IRS Withholding Tax Joint Liability: CAAD Case 539/2017-T on Per Diem Payments to Workers Abroad

Arbitral Decision

The arbitrators Fernanda Maçãs (arbitrator chair), João Taborda Gama and Américo Brás Carlos, arbitrator members, who constitute this Arbitral Court, hereby decide:

Report

1. A..., Lda., a taxable person with NIF..., with registered office at Rua..., lot no...,...,...,-... ... (hereinafter, the "Claimant"), comes before this Tribunal pursuant to article 2, no. 1, paragraph a), article 10, no. 1, paragraph a) and no. 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Tax Arbitration (hereinafter, abbreviated as "RJAT"), and articles 96 and following of the Tax Procedure and Process Code ("CPPT") to file a request for constitution of an arbitral tribunal and arbitral pronouncement against the additional assessment of Personal Income Tax ("IRS") withholdings at source no. 2017..., relating to the tax year 2012, in the total amount of €1,617,534.82.

2. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 11-01-2018.

2.1. On 18-12-2018, the parties were notified of the appointment of the arbitrators, with no objection being raised.

2.2. In accordance with the provisions of article 11, no. 7, of the RJAT, the collective arbitral tribunal was constituted on 11-01-2018.

2.3. In these terms, the Arbitral Court is regularly constituted to consider and decide the subject matter of the proceedings.

1. To support the request for arbitral pronouncement, the Claimant alleges, in summary, the following:

3.1. The activity which it regularly pursues is related to civil construction, performing assembly and welding services for piping in large structures and buildings (for example, oil and nuclear platforms, refineries or petrochemical plants).

3.2. The said activity is carried out, almost exclusively, outside Portugal, being responsible for providing the necessary labour for the execution of works contracted to it, with no obligation to provide goods or equipment.

3.3. In the year 2012, it participated in various projects in Belgium, the Netherlands and Germany, with almost all of the services provided and invoiced in that year being executed within the scope of the "..." project in the Netherlands.

3.4. From a total billing volume of €11,693,328.19, in the year 2012, €9,278,621.44 refers to the project developed in the Netherlands, distributed among 5 different clients, based in that country, namely: B...; C...; D...; E...; F....

3.5. The remaining billing volume corresponded to other projects and clients, based in the Netherlands (approximately 4.8%), in Belgium (approximately 15.82%) and in Germany (approximately 0.03%).

3.6. Due to the need to relocate its workers to these countries, the Claimant proceeded to pay allowances for expenses, to reimburse the expenses incurred by these workers for accommodation and meals.

3.7. Before carrying out each work, it communicates to each of the relocated workers that they will be paid a fixed monthly amount, corresponding to the salary earned and an amount in the form of expense allowances due to the temporary relocation.

3.8. Regarding remuneration received by workers relocated in the year 2012, it paid, in the Netherlands, the amount of €78,091.47, as tax, and further, in 2014, paid an additional amount of tax of €215,000.00, by reference to 2012, following an inspection action carried out in that country.

3.9. In Portugal, regarding the tax year 2012, the Tax Inspection Services ("SIT") of the Finance Directorate of... carried out a general inspection action in compliance with Service Order no. OI2016..., commencing on 14-11-2016 and concluding on 11-04-2017.

3.10. It is not admissible for IRS to be assessed against an entity that is not a taxable person, under penalty of complete violation of constitutional norms relating to income taxation and the legal system created around them.

3.11. The joint debtor (or subsidiary debtor) for the tax debt is different from the taxable person to whom the unretained tax should be assessed.

3.12. It cannot be considered the taxable person for the allegedly due tax since this concerned sums paid to workers relocated abroad, in its service in order to compensate for food and accommodation expenses.

3.13. The Respondent disregarded the existence of two types of joint tax liability, one original and another which may be qualified as non-original as established in article 22, no. 2 of the LGT, so that, contrary to what occurs with the liability set out in article 21 of the same LGT, the assumptions underlying the taxable event giving rise to the assessment of the tax do not apply to the joint debtor, since this is not the original taxable person, but a third party for this purpose, being this the situation in the present case.

3.14. The assessment of "Withholding at Source", by the Respondent, is an actual act of IRS assessment, which corresponds to tax that is due solely by the holders of the respective income, that is, by the Claimant's workers who received expense allowances and which it considers to be remuneration.

3.15. Thus, only after being determined, in the sphere of the workers, the tax actually due, being deducted any amounts paid (or increased, in case none were made) as withholding at source, and upon non-payment, could the Claimant be possibly called, as joint debtor, for this purpose.

3.16. But it would always be, as it has been shown, a liability (joint) for payment of the debt, never a liability (original) for the tax.

3.18. The assessment of the tax directly against the Claimant is also liable to violate the principle of equality, taxpaying capacity and proportionality, insofar as the issuance of this assessment act, in the name of the Claimant, will oblige payment of the tax and or to guarantee the debt, in tax enforcement proceedings, which distorts the essence of these two principles and whose income was not earned by it.

3.19. In case the assessment act in question remains in the tax-legal order, the amounts of taxes paid abroad cannot fail to be taken into consideration, for purposes of any issuance of the assessment for 2012, as provided for in the current article 91 of the CIRC.

1. The Tax and Customs Authority submitted a response and attached the case file, invoking in summary, the following:

4.1. This arbitral tribunal is incompetent to consider the request formulated by the Claimant based on the consideration, in a future assessment, of any taxes paid abroad for purposes of deduction from the assessment in accordance with article 91 of the CIRC, with such exception being dilatory – incompetence of the tribunal – resulting in dismissal of the case.

4.2. The appropriate means to obtain recognition of a right of that nature is the action to obtain recognition of a right or legally protected interest in tax matters set out in article 145 of the CPPT.

4.3. From the analysis of the values declared by the Claimant, the SIT found that the item for personnel expenses represented 70.84% of services provided and that 66.66% of total personnel expenses correspond to expense allowances, with the remuneration component amounting to 20.87%.

4.4. The items with the greatest weight in determining the net result of A... are services provided and personnel expenses, of which expense allowances assume the greatest relevance, considered by the taxpayer as not subject to taxation under IRS.

4.5. From the analysis of the accounting elements and respective supporting documents, it was found that A... incurred significant meal expenses in Antwerp, so that the expense allowance paid to workers relocated to that location cannot be considered in its entirety outside the scope of IRS.

4.6. Furthermore, from the contracts provided by A..., supporting the services provided in the ... project, it was found that both the accommodation and meals of workers involved in that project are provided by or on account of the owner – G... or the Claimant's client, so the amounts paid or made available to them do not have a compensatory nature, but rather a remuneration nature subject to taxation under IRS and that G... was not reimbursed for these expenses.

