CAAD 687/2015: IRC Autonomous Tax & Privileged Tax Regime Payments

Process: 687/2015-T

Date: November 8, 2016

Tax Type: IRC

Summary

CAAD Process 687/2015-T addresses critical issues regarding autonomous taxation and deductibility of payments to entities in privileged tax regimes under Portuguese IRC law. The taxpayer, a holding company, challenged an additional IRC assessment of €1,419,523.93 for 2011, arising from the Tax Authority's disallowance of €1,663,956.37 in costs paid to a British Virgin Islands entity for warehouse storage services in Venezuela. The Tax Authority applied enhanced autonomous taxation at 35% under Article 88(8) CIRC and denied deductibility under Article 65 (now 23-A(1)(r)) of the IRC Code. The core legal dispute centers on whether Article 65 constitutes a legal presumption or merely an anti-abuse rule that shifts the burden of proof. The claimant argued that Article 65 is an anti-abuse mechanism requiring taxpayers to prove actual performance of operations and either the normal character of transactions or non-exaggerated pricing—presented as alternative requirements. The company provided extensive documentation including export declarations, bills of lading, packing lists, and invoices to demonstrate the storage services were genuine and necessary for a €50 million refrigeration project in Venezuela. The taxpayer contended the Tax Authority violated its inquisitorial duty by refusing witness testimony and dismissing documentary evidence without proper investigation. This case establishes important precedents regarding: the interpretation of privileged tax regime provisions; the balance between taxpayer burden of proof and tax authority collaboration duties; acceptable evidence standards for demonstrating actual service performance; and the application of enhanced autonomous taxation rates. The decision has significant implications for Portuguese companies engaging in international transactions with entities in jurisdictions considered privileged tax regimes under Portuguese tax law.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Luís M. S. Oliveira and Luís Manuel Pereira da Silva, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree:

I – REPORT

On 20 November 2015, A… Sociedade Gestora de Participações Sociais S.A., NIF…, with registered office at Rua…, Lote …, …, …-… …, filed a petition 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 for Arbitration in Tax Matters (hereinafter briefly designated RJAT), seeking the declaration of illegality of the additional assessment act No. 2014…, of 09 October 2014, relating to corporate income tax (IRC) for the year 2011, in the total amount payable of € 1,419,523.93, including compensatory and default interest.

To support its petition, the Claimant alleges, in summary, that:

i. The Claimant determined in 2011 a taxable income of € 1,336,345.40;

ii. The tax administration altered the value of the taxable income thus determined to € 3,177,972.20 as a result of corrections to the value of taxable profit declared by the Claimant, adding costs which it considered this to have improperly deducted, in the amount of € 1,663,956.37, for finding them in violation of the discipline of article 65 No. 1 of the IRC Code (now 23-A No. 1, paragraph r) relating to payments to non-resident entities subject to a privileged tax regime, and assessed an amount of € 582,384.73 relating to enhanced autonomous taxation at the rate of 35% referred to in article 88 No. 8 of CIRC.

iii. Article 65 of the IRC Code (current article 23-A No. 1, paragraph r), relating to payments to non-resident entities subject to a privileged tax regime, is an anti-abuse rule, insofar as it aims to discourage or subject to more onerous requirements the use of a given conduct abstractly capable of producing a typically illegitimate tax advantage.

iv. This rule does not, however, constitute a legal presumption in the sense of the AT's response – for it is not a matter of inferring an uncertain fact through the observation of a certain fact, but merely of dispensing the AT from proof of certain facts.

v. Beyond not constituting a legal presumption, the discipline of article 65 of CIRC is not susceptible of undermining the mission of the tax administration to collaborate with the taxpayer, pursue material truth and exercise its inquisitorial power-duty.

vi. That is, although the burden of proof lies essentially on the taxpayer, the AT is not – and could not be – dispensed from collaborating in that evidentiary effort (in this sense, see the arbitral awards rendered in the context of proceedings No. 10/2012, 11/2012 and 148/2013).

vii. The decision herein challenged is therefore illegal ab initio, as it proceeds from the contrary understanding that "from the special norm contained in art. 65 of CIRC there results rather the existence of a true legal presumption" and "nor is the AT obliged to contribute to such clarification under the principle of the inquisitorial."

viii. The AT could not disregard all the documentary evidence which the now Claimant gathered, satisfying itself with the assertion that it was issued in 2010 and not in 2011, and refuse to hear the witnesses whose examination the Claimant requested, because it did not seem to it "manifestly indispensable", and at the same time maintain its conclusion that the evidence presented "is not sufficient to ascertain the actual performance of the storage service."

ix. Being certain that the law does not require any formalism, the system of free proof applies, both as to its production and as to its evaluation, and consequently the taxpayer and the AT may avail themselves of all legally permitted means of proof.

x. What article 65 of CIRC does is dispense the AT from proof that the operations were not actually performed or that they have an abnormal character or exaggerated amount, proof that, absent a special rule to the contrary, would fall to the AT to provide in accordance with No. 1 of article 75 of LGT.

xi. The provision thus requires that, to preclude the disregard of payments made, these must correspond, in the first place, to operations actually performed – by way of just contrast to operations that were not performed, or that occurred only in a simulated manner.

xii. The provision further requires that the taxpayer demonstrate the normal character of the operation or the non-exaggerated character of its price.

xiii. These two latter elements, being thus presented in alternative form, imply that the Claimant need only prove one of them.

xiv. The normal character of the operation appeals to the rules of experience and to the comparison of these payments with payments that occur in similar circumstances.

xv. The non-exaggerated character of the price rests, in turn, necessarily on judgments of common experience which have as reference not only normality, but also proportionality.

xvi. In the case of the present proceedings, the now Claimant demonstrated that here it was truly an effective, real service, performed on concrete and tangible things which it in fact supplied, proposing an investment of characteristics consonant with its objectives of establishing a solid and recognized presence in a new market in which it alone managed to consolidate itself.

xvii. The Claimant proved the real and actual performance of the operations, proving for that purpose that the materials and equipment it exported to … remained in the warehouse of B… located in …, Venezuela, indicating documentedly, shipment by shipment, the respective partial volumes and temporal gaps in storage.

xviii. The AT preferred, however, to ignore both the invoices, and the respective documents accompanying the export (DAU), and the Bills of lading (B/L), and the "packing lists", and the transport guides which the Claimant offered it, which, taken together, prove that the storage was actually provided, relating to the materials and equipment which the now Claimant exported to Venezuela.

xix. All Venezuelan businessmen who, following the success of the … project, contracted with the now Claimant, are united by ancient and solid bonds of affection and mutual trust, whereby they would never agree to contract with the now Claimant if this in any way frustrated the expectations of C….

xx. Whence it was decisive the capacity of the now Claimant to find and assume the costs of a solution that guaranteed that the equipment would all be exported still in 2010, notwithstanding that the work did not yet have the necessary conditions to receive them.

xxi. It was in truth B… who decided, on his own initiative and exclusive, to invoice the services in question in the present proceedings through a company of his seated in the British Virgin Islands.

xxii. From this circumstance does not, however, flow the automatic total disregard of the cost and the enhanced autonomous taxation that the tax administration proposed.

xxiii. Firstly, because the now Claimant proved that there was no simulation, but a real operation.

xxiv. But also because the now Claimant proved that it would not be abnormal, not even in Portugal, to charge the price that was charged to it for identical service.

xxv. It thus constituted an expense not only real, effective, of a non-abnormal nature nor exaggerated value, but also strictly indispensable to the realization of the profits realized by the now Claimant in the sale of the multiple industrial refrigeration projects for Venezuela that gave rise to a volume of more than 50 million dollars of American currency of invoicing, the cost in question in the present proceedings.

xxvi. Also for this reason, by erroneous interpretation and application of article 65 No. 1 of CIRC, the correction of the taxable profit of the now Claimant is illegal, in the part in which it disregards the deduction of this cost, as it is in the part in which it imposes an enhanced autonomous taxation of more than half a million Euros.

xxvii. The impugned decision is also illegal, equally by violation of article 65 No. 1, in fine, of the IRC Code, but also of articles 58 and 60, both of LGT, as it omitted any reference to the elements and arguments presented by the now Claimant in the administrative hearing.

xxviii. The impugned decision is furthermore illegal, by violation of articles 77, Nos. 1 and 2 of LGT and 124 and 125 of CPA in force at the date, as it proceeds from a statement of reasons that is not contextual of the additional assessment act, nor is compatible with the assumption that determined the application of article 65, No. 1 of CIRC, being for that reason contradictory.

xxix. It is not reconcilable to say, on the one hand, that the actual performance of the operation did not take place, and on the other, that the deductibility of the respective cost is not accepted because it was recorded in the wrong fiscal year, as the impugned decision does when, in an absolutely novel manner, it came to state that "according to the principle of specialization of fiscal years (article 18 of CIRC), these costs, if to be considered, should have been (sic) recorded in the fiscal year 2010 and not in the fiscal year 2011, here under analysis" – an argument which did not form part of the grounds supporting the assessment act under review.

xxx. The impugned decision is finally illegal, inasmuch as it flows from an interpretation of article 69, paragraph e) of CPPT that results in the prohibition of the claimant producing testimonial evidence, a result that would be manifestly unconstitutional, if tolerated, by violation of articles 20, No. 1, 266 and 268, all of the Constitution of the Republic, in conjunction with the principle of proportionality, as, in similar situations, the Constitutional Court judged.

xxxi. In conclusive summary, and as flows from arbitral case law, "the AT would never be dispensed, even in the presence of the said reversal of the burden of proof, from, regarding the application of the anti-abuse measure in question, making adequate statement of reasons in accordance with article 65 of the IRC Code. Now, this did not happen, the AT relieving itself of this obligation, based on the alleged absolute character of the reversal of the burden of proof, which, in the specific context of the tax process, cannot ever, obviously, lead to dispensing with statement of reasons".

