Autonomous Taxation on Representation Expenses (IRC) – CAAD Arbitration 51/2016-T

ARBITRAL DECISION

Parties

Claimant: A…, S.A., with registered office at…, …, …, registered at the Commercial Registry Office of … under the unique registration number and collective person number …;

Respondent: TAX AND CUSTOMS AUTHORITY (AT).

I. REPORT

a) On 01-02-2016, the Claimant filed with CAAD a request seeking, under the Legal Framework for Arbitration in Tax Matters (RJAT), the establishment of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant seeks a declaration of illegality of the Corporate Income Tax (IRC) assessment no. 2013 … which resulted in an Account Reconciliation Statement no. 2013 … and taxes payable in the total amount of € 62,593.97, as autonomous taxation, compensatory interest and default interest.

c) Specifically contesting the IRC for the tax year 2010, as per the final conclusions of the Tax Inspection Report, which maintained the position that there would be IRC outstanding for that year, in the amount of € 57,566.02, as autonomous taxation (representation expenses).

d) An amount which it paid under the Exceptional Regime for Regularization of Tax Debts and to Social Security ("RERD"), approved by Decree-Law no. 151-A/2013, of 31 October (which reduced the assessed amount from € 62,593.97 to the amount here contested of € 57,566.02, given the more favorable regime regarding interest).

e) Assessment against which it filed a gracious claim and which was denied. It appealed hierarchically and the appeal was also denied.

f) It concludes by seeking the annulment of the order denying the hierarchical appeal, in addition to the declaration of illegality of the assessment, reimbursement of the amount paid and further: "the compensation ... for all damages suffered ... namely those resulting from payment of the disputed assessment, in the amount of € 57,566.02, including the respective indemnificatory interest, in accordance with the provisions of no. 2 of article 43 and article 100 of the General Tax Law and article 61 of the Tax Procedure Code".

g) The Claimant bases its request, in legal terms, on the collective arbitral decision adopted in CAAD Proceeding 628/2014-T which addresses the same underlying legal question, which decision it attached to the proceedings.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

h) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 19-02-2016.

i) The CAAD Deontological Council appointed as arbitrator the signatory of this decision, the parties being notified thereof on 05-04-2016. The parties did not manifest any wish to challenge the appointment, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

j) The Singular Arbitral Tribunal (TAS) has been duly constituted, as of 20-04-2016, to examine and decide the subject matter of this dispute (articles 2, no. 1, paragraph a) and 30, no. 1, of the RJAT).

k) All of these acts are documented in the constitution notice of the Singular Arbitral Tribunal dated 20-04-2016 which is hereby reproduced.

l) On 20-04-2016 the AT was notified in accordance with article 17-1 of the RJAT. It responded on 23.05.2016. It also attached the Proceedings Bundle composed of 2 computerized files designated as RG with 1/193 pages and RH with 1/302 pages.

m) The AT argued against the production of witness testimony listed by the Claimant considering it to be a useless act, but if it were otherwise understood, it expressed the view that the Claimant should indicate the specific facts to which the witnesses should testify. It also indicated a witness.

n) In the aforementioned order, the Claimant was invited to, within 10 days, counted from the date on which it was notified of the AT's response, indicate the specific facts on which the 2 listed witnesses should testify. On 24.05.2016 after notification of the AT's response, the TAS renewed the invitation to the Claimant and "regarding the necessity of producing witness testimony and waiver of holding the meeting of parties provided for in article 18 of the RJAT and of oral or written arguments".

o) By request of 06.06.2016 the Claimant indicated the specific facts, by reference to the articles of the request for decision, on which the witnesses should testify, disagreed with their not being heard, did not oppose the waiver of holding the meeting of article 18 of the RJAT and did not waive presenting arguments, in writing.

p) By order of the TAS of 7 June 2016, the date of 21.06.2016, at 14.30 hours, at CAAD facilities, was scheduled for taking testimony from the two witnesses listed by the Claimant and the witness listed by the Respondent, with the AT being invited to indicate the facts, specifically, on which the witness listed in the response should testify.

q) On 21.06.2016, at 14.30 hours, the questioning of the witnesses listed by the Claimant took place: B… regarding the subject matter of articles 4, 5, 10, 11, 12, 13 and 19 of the request for arbitral decision; C… regarding the subject matter of articles 3 to 6, 8 to 13, 16 and 19 of the request for arbitral decision. The AT waived the testimony of the witness it had listed. The TAS then set a period for written and successive arguments and scheduled 25.07.2016 for adoption of the final decision, all as per the minutes attached to the proceedings by registration in CAAD's Process Management System, which is hereby reproduced.

r) The Claimant presented written arguments on 1 July 2016 and the Respondent presented its on 13 July 2016. It also attached a singular arbitral decision adopted in CAAD Proceeding 52/2016-T dated 11.07.2016, regarding the Claimant and which decided in the opposite manner compared to the collective arbitral decision mentioned in g) of this Report.

s) On 25.07.2016 the Claimant exercised, spontaneously, the right to contradict regarding the attachment of the decision referred to in the preceding paragraph.

PROCEDURAL PREREQUISITES

t) Legitimacy, capacity and representation – The parties have legal personality, judicial capacity, are legitimate parties and are represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).

u) Principle of contradictory – The Respondent was notified of the request for decision in accordance with section l) of this Report. All procedural documents and all documents attached to the proceedings were made available to the respective counterparty in CAAD's Process Management System. Both parties were always notified of their attachment.

v) Dilatory exceptions – The arbitral procedure is free of nullities and the request for arbitral decision is timely, as it was filed within the prescribed period in paragraph a) of no. 1 of article 10 of the RJAT, as results from the fact that the decision on the RH, here under discussion, was notified on 04.11.2015 and the request for decision was registered with CAAD on 01.02.2016.

