Process: 488/2017-T

Date: April 2, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitration process 488/2017-T addressed the application of Article 6(4) of the Portuguese Personal Income Tax Code (CIRS), which establishes a presumption that payments from companies to shareholders constitute taxable profit distributions unless proven to be loans or other non-income transfers. The case involved A... SA, a real estate company facing an IRS assessment of €44,800 for fiscal year 2009. Following an external tax inspection, the Portuguese Tax Authority (AT) identified movements in shareholder account 251101 associated with shareholder B..., with credit balances increasing from €653,245.68 to €1,060,245.68. The AT detected withdrawals connected to real estate sales that bypassed the company's bank accounts and presumed these constituted taxable profit distributions under Article 6(4) CIRS. The claimant contested this assessment, arguing the presumption should not apply because the accounting entries were properly recorded in an advances/loan account, not as profit distributions. The company demonstrated that movements related to two 2006 real estate acquisitions from C... and wife D..., subsequently sold in 2009 to their son E... at identical prices, generating no gains or losses. The claimant maintained these were legitimate loan transactions with proper accounting documentation and no actual monetary benefit distributed to the shareholder. Central to the dispute was the burden of proof—the claimant asserted the AT failed to prove actual profit distributions, merely invoking the presumption without demonstrating why the loan classification should be rejected. The case underscores critical principles in Portuguese tax law: the mechanics of statutory presumptions under CIRS, the decisive role of proper accounting documentation in transaction characterization, evidentiary burdens in tax assessments, and the constitutional principle of contributive capacity, demonstrating that taxpayers can successfully challenge deemed income assessments through adequate evidence of loan arrangements.

Full Decision

ARBITRAL DECISION

I - REPORT

A - Identification of the Parties

Claimant: A…, SA, collective person number…, with registered office at Rua … no.…, …-…, …, hereinafter referred to as the Claimant or tax subject.

Respondent: Tax and Customs Authority, hereinafter referred to as the Respondent or AT.

The Claimant filed a request for constitution of an Arbitral Tribunal in tax matters and a request for arbitral decision, under the terms of subparagraph a) of paragraph 1 of article 2 and subparagraph a) of paragraph 1 of article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter abbreviated as LFRM.

The request for constitution of the Arbitral Tribunal was accepted by the President of the Administrative Arbitration Centre (CAAD), and in accordance with the provision in subparagraph c) of paragraph 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, the Tax Authority was notified on 2017-09-01.

The Claimant did not proceed to appoint an arbitrator, whereby, under the terms of paragraph 1 of article 6 and subparagraph b) of paragraph 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, the Deontological Council designated as Arbitrator Rita Guerra Alves, accepted by her in accordance with the legal provisions.

On 2017-11-03, the parties were duly notified of this designation, and manifested no intention to refuse the designation of the arbitrator, in accordance with article 11, paragraph 1, subparagraphs a) and b), of the LFRM and Articles 6 and 7 of the Deontological Code.

The Singular Arbitral Tribunal was duly constituted on 2017-11-23, to examine and decide on the subject matter of the present dispute, and on that same day the Tax and Customs Authority was automatically notified, as recorded in the respective minutes.

On 09-03-2018, the meeting referred to in article 18 of the LFRM was held, with the examination of a witness.

Both parties submitted written submissions.

B – REQUEST

The Claimant seeks a declaration of illegality of the tax assessment act for Personal Income Tax (IRS) no. 2013…, relating to the year 2009, in the total amount of 44,800.00€ (forty-four thousand eight hundred euros).

C – STATEMENT OF CLAIM

To support its request for arbitral decision, the Claimant alleges, in order to declare the illegality of the tax assessment act for Personal Income Tax (IRS), already described in point 1 of this Award, the following:

The Claimant is a joint-stock company engaged in providing advisory services and buying and selling real estate for resale, assuming the status of tax subject for Corporate Income Tax, registered in the General Taxation Scheme.

In the year 2013, and in execution of the service order OI2013…, of 14/08/2013, the Claimant was subject to an external inspection action, of general scope, which covered the fiscal year 2009.

