Process: 107/2015-T

Date: October 23, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Case 107/2015-T addresses whether taxpayers can rebut the legal presumption in Article 44(2) of the Portuguese IRS Code that uses the property's tax-assessed value (valor patrimonial tributário) for calculating real estate capital gains. The taxpayer acquired property from the State in January 2013 and challenged an IRS assessment of €6,589.24, arguing that the tax-assessed value should serve as the acquisition value and that taxpayers must be allowed to prove the actual sale price was lower than the tax-assessed value. The applicant invoked Article 73 of the General Tax Law, which states that presumptions in tax incidence norms always admit proof to the contrary, and cited the constitutional principles of taxation according to contributory capacity and real income. The taxpayer also argued that IRC (Corporate Income Tax) allows legal entities to demonstrate real transaction values, raising equality concerns. The Tax Authority countered that the tax-assessed valuation system is based on objective factors designed to prevent tax fraud, noting that when declared prices fall below tax-assessed values, strong presumption of fraud exists. The Authority argued that Article 76 of the IMI Code provides the specific legal mechanism for challenging property valuations, and that taxpayers retain contributory capacity corresponding to the tax-assessed value even when accepting lower prices. The Authority maintained that different treatment of natural versus legal persons reflects their inherently different natures. This case presents fundamental questions about the rebuttability of tax presumptions in real estate transactions and the balance between objective valuation systems and taxation based on actual economic capacity.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 107/2015-T

Subject: Personal Income Tax, real estate capital gains, presumption

Applicant: A

Respondent: Tax and Customs Authority

I. REPORT

  1. On 18 February 2015, A, taxpayer no. …, hereinafter identified as the Applicant, filed a request for arbitral decision, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), in conjunction with paragraph a) of article 99 and no. 2 of article 102 of the Tax Procedure and Process Code (CPPT), applicable under article 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

  2. In the aforementioned request for arbitral decision, the Applicant seeks that the Arbitral Court declare:

a) the illegality of the Personal Income Tax assessment act no. 2014 …, in the amount of € 6,589.24, relating to the year 2013;

b) the illegality of the act dismissing the administrative complaint no. …2014…;

c) the reimbursement of the amount paid and recognition of the right to compensatory interest, from the date of undue payment until its effective delivery to the Applicant.

  1. The request for constitution of the arbitral court was accepted on 20 February 2015, by the Honourable President of CAAD and, subsequently, notification of the Tax and Customs Authority (hereinafter identified as the Respondent Entity) was promoted.

  2. The Applicant did not appoint an arbitrator, so, pursuant to the provisions of article 6, no. 1 of RJAT, the undersigned was appointed by the President of CAAD's Deontological Council to constitute the present sole arbitral court, with the appointment having been accepted in accordance with legal provisions.

  3. On 13 July 2015, the meeting provided for in article 18 of RJAT was held and witness B was heard.

  4. Following notification to that effect, the Applicant and the Respondent Entity submitted their arguments.

  5. The Applicant supports its request, in summary, on the understanding that in determining the value of the capital gain, the tax-assessed value of the property should be considered as the original acquisition value, which was only not considered due to the nature of the seller, the State.

  6. Not understanding it thus, the Applicant considers that an updated interpretation of the rule must be made, allowing the presumption to be rebutted, on pain of violation of the principle of taxation according to contributory capacity and violation of the principle of taxation by real income.

  7. The Applicant thus maintains that it should be permitted to demonstrate that the effective sale value of the property does not correspond to the tax-assessed value, that is, that it should be permitted to rebut the presumption provided for in no. 2 of article 44 of the Personal Income Tax Code, under article 73 of the General Tax Law which provides that "presumptions enshrined in tax incidence norms always admit proof to the contrary".

  8. In support of this understanding, the Applicant further invokes the principle of equality, since to legal entities that proceed with the alienation of properties – despite article 64, no. 2 of the Corporate Income Tax Code having a materially identical provision to that of no. 2 of article 44 of the Personal Income Tax Code – they have always been afforded the possibility of demonstrating that the real value of transmission of the property was lower than the tax-assessed value of the property.

  9. Finally, the Applicant invokes the circumstance that article 44 of the Personal Income Tax Code came to expressly admit, in its numbers 5 and 6, the possibility of rebutting the legislator's presumption and demonstrating the effective and real realization value.

