Process: 73/2014-T

Date: July 11, 2014

Tax Type: IRC IVA

Source: Original CAAD Decision

Summary

Process 73/2014-T addresses the critical issue of cumulation of claims in Portuguese tax arbitration proceedings involving both VAT (IVA) and Corporate Income Tax (IRC). The taxpayer challenged tax assessments for fiscal years 2009 and 2010, disputing corrections based on presumed transmission of goods due to inventory discrepancies and disallowed representation expenses. The Tax and Customs Authority raised a procedural objection alleging illegal cumulation of claims under Article 3(1) of the RJAT (Decree-Law 10/2011), arguing that the inventory-related corrections and representation expense issues were unrelated matters that should not be joined in a single proceeding. The RJAT permits cumulation only when claims depend essentially on the same factual circumstances and legal principles. The taxpayer contended that inventory discrepancies resulted from software changes rather than actual unreported sales, challenging the rebuttable presumption of transmission. The taxpayer emphasized that Article 75 of the General Tax Law establishes a presumption of truth for accounting records, which the Tax Authority did not overcome through indirect methods. The Tax Authority questioned the adequacy of supporting documentation, noting missing signatures, stamps, and dates on documents presented. The arbitral tribunal, composed of three arbitrators appointed by the CAAD Ethics Council, was constituted on March 31, 2014. If cumulation were deemed illegal, Article 29(1)(c) of the RJAT and Article 47(5) of the ATPC would govern the procedural consequences, potentially requiring the taxpayer to elect which claims to pursue. The case highlights the tension between procedural efficiency through claim joinder and the requirement that combined claims share sufficient factual and legal commonality.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 73/2014 – T

Subject Matter: VAT; CIT – Cumulation of claims; production of evidence; rebuttable presumption.

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Filipa Barros and Dr. Rogério M. Fernandes Ferreira, appointed by the Ethics Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 31-03-2014, agree as follows:

  1. Report

"A" S.A., NIPC …, filed a request for constitution of a collective arbitral tribunal, in accordance with the combined provisions of articles 2 and 10.9 of Decree-Law No. 10/2011, of January 20 (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as "LRTA"), in which the TAX AND CUSTOMS AUTHORITY is the respondent.

The Claimant seeks to have declared the illegality of tax assessment acts for Corporate Income Tax (CIT) and Value Added Tax (VAT) and corresponding assessments of compensatory interest, relating to the fiscal years 2009 and 2010, indicating the following acts:

The Claimant opted for non-designation of an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 30-01-2014.

In accordance with the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the LRTA, the Ethics Council appointed as arbitrators of the collective arbitral tribunal Councillor Jorge Lopes de Sousa, Dr. Filipa Barros and Dr. Rogério M. Fernandes Ferreira, who communicated their acceptance of the appointment within the applicable time period.

On 14-03-2014 the parties were notified of this appointment and did not manifest a desire to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11 paragraph 1 subparagraphs a) and b) of the LRTA and articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provision of subparagraph c) of paragraph 1 of article 11 of the LRTA, the collective arbitral tribunal was constituted on 31-03-2014.

The Tax and Customs Authority filed a response in which it argued that there is a defect in the arbitral ruling request, due to illegal cumulation of claims, and argued for the dismissal of the arbitral ruling request with acquittal of the Tax and Customs Authority from the claims.

At the meeting provided for in article 18, the Parties dispensed with the examination of the witnesses they had designated, the Claimant filed three original credit notes with the proceedings and it was decided to continue the proceedings with successive written submissions.

The Claimant presented submissions in which, among other things, it responded to the exception raised by the Tax and Customs Authority and requested that, in case it is understood that there is illegal cumulation of claims "considering the provisions of article 29, paragraph 1, subparagraph c) of the LRTA and article 47 paragraph 5 of the ATPC, the matter relating to the assessments of VAT and CIT, relating to corrections associated with the omission of revenues for CIT purposes and consequent VAT not assessed, fiscal years 2009 and 2010" should be considered.

As regards the disputed issues, the Claimant refers to the following, in summary:

– the corrections made by the TA are based exclusively on schedules for internal use and without official nature regarding its inventory, sales and final inventory in a given fiscal year, in this case 2009 and 2010.

