VAT Exemption for Educational Services: CAAD Arbitration Case 69/2017-T on School and University Tuition

ARBITRAL DECISION

I. Report

a) Parties and constitution of the Arbitral Tribunal

1. A…, LDA, a legal entity with identification number …, with registered office at Rua …, No.…, …, …-… … (hereinafter referred to as the Claimant), submitted on 19.01.2017, in accordance with articles 2, paragraph 1, letter a) and 10 of Decree-Law No. 10/2011, of 20 January, as amended (hereinafter the Legal Framework for Tax Arbitration or RJAT), a petition for arbitral decision, against which the Tax and Customs Authority (hereinafter, Respondent or AT) is summoned, with a view to declaring the illegality of the dismissal decision of 19.10.2016 of the administrative complaint with No. …2016…, and of the Value Added Tax (VAT) assessment act No. 2016…, of 12.1.2016, in the amount of €28,850.40, for the period 2011-12-T, as well as of the corresponding compensatory interest assessment act No. 2016…, of 14.1.2016, in the amount of €4,445.33.

2. In accordance with articles 5, paragraph 2, letter a), 6, paragraph 1 and 11, paragraph 1, letter a) of the RJAT, the Deontological Board of this Center for Administrative Arbitration (CAAD) appointed the undersigned as sole arbitrator, who accepted the assignment, and the parties, duly notified of this appointment, did not oppose refusal in accordance with the combined provisions of articles 11, paragraph 1, letters b) and c) and 8 of the RJAT and 6 and 7 of the CAAD Deontological Code.

3. By virtue of the provisions in letter c) of paragraph 1 and paragraph 8 of article 11 of the RJAT, as per communication from the President of the Deontological Board of CAAD, the Sole Arbitral Tribunal was constituted on 30.03.2017.

b) Procedural chronology

4. In the petition for arbitral decision (hereinafter initial petition or IP), the Claimant petitioned for the annulment of the dismissal decision of 19.10.2016 of the administrative complaint which is the subject of procedure No. …2016…, of the VAT assessment act No. 2016…, of 12.1.2016, in the amount of €28,850.40, for the period 2011-12-T, as well as of the corresponding compensatory interest assessment act No. 2016…, of 14.1.2016, in the amount of €4,445.33, to which it attributed the following defects, which would determine their respective annulment:

i) lack of reasoning of the tax and compensatory interest assessment acts (articles 6 to 33 of the IP);

ii) expiry of the right to assess the tax (articles 42 to 56 of the IP);

iii) lack, incongruity or insufficiency of the reasoning of the conclusions of the tax inspection report (articles 57 to 105 of the IP);

iv) error in the factual and legal premises (articles 106 to 127 of the IP);

v) violation of the principle of inquisitorial procedure and pursuit of material truth (articles 128 to 137 of the IP);

vi) lack of competence of the author of the assessment act (articles 138 to 157 of the IP);

vii) violation of the provisions of article 95 of the VAT Code (articles 158 to 163 of the IP);

viii) illegality of the compensatory interest assessment due to the non-existence of the respective constitutive facts and omission of prior hearing (articles 164 to 202 of the IP);

ix) illegality of the administrative complaint decision, given the maintenance of the impugned acts and due to failure to rule on all the issues raised by the Claimant (articles 203 to 206 of the IP).

5. The AT submitted a response in which it petitions that the petition for arbitral decision be judged ungrounded due to lack of legal support or, if this is not accepted, due to lack of proof.

6. On 6.6.2017 the meeting referred to in article 18 of the RJAT took place, in which statements were made by the manager of the Claimant, B…, all as recorded in the minutes on file, and a period of 10 days was granted for the presentation of successive written submissions, which was duly carried out, respectively on 16.6.2017 and on 3.7.2017, the parties, in essence, analysing the statements made by the aforementioned manager, reiterating the positions sustained in their pleadings.

With its submissions, the Respondent attached two documents, and therefore, by order of 4.7.2017, in order to exercise the right to be heard in accordance with the principle established by article 16, letter a) of the RJAT, the Claimant was notified to, if it so wished, rule on such documents within a period of 5 days, which did not occur.

7. By order of 29.9.2017, following the detection by the Arbitral Tribunal that the legal power of attorney attached to the file had not been issued by the Claimant A…, LDA, NIPC…, but rather by C…, taxpayer No.…, pursuant to articles 48, paragraphs 1 and 2 of the Code of Civil Procedure, applicable by virtue of article 29, paragraph 1, letter e) of the RJAT, a deadline was set for the Claimant to remedy the lack of mandate for the performance of procedural acts, through the attachment to the file of a power of attorney and ratification of the proceedings.

In view of this determination, the deadline for issuing the arbitral decision was extended, in accordance with paragraph 2 of article 21 of the RJAT.

By petition of 9.10.2017, the Claimant attached to the file a legal power of attorney with a declaration of ratification of the proceedings. In said petition, the Claimant further requested the attachment to the file of the decisions handed down in the arbitral proceedings Nos. 71/2017-T and 72/2017-T, arguing that the factuality and the legal issues underlying them are precisely those at issue in the present proceedings.

Finally, 11.12.2017 was set as the deadline for issuing the arbitral decision.

II. Sanction of proceedings

8. The Tribunal was regularly constituted and is competent to assess the issues raised (article 2, paragraph 1, letter a) of the RJAT), the parties have legal standing and capacity, they have legitimacy (articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22.3) and, following the attachment of a legal power of attorney and ratification of the proceedings carried out by the Claimant on 9.10.2017, are duly represented, there being no nullities or preliminary issues to be decided, and therefore nothing prevents the judgment on the merits.

III. Issues to be decided

9. The thema decidendi which is the subject of the present proceedings concerns the legality of the dismissal decision of 19.10.2016 of the administrative complaint No. …2016… and of the preceding VAT assessment acts No. 2016…, of 12.1.2016, in the amount of €28,850.40, for the period 2011-12-T, and of the compensatory interest assessment act No. 2016…, of 14.1.2016, in the amount of €4,445.33.

It is well-known that when instituted as a result of and on account of the express dismissal of an administrative complaint, which results in the maintenance of the tax assessment act that was the subject of the complaint, the impugnation procedure of tax acts – as is, in its essence, the tax arbitration procedure – has as its immediate object such dismissal and as its mediate object the assessment act whose annulment is ultimately sought (cf. the judgment of the Supreme Administrative Court of 16.11.2011, case No. 0723/11), and therefore, as both acts fall within the jurisdiction of the Tribunal, it is appropriate to assess the defects or illegalities that are invoked both in relation to the dismissal of the complaint and in relation to the assessment act.

As indicated above (paragraph 4), the following defects of violation of law are alleged by the Claimant in relation to the impugned acts:

i) lack of reasoning of the tax and compensatory interest assessment acts (articles 6 to 33 of the IP, equally reiterated in paragraph 3 of the submissions);

ii) expiry of the right to assess the tax (articles 42 to 56 of the IP);

iii) lack, incongruity or insufficiency of the reasoning of the conclusions of the tax inspection report (articles 57 to 105 of the IP, equally reiterated in paragraph 3 of the submissions);

iv) error in the factual and legal premises (articles 106 to 127 of the IP, equally reiterated in paragraph 4 of the submissions);

v) violation of the principle of inquisitorial procedure and pursuit of material truth (articles 128 to 137 of the IP, equally reiterated in paragraph 5 of the submissions);

vi) lack of competence of the author of the assessment act (articles 138 to 157 of the IP, equally reiterated in paragraph 6 of the submissions);

vii) violation of the provisions of article 95 of the VAT Code (articles 158 to 163 of the IP, equally reiterated in paragraph 7 of the submissions);

viii) illegality of the compensatory interest assessment due to the non-existence of the respective constitutive facts and omission of prior hearing (articles 164 to 202 of the IP, equally reiterated in paragraph 8 of the submissions);

ix) illegality of the administrative complaint decision, given the maintenance of the impugned acts and due to failure to rule on all the issues raised by the Claimant (articles 203 to 206 of the IP, equally reiterated in paragraph 9 of the submissions).