  10. In its Reply, the Respondent Entity denies the possibility of the original acquisition value being equal to the realization value because, in accordance with the method of determining the IMT rate, contained in no. 3 of article 17 of the Real Estate Transfer Tax Code (IMT Code), the assessable value in the assessment would not be € 103,000.00, but rather that obtained by dividing it into two parts, disregarding the amount of € 92,407.00 and applying the IMT rate only to the value exceeding the exemption threshold.

  11. The Respondent Entity also refuses the possibility of proceeding with an updated interpretation of the rule. For this Entity, the emblematic principle of the reform of asset taxation consists in the establishment of a system for determining the tax-assessed value based on objective factors and that applies to all taxes, whenever the norms of their respective Codes appeal to the value of properties.

  12. To demonstrate that the tax value is distorted in relation to the normal market value, the legislator established a specific legal mechanism – enshrined in article 76 of the Real Estate Transfer Tax Code (IMI Code), which allows for a new valuation in accordance with the rules contained in no. 2 of article 46 or by application of the comparative method of market values.

  13. For the Respondent Entity, in situations such as the present one, no. 2 of article 44 of the Personal Income Tax Code only bears the meaning that the tax-assessed value should be considered for calculating the capital gain, maintaining that there is no violation of the principle of contributory capacity, namely because "beyond the strong presumption of tax fraud that exists in the declaration of an alienation price below the tax-assessed value of the property, the truth is that the taxpayer does not cease to evidence possessing the contributory capacity corresponding to the objectively fixed tax-assessed value when effecting the alienation of the property, merely renouncing the obtaining of the corresponding income".

  14. It further invokes that even if the possibility of demonstrating the effective sale value were admitted, merely invoking the execution of the deed of purchase and sale would not suffice, because to displace the presumption, it would have to produce proof to the contrary, namely, prove the existence of abnormal market conditions that justify its choice to carry out the transaction at values lower than the minimum sale value.

  15. Finally, it considers that there is no violation of the principle of equality, since the fiscal inequality of treatment of natural persons and legal entities is inherent in their different nature.

II. SANATORY RULING

The Court is materially competent and is regularly constituted, pursuant to articles 2, no. 1, paragraph a), 5 and 6, all of RJAT.

The parties have legal personality and capacity, are legitimate and are represented, pursuant to articles 4 and 10 of RJAT and article 1 of Order no. 112-A/2011, of 22 March.

No nullities are found, so it is necessary to rule on the merits of the request.

III. OBJECT OF THE ARBITRAL DECISION

The following questions are submitted to the Court, pursuant to the terms described above:

i. the consideration of the tax-assessed value of the property as the acquisition value, in determining the capital gain;

ii. the possibility of demonstrating that the sale value was lower than the tax-assessed value of the property in determining the realization value;

iii. recognition of the right to compensatory interest.

IV. MATTERS OF FACT

Proven Facts

  1. In January 2013, the Applicant acquired the autonomous fraction designated by the letters "…", corresponding to the fifth floor, door …, intended for housing, with rights to a parking space in the sub-basement of the lot …, with number … of the urban property in horizontal property regime, designated by lot …, Building …, in the parish of Armação de Pêra, municipality of Silves, described in the Land Registry of Silves under number … of the aforementioned parish and registered in the matrix under article … (cf. Docs. 3 and 4 attached with the petition);

  2. The aforementioned property was acquired for the value of € 52,000.00 in an auction carried out by the Tax and Customs Authority (cf. Doc. 3 attached with the petition);

  3. According to the respective property record sheet, the tax-assessed value of the property was determined in the year 2012, in the amount of € 103,040.00 (cf. Doc. 4 attached with the petition);

  4. On 5 September 2013, the Applicant transmitted the property in question to C and D for the value of € 71,000.00 as per the respective public deed of purchase and sale (cf. Doc. 6, attached with the petition);

  5. The payment of the amount of € 71,000.00 was made in two instalments:

i) € 14,200.00, as a deposit and partial payment, made by bank transfer, on 9 July 2013, from C to the bank account at BPI of E, stepfather of the Applicant (cf. Doc. 7, attached with the petition);

ii) € 56,800.00, as the remainder of the price payment, paid by check no. …, deposited in bank account no. … on 9 September 2013 (cf. Docs. 8 and 9, attached with the petition);

  1. The Applicant filed the income statement for 2013, having declared in Annex G, as the acquisition value, the amount of € 52,000.00, and as the realization value, the amount of € 71,000.00 (cf. p. 8 of the administrative file).

