Process: 137/2013-T

Date: December 2, 2013

Tax Type: IRS

Source: Original CAAD Decision

Summary

Process 137/2013-T addresses the taxation of real estate capital gains under Portuguese IRS and procedural requirements for tax assessment substantiation. Taxpayers A and B challenged IRS 2007 assessment acts before CAAD (tax arbitration) after selling a property for €195,000 (acquired in 2002 for €106,250) and purchasing a replacement property on the same day for €315,000. The Portuguese Tax Authority (AT) issued assessment and interest acts in 2011, determining additional tax liability. The taxpayers raised multiple grounds for annulment: (1) lack of proper substantiation of the assessment acts, as no justification accompanied the notifications and the subsequent certification decision could not remedy this defect; (2) incorrect application of Article 51 of the CIRS regarding deductible necessary expenses for capital gains calculation, specifically concerning property valorization costs and acquisition/disposal expenses; (3) illegal compensatory interest assessment under Article 35(7) of the General Tax Law. The Tax Authority defended that the acts were sufficiently substantiated to allow taxpayers to understand and challenge them, and that Article 51 was correctly applied. Notably, the AT acknowledged that real estate mediation expenses of €4,250 (50% commission paid to agent C) had been accepted as necessary expenses during administrative review. The case also involved a dispute over whether the taxpayers declared reinvestment in their 2007 IRS return (Table 5 of Annex G), which could exempt the capital gain. The arbitral tribunal, constituted under Decree-Law 10/2011 (RJAT), conducted witness examination and oral arguments, with the administrative review having partially granted relief before arbitration. The case illustrates key principles of Portuguese tax procedure including substantiation requirements for administrative acts, proper calculation methodology for real estate capital gains, and taxpayers' rights to arbitral review.

Full Decision

Case No. 137/2013-T

I – Report

1.1. A and B (hereinafter referred to as "applicants"), having been notified of the IRS 2007 assessment acts No. … and of interest No. …, and of the set-off act No. …, filed, on 14/6/2013, a request for constitution of an arbitral tribunal and arbitral decision, pursuant to the provisions of Art. 2, No. 1, subpara. a), of Decree-Law No. 10/2011, of 20/1 (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), and pursuant to the provisions of Articles 1, subpara. a), and 2, of Order No. 112-A/2011, of 22/3, in which the Tax and Customs Authority (hereinafter referred to only as "TCA") is requested, with a view to the annulment of the above-mentioned "IRS assessment acts and interest, as well as [the] set-off act, with all legal consequences."

1.2. On 22/8/2013 the present Sole Arbitral Tribunal was constituted.

1.3. Pursuant to Art. 17, No. 1, of the LRAT, the TCA was cited, as the respondent party, to present its response, pursuant to and for the purposes of the aforementioned article. The TCA presented its response on 30/9/2013.

1.4. In the aforementioned response of 30/9/2013, the TCA alleged, in summary, the total lack of merit of the applicants' request and the absolution of the respondent entity.

1.5. On 15/10/2013, the meeting was held pursuant to and for the purposes of Art. 18 of the LRAT. The content of the respective minutes is hereby fully reproduced.

1.6. On 24/10/2013, a meeting of the Sole Arbitral Tribunal was held with a view to the examination of witnesses and oral arguments. The content of the respective minutes is also hereby fully reproduced.

1.7. As stated in the minutes of 24/10/2013, the Tribunal notified the applicants and the respondent to, in that order and successively, present written arguments within a period of 10 days from the notification of the pronouncement of the respondent regarding the position to be taken by the respondent in relation to the document submitted at that meeting.

1.8. In the TCA's response regarding the document submitted at the meeting of 24/10/2013, it was concluded that "the real estate mediation expenses [to which the document in question refers: invoice 86/2006, in the amount of €4,250.00, relating to 50% of the commission paid to C] had already been considered and accepted in the administrative review proceedings as 'necessary expenses' for the purposes of subpara. a) of Article 51 of the IRS Code."

