Process: 483/2018-T

Date: May 6, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 483/2018-T) addresses the deductibility of impairment losses on uncollectible debts for IRC (Corporate Income Tax) purposes. The taxpayer, A... SA, contested an additional IRC assessment of €923.03 for fiscal year 2014, arising from the Tax Authority's rejection of a €93,000 impairment loss on a credit from a 2009 land sale. The key issue centered on whether the taxpayer adequately proved the debt's existence and uncollectibility. The public deed stated the purchase price had been "already received," creating a presumption of payment. The taxpayer claimed payment irregularities occurred but failed to produce documentary evidence supporting this assertion. Critically, when the debtor was declared insolvent in 2013, the taxpayer did not claim the credit in insolvency proceedings, despite holding a voluntary mortgage as security. The taxpayer only recognized the impairment loss in 2014 through simultaneous accounting entries that immediately reversed the impairment and recognized an expense for uncollectibility. The Tax Authority argued this violated Article 23 and Articles 28-A and 28-B of the IRC Code, which govern the recognition of impairment losses. The burden of proof issue was central: while AT questioned the debt's existence based on the deed's express statement of payment, the taxpayer bore the responsibility to prove non-payment and that an enforceable debt actually existed at year-end 2014. The decision examines formal requirements for impairment loss deductibility, the evidentiary standards in tax disputes, and the procedural consequences of failing to claim credits in insolvency proceedings when seeking subsequent tax deductions.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

I. REPORT

On 27 September 2018, A..., SA, with the Tax Identification Number ... and registered office at Street ..., no. ..., ... (hereinafter referred to as Claimant), came, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Tax Arbitration (LRTA) and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March (Binding Ordinance), to request the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority is respondent (hereinafter AT or Respondent), informing that it does not intend to use the faculty to appoint an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to AT, and, pursuant to the provisions of no. 1 of article 6 and paragraph b) of no. 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, a responsibility accepted within the applicable time limit, without opposition from the Parties.

A. Subject Matter of the Request:

The Claimant seeks the declaration of illegality and the consequent annulment of the additional assessment of Corporate Income Tax (IRC) with the number 2018..., in the amount of € 923.03, issued by AT with reference to the year 2014, following a tax inspection procedure, as well as the restitution of that amount, plus indemnifying interest.

Summary of the Positions of the Parties

a. Of the Claimant:

The Claimant holds that the additional IRC assessment for the fiscal year 2014, as well as the correction to the taxable matter resulting from the tax authority's non-acceptance of an impairment loss relating to an uncollectible debt underlying it, are illegal due to lack of reasoning and a defect of violation of law.

The alleged credit is attributed to the sale of a plot of land for construction in 2009, in whose deed of sale it is stated that it was sold for the "price of € 93,000.00, already received", but whose actual receipt does not appear to have taken place, due to irregularities with the respective means of payment.

According to the Claimant, although the company that acquired the said land was declared insolvent in 2013, the credit was not claimed in the insolvency proceedings conducted by the Judicial Court of São João da Madeira nor was the impairment loss recognized in prior years, given the conviction that it was not uncollectible, as it was secured by a voluntary mortgage registered in its favour.

The Claimant considers "grave and slanderous" the assertion of well-founded doubts about the existence of the credit stated in the Tax Inspection Report, as AT failed to prove its non-existence, "having not exhibited any other document proving its actual payment/receipt".

The Claimant further attributes the defect of lack of reasoning to the Tax Inspection Report, by making a blanket reference to article 23 of the IRC Code, thus "not making evident which specific rule (number, paragraph) that the company violated for not considering in its taxable matter the amount of € 93,000.00, relating to the credit deemed uncollectible, in the fiscal year 2014."

The Claimant concludes by seeking the annulment of the additional IRC assessment for the fiscal year 2014, as well as the restitution of the amount paid, plus indemnifying interest.

b. Of the Respondent:

Following the dispatch notifying it pursuant to and for the purposes provided for in article 17 of the LRTA, AT submitted its response and attached the administrative file (PA), upholding the legality of the assessment in question and defending the non-meritoriousness of the claim.