– that these schedules, as a result of the alteration of the software program, presented discrepancies, considering the actual inventory of the Claimant, a fact that, moreover and voluntarily, the TA recognized, revoking part of the corrections in the context of the administrative proceedings;

– from these discrepancies in merely internal schedules, one cannot conclude the presumption of transmission of these goods and assessment of the corresponding tax.

– at no time did the TA question the invoices associated with the fiscal years 2009 and 2010, contained in the Standardized Audit File for Tax Purposes SAF-T(PT), provided for in Order 321-A/2007, of March 26;

– article 75 of the General Tax Law establishes the principle of the presumption of truth of accounting, which the Tax and Customs Authority does not question, because it did not resort to indirect methods;

– the clarifications provided, as well as all the documentation attached to the proceedings by the Claimant are legitimate and sufficient to demonstrate the destination given to the goods in question in the disputed matter, and the presumption of their sale is illegal;

– with regard to the correction relating to representation expenses, the Claimant maintains the position taken in the arbitral ruling request.

The Tax and Customs Authority filed submissions in which it argues, in summary:

– that the documents presented by the Claimant to demonstrate the transactions it refers to, because they are not "signed by any representative of the receiving entity and, being signed, such signature is illegible, or are not duly stamped by the receiving entity, or do not have any date attesting to their receipt";

– that "in addition to the incongruities mentioned above, the tax inspection services found that the claimant's accounting records were not accompanied by the legally required supporting documentation, documentation which the claimant only managed to present in the context of these proceedings" and that "from the analysis of the said documentation it is concluded that it does not conclusively prove the allegations of the Claimant, instead raising several questions as to the moment when they would actually have been issued and sent to the Claimant";

– as regards the representation expenses in question in the present proceedings, the Tax and Customs Authority argues that their necessity for the realization of revenues or gains or for the maintenance of the productive source is not proven.

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and are legitimate parties (articles 4 and 10, paragraph 2, of the same statute and article 1 of Order No. 112-A/2011, of March 22).

The Tax and Customs Authority raises the issue of the defect of the arbitral ruling request, which, if verified, would entail nullity of the entire proceedings, in accordance with articles 98, paragraph 1, subparagraph a), of the ATPC and article 186, paragraph 1, of the CPC, applicable by virtue of the provision in article 29, paragraph 1, subparagraphs c) and e), of the LRTA.

No other nullity is discerned.

  1. Issue of the Defect of the Arbitral Ruling Request Due to Illegal Cumulation of Claims

The Tax and Customs Authority raises the issue of the defect of the arbitral ruling request due to illegal cumulation of claims, because, in summary, the Claimant seeks the declaration of illegality of corrections made in the context of VAT and CIT based on presumption of transmission of goods and also seeks the declaration of illegality of corrections relating to representation expenses.

The Tax and Customs Authority understands that, although they result from the same inspection action, the issue of the correction relating to representation expenses is not related to the correction relating to goods that are considered to have been transmitted, whereby the requirement specified in article 3, paragraph 1, of the LRTA, which establishes that "the cumulation of claims, even if relating to different acts, and the joinder of parties are admissible when the grounding of the claims depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law" will not be met.

Article 98, paragraph 1, subparagraph a), of the ATPC, subsidiarily applicable by virtue of the provision in article 29, paragraph 1, subparagraph c), of the LRTA, indicates as one of the incurable nullities in tax proceedings, the defect of the initial petition.

As the ATPC does not indicate the situations in which defect of the initial petition should be understood to occur, reference must be made to the CPC, which is applicable on a subsidiary basis, under article 2, subparagraph e), of that Code, and it is also applicable in the context of tax arbitral proceedings, by virtue of the provision in article 29, paragraph 1, subparagraph e), of the LRTA.

In article 186, paragraph 1, of the CPC, the following situations of defect of the initial petition are indicated:

a) When the indication of the claim or cause of action is missing or unintelligible;

b) When the claim is in contradiction with the cause of action;

c) When the causes of action or claims are substantially incompatible.

In the case at hand, in which the Tax and Customs Authority raises the issue of the defect with regard to cumulation of claims, only the possibility of framing the situation within the aforementioned subparagraph c) may be considered.

However, it is clear that the request for declaration of illegality of assessments of VAT and CIT for not having verified sales that the Tax and Customs Authority presumed to have occurred is not incompatible with the request for declaration of illegality of assessment for expenses incurred to be connected with the obtaining of revenues or gains or maintenance of the productive source, as the two illegalities can exist concomitantly.

