Process: 735/2014-T

Date: April 30, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

CAAD Process 735/2014-T involved a manufacturing company (A... S.A.) challenging an IRC additional assessment for fiscal year 2010 concerning autonomous taxation on travel allowances (ajudas de custo) and employee vehicle compensation. Following an external tax inspection, the Portuguese Tax Authority (AT) applied a 5% autonomous taxation rate to €781,340.05 in deductible expenses under Article 88(9) of the IRC Code, resulting in an additional assessment of €39,187.83. The central legal dispute focused on whether the company adequately proved that these expenses were invoiced to clients, which would exempt them from autonomous taxation. The company argued that Portuguese tax law does not require travel expenses to be explicitly itemized on client invoices, maintaining that their accounting system—with dedicated sub-accounts and internal travel control maps—sufficiently demonstrated that costs were recharged to clients. Conversely, AT contended that Article 88(9) functions as an anti-abuse provision requiring express mention of travel allowances and kilometers on client invoices to enable proper verification and control. Before reaching arbitration, the company exhausted administrative remedies: filing a taxpayer complaint (reclamação graciosa) in May 2013 that was partially rejected, followed by a hierarchical appeal (recurso hierárquico) in January 2014 that was denied in July 2014. The arbitral tribunal, constituted in December 2014 with Dr. José Coutinho Pires as sole arbitrator, proceeded without an oral hearing. The case highlights critical interpretative questions regarding IRC autonomous taxation requirements, the evidentiary standards for proving cost recharging to clients, and the procedural pathway for contesting corporate tax assessments through CAAD arbitration rather than judicial courts.

Full Decision

Claimant: A…, S.A.

Respondent: PORTUGUESE TAX AND CUSTOMS AUTHORITY (AT)

Arbitral Decision

  1. REPORT

  2. A… S.A. (hereinafter referred to as the Claimant) taxpayer number …, with registered office at Rua …, n° …, …..., filed on 22 October 2014, a request for constitution of arbitral pronouncement, under the terms of paragraph a) of no. 1 of article 2 and article 10 nos. 1 and 2, both of Decree Law no. 10/2011, of 20 January, hereinafter referred to as RJAT, and of articles 1 and 2 of Ordinance no. 112-A/2011, of 2 March, in which the Portuguese Tax and Customs Authority is the Respondent (hereinafter referred to as AT or Respondent) with a view to declaring the illegality (and consequent annulment) of the Corporate Income Tax (IRC) assessment relating to the 2010 fiscal year, with number 2013 … and demonstration of account correction no. 2013 ….

  3. The request for constitution of the Tax Arbitral Tribunal was accepted by the Honourable President of CAAD on 23 October 2014, and immediately notified to the Respondent in accordance with legal procedures.

  4. Under the terms and for the purposes of the provision in paragraph a) of no. 2 of article 6 of RJAT, by decision of the Honourable President of the Ethics Council of CAAD, duly notified to the parties within the prescribed periods (10 December 2014), Dr. José Coutinho Pires was appointed as arbitrator, who communicated to the Ethics Council and to the Centre for Administrative Arbitration the acceptance of the assignment within the period stipulated in article 4 of the Code of Ethics of the Centre for Administrative Arbitration.

  5. The Sole Arbitral Tribunal was constituted on 26 December 2014, in accordance with the provision of paragraph c) of no. 1 of article 11 of RJAT.

  6. By order issued on 25 February 2015, duly notified to the parties, the holding of the meeting referred to in article 18 of RJAT was dispensed with.

  1. To substantiate its petition the Claimant alleged, in summary and with relevance:

i. That it was subject to an external inspection action regarding the financial statements and tax filings relating to the 2010 fiscal year,

ii. As a result of which several corrections to the IRC were promoted, embodied in the notification, on 9 January 2013, of additional assessment no. 2013 … and of account correction demonstration no. 2013 …, in the respective amounts of €39,187.83 and €39,063.48,

iii. Filed on 22 May 2013 a taxpayer complaint regarding which an order of partial rejection was issued, which was notified to it on 9 December 2013,

iv. To such partial rejection it reacted on 07 January 2014, through filing of a hierarchical appeal,

v. Of whose rejection it was notified on 14 July 2014,

vi. In its request for arbitral pronouncement, and in summary:

