Capital Gains Reinvestment in IRS 2013: CAAD Ruling on Article 10(5)(c) CIRS

ARBITRAL DECISION

The Arbitrators José Poças Falcão (Presiding Arbitrator), Carla Castelo Trindade and Luís Menezes Leitão, designated by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

A…, Tax ID No. …, resident at Rua de…, No. …, … …, …-… Lisbon, having come forward under the combined provisions of Articles 2.º No. 1 subparagraph a), 5.º, 10.º No. 1 subparagraph a), and et seq. of the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law No. 10/2011, of 20 January, and with the grounds provided in subparagraphs a) and c) of Article 99º of the Code of Tax Procedure and Process (CPPT), hereby presents this request for the constitution of a Tribunal and arbitral pronouncement.

Object of the Request

The object of the request concerns the acts of assessment of Personal Income Tax (IRS) for the year 2013 and respective default interest, resulting from the ex officio correction of the income declaration, model 3, annex G, namely:

Delimitation of the Arbitral Pronouncement Request

The arbitral pronouncement request covers only the challenging of the assessment acts resulting from the ex officio correction insofar as the Tax Authority (AT) considered that the requirements for reinvestment of the realization value are not met.

In other words, the Claimant does not intend to challenge the correction of the value of expenses and charges from €121,028.00 to €108,052.05.

Essential Facts Alleged with Interest for the Decision

The following essential facts are alleged by the Claimant:

1. On 21 September 2009, by public deed executed by Notary …, with notarial office at Av…, No. …-…, in …, executed on pages 140 to 142 verso of Book No. …-…, with supplementary document, the Claimant purchased, for the price of €310,000.00 (three hundred and ten thousand euros), free of liens or charges, the urban property for residential purposes, located at Rua…, plot…, …, …, parish of …, municipality of Setúbal, described in the … Registry Office of Real Property of Setúbal under No. … of the aforementioned parish, registered in the matrix under provisional article …, at that date without assigned tax patrimonial value (cf. Doc. No. 3).

2. On that same date the Claimant contracted two loans with Caixa Geral de Depósitos: one, for acquisition of the aforementioned property, in an amount equal to the respective price, of €310,000.00 (three hundred and ten thousand euros); another, in the amount of €240,000.00 (two hundred and forty thousand euros), for works, both being guaranteed by voluntary mortgage constituted over the property (cf. Docs. Nos. 3 and 4).

3. The Claimant declared in the acquisition deed that the acquired property was intended for "his secondary personal residence" (cf. Doc. No. 3).

4. He did so at the request of the banking entity and solely for purposes of fixing the financing conditions (spread and others).

5. After having carried out conservation works on the aforementioned property referred to in No. 1 above, the Claimant devoted it to his permanent personal residence.

6. On that occasion he took care to change his tax domicile, as was his obligation, making the new address appear in his general data, namely: Rua…, No.…, …, …-… Azeitão.

7. This change was accepted and recognized by the organs of the Tax Authority, as may be verified, notably: (a) by the IRS Assessment Statement for the year 2010, Assessment No. 2011 … of 2011-07-05, which is attached as Doc. No. 5, and (b) by the Urban Real Property Record which is attached as Doc. No. 6.

8. The Claimant used the aforementioned property as his permanent personal residence for 3 years without any objection from the AT.

9. On 29 November 2013, by public deed executed by Notary …, with notarial office in …, at …, Building…, … floor, room …, executed on pages 16 to 17 verso of Book No.…, the Claimant sold, for the price of €985,000.00 (nine hundred and eighty-five thousand euros), free of liens or charges, the aforementioned urban property, better identified in No. 1 above, already registered in the new matrix of the Union of Parishes of … (… and …) under article …, with the tax patrimonial value of €283,517.63 (cf. Doc. No. 7).

10. On 28 May 2014, the Claimant presented, via the internet, his 1st IRS Model 3 income declaration, relating to 2013, with Annex G, to which was assigned identification …-… -12, therein recording the capital gain from the sale of the property in question and the intention to reinvest, in compliance with the provision in subparagraph c) of No. 5 of Article 10º of the CIRS (cf. Doc. No. 8):

1. However, due to manifest clerical error ([1]) of the Claimant's former tax advisor (TOC) (719), the acquisition value was indicated as €710,000.00 instead of €310,000.00 (taking the digit 7 for the digit 3).

2. To rectify this involuntary error, the Claimant presented on 08 August 2014, the 1st amended declaration of the IRS Model 3 income declaration, relating to 2013, with new Annex G, to which corresponded identification …-… -2, maintaining the declaration of intention to reinvest the capital gain from the sale of the property in question (cf. Doc. No. 9) as follows:

1. The Setúbal Finance Service sent to the Claimant, by registered mail, RD…PT, Official Letter No. … dated 2014-09-18 (cf. Doc. No. 10), with the following content:

Subject: NOTIFICATION FOR THE RIGHT TO HEARING

You are hereby notified, pursuant to Article 60º of the General Tax Law, and within a period of 15 days, that you may, if you wish, exercise your right to hearing regarding the draft decision to correct the elements declared in your 2013 IRS declaration, given that you have declared the alienation of the property described as urban real property registered under article …, of the Union of Parishes of …, municipality of Setúbal, for the amount of €985,000.00, alienated in 2013/11, with intention to reinvest, whereby you must prove the loan amount or the declared reinvestment value.

The right to hearing may be exercised in writing or orally.

If you choose the first form, the document that effectuates this right shall be sent to this Finance Service, making mention of the number and date of this official letter.

In case you wish to make oral submissions you should appear at this Finance Service of the area of your residence, within the same period, in order for a record of declarations to be drawn up.

However, in view of the proposed correction, if you see fit, you may within the same period proceed with voluntary regularization, by submitting an amended declaration at the Finance Service of the area of your residence, or electronically.

With best regards

The Chief of Finance

1. On 14 October 2014, the Claimant presented the "2nd amended declaration" (cf. Doc. No. 11) of the IRS Model 3 income declaration, relating to 2013, with new Annex G, to which was assigned identification …-… -30, once again indicating, in Table 5, his intention to reinvest after having corrected the "loan amount outstanding on date of alienation", limiting this to the loan relating to the acquisition (without contemplating the loan for works), and also the "value of expenses and charges", all as follows:

1. On 03 November 2014, by registered mail RY…PT, the IRS Services Directorate notified the Claimant (cf. Doc. No. 12) that:

"The income declaration relating to the year 2013, with identification …/30, was selected for analysis as the following situation(s) was/were detected:

Undeclared alienation of properties or need to prove the values of expenses, realization value, acquisition date of alienated properties or allocation to professional activity."