4.7. The limits of expense allowances for public servants are fixed in Ordinance no. 1553-D/2008, of 31 December, amended by Decree-Law no. 137/2010, of 28 December, and the highest daily limit of expense allowances amounts to €119.13.

4.8. Decree-Law no. 106/98, of 24 April, establishes the rules concerning the allowance of expense allowances and transport for official travel, with the allowance of expense allowances for travels abroad and while abroad being regulated by its own diploma, as provided in article 15 of the said legal instrument.

4.9. The criteria for the allocation of expense allowances for official travel abroad are regulated in Decree-Law no. 192/95, of 28 July, amended by Decree-Law no. 137/2010, of 28 December.

4.10. According to no. 5 of article 2 of Decree-Law no. 192/95, of 28 July, amended by Decree-Law no. 137/2010, of 28 December, if the travel includes provision of a meal, the expense allowance is reduced by 30 percentage points, so that the expense allowance paid to workers relocated to Antwerp cannot be considered in its entirety outside the scope of IRS. On the other hand, in the case of expense allowances incurred for workers relocated in the Netherlands, the portion of the expense allowance not subject to IRS is nil.

4.11. In accordance with the LGT, tax substitution occurs when, by imposition of law, the tax obligation is exacted from a person different from the taxpayer, being the same effected through the mechanism of withholding at source of the tax due.

4.12. When the taxpayer is replaced by another entity which becomes obliged, in its place, to the obligations relating to the tax that initially fell upon it, it becomes the sole obligor for payment of that obligation and is named the substitute.

4.13. Article 103, no. 4 of the IRS Code introduced into the Portuguese legal system by the State Budget Law of 2007 establishes that where it concerns IRS income subject to withholding that has not been accounted for, nor communicated as such to the respective beneficiaries, the substitute must assume joint liability for the unretained tax.

4.14. The cause of "Expense Allowances" "lies in the indemnification of the advance coverage of expenses incurred by the worker, for a reason related to his service".

4.15. When these expense allowances are contractually stipulated in quite high amounts, with a regular and periodic character far exceeding the declared remuneration itself, they constitute a true accessory remuneration, subject, therefore, to taxation under IRS category A.

4.16. Article 103, no. 4 of the IRS Code will apply in situations where payments made to the taxpayer are not accounted for as income (as is the case with the monthly salary), nor communicated as such to that same taxpayer and, for that reason, withholding at source was not carried out for the tax ultimately due, which did not escape the notice of the legislature given the principles of equality and taxpaying capacity.

4.17. In the present case, a clear suppression of the amounts to be paid by the Claimant was found, obtaining, with this strategy, a tax advantage, moreover, well quantified in the Tax Inspection Report.

4.18. As for the Claimant's allegation that such expenses instead constitute expenses related to the activity of commercial representation of the present Claimant, carried out by the company's commercial manager in that country, it should be noted that doc. 2 now presented by the Claimant was not included in the accounting elements, at the time of the inspection action, and that the invoices in question were recorded in account "#62515 – Travels and Stays", and were also not taxed autonomously as representation expenses.

4.19. It does not appear that taxpaying capacity, equality, proportionality, and the coherence of the tax system are sacrificed at the altar of the regime of joint liability for payment of the tax in the situations provided for in no. 4 of article 103 of the CIRS, that is, in the face of "income subject to withholding that has not been accounted for nor communicated as such to the respective beneficiaries."

4.20. The decision handed down by the Constitutional Court (published in the Official Gazette no. 108/2016, Series II of 2016-06-06, pages 17842 – 17847) ruled that the invoked unconstitutionality claims were not well-founded, issuing a decision not to declare unconstitutional the rule of no. 4 of article 103 of the IRS, which provides that "where it concerns income subject to withholding that has not been accounted for nor communicated as such to the respective beneficiaries, the substitute assumes joint liability for the unretained tax".

By order of 15 March 2018, finding no reasons to justify it, the Tribunal dispensed with holding the meeting provided for in article 18 and, for purposes of holding the trial hearing, designated 19 April 2018 at 14:00 hours.

The hearing was held, and the witnesses indicated by the parties were heard, with the tribunal notifying the Claimant to attach to the case file, within 10 days, the inspection report for the tax year 2013 and the Respondent to, within the same period, attach to the case file information provided by the works owner to the Dutch tax authorities.

The parties were equally notified that, within 15 days, they should submit successive written arguments.

Upon notification of the Claimant of the attachment to the case file of the documents submitted by the Respondent (statement of the Dutch tax authorities regarding what was confirmed to them by the works owner G...), the Claimant came to contend the unsuitability of the same to provide the proof sought by the Respondent, requesting their removal from the file.

Following this, the Respondent proposed to prove the genuineness of the said document through the testimony of the officials who were involved in the information exchange procedure and in which the said statement was issued.

By order of 29 July, the requests to attach to the case file the documents submitted by the Respondent were granted, relegating their evaluation to the appropriate moment in the arbitral sentence.

By order of 3 July, an order extending the arbitration deadline by two months was issued, fixing 11 September 2018 as the final date.

The parties submitted written arguments.

Procedural Matters

5.1. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

5.2. The Respondent raised, in its response, the exception of incompetence of the Tribunal, insofar as in "art. 210 of the p.p.a. the Claimant requests, subsidiarily, that: "cannot fail to be taken into consideration, for purposes of any issuance of the assessment for 2012, the amounts of tax paid abroad, as provided for in the current article 91 of the CIRC:"

The Respondent alleges that the Claimant "in formulating such request intends the Tribunal to condemn the AT to reformulate an assessment, practicing a new assessment and determining another "quantum" of the tax to be paid, in accordance with a certain understanding that it intends to be accepted by the Tribunal", which would configure a request for recognition of a right.

According to the Respondent, "(…) even if such claim could possibly result from a hypothetical enforcement of judgments that might be carried out in case the arbitral decision issued were to be in favor of the present p.p.a., the competence of arbitral tribunals is, from the outset, circumscribed to the matters indicated in no. 1 of article 2 of the RJAT."

In exercise of the right of response, the Claimant came to oppose the procedural nature of the exception invoked.

The Claimant clarifies that what it invokes for this purpose is that the assessment act in question, by reflecting the tax paid on services provided in the Netherlands, within the scope of the "...", if it were to remain, would configure a situation of double collection, also requesting the annulment of the assessment on the basis of this other ground.

We are not, therefore, dealing with a request for condemnation of the Respondent to practice a new assessment nor indeed recognition of rights, since the Claimant asks the tribunal to annul the impugned assessment act on the grounds of double collection.