SUMMARY OF THE CLAIMANT'S POSITION

w) The Claimant disagrees with the interpretation that the AT adopted in the tax inspection report and subsequently in the assessment/correction of IRC for the tax year 2010, essentially advancing 3 arguments.

x) First – because the events it held in 2010: event "D…", promotional action for "E…", event "F…", and action for G… clients at "H…"; whose costs it entered in its accounts as follows: exhibition stands, in the amount of € 734.00; other promotional means, in the amount of € 10,334.00; stands and space rental, in the amount of € 4,700.00; event organization, in the amount of € 466,859.11; and production of graphic materials, in the amount of € 40,744.00, whose documentation it provided to the AT, generated expenses that are "manifestly excluded from the concept of representation expenses, not least because the concept of representation expenses is based, undoubtedly, on the fact that these expenses are further removed from the central core of instrumental expenses, in the performance of the taxpayer's productive activity, therefore, expenses for the organization of events intended for the promotion and sale of products commercialized by the Claimant cannot fail to constitute costs incorporated in its own direct economic circuit of activity, and therefore cannot be qualified as expenses without business purpose or any form of remuneration to third entities".

y) Concluding that: " … the autonomous taxation of such expenses should be considered illegal as they do not definitively fall within the concept of representation expenses", since " it was demonstrated … that the AT subjected the autonomous taxation, integrating them into the concept of representation expenses, costs with the production of graphic and audiovisual material, in that they were simply used in the aforementioned events" and that " … it was amply proven through all the documentation attached …, as well as through the witness testimony produced" they "were intended for the promotion and commercialization of its products, that is, for the direct realization of sales and respective revenues" and "to ensure the normal development of its corporate purpose, within the economic circuit where this naturally manifests itself".

z) Contending for the disregard of these expenses as "representation expenses" in light of no. 7 of article 88 of the CIRC, should be considered "costs inherent to the normal development of the company's main activity", invoking what was decided in the judgment of the Court of Arbitration (TCAS) of 16.10.2014 – proceeding 06754/13.

aa) Second – the Claimant, in addition to disagreeing with the qualification of such costs as representation expenses and subsequent subjection to autonomous taxation, states that, even if they were, it considers that the AT recognized their indispensability, therefore the presumption of partial "business purpose" that underlies the autonomous taxation of such expenses was rebutted.

bb) It invokes in its favor the Arbitral Decision issued, on 2 February 2015, under CAAD proceeding no. 628/2014-T, where it states that "the autonomous taxation whose burden the Claimant seeks to have deducted from its taxable income may be viewed as a kind of consensual anti-abuse norm, in which the legislator proposes to the taxpayer one of three alternatives, namely:

· not to deduct the expense;

· to deduct but pay the autonomous taxation, dispensing with, both to itself and to the Tax Administration, from discussing the question of the business purpose of the expense;

· to prove the complete business purpose of the expense, and deduct it entirely, not bearing the autonomous taxation"

cc) And further states that the "proof of business purpose" indeed confronts the autonomous taxation, and that the referred business purpose of expenses constitutes a "criterion for autonomous taxation expenses", disagreeing with the AT regarding point 14 of the response to the request for decision, defending that "for autonomous taxation to occur it is not sufficient to demonstrate the deductibility of the charges, also requiring that the taxpayer has not managed to prove the complete business purpose of the expense".

dd) Concluding that the: "expenses in question have a direct business purpose and are directly related to obtaining revenues, which was duly proven in the records, objectively, or concern a different reality, and therefore are not subject to autonomous taxation".

ee) Regarding the application of article 73 of the General Tax Law, it states what was written by the AT in the Draft Decision denying the Gracious Claim, where the AT admitted, in a diametrically opposite sense to what it now sustains within the context of the response to the request for decision, that the legislator provided, regarding the expenses in question, a presumption of partial "business purpose" that is "encompassed by the waiver resulting from article 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration".

ff) Third – it understands that the same regime of "tax deductibility of expenses with travel by health professionals to congresses and scientific meetings, resulting from the Order of the Director General of Taxes issued on 16 July 2009, under proceeding no. 1648/09, which came to interpret articles 23, no. 1, paragraph b) and 81, no. 7, both of the Corporate Income Tax Code, for purposes of tax classification of charges for travel by health professionals to congresses and scientific meetings; deciding that any charges, in this case, charges with health professionals, aimed at participation in congresses, scientific activities or even professional training "organized within the scope of pharmaceutical promotion", "… related to advertising, cannot be disregarded for tax purposes, only being qualified as representation expenses when such charges have been incurred outside the scope of pharmaceutical promotion, …, outside of promotional or advertising activities relating to products commercialized by the taxpayer" should apply.

gg) It also states that if the AT only qualifies "such costs as representation expenses when charges for participation in congresses and clinical meetings are incurred outside the scope of pharmaceutical promotion", therefore "it will be necessary to conclude that such understanding must be applied mutatis mutandis in the Claimant's specific case, since, precisely, we are dealing with expenses incurred within the scope of organizing events intended to promote and sell the products it commercializes".

hh) It concludes that "we have here two materially identical situations: expenses inherent to advertising and publicity actions, with the aggravating factor that the Claimant, within the scope of the events it organized, carried out sales, which does not occur in events intended for health professionals", "therefore, it is the AT itself that adopts a different understanding in the Claimant's specific case, without any justification".

ii) In written arguments it maintained essentially what it stated in the request for decision.

SUMMARY OF THE RESPONDENT'S POSITION

jj) Disagreeing with the Claimant's viewpoint, the Respondent understands that what is under discussion in this proceeding in terms of substantive law is: " … the classification of expenses incurred by the Claimant, and now disputed, under no. 7 of article 88 of the CIRC and, if so understood, whether this same legal provision admits the waiver of a presumption framed in article 73 of the General Tax Law" (article 1 of the counter-arguments).

kk) It has, however, a different reading of the law from the Claimant, stating regarding the classification of the expenses in question (whether they should be considered only as spending on "advertising and publicity" – article 23-b) of the CIRC), the following: "the AT's position is that all the expenses now under discussion constitute true representation expenses, without such qualification being in any way questioned by the fact that they prove to be indispensable to the Claimant's activity, and, consequently, are deductible from the taxable base in accordance with article 23 of the CIRC".

ll) And regarding the question of "proof of business purpose" it advocates what appears in the singular arbitral decision adopted in CAAD Proceeding 52/2016-T dated 11.07.2016 which it attached and states that "this is, admittedly, taxation on the expense and not on income, …, therefore, it would make no sense to condition the autonomous taxation of a given expense to its degree of relation with obtaining revenues".

mm) Regarding this topic, it states that its understanding is that " … no. 7 of article 88 of the CIRC does not establish any rebuttable presumption for purposes of article 73 of the General Tax Law because although one of the ratios of the norm is to associate to those expenses a presumed partial business purpose, the legislator's intention is not exhausted in that ratio, comprising other ratios that justify the adoption of a specific anti-abuse measure in the context of broad fiscal discretion…".

nn) It proceeds: "the expenses incurred with receptions, meals, travel, outings and entertainments offered in the Country or abroad to clients or suppliers or any other persons or entities, that is, in representation expenses, for autonomous taxation to occur it is only necessary to verify the deductibility of these charges, as results from that legal provision (article 88 of the Corporate Income Tax Code)".

