IRS Capital Gains on Share Sales: Non-Retroactivity Principle in Micro/Small Enterprise Taxation (CAAD 223/2014-T)

ARBITRAL DECISION

Case No. 223/2014 - T

The arbitrators Dr. José Poças Falcão (arbitrator-president), Dr. José Rodrigo de Castro and Dr. José Nunes Barata, appointed by the president of the Deontological Council of the Administrative Arbitration Center to form this Arbitral Tribunal, constituted on 13-5-2014, agree as follows:

I - REPORT

A…, Tax Identification Number …, with address at Rua … …, requested the constitution of an arbitral tribunal, pursuant to the provisions of subsection a) of Article 2, n.º 1 and subsection a) of Article 10, n.º 1 of Decree-Law No. 10/2011, of 20 January (hereinafter, Legal Regime for Tax Arbitration or RJAT), with a view to:

(i) The challenge of the additional Personal Income Tax (IRS) assessment No. 2013 …, relating to the year 2010 [€73,137.52] and the corresponding assessment of compensatory interest; and

(ii) The condemnation of the Tax Authority (hereinafter Respondent) to reimburse the Applicant €64,598.30 – an amount paid as a result of the aforementioned assessment – with indemnity interest from the date of that payment (1-12-2013);

The request for constitution of the arbitral tribunal was accepted and notified to the Tax Authority (hereinafter Respondent).

In the request, the Applicant chose not to appoint an arbitrator.

The tribunal was duly constituted to examine and decide the subject matter of the case.

The applicant bases the request, alleging, in essence, that the Tax Authority proceeded with the aforementioned additional IRS assessment based on the alienation by the applicant on 29-6-2010 of 60,000 shares representing 30% of the capital of the commercial company "B… – Medical Services Provision, Inc.", for the price of €660,000, considering the general regime of taxation of capital gains resulting from the repeal of Article 10º-2 of the IRS Code (which established the exclusion from taxation under IRS of the alienation of shares held for more than 12 months) applicable by Law No. 15/2010, of 26 July.

The applicant considers such taxation illegal due to violation of the principle of non-retroactivity of fiscal law, with frustration of the legitimate expectations of taxpayers and violation of the principle of confidence.

The Tax Authority presented a response in which, briefly, it alleged that it proceeded with the substitution of the tax act now challenged, the assessment No. 2013…, of 28/11/2013, because it originated from a replacement model 3 IRS declaration submitted by the taxpayer, now Applicant, following the corrections effected by the tax inspection and reflected in the assessment No. 2013…, of 31/10/2013, such that the validation and consequent assessment of the replacement declaration submitted by the taxpayer resulted in the disregard of the corrections already effected by the tax inspection.

In fact, the replacement declaration submitted by the now Applicant was inadvertently validated by the Services, as it indicated in field 8A of Annex G (capital gains and other capital increments) of the model 3 IRS that the alienation of equity interests met the requirements provided in n.º 3 and n.º 4 of Article 43 of the IRS Code, thereby contradicting the conclusions reached by the tax inspection, following prior hearing of the now Applicant on this matter. Accordingly, and pursuant to n.º 2 of Article 13 of the RJAT, the Tax Authority "(…) will proceed to notify the taxpayer to, within a period of 10 days, pronounce on the interest in continuing with its request for arbitral pronouncement, with appropriate modifications, regarding this last act (…)".

The procedural progress of the case continued, with the holding, on 10-9-2014, of the meeting provided for in Article 18 of the RJAT, with it being decided at that time to examine the exceptions and/or preliminary issues, specifically the matter of substitution of the tax act and its timeliness, by separate interlocutory decision.

The Tax Authority subsequently presented, in accordance with what was recorded in the minutes of 10/09/2014, a summary of the factual framework "for the purpose of examination and decision of preliminary issues", in the following terms:

1. On 23/10/2013 the Applicant is notified of the "Final Report, by dispatch No. …/0505, of 21/10/2013, via registered letter No. RM … PT", relating to the following:

"Within the scope of the Internal Service Order No. OI2013…, of the Finance Office of …, the Applicant was notified to provide clarifications regarding its legal-tax situation concerning IRS for 2010, as per dispatch No. …/0505 of 21/06/2013

Having analyzed the elements presented by the Applicant, it was concluded that on 29/06/2010 the Applicant sold 13,517 shares relating to B… – MEDICAL SERVICES PROVISION, S.A. (hereinafter B…), for the price of € 660,000.00, which corresponds to a capital gain of € 646,483.00, considering that the acquisition value of the same totaled € 13,517.00;

By dispatch No. …/0505, of 18/09/2013, via registered mail No. RM … PT, the Applicant was notified of the draft corrections for purposes of Article 60 of the LGT;

By request of 14/10/2013 the Applicant exercised its right to prior hearing, arguing that B… meets the requirements of SME, whereby the balance of capital gains should be considered only at 50%;

The right to hearing was considered in the Final Report, where it was concluded that B... does not meet the requirement concerning the number of employees to be considered a micro or small enterprise, (…)

1. On 31/10/2013 the additional assessment No. 2013 … is issued, made based on the conclusions reached by the tax inspection "with tax relating to autonomous taxation in the amount of € 129,196.60, to which are added compensatory interest in the amount of € 12,247.12, with payment deadline until 26/12/2013" - having been notified of the respective collection note (No. 2013 …) via registered mail of 20/11/2013 (RY…PT).

2. On 13/11/2013, the Applicant delivers a replacement model 3 IRS declaration (2010-JS…), "declaring in Annex G that amount of capital gains obtained from the alienation of shares, indicating in the respective table 8-A that the conditions contained in n.º 3 and n.º 4 of Article 43 of the IRS Code are met," which was "improperly assessed by the Services due to a lapse caused by the Applicant herself" thus giving rise to,

3. On 28/11/2013, to the assessment No. 2013 …, "with tax relating to autonomous taxation in the amount of € 64,598.30 and compensatory interest in the amount of € 6,123.56, all in a total of € 70,721.86"

4. On 10/03/2014 the Tax Authority considers itself notified of the request for arbitral pronouncement (cf. Article 7 to 9 of the Response), the 30-day period of n.º 1 of Article 13 of the RJAT ending on 22/04/2014.