1. On 18 November 2014, the Claimant's tax advisor (…) went to the Lisbon Finance Service and provided the documentation relating to the alienation of the property and the respective expenses and charges (cf. proof of presence attached as Doc. No. 13).

2. On 20 November 2014, the Lisbon Finance Service, sent to the Claimant Official Letter No…, registered with proof of receipt, RF…PT, (cf. Doc. No. 14) with the following content:

Subject: NOTIFICATION AND STATEMENT OF FACTS (ART. 66º OF CIRS) – IRS 2013

By this means you are notified, pursuant to Article 66º of the Personal Income Tax Code (CIRS), that following the presentation of supporting documents for expenses and charges and amounts owed as per your statement in annex G, following notification for prior hearing as per our official letter No. GI-… of 2014-09-18, it was found necessary to correct the value of expenses and charges from €121,028.00 to €108,052.05.

Furthermore, it was found that the requirements for reinvestment of the realization value are not met because the property has not been devoted to permanent personal residence as evidenced by IMT assessment No. …, deed of purchase and sale executed on 2009-09-21 and change of tax domicile more than six months after acquisition.

The grounds for the correction derive from the terms of Article 10º of CIRS, in conjunction with Article 11º, No. 7, subparagraph b) of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT) and Article 51º of CIRS.

Thus an ex officio declaration will be prepared and the tax that is shown to be lacking shall be assessed, with the addition of default interest due and an infraction proceeding shall be initiated for the exaction of the fine owed.

From the consequent assessment a claim or challenge may be filed pursuant to the terms and grounds established in the Code of Tax Procedure and Process (CPPT) as provided in Article 140º of CIRS.

With best regards.

The Deputy Chief of Finance

1. On 28 November 2014, the Claimant's new tax advisor (…) sent, by telefax, a communication (cf. Doc. No. 15) to the Lisbon Finance Service, with the following content:

TELEFAX

Request for Reconsideration of Decision

From: …

Tax ID No. …

To: Lisbon Finance Service …

Attn: Technical Officer … and

Deputy Chief of Finance, Dr. …

Date: 28 November 2014

Subject: Request for correction of your official letter … of 20/11 as it contains errors – 3 PAGES

Dear Sirs,

I hereby inform you that your No. … contains data that is not correct. At issue is the conclusion that the property sold in question does not constitute permanent personal residence of Mr. ….

In fact, such property was acquired as secondary residence and IMT was assessed accordingly still in 2009. However, later it became the permanent residence.

Attached hereto are documents proving that in 2011 it already was, more than two years before the sale carried out in November 2013.

Accordingly, we hereby request that the realization value appearing in the model 3 declaration for reinvestment be considered as valid because the property was, in fact, permanent personal residence for more than two years.

In representation of …, I sign.

…

Tax Advisor …

18A - In summary, the AT considers that the provision of the negative norm of incidence set forth in subparagraph a) of No. 5 of Article 10º of CIRS is not fulfilled, with the following grounds:

(1) "… because the property has not been devoted to permanent personal residence as evidenced by IMT assessment No. …, deed of purchase and sale executed on 2009-09-21";

(2) "… and change of tax domicile more than six months after acquisition".

(3) "The grounds for the correction derive from the terms of Article 10º of CIRS, in conjunction with Article 11º, No. 7, subparagraph b) of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT) and Article 51º of CIRS."

1. However, the exemption or reduction of IMT rate is not a requirement or condition for the exclusion of taxation in respect of IRS to which Article 10º No. 5 of CIRS refers.

2. It is very clearly apparent from this that the said six-month period for devotion to permanent personal residence is enshrined exclusively for the "incoming" property subject to reinvestment.

Tax Domicile versus Permanent Personal Residence

1. The matter to be decided by the Arbitral Tribunal is limited to the regime for exclusion of taxation of real property capital gains resulting from the alienation of property devoted to permanent personal residence.

2. More specifically, the arbitral pronouncement relates only to the "deferral" of the taxation of the gain, given the manifest declaration of intention to reinvest in the acquisition of another property with the same purpose.

3. The crux of the question thus resides in this devotion.

4. It is a matter that has already generated considerable discussion and on which various case law and tax doctrine exist. ([2])

5. What is truly curious to observe is the disparity in the grounds adopted by the AT to support the tax acts in this category of income according to the convenience of the specific case.

6. Sometimes the AT understands that the devotion to permanent personal residence should be gauged by the tax domicile of the taxpayer.

7. In those cases, it invokes reasons of legal certainty and security in the recognition of tax benefits and exclusions from taxation, grounded in the concept of permanent personal residence enshrined in Article 46º of the Tax Benefits Statute (EBF) and in the ancillary obligation to communicate changes in tax domicile and its ineffectiveness or unenforceability if not carried out, founded on the combined provisions of Articles 19º of the General Tax Law and 43º, No. 2, of the CPPT (e.g. the position adopted by the AT in Proc. 103/2013-T of CAAD, in which an Arbitral Decision was rendered on 25.11.2013, not yet final).

8. At other times, the AT understands that it falls to the taxpayer to allege and bear the burden of proof of concrete facts revealing this devotion to permanent personal residence, thus disregarding the tax domicile of the taxpayer (e.g. the position adopted by the AT in Proc. 37/2013-T of CAAD, in which an Arbitral Decision was rendered on 29.11.2013, not yet final).

9. In the case at hand, however, it is indisputable that the AT followed the criterion of tax domicile.

10. At least this is the conclusion that can be drawn from the grounds of the tax acts being challenged, in which the AT made express reference to the Claimant's tax domicile.

11. Indeed, it was through the change in the Claimant's tax domicile that the AT proceeded to calculate the aforementioned six-month period, as the starting point of the devotion to permanent residential use.

12. This period, it bears repeating, is not enshrined in the law for the devotion of the "outgoing" property, only for the "incoming" one and whose sole legal source is subparagraph a) of No. 6 of Article 10º of CIRS and not Article 11º of CIMT.

13. It should be noted in this regard that in the grounds of the acts being challenged the AT does not contest the devotion of the "outgoing" property, at the date of its alienation, as the Claimant's permanent personal residence.

14. Indeed, it is evident that it did not request, in the course of prior hearing, any evidence of the stable and lasting permanence of the Claimant in that property, nor did it challenge this fact.

15. When the tax act was formed the AT did not react nor question that the Claimant effectively had his tax domicile in the outgoing property.