  2. On 24 September 2014, Personal Income Tax assessment no. 2014 … was issued, in the amount of € 6,589.24, relating to the year 2013.

  3. The aforementioned assessment results from the consideration by the Tax and Customs Authority of the tax-assessed value, in the amount of € 103,040.00, as the realization value (cf. p. 7 of the administrative file).

  4. Following the aforementioned notification, the Applicant filed an administrative complaint requesting the annulment of the Personal Income Tax assessment for the year 2013, and maintaining that in determining the capital gain, the value by which the property was transmitted – € 71,000 – should be considered as the realization value, and not the respective tax-assessed value – € 103,040.00.

  5. By Official Letter no. …, of 16 November 2014 issued by the Finance Service of Lisbon …, the Applicant was notified of the dismissal of the administrative complaint made in procedure no. …2014… (cf. Doc. 2, attached with the petition).

  6. On 13 January 2015, the Applicant made payment of the amount of € 6,731.63, of which € 6,507.24 were paid as tax, € 55.96 as default interest and € 82 as compensatory interest (cf. Doc. 10, attached with the petition and Single Collection Document attached with the Administrative File).

The matters of fact given as proven, which are peaceably recognized and accepted by the parties, are based on the documentary and testimonial evidence produced.

Unproven Facts

No essential facts, with relevance to the assessment of the merits of the case, were found to be unproven.

V. ON THE LAW

  1. The first question raised by the Applicant concerns the consideration, in determining the capital gain, of the tax-assessed value of the property as the acquisition value, which was only not considered due to the nature of the seller, the State.

  2. In the case at hand, if the tax-assessed value were considered as the acquisition value, as invoked by the Applicant, there would be no capital gain whatsoever.

  3. However, regarding this question, the Applicant's understanding cannot proceed.

  4. In accordance with nos. 1 and 2 of article 46 of the Personal Income Tax Code, in the case of acquisition by onerous title of real property, the acquisition value is considered to be that which was used for purposes of assessment of the real estate transfer tax (IMT), and if there is no IMT assessment, the value that would serve as its base, should it be due, shall be determined in accordance with the rules specific to that tax.

  5. Now, when – as is the case at hand – the acquisition of a property from the State is concerned, the IMT is based on the price contained in the deed or contract, as expressly provided by rule 16, of no. 4 of article 12 of the IMT Code.

  6. There is thus no legal basis for considering the tax-assessed value as the acquisition value, as sought by the Applicant.

  7. The second question under discussion in the present case concerns the determination of the realization value to be considered in determining the capital gain realized in the transmission, on 5 September 2013, of a property owned by the Applicant.

  8. For the Respondent Entity, no. 2 of article 44 of the Personal Income Tax Code imposes that the tax-assessed value be considered as the realization value when that value is higher than the respective consideration, while the Applicant invokes that it should be permitted to demonstrate that the effective sale value of the property was lower than the tax-assessed value of the property.

  9. At the date of the facts, in 2013, it resulted from the provisions of article 44 of the Personal Income Tax Code that for determining gains subject to Personal Income Tax, the value of the respective consideration was considered as the realization value.

  10. However, in accordance with no. 2 of the same legal provision, in the case of real rights over real property, when higher, the values at which the goods had been considered for purposes of assessment of the real estate transfer tax, or, if there was no such assessment, those that should be, should it be due, prevailed. That is, pursuant to this norm, the tax-assessed value of the transmitted property prevailed over the value declared in the public deed of purchase and sale.

  11. With the reform of the Personal Income Tax approved by Law no. 82-E/2014, of 31 December, the possibility of displacing the tax-assessed value by proving the effective transmission price was expressly introduced, providing in no. 5 of article 44 of the Personal Income Tax Code that "The provision of no. 2 shall not apply if proof is made that the realization value was lower than provided therein. It being determined, in turn, in no. 6 of the same legal provision that "The proof referred to in the preceding number must be made in accordance with the procedure provided for in article 139 of the Corporate Income Tax Code, with necessary adaptations".