It alleges, in summary, that by direction of management, the Claimant proceeded on 31-12-2014 with a simultaneous accounting entry: 1) the recognition of impairment losses on amounts due in 100% of the value – € 93,000.00; 2) the reversal of the impairment loss recorded in 1); 3) the recognition of an expense of the fiscal year in the account '68885 Other expenses and losses – others not specified', cancelling this credit in current account, due to uncollectibility.

That, however, although the alleged debt was dated 6-5-2009, the Claimant never recognized the risk of uncollectibility, nor even considered this alleged credit of doubtful collection, not recognizing any impairment loss during the years 2010 and 2013, pursuant to no. 1 of article 28-A and paragraph c) of no. 1 and no. 2 of article 28-B, both of the IRC Code.

That, regarding the debt related to the sale of a plot of land, by public deed of which it is expressly stated that the price of € 93,000.00 had already been received, it is upon the Claimant that the burden of proof rests that that amount was never received and that at the date of the facts it constituted an amount due to be collected.

And that, having the company that acquired the land been declared insolvent on 21-10-2013, by judgment rendered by the Judicial Court of São João da Madeira, ... Court, Proc. .../13...TBSJM, the Claimant did not claim the said credit, knowing that the fact of holding a real guarantee on this property does not exempt it from claiming its credit in the insolvency proceedings.

That the accounting expense recognized relating to the uncollectibility of the alleged credit cannot negatively influence the fiscal result of the fiscal year 2014, pursuant to article 23 of the CIRC, whereby the amount of € 93,000.00 should be added for purposes of determining that taxable result.

That the Tax Inspection Report is not affected by any defect of reasoning, resulting from its content, in a clear, congruent and sufficient manner, what were the reasons of fact and of law that justified the respective conclusions.

The Respondent concludes by requesting the waiver of the witness evidence offered by the Claimant and that, if the tribunal does not so decide, the inspector who conducted the inspection and drafted the Tax Inspection Report be questioned as a witness.

By arbitral dispatch dated 01.02.2019, the Claimant was notified to specify the articles of the PI relating to facts not susceptible to documentary proof, with respect to which it sought the production of witness evidence.

By petition of 26.02.2019, the Claimant informed of its intention that the witnesses listed be questioned about the facts described in articles 8, 11, 12, 14, 15 and 23 of the PI, relating to the existence of the credit whose impairment was not accepted by AT.

On 12.03.2019, the holding of the meeting referred to in article 18 of the LRTA was waived, and it was determined that the proceedings continue with successive written submissions, for a period of 10 days, beginning with the Claimant, with notification to it to submit documentary evidence in support of its submissions of the invalidity of the means of payment referred to in the initial petition. The Claimant was further warned that it should make payment of the subsequent arbitration fee before 6 May 2019, the date set for delivery of the arbitral decision.

On 25.03.2019, the Claimant requested an extension of the time period for submission of the requested documentary evidence, having on the same date presented its written submissions.

By arbitral dispatch of 27.03.2019, the procedural proceedings previously defined were maintained, as the extension of the time period for presentation of complementary evidence was not justified and such extension would result in an extension of the time period for submissions by the Respondent, in violation of the principle of equality of the parties.

Both Parties submitted their written submissions.

The Claimant, in its submissions, came to invoke, namely, that (i) AT failed to prove the non-existence of the debt; (ii) payment was not regularized due to irregularities occurring in the means of payment used, which was known to the contracting parties; (iii) simulation through "divergence between the contractual intention and the declaration contained in the deed, and the real intention of the declarant, pursuant to article 240 of the Civil Code"; and v) its legitimacy to argue the nullity of the declaration.

For its part, AT came to reiterate the content of its Response, placing upon the Claimant the burden of proof of the non-receipt of the credit subject to the correction to the taxable profit of the fiscal year 2014, as the public deed that serves as the basis for the accounting record of the disputed amount is an authentic document.