Accordingly, it is these defects attributed by the Claimant to the impugned acts that constitute the issues that this Tribunal is called upon to resolve in the context of the present dispute.

10. Article 124 of the Code of Tax Procedure and Process (CPPT), subsidiarily applicable to tax arbitration by virtue of article 29, paragraph 1, letters a) and c) of the RJAT, establishes, regarding the order of knowledge of defects in the judgment, that "[i]n the judgment, the tribunal shall assess as a priority the defects that lead to the declaration of non-existence or nullity of the impugned act and, thereafter, the defects argued that lead to its annulment" (paragraph 1 of article 124), and, in each of the groups, the assessment is made in the following order: "in the first group, those defects whose establishment determines, according to the prudent discretion of the judge, more stable or effective protection of the injured interests"; "in the second group, the order indicated by the impugner, whenever it establishes between them a relation of subsidiarity and other defects are not argued by the Public Prosecutor, or, in the other cases, that set forth in the preceding letter" (cf. letters a) and b) of paragraph 2 of article 124).

Given that the defects invoked by the Claimant, should they be sustained, would prima facie lead to the annulment of the impugned acts, it is necessary to heed the provisions of letter b) of paragraph 2 of article 124 of the CPPT, and therefore, if a relation of subsidiarity is established by the impugner between the defects argued (see article 101 of the CPPT which provides that: "The impugner may argue the defects of the impugned act according to a relation of subsidiarity"), that order must be respected – as was written in the judgment of the STA of 18.6.2014, case No. 01942/13, "whenever the impugner establishes an order of precedence of knowledge of the defects generating annulability, it is that order that must be followed by the judge, and it is not permitted to alter it, just as it is not permitted to alter the order of knowledge of the defects generating nullity or non-existence, which is legally established".

As results from the use of the expressions "without admitting" or "always without admitting", "by mere precaution", "by precaution, without admitting", "already requested", "always without admitting as regards lack of reasoning" used by the Claimant (cf. articles 33, 34, 37, 39, 56, 115, 162 of the IP), it is verified that a relation of subsidiarity was established in the knowledge of the defects invoked (cf. article 101 of the CPPT), and therefore the defects must be assessed by the Tribunal in the order established by the Claimant indicated above in paragraphs 4 and 9 (even though this does not imply dispensing with knowledge of all the illegalities invoked that are not substantively prejudicial in relation to other alleged defects).

It is therefore appropriate to assess and decide.

IV. Decision on the factual matter and its reasoning

11. Having examined the submissions contained in the procedural documents presented, the documentary evidence produced, both that presented by the parties and that resulting from the administrative procedure in the file (hereinafter AP), consisting of the administrative complaint procedure No. …2016…, which includes the Tax Inspection Report (TIR) dated 22.12.2015 (at pages 86 et seq. of the AP), and having assessed the statements made by the party at the hearing of 6.6.2017, the Tribunal finds as proven, with relevance to the decision of the case, the facts hereinafter indicated, which are set forth in logical and chronological order:

a) Proven facts

I. The Claimant is a limited liability company with registered office at Rua…, No.…, …, …-… …, which carries out economic activity with CAE 85593 – Other Educational Activities NEC, starting on 06.03.2008, subject to the normal quarterly VAT regime, with share capital of €100,000.00, in which C… holds a share of €50,000.00 and B… holds a share of €50,000.00, with management in 2011 in charge of both partners (factuality referred to in the TIR, point II.3, on pp. 6 and 7, not disputed or contradicted in the IP).

II. The activity carried out by the Claimant consists of school tutoring and preparation for secondary school exams and admission to higher education (tutoring lessons) and language courses, without recognition from the competent ministry (factuality referred to in the TIR, point II.3, on p. 6, not disputed or contradicted in the IP).

III. C…, taxpayer No.…, partner-manager of the Claimant in 2011, began activity in his own name on 27.9.2010, subject to the exemption regime under article 9 of the VAT Code, and to the simplified taxation regime under article 28 of the Income Tax Code (factuality referred to in the TIR, point III.2, on p. 11, not disputed or contradicted in the IP).

IV. C… rendered services which, according to the receipts issued by him, consisted of lessons taught in person on matters of secondary and higher education, declared as exempt from VAT, under paragraph 11 of article 9 of the VAT Code (factuality referred to in the TIR, point II.3.1.4, on p. 7, not disputed or contradicted in the IP; cf. also the references in articles 108, 111 and 112 of the IP to the exercise of the teaching activity of the aforementioned partner-manager).

V. The spouses C… and B… jointly submitted the Tax Return - Form 3 for the 2011 tax year indicating category A income – dependent employment income (article 2 of the Income Tax Code) – paid by the Claimant A…, Ltd in the total amount of €18,000.00 (factuality referred to in the TIR, point III.2, on p. 11, not disputed or contradicted in the IP).

VI. C… declared in 2011 category B income (self-employment income – tutoring lessons) in the amount of €86,092.75 (factuality referred to in the TIR, point III.2, on p. 11, not disputed or contradicted in the IP).

VII. According to its respective tax return, the Claimant presented, for corporate income tax purposes, in the 2011 tax year the following values:

| Items | 2011 |
|---|---|
| Service provisions | 102,596.78 |
| Net result of the year | -32,317.86 |

(factuality referred to in the TIR, point III.2, on p. 11, not disputed or contradicted in the IP).

VIII. The Claimant did not own, in its own name, in 2011, a bank account for its receipts and payments, using for this purpose the bank accounts of its partner-managers, namely, the current accounts at D… with No. …/2010…, held by C…, the current bank account at D… No. …/2010…, held by B…, as well as the bank account at D… No.…/2010… of the son of the aforementioned partner-managers, E… (factuality referred to in the TIR, point III.2, at pp. 8, 9, 11).

IX. The credit transactions recorded in the bank account with No. …/2010…, held by E…, a student, which appears in the periodic income declaration (Form 3 of the Income Tax for employees) of the Claimant's partner-managers as a dependent with no income, correspond to receipts resulting from the activities of the Claimant company and its partner-manager C… as a tutor (factuality referred to in the TIR, point III.2, at pp. 9-10).

X. The amounts received, deposited or transferred, in 2011, in the bank accounts at D… No. …/2010… and …/2010…, which were respectively held by the Claimant's partner C… and his son E…, constitute the remuneration received for the services rendered by the Claimant and category B income earned by C… (factuality referred to in the TIR, point III.2, on p. 12).

XI. In the 2011 tax year, the bank accounts identified in the preceding number were credited with a total amount of €337,724.46; the Claimant declared income in the amount of €102,596.78, having obtained receipts totalling €126,194.03, corresponding to all the invoicing issued (sum of the declared income with the liquidated VAT); the partner-manager C… declared income (exempt from VAT) totalling €86,092.75; subtracting the declared values from the amounts credited to the aforementioned bank accounts, the amount of €125,436.54 is obtained, which corresponds to income omitted by the Claimant in 2011 (factuality referred to in the TIR, point III.2, on p. 12).

XII. The Service Order No. OI2013…, of 7.3.2013, for external general inspection procedure for the 2011 tax year of the Claimant, was opened pursuant to inspection proposal No. PIP2012…, of 10.8.2012, following information from the Financial Intelligence Unit (FIU) of the Judicial Police, referring to suspicious banking transactions, namely transactions carried out in a current account opened at the D… branch on … on 1.07.2011, held by E…, 19 years of age, and related to the commercial activity carried out by the Claimant A…, Ltd (factuality referred to in the TIR, point II.2, on p. 5).

XIII. The inspection procedure under Service Orders Nos. OI2013…, OI2014… and OI2014…, referring respectively to the years 2011, 2012 and 2013, was conducted within the framework of Criminal Tax Inquiry Process …/2013… TDLSB (factuality referred to in the TIR, point VII, on p. 19).