5. On 17/04/2012 the Services issue an official correction declaration (DC …-2010-D…-16) under the Service Order 2014…, with a view to correcting the "error in data collection by the Services, as properly explained in the information of 08/04/2014 of the Finance Service of … which is attached as document No. 1".

6. On 21/04/2014, it is communicated to the CAAD, by email attached to the response as document No. 2, that the Tax Authority had proceeded with the substitution of the tax act now challenged because it originated from a replacement model 3 IRS declaration submitted by the taxpayer, now Applicant, following the corrections effected by the tax inspection, and informing that, pursuant to n.º 2 of Article 13 of the RJAT, the Tax Authority would proceed to notify the taxpayer to, within a period of 10 days, pronounce on the interest in continuing with its request for arbitral pronouncement, with appropriate modifications, regarding this last act.

7. On 22/04/2014 the assessment No. 2014 … is issued, with "tax relating to autonomous taxation in the amount of € 129,196.60, increased by compensatory interest in the amount of € 12,247.12, all in a total of € 141,443.72".

8. On 22/04/2014 the 30-day period provided for in n.º 1 of Article 13 of the RJAT expires, with the wording introduced by Law No. 66-B/2012, of 31/12.

9. Concluding, and in light of that legal provision, "within the period of 30 days from knowledge of the request for constitution of the arbitral tribunal" the Tax Authority proceeded "to revoke (…) the tax act whose illegality was raised" and practiced the "substitutive tax act".

10. Effectively, pursuant to n.º 2 of Article 13 of the RJAT, the Applicant was notified of the practice of a substitutive act of the challenged tax act via dispatch No. …, of 23/04/2014, of the DSCJC (doc. No. 2 attached with the Response).

11. Which, on 24/04/2014, by email, the Tax Authority communicated to the CAAD (doc. No. 2 attached with the Response).

12. The Applicant was notified of the substitutive tax act, via letter with registered receipt RY…PT, of 09/05/2014, made within the limitation period for the right to assess.

The applicant came to expressly accept this factual-summary framework (cf. request in the case file).

Interlocutory Judgment

On 13-10-2014 an interlocutory judgment was handed down in which it was decided that:

"(…) a) The tax act subject to these proceedings is the additional assessment No. 2014 …, of 22-4-2014 (tax relating to autonomous taxation in the amount of € 129,196.60 + € 12,247.12 of compensatory interest, everything totaling € 141,443.72);

b) Grant the applicant a period of 10 (ten) days to possibly supplement its request for pronouncement by alleging new grounds, of fact and of law, exclusively resulting from the alteration of the tax act as set out above and of which the Tax Authority will subsequently be notified to, in an equal period, respond, if it so wishes (…)".

New Request for Arbitral Pronouncement

Following the aforementioned interlocutory judgment, the applicant reformulated its request in the following terms:

"(…)

UNTIMELINESS OF THE ASSESSMENT ACT

a) Although the assessment is dated 22/04/2014 (coinciding with the last of the 30 days to effect the substitution under Article 13 RJAT) the fact remains that, even so, the substitution is untimely.

b) First, because on that date the period for the exercise of the Right to Hearing was still running, which was exercised on 30/04/2014, as the Tax Authority itself acknowledges, despite considering it dispensable.

c) Furthermore, because the perfection of the tax act requires notification of the taxpayer.

OMISSION OF ESSENTIAL FORMALITY

d) As the Tax Authority acknowledged, the assessment was made without the arguments having been taken into account in the substituted assessment.

e) It alleges, for this purpose, the Tax Authority with the provision of Article 60-3 of the LGT, understanding that the exercise of the right to hearing is dispensable given that the taxpayer had already been heard at an earlier time.

f) Being plausible the thesis that the Tax Authority sustains in the response, the same Tax Authority would not have notified the taxpayer, as it in fact did, to exercise the right to hearing.

g) Being the taxpayer notified to exercise the right to hearing, it is violative of the principle of good faith to (i) ignore what was stated in the right to hearing and (ii) now come to state that the right to hearing was after all unnecessary.

h) Having the taxpayer been notified and exercised the right to hearing on 30/04/2014, the Tax Authority could not on 22/04/2014 (6 days earlier) divine what the taxpayer would allege in the context of the right to hearing.

i) Because the elements which in hearing the taxpayer brought to the case were not taken into account in the reasoning of the act, a violation of Article 60 n.º 7 of the LGT occurred, which also constitutes a violation of the duty to give reasons provided for in Article 77, of the LGT.

ERROR AS TO THE FACTUAL AND LEGAL ASSUMPTIONS

In order to demonstrate that, regardless of the other arguments, the act is illegal because it should benefit from the reduction of the taxable base to 50% under Article 43 n.º 3 of the IRS Code, the applicant expands, as a consequence of the interlocutory judgment, the cause of action, describing the facts and enunciating the law.

j) For purposes of calculating the number of employees and financial thresholds, under the provision of the Annex to Decree-Law No. 372/2007, data evidenced by the accounting in the year 2009 were considered.

k) In financial terms, the following elements were considered, extracted from the IES relating to the year 2009 (cf. documents Nos. 1 and 2):

l) For the calculation of the number of employees, reference was made to the data revealed by the IES (cf. documents Nos. 1 and 2):

m) It is considered in the category of small enterprise "(...) an enterprise that employs fewer than 50 people and whose annual turnover or total annual balance does not exceed 10 million euros." (cf. Article 2, n.º 2 of the Annex of Decree-Law No. 372/2007).

n) And it is in this category that B... fits.

o) Whereby the alienation of equity interests, by the applicant A…, as they relate to small enterprises, benefit from the partial exclusion from taxation provided for in n.º 3 of Article 43 of the IRS Code

RETROACTIVE APPLICATION AND VIOLATION OF THE PRINCIPLES OF LEGAL CERTAINTY AND CONFIDENCE

All matters of Articles 46 to 127 of the Initial Petition for Arbitral Pronouncement are deemed reproduced.