On 23-11-2015, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provisions of paragraph a) of No. 2 of article 6 and of paragraph a) of No. 1 of article 11 of RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 14-01-2016, the parties were notified of these appointments, and did not manifest the will to refuse any of them.

In accordance with what is prescribed in paragraph c) of No. 1 of article 11 of RJAT, the collective Arbitral Tribunal was constituted on 29-01-2016.

On 08-03-2016, the Respondent, duly notified for this purpose, presented its reply defending itself solely by way of objection.

On 06-06-2016, with continuation on 18-07-2016, the meeting referred to in article 18 of RJAT was held, where party statements were made and witnesses, presented by the Claimant at the hearing, were examined, and the period fixed in No. 1 of article 21 of RJAT was further extended by two months, in accordance with No. 2 of that article, which period was further extended, in the same terms, by dispatch dated 26-09-2016.

Having been granted a period for the submission of written submissions, these were presented by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was fixed for the issuance of final decision, after the presentation of submissions by the AT, which occurred on 18-10-2016.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2 No. 1, paragraph a), 5 and 6 No. 1, of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of RJAT and article 1 of Portaria 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 merits of the case.

Everything considered, it falls to pronounce

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

The Claimant was the subject of an inspection action, carried out under OI2014…, in the context of which the AT considered the following, regarding payments to non-resident entities, subject to a privileged tax regime:

a. From the analysis of the current account of supplier D…, Ltd, it was verified that A… recorded in the fiscal year 2011, receipts issued by this entity, as a counterpart of expense accounts, in accordance with the following table:

b. From the analysis of the aforementioned receipts, it appears that D… has its registered office in…, …, …, British Virgin Islands, being therefore an entity based in the British Virgin Islands, which is listed in Portaria No. 292/2011 which defines the list of countries, territories and regions with clearly more favorable privileged tax regimes.

In compliance with the provisions of No. 4 of article 65 of C.I.R.C, on 22/05/2014, A… was notified to present proof that the documents issued by D… and recorded in items 622123 – Specialized work and 62611112 – Space rental, (receipts 2011-07 to 2011-12 inclusive, already identified in the previous table) correspond to operations actually performed and do not have an abnormal character or exaggerated amount.
On 23/06/2014, and in response to the notification made, the taxpayer submitted the following documents/clarifications:

a. Document prepared in Word with the contextualization of the operation;

b. Contract entered into on 03/01/2011 between D… and A… (Contract of Equipment and material Storage and Handling);

c. Extracts from accounts 622123 – Specialized work – VAT Exempt and 62611112 – Space rental – VAT not deductible, relating to the year 2011, where the documents issued by D… are recorded;

d. Documents proving the payments made to D… LTD.;

On 27/06/2014, the representative of the Claimant stated in a declaration that all the projects which A… had in Venezuela are sales of equipment recorded in account 71 – Sales of merchandise and that the purchase of equipment can be made in Portugal or in the external market, in particular in Northern Europe, being recorded in A… in account 31 – purchase of merchandise, and that in the fiscal year 2011 the only project which A… had in Venezuela was with a single client designated as Grupo E… .
On 07/07/2014, in compliance with the provisions of No. 4 of art. 65 of C.I.R.C, A… was notified to present proof that the documents issued by D… and recorded in items 61 – cost of merchandise sold and materials consumed and 625 – transport of merchandise, (receipts 2011-01, 2011-03, 2011-04, 2011-05 and 2011-06) correspond to operations actually performed and do not have an abnormal character or exaggerated amount.
On 06/08/2014, and in response to the notification made, the taxpayer submitted the following documents/clarifications:

a. The invoices issued by A… to Grupo E…, relating to the … project, with reference to the revenues associated with the costs recorded by D…;

b. Document prepared in Word with the contextualization of the operation;

c. Invoice issued by supplier F… relating to the acquisition of the Freezing Tunnel, whose assembly entailed the purchase of some resource materials;

d. Contract entered into between F… and A… on 22/12/2009 relating to the technical details of the Freezing Tunnel;

e. It further stated that it had already submitted the receipts issued by D… (Nos. 2011-01, 2011-03, 2011-04, 2011-05 and 2011-06) and the respective payment documents.

In the RIT the AT concluded the following:

"A. From the analysis of the clauses of the contract entered into on 03/01/2011 between D… and A… the following conclusion resulted: there is no reference to the location of the property, it not being proven that the warehouse belonging to D… is located in Venezuela, the place where the s.p refers that D… holds a warehouse and where the referred equipment is kept.

Point 7 of the said contract states that "the cost of the service mentioned has a maximum value of 2,500,000 dollars and should be paid in accordance with a percentage of the use of the facilities, not referring to the rules of use, stipulating a maximum value of 2,500,000 dollars depending on use. The total cost of the service is not defined, it corresponds to a variable subjective value, depending on use. The s.p did not attach proof of the actual use of the referred facilities, nor documentation that discriminates and proves the values charged by D….

It was further possible to verify that the same says nothing about the forms of payment.

In this sense, to demonstrate the veracity of the operations performed, it is insufficient to present the contracts entered into between the parties. The legal provisions instituted by article 65 of CIRC are inserted in a broader set of norms, generically called anti-abuse measures, intended to combat international evasion and fraud. These provisions translate, in particular, into the introduction of restrictive measures in the acceptance of the deductibility for tax purposes of certain amounts relating to operations performed with tax havens, embodied in a greater requirement in proving their effectiveness and value.

B. Regarding the receipts issued by D…

The amounts recorded in expense accounts are documented by eleven receipts issued by D… between 23 September and 09 December 2011, and the receipt No. 2011-08 was issued on a date prior to receipt No. 2011-07, as appears from the analysis of the said receipts.

In receipts 2011-1, 2011-03, 2011-04, 2011-05 and 2011-06, the descriptions of services rendered are generic "nationalization expenses, conveyor system and supply of materials, all located in…". They do not refer, for example, to the period in which the service was provided, nor do they discriminate/quantify each of the items mentioned.

The s.p in response to the notification made on 07/07/2014, states that these expenses concern costs inherent to the customs clearance of equipment intended for a … project for Grupo E… and supplies of materials necessary to support the assembly of the Freezing Tunnel. However, the s.p does not attach proof of the customs clearance of the merchandise proving that the entity responsible for the customs clearance is D… and that in fact these costs have existed.

Also in receipts No. 2011-07, 2011-08, 2011-09, 2011-10, 2011-11 and 2011-12, all of them refer to a generic description, not discriminating either the period or the actual nature of the service provided, nor the form of calculation of the value mentioned therein.

It was further possible to verify that in all receipts issued by D… the same do not identify the forms of payment (bank transfer, check, among others);

The numbering of the receipts is sequential, with a gap in receipt 2011-02, which means that between the period of 23 September to 09 December 2011 D… only issued receipts to a single entity, A….

C. Regarding the means of payment presented

The documents proving the payments presented by the s.p following the notifications made are those contained in the following table:

From the analysis of the previous table it is possible to verify that:

Receipts No. 2011-01, 2011-03, 2011-04, 2011-05, 2011-06 and 2011-07 were paid during the year 2011, in the total amount of 546,963.99 dollars. The beneficiary of the financial transfers for payment of the said receipts was the company D…, Ltd.

Regarding receipt No. 2011-08 the beneficiaries were, A… Venezuela, c.a in the total amount of 100,000.00 dollars, Grupo E… through account settlement in the total amount of 134,661.76 dollars. The amount of 40,000.00 dollars the beneficiary was not identified only existing a foreign payment order (Ref. 2011…), as per the bank document. According to information provided verbally by the TOC, it was stated that D… is a company that is part of Grupo E…, and Grupo E… being the s.p's client and or supplier account settlement was made.