In the course of the said inspection, the Services analysed the Claimant's accounting records and, in particular, account 251101 (Dr. B…), having registered in the balance sheet at the end of fiscal year 2009 in account 25 - shareholders a credit balance of 653,245.68 € and at the end of that fiscal year 1,060,245.68 € (credit).

It further adds that it detected the existence of various "withdrawals" on account of advances made by this shareholder, associated with real estate sales operations and which did not pass through the company's bank accounts.

It alleges that the entries identified by the Tax Authority were made in an account [251101] of advances, identified as related to shareholder B… and the company, whereby the situation should be equated to a loan.

That the accounting movement in question was duly recorded in an advances account (loan) whereby the presumption provided for in paragraph 4 of article 6 of IRS does not operate.

The Claimant alleges that the AT merely adopts the conclusion [it is presumed to have been made as profits] despite acknowledging that it falls to it to make the proof, in order to effect the correction, and it would have sufficed to note the expression [and which do not result from a loan] so as not to verify the presumption contained in paragraph 4 of article 6 of the IRS Code, since it does not even hint at a situation which it selects as a premise to exclude the accounting movement recorded from the classification given to it by the Claimant of having effected a "loan".

That is, it does not exclude, nor even analyses the situation, that there was a flow from the company to the shareholder "whose cause is not expressed in the current accounts in question".

Thus, acknowledging that the AT bore the burden of proving that we are in the presence of a return/payment made, failing even to identify that this was the case - indeed quite the contrary - the Claimant succeeded in proving that it merely proceeded to the restitution of amounts which it had previously received from its shareholder as a loan (to carry out the acquisition of the real estate duly recorded in accounting), the AT, by erroneous interpretation, violated the provision in paragraph 4 of article 6 of the IRS Code.

The Claimant defends that the operations supported by the documents supporting the accounting entries - relate to two operations.

The first operation concerns that carried out on 20 February 2006, which consisted of the acquisition of the following real estate:

a) Real estate consisting of the autonomous unit designated by the letter "G" which corresponds to the second floor left, intended for habitation, with storage in number … in the basement, which forms part of the urban property under a horizontal property regime located at Rua …, number…, in …, parish of …, municipality of Oeiras, described in the Land Registry Office of Oeiras under number … .

b) Real estate consisting of the urban property, for habitation, located at Rua …, lot …, in the parish of …, municipality of Oeiras, described in the Land Registry Office of Oeiras under number …;

c) and Real estate consisting of the urban property for habitation, located at …, in the parish of …, municipality of Idanha-a-Nova, described in the Land Registry Office of Idanha-a-Nova under number … .

The second operation, carried out on 09 March 2006, resulted in the purchase and sale of real estate consisting of the rural property, designated …, located in the parish of …, municipality of Idanha-a-Nova, described in the Land Registry Office of Idanha-a-Nova under number … .

In both operations, the Claimant was the purchaser (represented by B…) and the sellers were C… and wife D… .

It was precisely these four properties which were sold by public deed on 19/02/2009 and 5/03/2009, by shareholder B…, acting as representative of the Claimant, to E…, son of C… and wife D… .

It further alleges that analysing both operations it is verified that the acquisition value on the part of the Claimant was exactly equal to the realisation value, this having not accrued any gains or losses.

Moreover, this technical process should be compatible with compliance with the principle of equality, which in turn is to be enshrined as a general principle of taxation according to the contributive capacity of each one, which is no longer to be admitted when - returning to the case sub judice - mere accounting operations and without any payment immediately associated, are attributed the nature of "distribution of profits".

In fact, demonstrating that no payment was distributed/made to shareholder B…, there is no doubt that the presumption contained in paragraph 4 of article 6 cannot be - legally - invoked by the AT.

It may be said, moreover, that this is the only understanding compatible with the principle of contributive capacity since, as demonstrated, in casu, there was not even any monetary flow from the sphere of the company to the sphere of the shareholder, there were, on the other hand, merely accounting movements without any entries or exits resulting in any income.

In other words, neither did shareholder B… receive any amount from the company, nor did it pay him any income.