PAYMENT

See Articles 128 to 134 of the Initial Petition for Arbitral Pronouncement.

Tax Authority's Response to the Request for Pronouncement Following Reformulation

Notified of the reformulation of the request arising from the substitution of the tax act, the Tax Authority responded in the following terms:

The request for arbitral pronouncement, now reformulated, invokes the illegality of that tax act, alleging, for this purpose, the following:

• The act of assessment was notified after the period provided for in n.º 1 of Article 13 of the RJAT;

• Omission of essential formality in the prior hearing procedure;

• Defect of violation of law by error as to the factual and legal assumptions.

· The Tax Authority contends for the maintenance of that act in the legal order, as it understands that it constitutes a correct application of law to the facts.

Lack of Notification of the Challenged Act Within the Period of n.º 1 of Article 13 of the RJAT

· The Applicant holds that the power of the Tax Authority to substitute the tax act originally challenged by another tax act ceases to be able to be exercised if the new assessment is not validly notified to the taxpayer within the 30-day period provided for in n.º 1 of Article 13 of the RJAT, a thesis that the Tax Authority contests as lacking any legal support.

· First, it constitutes a matter of fact established in the present case that the tax act now challenged was issued within the 30-day period provided for in n.º 1 of Article 30 of the RJAT (more specifically on 22/04/2014, on the last day of that period), and only its valid notification to the Applicant occurred later, via registered letter RY…PT, of 09/05/2014.

Lack of Competence of the Arbitral Tribunal

· Accordingly, and first and foremost, the exception of lack of competence of the Arbitral Tribunal is deduced, pursuant to the provision in subsection a) of n.º 1 of Article 2 of the RJAT, since the lack of notification of the tax act within the period for its assessment is a ground of non-enforceability of the act, and not of illegality.

· In reacting against the challenged act by invoking that it is ineffective, because notified after the period provided for in n.º 1 of Article 13 of the RJAT, although practiced before the end of this period, the Applicant submits to the pronouncement of the Arbitral Tribunal a matter pertaining to the enforceability of the act, which lies outside the scope of the competence of arbitral tribunals, since, in accordance with subsection a) of n.º 1 of Article 2 of the RJAT, the Arbitral Tribunal only has competence to know of the legality of the acts of assessment of taxes.

· It is settled in case law and doctrine that the notification of the tax act within the period for its assessment constitutes a condition of effectiveness of the tax act and not a ground of its legality.

· From this it follows, for example, that the non-enforceability of the act, when notification occurs after the period for assessment, constitutes a ground for opposition to tax collection, under the provision in subsection e) of n.º 1 of Article 204 of the TCPT, and not a ground for judicial challenge (cf., as an example, the judgments of the Administrative Court of Justice of 04/05/2011, in case No. 09/11, and of 28/11/2004, in appeal No. 01358/03).

· A different situation occurs when the tax act itself is practiced after the limitation period for the right to assess, because with the right to assess being extinct as of the date of the practice of the act, it is affected in its validity, a situation which is not the situation in the present case.

· What the applicant invoked in these proceedings was the notification of the assessment after the end of the 30-day period provided for in Article 13-1, RJAT and not the practice of the assessment act after that period.

· Which prevents the Arbitral Tribunal from pronouncing because it is a matter that has to do with the possible non-enforceability of the act and not with its legality.

· On the other hand, Article 13-1 of the RJAT, in conjunction with its n.º 3, is a period with merely procedural reach, without any preclusive effect on the power of the Tax Authority to revoke illegal acts nor to exercise the right to assessment of taxes, provided that the taxpayer is notified within the limitation period provided for in Article 45 of the LGT.

· In the case at hand, there is also no omission of essential formality by omission of the exercise of the prior right to hearing, under Article 60 of the LGT.

· After all, in the context of the aforementioned procedure, the Applicant exercised its right to prior hearing, arguing that B... is an SME.

· With the result that, on 23/10/2014, by means of dispatch No. …/0505, of 21/10/2013, sent via registered mail (CTT registration No. RM … PT), the Applicant was notified of the final report of tax inspection.

· Where it was concluded, precisely, against the consideration of the Applicant as an SME in light of the facts and arguments previously adduced by it in the context of its respective prior hearing.

· With the result that, subsequently, namely, on 13/11/20131 the Applicant delivered a replacement model 3 IRS declaration (2010-JS…), "declaring in Annex G that amount of capital gains obtained from the alienation of shares, indicating in the respective table 8-A that the conditions contained in n.º 3 and n.º 4 of Article 43 of the IRS Code are met".

· Whereby the new assessment made nothing other than restore the fiscal truth reached in the context of the tax inspection procedure.

· A truth which was overlooked when, the Applicant, aware of the results of the inspection procedure, came to submit a new declaration marking the table that would give it a 50% benefit in the taxation of capital gains,

· A benefit which, let it be reiterated, it already knew it had no right to and regarding which it had already pronounced itself.

· As regards the application of n.º 2 of Article 10, of the IRS Code, with the wording introduced by Law No. 15/2010, of 26/07, the capital gains obtained from the alienation of shares object of the original request for pronouncement, and whose content remains in discussion, the content of the Response already presented is reiterated, namely what was adduced in Articles 41 to 80.

· In the alternative, the Applicant invokes that the alienation of the aforementioned equity interests, all relating to B..., benefits from the partial exclusion from taxation provided for in n.º 3 and n.º 4 of Article 43 of the IRS Code, as the respective legal assumptions are met,

· More specifically because B..., in the fiscal year 2010, did not exceed the threshold of employees nor the financial thresholds for purposes of being considered a micro or small enterprise, under Decree-Law No. 372/2007, of 06/11.

· The Applicant's thesis lacks, however, legal support, incurring in error of interpretation of the law as to the data to be considered for purposes of the aforementioned thresholds, whose calculation should also aggregate the data of the subsidiary and associated companies of B....

