Summary
Full Decision
ARBITRAL DECISION
The arbitrator, Dr. Henrique Nogueira Nunes, designated by the Deontological Council of the Centre for Administrative Arbitration ("CAAD") to form the Arbitral Tribunal, constituted on 19 April 2017, decides as follows:
1. REPORT
1.1. A..., with the collective person number ..., with address in Rua..., n.º..., in Estoril, hereinafter referred to as the "Claimant", requested, on 19 January 2017, the constitution of the Arbitral Tribunal pursuant to articles 2.º, n.º 1, subparagraph a) and 10.º of Decree-Law n.º 10/2011, of 20 January (hereinafter "RJAT").
1.2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the Tax and Customs Authority on 31 January 2017.
1.3. The request for arbitral pronouncement concerns the declaration of illegality of the tax act embodied in the additional assessment of Personal Income Tax ("IRS") – Withholdings at Source - n.º 2016..., in the amount of € 36,174.57, for the tax year 2012, and, likewise, in the assessment of compensatory interest n.º 2016..., in the amount of € 4,225.99, equally relating to the same year, totalling € 40,400.56, and, likewise, by the declaration of illegality of the act of dismissal of the Gracious Complaint that the Claimant presented with a view to the declaration of illegality and annulment of the aforesaid additional assessments, in light of the provision in article 99.º of the Code of Tax Procedure and Process.
The arbitral tribunal was duly constituted and is materially competent in accordance with the provision in articles 2.º, n.º 1, subparagraph a) and 30.º, n.º 1 of the RJAT.
The parties possess legal personality and capacity and are legitimate (articles 4.º and 10.º, n.º 2 of the RJAT and article 1.º of Regulation n.º 112-A/2011, of 22 March).
The proceedings do not suffer from nullities, nor was any matter of exception raised.
1.4. To substantiate its request, the Claimant imputes, in summary, the following defects:
(i) That the aforesaid additional assessment of IRS and Compensatory Interest suffers from the defect of lack of substantiation in fact and in law.
(ii) In that not all of its grounds are made explicit, whether factual or legal, merely resulting therefrom that it respects withholdings at source for the month of December 2012 relating to capital – other income.
(iii) And that there is a legal duty incumbent upon the Tax and Customs Authority to make express reference to the reasons of fact and applicable legal provisions, and that substantiation which does not contain this reference is always insufficient and has as a consequence the voidability of the act.
(iv) And that the tax assessment and compensatory interest notified to it is silent as to the necessary substantiation, in fact and in law, whereby it is tainted by a defect of form, due to lack of substantiation, and should be annulled accordingly (cf. article 135.° of the Administrative Procedure Code) being impossible, it states, to determine the origin of the act of assessment of IRS and Compensatory Interest which constitutes the subject matter of the present request for arbitral pronouncement.
(v) That, notwithstanding the above, and seeking to discern the origin of such assessment, it suspects that the same may have been due to the external tax inspection procedure with reference to the years 2011, 2012 and 2013 of which it was subject and in which the Tax and Customs Authority imputed to it the omission of declaration of taxable income in Corporate Income Tax and VAT, and, likewise, that certain amounts deposited in bank accounts whose holders are the partners of the Claimant constitute income subject to IRS and taxed through the application of a tax-exempt rate.
(vi) And that in this regard the Claimant understands that throughout the Inspection Report, and on the assumption that it is only conceived out of mere caution that this has any relationship with the act of assessment of IRS and Compensatory Interest at issue in these arbitral proceedings, the Tax Inspection Services of the Directorate of Finance of Lisbon limit themselves to asserting that the difference between the amounts deposited in the bank accounts and the amounts declared for tax purposes constitutes income omitted from the tax returns.
(vii) And that the Tax and Customs Authority limits itself to fictionalizing and listing facts and assumptions that it considers to permit the additional tax assessment, concluding from them without explaining at any moment how it reached those same conclusions, whereby it was not possible for it to apprehend the cognitive itinerary of the Tax Inspection Services as a result of which corrections were made in Corporate Income Tax, since the services of the Tax and Customs Authority only base the conclusions of the Inspection Report on mere extrapolations and conclusive judgments.
(viii) That, in this case, there is manifest incongruence and contradiction of the alleged substantiation, whereby, it states, one should conclude that the Tax Inspection Services did not support, in the Inspection Report, the facts on which they based themselves to conclude that it omitted income and that it distributed profits to its partners, whereby the act of assessment should be annulled, it maintains.