  • Objects to the fact that the AT maintained, in the administrative procedural phases, autonomous taxation on "deductible expenses relating to travel allowances and compensation for travel in employee's own vehicle", on the grounds that these were not evidenced in the invoices issued to clients,

  • Contends that the interpretation to be given to no. 9 of article 88 of the IRC Code (as drafted at the time of the facts) subjecting autonomous taxation of expenses in question to the rate of 5% only occurs when these are not invoiced to clients,

  • That the regulation in question does not require that the invoicing to clients be evidenced in the documents/invoices issued to them, "imposing no obligation as to the form of documentary requirements that permit proof of this fact",

  • Reiterating that it has its accounting organized in such a manner as to control the costs it actually invoices to its clients, both through autonomous sub-accounts and internal control maps of travel, through which it is possible to distinguish situations in which such costs are or are not invoiced to its clients.

vii. Concluding as extracted from its petition, that the illegality of the IRC assessment act no. 2013 … (and of the IRC assessment correction demonstration no. 2013 …) relating to the 2010 fiscal year be declared,

viii. Further requesting compensatory interest.

  1. The AT, in its response, sustaining a position contrary to that presented by the Claimant and, in consonance with the position it had already assumed in the taxpayer complaint proceedings and hierarchical appeal, contends for the verification of the requirements determining autonomous taxation provided in no. 9 of article 88 of the IRC Code, alleging in summary that the Claimant failed to prove that the deductible expenses, which are the subject of these proceedings, were invoiced to its clients, invoking, further in synthetic and relevant manner:

i. That within the scope of binding guidance requested by the Claimant (in 2008) an order was issued to the effect that […] when not subject to taxation in Personal Income Tax (IRS) in the person of the respective beneficiary, deductible expenses with travel allowances and compensation for travel in employee's own vehicle, in service of the employing entity, which are duly documented in accordance with paragraph f) of no. 1 of article 42, are subject to autonomous taxation, under the terms of no. 9 of article 81 of the IRC Code, provided that the respective amount is not expressly mentioned in the invoice issued to the respective client",

ii. That the provision of no. 9 of article 88 of the IRC Code has the nature of an anti-abuse rule and, in that sense, attending to the nature of the expenses/costs in question, the legislator intended "to restrict its acceptance only in the case where they were charged to clients",

iii. Such charging that should be evidenced in the respective invoices, with the amount corresponding to "travel allowances and kilometers traveled" appearing in these,

iv. So that it is possible to control the amount charged.

v. Contending for the lack of merit of the arbitral pronouncement petitions formulated by the Claimant.

  1. The parties further, under the terms of the provision in article 18 of RJAT, submitted written allegations, where, fundamentally, they defended the positions already expressed and evidenced in their pleadings.

  2. The Arbitral Tribunal is substantively competent and is regularly constituted, under the terms of articles 2 no. 1 paragraph a) 5 and 6 no. 1 of RJAT.

  3. The parties have legal personality and capacity, are legitimate and are legally represented, under the terms of articles 4 and 10 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

  4. The proceedings do not suffer from nullities and no exceptions were raised.

  5. There is no, thus, any obstacle to consideration of the merits of the case.

Having reviewed all, it falls to issue:

II. DECISION

A. FACTUAL MATTER

A1. Facts Established as Proved

  1. The now Claimant is a corporation that conducts business under the designation "A...S.A." with Tax Identification Number …, with tax domicile at Rua … no. …, … ....

  2. That it has as its principal activity "Manufacture of Motors, Generators and Electric Transformers" – CAE 27110.

  3. For tax purposes it is registered with the competent local peripheral service, in this case the Tax Office of ..., being subject regarding the IRC to the general tax regime.

  4. Having adopted a taxation period not coincident with the calendar year, which corresponds to the period between 01 October and 30 September.

  5. In compliance with service order no. 01 2012…, the Claimant was subject to an external inspection procedure, of general character, which commenced on 2012-09-01 and concluded on 2012-12-11, having as its object the "accounting-tax elements" relating to the year 2010.

