IRS Withholding Tax Dispute 2013: CAAD Arbitration on Additional Assessment Legality

ARBITRAL DECISION

REPORT

1. On 19 January 2017, A…, Lda, taxpayer no.…, with registered office at Rua …, …, …, hereinafter referred to as the Claimant, requested the constitution of an arbitral tribunal and submitted a request for arbitral pronouncement, pursuant to paragraph a) of section 1 of Article 2 and paragraph a) of section 1 of Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to simply as LRTA), against the Tax and Customs Authority (hereinafter referred to as TCA).

2. The Claimant is represented, in the scope of the present proceedings, by its legal representative, Dr. B…, and the Respondent is represented by legal counsels, Dr. C…, Dr. D… and Dr. E….

3. The request for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Respondent on 31 January 2017.

4. Through the request for constitution of the arbitral tribunal and arbitral pronouncement, the Claimant seeks a) the declaration of illegality of the order of the Head of Division of the Tax Administration of Lisbon rejecting the administrative complaint presented against the additional assessment of Personal Income Tax (PIT), Withholding tax, concerning the year 2013, in the amount of €2,605.98 (two thousand, six hundred and five euros and ninety-eight cents) and compensatory interest in the amount of €200.48 (two hundred euros and forty-eight cents), all totalling €2,806.46 (two thousand eight hundred and six euros and forty-six cents), and b) the declaration of illegality and respective annulment of this tax act.

5. Once the formal regularity of the request submitted was verified, in accordance with paragraph a) of section 2 of Article 6 of the LRTA and as the Claimant did not proceed to appoint an arbitrator, the undersigned was appointed by the President of the Deontological Council of the CAAD.

6. The Arbitrator accepted the appointment made, and the arbitral tribunal was constituted on 19 April 2017, at the headquarters of the CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as per the deed of constitution of the arbitral tribunal that was drawn up and is attached to the present proceedings.

7. After being notified for this purpose, through an order of 20 April 2017, the Respondent submitted, on 24 May 2017, its response.

8. On 4 July 2017, the Tribunal, with a view to assessing the usefulness of producing witness evidence requested in the initial application, notified the parties to indicate the facts subject to examination at the hearing.

9. On 13 October 2017, the Tribunal, through an order, deemed it convenient to extend the period for decision by a period of two months, in accordance with the provisions of section 2 of Article 21 of the Legal Regime for Tax Arbitration (LRTA), and given the unnecessary nature of producing additional evidence beyond that which is already documentary incorporated in the proceedings, not envisioning the need for the parties to correct their respective procedural documents, as the proceedings contained all the necessary elements for the rendering of the decision, for reasons of procedural economy, avoiding the practice of useless acts, deemed it appropriate to dispense with the holding of the meeting referred to in Article 18 of the LRTA, with dispensation of the examination of the witnesses listed by the parties, and the dispensation of the submission of arguments, notifying, in this sequence, the parties to pronounce themselves on the procedural course suggested.

10. In this same order, the Tribunal set 19 December 2017 as the date for rendering the arbitral decision, and finally warned the Claimant that it should proceed to pay the subsequent arbitral fee, in accordance with section 3 of Article 4 of the Regulation on Costs in Tax Arbitration Proceedings, and communicate the same payment to the CAAD.

The Claimant submits its request, in summary, in the following manner:

The Claimant sustains the request for annulment of the withholding tax assessment on personal income tax (PIT) to which it was subject, as illegal, for being affected by the following defects:

a) Defect of lack of reasoning of the tax assessments, on the grounds that "it was notified of the additional PIT assessment and compensatory interest liquidation no. 2016… (…)" without, however, from it "result[ing] sufficient and adequate necessary reasoning, either of fact or of law", given that "not all of its grounds are made explicit, either of fact or of law, only resulting from the same that it concerns withholdings in December 2013 relating to capital-other income. That is, from the additional PIT assessment only results the identification of the period, the amount to be paid and the means of reaction, not resulting any identification as to the corrections that would have been at the origin of the determination of the allegedly missing tax. Likewise, the specific legal provisions under which the tax, and the compensatory interest are assessed are not identified."

b) Thus, the Claimant considers that "the tax liquidation and compensatory interest notified to the Applicant is, as has been demonstrated, omissive as to the necessary reasoning, of fact and of law, therefore it is tainted by a formal defect, lack of reasoning, and should be annulled accordingly (cf. Article 135 of the Code of Administrative Procedure). And against the foregoing cannot be invoked the reasoning carried out by way of referral to an earlier Tax Inspection procedure" because, according to what the Claimant understands "there is not even any referral to any concrete document containing that same reasoning, that is, there is no referral to a concrete Inspection Report, nor is the respective Tax Inspection procedure identified." In effect, the Claimant adds further that "even if it were admitted that the assessments in question could be reasoned by means of some other external document, without the need to comply with the minimum reasoning requirements demanded by section 2 of Article 77 of the GTL, it would still be necessary to require the express referral in the assessments themselves to that same document, which did not occur." Thus, "not having done so, the assessment in question is illegal, due to omission of legally required reasoning, thus violating Articles 268, section 3 of the Constitution of the Portuguese Republic and 77 of the GTL, and should be annulled accordingly (cf. Article 135 of the Code of Administrative Procedure)."

c) The Claimant further expresses the understanding that "the reasoning of the Conclusions of the Tax Inspection Report that were notified to the Applicant (…) is neither congruent, nor, moreover, clear." In effect, the Applicant submits that "upon the Tax and Customs Authority rests the legal duty not only to indicate all facts, in a clear and coherent manner, but also to indicate and sustain its conclusions with the corresponding legal provisions. In effect, only with the indication of all the reasons, of fact and of law, can the Applicant, in conscience, assess the legality of the acts practised by the Tax and Customs Authority and, thus, opt for their contestation or acceptance. With regard to the material content of the reasoning, we find its provision in Article 125 of the Code of Administrative Procedure (…)."

d) The Claimant further states, as to this matter, that "in the case in question, the Tax and Customs Authority limits itself to listing mere conclusive judgements which, as is settled and unanimously stated in doctrine and jurisprudence, do not represent the legally required reasoning. In truth, throughout the Inspection Report, and on the assumption that it is only conceived by mere precaution that this has any relationship with the PIT assessment act and compensatory interest that also constitutes the object of the present request for arbitral pronouncement, the Tax Inspection Services of the Tax Administration of Lisbon limit themselves to asserting that the difference between the values deposited in bank accounts and the values declared for tax purposes constitutes omitted income from the tax declarations. (…) The Tax and Customs Authority limits itself to feigning and listing facts and assumptions that it considers allow for the additional tax assessment, concluding from them without explaining in any way how it reached those same conclusions. Thus it was not possible for the Applicant to grasp the cognitive process of the Tax Inspection Services as a result of which the PIT corrections were determined, since the Tax and Customs Authority's services only base the conclusions of the Inspection Report on mere extrapolations and conclusive judgements."