oo) It recognizes that the Claimant "in the tax year under analysis … held events that consisted, essentially, in receptions for its clients and other persons, which included expenses for accommodation, food, entertainment, space rental, etc., and which aimed at the presentation and promotion of its products" and considers that " … even though the promotion of the said events provides not only the realization of sales in the course of the same but, surely, potentiates their achievement in the future, as a result of the strong image that, surely, leaves on all the guests, given the grandeur of those, it is unquestionable that those costs/expenses incurred are demonstrably indispensable to obtaining income subject to tax, therefore these are accepted as tax expenses, in accordance with no. 1 of article 23 of the Corporate Income Tax Code and, from the outset deductible in determining the taxable result". However,

pp) "those costs/expenses (receptions for clients and other persons, which included expenses for accommodation, food, entertainment, space rental, travel, etc.), once deductible for tax purposes, and falling fully within the aforementioned definition of representation expenses provided for in article 88 of the Corporate Income Tax Code (expenses incurred with receptions, meals, travel, outings and entertainments offered in the Country or abroad to clients or suppliers or any other persons or entities) are subject to autonomous taxation at the rate of 10%, as they meet all the requirements legally provided for in article 88 of the Corporate Income Tax Code, which determine this type of taxation".

qq) It further states: "in article 88, no. 7 of the CIRC, the legislator has defined clearly and objectively, the expenses aimed at by autonomous taxation, the interpreter not being able to limit its application without legal basis, as this would constitute a clear perversion of the objective of the norm", "The norms that establish autonomous taxation create a true fiscal imposition: to the verification of a provision (realization of certain expenses) they associate a consequence at the level of Tax Law (taxation), more specifically, they impose autonomous taxation, in this case due as Corporate Income Tax".

rr) It further states: " … regarding representation expenses the legislator merely intended to exclude from autonomous taxation those not considered deductible, as results from the law, thus determining that all others must be subject to autonomous taxation".

ss) It considers that the expenses in question "mostly meet the requirements of representation expenses", as "they aim at creating an image of the entity supporting them before third parties", "are further removed from the central core of instrumental expenses in the performance of the taxpayer's productive activity", but "cannot be considered as costs incorporated in the direct economic circuit of its activity, not least because they have a sporadic character, do not occur every week, nor every month, nor even every year, nor have they always existed in the company. Since 2012 they practically do not exist and do not even result from a generalized practice in the sector", "have a character of gift of the goods and services obtained with the charges incurred since the beneficiaries of these events did not pay any amount for them, therefore, naturally, it is considered that they were offered".

tt) It concludes: "if the Tribunal agrees with the Claimant's understanding with a view to waiving a supposed legal presumption, then we would be faced with a materially unconstitutional interpretation of the norms in question by violation of the principle of tax legality, in the aspect of generality and abstraction, resulting from the principle of legality and also as instruments of tax equality, and therefore, equally by violation of the principle of tax equality, which result, namely, from article 13 and article 103 of the Constitution".

uu) And formulates the following assertion: "thus, it is concluded that autonomous taxation consists of taxation on the expense incurred by the subject of the tax, given certain reasons of fiscal policy, intended for the collection of (fiscal) revenue independent of the taxable base that will be determined in the respective taxation period", " … the expense is the fact revealing the contributive capacity that is intended to be achieved, with autonomous taxation falling on the subject who incurs the cost or charge that is intended to be "penalized"", "As an instrument to combat tax fraud and evasion, the autonomous taxation established in article 88 of the Corporate Income Tax Code intends to tax those expenses which, by their nature, may constitute concealed payment of income, with the objective of avoiding its taxation in the sphere of the respective beneficiaries, or may not have been practiced solely for the benefit of the subject supporting them".

vv) In written arguments the Respondent maintained what it had stated in the Response to the request for decision but attached a decision, regarding this taxpayer, referring to the tax year 2011, regarding the same substantive and factual legal question (as the Tax Inspection Report is the same).

ww) It advocates for the dismissal of the request for decision and maintenance in the legal order of the decision taken in the RH and the IRC assessment which is the subject matter of discussion.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

The substantive question to be decided is that of determining the conformity with the law of the IRC assessment, as autonomous taxation and classifying the expenses as representation expenses.

The Claimant considers that the said expenses should not be considered representation expenses, therefore it will be necessary, in principle, to examine the topics raised in the following paragraphs of the Report of this decision:

Paragraphs x) to z) – Invoking what was decided in the judgment of the Court of Arbitration (TCAS) of 16.10.2014 – proceeding 06754/13, citing the Tax Inspection Report (RI) the costs/expenses relating to "events, which consisted, essentially, in receptions for its clients and other persons, which included expenses for accommodation, food, entertainment, space rental, etc., and which aimed at the presentation and promotion of its products" should be considered as integrating the provision of the norm contained in article 23-1-b) of the CIRC, as spending on "advertising or publicity", or should it be considered that they integrate the concept of "representation expenses" (article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC)?

Paragraphs aa) to ee) – Invoking what was decided by the Collective Tribunal in CAAD proceeding no. 628/2014-T, the taxation of the costs/expenses here in question, according to the norm contained in article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC, even considered as representation expenses, contains a presumption of partial "business purpose" that is "encompassed by the waiver resulting from article 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration"? And if the answer is in the affirmative, in this proceeding, was this presumption rebutted?

Paragraphs ee) to gg) – Invoking what was decided by the Order of the Director General of Taxes issued on 16 July 2009, under proceeding no. 1648/09, which concerns charges for travel by health professionals to congresses and scientific meetings, organized within the scope of pharmaceutical promotion (advertising) being only qualified as representation expenses when such charges have been incurred outside the scope of pharmaceutical promotion (outside promotional or publicity activities relating to products commercialized by the taxpayer), should this regime apply mutatis mutandis, in this case, because it concerns expenses incurred within the scope of organizing events intended to promote and sell the products it commercializes, and, as such considered the expenses here in question as integrating the provision of the norm of article 23-1-b) of the CIRC as spending on "advertising or publicity"?

III. PROVEN AND UNPROVEN FACTS AND GROUNDS

Regarding the facts the Tribunal does not have to rule on everything that was alleged by the parties, it being incumbent upon it, rather, to have the duty to select the facts that matter for the decision and distinguish the proven facts from the unproven ones (in accordance with article 123, no. 2, of the Tax Procedure Code and article 607, no. 3 of the Civil Procedure Code, applicable pursuant to article 29, no. 1, paragraphs a) and e), of the RJAT).

Thus, the relevant facts for the judgment of the case are chosen and selected according to their legal relevance, which is established in consideration of the various plausible solutions of the question(s) of law (in accordance with the previous article 511, no. 1, of the Civil Procedure Code, corresponding to the current article 596, applicable pursuant to article 29, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions taken by the parties, the documentary evidence and the Proceedings Bundle attached to the proceedings, the following enumerated facts were considered proven, as otherwise not disputed by the parties, indicating the respective documents (proof by documents), as grounds. Facts that are considered proven, resulting from witness testimony, are duly marked.

