Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Jorge Bacelar Gouveia and Luís Menezes Leitão, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree on the following:
ARBITRAL DECISION (consult full version in PDF)
I – REPORT
On 15 February 2018, A..., LDA., Tax ID No. ..., with registered office at Street ..., No. ..., ... - ... ..., filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LRAT), seeking the declaration of illegality of the additional corporate income tax (IRC) assessment No. 2016..., in the amount of €135,423.06 and the corresponding compensatory interest assessment, in the amount of €10,739.83, relating to the 2013 fiscal year, as well as the decision rejecting the administrative appeal (reclamação graciosa) which had those corrections, and the tax assessed on their basis, as its object.
To support its request, the Claimant alleges, in summary, the following:
- defect in substantive or material reasoning;
- error regarding the factual and legal premises;
- violation of the principle of taxation based on actual income (article 104, paragraph 2 of the Constitution of the Portuguese Republic), of contributory capacity, proportionality, legality and justice.
On 15-02-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
The Claimant did not proceed with the appointment of an arbitrator; therefore, pursuant to the provisions of paragraph 2, subsection a) of article 6 and paragraph 1, subsection a) of article 11 of the LRAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable time period.
On 04-04-2018, the parties were notified of these appointments, and neither expressed willingness to challenge any of them.
In accordance with the provision in paragraph 1, subsection c) of article 11 of the LRAT, the collective Arbitral Tribunal was constituted on 24-04-2018.
On 28-05-2018, the Respondent, duly notified for that purpose, filed its response defending itself solely through challenge.
On 11-09-2018, the meeting referred to in article 18 of the LRAT took place, where witnesses presented by the Claimant were examined.
The time period provided for in article 21, paragraph 1 of the LRAT was likewise extended, pursuant to paragraph 2 of the same article, and it was indicated that the final decision would be notified by the end of such time period.
Having been granted a time period for submission of written arguments, the parties presented the same, pronouncing on the evidence produced and reiterating and developing their respective legal positions.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, paragraph 1, subsection a), 5 and 6, paragraph 2/a), of the LRAT.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the LRAT and article 1 of Ordinance No. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities.
Thus, there is no obstacle to the examination of the case.
Given the foregoing, it behoves us to deliver judgment
II. DECISION
A. FACTUAL MATTER
A.1. Facts Established as Proven
- The Claimant was registered in the Commercial Registry on 29-09-1966 with CAE 47112 – retail grocery trade, representations, commissions and consignments.
- The Claimant was established with share capital of €10,000.00, divided into two quotas:
- one in the amount of €5,000, held by shareholder B...;
- and another in the amount of €5,000, held by shareholder C...
- Subsequently, shareholder C... transferred her quota to the other shareholder, who consolidated it with the quota already held.
- Shareholder B... proceeded to divide the quota into two, one with a nominal value of €9,000.00, which he reserved for himself, and another with a nominal value of €1,000 which he transferred to his son D....
- The Claimant conducts its business at the ground floor of the property located at Street ..., No. ..., ... - ... ..., with useful area of 162 m², leased.
- The staff consisted of two employees, with the professional category of "Cashier," hired on 01-05-1999.
- The Claimant was, in 2013, classified, for VAT purposes, under the normal quarterly periodicity regime.
- During the period of 2013, the Claimant was a subject passive of IRC according to article 2, paragraph 1, subsection a) of the Corporate Income Tax Code (CIRC), with the profits obtained being subject to IRC according to article 3, paragraph 1, subsection a) and article 17 of the CIRC.
- The Claimant proceeded with the filing of annual IES declarations and IRC Model 22, mentioning the following values:
[Table with financial data - structure preserved but content indicated by ellipsis as specific values not critical to translation]
- As of 31-12-2012, the Claimant disclosed in account 56 "Carried Forward Results" accumulated losses in the amount of €224,054.58.
- The patrimonial situation of the Claimant, declared as of 31-12-2012, was, in summary, as follows:
[Table with financial data]
- The patrimonial situation declared in the period 2009-2012 was as follows:
[Table with financial data]
- In the period 2009-2012, the business evolved negatively, reaching in 2012 average monthly sales of €6,550.00.
- The volume of business declined from €285,000.00 in 2009 to €78,000.00 in 2012.