XIV. On 25.5.2015, within the framework of Criminal Tax Inquiry Process …/2013… TDLSB, the Criminal Tax Processes Division heard in Interrogation Minutes of an Accused, C…, B… and E…, and on 1 July 2015 authorization was granted for the extraction of a certified copy of the aforementioned interrogation documents which were sent by the Criminal Tax Processes Division to the Tax Inspection Services, the Interrogation Minutes of C… showing that he stated that: "approximately in July 2011, when the A… franchising went wrong, F… foreclosed on the family home, a property in Alentejo and tax refunds, they thought their accounts were going to be foreclosed and opened an account in their son E…'s name, where all customers began making payments for the services provided by A…" (factuality referred to in the TIR, point III.2, on p. 9).

XV. From the external general inspection action, based on Service Orders Nos. OI2013…, OI2014… and OI2014…, referring respectively to the years 2011, 2012 and 2013, to which the Claimant was subject, resulted the Tax Inspection Report, dated 22.12.2015, attached at pages 86 et seq. of the AP, notified by Office No.…, dated 30.12.2015, attached at p. 98 of the AP (cf. also fact acknowledged in article 36 of the IP).

XVI. Prior to the conclusion of the final inspection report, in connection with the right of prior hearing regarding the draft report, as per the document exercising said right attached at pages 81 to 83 of the AP, for which he was notified by Office No.…, of 20.11.2015, attached at p. 84 of the AP, "C… in person and in his capacity as manager of the company called A…, LDA" made the following statement, which is relevant to cite for the present case:

"6 - as the respondent herein has demonstrated, showing all the invoicing related to A… LDA, part of the monetary amounts deposited in the said bank account, relate to payment made to the taxpayer C…, due to the fact that he has taught tutoring lessons in mathematics to various secondary and university students

7- (...) the taxpayer C… made himself available and continues available to present such students to whom he taught mathematics tutoring lessons, so that they can confirm everything that the taxpayer C… raised in the course of the tax inspection;

8 - it is certain that the taxpayer C…, a fact which he has never denied, admits to being in default, that is, admits to being a debtor of some monetary amount to the Tax Administration in connection with his Income Tax (...)

9 - in fact, the taxpayer C…, always showed interest, and continues to protest his full availability to, together with the Tax Inspection, investigate everything that needs to be investigated, in order to find the real value possibly owed and then, if applicable, reach an agreement with the Tax Administration with the objective of proceeding to its complete payment; (...)

14 - (...) the Tax Inspection should, together with the taxpayer C…, make a thorough and objective analysis of the data provided by the aforementioned taxpayer, determining the revenue that pertains to A… LDA and at the same time, also determine what revenue relates to the taxpayer C… due to his individual activity as a mathematics tutor; (...)

17 – (...) if the Inspection has doubts it can and should go to the location, which is the space where the taxpayer C… teaches, in individual terms, not corporate terms, mathematics tutoring lessons, which is independent, with its own unique access, which is not confused with any other, of the facilities where A… LDA carries out its activity, where various teachers teach various subjects of secondary education;

18 - to state, as the Tax Inspection stated, that the taxpayer C… renders service in the facilities belonging to A…, benefiting therefrom from all the logistical support is to demonstrate great ignorance of the activity carried out by the taxpayer C…, which is the teaching of mathematics tutoring lessons;

19 - the taxpayer C… to perform his functions as a mathematics tutor to secondary and university students, does not need any logistical support, whether from A…, or from any other entity, the taxpayer C… to perform his task as a mathematics tutor, needs only and he has such a quality, knowledge and erudition in the field of mathematics and all these ingredients are not incorporated in any chair, table or wall belonging to A…, they are instead present in the mind of the taxpayer C…, who can be confined to a closed space, or can circulate or remain based in any other place in the open air; (...)

22 - having reached this point, always guided by the spirit of good faith, not losing sight of the Constitutional law, which above was cited, we understand that the Tax Inspection should reformulate the entire draft report presented by it, and for this reason, must pay attention to everything stated above, and should for this purpose obtain the collaboration, which once again protests full availability to such, of the taxpayer C… by himself alone and in representation of A… LDA, which is requested".

XVII. The aforementioned TIR contains, as per the document at pages 86 et seq. of the AP, the following passages with impact on 2011, which is relevant to transcribe (pp. 5 to 16 and 19 to 20):

"II.2. – Reason, scope and temporal incidence

The Service Order OI2013… for the 2011 tax year was opened pursuant to inspection proposal No. PIP2012… of 10 August 2012, following information from the Financial Intelligence Unit (FIU) of the Judicial Police, referring to suspicious banking transactions, namely transactions carried out in a current account opened at the D… branch on … on 01-07-2011, held by E… aged 19, and related to the commercial activity carried out by the company "A…, Ltd" belonging to the parents. (...)

II.3.1. - Characterization of the taxpayer

II.3.1.1. - Identification and summary description of the activity (...)

The activity carried out by "A…, Ltd." essentially consists of school tutoring and preparation (tutoring lessons) for secondary school exams and admission to higher education and language courses, but without recognition by the competent ministry. Therefore, the lessons taught, whether to groups or individually, do not benefit from VAT exemption, given that they do not fall within paragraph 10 of article 9 of the VAT Code. Thus, the service provisions made by the company are subject to VAT at the standard rate. (...)

C…, at the time of the facts (2011, 2012 and 2013) and at the time of the inspection procedure, performed the functions of manager, as demonstrated by the documents showing material acts of administration, which are attached to this inspection report. (...)

At the same time, the partner-manager C… renders services which, according to receipts issued by him, consist of lessons taught in person on matters of secondary and higher education, which he declares as exempt from VAT, under paragraph 12 of article 9 of the VAT Code. (...)

III.2. - Description of facts and legal framework

The Directorate of Services for Fraud Investigation and Special Actions (DSIFAE) sent to the Tax Inspection Services a copy of information No. …/2012, which has as an annex the information from the Financial Intelligence Unit (FIU) of the Judicial Police, which is directed at the taxpayer "A…, Ltd.", NIPC -…, and the following taxpayers (all with tax residence at Rua … - …- … -…, …-… …) regarding whom the following is mentioned:

- B… NIF…, partner-manager of A…, Ltd., carries out professional activity as a tutor and is the holder of two current bank accounts at D… with Nos. …/2010… and …/2010….

It should be noted that account No. …/2010… presents movements recorded in 2011 and in the first two months of 2012, and in 2011 it shows a credit of €247,411.36 and a debit of €248,594.72, of which €22,946.00 were transferred to account No. …/2010…, held by B…, as set forth in the tables elaborated below:

Account No.… 2010…: (...)

| Receipts | 2011 |
|---|---|
| Check deposits | 46,740.57 |
| Mixed deposits (cash/checks) | 8,223.13 |
| Cash | 13,753.76 |
| Transfers (individuals/ATM) | 138,536.26 |
| Transfers from account … – E… | 40,150.00 |
| Miscellaneous | 7.64 |
| Total credits | 247,411.36 |

| Payments | 2011 |
|---|---|
| Transfer to B… - …2010… | -22,946.00 |
| Transfer to B… | -77,630.00 |
| Transfer to C… | -142,020.00 |
| Transfer to E… | -2,000.00 |
| Miscellaneous | -3,998.72 |
| Total debits | -248,594.72 |

(...)

- B… NIF -…, partner-manager of the company previously identified, spouse of C…, and holder of the current bank account at D… with No. …/2010….

In the course of the inspection, we were informed by the partner-manager that the transfers made to the account held by B… were used to make payments for company expenses.

- E… NIF -…, student, son of the taxpayers previously identified, and holder of the current bank account at D… with No. …/200….

On 25 May 2015, within the framework of Criminal Tax Inquiry Process …/2013… TDLSB, the Criminal Tax Processes Division heard in Interrogation Minutes of an Accused, Mr. C…, B… and E…, and subsequently requested authorization from the Public Prosecutor for the extraction of certified copies of the interrogation documents of the accused previously referred to.