Proven Facts

1. The Claimant's corporate purpose is the realization of investments in the ceramic industry, commerce, manufacturing and export of ceramic products and provision of business management services to third entities in the industrial ceramics sector – as per article 2 of the request for decision and point II.3.3 – page 12 of the Tax Inspection Report which constitutes Document no. 3 attached to the request for decision.

2. In the course of the year 2010 the Claimant held various events intended to promote and sell its products, namely: Event "D…"; Promotional action for "E…"; Event "F…"; and Action for G… clients at "H…" – as per article 3 of the request for decision, page 40 of the Tax Inspection Report which constitutes Document no. 3 attached to the request for decision and testimony of witness C… .

3. The costs of the events were reflected in the following accounts: exhibition stands, in the amount of € 734.00; other promotional means, in the amount of € 10,334.00; stands and space rental, in the amount of € 4,700.00; event organization, in the amount of € 466,859.11; and production of graphic materials, in the amount of € 40,744.00 – as per article 7 of the request for decision, page 33 of the Tax Inspection Report which constitutes Document no. 3 attached to the request for decision.

4. The Claimant was, in the sector of activity in which it operates, a pioneer in organizing this type of event, making it possible to advertise its products but also to carry out, in the events themselves, the sales of these same products – as per article 10 of the request for decision and testimony of witness C… .

5. The Claimant through the events disseminated characteristics and quality of the products it produces and commercializes, making them known, selling them and assessing the possible acceptance and advantages that new products to be manufactured could have for its clients – as per articles 4, 5 and 6 of the request for decision and testimony of witnesses B… and C… .

6. The purchase of products in the course of the events made it possible for clients to acquire them with advantages not only at the level of price, taking advantage of special promotions, but also related to the fact of having access to them at the time of their launch, anticipating themselves in relation to their competitors – as per article 11 of the request for decision and testimony of witnesses B… and C… .

7. The Claimant configured with the realization and funding of the events, the presentation and advertisement of marketed products in addition to the direct realization of sales – as per articles 12, 13 and 16 of the request for decision, testimony of witnesses B… and C… and page 31 of the Tax Inspection Report which constitutes Document no. 3 attached to the request for decision.

8. The Claimant deducted the costs of the events in determining the taxable base of Corporate Income Tax for the tax year 2010, without self-assessment of any autonomous taxation rate – as per the overall position of the Claimant and Respondent and page 32 of the Tax Inspection Report which constitutes Document no. 3 attached to the request for decision.

9. Regarding the tax year 2010, a tax inspection procedure was conducted, by the Tax Inspection Services of the Finance Directorate of …, based on service order no. OI2013…, of 15.03.2013, including on Corporate Income Tax, which resulted in corrections, by virtue of the AT qualifying the costs of the events indicated above as representation expenses and subsequent subjection to autonomous taxation, establishing an outstanding amount of € 57,566.02 - as per article 1 of the request for decision and Tax Inspection Report which constitutes Document no. 3 attached to the request for decision.

10. The Claimant was notified, on a date not determined, of the Corporate Income Tax assessment no. 2013 … here contested, resulting from the Account Reconciliation Statement no. 2013…, which was also notified to it, Corporate Income Tax payable in the total amount of € 62,593.97, as autonomous taxation, compensatory interest and default interest – as per notes attached in CAAD's Process Management System in "request" and articles 28 and 29 of the request for decision.

11. The Claimant came to pay on 18.11.2013, within the voluntary payment period, the amount of € 57,566.02, under the Exceptional Regime for Regularization of Tax Debts and to Social Security ("RERD"), approved by Decree-Law no. 151-A/2013, of 31 October – as per article 30 and conclusion BB) of the request for decision and Document 4 attached to the Gracious Claim which corresponds to Document no. II attached to the request for decision.

12. The Claimant filed a gracious claim on 10.03.2014 against the assessment referred to in 10) which was completely denied. From this decision it appealed hierarchically, on 09.02.2015, which took the number …2015…, which was also denied by order issued by the Esteemed Director of Services of Corporate Income Tax, on 22 October 2015, and notified on 4 November 2015 by office … of 03.11.2015 – preamble of the request for decision, articles 32 and 58 of the request for decision and document no. VIII attached with the request for decision.

13. On 01-02-2016, the Claimant filed the present request for decision with CAAD – entry registration in the Process Management System of the request for decision.

The two witnesses heard demonstrated knowledge of the facts and their testimony convinced the tribunal.

The first because he had a relationship with the Claimant, attended the events in the Algarve and Porto and demonstrated good knowledge of the ceramic products sector and the reasons for the events which, according to him, could result in sales of 300,000.00 euros. He stated that if the Claimant did not promote the events it could "be left out of the market" and at the time a high moment was being experienced in terms of house construction. No discounts were given, but more products were offered. All events were held before the annual sector fair and in an anticipation strategy.

The second witness is the commercial director of the Claimant and was at the events to promote and lead the sales team. He stated the objectives: to make special promotions, launch and encourage the purchase of new products, place them quickly in the market, show the products. The clients were distributors.

Unproven Facts

What was alleged in articles 8 and 9 of the request for decision was not considered proven as it concerns conclusory matter. There is no other factuality alleged that has not been considered proven and that is relevant for the composition of the dispute.

IV. EXAMINATION OF THE QUESTIONS FOR THE TAS TO RESOLVE

As results from paragraphs x) to z) of the Report of this decision above, what was decided in the judgment of the Court of Arbitration (TCAS) of 16.10.2014 – proceeding 06754/13, is invoked, to, based on this decision, argue that the costs/expenses incurred by the Claimant relating to "events, which consisted, essentially, in receptions for its clients and other persons, which included expenses for accommodation, food, entertainment, space rental, etc., and which aimed at the presentation and promotion of its products" should be considered as integrating the provision of the norm contained in article 23-1-b) of the CIRC, as spending on "advertising or publicity", and not as "representation expenses" (article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC).

It is not correct. As noted in the grounds of the decision that denied the gracious claim (Document no. VI attached with the request for decision) it therein states that the judgment "refers to costs with the supply of meals to collaborators providing services to the company … and not expenses made … to third parties".

Upon reading the judgment it is expressed therein: "these services are related to lunches, dinners, breakfasts and other food products, supplied by the company … to the company under analysis and consumed by the actors, extras, among other workers providing their services in the production of television or radio programs" and relating " … to expenses with travel and stays of the partner …, these costs being considered unrelated to business activity and whose beneficiary was the identified partner".

Therefore, the request for decision is unfounded, in this part.