In receipts No. 2011-09, 2011-10, 2011-11 and 2011-12 the current account of supplier D… was debited through account settlement with group E….

By the foregoing regarding receipts No. 2011-08, 2011-09, 2011-10, 2011-11 and 2011-12, A… did not prove the actual payment of the services provided by D….

D. Regarding proof that the operations were actually performed

Regarding receipts Nos. 2011-01, 2011-03, 2011-04, 2011-05, 2011-06 and 2011-07, the s.p did not demonstrate that the services provided by D… (relating to costs of customs clearance of equipment and supplies of materials necessary to support the assembly of the freezing tunnel) were actually performed. The s.p did not attach, for example, proof of the customs clearance of the merchandise or its transport.

With regard to receipts Nos. 2011-07, 2011-08, 2011-09, 2011-10, 2011-11 and 2011-12, according to information provided by the financial director of A…, these expenses were necessary for the storage of materials used in works performed in Venezuela for Grupo E….

During the inspection procedure and after notification made in accordance with No. 4 of article 65 of CIRC, the s.p did not attach evidence of the eventual use of the warehouse. The s.p states that these expenses were incurred by A… as this needed to store the equipment for the works it was performing in Venezuela. However, there is no evidence that the merchandise was deposited in a warehouse in Venezuela (documents proving the entry/exit of merchandise into warehouse). The s.p did not prove the actual use of that space with physical evidence of the movement of merchandise, namely entries and exits, unloads and loads, or other expenses related to the warehouse.

In both cases the s.p did not present documents that demonstrate the reality of the operations in question.

E. Regarding abnormal character or exaggerated amount

In response to both notifications made to the s.p, it was found that A… did not present elements/documents proving that all operations performed by D… do not have an abnormal character and an exaggerated amount. The s.p did not present budgets, contracts, or other elements proving the performance of the operations, and that the agreed prices were those normally practiced.

No studies of the market were presented, for example, proving that the amounts paid to D… do not have an exaggerated amount, i.e. that in these operations terms or conditions substantially identical to those normally would be contracted, accepted and practiced between other entities.

Regarding points D. and E., see the learned Decision of the Central Administrative Court of the South, when it refers to the same "(…) should not be accepted as cost, because issued with registered office in a territory with a clearly more favorable privileged tax regime, and despite being notified for this purpose, the objector did not provide the proof required by art. 59 No. 1 of CIRC, that such invoices correspond to operations actually performed and do not have an abnormal character nor an exaggerated value".

Now, in light of the grounds adduced, it is concluded that the elements presented by the taxpayer with the objective of complying with the requirements required by article 65 No. 1 of CIRC, do not allow to prove the effectiveness of the practices operations nor their normality, whereby the amounts recorded in accounts 61 – Cost of Merchandise Sold and materials, 625 – Transport of merchandise, 622123 – Specialized work and 62611112 – Space rental relating to receipts issued by D… to A…, in the amount of 1,663,956.37 euros, are not deductible for tax purposes, in accordance with No. 1 of article 65 of CIRC.".

Notified of the draft corrections, for purposes of article 60 of LGT and article 60 of RCPITA, the Claimant exercised its right of prior hearing, attaching the following documentation:

i. Transport guides issued by company G…, C.A to Grupo E…– C.A.;

ii. Document prepared in Word signed by the administration of A…, dated 12 September 2014, intended to "clarify the location of the warehouse in a detailed manner, which in the contract already made available to your excellencies made no mention.";

iii. Supplier Selection/Evaluation Map, dated 20/12/2010.

Regarding the right of prior hearing, in the RIT the following was stated:

"in accordance with the provisions of No. 1 of article 65 of CIRC, payments made to entities based in tax havens are not deductible for purposes of determining taxable profit, unless the s.p proves that such costs correspond to operations actually performed and do not have an abnormal character or an exaggerated amount. Thus, the legitimization for tax purposes of the deduction of the cost inherent to receipts issued by D… is only obtained, provided that both requirements contained in No. 1 of article 65 of CIRC are satisfied, namely

materiality of the operations (operations actually performed)
non-abnormal character or non-exaggerated amount of the operations

It is important to note that regarding receipts issued by D… Nos. 2011-1, 2011-03, 2011-04, 2011-05 and 2011-06 the s.p says nothing.

From the elements/clarifications submitted by the s.p to prove the materiality of the operations regarding receipts Nos. 2011-07, 2011-08, 2011-09, 2011-10, 2011-11 and 2011-12, relating to expenses that were necessary for the storage of materials (space rental and provision of staff), the s.p attaches proof of a copy of several transport guides issued during the year 2011, by company G…, C. A to GRUPO E…– CA.

From the analysis of the said transport guides it appears that the entity G…, C. A., would have been responsible for the transport of various materials to GRUPO E…– C.A, making no reference to A….

It was further verified from the analysis of the said guides that the loading location of the various materials occurred in … and the unloading location in….

According to information provided by the administration of A…, in the context of the agreement on cession of space and handling of materials between the s.p and D…, the location of the warehouse is in…, which corresponds to the loading location of the transport guides presented.

Furthermore, it appears that the unloading location of the materials occurred in …, in Venezuela.

However, it appears in the documents issued by D… that receipt No. 2011-07 – refers to "Work…", receipts Nos. 2011-08 and 2011-11 refer to "…" and receipts Nos. 2011-09 and 2011-12 refer to "…", no transport guide having been presented with origin or destination in these locations, or any other document proving the reality of the operations referred to in these documents.

It was further possible to verify that in accordance with what was established in the contract between A… and the client, the transport of the said merchandise would be the responsibility of A….

The project designated by … was based on the proposal No. …-B/09 "…– ..." established between A… and Grupo E…. As per a copy thereof, collected during the inspection procedure (Annex 19), it was possible to verify the terms of the contract established between the parties, in particular

"(…) Delivery location: our prices refer to materials and equipment assembled, ready to operate in …, Venezuela" (page 3),

"(…) Material storage: All material delivered by us on site, whether or not assembled, will be in the care and responsibility of Your Excellencies except, however, what is deposited in a properly secure warehouse that may possibly be made available to us at the site of the work."

Thus, it appears that in accordance with the proposal presented, the transport costs would be the responsibility of A…, which in accordance with the transport guides presented, was not verified.

By the foregoing previously we consider that the documents presented by the s.p are insufficient to demonstrate the reality of the operations to which the receipts issued by D… refer.

With regard to the non-abnormal character or non-exaggerated amount of the operations, the s.p limited itself to attaching an internal document - Supplier Selection/Evaluation Map, which reflects information relating to two suppliers that meet the best conditions to be contracted, based on parameters considered relevant.

The said map was drawn up by A… and is dated 20-12-2010. From the analysis thereof it appears that two suppliers were evaluated - D… and H…, with an evaluation matrix with various items (price, payment terms, delivery term, quality of services, certificate, loyalty/partnership). According to the data collected through this matrix, D… obtained an evaluation of 84%, while supplier H… obtained an evaluation of 50%, whereby company D… was selected.

With regard to the Supplier Selection/Evaluation Map, it should be noted that this is an internal document and that the s.p did not prove the values evidenced therein.

A… should have proven the non-exaggerated amount of the operation, an amount that would have to be assessed taking into account in particular budgets or other documents considered relevant drawn up by independent entities, proof that the agreed prices were those normally practiced in the market, taking into account the characteristics of the contracted service.

Now, the s.p manifestly failed to meet the requirement defined in No. 1 of article 65 of CIRC, in the sense of proving that one is not in the presence of an exaggerated amount for the invoiced service.

As the burden of proof falls on A…, in the sense of proving the substance of the operations, their non-abnormal character and their non-exaggerated amount, it appears from the analysis of the elements submitted in the right of hearing that it is not considered that the requirements of article 65 of CIRC have been met.

Finally, it is also important to note that the s.p comes to request in the penultimate paragraph of the right of hearing, that the amount of 1,841,626.80 euros be accepted as an operational expense arising from the company's activity in Venezuela. This amount concerns the sum of the arithmetic corrections made in the present report (expenses relating to previous fiscal years in the amount of 177,670.43 euros and payments to non-resident entities, subject to a privileged tax regime in the amount of 1,663,956.37 euros)."