Therefore, there is no defect in the arbitral ruling request.

However, even if this nullity does not occur, there remains an obstacle to the cumulation derived from the special regime provided for in article 3 of the LRTA.

In fact, the existence of this special rule for arbitral tribunals precludes the applicability of the rules of the ATPC and the APTA, which are applicable only on a subsidiary basis, under article 29, paragraph 1, subparagraph c), of the LRTA.

Thus, when more than one assessment act is challenged, only in the cases indicated in article 3, paragraph 1, of the LRTA will there be the possibility to cumulate claims when their grounding depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

In the case at hand, different acts are challenged, of assessment of VAT and CIT, and with regard to the latter tax, in addition to illegalities being invoked that arise from the facts raised for purposes of VAT regarding sales of merchandise, there are others relating to representation expenses, which have nothing to do with those.

Thus, it is not possible to cumulate the request for declaration of illegality of the assessment acts of VAT with the request for declaration of illegality of the assessment act of CIT, in the part in which it relates to correction of the taxable matter derived from representation expenses.

Thus, the exception raised by the Tax and Customs Authority is well-founded.

Since the Claimant has already stated that, in case it is understood that there is illegal cumulation of claims "considering the provisions of article 29, paragraph 1, subparagraph c) of the LRTA and article 47 paragraph 5 of the APTA, the matter relating to the assessments of VAT and CIT, relating to corrections associated with the omission of revenues for CIT purposes and consequent VAT not assessed, fiscal years 2009 and 2010" should be considered, the proceedings will continue only in this respect, with acquittal of the Tax and Customs Authority from the instance regarding the request for declaration of illegality of the assessment of CIT 2010, based on the correction of the taxable matter relating to representation expenses.

  1. Statement of Facts

3.1. Facts Proved

The following facts are considered proved:

a) The Claimant "A", S.A is classified in the activity of Retail Trade in Clocks and Jewelry Articles, CAEN …, having commenced business on 09/09/1989;

b) The Claimant is registered for VAT purposes under the Normal Monthly Regime and for CIT purposes under the General Regime;

c) An inspection was carried out on the Claimant, in execution of service orders No. … and …, having as its object the fiscal years 2009 and 2010 (Report of the Tax Inspection contained in the Administrative Proceedings, the contents of which are deemed to be reproduced);

d) Through the inspection carried out, the Tax Inspection services found that the articles indicated in table No. 2, which appears on page 6 of the Tax Inspection Report, formed part of the inventory as of 31-12-2008 or were acquired in 2009, were not indicated as sold in 2009 nor returned to the supplier in that fiscal year and do not appear in the inventory as of 31-12-2009;

e) Through the inspection carried out, the Tax Inspection services found that the articles indicated in table No. 3 which appears on page 6 of the Tax Inspection Report, formed part of the inventory as of 31-12-2009 or were acquired in 2010, were not indicated as sold in 2010 nor returned to the supplier in that fiscal year and do not appear in the inventory as of 31-12-2010;

f) On 15-11-2012 and 16-11-2012, emails were sent to the company with the tables referred to as Annex, in which it was requested to indicate the destination given to those articles (pages 10 to 14 of the Annex to the Tax Inspection Report contained in pages 43 to 49 of the digitalized Administrative Proceedings);

g) Until 28-11-2012, the Claimant did not provide any response to that request, whereby on that date, it was again requested, through personal notification, to indicate by 07/12/2012 the destination given to those articles (pages 15 to 17 of the Annex to the Tax Inspection Report, the contents of which are deemed to be reproduced, contained in pages 50 to 52 of the digitalized Administrative Proceedings);

h) On 06-12-2012 a request was received by the Tax Inspection Services from the Claimant requesting an additional 30 days to submit the elements requested in the notification, which was denied (page 6 of the Tax Inspection Report, on page 8 of the digitalized Administrative Proceedings);

i) In the context of the exercise of the right of hearing by the Claimant, the Tax Inspection Services reduced the lists referred to in subparagraphs d) and e) as follows:

j) Applying to the value of the presumed sales, the rates in force on 31-12-2009 of 20% and on 31-12-2010 of 21%, the Tax Inspection Services considered that the VAT not assessed and consequently not paid to the State coffers in 2009 and 2010, is of € 4,369.31 and € 32,819.91, thus determined: (pages 24 and 25 of the Tax Inspection Report)

k) As a result of the Tax Inspection, the Tax and Customs Authority also made other corrections relating to VAT improperly regularized, which were accepted by the Claimant, which contests only corrections in the amount of € 1,707.80 regarding the year 2009, and € 20,417.88, as concerns the year 2010 (article 4 of the arbitral ruling request) ( [1] )

l) In the context of CIT, as a result of the inspection, the Tax and Customs Authority made corrections to the taxable matter, regarding the fiscal year 2010, in the amount of € 163,600.74, of which € 156,285.30 relates to omission of revenues, of which the Claimant only contests the amount of € 95,228.00; ( [2] )

m) In 2008, the Claimant changed the version of the software it used to record its transactions;

n) As of 31-12-2008, an article with reference number Q1752440, with the value of € 8,539.00, was in the inventory, which was not indicated as sold in 2009 and did not appear in the inventory as of 31-12-2009;

o) In a list of articles stolen on 25-10-2010, the Claimant included an article with reference Q1752440 with the value of € 8,944.00;

p) As of 31-12-2009, the Claimant's inventory included an article with reference 115031260403921, with the value of € 5,761.00, which was not in the inventory as of 31-12-2010;

q) In the Claimant's inventory as of 31-12-2011, it included an article with reference 115031260403921 with the value of € 6,175.00;

r) On 20-05-2012 an article with reference 115031260403921 was sold;

s) Between 08-07-2008 and 25-06-2013, the Claimant purchased only two articles with reference 115031260403921, having returned one of them on 14-12-2010 (statement contained on page 14 of the "Annexes" filed by the Claimant with the arbitral ruling request);

t) On 23-04-2013, the Claimant returned an article with reference 115031969469/21;

u) An article with reference 115031969469/21 was returned by the Claimant in 2013 (credit note filed at the meeting);

v) An article with reference 0643-7636-71-9142431 was returned by the Claimant in 2011 (credit note filed at the meeting);

w) An article with reference 1111822108804/01 was returned by the Claimant in 2011 (credit note filed at the meeting);

x) The Tax and Customs Authority made the assessments of VAT, CIT and compensatory interest that are indicated in point 1 of this decision;

y) On 29-01-2014, the Claimant filed the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

3.2. Facts Not Proved and Reasoning of the Decision on the Statement of Facts

3.2.1. It was not proved that confusion occurred between purchases and consignments and/or transfer between stores (as the Claimant alleges in article 23 of the arbitral ruling request), nor that any errors had influence on the determination of the actual transactions of the Claimant, as the statement presented to prove this assertion does not corroborate it, since what is referred to in annex I is that "there were some failures namely in the transfer of pending consignment notes that were not contemplated, some were detected and corrected, but it is possible that others were not detected and thus remain incorrect. However, it is possible to identify the error by analyzing the database prior to 2008 where this information remains intact".

3.2.2. It was not proved that there was a clerical error in the inventory schedule as of 31-12-2009 regarding the article with reference Q1752440.

The Claimant states that this article would have been stolen on 25-10-2010, whereby there would be a clerical error in its non-inclusion in the inventory as of 31-12-2009.

But, as the Tax and Customs Authority points out, the article that appeared in the inventory as of 31-12-2008 had the value of € 8,539.00 (page 8 of the document of the instructing proceedings with the designation "P4pp175"), while the one indicated in the list of stolen articles had the value of € 8,944.00, whereby it cannot be concluded that it is the one that appeared in the inventory as of 31-12-2008. The reference is the same, but identical articles will have identical references, whereby the identity of the references does not allow the conclusion that it is the same article. On the other hand, the difference in prices manifestly indicates that we are dealing with two articles with identical reference.

The Claimant recognizes that the Tax and Customs Authority is correct in pointing out the difference in values, alleging that it is an error in the indication of the value of the stolen articles.

This would be a second error, concerning the same article, which, in light of the rules of common experience, is not acceptable, as it is unlikely.

On the other hand, it cannot be considered proved through the purchase schedules that the Claimant did not acquire more than one product with the said designation, as the purchase could have occurred at an earlier date.

