IRS Tax on Travel Allowances (Ajudas de Custo): Burden of Proof in CAAD Arbitration 704/2014-T

ARBITRAL DECISION

Case No. 704/2014 -T

I – Report

1. On 3 October 2014, A... and B..., taxpayers with Tax Identification Numbers (NIF) ... and ..., respectively, resident at Rua das ... no. ..., ..., ......, came, pursuant to Decree-Law No. 10/2011, of 20 January (RJAT), and Order No. 112-A/2011, of 22 March, to request the establishment of an arbitral tribunal for a declaration of illegality of the Personal Income Tax (IRS) assessments and compensatory interest contained in document no. 2014..., dated 03/06/2014, relating to the year 2010 (document 1) in the total amount of € 4,737.59 (four thousand, seven hundred and thirty-seven euros and fifty-nine cents). With the initial Request, there were submitted, in addition to powers of attorney and proof of payment of the fee, three documents.

2. In the Request for Arbitral Pronouncement, the Claimant opted not to appoint an arbitrator, and by decision of the President of the Deontological Board, pursuant to Section 1 of Article 6 of the RJAT, the undersigned was appointed as sole arbitrator, and accepted the position within the legally prescribed timeframe.

3. The arbitral tribunal was constituted on 15 December 2015.

4. The Tax and Customs Authority (AT or Respondent) submitted its Response and the administrative file (PA) on 3 February 2015.

5. On 5 March 2015, pursuant to Article 18 of the RJAT, a first meeting was held in which the tribunal requested the submission of missing documents, with the date of 7 April set for witness examination.

6. The Respondent submitted eight documents on 16 March, and the examination of witnesses presented by Claimant and Respondent (in both cases with substitution of those initially proposed) was held as scheduled on 7 April 2015, with the Parties to submit, successively, written submissions within a period of 15 days, which occurred on 23 April and 12 May, respectively. The tribunal set 15 June 2015 as the date for communication of the decision.

7. The Request for Pronouncement

In the initial Request, the Claimants contend, in summary:

• The first Claimant has been an employee of company C... A/S – Branch in Portugal (C...) since July 2009.

• C... is a company whose activities include performing work on soils in maritime and coastal areas, such as coastal defense, sand reinforcement of beaches, dredging of river beds and sea floors.

• The Claimant was hired as a laborer for the dredging work on the beaches of Costa da Caparica and continues to work for the company with functions including artificial feeding and maintenance of beaches, with manual handling of pipes and spreading of material for landfills.

• The function performed implies frequent movements and presence in work sites of his employing entity, both in Portugal and abroad.

• C... assigns the worker certain amounts as travel allowances to compensate him for the expenses of meals and accommodation that such movements entail, which constitutes a company policy.

• Following analysis of the Claimants' tax return for the year 2010, the AT considered that the amounts paid to the worker by his employer as travel allowances are not true travel allowances, but rather have the nature of remuneration, given the regular character of their attribution and alleged irregularities in the documentation.

• However, contrary to what occurs with the provision of travel allowances to State officials, whose characterization as travel allowances presupposes the issuance by the worker of a travel itinerary certificate (with indication of the day or days of travel, place of travel, nature of service performed that gave rise to the travel and respective daily and total allowance), in the case of private sector workers, despite the need for the worker to be away from his place of work and to incur accommodation and meal expenses, their reimbursement (approximate) is made without presentation of original supporting documents.

• The rule of Article 45, Section 1, subsection f) of the Corporate Income Tax Code (Código do IRC), in effect at the date of the facts, merely requires the completion of an internal control map without formal requirements, whose content should allow the company to control the movements and payments, a map that was timely sent to the inspection service in response to a notification from the AT containing all elements required by Article 45 of the IRC Code, with additional detail and proof of most of the travel situations having occurred being added to the administrative file, and which gave rise to the payment of the travel allowances in question.

• In the map in question, the days of travel, countries, projects and locations are systematized with the travel allowance attributed indicated in column 9 – this is a fixed or flat-rate amount, established according to the conditions agreed with the worker.

• This is merely a partial compensation for the expenses that the worker incurred by being in a travel situation, with the inspection services not understanding the nature of the activity in question.

• The travel allowances actually paid were well below their respective legal limit (column 10 of the map), taking into account the days and places of travel (58% of the maximum permissible) because between the total travel allowance attributed in the 2010 fiscal year of 21,504.00 € (twenty-one thousand, five hundred and four euros) and the respective maximum non-taxable limit of 37,339.98 € (thirty-seven thousand, three hundred and thirty-nine euros and ninety-eight cents) there is a difference of 15,835.98 € (fifteen thousand eight hundred and thirty-five euros and ninety-eight cents).

• Unlike officials, who belong to a service with pre-defined functions, in the present case, the system of assignments is incompatible with the requirement of completing travel itinerary forms with description of works, duration of the intervention, reason for travel, as well as preparation of administrative reports.

• According to the principles of the Tax Code (General Law) (LGT) (Article 5, Section 2, and Article 11, Section 3), one must consider the material reality, in this case the difficulty of processing payroll in a complex activity such as that carried out at the Claimant's company.

• These companies, by the need to create normalization mechanisms that reduce the number of variables in payroll processing, for example carry out payment of travel allowances at fixed monthly values; but when the amounts attributed exceed the compensation necessary for traveling workers to meet their meal and transportation expenses (assessing such excess by exceeding the legal limits of travel allowances) they consider that there is remuneration or patrimonial benefit subject to IRS and Social Security, always in obedience to the aforementioned principle of material justice, or primacy of substance over form.

• This interpretation is supported by case law: regarding the unnecessary requirement for private sector workers to prepare a travel itinerary certificate with travel details (Court of Appeal Decision 272/06 of 08/05/2008, of the TCAN); regarding the payment of travel allowances at a fixed value and not on a case-by-case basis (Supreme Court Decision 79-B/1994.L1.S1 of 19/02/2013; Court of Appeal Decision STA 0146/13, of 22/05/2013, Court of Appeal Decision STA 01065/07 of 12/03/2008).

• From this case law it is possible to conclude that: a) Travel allowances may be paid in advance in fixed amounts; b) They only have remunerative nature in the part where they exceed legal limits; c) The burden of proof of excess lies with the AT.

• Regarding the concept of location to consider, for purposes of defining the minimum distance of travel that qualifies for attribution of travel allowances, it should be understood (Court of Appeal Decision of the STA of 20/06/2013, proc. 0981/13) that the center of functional activity within the municipality is the service where the worker must appear; the AT never invokes excess nor proves it, and such excess never existed, as is proven by the map attached to the file (in the case of the work ... – ...., the AT goes so far as to deny, without proof, the very situation of the worker's travel).