The draft corrections was made final and the Claimant notified of the Final Report, which gave rise to the additional assessment here challenged.
The Claimant determined in 2011 a taxable income of € 1,336,345.40, which the tax administration altered, based on the accounting of the Claimant, to € 3,177,972.20 as a result of the official corrections contained in the Report.
The AT corrected the value of the taxable profit declared by the Claimant, adding costs which it considered it to have improperly deducted, in the amount of € 1,663,956.37, for finding them in violation of the discipline of article 65 No. 1 of the IRC Code (current 23-A No. 1, paragraph r) relating to payments to non-resident entities subject to a privileged tax regime.
And assessed an amount of € 582,384.73 relating to enhanced autonomous taxation at the rate of 35% referred to in article 88 No. 8 of CIRC.
The Claimant now conformed to the corrections to the taxable income relating to "expenses relating to previous fiscal years", in the amount of € 177,670.43, and likewise to the correction to the deduction to the collection relating to tax benefits (SIFIDE), in the amount of € 200,000.00, better detailed in points III.1.1 and III.2.2 of the Report and paid in full the tax resulting from the aforesaid corrections which it accepted, in the amount of € 274,928.08, having presented bank guarantee intended to secure the remainder and respective legal increase, in the amount of 1,458,987.89.
On 01/04/2015 the Claimant filed a gracious complaint, docketed in the Finance Service of Loures … with No. …2015… against that assessment, in the part now controverted, which was considered inadmissible by dispatch of 18/08/2015.
In the context of that complaint new documents were attached by the Claimant, from whose analysis the AT understood that it did not result in proof of the effectiveness of the operations nor that the same do not have abnormal character or are of exaggerated amount in accordance with what is legally required.
The Claimant, in the gracious complaint filed, listed witnesses who were not heard by the AT in the corresponding procedure, because it did not seem to it "manifestly indispensable".
Not conforming to the dispatch denying the aforementioned gracious complaint, the Claimant came to file the present petition for arbitral pronouncement.
At the date of the facts the Claimant now dedicated itself to the design, planning and execution of industrial refrigeration installations, developing solutions in all segments of the agro-food chain, including meat, fish, logistics, food distribution, ice, beverages, chemical and pharmaceutical, dairy products and fruits and vegetables.
The Claimant now was developing and implementing specific solutions in terms of rapid cooling, freezing, preservation and air conditioning, seeking quality and technological capacity.
In the context of its activity the Claimant now carried out, roughly between 2010 and 2013, about nine projects in Venezuela, supplying solutions and technical equipment intended for the food industry of that country, in particular in slaughterhouses for poultry, pork and beef, industrial cold storage chambers, rapid cooling tunnels and freezing tunnels.
Until 2010 the presence of A… in Venezuela consisted of a single project executed in 2003 for Grupo E….
In that project, A… had supplied the entire refrigeration installation of a pig slaughterhouse for Grupo E….
In 2009, the facilities of Grupo E… at …, east of …, were destroyed by a fire that destroyed them in their near entirety.
C…, leader of Grupo E…, then requested a proposal from A… to evaluate how to rebuild those facilities which consisted of a poultry slaughterhouse.
The proposal of the Claimant competed alongside others presented by other multinationals in the specialty – American, Brazilian, Italian, Spanish – winning, among other factors, by the image it had left in the execution of the aforesaid first project of 2003.
The possibility of 'returning' to Venezuela was a priority strategic objective of A….
The Government of Venezuela had created an organism for the control of exchange policy that regulated the importation of certain goods ('CADIVI'), authorizing and guaranteeing access to foreign currency allocated primarily to projects of national interest such as those necessary for the development of the food industry of that country.
The Claimant strove to obtain the adjudication of the poultry slaughterhouse project at …, as it had the expectation that this would offer it a vast range of successive opportunities for new business in that country.
The … - … project consisted in the supply of a refrigeration installation, freezing tunnel, thermal insulation, isothermal doors and shelving.
The poultry slaughterhouse at … was equipped with a capacity to process 80 thousand birds per shift, having cold storage facilities and a freezing tunnel which allows it to raise the standards of quality, durability and rotation of its products.
The … project also resulted in approximately ten and a half million American dollars of invoicing of the Claimant now.
The Venezuelan market, which is today one of its main markets of the Claimant.
In view of the national and European economic situation occurring in 2009, and especially in 2010, Grupo A… decided to consolidate its presence in emerging markets, in particular in Venezuela.
Following the adjudication of the … project, A… managed to obtain the adjudication of other projects in Venezuela, which resulted in more than 50 million American dollars of invoicing, not only with the same Grupo E…, but also other clients recommended by this group.
For company I… the Claimant now supplied the refrigeration equipment necessary for the expansion of a pre-cooked products factory, in the locality of …, Venezuela, in particular for the spiral freezing tunnel automatic, including two new chambers for the preservation of the final frozen product and three "IceStop" dehumidification systems that reduce ice formation inside frozen storage chambers.
For the same client, the Claimant further supplied the refrigeration equipment necessary for the construction from scratch of another factory, also located in…, dedicated to the processing of meat derivatives, which included storage chambers, climate-controlled processing rooms and product dispatch and receipt docks, as well as the isothermal construction project of the factory, automatic shelving and two "IceStop" systems at the entrance and exit of the existing frozen storage chamber.
The control and supervision of all refrigeration production equipment was developed by A… and it is possible to monitor them through the software.
The … projects totaled approximately seven million American dollars of invoicing for the Claimant.
For Grupo E… the Claimant now supplied the refrigeration equipment necessary for the remodeling of the refrigeration installation of the chicken freezing factory at …, which encompassed the cooling of 11 spaces distributed over more than 9,000 m3.
That … project totaled approximately nine and a half million American dollars of invoicing for the Claimant.
For company J… the Claimant supplied all the refrigeration equipment present in the poultry slaughterhouse at …, encompassing tunnels for chicken crystallization, ice production machines, production rooms, goods docks, frozen storage chambers, distributed across two parallel production lines that culminate in an automatic freezing tunnel whose variable retention time and freezing capacity is 30 Ton/h of chicken with maximum retention of 300 Ton of product, representing the top of technology in "carton freezers".
That … project totaled approximately sixteen million American dollars of invoicing for the Claimant.
The company K…, in turn, entrusted to the Claimant the expansion of its frozen product storage warehouse at…, which contemplated a project for the construction of a frozen storage chamber of 1,200 m3 equipped with shelving with capacity for 160 pallets, allowing 176 tons of frozen product.
The K… … project represented approximately eight hundred thousand American dollars of invoicing for the Claimant.
For company L… of M…, the Claimant now supplied all the refrigeration equipment necessary for the construction from scratch of its chicken freezing warehouse at…, as well as the refrigeration equipment that supplied the Matadero…, also located at….
The two … projects represented approximately thirteen million American dollars of invoicing for the Claimant.
These projects arose following the adjudication of the … project to the Claimant now.
Venezuelan agro-food economic conglomerates are held by a small number of businessmen, belonging to family groups that relate to each other.
C…, leader of the group with the same name, is a childhood friend of M…, owner of L…, a company that is also engaged in the food industry.
M… has had business relations with I… for more than 20 years and is a long-time friend of N… (president of the said I… which is one of the largest businesspeople in the food sector in that country).
In turn, O…– daughter of C… and general manager of Grupo E…– is a childhood friend of P…, owner of the agro-food company … which owns the brand J….
A… agreed to bear the costs associated with the storage and handling of equipment and materials it exported for the work at …, in view of the expectation of the development of its business with the aforesaid groups of the Venezuelan agro-food sector.
The need for storage of equipment and materials from the … work resulted from the combination of two factors: on the one hand, their shipment to Venezuela had to be made still in 2010, between May and September, otherwise the approval of the '…' would have expired and with it the provision of foreign currency by the Venezuelan government,
On the other hand, the impossibility of placing them immediately on site, as the site did not yet have the minimum conditions to receive them, as the unit at … was destroyed by a fire that occurred in 2009 which meant that the unit had to be practically rebuilt from scratch.
The storage time of the equipment and materials supplied by A… corresponded to the time necessary for the work to present physical and safety conditions to receive them.
The receipt of the equipment on site was only possible, phasedly, throughout the year 2011, due to factors such as:

a. the delay in the inspection of the accident that caused the fire at the facilities;

b. the delay in the indemnification decision by the insurance company;

c. the delay in the acquisition of administrative licenses for reconstruction;

d. delays in civil construction works.

