowances and compensation for travel in personal vehicle" of the partner, there is insufficiency regarding the preparation of "itinerary maps" as well as lack of clarity in the allocation of the allowances and movements to the accounts of the partners.

• Based on articles 23, 45 and 88, all of the IRC Code, in the wording at the date of the facts, and having regard to the nature of the expenses incurred with travel allowances, which are difficult to prove (often corresponding to true hidden wage supplements for which reason the legislator restricted their acceptance only to cases in which they were allocated to clients), it is concluded that the law does not exempt taxpayers from the requirement of possessing elements capable of demonstrating that the final price indicated to the client contemplates the values relating to expenses with travel allowances and compensation for travel in personal vehicle of the worker.

• In the proceedings before us, the documents presented by the Applicant do not possess the requirements demanded for proof that the amounts paid as travel allowances are intended effectively to reimburse workers for expenses incurred in work travel because no discrimination is made as to how the amount of travel allowances to be received in each month is determined (indicating, for example, the amount paid as travel, accommodation and food), it being that according to article 2 of the IRS Code, travel allowances exceeding the legal limits are subject to taxation in IRS.

• Thus, regarding the mentioned expenses relating to the workers named, the prerequisites for fiscal deductibility for tax purposes are not met, pursuant to paragraph f) of item 1 of article 45 of the IRC Code.

• With respect to the expenses with travel allowances and compensation for travel in personal vehicle of the partner of the Applicant, D…, there was not presented, either in the course of the inspection procedure or in the hearing right, sufficient proof of actual travel by the partner in service and in the interest of the Applicant, whereby it did not demonstrate the necessary causal relationship of indispensability so as to be encapsulated in item 1 of article 23 of the IRC Code, with the limitation established in paragraph f) of item 1 of article 45 of the same Code.

• Not only did the Applicant not present any documentation supporting the actual performance of the travel the subject of travel allowances recorded, as also it did not present substantial justification sustaining the allocation of said travel allowances and the transportation subsidy (Kms) as well as its objective connection with the activity of the company.

• The circumstance provided for in law is verified (for situations in which travel allowances were not invoiced to clients, there was no taxation in IRS, nor are there control maps) of non-verification of the conditions of deductibility provided in article 45 item 1 paragraph f) of the IRC Code, and it is not the fact that the Applicant subjected them to autonomous taxation that automatically makes them deductible.

• The assessment act challenged should be considered valid whereby, even if the exception invoked is not found to be well-founded, the Respondent should be absolved of the requests for declaration of illegality of the assessment and payment of indemnity interest.

1. Production of witness evidence and submissions

The witnesses heard were, on the part of the Applicant, the company's accountant and a bank manager who is a friend of the partners, and, on the part of the AT, a tax inspector who oversaw the inspection.

Following the production of witness evidence, written submissions were presented by both Parties, as well as documents (12 by the Applicant and 17 by the Respondent).

10.1. Submissions of the Applicant

The Applicant argues that the witness evidence made it possible to prove that, with all the tractors (one of its own property and six leased) in operation, and having a single client, "E…", with registered office in … Spain, the partners of the Applicant proceeded there periodically, between one to three times per month, to deal with matters related to freight forwarders, it being that the Applicant made visits to other potential clients, namely to "F…", with whose representatives the partners met in the months of May, October and December, to assess potential partnerships between both companies.

Regarding expenses with employees, it emphasizes the declaration of one of the witnesses to the effect that it was customary for workers to perform functions for one month on a trial basis. Thus, regarding expenses for travel relating to G…, it considers them justified with the travel maps in March and April (doc nº 1 attached with submissions), it being the case that the worker signed an employment contract for an indefinite term on 1 April 2011 (doc. nº 2 attached with submissions). As well as the allowances relating to H…, worker of the Applicant under the employment contract for an indefinite term, dated 26 April 2010 (doc. nº 5 attached with submissions). These two workers presented documents of expenses incurred and paid as travel allowances (docs. 6, 7 and 8).

Regarding the travel allowances of I…, it states that they relate to the trial period being documented through the travel maps relating to the months of September and October (doc. nº 8 attached with submissions), having signed with the Applicant an employment contract for an indefinite term dated 3 October 2011 (doc. nº 9 attached with submissions) and incurred expenses in September with tolls and material for the truck (Doc. nº 10 attached with the submissions).

It states that the travel maps provided by the above-mentioned employees were in all aspects similar to those presented with reference to the remaining employees of the Applicant, relating to which no restrictions were placed on their deductibility. It attaches declarations from the Institute of Mobility and Transport, I.P. ("IMTT") with a view to proving that the travel allowances paid to the employees were incurred in service of the company, and in vehicles thereof (doc. nº 12 attached with submissions).

It argues that the conclusion of the AT in its Inspection Report regarding "(…) absence of requirements for the consideration of said expenses as costs for tax purposes" was answered with the attachment on 29.05.2014, when exercising the right of hearing, of all the necessary supporting documentation, demonstrating the fulfillment of all requirements for the consideration of the expenses in question as deductible for tax purposes.

It downplays the testimony of the tax inspector accusing him of, in the administrative phase, having considered that the hearing of witnesses had no added value and of partiality in his intervention in the proceedings because "the present inspection was conducted with the exclusive purpose of verification of compliance with formal requirements (even if not essential) and not with the purpose of seeking material truth". To the contrary, it considers the testimony of the people presented by it, a bank manager with good personal relations with the partners of the Applicant, and of the accountant in service of the company, spontaneous, sincere, assured and decisive for the clarification of the case, particularly for "clarifying the employment relationship with the employees and the criteria necessary for the processing of the payment of travel allowances".

Thus, it considers it proven that the total amount of € 3,746.95 incurred with travel allowances to workers G…, H… and I… should be accepted for tax purposes as they proved indispensable for obtaining profit, in that, "the Applicant being engaged in international road freight transport and in the leasing of vehicles for freight transport without driver, its workers had to travel frequently to the client, as is readily understood, to provide support and assistance".

It considers it proven that in 2011 the partners of the Applicant made 29 trips (between 2 to 4 trips per month), to hold meetings with the Client or with potential clients and inspections of the trucks, whose itineraries comprise travel between the cities of Vila Real, Bordeaux, Irun, Valladolid, Pamplona, Bayonne and Porto (doc nº 10 attached with the P.I), it being the case that there exists for each trip a travel map, in a vehicle with registration plate …-… -…, property of partner D…, in which are indicated the travel allowances and the days of the month in which the trips occurred, as well as the kilometres traveled, the place of departure and arrival and the respective hours (doc. nº 13 attached with submissions).