e) The Claimant further adduces that "[there is] also manifest the incongruence and contradiction of the alleged reasoning (…) to the extent that the Tax and Customs Authority attempts through mere insinuations to denigrate and discredit the present Applicant and its legal representatives", for which reason "(…) to conclude that, the Tax Inspection Services by not explaining in the Inspection Conclusions Report the conclusions on which they supposedly base themselves should annul the tax assessment carried out, if any relationship exists between the said report and this assessment which is unknown but speculated, by precaution."

f) Error as to the factual and legal assumptions - the Claimant argues that "the Tax and Customs Authority seems to intend (…) that the income in question is classifiable under paragraph h) of section 2 of Article 5 of the PIT Code. This is not true. In effect, the Tax and Customs Authority admits that the identified bank accounts, without prejudice to their respective holder were devoted to the activity of the partner, whether through the Applicant or through his personal activity as a teacher. Now, (…) on the one hand, should it consider, albeit erroneously, that all values relate to the Applicant, the Tax and Customs Authority could, always without conceding, consider amounts used for personal purposes as taxable income in PIT. In effect, if the Tax and Customs Authority admits that the bank accounts are devoted to the activity, then it seems clear that it should conclude that all financial resources not used are found within the sphere of the Applicant, not having been distributed. What it cannot do is consider that the values represent omitted income by the Applicant and simultaneously distributed profits.", in particular, because "(…) the values in the said bank accounts do not represent income of the Applicant (…) therefore could never have been distributed." Furthermore, "the amounts determined by the Tax and Customs Authority are calculated in error" since such "''income'' (always without conceding), would amount to (-) €11,631.26 and not to (+) €9,307.06, making the assessment illegal also for this reason."

g) The Claimant further adds that if there exists "taxable income as intended [by the TCA] (…) the truth is that the taxable facts would have been distributed over the twelve months of the calendar year (…) it would not have occurred only in December of the respective calendar year, to the extent that the bank accounts analysed do not reflect deposits only in that month. (…) Thus, being subject to tax at a liberatory rate, in which each taxable event occurs and terminates at the exact moment of the occurrence of the situations provided for in the respective rule of incidence.(…)"

h) Further stating that "[i]t is therefore not admissible the taxation of the Applicant by the patrimonial increase, regardless of the legal qualification given to the values in question, which, in fact, as has been proved, did not exist in that concrete taxation period." to conclude that "(…) verified the impossibility of the incidence of Personal Income Tax on realities not comprised in that economic concept of income, as, in the present case, happens with respect to the Applicant, should the assessment that also constitutes the object of the present proceedings be annulled accordingly."

i) The Claimant considers it, still, pertinent, in favour of its defence, to allude that "it is assumed as a tax substitute", therefore, under Article 28 of the General Tax Law, its responsibility "is limited to amounts withheld and not delivered". Thus, and having regard to the specific case, the Claimant understands that "there is no situation of withheld and undelivered tax, but solely the assumption by the Tax and Customs Authority that certain realities assume the nature of income (capital application) taxable in PIT, at a liberatory rate. Since the Applicant at no moment conceived that it had paid income with the referred characteristics to the holders of the capital, it also withheld no amount as tax (nor any other title to be rigorous), for subsequent delivery to the State. (…) responsibility cannot be imputed to the Applicant for the payment of the tax under Article 28, section 1 of the General Tax Law."

j) Defect of violation of the principle of inquiry and pursuit of material truth, on the grounds that the Claimant considers that "(…) in accordance with the principle of inquiry, enshrined in Article 58 of the General Tax Law, the Tax and Customs Authority must, in the procedure, carry out all necessary diligences to the satisfaction of the public interest and the discovery of material truth." Thus, and in concrete, "throughout the inspection procedure (…) the Applicant always refuted the accusations and presented successively elements that contradict the understanding of the Tax and Customs Authority", for which reason, "the failure to verify the elements necessary to the discovery of material truth, with the consequent violation of the principle of inquiry, taints with illegality the tax act issued in that sequence."

k) Concluding, the Claimant, to the effect that "the Inspection Services violated the provisions of Article 58 of the General Tax Law and Article 6 of the Complementary Tax Inspection Regime, a violation which, given its contribution to the corrections carried out that underlie the emission of the tax acts in question, cannot but taint them and lead to their respective annulment."

l) Illegality of the liquidation of compensatory interest, given that, the Claimant "was notified of the assessment that includes the liquidation of compensatory interest," being that from this "act only contains the calculation basis, the rate and the period considered (…)" it does not contain "any mention of the essential reasons why such interest could be and were liquidated." In truth, the Claimant considers that "at no moment, in the act notified and now in question, did the Tax and Customs Authority manage to demonstrate, or even invoke, the assumptions on which depends the liquidation of compensatory interest, nor even invoking any legal provision under which it acts." namely the taxpayer's fault in the alleged delay in the tax liquidation.

m) The Claimant further states that "(…) not containing the Final Tax Inspection Report any reference to compensatory interest, was not given to the present Applicant the opportunity to participate, in the prior hearing on the decision to liquidate such interest", thus, "(…) failed to safeguard neither the letter nor the ratio of the combined provisions of Articles 267, section 5 of the Constitution of the Portuguese Republic, 60, section 1, paragraphs a) and e), and 3 of the General Tax Law and 45 of the Tax Procedure Code, acting illegally and unilaterally, which, not being able and not should be disregarded, determines the preterition of an essential legal formality, with the inherent consequences at the level of the validity of the tax act in question."

n) Illegality of the decision of the administrative complaint, the Claimant expresses the understanding that, on the one hand, "[b]y maintaining itself in the legal order, the contested assessment acts, the Head of Division acted in error as to the factual and legal assumptions, and the defects attributed to the assessment acts are transmitted to the decision itself that maintains them", and on the other hand, "(…) it is verified that the Head of Division does not pronounce itself on all the questions raised by the Applicant, thus violating the provisions of Article 56 of the General Tax Law", to conclude to the effect that "(…) the said Order of the Head of Division should be annulled because carried out with violation of the applicable legal norms and principles (cf. Article 135 of the CPA)."