- The level of inventories was €294,000.00 in 2009 and €279,000.00 in 2012.
- Availabilities were €224,000.00 in 2009 and €218,000.00 in 2012.
- In 2013, the Claimant had no credit with suppliers and possessed a bank account, but possessed no deposits on demand or for fixed terms.
- The Claimant did not possess, as of 31-12-2012, the inventories that appear in the balance sheet, in the amount of €279,000.00, nor the availabilities in the amount of €218,000.00.
- The Claimant incurred, over time, losses that it did not recognize in its accounts.
- In the years 2012 and 2013, the Claimant declared Cost of Inventories Sold and Consumed in the amount of €61,954.73 and €229,716.98, respectively.
- In 2012, final inventories were declared in the value of €279,302.50, and in 2013, the initial inventories declared were zero.
- The periodic VAT declarations filed by the Claimant for 2013 mention the following values:
[Table with VAT data]
- By private deed of quota transfer, on 25-01-2013, the Claimant's quotas were transferred as follows:
- one, in the amount of €9,000, to E...;
- and another, in the amount of €1,000, to F....
- Through written agreement, dated 25-01-2013, the transferee shareholders accepted the burden and assumed the obligation regarding debts that the Claimant had with suppliers and other creditors, in the total amount of €31,630.63.
- The quotas were transferred at a price equal to the nominal value thereof, in the amount of €10,000, "free of liens and encumbrances, with all corresponding rights and/or obligations inherent to it."
- In the said document, no reference is made to advances (suprimentos).
- The transferors maintained, for accounting purposes, as of 25-01-2013, credit relating to advances over the company, in the amount of €470,502.87.
- After the quota transfer effected on 25-02-2013, there was a separation of the accounting records related to the two managements.
- In the movement of "opening" of the accounting after the quota transfer, the values contained in the trial balance for January 2013, presented by the previous management, were used.
- In the movement of "opening" the value of final inventories in warehouse, €279,302.50 was ignored and annulled, thus ceasing to appear as a debit in account 32-Merchandise in warehouse and the sum of the value of these inventories with the value of €1,246.99 recorded in account 441-Goodwill, which was also annulled, totaling €280,549.49 was accounted for, as a debit, in account 2532-advances, resulting in the credit balance of the same changing from €470,502.67 to €189,953.18.
- Before the quota transfer, in January 2013, account 2532111-Advances-B... was recorded, as a debit, in the amount of €218,468.29, as an offset, as a credit, to account 121 – Deposits on Demand.
- Account 2532111 – Advances – B... presented, as of 25-01-2013, a credit balance in the amount of €470,502.67.
- The company's accounting for 2012 was only delivered to the new shareholders and managers during the tax inspection action, referred to below.
- The Claimant was subject to a tax inspection action of partial scope, regarding IRC for the 2013 fiscal year, authorized by Service Order No. OI2015....
- On 24-05-2016, the scope of the inspection procedure was changed from partial to general.
- At the date of commencement of the inspection action, account 263201 – Advances – B... did not reflect any accounting record from 31-12-2013, maintaining the credit balance of €189,953.16.
- During the inspection action, the inspection services notified the transferor shareholder-manager B... to provide clarifications and present information, namely:
- to identify the value of inventories as of the date of transfer of the quotas and, if one exists, to send a copy of the respective inventory;
- to justify the classification assigned to part of the inventories identified in the 31-12-2012 inventory as "stock out of validity/in poor consumption conditions/spoiled";
- to justify the fact that such inventories were valued and that the value corresponding to them is reflected in the accounting and in the tax declarations;
- if applicable, to present probative elements of the destination given to those inventories, namely with respect to any destruction and/or disposal due to accidents, deterioration and/or obsolescence;
- to identify the value of advances owing as of the date of transfer of the quotas on 25-01-2013;
- to describe the effects of the quota transfer on the balance of advances in debit, that is, whether they are maintained or whether he ceased to have any rights over them;
- to identify the value of advances owing as of the date of transfer of quotas on 25-01-2013;
- to clarify the scope of the expression "accounting lapse," namely regarding responsibility for the preparation of the final inventory of inventories underlying the accounting entry processed;
- to identify, for each of the accidents and/or events that are the basis of the compensation and/or repair documents that were sent, the damaged merchandise, attaching supporting documents;
- to identify the alleged events, susceptible to verification by "accounting records," that support the existence of any destruction and/or disposal of merchandise due to accidents, deterioration and/or obsolescence, attaching supporting documents;
- to clarify whether the credit relating to advances that he held in the company A..., Lda. was transferred to third parties, attaching proof of that transaction;
- if applicable, to identify the transferee of that credit and the agreed price, attaching proof of the amount received.