10.2. Submissions of the AT

Recalling that the RIT had considered not proven the payment of travel allowances to workers either because no maps had been exhibited in the course of the inspection procedure through which control of the travel to which they refer could be effected (attesting that travel, accommodation and food occurred in service of the taxpayer in a foreign country) but only declarations signed by officials, without specification of dates, hours of departure and arrival, and respective localities, regarding all locations of origin and destination, as well as the service performed and the calculation of the amounts to be received (referring only to the total amount of the allowances), analyzes the documents now attached, noting that:

• Regarding worker G…: the amounts appearing in the travel maps relating to the months of March and April (docs. 1 and 2) do not coincide with the amounts referred to in the receipts for travel allowances abroad (declarations), relating to the months of March and April; and the amount of travel allowance appearing in the map relating to the month of March (974.49 €), doc. 1, is divergent from the amount of the payroll map for the month of March (968.35 €); the amount of travel allowance appearing in the map relating to the month of April (955.07 €), doc. 2, does not coincide with the amount of the payroll map for the month of April (524.20 €); the employment contract only now exhibited, and never during the inspection procedure, was signed on 1 April 2011, despite there being travel allowances paid in March.

• Regarding worker H…: the amount paid to the employee (appearing in declaration) as travel allowances abroad, relating to expenses incurred in travel, accommodation and food in service of the Taxpayer during the month of April, does not appear in the payroll map; although the employee was paid amounts relating to expenses incurred in travel, accommodation and food in service of the TP during the month of April, the employment admission contract – not exhibited during the inspection procedure period, was signed only on 26 April 2011, with commencement on 27 April.

• Regarding worker I…: the amount paid under receipt as travel allowances abroad, relating to expenses incurred in travel, accommodation and food in service of the TP during the entire month of September and October, does not appear in the payroll maps for the months referred to, it being the case that such employee is an employee of another company and not of the taxpayer in question; the employment contract for an indefinite term signed by the employee, only now exhibited under doc. nº 9, concerns the employment relationship with the company J…, Lda, and not with the Respondent.

It further states that the travel allowance maps (doc. 8): were not exhibited during the inspection procedure period; the trial period of ninety days, referred to in clause 2 of the employment contracts now presented, is counted from the date of its entry into force; the invoices now exhibited, allegedly to prove expenses paid by the employee, do not permit the justification sought.

It requests the removal of the documents from the proceedings or disregard of documents for purposes of proof of the alleged facts. It considers that the documents relating to declarations of the managers that were not opportunely attached without any justification being presented for the fact that they were not annexed to the request for arbitral pronouncement should be valued negatively. It recalls that regarding expenses with travel allowances and compensation for travel in personal vehicle of the partner of the Applicant, D…, the IT said it had not been presented, either in the course of the inspection procedure or in the hearing right, any documentation supporting the actual performance of the travel the subject of travel allowances recorded, nor substantial justification sustaining the allocation of said travel allowances and the transportation subsidy (Km) and their objective connection to the activity of the company.

It further emphasizes: the imprecise knowledge revealed by the witnesses of the applicant about the location of the destinations of the partners in their frequent trips; the travel allowances being recorded only on 31 December 2011, conflicting with the intrinsic nature of compensation for incurred expenses; only receipts of payments to the partner existing despite supposedly both partners having traveled, as well as the fact of there being direct payments to the account of the child of the partners.

1. Subject matter of the request

The fundamental legal question that is the subject matter of the Request for appreciation of the legality of the corrections made by the Tax Inspection, consists of knowing whether the amounts recorded by the Applicant as "travel allowances and travel in personal vehicle", allocated in the financial year 2011, to three persons identified as workers of the company Applicant in the proceedings, and to one of its partners, can or cannot be deducted as expenses for purposes of determining taxable profit in IRC in the same tax year, having regard to the provisions of the norms of the IRC Code, namely articles 23 and 45 in the wording then in force.

1. Regularization

The collective arbitral tribunal is materially competent, pursuant to the provisions of articles 2, item 1, paragraph a) of the Legal Regime for Arbitration in Tax Matters.

The parties enjoy legal personality and capacity and have standing pursuant to articles 4 and 10, item 2, of the Legal Regime for Arbitration in Tax Matters (RJAT) and article 1 of Ordinance nº 112-A/2011, of 22 March.

The proceedings are not affected by any nullity.

The exception of non-compliance with time limits raised by the Respondent must be previously known, which shall be done after determination of the facts.

II GROUNDS

1. Facts Proven

Based on the documents attached by the Applicant (Request for arbitral pronouncement, documents attached with the Request and with submissions) and by the Respondent (Reply, Administrative file attached to the proceedings and submissions)[1].

13.1. The Applicant, a limited liability company with capital of 125,000.00 euros and only two partners (husband and wife), is engaged in road freight transport and in the leasing of freight vehicles without driver, using for this activity one tractor vehicle and six leased tractor vehicles (articles 11 and 12 of the Request, RIT, II.3.1.3. and 4.).

13.2. The international road services in 2011 were provided to a single client, based in Spain, the company "E…" RIT, II.3.1.2).

13.3. The Applicant was the subject of a general scope inspection action, initiated by Service Order nº OI2014…, relating to the financial year 2011, occurring between 28 January 2014 and 15 April 2014, and targeted at control of intra-community VAT operations, but came to conclude that, regarding that aspect, the anomalies detected found justification in the change of legal form of the client company, with no illegality being committed regarding the application of paragraph a) of item 6 of article 6 of the VAT Code (article 15 of the Request, article 21 of the Reply, RIT, II.1.ii) and III, items 10 to 12).

13.4. In the analysis of expenses and losses and their respective supports, carried out during the inspection action referred to in the previous item, the AT came to consider that regarding expenses with "travel allowances and compensation for travel in personal vehicle of the worker" the expenses were not documented, for each payment made, with a map through which control of the travel to which the expenses relate could be effected, but only by declarations of the workers, in a total amount of € 3,746.95, corresponding to travel allowances allocated to G… (€ 1,370.92 and € 810.15, relating to March and April, respectively), H… (€ 291.70, in the month of April) and I… (€ 834.78 and € 439.40, relating to September and October, respectively), with it also being verified that they were not employees of the company, G… in March, H… in April and I… in September and October. It was considered that the expenses with travel allowances in the amount of € 3,746.95 «cannot be deductible as expense for purposes of determining taxable profit, given the provisions of paragraph f) of item 1 of article 45 of the IRC Code, in that they are not properly documented with an "itinerary map" through which control of the travel to which those expenses relate could be effected, "namely the respective locations, time of stay, purpose and daily amount assigned"», preventing deductibility as expenses pursuant to paragraph f) of item 1 of article 45 of the IRC Code (RIT, II.3. 14. i) and 17).