II. TRIAL

1. The Arbitral Tribunal is competent and was regularly constituted on 6 December 2018, in accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December.

2. The parties have legal personality and capacity, are legally entitled to act, and are legally represented, pursuant to articles 4 and 10 of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. The proceedings do not suffer from defects that would render it invalid.

4. No exceptions were raised that it is incumbent upon the Arbitral Tribunal to consider and decide.

III. REASONING

III.1 FACTUAL MATTERS

In the sentence, the judge shall discriminate the proven matter from the unproven matter, reasoning its decisions (article 123, no. 2, of the Code of Procedure and Tax Process [CPPT], subsidiarily applicable to the tax arbitral proceedings, pursuant to article 29, no. 1, paragraph a), of the LRTA), under penalty of nullity, imposed by no. 1 of article 125 of the same CPPT.

A. Proven Facts:

a. The Claimant, with the ... and registered office at Street ..., no. ..., in ..., carries on as its principal activity the purchase and sale of real property (CAE 68100) and, as a secondary activity, the leasing of real property (CAE 68200), falling under the general regime for determination of taxable profit (See page 2 of the Tax Inspection Report (hereinafter TIR), attached to the PA);

b. By Dispatch no. DI2017..., of the Tax Inspection Division I of the Finance Directorate of ..., dated 25-09-2017, subsequently converted into the service order no. OI2018..., an internal inspection procedure of partial scope was opened, aimed at, namely, "Control inherent to the recognition in the fiscal year 2014 of 'other expenses and losses'" (see page 1 of the TIR);

c. Following analysis of the accounting elements requested from the Claimant, namely the "accounting extracts and respective supporting documents relating to the entry of expenses 'corrections relating to prior fiscal years' – Field A8103 of the IES of 2014" (page 3 of the TIR), were proposed, among others, the correction here challenged, which resulted in the corrected taxable result of € 66,259.19 to € 69,655.97 (page 10 of the TIR);

d. The entry recorded in the account "68885 – Other expenses and losses not specified", relating to the debt of B..., in the amount of € 93,000.00, in question in these proceedings, related to a regularization of the customer/other debtors balance, by direction of management (pages 5 and annex 4 of the TIR);

e. The tax inspection concluded that the debt of B..., of € 93,000.00, related to the purchase and sale contract occurring on 6 May 2009, in which the Claimant sold to the company "B..." "the plot of land for construction registered in the urban property matrix of the parish of ..., municipality of ..., under article no. ..." and that "Allegedly the recorded value would not have been received" (pages 7 and annex 6 of the TIR);

f. The said conclusion is based on the facts described in the extract transcribed below (pages 7 and 8 of the TIR):

g. On 6 May 2009, a public deed of purchase and sale was executed at the Notarial Office of ..., recorded on pages 57-59 of the notarial book for miscellaneous deeds no. ..., pursuant to which the Claimant sold to the company B..., SA, with registered office at Street ..., no. ..., ..., the plot of land for construction situated at the place of ..., registered under article ... of the parish of ..., municipality of ..., "for the price of ninety-three thousand euros, already received". (copy attached to the TIR);

h. On 15.11.2013, the Claimant sent to the insolvency administrator of the company B..., SA, Dr. C... (insolvency proceedings no. .../13...TBSJM – ... Court of the Judicial Court of São João da Madeira, in which B... was declared insolvent by judgment of 08-10-2013) a petition for claim of credits against the insolvent party, relating to arrears in rent, in the amount of € 94,094.01, partially secured by mortgage on the "urban property situated at the Place of ..., at Street ..., parish of ... and municipality of ..., registered in the urban property matrix under article ...", pursuant to the mortgage contract of January 2013 (copies attached to the PA);

i. The mortgage on the said urban property, to secure the amount of € 92,710.11, was registered on 30-01-2013, by AP. ... (copy of the Property Registration Certificate of ... attached to the PA);