· Before anything else, let us examine the facts with an interest in examining this issue, to be considered established for purposes of evidence, taking into account the pleadings of the parties and the documentary evidence submitted, especially the Administrative Process

· Having the Services verified that the Applicant had omitted from its model 3 IRS declaration relating to 2010 the capital gain obtained from the alienation to C… Holding SGPS, S.A. of shares of B...,

• a partial scope internal service order, OI2013… of the Finance Office of … was opened, in order to determine the tax situation of the Applicant;

• notified via dispatch No. …/0505, of 21/06/2013 to provide clarifications, in the terms that are transcribed below from page 6 of the Final Report:

1 - The taxpayer A… sold, on 29-06-2010, to the company C… Holding, SGPS, S.A., taxpayer No. …, 60,000 shares of the company then called B... - Medical Services Provision, S.A., taxpayer No. …, with 46,483 of those shares being carried out in kind through the subscription of 2,269,565 new shares of C… Holding SGPS, S.A (after capital increase) and 13,517 shares being sold for the price of €660,000.00.

1.1- Submit photocopy of the contract for the purchase and sale of shares concluded between A… and C… Holding, SGPS, S.A., as well as all attachments (should include the contract designated CCVA indicated in the first clause of that contract);

1.2 - Justify the non-inclusion of the gain/loss obtained from the alienation of the 46,483 shares in question in the income tax declaration relating to 2010;

1.3 - Exhibit documentary proof of the cost of the alienated shares, as well as the necessary and actually incurred expenses inherent to the alienation.

1.4 - Where applicable, prove that the alienated company was a micro or small enterprise, as defined in n.º 3 and 4, of Article 43, of the IRS Code.

· The Applicant came, in the exercise of its prior right to hearing, to discuss only and solely the application in time of Law No. 15/2010, of 26/07, as shown on page 7 of the Final Report, without in any way putting into question the amount of the capital gain determined by the Tax Inspection, nor invoking, even as a subsidiary argument, that it met the conditions of n.º 3 and n.º 4 of Article 43 of the IRS Code;

· Notified of the Draft Report, for purposes of the exercise of the prior right to hearing, the Applicant presented its response in the terms transcribed from page 10, of the Final Report: On 11-10-2013, via document sent electronically to the Finance Office of … (entry No. …, of 14-10-2013), the taxpayer A… exercised its Right to Hearing; in that document, the taxpayer under examination stated that:

• Does not agree with the Draft Inspection Report for the reasons already invoked;

• Notwithstanding, the company B... (B...) meets the requirements to be considered a small enterprise, as per Article 2 of the Annex to Decree-Law No. 372/2007, of 06-11, according to which a small enterprise is defined as an enterprise that employs fewer than 50 people and whose annual turnover or total annual balance does not exceed 10 million euros;

• According to the IES declaration relating to the year 2009, B... (B...) has annual turnover of €3,265,748.10, the total assets amounted to €4,508,123.31 and does not employ any employees;

• Thus, pursuant to n.º 3 of Article 43 of the IRS Code, the balance of capital gains should be considered at 50%.

In the analysis of that right to hearing, the Tax Inspection concluded as follows, as transcribed from page 11 of the Final Report:

Under n.º 3 and 4 of Article 43, of the IRS Code, capital gains from the alienation of equity interests of micro and small enterprises are considered at 50% of their value, and the criteria for classification of the size of the enterprise are defined in the Annex of Decree-Law No. 372/2007.

(…) In this framework, and limiting the analysis to the number of employees, it is found that the number of personnel to be considered for purposes of classifying the company as a small or micro enterprise results from the aggregate of the data relating to the associated companies, as stated in n.º 2, n.º 3 and n.º 4 of the said Decree-Law.

Consulting the annual statements of accounting and tax information of the Simplified Corporate Information (JES) of the companies associated with B..., it is verified from the outset that the total of its employees exceeds 50 people - the threshold for being considered a small enterprise, under Article 02 of Decree-Law - as per the following table.

Note: Data from the last accounting years prior to the sale (n.º 4 of the Annex of Decree-Law n.º 367/2007, of 06-11)

"(...)

This means that, notwithstanding the non-exhibition of a certificate from IAPMEI attesting B... as a micro or small enterprise, it is abundantly proven in the case file that it does not meet the legal requirements for this purpose, whereby such a certificate could never have been exhibited;

Finally, the Applicant was notified of the Final Report, via dispatch No. …/0505, of 21/10/2013, received by its representative on 23/10/2013, which determined, without contest:

a) a capital gain in the amount of € 646,483.00, as per table 9 of the Final Report.

b) That B... is a company participated/associated for purposes of Decree-Law No. 372/2007, with a global calculation of employees that exceeds the threshold set in the Law for B... to be considered a micro or small enterprise.

The respondent also alleges:

If the request for arbitral pronouncement is considered well-founded with respect to some of the defects that are charged to it by the Applicant, the challenged tax act should be annulled only partially, in the part corresponding to what is owed by the Applicant.

Notwithstanding the reference in the RJAT to a new substitutive tax act, the truth is that the tax act practiced by the Tax Authority under the power provided for in Article 13 of the RJAT and subject to the present request for arbitral pronouncement, is a true and proper additional assessment act.

Two orders of reasons concur for this partial annulment of the challenged tax act, in case of success of some of the grounds invoked by the Applicant.

On the one hand, the divisible nature of the assessment act, reiterated, now unanimously, in the judgment of the Full Court handed down on 05/07/2012, in case No. 0358/12, as well as in the judgment of 10/04/2013, in case No. 0298/12: "Following the understanding of the Administrative Court of Justice, the act of fixation of the taxable base, by defining a sum, is naturally divisible, and also legally so, since the law provides for the possibility of partial annulment of such acts, by providing for the success of partial grounds for challenge."

On the other hand, the disputed assessment is a true and proper additional assessment act merely corrective of the prior assessment.

PRELIMINARY EXAMINATION

The arbitral tribunal was duly constituted and is materially competent.

It is certain that the Tax Authority invokes lack of material competence pursuant to Article 2-1/a) of the RJAT.

It does so, however, on the assumption that the pretension of the applicant configures a situation of non-enforceability and not of illegality of the tax act.

