Summary
Full Decision
ARBITRATION DECISION
The arbitrators José Poças Falcão (arbitrator president), António Alberto Franco and António Sérgio de Matos (arbitrator members), designated by the Deontological Council of the Administrative Arbitration Center to constitute the Arbitral Tribunal, established on 01.07.2016, agree as follows:
I. Report
1. A…, taxpayer no…, and B…, taxpayer no…, married, both with elected domicile at Av…, …, …-… ..., came, under articles 2nd, no. 1, letter a), and 10th, nos 1 and 2 of the RJAT approved by Decree-Law no. 10/2011, of 20 January, in the version of Law 64-B/2011, of 30 December, and articles 1st and 2nd of Ordinance no. 112-A/2011, of 22 March, to request the constitution of an Arbitral Tribunal and formulate a request for arbitral pronouncement, with the Tax Authority and Customs Authority being required, with a view to the DECLARATION OF ILLEGALITY of the INCOME TAX ASSESSMENT AND COMPENSATORY INTEREST no. 2015…, of 2015.12.15, in the amount of 334.584,21€ (three hundred and thirty-four thousand five hundred and eighty-four euros and twenty-one cents), made on 15-12-2015 by the Tax Service of ...-…, regarding the year 2011.
2. The Petitioners request the declaration of illegality of the income tax assessment and compensatory interest no. 2015…, of 2015.12.15.
3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority, on 12-04-2016.
Pursuant to the provisions of letter a) of no. 2 of article 6th and letter b) of no. 1 of article 11th of the RJAT, in the version introduced by article 228th of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal Judge Dr. José Poças Falcão, Dr. António Alberto Franco and Dr. António Sérgio de Matos, who communicated acceptance of the assignment within the applicable period.
On 14-06-2016 the parties were duly notified of this designation, and did not manifest their will to refuse the designation of the arbitrators, in accordance with combined articles 11th no. 1, letters a) and b) of the RJAT and articles 6th and 7th of the Deontological Code.
Thus, in compliance with what is provided in letter c) of no. 1 of article 11th of the RJAT, in the version introduced by article 228th of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 01-07-2016.
4. In support of their claims the Petitioners allege, in summary:
4.1 By the learned Arbitral Decision, of 2013.06.17, already final and conclusive, handed down in the case that, under no. 7/2013-T, proceeded in this CAAD (hereinafter First Arbitral Process), and which here is given as fully reproduced, was declared "illegal, due to error of qualification and quantification", the first tax assessment, relating to 2010 IRS of the now challengers (Doc. 2, attached with the request for arbitral pronouncement);
4.2 By the learned Arbitral Decision, of 2016.01.12, already final and conclusive, handed down in the case that, under no. 248/2015-T, also proceeded in this CAAD (hereinafter Second Arbitral Process), and which here is given as fully reproduced, was "annulled, due to manifest illegality", the second tax assessment, also relating to 2010 IRS of the now challengers (Doc. 3, attached with the request for arbitral pronouncement);
4.3 In the referred arbitral processes, at issue was the taxation of compensatory values paid to the now challenger, in 2010, in the capacity of "assignee of litigious credits" and, decisively, "with regard to indemnities that (were) awarded to him within the scope of judicial action that proceeded under no. 1167/02, in the 2nd Court of Mixed Jurisdiction of ..." (cited Docs. 2 and 3);
4.4 In the act of assessment sub judice, completely disregarding and marginalizing the force, efficacy and authority of the learned arbitral decisions referred (see art. 205° of CRP, art. 24° of RJAT, approved by DL 10/2011, of 20 January, and arts. 619° et seq. of NCPC), came, moreover, to tax based on legal criteria and principles already declared inapplicable in this case the remainder of the compensatory amounts and compulsory pecuniary penalty established in the referred judicial process, which, as a consequence of delays attributable to the Portuguese State, were only paid to the now challenger in 2011;
4.5 In the acts sub judice were applied norms and principles that had been subject to express appreciation and decision in the referred Arbitral Decisions, of 2013.06.17 and of 2016.01.12, revealing the contumacy of the AT, which once again seeks to take advantage of its own delays and illegalities, being manifest the merit of the present challenge, as results from the following main reasons:
a) The acts of assessment and collection sub judice ostensibly and frontally violate the authority, force and efficacy of res judicata of the learned Arbitral Decisions, of 2013.06.17 and of 2016.01.12, assuming a (thinly) disguised refusal of compliance with judgments, in order to "defraud the material outcome of the judicially decreed annulment" (see Court of Appeal (South) Decision of 2007.07.05, Case 1719/06), seeking to neutralize the material result of the referred decisions (see arts. 20°, 205° and 268°/4 and 5 of CRP, arts. 2°, 13°/3, 22°, 24°/1/b) and 4 and 29° of RJAT, arts. 5° and 71° of CIRS, arts. 173° et seq. of CPTA, arts. 2°, 12° and 100° of LGT and arts. 619° et seq. of NCPC);
b) The tax acts under analysis were only practiced, on 2015.12.15, and notified to the now challengers, on 2015.12.21 and on 2016.03.28 (see Docs. 1 and 7, below attached), that is, after the expiration of the respective legal period, whereby the extinction of the tax powers under analysis would always have occurred, by virtue of arts. 45° and 100° of LGT;
c) If it were subject to IRS, the alleged, but non-existent patrimonial increase resulting from the credit assignment contract for litigious claims, executed on 2007.04.24, which was attached to the record and subject to appreciation and decision in judicial process in which the Portuguese State itself was a party and had active intervention, such income would be imputable to the taxable profit of the year 2007 or, at least, of 2010, being unable to be currently required to pay any tax (see art. 45° of LGT; cf. arts. 103° and 268°/3 of CRP, art. 36° of CPPT and art. 18° of CIRC);