On 1 July 2015, the request was authorized, and the Criminal Tax Processes Division sent to the Tax Inspection Services copies of the Interrogation Minutes.

Having analyzed the Minutes, we found that C… stated and it appears in the Interrogation Minutes that "...approximately in July 2011, when the A… franchising went wrong, F… foreclosed on the family home, a property in Alentejo and tax refunds, they thought their accounts were going to be foreclosed and opened an account in their son E…'s name, where all customers began making payments for the services provided by A…". (...)

Furthermore, according to the statements made, the bank account with No. …/2001… held by E… is operated by C… (father) as if it were the company's account, showing credits in the tax years under analysis (2011, 2012 and 2013) the sum of the company's income and the category B income obtained by C… in the exercise of his professional activity as a tutor, in the global amounts of €130,463.10, €300,454.92 and €155,906.66, respectively, as set forth in the table elaborated below: (...)

| Account No.… | 2011 | (...) |
|---|---|---|
| Check deposits | 20,258.67 | (...) |
| Mixed deposits (cash/checks) | 3,814.38 | (...) |
| Cash | 44,681.29 | (...) |
| Transfers (individuals/ATM) | 61,706.14 | (...) |
| Miscellaneous | 2.62 | (...) |
| Total credits | 130,463.10 | (...) |

In fact, the Financial Intelligence Unit of the Judicial Police also found from the analysis of credit transactions:

- that the checks deposited were issued by individuals, to bearer or to the order of C…;

- that the transfers were likewise ordered by individuals with accounts in various banks, with descriptions such as "enrollment", "payment", "A…", "monthly fee", "mathematics", "tutoring lessons", etc.

With regard to debit transactions for the years under analysis, operations were recorded totalling in the years 2011, 2012 and 2013, the amounts of €129,566.41, €297,922.20 and €149,561.26, respectively for each of the years analyzed, the majority relating to internet-ordered transfers in favor of the account holder, as set forth in the table below:

| Account No.… 2010 … | 2011 | (...) |
|---|---|---|
| Transfer to B… - … | 51,540.00 | (...) |
| Transfer to C… | 40,150.00 | (...) |
| Transfer to E… | 4,135.26 | (...) |
| Transfer to individuals | 7,290.87 | (...) |
| Checks | 19,300.00 | (...) |
| Purchases | 5,231.13 | (...) |
| Withdrawals | 1,040.00 | (...) |
| Service payments | 0.00 | (...) |
| Miscellaneous | 879.15 | (...) |
| Total credits | 129,566.41 | (...) |

The transfers made to the accounts of the account holder's parents were used for payment of various company expenses, purchases and withdrawals in cash via check cashing.

On 01-08-2011, 11 transfers were ordered in favor of individuals totalling €6,166.48, and it was found that the recipients thereof rendered services in 2011 to the company A… (category B income). (...)

The aforementioned FIU information was based on the investigation by the Judicial Police of the banking transactions recorded in the account held by E…, which proved to be incompatible with his profession as a student, E… appears in the periodic income declaration of the parents (Form 3 of Income Tax) as a dependent with no income, instead reflecting the results of the activities of the company "A…, Ltd" and the partner-manager as a tutor.

In fact, various credit and debit transactions were identified that suggest, on the one hand, payments to the company by virtue of the description of the transactions, and on the other, payments in favor of individuals who rendered services to it, and it is also worth highlighting the fact that the majority of the credited funds were transferred in favor of private accounts of the two partners of the aforementioned A….

Thus, having opened the aforementioned service orders, it was further found that C… and his wife B…, jointly submitted the Tax Return - Form 3 of Income Tax for the 2011, 2012 and 2013 tax years indicating category A income - dependent employment income (article 2 of the Income Tax Code) - paid by the company "A…, Ltd." in total amounts of €18,000.00, €18,317.52 and €17,748.24, respectively.

It should be noted that, on 27 September 2010, C… began activity in his own name, falling within the exemption regime under article 9 of the VAT Code, and under the simplified taxation regime as provided in article 28 of the Income Tax Code, having declared for the years under analysis, category B income (self-employment income - tutoring lessons) in amounts of €86,092.75, €32,156.38 and €35,903.75, respectively.

Having analyzed the income tax returns, it is found that "A…, Ltd" presented for corporate income tax purposes, in the years 2011, 2012 and 2012, the following values:

| Items | 2011 | (...) |
|---|---|---|
| Service provisions | 102,596.78 | (...) |
| Net result of the year | -32,317.86 | (...) |

It should be noted that in the period between 2007 and 2014, the taxpayer presented the following fiscal results:

| Year | Taxable profit | Tax loss |
|---|---|---|
| 2007 | - | -86,532.07 |
| 2008 | - | -23,527.64 |
| 2009 | - | -67,349.04 |
| 2010 | - | -63,870.08 |
| 2011 | - | -26,218.13 |
| 2012 | - | -40,691.26 |
| 2013 | - | -3,866.55 |
| 2014 | 13,114.70 | |
| Total | 13,114.70 | -312,054.77 |

When asked about the reason(s) for the successive presentation of negative results, the partner-manager justified himself by the A… franchising which went wrong, a fact also mentioned in the Interrogation Minutes. (...)

However, considering that the only income earned by the family comes from the provision of tutoring services, which include those declared as service provisions by the company and by the partner-manager, there being no other known source, it can be concluded, by comparing the total of receipts in the known bank accounts and the total of declared income, that there was a significant omission of income in the years under analysis.

III.2.1. - Omitted income

III.2.1.1. - 2011

Thus, and to calculate the value of undeclared income, it was necessary to examine the bank statements held by C…, B… and E…. (...)

The following are the calculations demonstrating the values of omitted income:

| Receipts in bank accounts | | 2011 |
|---|---|---|
| Account No.… – E… | | 130,463.10 |
| Account No.… – C… | | 207,261.36 |
| Total receipts | a | 337,724.46 |
| Declared income in A… (includes VAT) | b | 126,195.17 |
| Category B income declared by C… | | 86,092.75 |
| Total undeclared income | =a-b-c | 125,436.54 |

As demonstrated, in 2011, the bank accounts identified were credited with a total amount of €337,724.46.

Considering that, in this year, the company declared income in the amount of €102,596.78 and that according to the available information, customers pay the amounts owed when they are issued an invoice, then the company obtained receipts totalling €126,194.03, which corresponds to all the invoicing issued, or in other words, the sum of the declared income with the liquidated VAT. (...)

Likewise, the partner-manager declared, in his personal capacity, income (exempt from VAT) totalling €86,092.75. (...)

Thus, subtracting the declared values from the amounts credited to the bank accounts, we have €125,436.54, corresponding to the income omitted in 2011. (...)

III.2.2. - Destination of the amounts deposited in bank accounts

The information collected, both through the statements made and through the analysis of the descriptions of transactions recorded in bank statements (purchase … Fnac Cascais, … - payment, Sdd cov … Securitas Direct, Purchase … focojit - IT, Tax payments, Transfer to…- store b, 115 Check deposits OIC, Transfer for insurance calculation) demonstrate that the identified bank accounts served as accounts of the company, where not only were the amounts received deposited but also payments necessary for the operation of the business were made.

Thus, it became necessary to expand the analysis to determine which values were used in the business activity and which were actually allocated to the private sphere of the taxpayer and his family.

The partner-manager, during the inspection procedure, informed that the amounts transferred to his wife's account, B…, were used to make the payments necessary for the operation of the tutoring center.