As will be seen infra, this is not the understanding of the Tribunal to the extent that the applicant bases its request on illegality and not on non-enforceability of the act.

Specifically: the applicant alleges in the context of a subsidiary request, that the act is illegal because it was not notified to it within the period for its assessment.

It is that situation (the illegality of the act) that it is the Tribunal's competence to examine.

Hence the competence of the Arbitral Tribunal.

The parties have legal personality and judicial capacity and are legitimate (Articles 4 and 10, n.º 2, of the same diploma and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The case does not suffer from nullities.

The exceptions raised will be examined infra.

II REASONING

Essential and Proven Facts

Regarding the subject matter of the proceedings, the following facts are considered essential and proven:

1 - The Applicant A…, taxpayer No. …, with address at Rua …, was holder, as of 17 April 2009, of 119,000 shares, in the nominal value of 1.00 Euros each, totaling fifty-nine point five percent of the capital of the corporation "B... – MEDICAL SERVICES PROVISION, S.A.", hereinafter referred to as B....

2 - On 17 April 2009, a contract for purchase, sale and exchange of shares was concluded, through which C… Holding SGPS acquired 126,000 shares of B....

3 - Of which 59,000 shares were transmitted by the Applicant A….

4 - Whereby, from 17 April 2009 onwards, the Applicant came to hold 60,000 shares of B...

5 - On 29 June 2010, a contract for purchase, sale and exchange of shares was concluded, through which C… Holding SGPS acquired from the Applicant 60,000 shares of B..., in return for shares of that company, plus a monetary amount in the sum of €660,000.00 (six hundred and sixty thousand euros).

6 - As a consequence of this alienation, the tax act of additional assessment of Personal Income Tax (IRS) and compensatory interest was practiced, relating to the taxation period of 2010, in the amount of €73,137.52, with the assessment number 2013…, of 28/11/2013, and the Compensation Note No. 2013…, dated 06/12/2013, based on a replacement declaration submitted by the Applicant on 15/11/2013.

7 - Following this IRS assessment, the Applicant proceeded on 17 December 2013 to pay the tax that was charged to it.

8 - This additional IRS assessment in the amount of €73,137.52 was the successor to the IRS assessment for the same year 2010, with No. 2013…, in the amount of €143,859.38, this made as a consequence of the tax inspection action, which had as its basis the alienation by the Applicant of shares of B..., for the price of €660,000.00, to which corresponded a capital gain of €646,483.00.

9 - The Applicant requested on 05/03/2014 the constitution of the Arbitral Tribunal for examination of the legality of the aforementioned assessment No. 2013….

10 - The Respondent, notified on 07/03/2014 of the request for constitution of the Arbitral Tribunal, came, on 21/04/2014, to inform that it had proceeded with the substitution of the tax act subject to that request.

11 - This annulment and consequent substitution occurred as a result of an error in data collection by the Services of the Respondent.

12 - This new tax act relates to the additional assessment No. 2014…, of 22/04/2014 (tax relating to autonomous taxation in the amount of €129,196.60 euros, increased by compensatory interest in the amount of €12,247.12 euros), everything totaling €141,443.72 euros.

13 - This new substitutive assessment replacing the one originally challenged, is dated 22/04/2014, the last day of the 30-day period granted to the Respondent for the valid practice of a new tax act, under Article 13 of the RJAT.

14 - On 22/04/2014, the period granted to the Applicant by the Respondent for the exercise of the right to hearing, relating to the assessment No. 2015…, which was denied, was still running.

15 - In the year 2009, B... had an annual turnover of €3,265,748.10, a total annual balance of €4,508,123.10, and had no personnel in its service.

16 - Under the Final Report of the Tax Inspection, notified to the Applicant on 21/10/2013, the number of employees of the companies indicated below, in which B... held the percentage of capital set forth, was as follows:

• B... II – Investment and Management of Medical Services, SA. – 18 employees – 86.99% of capital held;

• Diagnostic Center …, SA. – 13 employees – 75% of capital held;

• C… – Medical Center …, Lda. – 28 employees – 99.91% of capital held;

• B... – Medical Service …, SA. – 40 employees – 100% of capital held;

• B... D…, Lda. – 5 employees – 90% of capital held.

17 - The Applicant did not submit to the case file a certificate from IAPMEI attesting to B... as a micro or small enterprise.

18 - By Interlocutory Judgment of the Tribunal, of 13/10/2014, the subject of the challenge was fixed, as being the tax act corresponding to the additional assessment No. 2014…, of 22/04/2014 (tax relating to autonomous taxation in the amount of €129,196.60 to which is added €12,247.12 of compensatory interest), everything totaling €141,443.72 euros.

1.2 – REASONING OF PROVEN FACTS

The facts given as proven are based on the documents indicated with respect to each of them, and on the factual elements brought to the case by the Parties, insofar as their conformity with reality was not questioned.

Also taken into account for the Tribunal's conviction was all that appears in the instructory administrative process.

1.3 – UNPROVEN FACTS

There are no unproven facts with relevance to the examination of the issues to be decided.

1.4 – THE TAX ACT SUBJECT TO THESE PROCEEDINGS

As results from the case file and from the arbitral interlocutory or intermediate decision of 13-10-2014, it is the additional assessment No. 2014 …, of 22-4-2014 (tax relating to autonomous taxation in the amount of € 129,196.60 + € 12,247.12 of compensatory interest, everything totaling € 141,443.72).

1.5 – ISSUES TO BE EXAMINED

This Tribunal is called to examine and decide the following issues:

a) The untimeliness of the assessment act (Articles 1 to 16, of the request for pronouncement following reformulation);

b) The omission of essential formalities (Articles 17 et seq., of the same pleading)

c) Error as to the factual and legal assumptions (Articles 36 et seq., of the same pleading);

d) Retroactive application of Tax Law and violation of the principles of legal certainty and confidence (Article 67 of the same pleading and Articles 46 to 127, of the original request for arbitral pronouncement).