16. The AT did not contest that the tax domicile was not the habitual and permanent residence of the Claimant, and indeed this is absolutely clear from the grounds of the act, since in it there is no doubt that the taxpayer established his home there or that he received his correspondence there or that he lived there or that he had the center of his household economy there until he effected the alienation that gave him the capital gain (gain) that he declared his intention to reinvest in another residence with the same purpose.

17. Consequently, it does not appear to us necessary, nor can it be required of the Claimant, to develop evidentiary effort, namely through testimonial evidence, to demonstrate a reality that the AT accepted – or at least did not contest – when forming the tax acts now being challenged and which does not even constitute grounds for the same.

18. Article 19º of the General Tax Law is very clear in establishing that the tax domicile of the taxpayer is the place of his habitual residence; making no distinction between tax domicile and habitual residence.

19. Change of tax domicile is obligatory and only becomes effective with respect to the AT after it has been communicated by the taxpayer (cf. Article 19º, Nos. 3 and 4, of the General Tax Law).

20. It is true that nothing prevents the AT, within the scope of tax procedure, from requesting the taxpayer, under the duty of cooperation, to demonstrate to it the truth of that fact, that is, that his habitual residence is effectively the one he indicated as his tax domicile, namely by resorting to any means of proof admitted by law.

21. "In the matter of tax administrative procedure, the principle of free proof obtains. The law does not fix the proofs that have legal relevance, and the tax administration should make use of the evidentiary elements that, in its opinion, are necessary for clarification of the facts. The traditional means of proof, as we have already stated, shall be the obtaining of documents, expert opinion, accounting records, inspection on site, etc." ([3])

22. It is granted that the AT continues to enjoy the prerogative of rectifying/changing ex officio the tax domicile of the taxpayer when, after prior hearing of the latter, it gathers solid and suitable proof (not prohibited by law) that the habitual residence is in another place than the one that was "communicated" to it as tax domicile (cf. current No. 9 and former No. 8, of 19º, with the renumbering given by Law No. 82-E/2014, of 31 December, entering into force on 1 January 2015).

23. But in the case at hand, not only did it not do so but it also did not challenge that the place of the Claimant's habitual residence was the tax domicile.

The Principle of Tax Legality

1. Article 8º No. 1 of the General Tax Law provides that the following are subject to the principle of tax legality: incidence, rate, tax benefits, taxpayer guarantees, definition of tax crimes and the general regime of tax violations.

2. "This provision aims at the reaffirmation and development of the principle of tax legality, enshrined in Article 103º, No. 2, of the Constitution."

3. Indeed, as ANTÓNIO LIMA GUERREIRO refers ([4]), "It is not its purpose to authentically interpret the Constitutional Law, which it could not do given the subordinate position occupied by the General Tax Law, a mere decree-law, in the hierarchy of tax norms."

4. "Doctrinally, the following corollaries of the principle of tax legality are usually pointed out: (i) necessity of law; (ii) parliamentary law reserve (or absolute legal form reserve) and finally, (iii) principle of legal typification. (…)

(…) the principle of legal typification (more evident in the incidence phase) implies that everything that is not comprised in the closed pre-established list does not exist for tax purposes, carrying implicit the principle of determinability, which manifests itself particularly in interpretative and gap-filling norms within the scope of Tax Law." ([5])

1. With respect to the principle of legal typification, we are reminded here of the motivation for Recommendation No. 18/A/2012 (Proc. No. R-5515/10) by the Ombudsman, on a question concerning the interpretation of Article 10º of CIRS, the reproduction of which is found in CAAD Arbitral Decision No. 84/2012-T, delivered by Dr. Maria do Rosário Anjos:

"(…) The norms inherent to Article 10º of the IRS Code are, by definition, norms of tax incidence, that is, broadly speaking, norms that typify the facts which, when and if verified, may be subject to personal income tax.

Pursuant to Article 103º No. 2 of the Constitution of the Portuguese Republic, it falls to the National Assembly to determine the essential elements of taxes, that is, beyond the rate, tax benefits and taxpayer guarantees, also the essential element that is the incidence of the norm, a matter subject to law reserve, for the benefit of the principle of legal typification."

1. And now, making our own the sensible words of this distinguished legal scholar, we shall say that:

"(…) in obedience to the principle of legality constitutionally enshrined, the applier of a tax incidence norm cannot exceed the limits that this same norm imposes as a condition or prerequisite for its application."

1. We do not defend, obviously, an interpretation of tax legality so absolutely blind and rigid as to not permit any margin of opportunity and nor any powers of free technical or evidentiary appraisal by the Tax Administration. Not at all.

2. Despite the rigidity with which the principle of legality is enshrined in the constitutional text, we concede, as cannot but be the case, that the Tax Administration has this margin of decision to be able to make the case-specific subsumption to the sometimes indeterminate concepts established in law. ([6])

3. However, we cannot fail to draw the attention of this Arbitral Tribunal to the specificity of the interpretation of tax law in the case being examined, which falls within the area of negative material tax law. That is, of rules that exclude normal taxation (whether through structural tax reliefs or special tax benefits), where legal certainty and protection of reliance demand a literal interpretation of the norms. ([7])

4. What does not appear as an element of the norm, that is, what is not contained in its provision (facti species; which means the model of fact) cannot the AT supply by resort to analogy or any other criterion, however rational it may appear.

5. Thus, whether the circumstance that the outgoing property was purchased with the assessment of IMT, whether the mention in the deed that it was intended for his secondary personal residence, whether the change of that designation to his permanent personal residence when more than six months had already elapsed from the acquisition – none of this is relevant to the constituent facts of the incidence exclusion norm.

6. In the case under consideration, as stated above, the taxpayer has not yet carried out the reinvestment but has merely declared, in accordance with the law, his intention to carry out this application within the legal period established for that purpose, that is, within 36 months from the date of alienation of the property, whose term will occur on 20 November 2016.

7. In other words, the exclusion from taxation should occur whenever the outgoing property has been devoted to permanent personal residence of the taxpayer even though at a date subsequent to its acquisition.

8. The six-month period established in the law and to which the AT makes reference (cf. Article 10º, No. 6, subparagraph a), of CIRS) relates exclusively to the devotion of the "incoming" property.

9. This allocation to permanent residential use need not be an act immediately following acquisition (and often cannot be, namely due to the necessity to carry out works and/or the existence of another permanent personal residence still in the process of sale).

10. The norm does not require any "declaration" in the deed of acquisition of properties (whether incoming or outgoing) regarding the immediate and effective use as permanent personal residence - which indeed would be manifestly irreconcilable with the legal provision that the taxpayer may acquire the incoming property before having alienated the outgoing property and still benefit from the exclusion from taxation of the gain obtained in this last operation if he reinvests it in the acquisition carried out in the preceding 24 months.