j. The draft Tax Inspection Report was notified to the Claimant by letter no. ..., of the Finance Directorate of ..., of 29-03-2018 (CTT registration no. RH...PT), for exercise of the right to be heard within a period of 15 days;

k. The final version of the Tax Inspection Report was notified to the Claimant by letter no. ..., of the Finance Directorate of ..., of 18-05-2018 (CTT Registration no. RH...PT);

l. The Single DC was prepared with corrections for the fiscal year 2014, from which resulted the additional IRC assessment no. 2018..., of 23-05-2018, in the amount of € 923.03, subject of the present proceedings.

B. Unproven Facts:

It was not proven that the Claimant did not receive the amount of € 93,000.00, relating to the sale of the plot of land for construction situated at the Place ..., registered under article ... of the parish of ..., municipality of ..., to the company B..., SA.

C. Reasoning of the Proven and Unproven Factual Matters:

Regarding the factual matter, the Tribunal does not have to pronounce itself on everything that was alleged by the parties; rather, it has the duty to select the facts that are important to the decision and to discriminate the proven matter from the unproven matter.

Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in consideration of the various plausible solutions to the legal question(s) (cf. former article 511, no. 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, no. 1, paragraph e) of the LRTA).

Thus, taking into account the documents indicated in each of the paragraphs of the evidence above, the facts above are considered as proven and unproven, respectively.

III.2 OF THE LAW

1. Order of consideration of the defects

In accordance with the provisions of no. 1 of article 124 of the Code of Procedure and Tax Process (CPPT), of subsidiary application to tax arbitral proceedings, pursuant to article 29, no. 1, paragraph a) of the LRTA, absent defects leading to the declaration of non-existence or nullity of the challenged act, the tribunal should consider the defects alleged that determine its voidability, and should first consider defects whose merits assure the most stable or effective protection of the offended interests.

The Claimant invokes the defect of lack of reasoning of the Tax Inspection Report in which the corrections to the taxable profit declared by it in declaration model 22 for the fiscal year 2014 were determined, which defect would render the tax assessment itself illegal.

The Claimant further argues the illegality of the assessment itself, due to error in the factual and legal prerequisites, both as to the existence of the credit and as to the moment in which its uncollectibility was recognized.

Given that the period of expiry of the right to assessment referred to in article 45 of the General Tax Law (LGT) has already elapsed, it appears that the recognition of any of the alleged defects would be capable of assuring effective protection of the Claimant's interest.

1.1. Of the Lack of Reasoning

Article 268, no. 3, of the Constitution of the Portuguese Republic (CRP) imposes express and accessible reasoning for administrative acts prejudicial to the rights and legally protected interests of citizens.

As the tax act is an administrative act potentially prejudicial to the rights of taxpayers, no. 1 of article 77 of the LGT, requires that the decision of the tax procedure be "always reasoned by means of a succinct statement of the reasons of fact and of law that motivated it".

One of the tax procedures, as a succession of acts directed at the declaration of tax rights (article 54 of the LGT), is the tax inspection procedure, regulated by the Supplementary Regime for Tax and Customs Inspection Procedure (RCPITA), approved by Decree-Law no. 413/98, with its article 63 providing that the conclusions of the tax inspection report may serve as the basis for the tax assessment acts resulting therefrom.

AT thus has the duty to reason the conclusions of the tax inspection report, and such reasoning cannot "fail to be clear, congruent and to contemplate the aspects, of fact and of law, that allow knowledge of the cognitive and evaluative path pursued by the Administration in determining the" subsequent tax assessment act.

The Claimant argues that AT failed to comply with the legally required reasoning requirements, as the Tax Inspection Report would limit itself to justifying the corrections made by reference to the extensive article 23 of the IRC Code, without indication of number or paragraph, in stating that "... cannot negatively influence the fiscal result of the fiscal year 2014, pursuant to article 23 of the CIRC, whereby the amount of € 93,000.00 should have been added ...".