III. In its Response the Respondent Invoked, in Summary, the Following:

a) For its part, the TCA comes to present its defence, by way of impugnation, invoking, first of all, as to the alleged defect of lack of reasoning of the assessments and by way of introduction that "(…) the factual and legal reasoning of the disputed liquidations is contained in the content of the final report of the tax inspection, a fact that the Claimant cannot be unaware of since the notification of the report expressly mentions that it will give rise to the issuance of liquidations, against which it may react via administrative or contentious means. But even if this were not the case, that is, even if the Claimant were not notified of the final report, it could still, under the terms of Art. 37 of the TCPC request the TCA to notify it of the reasoning of the disputed liquidations, which it did not do."

b) Further stating, the Respondent that "[c]ontrary to the Claimant, we are not in the presence of reasoning subsequent to the assessment act nor could the Claimant be unaware that the corrections promoted by the tax inspection would give rise to those liquidations, with the factual and legal grounds explicitly stated in the final report. This very thing is contained in the information given in the administrative complaint proceedings brought by the Claimant (…)."

c) With regard to the alleged defect of the lack, incongruence or insufficiency of reasoning of the conclusions report of the inspection action, the Respondent understands that "[i]t is not seen (…) in what the TCA may have violated the provisions of Art. 77 of the TCPC, resulting clear, coherent and sufficient the factual and legal reasoning of the disputed corrections. A careful reading of the final report allows one to know the concrete facts and the legal reasons that led to the conclusion of the need for the disputed corrections (…)" it not being "(…) therefore true that the TCA "limits itself to listing mere conclusive judgements", since these flow from a detailed analysis and properly documented by the tax inspection."

d) With regard to the alleged error as to factual and legal assumptions, the Respondent alludes that "contrary to what is alleged by the Claimant, the Tax Authority based itself on the elements it had, in order to, from easily understandable logic, conclude for the proposed corrections".

e) In truth, the Respondent considers that "(…) it flows crystallinely that, from approximately July 2011, the account of F… (son), began to be operated as if it were the account of the Company, and that, it began to be so because then G… (Father) and wife, were fearful that their personal accounts could be seized, which also allows one to conclude that until then it was these accounts that were used as if they were company accounts. (…) Having this in mind, a simple calculation was made, (…) in which the declared income, both by the company and by its partner G… (Father), was deducted from deposits made in the accounts, to conclude, since no other income exists in the household, therefore considered as omitted income. And, these were imputed to the company, taking into account the aforesaid declarations, the descriptions of the transfers determined in the investigation, the use of the company for the provision of services by the partner G… and the fact that he did not maintain patrimonial separation." Further, the Respondent opining to the effect that "(…) for the Claimant to attempt to make believe that it is abusive the conclusion of the Respondent that the amount credited in the accounts whose partner declared to be operated as if of the company, deducted from the amounts by him and his wife declared as title of lessons taught in a personal capacity, corresponds to the values he omitted, appears to be, save for better opinion, impossible."

f) In effect, the Respondent argues that "in the scope of the inspection action, there was an omission of income, given the divergence between the amounts deposited in the bank accounts and the declared income, as well as the successive determination of tax losses." Moreover, "[t]he present Claimant alleges that, always without conceding, the income would amount to €115,609.90 and not €136,508.20, however, it does not present means of proof, nor factual and legal grounds that prove the intended amount. (…) The amount of €36,508.20 was determined, referring to omitted income that remained in the bank accounts of the holders (partners-managers and son (…). Reasons that allow one to conclude that the family obtained income from the company greater than that declared in PIT."

g) As to the alleged defect of violation of the principle of inquiry and pursuit of material truth, the Respondent expresses the understanding that "(…) the entire inspective procedure that preceded the additional liquidation now contested sought material truth, with the Tax Inspection Services carrying out all the diligences they considered necessary for its determination, namely, through the crossing of information and cooperation of third entities, having also fundamentedly assessed the "elements" brought to the fore by the present Claimant in the exercise, although untimely, of the right to be heard."

h) With regard to the Claimant's allegation to the effect that, in the scope of the inspective procedure, it had refuted "the accusations and presented successive elements that contradict the understanding of the Tax Authority", the Respondent contradicts, alluding that "(…) it did not result from it, nor does it result from the present proceedings, that the same managed to even invoke an argument, a fact or provided or indicated any evidentiary element that could support the alleged "elements"", therefore "[n]ot managing the Claimant to bring any means of proof, or any indicator that could sustain its allegations, one cannot achieve how the principle of inquiry could lead the Respondent to "ascertain" "elements", which did not find in the facts any support."

i) With respect to the alleged illegality of the liquidation of compensatory interest, the Respondent mentions that the "reasoning of the liquidation of compensatory interest flows from the corrections carried out by the TCA that the Claimant liquidated tax in an amount less than legally due, being imputability to the taxpayer the delay in the delivery of the tax, under the terms of section 1 of Article 35 of the GTL." Furthermore, "in the case in question, it was found that the Claimant did not comply with the provisions of paragraph a) of section 1 of Art. 20 of the CIRC", concluding for the lack of merit, also, of this defect.

j) Finally, and with regard to the alleged defect of illegality of the decision of the administrative complaint, the Respondent refers to the factual and legal arguments expounded in its response.

k) The Respondent finally petitions the lack of merit of the arbitral request for lack of legal support of all the defects invoked.

IV. Preliminary Matters

The Tribunal is competent and is duly constituted, in accordance with paragraph a) of section 1 of Article 2 and Articles 5 and 6, all of the LRTA.

The parties have legal personality and capacity, show themselves to be properly interested, are duly represented and the proceedings do not suffer from any nullities.

V. Statement of Facts

For the conviction of the Arbitral Tribunal, with respect to the facts found proved, the documents joined to the proceedings analyzed and considered in conjunction with the pleadings were relevant.

a. Facts Found Proved

Of interest for the decision, the following facts are found proved:

A. The Claimant is a limited liability company that exercises economic activity with CAE 85593 – Other Educational Activities NEC, developing activity essentially in school support and preparation (tuition) for secondary school exams and entry to higher education and language courses, without, however, having the proper recognition by the competent ministry. - cf. Agreement of the parties as not contested - ;

B. The Claimant is classified under the normal quarterly regime of Value Added Tax (VAT) and under the general regime of Corporate Income Tax - cf. Agreement of the parties as not contested - ;

C. The Claimant was subject to an inspection action, based on Service Orders OI2013…, OI2014… and OI2014…, referring to the years 2011, 2012 and 2013, respectively, all beginning on 03.07.2014 - cf. Agreement of the parties as not contested - ;

D. Service Order OI20130…, referring to the exercise of 2011, was opened with inspection proposal no. PIP2012…, dated 10.08.2012, following the information from the Financial Intelligence Unit (FIU) of the Judicial Police. - cf. Agreement of the parties as not contested - ;

E. Service Orders OI2014… and OI2014…, referring to the exercises of 2012 and 2013, respectively, were opened following inspection proposal no. PIP2014…, dated 13.02.2014. - cf. Agreement of the parties as not contested - ;

F. In the course of the inspective procedure it was ascertained that G… exercised, at the date of the facts (2011, 2012 and 2013) and in the year of the inspection procedure, the functions of manager of the Claimant, and provided services to the same, in accordance with the receipts issued by him, which consisted of lessons taught in a personal capacity on secondary and higher education matters. - cf. Agreement of the parties as not contested - ;

G. The bank account with the no. …/…, held by F… was, at the date of the facts, operated by G…, father of the latter, as if it were the account of the Claimant company, presenting as credit, in the exercise of 2012, the sum of the company's income and the income of Category B obtained by G… in the exercise of his professional activity as a tutor, in the amount of €300,454.92 (three hundred thousand, four hundred and fifty-four euros and ninety-two cents). - cf. Agreement of the parties as not contested - ;