(ix) Additionally, it imputes to the assessments in question an error regarding the assumptions of fact and of law, in that it alleges that the Tax and Customs Authority appears to intend, if a relationship exists between the act of assessment and the report of tax inspection, that the income in question be classifiable under subparagraph h, of n.° 2 of article 5.° of the Personal Income Tax Code, but that it is not true that this is the case.
(x) And that even if the Tax and Customs Authority were correct in what it invokes, from the elements used results that in the tax year 2012, the "income" (always without conceding), would amount to € 115,609.90 and not to € 136,508.20, the act of assessment being illegal also for this reason (according to documents which it protested to annex).
(xi) Whereby, it states, it is evident the error of fact and of law in which the Tax and Customs Authority incurred, having, among other things, violated the provision in article 5.0, n.° 2, subparagraph h), of the Personal Income Tax Code, and, likewise, denying that the income imputed to it occurred all in the month of December, which does not correspond to the truth (nor even to the truth fictionalised by the Tax and Customs Authority) it alleges.
(xii) Non-existing in the month of December 2012 the patrimonial increase inherent to the practice of the contested assessment act, there is no income subject to taxation, with the necessary legal consequences.
(xiii) It comes, likewise, to assume itself as a tax substitute, whereby its putative liability circumscribes itself, it states, to the amounts withheld and not remitted. That is, there is no situation of tax withheld and not remitted but only the assumption by the part of the Tax and Customs Authority that certain realities assume the nature of income (from application of capital) taxable under Personal Income Tax, at the tax-exempt rate.
(xiv) Whereby non-existing tax withheld and not remitted liability cannot be imputed to it for payment of the tax under article 28.°, n.° 1, of the General Tax Law, a legal provision this also violated by the Tax and Customs Authority.
(xv) It imputes, additionally, violation of the principle of inquiry and of material truth, since throughout the Conclusions of the Report of the Tax Inspection, and always on the assumption that the inspection action of which the Applicant was subject has some relationship with the act of assessment of IRS sub judice, it will always be said that the Tax Inspection Services do not succeed in demonstrating what they allege,
(xvi) And that the failure to investigate the elements necessary to the discovery of material truth, with the consequent violation of the principle of inquiry, taints the tax act issued in that sequence with illegality, whereby, it maintains, the Inspection Services violated the provision in article 58,° of the General Tax Law and in article 6,° of the Supplementary Tax Inspection Regime, such violation which, given its contribution to the corrections operated that underlie the issuance of the tax acts in crisis, cannot fail to taint them and lead to their respective annulment.
(xviii) It seeks to advocate for the annulment of the assessment of compensatory interest in that, it states, there is no mention of the essential reasons by which such interest was assessed, and, likewise, that the assessment of Compensatory Interest under analysis is also illegal, not only by force of its lack of substantiation and violation of law, but also by alleged lack of prior hearing on the same.
(xiv) It concludes its petition seeking, in equal manner, the illegality of the decision of the Gracious Complaint presented, since, it states, the Head of Division does not rule on all the questions raised by it, violating the provision in article 56,0 of the General Tax Law, and the aforesaid Order of the Head of Division should be annulled in that practiced with offense to applicable legal norms and principles (cfr. article 135,0 of the CPA).
1.5. The Tax and Customs Authority, hereinafter referred to as "Respondent" or "AT", responded, in summary, as follows:
(i) It comes to defend itself by way of contestation.
(ii) Regarding the lack of substantiation, it comes to state that it is important to distinguish the substantiation of acts, which consists of the reasons of fact and of law that support them, from the act of notifying that substantiation to the taxpayer, and that such notification may occur with the act of assessment or, as is the case in these proceedings, occur at a moment prior to the act of assessment because effected with the notification of the final report of the tax inspection.
(iii) And that the substantiation in fact and in law of the contested assessments appears in the contents of the final report of the tax inspection, a fact which the Claimant cannot be unaware of since the notification of the report expressly mentions that it will give rise to the issuance of assessments, against which it may react via administrative or contentious means.
(iv) It alleges that one is not in the presence of substantiation subsequent to the act of assessment nor could the Claimant be unaware that the corrections promoted by the tax inspection would give rise to those assessments, with the grounds of fact and of law made explicit in the final tax inspection report, and that it even exercised the right of prior hearing on the tax inspection report.
(v) And that having the Claimant been notified of the tax inspection report, such fact enabled it to have effective and exhaustive knowledge of the grounds of the assessment, which is inferred from the arguments alleged in the Gracious Complaint presented.
(vi) It concludes that the Claimant is aware of the cognitive and evaluative itinerary pursued for the determination of the tax acts subject to dispute.