1.9. The final arguments of the herein respondent and the counter-arguments of the TCA were presented, respectively, on 19/11/2013 and 26/11/2013. Their content is hereby fully reproduced.

1.10. The present Arbitral Tribunal was duly constituted, is materially competent, the case in question does not suffer from defects that would invalidate it, and the Parties have legal personality and capacity, being legitimate.

II – Justification: The Facts

2.1. The herein applicants allege, in their initial petition, that: a) "the tax assessment acts and interest were not accompanied by any justification, nor does the notification contain any reference to a justification already sent, nor even a justification for the absence of justification"; b) the justification contained in the decision regarding the rejection of the request for certification is not contemporaneous with the assessment acts in question, whereby the same "suffer from the defect of lack of justification, whereby they should be annulled"; c) the acts in question are illegal due to violation of the provisions of Art. 51 of the IRS Code, given that the "grounds of the TCA for not accepting the charges with the valorisation of the property and the expenses inherent to the acquisition and disposal" are not admitted; d) "the interest assessment act is illegal, due to violation of the provisions of [...] No. 7 of Art. 35 of the General Tax Law."

2.2. The applicants further request that, "if the assessment acts subject to the present request for arbitral decision are to be annulled," the TCA be "ordered to pay compensation for the expenses borne with the provision of the bank guarantee" in the context of the tax enforcement proceedings instituted for the compulsory collection of the debt in question.

2.3. The applicants conclude by requesting the full merit of the request and, by way thereof, request that be "annulled the IRS assessment acts and interest, as well as the set-off act, with all legal consequences."

2.4. For its part, the TCA alleged, in its response, that: a) "the tax acts do not suffer from the defect of lack of justification, as it is considered that the intended purposes of such justification have been achieved, namely, the understanding of the content of the act by its recipients and the possibility of reacting against it"; b) the assessment and set-off acts are legal, given that there was "correct application and interpretation of Art. 51 of the IRS Code"; c) there was no "reinvestment declared in Table 5 of Annex G of the IRS Return for the year 2007"; d) no compensation is due for provision of undue bank guarantee, "because the requirements for its grant provided for in Art. 53 of the General Tax Law and 171 of the Tax Procedure Code are not met." In summary, the TCA maintains that the IRS assessment acts and compensatory interest should remain in place, and that, therefore, "the request for arbitral decision should be judged to lack merit, with the respondent entity being absolved."

2.5. The following facts are considered proven:

i) By deed of purchase and sale and loan with mortgage and guarantee, the herein applicant acquired, on 9/4/2002, for €106,250.00, in right of superficies, the autonomous fraction designated by the letters "DR", corresponding to the X floor Y of the urban property under the horizontal property regime located at …, parish of …, municipality of …, described in the Land Registry of … under No. …, and registered in the urban property matrix under article …. The aforementioned property was disposed of on 29/1/2007 for €195,000.00.

ii) On 29/1/2007, the herein applicants acquired, for the amount of €315,000.00, the property located in the parish …, article …. On that same date, the herein applicants took out a loan in an amount exactly equal to that of the aforementioned property (as the applicants acknowledge: see §47 and §48 of their final arguments).

iii) The herein applicants were notified of the IRS assessment acts for the year 2007 (No. …), and of compensatory interest (No. …), both issued on 2/12/2011, and of the set-off act No. …, also of 2/12/2011 (see fls. 11 to 13 of the attached administrative file).

iv) From the settlement of accounts effected by the set-off act No. …, a balance payable by the herein applicants was determined in the amount of €4,235.93.

v) The deadline for payment ended on 11/1/2012, without the applicants having made payment, whereby the debt certificate No. …, was issued, in the context of the tax enforcement proceedings No. ….

vi) The aforementioned tax enforcement proceedings were suspended pursuant to Art. 169 of the Tax Procedure Code, with the applicants, for such purpose, providing a bank guarantee (fls. 39 et seq. of the administrative file and doc. 5 submitted by the applicants).

vii) On 30/1/2012, the herein applicants were notified of the decision that was made on the request for certification requested on 9/1/2012 (docs. 2 and 3 submitted by the applicants).

viii) The herein applicants filed, on 30/5/2012, an administrative review claim against the IRS assessment acts and compensatory interest, with reference to the year 2007, in the amount of €5,204.47, and the set-off act, which determined the balance payable in the amount of €4,235.93 (fls. 2 of the administrative file and doc. 4 submitted by the applicants).

ix) The aforementioned administrative review claim was partially granted, by decision of 13/3/2013, notified to the herein applicants on 18/3/2013 (fls. 98 et seq. of the administrative file).