H. The Financial Intelligence Unit of the Judicial Police determined, from the analysis carried out on the credit movements in the account identified in G. above, that the cheques deposited in the same were issued by individuals, to bearer or to the order of G… and that the transfers were ordered by individuals with accounts in various banks, with descriptions such as "registration", "payment", "A…", "tuition fee", "lessons", among others. - cf. Agreement of the parties as not contested - ;

I. The partner-manager of the Claimant made transfers to the account held by his wife, H…, in order to make payments of expenses of the Claimant company. - cf. Agreement of the parties as not contested - ;

J. At the date of the facts, F… (son) appeared in the periodic statement of income of the parents (G… and H…) (form 3 of PIT) as a dependent with no income. - cf. Agreement of the parties as not contested - ;

K. G… and his wife H… submitted together a statement of Income – Form 3 PIT for the exercises of 2011, 2012 and 2013 with indication of income of category A – income from dependent work – paid by the Claimant company, in the total amounts of €18,000.00, €18,317.52, and €17,748.24 respectively. - cf. Agreement of the parties as not contested - ;

L. G… initiated, on 27.09.2010, activity in individual name, being classified under the VAT exemption regime and the simplified taxation regime for PIT purposes, having declared for the exercises under analysis, income from category B – income from independent work (tuition) – the amounts of €86,092.75, €32,156.38 and €35,903.75, respectively. - cf. Agreement of the parties as not contested - ;

M. In accordance with the statements made in the scope of the investigation process …/2013 …TDLSB, the bank account with the no. …/…, held by F…, presented as credit in the years 2011, 2012 and 2013, the sum of the company's income and the income from category B obtained by G… in the exercise of his professional activity as a tutor, in the overall amounts of €130,463.10, €300,454.92 and €155,906.66, respectively – cf. Agreement of the parties as not contested - ;

N. F… was also holder of a youth account, where were made several monthly transfers with descriptions such as "catholic", "allowance", "food". – cf. Agreement of the parties as not contested - ;

O. In the course of the inspective procedure carried out by the Respondent, it was found that the Claimant company presented, in terms of Corporate Income Tax (CIT) in the years 2011, 2012 and 2013 negative net results in the amounts of €32,317.86, €40,691.26, €3,866.55, respectively. - cf. Agreement of the parties as not contested -;

P. The bank accounts of F… and H… were used as if they were of the Claimant company, the account of the first being used as a pass-through account, from which amounts were withdrawn for the accounts held by the parents (G… and H…). - cf. Agreement of the parties as not contested - ;

Q. The Claimant company declared activity revenue, in the amount of €114,818.87 and G…, partner-manager of the Claimant declared income from category B, in the amount of €35,903.75. - cf. Agreement of the parties as not contested - ;

R. The Claimant was notified of the draft tax inspection report and exercised the proper right to be heard. - cf. Agreement of the parties as not contested - ;

S. The Claimant was notified of the Tax Inspection Report, through Office no.… dated 30.12.2015. - cf. Agreement of the parties as not contested - ;

T. On 12.01.2016, based on the technical corrections carried out, in the scope of the inspection action, the Respondent proceeded to the issuance of the Withholding Tax-PIT assessment no. 2016…, in the amount of €2,605.98 (two thousand, six hundred and five euros and ninety-eight cents) and the liquidation of compensatory interest no. 2016…, in the amount of €200.48 (two hundred euros and forty-eight cents), all totalling €2,806.46 (two thousand eight hundred and six euros and forty-six cents), referring to the year 2013. - cf. Agreement of the parties as not contested - ;

U. The Claimant was notified of the withholding tax-PIT assessment and compensatory interest referred to in U. above. – cf. Doc. no. 2 attached to the initial application - ;

V. The Claimant submitted an administrative complaint against the withholding tax-PIT assessment and compensatory interest identified in U. above. – cf. Doc. no. 3 attached to the initial application - ;

W. The Claimant was notified of the final decision, dated 21.10.2016, to the effect of the rejection of the Administrative Complaint Procedure submitted by it, issued by the Administrative Justice Division of the Tax Administration of Lisbon – cf. Doc. no. 1 attached to the initial application - .

VI. Reasoning on the Facts

For the conviction of the Arbitral Tribunal, with respect to the facts found proved, the documents joined to the proceedings are relevant, all analyzed and considered in conjunction with the pleadings.

VII. Facts Found Not Proved

There are no facts found not proved, because all facts relevant to the assessment of the request were found proved.

VIII. Legal Grounds

The following matter is to be assessed and decided: to know whether the tax act, carried out by the TCA, which is embodied in the Withholding Tax-PIT assessment no. 2016…, in the amount of €2,605.98 (two thousand, six hundred and five euros and ninety-eight cents) and the liquidation of compensatory interest no. 2016…, in the amount of €200.48 (two hundred euros and forty-eight cents), all totalling €2,806.46 (two thousand eight hundred and six euros and forty-six cents), referring to the year 2013 is illegal, in view of the defects invoked by the Claimant.

Let us see,

The Claimant, to accomplish its aim of seeing annulled, for illegality, the withholding tax-PIT assessment – and respective compensatory interest referring to the exercise of 2013 invokes several defects, namely:

a) Defect of lack of reasoning of the assessments and lack, incongruence or insufficiency of reasoning of the conclusions report of the inspection action;

b) Error as to factual and legal assumptions;

c) Defect of violation of the principle of inquiry and pursuit of material truth;

d) Illegality of the liquidation of compensatory interest;

e) Illegality of the decision of the administrative complaint.

These defects which will be assessed below to verify the illegality or otherwise of the assessment in question.

On the alleged defect of lack of reasoning of the assessment and lack, incongruence or insufficiency of reasoning of the conclusions report of the inspection action

1. As a first defect, the Claimant invokes the lack of reasoning of the assessments, on the grounds that, although "notified of the additional PIT assessment and compensatory interest liquidation no. 2016… (…)", the truth is that, according to its understanding, from that notification does not "result sufficient and adequate necessary reasoning, either of fact or of law", given that "not all of its grounds are made explicit, either of fact or of law, only resulting from the same that it concerns withholdings in December 2013 relating to capital-other income. (…), the specific legal provisions under which the tax, and the compensatory interest are assessed are not identified."

2. Further, it alleges that "the reasoning of the Conclusions of the Tax Inspection Report that were notified to the Applicant (…) is neither congruent, nor, moreover, clear. (…) in the case in question, the Tax and Customs Authority limits itself to listing mere conclusive judgements (…) not explaining in any way how it reached those same conclusions. Thus it was not possible for the Applicant to grasp the cognitive process of the Tax Inspection Services as a result of which the PIT corrections were determined, since the Tax and Customs Authority's services only base the conclusions of the Inspection Report on mere extrapolations and conclusive judgements." to base the defect that it invokes of lack, incongruence or insufficiency of reasoning of the conclusions report of the inspection action.