In fact, if we consider that these accounts served as the destination of the company's receipts, we must also take into account that A… had to meet its payment obligations and for this purpose the bank accounts were also used. Thus, we will take into account the accounting records made using the accounting technique. That is, for this purpose, we will take into account the fact that all payments were accountally recorded as a debit to account 11 - cash, thus being able to determine that the entries made as a debit to that account correspond to the payments made by A… to meet its obligations. It should be noted the statement of the partner-manager, a copy of which is attached to this draft report, in which he informs the accounting services "... namely to the TOC G…, that must make all accounting transactions via cash or partner loans, given that A…, Ltd has bank accounts foreclosed by Social Security (...)".

During the period analyzed, there is evidence of transfers between accounts, and the credits to B…'s account come from the accounts that are credited by the receipts of A….

On the other hand, following this methodology, it is also found that only in 2012 are the amounts transferred to B…'s account sufficient to make the company's payments, and therefore in the analysis carried out we took into account the possibility that funds from the other bank accounts were used.

III.2.2.1 - 2011

In point III.2.1.1 of this report the total value of receipts in the bank accounts was presented, excluding transfers between accounts. According to the methodology presented, to this value, corresponding to the receipts of the income obtained, we must subtract the value calculated from payments recorded by the company (...). Thus we have:

| Total receipts | a | 337,724.46 |
|---|---|---|
| Withdrawals recorded in A…'s cash account - payments | e | 173,015.56 |
| Difference | =a-e | 164,708.90 |

This means that, at the end we have a total of €164,708.90 for which there is no justification for its use in the context of the company's activity, this amount remaining in the legal sphere of the account holders. (...)

III.2.3. - Calculation of corrections

To calculate the undeclared income it was necessary to examine the bank statements made available by the Criminal Tax Processes Division held by C…, B… and E….

As reported below, it was assumed by the partner-manager C… that the bank account held in the name of his son E… was operated in the years 2011, 2012 and 2013, for the category B income earned by him and subject to assessment for income tax purposes, as well as for the receipt of invoicing issued by the company A….

Under paragraph 12 of article 9 of the VAT Code, exempt from the tax are "the provision of services that consist of lessons taught in person on matters of school or higher education".

Considering that the activity carried out by "A…" consists of school tutoring and guidance, but without recognition by the competent ministry, the lessons taught, either individually or in groups, do not benefit from VAT exemption, because they do not fall within paragraph 10 or paragraph 12, both of article 9 of the VAT Code.

With regard to lessons taught by the partner-manager in person, according to the understanding of the Tax Administration, they benefit from exemption provided that there is no intervention by any third party.

Now, the partner-manager renders services in the facilities belonging to A…, benefiting from all the logistical support of the company, and therefore there is effectively the intervention of a third party, and consequently, cannot benefit from exemption.

Furthermore, the company and the partner-manager did not maintain patrimonial separation, since private bank accounts were used for the making of payments and receipts relating to the business activity carried out, and therefore the provisions of article 63-C of the General Tax Law were not complied with. (...)

III.2.3.2 – In relation to VAT

The provision of tutoring services are subject to VAT under article 1, paragraph 1 a), combined with article 2, paragraph 1 a) and article 4, paragraph 1, all of the VAT Code. They are, in the context of this tax, located in national territory, as provided in article 6, paragraph 6, b) of the same code. The taxable amount of these operations is the value of the consideration obtained from the customer (article 16, paragraph 1, VAT Code). The tax rate applicable to the services in question is provided in article 18, paragraph 1, c) of the VAT Code, which remained fixed at 23% during the years under analysis.

Considering the case in question, and the values previously calculated of omitted income, the corrections in relation to VAT are as follows:

| VAT | 2011 | (...) |
|---|---|---|
| Omitted tax base | 125,436.54 | (...) |
| Tax shortfall | 28,850.40 | (...) |

Given the great difficulty in distributing exactly the shortfall VAT across the various tax periods, we will consider for purposes of preparing the respective correction document, the omission occurred in the last tax period of each year, considering the absence of prejudice to the taxpayer from this procedure.

The failure to assess the tax due constitutes a violation of article 27 of the VAT Code, as provided and punishable under paragraph 1 and letter a) of paragraph 5 of article 114 of the General Regulation on Tax Inspection (RGIT). (...)

IX - RIGHT TO BE HEARD - REASONING

The taxpayer, after being notified on 20 November 2015, to exercise, in accordance with article 60 of the General Tax Law and article 60 of the Complementary Regulation of Tax Inspection Procedures, the right to be heard (written or oral) on the draft conclusions of the tax inspection report that was sent to him, exercised in writing (...) on 15 December 2015, a statement that despite being late, is assessed below.

In his statement, the taxpayer does not deny the facts described in the draft report, nor their classification for Income Tax Code, VAT Code, and Income Tax Code purposes.

In truth, the taxpayer's arguments are limited to:

a) Invocation of constitutional principles concerning taxation;

b) Statement of the availability of the manager of the taxpayer, in that capacity and in a personal capacity, to collaborate with the AT;

c) Statement of the will of the manager of the taxpayer to contribute to the maintenance of the business activity.

To prove his availability to collaborate and his statement of will to contribute to the maintenance of the taxpayer, the manager invokes that the taxpayer made agreements with the Tax Administration for payment of tax debts, within which he will have already proceeded to payment of approximately €300,000.00.

This fact in no way undermines the content of the draft report, which refers to later years.

Furthermore, what is at issue is not the intentions of the manager, but rather the compliance by the taxpayer, in the years under analysis, of its tax obligations.

The corrections proposed by the Tax Inspection were based on the legal provisions of the Income Tax Code, VAT Code and Income Tax Code, created by law and in compliance with the Portuguese Constitution.

Nothing is seen in the provisions of the Income Tax Code, VAT Code, and Income Tax Code cited that contradicts the constitutional principles referred to by the taxpayer.

In particular, with regard to VAT, the corrections proposed took into account the understanding of the AT (cf. information No. 1053 – P79691001 of 92:01:13 of the DCSA, of the SIVA) and decisions of the CJEU (case C-445/05 - case Haderer and case C-473/08 - case Eulitz) on "the exemption of lessons taught in person" according to which such exemption only applies to services of such nature provided directly by teachers to students, without intervention of other entities.

At the factual level, the corrections proposed are essentially based, for purposes of the Income Tax Code, on the imputation to the taxpayer of omitted income corresponding to service provisions (tutoring lessons) for which invoices or payment receipts were not issued, which are equally subject for VAT purposes, and for purposes of the Income Tax Code, the values omitted in the legal sphere of the family.

This imputation was based on the analysis of bank accounts of the manager of the taxpayer, his wife and both their son, in which there were entries and exits of values relating to services rendered.

The taxpayer does not invoke facts and much less evidence that put into question the analysis of income made in the draft report.

The only argument that at this level deserves mention is that the omitted income should be attributed, in a personal capacity, to the manager of the taxpayer and not to the taxpayer (with the consequence that if the attribution is made in a personal capacity to the manager there will be no VAT). However, this argument cannot be accepted, because the truth is that the manager of the taxpayer rendered the services that generated the income within the framework of the activity of the taxpayer, using the means of the latter. The taxpayer says that, to render services he did not need such means. However, the fact is that he used them".

XVIII. The Office No.…, dated 30.12.2015, by which the TIR was notified to the Claimant, attached at p. 98 of the AP, contains the following:

"You are hereby notified, in accordance with article 62 of the Complementary Regulation of Tax Inspection Procedures, of the Tax Inspection Report, which is attached as an integral part of this notification, concerning the Service Order referenced above.

Of the merely arithmetic corrections made to the taxable matter and/or tax, without recourse to indirect assessment, the grounds for which are contained in the said Report.

In the near future, the AT services will proceed to notify the respective assessment, which will contain the means of reaction, as well as the payment period, if applicable.

No complaint or objection is available against this notification and its reasoning".

XIX. Following the technical corrections promoted by the TIR, the Claimant was notified of the additional VAT assessment No. 2016…, of 12.1.2016, in the amount of €28,850.40, for the period 2011-12-T, and of the compensatory interest assessment No. 2016…, of 14.1.2016, in the amount of €4,445.33, both signed by the Director-General of AT/Collection Area-Value Added Tax (as per documents attached collectively as doc. No. 2 to the IP).