It is believed, however, that it is mistaken.

In fact, decontextualized, the transcribed statement could suggest a lack of clarity in the reasoning of the correction made by AT; however, in its context, preceded by the factual and legal circumstances that motivated it, namely the statement on page 8 of the TIR that "In that the alleged debt dates to 6-5-2009, the SP from that date never recognized the risk of uncollectibility, nor even considered this alleged doubtful collection credit, not recognizing any impairment loss during the years 2010 to 2013, pursuant to no. 1 of article 28-A and paragraph c) of no. 1 and no. 2 of article 28-B, both of the IRC Code", allows one to clearly know the cognitive path pursued by AT for the non-acceptance of the said loss.

In fact, it is in the stated rules that lies the possibility of deduction for tax purposes of impairment losses in amounts due, "when recorded in the same tax period or in prior tax periods", namely "Those related to credits resulting from normal activity (…) that, at the end of the tax period, may be considered of doubtful collection and are evidenced as such in the accounting records" (article 28-A, no. 1, paragraph a), of the IRC Code), provided that under the conditions referred to in article 28-B of the same Code (impairment losses on credits), limiting itself no. 2 of article 23 of the IRC Code to a exhaustive enumeration of expenses and losses deductible for the determination of taxable profit, among which impairment losses (paragraph h).

For the reasons set out above, the invoked defect of lack of reasoning of the Tax Inspection Report and, consequently, of the assessed liability is deemed non-meritorious, as it appears, without any doubt, that the reasoning set out there would have allowed the Claimant "knowledge of the reasons that led the tax authority to act, so as to enable it[them] a conscious choice between acceptance of the legality of the act and its contentious challenge".

1.2. Of the Non-Acceptance of the Impairment Loss on Credits. Of the (In)Existence of the Credit.

The Claimant argues that the correction resulting from the increase to the taxable matter calculated by it in declaration model 22 for the fiscal year 2014 of the amount of € 93,000.00 is illegal, inasmuch as it relates to an impairment loss relating to a credit recognized in its accounting as uncollectible in 100%, in the fiscal year 2014, for a debt arising from invalidity in the means of payment for the sale of a plot of land on 6 May 2009, only then recognized as uncollectible, due to insolvency of the debtor declared at the end of 2013.

However, both the Respondent and the Claimant raise as a preliminary and conditional question to that of the recognition of the impairment loss, the existence of the credit itself.

AT, considering that the said sale is a formal transaction (article 875 of the Civil Code), evidenced by public deed, in which it is stated that the price was already received, places upon the Claimant the burden of proof of non-receipt of the price; the Claimant argues that the correction made by AT cannot be based on mere doubts, but only on concrete evidence that can rebut the presumption of truthfulness of the elements declared by taxpayers.

The Claimant further argues that AT failed to prove the non-existence of the credit, as there was never a document evidencing its receipt, "since payment was not regularized due to irregularities occurring in the means of payment used".

Already in its submissions, the Claimant comes to invoke simulation and nullity of the transaction, as "Receipt of the price never happened, and both parties well knew this when they executed the deed and declared there that the price was already paid".

Let us see:

The elements of proof are intended to demonstrate the reality of the facts; however, if, after producing the possible proof, insolvable doubts remain regarding the factual matter, the rules on the burden of proof shall apply, with the burden falling upon whoever invokes the right to which the facts lead (article 74, no. 1, of the LGT).

The declarations presented by taxpayers pursuant to law, as well as the data and calculations entered in their accounting, organized in accordance with commercial and tax legislation, enjoy the presumption of truthfulness, such presumption ceasing whenever the declarations or accounting reveal omissions, errors, inaccuracies or well-founded indications that they do not reflect or prevent knowledge of the actual taxable matter of the taxpayer (article 75 of the LGT).