11. The norm does not even require that the property was acquired exclusively for this residential purpose, ([8]) nor that it has benefited from the IMT exemption enshrined in Article 9º of CIMT, indeed, there being no express reference to that normative provision in No. 5 of Article 10º of CIRS. ([9])

12. The law requires, solely, that the outgoing property has been effectively "devoted" to permanent personal residence of the taxpayer or his family unit (with the legislator not establishing any period for the beginning or duration of this devotion) or that is to say, provided that this is its effective purpose at the date of alienation.

13. Therefore, the Claimant should be recognized as having the right to the "deferral" of the taxation of the income tax (IRS) on the gain obtained from the alienation of the property that served as his permanent personal residence for several years, in accordance with the manifest declaration of intention to reinvest, pursuant to the law, which may take place until 20 November 2016.

14. Consequently the tax act must be annulled as it is vitiated by illegality.

Arbitral Pronouncement Request

The Claimant requests the annulment of the IRS assessment acts for the year 2013 and respective default interest, in the total amount of €146,204.64, with all legal consequences.

This Arbitral Tribunal was duly constituted on 11 May 2015, following the designation of arbitrators by the President of the Deontological Council of CAAD pursuant to the regulatory provisions.

The Director General of the Tax and Customs Authority (AT) was notified pursuant to the terms and effects of Article 17º of the Regulations on Tax Arbitration.

Response of the AT

The AT presented a response alleging, essentially and in summary:

Grounds for the Tax Acts

1. The grounds for the acts being challenged are contained in Official Letter No. …, of 20 November 2014, from the Lisbon Finance Service, …, registered with proof of receipt RF …PT, (cf. Doc. No. 3) with the following content:

Subject: NOTIFICATION AND STATEMENT OF FACTS (ART. 66º OF CIRS) – IRS 2013

By this means you are notified, pursuant to Article 66º of the Personal Income Tax Code (CIRS), that following the presentation of supporting documents for expenses and charges and amounts owed as per your statement in annex G, following notification for prior hearing as per our official letter No. GI-…of 2014-09-18, it was found necessary to correct the value of expenses and charges from €121,028.00 to €108,052.05.

Furthermore, it was found that the requirements for reinvestment of the realization value are not met because the property has not been devoted to permanent personal residence as evidenced by IMT assessment No. …, deed of purchase and sale executed on 2009-09-21 and change of tax domicile more than six months after acquisition.

The grounds for the correction derive from the terms of Article 10º of CIRS, in conjunction with Article 11º, No. 7, subparagraph b) of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT) and Article 51º of CIRS.

Thus an ex officio declaration will be prepared and the tax that is shown to be lacking shall be assessed, with the addition of default interest due and an infraction proceeding shall be initiated for the exaction of the fine owed.

From the consequent assessment a claim or challenge may be filed pursuant to the terms and grounds established in the Code of Tax Procedure and Process (CPPT) as provided in Article 140º of CIRS.

With best regards.

The Deputy Chief of Finance

…

In summary, the AT considers that the provision of the negative norm of incidence set forth in subparagraph a) of No. 5 of Article 10º of CIRS is not fulfilled, with the following grounds:

(1) "… because the property has not been devoted to permanent personal residence as evidenced by IMT assessment No. …, deed of purchase and sale executed on 2009-09-21";

(2) "… and change of tax domicile more than six months after acquisition".

(3) "The grounds for the correction derive from the terms of Article 10º of CIRS, in conjunction with Article 11º, No. 7, subparagraph b) of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT) and Article 51º of CIRS."

Meeting Provided for in Article 18º of the Regulations and Submissions

By order of 8-6-2015 the meeting provided for in Article 18º of the Regulations was dispensed with in so far as no witnesses were listed from the outset. By the same order the parties were notified to simultaneously submit final written submissions.

Submissions

Both parties submitted their submissions in writing in which they concluded, essentially, as they had done in their respective pleadings.

Preliminary Determination of Jurisdiction and Admissibility

The Arbitral Tribunal is materially competent and is duly constituted, pursuant to Articles 2.º, No. 1, subparagraph a), 5º. and 6.º, No. 1, of the Regulations on Tax Arbitration.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4.º and 10.º of the Regulations on Tax Arbitration and Article 1.º of Ordinance No. 112-A/2011, of 22 March.

The proceeding does not suffer from any nullities.

Having regard to everything, it falls to deliver the decision on the merits of the request.

II – SUBSTANTIATION

The Object of the Arbitral Pronouncement Request

The object of this challenge concerns the IRS assessment acts for 2013 of the Claimant resulting from the ex officio correction insofar as the AT considered that the requirements for reinvestment of the realization value are not met, that is: the correction of the value of expenses and charges from €121,028.00 to €108,052.05 is not the object of the challenge.

Facts Proven

The facts proven with interest for the decision of the case (cf. Article 5º of the Code of Civil Procedure), are as follows:

a) The Claimant was notified of the acts of IRS assessment for the year 2013 and respective default interest, resulting from the ex officio correction of his income declaration, model 3, annex G, namely:

b) On 21 September 2009, by public deed executed by Notary…, with notarial office at Av…., No. …-.., in …, executed on pages 140 to 142 verso of Book No. …-…, with supplementary document, the Claimant purchased, for the price of €310,000.00 (three hundred and ten thousand euros), free of liens or charges, the urban property for residential purposes, located at Rua…, plot…, …, …, parish of …, municipality of Setúbal, described in the … Registry Office of Real Property of Setúbal under No. … of the aforementioned parish, registered in the matrix under provisional article …, at that date without assigned tax patrimonial value (cf. Doc. No. 3).

c) On that same date the Claimant contracted two loans with Caixa Geral de Depósitos: one, for acquisition of the aforementioned property, in an amount equal to the respective price, of €310,000.00 (three hundred and ten thousand euros); another, in the amount of €240,000.00 (two hundred and forty thousand euros), for works, both being guaranteed by voluntary mortgage constituted over the property (cf. Docs. Nos. 3 and 4).

d) The Claimant declared in the acquisition deed that the acquired property was intended for "his secondary personal residence" (cf. Doc. No. 3).

e) On 29 November 2013, by public deed executed by Notary…, with notarial office in …, at …, Building…, … floor, room…, executed on pages 16 to 17 verso of Book No.…, the Claimant sold, for the price of €985,000.00 (nine hundred and eighty-five thousand euros), free of liens or charges, the aforementioned urban property, better identified in No. 1 above, already registered in the new matrix of the …(… and …) under article…, with the tax patrimonial value of €283,517.63 (cf. Doc. No. 7).

