Summary
Full Decision
Arbitral Decision
The Arbitrator Miguel Durham Agrellos, designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 14 June 2018, decides as follows:
Report
The Claimant A... Lda, legal entity number..., with registered office at Street... (...), ... – ... ..., came, pursuant to subparagraph a) of paragraph 1 and paragraph 2 of article 10 of Decree-Law no. 10/2011, of 20 January ("RJAT"), to request the constitution of a Single Arbitral Tribunal, to rule on the illegality of the tax assessment act for official assessment of Corporate Income Tax (IRC) and Compensatory Interest, number 2017..., in the total amount of EUR 57,937.43, requesting the reimbursement of the amount of tax improperly assessed and subsequently paid. It further requests the condemnation of the Tax and Customs Authority to the payment of indemnification interest.
The Tax and Customs Authority is the Respondent.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Claimants and the Respondent on 14 June 2018.
Pursuant to the provisions of paragraph 1 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, the Deontological Council designated the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
On 23 May 2018, the parties were duly notified of this designation and did not express any intention to refuse the appointment of the arbitrator, in accordance with articles 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
Accordingly, in compliance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT, the single arbitral tribunal was constituted on 14 June 2018.
On 6 September 2018, the Respondent filed a Response in which it argued that the claim should be judged groundless as unproven and the Respondent absolved of all claims. Should this not be upheld, the Respondent requests that, by reference to article 280, paragraph 3 of the CRP and article 72, paragraph 3 of the Constitutional Court Act, notification to the Public Prosecutor be ordered. The Respondent also submitted the Administrative File.
By order of 26 November 2018, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the case proceed with written submissions, and the Claimant was notified of the subsequent arbitration fee.
The arbitral tribunal was regularly constituted, pursuant to the provisions of articles 2, paragraph 1, subparagraph a) and 10, paragraph 1, both of the RJAT.
The parties are duly represented, possess legal personality and capacity and have standing.
The case is free from nullities.
Facts
Proven Facts
On 8 October 2012, the Claimant acquired the autonomous fraction designated by the letter "A", corresponding to the ground floor, for commercial warehouse and office on the first floor, warehouse in the basement, and which forms part of the urban property under the regime of horizontal ownership situated in the Place..., parish and municipality of..., described in the Property Registry office of Paredes under number... ("Property"), by judicial sale, in the insolvency proceedings .../11...T…, for the amount of €62,500.00.
The Property was recognized in the accounts in 2014.
On 16 January 2014, the Claimant entered into a public deed of purchase and sale relating to the Property, through which it alienated the property to the company B..., Lda. The price stated in the public deed of purchase and sale is €65,000.00.
The taxable patrimonial value ("VPT") of the Property at the date of alienation was €314,050.00.
In the accounts and in the tax return, for the purposes of determining the fiscal result, the Claimant considered as a positive component the sale price of €65,000.00 and, as a negative component, the purchase price of €62,500.00.
The Claimant was subject to an external inspection procedure, authorized by Service Orders no. OI2017... and OI2017..., intended to verify the omission of income in the years 2014 and 2015, beginning on 18 April 2017 and ending on 4 August 2017.
In the Tax Inspection Report ("RIT"), the Respondent considered that, as a consequence of the sale of the Property for a value lower than the VPT, the Claimant should have entered in field 745 of table 7 of the Model 22 declaration, the positive difference between the definitive VPT of the alienated property and the contract value.
The Respondent made a correction to the taxable base of the Claimant, in the year 2014, in the amount of €249,050.00.
As a consequence of the official correction to the taxable base for the year 2014, the Claimant was notified of the official assessment of Corporate Income Tax number 2017..., in the total amount of €58,077.16, and of the subsequent account settlement number 2017....
The Claimant did not use the procedure provided for in article 139 of the Corporate Income Tax Code in order to rebut the presumption contained in article 64, paragraph 2 of that legal code.
Unproven Facts
With relevance to the arbitral decision, there are no facts that should be considered as unproven.
Substantiation of Factual Matters
The proven facts are based on the documents submitted by the Parties. The Respondent does not dispute the facts presented by the Claimant.
Law
Position of the Parties
The Claimant argues, in summary, that the procedure provided for in article 139 of the Corporate Income Tax Code, by virtue of the deadline fixed for its institution, constitutes a weak guarantee for the taxpayer, incapable of enforcing the constitutional principles of equality, capacity to contribute and taxation based on actual profit.