3. In opposition, the Respondent, on the one hand, states that "(…) the factual and legal reasoning of the disputed liquidations is contained in the content of the final report of the tax inspection, a fact that the Claimant cannot be unaware of since the notification of the report expressly mentions that it will give rise to the issuance of liquidations, against which it may react via administrative or contentious means. But even if this were not the case, that is, even if the Claimant were not notified of the final report, it could still, under the terms of Art. 37 of the TCPC request the TCA to notify it of the reasoning of the disputed liquidations, which it did not do." And, on the other, that "[i]t is not seen (…) in what the TCA may have violated the provisions of Art. 77 of the TCPC, resulting clear, coherent and sufficient the factual and legal reasoning of the disputed corrections. A careful reading of the final report allows one to know the concrete facts and the legal reasons that led to the conclusion of the need for the disputed corrections (…)" it not being "(…) therefore true that the TCA "limits itself to listing mere conclusive judgements", since these flow from a detailed analysis and properly documented by the tax inspection."

Let us see,

1. The duty to provide reasoning for the decision within the scope of a tax administrative procedure has expression in Article 77 of the General Tax Law, according to which it provides that:

1 - The decision of a procedure is always reasoned by means of a brief exposition of the reasons of fact and of law that motivated it, with the reasoning being able to consist in a mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that form part of the tax inspection report.

2 - The reasoning of tax acts may be carried out in summary form, and must always contain the applicable legal provisions, the characterization and quantification of the taxable facts and the operations of determination of the taxable matter and of the tax.

3 - In case of existence of operations or series of operations on goods, rights or services, or of financial operations, carried out between a taxpayer of income tax and any other entity, subject or not to income tax, with which the former is in special relationships, and whenever there is non-compliance with any obligation established in law for that situation, the determination of the taxable matter corrected from the effects of special relationships must observe the following requirements:

a) Description of special relationships;

b) Indication of the obligations breached by the taxpayer;

c) Application of the methods provided for by law, with the Tax Authority being able to use any elements it has and being considered its duty to provide reasoning for the elements of comparison adequately observed even if from such elements are purged the data susceptible of identifying the entities to which they relate;

d) Quantification of the respective effects.

4 - The decision of taxation by indirect methods in cases and with the grounds provided for in the present law shall specify the reasons for the impossibility of direct and exact proof and quantification of the taxable matter, or shall describe the departure of the taxable matter of the taxpayer from the objective indicators of the activity of scientific basis or shall describe the goods whose ownership or enjoyment the law considers as manifestations of wealth relevant, or shall indicate the sequence of relevant tax losses, and shall indicate the criteria used in the assessment of the taxable matter.

5 - In case of application of indirect methods by departure from the objective indicators of activity of scientific basis the reasoning shall also include the reasons for the non-acceptance of the justifications presented by the taxpayer under the terms of the present law.

6 - The effectiveness of the decision depends on the notification."

1. As well as, the same duty is provided for in Article 63 of the Complementary Tax Inspection Procedure Regime which provides that:

"1 - Tax acts or matters concerning tax that result from the report may be reasoned in its conclusions, through adherence or agreement with these, and in all cases the entity competent for its practice must reason the divergence from the conclusions of the report.

2 - The services involved in the inspection procedure shall be mandatorily communicated the tax acts or matters concerning tax that result from the report, as well as its revision in virtue of petition, complaint or appeal of any nature."

1. In effect, Article 152 of the Code of Administrative Procedure (CAP) provides as to this matter that:

"1 - In addition to cases in which the law specially requires it, administrative acts must be reasoned which, wholly or in part:

a) Deny, extinguish, restrict or affect in any way rights or legally protected interests, or impose or aggravate duties, charges, burdens, subjections or sanctions;

b) Decide an administrative complaint or appeal;

c) Decide contrary to a claim or opposition formulated by an interested party, or of opinion, information or official proposal;

d) Decide in a way different from the practice habitually followed in the resolution of similar cases, or in the interpretation and application of the same principles or legal provisions;

e) Involve a declaration of nullity, annulment, revocation, modification or suspension of previous administrative act.

2 - Except for legal provision to the contrary, acts of homologation of deliberations taken by juries are not required to be reasoned, as well as orders given by hierarchical superiors to their subordinates in matter of service and with legal form."

1. Further, Article 153 of this law provides, under the heading "Requirements of Reasoning" that:

"1 - The reasoning must be express, through brief exposition of the grounds of fact and of law of the decision, being able to consist in a mere declaration of agreement with the grounds of previous opinions, information or proposals, which constitute, in this case, an integral part of the respective act.

2 - It is equivalent to the lack of reasoning the adoption of grounds which, by obscurity, contradiction or insufficiency, do not concretely clarify the motivation of the act.

3 - In the resolution of matters of the same nature, any mechanical means that reproduces the grounds of the decisions may be used, provided that this does not involve a reduction of the guarantees of the interested parties."

1. We find, further, and finally, this objective, in section 3 of Article 268 of the Constitution of the Portuguese Republic (CPR) to the effect that:

"Administrative acts are subject to notification to the interested parties, in the form provided by law, and require express and accessible reasoning when they affect rights or legally protected interests."

1. Now, in the concrete case, we can ascertain from the facts found proved, in particular in points Q. and R. that the Claimant was notified of the draft tax inspection report and exercised the proper right to be heard,

2. …having subsequently been notified of the Tax Inspection Report, through Office no.…, dated 30.12.2015, where were found, according to what the Respondent mentions, the reasons of fact and of law that would originate the contested assessment in the present proceedings.

3. Now, the Claimant alleges that "if the Tax and Customs Authority intended for any Inspection Report to reason, of fact and of law, the contested assessment it should have referred to it expressly, in the assessment itself – which it did not do.", however, we believe it is not correct, because,

4. …as a general rule, and this should not be an exception, the assessment, in these cases, is the result of the investigations and conclusions that the TCA reached in the scope of the tax inspection action carried out to the accounts and records of the Claimant, for the exercises of 2011, 2012 and 2013, …

5. …something which, in fact, in the concrete case, the Claimant was warned of, when notified of the Inspection Report – which occurred, according to the same, through the Office dated December 2015 no.…, of 20 April 2010, of the Tax Inspection Services, of the Tax Administration of Lisbon (See Article 43 of the initial application) - , which, according to what the Respondent mentions, in its response, "the notification of the report expressly mentions that it will give rise to the issuance of liquidations against which it may react via administrative or contentious means."

6. Fact that is drawn from the final decision of the administrative complaint no. …2016…, of 21.10.2016, attached to the proceedings with the initial application, which refers that "[i]t should be noted that the present claimant was notified of the Tax Inspection Report, by Office no.…, of 30-12-2015 (Registration of CTT RD … PT). The said notification states that "Shortly, the TCA services will proceed with the notification of the respective liquidation, which will contain the means of reaction, as well as the payment period if applicable (cf. pp. 55 to 68 which are attached to the present proceedings)."

7. In effect, it follows from the notification of the Tax Inspection Report that the Claimant was given knowledge of the reasoning of the assessment, not least from the arguments made by the same in the scope of the administrative complaint that it presented and which is attached to the present proceedings with the initial application.