d) In the case under analysis was not demonstrated, nor proven the verification of the assumptions that, according to law, the exigibility of the taxation in question depends, whereby there is no verifiable tax fact that can be framed, namely, in the provision of arts. 3° and 5° of CIRS, being manifest the illegality of the acts sub judice (see art. 103° of CRP; cf. arts. 74° and 99° of CPPT, art. 342° of Civil Code and, currently, art. 161°/1/k) of NCPA, approved by DL 4/2015, of 7 January);
e) The cited arts. 3° and 5° of CIRS are inapplicable in this case, by force of what is provided in arts. 9°, 13°, 18°, 22°, 62°, 103°, 204° and 266° of CRP, whereby, being at issue the application of norms that are ineffective and "null from the origin, by force of unconstitutionality, become equally invalid (…) the juridical acts practiced under their aegis (administrative acts)" (see Constitutional Court Decision no. 80/86, Case 148/84, DR, I Series, no. 131, of 1986.06.09, p.p. 1373), being unable to produce legal effects, nor constitute the legal basis for imposing the acts sub judice (see arts. 204° and 282° of CRP; cf. art. 133°/2/a), d), h) and i) of CPA);
f) The Portuguese State simply intends to be benefited by its illegalities, assessing and collecting taxes on the amounts that it was judicially condemned to pay, as a consequence of damages and deficits that it caused, through illegal acts that are exclusively attributable to it, frontally violating the constitutional principles of res judicata and the reserve of jurisdictional function, as well as the principles of immutability and untouchability of judicial decisions (see arts. 20°, 205°/2 and 268°/4 of CRP), aiming to substantially reduce the burdens that it was condemned to bear, due to its own illegal and harmful acts (see also arts. 22° and 271° of CRP and art. 334° of Civil Code);
g) The assessment acts under analysis suffer from errors of fact and law, for, beyond the unquestionable non-existence of tax fact and its manifest calculation errors, they assessed and collected compensatory interest, without any legal foundation (see arts. 2°, 9°, 18° and 266° of CRP, art. 71° of CIRS, art. 74° of LGT, art. 6°-A of CPA, art. 10° of NCPA and art. 334° of Civil Code);
h) In the final assessment of the tax sub judice, without any foundation or justification, were considered legal norms, criteria and values that were not communicated to the challengers in the prior hearing (see Tax Administrative Proceeding), whereby were frontally violated arts. 2°, 18°, 32°/10 and 267°/5 of CRP, art. 45° of CPPT, art. 60° of LGT and arts. 8° and 100° et seq. of CPA, assuming successive actions in permanent contradiction;
i) The tax acts sub judice do not mention or, at least, do not specify the applicable legal norms, the facts to which they are applied and the calculation justifying the incongruent values and other criteria that were only conclusively indicated, assuming the Tax Authority contradictory and absolutely unintelligible positions, whereby were frontally violated, among others, art. 268°/3 of CRP, arts. 77° et seq. of LGT and arts. 124° and 125° of CPA.
5. The Tax Authority and Customs Authority presented response and attached the instructing process, invoking, in summary, the following:
5.1 During the inspection action launched, in 2010, against R., the Tax Inspection Services (SIT) of the Finance Directorate of Lisbon ascertained that the Portuguese State had paid to him, on 23.08.2010, the sum of €13.483.166,75 (thirteen million four hundred and eighty-three thousand one hundred and sixty-six euros and seventy-five cents);
5.2 By way of indemnification, owed to C… and to D… (Decision of the Supreme Administrative Court, Revision Appeal final and conclusive on 08.06.2010), for the expropriation of the property, of their ownership, called "…", with an area of 80.240 m2 and registered in the urban property tax roll under article nos…, … and …, of the parish of … and in the rural property tax roll under article … of section …, of the parish …, motivated by the construction built there of School "…" in September 1983;
5.3 Indemnification that was not paid to them but rather to R. because he had been declared assignee of the litigious credits of the same within the scope of the action that proceeded under no. 1167/02, in the 2nd Court of mixed jurisdiction of ...;
5.4 The SIT qualified the value acquired by R. as a financial benefit translated into income that could be framed in IRS category B under the provisions of letter a) of no. 1 of article 3° of CIRS, considering that, from the beginning of activity, the taxpayer had intervened in several acts related to real property, either in the capacity of buyer, or in the capacity of debtor, giving thus, proof that the normal development of the activity of buying and selling real property had been established;
5.5 Consequently, on 31.08.2012, an additional IRS assessment no. 2012…, was issued, for the amount of €5.882.782,02;
5.6 R. challenged such assessment, on 07.01.2013, before the Administrative Arbitration Center, giving rise to the institution of Case no. 7/2013, in which, by decision of 03.06.2013, it was ruled that the credit assignment contract was not capable of being framed as income of category B since the indemnity obtained had no connection whatsoever with R.'s professional activity of buying and selling real property, the illegality of the assessment was declared based on the erroneous qualification of income, to which article 99° of CPPT alludes, and the merit of the petition was ruled;
5.7 This Legal Advice and Litigation Services Directorate issued Legal Opinion no. …/2013, of 22.07.2013, in order to promote the annulment of the assessment in conformity with the arbitral decision and, weighing the fact that the right to assessment had not yet expired, also proposed the issuance of a new tax act of assessment that would take into account the legal requalification of R.'s income advocated by the Arbitral Tribunal;