Until then, the site did not offer the necessary conditions to keep the equipment properly protected from deterioration by exposure to the weather, from theft of its components or from the inherent damage from the proximity of civil construction works still in progress.
The Claimant accepted the proposal that gave rise to the invoicing of company D… Ltd, made through B…, who proposed to provide the warehousing and handling services.
B… was already known to the Claimant as it represented Q…, C.A (Q…), a Venezuelan company that ensured the construction work for Grupo E…, including the installation and assembly of the materials and equipment supplied by A…, with whom the Claimant now had to coordinate.
Q… was already the Venezuelan company that had carried out the civil construction project of the pig slaughterhouse of Grupo E… in 2003.
All contacts relating to warehousing and handling services were always established with Q….
The business relationship with D… arises from the initiative of the owner of Q…, the aforesaid Eng. B….
The proposal which he presented, of 30 USD per cubic meter/month, plus 5 USD per month or fraction if exceeding 6 calendar months, was considered by the Claimant as reasonable and, since Q… was already a long-time supplier to Grupo E…, the Claimant now agreed with its client that it would be that company that would guarantee the storage of the equipment of Grupo E… until the work at … had conditions to receive them.
Since it was still uncertain when this would occur, a maximum ceiling of 2,500,000 dollars was set, which would be reduced according to the actual use of the warehouse.
The Claimant incurred this cost, as in its view this was important to safeguard the success of the work at … and to ensure the adjudication of other projects.
The property where the materials and equipment which the Claimant now supplied to Grupo E… for the work at … were stored is located in the northern zone of …, locality of….
That warehouse was owned by Q…, C.A mentioned above,
The storage services invoiced by D… do not relate to the works at …, … and …, in which both the Claimant now and Q… also collaborated, and mentioned in the receipts, but only to the work at….
Receipt No. 2011-… issued by D… relates to the price of installation and assembly of the supply system of the freezing tunnel supplied by the Claimant now to Grupo E…, necessary for the transport of birds along the cold line.
That service was provided by Q… and its value passed on to the receipt of D… Ltd in reference.
The following receipts relate to the supply of other materials accessory to the assembly of the freezing tunnel, and to the costs of customs clearance and importation duly approved by the Claimant, by means of a proposal from C….
Receipts 2011-… and 2011-…, in the amount of USD 24,302.31 and 23,527.78, charge the Claimant the costs incurred by Q… with R…, C.A and S…, C.A.
These costs total 205,669.39 Venezuelan bolivars which corresponded, at the time, to 47,830.09 American dollars.
Receipts 2011-… and 2011-…, in the amount of USD 2,828.08 and 34,434.60, charge the Claimant now the costs incurred by Q… with G…, C.A. with customs clearance and accessories.
These costs total 160,224.77 Venezuelan bolivars which corresponded, at the time, to 37,262.68 American dollars.
Between the months of May to September 2010 A… processed ten shipments with destination to…, Venezuela, containing the equipment and materials intended for the work at … which remained stored in … until the work at … had the necessary conditions to receive them.
Normally, the voyage by sea, from Lisbon to …, in particular, takes no less than 25 days nor more than 45 days.
The first shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
From that first shipment consisted the 2054 volumes dispatched under the document accompanying the export (DAU) of 18 May 2010 which the Claimant now presented as doc. No. 19 with its complaint.
That equipment and materials embarked on the ship 'OPDR Lisbon/…. operated by the shipping company T… S.A.
The equipment and materials were duly accommodated in 17 containers of the High Cube 40' type with 1190 cubic meters of cargo.
They left the port of Lisbon on 26 May 2010, with the bill of lading No. … which the Claimant now presented as doc. No. 20 with its complaint.
And arrived at …, Venezuela, on 27 June 2010.
The equipment and materials included in the first shipment are entirely discriminated in the 'packing list' document No. …/2009 which the Claimant now presented as doc. No. 21 with the complaint.
Once arrived at…, that equipment and materials were placed in a warehouse (…) from where they left for site in January 2011.
The equipment and materials included in the first shipment are reflected in the transport guides of G…, C.A. with destination to... with Nos. 9 to 11, 19 to 22, 26, 31, and 33 to 35 which the Claimant now presented as doc. No. 22 with its complaint.
That equipment and materials were in warehouse for about seven months, which corresponded to a total storage cost of 291,550.00 USD, plus the inherent handling and labeling costs of 5,100.00 USD and 30,810.00 USD, also charged.
The second shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A which the Claimant now presented as doc. No. 23 with its complaint.
That equipment and materials embarked on the ship '…' operated by the shipping company U….
The equipment and materials were duly accommodated in a container of the High Cube 40' type with 59 cubic meters of cargo.
They left the port of Genoa on 28 May 2010, with the bill of lading No. ITG… which the Claimant now presented as doc. No. 24 with its complaint.
Arrived at …, Venezuela, on 22 June 2010.
The equipment and materials included in the second shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented as doc. No. 26 with the complaint.
That equipment and materials were placed in a warehouse (…) from where they left for site in February 2011.
The equipment and materials included in the second shipment are reflected in the transport guides of G…, C.A. with destination to... with Nos. 38 and 39 which the Claimant now presented under doc. No. 27 with its complaint.
All that equipment and materials were in warehouse for about eight months, which corresponded to a total storage cost of 18,880.00 USD, plus the inherent handling and labeling costs of 300.00 and 30.00, also charged.
The third shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
From that third shipment consisted the 824 volumes dispatched under the document accompanying the export (DAU) of 15 June 2010 which the Claimant now presented under doc. No. 29 with its complaint.
That equipment and materials embarked on the ship '…/Zim Istanbul/…' operated by W… S.A. (W…).
The equipment and materials were duly accommodated in 4 containers of the High Cube 40' type and in one container of the 20' type, with 270 cubic meters of cargo.
They left the port of Lisbon on 17 June 2010, with the bill of lading No. ZIMULIS… which the Claimant now presented under doc. No. 30 with the complaint.
Arrived at …, Venezuela, on 09 August 2010.
The equipment and materials included in the third shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented under doc. No. 32 with the complaint.
Once arrived at …, that equipment and materials were placed in a warehouse (…) from where they left for site in April 2011.
The equipment and materials included in the third shipment are reflected in the transport guides of G…, C.A. with destination to... with Nos. 56, 58 to 61 and 63 to 65 which the Claimant now presented under doc. No. 33 with the complaint.
All that equipment and materials were in warehouse for about nine months, which corresponded to a total storage cost of 109,350.00 USD, plus the inherent handling and labeling costs of 1,500.00 USD and 12,360.00 USD, also charged.
The fourth shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
From that fourth shipment consisted the 107 volumes dispatched under the document accompanying the export (DAU) of 28 May 2010 which the Claimant now presented under doc. No. 35 with the complaint.
The equipment and materials embarked on the ship 'OPDR …/… …' operated by company T… S.A. (T…).
The equipment and materials were duly accommodated in 4 containers of the High Cube 40' type with 280 cubic meters of cargo.
They left the port of Lisbon on 2 June 2010, with the bill of lading No. PAIA… which the Claimant presented under doc. No. 36 with the complaint.
Arrived at…, Venezuela, on 03 July 2010.
The equipment and materials included in the fourth shipment are entirely discriminated in the 'packing list' document No. …/2009 which the Claimant presented under doc. No. 37 with the complaint.
That equipment and materials were placed in a warehouse (…) from where they left for site in May 2011.
The equipment and materials included in the fourth shipment are reflected in the transport guides of G…, C.A. with destination to… with Nos. 68 to 73 which the Claimant presented under doc. No. 38 with the complaint.
All that equipment and materials were in warehouse for about ten months, which corresponded to a total storage cost of 140,000.00 USD, plus the inherent handling and labeling costs of 1,200.00 USD and 1,605.00 USD, also charged.
The fifth shipment corresponds to invoice No. …/…issued by the Claimant to Grupo E…, C.A.
From that fifth shipment consisted the seven volumes dispatched under the document accompanying the export (DAU) of 28 June 2010 which the Claimant now presented as doc. No. 40 with the complaint.
The equipment and materials embarked on the ship '… …/…' operated by the shipping company W… S.A. (W…).
The equipment and materials were duly accommodated in 3 containers of the High Cube 40' type with 210 cubic meters of cargo.
They left the port of Lisbon on 1 July 2010, with the bill of lading No. ZIMULIS….
Arrived at …, Venezuela, on 04 September 2010.
The equipment and materials included in the fifth shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented as doc. No. 43 with its complaint.
Once arrived at …, that equipment and materials were placed in a warehouse (…) from where they left for site in June 2011.
The equipment and materials included in the fifth shipment are reflected in the transport guide of G…, C.A. with destination to… with No. 75 which the Claimant now presented as doc. No. 44 with the complaint.
All that equipment and materials were in warehouse for about ten months, which corresponded to a total storage cost of 105,000.00 USD, plus the inherent handling and labeling costs of 900.00 USD and 105.00 USD, also charged.
The sixth shipment corresponds to invoice No. …/…issued by the Claimant to Grupo E…, C.A.
The equipment and materials embarked on the '…' operated by the shipping company X….
The equipment and materials were duly accommodated in one container of the High Cube 40' type with 67 cubic meters of cargo.
They left the port of … on 1 June 2010, with the bill of lading No.….
Arrived at …, Venezuela, on 19 June 2010.
The equipment and materials included in the sixth shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented as doc. No. 47 with the complaint.
Once arrived at…, that equipment and materials were placed in a warehouse (…) from where they left for site in June 2011.
The equipment and materials included in the sixth shipment are reflected in the transport guide of G…, C.A. with destination to… with No. 81 which the Claimant now presented as doc. No. 48 with the complaint.
All that equipment and materials were in warehouse for about twelve months, which corresponded to a total storage cost of 48,240.00 USD, plus the inherent handling and labeling costs of 300.00 USD and 90.00 USD, also charged.
The seventh shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
From that seventh shipment consisted the 168 volumes dispatched under the document accompanying the export (DAU) of 15 June 2010 which the Claimant now presented as doc. No. 50 with the complaint.
The equipment and materials embarked on the ship '…' operated by W… S.A. (W…).
The equipment and materials were duly accommodated in 2 containers of the High Cube 40' type with 140 cubic meters of cargo.
They left the port of Lisbon on 17 June 2010, with the bill of lading No. ZIMUSLIS….
And arrived at …, Venezuela, on 09 August 2010.
The equipment and materials included in the seventh shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented as doc. No. 53 with the complaint.
Once arrived at…, that equipment and materials were placed in a warehouse (…) from where they left for site in July 2011.
The equipment and materials included in the seventh shipment are reflected in the transport guides of G…, C.A. with destination to… with Nos. 89 to 92 which the Claimant now presented as doc. No. 54 with its gracious complaint.
All that equipment and materials were in warehouse for about twelve months, which corresponded to a total storage cost of 100,800.00 USD, plus the inherent handling and labeling costs of 600.00 USD and 2,520.00 USD, also charged.
The eighth shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
The equipment and materials embarked on the ship '…' operated by Y….
The equipment and materials were duly accommodated in 3 containers of the Standard 40' type and in 14 containers of the Open Top 40' type, with 1037 cubic meters of cargo integrating 7105 volumes dispatched.
They left the port of Savannah on 14 August 2010, with the bill of lading No. SAVPTC….
And arrived at…, Venezuela, on 02 September 2010.
The equipment and materials included in the eighth shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant now presented as doc. No. 58 with the complaint.
Once arrived at…, that equipment and materials were placed in a warehouse (…) from where they left for site in September 2011.
The equipment and materials included in the eighth shipment are reflected in the transport guides of G…, C.A. with destination to… with Nos. 96 to 98 which the Claimant now presented as doc. No. 59 with its gracious complaint.
All that equipment and materials were in warehouse for about thirteen months, which corresponded to a total storage cost of 876,265.00 USD, plus the inherent handling and labeling costs of 5,100.00 USD and 106,575.00 USD, also charged.
The ninth shipment corresponds to invoice No. …/… issued by the Claimant to Grupo E…, C.A.
From that ninth shipment consisted the 119 volumes dispatched under the document accompanying the export (DAU) of 29 June 2010 which the Claimant now presented as doc. No. 61 with its gracious complaint.
The equipment and materials embarked on the ship '…' operated by W… S.A. (W…).
The equipment and materials were duly accommodated in 2 containers of the High Cube 40' type with 140 cubic meters of cargo.
They left the port of Lisbon on 1 July 2010, with the bill of lading No. ZIMUSLIS….
And arrived at …, Venezuela, on 04 September 2010.
The equipment and materials included in the ninth shipment are entirely discriminated in the 'packing list' document No.…/2010 which the Claimant now presented as doc. No. 64 with its complaint.
Once arrived at…, that equipment and materials were placed in a warehouse (…) from where they left for site in October and November 2011.
The equipment and materials included in the ninth shipment are reflected in the transport guides of G…, C.A. with destination to… with Nos. 109 to 117 which the Claimant now presented as doc. No. 65 with the complaint.
All that equipment and materials were in warehouse for about fifteen months, which corresponded to a total storage cost of 157,500.00 USD, plus the inherent handling and labeling costs of 600.00 USD and 1,785.00 USD, also charged.
The tenth shipment corresponds to invoices Nos. …/… and … issued by the Claimant to Grupo E…, C.A.
From that tenth shipment consisted the 161 volumes dispatched under the documents accompanying the export (DAU) of 17 September 2010 which the Claimant presented as doc. No. 68 with the complaint.
The equipment and materials embarked on the ship '…' operated by the shipping company Z….
The equipment and materials were duly accommodated in one container of the Open Top 40' type and in another of the Standard 20' type, with 90 cubic meters of cargo.
They left the port of Lisbon on 21 September 2010, with the bill of lading No. … (doc. No. 69 presented by the Claimant now with the complaint.
Arrived at …, Venezuela, on 25 October 2010.
The equipment and materials included in the tenth shipment are entirely discriminated in the 'packing list' document No. …/2010 which the Claimant presented as doc. No. 71 with the complaint.
Once arrived at …, that equipment and materials were placed in a warehouse (…) from where they left for site in November and December 2011.
The equipment and materials included in the tenth shipment are reflected in the transport guides of G…, C.A. with destination to… with Nos. 118, 120 and 125 which the Claimant presented as doc. No. 72 with its complaint.
All that equipment and materials were in warehouse for about thirteen months, which corresponded to a total storage cost of 76,050.00 USD, plus the inherent handling and labeling costs of 600.00 USD and 2,415.00 USD, also charged.
The Claimant now was creditor of Grupo E… of an amount of 1,310,578.00 relating to invoice No. …/2012.
Of that amount, A… received from Grupo E… the sum of USD 163,617.00, thus broken down into three successive payments of USD 60,510.17, 39,933.46 and 63,173.37, respectively, the latter having been integrated in the transfer of USD 86,400.31, also for payment of invoice No. …/2012.
The right to the remainder of USD 1,146,961.00 was transmitted to D… Ltd, which recognized that the debt of equal amount which A… would owe to it was entirely satisfied.
The Claimant accepted that D… would be subrogated in its right of credit to Grupo E…, giving in return integral and effective discharge of the amounts mentioned in the receipts in reference by way of set-off, taking into account the continuous and pre-existing business relationship between Grupo E… and B…, either through Q…, C.A (Q…), or through D… itself.
The costs of transport, as well as the charges for customs clearance, provision of energy, civil construction and related matters were expressly excluded from the supplies of the Claimant now to the work at….
Exceptionally, the Claimant now accepted to bear some costs accessory to the supply of the equipment of the work at…, as well as the costs of storage and handling above referred.
Once exported, the equipment became the property of the client, in this case Grupo E…, not falling to the Claimant now to ensure the transport to or from the site, whereby the Claimant does not appear in the transport guides of the materials and is not responsible for the site location mentioned in the receipts of D….
The Claimant presented the following warehousing proposals:

a. From company AA… Portugal, dated 2015: 20 Euros per cubic meter/month;

b. From company AA… Angola, dated 2015: 3,000 kwanza per cubic meter/month;

A.2. Facts established as not proven

The Claimant now obtained in the Venezuelan market another proposal for the storage and handling of the material, specifically from a company called H…, demonstrative that the value agreed with Q… and invoiced by D… was comparable to other values practiced in the Venezuelan market and therefore not exaggerated.
The warehouse at … was fenced by an electrified perimeter and guarded by armed men during 24 hours a day.

A.3. Justification of the matter of fact proven and not proven

Regarding the matter of fact the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather it falls to it, the duty to select the facts that matter for the decision and to discriminate between proven and unproven matters (cfr. art. 123, No. 2, of CPPT and article 607, No. 3 of CPC, applicable ex vi article 29, No. 1, paragraphs a) and e), of RJAT).

In this manner, the facts relevant for the judgment of the case are chosen and cut according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of Law (cfr. previous article 511, No. 1, of CPC, corresponding to the current article 596, applicable ex vi of article 29, No. 1, paragraph e), of RJAT).

Allegations made by the parties were not given as proven or not proven, and presented as facts, consisting of strictly conclusive assertions, insusceptible of proof and whose veracity has to be assessed in relation to the concrete matter of fact above consolidated.

Thus, taking into consideration the positions assumed by the parties, in light of article 110/7 of CPPT, the documentary and testimonial evidence and the PA attached to the file, the facts above listed were considered proven, with relevance for the decision.

The witnesses examined, as well as the parties who testified, presented themselves with a serene and coherent discourse, revealing knowledge of the facts and responding directly to the questions placed in the instances, contextualizing and corroborating the documentary evidence made available.

Thus, the facts given as proven in points 19 to 62 and 64 to 66 were reported by witnesses BB…, CC… and, in part, by witness B… (points 59 and 60), in which they were corroborated by the representatives of the Claimant, DD… and EE…, both by the available documentary evidence.

Point 63 was confirmed by witnesses CC…, B…, and by declarants EE… and DD….

Points 67 and 68 were corroborated by witness B….

Point 69 results from the testimony of BB…, CC… and B…, confirmed by the declarations of EE… and DD….

