Summary
Full Decision
ARBITRAL DECISION
The arbitral tribunal functioning with a sole arbitrator constituted at the CAAD – Administrative Arbitration Centre pursuant to the legal regime established by Decree-Law no. 10/2011 of January 20[1], to which was appointed by the respective Ethics Council, the arbitrator from the Centre's list Nuno Maldonado Sousa, hereby renders the following arbitral decision.
1. REPORT
1.1. Constitution of the Arbitral Tribunal
A..., divorced, taxpayer number ..., residing at Av... no... ... Esq... ...-... Lisbon filed a petition for constitution of the arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of the RJAT and articles 1 and 2 of Ordinance no. 112-A/2011, of March 22, in which the Tax and Customs Authority[2] is the Respondent.
The petition for constitution of the arbitral tribunal was accepted by the President of the CAAD on 04-03-2015 and notified to the Tax and Customs Authority on 10-03-2015.
In accordance with the provisions of article 6, no. 1 and article 11, no. 1, letter b) of the RJAT, the Ethics Council appointed as arbitrator of the sole arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable deadline, and notified the parties of such appointment on 23-04-2015. In compliance with the rule contained in article 11, no. 1, letter c) of the RJAT, the arbitral tribunal was constituted on 11-05-2015.
1.2. The Petitioner's Claim
In its Initial Petition, the Petitioner requests that the illegality of acts imposing Stamp Tax be declared and that the same be annulled, with the consequent restitution of the tax paid, plus compensatory interest.
The Petitioner bases its claim on the interpretation it makes of the norms of the CIS[3] and the TGIS[4], as it considers that these provisions do not contain an objective tax rule applicable to the situation of the present case.
1.3. The Tax Authority's Position
The Tax Authority responded by upholding the legality of the assessment, invoking the interpretation of the concepts contained in the objective tax rules in accordance with the proper meaning of tax law. It concludes by defending its absolution from the claim.
1.4. Instruction of the Proceedings and Arguments
The Parties did not consider it necessary to hold the meeting provided for in article 18 of the RJAT and dispensed with submitting arguments.
1.5. Case Management
The arbitral tribunal was regularly constituted and has competence ratione materiae in accordance with the provisions of article 2, no. 1, letter a) of the RJAT.
The Parties possess legal personality and capacity (that of the Tax Authority being in accordance with the provisions of article 4, no. 1 of the RJAT and 10, no. 2 of the same legislation and article 1, letter a) of Ordinance no. 112-A/2011, of March 22), are legitimate and are regularly represented.
There are no procedural defects that would invalidate the proceedings.
Accordingly, there is no obstacle to the arbitral tribunal's consideration of the merits of the case, and it must decide.
2. DECISION
2.1. Factual Matters
2.1.1. Facts Deemed Proven
The following facts were established in this case:
A. The Petitioner was notified of the Stamp Tax assessment for the year 2014 issued with no...., collection document no. 2014... relating to "Invalidation / Rectification / Waiver / Rescission / Revocation of Donation", in the amount of 24,896.00 €.
B. The Petitioner was notified of the Stamp Tax assessment (item 1.1) of 13-01-2014, issued with no...., in the amount of 5,063.44 €.
C. The assessments referred to in A) and B) were made by reference to the urban properties identified in F).
D. The Petitioner filed a gracious complaint of the assessment referred to in A), which was subject to a decision of dismissal, which was notified to him.
E. The Petitioner filed a gracious complaint of the assessment referred to in B), which was subject to a decision of dismissal, which was notified to him.
F. By public deed of sale and purchase executed on April 27, 2012, in the Notarial Office of..., in Lisbon, the Petitioner sold to B..., NIF... and C..., NIF..., the usufruct, simultaneous and temporary, constituted for the period of 10 years of the following properties, all located in the municipality of Lisbon:
a. Urban properties registered in the land registry under articles..., ..., ... and ... of the parish of ... (current articles..., ..., ..., ... of the parish of...);
b. Autonomous fraction designated by the letter "Z" of the urban property registered in the land registry under article ... of the parish of ... (current article ... of the parish of...);
c. One quarter of the urban property registered in the land registry of the parish of ... under article ... (current article ... of the parish of...);
d. One third of the urban property registered in the parish of ... under article ... (current article ... of the parish of ...).