5.8 Consequently, on 12.12.2014, IRS assessment no. 2014 …, was issued, for the total amount of €6.770.549,16 (six million seven hundred and seventy thousand five hundred and forty-nine euros and sixteen cents), against which R. requested a new request for arbitral pronouncement 248/2015-T CAAD and whose decision was unfavorable to AT, solely because the same did not exercise the right to assessment within the period of execution of the judgment;
5.9 With regard to the year 2011 the SIT of the DF of Lisbon promoted corrections of a purely arithmetic nature to R.'s taxable matter, in the amount of €721.101,09, being that the value of €602.156,02 resulted from the same tax fact underlying the corrections of the year 2010 (credit assignment) but was only paid to him in 2011;
5.10 Similarly to what occurred in 2010, the SIT qualified that value as income of Category B because at that date, on 27.12.2012, the syllogism of the Arbitral Tribunal ruled in Case 7/2013 T-CAAD was not yet known;
5.11 Thus, procedures were commenced for the assessment of tax resulting from the tax corrections, relating to the year 2011, in the total amount of €721.101,09, having been prepared, for this purpose, the respective correction document, which gave rise to assessment no. 2013 … in the amount of tax to be paid of €23.286,57, notified to R. in 2013 but as to which he did not react;
5.12 However, given the value of tax to be paid, it was verified that the value of €602.156,02 qualified by the SIT of the DF of Lisbon as income of Category B and thus entered in the assessment was inscribed in line 457 of annex C of the official statement when it should have been done in line 438 of the same annex, which led to a loss of -€602.156,02 when a taxable profit of that value should have been calculated, hence, and proving it necessary to remedy this error, AT, in March 2015, triggered an official review procedure in light of article 78° of LGT;
5.13 At this date, however, AT already knew that CAAD had qualified the indemnity paid to R. as capital income, whereby being true that the review proved necessary to correct the line of the correction document, the truth also is that AT did not fail to take into account the reframing of the income, in accordance with what CAAD had already, meanwhile, ruled;
5.14 The decisions propagated in the CAAD processes never rested on the premise of the non-existence of the tax fact because it occurred at the moment when the indemnity was paid to R., in 2010 and 2011, hence it is not understood how he can insist on such allegation;
5.15 The first arbitral decision was favorable to the taxpayer because AT had not correctly identified and qualified R.'s income as being capital income, whereas the second arbitral decision was favorable to the taxpayer because AT did not proceed in time (three months) to a new assessment;
5.16 The RJAT (letter c) of no. 1 of article 24°) legitimizes AT to proceed with tax corrections in other years that are not the object of judicial dispute but that are in a relationship of prejudiciality or dependence with tax acts that are the object of the arbitral decision;
5.17 However, this faculty can only be exercised until three months have elapsed, from the finality of the decision, pursuant to no. 2 of article 146° of CPPT, which means to signify that after such period the right of AT to assessment precludes.
5.18 It happens that the assessment disputed in the record did not result from the belated execution of the judgment of the arbitral decision either sanctioned in Case 7/2013-T CAAD, or sanctioned in Case 248/2015-T CAAD, whereby it is not worthwhile invoking in vain the norm of no. 1 of article 24° of RJAT because the same has no applicability in the case under consideration and if it does not have applicability there is no reason to discuss the period set out in no. 2 of article 146° of CPPT;
5.19 Regarding income of Category G the SIT ascertained, within the scope of the same service order OI2012…, that R. had proceeded to the alienation, on 20.04.2011, for the value of €50.000,00 of an autonomous fraction designated by the letter G of the urban property registered in the property tax roll of the parish of … under article…, property that they had acquired, on 18.06.96, for €9.975,96, which resulted in a gain from the alienation of the property, taxed as capital gain in IRS, pursuant to letter no. 1 of article 10° of CIRS, in the amount of €17.966,95;
5.20 The same applies to corrections to income of categories A, H and F, in the amounts of €17.458,00, €58.968,28 and €37.097,50, which are evidenced in Annual Statements Model 10/Annex J, which were communicated to AT by the entities owing such income and which, by reason of that quality, are responsible for the withholding of IRS on those amounts;
5.21 R. was effectively notified to exercise the right to hearing but the letters always came back undelivered because he did not pick them up at the Post Office, nor those that, already respecting the final decision, ended up being sent pursuant to no. 5 of article 39° of CPPT;
5.22 As to compensatory interest provided for in article 35° of LGT and in article 91° of CIRS they show themselves to be due in the case sub judice due to the culpable delay in the assessment of tax, being that this culpability is assessed according to the criterion of the average man.
It concludes for the non-merit of the present request for arbitral pronouncement, maintaining in the legal order the tax act of assessment challenged.
5.22-A On 4-7-2016 the petitioners attached to the record 4 documents and requested the condemnation of the Respondent to pay expenses and charges due and to be due for the issuance of bank guarantees for suspension of the proceedings of the tax enforcement action for coercive collection of the assessment now under challenge.
5.22-B Notified to exercise contradiction, the Respondent came to declare nothing to object to "(...)to the extent that the request formulated therein can only be appreciated upon the decision propagated within the scope of the arbitral procedure (...)".
6. By ruling, of 10-10-2016, the meeting provided for in article 18° of RJAT was dispensed with and a period of 15 days was fixed for the parties to present written pleadings on fact and law (arts. 29° of RJAT, 91°, no. 5, and 91°-A of CPTA).