It also follows that that request by the Claimant is subsidiary, in case the tax act were to remain and it is unequivocal that the main request is "Wherefore the illegality of the assessment act for Personal Income Tax for the year 2012, in the amount of €1,617,534.82, should be declared, with its consequent annulment, on the terms and with the grounds set out above....".

The Tribunal is, therefore, competent and regularly constituted.

5.3. The proceedings do not suffer from any nullities.

5.4. There are no other circumstances that prevent the consideration of the merits of the case.

Merits

III.1. Factual Matters

6. Facts Established

6.1. With relevance for the consideration and decision of the questions raised, preliminary and on the merits, the following facts are established and proven:

• The Claimant was established on 21 November 2002, in the form of a private company, having on 27 September 2013 been transformed into a Public Limited Company.

• On 01 January 2013, it commenced the activity of "installation of piping", corresponding to CAE 043221.

• The Claimant carries out almost exclusively its activity outside Portugal and is responsible for providing the necessary labour for the execution of works contracted to it.

• In the year 2012, it participated in various projects in Belgium, the Netherlands and Germany, with almost all of the services provided and invoiced in that year being executed within the scope of the "..." project based in ... in the Netherlands.

• Due to the relocation of workers outside national territory for execution of works, the Claimant proceeded, in that year of 2012, to payment of expense allowances.

• Under Service Order OI no. OI 2016..., issued by the Tax Inspection Service of the Finance Directorate of..., it was subject to an external inspection procedure for the tax year 2012.

• From the analysis carried out by the SIT to the accounting elements and respective supporting documents, namely the invoices issued by A... in the year 2012, it was found that all of the services provided, in that year, were invoiced to taxable persons resident in the Netherlands, Belgium and residually in Germany, having been, equally, all carried out outside national territory.

• It is worth noting that 79.35% of the services were provided within the scope of the ... project in ... in the Netherlands, as summarized in the following table:

[Table showing service distribution]

• Beyond the invoices issued, there also appear in the accounting records receipts for expense allowances paid or made available to workers of A... for their relocation to the majority of the above-mentioned locations, with 84.80% of the total expense allowances concerning the relocation of workers to ... that is workers assigned to the ... project, as summarized in the following table.

[Table showing expense allowance distribution]

• The accounting elements of the Claimant were thus analyzed, evidenced in the analytical trial balance prior to determination of Results, and reflected in the statement of results from the annual statement of accounting and tax information, which is reproduced in the following table:

[Table showing financial statement]

• In fact, from the analysis of the values declared, the SIT found that the item for personnel expenses represents 70.84% of services provided declared by the Claimant, and 66.66% of total personnel expenses concern expense allowances, while the base salary represents only 20.87%, as evidenced in the following table:

[Table showing expense breakdown]

• It was therefore found that the items with the greatest weight in determining the net results of A... are the services provided and personnel expenses, of which the greatest relevance is assumed by expense allowances, considered by the taxpayer as not subject to taxation under IRS.

• Faced with the above-identified elements, the SIT proceeded with the following framing as transcribed from the TIR at page 13 of the PA:

"III.1 CORRECTIONS UNDER IRS WITHHOLDING AT SOURCE

As referred to previously, A... paid high amounts of expense allowances allegedly to compensate workers for expenses with accommodation and meals abroad, with a great disproportionality being observed in relation to the amounts paid as salary.

Now, the expenses with expense allowances were considered by the taxpayer as non-taxed income, however, and as will be exposed in the following points, it is concluded that part of these expense allowances does not meet the necessary conditions for exclusion from income tax, namely those concerning workers who provided services in the ... project in ... and those relocated to ... .

III.1.1 TAX TREATMENT OF EXPENSE ALLOWANCES ABROAD

According to article 2 of the IRS Code, in force at the date of the facts:

1. All remunerations paid or made available to its holder, arising from:

• Work performed on account of another under an individual work contract or another legally equivalent to it; (…)

1. The remunerations referred to in the previous number include, namely, salaries, wages, payment, gratifications … bonuses … and other accessory remunerations, even if periodic, fixed or

variable, of contractual or non-contractual nature.

1. The following are also considered income from dependent work: (…)

d) Expense allowances and amounts earned from the use of own vehicle in service of the employer, to the extent that both exceed the legal limits or when the assumptions for their allocation to State servants are not observed, and amounts for travel expenses, trips or representation for which accounts have not been rendered by the end of the tax year.

Circular 12, of 29/04/1991, issued by the IRS Services Directorate, determines that in the case of expense allowances paid by non-public entities to their workers, it is considered that expense allowances exceeding the highest limit fixed for public servants exceed the legal limits.

The limits of expense allowances for public servants are fixed in Ordinance no. 1553-D/2008, of 31 December, amended by Decree-Law no. 137/2010, of 28 December, and the highest daily limit of expense allowances totals €119.13.

Regardless of compliance with the maximum limit set, it is necessary to ensure the nature of the expense allowance, which pursuant to Office no. ... of 30 August 1995, from DGCI, establishes that:

"the allowance of expense allowances is intended to cover expenses with food and accommodation" and further that "if expenses with food and accommodation are paid by the employer, that is, reimbursement of amounts actually spent occurs, the simultaneous allowance of expense allowances by no longer having that nature and not being framed in any other rule of exclusion from taxation, should be taxed as income of category A".

It should also be noted that case law has adopted the understanding that expense allowances are characterized by their compensatory purpose, since they represent a compensation or reimbursement for expenses that the worker is obliged to bear due to relocation in service of the employer. The nature of expense allowance is impaired, becoming characterized as true income from dependent work, to the extent that it exceeds the limits fixed in law or the expenses are not actually incurred by workers. In the latter case, the determining fact is not the excess of expense allowance but its own nature as remuneration and not as compensation for accommodation and meal expenses that were not actually borne by the worker, being therefore true remuneration.

Decree-Law no. 106/98, of 24 April, establishes the rules concerning the allowance of expense allowances and transport for official travel, with the allowance of expense allowances for travels abroad and while abroad being regulated by its own diploma, as provided in article 15 of the said legal instrument.

The criteria for the allocation of expense allowances for official travel abroad are regulated in Decree-Law no. 192/95, of 28 July, amended by Decree-Law no. 137/2010, of 28 December. Article 2 of the said legal instrument determines that:

"1 - Personnel who relocate abroad and while abroad, for reasons of public service, have the right, alternatively and according to their choice, to one of the following benefits:

• Allowance of daily expense allowance, on all days of relocation, in accordance with the table in force;

• Accommodation in a three-star hotel establishment, or equivalent, plus the amount corresponding to 70% of the daily expense allowance, on all days of relocation, under the terms of the table in force.(…)

5 - In case the relocation includes the provision of one or both daily meals, the expense allowance will be reduced by 30% for each one, with the expense allowance to be allowed not being of a value less than 20% of the amount provided for in the table in force."