G. By public deed of waiver of usufruct executed on December 18, 2013 in the Notarial Office of ..., in Lisbon, B..., NIF..., waived gratuitously the simultaneous and temporary usufruct of which he was the holder in the properties identified in F).
H. On 10-01-2014, B... made a notification to the Tax Authority of the waiver of usufruct referred to in G).
In the grounds adduced by the Tax Authority in each of the decisions on the gracious complaints, among other things, the following may be read:
A sale and purchase contract for usufruct was executed by the complainant on 27.04.2012, which was waived by the usufructuary B..., NIF..., on 18.12.2013.
The question now raised concerns the taxation of the latter under Stamp Tax – Item 1.2.
Now, there exists in tax law a concept of transfer that does not identify with the foundational concept of civil law, and it is this transfer, with economic content and meaning, that fundamentally matters in tax law.
Article 11, no. 2 of the General Tax Law itself clarifies that when the code speaks of gratuitous transfer, it is using "its own" concept of transfer, not the concept of transfer from other branches of law and, in particular, from civil law.
Revealing that the legislator views the extinction of usufruct as a gratuitous transfer is the norm of no. 6 of article 13 of the CIS which provides, regarding the determination of the taxable value of immovable property in the context of gratuitous transfers that "When property is transferred separately from usufruct, the tax owed by the acquirer, as a consequence of the consolidation of property with usufruct, shall be assessed on the difference between the taxpayer's patrimonial value of the property listed in the registry and the value of the naked ownership considered in the respective assessment".
The complainant is thus not correct when it invokes that the tax of item 1.2 is not exigible because in "the concrete situation there was no acquisition of property that can be taxed on the basis of this norm", since in the gratuitous waiver of usufruct there is a transfer subject to the objective scope of tax on gratuitous transfers defined in letter a) of no. 3 of article 1 of the CIS and of Item 1.2 of the TGIS.
It is concluded from the foregoing that the gratuitous waiver of usufruct constitutes a gratuitous transfer for purposes of the objective scope of Stamp Tax to which article 3, no. 1, letter a) of the CIS and Item 1.2 of the TGIS refer.
I. The Petitioner made the following payments of the Stamp Tax assessment referred to in A):
a. First installment on 28-03-2014 in the amount of 1,260.91 €;
b. Second installment on 18-12-2014 in the amount of 1,260.91 €.
J. On 24-02-2014 the Petitioner made payment of the Stamp Tax assessment referred to in B) in the amount of 5,063.44 €.
2.1.2. Facts Deemed Not Proven
No other facts with interest for the decision of the case were alleged.
2.1.3. Justification of Proven Factual Matters
The tribunal's conviction was based on the documentary evidence in the case file and on the position taken with respect to each fact by the Parties in their pleadings.
2.2. Legal Matters
2.2.1. The Fundamental Question: The Scope of Stamp Tax on the Extinction of Usufruct
The fundamental question to be resolved is whether the waiver of usufruct of a determined urban property, acquired by purchase, constitutes a gratuitous transfer in favor of the owner of the naked property, for the purpose of applying the norms of article 1-1 of the CIS and items 1.1 and 1.2 of the TGIS.
If the foregoing question has a negative answer and there is no obligation to pay the tax, it must then be determined whether the Petitioner has the right to restitution of the tax paid plus compensatory interest.
The Parties have already briefly set forth their claims. Let us now examine in greater depth the theses in confrontation.