  6. As a result of which, and to the extent relevant, the correction of the value indicated in field 365 of table 10 of the income statement Form 22 was determined, increasing the tax value of €39,067.00 as a result of applying the rate of 5% to the amount of €781,340.05 relating to autonomous taxation,

  7. Having, consequently, been issued the IRC assessment demonstration no. 2013 …, in the amount of €39,187.83 and the account correction demonstration no. 2013 …, in the amount of €39,063.49,

  8. The Claimant proceeded on 19 March 2013 to payment of €39,063.48, corresponding to the value of the account correction demonstration no. 2013 …,

  9. In the course of the inspection action referred to, the Claimant proceeded to partial and voluntary regularization of corrections evidenced in the respective report,

  10. Coming, however, to manifest its disagreement as to the corrections made relating to autonomous taxation on "expenses with travel allowances and compensation for travel in employee's own vehicle",

  11. Through the filing on 22 May 2013, of the taxpayer complaint following the notification of the Final Report of Tax Inspection on 28 December 2012, made under Service Order no. OI 2012…,

  12. With date of 9 December 2013, the Claimant was notified of the order of partial approval issued on 5 December 2013, by the Head of the Tax Management and Assistance Division (DGAT) of the Large Taxpayers Unit (UGC),

  13. The order that addressed the taxpayer complaint filed by the Claimant to which was assigned no. …2013…, maintained, to the extent relevant here, the correction carried out regarding autonomous taxation on "travel allowances and compensation for travel in employee's own vehicle",

  14. On 07 January 2014, the Claimant filed a hierarchical appeal to which was assigned no. …2014…,

  15. Of whose rejection the Claimant was notified under office no. … of 14 July 2014, on 25 July following,

  16. With date of 22 October 2014, the Claimant filed the request for arbitral pronouncement with the CAAD which gave rise to the present proceedings,

  17. For purposes of autonomous taxation the Claimant did not determine "the deductible expenses relating to travel allowances and compensation for travel in employee's own vehicle", here in question,

  18. In binding guidance issued in 2008 at the request of the Claimant, the Portuguese Tax and Customs Authority adopted, among other things, the following understanding:

"[…] Paragraph f) of no. 1 of article 42 of the IRC Code embodies an anti-abuse rule, i.e. a rule aimed at restoring the taxation that would be due and easily avoided by taxpayers in the absence of such a rule. The fact that the legislator uses the expression "invoiced to clients" seems to indicate that it intended to oblige companies to expressly include in the invoices issued the amount corresponding to travel allowances and kilometers traveled.

Indeed, expenses of this nature constitute costs whose effectiveness in the activity developed are difficult for clients themselves to verify and control, justifying the requirement of the tax legislator for their express mention in the invoices, under penalty of autonomous taxation being imposed on the cost and provided that they are duly documented, under the terms of paragraph f) of no. 1 of article 42".

  1. From the inspection report, it appears, among other things, that:
  • "In the context of the analysis of the analytical trial balance for the 2010 fiscal year, it was verified that the taxpayer recorded expenses related to travel allowances and compensation for the use of own vehicle, not taxed under Personal Income Tax and for which it has a map of control of travels (as confirmed after questioning), in the accounts SNC:

#62511000 "Mileage/actual expenses (private-cars) – tx deduct"

#62513020 "Travel expenses not imputable to customer"

#63202040 "Wages- Daily costs imputable to customer; and

#63202050 "Wages – Daily costs not imputable to customer".

However, only the amounts recognized in the SNC accounts:

#62513020 "Travel expenses not imputable to customer", and

#63202050 "Wages – Daily costs not imputable to customer"

were subjected to autonomous taxation under no. 9 of article 88 of the IRC Code.

As for the SNC accounts mentioned below, the exclusion from submission of the balance thereof to autonomous taxation is noted:

#62511000 "Mileage/actual expenses (private-cars) – tx deduct"; and

#63202040 "Wages- Daily costs imputable to customer".

  1. The Claimant was notified by the Tax Inspection to present the breakdown of the balances of the accounts it did not subject to autonomous taxation (62511000 and 63202040).

A.2. Facts Established as Not Proved

With relevance to the decision, there are no facts that should be considered as not proved.

A.3. Grounds for the Factual Matter Established as Proved and Not Proved

Regarding the factual matter, the Tribunal does not have to rule on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish the proved matter from the not proved [(cf. article 123 no. 2 of CPPT and articles 607 of the Code of Civil Procedure, applicable by reference to article 29 no. 1, paragraphs a) and e) of RJAT)].

Thus, the pertinent facts for the judgment of the case are chosen and determined based on their legal relevance, which is established in consideration of the various plausible solutions of the (questions) of law (cf. article 596 of CPC, applicable by reference to article 29 no. 1, paragraph e) of RJAT).