As referred to previously, A... paid or made available to workers relocated abroad, during the year 2012, expense allowances, in the total amount of €5,521,371.00, considering that they are outside the scope of IRS, since they have a compensatory character for expenses with accommodation and meals, borne by workers, and do not exceed the daily limit legally accepted (€119.13).

However, from the analysis of the accounting elements and respective supporting documents, it was found that A... incurred significant meal expenses in Antwerp, so that the expense allowance paid to workers relocated to that location cannot be considered in its entirety outside the scope of IRS.

On the other hand, having analyzed the contracts provided by A..., supporting the services provided in the ... project, it was found that both the accommodation and meals of workers involved in that project are provided by or on account of the owner – G... or the Claimant's client, so the amounts paid or made available to them do not have a compensatory character but rather a remuneration character subject to taxation under IRS."

Having, accordingly, detailed each of the two situations described above as follows:

"III.1.2 ANTWERP

A..., in the year 2012, paid or made available expense allowances to workers relocated to Antwerp in the total of €114,767.00, corresponding to 1133 days of work, at an average daily of €100.00.

Having considered that those expense allowances are outside the scope of IRS, since they have a compensatory character for expenses with accommodation and meals, borne by workers, and do not exceed the daily limit legally accepted (€119.13).

From the analysis of the supporting documents to the accounting records, it was found that A... accounted for various documents concerning expenses incurred with meals in the location of Antwerp.

The referred documents total €33,810.95, if we divide this value by the total days of workers' stay in Antwerp, we obtain a daily meal expense value of €29.84 (€33,810.95/1133 days), which appears to correspond to the value of one daily meal per worker.

Attached as Annex 4 – List of expenses incurred with meals in Antwerp;

Extracts from accounts "62515 – Displacements and Stays * ND", and "62525 – Staff Transport * ND";

Copies of the supporting documents to meal expenses in Antwerp.

So if the expense with one daily meal was borne by A..., the same cannot have been borne by the worker since an expense can only be borne once and by a single entity. Now, in accordance with no. 5 of article 2 of Decree-Law no. 192/95, of 28 July, amended by Decree-Law no. 137/2010, of 28 December, if the relocation includes provision of one meal, the expense allowance is reduced by 30 percentage points.

Faced with the above, and as regards the expense allowances paid to workers relocated to Antwerp, only 70% of the legally accepted daily limit of expense allowance, or €83.39 (€119.13 * 70%), may be considered outside the scope of IRS.

III.1.3 PROJECT ...

A..., in the year 2012, paid or made available expense allowances to workers relocated in ... in the total of €4,681,145.00, which it considered outside the scope of IRS, since it considers them to have a compensatory character for expenses with accommodation and meals, borne by workers, and do not exceed the daily limit legally accepted (€119.13).

As referred to in point II.3.6, in the year 2012, 79.35% of A...'s activity were services provided in ... within the scope of the ... project and 84.80% of expense allowances were paid to workers relocated in ... and consequently assigned to the ... project.

Regarding the ... project, it is of the knowledge of this finance directorate that it is the construction of an electrical plant called ... in ... in the Netherlands, in the period between 2011 and 2013, in which the consortium H... was involved, constituted by 3 companies – D..., I... and J..., SA. In this project, the works owner named G... was responsible for the accommodation and meals of workers from the companies of the consortium H..., as well as from workers of companies subcontracted by the latter and that G... was not reimbursed for those expenses.

K... confirmed that the services provided by A..., in ... were contracted by the consortium H..., or by companies subcontracted by this for the construction of the electrical plant ..., and that the works owner indeed provided for the accommodation and meals of workers.

The contracts supporting the services provided within the scope of the ... project were requested of the taxpayer, having it presented those entered into with clients D..., with NIF: .... and E... BV, with NIF: ..., and informed that as to the remaining contracts it does not have them since the clients did not provide them.

It is worth noting that the value invoiced to the above-mentioned clients corresponds to 89.19% of the total invoicing concerning the ... project, as demonstrated below:

[Table]

From the analysis of the contract entered into with client D..., it appears that A... is identified as "Contractor", D... as "Client", and G... as "Owner", with clause "C-1 Rates" of the contract stating that:

"Boarding and Lodging (including breakfast, packed lunch and dinner) is for the account of Owner, at the Facilities of "…", including transport to and from site"

Whose unofficial translation is:

Boarding and Accommodation (including breakfast, packed lunch and dinner) is on the account of the Owner, at the Facilities of "...", including transport to and from the site.

Therefore, G..., in its capacity as "Owner" of the contract in question, assumes at its cost the expenses with accommodation and meals of A...'s workers, so the same cannot have been borne by the worker since an expense can only be borne once and by a single entity.

Attached as Annex 5 – Copy of the contract entered into with D...

Analyzed the contract entered into with E..., it appears that A... is identified as "Contractor", E... as "Client", and clause "C- RATES", similarly to the contract with D..., mentions that:

"Client must provide lodging and transportation to and from the site"

which translated, unofficially, means that:

The client must provide accommodation and transport to and from the site.

Therefore it can be concluded that E..., in its capacity as client, bears the expenses with accommodation and meals with A...'s workers, with the same not being able to have been borne by the worker since an expense can only be borne once and by a single entity.

Attached as Annex 6 – Copy of the contract entered into with E...

The clauses of the contracts entered into with D... and E... confirm the fact that was already known to these services, that is, that the expenses with accommodation and meals of workers assigned to the ... project were not borne by them, so the expense allowances paid to or made available to them do not have a compensatory character but rather a remuneration character and consequently are subject to taxation under IRS. Regarding the remaining clients who contracted the services of A... for the ... project and regarding which the taxpayer did not present the respective contracts, no elements were therefore presented that contradicted the facts known to these services, as well as the information provided by K... in his capacity as administrator of A... that accommodation and meals are assumed by G....

(…)

Faced with the above, it was concluded that A..., in the year 2012, paid or made available dependent work income to workers relocated in ... and in ..., subject to taxation, which it did not account for as such, but rather made their characterization as income not subject to tax, more specifically as expense allowances.

These income, subject to taxation, were also not communicated as such to the workers, since they were not included in the statements of income delivered by A... to the workers, referring to amounts due in the year 2012 and respective tax withheld at source, in accordance with paragraph b) 2 of no. 1 of the IRS Code.

