Supreme Administrative Court

Court of 19 November 2014, published on 1 December 2014 Case No 0407/12

In the Judgment in question, the Supreme Administrative Court rules on the lawfulness of the criteria used by the Tax Authority when quantifying taxable income by indirect methods.

In this respect, the Supreme Court concludes that the criterion used by the Tax Authority for indirect assessment must be adequate and rationally justified, i.e. must allow an approximation to reality, but cannot be opposed on grounds that other criteria would be better suited to that purpose, since the use of indirect methods is solely attributable to the taxpayer, who should have complied with tax obligations in order to be taxed over its real profit.

North Central Administrative Court

Judgment of 13 November 2014, published on 5 December 2014 Case No 00169/08.6BEBRG

In the Judgment in question, the North Central Administrative Court clarifies the circumstances in which indirect methods may be used for the determination of taxable income.

The Central Court clarifies that the failure of the taxpayer to keep organised accounts does not imply that the AT is exempt from the obligation to demonstrate that through that same accounting statements the real taxable income cannot be assessed.

It further observes that it is only the impossibility, and not the mere difficulty, which justifies the use of the exceptional regime of indirect assessment, and therefore, it will be necessary to produce sound and clear evidence of such impossibility. Therefore, even if accounting irregularities are attributable to the taxpayer, the AT must perform every correction that is deemed necessary (and possible), hence assessing the taxable income through direct methods, regardless of the difficulty, cost or ponderousness of said operation.

Administrative and Tax Arbitration Centre Tax Arbitration Court

Arbitration Decision of 3 September 2014, published on 23 December 2014 Case No 181/2014-T

In this arbitration decision, the Arbitration Court addressed the tax framework applicable to the distribution of dividends related to pre-acquisition reserves / retained earnings.

In this regard, the Arbitration Court declared that these dividends are not considered income as per the equity method, but the reimbursement of the price paid for the acquisition of a participation in the paying entity. Therefore, differences in the currency exchange rate at the time of payment (vs. the time of acquisition of participations) are considered to be effective and not potential, hence relevant for CIT purposes.