As is expressed in paragraphs aa) to ee) of the Report of this decision, what was decided by the Collective Tribunal in CAAD proceeding no. 628/2014-T, on an identical question, is invoked, arguing that the taxation of costs/expenses according to the norm contained in article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC, even considered as representation expenses, contains a presumption of partial "business purpose" that is "encompassed by the waiver resulting from article 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration". And the Claimant argues that in this proceeding, this presumption was rebutted.

Against this understanding the AT brought to the proceedings the singular decision of CAAD, adopted in proceeding 52/2016-T relating to the Claimant and regarding the tax year 2011 which is, it must be said, in consonance with the decision invoked by the Claimant, except on this point:

"Regarding the possibility of waiver of the presumption, analyzed the argumentation underlying the arbitral tribunal decision issued in proceeding no. 628/2014-T cited by the Claimant, we depart from the understanding expressed there in this measure: in truth, article 88 of the CIRC does not establish a presumption of partial "business purpose". If it did, it would undoubtedly be waivable under article 73 of the General Tax Law.

What occurs is that the autonomous taxation of article 88 of the CIRC, without establishing it, rest, i.e., seek their ratio (or part of it) in a presumption of partial "business purpose".

But this is not its only ratio, specifically, regarding what matters to the case at hand. Underlying autonomous taxation is also the legislator's option to tax in Corporate Income Tax rather than to tax in Personal Income Tax in the sphere of the beneficiaries of the expenses in which the company incurred.

Which is not of little importance."

Also we cannot fail to note that the decision adopted in the Collective Tribunal in CAAD proceeding no. 628/2014-T has a dissenting vote, with the following argumentation in terms of substantive question:

"The judgment approved by majority adopts an interpretation of article 73 of the General Tax Law that requires the possibility of waiver of any presumptive judgment underlying norms of tax incidence, understood in the broad sense.

To this vision I counterpose another that admits that article 73 of the General Tax Law must be interpreted, together with article 104, no. 1 and 2, of the Constitution, as a recommendation to the legislator to use presumptions juris tantum as much as possible, avoiding irrebuttable presumptions and fictions, so that, combining articles 73 and 74 of the General Tax Law, one distinguishes, in the set of presumptions juris et de jure, those completely forbidden (cases of those presuming the existence of income in itself), those not recommended (relating to norms of tax incidence burdening the subject) and those not prohibited (relating to norms of tax incidence in the broad sense that allow reaching net income or consider expenses that diminish contributive capacity).

To adopt this type of distinction, "the norms of tax incidence that imply deduction of expenses, costs and other charges, for the determination of net income or related to contributive capacity, and also tax benefits, as norms relieving the burden", are not encompassed by article 73 of the General Tax Law, nor do they violate the Constitution, as long as the typifications do not depart from reality. The legal typification of the norms relieving the burden "whose individual monitoring is very difficult to ensure" would even be "recommended by the principles of practicability and equality".

As can be seen the question to be decided is very little consensual.

This TAS is obliged to decide according to "constituted law". Where there are two (or more) opposed senses in the reading of the law, it is necessary to follow what is deemed to be the most assertive, being required to formulate a critical analysis on the other readings of the law, avoiding an uncritical decision, by mere adherence to a viewpoint.

We deem the reading of the law adopted in the Collective Tribunal, proceeding CAAD no. 628/2014-T, as being the most assertive. Indeed,

The grounds of the learned decision adopted in proceeding CAAD 52/2016-T when it states that article 88 of the CIRC "does not establish a presumption of partial "business purpose"", "without establishing it, rest, i.e., seek their ratio (or part of it) in a presumption of partial "business purpose"", seems difficult to sustain, since, whether it is understood that the norm "establishes" or "rests and seeks its ratio or part of it", it will always allow the interpreter, in the search for legislative intent (since the literal element of the norm does not resolve the question), to use in the hermeneutic effort, the mentioned presumption.

On the other hand, it does not seem to us that the legislator erected as a "ratio" that autonomous taxation is also associated the legislator's option to tax in Corporate Income Tax rather than to tax in Personal Income Tax in the sphere of the beneficiaries of the expenses in which the company incurred. Upon reading the current no. 11 of article 88 of the CIRC it appears that this autonomous taxation does not result from an "expense", but from a "profit", a dividend, paid by a commercial company to an exempt entity. That is, the ratio of this norm is only anti-abuse, penalizing the phenomenon called "coupon washing" (here only affecting dividends). It seems difficult to us to sustain, in general terms, that all the autonomous taxation of the current article 88 of the CIRC, have as ratio "the legislator's option to tax in Corporate Income Tax rather than to tax in Personal Income Tax in the sphere of the beneficiaries of the expenses", as there is the situation referred to in which this does not occur, where the ratio stands out as the fact that it is an anti-abuse norm, in addition to reasons of fiscal policy, intended for the collection of (fiscal) revenue.

On the other hand, the understanding set forth in the learned dissenting vote included in proceeding CAAD no. 628/2014-T, regarding the "norms relieving the burden", that they are not encompassed by article 73 of the General Tax Law, nor violate the Constitution, as long as the typifications do not depart from reality and that the legal typification of the norms relieving the burden "whose individual monitoring is very difficult to ensure" would even be "recommended by the principles of practicability and equality", seems to us, as is referred to here, of complex or very difficult practicability, since legislative power would have to be systematically attentive that the formulations of the "typifications" do not depart from reality, which could lead to a greater proliferation of amendments to tax law, which in itself, is considered to be one of the greatest defects of the current Portuguese tax system, with unquantifiable context costs and image of insecurity for the country for domestic and foreign investors.

On this point, the AT itself, seems to us divided, between the position duly defended in the opposition and in the arguments and the one that was set forth in the grounds of the order that denied the gracious claim, which says the following:

"This presumption of partial "business purpose" is encompassed by tax waiver resulting from article 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration. Thus the subject of the tax will have to prove the complete business purpose of the expense or the AT, if it so understands and considers it justified, demonstrate that regarding the expenses in question and on which autonomous taxation has fallen, the general requirement of article 23 of the CIRC is not met".

As is stated in uu) of the Report of this decision, the AT formulates the following assertion: "Thus, it is concluded that autonomous taxation consists of taxation on the expense incurred by the subject of the tax, given certain reasons of fiscal policy, intended for the collection of (fiscal) revenue independent of the taxable base that will be determined in the respective taxation period", " … the expense is the fact revealing the contributive capacity that is intended to be achieved, with autonomous taxation falling on the subject who incurs the cost or charge that is intended to be "penalized"", "As an instrument to combat tax fraud and evasion, the autonomous taxation established in article 88 of the Corporate Income Tax Code intends to tax those expenses which, by their nature, may constitute concealed payment of income, with the objective of avoiding its taxation in the sphere of the respective beneficiaries, or may not have been practiced solely for the benefit of the subject supporting them".