From the above-referenced results - in an inescapable manner - that even the facts do not appear to be subsumed under the tax norm in question, as we are in the presence of a situation that operates the exclusion of taxability, since it should be considered excluded by demonstrated/proven that the amounts in question should be considered advances/restitution of loans and not advance/profits which, moreover, were not even determined to have existed in the fiscal year.

The Claimant concludes by asserting the illegality and voidability of the said assessment act in Personal Income Tax (IRS) for 2009 by violation of law.

D - RESPONSE OF THE RESPONDENT

The Respondent, duly notified for this purpose, timely presented its response, in which, in brief summary, alleged the following:

In the context of IRS, the TIS verified that: "In the analysis of the balance sheet at the end of fiscal year 2009 of the tax subject, we found that account 25 – shareholders presents a credit balance of 2,255,231.07 €.

Conducting a more detailed analysis, we found that this account is divided into 3 sub-accounts whose balances in the year 2009 were as follows:

Account Initial Balance 2009 Final Balance 2009
251101 – Dr. B… 653,245.68 € Credit 1,060,245.68 € Credit
251102 – Dr. F… 576,702.40 € Credit 1,138,763.35 € Credit
251103 – G… 3,328.65 € Credit 56,222.04 € Credit
Total 1,233,276.73 Credit 2,255,231.07 € Credit

Account 251101 – Dr. B… (NIF…): bank account statement shows the following movements:

  • Document no. … dated 28-02-2009 - relates to the deed of sale of 2 real estate properties carried out on 19/02/2009, in which Dr. B… intervened as representative of the company in the capacity of seller and who, according to his statement, withdrew the said amount on account of advances in the amount of 102,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 1 to 3);

  • Document no. … dated 31-03-2009 - relates to the deed of sale of 2 real estate properties carried out on 05/03/2009, in which Dr. B… intervened as representative of the company in the capacity of seller and who, according to his statement, withdrew the said amount on account of advances in the amount of 122,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 4 and 5);

  • Document no. … dated 31-07-2009 - relates to the deed of purchase of 1 real estate property carried out on 30/07/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 100,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 6 and 7);

  • Document no. … dated 30-09-2009 - relates to the deed of purchase of 1 real estate property carried out on 10/09/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 271,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 8 and 9);

  • Document no. … dated 31-10-2009 - relates to the deed of purchase of 1 real estate property carried out on 19/10/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 40,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 10 and 11);

  • Document no. … dated 31-12-2009 - relates to the deed of purchase of 1 real estate property carried out on 29/10/2009, in which Dr. B…, as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 220,000.00 €. It should be noted that this receipt/payment did not pass through the company's bank accounts. (see annex IV – 12 and 13)."

As we can verify in the documents whose copies are in annexes IV – 2, 4, 6, 8 and 10, in annexes V – 2 and 4 and in annex VI – 3 and as described above, these did not pass through the company's bank accounts, with the amounts being imputed directly to the shareholders, not respecting the provision in article 63-C of the LGT.

The company having paid or placed at the disposal of B… monetary amounts that do not result from loans, do not result from provision of work nor from the exercise of corporate offices, it is presumed to be advance on account of profits. Thus the company should, in each payment, have withheld tax at the rate of 20%, to be remitted to the State coffers by the 20th day of the month following the payment of such income.

In accordance with the foregoing and as per the bank account statement of B…, the following amounts were paid and should have had tax withheld, which are outstanding:

[Table of amounts - not specified in text]

The assessment in question by the Claimant refers to the failure to withhold Personal Income Tax on the amounts entered in the accounting records and which, in accordance with paragraph 4 of article 6 of the IRS Code, are presumed to be made as profits or advances which fall within income of category E (subparagraph h) of paragraph 2 of article 5 of the IRS Code).

With a view to preventing situations of tax evasion and fraud, the presumption contained in paragraph 4 of article 6 of the IRS Code seeks to resolve the classification of sums recorded whose legal cause was not expressly declared, namely when the current accounts of shareholders contain amounts in their favour, and the shareholders do not demonstrate that this is a situation that falls within loans, provision of work or the exercise of corporate offices.