13.5. The inspection action further detected the recording in the account…- Remuneration of Corporate Officers (travel allowances) of expenses with travel allowances and compensation for travel in personal vehicle of partner D…, in the amount of € 10,000.00, verifying that the amount was only recorded on 31-12-2011 and the itinerary maps, although prepared periodically, do not identify the clients the subject of visits (the Applicant has only one), that the amount of € 10,000.00 was allocated to both partners – € 4,855.00, to K… and € 5,145.00 to D… and not to the latter as invoked (RIT, II.3. 14. ii), 19 to 21).

13.6. To clarify doubts about indispensability of the expenses referred to in the previous items pursuant to item 1 of article 23 of the IRC Code, the Applicant, requested to prove the actual performance of travel by the partner and present the «documentation supporting travel allowances in the amount of 10,000.00, recorded in the account …- remuneration of corporate officers and respective means of payment», clarified that «the supporting documentation is the travel maps themselves presented opportunely, it being the case that, and in accordance with the law, they were subject to autonomous taxation. As regards the means of payment, it is effected through ATM withdrawals throughout the year, in accordance with the needs of the partners, which can be proven in bank statements» (RIT, 24)

13.7. The draft Report concluded that «the taxpayer not only did not present any documentation supporting the actual performance of the travel the subject of travel allowances recorded but also did not present substantial justification sustaining the allocation of said travel allowances and the transportation subsidy (km) and the objective connection thereof with the activity of the company» (RIT, II.3. 22 to 25).

13.8. On 12 May 2014, the Applicant was notified of the draft Report of the tax inspection to hear, if it wished to exercise its hearing right, which it did on 29 May 2014. It argued (nº 9) that the itinerary maps ensure control of the travel in question and attached two declarations, both dated 27 May 2014, one from "F…" informing that the partners met in the months of May, October, and December 2011 in that company to assess possible partnerships and another from "E…", attesting that the partners of the Applicant meet monthly at the registered office of that company. It further indicated (nº 18) three witnesses (L…, M… and N…) with a view to confirming the travel by the partners in service of the company (article 3 of the Request, Doc. nº 4 attached with the Request).

13.9. In pronouncing on the exercise of the hearing right, the final Report of the Tax Inspection came to conclude, regarding expenses with travel allowances to workers, that "the expenses are not documented, for each payment made, with a map through which control of the travel to which those expenses relate could be effected, but by declarations thereof"; that only worker G… appears on a payroll sheet, but only in April (and there only with documentation by map of the amount of travel allowances of € 524.20 and without documentation of the amount of € 810.15) and not in March, it being the case that the allowance of travel allowances can only be paid to dependent workers and as compensation for travel in service of the company (RIT, IX- 4 to 6).

13.10. Regarding the travel allowances and compensation for travel of partner D…, the final Report of the IT concluded, in particular: Regarding the indispensability of the expense invoked (point 22 of the hearing statement), that «the fact that the taxpayer has as its corporate purpose "road freight transport and the leasing of freight vehicles without driver" does not in itself constitute an indicator that expenses with travel allowances "constitute charges indispensable for the realization of taxable income or for the maintenance of the income source" because the fact that travel allowances appear in the enumeration of item 1 of article 23 of the IRC Code does not prevent that for the respective expenses to be deductible there must be a causal and justified relationship with the productive activity of the company; Regarding the manner of payment of the respective allowances (point 21 of the hearing), and clarification on ATM withdrawals and movements in the accounts of the partners, it considered that "paragraph f) of item 1 of article 45 of the IRC Code requires that the recording of the expense with the allowance or compensation with the personal vehicle of the worker (partner) be made for each payment through support in a map that permits control of the travel in question, which in the case before us does not happen at all as already referred to and previously evidenced" (RIT,IX-11).

13.11. The Final Report of the IT concluded that "the taxpayer cannot make (after notification to that effect) proof that the alleged travel was performed in service and in the interest thereof or that such were generative of taxable outputs" and, although admitting the possibility of witness evidence as a means of proof regarding the indispensability and actuality of the operation and amount of the expense, concluded that the three witnesses listed to prove the travel of the partners in the interest of the company did not present, by their labor or family dependence, conditions of credibility and impartiality, whereby they had not been heard.

13.12. Understanding finally, that, regarding expenses with travel allowances paid to workers the prerequisites of deductibility for tax purposes were not met (article 45, item 1, paragraph f), namely by non-existence of a travel control map and, that, regarding expenses with travel allowances and compensation for travel and in personal vehicle of the partner, insufficient proof was not presented of the actual performance of travel by the partners in service and in the interest of the Applicant, and therefore the necessary causal relationship of indispensability" (article 23 of the IRC Code), the content of the draft RIT was confirmed, maintaining the corrections as mere arithmetic adjustments with determination of taxable profit of € 13,746.95, giving rise to the drawing up of a single DC with corrections in IRC (RIT, IX - 23 and 24).

13.13. The RIT was notified to the Applicant by official letter nº…, dated 18 June 2014 (article 27 of the Request, Doc. nº 7 attached with the Request).

13.14. Following the RIT, supplementary IRC assessment nº 2014… was issued, dated 30 June 2014, and a credit note of 23 July 2014, with a value to be paid of € 2,249.61 being determined (article 28 of the Request, and Doc. nº 1 attached with the Request).

13.15. On 21 January 2015, the Applicant presented a gracious complaint of the assessment act, with the respective administrative procedure being instituted in the Finance Service of … under nº …2015… (article 28 of the Request, Doc. nº 2 attached with the Request, PA, fls. 26 to 58).

13.16. With the complaint were presented 4 documents (assessment note, prior hearing, RIT and proof of seizure of the amount in issue in the proceedings).

13.17. The gracious complaint was the subject of report nº …/2015, of 6 March 2015, to the effect of rejection, and, favorably disposed by the Head of Finance of the Finance Service of …, notified to the Applicant by official letter nº …/…/2013, for exercise of prior hearing right (which did not occur), following the rejection by order of the Head of Finance, of 7 April 2015, notified by official letter …/…/2015 of the same date (article 30 of the Request, Doc. nº 3 attached with the Request, PA, fls. 122 to 131).