But, as noted above, the provision of the current no. 11 of article 88 of the CIRC will not permit the conclusion that all autonomous taxation can be reduced, in general terms, to the taxation of an expense, since there it taxes a "distributed profit", the dividend or equivalent (income from capital), aiming at the provision in question to prevent abuse in the use of tax exemptions by entities to whom they are conferred (phenomenon called "coupon washing"). There is a penalization of who receives and not of who pays the amount, the income.

Having made critical analyses of the positions dissonant with the reading of the law embodied in the collective decision adopted in proceeding CAAD no. 628/2014-T (which addresses identical subject matter), it is incumbent on us to adhere to the viewpoint adopted in this decision, thus attempting to contribute to the simplification of decisions on this matter, where it is written as follows:

"When one speaks of autonomous taxation, as is the case, it is convenient from the outset to bear in mind that one is dealing with a set of disparate situations, which will comprise, at least, three distinct types, namely:

Autonomous taxation of certain income (e.g.: nos. 3, 5 and 6 of the Personal Income Tax Code);

Autonomous taxation of certain deductible charges (e.g.: nos. 3 and 4 of article 88 of the CIRC);

Autonomous taxation of other charges regardless of their deductibility (e.g.: articles 1 and 2 of article 88 of the CIRC).

This precision becomes important since it is understood that, given the disparity and heterogeneity of the situations subject to autonomous taxation, it will not be only unnecessary but, even, counterproductive, the effort to synthesize and seek a proper and unitary legal nature, common to all those situations.

The nature of the specific autonomous taxation in question herein, has been the subject of broad discussion in recent doctrine and jurisprudence.

A strong current has regarded them as a tax on expense, which would tax certain types of spending, in a manner totally disconnected from income, to the point that there are even those who maintain that they constitute a proper tax, which would only casually be integrated into the Personal Income Tax and Corporate Income Tax codes.

Nevertheless, repeated acceptance has been obtained in CAAD jurisprudence, the understanding that autonomous taxation on deductible charges, as are those in question in the present proceedings, still integrate the regime of the taxes regulated by the codes in which they are integrated, aiming, albeit in a convoluted manner, at the income taxed by those.

Naturally, whoever considers the autonomous taxation that now concerns us a tax directly incidental on expense, will conclude that the norm under interpretation, …, will not integrate any presumption, directly formulating, the object of its incidence – the expense.

It is not believed, however, that such is the most correct understanding, being understood, rather, that the autonomous taxation in question may be configured as a "hybrid" tax, inciding on the income of natural and legal persons, and not on consumption or expense, as they will not present the main characteristics of this form of taxation, nor will they incide, equally, on assets, and falling within a problematic of taxation of income relative to which the legislator understood to act at two levels (separately or simultaneously): not to accept the deductibility of some expenses, in whole or in part and/or to tax them autonomously.

In this framework, the autonomous taxation now in question herein will integrate, among other things, the list of specific anti-abuse norms, being manifest the similarity, for example, with the provision of the current article 65/1 of the CIRC, which provides that:

"Not deductible for purposes of determining taxable profit are the amounts paid or owing, for any reason, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, except if the subject of the tax can prove that such charges correspond to actually performed transactions and do not have an abnormal character or an exaggerated amount."

That is, in the cases to which the autonomous taxation borne by the Claimant herein relates, the legislator could have opted for a regime similar to that established in the transcribed norm, simply forbidding the respective deductibility, or conditioning it in the same terms of that norm, or in others it deemed appropriate. Instead, the legislator opted to not go so far, remaining the legal regime of Corporate Income Tax on the expenses in question at a level below that, by permitting the deductibility of the charges in question, against the immediate payment of a part of the taxable profit that, presently or in the future, will be affected by such deduction.

Notwithstanding, the similarity of the regimes will still be undeniable, as well as the concerns and purposes underlying them.

What has been said has, in this manner, underlying the finding that autonomous taxation, including those in question herein, owes much of their reason for being to the circumstance that it will, objectively, be impossible for full taxation on a rigorous basis, under Personal Income Tax, in the potential beneficiaries of the expenses subject to such taxation (which would be equivalent to a taxation of fringe benefits as it was conceived and applied in Australia and New Zealand). It is not ignored thus that autonomous taxation of the type that here concerns us has a facet directed directly to the income of natural persons. Such as they have, moreover, a sanctioning facet – in the sense of imposing an unfavorable treatment – regarding the type of expenses that trigger them. However, these facets do not empty, nor, much less, make impossible, another facet, equally (if not more) relevant, inseparably linked with income, in this case, of legal persons.

It is understood, then, that, through the impositions in question, it is also aimed, at least in the same measure, to discipline the use by companies of expenses that may be necessary, in part, to the pursuit of normal activity, but which – on the basis of a judgment of normalcy – will also be for the benefit of natural persons who end up enjoying them as a personal title and not professional. Except that, not having the Tax Administration any "measuring tape" to make such separation, the legislator has been opting, for quite some time now, for the introduction in the Corporate Income Tax Code of this parcel which already considered, objectively, at the time of the proceedings, an imposition, at the very least, similar, to Corporate Income Tax, even if one deems such provision questionable (as well as the current wording, regarding the inclusion in Corporate Income Tax, of autonomous taxation in article 23-A of the Corporate Income Tax Code).

Recognized here, thus, are those characteristics that doctrine has been pointing out for some years to the autonomous taxation in question, such as:

a) autonomous taxation only makes sense because the costs/expenses are relevant as negative components of the taxable profit of Corporate Income Tax. This is what motivates the subjects of Corporate Income Tax to reveal as high a value as possible of such expenses to decrease the taxable base of Corporate Income Tax, the collection and, consequently, the tax to be paid;

b) it is intended to discourage this type of expense in subjects presenting negative results but which, regardless of this, continue to evidence consumption structures little or not at all compatible with the financial health of their companies;

c) it is, in a more general thesis, to model the tax system so that it reveals a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) certain expenses are considered unfavorably in that, admittedly, it is not easy to determine the exact measure of the component corresponding to private consumption, and regarding which it is known the general practice of abuse in its reporting.

Better or worse, the autonomous taxation now in question should thus be understood as a way to prevent certain abusive actions, which the "normal" functioning of the taxation system was incapable of preventing, being that other ways to combat such actions, including ways more burdensome for the taxpayer, were possible.

This anti-abuse character of the autonomous taxation now in question will be not only coherent with its "anti-systemic" nature (as happens with all norms of the kind), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by jurisprudence that, often, cites it."

"Under the prism that has been set out, the autonomous taxation in analysis will then materially have underlying a presumption of partial "business purpose" of the expenses on which it falls, in function of the above-pointed circumstance of such expenses being located on a gray line that separates what is business expense, productive, from what is private expense, consumption, and that, notoriously, in many cases, the expense will indeed in reality have a dual nature (part business, part particular).