f) On 28 May 2014, the Claimant presented, via the internet, his 1st IRS Model 3 income declaration, relating to 2013, with Annex G, to which was assigned identification …-… -…, therein recording the capital gain from the sale of the property in question and the intention to reinvest, in compliance with the provision in subparagraph c) of No. 5 of Article 10º of CIRS (cf. Doc. No. 8):

g) However, due to manifest clerical error of the Claimant's former tax advisor, the acquisition value was indicated as €710,000.00 instead of €310,000.00 (taking the digit 7 for the digit 3).

h) To rectify this involuntary error, the Claimant presented on 08 August 2014, the 1st amended declaration of the IRS Model 3 income declaration, relating to 2013, with new Annex G, to which was assigned identification … - … - …, maintaining the declaration of intention to reinvest the capital gain from the sale of the property in question (cf. Doc. No. 9) as follows:

i) The Setúbal Finance Service sent to the Claimant, by registered mail, RD…PT, Official Letter No. … dated 2014-09-18 (cf. Doc. No. 10), with the following content:

Subject: NOTIFICATION FOR THE RIGHT TO HEARING

You are hereby notified, pursuant to Article 60º of the General Tax Law, and within a period of 15 days, that you may, if you wish, exercise your right to hearing regarding the draft decision to correct the elements declared in your 2013 IRS declaration, given that you have declared the alienation of the property described as urban real property registered under article …, of the Union of Parishes of …, municipality of Setúbal, for the amount of €985,000.00, alienated in 2013/11, with intention to reinvest, whereby you must prove the loan amount or the declared reinvestment value.

The right to hearing may be exercised in writing or orally.

If you choose the first form, the document that effectuates this right shall be sent to this Finance Service, making mention of the number and date of this official letter.

In case you wish to make oral submissions you should appear at this Finance Service of the area of your residence, within the same period, in order for a record of declarations to be drawn up.

However, in view of the proposed correction, if you see fit, you may within the same period proceed with voluntary regularization, by submitting an amended declaration at the Finance Service of the area of your residence, or electronically.

With best regards

The Chief of Finance

j) On 14 October 2014, the Claimant presented the "2nd amended declaration" (cf. Doc. No. 11) of the IRS Model 3 income declaration, relating to 2013, with new Annex G, to which was assigned identification …-… - …, once again indicating, in Table 5, his intention to reinvest after having corrected the "loan amount outstanding on date of alienation", limiting this to the loan relating to the acquisition (without contemplating the loan for works), and also the "value of expenses and charges", all as follows:

k) On 03 November 2014, by registered mail RY…PT, the IRS Services Directorate notified the Claimant (cf. Doc. No. 12) that:

"The income declaration relating to the year 2013, with identification …/30, was selected for analysis as the following situation(s) was/were detected:

Undeclared alienation of properties or need to prove the values of expenses, realization value, acquisition date of alienated properties or allocation to professional activity."

l) On 18 November 2014, the Claimant's tax advisor (…) went to the Lisbon Finance Service and provided the documentation relating to the alienation of the property and the respective expenses and charges (cf. proof of presence attached as Doc. No. 13).

m) On 20 November 2014, the Lisbon Finance Service, sent to the Claimant Official Letter No…, registered with proof of receipt, RF…PT, (cf. Doc. No. 14) with the following content:

Subject: NOTIFICATION AND STATEMENT OF FACTS (ART. 66º OF CIRS) – IRS 2013

By this means you are notified, pursuant to Article 66º of the Personal Income Tax Code (CIRS), that following the presentation of supporting documents for expenses and charges and amounts owed as per your statement in annex G, following notification for prior hearing as per our official letter No. GI-… of 2014-09-18, it was found necessary to correct the value of expenses and charges from €121,028.00 to €108,052.05.

Furthermore, it was found that the requirements for reinvestment of the realization value are not met because the property has not been devoted to permanent personal residence as evidenced by IMT assessment No. …, deed of purchase and sale executed on 2009-09-21 and change of tax domicile more than six months after acquisition.

The grounds for the correction derive from the terms of Article 10º of CIRS, in conjunction with Article 11º, No. 7, subparagraph b) of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT) and Article 51º of CIRS.

Thus an ex officio declaration will be prepared and the tax that is shown to be lacking shall be assessed, with the addition of default interest due and an infraction proceeding shall be initiated for the exaction of the fine owed.

From the consequent assessment a claim or challenge may be filed pursuant to the terms and grounds established in the Code of Tax Procedure and Process (CPPT) as provided in Article 140º of CIRS.

With best regards.

The Deputy Chief of Finance

n) On 28 November 2014, the Claimant's new tax advisor (…) sent, by telefax, a communication (cf. Doc. No. 15) to the Lisbon Finance Service, with the following content:

TELEFAX

Request for Reconsideration of Decision

From: …

Tax ID No. …

To: Lisbon Finance Service …

Attn: … and

Deputy Chief of Finance, Dr. …

Date: 28 November 2014

Subject: Request for correction of your official letter … of 20/11 as it contains errors – 3 PAGES

Dear Sirs,

I hereby inform you that your No…contains data that is not correct. At issue is the conclusion that the property sold in question does not constitute permanent personal residence of Mr. ....

In fact, such property was acquired as secondary residence and IMT was assessed accordingly still in 2009. However, later it became the permanent residence.

Attached hereto are documents proving that in 2011 it already was, more than two years before the sale carried out in November 2013.

Accordingly, we hereby request that the realization value appearing in the model 3 declaration for reinvestment be considered as valid because the property was, in fact, permanent personal residence for more than two years.

In representation of…, I sign.

…

Tax Advisor …

o) With the aforementioned telefax communication no documents were attached.

p) The Claimant indicated or communicated to the AT the following tax domiciles:

• Until 21/7/2010 - Rua …No…, … …, Lisbon;

• Between 21/07/2010 and 8/8/2014 – Rua da…, plot…, …, Setúbal; and

• As of 8/8/2014 - Rua …No…, … …, Lisbon.

Facts Not Proven

It is not proven:

• that it was at the request of the banking entity and solely for fixing financing conditions, that the Claimant declared in the aforementioned deed of purchase and sale mentioned in b) [of the above list of proven facts], that the urban property located at Rua … and better identified in a), was intended for permanent personal residence of the Claimant;

• that the Claimant after conservation works on that property [located at Rua…] devoted it to his permanent personal residence and that he used it for such purpose and remained there for 3 years.