(vii) It should further be noted that, notwithstanding what was alleged by the Claimant, notification is a condition of effectiveness of the assessment and not a condition of validity, in accordance with n.º 6 of article 77º of the General Tax Law, since notification of tax acts is a distinct and subsequent act to the act notified, and cannot therefore the defects of notification affect the validity of the act, but only its effectiveness, in accordance with n.º 1 of article 36º of the Code of Tax Procedure and Process.
(viii) Whereby it seeks to advocate the lack of merit of the defect of lack of substantiation of the acts of assessment of IRS and compensatory interest contested.
(ix) Regarding the lack, incongruence or insufficiency of substantiation of the conclusions report of the inspection action, it comes to state that it does not perceive, however, in what respect it may have violated the provision in art. 77º of the Code of Tax Procedure and Process, with clear, coherent and sufficient substantiation in fact and in law of the contested corrections resulting, since, it states, a careful reading of the final report allows one to know the concrete facts and the reasons of law that led to conclude for the necessity of the contested corrections, whereby it seeks to advocate the lack of merit of the defect of lack of substantiation of the assessment.
(x) Regarding the alleged errors regarding the assumptions of fact and of law, it is incumbent to clarify, it states, that contrary to what was alleged by the Claimant, it was based on the elements at its disposal, to from a logic easily perceptible conclude for the proposed corrections.
(xi) That from approximately July 2011, the account of B… (son), came to be operated as if it were the account of the Company, and that this came to be so because then C… (Father) and wife had fear that their personal accounts could be levied upon, which also allows one to conclude, it states, that until then these were the accounts that were used as if they were accounts of the company.
(xii) This according to the statements given and which were not put in question by the Claimant, it states.
(xiii) And that within the scope of the inspection action, there was omission of income, given the divergence between the amounts deposited in the bank accounts and the income declared, as well as the successive determination of tax losses.
(xiv) Whereby, it states, the family obtained income from the company superior to that declared under Personal Income Tax, and that the income determined deposited in the bank accounts and which remained in the legal sphere of the family were earned by the managing partners, constituting income from capital invested in the company, by advancement of profits, in accordance with subparagraph h) of n.º 2 of article 5º of the Personal Income Tax Code.
(xv) Such income is subject to withholding at source, in accordance with articles 98º and 101º of the Personal Income Tax Code, at the tax-exempt rate provided for in subparagraph c) of n.º 3 of article 71º of the Personal Income Tax Code.
(xvi) As far as the Illegality due to violation of the principle of inquiry and pursuit of material truth is concerned, it comes to state that despite what the Claimant came to say throughout the tax procedure, it did not succeed in invoking an argument, a fact or providing or indicating any evidentiary element that could change its position.
(xvii) It resulted from the exercise of the right of hearing, as results from the present proceedings, that the Claimant did not bring to bear any evidentiary means that could support its argument, nor does it indicate which evidentiary means the AT could resort to to demonstrate its allegations, which are incompatible with the evidence produced, which also results from information obtained from the record of criminal inquiry that determined the conduct of the inspection procedure.
(xviii) Not being able thus, to be imputed to the act the defect of illegality due to violation of the principle of inquiry.
(xix) As for the substantiation of the assessment of compensatory interest, it follows from the corrections effected that the Claimant assessed tax in an amount lower than that legally due, being imputable to the taxpayer the delay in remittance of the tax, in accordance with n.º 1 of article 35º of the General Tax Law.
(xx) Whereby it seeks to advocate the total lack of merit of the present request for arbitral pronouncement, the tax acts of assessment contested remaining in the legal order and absolving itself, accordingly, the Respondent of the request, all with the proper and legal consequences.
1.6. The Tribunal deemed it appropriate, corresponding to the request of the Claimant and Response of the Respondent, to notify them to come to the proceedings to inform the facts on which they intended the realization of testimonial proof, to which both said nothing, whereupon the Tribunal deemed it appropriate to dispense with the realization of such proof, having notified the parties equally of its decision to dispense with the realization of the first meeting of the Arbitral Tribunal, in accordance with the provision in article 18.º of the RJAT, and notifying them to, if they wish, present submissions, which were not presented.
Furthermore, the Claimant was notified of the payment of the subsequent arbitral fee and its communication to CAAD.
A deadline was set for the delivery of the arbitral decision until 15 October 2017.
1.7. The Tribunal was duly constituted and is competent ratione materiae, in accordance with article 2.º of the RJAT.
The parties have legal personality and capacity, show themselves legitimate and are regularly represented (cf. articles 4.º and 10.º, n.º 2 of the RJAT and article 1.º of Regulation n.º 112-A/2011, of 22 March).