• The allowances paid in the year 2010, in the amount of € 21.504,00, were intended to cover the travel expenses of the first claimant in the service of the company (the map attached to the proceedings contains the elements required by Article 45, Section 1, subsection f) of the CIRC in effect at the date - this amount is less than the legal limit of non-taxable travel allowances, of the value of € 37,339.98, and even if only the travel allowances for which unequivocal proof of travel had been submitted to the administrative proceedings were accepted, the limit of non-taxable travel allowances would be € 24,367.91).

• The request for arbitral pronouncement should be judged well-founded and the illegality declared, with consequent annulment, of the IRS assessments and compensatory interest, in the amount of € 4,737.59, with all legal consequences.

8. The Response

The Respondent replies, in summary:

• Contrary to what the Claimant contends, the tax administration is not obliged to accept the amounts declared as travel allowances simply because they are below legal limits.

• It results from Article 23-A of the CIRC (corresponding to Article 45, subsection f) of the CIRC, in effect at the date) that the employing entity may only deduct expenses with travel allowances if it possesses a control map of this type of expense, and this map was not made available to the inspection services of the tax authority.

• The Excel spreadsheet delivered does not contain the extracts that account for the expenses referring to the worker and that justify that the amounts paid were paid as travel allowances to pay for the expenses of that specific travel.

• The Claimants themselves confess that the payment of travel allowances is made at a fixed monthly value and that this value does not correspond to the expenses incurred by the worker.

• It is not acceptable to justify that the company does not control expenses with travel allowances (an obligation imposed by Article 23-A of the CIRC) due to the size of the company, which has many employees, and by the need to avoid imposing obligations on workers.

• The contract executed between the claimant and C... is an employment contract for another's account, for an uncertain term, of duration corresponding to that of the project identified therein, covered by the Collective Labor Agreement between the AECOPS and FETESE (BTE, 1st Series, No. 13 of 08.04.2005), by which it is presumed that all and any other provision of the employer to the worker constitutes remuneration, in which the alleged travel allowances paid in the construction sector are included, with the burden of contradicting this presumption falling on the taxpayer (Article 350, Sections 1 and 2 of the Civil Code).

• The employing entity, requested to do so by the tax inspection (official letter no. ... of 2014-02-19), did not send additional elements regarding the need for travel on business and on which dates, as well as the extract from the accounts where all expenses referring to the worker in question are accounted for, from which it is concluded that they do not exist.

• The map sent is admissible while presenting the travels but does not, by itself, constitute proof of legality of the attribution of travel allowance, the question being whether the travels presented have normative framework that subjects them to the scope of travel allowances, or otherwise, if they configure mere remuneration for work performed, attributed in the form of a travel allowance.

• In accordance with the system provided for in Decree-Law No. 106/98, travel allowances must respect daily limits, with no place for accumulations or transfers of "balances" for annual accounting, as happens in the attached map.

• Even if the map is considered valid, it does not mean that it justifies the attribution of travel allowances because no clarifications were provided regarding the regularity of travel allowances (in every month a travel allowance value of 1.536€ was paid and the corresponding base salary of 800€), and the amounts paid in the months of July and November, as holiday and Christmas subsidies respectively, include an equal value of travel allowances.

• One must take into account the doctrinal differentiation, fundamental to distinguish remuneration from travel allowances, between patrimonial advantages granted to workers and indemnities/compensations owed to them for costs incurred in the context of services rendered by the official to the employing entity.

• It is verified in the map, in particular, that: the taxpayer earned 3.072,00€ in the month of July 2010 (month of holiday subsidy payment) and various inconsistencies (travel dates in Spain; payment of travel allowances in holiday and Christmas months; imputation of the cost of air travel to the headquarters of the employing entity; etc.).

• Travel allowances follow a pattern: in the map and in the monthly payslips they are attributed every month of the year, in the same amount, regardless of the number of days in which the worker supposedly was traveling, regardless of the duration, distance and national or international character of the travels.

• The principles of material truth of taxation (Article 5, Section 2 of the LGT) and the prevalence of substance over form in the interpretation of tax rules – (Article 11, Section 3 of the LGT) cannot justify violation of the principle of legality.

• The case law invoked does not apply to the factual situation of the present proceedings – in this case it is a question of payment of a fixed value of travel allowances, which suggests that the sums received constitute mere complement of remuneration, and in which the Claimants confirm that "it was merely a partial compensation for the expenses that the worker incurred by being in a travel situation."

• In the case decided by the Court of Appeal Decision of the Southern Court of Appeal of 30/09/2003 (proc. 0700/03), in a case identical to the present one, it was considered that the character of regularity and periodicity of the amounts paid removes them from the nature of travel allowances.

• From the documents submitted to the proceedings it does not appear that the said amounts were intended for the payment of travel allowances, and it is presumed that the sums earned by the Claimant integrate the concept of remuneration.

• No illegality is apparent in the assessment act now impugned, and therefore the present request for arbitral pronouncement should be judged unfounded by not being proven and consequently maintaining the impugned act in the legal order.

9. Submissions

Following the production of witness evidence, written submissions were presented.

From the final submissions of the Claimant, the following is retained, in summary:

• The Claimant is an employee of company C..., receiving his income in Portugal despite being almost permanently assigned to work outside the country.

• The Claimant is an experienced laborer, with extensive knowledge in the placement and assembly of "pipelines," with the capacity to lead local teams in carrying out work, regardless of its location.

• There is a pressing necessity of the company for the displacement of workers to different locations around the world, imposed in pursuit of efficiency and quality of services rendered, providing them with a monthly pecuniary amount as travel allowances to cover the inherent accommodation and meal expenses incurred as a result of these constant travels.

• The worker was hired by C... pursuant to the work contract submitted with the Request for Arbitral Pronouncement for execution of work at Costa da Caparica continuing in the service of the company since then, being displaced in 2010 in accordance with the map attached to the proceedings (travels to Brazil in January and February, October, November and December in two distinct projects – projects 09-... and 10-..., in Spain – Coruña, Cádiz and Xago – and in the Algarve). There is proof of travel and stay relating to Brazil as well as relating to Spain and the Algarve.

• There is documentary proof that the Claimant incurred various food and accommodation expenses, and for this fact he was assigned an amount as travel allowances.

• This amount (contained in the remuneration payslips and the "Map") is fixed, of €1.536,00, paid monthly to the worker, as a result of an agreement between the Claimant and employing entity, of an estimate of the approximate value of the expenses incurred in work-related travel.

• It is not a formal and signed agreement between the parties but a calculation of estimate (average) of expenses that may be exceeded, which is why the Request referred to it as constituting a partial compensation to the worker.

• The Claimant was hired by C... in 2009, under an Employment Contract for Uncertain Term for execution of work at Costa da Caparica, and has been continuously performing work in diverse projects in multiple locations, with no other employment contract or agreement beyond the document presented with the Request indicating the value of the worker's base remuneration in Clause Seven of € 800, a value that is maintained in the payslips.