13.18. The present Request for arbitral pronouncement was presented by the Applicant on 13 July 2015, attaching eleven documents – namely with a view to illustrating the existing documentation on the values paid with travel allowances (documents nºs 8 and 9) and proving the expenses with travel allowances of partner D… (doc. nº 10) - and requesting examination of two witnesses (one came to be presented and the other was replaced).

13.19. The Applicant delivered with the Request records of the routes made in August 2011 and services provided by worker and vehicle/tractor, verifying the following distribution of vehicles (O…/…; P…/…; Q…/…; R…/…; G…/…; S…/…; T…/… and U…/…) (Doc. nº 8 and 9).

13.20. The Applicant attached with the Request twelve receipts relating to travel allowances paid to D… with indication in each document, relating to each of the months of the year 2011, of services described in the following manner: January - inspection of vehicles in Spain, meeting E… in Valladolid; client prospection; February - meeting of tire supplier in Vallodolid, client meeting in Irun; March - meeting V… in Bordeaux; April - Meeting F… in Bordeaux; May - Meeting W…/Bordeaux; June - meeting E… in Bordeaux; July - meeting X… in Pamplona and Y… in Porto; August - truck inspection in Valladolid; September - Meeting E… in Irun and X… in Pamplona; October - meeting Z… in Irun; November - Truck inspection in Vallodolid, meeting E… in Irun; December - meeting Bordeaux, in Bordeaux and meeting E… in Irun. A daily travel allowance value of € 95.10 is indicated, with monthly amounts between January and December of €940.00, €925.00, €750.00, €850.00, €830.00, €780.00, €800.00, €800.00, €815.00, €860.00, €805.00, €845.00, totalling € 10,000.00.

13.21. With the submissions the Applicant presented eleven documents: travel map of G… with tractor …-… -…, in March and April 2011 (doc. 1); employment contract between A… and G… beginning 4 April 2011 (doc. 2); a note dated 13-04-2011, of payment to be made (forfait 60.00, net 50.00) with stamp of BB… (doc. 3); a note, with date of 09-05-2011, relating to transfer from AA… of 60 euros to G…, indicating truck material (doc. 4); employment contract between A… and H… beginning 27 April (doc. 5); a note, with date of 04-04-2011, including transfer from AA… of € 291.70 euros to H…, indicating type of operation "payment of salaries and subsidies"; on the same note there is referred a transfer of 135.00 to T… of "penalty overtime", with handwritten note indicating J…, Lda; receipt of € 291.70 travel allowances signed, with date of 30 April 2011, by H…(doc. 7); travel map of I… with tractor …-… -…, in September and October 2011 (doc. 8); employment contract between J…, Lda and I…, beginning 4 October 2011 (doc. 9); invoice and receipt of payment by A… of 70 euros to a company in Irún; payment of a toll in Amarante of 6.65 in Amarante on day 6-9-2011 and a receipt of 12-09-2011 of payment of 16.00 (doc. 10); note, with date of 07-10-2011, relating to transfer via AA… of 92.65 euros to G…, indicating tires and tolls (doc. 11); Licenses issued by IMTT, in the name of A…, holder of license …/2009, for international road freight transport on behalf of another – license for the vehicle with registration plate …-… -…, valid between 16-04-2010 and 15-04-2014; license for the vehicle …-… -… valid from 20-04-2010 to 15-09-2014; and license issued in the name of J… Lda., holder of license…, valid from 30 December 2013 to 30 December 2018, for the vehicle …-… -… (doc. 12); certificate proving payment on 13-12-2011, of the Motor Vehicle Tax relating to the vehicle …-… -… in the name of D… .

13.22. From the payroll maps appear as employees in March 2011 CC…, DD…, T…, P…, EE…, FF…, S… and GG…, with all, with the exception of EE… receiving travel allowances abroad and TIR; in April 2011, CC…, DD…, T…, P…, S…, GG…, G… and O…, with all, having received travel allowances abroad and TIR travel allowances; and in September and October 2011, DD…, T…, S…, GG…, G…, O…, Q… and HH…, with all, with the exception of GG…, having received travel allowances abroad and TIR travel allowances (Doc. nº attached by the Respondent in submissions).

13.23. In the fiscal enforcement proceedings meanwhile instituted the amount seized was used in payment of the enforceable debt (doc. nº 11 attached with the Request).

1. Facts Not Proven

It is considered not proven:

14.1. That the maps relating to travel of workers and partners attached only with the submissions are contemporaneous with the 2011 financial year the subject of tax inspection that is the basis of the corrections in issue in the proceedings.

14.2. The legal-labor classification of G…, H… and I…, indicated as being in service of the Applicant, during the periods of March and until 5 April (G…), April, until day 27 (H…) and September and October (I…).

14.3. The actual performance and purpose of the 29 trips, appearing in receipts, and invoked in the proceedings as performed by the partner (or partners) of the Applicant.

1. Grounds for the Facts Proven and Not Proven

The tribunal's conviction was based on critical analysis of all the evidence produced - the documents attached with the request for arbitral pronouncement and with the submissions of both Parties, the administrative file attached by the Respondent, the matter established by express or implied agreement. The testimony of the witnesses was interpreted taking into account their respective professional and/or personal connections to the Applicant or to its respective partners.

1. Application of Law

16.1. Preliminary matter – the exception of non-compliance with time limits/expiration of the right of action

16.1.1. Arguments of the parties on the matter

The Respondent argues that, by application of articles 10, item 1, of the RJAT and 102, items 1 and 2, of the CPPT, the Applicant should have presented the Request for arbitral pronouncement within 90 days counted from the deadline for voluntary payment of the assessment, on 22 September 2014. And, that although it impugned administratively on 21 January 2015 the tax act, the subject matter of the present proceedings, as results from the tenor of the request formulated by the Applicant, are the assessment acts and not the act of rejection of the gracious complaint, which constitute different acts in content, form and legal requirements, being procedurally distinct and differentiated interventions. It argues that given the subject matter of the present proceedings is fixed by the request and cause of action, it is not irrelevant the manner in which the same comes stated in the request for arbitral pronouncement, whereby the Request presented on 13 July 2015, of the assessment act, is manifestly untimely.

In support of its thesis it cites various arbitration decisions issued within the scope of the CAAD.