Thus, having regard to the positions assumed by the parties, the documentary evidence attached to the file and the PA attached, the facts above listed are considered proved, as relevant to the decision, recognized and accepted by the parties.

B. LAW

The question that is the object of the present arbitral proceedings is reduced to the matter of (i) autonomous taxation, and (ii) the interpretation to be given to no. 9 of article 88 of the IRC Code, as drafted at the time of the facts underlying (2010).

Other questions that have been raised before the courts, associated with the issue of autonomous taxation, such as the constitutional non-conformity of its regime, namely due to violation of constitutional principles of taxation on real profit, taxpaying capacity and proportionality, as well as the issue concerning its nature in confrontation with the IRC, its deductibility for purposes of determining taxable profit, are not invoked by the Claimant, and, consequently, this tribunal will not rule on such matters.

Since its introduction into the Portuguese tax legal system in 1990, with the publication of Decree Law no. 192/90, of 9 June [1], through the reform of Law 30-G/2000, of 29 December, which integrated its regulation into the IRC Code until the present time, the regime of autonomous taxation has been the subject of various amendments, in particular through successive modifications both of the rates, and of the systematization and wording given to them, in the respective codes on income taxes, namely, both in the IRC Code and in the Personal Income Tax Code (CIRS).

  • The normative evolution regarding autonomous taxation has come to encompass diverse realities, as is evident from the various provisions of the current article 88, while maintaining, however, in the view of the legislator, the ratio of its creation;

  • Concerns regarding combating fraud and tax evasion (set forth in the preamble of Law no. 30-G/2000, of 29 December) and reasons of simplicity and efficiency in tax collection, objectives of preventing the erosion of the tax base in Corporate Income Tax, determined that the legislator would equitably burden all taxpayers with certain types of expenses, with the regime of autonomous taxation, inserted in the IRC Code coming to experience significant expansion.

  • The Constitutional Court, called upon to rule on various situations related to autonomous taxation (which are not addressed here), has come to rule on autonomous taxation, in a generic manner, to the effect that:

"With this type of taxation was intended, on the one hand, to encourage taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue, and, on the other hand, to prevent that, through such expenses, companies proceed to disguised distribution of profits, especially of dividends that would thus only be subject to the IRC as company profits, as well as to combat the fraud and tax evasion that such expenses occasion not only in relation to Personal Income Tax or Corporate Income Tax, but also in relation to the corresponding contributions, both of employers and employees, to social security".

"Contrary to what happens in the taxation of income in Personal Income Tax and Corporate Income Tax, in which the set of income earned in a given year is taxed (which means that only at the end of the year can the tax rate be determined, as well as the bracket in which the taxpayer falls). In this case, each expense made is taxed, in itself considered, and subject to a certain rate, with autonomous taxation being determined independently of the IRC that is due in each fiscal year, because it is not directly related to obtaining a positive result, and, therefore, subject to taxation". [2]

  • Similarly being extracted from the Decision of the Supreme Administrative Court [3] that "the legislator created the rates of autonomous taxation with a view to penalizing the realization of certain expenses since they should be taxed in the person/company that bears the respective cost (…)"

  • "In autonomous taxation the tax fact giving rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various rates of autonomous taxation to the various acts of expense realization considered, come to be carried out at the end of a certain tax period). But the fact that the liquidation of the tax is carried out at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting character".[4]

  • The doctrine that has been addressing this issue of autonomous taxation, in essence, does not differ from that which flows from the constitutional jurisprudence briefly transcribed above.

  • In this sense, Saldanha Sanches [5] (with reference to the then article 81 no. 3, which provided for a 10% rate on deductible expenses relating to representation expenses and those related to light passenger vehicles or mixed vehicles)

"In this type of taxation, the legislator seeks to address the recognized difficult question of the tax regime for expenses that are in the intersection zone of the personal sphere and the exclusively business sphere, in order to avoid remuneration in kind more attractive for exclusively tax reasons or disguised distribution of profits. The rule presents a characteristic similar to which we will find in the legal sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of tax normalcy. If in the taxpayer's statement there is no profit, the cost may be subject to negative valuation: for example, we have a 15% rate applied when the taxpayer had losses in the two preceding fiscal years and purchased a light passenger vehicle for more than €40,000 (article 81 no. 4).