7. The Parties presented written pleadings, maintaining, in essence, the arguments set out in the initial pleadings.
II. Curative Measures
8. The parties have legal personality and capacity, are legitimate and are duly represented (arts. 4° and 10°, no. 2, of RJAT and art. 1° of Ordinance no. 112-A/2011, of 22 March).
8.1. The process does not suffer from nullities.
8.2. There are no circumstances that prevent the examination of the merits of the case.
III. Merits
III.1. Factual Matter
9. Proven Facts
As a preliminary note it should be noted that the Tribunal does not have the duty to rule on all the matter alleged, but rather has the duty to select only what is relevant for the decision, taking into account the cause (or causes) of claim that support the petition formulated by the plaintiff (cf. arts. 596°, no.1 and 607°, nos.2 to 4, of C.P.Civil, in the version of Law 41/2013, of 26/6) and to record whether it considers it proven or not proven (cf. art.123°, no.2, of CPPT).
According to the principle of free appraisal of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the case and in accordance with its experience of life and knowledge of people (cf. art. 607°, no.5, of C.P.Civil, in the version of Law 41/2013, of 26/6). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents - cf. art. 371°, of Civil Code) does not the principle of free appraisal dominate the appraisal of the evidence produced.
9.1. Based on the elements contained in the case and in the administrative procedure attached to the record, all critically analyzed by the Tribunal, the following facts are considered proven:
9.1.1. In 1983, the Portuguese State began the construction of the so-called "School…", occupying an area of, at least, 30.000 m2 of the mixed property called "…", with an area of 80.240 m2, described in the CRP of …, under file no. …/…, of the parish of …, municipality of ..., that school being completed and in uninterrupted operation, since September 1983 (Docs. 2 and 3, attached with the request for arbitral pronouncement, whose contents here are given as integrated);
9.1.2. In 2003, a gymnasium pavilion and another sports field were built on the same property and in the referred area of 30.000 m2 (cited Docs. 2 and 3);
9.1.3. The Portuguese State occupied the referred areas without having paid any price or indemnification to their owners (cited Docs. 2 and 3);
9.1.4. On 2002.10.15, the then owners brought an action for recovery of the property called …, located in …, municipality of ..., petitioning the condemnation of the Portuguese State to:
"a) Recognize the right of property of A. over the property in question and return the referred property to A., free and unencumbered of persons and property;
b) Pay to A. the sum corresponding to the damages caused to the lands occupied and to the property in which they are integrated, namely those resulting from their occupation, since 1983, and the losses in value resulting from easements and administrative restrictions, to be liquidated in execution of sentence;
c) Pay to A. the sum corresponding to the interest that would accrue on the proceeds from the sale of the property in question, or on the amount due by expropriation, updated from 1983.03.04 to the present date, to be liquidated in execution of sentence;
d) Pay to A. all judicial, extrajudicial expenses and fees that he has spent and will spend, to be liquidated in execution of sentence;
e) The sums referred to in the preceding letters should furthermore be increased by default interest at the legal rate, with reference to 1983.03.04, increased, from the finality of the condemnatory decision that comes to be handed down, by interest at the annual rate of 5%, pursuant to the provisions of art. 829°/A of the Civil Code" (cited Docs. 2 and 3);
9.1.5. On 2007.04.24, a contract of assignment of litigious credits was executed with the now challenger husband, pursuant to the Doc. of fs. 46 et seq. of Case 7/2013-T, which here is given as fully reproduced (cited Docs. 2 and 3);
9.1.6. On 2007.04.26, the appointment of the now challenger husband in the referred action for recovery was requested, "to proceed with him the terms of the principal process", given the contract of assignment of litigious credits, of 2007.04.24, which "covered all credits of the petitioner against the PORTUGUESE STATE resulting from the dispute which is the subject of the present case, "including any indemnities that will be liquidated" and, in the hearing of the referred action, held on 2007.05.14, was requested the enlargement of the petition, petitioning the condemnation of the Portuguese State, namely to:
"a) Recognize the right of property of A. over the property in question and return the occupied lands to A., free and unencumbered of persons and property, in the state in which they were on the date of their occupation in 1983 or, in case restitution or delivery is not possible, to pay to A. the indemnification corresponding to the current value of the lands occupied by Secondary School …, of an amount not less than €15.840.000,00;
b) Pay to A. the sum corresponding to the damages caused to the lands occupied and to the property in which they are integrated, namely those resulting from their occupation, since 1983, and the losses in value resulting from easements and administrative restrictions, of an amount not less than €4.583.775,00;
c) Pay to A. the sum corresponding to the interest that would accrue on the proceeds from the sale of the property in question, or on the amount due by expropriation, updated from 1983.03.04 to the present date, to be liquidated (…)" - (cited Docs. 2 and 3);
9.1.7. In the referred hearing, of 2007.05.14, the following rulings were handed down:
a) "I declare A… as appointed to proceed in the case as A"; and
b) "Since the requested enlargement constitutes development and concretization of the petition previously formulated, it is granted, under articles 272° and 273° of CPC" (cited Docs. 2 and 3);
9.1.8. By sentence of the 2nd Mixed Court of ..., of 2008.05.30, was decided, among other things, the following:
"- Recognize to R. the right of accession regarding the plot occupied with the construction of Secondary School … and its respective sports field and gymnasium pavilion, to be detached from the property referred to in a) above, called "…", described in the respective Property Registration Office, under file no. …/…;
- The acquisition of property by way of accession takes place by payment to A. appointed, A…, of the sum of 8.625.000,00 € (eight million, six hundred and twenty-five thousand euros) and from the date when that payment is made;
- Condemn further R. to pay to A. A… the sum of €3.819.812,50 (three million eight hundred and nineteen thousand eight hundred and twelve euros and fifty cents), corresponding to the loss in value of the remaining area of A.'s property;
- Further condemn R. to pay to A. A… default interest, at the legal rate, from the date of the present sentence until full payment, incident upon the total value of €12.444.812,50" (cited Docs. 2 and 3);
9.1.9. Following appeal of this sentence, on 2009.09.24, a decision was handed down by the Lisbon Court of Appeal, which "alter(ed) the appealed decision" and decided essentially the following:
"- R. is condemned to pay to A. A… the total sum of €12.444.812,50 (twelve million, four hundred and forty-four thousand, eight hundred and twelve euros and fifty cents), of which €8.625.000,00 (eight million, six hundred and twenty-five thousand euros) by way of indemnification for deprivation of the plot occupied with the construction of Secondary School … and its respective sports field and gymnasium pavilion and €3.819.812,50 (three million eight hundred and nineteen thousand eight hundred and twelve euros and fifty cents) corresponding to the loss in value of the remaining area of the property;
- R. is further condemned to pay to A. A… default interest at the legal rate on that value of €12.444.812,50, counted from the sentence until full payment, with interest accruing at the rate of 5% per year mentioned in the appealed sentence;
- It is declared that after the payment of that sum of €8.625.000,00 the State will be the holder of the right of property over the plot mentioned in b)" (cited Docs. 2 and 3);
9.1.10. Following appeals filed by both parties, on 2010.06.08, a decision was handed down by the Supreme Court of Justice, already final and conclusive, which decided to "confirm, entirely, the learned appealed decision" (cited Docs. 2 and 3);
9.1.11. On 2010.08.23, the Portuguese State paid to the now challenger the amount of €13.483.166,75, in execution of what was decided, final and conclusive, in the learned decision of the Lisbon Court of Appeal, of 2009.09.24, and in the learned decision of the Supreme Court of Justice, of 2010.06.08 (cited Docs. 2 and 3);
9.1.12. During the year 2011, the now challenger received from the Portuguese State the total amount of €602.156,02 (six hundred and two thousand one hundred and fifty-six euros and two cents), by way of indemnification and compulsory pecuniary penalty, in execution of what was decided, final and conclusive, in the learned decision of the Lisbon Court of Appeal, of 2009.09.24, and in the learned decision of the Supreme Court of Justice, of 2010.06.08 (cited Docs. 2 and 3);
9.1.13. The now challenger is registered as a taxpayer and has engaged, since 2004.12.22, in the activity of "buying and selling real property" – CAE … (cited Docs. 2 and 3 and Tax Administrative Proceeding [PA]);
9.1.14. The now challenger has regularly organized and computerized accounting, the execution of which is the responsibility of the Official Accountant, Dr. E…, since 2004, being referred to in point 3.1. of the report regarding the "external inspection procedure" carried out on the now challenger, in 2012, that the determination of his taxable income was made "based on regularly organized and computerized accounting" (cited Docs. 2 and 3 and PA);
9.1.15. On 2012.09.10, the now challenger was notified of the first IRS assessment no. 2012…, relating to the year 2010, accompanied by the "tax assessment calculation note" to be paid, in the amount of 5.882.782,02€ (cited Docs. 2 and 3 and PA);
9.1.16. Following a proceeding instituted by the challengers in this CAAD, by learned Arbitral Decision, of 2013.06.17, which here is given as fully reproduced, was declared "illegal, due to error of qualification and quantification", the assessment relating to 2010 IRS of the now challenger, made following the tax inspection procedure that had as its object the accounting of the now challenger husband, conducted in 2012 (cited Doc. no. 2);
9.1.17. The Arbitral Decision, of 2013.06.17, became final and conclusive, on 2013.07.24 (cited Doc. no. 2);
9.1.18. On 2014.12.23, the now challengers were notified of the second IRS assessment no. 2014…, of 2014.12.12, relating to the year 2010, accompanied by the "tax assessment calculation note" to be paid, in the amount of 6.778.549,16€ (cited Doc. 3 and PA);
9.1.19. Not conforming to the referred tax act of assessment, on 2015.04.13, the now challenger again requested in this CAAD the constitution of an Arbitral Tribunal and formulated a request for arbitral pronouncement for declaration of illegality of the referred IRS assessment, relating to 2010, as appears from the p.i. of the Second Arbitral Process, which here is given as fully reproduced (cited Doc. 3 and PA);
9.1.20. By ruling of the Director of Finance of Lisbon, of 2015.03.30, was ordered the sending to the Tax Income Assessment and Spending Division, of the information provided on 2015.03.24, by the Division …, team 10, of the Tax Information Services (Doc. 4, attached with the request for arbitral pronouncement, whose contents here are given as integrated, and PA);
9.1.21. In the referred information, of 2015.03.24, was proposed the "correction of the tax situation" of the now challenger regarding the year 2011, taxing the income acquired considering that, "on 17 June 2013, the Arbitral Tribunal ruled for the petitioner, considering that the income in question does not fall under category B, but constitutes capital application income" (cited Doc. 4 and PA);