No nullities were identified in the proceedings.
2. QUESTIONS TO BE DECIDED
In its arbitral petition the Claimant formulates the following essential questions for which it seeks the Tribunal's consideration:
- It raises the defect of lack of substantiation of the assessment acts.
- It raises the lack, incongruence and insufficiency of substantiation of the tax inspection report.
- It raises the error regarding the assumptions of fact and of law.
- It raises the question of illegality due to violation of the principle of inquiry and pursuit of material truth.
- It raises, finally, the illegality of the assessment of compensatory interest and, likewise, of the decision itself handed down on the Gracious Complaint presented.
3. FACTS
With relevance for the consideration and decision of the merits, the following facts are found to be proven:
A) Service Order 0I2013… was opened, for the year 2011, by proposal of inspection n.º PIP2012… of 10 August 2012, following information from the Financial Intelligence Unit (UIF) of the Judicial Police, which refers to the practice of suspicious banking operations, namely operations carried out in a demand deposit bank account opened at the premises of D… in … on 01-07-2011, held in the name of Mr. B… aged 19, and related to the commercial activity developed by the company "A…, Lda", - now Claimant - belonging to his parents. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
B) Service Orders OI2014…/… for the years 2012 and 2013 were opened following the inspection proposal n.º PIP2014… of 13 February 2014, in which the extension of the inspection procedure to the years 2012 and 2013 was proposed owing to the verification of the continuation of the practice of suspicious banking operations (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
C) The Claimant initiated activity on 08 May 2000, being registered in the Tax Service Cascais-… (…) for the activity "other educational activities, N.E." to which corresponds the CAE 85593. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
D) The activity developed by "A…, Lda." - Claimant in the proceedings - essentially consists of school support and preparation (tutoring) for secondary education and higher education entrance examinations and language courses, but without recognition from the competent ministry (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
E) The Claimant is a limited liability company and its capital, in the value of € 100,000, is divided equally among its partners, Mr. C…, Tax ID … and Mrs. E…, Tax ID … (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
F) Mr. C… exercised at the time of the facts (2011, 2012 and 2013) and in the year of the inspection procedure, the functions of manager of the Claimant, providing services to it which, according to the receipts issued by him, consisted of lessons provided in a personal capacity and on matters of secondary and higher education (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
G) Mr. B…, son of the managing partners of the Claimant identified in F) is the holder of the demand deposit bank account at D… with the number …/… (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
H) On 25 May 2015, within the scope of the criminal inquiry process …/2013 …TDLSB, the Division of Tax Criminal Cases heard in Interrogation Minutes of Accused Mr. C…, Mrs. E… and Mr. B…, son of these, having subsequently requested from the Public Prosecutor's Office authorization for extraction of certified copy of the interrogation minutes of these accused (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
I) In those Minutes, Mr. C… gave testimony, having affirmed and we quote "…approximately in July 2011, when the franchising of A… went badly, F… levied the family home, a property in Alentejo and the IRS refunds, they thought their accounts would be levied and they opened an account in the name of their son, B…, to which all clients began to make payments for the services provided by A…". (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
J) In accordance with the statements given by Mr. C…, the bank account with the number …/… held in the name of his son, B…, was operated by him as if it were the account of the company, presenting as a credit in the year 2012 the sum of the income of the company and income of category B obtained by Mr. C… in the exercise of his professional activity as a tutor, in the amount of € 300,454.92 (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
K) From the analysis carried out by the Financial Intelligence Unit of the Judicial Police, this also determined from the analysis carried out of the credit movements:
· that the checks deposited were issued by individuals, to bearer or to the order of Mr. C…;
· that the transfers were ordered by individuals with accounts in various banks, with descriptions such as "enrollment", "payment", "A…", "tuition", "tutoring", etc..
(cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
L) The Division of Tax Criminal Cases requested from the Public Prosecutor's Office, that it proceed with the Bank of Portugal, to obtain information on which bank accounts are held and authorized to be operated by Mr. C…, and by Mrs. E… and by Mr. B… (their son), as well as the sending of the movements recorded in the aforesaid accounts (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
M) In February 2015, the requested information was made available to the Tax Inspection Services for purposes of analysis and determination of the tax situation of A…, Lda. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
N) This information was based on the investigation by the Judicial Police of the bank movements recorded in the account held by Mr. B…, which proved to be incompatible with his profession as a student, and Mr. B… appears in the periodic income return of his parents (Form 3 of Personal Income Tax) - managing partners of the Claimant, as a dependent without income, reflecting instead the results of the activities of the company "A…, Lda" and of the managing partner, Mr. C…, as a tutor. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
O) Various credit and debit movements were identified, contained in the Tax Inspection Report, which reveal payments to the Claimant by virtue of the description of the transactions, and likewise payments in favor of individuals who provided services to it, and it is further worthy of note the fact that most of the funds credited were transferred in favor of personal accounts of the two partners of the Claimant. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
P) Under the service orders identified in B) above, it was determined that Mr. C… and his wife, Mrs. E…, jointly presented the Income Return - Form 3 of Personal Income Tax for the years 2011, 2012 and 2013 with indication of income of category A – dependent employment income paid by the company "A…, Lda." in the total amounts of 18,000.00 Euros 18,317.52 Euros and 17,748.24 Euros, respectively. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
Q) Having examined the income returns (Form 22), the Claimant presented in Corporate Income Tax, in the tax years 2011, 2012 and 2013, the following values:
Items 2011 2012 2013
Service Provision 102,596. 78,74,920. 78,93,348.68
Operating Result: - 32,317.86 - 40,691.26 - 3,866.55
(cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
R) In the period between 2007 to 2014, the Claimant presented the following tax results:
Year Taxable Profit Tax Loss
2007 ____________________________ -86,532.07
2008 ____________________________ -23,527.64
2009 ____________________________ -67,349.04
2010 ____________________________ -63,870.08
2011 ____________________________ -26,219.13
2012 ____________________________ -40,691.16
2013 ____________________________ -3,866.55
2014 13,114.70 ______________________
Total 13,114.70 -312,054.77
(cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
S) The managing partner of the Claimant, Mr. C…, during the inspection procedure informed that the amounts transferred to the account of his wife, Mrs. E…, were used to make the necessary payments for the operation of the Claimant's tutoring center. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
T) From the analysis of the accounting records carried out by the Respondent, taking into account the fact that all payments were recorded against a cash account 11, the entries made as a credit in that account correspond to the payments made by the Claimant to meet its obligations. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
U) The bank accounts identified served as accounts of the company, where not only were the amounts received deposited but also, in the same manner, payments necessary for the operation of the Claimant's business were made. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
V) In the year 2012, the bank account n.º… of Mr. B… recorded inflows in the amount of 300,454.92 Euros (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
W) The Claimant declared activity income, in the amount of 92,152.62 Euros (with VAT included) and Mr. C… declared income of category B in the amount of 32,156.38 Euros (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
X) Between the Claimant and its managing partner, Mr. C…, there was no patrimonial separation, as personal bank accounts were used for the making of payments and receipts relating to the business activity developed (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
Y) A part of the amounts deposited in the bank accounts analyzed by the Respondent in the context of the inspection action found no justification for its use in the legal sphere of the Claimant, since they were not used in payments by it (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
Z) The amounts determined remained in the bank accounts of the managing partners of the Claimant or of their son and were used by them for purposes unrelated to the activity of the company (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AA) Excluding from these amounts the value declared by the managing partner, Mr. C…, as income from his professional activity, which he declared to exercise on his own account and which he included in annex B (professional income) of the return form 3 of Personal Income Tax, the following values were determined by the Respondent with reference to the tax year 2012:
Amounts determined (in Euros):
2012: 168,664.58
Values declared- 32,156.38
Category B
Values omitted 136,508.20
(cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AB) From the analysis carried out by the Respondent of the bank accounts and the statements given by the managing partner of the Claimant, Mr. C…, it results that the account of his son was used as a pass-through account, and that a part of the amounts were transferred to the accounts of the parents (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AC) Within the scope of the Criminal Inquiry Process …/2013 …TDLSB, and being questioned the accused there, Mr. C…, on "Who had authorization to operate the accounts of your son, B…? He replied that it was he himself who had the codes to operate these accounts, his son did not have access, nor ever had access to these accounts." "Who made these transfers from the account of your son B…, to your account and that of your wife, Mrs. E…? He replied that it was he himself, they made transfers to their personal accounts, to meet commitments and expenses. He added that he always did his best to pay his debts to the tax authorities and social security." Being questioned the accused, B…, "Did you know that your parents used accounts in your name to deposit money from services provided through the company "A…, Lda.? He replied that he does not know."
(cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AD) Tax shortfall was determined – withholding at source - Personal Income Tax - in the amount of € 36,174.67. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AE) The Respondent, in light of the high difficulty in precisely determining the exact distribution of the amounts determined by the various months, considered that the omission occurred in the last tax period of the year 2012, considering the absence of prejudice from this procedure to the Claimant and tax subject. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AF) The Claimant was notified to exercise the right of hearing, having exercised this right (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings).