2.6. It is not considered proven, as regards the expenses invoked by the applicants in §38 of their initial petition (and which appear itemized at fls. 7 and 44 et seq. of the attached administrative file), the inseparability of the same with respect to the disposal. It is also not considered proven the application of the amount of the loan of €315,000.00 for a purpose other than the acquisition of the property in question. There are no other unproven facts relevant to the determination of the case.

III – Justification: The Law

In the present case, there are three disputed legal questions: 1) the question of the sufficiency or insufficiency of the justification of the IRS assessment acts and compensatory interest in question; 2) the question of the legality or illegality of the assessment acts having regard to the application made of Art. 51 of the IRS Code; 3) the question of the legality or illegality of the interest assessment act in the light of the provisions of Art. 35, No. 7, of the General Tax Law.

The answers to the aforementioned questions will naturally determine the direction of the decision regarding the applicants' request for ordering the TCA to "pay compensation for the expenses borne with the provision of the bank guarantee" in the context of the tax enforcement proceedings instituted for the compulsory collection of the debt in question.

Let us therefore proceed.

3.1. As mentioned above, the first question that arises is that of the sufficiency or insufficiency of the justification of the IRS assessment acts and compensatory interest in question.

The applicants state that "the tax assessment acts and interest were not accompanied by any justification, nor does the notification contain any reference to a justification already sent, nor even a justification for the absence of justification." They further add that the justification contained in the decision regarding the rejection of the request for certification is not contemporaneous with the assessment acts in question, whereby the same "suffer from the defect of lack of justification, whereby they should be annulled."

However, it should also be noted, from the analysis of fls. 4 of the attached administrative file, that the herein applicants, in their administrative review claim, stated that, despite the "total absence of justification of the assessment acts now claimed," on 30/1/2012, upon being notified of the decision that was made on the request for certification (which they requested under Art. 37, No. 1, of the Tax Procedure Code), that decision, despite being to the effect of partial rejection, "provided to the Claimants the clarifications that allowed them to know the reasons that led the Tax Administration to additionally assess the IRS."

The same applies to the interest assessment, given that the applicants acknowledge, in the aforementioned administrative review claim, at fls. 8 and 12 of the administrative file, having understood what was the base amount, the calculation period, the applicable rate, and the final value thereof.

Taking into account the fact that this is an IRS assessment, and given the nature of "mass processing," it is understandable and accepted that the justification associated with it be made in standardized/computerized manner, provided that, in so doing, no challenge is posed to the provisions of Art. 77, No. 2, of the General Tax Law, or to the purposes sought by the right to justification.

In that sense, the fact that the applicants state that, although considering themselves insufficiently informed, they succeeded, through the decision that was made on the request for certification, in "knowing the reasons that led the Tax Administration to additionally assess the IRS," means that it is considered that, even if there were a defect of lack of justification, the same would have been cured by the aforementioned information.

The herein applicants further state that the information contained in the decision regarding the rejection of the request for certification is not contemporaneous with the assessment acts in question, whereby the same "suffer from the defect of lack of justification, [and should] be annulled."

Such understanding does not appear to be correct, given that, as stated above, the herein applicants identified such information as sufficient to know the reasons that led the TCA to additionally assess the IRS. This was not, therefore, a case of "ex post facto justification," in the sense of new justification (which, in that case, would not find basis within the scope of Art. 37 of the Tax Procedure Code); it was, rather, the curing of the failure to indicate justification of the notified act. Furthermore, lastly, the information provided, even though it was not contemporaneous with the assessment acts, allowed the herein applicants, as is evident from the reading of the administrative file, to react against the acts in question through administrative review.