Substantiation of the Proven and Unproven Matters of Fact

With respect to the matters of fact the Tribunal does not have to pronounce itself on everything that was alleged by the parties, but rather it falls to it to have the duty to select the facts that matter or that are relevant for the decision and to distinguish the proven facts from the unproven ones [cf. Article 123.º, No. 2, of the Code of Tax Procedure and Process and Article 607.º, No. 3 of the Code of Civil Procedure, applicable by force of Article 29.º, No. 1, subparagraphs a) and e), of the Regulations on Tax Arbitration].

Thus, the facts pertinent to the judgment of the case are chosen and delimited in function of their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law (cf. former Article 511.º, No. 1, of the Code of Civil Procedure, corresponding to the current Article 596.º, applicable by force of Article 29.º, No. 1, subparagraph e), of the Regulations on Tax Arbitration).

Thus, having regard to the positions assumed by the parties, in light of Article 110.º/7 of the Code of Tax Procedure and Process, the documentary evidence and the evidence attached to the case file, the above-listed facts were considered proven, with relevance for the decision.

The facts which the Tribunal considered unproven result, obviously, from the lack of proof presented by whoever had the respective burden, that is, by whoever alleged them – the Claimant.

The Claimant alleged that the declaration made by him in an authentic document that the acquired property was intended for secondary residence would not correspond to reality and that it would only have been made as a way to obtain banking financing.

Naturally such a declaration in an authentic document could be challenged at the level of its correspondence or lack thereof with reality, namely through documentary and/or testimonial evidence.

Such, however, did not happen.

The Claimant also alleges that at least between 21/07/2010 and 8/8/2014 his permanent personal residence and his tax domicile were Rua…, plot…, …, Setúbal. Notwithstanding, he did not succeed in proving that first fact. He brought nothing to the case file that could make this Tribunal accept as proven that in that period of time his center of vital interests, that is, his permanent personal residence were at that address.

Throughout the entire administrative procedure, and indeed throughout the arbitral process, he limited himself to trying to prove that his tax domicile was Rua…, plot…, …, Setúbal.

Notwithstanding, "tax domicile" and place of "permanent personal residence" are not necessarily coincident, and a residence, whether the taxpayer's own or not, may be indicated as tax domicile, which is not his principal or permanent residence in the sense of being where the taxpayer and family unit have their center of legal and social life (cf., e.g., Article 16º of CIRS and 19º of the General Tax Law[10]).

II – SUBSTANTIATION (cont.)

THE LAW

The Tax Act Being Challenged

The question raised in the case essentially concerns the reinvestment of capital gain resulting from the sale of a residence in light of the provision in Articles 10º of CIRS.

Let us look at the Law.

The Personal Income Tax Code (CIRS) provides:

Article 10º

Capital Gains

1 - Capital gains consist of gains obtained that, not being considered business, professional, capital or real property income, result from:

a) Onerous alienation of real rights over real property and allocation of any property of the individual's personal estate to business or professional activity carried on in the individual's name;

b) Onerous alienation of partnership interests and other securities, including:

1. (…)

4 - The gain subject to IRS comprises:

a) The difference between the realization value and the acquisition value, net of the portion qualified as capital income, where applicable, in the cases provided for in subparagraphs a), b) and c) of No. 1;

(…)

5 - The following gains are excluded from taxation: those resulting from the onerous transmission of property devoted to the permanent personal residence of the taxpayer or his family unit, provided that the following conditions are cumulatively fulfilled:

a) The realization value, net of the amortization of any loan contracted for the acquisition of the property, is reinvested in the acquisition of the ownership of another property, land for construction of property and/or the respective construction, or in the expansion or improvement of another property exclusively with the same purpose situated in Portuguese territory or in the territory of another Member State of the European Union or of the European Economic Area, provided that, in the latter case, there is an exchange of information on tax matters;

b) The reinvestment provided for in the previous subparagraph is carried out within 24 months before and 36 months after the date of realization;

c) The taxpayer manifests the intention to proceed with the reinvestment, even if partial, mentioning the respective amount in the income declaration relating to the year of alienation;

d) (Repealed.)

6 - There will be no place for the benefit referred to in the previous number when:

a) Where reinvestment is in the acquisition of another property, the acquirer does not allocate it to his residence or that of his family unit within twelve months after the reinvestment;

b) In the other cases, the acquirer does not request the registration in the matrix of the property or of the amendments within 48 months from the date of realization, and shall allocate the property to his residence or that of his family unit by the end of the fifth year following the year of realization;

c) (Repealed.)

7 - In the case of partial reinvestment of the realization value and the conditions established in the previous number being met, the benefit to which No. 5 refers shall apply only to the proportional part of the gains corresponding to the reinvested value.

8 – (…)

9 – (…).

The aforementioned Article 10º of CIRS (also under the heading "Capital Gains") provided, in the wording then given by Law No. 10-B/96 of 23/3, that "(…) capital gains consist of gains obtained that, not being considered commercial, industrial or agricultural income, result…from the onerous alienation of real rights over property…(…)" [No. 1, subparagraph a)].

And, in turn, its No. 5 established that "(…) are excluded from taxation the gains resulting from the onerous transmission of property devoted to the residence of the taxpayer or his family unit, in the following conditions:

a) if within a period of 24 months from the date of realization, the proceeds of the alienation are reinvested in the acquisition of another property, land for construction of property, or in the construction, expansion or improvement of another property exclusively with the same purpose, and provided that it is situated in Portuguese territory."

The current wording of cited Article 10º-5 of CIRS results from Law No. 109-B/2001 of 27-12, which maintained the exclusion of incidence relating to capital gains realized in real property, but came to require that the property alienated also be devoted to the permanent personal residence of the benefit recipient.

The law thus makes clear that there is exclusion from taxation only regarding capital gains obtained from the alienation of property used for permanent personal residence when these result from the alienation of a property – the "outgoing" property – that has been used by the taxpayer as permanent personal residence. It also makes clear that the "incoming" property must be allocated to permanent personal residence within a six-month period.

Nothing is said in the law regarding the time during which the "outgoing" property must be used as permanent personal residence. It can be ascertained without great doubt that on the date of alienation the property must be allocated to permanent personal residence. However, the thesis that there is exclusion from taxation only when the outgoing property must be allocated to permanent personal residence from the initial acquisition of the right of ownership cannot be accepted. Such a thesis, especially in the absence of any provision in the law, would result in a constraining of the options of taxpayers who, on the date of purchase or acquisition by gratuitous title of the right of ownership would have to (forever) decide what end they would want to give to the property in question, at least for purposes of Article 10.º of the Personal Income Tax Code.