• In 2010, the worker was displaced for a total of 282 days (228 abroad and 54 in Portugal), and was paid monthly the value of € 1.536,00 as travel allowances, but the AT, notwithstanding that the burden of proof falls to it (Article 7 of the LGT) as results from diverse case law, failed to prove that the amounts do not relate to travel allowances.

• In failing to make adequate proof, the AT never fulfilled the duty of reasoning in the qualification of such amounts as having a remunerative nature, violating the constitutional principle contained in Article 268, Section 3 of the Portuguese Constitution (CRP).

• The AT did not demonstrate that the taxpayer did not perform the travels, or that, when displaced, he did not do so in the service of his employing entity and that the values received were not for the purpose of compensation of expenses incurred in travel.

• The amount of €21.504,00 paid as travel allowances to the worker falls within the possible legal limits whose maximum value, depending on the number of days he was displaced, is € 37.339,98, taking into account the fact that the worker was displaced during 282 days of the year, and considering the inherent expenses of travel, namely food expenses (at least 3 times per day) and accommodation, the AT cannot invoke that the amounts paid to the worker did not have an indemnificatory character for expenses supported in the service of the employing entity, by virtue of travels on business of the same.

• The AT could only tax the amount exceeding the legal annual limits established, but they were not exceeded and the Respondent failed to demonstrate that the amounts received were not as travel allowances, limiting itself to contending that the amounts in question constitute remuneration by their regular nature of attribution.

• "The provision of fixed monthly sums as travel allowances for a worker displaced abroad does not, in itself, constitute an indicator that these sums do not constitute travel allowances" (TCAN, proc. no. 237/06).

• The amounts placed at the Claimant's disposal have the sole purpose of compensation of costs he incurred in the service of his employing entity, namely food and accommodation costs, and therefore can never represent a patrimonial gain in the sphere of the Claimant.

• Their fixing is due to the uncertainty regarding the next displacement of each worker; the parties fixed an amount to compensate for presumed costs due to the great difficulty of concrete determination of costs and/or their proof.

• The amount fixed between the parties never exceeded the legally imposed limit for non-taxation of travel allowances, and the AT came forward to invoke or allege such fact, therefore there is no place for taxation of travel allowances in the part that does not exceed the legal limit imposed.

• The AT did not gather objective indications demonstrating the fact that the travel allowances paid to the claimant in the year 2010 did not correspond to the actual reimbursement of expenses incurred by the worker in the service of his employing entity by virtue of the travels, nor that the legal quantitative limits provided for in the IRS Code were exceeded, being unable to attack the credibility of the Claimant's statement.

The AT alleged, in summary:

• The fact that the Claimant had been displaced abroad, in the service of the employing entity, does not prove that the agreed amount of 1.536,00 Euros actually corresponds to payment of travel allowances.

• Payment of travel expenses was not proven (there are airplane tickets issued in the name of the employing company, and fuel receipts with the tax identification number of the same company) nor was the fact that the travel allowance value is constant (regardless of whether the place of service provision is in Portugal, Brazil or Spain) explained.

• Having the AT invoked that the conditions of taxation were met by virtue of the fact that the attribution of that amount did not have the character of travel allowances but rather the function of remuneration, it was up to the Claimant to prove that he incurred expenses in that amount each time he was displaced, which he did not do.

• The fact that the Claimant performs functions of much greater responsibility than those for which he was hired, as a laborer with remuneration of € 800 Euro, demonstrates that he is a worker with qualities and leadership capacity, paid well below the functions he actually performs, and allows one to conclude regarding the periodic character, of remuneration, of the amount attributed as travel allowances, together with the holiday subsidy and the Christmas subsidy.

• The AT fulfilled its burden of proof, for the facts invoked are notorious (Article 412 of the Civil Procedure Code) resulting from knowledge and common life practice.

• The proof contained in the file results from logical reasoning - common general knowledge and experience lead to the conclusion that the Claimant is receiving remuneration well below the capabilities he possesses and the responsibilities required of him, with full credibility the finding that, by its regular and periodic character, the amount attributed monthly to the Claimant of 1.536,00 Euros is a supplement to remuneration.

• The amounts in question do not correspond to travel allowances, particularly since it is proven in the file that it was the employing entity that paid, at least, the hotels and the Claimant's travels.

• If the AT accepted the arguments that this is a form of payment by the employing company of easier implementation, it would violate the principle of legality.

• Nor does the case law invoked have application to the factual situation of the present proceedings because: the AT demonstrated that the fixed value of travel allowances constitutes an indication that the sums received constitute mere supplement of remuneration and the Claimants themselves, by saying that it is a partial compensation for expenses in a travel situation, admit that it is a supplement to remuneration.

• Just as decided in the Court of Appeal Decisions of the TCAS in cases 700/03 and 1037/03, these are allowances provided for in the contract, processed regularly and periodically, in payslips and in amounts much higher than that, without supporting documents evidencing the expenses incurred, their nature, locations and dates, and therefore do not assume compensatory nature but remunerative nature.

10. Object of the Request

The fundamental legal question to be decided is whether the amounts paid to the Claimant as travel allowances throughout the year 2010 merit that qualification or whether they are remuneration subject to income tax on work income (category A of IRS), according to the rules of the Personal Income Tax Code.

11. Case Management

The arbitral tribunal is materially competent, in accordance with the provisions of Articles 2, Section 1, subsection a) of the Legal System of Arbitration in Tax Matters.

The parties have legal capacity and standing in accordance with Articles 4 and 10, Section 2, of the Legal System of Arbitration in Tax Matters (RJAT) and Article 1 of Order No. 112-A/2011, of 22 March.

The proceedings do not suffer any nullity, nor have the parties raised any exceptions that prevent the decision on the merits of the case, so that the conditions are met for the issuance of the arbitral decision.

II LEGAL REASONING

12. Established Facts

On the basis of the documents submitted by the Claimant (Request for Arbitral Pronouncement, documents submitted with the Request and Documents submitted following a request from the tribunal at the 1st meeting held in accordance with Article 18 of the RJAT) and by the Respondent (Response and Administrative File submitted to the proceedings).

12.1. D... A/S, a Danish company, is a company that performs work on soils in maritime and coastal areas in coastal defense, sand reinforcement of beaches, dredging of river beds and sea floors and operates in Portugal through a branch, "C... A/S, Branch in Portugal", with Tax Identification Number ...., installed in the .... – ...., P.O. Box ....- ....-...., ... (Request for Pronouncement, Article 2 and witness testimony).

12.2. In a document dated 28 July 2009, the first Claimant, A..., resident in Rua das ..., no. ..., ..., ..., executed with C..., Branch in Portugal, headquartered in "....", lot .../.../... (….), an "employment contract for uncertain term" for the exercise of the function of laborer in the Project for Dredging in Portugal for Artificial Feeding of the Beaches of Costa da Caparica and S. João da Caparica (Doc. no. 2, submitted with the Request for Pronouncement).