Based on the above, it is concluded that the purposes sought by the right to justification have, in this case, been fulfilled, allowing the applicants to know (and to react in relation to) the IRS assessment acts and interest.

In the same sense, see, for example, the following decisions: "In cases where the law does not impose special requirements of justification, the fulfilment of the duty to justify by the tax administration is assessed against the provisions of Nos. 1 and 2 of Article 77 of the General Tax Law and having regard to the purposes sought by the duty of justification; In IRS assessment acts, given their nature of 'mass processing,' the duty of justification is fulfilled by the tax administration in a 'standardized' and 'computerized' manner, but without being able to disregard the provisions of No. 2 of Article 77 of the General Tax Law or to put in question the purposes of the right to justification; Where the content of the tax act is in line with the outcome of the administrative procedure of which the taxpayers were being given knowledge by the appropriate means and having reacted against the act of rejection of administrative review that is at the origin of the outcome reflected in the assessment, there is no determining reason for the annulment of the tax act due to lack of justification." (Decision of the Administrative Court of Appeal of 17/6/2009, case 246/09); "Tax law, in the implementation it carries out of the right constitutionally guaranteed to justification of administrative acts (Article 268, No. 3 of the Constitution of the Republic), specifically allows this to be done in a summary manner, provided that it contains the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining taxable income and the tax, and also allowing it to be made by reference (cfr. Nos. 1 and 2 of Article 77 of the General Tax Law), this duty being most often fulfilled by the tax administration in a 'standardized' and 'computerized' manner, given the nature of 'mass processing' of modern tax management (cfr. J.L. Saldanha Sanches/João Taborda da Gama, "Hearing-Participation-Justification: the co-responsibility of the taxpayer in the tax decision," in Homage to José Guilherme Xavier de Basto, Coimbra, 2006, pp. 290/297 and J.L. Saldanha Sanches, The Quantification of the Tax Obligation: Duties of Cooperation, Self-assessment and Administrative Assessment, Lisbon, 1995, pp. 189/202). Essential is that the ultimate purposes envisaged by the requirement of justification are not frustrated: rationality of the decision and creation of the material conditions for the adequate exercise of defence rights by the taxpayers" (Decision of the Administrative Court of Appeal of 14/2/2013, case 645/12).

As regards the interest assessment, it is noted that the essential elements that should have justified it were present (see fl. 12 of the administrative file), and were of the knowledge of the herein applicants, whereby the contrary understanding expressed by these is not well-founded.

In this respect, see, for example, the following decision: "there is [...] a minimum statement that appears to us to be indispensable for the legal requirements of justification to be met which, after all, aim at the taxpayer being able to consciously choose between conforming with the act, accepting its legality, or reacting against it administratively or contentiously. In such minimum content of the justifying statement [of the interest assessment] there should be contained the reference to the amount of tax on which the compensatory interest was assessed, to the rate or rates applied and to the period of time during which such interest is exigible" (Decision of the Administrative Court of Appeal of 30/11/2011, case 619/11); "The case law of this Tribunal has held that, even in the case of the assessment of compensatory interest, notwithstanding that we are dealing with so-called mass production of acts, there will be a minimum of justification that is required, with a view to allowing the taxpayer to assess its respective legality and conform with it or impugn it, thus making known to the taxpayer the period in which the interest was incurred, the amount on which it was assessed and the rate applied, and taking into account the binding requirements that Articles 83 of the IRS Code and 83 of the Tax Procedure Code provide for there to be an assessment of compensatory interest." (Decision of the Regional Administrative Court-South of 16/11/2004, case 879/03).

3.2. The second question concerns the legality or illegality of the assessment acts having regard to the application made of Art. 51 of the IRS Code.

