Process: 542/2018-T

Date: July 10, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 542/2018-T) addresses whether amounts retained by a managing partner that were not deposited into the company's bank account constitute undocumented expenses (despesas não documentadas) under Portuguese IRC law. A... Lda., an ophthalmology services company, contested an additional IRC assessment of €190,271.71 for 2014. The managing partner Dr. C... received €686,522.42 in client payments personally but deposited only €143,705.80 into the company account. The Tax Authority classified the €351,816.62 difference as undocumented expenses subject to autonomous taxation under Articles 23.º-A and 88.º of the IRC Code. The taxpayer argued these amounts were pending restitution or advances to the partner, not expenses requiring documentation, and that the issue was merely an accounting error in recording entries. The AT maintained that since the recipient and purpose of the missing funds were unknown, they qualified as undocumented expenses. The AT partially revoked the assessment for €8,369.53 where documentation proving destination was provided. The core legal issue centers on whether the statutory concept of undocumented expenses applies only to recorded expenses lacking supporting documents, or extends to income discrepancies where funds never entered company accounts. This decision has significant implications for Portuguese companies regarding cash management practices, the distinction between accounting errors and tax avoidance, and the evidential burden required to avoid autonomous taxation rates on unexplained fund movements.

Full Decision

ARBITRAL DECISION

They agree in arbitral tribunal

I – Report

  1. A... Lda., legal entity no. ..., with registered office at Rua..., no. ..., ...-... ..., hereby requests the constitution of an arbitral tribunal, pursuant to the provisions of articles 2.º, no. 1, paragraph a), and 10.º of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax act imposing an additional assessment of Corporate Income Tax and the assessment of compensatory interest and default interest, in the total amount of € 190,271.71, relating to the year 2014, further requesting the condemnation of the Tax Authority to pay indemnificatory interest.

The claimant substantiates the request as follows.

The Claimant is a limited liability commercial company engaged in the provision of medical services in the field of ophthalmology and has as its principal client B..., Lda., having provided, in the 2014 fiscal year, medical services in the total value of € 686,522.42 through Dr. C..., ophthalmologist and managing partner of the Claimant.

Dr. C... personally received, in the name and on behalf of the Claimant, all payments relating to services provided during that year, and the amounts received were not immediately deposited into the Claimant's bank account, remaining temporarily in the possession of the managing partner for the purpose of paying expenses inherent to the company's activity.

However, the amounts paid by B..., Lda. were recorded in the accounting in account # 123 (...) as if these amounts had immediately entered the Claimant's bank account.

Following an external inspection action, the Tax Authority determined the subjection to the autonomous taxation rate of undocumented expenses in the amount of € 351,816.62, resulting from the difference between the receipts for services provided and the amounts deposited in the bank account, and in the amount of € 16,728.46, relating to payments made through the bank account but not recorded in the accounting.

The Claimant contends that the sums that remained in the possession of Dr. C..., which did not enter the tax subject's bank account nor were recorded in the accounting as expenses, correspond to amounts pending restitution that do not meet the concept of "undocumented expenses" for the purposes of articles 23.º-A, no. 1, paragraph b), and 88.º, no. 1, of the Corporate Income Tax Code, since this concept refers to expenses that are recorded as charges in the accounting and for which there is no documentary support whatsoever, whereas in the present situation there was merely an accounting error in that the amount of € 351,816.62 should have been recorded in the accounting as pending restitution or, at the limit, as an advance to the partner on account of profits.

On the other hand, regarding the amount of € 16,728.46, it is possible to identify in part its destination, as it was used to pay expenses (namely the payment of services provided by the certified accountant) and payments on account of Corporate Income Tax.

It concludes that the amounts cannot be qualified as undocumented expenses, and there is no basis for the application of autonomous taxation rates.

The Tax Authority, in its response, contends that the Claimant provided services almost exclusively to B..., Lda., in the amount of € 657,689.89, and paid entirely to the managing partner, having been determined in the accounting records, following the inspection action, a discrepancy between the receipts and subsequent bank deposits in the accounts held by the Claimant, it being verified from the analysis of bank statements that the managing partner refunded to the company only the amount of € 143,705.80 €.