Examining and deciding each of these issues:

a) The untimeliness of the assessment act (Articles 1 to 16, of the request for pronouncement following reformulation).

The applicant alleges that the assessment is dated 22-4-2014 – the last of the 30 days to effect the substitution of the tax act under Article 13 of the RJAT – and that on that date the period for the exercise of the right to hearing was still running (which it exercised on 30-4-2014)

It also alleges that the notification of the taxpayer is an essential requirement for the perfection of the act and that it must occur in the cases of substitution provided for in Article 13 of the RJAT.

Deciding:

The applicant is not correct.

In fact, what the Law requires is the issuance of the act within the 30-day period provided for in n.º 1 of Article 30 of the RJAT (underlined by us), with notification able to occur beyond that 30-day period.

In the case, with the act being practiced on the last of the 30 days (on 22-4-2014), despite being notified on 9-5-2014, this latter circumstance is harmless with regard to the validity of the act.

Only if the substitution of the act occurs after the expiration of the period referred to in n.º 1 of Article 13 of the RJAT and is not based on new facts, will the substitution act be illegal because, once that period has ended, the Tax Authority is "(...) prevented from practicing a new tax act with respect to the same taxpayer (...), tax and taxation period, unless based on new facts (...)", and the illegality of the substitution act may be known and declared in the arbitral proceeding itself as a preliminary issue with respect to the continuation of the case.

b) Omission of Essential Formality

The applicant alleges that there was an omission of essential formality by failure to exercise the prior right to hearing, under Article 60 of the LGT

Now the truth is that, as results from the case file and from the instructory administrative process, the applicant exercised the prior right to hearing in the procedure to the extent that it argued that the company B... is a small enterprise for purposes of application of the special regime for taxation of the capital gains it upheld.

Even if it were considered – and it is not, in the case, an essential formality – its omission can be converted into non-essential, demonstrated that it may be that, with or without its compliance, the final decision of the procedure would inevitably be the same (Cf. in this sense the Judgment of the Administrative Court of Justice of 6-7-2011 – Case No. 5/11).

That is: it is not apparent how, in the case, a new (to the extent that it had already been exercised in the context of the tax procedure) exercise of the prior right to hearing could influence the decision.

The annulment of the act on such a ground is therefore unfounded.

c) Error as to the Factual and Legal Assumptions

The applicant alleges essentially to substantiate this defect that the alienation of the equity interests object of this case, contrary to what the Tax Authority understood, being reported to small enterprise (B... – Medical Services Provision, SA), benefits from the partial exclusion from taxation provided for in Article 43-3 of the IRS Code

It is this controversial issue in the present arbitral proceeding that now relates to the IRS assessment act for 2010 No. 2014 …, issued on 22-04-2014, as tax relating to autonomous taxation in the amount of € 129,196.60, increased by compensatory interest in the amount of € 12,247.12, everything totaling € 141,443.72.

The aforementioned assessment is substitutive of the initial assessment No. 2013 …, for the year 2010, in the amount of € 73,137.52, relating to the alienation, on 29 June 2010, of 60,000 shares representing 30% of the capital of the company B... – MEDICAL SERVICES PROVISION, S.A. (B...), for the total price of € 660,000.00.

The alteration of the subject of arbitral pronouncement results from the Interlocutory Judgment delivered by the Tribunal on 13-10-2014 on the exceptions or preliminary issues raised by the parties, of which they were duly notified on 16-10-2014.

And the fundamental issue of the request for arbitral pronouncement relates to the coming into force of Law No. 15/2010, of 26 July, which repealed n.º 2 of Article 10 of the IRS Code, which established a tax exclusion under IRS regarding the alienation of shares held for more than 12 months.

It should be noted that as of the date of publication of the aforementioned Law No. 15/2010, of 26 July, the shares in question had already been alienated on 29 June 2010.

And, therefore, the Applicant does not agree with the understanding of the Tax Authority, which goes in the direction that as a result of the repeal of n.º 2 of Article 10 of the IRS Code, its application determines the application of the general regime for taxation of capital gains determined as a consequence of the alienation of shares held for more than 12 months, regardless of whether the same alienation occurred before or after the coming into force of the aforementioned Law No. 15/2010, of 26 July.

And this divergence of understandings is what constitutes the subject matter of the controversy in the present proceeding.

Let us see, first of all, what is provided by the cited legal provisions:

Article 10, n.º 2 of the IRS Code (at that time):

"1 – Capital gains are gains obtained that, not being considered business and professional income, capital or real estate income, result from:

b) Onerous alienation of equity interests, including their redemption and amortization with capital reduction, and other securities and, as well, …"

"2 – Excluded from the provision of the preceding number are capital gains from the alienation of:

a) Shares held by their holder for more than 12 months";

"12 – The exclusion established in n.º 2 does not cover capital gains from shares of companies whose assets are constituted, directly or indirectly, more than 50%, by real property or real rights over real property located in Portuguese territory".

Law No. 15/2010, of 26/07:

Article 1

Amendment to the Personal Income Tax Code

Articles 10, 43, 72…… of the IRS Code shall have the following wording:"

"Article 10

…

2 – (Repealed)"

Article 72

…

4 – The positive balance between capital gains and losses, resulting from the operations provided for in subsections b), e), f) and g) of n.º 1 of Article 10, is taxed at the rate of 20%".

"Article 2

Repeal of Provisions Within the IRS Code

N.º 2 and 12 of Article 10 of the IRS Code, approved by Decree-Law No. 442-A/88, of 30 November, are repealed".

"Article 5

Coming Into Force

This law comes into force on the day following its publication.

It should be emphasized that the aforementioned Law No. 15/2010 is silent as to any special rules for the application of the law in time, although this issue was addressed in the context of the parliamentary debate that preceded its approval.

Article 12 of the LGT provides:

1. Tax norms apply to facts occurring after their coming into force, and no retroactive taxes may be created.

2. If the tax fact is of successive formation, the new law applies only to the period elapsed from its coming into force. [Emphasis by the Tribunal]

3. Norms on procedure and process are of immediate application, without prejudice to the rights, guarantees and legitimate interests previously constituted of taxpayers

4. Not covered by the provision above are norms which, although integrated in the process of determining the taxable base, have the function of developing the norms of tax incidence".