Accordingly, the Claimant understands that, when the taxpayer, namely through lack of knowledge, has not availed itself of the procedure provided for in article 139 of the Corporate Income Tax Code ("IRC") to prove the effective price, the determination of taxable profit, as a consequence of the alienation of real property, must, pursuant to article 64, paragraphs 1 to 3 of the Corporate Income Tax Code, consider "as a negative component of the fiscal result the patrimonial value, if superior to the purchase price, whenever the patrimonial value is recorded as a positive component when the property is sold and is superior to the price, regardless of whether such purchase was made in insolvency proceedings or another judicial process".
The Respondent understands, in accordance with the grounds of the assessment act in the segment in question, that, in the case under analysis, the property was acquired by judicial sale, and for this purpose refers to article 12 of the Transfer Tax Code, in rule 16 of its paragraph 4, which states that "the value of assets acquired from the State, Autonomous Regions or local authorities, as well as those acquired by judicial or administrative sale, is the price stated in the act or contract". Thus, it argues, this situation being verified, the acquisition value to be considered corresponds to the effective price stated in the act. Therefore, because the property was acquired by judicial sale, when sold in 2014 it does not benefit from the correction of the acquisition value by the combination of paragraph 1 of article 64 of the Corporate Income Tax Code with rule 16 of paragraph 4 of article 12 of the Transfer Tax Code.
It further argues that the mechanism enshrined in article 139 fully complies with the principle of capacity to contribute.
Question to be Decided
The Claimant seeks the ruling of this Tribunal on the legality of the assessment act, for violation of the provisions of article 64, paragraphs 1 to 3 of the Corporate Income Tax Code, on the understanding that the purchase value for the purposes of quantifying the capital gain should consider the VPT and not the value at which the judicial sale occurred, since it is also the VPT that is considered for the purpose of fixing the sale value. Subsidiarily, it argues that if the interpretation followed by the Respondent is upheld, this leads to the unconstitutionality of the norms in question for violation of the principles of equality, capacity to contribute and taxation according to real income.
The question to be decided has already been subject to a decision by an arbitral tribunal in case no. 180/2015-T of CAAD, formed by a panel composed of José Pedro Carvalho (Arbitrator President), Vasco Valdez and Ana Duarte, whose meaning and grounds are adopted, where it was decided that:
"article 64/1 of the Corporate Income Tax Code provides that the 'normal market values (...) cannot be lower than the definitive taxable patrimonial values that served as the basis for the assessment of the municipal tax on onerous transfers of real property (IMT) or that would serve in the event that there was no place for the assessment of this tax'.
This will thus be the starting point of the hermeneutic path to follow; it will be necessary to ascertain whether IMT was assessed or, if not, what value would serve as the basis for such assessment, if it had taken place.
In the case, as there was no place for IMT assessment, the value that would serve as the basis for that assessment must be ascertained, if it had taken place, which, in this case, derives from article 12 of the Transfer Tax Code, which provides that:
'1 - IMT shall apply to the value stated in the act or contract or to the taxable patrimonial value of the properties, whichever is greater.
2 - In the case of properties omitted from the matrix or recorded therein without taxable patrimonial value, as well as of assets or rights not subject to matriculation, the taxable patrimonial value is determined in accordance with the Municipal Property Tax Code.
3 - To the taxable patrimonial value is added the declared value of the component parts, when the same is not included in the said taxable patrimonial value. (...)
4 - The provisions of the foregoing paragraphs are understood, however, without prejudice to the following rules:
- The value of assets acquired from the State, Autonomous Regions or local authorities, as well as those acquired by judicial or administrative sale, is the price stated in the act or contract';
In the case, as the TA correctly considered, we are faced with a situation that can be characterized as a concept of 'judicial sale', used in the rule that has just been transcribed.
In fact, and as stated in the Decision of the Supreme Administrative Court of 05-11-2014, rendered in case 01508/12:
'II - The ratio legis of the rule contained in rule 16, paragraph 4, of article 12 of the Transfer Tax Code is linked to greater certainty of the correspondence and conformity of the declared value to the real value of the transaction in situations where the act of sale is carried out through the intervention of judicial and administrative authorities, assuming that there will always be a control by those authorities over the value of the alienation, even though the sale is carried out after negotiation between a negotiator appointed by that body and the buyer.