The Applicant replied to the exception, arguing that what is in issue in the present proceedings are the factual and legal prerequisites that were at the origin of the IRC assessment referring to 2011, which it considers illegal and whose annulment it requests. The IRC assessment act mentioned is, therefore, the primary act, the first-instance act and direct subject matter, being, indeed, the declaration of illegality of acts of assessment of taxes that falls within the competence of arbitral tribunals, as explicitly results from paragraph a) of item 1 of article 2 of the RJAT. It argues that the timeliness of the present request is drawn, in an unambiguous manner, from paragraph a) of item 1 of article 10 of the RJAT, which defines the periods for presentation of requests for constitution of an arbitral tribunal, by making express reference to the "(…) period of 90 days, counted from the dates provided for in items 1 and 2 of article 102 of the CPPT as regards acts susceptible of autonomous challenge (…)" (emphasis of the Applicant),

And mentions that this legal framework results clear from the request for arbitral pronouncement, especially from articles 1 to 8, in particular article 7 which provides that: "(…) pursuant to the provisions of paragraph e) of item 1 of article 102 of the Code of Procedure and Tax Process, the period for presentation of the request for constitution of an arbitral tribunal begins to be counted from notification of the remaining acts that may be the subject of autonomous challenge", which naturally includes the orders of rejection.

16.1.2. Analysis of the issue

Indeed both in the first article of its Request and in the conclusion thereof, the Applicant requests the declaration of illegality and annulment of the act of supplementary IRC assessment relating to 2011.

But it results from the Request for constitution of the tribunal, namely from articles 5, 6, 29 and 30, that the situation underlying the request also results from the rejection of the gracious complaint, the Applicant (Docs. 2 and 3 attached with the Request) moreover having delivered documentation relating to the administrative challenge, illustrating the dialogue maintained in that phase and the confirmation of the position of the Respondent on the assessment of the tax.

As we have argued in other proceedings (for example, proceedings nºs 165/2015-T and 347/2015-T), we believe that what is aimed at with the frequently cited understanding, peaceful and reiterated, of case law, that "the judicial challenge that follows a decision of gracious complaint presented against an assessment act has as direct subject matter the decision act of the complaint and as indirect subject matter the assessment act itself, as, indeed, is drawn from paragraph c) of item 1 of article 97 of the CPPT" (all, Order of the STA of 20 May 2015, in proceedings nº 01021/14), aims fundamentally at defending that "once the rejection of the complaint is annulled on procedural grounds, it falls to the court to know the remaining defects imputed to the assessment act, it being the case that this court is competent to know, in such challenge, both the rejection of the complaint and the defects imputed to the assessment" (order referred to and which cites other orders of the STA, of 16.06.2004, in proceedings nº 01877/03, of 28.10.2009, in proceedings nº 0595/09, of 18.05.2011, in proceedings nº 0156/11, of 16.11.2011, in proceedings nº 0723/11, of 18.06.2014, in proceedings nº 01942/13).

That is, it is intended that in judicial challenge the competence of the court extends beyond the knowledge of the illegality of the assessment to the knowledge of the defects of the administrative decision itself (of 2nd level) that analyzed the legality of the 1st level act. But, even if beginning by attacking the illegality of the 2nd level act (or 3rd), the last decision which may even have its own illegalities, "the real subject matter of the challenge is the assessment act and not the act that decided the complaint, whereby it is the defects thereof and not of this order that are truly in issue (…)."" (Order of the STA 18 May 2011, proceedings nº 0156/11).

Moreover, regarding arbitral proceedings, it must be taken into account that "the competence of arbitral tribunals is limited to the declaration of illegality of assessment acts covering only the acts of rejection of second-level acts (complaints or hierarchical appeals) that actually knew of the legality of the first-level acts" (Jorge Lopes de Sousa, Guide to Tax Arbitration, Almedina, 2013, p. 120 to 123)[2].

In the proceedings before us, the legality of the assessment was appreciated and confirmed by an administrative act of second level, the Applicant does not consent and comes to present a Request for arbitral appreciation having as subject matter a claim defined pursuant to article 2 of the RJAT. It invokes the illegality of a tax assessment act, subject of re-appreciation and confirmation in administrative challenge procedure referred to by the Applicant, invoked in the Request and illustrated by the documentation attached.

Although it may be admitted that the Applicant could have formulated its claim in a more perfect manner, a decision of expiration of the right of action would not take into account the application of the principles "pro actione" and in dubio pro favoritate instanciae", in accordance with article 7 of the CPTA, [3] and the constitutional guarantee to effective judicial protection (articles 20, item 1 and 268, item 4, of the CRP).

Thus, it is considered, taking into account the date of notification of the final decision of the gracious complaint, that the present Request for constitution of an Arbitral Tribunal, presented on 13 July 2015, does not appear untimely in light of the provisions of paragraph a) of item 1 of article 10 of the RJAT.

Analyzing now the Request.

16.2. The fiscal relevance of the expenses in question

16.2.1. The established facts and position of the parties

From the facts established above, let us retain that:

a) The Applicant is engaged in the activity of international road transport having in 2011 a single client, the company "E…", based in Spain and using seven vehicles;

b) At issue in the proceedings are the expenses recorded in that year, relating to:

• Travel allowances allocated to G…, H… and I…, because the Respondent, in addition to putting into question the quality of dependent workers of the Applicant at the time of the payments that occurred, considers documentation to be lacking, namely itinerary maps through which control of the travel to which those expenses relate could be effected, namely the respective locations, time of stay, purpose and daily amount assigned.

• Travel allowances and compensation for travel in personal vehicle of partner D…, having regard to the non-coincidence of the dates of preparation of travel allowance maps and the recording of the expenses only on the last day of the year, as well as the lack of indication of essential elements in itinerary maps for various months, lack of clarity in the allocation of expenses to the two partners and relationship with bank movements between the company accounts, partners and their child.

c) The Applicant attached, in the hearing phase on the draft Report of the Tax Inspection, declarations of two companies – of its client "E…", attesting that the partners of the Applicant met "monthly at the registered office of that company, to deal with matters relating to its company, namely billing adjustments and point agreements" and of "F…" informing that the partners met in the months of May, October, and December 2011 "for possible partnership".

d) The Applicant attached, with the final submissions in the present proceedings, documents containing employment contracts relating to G…, H… and I… as well as maps handwritten by the first and third workers, indicating travel made with vehicles abroad in the periods of March, April, September and October 2011. Regarding the second worker, it attached doc. nº 6 of transfer from the company account in AA… with description "remaining balances".