9.1.22. On 2015.12.21, the now challengers were notified "to within 30 (thirty) days from notification, effect payment of the amount of 334.584,21 €, resulting from the IRS assessment for 2011, with no. 2015…"[ qualification of income in category "B" – article 3°, of CIRS], in accordance with the respective calculation statement (Doc. 1, attached with the request for arbitral pronouncement, whose contents here are given as integrated);
9.1.23. By the Arbitral Decision, of 2016.01.12, handed down in the Second Arbitral Process, and which here is given as fully reproduced, was decided to "rule entirely favorably on the request for arbitral pronouncement, annulling, due to manifest illegality, the IRS assessment (…) relating to the year 2010, in the value of €6.770.549,16, as well as the respective compensatory interest" (cited Doc. 3 and PA);
9.1.24. The Arbitral Decision, of 2016.01.12, became final and conclusive, on 2016.02.15 (cited Doc. 3 and PA);
9.1.25. By official letter from the Tax Authority received, on 2016.03.11, the now challengers were cited to effect payment, request payment in kind, or lodge opposition in the execution of the "Debt in Coercive Collection", appearing in the respective identification the following:
| Certificate No. | Date of Issue | Issuing Entity | Start of Default Interest Count | Doc. No. Origin or Assessment No. | Tax | Tax Period | Amount Executed | Default Interest |
|---|---|---|---|---|---|---|---|---|
| 2016… | 2016-02-10 | AT | 2016-01-21 | … | IRS Imp.Cont.Corr. | 2011 | € 334.584,21 | € 1.894,93 |
| | | | | Remaining debt(s) | | | €0,00 | € 0,00 |
Value for guarantee purposes (valid for 30 days): € 425.438,05
Fees: 1.206,11
Amount to be paid: € 337.685,25
(Docs. 5 and 6, attached with the request for arbitral pronouncement, whose contents here are given as integrated);
9.1.26. On 2016.03.28, the now challengers were cited of the certificate of debt that gave rise to the referred enforcement proceeding, from which the following appears:
| NATURE OF DEBT | ORIGIN: … AT – Taxes included in current account |
|---|---|
| Description of debt as per annex |
| TOTAL AMOUNT EXECUTED | 334.584,21 |
| WRITTEN OUT: Three Hundred and Thirty-Four Thousand Five Hundred and Eighty-Four Euros and Twenty-One Cents |
| DEFAULT INTEREST ACCRUED | 0,00 |
| VOLUNTARY PAYMENT UNTIL | As per annex |
| DEFAULT INTEREST FROM | As per annex |
| AMOUNT SUBJECT TO DEFAULT INTEREST | 334.584,21 |
(Doc. 7 attached with the request for arbitral pronouncement, whose contents here are given as integrated);
9.1.27. From the statement of values attached to the referred debt certificate further appears the following:
| Identification | Document Origin | Payment Deadline | Start Date Default Interest | Year Debt | Taxation Period | Tribute | Type | Amount |
|---|---|---|---|---|---|---|---|---|
| | | Start | End | | | | | |
| … | 2016-01-20 | 2016-01-21 | 2016 | 2011 | | IRS | Jur C-C/Jmo | 38.943,57 |
| … | 2016-01-20 | 2016-01-21 | 2016 | 2011 | | IRS | I/C/T/O-Cjm | 295.640,64 |
| | | | | | | | Total: | 334.584,21 |
(cited Doc. 7 and PA).
9.1.28 On 2016.03.11 the Petitioners were cited in tax enforcement proceeding no.…, having as executive title the assessment object of this challenge (Doc 1, attached with the initial pleading);
9.1.29 – To obtain suspension of the cited tax enforcement, the Petitioners attached to that enforcement proceeding bank guarantees nos. …-…-…-…, issued by Bank F…, SA, in the amount of €205.438,05 and N…, issued by G…, SA, for the amount of €220.000,00 (cf. docs attached with the request presented on 4-7-2014 and not challenged);
9.1.30 – For the issuance of the aforesaid guarantees the Petitioners are owed to the respective banks commissions, expenses and charges computed in, at least, €1.219,30 per quarter.
9.2. Unproven Facts
There are no unproven facts of interest for the decision of the case.
9.3. Justification of the Factual Record
The proven facts are based on the documents existing in the record, on the copy of the PA (administrative procedure) instructing file attached on 27-9-2016, in the arbitral cases [nos 7/2013-T and 248/2015-T] attached on 10-10-2016 and on the pleadings in so far as these do not reveal controversy regarding the essential factual framework for the object of this case but only and exclusively as to its legal framework.
III.2. Legal Matter
At issue is income obtained by virtue of the acquisition of a litigious credit, through an assignment of credits, a situation that the Tax Authority then considered to fall within art. 3°, no. 1, a) of CIRS.
However, and by a collegial and unanimous arbitral decision handed down in case no. 7/2013 constituted within the scope of CAAD and which, beyond being attached, is published on its respective website (www.caad.org.pt), was declared illegal and annulled the assessment based on the erroneous qualification of income.
The AT subsequently came to practice a new tax act of assessment with legal requalification of the same income in the sense advocated in the grounds of that arbitral decision annulling the previous assessment.
Following and as a consequence of this latter assessment (IRS assessment no. 2014 –…, in the amount of €6.770.549,16 a new request for arbitral pronouncement was filed [Case no. 248/2015-T – CAAD] which came to be ruled favorable with the ground of preclusion of the right to assessment (AT did not exercise the right to assessment within the period of execution of the judgment).
The assessment now under challenge does not effectively result from the belated execution of the judgments either in arbitral case no. 7/2013 or in case no. 248/2015.
Nor is there violation of res judicata insofar as, as seems obvious, although there is identity of procedural parties, such identity no longer occurs as to the petition (annulment of tax act different from the previous ones) and cause of claim (assessment for 2011) – Cf. articles 580° and 581°, CPC, applicable ex vi article 29°, of RJAT.