12.3. The contract referred to in the preceding number, executed "in accordance with Decree-Law no. 64-A/89, of 27 February", was characterized as a fixed-term contract, of uncertain duration, expiring on the date of conclusion of the Project for Dredging in Portugal for Artificial Feeding of the beaches of Costa da Caparica and S. João da Caparica (Doc. no. 2 submitted with the request, Clauses 2 and 3).

12.4. The employment contract referred to in the preceding numbers provided for a monthly base remuneration of € 800, subject to legal deductions, and the right to holidays and holiday subsidy calculated in accordance with Decree-Law no. 874/76, of 28 December and in supplementary provisions and that "other working conditions not expressly provided for in the foregoing clauses shall be regulated by the applicable legal provisions and by the Collective Labor Agreement concluded between AECOPS – Association of Construction and Public Works Companies and others and FETESE-Federation of Unions of Service Sector Workers and others, applicable as well as by current practices and internal regulations of the employing entity". (Clauses seven, eight and sixteen of the employment contract contained in doc. no. 2 submitted with the request).

12.5. During the year 2010, the income tax return of the Claimants included the amount of € 11.200 of gross income from category A, as a result of work performed by the first Claimant to the company C... Branch Portugal A/S (PA, Annex I).

12.6. As a result of automatic information exchange between Portugal and Denmark for the prevention of international double taxation and tax evasion in the field of income taxes, the Finance Directorate of Coimbra was informed by the Directorate of International Relations Services that the S.P. had earned income from abroad (Denmark), in the amount of 264,322 Danish Crowns (roughly equivalent to 35,456.15 Euros) (PA, Tax Inspection Report, p. 2, and annexes III and V).

12.7. By official letter no. ..., of 20 August 2013, from the DF of Coimbra, the Claimant was requested to regularize the failure to include in his IRS return an amount of € 35,456.15 of income obtained in Denmark (PA, annex VII).

12.8. The Claimant clarified, on 5 September 2013, that he was not an employee of D... in Denmark nor had earned any income in that country but only income paid by the company C... A/S Branch Portugal, for professional activity carried out in Portugal and declared in model 3 of IRS (PA, annex I).

12.9. On 6 and 7 October 2013 (by email and mail) the Claimant submitted a declaration from D..., A/S, confirming that A... had in 2010 been an employee of the Portuguese branch of the company that paid him the salary and submitting payroll "remuneration" receipts showing a base salary of € 800 and travel allowances of € 1536.00 (PA, annexes I and II).

12.10. On 14 October 2013 the Finance Directorate of Coimbra received a statement from the Danish Tax Authority clarifying that the previous communication in the terms of the Tax Treaty relating to the amount received in 2010 by A... referred not to fees but to salary paid by the Portuguese branch of D..., and that it was not a duplicate payment but a re-invoicing procedure for the Portuguese branch of D... and (PA, RIT p. 2 and Annex III).

12.11. By official letter no. ..., of 19 February 2014, the AT requested submission of "a map of travel allowances and respective locations where services were provided and extract from accounts where all expenses relating to the worker in question are recorded" (PA, Annex VI).

12.12. D... A/S responded (Email and fax) by sending an Excel spreadsheet, where it refers to having had travels abroad on various days of the months of January through December of the year 2010, and photocopy of the Claimant's passport, with record of entries to Brazil throughout the same year (Doc. no. 6 submitted to the proceedings in March).

12.13. All payroll receipts issued by D... A/S to the first Claimant in 2010 contain monthly a certain value of "remuneration," encompassing under that designation "base salary" (€ 800.00) and "travel allowances" (€1536.00), with both types of payment made twice in the months of July and November (PA, annex II).

12.14. The company declared that during the year 2010, the Claimant worked in Portugal between 6 June and 31 July, on the project ...-(…) and in the remaining time was absent from Portugal, providing service in various projects located in Brazil and Spain: on the project ..., in Brazil, between 1 January and 25 February; on the project ..., in Spain, between 20 March and 5 June; on the project ...., in Spain, between 1 August and 5 October and 25 and 28 November; and on the project ..., in Brazil, between 25 October and 8 November and again between 1 and 22 December (Doc. 3 submitted with the Request and Doc. no. 1 subsequently submitted to the proceedings).

12.15. Regarding the stays marked in the map referred to in the preceding number, the issuance of airplane tickets in the name of A... for the routes Lisbon/Brazil/Lisbon is proven, on 8 December 2009 and 25 February (Docs. 2 and 3 submitted to the proceedings in March p.p.); Lisbon/Fortaleza/Lisbon, on 25 October and 8 November and 1 December and 22 December as well as record of entries to Brazil (Docs. 6 and 8 submitted to the proceedings in March p.p.).

12.16. Regarding the travels Lisbon-Fortaleza (26/10) and Fortaleza-Lisbon (09/11), an invoice was issued by Lufthansa in the name of D... ... mentioning as passenger A... (p. 3 of Document no. 6 submitted to the proceedings in March p.p.).

12.17. C... submitted to Social Security a request, dated 19/08/2010, for issuance of a Form E101 relating to worker A... proving that he would be subject to Portuguese legislation during the secondment period, between 15/08/2010 and 15/10/2010, at company E…, SA to perform, on behalf of C..., sand reinforcement on the beaches of Cadiz, Spain (PA, p. 8 of the RIT and doc. no. 4 submitted with the Request for Pronouncement).

12.18. The inspection action carried out by the Finance Directorate of Coimbra (Work Order No. 0I…) considered that the payments made by C... as travel allowances were not intended to compensate, indemnify or reimburse the worker for expenses incurred by him in the service of and in favor of the employing entity, relating to the worker's movements as such and having as their starting point his usual place of work, contractually defined, concluding that the Claimant, in the income tax return, model 3, relating to 2010, omitted income from category A, in the amount of € 21.504,00, (1.536,00 x 14 months) from income titled as travel allowances, which assume the nature of remuneration — category A, in accordance with that stipulated in Law no. 99/2003, of 27 August and in Law no. 7/2009, of 12 February (Labor Code) and also in subsection a) of Section 1 of Article 2 of the Personal Income Tax Code (CIRS), described in the payslips, which were not subject to withholding at source, nor included in the IRS return – model 3. (PA, IT report).

12.19. The draft Tax Inspection report, proposing correction to category A income of the first claimant was sent by official letter no. ... of 18 March 2014, for the purpose of exercising the right to a hearing (PA, p. 4 of the RIT).

12.20. The Claimant exercised the right to a hearing through a document filed with the Finance Directorate of Coimbra on 7 April 2014 (PA, p. 4 of the RIT).

12.21. The proofs and arguments submitted by the Claimants in the prior hearing were considered unfounded (information of 16 April 2014) and the draft tax inspection report was converted to final by order of the Finance Director on 17 April 2014. (PA, IT Report).