AG) Not agreeing with the additional assessment acts of Personal Income Tax, at issue in the present proceedings, of which it was the subject, the Claimant presented a Gracious Complaint, which was dismissed. (cfr. Administrative File attached by the Respondent, in particular the Tax Inspection Report attached to the proceedings and Document n.º 3 attached by the Claimant).
AH) The Claimant did not put in question the veracity of the facts described in the Tax Inspection Report and in the Response of the Respondent which are imputed to it.
AI) On 19-01-2017 the Claimant presented a request for constitution of the Arbitral Tribunal with CAAD – cfr. electronic request in the CAAD system.
4. FACTS NOT PROVEN
Despite protesting to annex documentary proof intended to prove that the omitted income would amount to € 115,609.90 as opposed to the value determined by the Respondent of € 136,508.20, the Claimant did not do so, whereby this fact raised by it is found not to be proven.
There are no other facts with relevance for the decision of the case that have not been proven.
5. SUBSTANTIATION OF THE DECISION ON FACTS
As for the essential facts the substantiated matter is identically shaped by both parties and the Tribunal's conviction was formed on the basis of the documentary (official) elements attached to the proceedings and above discriminated whose authenticity and veracity was not questioned by any of the parties.
6. LAW
In accordance with the questions enunciated, which appear in point n.º 2 of the present Decision, and having regard to the factual matter fixed in point n.º 3, it is now important to determine the applicable Law.
Regarding the alleged lack of substantiation of the tax acts:
The Claimant alleges that the assessments are not duly substantiated, since, in its judgment, the same are obscure and insufficient, in that their content is not sufficient to explain the true reasons why the acts put in crisis in the proceedings were practiced, suffering the same from the lack of adequate motivation in fact and in law.
This was promptly contradicted by the Respondent.
Jurisprudence sustains regarding the substantiation of the assessment act that: "The act will be sufficiently substantiated when the administrated party, placed in the position of a normal recipient – the bonus pater familiae of which article 487.º, n.º 2 of the Civil Code speaks – can come to know the factual and juridical reasons that are at its genesis, so as to permit it to opt, in an informed manner, between acceptance of the act or the actuation of the legal means of contestation, and in such manner that, in the latter circumstance, the court may also exercise effective control of the legality of the act, gauging its juridical correctness in light of its contextual substantiation".
Or, stated otherwise, substantiation must incorporate elements of fact and of law that allow the recipient of the act to perceive the decision-making and evaluative itinerary of the AT.
In the case sub judice, it is possible to discern throughout the inspection report a quite descriptive and exhaustive set of facts (in no moment denied by the Claimant resorting to proof) and, likewise, of legal norms that frame the corrections that were carried out.
Reason for which the tribunal considers that the act is sufficiently substantiated, since it contains the minimum references to the matter of fact and of law used by the AT to substantiate the practice of the tax acts at issue in the proceedings.
All the more so since the lack of substantiation imputed to it did not constitute any obstacle for the Claimant to sustain and seek its illegality and consequent annulment, whether in the context of the tax procedure, or in the present pleading, in which it imputes to the assessments a diverse set of defects, revealing perfect knowledge of the factual and legal framework in which the AT was grounded.
In sum, the tribunal considers that the tax acts at issue in the proceedings do not suffer from the defect of lack of substantiation that the Claimant imputes to them, whereby on this point its request is without merit.
Regarding the alleged lack, incongruence and insufficiency of substantiation of the tax inspection report:
The Claimant comes to allege that the substantiation of the final report of the tax inspection "is not, congruent, nor, either clear".
And that in the case at hand, "the Tax and Customs Authority limits itself to listing mere conclusive judgments which, as is settled and unanimously said in doctrine and in jurisprudence, do not represent the substantiation legally required.".
Let us see.
Substantiation of the tax act, as of any administrative act, must be clear (the reasons of fact and of law cannot be confused or ambiguous, under penalty of not making known what determined the agent to practice the act or to choose its content), congruent (the content of the act must have a logical relationship with the grounds invoked) sufficient (so as to make clear the assumptions taken into account by the author of the act) and must be expressed (in this sense, see the Decision of the Southern Administrative Court of Appeals n.º 07442/14, 2.ª Section – 2.º Court, dated 05/02/2015).
There is a defect of lack of substantiation of the inspection report, which taints the subsequent assessment act, if that does not allow one to discern the reason why the Tax Administration carried out all the corrections at issue in the present arbitral proceedings.