8. Furthermore, under section 2 of Article 77 of the GTL, which we resume here, "the reasoning of tax acts may be carried out in summary form, and must always contain the applicable legal provisions, the characterization and quantification of the taxable facts and the operations of determination of the taxable matter and of the tax.", something that appears to have been complied with by the Respondent.

9. In truth, relying on the jurisprudence of the Northern Administrative Court of Appeal, rendered in the case no. 00731/09.0BEPNF, of 24.05.2012, according to which: "I - The decision of the tax procedure as an act defining the position of the tax administration towards individuals must comply with the general requirements of the administrative act (Art. 123 of the Code of Administrative Procedure (CAP), within the scope of tax law, such requirement of reasoning flows directly from the norm of Art. 77 of the GTL.

II - The reasoning must be express, clear, sufficient and congruent.

III - The reasoning of an assessment act of (…) must be the foundation, the support, by which that concrete assessment was made and not any other, so as to allow the taxpayer to grasp the concrete facts from which it emerges and to determine itself by its acceptance or impugn it.

IV - The additional assessment act is sufficiently reasoned if the conclusions of the inspection report, of which the taxpayer was notified, minimally clarify the taxpayer of the reasons of fact and of law that led the Tax Administration to liquidate the tax in question."

1. Not convincing, therefore, the alleged lack of knowledge of the reasons and respective factual and legal reasoning contained in the Inspection Report that preceded and supported the contested assessment.

2. According to what the Respondent states, in parallel, from "a careful reading of the final report allows one to know the concrete facts and the legal reasons that led to the conclusion of the need for the disputed corrections (…) it not being therefore true that the TCA "limits itself to listing mere conclusive judgements", since these flow from a detailed analysis and properly documented by the tax inspection."

3. Now, the truth is that the Claimant alleges, in fact, that the TCA "limits itself to listing mere conclusive judgements", specifying, in Article 60 of the learned initial application that: "(…) the Tax Inspection Services of the Tax Administration of Lisbon, limit themselves to asserting that the difference between the values deposited in the bank accounts and the values declared for tax purposes constitutes omitted income from the tax declarations." and that it does not understand why the imputation of such omitted income is made in the last month of the year 2013.

4. However, it should be noted that, being in question the withholding tax-PIT[1] – which is a periodic tax, annual, which is, moreover, in this situation, taxed at a liberatory rate, as the Claimant rightly mentions, the tax rate is the same throughout the year 2013, regardless of whether it refers to January or December of that year, particularly because there was no change of the rate in that year.

5. Thus, the imputation of omitted income, in PIT, whether it occurred in January, March, August or December is not relevant for taxation purposes, because, as the Respondent mentions, the tax is due by reference to the moment of the provision of the service and not to that of its payment.

6. Thus, the present arbitral tribunal understands that the legal norms identified above were respected by the TCA, there being no occurrence of the alleged defect of lack of reasoning, given the Claimant knew duly the reasons of fact and of law that underlie the contested assessment, being therefore these alleged defects to be dismissed.

On the alleged error as to factual and legal assumptions

1. Another defect of the contested assessment invoked by the Claimant is error as to factual and legal assumptions, by way of which it considers that: "the Tax and Customs Authority seems to intend (…) that the income in question is classifiable under paragraph h) of section 2 of Article 5 of the PIT Code. This is not true. (…) In effect, if the Tax and Customs Authority admits that the bank accounts are devoted to the activity, then it seems clear that it should conclude that all financial resources not used are found within the sphere of the Applicant, not having been distributed. What it cannot do is consider that the values represent omitted income by the Applicant and simultaneously distributed profits." Moreover, the Claimant further alludes that "the amounts determined by the Tax and Customs Authority are calculated in error."

2. In response, the Respondent argues that "contrary to what is alleged by the Claimant, the Tax Authority based itself on the elements it had, in order to, from easily understandable logic, conclude for the proposed corrections". Having concluded that "the family obtained income from the company greater than that declared in PIT." Thus, it considers that "(…) it flows crystallinely that, from approximately July 2011, the account of F… (son), began to be operated as if it were the account of the Company, (…) Having this in mind, a simple calculation was made, (…) in which the declared income, both by the company and by its partner G… (Father), was deducted from deposits made in the accounts, to conclude, since no other income exists in the household, therefore considered as omitted income. And, these were imputed to the company, taking into account the aforesaid declarations, the descriptions of the transfers determined in the investigation, the use of the company for the provision of services by the partner G… and the fact that he did not maintain patrimonial separation."

3. Now, taking into account the statement of facts found proved, in particular in points F to R, we can verify, on the one hand, that the partners-managers of the Claimant company used the bank account held by their son, F…, located in I… identified in M. above of the facts found proved, as if it were of the company,

4. …crediting therein the values paid by the customers of the Claimant, and the income earned by the partner-manager in the exercise of his activity as a tutor, and

5. …debiting therefrom the amounts necessary to meet its own obligations.

6. In truth, in view of this situation of "financial promiscuity" it is plausible and reasonable to conclude that there was no patrimonial separation between the values received by the Claimant and those earned by the partner-manager, which could dispose of them as he saw fit, given that only he operated the bank account in question.

7. Thus, and as the Respondent states, "a simple calculation was made, in which the declared income, both by the company and by its partner G… (Father), was deducted from deposits made in the accounts, to conclude, since no other income exists in the household, therefore considered as omitted income". An omission that the Respondent considered "given the divergence between the amounts deposited in the bank accounts and the declared income, as well as the successive determination of tax losses."

8. Now, section 1 of Article 5 of the PIT Code provides that "Taxable income is considered to be the fruit and other economic advantages, whatever their nature or denomination, whether pecuniary or in kind, proceeding, directly or indirectly, from patrimonial elements, goods, rights or legal situations, of a moveable nature, as well as from the respective modification, transmission or cessation, with the exception of gains or other income taxed in other categories."

9. Further, paragraph h) of section 2 of the same Article 5 provides that: "The fruit and economic advantages referred to in the preceding section include in particular: h) the profits and reserves placed at the disposal of the associates or holders, advances on account of profits, excluding those referred to in Article 20."

10. Now, considering that the Respondent, in the scope of the inspection action it carried out, determined income in the amount of €45,210.81 "for which there is no justification of its use in the scope of the company's activity, being that it remained in the legal sphere of the holders of the bank accounts", taking into account, according to what the Respondent states, the calculations demonstrated in the Tax Inspection Report, namely, the total value of entries in the bank accounts and the payments accounted for by the company, and that from that value only income from category B was declared in the amount of €35,903.75, as the Respondent refers, it is clear and evident that there were omitted values in the legal sphere of the family which the Claimant did not contest in any particular manner.

11. Thus, the conclusion that the Respondent draws to the effect that "the income determined deposited in the bank accounts and that remained in the legal sphere of the family, were earned by the partners-managers" constitute taxable capital income, by advances on account of profits under paragraph h) of section 2 of Article 5 of the PIT Code, is plausible, particularly because, it should be noted, this situation was not contested in any specific and particular manner, demonstrative of the contrary, by the Claimant.