Thus, the AT has understood that the withdrawal of funds from a company by entities participating in its share capital should assume the form of profits and/or advance on account of profits, unless it is proven that the funds in question come from a loan, provision of work or exercise of corporate office.

With respect to advances, a loan contract is considered the contract by which the shareholder lends to the company money or another fungible thing, with the company being obliged to return an equivalent amount of the same kind and quality, or by which the shareholder agrees with the company to defer the maturity of its claims over it, provided that, in either case, the period for reimbursement is more than one year.

In accounting terms, the effectuation of advances and their reimbursement involves specific accounts, with the respective entries being supported by supporting documents, dated and capable of being exhibited whenever necessary.

To which must be added that the value of sales carried out in the year 2009, in the total amount of €224,000.00 was received by shareholder B…, the accounting not reflecting any loan from the company to its shareholder, nor that the fund outflows were supported by any loan.

What is evident in the accounting of the Claimant company is that assets of the company now Claimant, deriving from the payment of the value of the sale of real estate had as recipient and were received by its shareholder.

In such terms, it is not proven nor was proven that the amount received by shareholder B… corresponds to receipt of advances made to the Claimant.

Now, as these are not duly proven, they cannot, as the Claimant seeks, be considered as advances.

Moreover, not having been minimally proven, nor having been moved through the company's bank account, they cannot have the classification now sought.

Repeat that, contrary to what is alleged, it was not demonstrated/proven that the amounts in question should be considered advances/restitution of loans, all the more so since the advances did not pass through the company's accounts.

Indeed, neither in gracious proceedings nor in contentious proceedings, at any time was the presumption provided for in article 6 of the IRS Code rebutted.

The Respondent concludes by arguing for the lack of merit of the request for arbitral decision, maintaining in the legal order the tax assessment act being contested and absolving, accordingly, the respondent entity from the request, with all the due and legal consequences.

E - FACTUAL FOUNDATION

Prior to the examination of the issues raised, it is necessary to present the factual matter relevant to its understanding and the decision to be rendered, based on the facts alleged and the documentary and testimonial evidence produced in the case.

In matters of relevant fact, this Tribunal considers the following facts to be established:

The Claimant is registered with the Tax Authority and in the Commercial Registry Office of …, for the exercise of the activity of "Other management consultancy activities", classified with CAE 070220, since 17 December 1992.

The Claimant recorded the following acts in its accounting:

  • Document no. … dated 28-02-2009 - relates to the deed of sale of 2 real estate properties carried out on 19/02/2009, in which Dr. B… intervened as representative of the company in the capacity of seller and who, according to his statement, withdrew the said amount on account of advances in the amount of 102,000.00 €.

  • Document no. … dated 31-03-2009 - relates to the deed of sale of 2 real estate properties carried out on 05/03/2009, in which Dr. B… intervened as representative of the company in the capacity of seller and who, according to his statement, withdrew the said amount on account of advances in the amount of 122,000.00 €.

  • Document no. … dated 31-07-2009 - relates to the deed of purchase of 1 real estate property carried out on 30/07/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 100,000.00 €.

  • Document no. … dated 30-09-2009 - relates to the deed of purchase of 1 real estate property carried out on 10/09/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 271,000.00 €.

  • Document no. … dated 31-10-2009 - relates to the deed of purchase of 1 real estate property carried out on 19/10/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 40,000.00 €.

  • Document no. … dated 31-12-2009 - relates to the deed of purchase of 1 real estate property carried out on 29/10/2009, in which Dr. B… intervened as representative of the company in the capacity of purchaser and who, according to his statement, made the payment in the name of the company in the amount of 220,000.00 €.

The Claimant was notified of the following acts:

  • The Single Correction Document, as well as, the assessment of tax withholding in the amount of €44,800.00 (forty-four thousand eight hundred euros) relating to the fiscal period of 2009, no. 2013… resulting from the inspection with the service order no. OI 2013… of 14/04/2013 and assessment of compensatory interest in the amount of €8,430.32.

The Claimant filed a gracious complaint and hierarchical appeal to which was assigned the number …2015…, both with dismissal orders from the AT.