  12. It is therefore important to consider whether prior to the introduction of the current nos. 5 and 6 of article 44 of the Personal Income Tax Code, the displacement of the tax-assessed value by proof of the effective transmission price was admitted, even though this possibility was not expressly enshrined.

  13. In the construction of the concept of tax income, the Personal Income Tax Code adopts the accrual income conception. In this conception, income in a period is the sum of all net patrimonial increases verified in the period, both those deriving from participation in productive activity – which constitute product income – and those that are not attributable to production. There is thus an expansion "of the incidence base to all increases in purchasing power, including therein capital gains and, in general, irregular revenues and fortuitous gains" (cf. Preamble to the Personal Income Tax Code).

  14. Capital gain should be defined, in principle, by the difference between the realization value and the acquisition value, and one of the general principles of its taxation is the realization principle. From the realization principle it results, among other things, that only "realized patrimonial increases – those that result in a net increase of the monetary means of its holder (cash basis)" are taxed (cf. Xavier de Bastos - Personal Income Tax - Real Incidence and Determination of Net Income, Coimbra, 2007, p. 32).

  15. Taxation independent of this net increase of monetary means of its holder would not only not result in the taxation of actual income, but could lead to the assessment of tax exceeding the actual increase in income for the year, to the extent that the value actually received was not sufficient to cover the respective tax charges.

  16. In this way, and as sustained in a Decision of the Supreme Administrative Court, rendered in Case no. 0320/03, the totality of the Personal Income Tax norms shows that it should apply only to actual income (in. www.dgsi.pt).

  17. In this context, no. 2 of article 44 of the Personal Income Tax Code, to the extent that it determines the value subject to tax, should be interpreted as a mere presumption as to the realization value that admits proof of the effective transmission value.

  18. In the sense advocated that no. 2 of article 44 of the Personal Income Tax Code should be interpreted as a mere presumption, susceptible to proof to the contrary, have already pronounced both doctrine and jurisprudence.

  19. In a Decision of the Central Administrative Court – South, rendered in Case no. 6052/12, of 9 April 2013, this Court concludes that "The realization value for purposes of taxation of capital gains in Personal Income Tax, when the declared sale price of urban property is lower than the tax-assessed value, is this value that is considered as the realization value" (…) In this case, if such realization value was lower than that thus declared, it is upon the taxpayer that the burden of that allegation and proof rests, in the sense of rebutting the presumption resulting from that declaration" (in www.dgsi.pt).

  20. That is, it is admitted that in situations where the declared sale price of urban property is lower than the tax-assessed value, the taxpayer may rebut the presumption in question.

  21. With regard to the provision under analysis, Xavier de Basto also expressly states that "(…) it should be interpreted in the sense that it merely establishes a presumption as to the realization value, which gives way before proof to the contrary, that is, proof that the realization value was effectively lower than the value taken as the basis for the IMT assessment", because otherwise "we would end up taxing not the actual income realized through the transmission, but a normal income (cf. Xavier de Bastos - Personal Income Tax - Real Incidence and Determination of Net Income, Coimbra, 2007, p. 446).

  22. Adding that because the norm "is included in the system of the Personal Income Tax Code, in the chapter on determining taxable income and not in the chapter on incidence, it is materially a norm of incidence, because it determines after all, ultimately, the value that is to be subject to tax. We would thus say that in this no. 4 what was established was a presumption as to the realization value, which may be displaced by proof to the contrary" (cf. Xavier de Bastos - Personal Income Tax - Real Incidence and Determination of Net Income, Coimbra, 2007, p. 447).

  23. Since no. 2 of article 44 of the Personal Income Tax Code is a norm of incidence, the general rule could not in any case fail to apply to it, according to which presumptions enshrined in tax incidence norms always admit proof to the contrary (cf. no. 1 of article 73 of the General Tax Law).