Being sums belonging to the Claimant and which were omitted and concealed from its patrimony, they correspond to undocumented expenses because the recipient of the amounts in question and the purpose they were intended for are unknown.

However, it is possible to identify the destination, objective and beneficiary of payments in the amount of € 8,369.53, documented by cheques, and therefore this amount loses its character of undocumented expense, which justified the partial revocation of the contested assessment act, with the consequent reduction of autonomous taxation in € 4,184.77 (corresponding to the 50% rate that applied to the amount of the expense regarding which the taxpayer proved its destination).

It concludes by arguing for the dismissal of the arbitral request.

  1. Following the process, the meeting referred to in article 18.º of the RJAT was dispensed with and the process was ordered to proceed to submissions over successive periods.

In submissions, the Claimant sought to establish the facts that should be regarded as proven and, for the rest, maintained its earlier position. Regarding the unjustified cash withdrawals from the bank account, and in light of the partial revocation of the tax assessment act, regarding € 2,406.92, the Claimant continues to maintain that this amount is also justified.

  1. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the Tax and Customs Authority in accordance with applicable regulations.

Pursuant to the provisions of paragraph a) of no. 2 of article 6.º and paragraph b) of no. 1 of article 11.º of the RJAT, as amended by article 228.º of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbiters of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

The parties were duly and timely notified of this designation and did not manifest any wish to refuse it, pursuant to the combined provisions of article 11.º, no. 1, paragraphs a) and b), of the RJAT and articles 6.º and 7.º of the Ethics Code.

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11.º of the RJAT, as amended by article 228.º of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 10 January 2019.

The arbitral tribunal was regularly constituted and is materially competent in light of the provisions of articles 2.º, no. 1, paragraph a), and 30.º, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties possess legal personality and capacity, are legitimate and are duly represented (articles 4.º and 10.º, no. 2, of the same statute and 1.º of Order no. 112-A/2011, of 22 March).

The process is not affected by any nullities and no exceptions were raised.

It is incumbent upon us to assess and decide.

II – Reasoning

Factual Matters

  1. The facts relevant to the decision of the case that may be regarded as established are as follows.

A) The Claimant is a limited liability commercial company engaged in the provision of medical services in the field of ophthalmology and has as its principal client B..., Lda.;

B) The medical services contracted from the Claimant in the year 2014 were all performed at the premises of B..., Lda., and executed by Dr. C..., ophthalmologist and managing partner of the Claimant;

C) In the 2014 fiscal year, the Claimant provided medical services in the total value of € 686,522.42;

D) The managing partner of the Claimant personally received, in the name and on behalf of the Claimant, all payments relating to services provided during the year 2014;

E) The amounts received were not immediately deposited into the Claimant's bank account, remaining temporarily in the possession of the managing partner for the purpose of paying expenses inherent to the company's activity;

F) The managing partner made deposits into the Claimant's bank account of the amounts earned that were not applied to the payment of expenses, and which, in the 2014 fiscal year, amounted to the total sum of € 143,705.80 as follows:

MONTH AMOUNT (EUR)

January 8,750.00

February 10,184.22

March 4,600.00

April 6,800.00

May 20,525.00

June 11,425.00

July 25,195.78

August -

September 18,678.28

October 7,852.52

November 11,225.00

December 18,470.00

TOTAL: 143,705.80

G) The amounts earned from the provision of services to B..., Lda. were recorded in the accounting in account # 123 (...);

H) The Claimant was subject to an external inspection action relating to the 2014 fiscal year, initiated by Service Order no. OI2017..., which initially aimed to ascertain the tax situation in respect of VAT and withholding taxes on personal income tax and was later extended to Corporate Income Tax;

I) During the inspection procedure, the Claimant was notified to provide clarifications and submit documentation through its certified accountant and exercised the right to be heard regarding the draft Tax Inspection Report, of which it was notified on 2 May 2018;

J) The Corporate Income Tax adjustments determined by the Tax Authority following the inspection procedure resulted from the qualification as undocumented expenses of amounts recorded in account # 123 but not deposited into the bank account, in the amount of € 351,816.62, as well as amounts relating to payments made through the bank account but not recorded in the accounting, in the amount of € 16,786.46;