The amounts in question were also not included in the Statement Model 10, to which paragraph c) of no. 1 of article 119 of the IRS Code, in force at the date of the facts, refers, which contains the annual income of workers subject to taxation under IRS and consequently were also not communicated as such to the workers.

Faced with the above, it is concluded that A..., tax substitute in the appraisal and delivery of withholding at source on income, paid or made available to workers relocated in ... and ... (wrongly considered as non-taxed expense allowances), is jointly liable for the unretained tax, under the terms of no. 4 of article 103 of the IRS Code.

III.1.5 CALCULATION OF MISSING IRS WITHHOLDING

It having been concluded that the expenses borne by A... as alleged expense allowances, paid or made available to workers relocated in ... and in ..., constitute, in part in the first case and in whole in the second, dependent work income and consequently subject to withholding at source under the terms of articles 98 and 99 of the IRS Code and in Decree-Law no. 42/91, of 22 January, which approves the Legal Regime for Withholding at Source.

In accordance with the aforementioned rules and legal instrument, entities owing dependent work income are obliged to withhold the tax at the moment of payment or making available of those income to their respective holders and to proceed with the respective delivery to the State coffers by the 20th of the month following the one in which they were deducted.

For purposes of appraisal of the missing withholding, the following files in excel were requested and presented by A...:

• List of monthly remunerations per employee;

• List of the family situation of workers as of 2012;

• List of expense allowances paid or made available monthly per employee.

Based on the relocation receipts contained in the accounting elements, columns were added to the list of expense allowances provided by A... with the locations, number of days and unit value of the expense allowance, verifying that this varies between €95.00, €100.00 and €109.00.

The list of monthly remunerations per employee and the family situation of workers were obtained from the A...'s salary processing program, and correspond to the values recorded in the accounting records as demonstrated in the following table of correspondence:

[Table]

The difference of €167.70 (€1,827.93 – €1,995.63) between the values of meal allowance subject, recorded in the accounting records and those evidenced in the list of remunerations, is offset with a difference of equal value between the values of meal allowance not taxed (€8,088.34 – €7,920.64). From the comparison between pay slips and the list of remunerations, it is verified that for the workers below discriminated, the values of meal allowance contained in the list were entirely excluded from taxation, while the pay slips include a component of meal allowance taxed in the total amount of €167.70, so the correction was made in the list of remunerations for the values of the pay slips, thus eliminating the differences between the accounting records and the list of salaries.

[Table]

In the appraisal of IRS to be withheld on dependent work remunerations, paid or made available to their respective holders, the personal and family situation of workers in 2012 will be taken into account, in accordance with the list provided by A....

Attached as Annex 8 – List of the family situation of workers

The withholding of IRS is carried out on remunerations paid or made available to workers, through the application of the rates corresponding to them, contained in the respective table of withholding at source rates on dependent work.

The withholding at source tables are annually approved by order of the Ministry of Finance and in the present case, to income paid or made available in the month of January 2012, the tables for the year 2011 were applied and for the remaining months the tables for the year 2012.

Attached as Annex 9 – Order no. 2517-A/2011, of 3 February, which approves the tables for 2011, Order no. 20175-A/2012, of 10 February, which approves the tables for 2012.

In determining the IRS withholding at source missing, concerning workers with expense allowances for being relocated in ... and in ... the following steps were followed, which led to the preparation of a table, which is attached as Annex 10 with the calculation of the monthly missing withholding per worker:

1. Determination of the value of expense allowance not subject, which in the case of Antwerp corresponds to 70% of the legally accepted daily limit of expense allowance, that is €83.39 (€119.13 * 70%) and in the case of ... is nil;

Note that there are workers who in one month were relocated to 2 different locations, with that fact having been taken into account.

1. [Missing in provided text]

2. Appraisal of the total income subject to withholding per employee:

3.1. In the appraisal of the total income subject, holiday allowances and Christmas bonuses were not considered since the respective withholdings are calculated autonomously, under the terms of nos. 4 and 5 of article 3 of Decree-Law no. 42/91, of 22 January.

3.2. Thus, the initial value subject to withholding at source corresponds to the sum of the following codes from the list of remunerations:

[Code list]

To the initial value subject were added the taxed expense allowances in accordance with the grounds described in points III.1.2 and III.1.3;

Having appraised the total monthly remuneration of each worker subject to IRS, and knowing the respective family situation, the withholding at source rate corresponding to it was determined, in accordance with the withholding tables, which are attached as Annex 9.

Regarding the month of January 2012, and given that the withholding at source tables for 2012 were only published on 10/02/2012, the procedure used by the taxpayer of applying the tables in force for the year 2011 was maintained.

Finally, to the monthly value subject appraised, for each worker, the corresponding rate was applied and the monthly withholding at source value per worker was determined, to which the value of withholding at source already effected by A... was subtracted.

Attached as Annex 10 – Table for appraisal of the monthly missing withholding per worker.

From the values resulting from the calculations presented in the table attached as Annex 10, we can conclude that the total monthly withholding at source on dependent work income missing, under the terms of articles 98 and 99 of the IRS code, is what is summarized in the following table:

[Table showing monthly withholding]

l) Having been notified of the Draft Report under the terms of article 60 of the General Tax Law and article 60 of the Supplementary Rules of Tax and Customs Inspection Procedure, to exercise within 15 days the right to a hearing, the Claimant failed to exercise the said right, so the respective Correction Document was prepared.

m) The Claimant was cited for tax enforcement proceedings no. ...2017..., within the scope of which it proceeded to payment of the total amount of €51,000.00 (doc no. 7, attached with the Arbitral Request).

n) The Tax and Customs Authority proceeded to garnishment of tax credits in the amount of € 12,708.70 (doc no. 8 attached with the Arbitral Request).

6.2. There are no other facts with relevance for consideration of the merits of the case that have not been proven.

6.3. Grounds for the Factual Matters

Regarding the factual matters, the Tribunal does not have to pronounce on everything alleged by the parties, with it being instead the duty to select the facts that matter for the decision and to distinguish the proven from the unproven facts (cfr. article 123, no. 2, of the Tax Procedure and Process Code ["CPPT"] and article 607, no. 3, of the Code of Civil Procedure ["CPC"], applicable ex vi article 29, no. 1, paragraphs a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in view of the various plausible solutions to the legal question(s) (cfr. former article 511, no. 1, of the CPC, corresponding to current article 596, applicable ex vi article 29, no. 1, paragraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of article 110, no. 7 of the CPPT, the documentary evidence and the case file attached to the record, the above-listed facts were considered proven, with relevance for the decision.