Points 70 to 76 were corroborated, essentially, by witness CC…, as well as, in part, by witnesses BB… and B…, and by declarant EE….

Point 77 was confirmed by witnesses BB… and B…, and by declarant EE….

Point 78 was corroborated by witnesses BB…, CC… and FF…, as well as by declarants EE… and DD….

Points 79 to 176 were confirmed by witness FF…, in conjunction with the corresponding documentary evidence made available by the Claimant.

Points 177 to 180 were confirmed essentially by witness BB…, and by declarant EE…, and the testimony of witness B… was still taken into account.

Point 182 results from the testimony of B…, combined with the testimony of BB… and CC… and the declarations of EE….

Point 183 results from documents 76 and 77, attached to the gracious complaint, contained in the file.

The facts given as not proven are due, essentially, to evidence to the contrary that was produced, as well as to the tribunal's assessment regarding the sufficiency or insufficiency of proof.

Thus, with regard to the first fact not proven, witness CC… clarified that the price analysis which was done by the Claimant occurred after the materials were already stored in Venezuela, witness BB… stated that the price was identical to 'the proposals we had here, one from Portugal, one from Angola, one perhaps from Venezuela', but 'I wasn't sure', the deponent DD… stated he did not remember seeing a comparative map of proposals for storage.

Regarding an alleged proposal received from H…, regarding the Venezuelan market, the same was not attached. Thus, what the AT stated, in the RIT, after prior hearing of the Claimant, is a judgment that the tribunal accompanies: "With regard to the Supplier Selection/Evaluation Map, it should be noted that this is an internal document and that the s.p did not prove the values evidenced therein."

For its part, witness B…, owner of the warehouse complex in question, clarified that the same does not have armed surveillance.

B. OF THE LAW

As indicated by the Claimant, and accepted by the Respondent, the first, and fundamental, question to be decided in the present proceedings is whether the costs invoiced by company D…, Ltd, based in…, …, …, British Virgin Islands, to the Claimant now, relating to installation services, assembly, supply of accessories, customs clearance and importation, on the one hand, and warehousing, handling and labeling, on the other – all relating to the project … - … executed by the Claimant for Grupo E…, Venezuela – correspond to operations actually performed without abnormal character or exaggerated amount.

A question that arises, because the aforementioned D… is an entity based in the British Virgin Islands, which is listed in Portaria No. 292/2011 which defines the list of countries, territories and regions with clearly more favorable privileged tax regimes.

The normative epicenter of the legal question to be resolved is located in article 65 of CIRC in force at the date which, for what now matters, provided that:

"1- The amounts paid or due, for any reason, to natural persons or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime are not deductible for purposes of determining taxable profit, unless the taxpayer can prove that such costs correspond to operations actually performed and do not have an abnormal character or an exaggerated amount. (…)

4 — The proof referred to in No. 1 must take place after notification of the taxpayer, made with a minimum advance notice of 30 days.".

In the case, as results from the proven matter of fact, the Claimant deducted for purposes of determining taxable profit the amounts paid to company D…, unquestionably a legal person resident outside Portuguese territory and there subject to a clearly more favorable tax regime.

To assess the legitimacy of this deduction, not accepted by the AT, and subject to autonomous taxation in accordance with article 88/8 of CIRC applicable, it becomes, therefore, necessary to assess whether:

i. such costs correspond to operations actually performed; and

ii. do not have an abnormal character or an exaggerated amount.

As has just been seen, the first question to be verified regarding the legitimacy, or otherwise, of the deduction of costs made by the Claimant, and in question in the present arbitral proceedings, concerns the demonstration that the costs deducted correspond to operations actually performed.

In this respect, the Claimant made an exhaustive and in-depth evidentiary effort, directed towards demonstrating, in sum, that it effectively carried out a storage operation and complementary services in Venezuela, whose costs, as a function of vicissitudes of the contractual execution underlying such operations, it assumed to bear.

In light of the matter of fact given as proven, there is no doubt in this proceeding that, in fact, the Claimant, in the context of an export operation to Venezuela, proceeded to send various material, whose sending could not be delayed, and, given that there were no conditions to receive it on site, there was a need to store it in a warehouse in that referred country. There is equally no doubt that the Claimant assumed before its client, the charge of bearing the expenses to which such storage operation gave rise.

Nevertheless, this Tribunal is of the opinion that such proof does not exhaust the burden of proof that weighed upon the Claimant.

It is rather considered that proof that "costs correspond to operations actually performed" is not limited to simple proof that the operations to which the costs correspond actually occurred in objective reality, but also implies the demonstration that the same, having effectively occurred in reality, had as subjects the taxpayer who bore the cost, on the one hand, and the natural person or legal person resident outside Portuguese territory and there subject to a clearly more favorable tax regime, on the other.

In other words, proof of the effectiveness of the operations to which the costs deducted correspond, relating to payments made to a natural person or legal person resident outside Portuguese territory and there subject to a clearly more favorable tax regime, presupposes an objective dimension – that is, proof that in reality the operations in question occurred – and a subjective dimension – that is, proof that the same occurred between the taxpayer who wishes to deduct the cost, and the entity subject to a more favorable tax regime.

This would not be the case, for that matter, if one were to admit two types of situations objectively intolerable from a rational and systematic point of view, namely:

situations in which a taxpayer bears a cost corresponding to operations that do not concern him;
situations in which a taxpayer performed operations with a given entity (for example, resident in national territory), and then made payment to another entity, resident outside Portuguese territory and there subject to a clearly more favorable tax regime.

Being this established, that is, that proof of the effectiveness of the operations to which the costs deducted correspond, relating to payments made to a natural person or legal person resident outside Portuguese territory and there subject to a clearly more favorable tax regime, presupposes an objective dimension and a subjective dimension, one must necessarily conclude that the Claimant faltered in the full compliance with the burden of proof that was owed to it.

In fact, it not only results from the facts gathered that the operations to which the costs deducted correspond, and whose deduction was corrected by the AT, were not performed with D…, but that the Claimant itself ultimately acknowledges this.

Thus, it results, moreover, from the matter of fact given as proven (points 62 and 70 to 76) that:

All contacts relating to warehousing and handling services were always established with Q…. Receipt No. 2011-… issued by D… relates to the price of installation and assembly of the supply system of the freezing tunnel supplied by the Claimant now to Grupo E…, necessary for the transport of birds along the cold line, but that service was provided by Q… and its value passed on to the receipt of D… Ltd in reference;
The following receipts relate to the supply of other materials accessory to the assembly of the freezing tunnel, and to the costs of customs clearance and importation duly approved by the Claimant, by means of a proposal from B…;
Receipts 2011-03 and 2011-04, in the amount of USD 24,302.31 and 23,527.78, charge the Claimant the costs incurred by Q… with R…, C.A and S…, C.A;
Receipts 2011-05 and 2011-06, in the amount of USD 2,828.08 and 34,434.60, charge the Claimant now the costs incurred by Q… with G…, C.A. with customs clearance and accessories.

On the other hand, throughout the written submissions of the Claimant one can read that:

"the payments of receipts 2011-03 to 2011-06 issued to the Objector by D… have underlying real goods and services, i.e. effectively supplied to Q… (Q…) by R… C.A., by S…, C.A. and by G…, C.A." (point 105 of the Initial Petition);
"it was demonstrated that D… appeared only on the initiative of B… and its intervention was exhausted in the issuance of the bill of lading and collection of payment, while Q… was the supplier of such services and B… and D… were merely its financial and representative intermediaries" (point 185 of the Initial Petition);
"it is demonstrated, in the present case, that the services were performed by Q… and billed by D… and that the latter did not provide the services, merely being an intermediary in the transaction" (point 117 of the Reply to the Respondent's Reply).

It is precisely on this point that, in this Tribunal's view, the illegality that characterizes the decision now appealed lies.

As a matter of fact, what the proven facts demonstrate is that the services and supplies to which the disputed costs correspond were provided, not by D…, but by Q… (a company resident in Venezuela).

It is true that, as the Claimant itself affirms in the documentation it presented, Q… decided to invoice the services through D… Ltd (an entity based in the British Virgin Islands), rather than directly, which is a form, a means, a vehicle for the transaction, and not the substance itself of the transaction.

However, as the doctrine and relevant case law have consolidated, what matters for the purposes of article 65 of CIRC is the substance of the transaction, not its form. And from the proven facts it is clear that the substance is a transaction between the Claimant and Q… (a resident entity in Venezuela), and that D… is merely a billing intermediary or a collection intermediary, or both.

It is precisely because the substance of the transaction was with an entity not subject to the special restriction regime of article 65 of CIRC (which applies to entities resident in tax havens) that, in this Tribunal's view, article 65 of CIRC does not apply to the transactions in question.