With this provision the system shows its dual nature, with an increased rate of autonomous taxation for certain special situations that are sought to be discouraged, such as the acquisition of vehicles for business purposes or vehicles that are, in principle, excessively expensive when losses exist. There is created here, a sort of presumption that these costs do not have a business cause, and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since here, the basis of imposition is not a net income, but rather, a cost transformed – exceptionally – into an object of taxation".

  • As stated by Rui Morais [6], one is facing "a taxation that falls on certain expenses of the taxpayers, which are regarded as constituting tax facts".

"The objective appears to be to try to prevent (attenuating or eliminating the "advantage resulting from it in IRC") that, through such expenses, the taxpayer uses for non-business purposes goods that generate fiscally deductible costs: or that payments are made to third parties with evasion of the taxes that would be owed by these. The realization of such expenses implies an additional fiscal burden for those who incur them because the law presumes that, thus, another person ceases to pay tax".

  • The brief examination through the genesis and purposes of the autonomous taxation regime is of central importance for the correct interpretation of its configuration as an institute distinct from other forms of taxation in Corporate Income Tax, and will lead to the best interpretation to be given to article 88 of the IRC Code and, for what concerns us, its no. 9.

  • When one speaks of autonomous taxation, as is the case, it is convenient from the outset to bear in mind that what is at issue is a set of disparate situations, which, conceptually, can be reduced to one of three types namely:

  • Autonomous taxation of certain deductible expenses (e.g. paragraphs a) and b) of no. 2 of article 73 of CIRS);

  • Autonomous taxation of certain deductible expenses (e.g. nos. 3, 4, 7 and 9 of article 88 of the IRC Code);

  • Autonomous taxation of non-deductible expenses (e.g. nos. 1 and 2 of article 88 of the IRC Code)

  • Article 88 of the IRC Code, in its current wording, contemplates several types of autonomous taxation:

a. Autonomous taxation on undocumented expenses;

b. Autonomous taxation on expenses relating to vehicles;

c. Autonomous taxation on representation expenses;

d. Autonomous taxation on amounts paid or owed, for any reason, to natural or legal persons residing outside Portuguese territory and therein subject to a clearly more favorable tax regime;

e. Autonomous taxation on expenses with travel allowances and compensation for the travel of employees in their own vehicle in service of the employing entity;

f. Autonomous taxation on profits distributed by entities subject to Corporate Income Tax to taxpayers who benefit from total or partial exemption;

g. Autonomous taxation on expenses or charges relating to indemnification or any compensation owed not related to the achievement of productivity objectives previously defined in the contractual relationship, when there is termination of functions of manager, administrator or managing partner, as well as on expenses relating to the portion exceeding the value of remuneration that would be earned by the exercise of such positions until the end of the contract, when it is a matter of termination of a contract before the term;

h. Autonomous taxation on expenses or charges relating to bonuses and other variable remuneration paid to managers, administrators or managing partners.

  • It is thus verified that, of the list of autonomous taxation provided in the current article 88 of the IRC Code, various realities are contained, with these falling on both deductible and non-deductible expenses.

This circumstance also was verified at the time of the date of the facts (2010) in which the wording of no. 9 of article 88 of the IRC Code, and what is relevant here, was as follows:

"Also autonomously taxed, at the rate of 5%, are deductible expenses relating to travel allowances and compensation for the travel of employees in their own vehicle, in service of the employing entity, not invoiced to clients, recorded for any reason, except to the extent that taxation occurs in Personal Income Tax in the sphere of the respective beneficiary, as well as non-deductible expenses in accordance with paragraph f) of no. 1 of article 45 borne by taxpayers that present tax losses in the tax period to which they relate"

  • From the comparison of the wording of no. 9 of article 88 in the 2010 wording, with the current one, there is absolute similarity in the reality that both contain, justifying the lack of complete coincidence by the reference to paragraph f) of no. 1 of the then article 45 to the current 23-A) by revocation of that by Law 2/2014, of 16 January.
  • Refocusing the object of the present arbitral pronouncement on the "type" of autonomous taxation provided in no. 9 of article 88 of the IRC Code, - taxation on "deductible expenses relating to travel allowances and compensation for the travel of employees in their own vehicle, in service of the employing entity […]" - the question is to determine, in this case, whether or not these were invoiced to clients, so as to exclude in the first hypothesis its taxation, and to verify its subjection to the 5% rate in the second.