Subjects passive of IRC with registered office or effective management in national territory, who here carry on as their principal activity a commercial, industrial or agricultural activity, as is the case with the Claimant, are required to possess accounting organized in accordance with accounting standards, with all entries "being supported by justifying documents, dated and capable of being presented whenever necessary", in order to enable correct determination of taxable profit (articles 17, no. 3 and 123, nos. 1 and 2, paragraph a), of the IRC Code).

In the wording of no. 4 of article 115 of the IRC Code in effect for the fiscal year 2009, books, accounting records and respective supporting documents had to be kept in good order for a period of 10 years, and no. 4 of article 123 of the said Code, as amended by Law no. 2/2014, of 16 January, which republished it, extended that period to 12 years, again shortened to 10 years by Law no. 7-A/2016, of 30 March.

The public deed through which the Claimant proceeded to the sale of a plot of land for construction in May 2009, from which it appears that the respective price of € 93,000.00 was already received, has the nature of an authentic document (article 363, no. 2, of the Civil Code), endowed with full probative force, which may only be rebutted on the basis of its falsity (article 372 of the Civil Code), contradicted by means of proof showing that receipt of the sale price is not true.

Given the mandatory requirement of documentary support for accounting entries, the said means of proof could only be of a documentary nature, to be kept for a period of 10 years (and not 10 fiscal years) which, calculated pursuant to paragraph c) of article 279 of the Civil Code, would only expire at 24:00 on 6 May 2019.

It is not sufficient, therefore, for the Claimant to allege, without proving in the appropriate manner, the invalidity of the means of payment which it does not even identify or to invoke the nullity of the transaction, on the grounds of simulation, as this is not opposable to third parties in good faith (article 243 of the Civil Code), among which AT, which had no knowledge of it.

Having failed to prove the existence of the credit in the amount of € 93,000.00, it would be fastidious to even address the question relating to its acceptance for tax purposes, which thus becomes moot.

The failure of the Claimant's main claim also renders moot the consideration of the right to the requested indemnifying interest, as the correction made to the taxable profit of the fiscal year 2014 is maintained, the tax assessment challenged is likewise maintained in the legal order.

IV. DECISION

Based on the factual and legal grounds set out above and, pursuant to article 2 of the LRTA, it is decided, finding the present request for arbitral pronouncement non-meritorious, to maintain in the legal order the IRC assessment no. 2018..., in the amount of € 923.03, relating to the fiscal year 2014 and to absolve the Tax and Customs Authority of the claim.

VALUE OF THE CASE: In accordance with the provisions of article 306, nos. 1 and 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is fixed at the value of € 923.03 (nine hundred and twenty-three euros and three cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 306.00 (three hundred and six euros), to be borne by the Claimant.

Notify.

Lisbon, 6 May 2019.

The Arbitrator,

Mariana Vargas

Text prepared on computer, pursuant to no. 5 of article 131 of the CPC, applicable by cross-reference to paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 spelling agreement.