K) By order of the Deputy Director-General of 6 December 2018, issued with subdelegation of powers, and while the arbitral process was pending, the assessment act for additional Corporate Income Tax was partially revoked

regarding payments made through the bank account not recorded in the accounting, in the amount of € 8,369.53, on the grounds that it is possible to identify regarding these financial movements the destination, objective and beneficiary;

L) The partial revocation determined the reduction of taxation on undocumented expenses in € 4,184.77;

M) The Claimant recognized in the prior hearing the existence of inaccuracies in its accounting records;

N) The documents contained in document no. 7 attached to the initial petition allow the identification of various payments on account of Corporate Income Tax, as well as receipts issued by company D..., in the total amount of € 10,776.45;

O) The Claimant made payment of the assessed amount on 16 July 2018.

The Tribunal formed its conviction as to the proven facts on the basis of the documents attached to the petition and the administrative file submitted by the Tax Authority with its response.

Legal Matters

  1. The Claimant contests the subjection to autonomous taxation as undocumented expenses of the amounts received by the managing partner in the name and on behalf of the company, which were recorded in the accounting but not deposited into the bank account, as well as the amounts relating to payments made through the bank account but not recorded in the accounting.

Essentially, the Claimant argues that the retention in the possession of the managing partner of the amounts charged for the provision of services, and not deposited into the company's bank account, corresponds to a credit pending restitution or, in the final analysis, to an advance on account of profits.

It is important to begin by stating, for a better framing of the question raised, that autonomous taxation constitutes the principal exception to the taxation of income according to the principle of net income or actual income, whereby the income of natural persons is determined after deducting expenses made for its obtainment and the taxation of companies is determined in accordance with the profit established by accounting (SALDANHA SANCHES, Manual of Tax Law, 3rd edition, Coimbra, p. 406).

The introduction of this mechanism is justified because it applies to expenses whose fiscal regime is difficult to discern as they lie in a "zone of intersection between the private sphere and the business sphere" and aims to prevent and avoid that, through these expenses, companies proceed to the concealed distribution of profits or attribute income that may not be taxed in the sphere of their respective beneficiaries, also having the objective of combating tax fraud and evasion (ibid, p. 407).

Furthermore, autonomous taxation, although regulated normatively under the heading of income tax, is materially distinct from taxation under Corporate Income Tax, in that it does not directly affect the taxable profit of the company, but rather certain expenses that themselves constitute a new taxable event (which refers not to the receipt of income but to the realization of expenses). And, in this way, autonomous taxation has inherent in it the idea of discouraging a practice that, in addition to affecting equality in the distribution of public burdens, may involve situations of lesser fiscal transparency, and is explained by a legislative intention to encourage companies to reduce as much as possible expenses that negatively affect tax revenue.

In those special situations listed in the law, the legislator chose, therefore, to subject the expenses to autonomous taxation as an alternative form and more effective than the non-deductibility of the expense for the purposes of determining taxable profit, especially since when the company comes to suffer a fiscal loss, there will be no place for the payment of tax, frustrating the objective intended to be achieved, which is to discourage the actual realization of this type of expense.

Autonomous taxation is thus imposed on certain expenses typified in tax law that have been incurred by the company, and only on those expenses, and does not aim at the taxation of business income that has been earned in the respective economic exercise. And the legislator's objective – as stated – is to discourage the realization of expenses that may have a negative impact on tax revenue and artificially reduce the company's own taxable capacity.

The logic of autonomous taxation appears to be this. The company demonstrates financial availability to incur expenses that involve situations of lesser fiscal transparency and negatively affect tax revenue. In that circumstance, the taxpayer should be in a position to bear an additional fiscal burden relating to those same expenses (which could be avoided) and which is intended to compensate for the fiscal advantage resulting from the reduction of the taxable base as a result of the realization of those expenses.

As has been frequently noted, autonomous taxation initially applied to confidential and undocumented expenses (article 4.º of Decree-Law no. 192/90, of 9 June), subsequently extending to cover motor vehicle expenses, amounts paid to persons with more favorable tax treatment and representation expenses, and later to expenses for allowances or travel expenses. With the 2010 State Budget Law (Law no. 3-B/2010, of 28 April), autonomous taxation was further extended to include expenses relating to indemnities paid to managers, administrators or partners due to cessation of duties, and, in certain conditions, expenses relating to bonuses and other variable remunerations paid to managers, administrators or partners.