- The transferor shareholder-manager B... responded as follows:
[Response details presented in original document]
- The inspection services notified the Claimant, through the transferee shareholder-manager E... to:
- describe the business process that involved the acquisition on 25-01-2013 of the quotas that compose the share capital of company A..., Lda. and identify the contours that led to the formation of the price of their transfer, attaching the respective supporting documents;
- temporally contextualize the phases of the business process prior to execution of the quota transfer with regard to knowledge of the reality associated with company A..., Lda. regarding the items of fixed assets, inventories and debits and relate the negotiations that involved these aspects, attaching the respective supporting documents;
- inform whether there was any omission/concealment by the previous shareholders and/or managers regarding the patrimonial, financial and/or tax reality of company A..., Lda., attaching the respective supporting documents;
- present the reasons why the physical analysis of fixed assets and inventories only occurred at a date subsequent to the quota transfer, attaching supporting documents;
- identify and value the inventories considered as "not having quality for sale" and present probative elements of the destination that was given to them, namely with respect to any destruction and/or disposal;
- having been informed that "the derecognition of assets and carried forward results absorbed the credit that the shareholders held in the company," clarify the effects of the quota transfer regarding the advances recorded in account 2532111 – Advances – Dr. B..., in the amount of €470,502.67, namely whether they were transferred free of charge to some of the current holders of capital or were extinguished.
- The transferee shareholder-manager E... responded as follows:
[Response details presented in original document]
- On 01-07-2016, the Claimant was notified, through Office No. ..., of 30-06-2016, of the draft inspection report and to, if it wished, exercise its right to be heard.
- The Claimant exercised its right to be heard and argued against the issuance, on the grounds of illegality, of the projected tax acts.
- On 01-08-2016, the Claimant was notified of the final tax inspection report, through office No. 2016... of 28-07-2016.
- The Claimant was notified of the additional IRC assessment No. 2016....
- The Claimant adhered, in December 2016, to the Special Program for Reduction of Indebtedness to the State (PERES), in the installment payment modality.
A.2. Facts Established as Not Proven
1- The advances recorded in the Claimant's accounting as of 25/01/2013 reflect the level of losses actually recorded over the 46 years of the Claimant's existence, not disclosed in equity, as a result of the overvaluation of assets (inventories and availabilities).
2- As of 31-12-2012, accumulated losses were €742,196.16, calculated as follows: Carried forward results and of the period (€245,023.85) + Losses in inventories (€278,704.02) + availabilities (€218,468.29).
3- These total losses justify the balance of the "Loans obtained" account of shareholders, which as of 31-12-2012 amounted to €688,970.96.
4- It was the shareholders who over the years "covered" the annual operating deficit.
A.3. Grounds for the Established Factual Matter, Proven and Not Proven
Regarding the factual matter, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish proven from unproven matter (cf. article 123, paragraph 2, of the Tax Code of Civil Procedure (CPPT) and article 607, paragraph 3 of the Civil Procedure Code (CPC), applicable pursuant to article 29, paragraph 1, subsections a) and e), of the LRAT).
Thus, the facts relevant to judgment of the case are chosen and defined in light of their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (cf. former article 511, paragraph 1, of the CPC, corresponding to current article 596, applicable pursuant to article 29, paragraph 1, subsection e), of the LRAT).
Accordingly, having regard to the positions taken by the parties, in light of article 110, paragraph 7 of the CPPT, the documentary and witness evidence, and the administrative process file attached to the record, the facts listed above were considered proven, with relevance to the decision, taking into account that, as stated in the Decision of the South Tax Court (TCA-Sul) of 26-06-2014, delivered in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged."
The facts established as not proven result essentially from insufficient evidence regarding them. Indeed, although they were asserted in a generic manner by the witnesses, it is considered that the certainty necessary for a judgment of proof with the precision of the numbers indicated could only be made with the support of documentary evidence, which was not presented.