F - FACTS NOT PROVEN

Of the facts with interest for the decision of the case, contained in the impugnation, object of concrete analysis, those which do not appear in the factuality described above were not proven.

G - ISSUES TO BE DECIDED

In light of the positions of the parties assumed in the arguments presented, the central issues to be resolved are the following, which must therefore be examined and decided:

As alleged by the Claimant:

The declaration of illegality of the tax assessment act for Personal Income Tax (IRS) no. 2013…, relating to the year 2009, in the total amount of 44,800.00€ (forty-four thousand eight hundred euros),

Condemnation to pay indemnification to the Claimant for the provision of Guarantee.

H - LEGAL ISSUES

Given the positions of the parties assumed in their pleadings, the central issue to be resolved by this Arbitral Tribunal consists in examining the legality of the tax assessment act for Personal Income Tax.

The Claimant, succinctly, alleges in its request for arbitral decision that it is common practice for its shareholders to receive and pay for acquisitions of real estate from the personal bank account of the shareholders, without the respective amounts entering the accounts of the Claimant company, without it being considered as an advance on profits.

The Respondent, counter-argues, succinctly, that although this is a common practice, it nonetheless remains in breach of tax legislation, in that these amounts are not moved through the Claimant's bank accounts, which constitutes a tax obligation, and in that the Claimant does not provide proof, as falls to it, whereby such amounts are presumed, in accordance with article 6, paragraph 4 of the IRS Code, to be made as profits or advance on profits.

Now let us examine, based on the principle of material truth over form, which is subsumed into the fiscal assessment of the acts practised by the shareholders of the Claimant, it falls to the Tribunal to determine whether the said acts practised constitute advance on profits or constitute acts which the shareholders and the Claimant should have passed through the Claimant's bank accounts, and in not doing so, whether these acts constitute income under IRS, or at the limit, merely a violation of a tax obligation.

On the relevant legal-tax framework for the present case, the following are listed: article 6, paragraphs 4 and 5 of the IRS Code, which we now transcribe:

"4 - Entries in any current accounts of shareholders, recorded in commercial or civil companies in commercial form, when they do not result from loans, provision of work or the exercise of corporate offices, are presumed to be made as profits or advance on profits.

5 - The presumptions established in the present article may be rebutted on the basis of a judicial decision, administrative act, statement from the Bank of Portugal or recognition by the Directorate General of Taxes."

From the above regulation, it follows that entries in favour of shareholders are presumed to be made as profits or advance on profits, and that this presumption may be rebutted by the Directorate General of Taxes or by judicial decision.

Let us return to the present case, and given the factuality proven by documentary evidence, namely the public deeds and the testimonial evidence produced, it results that shareholder Dr. B…, intervened as representative of the Company now Claimant, in the capacity of seller and purchaser, in the public deeds of purchase and sale of real estate, now in question.

However, it results that shareholder Dr. B…, received and paid the amounts resulting from these acts of purchase and sale, through a bank account not belonging to the Company/Claimant, and that the amounts resulting from the purchases and sales were not transferred/debited to the account of the company now Claimant.

However, it has also been verified that from the said legal transactions carried out by Dr. B…, in representation of the company, results a final balance of 0€ (zero euros), and that all of the said transactions were carried out in the year 2009.

Thus, it has been demonstrated that shareholder Dr. B…, always acted in representation of the company, and that he did not derive any benefit or income, which falls within the concept of profits or advance on profits.

In fact, resorting to the principle of material truth, a principle which imposes itself as a determining criterion of contributive capacity and not merely the legal-formal reality, allows us to conclude that the mere fact that the amounts received and paid were not moved through the accounts of the Claimant company, although there is this tax obligation, by itself does not constitute income in the sphere of whoever finds himself at that moment in possession of the money.

On the movement of payments and receipts, article 63-C of the LGT establishes the following:

"1 - Corporate Income Tax subjects, as well as Personal Income Tax subjects who have or should have organized accounts, are obliged to possess, at least, a bank account through which are to be, exclusively, moved all payments and receipts relating to the business activity developed.