The Tax Authority maintains the application of Stamp Tax by arguing that "the gratuitous waiver of usufruct constitutes a transfer subject to objective scope". To this end, it argues that "there exists in tax law a concept of transfer that does not identify with the foundational concept of civil law, considering as a transfer, with economic content and meaning, that which fundamentally matters in tax law" (cf. Tax Authority's Response, 5.5).
The Petitioner, in turn, argues that no transfer of any right, whether onerosa or gratuitous, occurred, and that therefore the situation cannot be subsumed to the normative provision of "onerous acquisition or by donation of the right of property or of partial figures of that right over immovable property, as well as the rescission, invalidity or extinction, by mutual consent, of the respective contracts" as regulated by item 1.1 of the TGIS. It also asserts that since no transfer occurred, the application of item 1.2 of the TGIS, which additionally applies to assessed transfers, would also have to be refused. It holds the assessments to be illegal for violating the principle of tax legality inherent in article 103 of the CRP[5].
It is undeniable that article 103 of the CRP asserts the principle of tax legality which, for Vital Moreira and Gomes Canotilho[6], "implies legal typicality, the tax being required to be drawn in law in a sufficiently determined form, without margin for regulatory development nor for administrative discretion as to its essential elements. The norm in question – article 1 of the CIS – is part of the codification that was approved by Law no. 150/99, of September 11, and it is believed that its wording, complemented with that contained in items 1.1 and 1.2 of the TGIS, circumscribes in a sufficiently rigorous manner the objective scope of the tax. It does not appear that the problem arises at the constitutional level, without prejudice to considering that the constitutionally defined parameter should be an element supporting the interpretation of the norms in question.
The thesis asserting the autonomy of tax concepts relative to concepts of private law, as the Tax Authority claims, by asserting the existence of a meaning particular to tax law for the concept of transfer, is not settled. The General Tax Law itself[7] points in a different direction in its provision of article 11, especially in its number 2, which states:
Article 11. Interpretation
1 - In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
2 - Whenever tax norms employ terms peculiar to other branches of law, these must be interpreted in the same sense that they have there, unless otherwise directly provided by law.
3 - Should doubt persist regarding the meaning of applicable objective tax rules, regard must be had to the economic substance of the taxable facts.
4 - Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.
Moreover, modern doctrinal orientation points toward the preservation of concepts of private law when they are used by tax law. As Leite de Campos et al.[8] state, "Concepts of private law are introduced into tax law with their original meaning, unless the law provides otherwise". But even when one admits the possibility of tax law adapting certain legal concepts peculiar to other branches of law, in a non-express manner, such conclusion should result from "the use of the various means of interpretation that the theory of legal interpretation provides [to its] disposal to determine the exact meaning and scope of tax law norms", as observed by Casalta Nabais[9].
Let us examine whether in the specific case of gratuitous acquisitions of immovable property the CIS induces in any way the idea that the concepts of private law it uses in its norms should have content of their own, different from that which the branch of law from which they originate assigns to them. The norms in question are, in first analysis, article 1-1 of the CIS and items 1.1 and 1.2 of the TGIS, the wording of which is as follows:
CIS
Article 1. Objective Scope
1 - Stamp Tax applies to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property.
TGIS
1 - Acquisition of property:
1.1 - Onerous acquisition or by donation of the right of property or of partial figures of that right over immovable property, as well as the rescission, invalidity or extinction, by mutual consent, of the respective contracts - on the value: 0.8%
1.2 - Gratuitous acquisition of property, including by usucaption, in addition, where applicable, to that of item 1.1 - on the value: 10%
The legislative technique used consists of indicating in the body of article 1-1 the various forms through which the facts or situations are celebrated or held, leaving to the table the function of identifying the facts and situations that were subject to formalization. At the level of the TGIS, reading the norm in question instills the idea that the CIS intended to identify exhaustively all situations it intended to cover, identifying them in the TGIS, which as is known is of great detail and minuteness and resorts to expressions that extend the scope of the normative provision when so intended, through the indefinite pronouns "any" and "other".