What this assessment truly reflects is rather the taxation of income acquired in 2011 translated into the payment by the State of the remainder of the indemnification and compulsory pecuniary penalty emerging from the execution of the above-cited decisions of the Lisbon Court of Appeal of 24-9-2009 and of the Supreme Court of Justice of 8.6.2010 (Cf. docs 2 and 3 attached by the petitioners).
That is: the assessment acts sub juditio complement, so to speak, the indemnification paid in 2010, which supported the previous assessments and which were the object of the mentioned arbitral decisions handed down in cases nos 7/2013-T and 248/2015-T that annulled the respective assessments: the first, due to erroneous qualification of the tax fact and the second due to illegality derived from the procedural preclusion of the AT's right to new assessment in substitution of the previous one.
The tax act always has at its base a concrete factual situation, which is provided in abstract and typically in tax law as generating the right to tax. It is that factual and concrete situation that is qualified as tax fact, which only exists once all the legally provided assumptions for such are verified.
In this case, the tax fact occurs in 2011 – and this, it is reaffirmed, is the essential difference regarding the previous ones that were at the basis of the assessments that were the object of challenges in the mentioned arbitral cases no. 7/2013-T and 248/2015-T -, with the payment by the State to the petitioner of the remainder of the indemnification (and compulsory pecuniary penalty) following and as a consequence of judicial decision final and conclusive.
The assessment sub juditio thus results also (as in the case that was the object of case no. 7/2013-T), from the qualification of income [indemnification and compulsory pecuniary penalty] as entrepreneurial and/or professional income of the challenger in light of article 3° of CIRS.
This norm provides that shall be considered entrepreneurial and professional income "those resulting from the exercise of any commercial, industrial, agricultural, forestry or livestock activity".
In the opinion of the Tax Authority, the Petitioner is professionally engaged in the buying and selling of real property and, in assuming obligations to third parties and in taking steps with the Municipal Council to obtain information, opinions and decisions, was developing an entrepreneurial activity.
It does not seem, however, as was considered in the decision handed down in case no. 7/2013-T, that the acquisition of the credit for indemnification has anything to do with the buying and selling of real property, and much less can it be understood that the taking of steps with the Municipal Council or the obtaining of information, opinions and decisions has anything to do with entrepreneurial activity.
Effectively, and as was reflected in the previous arbitral decisions, the petitioner limited himself to acquiring a credit, executing a business of assignment of credits, as provided for in arts. 577° et seq. of the Civil Code. That juridical business could consist in a sale (art. 874° CC), in a donation (art. 940° CC), in a partnership (cf. art. 984° c) CC), in a factoring contract, in a payment in fulfillment (art. 837° CC) or in conditional fulfillment (cf. art. 840°, no.2 CC) or in an act of constitution of guarantee (cf. by all MENEZES LEITÃO, Law of Obligations, II, 8th ed., Coimbra, Almedina, 2011, pp. 15 et seq., and Assignment of Credits, Coimbra, Almedina, 2005, throughout).
Having analyzed the contract, it is verified that the Petitioner committed himself (clause 4.2.) to bear all expenses and charges that are due in the referred judicial process, including judicial costs and lawyer fees and other procedural parties.
That is: the assignment thus clearly has an economic counterpart, resulting from the assignor being freed from all judicial costs of a process of considerable value. We tend therefore to qualify the contract as a sale and purchase of a credit.
However, the mere sale and purchase of a credit by a natural person who does not exercise that activity cannot be considered entrepreneurial income. Effectively, the purchase of this credit does not constitute a purchase for resale, provided for in art. 463° CCom, nor does the Petitioner habitually exercise the activity of buying and selling credits, or engage in factoring or credit securitization, instead exercising the activity of buying and selling real property, which is manifestly not the case of a credit for indemnification.
In the specific case of credit securitization, its fiscal framing results from Decree-Law 219/2001, of 4 August, amended by Decree-Law 303/2003, of 5 December.
It is manifest that the gain in question does not constitute capital gain as it does not fall within any of the letters of art. 10° of CIRS. It constitutes rather, however, the payment of indemnification, whereby it could fall within art. 9° b) of CIRS. However, this norm only taxes "indemnifications that aim to repair non-patrimonial damages, excepted those fixed by judicial or arbitral decision or resulting from agreement homologated judicially, of unproven emerging damages and lost profits, considering in the latter case as such only those intended to compensate the net benefits left to be obtained as a consequence of the injury".
Now the indemnification and compulsory pecuniary penalty [that can be fiscally framed in light of article 5°-1/g) of CIRS/2010] that he received does not constitute an indemnification for lost profits, but rather an indemnification for emerging damages, as the issue is the impossibility of restitution by the State of the property it occupied. Effectively, the damage or emerging prejudice corresponds to the situation in which someone as a consequence of the injury sees frustrated a utility that he had already acquired.
The lost profit corresponds to that situation in which is frustrated a utility that the injured would acquire, if not for the injury (cf. MENEZES LEITÃO, Law of Obligations, I, 10th ed., Coimbra, Almedina, 2013, p. 301).
At issue in the aforesaid civil action, was the loss of ownership of a plot of land and the deprivation of its use for many years.
Now, even the deprivation of use constitutes an emerging damage and not lost profit. We are not therefore here before a patrimonial increase object of taxation in category G. If this indemnification had been obtained by the original holder it would not be subject to any taxation.