2 - All movements relating to advances, other forms of loans and shareholder advances, as well as any other movements to or from tax subjects must also be made through the account or accounts referred to in paragraph 1."

In fact, the shareholders and the company should have moved the receipts and payments in the name of the company through the company's bank account.

However, in not doing so, we would indeed be faced with a failure attributable as a tax infraction in accordance with article 129 of the RTIT: "2 - Failure to carry out through a bank account of movements in legally provided cases is punishable by a fine of (euro) 120 to (euro) 3,000."

Although tax legislation provides anti-abuse norms, to avoid situations similar to these, since a company should act with transparency before its stakeholders, the said norms in the present case constitute rebuttable presumptions.

Let us return to the present, in which it has been demonstrated that shareholder Dr. B…, received the amounts in his personal account, in the context of contracts of purchase and sale of real estate in representation of the Claimant, with the powers attributed by the Claimant.

It may be said that nothing prevents shareholders or other individual or corporate entities from acting in the name of third parties to carry out legal transactions that receive amounts from those transactions in their bank accounts and move those amounts to enter into legal transactions in the name of third parties, provided they are duly authorized.

It has also been demonstrated that the shareholder with the amounts received from the sale of the real estate proceeded days later to the purchase of real estate.

It has thus been demonstrated that the shareholder as an individual tax subject did not obtain any gain or benefit from the legal transactions carried out.

Not having the shareholder obtained any income, he cannot be attributed the obtaining of advances or advance on profits, by the mere fact of having received amounts directly in his personal account.

Indeed, this was not the intention of the legislator, in providing for the anti-abuse norm and the rebuttable presumption provided for in article 6, paragraphs 4 and 5 of the IRS Code. In fact, this legal provision aims at acts or amounts placed at the disposal of shareholders that are not supported by documentation or by another means of proof.

It transpires that the Claimant demonstrated by means of documentary proof, namely through public deeds, documents with public faith, that the amounts moved by the shareholder were intended for the celebration of legal transactions in representation of the company, and were all duly accounted for to the cent, thus removing the presumption established in article 6, paragraphs 4 and 5 of the IRS Code.

At the limit, the AT could have applied a tax infraction, in accordance with article 129, paragraph 2 of the RTIT, for the Claimant's failure to comply with the tax obligation to move amounts through its bank account.

To conclude and with respect to the remaining arguments alleged, it is stated that the Arbitral Tribunal, in accordance with articles 608, paragraph 2, 663, paragraph 2 and 679 of the Code of Civil Procedure, by application of article 29 of the RJAMT, is not required to examine all arguments alleged by the Claimant nor those invoked in the response by the Respondent, when the decision is prejudiced by the solution already rendered, which is the case of the present files, whereby the examination of the remaining questions submitted for examination is rendered moot.

I - INDEMNIFICATION FOR COSTS INCURRED WITH THE PROVISION OF GUARANTEE TO SUSPEND THE FISCAL ENFORCEMENT PROCEEDINGS

The Claimant furthermore petitions for indemnification for costs incurred with the provision of the guarantee to stay the fiscal enforcement proceedings, in accordance with article 53 of the LGT and article 171 of the Code of Tax Procedural Process, with the aim of suspending the fiscal enforcement proceedings relating to the collection of the tax debts, which are the subject of the present arbitral decision.

In accordance with paragraph 1 of article 53 of the General Tax Law, the debtor who, to suspend enforcement, offers a bank guarantee or equivalent shall be indemnified in whole or in part for the losses resulting from its provision, should he have maintained it for a period exceeding three years in proportion to the outcome in administrative appeal, impugnation or opposition to enforcement which have as their object the debt guaranteed.

As follows from paragraph 2 of the cited article, all losses sustained with the provision of guarantees provided to suspend enforcement are indemnified, without dependence on the said period, in the event of total success in an action in which there is proven to have been error attributable to the services in the assessment of the tax.