This methodology can be seen in use in item 4, applicable to checks of any nature; in item 10 which covers guarantees of obligations, whatever their nature or form; in item 11.1.2 which applies to other bets; in item 17.1 which applies to the use of credit, in the form of funds, merchandise and other values, in items 17.1.4 and 17.2.4, which regulate the application to credit used in the form of current account, bank overdraft or any other form in which the period of use is not determined or determinable; in item 17.3.2 which regulates the application to premiums and interest on letters taken, letters to be received on behalf of others, drafts issued on national exchanges or any transfers; in item 17.3.4 which imposes the application of Stamp Tax to other commissions and counterprestation for financial services; in item 22.1 which stipulates the application to the sum of the insurance premium, the cost of the policy and any other amounts that constitute income of insurance companies; in item 22.1.5 which provides the rate of Stamp Tax on insurance policies from any other branches; in item 27.2 which regulates Stamp Tax on subconcessioning and trespasses of concessions made by the State, by the Autonomous Regions or by local authorities, for the operation of companies or services of any nature; in item 29.2 which imposes Stamp Tax on the global net value of other collective investment undertakings.
It is to be recognized that in items 1.1 and 1.2 the TGIS did not use any of the aforementioned resources for broadening the scope of application of the tax. Quite to the contrary, item 1.1 even imposes a restriction of the spectrum; when it stipulated that when acquisition of the right of property or of partial figures of that right over immovable property occurs by rescission of the contract, tax shall only be due if the destruction of the agreement is made by mutual consent, there being consequently no place for Stamp Tax taxation when the rescission is unilaterally declared, e.g., on the basis of a contractual stipulation or a legal provision (as the provision of 432-1 of the Civil Code permits), as occurs in the present case.
If there is no element in the norm that permits asserting that the legislator intended to create a special form of transfer in tax law, more comprehensive than that in civil law, there are signs pointing toward not intending to tax the destruction of translative bonds when this is not achieved by consensual means, or more precisely, when the beneficiary's volitive intervention has not occurred.
The elements that have been aligned do not lead to conclude for the existence of a particular concept of transfer as the Tax Authority claims, and those which it itself invokes also do not point inequivocally in that direction[10]. The Tax Authority purports to see in the norms of article 3 and article 13-6 of the CIS manifestations of this particular concept of transfer. The norms in question do not directly regulate the objective scope and establish other elements of the legal relationship, more precisely article 3 provides the rules for determining the subject and article 13 regulates the tax base. From these norms it does not appear possible to extract more than they state; in article 3 the holder of the payment obligation is identified and in article 13-6 the manner of calculating the value on which the tax applies is disciplined when property is transferred separately from usufruct.
It is believed that the solution to the problem is another. The extinction of usufruct, as a legal act, is generally subject to the scope of Stamp Tax, by express determination of article 1-1 of the CIS and consequently by items 1.1 and 1.2 of the TGIS.
However, two different norms exclude the application of the tax in the case of the present proceedings. On one hand, as referred to, the norm contained in item 1.1 of the table restricts the scope with respect to acquisitions as a result of waiver to cases where this is made by mutual agreement. On the other hand, the situations of gratuitous acquisition of property taxed under item 1.2 of the TGIS see their scope restricted, by effect of article 1-3 of the CIS, which expressly delimits which gratuitous transfers are to be taxed by the cited item, doing so in the following terms:
CIS
Article 1. Objective Scope
(…)
3 - For purposes of item 1.2 of the General Table, gratuitous transfers are considered, in particular, those which have as their object:
a) Right of property or partial figures of that right over immovable property, including acquisition by usucaption;
(…)
g) Acquisition derived from invalidity, rectification, waiver or abandonment, rescission, or revocation of donation inter vivos with or without reservation of usufruct, save in the cases provided for in articles 970[11] and 1765[12] of the Civil Code, with respect to the property and rights set forth in the preceding letters.