  24. Nor could it be otherwise, since the presumptions to which the tax legislator resorts, namely to prevent tax fraud and evasion, must be compatible with the principle of contributory capacity "which passes, both through the constitutional illegitimacy of absolute presumptions to the extent that they prevent the taxpayer from proving the non-existence of the contributory capacity targeted in the respective law, as well as through the requirement of suitability of relative presumptions for them to present the economic prerequisite taken into account. Or in other words, as the Italian Constitutional Court refers in various decisions, presumptions must be supported by concretely positive elements that justify them rationally and admit proof to the contrary, so that the tax is linked to a certain, proven and not merely probable economic prerequisite. From the principle of contributory capacity results in this domain a right of the taxpayer to prove the (in)effectiveness of the tax fact, being thus unconstitutional the laws that exclude any and all proof in this regard. (NABAIS, José Casalta, Tax Contracts – Reflections on their Admissibility, Bulletin of the Faculty of Law, STVDIA IVRIDICA 5, Coimbra, 1994, p. 279).

  25. But more, as the Applicant refers, this interpretation according to which no. 2 of article 44 of the Personal Income Tax Code enshrines a presumption, susceptible to proof to the contrary, is also imposed by the existence of parallel regimes in Personal Income Tax and Corporate Income Tax.

  26. Both article 31-A of the Personal Income Tax Code and article 58-A of the Corporate Income Tax Code admit in the case of alienation of real property the possibility of demonstrating that the alienation value was lower than the respective tax-assessed value.

  27. In fact, the introduction of the current nos. 5 and 6 of article 44 of the Personal Income Tax Code results from the recognition that the possibility of displacing the tax-assessed value by proof of the effective transmission price should also be expressly enshrined with reference to no. 2 of the same legal provision.

  28. In Point 5.1.11.11 of the Personal Income Tax Reform Project (September 2014) it is clarified that "At the level of real estate capital gains – and, differently from what occurs in Corporate Income Tax and, also, in Personal Income Tax, in this case when such capital gains are taxed within category B – taxation in category G does not provide for the possibility of displacing the rule that determines that the realization value corresponds to the value to be considered for purposes of IMT assessment whenever it is higher than declared. No reasons are apparent that prevent the rebuttal of the aforementioned presumption within category G and such prevention could have serious and unjustified consequences for taxpayers, and thus the express establishment is proposed that, also in this case, such possibility exists".

  29. Regarding this problem, Xavier de Bastos already cautioned that a different regime cannot be accepted for capital gains from property by comparison to business and professional income, because "There would then be, for equal income, differentiated treatments, without any valid justification, to the detriment of the principle of equality. It must therefore, in our view, be considered that no. 4 of article 44 contains a presumption, which can be displaced, proving that the realization value was ultimately lower than the "tax value" for purposes of a patrimonial tax such as the IMT". (cf. Xavier de Bastos - Personal Income Tax - Real Incidence and Determination of Net Income, Coimbra, 2007, p. 448).

  30. In sum, it is important to conclude that the Applicant has, in the case at hand, the possibility of demonstrating that the value at which it transmitted the property in question is effectively lower than the respective tax-assessed value.

  31. However, the Respondent Entity understands that if the demonstration to the contrary is accepted, the proof to be made necessarily involves the demonstration of abnormal or extraordinary circumstances that led to the carrying out of the property transaction for an amount lower than its objectively fixed tax-assessed value.

  32. This understanding is not endorsed. To determine the realization value, attention should be paid to the effective value of the consideration, in accordance with the provisions of paragraph f) of no. 1 of article 44 of the Code, because only the determination of this value allows for determining the effective patrimonial increase.

  33. The Respondent Entity further maintains that the documents attached to the case are not sufficient proof that the value of the transaction was lower than the respective tax-assessed value, suggesting that it would have been necessary to comply with the procedure provided for in article 139 of the Corporate Income Tax Code.

  34. It is recalled that at the date of the facts under consideration, application of the procedure provided for in article 139 of the Corporate Income Tax Code was not yet provided for in situations where no. 2 of article 44 of the Personal Income Tax Code was applied, so it was not required, nor was it legally possible for the Respondent to initiate the aforementioned procedure in the case at hand.

  35. Article 64 of the Tax Procedure and Process Code provides for a specific contradictory procedure to which interested parties may resort when they wish to rebut any presumption provided for in tax incidence norms.

  36. The aforementioned procedure is an alternative means for rebutting such presumptions, and the interested party may rebut them in an administrative complaint, judicial challenge or request for arbitral decision (cf. CAMPOS, Diogo Leite de, RODRIGUES, Benjamin Silva, and SOUSA, Jorge Lopes de - General Tax Law Annotated and Commented, Lisbon, 2012, p. 653 and CAAD Arbitral Decision 26/2013-T, of 19 July 2013).