Given the content of the present norms, it will be necessary to know the nature of the tax fact resulting from the onerous alienation of the shares in question.

Under Article 1, n.º 1 of the IRS Code, IRS is a periodic tax applicable to the annual value of income of the various categories, after the corresponding deductions and allowances.

In turn, under Article 9, n.º 1, subsection a), gains of capital gains constitute capital increments subject to IRS, category G, provided they are not considered income of other categories.

More precisely, based on Article 10, n.º 1, subsection b), capital gains are gains obtained that, not being considered business and professional income, capital or real estate income, result from onerous alienation of equity interests… and other securities.

And as per Article 10, n.º 2, subsection a) already transcribed earlier, in effect as of the date of alienation of the shares in question, gains from the alienation of shares held for a period exceeding 12 months were excluded from taxation – as is the case in these proceedings.

And pursuant to Article 10, n.º 4, subsection a) of the IRS Code, the gain subject to IRS is constituted by the difference between the realization value and the acquisition value, net of the part qualified as capital income, where applicable, in the cases provided for in subsections a), b) and c) of n.º 1 of this same article.

In turn, under Article 43, n.º 1 of the IRS Code, the value of income qualified as capital gains is the amount corresponding to the balance determined between capital gains and losses realized in the same year….

Also to be noted is the provision of Article 10, n.º 3, subsection a), of the IRS Code, which determines, for the case at hand, the tax fact [Emphasis by the Tribunal], for the situation in these proceedings:

"3 – Gains are deemed to be obtained at the time of the practice of the acts provided for in n.º 1, without prejudice to the following subsections: a) In cases of promise to purchase and sale or exchange, it is presumed that the gain is obtained as soon as the delivery or possession of the goods or rights object of the contract is verified".

Because it is deemed relevant, the provision of Article 45 of the LGT is also transcribed, in the applicable part:

"Article 45 - Limitation of the Right to Assess

1 – The right to assess taxes lapses if the assessment is not validly notified within a period of four years, when the law does not fix another.

…

4 – The limitation period is counted, in periodic taxes, from the end of the period in which the tax fact occurred and, in taxes of single obligation, from the date on which the tax fact occurred, except in value added tax and in income taxes, when taxation is effected by withholding at source with final effect, in which case that period is counted from the beginning of the following calendar year in which the tax exigibility occurred or the tax fact occurred, respectively".

From which it is gathered that IRS is a periodic tax, in general, and of single obligation in cases in which withholding obligation occurs with final effect (as in the case of the liberatory rate of Article 71).

Thus, it is the case that, on the one hand, the tax fact, or its exigibility, occurs, in the case at hand, at the moment in which the capital gains are deemed to be obtained, under Article 10, n.º 3, subsection a) and, on the other hand, under Article 43, n.º 1, the value of income qualified as capital gains is the corresponding balance determined between capital gains and losses determined in the same year.

Indeed, if it were, for example, income from dependent labor, category A, the tax fact also generally occurs in each month in which the payment or placing at the taxpayer's disposal of salaries or remuneration occurs, with withholding as a rule, and its taxation is made at the end of the year, by application of the general rates to all income.

The difference between this situation of category A income and the taxation of the net balance of alienated capital gains lies only in the fact that the taxation of such income is done by aggregation and, therefore, by application of the general rates of Article 68 and the taxation of capital gains is also done at the end of the year, but by the final balance between capital gains and losses, by application of the special autonomous taxation rate provided for in n.º 4 of Article 72 of the IRS Code, a rate that changed from 10% to 20% with the coming into force of Law No. 15/2010, of 26/7, coming into force on 27/7.

This means that within the scope of this periodic tax that is IRS, there are income of successive formation, such as is generally the case for dependent labor income, category A, income from real estate rental, category F and income from pensions, category H, and others, such as capital gains, which are succeeded or not, as there are gains of the same nature (as the English say, blown by the wind and therefore occasional), determining then, if applicable, the balance between capital gains and any losses in the final period of taxation – which is always 31 December.

It is not rare that during the taxation period there appears only once a gain of capital gains, as was the case with the Applicants.

And the tax fact of these capital gains obtained from the alienation of the shares in question occurred on 29 June 2010, before, therefore, the coming into force, on 27/7/2010, of Law 15/2010.

The issue then arises of retroactivity, if a rate of 20% is applied to these capital gains at the end of the taxation period, when at the time of the tax fact, there was no place for taxation, because the alienated shares were held for a period exceeding 12 months and, therefore, excluded from taxation, by force of Article 10, n.º 2 of the IRS Code, only repealed by the aforementioned Law No. 15/2010, of 26/7.

In the Judgment of the Administrative Court of Justice handed down in Case No. 01582/13, of 4/12/2013[1], in examination of an appeal by the Treasury, of a decision by the Regional Administrative Court of Viseu, favorable to the challenger, determining the "annulment of the disputed assessment, in the challenged part, corresponding to the taxation of the balance of all capital gains and losses realized until 26/7.2010 at the rate of 20%, when only the balance of capital gains and losses resulting from the alienation of shares, occurring until 26/7.2010 and provided that as of the date of alienation they had been held for less than 12 months, could have been taxed at the rate of 10%... and condemning the Tax Administration to payment of indemnity interest counted from 7.9.2011 (date of payment) until the date of issuance of the respective credit note, on the understanding that the disputed assessment suffered from the defect of violation of law by retroactive application of the alterations to the IRS Code introduced by Law No. 15/2010, of 26 July, in violation of the provision of n.º 3 of Article 103 of the Constitution and the provision of Article 12 of the General Tax Law".

"(...) For the State to be able to collect a tax it must first be approved by the representatives of the people and must be perfectly determined in general and abstract law, only thus avoiding that such power can be exercised in an abusive and arbitrary manner, unworthy of a true state of law" (...) "On the other hand, the same principle of legality cannot fail to prevent tax law from providing for the past, with retroactive effects, providing for the taxation of acts performed when it did not yet exist, under penalty of allowing the State to impose certain consequences on a reality subsequently verified, without its authors having been able to adapt their conduct according to the new rules (...). " [Cf. Judgment of the Constitutional Court No. 319/02, cited by the Judgment of the Administrative Court of Justice mentioned in the footnote].