16.2.2. Normative provisions to be taken into account and framing of the facts

At issue is the application in the specific case of the provisions of articles 23 (expenses) and 45 (expenses non-deductible for tax purposes) of the IRC Code, when they provide the following (in the wording in force at the time of the facts, underlined by us):

· «Expenses are those which are demonstrably indispensable for the realization of taxable income or for the maintenance of the income source, in particular: Of an administrative nature, such as remuneration, including those attributed as participation in profits, travel allowances, current material of consumption, transport and communications, rents, litigation, insurance, including life insurance and operations of the "Life" branch, contributions to savings-retirement funds, contributions to pension funds and to any supplementary social security schemes, as well as expenses with employee termination benefits and other post-employment or long-term benefits» (paragraph d) of item 1 of article 23).

· «The following charges are not deductible for purposes of determining taxable profit, even when recorded as expenses of the tax period: Travel allowances and charges with compensation for travel in personal vehicle of the worker, in service of the employing entity, not invoiced to clients, recorded under any title, whenever the employing entity does not possess, for each payment made, a map through which control of the travel to which those charges relate could be effected, namely the respective locations, time of stay, purpose and, in the case of travel in the worker's personal vehicle, identification of the vehicle and its owner, as well as the number of kilometres traveled, except insofar as there is taxation under IRS in the sphere of the respective beneficiary (paragraph f) of item 1 of article 45)».

(underlined by us)

The questions raised by the Respondent when conducting the tax inspection action, and to which the Applicant had the opportunity to respond in the course of the procedure and, also, in exercise of the hearing right on the draft RIT, focused on:

1st. The non-existence of proof of the quality of company workers regarding three persons at the time payments were made to them as travel allowances, in a total amount of € 3,746.95, in some months of 2011;

2nd. The non-existence of documentary proof required by law regarding travel allowances, regarding the payments made to said three persons and also regarding the payment of travel allowances to partner D…, in the amount of € 10,000.00, recorded on 31/12/2011.

3rd. The non-existence of proof regarding the indispensability of the expenses referred to in the previous points.

Regarding the first question, witness evidence is invoked in the proceedings – declarations of the company's accountant – to the effect that the Applicant in the recruitment of drivers uses the practice of initially using them "on trial", which would explain the non-existence of contracts. With the final written submissions, the Applicant came to attach a copy of employment contracts for an indefinite term, relating to the workers in question: two contracts executed by A…, one with G…, commencing 4 April 2011 and the other with H…, commencing 27 April 2011. The third contract attached was executed by J…, Lda., with I…, commencing 4 October 2011. In all these contracts a trial period of 90 days is provided for.

The Applicant, invoking the three witnesses heard (including the tax inspector involved in the correction in issue in the proceedings) argues that the travel maps provided by the employees whose travel allowances are in issue in the proceedings are similar to the maps prepared by the remaining employees and regarding which no problems of deductibility were raised regarding the respective expenses.

Regarding the second question, the Applicant has repeatedly said that under IRC, regarding expenses to be deducted fiscally, the taxpayer can prove the expenses through any means of proof permitted by law. In the final submissions it considers it proven that the partners of the Applicant made, in 2011, 29 trips (between 2 to 4 trips per month), to hold meetings with the Client or with potential clients, and truck inspections, invoking documents attached only with the Request (doc. nº 10 attached with the P.I) and the fact that the partner paid Motor Vehicle Tax relating to 2011.

Regarding the third question, the indispensability of the expenses in question, it invokes its quality of company with international road activity, the need to, monthly, adjust matters with its single client in Spain as well as to seek clients and partnerships, for which it traveled three times to a company in France. Faced with this argument, the AT concluded, in the final Report, that the expenses with travel allowances to workers did not comply with the provisions of article 45, item 1, paragraph f), of the IRC Code, namely by non-existence of a travel control map and regarding expenses with travel allowances and compensation for travel and in personal vehicle of the partner, insufficient proof was not presented of the actual performance of travel by the partners in service and in the interest of the Applicant, and therefore the necessary causal relationship of indispensability" (article 23 of the IRC Code).

It should be noted that it is not expressly raised in the proceedings the issue of the application of article 2 of the IRS Code[4] - to know whether the amounts paid to persons indicated as workers and manager of the company constituted income subject or not to IRS in the sphere of those who received them – but only the issue of the recognition of the respective expenses as costs in the sphere of the legal person that made the respective payments.

However, the two issues are closely related. Indeed, the non-taxation of payments made as travel allowances, travel expenses, trips or representation, justifies itself on the basis that they do not constitute effective income but rather income or advance relating to expenses incurred by the worker in the interest of the employing entity, being therefore always conditional, requiring accounting for such expenses by the end of the respective financial year, namely through the corresponding supporting documentation (paragraph d) of item 3 of article 2 of the IRS Code).

The tax regime for this type of expense aims "to shelter two conflicting interests. To permit the full fiscal deductibility of those that are a necessary instrument for obtaining business profits and to avoid situations of ("double") tax evasion", "double" in that such expenses be deductible for purposes of calculating the taxable income of the entity that bore them (which happens to be the employing entity) and, being directed to the satisfaction of personal interests, do not constitute taxable income in the sphere of the worker[5].

1. 1. Interpretation of the applicable provisions

In each tax year it is necessary to proceed to the allocation of income and expenses, as well as other positive and negative components of taxable profit (article 18 IRC Code). Regarding expenses account must be taken, in particular, of the provisions of the aforementioned articles 23 and 45 of the IRC Code [6].

The notion of expenses in article 23 (in the wording prior to the amendments introduced by Decree-Law nº 159/2009, of 13/07, the concept used was "costs") contained «a true general clause: those appearing in the accounts shall be accepted as such, for tax purposes, provided that they are proven and indispensable"[7]. That is, the law accepts, as a starting point, the economic concept of cost, materialized according to accounting rules. However, it subjects its fiscal relevance to the aforementioned conditions. Finally, for different reasons (…) it excludes, totally or partially, the fiscal acceptance of certain accounting costs»[8].

Thus, as to these two conditions it may be said, following Rui Duarte Morais:

As to proof of a cost, accounting entries are supported by supporting documents, invoices or equivalent documents, and although imperfect documents may be and should be accepted, the use of means of proof admitted in law, the Author points out lines of force evidenced by case law. Among those lines of force[9], the last is highlighted, recognizing that, when the law requires added formal requirements for proof of the existence of a particular cost, the failure to comply with such requirements normally results in its non-acceptance for tax purposes, and exemplifying, precisely, with the case of travel allowances and compensation relating to travel of the worker, in personal vehicle, in service of the employing entity (ob. cit. note 178).