(…)
Indeed, this norm of article 1-3-g) equates to typical acquisition the acquisition derived from waiver. Nevertheless, and for what concerns us, it must be observed that in accordance with article 1-3-g) of the CIS, acquisitions derived from waiver of usufruct are only taxed when this usufruct is grounded in donation inter vivos. When in a detailed delimitation the law expressly specifies that it is a determined legal transaction that conveys the transfer it intends to reach – in this case donation – the general norm cannot be interpreted – the norm of article 1-1 – in the sense of including therein acquisition as a result of the rescission of a sale and purchase contract. It is believed that this norm of article 1-3-g) of the CIS negatively delimits acquisitions derived from rescission of legal transactions other than donation.
Thus it must be concluded that the assessments are illegal, for violation of the norms of article 1-1 and 1-3-g) of the CIS and items 1.1 and 1.2 of the TGIS, and that the Petitioner's claim is well-founded.
2.2.2. Reimbursement of the Amount Paid
The Petitioner also requests that the Tax Authority reimburse him for the value of the tax paid, relative to the challenged assessments.
Pursuant to the norm of article 100 of the General Tax Law, "the tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or of judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, under the terms and conditions provided by law." It is clear that the taxpayer is entitled to have reimbursed the amounts he has paid, relating to assessments affected by illegality, so that his patrimony is restored to the amount it had in the moment preceding such payment.
It is important, however, to evaluate whether this Arbitral Tribunal enjoys competence to recognize this right or to condemn the Tax Authority in this regard. To this end it is important to bear in mind that (i) with the RJAT it was intended to reinforce effective protection of the rights and legally protected interests of taxpayers (preamble to Decree-Law no. 10/2011 of January 20); (ii) the imperative character of arbitral decisions against the Tax Authority has the extent of the exact terms of those same decisions (24-1 RJAT); (iii) the Tax Authority's obligation to restore is subject to the very scope of the success of the claim (which may be total or partial) (100 General Tax Law).
The first interpretative element cited prevents conceiving any system that would obstruct or hinder the arbitral decision from achieving its objective, which is the definition of the right in the concrete case. The protection of the rights of taxpayers is not satisfied with less, i.e., from the decision must result all consequences necessary to obtain legality. One cannot conceive that with the illegality of the tax act declared, the taxpayer would still have to resort to another instance to see his right to restoration of the situation declared.
On the other hand, the second element – the imperative nature of arbitral decisions – leads to considering that since arbitral decisions are imperative in their exact terms (24-1 RJAT), this means that these decisions must contain all elements necessary for the Tax Authority to, with complete accuracy, restore legality, and for this it is indispensable that the decision contain the precise limits and terms in which it judges.
The third element – the scope of restoration – illustrates in fact this necessity for accuracy or precision of the decision. By asserting that the Tax Authority's obligation to restore is subject to the very scope of the success of the claim, the law (100 General Tax Law) creates a nexus of dependence between the decision and the obligation to restore. Restoration is made to the extent that the claim is judged successful. There is no restoration without success, and the measure of success defines the measure of restoration. The necessity for this precision is quite clear in cases of partial success. When partial success occurs, how should the Tax Authority behave? The answer can only be one – in the exact terms and limits in which the decision was rendered, whether judicial or arbitral.
From the foregoing it results that the decision on restoration must be taken by the arbitral tribunal when it is asked for an opinion on the question.
In this case it was established that the Petitioner made payment of two installments of one of the Stamp Tax assessments in the amount of 1,260.91 € each and complete payment of the other assessment of the same tax in the amount of 5,063.44 €, totaling all payments the sum of 7,585.26 €.
The Petitioner is entitled to full restoration of the situation that would exist if the assessments had not been made, and therefore should be reimbursed for the amount he paid.
2.2.3. Compensatory Interest
The Petitioner further requests that the restitution of the tax by the Tax Authority be supplemented with compensatory interest.