Here one must look to the substance-over-form principle and understand whether in fact the outgoing property was or was not, on the date of alienation, the permanent personal residence of the taxpayer. And this proof will have to be made by whoever alleges the fact – the Claimant – which, in the case sub judice did not occur.

Given that it resulted proven that the Claimant acquired the property for secondary residence; given that it did not result proven that it became permanent personal residence and because it was not proven on the date of alienation that this was not allocated to permanent personal residence, the gains thus obtained cannot fail to be subject to taxation pursuant to the provision in Article 10º, Nos. 1, subparagraph a) and 5 of CIRS, in the wording of Law No. 109-B/2001 of 27-12, due to the absence of one of the premises to which the aforementioned No. 5 refers.

Article 10º of CIRS (under the heading "Capital Gains") provided, in the wording then given by Law No. 10-B/96 of 23/3, that "(…) capital gains consist of gains obtained that, not being considered commercial, industrial or agricultural income, result…from the onerous alienation of real rights over property…(…)" (No. 1, subparagraph a)).

It is thus observed that the aforementioned wording of Article 10º/5 of CIRS resulting from Law No. 109-B/2001 of 27-12, maintained the exclusion of incidence relating to capital gains realized in real property, but came to require that the property alienated also be devoted to permanent personal residence of the benefit recipient (emphasis ours).

The legislator employed a technique known as roll over that makes these capital gains non-taxable while the realization values are reinvested in property also devoted to permanent personal residence, situated in national territory. The exclusion referred to thus applies only to capital gains from property devoted to permanent personal residence when reinvestment is in property with the same purpose.

It stands out from the foregoing as especially relevant that the capital gain whose exclusion from taxation is sought must be, it is insisted, obligatorily generated within the context of transmissions of property always devoted to residential allocation as principal and permanent use on one date of alienation – the outgoing one – and another within six months from the date of acquisition – the incoming one.

That is: the requirements being met, the property that is sold and the property that is purchased must have as their purpose the principal and permanent residence of the taxpayer.

Permanent Residence. Tax Domicile

Article 19º of the General Tax Law provides regarding the concept of "Tax Domicile":

1 - The tax domicile of the taxpayer is, save provision to the contrary:

· For natural persons, the place of habitual residence;

· For legal entities, the place of their seat or actual management or, failing these, of its stable establishment in Portugal.

2 - Tax domicile also includes the electronic mailbox, pursuant to the terms provided in the public electronic mailbox service.

3 - Communication of the taxpayer's domicile to the tax administration is mandatory, pursuant to the law.

4 - The change of domicile is ineffective as long as it has not been communicated to the tax administration.

5 - Taxpayers resident abroad, as well as those who, although resident in national territory, are absent therefrom for a period exceeding six months, as well as legal entities and other entities legally assimilated that cease activity, must, for tax purposes, designate a representative with residence in national territory.

6 - Regardless of any sanctions applicable, the exercise of the rights of the taxpayers referred to therein before the tax administration, including those of claim, recourse or challenge, depends on the designation of a representative pursuant to the previous number.

7 - …….

8 - The tax administration may rectify ex officio the tax domicile of taxpayers if such flows from the elements at its disposal.

The concept of "permanent personal residence" is not the subject of a special definition embodied in tax norms and therefore, in this matter, it will be necessary to resort to norms subsidiarily applicable for integration of the respective premises.

In respect of taxation of real property capital gains the legislator delimited negatively, as was seen, the field of incidence of IRS, through the express norms of exclusion from taxation enshrined in Nos. 5 and 6 of Article 10º of CIRS.

Tax domicile corresponds to habitual residence, considered as the place where the person normally lives and has the center of his life and interests.

At the conceptual level we can verify the divergence between habitual residence and own personal residence, just as tax domicile does not always coincide with residence in the sense of the place where the person has his dwelling, and such conclusion can indeed be inferred from the wording of Article 82º of the Civil Code, which admits the possibility of residence or domicile in different places.

Moreover, the concept or figure of permanent personal residence was created by the tax legislator although it was subsequently also absorbed by the banking system to differentiate the applicable regimes in case of granting of credit for purchase of housing.

On the other hand, there is no identity between "tax domicile" and "permanent residence" admitting that the taxpayer prove his permanent residence by presenting "justifying facts" that he thereat fixed in a habitual and permanent manner the center of his personal life (emphasis ours) (cf. in this sense the Decision No. 04550/11 of the Central Administrative Court of the South: "The concept of tax domicile established in the provision of Article 19° of the General Tax Law, namely in its No. 1 is a special domicile that refers to a determined place for the exercise of rights and the performance of duties provided for in tax norms which, being special, (…) although, ideologically and in its essence the provision of that first legal provision connects with the necessity that the taxpayer and the AT be in contact whenever necessary for the exercise of the respective rights and duties, in homage to the principle of collaboration inherent in Article 59º of the General Tax Law.")

Tax domicile is, thus, a special domicile, by which is exposed at a determined place the exercise of rights and the performance of duties provided for in tax norms (cf. António Lima Guerreiro, Annotated General Tax Law, 2000, Rei dos Livros Publishers, p.119; Diogo Leite de Campos and others, Commented and Annotated General Tax Law, Vislis, 2003, p.124) opportunely cited in the Decision of the Central Administrative Court of the South No. 04870/11 of the Section - CT-2nd Court of 25 October 2011.

Following the same Decision, the scope of application of Article 19º of the General Tax Law will also be seen as adopted, when the Court affirms that, pursuant to Article 19, No. 3, of the General Tax Law, change of domicile is ineffective as long as it has not been communicated to the Tax Administration. In consonance with the provision of cited Article 19, No. 3, of the General Tax Law, there arises Article 43º, No. 2, of the Code of Tax Procedure and Process, a norm that establishes the rule of unenforceability against the Tax Administration of a change of domicile that has not been declared to it, providing in No. 3 of this latter provision, that the communication only has effect if the interested party proves that he has already requested or obtained the update of the domicile or seat in his tax identification number. In other words, the penalty for non-compliance with this obligation is the unenforceability against the AT of the non-receipt of any notice or communication, without prejudice to what the law provides regarding the obligation of citation and notification and the terms by which they must be made.

Article 46.º/9 of the Tax Benefits Statute (EBF) does not preclude – quite the contrary – the understanding adopted in the sense of the non-necessary correspondence between permanent residence and tax domicile.