Allegations made by the parties, presented as facts, consisting of strictly conclusive statements, not susceptible to proof, and whose veracity must be assessed in relation to the concrete factual matter consolidated above, were not given as proven or not proven.
B. LAW
The principal question presented for decision in this arbitral proceeding concerns assessing the legality of the adjustment made by the Tax Authority regarding the 2013 fiscal year, corresponding to an increase in the net result declared by the Claimant in that fiscal year of the amount of €470,502.67, based on a forgiveness of advances debt, in that amount, of the Claimant to its former shareholder B....
It is necessary, therefore, given the facts established as proven and not proven, and the applicable law, to determine whether the adjustment in question is sufficiently based, or not, on grounds of fact and law that legitimize it.
Let us see, then.
As results from the factual matter, by private deed of quota transfer, on 25-01-2013, the Claimant's quotas were transferred by B... and D..., respectively, to E... and to F..., with the transferees accepting the burden and assuming the obligation regarding debts that the Claimant had with suppliers and other creditors, in the total amount of €31,630.63.
It also results from the established factual matter that account 2532111 – Advances – Dr. B... presented, as of 25-01-2013, a credit balance in the amount of €470,502.67.
It is this amount that the Tax Authority considered was subject to forgiveness, constituting a positive patrimonial variation to be added to the taxable profit of the Claimant, in the said 2013 fiscal year.
Now, as is settled jurisprudence of the superior courts of the tax jurisdiction, "On the tax administration falls the burden of proving the facts constitutive of the right to issue an additional assessment and on the subject passive falls the burden of proving the facts constitutive of the right to annul that assessment – article 74, paragraph 1 of the General Tax Law." (LGT).
It is, therefore, in light of the said criterion, that one must verify whether the facts constitutive of the right to issue an additional assessment are demonstrated and, in case of an affirmative answer, whether facts constitutive of the right to annul that assessment are demonstrated.
In this vein, one must first determine whether there is demonstrated the occurrence of a positive patrimonial variation, in the amount of €470,502.67, in the year 2013, corresponding to a forgiveness of advances credit, in that amount, of the former shareholder B....
It is not, therefore, at issue here to assess or evaluate the accounting maneuvers carried out by the Claimant after the quota transfer, nor the integrity of its accounting, particularly with respect to the accounting of inventories or other matters, of which the established factual matter gives account, except insofar as they have relevance for assessing that circumstance to be demonstrated, that is, the occurrence of a forgiveness of advances credit, in the amount of €470,502.67, effected by the former shareholder B... in 2013.
Within these parameters, and reading with due attention the Inspection Report (RIT) that supports the adjustment against which the Claimant objects, one must conclude that there is not demonstrated, beyond any reasonable doubt, the occurrence of the said forgiveness of debt.
Effectively, the Inspection Report considered it to be evidenced that:
i. the former shareholder and manager maintained, as of 25/01/2013, credit, relating to advances, over the company A..., Lda., in the amount of €470,502.67;
ii. that such credit was not transferred, free of charge or for value, to any third party;
iii. instead, it was extinguished with the transaction of quota transfer carried out on 25/01/2013.
Now, with all respect due to contrary opinions, it is considered that the occurrence of any of those facts is not sufficiently founded, beyond any reasonable doubt.
Thus, first, the Tax Authority concluded the verification of the first fact solely on the basis of the Claimant's accounting, accounting which, as the Inspection Report and the established factual matter reveals, was severely disorganized, accumulating errors, inaccuracies and omissions of several decades.
This circumstance emerges crystallinely from the Inspection Report, where it was stated that "the accounting (account 2532111 - Advances - Dr. B...) and the tax declarations (field A5698 of table 05111-A and field A0672 of table 063 of the IES) of company A..., Lda. indicate that B... carried out, until the end of the 2012 fiscal year, loans, in the nature of advances, to the company of which he was a shareholder and manager until January 2013, in the total global amount of €688,970.96," with no effort made to cross-check the accounting data with reality, nor being mentioned the examination of any supporting documents, in order to be able to determine whether, in fact, the accounting record in question has any adherence to reality, nor being justified, minimally, why the Claimant's accounting, in that respect, deserves credibility, especially when it is evident that it would not be organized "in accordance with commercial and tax legislation."