Frequently Asked Questions

Automatically Created

What are the requirements for recognizing impairment losses on bad debts (perdas por imparidade em créditos) under Portuguese IRC rules?
Under Portuguese IRC law, impairment losses on bad debts (perdas por imparidade em créditos) are governed by Articles 28-A and 28-B of the IRC Code. To be deductible, taxpayers must demonstrate: (1) the credit actually exists and is legally enforceable; (2) there is objective evidence of impairment, such as significant financial difficulty of the debtor; (3) the loss is properly calculated and documented; and (4) the credit was previously recognized as taxable income. Article 28-B specifically addresses when debts may be considered of doubtful collection, requiring progressive recognition of impairment based on the age and characteristics of the receivable. The taxpayer must maintain adequate documentation proving both the existence of the debt and the facts supporting its uncollectibility. Simply declaring a debt uncollectible through accounting entries without proper substantiation is insufficient for IRC deduction purposes.
How does the burden of proof apply when the Tax Authority (AT) questions the existence of a credit claimed as an impairment loss?
The burden of proof in tax disputes regarding impairment losses follows the general principle that taxpayers must prove facts supporting their right to deductions. When AT questions the existence of a credit, the taxpayer bears the onus of demonstrating: (1) the credit was validly created and exists; (2) it remains unpaid; and (3) it meets the legal requirements for impairment recognition. In this case, the public deed explicitly stated the €93,000 price had been "already received," creating a strong presumption of payment under Article 371 of the Civil Code. To overcome this presumption, the taxpayer needed to provide concrete documentary evidence of non-payment, such as proof of payment instrument irregularities. AT is not required to prove the negative (that payment occurred) when public documents state payment was received. The taxpayer's failure to produce banking records, dishonored checks, or other documentary proof proving payment irregularities was fatal to its claim.
Can a taxpayer claim an impairment loss on a credit secured by a voluntary mortgage if the debtor is declared insolvent?
Yes, a taxpayer can theoretically claim an impairment loss on a credit secured by a voluntary mortgage when the debtor becomes insolvent, but significant procedural and substantive requirements must be met. Under Portuguese insolvency law, creditors with real guarantees (like mortgages) have preferential rights but are not exempt from claiming their credits in insolvency proceedings. Failure to claim the credit has several IRC consequences: (1) it raises serious doubts about whether the taxpayer genuinely considers the debt uncollectible; (2) it suggests the taxpayer relies on the security interest for recovery, contradicting claims of total uncollectibility; (3) it may constitute negligent management of the credit inconsistent with business prudence; and (4) it undermines the factual basis for recognizing 100% impairment. The existence of a mortgage as security actually works against immediate full impairment recognition, as the secured property provides potential recovery value that should be considered when calculating any impairment loss under Article 28-A of the IRC Code.
What happens if a creditor fails to claim a debt in insolvency proceedings — does it affect the deductibility of impairment losses for IRC purposes?
Failure to claim a debt in insolvency proceedings significantly affects the deductibility of impairment losses for IRC purposes. This failure creates multiple problems: (1) it contradicts the assertion that the debt is uncollectible, as a creditor who genuinely believes a debt exists and is owed would participate in insolvency distribution; (2) it violates the duty to minimize losses and actively pursue debt collection, which is implicit in the IRC regime governing impairment losses; (3) it raises doubts about whether the credit actually exists or was validly constituted; (4) under Article 128 of the Portuguese Insolvency Code (CIRE), failure to claim may result in forfeiture of rights against the insolvency estate; and (5) it suggests the taxpayer is attempting to obtain a tax benefit (deduction) without taking the basic legal steps available to recover the debt. Tax authorities view non-participation in insolvency proceedings as strong evidence that the alleged impairment loss is not genuine or that the taxpayer has not met the diligence requirements for deductibility under Article 23 of the IRC Code.
What are the grounds for annulling an additional IRC tax assessment based on lack of reasoning (falta de fundamentação) in the Tax Inspection Report?
An additional IRC assessment may be annulled for lack of reasoning (falta de fundamentação) only when the Tax Inspection Report fails to meet the requirements of Article 77 of the Tax Procedure and Process Code (CPPT). The report must contain: (1) clear identification of the legal provisions allegedly violated; (2) specific facts supporting the tax adjustment; (3) explanation of how the facts constitute violations of tax law; and (4) the calculation methodology for the additional assessment. A generic reference to Article 23 of the IRC Code is generally insufficient if it doesn't specify which expenditure is being rejected and why. However, lack of reasoning is a formal defect that does not automatically invalidate an assessment if the substantive tax treatment is correct. Courts apply a materiality test: if the taxpayer understood the basis for the correction and could mount an effective defense, and if the adjustment is legally correct, minor reasoning deficiencies may not justify annulment. The reasoning must be sufficient to enable judicial review and taxpayer defense. In this case, the claim of insufficient reasoning would fail if the report clearly identified the €93,000 expense, explained why it didn't qualify as a deductible impairment loss, and cited the relevant IRC provisions.