Indeed, in such norm, the legislator prescribed that "(…) for purposes of the provision in this article, it is considered that there has been allocation of property or parts of property to the permanent personal residence of the taxpayer or his family unit if his tax domicile thereat is fixed." (emphasis ours).

Thus, and from the outset, if the legislator intended that the requirement for the benefit in question in this case were the establishment of tax domicile in the acquired property, he would have said so expressly, as he did in the Tax Benefits Statute.

The circumstance that there is a parallelism between the norm of Article 46.º/1 of the Tax Benefits Statute and that of the aforementioned Article 10.º/5, confirms that in the absence of a provision analogous to No. 9 of Article 46.º of the Tax Benefits Statute, the reference to "permanent personal residence" does not require identity thereof with tax domicile. That is: if the legislator felt the necessity, given No. 1 of Article 46.º of the Tax Benefits Statute, to introduce the norm of No. 9, it is because he understood that the wording thereof, without this, did not require the fixing of tax domicile by the taxpayer in the acquired property.

Conjugated with this circumstance the fact that the current wording of the norm of the Tax Benefits Statute in question (Article 46.º/9), was introduced by Law No. 109-B/2001, of 27 December, when Article 10.º/5 of CIRS already had its current wording, reinforces, once more and if needed, the idea that, effectively, the content of No. 9 of Article 46.º of the Tax Benefits Statute is limited, as the norm itself states, to the article it comprises.

Moreover, the norm in question is perfectly clear, in the sense that what is therein provided is limited ("For purposes of the provision in this article"). It does not refer to "for purposes of this enactment", or, which could place greater difficulties, "for purposes of tax benefits". Nor does it simply state that "it is considered that there has been allocation of property or parts of property to the permanent personal residence of the taxpayer or his family unit if his tax domicile thereat is fixed." On the contrary, it was deemed necessary to limit the provision of the norm to the article in question.

From this it is concluded that, for purposes of exclusion from taxation of capital gains, demonstration of communication of tax domicile is not sufficient to prove that the property – the sold one (outgoing property) and the acquired one with reinvestment of capital gains obtained (incoming property) – were both permanent residences of the taxpayer and his family unit.

That is, and as has been stated and is now reaffirmed: the "outgoing" and "incoming" properties must be devoted to permanent personal residence; the first must be so on the date of alienation and the second within six months from the date of acquisition. Any other purpose of both, or of only one of them (as is the case in the present case), destroys the conditions for application of the exclusion of incidence and the capital gain realized in the "outgoing" property shall be taxable (Cf., in this sense, José Guilherme Xavier de Basto, IRS, Real Incidence and Determination of Net Income, Coimbra Publisher, pages 413/414) and also in the Case Law, beyond those cited, the Decisions of the Supreme Administrative Court of 9-7-2014 – Proc 01146 (Rapporteur Dulce Neto), of 25-3-2015 – Proc 0158/13 (Rapporteur Pedro Delgado) and of 17-9-2014 – Proc 0250/14 (Rapporteur Casimiro Gonçalves).

III – DECISION

Based on the foregoing, this Tribunal decides to judge the arbitral pronouncement request totally without merit, thus maintaining, in the legal order, the assessment acts being challenged – IRS for the year 2013 and respective default interest, resulting from the ex officio correction of the income declaration, model 3, annex G, namely:

VALUE OF THE CASE

The case is assigned the value of €146,204.64 pursuant to Article 97.º-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by force of subparagraphs a) and b) of No. 1 of Article 29.º of the Regulations on Tax Arbitration and of No. 2 of Article 3.º of the Regulation on Costs in Tax Arbitration Proceedings.

COSTS

The arbitration fee is set at €3,060.00 pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the Claimant, due to his total defeat, pursuant to Articles 12.º, No. 2, and 22.º, No. 4, both of the Regulations on Tax Arbitration, and Article 4.º, No. 4, of the aforementioned Regulation.

· Let notification be made.

Lisbon, 16 December 2015

The Collective Arbitral Tribunal

José Poças Falcão

(President)

Carla Castelo Trindade

Luís Menezes Leitão

[1] Simple error of calculation or writing, revealed in the very context of the declaration or through the circumstances in which the declaration is made, only gives rise to its rectification (cf. Article 249º of the Civil Code).

[2] Although without particular interest for the case under consideration, among others, the following published decisions on the internet: Decision of the Supreme Administrative Court of 16.01.2013, Case 0950/12; Decision of the Central Administrative Court of the North of 29.04.2011, Case 1135/07; Decision of the Central Administrative Court of the South of 02.10.2012, Case 5398/12; Decision of the Supreme Administrative Court of 13.02.2008, Case 0996/07; CAAD Arbitral Decisions 60/2012-T; 64/2012-T; 80/2012-T; 84/2012-T; 37/2013-T; 103/2013-T.

[3] DIOGO LEITE DE CAMPOS and MÓNICA HORTA NEVES LEITE DE CAMPOS, Tax Law, Almedina, Coimbra, 1997, chapter 40 The Principle of Free Proof, p. 230.

[4] ANTÓNIO LIMA GUERREIRO, legal scholar member of the Commission that prepared the preliminary draft of the General Tax Law, in Annotated General Tax Law, Rei dos Livros Publisher, 2000, p. 69.

[5] PATRÍCIA ANJOS AZEVEDO, in III CONGRESS OF TAX LAW, The "Tax Constitution": In particular, the Principle of Tax Legality, Vida Económica Publisher, p. 383 et seq.

[6] Position defended by ANTÓNIO LIMA GUERREIRO, in the aforementioned work.

[7] Some countries may have enshrined this expressly, as referred by NUNO DE SÁ GOMES, researcher of the Tax Studies Center, in Manual of Tax Law, Volume II, 1999, Rei dos Livros Publisher, p. 394.

[8] There is the question of garages, storage areas and sheds, not included in the exclusion, but which do not make impossible the exclusion in respect of the residential part, as is understood by the AT (cf. Doctrinal Note, with binding information, Doc. 6833/2010, with endorsing order of the Deputy Director-General of 06.12.2010).

[9] Namely for the rule of exemption of IMT in case of acquisition of property exclusively devoted to permanent personal residence whose value serving as the basis for assessment does not exceed €92,407.00. It being manifest that No. 5 of Article 10º of CIRS establishes a "benefit" completely distinct from exemption of IMT, not least because there is no value limitation and also because it does not require that the property be devoted "exclusively" to permanent residence, and the exclusion may be maintained partially (excluding, for example, areas not devoted to residence, such as garages and storage areas – cf.

[10] The legal substantiation will develop this subject matter better.