In article 86 of the VAT Code, it is incumbent upon the Claimant to prove the fact it alleges and, in light of the evidence produced, it cannot be considered proved that the article with reference Q1752440 had been stolen.

3.2.3. It is proved that the article with reference 115031260403921 which appeared in the inventory as of 31-12-2009 (with the value of € 5,761.00), but did not appear in the inventory as of 31-12-2010, was sold in 2012.

In fact, as the Tax and Customs Authority points out, an article with that reference appeared in the inventory as of 31-12-2011, with a different price from what appeared in the inventory as of 2009, which, without more, would justify the conclusion that the article that was sold in 2012 would not be the one that appeared in the inventory as of 31-12-2009, rather it would have been another one, with the same reference, acquired in 2010 or 2011.

However, the statement contained on page 14 of the "Annexes" filed with the arbitral ruling request allows it to be considered proved that the Claimant acquired only two articles with reference 115031260403921, one of which was returned on 14-12-2010.

Therefore, the Claimant will only have been left with one article with this reference, which will have been the one referred to in the inventory as of 31-12-2012.

On the other hand, even though it is true that the values indicated are different (€ 5,761.00 in the inventory as of 31-12-2009, and € 6,175.00 in the inventory as of 31-12-2012), the fact that they are numbers with the same digits does not allow it to be considered implausible that this was a clerical error in the indication of the value in the inventory as of 31-12-2012.

3.2.4. With regard to the article with reference 115031969469/21, there were two as of 31-12-2009 and one was sold on 17-07-2010.

As for the other, an external document was presented in relation to the Claimant in which its return on 23-04-2013 is mentioned.

The Tax and Customs Authority suspects the truthfulness of this return, but a document was presented in these arbitral proceedings issued by the entity to whom the return was made in which its completion is confirmed and the issue of document falsity was not raised.

On the other hand, in the credit note relating to merchandise with this reference 115031969469/21, several other goods are indicated, with regard to which no doubt was detected by the Tax and Customs Authority about the returns.

Moreover, the Tax and Customs Authority has the possibility, in the exercise of its inspection powers, to determine whether the return has correspondence in the accounting of the company that issued the credit note and the falsity of the document is susceptible to entail criminal liability of whoever issued it and of whoever used it, whereby, without more, there are no reasons not to accept that the referred document corresponds to reality.

To this is added that any falsity of document is a ground for revision recourse, under article 293, paragraph 2, of the ATPC, subsidiarily applicable by virtue of the provision in article 29, paragraph 1, subparagraph c), of the LRTA, whereby, should it come to be proven that falsity occurred, there will be no obstacle to the Tax and Customs Authority deriving its consequences.

But, in light of the elements contained in the proceedings, it is to be considered proved that such return occurred.

3.2.5. Regarding the goods with references 0643-7636-71-9142431 and 1111822108804/01, the considerations that will be made in the previous point, relating to the presentation of external documents with regard to which falsity was not argued, apply in essence.

Therefore, also with regard to these goods it is considered proved that the respective returns occurred.

3.2.6. As regards the assessments, only those were proved whose copies the Claimant filed with the arbitral ruling request and which it lists therein.

Although the Claimant refers to the fact that an assessment for contentious review was made relating to omission of revenues in the year 2009, no proof was submitted that it was made, whereby it was not proved that it was.

  1. Statement of Law

The essential issues that arise in the present proceedings rest on the decision of the statement of facts.

Article 86 of the VAT Code, which establishes that "save proof to the contrary, goods found in any of the places where the taxable person carries out his activity are presumed to have been acquired and goods acquired, imported or produced that are not found in any of those places are presumed to have been transmitted".

As results from the terms of this norm, the presumption referred to here admits proof to the contrary.

In the case at hand, as is referred to in the reasoning of the decision on the statement of facts, it is to be considered that the presumption was not rebutted with regard to the article with reference Q1752440 (in the value of € 8,539.00), but was rebutted with regard to articles with references 115031260403921 (in the value of € 5,761.00), 115031969469/21 (in the value of € 3,634.00), 0643-7636-71-9142431 (in the value of € 833.00) and 1111822108804/01 (in the value of € 87,000.00).

Thus, the arbitral ruling request should be judged dismissal with regard to the declaration of illegality of the VAT assessment that rests on the correction of the taxable matter of € 8,539.00, relating to the article with reference Q1752440 (VAT in the amount of € 1,707.80).