The herein applicants allege that the assessment acts in question are illegal due to violation of the provisions of Art. 51 of the IRS Code, given that the "grounds of the TCA for not accepting the charges with the valorisation of the property and the expenses inherent to the acquisition and disposal" are not admitted. Specifically, they consider that: i) the expenses of condominium works, in the amount of €1,372.68, should have been included within the scope of the expenses provided for in Art. 51 of the IRS Code (see point 30 of the initial petition); ii) should have been included the expenses for the acquisition, between the years 2002 and 2007, of building materials, built-in electrical appliances, awning, kitchen, bathrooms and door and lock, in the total amount of €5,695.71 (see point 38); iii) "the fact that the bank loan corresponds to the price of the property does not serve to demonstrate that there was no reinvestment," since "in addition to the purchase price of the property" were borne "expenses for the acquisition [...] and significant expenses with works" (see point 51).

i) With respect to the expenses for condominium works, it is necessary to establish the relationship between the aforementioned works and the valorisation of the disposed property.

Indeed, as stated in the following decision: "in accordance with the wording of [...] Art. 51 of the IRS Code, there are added to the acquisition value 'The charges for the valorisation of the assets (…), verifiably made in the last five years, and the necessary and actually carried out expenses, inherent to the acquisition and disposal, in the situations provided for in subpara. a) of No. 1 of Art. 10. This concept of 'charges for the valorisation of assets' contains some margin of indeterminacy and needs to be filled. Now, paying attention to the wording of the law (charges for the valorisation of assets, verifiably made in the last five years) one cannot fail to conclude, from the outset, that the charge must be linked to the valorisation of the disposed asset. That is, charges whose purpose is merely the preservation of the value of the asset are not included, but only those intended to increase that value. But which value? Only the physical and material value of the asset or also its disposal value? [...]. [...] Prof. Xavier de Basto (IRS: Real Incidence and Determination of Net Income, Coimbra Publisher, 2007, pp. 460-465.) [considers] that, although only expenses that valorise the asset are in question, among these, however, the law does not appear to authorize distinctions. In the view of this author, 'If the purpose of the rule was to attend only to material or physical valuations and exclude the other charges, it would have said so expressly. Well to the contrary, the use of an open formulation – 'charges for the valorisation of assets' – seems to indicate that it did not wish to restrict the scope of the rule, as the aforementioned tax administration decision purports. [...]. [...] it seems to be acceptable [the] interpretation in the sense that the aforementioned subpara. a) of Art. 51 of the IRS Code does not restrict the charges for the valorisation of assets, verifiably made in the last five years, to material or physical valuations, also encompassing the charges actually borne that valorise them economically." (Decision of the Administrative Court of Appeal of 21/3/2012, case 587/11).

Now, observing the facts brought into the present case, there is no doubt that the aforementioned charges for condominium works were verifiably made within the last five years, and that, whether through material valorisation or through the underlying economic valorisation, such charges led to the valorisation of the disposed property, whereby they fall within the provision of Art. 51, subpara. a), of the IRS Code. And, as the applicants themselves acknowledge, this amount of €1,372.68 was accepted by the TCA (see §36 and 37 of the initial petition), whereby it is concluded that, in this regard, there is nothing to correct. Indeed, in the total amount of the expenses and charges considered (€23,792.40) the aforementioned amount of €1,372.68 was included (see fls. 6-7 and 26 of the administrative file).

ii) However, the applicants state that another amount (€5,695.71), relating to various supposed charges for the valorisation of the property, were not accepted and should have been (see §38 of the initial petition). The itemization of such charges can be found at fl. 7 of the administrative file. These are expenses for the acquisition, between the years 2002 and 2007, of building materials, built-in electrical appliances, awning, kitchen, bathrooms and door and lock.

In light of the same case law mentioned above, it is not discernible, among the aforementioned expenses, expenses that do not have "the purpose of merely preserving the value of the asset." Indeed, each one of them falls within the objective of preserving the value of the asset. To understand it otherwise would mean considering any work aimed at preserving the value of the asset as a charge that valorises the property, thereby subverting the logic underlying the aforementioned Art. 51 of the IRS Code.