Furthermore, the indifference evidenced by the parties regarding the advances credit at issue, which was valued by the Tax Authority as an indication or evidence that the same would have been forgiven (a matter to which we shall return), can be read, with even greater relevance, especially when combined with the terms and values of the transfer contract, as evidence that the credit in question would be merely accounting, not to say fictitious, that is, that the same does not have at its origin any actual provision of financial means by the shareholder to the company.
Moreover, one cannot fail to note that the Tax Authority rejects the annulment of inventory values carried out by the Claimant, as an offset against the advances credit, for "not having been demonstrated that the same had been transferred or benefited the former shareholder and manager," when the Tax Authority itself did not attempt, in any way, to ascertain whether the advances, whose existence the adjustment that it made directly presupposes, corresponded to actual provisions for the benefit of the taxed company.
It is concluded, accordingly, that the very existence of the credit considered as forgiven by the Tax Authority is not sufficiently sustained, in terms of being able to conclude, beyond any reasonable doubt, by its verification.
In the same manner, it is considered that the assertion that the advances credit at issue was not transferred, free of charge or for value, to any third party, is not sufficiently demonstrated.
Indeed, what is found is that regarding this matter the statements of the transferor and transferee are contradictory.
While the transferor peremptorily affirms that he transferred them, the transferee states that "The sellers did not make known to the buyers the existence of credits to be received from the company (advances), without any possibility of being reimbursed due to the lack of active assets that would allow it" and that "The balance recorded in account 2532111 - Advances - Dr. B... was by resolution of the transferor shareholders used to cover the losses calculated at the date of transfer of the amount referred to above of €742,794.64."
In assessing the statements in question, one must, first, note their nonconformity with the normality of things, since it is the transferor, that is, the holder of the supposedly valuable patrimonial right, who affirms that he disposed of it, and the transferee, who would supposedly benefit from such transfer, who denies the same.
Now, from this, what emerges is that neither one nor the other of the statements merits special credibility, both denoting having been influenced by other types of considerations, other than the reality or effectiveness of the occurrence of a transfer of an advances credit.
On the other hand, considering that the said statements are not worthy of credibility, as the Tax Authority did, such statements will not, of themselves, be suitable to prove the opposite fact, which was the conclusion drawn by the Tax Authority.
That is, and stated otherwise: even if the statements of the transferor in the quota transfer transaction, to the effect that the advances would have been transferred with them, do not merit credibility, from this only will it be legitimate to conclude that such statements are not suitable to prove that there was a transfer of the advances, but not that such transfer did not occur.
Similarly, even if the statements of the transferee, to the effect that the advances would have remained in the ownership of the transferor of the quotas, do not merit credibility, from this one cannot conclude that the advances credit was transferred.
The same shall be said, moreover, regarding the finding of the Inspection Report, that in the "written document of 25/01/2013 (...) there is no reference to the advances," from which it will follow that the same document will not serve to prove that any transfer occurred, but will follow, equally, that such document will not prove that the transfer did not occur.
In the same line, it is stated in the Inspection Report that "In the debts assumed by the new management there is no value with respect to the advances owing to the former shareholder and manager B....". Now, such assertion will mean nothing for the matter in question, first because the assumption of debts by the transferors will not be relevant, under any perspective, to the question sub judice, since what is questioned is the occurrence, or not, of an acquisition of credits. Had there existed the suggested assumption of debts regarding the advances recorded in the name of the transferor shareholder B..., it would confirm the hypothesis propounded by the Tax Authority. In not having existed, nothing can be concluded, and if anything could be concluded it would be, in light of the logic of the Inspection Report, that the debts corresponding to the advances recorded in favor of the transferor shareholder were not assumed by the transferees, precisely because the latter transferred them jointly with the quotas.
On the other hand, the Inspection Report itself gives account of the fact that "after the quota transfer, in the movement of 'opening' of the 'new' accounting, account 253201 - Advances – B...(= to account 2532111 in the previous accounting) was moved, as a credit, in the amount of €470,502.67 (equivalent to the value reflected in the trial balance of the previous management), but was also moved as a debit, in the amount of €280,549.49, as a way to annul the existing balances, as of 25/01/2013, in account 3211 - Final Inventory, in the amount of €279,302.50, and in account 441 - Goodwill, in the amount of €1,246.99."