Confronted with such difficulty, the legislator, instead of simply removing its deductibility, or inverting the burden of proof of the business purpose of the expenses in question (imposing, for example, the demonstration that "do not have an abnormal character or an exaggerated amount", as it does in articles 65/1 and 88/8 of the CIRC), opted to establish the currently applicable regime, which, nevertheless, has precisely the same basis, the same purpose, and the same type of result, as other forms used in other typical situations of the regime (in this case) of Corporate Income Tax.

Thus, from the known fact which is the realization of a certain type of spending, the legislator draws the unknown fact, which is the assessment of the degree of business affectation of the product of such spending.

And it will be this unknown fact, presumed by the legislator, that triggers and justifies the autonomous taxation in question in the present proceeding. Indeed, it was by presuming that the expenses on which that autonomous taxation falls have, as a rule, a mixed affectation, and that there is, therefore, an unjustified benefit in their full deduction, that the legislator began, in a first phase, by limiting the percentage of those that it admitted as deductible. Subsequently, for reasons that matter little to the case, but which will pass by budgetary constraints, on the one hand, and the need to ensure the taxation of possible benefits that individuals could derive from those expenses, the legislator adopted the current model of autonomous taxation of the expenses that now concern us. But such, did not exclude, rather complemented, that primitive motivation to tax, adequately, the income of legal persons, distorted by the deduction of expenses, which the legislator presumes of not entirely business affectation. That is: the budgetary purposes and, possibly, of taxation of fringe benefits, that may assist the current regime of the autonomous taxation that concerns us, do not exclude, rather rest, on the mentioned presumption of partial "business purpose" of the expenses on which they fall (and, complementarily, on the distortion of the taxation of the income of legal persons resulting therefrom).

Given the conclusion that has just been reached, it is then necessary to determine whether the presumption that was identified, is, or is not, capable of being rebutted.

In this regard, article 350, no. 2 of the Civil Code provides: "Legal presumptions may, however, be rebutted by proof to the contrary, except in cases in which the law prohibits it."

In coherence, article 73 of the General Tax Law provides: "The presumptions established in the norms of tax incidence always admit proof to the contrary."

Given the legal framework pointed out, it must be concluded that the presumption of partial "business purpose" in question should, in coherence, be considered as encompassed by the possibility of waiver generically established in article 350, no. 2 of the Civil Code and 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration, which appears, moreover, in accordance with a proportional and adequate distribution of the burden of proof, in that insofar as the autonomous taxation in question falls on expenses of business purpose not from the outset evident, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concrete.

For its part, the Tax Administration itself, if it so understands and considers that the case justifies the inherent expenditure of resources, will always be able to demonstrate that, regarding the expenses in question, and even though autonomous taxation has fallen on them, the general requirement of article 23/1 of the CIRC, specifically their indispensability for the realization of the income subject to tax or for the maintenance of the productive source, is not met.

Thus, and in sum, the autonomous taxation whose burden the Claimant seeks to have deducted from its taxable profit, may be viewed as a kind of consensual anti-abuse norm, in which the legislator proposes to the taxpayer one of three alternatives, namely:

a) not to deduct the expense;

b) to deduct but pay the autonomous taxation, dispensing with, both to itself and to the Tax Administration, from discussing the question of the business purpose of the expense;

c) to prove the complete business purpose of the expense, and deduct it entirely, not bearing the autonomous taxation.

The recognition of this presumptive nature of the autonomous taxation in question herein, in accordance with what has been set out above, will, beyond everything else, be a safeguard of its constitutionality, in that there will be guaranteed both the possibility of its complete deduction by the taxpayer, and its non-deduction, depending on the side to which the presumption underlying them is, concretely and in each case, rebutted, thus ensuring, duly, the conformity of the legal regime in question with the principles of tax equality and contributive capacity, which would be unnecessarily (and, occasionally, as is the case, disproportionately) truncated, by the establishment of an irrebuttable presumption of the partiality of the business affectation of the expenses in question."

It is now necessary to assess whether, in concrete, the presumption of article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC, was, or was not, rebutted.

It suffices to read what the Tax Inspection Report (RI) says to verify that the AT, considers, from the outset, that as to the expenses here in question, the taxpayer made, before the preparation of the report, the proof of its "complete business purpose", which results from what is stated on page 32:

"Thus, considering even that the promotion of the said events provides not only the realization of sales in the course of the same but, surely, potentiates their achievement in the future, as a result of the strong image that, surely, leaves on all the guests, given the grandeur of those, … it is unquestionable that those costs/expenses incurred are demonstrably indispensable to obtaining the income subject to tax, therefore these are accepted as tax expenses, in accordance with no. 1 of article 23 of the Corporate Income Tax Code and, from the outset deductible in determining the taxable result".

In fact, this finding will certainly result from the attachment that the Claimant made of the various documents titling the expenses as per Documents I, first, second and third parts, attached with the request for decision and which at the time were certainly made available to the tax inspectors as results from the inspection report.

If doubts existed, in the very grounds of the decision that denied the gracious claim, it says (see third page of Document VI attached with the request for decision): "By the IT when it accepts entirely the "business purpose" of the expenses in question it subjects them to autonomous taxation because they are within the ratio juris of nos. 3 and 7 of article 88 of the CIRC".

In the case at hand, the realization of the events, as results from the proven facts, constituted an aggressive way of potentiating sales, increasing company profit, increasing or maintaining market share, as the first witness heard in this proceeding stated.

That is, in common terms, these costs with events, with appearance of grandeur, entailed a strategy of sales and promotion of products in anticipation of the Annual Fair of competitors, intended to obtain higher profits and retain distributors, potentially increasing profits at the moment and in the future. That is, they configure, for an ordinary citizen, true strategies of advertising and publicity of the company and its products.

In the specific case, there are no doubts whatsoever as to the result of the events, as is stated in the RI, in terms of the projection of the company's products and its profits.

Also here there will have to be verified whether, in fact, these events, beyond any reasonable doubt, occurred in a context exclusively of business.

Given the proven facts, there will then be to consider that, in this case, it is that which happens. In substance and in essence, these expenses incurred with the events in question, embody a "sui generis" form of making advertising of the company and its products. And admittedly, by the Tax Inspection, with positive results for the future of the company.

It is to be recalled that the first witness heard, a professional engineer of the branch, stated that at an event the company could "gain" 300,000.00 euros with the realization of sales and orders. And that the revenues from the same covered the expenses incurred.

In this regard see what the RI states (page 41 – Document no. III attached with the request for decision):

"Indeed the volume of sales directly resulting from the said events will be little significant compared to the total volume of sales of the company, being, however, indisputably important for creating an image in its clients, … and in this way also, naturally, it may end up potentiating sales".