12.22. The Claimants were notified of the assessment document no. 2014..., dated 3 June 2014, for payment of IRS and compensatory interest, in the total amount of € 4.737,59 by 9 July 2014 (Request, introduction and Section VII; Response, Article 1 and collection document submitted with Request).

12.23. The present request for arbitral pronouncement was filed by the Claimants on 3 October 2014.

13. Unestablished Facts

The following was not proven:

13.1. The type and content of the employment contract in effect during the fiscal year 2010 between the Claimant and C..., Branch in Portugal.

13.2. That the Claimant and the employing entity signed any written agreement regarding supplementary remuneration and/or method of calculation of travel allowances.

13.3. That the Claimant during his travels and stays to work on projects abroad (Brazil and Spain) during the fiscal year 2010, in the service of D... A/S, bore all expenses for travels and stays (accommodation and meals).

13.4. That the expenses referred to in the preceding number were fully borne by the employing entity.

13.5. What the tax situation of C... in Portugal was in 2010, in particular whether it was subject to corporate income tax (IRC) on profits made in Portugal.

14. Reasoning on Established and Unestablished Facts

The tribunal's conviction was based on a critical analysis of the totality of evidence produced - the documents referred to in 11, the matter agreed by express or tacit agreement, and the testimony of witnesses, with emphasis on the following information:

The witness F..., presented by the Claimants, maritime work foreman, having worked for 13 years at C... in dredging and port maintenance and port areas and artificial beach feeding, said he knew the Claimant whom he is chief whenever they work on the same project. He does not know what contractual system applies to the Claimant and informed that the Caparica project ended in 2010. He said he thought that the Claimant, in 2010, went to Brazil and Spain, insisting that "he was always away." He considers the Claimant a specialist worker in pipeline assembly, who is always chosen when they go to Spain. He declared to know nothing about the payment of base salary of € 800.00 and of € 1536.00 as travel allowances, but said that it was customary for there to be a combined monthly payment for expenses (hotels, travels, etc) because C... Sucursal's workers in Portugal (10 or 12) are always traveling. He did not answer about the type of agreement existing regarding travel allowance payment, limiting himself to affirming that the company set a value because workers "are always away."

The witness presented by the Respondent, G..., team chief who carried out the tax inspection, explained that the case was triggered by the application of the Tax Treaty, Convention to Prevent Double Taxation between the Kingdom of Denmark and Portugal (information that arrived at the Finance Directorate of Coimbra, through the Directorate of International Relations Services) and that the understanding of the Danish tax authority was that the amounts paid would be, in their entirety, subject to income tax payment. But there was a mistake because, after all, it was the branch and not the headquarters of C... that made the payments to the worker. The services of the Finance Directorate of Coimbra intervened because it was the area of residence of the Claimant, unaware of the tax situation of the employing entity about which inspection action was not taken. He regretted that it was very difficult to obtain the company's cooperation in sending elements, with the company not having sent, contrary to what happens in similar cases, neither the additional agreement relating to payment of travel allowances, nor the supporting documents of the actual carrying out of the projects where the Claimant was declared to have been displaced.

15. Application of Law

15.1. Dependent Work Income and Its Taxation

15.1.1. Dependent Work Income According to Labor Law

The present dispute has as its object the qualification of part of the payments made to the Claimant by C..., but the Parties are in agreement as to the existence of a relationship of dependent work between the Claimant and the said company, with the Claimant invoking the application of an employment contract submitted to the proceedings.

According to the Labor Code in effect, approved by Law no. 7/2009, of 12 February, "employment contract is that by which a natural person undertakes, by means of remuneration, to provide his activity to another or others, within the scope of organization and under the authority of these" (Article 11) and "remuneration is considered the provision to which, in accordance with the contract, the rules governing it or the customs, the worker is entitled in return for his work", encompassing "the base remuneration and other regular and periodic provisions made, directly or indirectly, in money or in kind", presuming that "any provision of the employer to the worker constitutes remuneration" (Article 258, Sections 1 to 3). The worker has the right to a Christmas subsidy of value equal to one month of remuneration (Article 263, Section 1) and the right to a holiday subsidy, encompassing the base remuneration and other remunerative provisions that are consideration for the specific mode of execution of the work, corresponding to the minimum duration of holidays (Article 264, Section 2).

With relevance to the case under consideration, Section 1 of Article 260 further provides that "The following shall not be considered remuneration: a) Amounts received as travel allowances, travel allowances, transportation expenses, installation allowances and other equivalent amounts, owed to the worker for travels, new installations or expenses incurred in the service of the employer, except when, such travels or expenses being frequent, these amounts, in the part exceeding the respective normal amounts, have been provided for in the contract or should be considered by custom as an integral element of the worker's remuneration."

The concepts referred to above do not constitute any rupture with the preceding legislation, so it is possible to reproduce, as they merit the agreement of this tribunal, the considerations and doctrinal citations made in the Decision issued by the TCAS on 5 June 2003, proc. no. 05036/01 (Reporting Judge Dulce Neto), in particular:

• Remuneration appears as a set of values, expressed or not in currency, to which the worker is entitled, by contractual or normative title, corresponding to a duty of the employing entity, integrating all benefits granted by the employing entity that are intended to integrate the worker's normal budget affording him the fair expectation of its receipt given its regularity and periodic continuity;

• From remuneration are excluded only provisions that, although being owed, have a merely occasional character (e.g., remuneration for overtime work - Article 86 of the Labor Code) and those that translate into simple compensations or reimbursements for worker expenses incurred in the service of the employing entity - Article 87 of the Labor Code);

• Travel allowances (and other provisions then enumerated in Article 87 of the Labor Code) aim to compensate the worker for expenses incurred in the service of and in favor of the employing entity and which, for reasons of convenience, were borne by the worker himself, not constituting a correlative of the worker's provision, characteristic of remuneration;

• The doctrine emphasizes that essential characteristic of these provisions is that they represent compensation or reimbursement for expenses to which the worker was obliged as a result of occasional travels and installations he had to make in service, with no reciprocity existing in their receipt in relation to work (cf. Jorge Leite and Coutinho de Almeida, in "Collection of Labor Laws"; p. 89 et seq.; Menezes Cordeiro, in "Labor Law Manual"; pp. 721 et seq. and Monteiro Fernandes, in "Labor Law"; vol. I, 8th edition, pp. 361 et seq.).

• Thus, amounts paid as travel allowances may or may not be considered part of remuneration, depending on the reality underlying them (emphasis added).

This last conclusion, whose relevance is emphasized, will be resumed below.