  37. In the present case, the present request for arbitral decision is thus the proper means to rebut the presumption of incidence inherent in no. 2 of article 44 of the Personal Income Tax Code.

  38. To prove the effective sale price, the Applicant attached a copy of the deed of purchase and sale from which it appears that the property was transmitted for the value of € 71,000.00, a copy of a bank statement from which it appears that the amount of € 14,200.00 was paid by transfer from C, a copy of a check in the amount of € 56,800.00 and a copy of a bank statement from which the deposit of that same amount appears.

  39. From the testimonial evidence produced it further resulted that the property was put up for sale for € 75,000.00 but that the final value, after negotiations, was set at approximately € 71,000.00 and was confirmed to have been paid an initial deposit by bank transfer and the remainder by check.

  40. The witness's testimony coincides with the documents attached to the case, both as to the means of payment used and as to the value by which the property was effectively transmitted, thus resulting in proof that the property in question was effectively transmitted for the value of € 71,000.00.

  41. In light of the foregoing, the request for annulment of the assessment act whose legality is contested is held to be well-founded.

  42. The third question concerns recognition of the right to compensatory interest claimed by the Applicant.

  43. The Applicant claims condemnation of the Respondent Entity to reimburse the tax paid and recognition of the right to compensatory interest calculated from the date of payment until its full reimbursement, as provided for in article 43 of the General Tax Law.

  44. Compensatory interest is due when there is an error attributable to the Services.

  45. "Error attributable to the services that carried out the assessment is demonstrated when they proceed with the complaint or challenge of that same assessment" (CAMPOS Diogo Leite de, RODRIGUES, Benjamin Silva and SOUSA, Jorge Lopes de - General Tax Law Commented and Annotated, 3rd Edition, 2003, p. 199).

  46. Similarly to the complaint and challenge, following the presentation of a request for arbitral decision, the legality of the assessment is known, and it has come to be recognized that the right to compensatory interest may be known by arbitral courts.

  47. Thus, having determined the annulment of the contested assessment and proved the payment of the annulled amount on 13 January 2015, the right of the Applicant to compensatory interest is recognized, on the amount paid, from the date of undue payment of the tax until the date of processing of the respective credit note, pursuant to the provisions of article 43, no. 1 of the General Tax Law and 61, no. 5 of the Tax Procedure and Process Code.

VI. DECISION

In light of the foregoing, it is decided that the request for arbitral decision is well-founded, determining:

i) annulment of the Personal Income Tax assessment act no. 2014 …, in the amount of € 6,589.24, relating to the year 2013;

ii) annulment of the act dismissing the administrative complaint no. …2014…;

iii) reimbursement of the amount of € 6,731.62 and recognition of the right to compensatory interest, from the date of undue payment until its effective delivery to the Applicant.

The value of the case is fixed at € 6,559.24 (six thousand five hundred and fifty-nine euros and twenty-four cents), pursuant to article 97-A of the Tax Procedure and Process Code, applicable by force of the provisions of paragraphs a) and b) of no. 1 of article 29 of RJAT, and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs charged to the Respondent Entity, in the amount of € 306.00 (three hundred and six euros), pursuant to Table I of RCPAT, given that the present request was held to be well-founded, and in fulfillment of the provisions of no. 2 of article 12, and no. 4 of article 22, both of RJAT, and the provisions of no. 4 of article 4 of the aforementioned Regulation.

Notify.

Lisbon, 23 October 2015

[Text prepared by computer, pursuant to article 131, no. 5 of the Civil Procedure Code (CPC), applicable by reference to article 29, no. 1, paragraph e) of RJAT, with blank lines and reviewed by the undersigned].