It is article 23.º-A, no. 1, paragraph b), of the Corporate Income Tax Code that specifies as charges non-deductible for tax purposes, even when recorded as expenses of the taxation period, "undocumented expenses". For its part, article 88.º, no. 1, provides that "undocumented expenses" are taxed autonomously at the rate of 50% without prejudice to their non-consideration as expenses in accordance with paragraph b) of no. 1 of article 23.º-A.

It should also be borne in mind that pursuant to the provisions of article 123.º, no. 1, of the Corporate Income Tax Code, "commercial companies (...) which exercise, as their principal activity, a commercial, industrial or agricultural activity, with registered office or effective management in Portuguese territory (...), are required to have accounting organized in accordance with the law which, in addition to the requirements indicated in no. 3 of article 17.º, permits the control of taxable profit", and that pursuant to the provisions of article 123.º, no. 2, paragraph a), "in the execution of the accounting (...) all entries must be supported by justifying documents, dated and capable of being presented whenever necessary".

Having said this, it is appropriate to proceed to the characterization of undocumented expenses.

Undocumented expenses should be understood as those which have no basis in any justifying document or documentary support at the accounting level, and, as such, do not specify their nature, origin or purpose (judgment of the Administrative Court of the South of 7 February 2012, Case no. 04690/11). A distinction must be made between undocumented expenses and inadequately documented expenses, that is, those whose documentary support does not comply with the legally required requirements, although it allows the identification of beneficiaries and the nature of the operation, and which only result in non-deductibility for tax purposes.

Still according to the judgment of the Administrative Court of Higher Instance of 7 July 2010 (Case no. 0204/10), "[t]he assessment of the existence or non-existence of proper documentation and the confidential nature of the expense is made by reference to the act through which the tax subject incurs the charge or expense that is capable of affecting the net result of the exercise, for the purposes of determining the taxable base of Corporate Income Tax. That is, the charge will not be properly documented when there is no documentary proof required by law demonstrating that it was effectively borne by the tax subject and the expense will be confidential when it is not revealed who received the sum that constitutes the expense" (confidential expense is now integrated in the broad concept of undocumented expenses).

In the present case, what is observed is that the services provided to B... were invoiced by the Claimant and paid directly to the managing partner, acting in the name and on behalf of the company, but were not immediately deposited into its bank account, which generated a discrepancy between the amounts evidenced in the bank statements and the accounting records made in account #123 (...).

What is at issue – as acknowledged in the Tax Inspection Report – is a divergence between the accounting of banking operations and the information contained in the bank statements, as a result of the payments having been entered in the accounting records without correspondingly entering the company's bank account.

What may occur in that circumstance is a violation of the provisions of article 63.º-C of the General Tax Law, by which tax subjects "are required to possess at least one bank account through which payments and receipts relating to the business activity carried out must be exclusively moved" (no. 1) and it is through this or these accounts that all movements relating to owner's drawings, other forms of loans and advances to partners, as well as any other movements to or from tax subjects must be made (no. 2).

It cannot be concluded, in any case, that the Claimant has incurred undocumented expenses.

Firstly, as has been stated, autonomous taxation is not directly imposed on the taxable profit of the company, but on the realization of expenses, which in itself constitutes a new taxable event that the legislator wished to tax separately by subjection to a predetermined rate that has no relationship with the company's volume of business. In the situation of the case, there is no question of the realization of expenses that could be regarded as unjustified or foreign to business interest, but solely of non-compliance with the rule of movement of payments and receipts relating to business activity through the bank accounts allocated to the company.

Secondly, it is not possible to say that the financial flows have no support in accounting terms, since they were entered in account # 123, with only a divergence being detected between those amounts and the deposits recorded in the company's bank account.

Moreover, there is no indication that the procedure adopted has affected the net result of the exercise.

There is, therefore, no reason to qualify the said deficiency in accounting organization as corresponding to undocumented expenses that should be subject to autonomous taxation, which – as we have seen – have a sanctioning function associated with situations that may involve lesser fiscal transparency.

In these terms, it is understood that the arbitral request should be regarded as successful in this respect.