Although the Claimant refers in the arbitral ruling request that this correction had effects in the context of CIT in the year 2009, it was not proved that any additional CIT assessment was made relating to that year.

By the foregoing, regarding the VAT assessments and respective compensatory interest relating to the year 2009, no illegality is demonstrated, as those relating to the months of January to November refer to VAT deducted illegally, which the Claimant does not challenge, and as regards that relating to the month of December 2009, which includes the omission of revenue relating to merchandise with reference Q1752440, it was not demonstrated that it suffers from any illegality.

Regarding the VAT assessments and compensatory interest relating to the year 2010, only in those relating to the month of December was included the amount corresponding to the omission of revenues relating to merchandise with references 115031260403921, 115031969469/21, 0643-7636-71-9142431 and 1111822108804/01, in the total amount of € 97,228.00.

Therefore, only the additional VAT assessment No. …, relating to December 2010 and the corresponding compensatory interest assessment No. … suffer from illegality, with VAT having been unlawfully assessed in the amount of € 20,417.88 (rate of 20% on € 97,228.00) and compensatory interest unlawfully assessed in the value of € 1,352.30: compensatory interest was calculated in the value of € 3,359.41 based on the VAT value of € 34,174.61 and, considering that the VAT due is only € 13,756.73, compensatory interest should be proportionally reduced to the value of € 1,352.30).

As regards CIT for 2010, the assessment suffers from illegality in the part in which it was based on the correction of the taxable matter in the amount of € 97,228.00, identical to that considered for VAT purposes, to which corresponds the tax of € 24,307.00 (rate of 25%).

As regards compensatory interest assessed in relation to corrections in CIT, the reduction of CIT due implies that they be proportionally reduced to the amount of € 1,573.69: the value of € 3,662.04 of compensatory interest was calculated based on the CIT value of € 42,622.66; considering the illegality of the CIT assessment in the amount of € 24,307.00, the CIT due now becomes € 18,315.66, to which corresponds compensatory interest in the amount of € 1,573.69. Therefore, it is illegal the assessment of CIT regarding compensatory interest in the amount of € 2,088.35.

  1. Decision

In these terms, the Arbitral Tribunal agrees as follows:

a) To judge the arbitral ruling request partially well-founded;

b) To declare the illegality of the additional VAT assessment No. … (with the value of € 34,174.61, relating to the period of December 2010), in the part relating to the amount of VAT unlawfully assessed of € 20,417.88;

c) To declare the illegality of the compensatory interest assessment No. … (with the value of € 3,359.41, relating to the period of December 2010), in the part relating to the amount of compensatory interest of € 1,352.30;

d) To declare the partial illegality of the CIT assessment and compensatory interest No. 2013…, in the part in which it was based on corrections of the taxable matter in the amount of € 97,228.00, to which corresponds the illegal CIT assessment in the amount of € 24,307.00 and compensatory interest unlawfully assessed in the amount of € 2,088.35;

e) To judge the arbitral ruling request unfounded with regard to the declaration of illegality of the remaining VAT assessments and compensatory interest, acquitting the Tax and Customs Authority therefrom;

f) To take no cognizance of the request for declaration of illegality of the CIT assessment in the part relating to the correction concerning representation expenses, acquitting the Tax and Customs Authority from the instance in the respective part.

  1. Value of the Proceedings

In accordance with the provision in article 315, paragraph 2, of the CPC and article 97-A, paragraph 1, subparagraph a), of the ATPC and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are valued at € 69,539.29.

  1. Costs

Under article 22, paragraph 4, of the LRTA, the amount of costs is fixed at € 2,448.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant and the Tax and Customs Authority in the percentages of 30.74% and 69.26%, respectively.

Let notification be made.

Lisbon, 11 July 2014

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Filipa Barros)

(Rogério M. Fernandes Ferreira)

Text prepared by computer, in accordance with paragraph 5 of article 131 of the CPC, applicable by referral of subparagraph e) of paragraph 1 of article 29 of Decree-Law No. 10/2011, of 20/01.

The present decision is written according to the old spelling rules.