15.1.2. Taxation of Dependent Work Income in IRS

The Personal Income Tax Code includes in its taxable base dependent work income (category A), all remuneration paid or made available to its holder, derived, in particular, from work on account of another rendered under an individual employment contract or another legally equivalent to it and work rendered under a contract for acquisition of services or another of identical nature, under the authority and direction of the person or entity that occupies the position of active subject in the legal relationship resulting therefrom (subsections a) and b) of Section 1 of Article 2 of the CIRS).

According to Section 2 of Article 2 of the CIRS, the remuneration referred to in Section 1 "include, in particular, salaries, wages, salaries, gratifications, percentages, commissions, participations, subsidies or bonuses, attendance fees, emoluments, participations in penalties and other supplementary remuneration, even if periodic, fixed or variable, of a contractual nature or not."

The rules of the CIRS, by encompassing income obtained within the scope of relationships of dependent work or in equivalent situations, refer to labor law, but the tax law carries out a very broad typification, with the purpose of "an exhaustive inclusion, in the incidence of the tax, of all income of some form deriving from dependent work."

Thus, Section 3 of Article 2 proceeds to an exhaustive enumeration of payments considered dependent work income, although in many of them it considers them only partially, or with exclusion if certain conditions are met.

Subsection d) of Section 3 of Article 2 provides that the following are considered dependent work income: "Travel allowances and amounts earned for the use of own motor vehicle in the service of the employing entity, to the extent that both exceed legal limits or when the conditions of their attribution to State servants are not observed, and sums for travel, trip or representation expenses for which no accounts have been rendered by the end of the fiscal year."

The cases of non-taxation of travel allowances are justified on the ground that these are not actual income but a reimbursement or advance for expenses borne by the worker in the interest of the employing entity. Non-taxation is conditioned in order to prevent abusive practices. First, as to value, since the Code does not exclude taxation on travel allowance amounts exceeding the legal limits established annually for State servants (Section 3, d), and Section 14 of Article 2, in the version in effect in 2010).

Also presumed to be in the interest of the employing entity and to exclude from taxation in IRS, are expenses for travels, trips, representation carried out by the worker and borne by the employing entity whenever he renders accounts therefor by the end of the fiscal year, for example by delivering corresponding supporting documentation (Article 2, 3, d).

15.2. Case Law

There are numerous judicial decisions from the contentious tax sections of the superior tax courts (TCAS, TCAN and STA), with no always uniformity in the doctrine adopted regarding all questions relevant to the solution of the controversial cases.

15.2.1. Remuneration Subject to IRS

It can be said that there is uniformity in judicial decisions as to the conclusions that:

• remuneration subject to IRS incidence is a broad concept that encompasses in a quite exhaustive manner the amounts paid by the employing entity to workers;

• amounts are, provided the legal conditions are observed, excluded from taxation that are intended to compensate expenses incurred by workers in the interest of the employing entity.

Differences of understanding already arise, in particular, as to the requirement of proof of the nature of payments, the relevance of the condition of observance by travel allowances of "legal limits," form of calculation of travel allowances, distribution of burden of proof. Let us examine some situations.

15.2.2. Distribution of Burden of Proof (Articles 74 of the LGT and 100 of the CPPT, previously Article 121 of the CPT)

Regarding the distribution of burden of proof on the matter, this tribunal subscribes to the analysis of the Decision issued by the TCAS on 3 April 2004, in proc. no. 69/03: "As is known, in our current tax system the principle of taxation according to the declarative method prevails, that is, in principle, the AT in diligencing toward obtaining that objective must adhere to what the citizen taxpayers declared as taxable income. This principle, by its own nature, imposes, on the one hand, an increased duty of cooperation of the taxpayers, in the sense of providing, in accordance with reality, to the AT, their income subject to taxation and, by implication, the necessary control elements of the declared, while on the other hand, it obliges the latter to inspect and control those declarations in the sense of guarding, as far as possible, that the income to be taxed corresponds, in fact, to reality. As a result of what has been stated, insofar as the AF does not accept the declaration presented by the taxpayer and substitutes itself in the determination of the taxable matter, it falls upon it the burden understood in the substantive sense and not merely formal, that the investigative procedures, since they arise as relevant in the course of proceedings, in the sequence of what the parties have alleged, fall upon both these and the Tribunal itself, without prejudice to, the doubt of the same proving unfavorable to the party with which such burden was bound, of demonstrating the factual requirements legitimizing such conduct that is configured as aggressive to the interests of the recipient."

One shall then have to take into account the result of the AT's investigative effort in the sense of demonstrating the existence of the tax fact and of the taxpayer in the opposite sense, verifying, finally, what certainties and doubts result.

On this matter, and taking into account the subject of the proceedings, diverse case law is cited.

The Decision of the TCAS of 13/05/2003, proc. 6910/02 (Reporting Judge Francisco Rothes), considered that in the case where the AT bases itself on fact-indices which, appraised in light of the rules of common experience, allow the conclusion that the amounts earned by the worker from his employing entity as travel allowances did not have a compensatory character, satisfies the duty of investigation incumbent upon it in the context of tax administration-tax procedures and is legitimized to effect correction of the reported income (in which such amounts were omitted) and the consequent additional IRS assessment. It is incumbent upon the taxpayer, in that case, to demonstrate that the income in question has a compensatory character for expenses incurred by him in favor of his employing entity and, if he fails to achieve such objective, the assessment merits no objection, with the rule of Article 121 of the CPT (corresponding to Article 100 of the CPPT) not being applicable.

In the Decision of the TCAS of 21/11/2006, proc. 264/04 (Reporting Judge Ivone Martins), it was concluded that "The doubt that implies the annulment of the impugned act cannot be considered 'well-founded,' in the absence or inertia of proof by the parties, especially by the impugning party. The latter should not limit itself to allege facts that place in doubt 'the existence and quantification of the tax fact.' It falls upon it the burden of proof of such facts, without prejudice to the judge, within the scope of his investigative power-duty, also endeavoring to prove them. Only through conclusive proof of such facts is it possible to conclude on the well-foundedness of that doubt". (II of the summary).

In the Decision of the TCAS of 6 May 2003, proc. 5036/01 (Reporting Judge Dulce Neto), where in question was the characterization of sums included in payslips as bonuses, it was considered that, given the normal and permanent nature (although with a periodicity distinct from base remuneration), despite the fact that it was alleged by the impugning party that the bonuses aimed only to reimburse him for the expenses he himself had to bear as a result of travel on business and in favor of the employing entity, the impugning party did not make such proof, not having even alleged that these amounts had been paid under any labor contract or collective labor agreement or agreed and paid in substitution for payment of expenses by invoice.

And thus the first instance decision was confirmed, which had considered that it fell upon the impugning party to prove that such payments constituted travel allowances, by demonstrating that they corresponded to specific expenses borne by him in travels abroad to be reimbursed by the employing entity.