In commentary on non-deductible expenses (article 45, in 2001, article 42, in the wording prior to 2010), the Author says regarding travel allowances and compensation for travel in personal vehicle of the worker: «Such expenses are, in principle, accepted as fiscal cost. Only that their proof is subject to special formal requirements, regulated in this norm. In the absence or insufficiency of such documents, proof of the effectiveness of these expenses cannot be achieved through recourse to other means, whereby they will not be accepted as fiscal costs»[10].

As to the indispensability of a cost, which Rui Duarte Morais considers perhaps the most difficult problem posed by the subject of "costs", the Author stresses the difference as opposed to the wording of the CCI, which required indispensability and reasonableness of costs, to conclude that costs to be accepted as necessary are those that taxpayers consider as such in the pursuit of economic activity and in the exercise of their freedom of choice, to decide how to manage their companies. It recognizes, however, that tax law refuses some expenses borne, by considering that certain costs may be determined by non-business but personal motivations (of partners, administrators, creditors, etc.).

On the interpretation of this concept of indispensability of cost, the analysis of the ratio of the provision made by doctrine and case law divides itself, as synthesized in a very clear manner in the arbitral decision of proceedings 731/2015-T, between a broad thesis and a restricted one[11]: «As to the first, it considers that expenses are indispensable that have connection with the activity of the taxpayer, that is, they must have a causal and justified relationship with the activity developed by the company. The second observes that only expenses are indispensable that have an objective relationship with the income»[12].

As to the moment relevant for appreciation of indispensability, it will be fundamental to take into account, even if subsequently, the circumstances known at the time of the taking of the decision[13].

As to the burden of proof of demonstration of the relationship between the cost and the economic activity developed, an interpretation appears to translate a correct position in light of the law, and balanced in light of the interests at stake, that adopted in proceedings 731/2015-T, citing in particular the Order of the TCAS of 27 March 2012, proceedings nº 05312/12, where it was concluded that: «It is safe to say that the burden of proof of the indispensability of its costs does not fall on the taxpayer. However, if the tax administration/AT, acting subject to the principle of legality, in a well-founded manner, triggers doubt about the justified relationship of a particular expense with the activity of the taxpayer, necessarily and logically, being more able to do so, it falls to the latter an explanation about the "economic congruence" of the operation, which is not fulfilled by the abstract and conclusive allegation that the expense is part of corporate interest and/or the existence of justified relationship with the activity developed, instead requiring that the taxpayer allege and prove concrete, adjudicable facts, capable of demonstrating the reality, truthfulness, of the business actions causing the recorded expenses, in order that, among others, the supervisory function of the AT is not made impossible».

16.4. Application of law to facts

Having identified the questions of fact and law relevant to the application of law to the case that is the subject of the Request, it can be concluded:

Regarding the issue of proof of the expenses in question, it was necessary, at the time of the facts, the existence of records that would permit control of the travel to which those expenses relate "namely the respective locations, time of stay, purpose and, in the case of travel in the worker's personal vehicle, identification of the vehicle and its owner, as well as the number of kilometres traveled, except insofar as there is taxation under IRS in the sphere of the respective beneficiary".

As it was proven the Applicant when conducting the tax inspection, to justify a total of expenses in the amount of € 3,746.95 with travel, made in the months of March, April, September and October, only provided declarations signed by the three workers G…, H… and I…, regarding amounts relating to March and April, April, September and October, respectively. At that time the Respondent had no access to the employment contracts of these workers but only to the payroll records prepared by the company, having concluded that only G… appeared in these records but only regarding April and, even there, without supporting map of the travel regarding the amount of € 810.15.[14]

It should be noted that with the Request (article 47) were attached maps relating to the month of August (doc. nº 8) but that month is a period regarding which none of the situations that gave rise to corrections is verified since, as referred, the situations considered unjustified concerned the three workers who had signed declarations to the effect that they received travel allowances without appearing in the payroll lists prepared by the company in the months of March (G…), April (H…), and September and October (I…), and without it having been proven their quality as workers of the Applicant in the same periods. Worker G… appeared in the payroll lists in April but there were no itinerary maps[15].

Now it is inexplicable that the maps relating to travel of workers attached to the proceedings only with the submissions were not presented during the tax inspection nor in the prior hearing phase or, even, in administrative gracious complaint proceedings or even when presenting the request for arbitral pronouncement. That is the reason why the tribunal did not acquire the conviction that the maps, only recently attached to the proceedings (after the tribunal insisted in the witness examination session whether the IT had not found documents identical to those filled out by the other workers), were filled out at the time of the facts and thus, are not susceptible of proving the described reality.

Also regarding the expenses with the trips of the partner, the description of the reality does not present verisimilitude. Besides the questions (until surmountable if accompanied by grounds and documentation that would permit it) of lack of clarity as to who made the trips (the partner, both partners?), of the non-coincidence between the apparent periodicity of the travel maps and the payment of allowances on the last day of the year and of the recipients of the transfers, there is no doubt that the maps presented are not sufficiently convincing even due to the lack of elements proving the description of the facts that they contain.

For the present tribunal considers it inexplicable, also, the non-existence of any material indications of the trips of the partners (for example, notes of accommodation and food expenses, fuel costs, proof of the content of the meetings through minutes of the companies involved, exchange of postal or electronic correspondence, texts/project agreements).

As to the insufficiencies pointed out to the documentation of the travel allowances of the partners of the Applicant, it states that the expenses with their respective travel constitute charges indispensable for the realization of income or maintenance of the income source, invoking that the taxpayer can resort to all means of proof permitted in law. And it argues that, although doctrine defends that "the lack of an external document can be supplemented by other means of proof that demonstrate in an unequivocal manner the correctness of the assessment" [16], it must be taken into account that in the case before us it is not about expenses relating to the acquisition of goods or services – situation in which the absence of an external document would justify special requirement in the proof that would complement the internal document - but rather about expenses relating to travel in personal vehicle in service of company and travel allowances.

In the proceedings before us, the travel of the partner (or partners) are documented by receipts with monthly dates, recording on the last day of the year and two subsequent declarations with stamps of two foreign companies, based in Spain and France, dated 2014 to confirm, in an extremely vague manner, existence of meetings that may have taken place in 2011. It is not understood why these documentary elements without any special formal value would themselves provide proof if unaccompanied by elements that would permit confirming the respective credibility.