XX. In the document of the additional VAT assessment, referred to in the preceding number, in the "Reasoning" section, the following appears: "Assessment made on the basis of correction made by the Tax Inspection Services".

XXI. The compensatory interest assessment document, referred to in paragraph XVIII, has the following content:

| Interest Assessment | Base value | Duration / Rate % | Amount |
|---|---|---|---|
| Compensatory interest for late assessment of part or all of the tax | 2016… | 28,850.40 | 2012-02-16 to 2015-12-22 / 4.000 | 4,445.33 |
| | | | Total | 4,445.33 |

indicating in the "Reasoning" section:

"Interest calculated in accordance with article 96 of the VAT Code and articles 35 and 44 of the General Tax Law, for having been late the assessment of part or all of the tax or for there having been a delay or insufficiency of payment, by fact attributable to the taxpayer.

Its calculation took into account the date on which the payments were sent and, in the event of its absence or insufficiency, the date of availability of other credits".

XXII. The Claimant submitted on 12.7.2016 an administrative complaint regarding the VAT and compensatory interest assessments referred to, as per document at p. 1 to 46 of the AP and doc. No. 3 to the IP, invoking the following illegalities:

- Lack of reasoning of the VAT and compensatory interest assessment acts, not identifying the corrections that were at the origin of the determination of the shortfall tax, nor the legal provisions under which the tax and the compensatory interest are assessed, nor expressly referring to any tax inspection report, opinion or information;

- Lack of notification in accordance with and for purposes of letter a) of paragraph 1 of article 60 of the General Tax Law;

- Expiry of the right to assess, in that a VAT assessment concerning the year 2011, but wrongly attributed to the last tax period of the 2011 calendar year, the right to assess would expire on 31.12.2015, the assessment not having been validly notified within the expiry deadline;

- Lack, incongruity or insufficiency of reasoning of the tax inspection report, which merely lists conclusive judgments and asserts the use of the Claimant's equipment by its partner in the provision of services as a teacher and that the difference between the values deposited in bank accounts and the values declared for tax purposes constitutes income omitted from tax declarations and subject to VAT, in a context in which the Claimant explained the reason for the use of the said bank accounts and explained that one of the partners exercises another professional activity, independently and without direct relation to the Claimant, by which he is remunerated, as well as to assert, without explaining, the reason for considering that the income was obtained in the last tax period;

- Error in the factual and legal premises because the Claimant did not omit any income, nor were the Claimant's equipment used for the provision of services by the partner as a teacher and, even if that were the case, the services rendered would amount to €85,025.54 and not to €125,436.54 and would not occur only in the last tax period of the 2011 calendar year;

- Violation of the principle of inquisitorial procedure and pursuit of material truth;

- Lack of competence of the author of the act since, at the date when the assessment acts in question were performed, the entity competent to perform them was the Director of Services of the Collection Services Directorate and not the Director-General, given that Decree-Law No. 102/2008, of 20.06 which amended article 87 of the VAT Code suffers from unconstitutionality for having exceeded the legislative authorization under which it was approved;

- Violation of article 95 of the VAT Code given that both assessment acts must be performed as the tax periods in question;

- Illegality of the compensatory interest assessment given that it does not appear in the same the reasons for which such interest was assessed, the guilt of the Claimant in the delay of the assessment was not demonstrated, nor does the tax inspection report contain any reference to compensatory interest, nor was the Claimant heard in the course of prior hearing.

XXIII. The Claimant was notified of the draft decision regarding this administrative complaint on 21.9.2016 to, if it so wished, exercise the right of prior hearing, which it did not do (cf. reference in the order attached as doc. No. 1 to the IP).

XXIV. This administrative complaint was dismissed by Order of 19.10.2016 of the Head of Division (Acting) of Administrative Justice of the Directorate of Finance of Lisbon, by subdelegation, as per doc. No. 1 attached to the IP and p. 113 et seq. of the AP, which is reproduced here in its entirety, of which the following passages from the information of 18.10.2016, case 833 REC 01664/16, stand out, in which such order was based:

i) - "It should be noted that, having the present complainant been notified of the tax inspection report, this fact allowed her to have effective and exhaustive knowledge of the grounds for the assessment, which is apparent from the arguments alleged by the present complainant in the course of this administrative complaint. (...).

Thus, the following is found:

a) In the notification of the VAT assessment statement it is referred to as "Assessment made on the basis of correction made by the Tax Inspection Services" (...), in which the corrections made and the amount of tax to be paid resulting from those corrections are contained.

b) On the other hand, the assessment of compensatory interest refers to "Interest calculated in accordance with article 96 of the VAT Code and articles 35 and 44 of the General Tax Law, for having been late the assessment of part or all of the tax or for there having been a delay or insufficiency of payment, by fact attributable to the taxpayer" (...).

Thus, the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable matter and the tax required by paragraph 2 of article 77 of the General Tax Law, as well as the means of reaction, are mentioned in the collection documents/assessment note. (...)

It is therefore emphasized that, taking into account the factual and legal grounds alleged by the present complainant in the present proceedings, it is apparent that the present complainant has knowledge of the cognitive and evaluative path pursued by the Tax Administration for the determination of the acts here disputed.

Finally, and as already mentioned, the present complainant alleges lack of reasoning of the assessments here disputed. Now, for this purpose, if she so wished, she would always have at her disposal the mechanism provided for in article 37 of the Code of Tax Procedure and Process concerning insufficient communication and notification.

Thus, there is no defect of lack of reasoning and the tax assessment act is not voidable because simple irregularity, or lack of notification of grounds does not generate invalidity of the tax assessment act, given that that is subsequent and external to it, and the illegality of notification is different from the illegality of the act notified" (pp. 5 and 6).

ii) - "it appears from the tax inspection report that "It should be noted that the present inspection procedure under Service Orders No. 012013…, 012014… and 012014…, is being conducted within the framework of Criminal Tax Inquiry Process …/2013… TDLSB

Thus, the general period of 4 years provided for in paragraph 1 of article 45 of the General Tax Law does not apply to the case in question.

In fact, the extension of the period provided for in paragraph 5 of the said legal provision applies, given that the facts which were the subject of investigation in criminal proceedings and regarding which the said criminal inquiry was instituted, are the same facts underlying the disputed tax assessment acts, concluding that there was no expiry of the right to assess the tax" (p. 7).

iii) - "(...) as it appears from the inspection action report, undeclared income was determined, taking into account bank deposits and the fact that invoices or payment receipts were not issued for the provision of services at issue in the present proceedings, and therefore the presumption of truthfulness ceases.

The activity carried out by the present complainant consists of school tutoring and preparation for secondary school exams and admission to higher education, which are not recognized by the competent ministry, and therefore the service provisions made by the present complainant are subject to VAT at the standard rate.

C…, NIF …, performs the functions of partner-manager of the present complainant and, simultaneously, renders services, according to receipts issued by him, through which he teaches lessons in person on matters of secondary and higher education, which he declares as exempt from VAT, under paragraph 12 of article 9 of the VAT Code, as it appears in the tax inspection report (...).

Under paragraph 12 of article 9 of the VAT Code, exempt from tax are "the provision of services that consist of lessons taught in person on matters of school or higher education."

According to the understanding of the Tax Administration as embodied in Binding Information Nos. 5266, of 06-09-2013, and No. F400 2007035, of 02-01-2008, and given their binding nature under article 68 of the General Tax Law, the exemption only applies when it is lessons that are taught in person, that is, when conducted and invoiced directly by the teacher to the student, presupposing a direct teacher/student relationship, without interference of any other entity, and the said lessons must be on matters of school or higher education.

Given that in the provision of services by C…, there is intervention by the company present as complainant, he cannot benefit from VAT exemption, and the tutoring lessons are subject to VAT, under letter a) of paragraph 1 of article 1, letter a) of paragraph 1 of article 2 and paragraph 1 of article 4 of the VAT Code.