"Also autonomously taxed, at the rate of 5%, are expenses (….) not invoiced to clients […]"

  • From the scope of the inspection procedure to which the Claimant was subject, and as follows from the respective Report prepared under article 62 of the Supplementary Regime of Tax Inspection Procedure (RCPIT), the AT concluded (fls. 4) that "the taxpayer recorded travel allowances and compensation for the use of own vehicle, not invoiced to clients, nor subject to taxation under Personal Income Tax in the sphere of the beneficiary, in the total amount of €781,340.05, without having proceeded to the corresponding autonomous taxation, under the terms of no. 9 of article 88 of the IRC Code, by application of the 5% autonomous taxation rate to that amount",

  • Having consequently proceeded to the respective correction, giving rise to the additional assessment of €39,067.00, as a result of the application of the autonomous taxation rate of 5% on the referred amount of €781,340.05.

  • The AT upheld the position resulting from the Tax Inspection Report, both in the taxpayer complaint proceedings and in the hierarchical appeal proceedings, filed by the Claimant, sustaining for that purpose and fundamentally, that the latter failed to demonstrate that the costs in which it incurred with "travel allowances and compensation for travel of employees in their own vehicle" were invoiced to clients.

Well then:

The wording of no. 9 of article 88 of the IRC Code at the time (and which in this segment remains) goes in the direction of excluding autonomous taxation relating to costs incurred with "travel allowances and compensation for the travel of employees in their own vehicle, in service of the employing entity" provided that they are invoiced to the respective clients.

"Also autonomously taxed, at the rate of 5%, are deductible expenses relating to travel allowances and compensation for the travel of employees in their own vehicle, in service of the employing entity, not invoiced to clients, recorded for any reason, except to the extent that taxation occurs in Personal Income Tax in the sphere of the respective beneficiary, as well as non-deductible expenses in accordance with paragraph f) of no. 1 of article 45 borne by taxpayers that present tax losses in the tax period to which they relate".

  • The question of divergence between the Claimant and the AT, since no other exists, concerns the proof of attribution of such costs to clients, better still, their invoicing to these.

  • The perspective of the Claimant, in the case sub judice is reduced, in its essentiality, to the argument that the regulation of no. 9 of article 88 of the IRC Code "merely states that expenses with travel allowances and compensation for travel of employees in their own vehicle invoiced to clients are not subject to autonomous taxation, imposing no obligation as to the form of documentary requirements that permit proof of this fact".

  • In counterpoint, the position of the Respondent is that notwithstanding the non-requirement that in invoices such be made/mentioned in an express and itemized manner the travel allowances, the truth is that they must be reflected in the final amount invoiced to clients.

  • Well the question that is placed is precisely that, namely, so that such expenses are not subject to autonomous taxation, it becomes necessary that they have been invoiced to clients.

  • According to the position of the Claimant, by the interpretation it carries out regarding no. 9 of article 88 of the IRC Code, and by the circumstance that its accounting is organized in such a way as to have autonomous sub-accounts that permit it to distinguish situations in which the costs in question are, or are not, invoiced to its clients, accounting elements those to which are associated internal control maps, would be sufficient and suitable for proof that the expenses incurred with "travel allowances and compensation for travel in employees' own vehicles, in service of the employing entity" were invoiced to clients, if, possibly, such doubt were to arise, in particular in tax inspection proceedings.

With all due respect, it appears that the Claimant confuses, in this segment, two distinct aspects.

The circumstance that we are dealing with expenses that are deductible, for purposes of the provision of article 23 of the IRC Code, which suffice themselves in documentary form with the elements and documents of accounting support of the Claimant, it being noted that the Respondent does not even question its indispensability for purposes of determining taxable profit, and another different reality, even though associated with this, is the subjection to autonomous taxation of certain costs or expenses incurred by the taxpayer that are deductible for purposes of determining its taxable profit.

It is understandable that the legislator, mindful of the scope of autonomous taxation, of which account has been given above, has here greater requirements, also extending to proof that the costs outlined in no. 9 of article 88 of the IRC Code in such a way as to "escape" from the incidence of the 5% rate there provided must be comprovably invoiced to clients.