What was expected was the production of adequate proofs, which could even be internal (minutes, reports, exchange of correspondence, etc.), proving the business relationship that would justify the recorded travel, and indications such as documents of the partners proving expenses they made in order to travel at the time the travel was effected.

But elements of proof of that type were not attached in any of the phases of the proceedings. Even the witness evidence (of the accountant in service of the company and of a bank manager with very close personal relations with the partners) was vague – although with reaffirmation of the interest of the Applicant in traveling much to meet with the client in France and possibly with other clients - and did not present convincing elements.

That is, it is not configured as unjustified the conclusion in the RIT that "the taxpayer not only did not present any documentation supporting the actual performance of the travel the subject of travel allowances recorded, but also did not present substantial justification sustaining the allocation of said travel allowances and the transportation subsidy (km) and their objective connection to the activity of the company (…)", it being clearly insufficient, in light of the suspicion that arose and request for supplementary proofs by the AT, to respond that "it is clear that the activity of the Applicant justified all these trips, which appeared indispensable for obtaining its profit".

On the other hand, and contrary to the thesis of the Applicant that the AT does not put into question the sufficiency of the documentation, intending only to discuss the indispensability of the expenses and unduly restricting the freedom of business initiative, it must be taken into account that the sufficiency of the documentation proves fundamental in demonstrating the truthfulness of the expenses and their respective indispensability.

In the present case it is a question of evaluating the indispensability of the expenses with travel allocated to the partners which are not properly proven, either as to existence or as to causes. The declarations of the two companies (one, E…, its only partner at the time and even today[17], and the other, F…, indicated as an eventual partner) apart from being very much distant temporally from the dates invoked as having been realized, are extremely vague and leave the greatest doubts. How can one consider justified monthly trips to France to discuss billing adjustments and fluctuations in the price of fuel? Are there no telephones, mail, namely electronic? The same may be said of three meetings to discuss possible partnerships, unaccompanied by other written contacts, proposals, reports, etc. That is, the declared meetings apart from the reduced credibility as to having been the effective cause of such costly travel (given the irrationality of such cost for a company) left no trace that confirms them.

It is thus considered entirely pertinent the observation of the Respondent about the insufficiency of the Applicant's argument based only on its quality of company with international road activity to justify monthly trips to adjust matters with its single client in Spain and three trips to France to seek clients.[18]

For, doubts having been raised by the AT on well-founded grounds regarding the indispensability of the expenses, it fell on the Applicant the burden of explaining their "economic congruence", alleging and proving concrete, adjudicable facts, capable of demonstrating the reality, truthfulness, of the business actions causing the recorded expenses, in order that, among others, the supervisory function of the AT is not made impossible"[19].

In the examination, the witnesses appeared to confirm the thesis that independently of existence of maps, "if there is payment it is because there were trips", because the Applicant complies with the law, and it is not admitted that there would be payments without consideration. But such thesis inverts the data of the issue: it is not payments that, by themselves, justify the trips, rather proof of the trips must be made to justify the payments.

Similarly, the invocation by the Applicant does not impress that given the volume of business it would justify the amount of expenses here in discussion. For, with no adequate supporting documentation not existing, it is not about accepting any "forfait". It may even be admitted that some of the three workers in question, or even all, actually performed services that were economically supported by the Applicant and/or that contributed to its respective profits and that remain to be deducted fiscally. The same may be said of the trips made by the partners.

But there is no conclusive proof of that for the reasons that have been set out.

For the absence and proof difficulties may have contributed the personal character of the company, composed of only two partners, husband and wife, and coexisting in the same business with another company, J… . The joint use of resources may lead to some lack of organizational and financial rigor, even with prejudice to some of the companies[20].

But it is neither the administration[21] nor the tribunal, which limits itself to applying the law, [22] that is called upon to overcome the eventual operating deficiencies of the Applicant.

Thus, and in summary, it is concluded that:

• The well-founded doubts of the Respondent regarding the quality of workers of the Applicant, in 2011, of G… (in March), H… (in April) and I… (September and October), at the time they subscribed declarations to the effect of having received travel allowances were not destroyed by the evidence produced in the present proceedings since the employment contracts, shown only in the submissions phase in the present proceedings, commenced on 1 April and 27 April, respectively, as to the first two (without map of the second), and as to the third, the contract attached does not appear to be executed with the Applicant but with another company.

• The (unexplained) late presentation of said maps also prevents attribution of probative value as regards the month of April, as regards G… .

• Proof was not produced of the actual performance of the travel allegedly effected during the entire year of 2011 and justifications of the receipts subscribed by partner D… regarding travel allowances in the amount of € 10,000.00 recorded on 31/12/2011.

• The lack of proof of the expenses referred to also constitutes a situation of non-existence of proof regarding the indispensability of these expenses, leading to their non-deductibility as expenses for purposes of determining taxable profit in IRC in the 2011 financial year, by application of the joint provisions of articles 23 and 45 of the IRC Code.

• The IRC assessment the subject of the proceedings does not appear illegal, whereby the act is maintained in the legal order, with no indemnity interest being, in consequence, due regarding payment of the respective tax debt.

Considering the Request not well-founded, the request for conviction in the reimbursement of amount paid on account of the debt is not well-founded, it not falling to the arbitral tribunal to appreciate in concreto the legality of the determination of the debt in fiscal enforcement proceedings.

1. Decision

With the grounds set out, the arbitral tribunal decides:

a) To judge not well-founded the request for arbitral pronouncement of declaration of illegality of the IRC assessment relating to the year 2011 (nº 2014…) in the amount of € 2,249.61.

b) To condemn the Applicant in costs.

1. Value of the Proceedings

In harmony with the provisions of item 2 of article 315 of the CPC, in paragraph a) of item 1 of article 97-A of the CPPT and also of item 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings the value of the proceedings is fixed at € 2,249.61 (two thousand, two hundred and forty-nine euros and sixty-one cents).

1. Costs

For the purposes of the provisions of item 2 of article 12 and item 4 of article 22 of the RJAT and of item 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 612.00 (six hundred and twelve euros), pursuant to Table I annexed to said Regulation, to be borne entirely by the Applicant.

Let notification be made.

Lisbon, 22 July 2016.

The Arbitrator

(Maria Manuela Roseiro)