Now, this circumstance collides frontally with the conclusion that the new shareholders would be unaware of the existence of the advances in question, since the same were transferred to the "new" accounting, which does not emerge as having been considered in the Inspection Report, consequently weakening the statements of the transferee in this matter, which were particularly valued by the Tax Authority, and reinforcing the statements of the transferor, which were devalued by it.
Thus, and in summary, regarding this matter, what is found is a contradiction among the various means of evidence gathered, in terms of not being able to draw a definitive conclusion on whether or not a transfer of credits occurred.
If, regarding the existence of advances in favor of the transferor shareholder B... in the amount of €470,502.67, as of 25/01/2013, and the circumstance that such credit, if existing, was not transferred, one shall, in accordance with the terms developed above, conclude by a situation of doubt, which in accordance with the rules of burden of proof and the provision of article 100, paragraph 1 of the CPPT would always lead to the annulment of the adjustment based on such facts, regarding the circumstance, truly nuclear for the legality of the adjustment sub judice, that the advances credit in question was extinguished with the quota transfer transaction carried out on 25/01/2013, one must conclude that there exists in the Inspection Report no element whatsoever that permits confirming it, reducing such circumstance to mere suspicion or assumption.
Thus, first, it is found that in this matter the Tax Authority followed a methodology that cannot be accepted, as it amounts to an effective reversal of the burden of proof, consisting of putting forward a hypothesis, and remitting to the refutation of the argument presented to it, in the opposite sense, by the subject passive.
Now, returning to what has to some extent already been said above, the circumstance that certain evidence is inconsistent or implausible, or that a certain allegation is not, or is insufficiently, proven, does not legitimate considering the opposite or contrary facts as proven.
Returning to the concrete case, it is considered that the Inspection Report is devoid of any proof that the credit in question was extinguished with the quota transfer transaction carried out on 25/01/2013.
Thus, and returning to a consideration already transcribed above, the finding of the Inspection Report that "In the debts assumed by the new management there is no value with respect to the advances owing to the former shareholder and manager B...," permits no conclusion that this occurred because the advances credit was extinguished, and it is certain that the circumstance referred to will be, at minimum, as compatible with the extinguishment of the advances credit, as with its transfer to the acquirers of the quotas, as indeed, with its maintenance in the sphere of the former shareholder, since, being a debt of the company, it does not follow, in any way, to the contrary, that maintaining the advances credit in the sphere of the transferor, the transferees would have had to be responsible for the same.
Still returning to passages of the Inspection Report already previously highlighted, from which it appears that "after the quota transfer, in the movement of 'opening' of the 'new' accounting, account 253201 - Advances – B... (= to account 2532111 in the previous accounting) was moved, as a credit, in the amount of €470,502.67 (equivalent to the value reflected in the trial balance of the previous management), but was also moved as a debit, in the amount of €280,549.49, as a way to annul the existing balances, as of 25/01/2013, in account 3211 - Final Inventory, in the amount of €279,302.50, and in account 441 - Goodwill, in the amount of €1,246.99," and "that at the date of commencement of the present inspection action account 253201 - Advances – B... did not reflect any accounting record from 31/12/2013, maintaining the credit balance of €189,953.18."
Now, this circumstance is also incompatible with the extinguishment of the advances credit on 25/01/2013, maintained in the Inspection Report, and in this respect it only states, as has also been noted, "not having been demonstrated that the same had been transferred or benefited the former shareholder and manager," when it is evident that such circumstance, if it is susceptible of legitimizing doubts regarding the correctness of the accounting entry, does not, in any way, infirm that, at the time, the advances credit was treated as being active and in force, and not extinguished.
Nothing will be relevant, equally, to demonstrate the putative extinguishment, by forgiveness, of the advances credit in question, the circumstance that, in the words of the acquirers, corroborated by the terms of the transaction, the advances credit of the transferor B... was not considered for purposes of fixing the value of the transaction, since such occurred, provably in the same manner, with other accounting records, such as fixed assets or inventory, only being able to withdraw from the circumstances referred to the finding that the transaction was approached from a strictly practical viewpoint, abstracting from accounting records that did not find, in reality, any effective patrimonial consistency, rendering it devoid of any adherence to the normality of things the assertion of the Inspection Report that the "transfer of quotas (...) carried out at the price of €10,000.00" ... "free of liens and encumbrances, with all corresponding rights and/or obligations inherent to it" ... (,) given the amount involved and the conditions set forth, by itself would be a sufficient indicator to conclude that the credits relating to advances had been extinguished."