For its part, article 171 of the Code of Tax Procedural Process establishes that: "indemnification in case of a bank guarantee or equivalent incorrectly provided shall be requested in the proceeding in which the legality of the enforceable debt is disputed" and that "indemnification must be requested in the complaint, impugnation or appeal or in case its basis is subsequent within 30 days after its occurrence"

The proceeding of judicial impugnation, in which decision is made on the legality of the tax act, thus constitutes an appropriate procedural means to formulate the request for indemnification for undue guarantee.

In accordance with reiterated arbitral jurisprudence, of which is listed the decided in the context of proceeding 239/2016-T, "The request for constitution of the arbitral tribunal has as its corollary that it is in the arbitral proceeding that the 'legality of the enforceable debt' will be discussed, whereby, as results from the express terms of that paragraph 1 of the cited article 171 of the Code of Tax Procedural Process, it is also the arbitral proceeding which is appropriate to examine the request for indemnification for undue guarantee. (…) The reference to 'assessment' in the expression 'there was error attributable to the services in the assessment of the tax' must be understood in a broad sense, as relating to the assessment procedure, constituted by the set of acts tending to the definition of an obligation to pay the amount of a tax by a determined tax subject, encompassing not only assessment in the strict sense (constituted by the act in which the amount is determined, carrying out the arithmetic operations for calculating the tax to be paid), but also the assessment phase (in which the tax subjects and the taxable matter or taxable and the rate to be used in case more than one are potentially applicable are determined). It is in this broad sense that the expression 'assessment' is used, for example, in articles 54, paragraph 1, subparagraph b), of the LGT and 10, paragraph 1, subparagraph a), of the Code of Tax Procedural Process, in which no specific competences of the Tax Administration are indicated relating to the assessment of taxes."

It is also included in the assessment procedure its notification to the addressee, for, before notification, the operations carried out are mere internal acts, freely revocable, which do not define the position of the Tax Administration in relation to the taxpayer.

Thus, presuming that the legislator enshrined the most correct solution and knew how to express his thought in adequate terms (article 9, paragraph 3, of the Civil Code), it is to be concluded that the expression "error attributable to the services in the assessment of the tax", encompasses all illegalities affecting the validity of the assessment, including those relating to its notification, which is the final act of the assessment procedure, as is implicit in the system of article 45, paragraph 1, of the LGT.

Given the foregoing, the assessment as to IRS, in the part covered by the annulment which will be decreed, results from errors of fact and law attributable exclusively to the Tax Administration, to the extent that the Claimant complied with its duty of disclosure.

Additionally, in accordance with articles 74, paragraph 1 of the LGT and 342, paragraph 1 of the Civil Code, the burden of proof of the facts constitutive of its right falls on whoever invokes them, as follows from article 74, paragraph 1 of the LGT: "the burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them."

Thus and in accordance with the provision in article 342, paragraph 1 of the Civil Code, "it falls to whoever invokes a right to make proof of the constitutive facts of the alleged right." (our emphasis), it was the Claimant's duty to prove the cost incurred in the provision of the bank guarantee.

However, the Claimant in the present proceedings did not itemize the value incurred in costs, that is, it did not set out facts that would permit the Tribunal to ascertain the existence of costs incurred in the provision of the bank guarantee, nor did it provide proof to support its request.

Given the foregoing, it has no basis for its request for indemnification for costs incurred with the provision of the guarantee to stay the fiscal enforcement proceedings, whereby it is without merit.

I - DECISION

Therefore, in light of all the foregoing, this Arbitral Tribunal decides:

To find merit in the request for a declaration of illegality of the tax assessment act for Personal Income Tax (IRS) 2013…, relating to the year 2009, in the total amount of 44,800.00€ (forty-four thousand eight hundred euros).

To find without merit the request for indemnification for costs incurred with the provision of the guarantee to stay the fiscal enforcement proceedings.

The value of the proceeding is set at 44,800.00€, corresponding to the value of the assessment, having regard to the economic value of the proceeding, measured by the value of the tax assessment impugned, and accordingly the costs are fixed, in the respective amount of 2,142.00€ (two thousand one hundred and forty-two euros), at the charge of the Respondent in accordance with article 12, paragraph 2 of the Legal Framework for Tax Arbitration, article 4 of the Procedural Regulations for Tax Arbitration Proceedings and Table I attached to the latter. – paragraph 10 of article 35, and paragraphs 1, 4 and 5 of article 43 of the LGT, articles 5, paragraph 1, subparagraph a) of the Procedural Regulations for Tax Arbitration Proceedings, 97-A, paragraph 1, subparagraph a) of the Code of Tax Procedural Process and 559 of the Code of Civil Procedure).