Payments Made Through Bank Account Not Recorded in Accounting

  1. The Administration considered as undocumented expenses the payments made through the bank account but not recorded in the accounting, in the amount of € 16,728.46. In the course of the inspection procedure, the Claimant alleged that cash withdrawals in the amount of € 10,776.45 are justified, which were intended to pay expenses relating to services provided by the certified accountant and payments on account of Corporate Income Tax. In the order of partial revocation of the assessment act, the Tax Authority acknowledged that it was possible to identify the destination, objective and beneficiaries of payments in the amount of € 8,369.53, but that there are not sufficient elements that allow confirmation of expenses in the amount of € 2,406.92, which are only identified by the presentation of receipts without indication of the means of payment used.

The Claimant contends that all expenses in the total amount of € 10,776.45 are proven documentary so that there is no basis for the application of autonomous taxation rates regarding the residual amount of € 2,406.92.

And indeed, by means of the documents contained in document no. 7 attached to the initial petition, it is possible to identify various payments on account of Corporate Income Tax, as well as receipts issued by company D..., with reference to invoices that are also attached, documents which in their entirety involve the total amount of € 10,776.45.

And, therefore, nothing allows for the conclusion, in light of the criteria previously stated, that these are undocumented expenses.

The arbitral request also proves to be successful on this point.

Indemnificatory Interest

  1. The Claimant further requests the condemnation of the Tax Authority to pay indemnificatory interest, at the legal rate, calculated on the tax, until the complete refund of the amount due.

In accordance with the provisions of paragraph b) of article 24.º of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Tax Administration, in the exact terms of the success of the arbitral decision in favor of the tax subject, being incumbent on it to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been enacted, adopting the acts and operations necessary for the purpose". Which is in line with the provisions of article 100.º of the General Tax Law, applicable by virtue of the provisions of paragraph a) of no. 1 of article 29.º of the RJAT.

Still pursuant to no. 5 of article 24.º of the RJAT, "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and in the Code of Procedure and Tax Process", which refers to the provisions of articles 43.º, no. 1, and 61.º, no. 5, of each of those statutes, implying the payment of indemnificatory interest from the date of the improper payment of the tax until the date of processing of the respective credit note.

There is thus place, following the declaration of illegality of the withholding tax assessment act, to the payment of indemnificatory interest, in accordance with the cited provisions of articles 43.º, no. 1, of the General Tax Law and 61.º, no. 5, of the Code of Procedure and Tax Process, calculated on the amount that the Claimant improperly paid, at the rate of legal interest (articles 35.º, no. 10, and 43.º, no. 4, of the General Tax Law).

Compensatory Interest

  1. The Claimant also contests the assessment of compensatory interest in relation to the Corporate Income Tax assessment act.

Pursuant to article 35.º, no. 1, of the General Tax Law, "compensatory interest is due when, as a result of an act attributable to the tax subject, the assessment of part or all of the tax owed is delayed or the delivery of tax to be paid in advance, or withheld or to be withheld in the context of tax substitution".

As has been the common understanding, the compensatory interest due under the said provision constitutes a compensation of a civil nature intended to indemnify the Tax Administration for the loss of availability of an amount that was not assessed in a timely manner. Being a compensation of a civil nature, it is only exigible if a causal nexus is verified between the action of the tax subject and the delay in the assessment and that action may be blameworthy on grounds of fraud or negligence.

On the other hand, as determined by no. 8 of article 35.º cited, compensatory interest is integrated into the very debt of the tax, with which they are jointly assessed.

The success of the arbitral request, implying the declaration of illegality of the additional Corporate Income Tax assessment, makes the payment of compensatory interest necessarily unexigible, since it ceases to be attributable to the tax subject the delay in the payment of the tax that justifies the assessment of interest.

Default Interest

  1. Pursuant to the provisions of article 44.º of the General Tax Law, default interest is due to the Tax Administration for failure to pay the amount assessed as tax in a timely manner.

In this case, the contested tax assessment act includes default interest.

Having been the assessment annulled, meaning that the tax subject ceases to incur any tax debt, there is no place for the payment of default interest as a necessary consequence of the decision to uphold the principal arbitral request.