The Arbitrator

(Ana Moutinho Nascimento)

Frequently Asked Questions

Automatically Created

What is the tax presumption on real estate capital gains (mais-valias) under Portuguese IRS law?
Under Portuguese IRS law, Article 44(2) of the IRS Code establishes a legal presumption for real estate capital gains calculations. When determining capital gains (mais-valias), the law presumes that the realization value cannot be less than the property's tax-assessed value (valor patrimonial tributário - VPT). This means that even if a taxpayer sells property for less than its official tax-assessed value, the Tax Authority will calculate the taxable capital gain using the higher tax-assessed value rather than the actual sale price. This presumption aims to establish an objective valuation system and prevent underreporting of sale prices for tax avoidance purposes. The tax-assessed value is determined according to the rules in the IMI Code (Real Estate Tax Code) based on objective factors such as location, construction type, and area.
Can a taxpayer rebut the presumption that the property's taxable value equals the sale price in IRS capital gains calculations?
The rebuttability of the presumption that property's taxable value equals the sale price is the central legal question in this case. The taxpayer argues that Article 73 of the General Tax Law explicitly provides that 'presumptions enshrined in tax incidence norms always admit proof to the contrary,' which should allow taxpayers to demonstrate the actual sale price was lower than the tax-assessed value. The taxpayer also points to Articles 44(5) and 44(6) of the IRS Code as evidence that the legislature recognizes rebuttable presumptions in capital gains calculations. However, the Tax Authority maintains that Article 44(2)'s presumption is not rebuttable, arguing that the objective tax-assessed valuation system serves to prevent fraud and that Article 76 of the IMI Code provides the specific legal mechanism for challenging property valuations through a new assessment procedure rather than simply proving a lower transaction value. The Authority contends that declaring sale prices below tax-assessed values creates a strong presumption of tax evasion.
How does the principle of taxation based on real income apply to real estate capital gains in Portugal?
The principle of taxation based on real income (tributação pelo rendimento real) is a fundamental constitutional principle in Portuguese tax law that requires taxes to be levied on actual economic capacity and real income rather than fictional or presumed amounts. In this case, the taxpayer argues that using the tax-assessed value instead of the actual sale price violates this principle because it taxes a capital gain that was not actually realized. The taxpayer contends that if property is sold for less than its tax-assessed value due to genuine market conditions, taxing the difference between acquisition cost and tax-assessed value (rather than actual sale price) imposes tax liability on income that never materialized, violating the constitutional principle of taxation according to contributory capacity (capacidade contributiva). The Tax Authority counters that the taxpayer still demonstrates contributory capacity corresponding to the tax-assessed value when selling property, merely 'renouncing' the income, and that the objective valuation system serves legitimate anti-fraud purposes that justify any departure from pure real income taxation.
What is the procedure to challenge an IRS tax assessment on property capital gains through CAAD tax arbitration?
To challenge an IRS tax assessment on property capital gains through CAAD (Centro de Arbitragem Administrativa) tax arbitration, taxpayers must follow the procedure established in the RJAT (Legal Framework for Arbitration in Tax Matters - Decree-Law 10/2011). The process begins with filing a request for arbitral decision under Articles 2(1)(a) and 10 of RJAT, in conjunction with Article 99(a) and Article 102(2) of the Tax Procedure and Process Code (CPPT). In this case, the taxpayer filed the arbitration request on February 18, 2015, after the Tax Authority dismissed their administrative complaint. The request must specify the illegality claims, including the specific assessment act being challenged and any prior administrative decisions. The CAAD President accepts the request and notifies the Tax Authority, then appoints an arbitrator (or sole arbitrator if parties don't make appointments). The process includes a hearing under Article 18 of RJAT where witnesses may be heard, followed by written arguments from both parties. The arbitral court then issues a decision on the merits, which can include ordering reimbursement of amounts paid plus compensatory interest.
How does the acquisition value of property sold by the State affect the calculation of capital gains for IRS purposes?
When property is acquired from the State, special considerations apply to calculating IRS capital gains. In this case, the taxpayer acquired property from the State in January 2013 and argues that the tax-assessed value should be considered as the original acquisition value for calculating capital gains upon resale. The taxpayer contends that the property's acquisition value was not properly considered 'due to the nature of the seller, the State.' The Tax Authority disputes this, noting that under Article 17(3) of the IMT Code (Real Estate Transfer Tax), when calculating IMT on the acquisition, the assessable value would not simply be the full tax-assessed value but would be calculated by disregarding amounts below the exemption threshold and applying the IMT rate only to the value exceeding that threshold. This affects the determination of the acquisition value for subsequent capital gains calculations. The case highlights the complexity that arises when State-owned property enters the private market and how the interaction between different tax codes (IRS, IMT, and IMI) affects the calculation of taxable capital gains on subsequent sales.