Notify.

Lisbon, 02 April 2018

The Arbitrator

Rita Guerra Alves

Frequently Asked Questions

Automatically Created

What is the presumption established in Article 6(4) of the Portuguese IRS Code (CIRS)?
Article 6(4) of the Portuguese IRS Code (CIRS) establishes a legal presumption that payments, benefits, or transfers made by companies to their shareholders are deemed to constitute taxable income or profit distributions to those shareholders. This presumption applies automatically unless the taxpayer proves the payments resulted from a loan or other specifically exempted transaction. The provision shifts the burden of proof to the taxpayer to demonstrate the non-income nature of the transfer.
How can a taxpayer rebut the income presumption under Article 6(4) CIRS in Portuguese tax law?
A taxpayer can rebut the Article 6(4) CIRS income presumption by proving that payments constitute loans or other non-taxable transfers rather than profit distributions. Essential evidence includes: (1) proper accounting documentation showing amounts recorded in advances/loan accounts rather than profit distribution accounts; (2) contemporaneous documentation of the underlying transactions establishing the loan relationship; (3) demonstration that no actual monetary benefit or economic advantage was distributed to the shareholder; (4) evidence of the business purpose and commercial rationale for the transactions; and (5) proof that entries reflect loan repayments or other operations excluded from the presumption's scope.
What was the outcome of CAAD arbitration process 488/2017-T regarding the IRS assessment of €44,800?
The provided text excerpt contains only the Report section with the parties' arguments and procedural history, not the final arbitral decision. The claimant A... SA challenged the €44,800 IRS assessment for fiscal year 2009, arguing that movements in shareholder account 251101 represented loans related to real estate transactions properly documented in accounting, not profit distributions subject to the Article 6(4) CIRS presumption. The company contended the Tax Authority failed to meet its burden of proving actual profit distributions occurred, and that the transactions involved property acquisitions and sales at identical values with no gains, losses, or actual monetary flows to the shareholder.
What procedural steps are required to challenge an IRS tax assessment through CAAD arbitration in Portugal?
To challenge an IRS assessment through CAAD arbitration in Portugal under RJAT (Decree-Law 10/2011): (1) File a request for constitution of an Arbitral Tribunal under Article 10(1)(a) RJAT; (2) The CAAD President reviews and accepts the request, then notifies the Tax Authority (Article 11(1)(c)); (3) Parties may appoint arbitrators, or if not appointed, the Deontological Council designates them (Article 6 and Article 11(1)(b)); (4) Parties have the opportunity to refuse the designated arbitrator within the legal timeframe (Articles 6-7 of the Deontological Code); (5) The Arbitral Tribunal is formally constituted; (6) A hearing is conducted under Article 18 RJAT, including witness examination if requested; (7) Both parties submit written final submissions; (8) The tribunal issues a binding arbitral decision on the tax assessment's legality.
Under what circumstances can the Portuguese Tax Authority (AT) apply deemed income rules to corporate shareholders under the CIRS?
The Portuguese Tax Authority can apply deemed income rules to corporate shareholders under Article 6(4) CIRS when: (1) payments, benefits, or value transfers flow from a company to its shareholders; (2) these movements lack proper documentation establishing them as loans, capital reimbursements, or other exempt transactions; (3) accounting records do not clearly identify the nature and cause of the transactions; (4) there is insufficient evidence showing the payments represent loan repayments, advances, or other non-income transfers; and (5) the circumstances suggest profit distributions rather than legitimate commercial operations. However, the AT must respect evidentiary requirements and cannot automatically apply the presumption when the taxpayer provides adequate proof that payments were properly documented loans or other transactions expressly excluded from Article 6(4)'s scope, consistent with the principle of contributive capacity.