III – Decision

It is therefore decided:

a) To wholly uphold the arbitral request and annul the additional Corporate Income Tax assessment, compensatory interest and default interest no. 2018...;

b) To condemn the Tax Authority to pay indemnificatory interest from the payment of the tax until the date of issuance of the credit note, in accordance with articles 43.º of the General Tax Law and 61.º of the Code of Procedure and Tax Process.

Determination of the Case Amount

The value of the case is fixed at the amount of € 176,023.76, which corresponds to the value of the assessment that it was sought to contest.

Costs

Pursuant to articles 12.º, no. 2, and 24.º, no. 4, of the RJAT, and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 3,672.00, which is charged to the Respondent.

Notify accordingly.

Lisbon, 10 July 2019

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitral Assessor

Maria Alexandra Mesquita

The Arbitral Assessor

Vasco Valdez

Frequently Asked Questions

Automatically Created

What qualifies as undocumented expenses (despesas não documentadas) under Articles 23.º-A and 88.º of the Portuguese IRC Code?
Under Articles 23.º-A(1)(b) and 88.º(1) of the Portuguese IRC Code, undocumented expenses (despesas não documentadas) are costs recorded in accounting as charges for which there is no documentary support whatsoever proving their nature, amount, or business purpose. The Tax Authority interprets this broadly to include any outflows or discrepancies where the recipient and purpose are unknown. The autonomous taxation regime applies punitive tax rates (typically 50-70%) to such expenses as an anti-avoidance measure, even if the underlying expense may be legitimate but simply lacks proper documentation.
Can amounts retained by a managing partner and not deposited into the company bank account be classified as undocumented expenses for IRC purposes?
Yes, amounts retained by a managing partner and not deposited can be classified as undocumented expenses for IRC purposes. Portuguese tax authorities treat discrepancies between reported revenue and bank deposits as presumptive evidence of undocumented expenses when the taxpayer cannot prove the destination and purpose of missing funds. In this case, €351,816.62 received by the managing partner but not deposited was deemed undocumented because the company could not demonstrate what expenses were allegedly paid with these funds. The burden of proof rests on the taxpayer to document all fund movements with proper supporting evidence.
How does the Portuguese Tax Authority (AT) treat discrepancies between reported income and bank deposits in IRC inspections?
The Portuguese Tax Authority treats income-deposit discrepancies in IRC inspections by comparing accounting records with bank statements to identify unexplained gaps. When revenue is recorded but corresponding deposits are missing, or when withdrawals lack documentation, the AT presumes these represent undocumented expenses subject to autonomous taxation. The inspection process involves detailed bank account analysis, reconciliation of receipts with deposits, and examination of all payment channels. Taxpayers must provide comprehensive documentation proving the legitimate business purpose and recipient of all funds. Partial documentation may result in partial relief, as occurred here where €8,369.53 was excluded after proof of destination was provided.
What is the autonomous taxation rate applicable to undocumented expenses under Portuguese corporate tax law?
The autonomous taxation rate applicable to undocumented expenses under Portuguese corporate tax law is 50% for general undocumented expenses under Article 88.º of the IRC Code. However, rates can reach 70% for undocumented expenses with entities resident in tax havens or subject to privileged tax regimes. This autonomous taxation applies in addition to normal IRC and is calculated on the gross amount of the undocumented expense, not on taxable profit. The rate represents a significant penalty designed to discourage lack of documentation and ensure proper record-keeping. In this case, the 50% rate applied to €351,816.62 and €16,728.46 of undocumented amounts.
Can accounting errors in recording shareholder advances or pending restitutions avoid autonomous taxation on undocumented expenses?
Accounting errors in recording shareholder advances or pending restitutions generally cannot avoid autonomous taxation on undocumented expenses under Portuguese tax law. The taxpayer's argument that amounts should have been recorded as 'pending restitution' or 'advances to partners' rather than undocumented expenses was rejected because proper accounting treatment requires contemporaneous documentation regardless of the classification used. The mere assertion of an accounting error does not substitute for documentary evidence proving the nature, recipient, and purpose of fund movements. Portuguese tax authorities prioritize substance over form—if funds left the company's control without adequate documentation of their application to legitimate business expenses, autonomous taxation applies regardless of how the transaction should theoretically have been recorded.