12. In truth, such income is subject to withholding at source, under the terms of Articles 98 and 101 of the PIT Code, at the liberatory rate provided for in paragraph c) of section 3 of Article 71 of the same law, therefore it was incumbent upon the Claimant to proceed to its delivery to the State.

13. Thus, the argument of the Claimant failing that its responsibility "is limited to amounts withheld and not delivered", as well as that "there is no situation of withheld and undelivered tax, (…) Since the Applicant at no moment conceived that it had paid income with the referred characteristics to the holders of the capital, it also withheld no amount as tax (nor any other title to be rigorous), for subsequent delivery to the State. (…) responsibility cannot be imputed to the Applicant for the payment of the tax under Article 28, section 1 of the General Tax Law."

14. In these terms it is, equally, to dismiss the defect of error as to the factual assumptions alleged by the Claimant, being to maintain the corrections carried out by the Respondent.

Defect of violation of the principle of inquiry and pursuit of material truth

1. With regard to this defect, the Claimant considers that "the Inspection Services violated the provisions of Article 58 of the General Tax Law and Article 6 of the Complementary Tax Inspection Regime, a violation which, given its contribution to the corrections carried out that underlie the emission of the tax acts in question, cannot but taint them and lead to their respective annulment."

2. Refuting and contradicting the position of the Claimant, the Respondent expresses the understanding that "(…) the entire inspective procedure that preceded the additional liquidation now contested sought material truth, with the Tax Inspection Services carrying out all the diligences they considered necessary for its determination, namely, through the crossing of information and cooperation of third entities, having also fundamentedly assessed the "elements" brought to the fore by the present Claimant in the exercise, although untimely, of the right to be heard."

3. The Respondent further adds, alluding that it is not "resulting from the present proceedings, that the same managed to even invoke an argument, a fact or provided or indicated any evidentiary element that could support the alleged "elements"", therefore "[n]ot managing the Claimant to bring any means of proof, or any indicator that could sustain its allegations, one cannot achieve how the principle of inquiry could lead the Respondent to "ascertain" "elements", which did not find in the facts any support."

4. Now, Article 58 of the GTL provides that "the Tax Administration must, in the procedure, carry out all necessary diligences to the satisfaction of the public interest and the discovery of material truth, not being subordinate to the initiative of the author of the request."

5. Certainly, in the present case, the Claimant states that "throughout the inspection procedure (…) the Applicant always refuted the accusations and presented successively elements that contradict the understanding of the Tax and Customs Authority", however, once again, it does not specify which arguments and evidentiary elements it presented to contradict the understanding of the TCA, not adding anything that could be used to combat the position taken by the Respondent.

6. In effect, and as the Respondent states, "the principle of inquiry cannot have such an extended scope that it completely replaces the obligations that fall upon taxpayers, namely, of presenting the documents necessary to demonstrate their claim, under the terms of Article 74 of the GTL."

7. It should be noted with respect to this matter the Judgment of the Southern Administrative Court of Appeal rendered in case no. 0399/09, of 23.03.2010, according to which: "The applicability of the principle of inquiry does not prejudice the burden of allegation and proof that falls upon the interested parties."

8. António Lima Guerreiro teaches, in General Tax Law Annotated, Ed. Rei dos Livros, 2001, pp. 265 and 266, that the principle of inquiry "is not incompatible with the attribution to the interested parties of the burden of claiming or appealing acts of the Administration that are unfavourable to them, of instruction, consisting in the obligation to prove the unfavourable facts (…) or of allegation of the facts relevant to the decision of the procedure (…)."

9. Further adding, as to this matter and of interest, Diogo Leite de Campos, Benjamim da Silva Rodrigues and Jorge Lopes de Sousa, in General Tax Law Commented and Annotated, 3rd Edition, September 2003, Ed. Vislis, p. 240 that "This duty imposed on the tax administration to ascertain material truth does not dispense interested parties of the obligation to collaborate in the production of evidence, as provided for in Art. 59 of the GTL (…) The provision of this obligation of the tax administration to ascertain the facts relevant to the decision does not mean that it has the burden of proof of these facts, for only the insufficiency of proof of facts constitutive of the rights invoked by the Administration is valued procedurally against it (Art. 74, section 1 GTL)."

10. In this manner, taking into account that, according to the Respondent, in the scope of the inspection action, the Services carried out several diligences for the discovery of material truth, namely through the crossing of information and cooperation of third entities, under the terms of Article 63 of the GTL, having reached the corrections carried out and which originated the contested assessment, without, however, the Claimant having given its contribution to the same, with the provision of concrete evidentiary elements, the present arbitral tribunal understands that the alleged defect of violation of the principle of inquiry and of material truth is to be dismissed.

Illegality of the liquidation of compensatory interest

1. The Claimant further alleges, additionally, the illegality of the liquidation of compensatory interest, mentioning that "it was notified of the assessment that includes the liquidation of compensatory interest," being that from this "act only contains the calculation basis, the rate and the period considered (…)" however, it does not contain "any mention of the essential reasons why such interest could be and were liquidated." In truth, the Claimant considers that "at no moment, in the act notified and now in question, did the Tax and Customs Authority manage to demonstrate, or even invoke, the assumptions on which depends the liquidation of compensatory interest, nor even invoking any legal provision under which it acts." namely the taxpayer's fault in the alleged delay in the tax liquidation.

2. The Claimant further states that "(…) not containing the Final Tax Inspection Report any reference to compensatory interest, was not given to the present Applicant the opportunity to participate, in the prior hearing on the decision to liquidate such interest", thus, "(…) failed to safeguard neither the letter nor the ratio of the combined provisions of Articles 267, section 5 of the Constitution of the Portuguese Republic, 60, section 1, paragraphs a) and e), and 3 of the General Tax Law and 45 of the Tax Procedure Code, acting illegally and unilaterally, which, not being able and not should be disregarded, determines the preterition of an essential legal formality, with the inherent consequences at the level of the validity of the tax act in question."

3. As to this aspect, the Respondent argues that "the reasoning of the liquidation of compensatory interest flows from the corrections carried out by the TCA which shows that the Claimant liquidated tax in an amount less than legally due, being imputability to the taxpayer the delay in the delivery of the tax, under the terms of section 1 of Article 35 of the GTL." Furthermore, "in the case in question, it was found that the Claimant did not comply with the provisions of paragraph a) of section 1 of Art. 20 of the CIRC", concluding for the lack of merit, also, of this defect.

4. Compensatory interest has its provision in Article 35 of the GTL, which provides that "compensatory interest is due, when, by fact imputable to the taxpayer, the liquidation of part or all of the tax due is delayed (…)."