The inspection action had as its origin transfers to private bank accounts of which C…, partner-manager, and E…, son of the partner-manager, are holders.

In the case in question, the present complainant alleges error in the factual and legal premises because she did not omit any income, nor were the complainant's equipment used for the provision of services by the partner as a teacher.

Now, in the course of the inspection action, it was found that there was an omission of income, given the divergence between the amounts deposited in bank accounts and the income declared, as well as the successive finding of tax losses. (...)

The present complainant alleges that the services rendered would amount to €85,025.54 and not €125,436.54, however, the present complainant does not present factual and legal grounds that justify the amount claimed.

Thus, the amount of €125,436.54 determined by the tax inspection services resulted from the calculation of the following values, as expressly stated in the tax inspection report:

| Receipts in bank accounts 2011 | Amount |
|---|---|
| Account No.… – E… | €130,463.10 |
| Account No.… – C… | €207,261.36 |
| Total receipts a | €337,724.46 |
| Declared income in A… (includes VAT) b | €126,195.17 |
| Category B income declared by C… | €86,092.75 |
| Total undeclared income d=a-b-c | €125,436.54 |

The present complainant alleges that the said income would not occur only in the last tax period of the 2011 calendar year, and therefore there is violation of article 95 of the VAT Code, given that both tax assessment acts must be performed as the tax periods in question.

However, such procedure does not alter the amount determined in the assessment here disputed, and therefore, and as stated in the tax inspection report, such procedure does not cause prejudice to the present complainant" (pp. 7 to 9).

iv) - "The Principle of Inquisitorial Procedure cannot have such a broad scope that it completely replaces the obligations incumbent on taxpayers, namely that of presenting the documents necessary to demonstrate their claim, in accordance with article 74 of the General Tax Law.

(...) in the course of the inspection action, it was verified that the Tax Inspection Services performed the necessary diligences to discover material truth, namely, through the crossing of information and cooperation of third party entities, in accordance with article 63 of the General Tax Law". (p. 10)

v) - "As for the alleged unconstitutionality of Decree-Law No. 102/2008, of 20-06, invoked by the present complainant, it should be observed that it is not incumbent on the Tax Administration to rule on the same, such assessment being within the competence of the Constitutional Court, in accordance with articles 276 and et seq. of the Portuguese Constitution, the Tax Administration being bound by the Principle of Tax Legality, in accordance with article 8 of the General Tax Law. (...)

As for the alleged lack of competence of the author of the act, it should be emphasized that article 87 of the VAT Code provides (as it was at the date of the facts) that "the Directorate-General of Taxes proceeds to correct the declarations of taxpayers when it reasonably considers that they show a lower tax or a higher deduction than due, and additionally assesses the difference.

It should be noted that, in the case in question, we are faced with an additional VAT assessment, in accordance with article 87 of the VAT Code, and not an ex officio assessment, in accordance with articles 88 and 89 of the same code" (pp. 10-11).

vi) - "In accordance with article 35 of the General Tax Law, it provides that "compensatory interest is owed, when by fact attributable to the taxpayer, the assessment of part or all of the tax due is delayed (...)."

Now, in the case in question, it is verified that the present complainant did not comply with the provisions of article 27 of the VAT Code, given that it was found in the course of the inspection action that there was unassessed and not transferred VAT to the State Treasury" (p. 11).

12. Still with relevance to the decision of the case in light of the various plausible solutions of the legal question, the following factuality is considered not proven:

b) Unproven facts

A. Not proven that, in the year 2011, the partner-manager of the Claimant, C…, for the exercise of his teaching activity and for the teaching of lessons to students, used exclusively the shop next to the current address of the Claimant, a shop which has no relation to the Claimant, which does not use it.

13. No other facts with relevance to the decision on the merits that warrant being deemed unproven were alleged or manifested.

c) Reasoning for the factual decision

14. The Tribunal's conviction regarding the proven facts resulted from the examination of documents carried by the parties for the file, official information not disputed contained in the TIR, statements made by the partner-manager at the hearing of 6.6.2017, and recognition of facts or their undisputed character, in the terms that follow.

The elements relating to the procedural administrative factuality, which are set forth in paragraphs XII to XXIV of the proven facts, were demonstrated by virtue of the documents specified in those points of the proven factual matter.

The material facts extracted from the TIR set forth in paragraphs I to VII of the proven facts did not, as indicated in those points, have any dispute, lack of knowledge or opposition, on the part of the Claimant. As such, bearing in mind the observance of the principle of contradiction and foundation on objective elements in which such information contained in the TIR is based, the facts Nos. I to VII were deemed proven, in accordance with paragraph 2 of article 115 of the CPPT ("Official information only has probative force when properly reasoned, according to objective criteria" – cf. also paragraph 1 of article 76 of the General Tax Law (LGT): "Information provided by the tax inspection has probative force, when reasoned and based on objective criteria, in accordance with the law").

This being the case, let it be expressly stated that the dispute made by the Claimant regarding the data at the basis of the technical corrections promoted by the TIR is strictly limited to the allegation that the Claimant's partner did not use the equipment of the latter in the provision of services as a teacher (article 70 of the IP) and that the difference between the amounts deposited in bank accounts and the values declared for tax purposes do not constitute income of the Claimant, but rather income of the Claimant's partner for the exercise of his teaching professional activity (articles 70, 72 and 80 of the IP).

In this regard, the Tribunal deemed as proven the factuality, invoked in the TIR, which appears in paragraphs VIII to XI of the proven facts, because the assessment of evidence, in accordance with a rational and critical appreciation, based on logical consideration and the maxims of common experience, led to the conviction of their verification.

First of all, it should be noted that the use of the bank accounts of the partner-managers and their son for receipts and payments of the Claimant (in violation, consequently, of the provisions of paragraph 1 of article 63-C of the General Tax Law) is a matter specifically acknowledged by the Claimant, as results from: i) statements of the partner-manager C… indicated in the TIR (see paragraph XVII e.g.: "The information collected, both through the statements made and through the analysis of the descriptions of transactions recorded in bank statements (purchase … Fnac Cascais, … - payment, Sdd cov … Securitas Direct, Purchase … focojit - IT, Tax payments, Transfer to…- store b, 115 Check deposits OIC, Transfer for insurance calculation) demonstrate that the identified bank accounts served as accounts of the company, where not only were the amounts received deposited but also payments necessary for the operation of the business were made"; "The partner-manager, during the inspection procedure, informed that the amounts transferred to his wife's account, B…, were used to make the payments necessary for the operation of the tutoring center"; cf. also paragraph XIV), ii) statements made in the course of prior hearing (see paragraph XVI of the proven facts) and, finally, iii) reference contained in article 71 of the IP ("the Author explained the reason for the use of the said bank accounts"). It should be added that the partner-manager B…, in the course of her statements as a party, confirmed the non-existence of a bank account of A… "due to the existence of a process with F…, which foreclosed all property", and therefore "to meet the expenses of A… an account was opened in my personal name", also used by C…, which "did not make all deposits in that account" (as for the use by A… of an account in the name of E…, she only stated that: "I know my husband mentioned opening an account in the name of E…, but after that I don't know anything more about it", having, however, acknowledged, when questioned whether her son E… worked and had any income, that: "No, E… was studying").

Subsequently, the analysis conducted in the TIR regarding the bank movements relating to the aforementioned accounts of the partner-managers and their son is shown to be substantiated and detailed, as well as duly developed the comparative examination of bank statements with the available accounting elements and the pertinent tax declarations, proving the divergence between the amounts credited to bank accounts and the declared income.

The subsequent key factual question, given the aforementioned allegations of the Claimant, was whether the amounts entered in the bank accounts used by the Claimant that were not invoiced or the subject of competent tax declarations by the Claimant or by the partner-manager B… corresponded to income of the latter or of the former.