Not being able to be framed as charges for the valorisation of the asset, it remains to determine whether those expenses might be framed, also in light of Art. 51, subpara. a), of the IRS Code, as necessary expenses and inherent to the acquisition or disposal.

For such determination, it is essential to verify whether the expenses are necessary and inseparable from the acquisition or disposal. Indeed, as stated in the following decision: "The qualifier 'inherent,' etymologically – in re – already contains, in itself, an idea of inseparability, an intrinsic – not merely extrinsic – relationship with the disposal: in order to be considered relevant, the expense must be so by virtue of its position with respect to the disposal, it must, in short, be inseparable from it." (Decision of the Administrative Court of Appeal of 18/11/2009, case 585/09).

It is therefore a matter of knowing whether the expenses in question, naturally connected to the disposal, are or are not inseparable from it, i.e., whether the disposal "could or could not take place without them, albeit for a different amount" (Decision of the Administrative Court of Appeal of 18/11/2009, case 585/09). And it is in this context that it is held that the expenses invoked, having regard to their respective identification and characterization (see fls. 44 et seq. of the administrative file), are not inseparable from the disposal - i.e., they are not, nor would they be, preventive of the carrying out of the disposal, albeit, naturally, for a different amount.

iii) The herein applicants disagree with the understanding of the TCA that there was no "reinvestment declared in Table 5 of Annex G of the IRS return for the year 2007."

Namely, they do not agree with the TCA when it stated that "there was no reinvestment because the applicants took out a loan, in the amount of €315,000.00 for the acquisition of the property intended for their own permanent residence," since, according to the herein applicants, the condition of the property required investment "in rehabilitation works, which is why the applicants requested a loan of €315,000.00." Furthermore, in the view of the applicants (see points 46 to 49 of the initial petition and points 20 to 22 of their final arguments), the expenses relating to the property reservation (€2,500.00), the deposit (€15,000.00) and the various deposit increases (€14,000.00), in a total of €31,500.00 (in addition to the IMT paid: €14,114.00), would demonstrate that "the TCA's thesis, that the loan amount was used in full for the purchase, does not hold."

However, the herein applicants are not correct. As the respondent entity rightly asserts, "gains resulting from the disposal of properties are only excluded from taxation for IRS purposes if they are applied in the acquisition of property intended for the taxpayer's own permanent residence, with such situation not occurring to the extent that there is recourse to a bank loan, because in this case there is no reinvestment of the proceeds of disposal, the reason underlying such exclusion from taxation. And if the bank credit used does not suffice to cover the acquisition costs of the new property, there is a partial reinvestment, a situation in which the benefit relates only to the proportional part of the gains corresponding to the amount reinvested."

In this sense, see, for example, the following decisions: "The reinvestment to which predicate No. 5 of Art. 10 of the IRS Code (as drafted in 1996) refers is solely the reinvestment of the proceeds of disposal and not the reinvestment of a bank loan. [...]. Taxation is only excluded when the proceeds of disposal are reinvested, because if taxation were also excluded when the money for the new acquisition were borrowed from the bank, then we would have that the taxpayer profited twice: on the one hand, the gain resulting from the sale of the previous property was not taxed and, on the other, the taxpayer was entitled to tax deductions resulting from a loan for the acquisition of one's own home. These are the deductions referred to in Art. 55, No. 1, subpara. e)-1) of the IRS Code. The reinvestment to which that provision refers – reinvestment of the proceeds of disposal – is that of the 'proceeds of realization' or 'realization value' (cfr. Commented and Annotated IRS Code, 2nd edition of the Tax Administration, 1990. Page 120). And the proof that this is the best interpretation of that type of reinvestment is in No. 7 of that Art. 10, pursuant to which 'in the case of partial reinvestment of the realization value (...) the benefit to which No. 5 refers will relate only to the proportional part of the gains corresponding to the reinvested amount'." (Decision of the Administrative Court of Appeal of 20/4/2004, case 1876/03); "The reinvestment to which that provision refers is solely the reinvestment of the proceeds of disposal and not the investment through a bank loan, whereby having the challenger, for the acquisition of a new property, resorted entirely to bank credit, cannot see the gains excluded from taxation. [...]. In summary, and as has been repeatedly affirmed by case law, gains resulting from the disposal of properties are only excluded from taxation for IRS purposes if they are applied in the acquisition of property intended for the taxpayer's own permanent residence, with such situation not occurring to the extent that there is recourse to a bank loan, because in this case there is no reinvestment of the proceeds of disposal, the reason underlying such exclusion from taxation. And if the bank credit used does not suffice to cover the acquisition costs of the new property, there is a partial reinvestment, a situation in which the benefit relates only to the proportional part of the gains corresponding to the reinvested amount." (Decision of the Administrative Court of Appeal of 24/3/2010, case 1241/09).