Now, in this case, all the conduct of the Claimant throughout the tax procedure, whether in the context of the exercise of the right of hearing, or in the context of the presentation of a Gracious Complaint, or in the present arbitral proceedings, reveals that it understood perfectly what was being imputed to it.
Furthermore;
It is perfectly possible to follow the cognitive and evaluative itinerary carried out by the Respondent throughout the tax inspection report.
One may not agree with it, whether with the facts imputed, or with the juridical qualification carried out, but then one will have to prove the contrary, since the Respondent proved that there were serious and credible indications that there was a situation of income omission, and having, as it did, succeeded in proving this same, it then falls upon the taxpayer, now Claimant, the burden of the materiality of what it invokes in accordance with the provision in article 74.º of the General Tax Law.
Regarding the imputation of income to the last quarter of the year, this was, as the Respondent explained, the adoption of a simplifying measure that in no way prejudiced the Claimant, since it consisted of taxing the tax owed with reference to the year to which the same provably pertains, without burdening the taxpayer with compensatory interest owed for delay in assessment considering that the precise tax period to which they should be imputed is unknown, an explanation which the Tribunal considers plausible in light of the proof produced and the circumstances of the case sub judice.
The additional assessment act is sufficiently substantiated if the conclusions of the tax audit report minimally clarify the taxpayer, who was notified thereof, of the reasons of fact and of law that led the Tax Administration to assess the tax in question and such occurred in the present proceedings.
In sum, the tribunal considers that the tax inspection report at issue in the proceedings does not suffer from the defects imputed to it by the Claimant, whereby also on this point its request is without merit.
Regarding the alleged error regarding the assumptions of fact and of law:
The Claimant invokes that the values determined by the Respondent are calculated in error.
And that the income in question would amount to € 115,609.90 and not to € 136,508.20, however, despite protesting to annex proof of the alleged, it did not do so.
The Respondent throughout the tax inspection procedure was based on the accounting and tax elements at its disposal, beyond the bank accounts to which it had access, in order, from a determined logic, to conclude for the proposed corrections.
From the facts given as proven results that the bank account of Mr. B… came to be operated as if it were a bank account of the Claimant, and that such came to be thus because the managing partners of the Claimant had fear that their personal accounts could be levied upon.
This same results from the facts given as proven, in no moment contradicted or denied by the Claimant.
The Respondent carried out a determined calculation, in which it deducted from the deposits in the accounts made, the income declared, whether by the Claimant, or by Mr. C…, as declared by him in his tax return, to conclude, since no other income exists in the family unit in question, that there occurred an actual omission of income, given the divergence between the amounts deposited in the bank accounts and the income declared.
Arrived here it is important to state that it does not cease to cause a certain impression the fact that the Claimant in no moment of the arbitral petition succeeded in furnishing a single explanation for the divergence of values detected by the Respondent in the aforesaid bank account, limiting itself to saying that the classification carried out by the Respondent is abusive, but without offering any, repeat, any, proof or suggesting a different tax classification.
The Claimant, in the context of the exercise of prior hearing, had already come to state that part of the amounts deposited in the bank account relate to payment made to Mr. C… by reason of the fact that he had given mathematics tutoring lessons to various students of pre-university and university education, but without specifying which amounts, which students, when such lessons would have been given, etc…
Indeed, it is even curious, since, examining the prior hearing, Mr. C… even admits being debtor of some monetary amount to the Respondent in the context of his Personal Income Tax, but not advancing how much and in which income category.
Thus, in light of the proof produced, the Respondent considered, in its proposal for tax classification, that the missing income will have to be qualified as income from capital, by advancement of profits to the managing partners of the Claimant, in accordance with subparagraph h) of n.º 2 of article 5º of the Personal Income Tax Code, subject to withholding at source, in accordance with articles 98º and 101º of the Personal Income Tax Code, at the tax-exempt rate of 26.5% provided for in subparagraph c) of n.º 3 of the then article 71º of the Personal Income Tax Code, in which, once again, it was not contradicted with proof produced by the Claimant, suggesting a different tax classification.
Regarding the imputation of income to the last quarter of the year, this was, as the Respondent explained, a simplifying measure that in no way prejudiced the Claimant, since it consisted of taxing the tax owed with reference to the year to which the same provably pertains, without burdening the taxpayer with compensatory interest owed for delay in assessment when the precise tax period to which they should be imputed is unknown, an explanation which the Tribunal considers plausible in light of the proof produced and the circumstances of the case sub judice.