All of what has just been expounded, however, is justified solely by a pedagogical duty, since, in the final analysis, and as will be seen below, the Inspection Report itself assumes as established facts that make impossible, inexorably, the conclusion on which the adjustments it determined are based, that the credit, relating to advances, over the company A..., Lda., in the amount of €470,502.67, which the former shareholder and manager maintained, as of 25/01/2013, was extinguished with the quota transfer transaction carried out on 25/01/2013.
Indeed, it can be read in the Inspection Report that "the elements gathered indicate that the information relating to advances owing as of the date of the quota transfer only came to the knowledge of the new shareholders and managers of the company in July 2014, which, logically, is reflected in the information that these provided, in the opposite sense to the allegations of the former shareholder and manager and never referring to the transfer, whether paid or free of charge, of the debt in question."
Passing over the imprecision that it would not be a matter of a transfer of a debt, but of a credit (what is discussed is the transfer of the advances credit from the former to the new shareholder, and not of the corresponding debt of the company to anyone), assumes, reaffirmedly, the Inspection Report that the new shareholders and managers of the Claimant only had knowledge of the "information relating to advances owing as of the date of the quota transfer" in July 2014.
Now, as was stated in the Decision delivered in arbitral case 487/2017-T of CAAD, "The forgiveness of advances may or may not be a liberality, depending on whether the consideration integrates or not the transaction of alienation of the social participations and is or is not one of the parcels of the value underlying the calculation of the corresponding price."
Thus, if one considers – which the Tax Authority does not do explicitly – the forgiveness of the debt in question as a liberality, article 863 of the Civil Code provides that:
"1. The creditor may remit the debt by contract with the debtor.
2. When it has the character of liberality, remission by transaction between living persons is held to be a donation, in accordance with articles 940 and following."
And article 945 of the same Code provides:
"1. The proposal of donation lapses if not accepted during the life of the donor.
2. The delivery to the donee, at any moment, of the donated movable thing, or its representative title, is held to be acceptance.
3. If the proposal is not accepted in the very act or delivery does not occur in accordance with the prior number, acceptance must comply with the form prescribed in article 947 and be declared to the donor, under penalty of not producing its effects."
Finally, article 947 of the Civil Code also provides:
"The donation of movable things does not depend on any external formality, when accompanied by delivery of the donated thing; not being accompanied by delivery of the thing, it can only be made in writing."
From the combination of the referred normatives it follows that the forgiveness of debt, with the character of liberality, requires the acceptance of the recipient and must be made in writing.
As is explained in the Decision of the Court of Appeal of Coimbra of 02-03-2006, delivered in case 3900/05:
"I – The renunciation and the remission of debt are distinct legal acts: renunciation, as a unilateral legal act, is not recognized, in general terms and in the field of obligations, as a cause of extinction of credits.
II – In the field of credit relations one should speak, with greater technical-legal precision, of remitting a debt, for which the consent of the debtor is necessary, as provided in article 863, paragraph 1 of the Civil Code."
In the same sense, among others, one can see the Decision of the Court of Appeal of Lisbon of 19-12-2013, which states that "Remission is a figure exclusive in credit relations that has a contractual nature, requiring the consent – acceptance – of the debtor. Where a credit for fees is at issue, one cannot speak of renunciation, but rather of remission or forgiveness which, to operate, requires the acceptance of the debtor."
Now, in the case, not only does there not exist, confessedly, any writing that embodies what was considered, by the Tax Authority, the forgiveness of the credit relating to advances over company A..., Lda., in the amount of €470,502.67, which the former shareholder and manager maintained, as of 25/01/2013, at the time of the quota transfer transaction carried out on 25/01/2013, but, given the facts held as established by the Inspection Report itself, there was neither at that date nor during the remainder of 2013 any acceptance of the putative forgiveness, given that, always according to the Inspection Report, the shareholders and managers of the Claimant only had knowledge of the "information relating to advances owing as of the date of the quota transfer" in July 2014.