Indeed, it cannot but cause obvious surprise the fact that the amount of the so-called loan for "rehabilitation works" is exactly equal to the amount needed for the acquisition of the property intended for the own permanent residence of the herein applicants (see fls. 42 and 43 of the administrative file).

3.3. The third question concerns the interest assessment act, which is considered "illegal, due to violation of the provisions of [...] No. 7 of Art. 35 of the General Tax Law."

Again, the applicants are not well-founded. Indeed, it must be kept in mind that the taxpayer's responsibility for compensatory interest is extinguished from the moment there is an act or omission of the TCA that causes the prolongation of the delay in assessment. And it is in this perspective that the beginning of No. 7 of Art. 35 of the General Tax Law must be interpreted, when it provides that compensatory interest is only due for a maximum period of 180 days in the case of an error of the taxpayer evident in the return, since in this case it is the duty of the TCA to carry out the assessment and to detect and correct the taxpayer's error.

Now, in the case being analyzed, there is no such error, whereby there is no such duty and, consequently, no 180-day limit invoked by the applicants.

Finally, it is concluded that the lack of merit of all the aforementioned requests of the applicants - because there was no error attributable to the services in the assessments - also determines the lack of merit of the request for ordering the TCA to "pay compensation for the expenses borne with the provision of the bank guarantee" in the context of the tax enforcement proceedings instituted for the compulsory collection of the debt in question.

IV – Decision

Based on the above, it is decided:

a) To judge to lack merit the request, presented by the applicants, for the annulment of the IRS assessment acts and interest, as well as the set-off act.

b) To judge to lack merit the request, also presented by the herein applicants, for ordering the TCA to pay compensation for the expenses borne with the provision of the bank guarantee in the context of the tax enforcement proceedings instituted for the compulsory collection of the debt in question.

The value of the case is fixed at €5,204.47 (five thousand two hundred and four euros and forty-seven cents), pursuant to Art. 32 of the Tax Court Procedure Code and Art. 97-A of the Tax Procedure Code, applicable by virtue of the provisions of Art. 29, No. 1, subparas. a) and b), of the LRAT, and Art. 3, No. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the applicants, in the amount of €612.00 (six hundred and twelve euros), pursuant to Table I of the RCPAT, given that the request was judged to lack merit, and in compliance with the provisions of Articles 12, No. 2, and 22, No. 4, both of the LRAT, and the provisions of Art. 4, No. 4, of the aforementioned Regulation.

Notify.

Lisbon, 2 December 2013.

The Arbitrator

Manuel Macaísta Malheiros

Text prepared by computer, pursuant to the provisions of Art. 138, No. 5, of the Civil Procedure Code, applicable by reference from Art. 29 of the LRAT.