The testimonial evidence obtained at trial does not appear relevant to consider the central question raised, which is essentially one of law.

Equally, no facts were established as proven or unproven relating to points 203 to 205 of the Claimant's Initial Application, nor to the documents attached by the Respondent, following the trial hearing, as these deal with matters evaluated by the Tribunal as immaterial to the decision of the case, within the applicable legal framework.

III.2. Legal Matters

On the Illegality of the Assessment for Non-existence of the Taxable Event

The central question to be decided is whether Personal Income Tax (IRS), allegedly improperly unwithheld, in the present case, on the amounts paid as expense allowances, can be assessed and its payment required, directly and in first instance, against the Claimant itself, under the provision of article 103, no. 4, of the IRS Code.

According to the Claimant, in brief terms, the assessment now contested should have been notified not to it (substitute), as it actually was, but to each of the workers (substituted), in their capacity as taxable person of the tax and originary liable for payment of the unretained tax. In fact, since the beneficiary of the income subject to IRS, and substituted, is the true holder of the income subject to taxation, more specifically of the amounts now reclassified by the Tax Authority as dependent work income, it is their tax situation that needs correction, with the assessment of the missing tax needing to be directed to them.

In the opposite sense, the Respondent argues that according to the provision of article 103, no. 4, of the IRS Code, introduced into the Portuguese legal system by the State Budget Law of 2007, where it concerns IRS income subject to withholding that has not been accounted for, nor communicated as such to the respective beneficiaries, the substitute must assume joint liability for the unretained tax.

Let us examine this.

The question thus raised has already been subject of analysis, namely in Arbitral Decisions corresponding to cases nos. 119/2015-T and 120/2015-T, whose case law, as we agree with it, we shall now reproduce, in the present case.

Beginning with the analysis of the relevant legal texts, according to the LGT we can distinguish two types of tax joint liability, with distinct specifics sufficient to justify different treatment between both. Thus, on one hand, we have the joint liability that occurs "when the assumptions of the taxable event are verified in relation to more than one person", denominated by article 21 of the LGT as "passive joint liability", and which may equally be designated as "original", insofar as there exists a direct link of the joint debtors to the taxable event generating the tax obligation.

On the other hand, another type of joint liability is detected in the LGT, which may, in light of the system of the latter, be qualified as "non-original", and which refers to the holding responsible of third parties for the tax debt of the original taxable person, as generically provided for in article 22, no. 2 of that Law. Here, contrary to original joint liability to which article 21 refers, "the assumptions of the taxable event" do not apply to the joint debtor, since this is not – by definition – the original taxable person.

As was stated in the Arbitral Decision, issued in case no. 119/2015-T, this type of cases – of article 22, no. 2 of the LGT – is distinct from the first – to which article 21 of the same Law alludes, there being no doubt, since in this latter situation, in which "the assumptions of the taxable event are verified in relation to more than one person", all debtors will be original taxable persons of the tax, insofar as, precisely, the assumptions of the taxable event are verified in relation to all of them, whereas in the hypothesis to which article 22, no. 2 of the LGT alludes, admittedly, third parties are at issue, which are not the original taxable person of the tax.

"That is to say: in cases where "the assumptions of the taxable event are verified in relation to more than one person", as, for example, in the taxation of the household unit under IRS, we will have a situation of original tax joint liability; in cases where "the assumptions of the taxable event" do not apply to the joint debtor, but which, by force of law, that joint debtor is jointly liable for the tax debt, and any incidental amounts, of the original debtor – as happens in the case of managers of property or rights of non-residents – we will have a situation of non-original tax joint liability.

"The analysis of the distinction between those two types of tax joint liability resulting from the LGT does not need to be initiated from scratch, since civilistic doctrine, which has studied the matter for a long time, has already detected the communion of purpose of joint obligations, as an incontrovertible fact to be taken into account in the matter, being held, moreover, as a prerequisite of genuine joint liability (…)".

"These are cases that have as their object the same performance and in which the creditor is recognized the faculty of exacting from any of the debtors the integral performance, but which escape the general regime of joint liability".

"Examples of this type of situations are the case of the worker run over in service, who may exact indemnification either from the runner, or from the employer; the case of the merchant robbed, who may exact reparation of the damage either from the thief or from the watchman who neglected his duty of watchfulness; or the case of the fire victim, who may exact reparation of the damage either from the fire-setter or from the insurer previously contracted to cover that risk".

"A characteristic note of these situations is that the fulfillment of the obligation before the creditor by one of the debtors, in certain cases, extinguishes the liability of the remainder, while in others it does not. Thus, if, in the above examples, the runner, the thief or the fire-setter repair the damages, the employer, the watchman or the insurer, respectively, will be exempted from any obligation; whereas if it is the latter who satisfy, before the creditor, the obligation which falls to them, the obligation of the remainder will persist, responding they for the totality of the obligation, before the debtor who complied before the creditor (…)".

"As the Illustrious Master Antunes Varela concludes (…), "when, in the intention of the parties or in the spirit of the law, there exists communion of purpose uniting the obligations, that is, collaboration of the debtors in service of the same interest of the creditor, there is joint liability; when, by contrast, there is no communion of purpose, but merely coincidence of purposes of the performances, based on a disjunction or successive scaling of the obligations, joint liability is lacking (there being only a plurality of independent obligations, intended for the satisfaction of the same interest of the creditor), although some precepts of joint obligations may be applied, by analogy, to the legal treatment of such situations."

"Returning to the domain of tax law, and applying here the doctrine which has just been referred to, it will be concluded that in situations which above were designated as original joint liability, we will be dealing with cases of true communion of purpose, founded in the communion of the taxable event itself, justifying the direct application of the civil precepts relating to joint liability".

"Whereas in situations which above were designated as non-original joint liability, what will be verified is the said coincidence of purposes, as, returning to the example of managers of property or rights of non-residents, results from the circumstance that the fulfillment of the obligation by the original taxable person (non-resident, in the example) exempts the joint debtor (manager, in the same example), while the fulfillment by the joint debtor (manager), will not exempt the original taxable person from his obligation (which will persist, now, before that person, by way of the right of recourse), which may justify the application, by way of analogy, of the parts of the general regime of joint liability, to the extent that this is justified".