Questions arise here regarding the competence of arbitral tribunals to decide on this matter, which were assessed in the preceding point. The question is the same and so is the solution. This Arbitral Tribunal considers itself competent for the reasons invoked to decide on this matter.
Pursuant to article 43-1 of the General Tax Law, when there is improper payment of the tax obligation resulting from error attributable to the Tax Authority services, the taxpayer is entitled to compensatory interest. In the same sense, the provision of article 100 of the General Tax Law provides for the payment of such interest as a means to obtain the desired restoration of the situation.
In the concrete case it was established that payment was made in full of one assessment and two installments were paid of another tax assessment. On the amount paid, compensatory interest is owed to the Petitioner, calculated at the legal rate, on the value of each of the three payments, from the date on which each was satisfied. In any case, interest shall be calculated until complete reimbursement of the amount owed.
3. DECISION
Taking into account the factual and legal elements gathered and set forth, the arbitral tribunal decides to judge the petition for arbitral pronouncement well-founded and in consequence:
a) Declare the illegality of the two Stamp Tax assessments identified in this case, annulling as a consequence these assessments;
b) Condemn the Tax and Customs Authority to reimburse the Petitioner in the amount of 7,585.26 €, corresponding to the sum of the amounts he satisfied as tax, plus interest calculated at the legal rate, on the value of each payment, from the date on which each of the payments occurred, until complete reimbursement.
The Tax and Customs Authority is condemned to pay costs, which are determined in a separate chapter.
4. VALUE OF THE CASE
In accordance with the provisions of article 306-2 of the CPC, by virtue of 29-1-e) of the RJAT and 97-A, no. 1-a) of the CPPT by virtue of 3-2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of 17,652.74 €.
5. COSTS
The costs are borne by the party that gave rise to them, understanding that the defeated party gave rise to them (527-1 and 2 CPC). In this case and taking into account the said rule, responsibility for costs lies with the Tax Authority, as the defeated party.
Pursuant to article 22-4 of the RJAT, the amount of costs is fixed at 1,224.00 €, which are borne by the Tax and Customs Authority, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings.
Lisbon, January 11, 2016
The Arbitrator,
(Nuno Maldonado Sousa)
[1] In this decision designated by the abbreviated form of common use "RJAT" (Legal Regime for Arbitration in Tax Matters).
[2] In this decision designated by the abbreviated form "Tax Authority" as is in generalized use.
[3] In this document the acronym CIS is used to designate the Stamp Tax Code.
[4] In this document the acronym TGIS is used to designate the General Table of Stamp Tax.
[5] In this document the acronym IS is used to designate Stamp Tax.
[6] In this document the acronym CRP is used to designate the Constitution of the Portuguese Republic.
[7] J. J. Gomes Canotilho and Vital Moreira - Constitution of the Portuguese Republic Annotated. Vol. I. 4th ed. revised, Coimbra: Coimbra Editora, 2006, p. 95.
[8] Diogo Leite de Campos and Mónica Leite de Campos - Tax law. 2nd ed., Coimbra, Almedina, 2000, p. 93
[9] José Casalta Nabais - Tax law. 2nd ed., Coimbra, Almedina, 2005, pp. 87-88.
[10] The court decision cited by the Tax Authority, rendered by the Court of Appeal of Porto in case no. 2945/11.3TBVNG.P1, was not rendered in tax dispute proceedings but in an appeal of an act of the civil registry conservator, i.e., the court was not asked to challenge a judgment on the legality of a Stamp Tax assessment (an assessment for which it would be incompetent) but rather the legality of an act by the conservator that refused the cancellation of usufruct and the conversion of the registry relating to an autonomous fraction of a certain property, on the ground that proof of the notification of the transfer for purposes of stamp tax had not been made. The court decision does not identify what transaction led to the acquisition of the usufruct and as is well known it is beyond question that the rescission of usufruct acquired by donation is taxed in Stamp Tax (1-3-g CIS).
[11] Regulates revocation for ingratitude of the donee.
[12] Regulates donations between spouses.
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