Frequently Asked Questions

Automatically Created

Can VAT and IRC claims be combined in a single tax arbitration request under Portuguese law?
Yes, VAT and IRC claims can be combined in a single tax arbitration request under Portuguese law, but only under specific conditions. Article 3(1) of the RJAT (Decree-Law 10/2011) permits cumulation of claims when the grounding of the claims depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law. In Process 73/2014-T, the tribunal examined whether corrections based on presumed transmission of goods (affecting both VAT and IRC) and corrections relating to representation expenses satisfied this requirement. The Tax Authority challenged the cumulation, arguing these were unrelated issues despite arising from the same inspection. The key test is whether the claims share sufficient factual and legal commonality, not merely whether they originated from the same audit.
What is the role of rebuttable presumptions (presunção ilidível) in Portuguese tax disputes involving IRC and IVA?
Rebuttable presumptions (presunção ilidível) play a central role in Portuguese IRC and IVA disputes. In Process 73/2014-T, the Tax Authority applied a presumption that inventory discrepancies indicated unreported sales, triggering both IRC liability for omitted revenues and VAT liability for non-assessed tax. However, Article 75 of the General Tax Law establishes a presumption of truth for accounting records. The taxpayer can rebut the Tax Authority's presumption by demonstrating that inventory discrepancies resulted from legitimate causes, such as software errors, rather than actual unreported transactions. The burden shifts to the taxpayer to present credible evidence including supporting documentation like credit notes, delivery records, and explanations of system changes. The Tax Authority retains the right to question the authenticity, timing, and adequacy of such documentation, examining whether documents are properly signed, stamped, dated, and contemporaneously recorded.
How does the CAAD tribunal handle objections of illegal cumulation of claims in tax arbitration proceedings?
The CAAD tribunal handles objections of illegal cumulation through a preliminary analysis under Article 98(1)(a) of the ATPC, applicable via Article 29(1)(c) and (e) of the RJAT. If illegal cumulation is found, it constitutes a defect in the arbitration request that can result in nullity of the entire proceedings under Article 186(1) of the CPC. In Process 73/2014-T, the tribunal allowed the taxpayer to respond to the cumulation objection and propose an alternative: if cumulation were deemed illegal, the taxpayer requested that the tribunal consider only the matter relating to VAT and IRC assessments associated with omitted revenues and consequent non-assessed VAT for 2009 and 2010, effectively electing to proceed with the inventory-related claims. This procedural safeguard prevents complete dismissal and allows the taxpayer to salvage at least part of the arbitration request by choosing which claims to pursue.
What are the rules for burden of proof in combined IRC and IVA tax arbitration cases in Portugal?
In combined IRC and IVA tax arbitration cases, Portuguese law distributes the burden of proof based on the nature of the claims and applicable presumptions. The Tax Authority bears the initial burden of demonstrating facts supporting its assessments, but may rely on legal presumptions such as the presumption that inventory discrepancies indicate unreported sales. Once the Tax Authority establishes a prima facie case through presumptions, the burden shifts to the taxpayer to rebut these presumptions with concrete evidence. In Process 73/2014-T, the taxpayer challenged the presumption by presenting credit notes and explanations of software discrepancies. However, the Tax Authority questioned whether the documentation was adequately supported, noting missing signatures, illegible stamps, lack of dates, and concerns about when documents were actually created versus when they were claimed to have been issued. The taxpayer must provide legitimate and sufficient documentation to demonstrate the actual destination of goods and overcome the presumption of sale.
What procedural remedies are available when cumulation of claims is deemed illegal under the RJAT (Decree-Law 10/2011)?
When cumulation of claims is deemed illegal under the RJAT, Article 29(1)(c) incorporates Article 47(5) of the ATPC as a procedural remedy. This provision requires the tribunal to invite the claimant to elect which claims to pursue within the arbitration proceeding. In Process 73/2014-T, anticipating a possible finding of illegal cumulation, the taxpayer proactively requested that if cumulation were found improper, the tribunal should consider the claims relating to VAT and IRC assessments associated with omitted revenues based on inventory discrepancies for fiscal years 2009 and 2010, effectively abandoning the representation expense claims. This election mechanism prevents complete dismissal of the arbitration request and allows the proceeding to continue with the selected claims. The taxpayer may then pursue the excluded claims through separate proceedings if desired, though this creates additional time and cost burdens compared to resolving all issues in a single arbitration.