III - The sale of real property effected by the administrator in a judicial bankruptcy proceeding and under judicial supervision (articles 158 and 161 of the Bankruptcy Code) is included in the concept of judicial sale for the purposes of rule 16, paragraph 4 of article 12 of the Transfer Tax Code.'
In this way, if there had been IMT assessment, the value that would serve as its basis would be that declared in the contracts by means of which the Claimant acquired the properties in question, and that will therefore be the 'definitive taxable patrimonial value' for reference purposes of article 64/1 of the Corporate Income Tax Code.
Having said this, it is held that paragraph 2 of the same article, although it may bear the interpretation – now sustained by the Claimant – according to which whenever 'the value stated in the contract is lower than the definitive taxable patrimonial value of the property, it is this value that should be considered by the alienator and acquirer for the determination of taxable profit', should be read in conjunction with paragraph 1 that precedes it, which stems, already, from the expression 'Whenever, in the onerous transfers provided for in the preceding number'.
Indeed, the ratio legis of paragraph 1 of article 64 is to ensure the 'certainty of correspondence and conformity of the declared value to the real value of the transaction', for the purposes of taxation of companies, through the application of the rules of the Transfer Tax Code, and such ratio is pursued in paragraph 2, which should operate, by force, precisely because of its ratio legis, only in situations where the 'market value' referred to in paragraph 1 is lower than the value that served as the basis for IMT assessment, or that would serve, if it had taken place.
Read, with due attention, the rule of paragraph 1 in question, it can be seen that it requires that the 'normal market values' cannot be lower than the 'definitive taxable patrimonial values that served as the basis for the assessment of the municipal tax on onerous transfers of real property (IMT) or that would serve in the event that there was no place for the assessment of this tax'. That is: this rule includes in the concept of 'definitive taxable patrimonial values' the values that 'would serve in the event that there was no place for the assessment of this tax', and therefore it must be concluded that that expression does not refer to the VPT, strictly speaking, but to the value that served or would serve as the basis for IMT assessment, regardless of whether that value is or is not the VPT.
When the expression 'definitive taxable patrimonial value' is restored in paragraph 2, the same should be read – coherently – in the same way as in paragraph 1, that is, as not referring to the VPT, strictly speaking, but to the value that served or would serve as the basis for IMT assessment, regardless of whether that value is or is not the VPT.
Understood in this way, the applicable normative framework, it will then be necessary to conclude that the contested assessments conform to the same, and therefore the arbitral claim formulated should be groundless on that point' (our emphasis).
Furthermore, and to complement the interpretative elements mentioned, it will always be said that the literal element of article 64, paragraphs 2 and 3 points to its inapplicability to situations of judicial sale since the transfer occurs by act of judicial sale and not by 'contract'.
Therefore, this tribunal holds that the acquisition value to be considered, for the purposes of calculating the fiscal result of the sale in question, should correspond to the judicial sale value.
As regards the sale value, the existence of the specific mechanism provided for in article 139, paragraph 3 of the Corporate Income Tax Code — which allows the presumption of sale at taxable patrimonial value to be rebutted — is intended precisely to safeguard the principle of equality (article 13 of the CRP), the principle of capacity to contribute or the principle of taxation according to real income (article 104, paragraph 2 of the CRP). The Claimant did not avail itself of such mechanism within the legal deadline, nor did it seek to raise a revision of the assessment act, allowing its consolidation in the legal order.
In this way, the claim for annulment of the Corporate Income Tax and Compensatory Interest assessment act is held to be groundless, as is the consequent claim for payment of indemnification interest.
Decision
In these terms, the Arbitral Tribunal decides to judge the claim for arbitral ruling as groundless and condemns the Claimant to the payment of costs due.
Value of the Case
€57,937.43 (in accordance with the provisions of articles 305, paragraph 2, of the Civil Procedure Code and 97-A, paragraph 1, subparagraph a), of the Tax Procedure Code and 3, paragraph 2, of the Regulation on Costs in Tax Arbitration Proceedings).
Costs
Pursuant to paragraph 4 of article 22 of the RJAT, the amount of costs is set at €2,142.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Porto, 24 December 2018
The Arbitrator,
(Miguel Durham Agrellos)
Frequently Asked Questions
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