The drafting of this decision follows the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What are the tax rules for real estate capital gains (mais-valias imobiliárias) under Portuguese IRS?
Under Portuguese IRS law, capital gains from real estate sales (mais-valias imobiliárias) are taxable under Article 51 of the CIRS. The taxable gain is calculated as the sale price minus the acquisition value and necessary expenses. Necessary expenses include: (a) acquisition costs; (b) valorization and improvement expenses incurred during ownership; and (c) disposal costs such as real estate agent commissions, notary fees, and registration costs. Taxpayers may benefit from a reinvestment exemption if proceeds are reinvested in another principal residence within the legal timeframe. The gain must be declared in the IRS return using Table 5 of Annex G when claiming reinvestment relief. Capital gains are typically subject to a 50% inclusion rate for assets held over 24 months, with the resulting amount added to taxable income or optionally taxed at autonomous rates.
Can taxpayers challenge IRS liquidation acts through tax arbitration at CAAD?
Yes, taxpayers can challenge IRS liquidation acts through tax arbitration at CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011 of January 20 (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária). According to Article 2(1)(a) of the RJAT and Ordinance 112-A/2011, taxpayers may request the constitution of an arbitral tribunal to decide on the legality of tax assessment acts. The arbitration request must be filed within the statutory deadline after exhausting or opting out of administrative remedies. The arbitral tribunal has jurisdiction to annul illegal tax acts and order consequential effects. This alternative dispute resolution mechanism provides taxpayers with a faster, specialized forum outside traditional administrative and judicial courts for resolving tax disputes with the Tax and Customs Authority.
What expenses qualify as necessary costs under Article 51 of the CIRS for capital gains calculation?
Under Article 51 of the CIRS, necessary expenses (encargos necessários) that qualify for deduction in calculating real estate capital gains include three categories: (a) acquisition costs - expenses directly related to purchasing the property including notary fees, registration costs, and property transfer tax (IMT); (b) valorization expenses (encargos de valorização) - improvement and enhancement costs incurred during ownership that increase the property's value, such as renovations and construction work; and (c) disposal expenses - costs necessarily incurred to sell the property, including real estate agent commissions and mediation fees, legal fees, and administrative costs. In Process 137/2013-T, the Tax Authority acknowledged that real estate mediation expenses of €4,250 representing 50% of the commission paid to the real estate agent qualified as necessary disposal expenses. Documentation supporting these expenses is essential for their acceptance by tax authorities.
How must the Portuguese Tax Authority (AT) substantiate IRS liquidation and compensation acts?
The Portuguese Tax Authority (AT) must substantiate IRS liquidation and compensation acts in accordance with fundamental administrative law principles and tax procedure requirements. Assessment acts must contain or be accompanied by sufficient justification (fundamentação) to enable taxpayers to understand the content, basis, and legal grounds of the act, and to effectively exercise their right of defense and challenge. In Process 137/2013-T, taxpayers argued that assessment acts issued without contemporaneous justification, and where notifications contained no reference to previously sent justification or explanation for its absence, suffer from a substantiation defect requiring annulment. The AT contended that substantiation was sufficient if it achieved the intended purposes: taxpayer understanding and ability to react. Critically, subsequent justification provided in later decisions (such as certification decisions) cannot cure initial lack of substantiation, as the justification requirement is a contemporaneous obligation tied to the act's issuance. This procedural guarantee is essential for protecting taxpayers' rights of defense.
What is the procedure for filing a tax arbitration request under the RJAT (Decree-Law 10/2011)?
The procedure for filing a tax arbitration request under RJAT (Decree-Law 10/2011) involves several steps: (1) The taxpayer files a request for constitution of an arbitral tribunal and arbitral decision with CAAD, identifying the contested acts and grounds for challenge, as provided in Article 2(1) and Ordinance 112-A/2011; (2) An arbitral tribunal is constituted, either as a sole arbitrator or three-member panel depending on the amount in dispute; (3) Under Article 17(1) RJAT, the Tax Authority is cited to present its response within the statutory deadline; (4) A preliminary meeting is held pursuant to Article 18 RJAT to organize proceedings and attempt settlement; (5) Evidence is produced, including witness examination and document submission if necessary; (6) Parties present written arguments and counter-arguments successively; (7) The tribunal issues its decision within six months of constitution. Throughout proceedings, the tribunal verifies its own jurisdiction, party legitimacy, and absence of invalidating defects. Arbitration decisions are binding and enforceable, with limited appeal grounds to regular courts.