Being, however, an assignee, the income is object of taxation, by virtue of the business of assignment of credits, but in terms completely different from those that were then framed, both by the Petitioner [in the challenge that was the object of arbitral case no. 7/2013-T], and by the Tax Authority.
Effectively, the income in question, resulting from an assignment of litigious credits, shall constitute capital application income, pursuant to art. 5° - 1 and 2/a) of the Code of IRS, the income being subject to tax consisting of the positive difference between the value of assignment and the nominal value of the credit (art. 5°, no.9 CIRS) and object of taxation by the liberatory rate provided for in article 71°-1/ b) of CIRS.
Not having been effected by the Tax Authority the correct legal framing of the tax fact, naturally the assessment object of challenge cannot be maintained, being verified the vice of erroneous qualification and quantification of income [art. 99°/a) CPPT].
It should be noted, en passant, that contrary to what AT alleges, the arbitral decision handed down in case no. 7/2013-T, did not decide to requalify the income from "B" to "E" for the simple and obvious reason that if it did so it would invade the sphere of competence of AT. What it did was to point out or suggest that this should be the legally adequate framing to be followed by AT at the moment of qualification of income.
Regarding the assessment of compensatory interest in light of articles 35° of LGT and 91° of CIRS/2010, this proves to be obvious and equally illegal, considering the illegality of the assessment that gave it cause.
IV Provision of Bank Guarantees
The Petitioners provided bank guarantees intended to ensure payment and suspend the enforcement of the assessment under challenge.
From the total merit of the petition will result the elimination from the legal order of the assessment.
The LGT provides:
Article 53°
Guarantee in case of improper payment
1 - The debtor who, to suspend enforcement, offers bank guarantee or equivalent shall be indemnified entirely or partially by the damages resulting from its provision, if he maintained it for a period exceeding three years in proportion of the accrual in administrative appeal, challenge or opposition to enforcement that have as their object the debt guaranteed.
2 - The period referred to in the preceding number does not apply when it is verified, in gracious claim or judicial challenge, that there was error attributable to the services in the assessment of the tax.
3 - The indemnification referred to in no. 1 has as maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in this law and can be requested in the proper process of claim or judicial challenge, or autonomously.
4 - The indemnification for provision of improper guarantee shall be paid by reduction to the receipt of the tax of the year in which payment was made.
This Tribunal understands that the assessment suffers, in this part, from illegality due to erroneous qualification of income.
Being public and notorious that for the service of provision of bank guarantee are paid charges/commissions to the Banks according, namely, to risk, value and period of the guarantee, one must conclude that the Petitioners bore [and certainly continue to bear] charges for the maintenance of the guarantees.
Having provided the guarantees for the total value of the assessment object of this challenge, interest, costs and other additions (Cf. article 199°-6 of CPPT) and being to obtain full merit in this action, the charges and other expenses emerging from the provision or obtaining of the bank guarantees shall be reimbursed to them.
That is: the prerequisites that give the Petitioners the right to indemnification are recognized as met pursuant to the cited article 53° of LGT.
Hence the petition formulated by the Petitioners for condemnation of AT to payment of expenses and charges due and to be due for the issuance and maintenance of the bank guarantees provided in the tax enforcement no. …2016…to prevent coercive payment of the assessment object of this arbitral case proceeds.
Certainly a request for reimbursement of a concrete and liquid value was not expressly formulated.
Such, however, would not necessarily have to be alleged since whoever demands indemnification does not need to indicate the exact amount of damages – Cf. article 569° of Civil Code.
The liquidation of the indemnification shall thus have to be processed in the execution of judgment and having present the limitations of its quantum provided in article 53°-3 of LGT.
It is not justified to examine the other issues raised by the Petitioners, which are prejudiced by the decision that will be handed down of declaration of illegality of the assessment object of the record due to erroneous qualification.
V Decision
Wherefore this Arbitral Tribunal agrees:
a) To rule entirely favorably on the request for arbitral pronouncement, annulling, due to illegality, derived from error of qualification, the IRS assessment and compensatory interest no. 2015…, of 2015.12.15, in the amount of €334.584,21€ (three hundred and thirty-four thousand five hundred and eighty-four euros and twenty-one cents), made on 15-12-2015 by the Tax Service of ...-…, relating to the year 2011;
b) To rule favorably on the petition for indemnification for damages resulting from the provision of the aforesaid bank guarantees provided;
c) To condemn the Tax Administration and Customs Authority to payment of indemnification to the Petitioners, pursuant to the terms and with the limits provided in article 53° of LGT and to be liquidated in execution of judgment, resulting from the merit of the petition to which the preceding letter refers;
d) To condemn the Tax Authority and Customs Authority to the costs of this case given its total failure and
e) To rule prejudiced the other issues raised in the record.
Process Value
The value of the case is fixed at €334.584,21 pursuant to article 97°-A, no. 1, letter a) of the Code of Tax Procedure and Process, applicable by force of letters a) and b) of no.1 of article 29° of RJAT and of no.2 of article 3° of the Regulation of Costs in Tax Arbitration Cases.
Costs
The costs of the case are fixed at €5.814,00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Cases, to be paid entirely by the Respondent (Tax Authority and Customs Authority), since the Petitioners obtained full grant of the petition, pursuant to no. 2 of article 12° and of no. 4 of article 22° of RJAT and of no.3 of article 4° of the cited Regulation.
§ Register and notify
Lisbon, 9 December 2016
The Arbitral Tribunal,
José Poças Falcão
(Arbitrator President)
António Alberto Franco
(Arbitrator Member)
António Sérgio de Matos
(Arbitrator Member)
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