And in such an understanding there would be no "contradiction with the well-founded doubt of Article 121 of the CPT" for this has no application to the case, given that "the burden enshrined in it refers exclusively to situations in which it is the AF that affirms and quantifies a tax fact and not to situations in which it is only a question of the nature or qualification of certain income whose receipt and quantification are not questioned."

Pronouncing itself on an identical case (nature of the same type of subsidy), the Decision of the STA of 5 July 2012 (Proc. 0764/10) also considered that determining whether the sums paid as subsidy should be attributed compensatory nature or remunerative nature implies a work of "qualification of the tax fact" that no longer has expression in Article 100 of the CPPT.

But in that case, the STA, despite taking into account that "there is a presumption that any provision whatsoever of the employer to the worker constitutes remuneration, whereby, in accordance with Articles 344 and 350 of the Civil Code, the Tax Administration (…) has a presumption in its favor, which determines that it does not have to prove the fact it invokes, being nevertheless elidible this presumption (…) by the impugning party (...)," also understood that "the character of permanence or regularity of the reimbursement of expenses does not permit, by itself, the conclusion that they ceased to constitute compensation, that is, does not permit, by itself, to disqualify its quality as travel allowance. And for this not to be so, it becomes necessary to demonstrate that there was a patrimonial advantage withdrawn by the beneficiary."

Thus, as to the legal nature of the amounts paid by the then-respondent as bonuses or travel allowances, the STA came to decide that the evidential record allowed the presumption to be refuted that it was remuneration by it being public and notorious fact that greater expenses occurred in travels abroad and that should be recognized to the workers in question without attention to the number of travels carried out by each one, due to foreseeable and understandable accounting facilities, and that the tax administration did not demonstrate that the dimension of the payments exceeded the legal annual limits admissible.

The decisions referred to above, although with oscillations in reasoning, rest on the fact that: the law presumes that all payments made to workers constitute remuneration, basis of IRS incidence; excluded from incidence, to a certain amount, are travel allowances that correspond to sums attributed for compensation of expenses incurred in the service of the employing entity; in the case of payments of travel allowances being declared, the Administration may challenge that nature, with the taxpayer bearing the burden of proving the meeting of the respective conditions; the court shall evaluate the arguments at hand (importance of the fact-indices elements gathered by the Tax Administration, value of the proof and arguments invoked by the taxpayer).

Also relevant is that doubt regarding the legal qualification of the facts is the responsibility of the court, in the exercise of the duty to judge (Article 8 of the Civil Code). And that, in that aspect, Article 100 of the CPPT contains no rule of decision in favor of the taxpayer but only in case of doubt regarding the existence of tax fact or the quantification of the tax fact.

15.2.3 – Qualification as Travel Allowances – Probative Elements

It has been emphasized by a considerable set of judicial decisions that "there being no special formal requirement for proof of the nature of travel allowances of payments made to workers, any means of proof is admissible," in compliance with the provision in Article 134 of the CPT (later Article 72 of the LGT and Article 115 of the CPPT).

But various decisions, while adopting the same perspective, valued the necessity that such proof be made by the worker/impugning party, exemplifying grounds susceptible of, combined with each other, justifying the correction by the tax administration of the qualification of income.

Examples of relevant grounds, when combined, are: existence of payments of value exceeding remuneration; processing of travel allowances (or travel subsidies) in the months of holidays and Christmas subsidies; absence of supporting documents of travel allowances, in particular any individual document where the hour of departure, location of work performance, hour of arrival and reason for travel are discriminated.

Very significant is, for example, the Decision of the TCAS of 13 May 2003 (proc. 06910/02), which on the basis of the above-indicated indices considered: "In truth, these fact-indices, appraised in light of the rules of common experience and combined with each other, allow the conclusion, with a degree of certainty exceeding that of mere verisimilitude or probability, that the amounts provided as travel allowances are not intended to compensate the workers for any expenses incurred by them in favor of their employing entity, being rather a supplement of remuneration."

But the valuation of these indices and their coexistence varies considerably according to the concrete situation, giving rise to variable decisions resulting from the balance carried out by the tribunal in each particular case.

For example, regarding work performed abroad, it may be said that the manner in which execution of such provision is agreed appears relevant.

In the case of there being a contract whereby the principal place of work is in Portugal but a temporary displacement was agreed, a high number of decisions accepted the qualification of fixed payments, made together with salaries, as travel allowances (cf. decisions issued by the STA in cases 1042/07, 1043/07, 1044/07, 1055/07, 1063/07, 1065/07, 764/10, 146/13, 901/14 and by the TCAN in cases 237/06, 272/06, and 209/08).

Already dealing with situations in which the place of work performance was fixed in the employment contract as located abroad, the amounts provided as payment of travel allowances, moreover in the case of fixed sums and paid regularly, were decided, in various cases, as configuring supplement of remuneration (cf. Decisions of the TCAN, of 8 November 2007 (proc. 1006/04) and of the TCAS of 3 April 2003 (proc. 69/03), of 30 September 2003 (proc. 700/03) and of 11 November 2003 (proc. 598/03)).

15.3. Qualification of the Factual Situation in Light of the Evidence Produced and Applicable Law

From the data existing in the administrative file and gathered in the proceedings, it is concluded that the Claimant is a worker who performs a function requiring specialization and strenuous work and is in a contractual situation in which, while maintaining his residence (and family) in Portugal, he is displaced by the employing entity, C..., to different project locations abroad, sometimes very remote. Beyond the quality of his work, it is evident that he may present, for the Danish multinational company, an advantage, for linguistic reasons, of ease of contact with local workers in countries such as Brazil and Spain.

According to the established facts, it was concluded that the contract submitted to the proceedings is expired, with the currently effective contract not being submitted under which the Claimant "is almost permanently assigned to work outside the country" (cf. witness F... and submissions), it being not even possible to confirm documentally whether the effective agreed place of work performance is in Portugal, abroad, or if it is undetermined (where there are projects in which the Claimant's services are necessary).

Also not submitted was any written agreement between the employing entity and the Claimant on conditions of work performance when there is displacement or, as is invoked, on how the calculation of a fixed amount was arrived at on account of multiple displacements.

It results from elements submitted to the proceedings that at least some of the travel expenses will have been borne by the employing entity and the expenses incurred by the claimant with his stay (accommodation and meals) were not adequately proven, it being even admissible that the Claimant may have enjoyed accommodation in a work site and meals in company dining halls.

The AT raised no doubts regarding the currently effective contract but will have pressed the company to provide details on the projects and work carried out, which will not have been sent.

Although, as already referred, everything indicates that the employment contract – written or not – effective in 2010 had a content different from the one submitted to the proceedings, one cannot conclude that the agreed place of work is a territory located outside Portuguese territory. Rather it may be considered (cf. established facts - 11.18., and witness testimony) that the place of work is, contractually, in Portugal, although allowing the worker to be displaced to where the employing entity deems necessary.