Finally, and as far as the alleged liability of the Claimant for amounts withheld and not remitted, in accordance with the provision in article 28.º of the General Tax Law, this is, obviously, in light of the facts given as proven, a false question. In accordance with the provision in article 101.º of the Personal Income Tax Code, entities that have or must have organized accounting are obliged to withhold the tax from the net income for which they are debtors, that is, considering the proof given as proven in the proceedings, and likewise the tax classification carried out by the Respondent, not put in question with proof produced by the Claimant in the present arbitral proceedings, there are no doubts that it is this party that is the debtor of the tax, since it was it that paid the income in question, which qualifies as income from capital.
It follows from all the above that, in this case, there is no error regarding the assumptions of fact and of law the request of the Claimant being without merit on this point.
Regarding the alleged illegality due to violation of the principle of inquiry and pursuit of material truth:
In this context let it be said from the outset that something of the argument adduced by the Claimant is incomprehensible.
The Respondent, throughout the inspection procedure that preceded the additional assessment now contested, carried out all the measures it considered necessary for the determination of the tax situation of the Claimant, namely, through the crossing of information and cooperation of third parties.
What is proven from the present arbitral proceedings is the lack (embarrassing, let it be said) of proof produced by the Claimant, which until ended up not even responding to the notification of the Tribunal to come to the proceedings to indicate the facts on which it intended the production of testimonial proof by it initially requested.
It resulted from the exercise of the right of hearing and from the Gracious Complaint presented, as results from the present proceedings, that the Claimant did not bring to bear any evidentiary means that could support its argument, nor does it indicate which evidentiary means the Respondent could resort to to demonstrate its allegations.
Now here we adhere to the position of the Respondent, when it states that the Principle of Inquiry cannot have such a broad scope that it completely substitutes the obligations that fall upon taxpayers, namely, that of presenting the documents necessary to demonstrate its claim, in accordance with article 74º of the General Tax Law, since it would not be proportional to oblige the AT to carry out measures that in light of the alleged, would always be at the availability of the Claimant, all the more so since only it would effectively know what means could indicate its allegations, which manifestly find no support.
Not being able thus, to be imputed to the tax act the defect of illegality due to violation of the principle of inquiry and of the pursuit of material truth, the request of the Claimant being without merit also here.
Regarding the alleged illegality of the assessment of compensatory interest and likewise of the decision itself handed down on the Gracious Complaint presented:
As for the assessment of compensatory interest, the Claimant considers that as there is no mention therein of the essential reasons by which such interest was assessed, and considering, likewise, that there was no notification for the exercise of the right of prior hearing, the aforesaid assessment should be annulled for omission of an essential formality and likewise, for lack of substantiation.
And also here there is a lack of reason.
As far as the substantiation of the assessment of compensatory interest is concerned, this follows from the corrections carried out by the Respondent, in which the Claimant assessed tax in an amount lower than that legally due, being imputable to it the delay in remittance of the tax, in accordance with the provision in n.º 1 of article 35º of the General Tax Law.
As for the alleged lack of notification for the exercise of the right of prior hearing, the same did not have to exist, since it had already existed in the context of the tax inspection report, having the Claimant, moreover, exercised this right.
Now, having the AT heard the Claimant regarding the tax from which the assessment of compensatory interest derives, it is no longer legally required that it proceed to a new hearing in an autonomous and distinct manner.
Whereby it is concluded that the request is without merit.
Finally, as to the supposed illegality of the decision itself handed down on the Gracious Complaint presented, the argument of the Claimant does not hold, since a simple analysis of the decision on the Gracious Complaint presented allows one to conclude precisely the contrary of what invoked by the Claimant.
Whereby also here the request is without merit.
7. DECISION
In light of the above, this Singular Arbitral Tribunal agrees to:
- Judge the request for arbitral pronouncement entirely without merit, as not proven.
The value of the case is fixed at Euro 40,400.56, in accordance with the provision in articles 3.º, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97.º-A, n.º 1, subparagraph a) of the Code of Tax Procedure and Process and 297.º of the Code of Civil Procedure.
The amount of costs is fixed at Euro 2,142.00, under article 22.º, n.º 4 of the RJAT and Table I annexed to the RCPAT, charged to the Claimant, in accordance with the provision in articles 12.º, n.º 2 of the RJAT and 4.º, n.º 4 of the RCPAT.
Let it be notified.
Lisbon, 17 October 2017.
The Arbitrator,
Dr. Henrique Nogueira Nunes
Text prepared by computer, in accordance with article 131.º, n.º 5 of the Code of Civil Procedure, applicable by reference to article 29.º, n.º 1, subparagraph e) of the RJAT.
The drafting of the present arbitral decision is governed by the orthography prior to the 1990 Spelling Agreement.
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