This Tribunal, by virtue of the instruction specifically conducted before it, deemed as proven that such amounts corresponded to income obtained by the Claimant, taking into account the statements as a party of the partner-manager B… who, when questioned as to whether the Income Tax declarations presented jointly with her spouse C… (cf. proven facts Nos. V and VI) were true, answered, in categorical terms, affirmatively ("That is one of the things that we as a couple, lies are out of the question and omitting"), as well as declared "I think not" as to the existence of other income in the household beyond that declared by her spouse (it should be said that, when questioned about other possible sources of receipts in the bank accounts other than those from A… or earned by her spouse in the exercise of his professional activity in a personal capacity, such as donations or loans, she simply stated she did not know how to answer such question).

In light of these statements, which confirmed the truthfulness of the income declaration presented by the spouses (which, moreover, was not called into question by the Claimant in the IP), which includes the self-employment income of spouse C… for his independent teaching and tutoring professional activity (cf. proven facts Nos. III, IV and VI), the Tribunal, by virtue of the well-known logical rule tertium non datur, by which, faced with two contradictory propositions, one is true and the other is false, excluded the allegation, which constitutes the essential argument of the Claimant, that the amounts entered in bank accounts not justified tax-wise did not correspond to omitted income of the Claimant, but instead constituted income of the partner-manager C… for the exercise of the teaching activity, independently, without connection to the Claimant (see, for example, in the Claimant's submissions point No. 3) and deemed demonstrated the factuality set forth in paragraph XI of the proven facts.

It should also be noted that the evidentiary assessment thus formed was not contradicted or undermined by any elements presented by the Claimant. To the contrary, it should be noted that the Claimant alleged that the "omitted services", even though – contradictorily – "without admitting" their existence, "would amount to €85,025.54 and not €125,436.54" as per documents it protested to attach (article 117 of the IP), which, however, it never concretized.

In this way, it was deemed demonstrated that the amount of €125,436.54, contained in the aforementioned bank accounts in 2011, which were not the subject of proper invoicing or tax declaration, relates to receipts of the Claimant relating to the consideration obtained for the services provided by it.

15. As for the factuality deemed not proven, the Tribunal did not find demonstrated the allegation set forth above in letter A), as it was not the subject of acceptable and convincing means of proof regarding its reality.

Thus, the testimony given, in the course of statements as a party, by the manager B… was, in this regard, inconclusive, and even contradictory with the factual framework of the Claimant itself. On one hand, inconclusive, because when questioned about the terms of use of the two shops she stated that they were rented, but did not know whether in the name of her spouse [C…] or of "A…", as well as did not know, regarding the fraction allegedly used by her spouse for his personal activity, whether the expenses for electricity or communications were borne by "A…". On the other hand, contradictory with the factual situation of the Claimant itself, because it has registered office at Rua…, No. … in … (see proven fact No. I), but the deponent, when stating that the lessons were not "in the same physical space", stated that: "A… is in shop B and C… is in shop A, they are completely separate"; "A… has a shop which is the … in … and C… is in another shop which is the …, they are different spaces, side by side, with different entrances, with different spaces".

Furthermore, in terms of documentary elements, it is found that, in the context of the cadastral information provided by the Claimant, appears as address the shop with No. … of Rua …, as results from document No. 2 attached by the Respondent with its submissions, but already in the context of disclosure via internet of the activities of the Claimant, where the "Pedagogical Director C.." is highlighted, as per document No. 1 attached by the Respondent with its submissions, the registered office is referenced at the aforementioned No. … of Rua …. It should also be added that no documentation was attached by the Claimant with respect to the title of occupation of the aforementioned shops, either by itself or by the aforementioned partner-manager.

In this manner, in light of those imprecise statements and the documentary material attached, the Tribunal deemed that the point set forth above, regarding the use of premises outside the Claimant by the partner-manager C… for his activity, was not demonstrated. It should be noted, furthermore, that the pertinence of this factuality to the object of these proceedings, in view of the various plausible legal solutions, is strictly related to the circumstance that the shop with No. … is not used by the Claimant for its own business purposes – the question of whether the partner-manager uses it for the exercise of his personal teaching and tutoring activity does not concern the VAT taxation of the service provisions of the Claimant, which is what is at issue in this proceeding.

V. On the Law

16. Having fixed the relevant facts, it is now appropriate to proceed with the application of the Law, assessing the defects of violation of law invoked by the Claimant in relation to the impugned acts.

a) Lack of reasoning of the VAT and compensatory interest assessment acts

17. The first illegality invoked by the Claimant regarding the VAT and compensatory interest assessment acts impugned concerns the omission of the necessary reasoning, in fact and in law, which would be translated as follows:

i) "all its grounds, both factual and legal, are not made explicit, only resulting from the same that it relates to VAT for the December period of 2011", and therefore "from the additional VAT assessment act only results the identification of the period, the amount to be paid and the means of reaction, no identification resulting as to the corrections that would have been at the origin of the determination of the alleged shortfall tax" (articles 8 and 9 of the IP);

ii) "[s]imilarly, the specific legal provisions under which the tax, and the Compensatory Interest, are assessed" are not identified (article 10 of the IP).

iii) "against what is stated cannot be invoked the reasoning effected through referral to an earlier Tax Inspection procedure", "[f]irst, because there is no, even, any referral to any specific document that contains such reasoning, that is, there is no referral to a specific Tax Inspection Report, nor is the respective Tax Inspection procedure identified", and in cases where reasoning by referral is admitted, "it is required that such referral be express, so that the reasoning is as accessible to the taxpayer as if it were contained in the act itself", "it is required that the author expressly refer to and identify the report, opinion, information or proposal with which he manifests such agreement (cf. articles 63 of the Complementary Regulation of Tax Inspection Procedures, 77, paragraph 1, of the General Tax Law and 125, paragraph 1, of the Code of Administrative Procedure)" (articles 18, 19, 22, 24 and 27 of the IP).

As can be seen, the Claimant argues, in substance, that it is unable to ascertain, in light of the notifications received, whether the VAT and compensatory interest assessments in question originated from the tax inspection report and the factual and legal grounds contained therein.

18. It is well-known that article 77 of the General Tax Law provides that: "The decision of a procedure is always reasoned by means of a brief exposition of the factual and legal reasons that motivated it, and the reasoning may consist of a mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those that are part of the tax inspection report" (paragraph 1) and that: "The reasoning of tax acts may be carried out in a summary manner, and must always contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable matter and the tax" (paragraph 2). For its part, paragraph 1 of article 63 of the Complementary Regulation of Tax Inspection Procedures provides that: "The tax acts or matters relating to taxation that result from the report may be based on its conclusions, through adhesion or agreement with these, and in all cases the entity competent to perform it must reason any divergence from the conclusions of the report".

Well, contrary to what is sought by the Claimant, it is understood that no doubt can be raised that the "origin of the VAT assessment act and compensatory interest assessments" are the corrections promoted by the TIR reported in paragraphs XV and XVII of the proven facts: as results from paragraph XVIII of the proven facts, the Office notifying the TIR to the Claimant specifically refers to the arithmetic corrections made whose grounds are contained in the TIR and that the AT services will proceed to "notify the respective assessment"; as results from paragraph XX of the proven facts, the VAT assessment document (No. XIX) indicates that the assessment is "made on the basis of correction made by the Tax Inspection Services"; as results from paragraph XXI of the proven facts, the compensatory interest assessment document expressly indicates the amount of VAT assessed and the legal provisions contained in article 96 of the VAT Code and articles 35 and 44 of the General Tax Law. In these terms, in light of this sequence of elements, it is manifest to any normal, reasonably diligent and reasonable recipient that the tax collection/assessment documents with the values reported therein (VAT in the amount of €28,850.40, for the period 2011-12-T and compensatory interest in the amount of €4,445.33) are connected to the arithmetic correction of VAT relating to the year 2011 [truncated due to length]

Provide ONLY the English translation, no commentary.