That is: if, as the Inspection Report considered, the new shareholders and managers of the Claimant only had knowledge of the "information relating to advances owing as of the date of the quota transfer" in July 2014, they could not have accepted a forgiveness of the credit relating thereto in 2013.
On the other hand, and if one considers that there is not at issue a liberality, because the forgiveness of the debt put forward constitutes a consideration that integrates "in the transaction of alienation of the social participations and is or is not one of the parcels of the value underlying the calculation of the corresponding price," also one cannot conclude by its verification – in the framework of the facts on which the Inspection Report is based – in 2013, since, as was seen, it was held as established therein that the new shareholders and managers of the Claimant only had knowledge of the "information relating to advances owing as of the date of the quota transfer" in July 2014, for which reason in no case can, given such circumstance in which the adjustment sub judice objectively is based, it be considered that the forgiveness of debt considered by the Tax Authority integrated the transaction of alienation of the social participations, constituting one of the parcels of the value underlying the calculation of the corresponding price, given that if the acquirers did not have knowledge – according to the Inspection Report itself – of the existence of the advances in question, they could not have integrated it in the price of the transaction.
Thus, and it is repeated, given the very grounds of the Inspection Report, in no case can it be held as having occurred in fiscal year 2013 a positive patrimonial variation in the sphere of the Claimant, in the amount of €470,502.67, resulting from a forgiveness of advances debt, in that amount, by its former shareholder B....
This alone will be sufficient for the adjustment made by the Tax Authority, and now contested by the Claimant, to be considered as vitiated by error in the factual premises, and consequent error in law, determinative of its annulment, thus determining the success of the arbitral request.
Regarding the Claimant's request for indemnitary interest, article 43, paragraph 1 of the LGT establishes that indemnitary interest is owed when it is determined that there was error attributable to the services resulting in payment of the tax debt in an amount superior to that legally due.
Indeed, article 43, paragraph 1 of the LGT provides:
"Indemnitary interest is owed when it is determined, in an administrative appeal or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount superior to that legally due."
In the case, the errors affecting the tax acts annulled are attributable to the Tax Authority and Customs Administration, which practiced them improperly by its own initiative, incurring in the errors of fact and law noted above.
The Claimant has, accordingly, the right to be reimbursed for the amount that it paid improperly (pursuant to the provisions of articles 100 of the LGT and 24, paragraph 1 of the LRAT) by virtue of the annulled acts and, further, to be indemnified for the improper payment through payment of indemnitary interest by the Tax Authority, from the date of the improper payment, until reimbursement, at the legal supplementary rate, in accordance with articles 43, paragraphs 1 and 4, and 35, paragraph 10 of the LGT, article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.
C. DECISION
For these reasons, this Arbitral Tribunal decides to fully grant the arbitral request filed and, in consequence:
- To annul the additional IRC assessment No. 2016..., in the amount of €135,423.06 and the corresponding compensatory interest assessment, in the amount of €10,739.83, relating to the 2013 fiscal year, as well as the decision rejecting the administrative appeal which had those corrections and the tax assessed on their basis as its object;
- To condemn the Tax Authority to pay the Claimant indemnitary interest, in accordance with the terms determined above;
- To condemn the Respondent in the costs of the proceeding, fixed below.
D. Value of the Proceeding
The value of the proceeding is fixed at €135,423.06, in accordance with article 97-A, paragraph 1, a), of the Tax Code of Civil Procedure, applicable pursuant to subsections a) and b) of paragraph 1 of article 29 of the LRAT and paragraph 2 of article 3 of the Regulations of Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is fixed at €3,060.00, in accordance with Table I of the Regulations of Costs of Tax Arbitration Proceedings, to be paid by the Tax Authority, since the request was fully successful, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the LRAT, and article 4, paragraph 4 of the cited Regulations.
Let notification be made.
Lisbon, 21 December 2018
The Presiding Arbitrator
(José Pedro Carvalho)
The Arbitrator Vogal
(Jorge Bacelar Gouveia)
The Arbitrator Vogal
(Luís Menezes Leitão)
Frequently Asked Questions
Automatically Created