"It may be concluded, thus, in light of the positive legal framework, with sufficient certainty, that the differences between the two types of tax joint liability detected, related essentially to the circumstances of:

• in one of them (article 21 of the LGT), there being a communion in the taxable event between the debtors (who, as such, will assume the quality of original taxable persons of the tax), with the consequent existence of a relational nexus between them, in terms of the fulfillment of the tax obligation by any of them, generating the right of recourse of the fulfiller over the remainder;

• whereas in the other (article 22/2 of the LGT), the taxable event is verified only as to one debtor (or, academically, a group of debtors), who assumes himself as the original taxable person, so that, with this fulfilling the tax obligation, no right will accrue to him against the remainder, who, for their part, by fulfilling, may exact from the original debtor(s) the payment of what was imposed on them to pay.

are justifications for a distinct treatment, to the extent that the differences verified justify it."

Transposing the above to the present case, it is important to combine the analyzed precepts with that provided in article 103, no. 4 of the IRS Code, according to the wording in force at the date of the taxable event (year 2012).

Law no. 53-A/2006, of 29 December, added to article 103 of the IRS Code a no. 4, in which it establishes that "where it concerns income subject to withholding that has not been accounted for nor communicated as such to the respective beneficiaries, the substitute assumes joint liability for the unretained tax".

As we have seen, it was on the basis of this precept that the Tax and Customs Authority based itself to assess the IRS and compensatory interest and notify the Claimant for its payment.

This rule specifically targets the payment of income which constitute "remunerations" as made clear by the State Budget Report for 2007, in which it states, on page 29, the following:

"Joint Liability

Institution of a regime for joint liability of the substitute for the tax not withheld from the beneficiaries of income in situations qualified as fraudulent practices related with the omission or reduction of the amount of remunerations paid, whether by their non-accounting, or by their characterization as income not subject to taxation (e.g. expense allowances).

The precept contained in no. 4 of article 103 of the IRS Code constitutes an exception to the rule of no. 2, applicable to the remaining situations of income withholding at source carried out merely as payment on account of tax ultimately due, in which it is established that "it falls to the substituted the originary liability for the unretained tax and to the substitute the subsidiary liability".

But, as is seen from the fact that in this no. 4 the liability of the substitute is provided for as joint, the originary liability for the unretained tax continues to fall to the substituted, consisting in the exceptional regime of no. 4 only in the nature of the substitute's liability which, rather than being subsidiary, is joint, beyond the substitute being exclusively liable for "compensatory interest due from the end of the delivery deadline to the end of the deadline for presentation of the statement by the original liable person or to the date of delivery of the unretained tax, if earlier".

We are here, therefore, dealing with a case in which the holder of the income subject to IRS, and substituted, is the original liable person (in keeping with the first part of article 28, no. 2, of the LGT) and in which the tax liability (cfr. article 22, nos. 1 and 2 of the LGT) of the substitute is, not subsidiary, as per the rule of article 22, no. 4, of the LGT, reaffirmed in the second part of no. 2 of article 28 of the same Law, but joint.

Applying to the present case what has been exposed above, it is understood that, in the present case, from the outset, the assessment procedure and, above all, the consequent assessment act, should have been directed (at least also) against the original liable – the substituted, holders of the income subject to tax – and not solely against the joint debtor. In fact, as this does not concern a situation covered by article 21, no. 1 of the LGT, that is, in which "the assumptions of the taxable event are verified in relation to" the joint debtor, there is no taxable event in this sphere, so the assessment must be made in the sphere of the original taxable person, in accordance with the specific rules of the tax in question (in this case, IRS), and even with the participation in the respective procedure (of assessment) of the joint debtor, under the terms of article 9, no. 2 of the CPPT.

Thus, returning to what was stated in the Arbitral Decision issued in case no. 119/2015-T, as results from the reading of the precept of article 103, no. 4 of the IRS Code, at issue, the substitute is held jointly liable for the unretained tax and not for the amounts not withheld. In fact, one cannot – and the legislature does not – confuse tax with amounts withheld on account of such.

In fact, as was written further in the recent Decision of the STA of 23-09-2015, issued in case 0997/15: "Personal Income Tax is a tax which, as its name indicates, is due by natural persons, applying to the annual value of the income earned by them throughout the year, article 1 of the Personal Income Tax Code.

Withholding at source is not a tax, but a collection mechanism, instituted by the Portuguese tax system with the objective of increasing the effectiveness of the collection of the tax (IRS). Through the use of such mechanism, the State receives, monthly, on account of the tax that will be due at the end of each year by workers employed or workers providing services and who are not covered by the exemption regime, part of the tax on the income of natural persons that it is incumbent on them to pay.

For the taxable person of personal income tax, it is an anticipated payment of the tax that is due at the end of each year. For the entity that carries out its withholding, it is a tax debt and not payment of personal income tax. It only proceeds to deduct from the worker's salary the amount that the state has to receive under personal income taxation of that worker, incumbering itself with the delivery of that value to the state. The same occurs when the entity to whom a service was provided withholds from the cost of the service that it should pay to the provider, and, for the latter would be income taxable under personal income tax, the value corresponding to personal income tax.

But the company that carries out withholding at source does not, therefore, become taxed under personal income tax. It collects the values of personal income tax that are owed by workers/service providers which it must deliver to the state coffers."

"Thus, in the present situation there will be no doubt that the substitute can be held jointly liable for the tax, which is what the law refers to, and not already for the amounts not withheld."

"Now, the tax, in this case, is only defined (only becomes liquid, certain and exigible) after the assessment carried out, according to the IRS Code, to the respective taxable persons. Only then will it be determined, according to the legal terms, the quantum of tax legitimately exigible by the tax creditor, and only there, precisely, will be determinable the extent of the joint liability of the negligent substitute, comparing the value of the amounts whose withholding was illegally omitted, with the value of the tax due, if any, restricting the liability in question, to the lesser of the two values".

"That is to say: it is understood that the liability arising from the precept of article 103/4 of the IRS Code applicable, properly interpreted in the systematic context in which it is inserted, enshrines the joint holding liable of the substitute for the unretained tax (and not for the amounts not withheld), resulting from this that it becomes necessary, in the first place, to determine the quantum of that, and only afterwards the value of the withholding due."

"Thus, and concretely, if there is a missing withholding of 100, and, assessed the tax according to the IRS Code, results, for example:

• the existence of a tax to pay of 120, the substitute will be jointly liable for 100;

• the existence of a tax to pay of 60, the substitute will be jointly liable for 60, notwithstanding the amounts not withheld amounting to 100;

• the non-existence of tax to pay (or even a refund), the joint liability of the substitute will be null, notwithstanding the amounts not withheld amounting to 100".

"The only – and fundamental – difference introduced by the precept of article 103/4 of the IRS Code applicable, now in question, is the alteration of the type of tax liability of the substitute, from the general regime of subsidiary liability (results from the general rule of article 22/4 of the LGT, and specific of article 28/2 of the same Law), to the exceptional regime of joint liability, and not an alteration of the object of that same tax liability".