As well pointed out in the arbitral decision issued in proceedings no. 187/2013 - autonomous taxation on deductible costs has "materially underlying a presumption of "partial" business nature of the expenses on which they fall […] based on the fact that they "are situated in a gray line that separates what is business expense, productive, from what is private consumption expense, with the notable fact that in many cases, the expense will even in reality have a dual nature (part business, part personal)

Confronted with this difficulty, the legislator, instead of simply excluding their deductibility, or reversing the burden of proof of the business nature of the expenses in question (imposing, for example, the demonstration that "do not have an abnormal character or an excessive amount", as it does in article 65/1 of the IRC Code), chose to establish the currently applicable regime […].

  • Now, in the case at hand, the Claimant failed to prove that the costs that were at the origin of the additional assessment that it challenges would have been effectively invoiced to its clients, and it does not appear sufficient the allegation that it has its accounting organized in such a way that through autonomous sub-accounts and internal control maps of travel it is possible to distinguish situations in which such costs are or are not invoiced to its clients.

Although it is not required that the costs to which no. 9 of article 88 of the IRC Code refers be reflected/entered in an express manner in the invoices issued to clients, such fact does not exclude – as observed by the Respondent – that the Claimant be dispensed from proving that the final price entered in the invoices has incorporated the values relating to expenses with travel allowances and compensation for travel of employees in their own vehicle.

The considerations that above were aligned regarding the scope of autonomous taxation, with particular acuity for situations in which autonomous taxation falling on deductible expenses, consequently not questioned by the AT for purposes of determining taxable profit (article 23 of the IRC Code) that here find acceptance, determine that the exclusion of taxation at the rate provided in no. 9 of article 88 of the IRC Code, has underlying the proof that the expenses there provided were effectively invoiced to clients and in the final amount charged to these, proof that, in the opinion of this Tribunal, the Claimant failed to achieve.

D. DECISION

It is therefore decided in this Arbitral Tribunal:

a. to judge the petition formulated by the Claimant regarding the illegality of the additional Corporate Income Tax assessment no. 2013 … and IRC assessment correction demonstration no. 2013 …, relating to the 2010 fiscal year, to be without merit, maintaining the impugned tax act, and, consequently to judge the petition formulated regarding compensatory interest to be without merit.

b. to condemn the Claimant in the costs of the proceedings.

E. VALUE OF THE PROCEEDINGS

In accordance with the provision of article 306 of the Code of Civil Procedure, approved by Law no. 41/2013, of 26 June, article 97-A) no. 1 paragraph a) of the Code of Tax Procedure and Process, and article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €39,187.83.

F. COSTS

At the charge of the Claimant, under the terms of articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings and 12 no. 2 and 22, no. 4 of RJAT.

NOTIFY

Text prepared by computer, in accordance with the provision in article 131 of the Code of Civil Procedure, applicable by reference to article 29 no. 1, paragraph e) of the Regime for Arbitration, with blank verses, and revised by the arbitrator.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Lisbon, 30 April 2015

The Arbitrator

(José Coutinho Pires)

[1] Where autonomous taxation was provided for, at the rate of 10%, on confidential or undocumented expenses.

[2] Decision no. 617/2012, of 19 December 2012 (Plenary).

[3] Decision of 12-04-2012, reported by Justice Fernanda Maças.

[4] Decision of the Constitutional Court cited.

[5] Manual of Tax Law, 3rd edition, Almedina, Coimbra 2007, pages 407 et seq.

[6] Notes on the IRC Code, Almedina, Coimbra 2009, reprint of the November 2008 edition, pages 202 et seq.

