Supreme Administrative Court

Ruling of January 27, 2016, published on February 18, 2016 Case no. 01720/13

IRC – anti-abuse provision – General Tax Law – Tax Procedural Code

The Supreme Administrative Court examines the legality of a CIT official assessment, issued by the PTA, following the taxation of capital gains obtained by a holding company from the sale of shares held in a joint stock company.

In this case, the contract of purchase and sale of the shares had been entered into by another company, acting as business manager of the holding company, which subsequently ratified that transaction.

In the tax inspection report, the PTA stated that the holding company and the company acting as business manager qualified as related entities on the grounds that their board of directors had the same members.

Thus, the PTA concluded that, according to the substance over form principle, the holding company had acquired shares from the company with which it maintained special relations and not from the third party seller. Consequently, the PTA considered that the capital gains obtained from the resale of those shares by the holding company to third parties are to include the holding company’s taxable profit, pursuant to article 32, no. 2 and no. 3, of the Tax Benefits Law.

The Supreme Administrative Court considers that the tax inspection report implicitly refers to the application of the general anti-abuse provision, as provisioned by the article 38, no. 2, of the General Taxation Law, since the PTA’ position was only possible if one was to disregard both the business management and subsequent ratification.

Having said that, the Court concludes that, regardless of whether this was a case of misuse of legal institutes leading to tax advantages, certainly, in view of the tax inspection report’s grounds, the PTA should have used the general anti-abuse provision, as well as the corresponding tax procedure pursuant to article 63 of the Tax Procedural Code. Since the PTA did not do so, the official assessment was annulled.

North Central Administrative Court Ruling of February 11, 2016

Case no. 00080/03-Porto Costs – Indispensability

In this decision, the North Central Administrative Court assesses the question of knowing if the costs incurred by the taxpayer, by virtue of a personal injury insurance concluded in favor of a manager, should be considered for the purposes of determining the CIT taxable income.

In the tax procedure, the taxpayer argued that, in case of death of the manager, the beneficiary of the insurance was the company. The taxpayer added that, in this case, the company’s business activity demanded very frequent business trips, thereby implying risks for the managers, which should be assured by the company.

However, in the assessment decision, the PTA stated that, if the personal injury insurance is not for the benefit of the generality of the company’s permanent employees, it does not constitute a tax cost and should not be considered for the purposes of determining the taxable profit.

Hence, the Court supported the PTA’ position, sustaining that the amount spent on personal injury insurances is acceptable as cost only when considered employment income or a social fringe benefit, as foreseen in the CIT Code, which, among other requirements, would require the extensiveness of the insurance at stake to the generality of the company’s employees.

Administrative Arbitration Center

Decision of November 18, 2015, published on February 23, 2016 Case no. 168/2015-T

VAT – recognition of a right in tax matters; exemption; provision of services

In this decision, the Arbitration Court rules on the legality of the VAT assessments and compensatory interests, issued by the PTA, who considered that a joint stock company held by private investors that provides imaging healthcare services, as well as clinical analysis and services in the area of nuclear medicine, operating in its own premises, as well as in partnership with hospitals and other healthcare units, does not have the right to waive the VAT exemption under article 12, no. 1, of the VAT Code.

During the tax procedure, the PTA stated that clinical analysis do not fall within the concept of medical assistance, also sustaining that the provision of healthcare services in the taxpayers premises, or in a partnership regime, does not comprise the exercise of an hospital activity, all the more so because, in this case, the services provided did not invo lve the hospitalization nor the admission of the patients.

Hence, the PTA considered that the provision of services at stake do es not benefit from the tax exemption provided for under article 9, no. 2, of the VAT Code, but benefits from the tax exemption provided for under no. 1 of the same article, and therefore the company could not have waived the tax exemption.

The Arbitration Court concludes that, in view of the ECJ case law, the exemption provided for under article 132, al. b), of the Council Directive 2006/112/EC – which generally corresponds to the exemption provided for under article 9, no. 2, of the VAT Code –, comprises the provision of imaging healthcare services and clinical analysis, even if provided for in centers for medical treatment and diagnosis, without the patients’ admission. In any case, even if the aforesaid exemption required the provision of services in a hospital, the truth is that the taxpayer at stake had developed partnerships through which it operated in hospitals and healthcare units owned by third parties.

Hence, the Arbitration Court considered that the PTA’ grounds for considering that the taxpayer did not benefit from the exemption provided for under article 9, no. 2, of the VAT Code, were not supported by the wording of the law, and therefore annulled the abovementioned VAT assessments and compensatory interests.