That is, the IT configures the costs in the events as "indisputably important for creating an image in its clients", considering them, implicitly, as equivalent to spending on advertising campaigns.

One disagrees with the assertion "the volume of sales directly resulting from the said events will be little significant compared to the total volume of sales of the company", in that this concrete assessment, which would thus be determinative, could demonstrate, whether and to what extent, the realization of such expenses increased (or not) the taxable profit in Corporate Income Tax and, therefore, increased (or not) the Corporate Income Tax itself to be paid and to what extent. What would be the typical practical effect of spending on advertising campaigns and could, with some ease of reasoning, be considered that the costs incurred with the "events" had, at least, a practical effect identical to that of any advertising campaign with success among the target audience.

The main clients of the Claimant, who certainly were invited and were present at the events, appear in the RI (see page 13 of document no. III attached with the request for decision): "I…, J…; K… and L…". In addition to these clients, information could be obtained from others who attended the events, and, through cross-referenced information it would be necessary that the practical effect of the costs in direct relation to the increase in sales and profits of the Claimant company be ascertained, with implicit repercussions on the increase in tax revenue, in addition to the stimulation of the economy.

One of the observations that the AT places – as is stated in ss) of the Report of this decision – is that the events had a sporadic character and do not occur since 2012. But there are no reasons for such observation. As is common knowledge and the first witness explained (that the sector fell 70% - from construction of 120,000 homes to 7,000), the Portuguese economic crisis affected especially the real estate market, which is why, the Claimant and the companies of the sector, by economic rationality, would not be able to recover even the costs of these actions, much less potentiate profits, through the increase in sales. At the time of the facts – year 2010 - the effects of the crisis that the Country was experiencing were not yet felt.

The AT also states that the charges incurred by the Claimant "have a character of offering goods and services". However, we see no justification for this observation, and in the Tax Inspection Report, as stated above, it was considered differently.

In this context, it is concluded, then, that the presumption of article 88, no. 3, paragraph a) and no. 7 in the 2010 version - current article 88, no. 7 of the CIRC, should be considered as rebutted, therefore, by demonstrating that the expenses on which the autonomous taxation in question in the present arbitral proceeding fell have a 100% business affectation, they should not be the subject of incidence of that taxation.

In view of the foregoing, the present arbitral proceeding should be judged as founded and, consequently, the assessment which is the subject matter of the present proceeding should be annulled, as petitioned.

Questions of Prejudiced Knowledge

Proceeding the request for arbitral decision regarding the defect of illegality referred to, which ensures effective protection of the Claimant's rights, knowledge of the third ground invoked for the illegality of the assessment becomes prejudiced, for being useless, set forth in paragraphs ee) to gg) of the Report of this decision.

Considering that it appears from the AT's response: "If the Tribunal agrees with the Claimant's understanding with a view to waiving a supposed legal presumption, then we would be faced with a materially unconstitutional interpretation of the norms in question by violation of the principle of tax legality, in the aspect of generality and abstraction, resulting from the principle of legality and also as instruments of tax equality, and therefore, equally by violation of the principle of tax equality, which result, namely, from article 13 and article 103 of the Constitution", it is considered that no specific question of constitutionality is formulated that generates an obligation for this Tribunal to rule, in that it is a mere generic formulation of a supposed understanding not concretized, where it is not indicated, among other things, which specific norm or normative segment is referred to by the interpretation, nor how, to what extent and why the supposed interpretation presented by the Claimant violates each of the constitutional norms it lists.

Indemnificatory Interest

It was proven that "the Claimant came to pay on 18.11.2013, within the voluntary payment period, the amount of € 57,566.02, under the Exceptional Regime for Regularization of Tax Debts and to Social Security ("RERD"), approved by Decree-Law no. 151-A/2013, of 31 October" avoiding the payment of default interest and costs in the context of tax enforcement proceedings.

Article 43, no. 1, of the General Tax Law establishes that "indemnificatory interest is due when it is determined, in gracious claim or judicial challenge, that there was an error attributable to the services from which resulted the payment of the tax debt in an amount greater than that legally due".

As results from the literal tenor of this norm, the right to indemnificatory interest depends on "payment of the tax debt in an amount greater than that legally due".

In the case, the Claimant bore € 57,566.02, therefore, the annulment of the assessment, in addition to the duty of reimbursement, may entail the payment of indemnificatory interest, if there has been an error attributable to the AT services in the assessment.

No. 2 of article 43 of the General Tax Law states that it is considered there is an error attributable to the services in the cases in which, despite the assessment being made on the basis of the taxpayer's declaration, the latter followed, in its preparation, the generic guidance of the tax administration, duly published.

This was the case, the taxpayer paid the debt assessed in the context of a notification made to it by the AT (which is equivalent to generic guidance from the AT), in dissonance with the Claimant's position.

The illegality of the decision adopted in hierarchical appeal is also attributable to the Tax Administration, which denied it on its own initiative.

Consequently, the Claimant is entitled to indemnificatory interest, in accordance with article 43, no. 1, of the General Tax Law and 61 of the Tax Procedure Code from the date on which it made the payment in question, until reimbursement.

V. OPERATIVE PART

In accordance with and for the grounds set out above:

1. The request for annulment of the decision on hierarchical appeal that took the number …2015…, denied by order issued by the Esteemed Director of Services of Corporate Income Tax, on 22 October 2015, and notified on 4 November 2015 by office … of 03.11.2015 is judged as founded, and also the act of Corporate Income Tax assessment no. 2013 … and the account reconciliation statement no. 2013…, from which resulted Corporate Income Tax payable in the total amount of € 62,593.97, considering that the amount paid was only the amount of € 57,566.02, under the Exceptional Regime for Regularization of Tax Debts and to Social Security ("RERD"), approved by Decree-Law no. 151-A/2013, of 31 October;

2. The assessment and the order referred to are annulled;

3. The request for condemnation of the AT for reimbursement of the amount of € 57,566.02, the value actually paid, condemning the Respondent to proceed with the respective reimbursement, is judged as founded.

4. The request for condemnation of the AT for payment of indemnificatory interest regarding the amount paid of € 57,566.02, counted from 18.11.2013 and until full reimbursement (issuance of credit note), is judged as founded.

Value of the proceedings: in accordance with the provision of article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and paragraph a) of no. 1 of article 97-A of the Tax Procedure Code), the value of the proceedings is fixed at 57,566.02 euros.

Costs: in accordance with the provision of article 22, no. 4, of the RJAT, the amount of costs is fixed at 2,142.00 € according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 25 July 2016

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared by computer in accordance with article 131, no. 5, of the Civil Procedure Code, applicable by reference from article 29 of the RJAT.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.