Frequently Asked Questions

Automatically Created

What are autonomous taxations (tributações autónomas) on travel allowances and employee vehicle compensation under Portuguese IRC?
Autonomous taxations (tributações autónomas) on travel allowances and employee vehicle compensation under Portuguese IRC are special tax rates applied to certain deductible business expenses, independent of the company's actual profit or loss. Under Article 88(9) of the IRC Code (as applicable to the 2010 fiscal year), deductible expenses related to travel allowances (ajudas de custo) and compensation for employees using their own vehicles are subject to a 5% autonomous taxation rate, unless these expenses are invoiced/recharged to clients or subject to Personal Income Tax (IRS) in the hands of the employee beneficiary. This provision functions as an anti-abuse mechanism to prevent companies from claiming tax deductions for personal or inadequately justified expenses. The taxation applies regardless of whether the company has taxable profit, ensuring minimum tax collection on specific expense categories that the legislator considers prone to abuse or requiring enhanced fiscal oversight.
Can a company challenge additional IRC assessments related to deductible travel and vehicle expenses through tax arbitration at CAAD?
Yes, Portuguese companies can challenge additional IRC assessments related to deductible travel and vehicle expenses through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária), taxpayers have the right to submit disputes concerning the legality of tax acts to arbitral tribunals as an alternative to judicial courts. In Process 735/2014-T, the company successfully accessed CAAD arbitration to contest an IRC assessment involving autonomous taxation on travel allowances and vehicle compensation. CAAD arbitration offers advantages including faster resolution (typically 6 months versus years in administrative courts), specialized tax law arbitrators, lower costs, and binding decisions. The arbitration request must clearly identify the contested assessment act, present legal grounds for illegality, and be filed within the statutory deadline after exhausting mandatory administrative remedies.
What administrative steps must be followed before filing a CAAD arbitration request against the Portuguese Tax Authority (AT)?
Before filing a CAAD arbitration request against the Portuguese Tax Authority, taxpayers must exhaust compulsory administrative remedies (reclamação necessária). In Process 735/2014-T, the company followed this sequential pathway: (1) External tax inspection conducted, resulting in additional IRC assessment notification on January 9, 2013; (2) Taxpayer complaint (reclamação graciosa) filed on May 22, 2013, pursuant to Articles 68-79 of the LGT (Lei Geral Tributária); (3) Partial rejection decision notified on December 9, 2013; (4) Hierarchical appeal (recurso hierárquico) filed on January 7, 2014, under Articles 66-67 of the CPPT (Código de Procedimento e Processo Tributário); (5) Hierarchical appeal rejection notified on July 14, 2014; (6) CAAD arbitration request filed on October 22, 2014, within the 90-day deadline following final administrative decision. This procedural sequence is mandatory—direct access to arbitration without prior administrative challenge results in inadmissibility of the arbitration request. The requirement ensures administrative authorities have opportunities to review and potentially correct contested acts before formal dispute resolution.
How does the CAAD arbitral tribunal assess the legality of IRC autonomous taxation on ajudas de custo and vehicle compensation?
The CAAD arbitral tribunal assesses the legality of IRC autonomous taxation on ajudas de custo and vehicle compensation by examining whether the Tax Authority correctly applied the relevant legal provisions and whether the taxpayer satisfied the conditions for exemption from autonomous taxation. In Process 735/2014-T, the legal analysis focused on interpreting Article 88(9) of the IRC Code, specifically: (1) Whether the law requires travel expenses to be expressly itemized on client invoices or whether other accounting documentation suffices to prove recharging to clients; (2) The evidentiary burden on the taxpayer to demonstrate expenses were invoiced to clients; (3) Whether AT's interpretation constitutes an unlawful addition of formal requirements not prescribed by statute; (4) The anti-abuse purpose of autonomous taxation provisions and proportionality of enforcement. The tribunal reviews the administrative file, written submissions, legal arguments, accounting documentation, and applicable tax law precedents. The arbitrator must determine whether the assessment act is illegal due to factual error, legal misinterpretation, or procedural irregularity. The decision can annul the assessment entirely, partially uphold it, or confirm AT's position, with reasoned legal analysis supporting the conclusion.
What was the outcome of CAAD Process 735/2014-T regarding the annulment of the 2010 IRC additional assessment?
The text excerpt of CAAD Process 735/2014-T provided does not include the final decision section (Decisão), which would contain the tribunal's ruling on whether to annul the 2010 IRC additional assessment. The available portion includes the procedural history, the parties' arguments, and the beginning of the factual findings (Matéria de Facto), but terminates mid-sentence at point 6 of the established facts. Based on the procedural status, the tribunal was properly constituted with Dr. José Coutinho Pires as sole arbitrator in December 2014, dispensed with the oral hearing in February 2015, and received written arguments from both parties. To determine the actual outcome—whether the tribunal ruled in favor of the company (annulling the assessment and ordering reimbursement with compensatory interest) or upheld AT's position (maintaining the autonomous taxation)—the complete arbitral decision would need to be consulted. CAAD decisions are typically published in full on the CAAD website and constitute binding precedents for interpreting Portuguese tax law provisions on autonomous taxation.