5. Now, in the concrete case, the Claimant being a company, that is, a legal entity, was bound by the provision of Article 20 of the Corporate Income Tax Code, according to which: "taxable income is considered to be that resulting from operations of any nature, as a consequence of a normal or occasional action, basic or merely accessory, in particular: a) those relating to sales or provision of services, discounts, bonuses and allowances, commissions and brokerage;"

6. Thus, the non-declaration of income, subsequently determined by the TCA in the course of the inspection action to the accounts of the Claimant, and on which tax was liquidated, allows the collection, by the TCA, of compensatory interest, under the terms of the said Article 35 of the GTL, particularly because such behaviour is imputable to the taxpayer.

7. As stated in the Judgment of the Southern Administrative Court of Appeal, rendered in case no. 06670/13, of 17.10.2013:

"1. Compensatory interest can be defined as those that constitute compensation to the creditor, for certain utilities conceded to the debtor, having the function of completing the compensation due, thus repairing the injured creditor of the lost gain until he has obtained the reintegration of his credit. In the scope of tax law, compensatory interest can be configured as having the nature of a true legal penalty clause, appearing as an aggravation "ex lege" of the tax, being included in the liquidation of this and collected together with it, having the same collection periods and being subject to the same prescriptive period, both being able to be subject to the calculation of default interest (cfr. Art. 83, of the TPC; Art. 35, of the GTL). This nature of compensatory interest, as a component of the overall tax debt, results today, with evidence, from the provision of Art. 35, no. 8, of the GTL.

1. The responsibility for the payment of compensatory interest depends on the existence of a situation in which there is a tax debt (which serves as the basis for the calculation of interest), with the following assumptions verified:

a- Acts or omissions that lead to a delay in the structuring of an assessment; or

b- Non-payment of tax that should be paid in advance (without prior notification of the taxpayer by the tax administration); or

c- Non-payment of tax that was withheld or that should have been withheld and delivered to the tax administration; or

d- Reimbursement greater than due;

e- Delay in liquidation or delivery of the tax or undue reimbursement imputable to the taxpayer, that is, when there exists a nexus of causality between the taxpayer's action and that delay or reimbursement;

f- That the delay or reimbursement be imputable to the taxpayer by way of fault.

1. In Art. 35, no. 10, of the GTL, it is further provided that the rate of compensatory interest is the rate of legal interest fixed under the terms of Art. 559, section 1, of the Civil Code, currently being 4% (rate fixed by order 291/2003, of 8/4, in effect since 1/5/2003).

2. Under Art. 35, no. 9, of the GTL, in the liquidation of compensatory interest the amounts of the tax debt and the interest must be discriminated, the respective calculation being explained with clarity and distinguished from other due payments. This requirement of demonstration of the calculation of compensatory interest is integrated in the general duty of express and accessible reasoning of lesive acts, constitutionally imposed (cf. Art. 268, no. 3, of the CPR).

3. The full knowledge of the valuative and cognitive itinerary followed by the entity that will liquidate the compensatory interest will not dispense:

a- The indication of the amount of the interest, separate from the amount of the tax, if liquidated concomitantly;

b- The initial and final terms of the counting of the interest;

c- The rate or rates and the periods to which each one of them refers, if not the same rate applied for calculation of the totality of the interest;

d- The indication of the laws that enshrine responsibility for compensatory interest and those that provide for the rates applied;

e- The factual situation violating the law that justifies the liquidation of the interest or the facts that led the Tax Authority to conclude that the delay in liquidation was due to the culpable action of the taxpayer."

1. The Claimant further alludes, in support of its position, that "not containing the Final Tax Inspection Report any reference to compensatory interest, was not given to the present Applicant the opportunity to participate, in the prior hearing on the decision to liquidate such interest", without, however, being correct.

2. Because, as is drawn from the Judgment of the Supreme Administrative Court, rendered in case no. 0675/11, of 16.05.2012:

"I - The taxpayer having, in the course of a tax audit, been notified, under the terms of Art. 60 of the GTL, of the draft conclusions of the inspection report, being heard in one of the phases of the inspection procedure, does not have to be heard again before liquidation, except in case of invocation of new facts in relation to which he has not yet had the opportunity to pronounce himself.

II - It is what results from the provision of section 3 of Art. 60 of the GTL, in the wording of section 1 of Art. 13 of Law no. 16-A/2002, of 31 May, as is what already resulted from the previous wording of Art. 60 of the GTL, being that the said section 1 of Art. 13 of Law no. 16-A/2002, as the legislator recorded in section 2 of that article, has an interpretive nature.

III - The liquidation of compensatory interest does not constitute a "new fact" for the purposes referred to in I."

1. For which it will be to dismiss, equally, the defect of illegality of compensatory interest in view of the reasons of fact and of law set out.

Defect of illegality of the decision of the administrative complaint

1. Finally, the Claimant alleges the defect of illegality of the decision of the administrative complaint, stating, on the one hand, "[b]y maintaining itself in the legal order, the contested assessment acts, the Head of Division acted in error as to the factual and legal assumptions, and the defects attributed to the assessment acts are transmitted to the decision itself that maintains them", and on the other hand, "(…) it is verified that the Head of Division does not pronounce itself on all the questions raised by the Applicant, thus violating the provisions of Article 56 of the General Tax Law", to conclude to the effect that "(…) the said Order of the Head of Division should be annulled because carried out with violation of the applicable legal norms and principles (cf. Article 135 of the CPA)."

2. The Respondent responds, however, mentioning that "[a]s to the alleged illegality of the decision that rejected the administrative complaint in question, the same should be judged to lack merit for all the reasons of fact and of law that above were alluded to."

3. A defect and argument which the present arbitral tribunal understands to be without merit in view of the reasons of fact and of law set out above, for there is no occurrence of any of the defects that would taint the decision to the effect of rejection of the administrative complaint, thus legitimizing, as legal, the withholding tax-PIT assessment - and respective compensatory interest, referring to the exercise of 2013, here contested.

DECISION

In accordance with the foregoing, it is decided to maintain in the legal order the withholding tax-PIT assessments – referring to the exercise of 2013, in the amount of €2,605.98 (two thousand, six hundred and five euros and ninety-eight cents) and compensatory interest in the amount of €200.48 (two hundred euros and forty-eight cents), all totalling €2,806.46 (two thousand eight hundred and six euros and forty-six cents).

Value of the Case

The value of the case is fixed at €2,806.46 (two thousand, eight hundred and six euros and forty-six cents), under the terms of Art. 97-A, section 1, a), of the TCPC, applicable by virtue of paragraphs a) and b) of section 1 of Art. 29 of the LRTA and section 2 of Art. 3 of the Regulation on Costs in Tax Arbitration Proceedings.

Costs

Costs charged to the Claimant in accordance with Art. 12, section 2 of the LRTA, of Art. 4 of the RCPAT, and of Table I attached to the latter, in accordance with which they are fixed in the amount of €612.00.

Let it be notified.

Lisbon, 19 December 2017

The Arbitrator

(Jorge Carita)

[1] Personal Income Tax (PIT) is a periodic tax, in that the facts or situations that give rise to the tax are repeated, in time, with a character of continuity.