"That is to say: article 103/4 of the IRS Code, in question, alters the type of tax liability, but not its object, which ceases to be the tax, in order to pass to being the amount not withheld".

"For this reason, and in sum, in the case of article 103/4 of the IRS Code, in analysis, the substitute does not become liable for anything different from what it already was, under the terms of article 28/2 of the LGT, only varying the degree of liability, for the same, so to speak, object".

"All this, well it will be understood, if one attends to the specific rules of the calculation of the tax due under IRS, and to the circumstance that its normal functioning may, with ease, generate situations in which the tax owed by the original taxable person, is null or, if not, less than the withholding due. Hence, only when properly assessed the IRS owed by the original taxable person(s), and compared to this is the amount of the amounts whose withholding was due, is it possible to determine the extent of the joint liability of the negligent substitute, under penalty of potentially generating situations of unjustified enrichment for the Public Treasury (…)".

"It is concluded, thus, with the Claimant, that the AT, in the tax acts in question, converted "the substitute into substituted, as if it were the holder or beneficiary of the income which it is intended to tax.".

"Indeed, as regards the Claimant, no taxable event subject to IRS occurred. The same is liable, on a joint basis, for the tax owed by its workers, to whom it will have illegally omitted withholdings at source, up to the value of the omitted withholdings. But it was not that (the IRS of the original taxable persons) the tax assessed in the tax acts at issue in this arbitral action".

"Thus, in light of the alleged non-existence of a taxable event underlying the assessments subject of the present arbitral action, and having in mind that "as the case law of this Supreme Administrative Court has been affirming, with no taxable event (...), the prerequisite of the tax is not verified"(…) (in this case, article 1 of the IRS Code)".

"The vices in question being a vices of violation of law, and there being no legal rule that casts it with nullity, the assessments subject of the present arbitral action should, then, be annulled."

In sum, also in the present case it is not denied that the Claimant could be jointly liable and sued in first line, as the Respondent argues, but only for the tax debts of each of the workers, which it illegally did not withhold, and not for the amounts which it itself did not withhold, which will serve, solely, as the limit to that liability, and which was that (the fact) on which, illegally, as was seen, tax was assessed, in the assessments subject of impugnation.

Said in other words, the Respondent entity could indeed sue the Claimant, but only for the amount of tax that it should have withheld, after previously determining the quantum of its liability, through assessment of the tax owed by the original taxable persons, which did not occur. In fact, the Respondent merely redid the calculations determining a hypothetical withholding which, according to its understanding, should have been carried out by the Claimant when making available the remunerations to the workers.

Contrary to what the Respondent advocates, article 103, no. 4, of the Personal Income Tax Code does not have an anti-abuse intention in the terms placed. The said article intends, indeed, to ensure two complementary objectives: in the first place, to place upon the substitute, as the most qualified entity, an additional burden of diligence in determining the amounts subject to withholding at source/taxable and, in the second place, to facilitate the process of coercive collection. In fact, as it is not a matter of subsidiary liability, article 23, no. 2 of the LGT will not apply, which obliges the prior seizure of the patrimony of the principal debtor. Thus, after the determination of the tax owed (and not of the amounts to be withheld) and its respective notification of the actual taxable person (in the concrete case the workers), the Tax and Customs Authority can, still in first line, claim payment of the tax from the substitute without bothering to develop a lengthy process of verification of the patrimony of the substituted and to confirm whether or not it has patrimony to proceed with payment of the outstanding tax.

"Moreover", as was stated in the Arbitral Decision issued in case no. 120/2015-T, "this will be the interpretation that is compatible with the constitutional principle of proportionality, since, being joint liability a liability for debts of another and being only in relation to the original debtor that the taxpaying capacity is verified which justifies the taxation, it is not reasonable to make the demand of the debt without a situation of necessity being verified, which only occurs in case of breach by the original debtor within the voluntary payment deadline".

"Being this the understanding that should be adopted in general as to the demand of payment from the joint debtor, its adoption is all the more justified in the exceptional situation of joint liability provided for in article 103, no. 4, of the IRS Code, first of all, because, before all else, it is essential to determine whether there is any tax owed by the original debtor and, if so, what its amount is, which, in the case of income subject to aggregation for determination of IRS, is obvious that it does not have to coincide with the amount that would be withheld at source if the withholding at source were carried out". Furthermore, the interpretation now followed is, equally, that which best safeguards the obtaining of tax revenue by the State. This is because, withholding being on account, the quantum of the tax owed may be less than the withholding amount - in which case the principle of taxpaying capacity would be at issue – but it may perfectly be more, in which case the State would be deprived of tax revenue due.

It is concluded, thus, that, for these reasons, the adequate interpretation of article 103, no. 4, of the IRS Code, having in mind the hermeneutic, systematic and teleological elements, mediated by the principle of proportionality, goes in the direction advocated by the arbitral decisions mentioned.

The Claimant is therefore right in defending that there is no taxable event, as regards the assessment of IRS, since the taxable event generating the joint liability is constituted by the non-voluntary payment by the principal debtors of the amounts of IRS not withheld may be demanded from each of these (and not by the amount that should be withheld, which is only the maximum limit of the joint debtor's liability, in terms of the tax), a situation which did not occur. Only after it is determined what amount of tax is to be paid by all the principal debtors is there be a situation of joint debtor of the Claimant, to the extent that it is not paid voluntarily.

In these terms, the annulment of the IRS assessment is justified, on the grounds of violation of law, for non-existence of the taxable event.

As the request for arbitral pronouncement proceeds regarding the assessment of IRS, consideration of the other questions raised by the Claimant is prejudiced, by being useless, including those of constitutionality of article 103, no. 4, of the IRS Code, for violation of the principles of taxpaying capacity, equality and proportionality.

On the Request for Compensatory Interest

As was established in the facts given as proven, the Claimant has already proceeded to payment of the total amount of € 51,000.00 and the Respondent proceeded to garnishment of tax credits in the total value of € 12,708.70.

In this sequence, the Claimant further requests that it be determined to pay compensatory interest, under the terms of article 43, no. 1, of the LGT, calculated on the amount of tax and corresponding compensatory interest already paid and garnished in excess.

In accordance with that provided in paragraph b) of article 24 of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim for which no appeal or impugnation lies binds the Tax and Customs Authority from the end of the deadline provided for appeal or impugnation, with the latter being obliged, in the exact terms of the finding in favor of the taxable person in the arbitral decision and until the end of the deadline for spontaneous