That is, the case at hand is in a fluid zone, in which the underlying reality may as well configure the amounts in question as travel allowances or remuneration (Decision TCAS, proc. 5036/01).

Apparently, C... Branch in Portugal recruits in Portugal qualified workers to be displaced when necessary to locations where it has projects (possibly sub-contracted), in some cases quite distant, even in other continents, to whom it pays base salaries, of reduced amount for the relevance of the work, increased by higher amounts, paid as travel allowances. Their regularity and form of payment (including holiday and Christmas subsidies) make justifiable the suspicion that it is a salary supplement that, paid in this manner, would present savings in tax and social security contributions for worker and employing entity (although with other disadvantages for the worker).

However, it is also verified that in the proceedings it was not proven that the costs of stay – housing and meals – abroad were borne by the employing entity, with there being no proof that the AT carried out diligences in the sense of clarifying this situation with the company, either regarding this worker or others.

And such diligences would be justifiable – it is a branch operating in Portugal subject to corporate income tax (IRC) in accordance with Articles 2, Section 1, c) and Section 3, c) – so as to understand the type of relationship existing with the Claimant, it being certain that the employing entity has involvement in any incorrect application of the law by erroneous qualification of payments made to the worker since it is responsible for the withholding and payment of IRS in accordance with Article 99 of the CIRS, the rules of Decree-Law no. 42/91, of 12/01, and Article 28, Section 2 of the LGT.

Thus, although the payment of amounts qualified as travel allowances in an amount exceeding that of the base salary, of a regular form, including together with the holiday and 14th month subsidies, constitutes a strong indication that it is a salary supplement and not travel allowances, there remains, equally, strong doubt regarding the extent to which the worker bore, at his own expense, costs with meals and accommodation during the displacements to projects outside of Portugal which, everything indicates, are a fundamental objective of his hiring.

That is, it is possible that, in a situation such as this, the worker agreed to receive a fixed sum distributed in installments, on account of what he was to bear with expenses in travels, a kind of flat-rate calculation, for reasons of simplification, as is invoked.

It is certain that such situation – agreement, for reasons of alleged difficulty in the concrete determination of eligible costs or their proof, of attributions of fixed or variable patrimonial amounts to compensate more or less presumed costs – by leaving to the worker his own management of costs, saving on expenses and thus obtaining supplementary income, can generate true patrimonial gains, in the part exceeding the costs actually borne, and qualifiable as supplementary remuneration (final part of Section 2 and subsection b) of Section 3 of Article 2 of the CIRS), as admitted by the Decision of the TCAN of 13/02/2014, proc. 00237/06.

But, just as in that decision, the present tribunal recognizes that "taxation of the totality of 'travel allowances' in the situations described also raises delicate problems. Problems, first of all, related to the inequality of treatment of workers who, by the nature of their work or the circumstances in which it was performed, could not determine in each moment the component of cost and the component of gain of the allowances. Problems related to social and economic objectives which are often associated with the attribution of these sums, which go beyond the labor relationship and which it is understood should stimulate and protect. Problems related to the capacity for concrete inspection of these situations, the cost associated with them and their proportion to the value of potential revenue." (ibidem)

It is also a question of whether in this proceeding the proof produced (or not produced) and the remaining doubts are of such a nature as to allow application of the provision in Article 100, Section 1 of the CPPT, according to which whenever the proof produced results in well-founded doubt regarding the existence and quantification of the tax fact, the impugned act should be annulled, or in some other manner, to consider that the presumption wielded by the Tax Administration, based on indices, that the payments made as travel allowances did not constitute compensation for expenses borne by the worker in travels on business of the company but salary supplement, was refuted by the Claimant.

Recall, in this regard, that the Decision of the TCAS of 21/11/2006, in proc. 264/04, considered unfounded the appeal filed from a decision that had held that "the doubt regarding the travels is not well-founded since if one admits the testimony of the witnesses as true the same does not work with the fact that the allowances are identical in all months, relate to 14 months and the mileage credited does not correspond to that traveled," and in which "it was incumbent upon the appellant to make the demonstration and clarification of these contradictions, which was not done."

However, in that case, the situation of payment of 14 months of travel allowances related to a situation of travels in the national territory of company directors, making it difficult to prove those that had been made in own car and in company car.

Already in the case of the present proceedings, it was proven that the Claimant displaced himself and was absent during long periods abroad working on projects of the entity that makes the payments to him as salary and travel allowances and it was not proven who paid and how the stay (meals and accommodation) was paid during the periods in question in locations, which, abroad or in the country, always are located far from the Claimants' residence.

Considering that if those expenses were actually a cost borne by the worker, the disregard as travel allowances of the amounts paid in 14 installments (which, in itself, would suggest it is a salary supplement...) would constitute an injustice vis-à-vis similar cases in which this practice of paying expenses borne when traveling for work has become generalized in the construction sector, it is concluded that strong doubts remain regarding the quantification of the tax fact, leading to the conclusion that the present request is well-founded.

This is, however, an interpretation reached after balancing the concrete circumstances of the case, a difficult balance influenced by the absence of elements that the Tax Administration could or should have obtained from the paying entity regarding the circumstances of the attribution of amounts as travel allowances. The Respondent failed to prove, namely, or at least find strong indicia that it was the employing entity that housed and fed the Claimant in his relocation to work in various projects.

Thus, in light of the proof produced as to the manner in which the Claimant exercised, in 2010, his work in the service of the employing entity – branch in Portugal of a foreign multinational - attending to projects in various locations and remaining for long periods outside the national territory, and in light of the lack of proof that it is the employing entity that bears the costs of the Claimant's stays (accommodation and meals) or that the legal limits provided for the attribution of travel allowances were exceeded, the tribunal concludes that the requirements conducive to the qualification of the amounts attributed as travel allowances as remuneration subject to IRS incidence are not met.

16. Decision

With the grounds set forth, the arbitral tribunal decides:

a) To judge well-founded the request for arbitral pronouncement, declaring illegal the IRS assessment relating to the year 2010 (no. 2014...) and the respective compensatory interest, in the total amount of € 4,737.59, with all other legal consequences.

b) To condemn the AT in costs.

17. Value of the Case

In accordance with the provision in Section 2 of Article 315 of the Code of Civil Procedure, in subsection a) of Section 1 of Article 97-A of the CPPT and also in Section 2 of Article 3 of the Regulation of Costs in Arbitration Proceedings in Tax Matters, the value of the case is set at € 4.737,59 (four thousand seven hundred and thirty-seven euros and fifty-nine cents).

18. Costs

For the purposes of the provision in Section 2 of Article 12 and Section 4 of Article 22 of the RJAT and Section 4 of Article 4 of the Regulation of Costs in Arbitration Proceedings in Tax Matters, the amount of costs is set at € 612,00 (six hundred and twelve euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Notify.

Lisbon, 12 June 2015.

The Arbitrator

(Maria Manuela Roseiro)