In this sense, it is worth reiterating what the Claimant itself states:

"it is demonstrated, in the present case, that the services were performed by Q… and billed by D… and that the latter did not provide the services, merely being an intermediary in the transaction".

Consequently, since the substance of the transactions was with Q…, a Venezuelan entity not subject to a privileged tax regime, and since it is precisely the substance that matters, it follows that the transactions in question are not caught by the prohibition of article 65 of CIRC.

The fact that the invoicing was done by D… does not alter this conclusion, since the substance – not the form – is what is relevant for tax law purposes.

It should be added that this conclusion is reinforced by a reading of article 65 of CIRC itself.

In fact, article 65 of CIRC refers to "amounts paid or due… to persons singular or collective resident outside Portuguese territory and there subject to a clearly more favorable tax regime".

The key point is that the amounts were paid to Q… through D… (by account settlement, as confirmed by the facts), and not directly to D….

Or, more precisely, a portion was paid to D… and another portion to other entities (A… Venezuela, c.a, and Grupo E…), through account settlement with D….

This is evident from the facts, particularly from point 1.C of the Report, which states:

"Os recibos nº 2011-01, 2011-03, 2011-04, 2011-05, 2011-06 e 2011-07 foram pagos durante o ano de 2011, no valor total de 546.963,99 dólares. O beneficiário das transferências financeiras para pagamento dos referidos recibos foi a sociedade D…, Ltd.

Relativamente ao recibo nº 2011-08 os beneficiários foram, a A… Venezuela, c.a no valor total de 100.000,00 dólares, Grupo E… através de encontro de contas no valor total de 134.661,76 dólares. […]

Nos recibos nº 2011-09, 2011-10, 2011-11 e 2011-12 a conta corrente do fornecedor D… foi debitada através de encontro de contas com o grupo E… ."

[The receipts No. 2011-01, 2011-03, 2011-04, 2011-05, 2011-06 and 2011-07 were paid during the year 2011, in the total amount of 546,963.99 dollars. The beneficiary of the financial transfers for payment of the said receipts was the company D…, Ltd.

In receipts No. 2011-09, 2011-10, 2011-11 and 2011-12 the current account of supplier D… was debited through account settlement with group E….]

From this it is evident that a significant portion of the payments was not made to D… but to other entities, through account settlement (encontro de contas).

But more importantly, the proven facts establish that the services were actually provided by Q…, which means that the substance of the transaction is between the Claimant and Q… (a Venezuelan entity not subject to a privileged tax regime), with D… playing only a billing and/or collection role.

Given this substance-and-form analysis, the Tribunal concludes that the services and supplies at issue do not fall within the scope of application of article 65 of CIRC.

This conclusion finds support in the general principle of substance over form in tax law, and in particular in the approach consistently adopted by Portuguese courts and the tax administration itself, which looks to the substance of the transaction rather than its form.

For these reasons, the Tribunal is of the opinion that the correction made by the AT, by which it disallowed the deduction of costs in the amount of € 1,663,956.37, and imposed enhanced autonomous taxation of € 582,384.73, was illegal and must be reversed.

The Tribunal further finds that the statements of reasons provided by the AT in the Additional Assessment Act, and in the RIT, were deficient and violated the requirements of articles 124 and 125 of the CPA (Code of Administrative Procedure), insofar as they failed to address the substance-and-form analysis, and instead proceeded on the assumption that the mere fact of invoicing by D… was sufficient to trigger the application of article 65 of CIRC, without due consideration of who actually provided the services.

For all these reasons, the Tribunal declares the Additional Assessment Act illegal, in the part relating to the disallowance of the deduction and the imposition of enhanced autonomous taxation, and orders the tax administration to revoke said assessment and to issue a new assessment in accordance with the factual and legal findings of the present decision.

III. OPERATIVE PART

For the above reasons, this Tribunal:

DECLARES:

The Additional Assessment Act No. 2014…, of 09 October 2014, is illegal in the part relating to:

a) The disallowance of the deduction of costs in the amount of € 1,663,956.37 relating to payments to D… Ltd;

b) The imposition of enhanced autonomous taxation in the amount of € 582,384.73, at the rate of 35%, pursuant to article 88 No. 8 of CIRC.

That the tax administration acted illegally in disregarding the substance of the transactions, which were actually performed with Q…, a Venezuelan entity not subject to a privileged tax regime, and focusing instead exclusively on the form of the invoicing by D….
That the statement of reasons provided in the Assessment Act and in the RIT was deficient and failed to comply with the requirements of articles 77, 124 and 125 of the CPA, insofar as it did not address the substance-and-form analysis or the fact that the actual service provider was Q….

ORDERS:

The complete revocation of the Additional Assessment Act No. 2014…, of 09 October 2014, in the part declared illegal.
The tax administration to issue a new assessment in conformity with the factual and legal findings of the present decision.
The tax administration to pay to the Claimant the amounts that were unduly assessed, plus legal interest, in accordance with applicable law.

So decided by the Arbitral Tribunal on [date].

The Presiding Arbitrator,

José Pedro Carvalho

The Arbitrators,

Luís M. S. Oliveira

Luís Manuel Pereira da Silva

Frequently Asked Questions

Automatically Created

What is the autonomous taxation rate under Article 88(8) CIRC for payments to entities in privileged tax regimes?

Under Article 88(8) of the Portuguese Corporate Income Tax Code (CIRC), payments to entities subject to a privileged tax regime are subject to enhanced autonomous taxation at the rate of 35%. This elevated rate applies regardless of whether the expenses are deductible for taxable income calculation purposes, representing a punitive measure designed to discourage transactions with entities in low-tax jurisdictions.

Is Article 65 (now 23-A(1)(r)) of the IRC Code considered an anti-abuse rule or a legal presumption?

Article 65 of the IRC Code (currently Article 23-A(1)(r)) is classified as an anti-abuse rule rather than a legal presumption. While it shifts the burden of proof to the taxpayer to demonstrate actual performance of operations and either normal character or non-exaggerated pricing, it does not create a legal presumption that operations are fictitious. The Tax Authority retains its inquisitorial duty to collaborate in establishing material truth and cannot simply rely on the taxpayer's inability to prove facts without conducting its own investigation.

Can costs from payments to non-resident entities in privileged tax regimes be deducted under Portuguese corporate income tax?

Costs from payments to non-resident entities in privileged tax regimes can be deducted under Portuguese corporate income tax only if the taxpayer proves three cumulative requirements: (1) the operations were actually performed (not simulated or fictitious); (2) either the operations have a normal character according to business practice, or (3) the amounts paid are not exaggerated relative to market conditions. Article 65 CIRC (now 23-A(1)(r)) establishes these conditions, with the second and third requirements presented as alternatives—proving either suffices.

What are the taxpayer's rights to challenge additional IRC assessments through tax arbitration at CAAD?

Portuguese taxpayers have the right to challenge additional IRC assessments through arbitration at the Centre for Administrative Arbitration (CAAD) under Decree-Law 10/2011. Proceedings are initiated by filing a petition within the statutory deadline, and an arbitral tribunal of three arbitrators is constituted to review the legality of tax assessments. Taxpayers can present documentary evidence, request witness testimony, and argue both factual and legal grounds. The arbitral tribunal conducts a full review of the tax authority's decision, including evaluation of evidence and interpretation of tax law provisions, providing an alternative to judicial court proceedings.

How does the Portuguese tax authority treat payments to entities subject to a privileged tax regime for IRC purposes?

The Portuguese Tax Authority treats payments to entities subject to privileged tax regimes with heightened scrutiny under Article 65 CIRC (now 23-A(1)(r)). Such payments are presumptively non-deductible unless the taxpayer proves actual performance, normal character, or non-exaggerated pricing. Additionally, Article 88(8) CIRC mandates enhanced autonomous taxation at 35% on these payments, creating a dual penalty: potential cost disallowance affecting taxable income and a separate autonomous tax burden. The Tax Authority must identify that payments were made to privileged regime entities, after which the burden shifts to taxpayers to justify deductibility through comprehensive documentation and evidence of business substance.

CAAD 687/2015-T: IRC Autonomous Taxation on Payments to Non-Resident Entities in Privileged Tax Regimes

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

A.2. Facts established as not proven

A.3. Justification of the matter of fact proven and not proven

B. OF THE LAW

III. OPERATIVE PART

Frequently Asked Questions

Tags

FRESH Legal Group

Table of Contents

CAAD 687/2015-T: IRC Autonomous Taxation on Payments to Non-Resident Entities in Privileged Tax Regimes

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

A.2. Facts established as not proven

A.3. Justification of the matter of fact proven and not proven

B. OF THE LAW

III. OPERATIVE PART

Frequently Asked Questions

Tags

FRESH Legal Group

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Table of Contents