"This requirement reveals the concerns of the principle of protection of the confidence of citizens, also itself a structuring principle of the democratic state of law, reflected in the aspect of the principle of legality, according to which the law, in an attitude of loyalty with its addressees, should only govern for the future, thus guaranteeing an integral and loyal relationship between the citizen and the State. It is in this sense that the choice of the constitutional legislator must be understood when, in the constitutional revision of 1997, consecrating in Article 103, n.º 3, the rule of prohibition of retroactivity of unfavorable tax law". [2]

The Constitutional Court has clarified the principle of non-retroactivity of Tax Law in the following terms:

"The Constitutional Court has followed the understanding that this prohibition of retroactivity, in the domain of tax law, is directed only at authentic retroactivity, covering only cases in which the tax fact that the new law intends to regulate has already produced all its effects under the old law, excluding from its field of application situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects continue in the present, as happens when tax norms that produced an aggravation of the taxpayers' tax position regarding tax facts that did not occur entirely in the domain of the old law and continue to be formed, even during the course of the same tax year, under the new law (v.g. judgments Nos. 128/2009, 85/2010 and 399/2010, all accessible at www.tribunalconstitucional.pt)".

"Now it is clear to see that in the case of capital gains from equity interests, with the tax fact being the onerous alienation, we are not faced with a complex tax fact, of successive formation throughout a year, but rather an instantaneous tax fact. The tax fact that gives rise to the tax is exhausted in the realization of the capital gain (Note that even the capital gains tax was regarded as of single obligation – cf. Judgment of the Administrative Court of Justice of 18.1.1995, p. 18287)[3]".

"And to this understanding there is no obstacle the circumstance that the balance determined between capital gains and losses realized in the same year is taxed, since what is at issue in Article 43, n.º 1 of the IRS Code is, alongside the norms that govern the determination of the gain subject to tax, the determination of the taxable base as regards income resulting from capital gains. It is, in our view, a situation similar to autonomous taxation under corporate income tax, where it is concluded that 'the fact that the assessment of the tax is made at the end of a given period does not transform it into a periodic, successively formed or durable tax. This assessment operation is translated only into the aggregation, for collection purposes, of the set of operations subject to taxation […]' [cf. Judgment of the Constitutional Court No. 310/2012]".

And in this interpretative line is also the Arbitral Decision of the CAAD, in Case No. 135/2013-T, which deals with a situation identical to that in these proceedings, from which a few brief passages are extracted from the respective Judgment:

"(...)Whatever is the best doctrinal understanding, the fact is that there is express law that gives us the solution of the case sub judice, Article 12, n.º 2, of the LGT: if the tax fact is of successive formation, the new law applies only to the period elapsed from its coming into force" (...) "And it is this command that this Tribunal is obliged to respect, since, as reaffirmed in Article 4, n.º 2, of the RJAT, arbitral tribunals decide in accordance with constituted law (...) That is, Article 12, n.º 2, of the LGT commands that, in periodic taxes (i.e., regarding tax facts of successive formation), the taxation period be divided, applying the old law to the tax facts occurring before the legislative change and the new law to later ones. Note that this norm appeared at a time much later than the coming into force of the current income taxes (its main field of application), such that the legislator of the LGT could not ignore the consequences that, in those taxes, the new norm would produce (...) The departure from this legal norm could, possibly, happen if it resulted in violation of constitutional principles or norms (...) Now, the precept in question is the one that best gives expression to fundamental principles of our legal-constitutional order, such as the principle of security in taxation, an essential dimension of the principle of confidence, inherent in the idea of State of Law (...) The legal norms governing taxation must ensure that whoever practices an act potentially generating a tax obligation can 'be certain' of the consequences resulting from it. The first condition for this is, obviously, that the law governing such obligations is known, namely the one in force at that time (...) The thesis that the tax fact in periodic taxes only occurs on the last day of the year has as implicit consequence the acceptance of a certain degree of retroactivity of tax law (the so-called improper or 3rd-degree retroactivity) (...) We know that such 'degree' of retroactivity is considered constitutionally admissible by our case law. But for such retroactive application to exist it is necessary that a 'legislative dictum' oblige it (...) Now, this does not happen in the present case, since the general rule contained in n.º 2 of Article 12 of the LGT is intended, precisely, to avoid situations of retroactivity of tax law (even if 'moderated'), whenever the legislator does not determine, specifically, otherwise (...) Article 12, n.º 2 of the LGT is, therefore, a norm fully in accordance with constitutional principles governing taxation, it is even the one that, in this specific issue, would best give expression to such principles, by preventing the occurrence of situations of retroactive application of tax law"

And – continues that arbitral decision:

"(...)Although the taxable base (movable capital gains) to be taxed in IRS corresponds to the balance of capital gains and losses realized by the taxpayer throughout the year, the fact is that, in the concrete case, there was only one single alienation in 2010: or rather the tax fact, in the abstract of successive formation, 'was exhausted' in a single transaction (...) capital gains obtained from the alienation of equity interests being subject to an autonomous taxation (at a proportional rate, without taking into account here the personalization elements that, in principle, should be present in the taxation of all income, if IRS were a true single tax – we are faced with one of the expressions of the dual character of this tax), no difficulties arise with respect to the other operations that assessment (understood in a broad sense) of the tax implies, when made in compliance with the provision of n.º 2 of Article 12 of the LGT(...) Making it impossible to apply the precept (Article 12, n.º 2, of the LGT) in cases such as the present would mean 'ignoring' its existence, which is prohibited to any Tribunal (...) In summary, it is understood that nothing prevents the application of the provision of n.º 2 of Article 12 of the LGT, the general rule stated therein, which – it is repeated – the legislator understood not to set aside in Law No. 15/2010 (...)".

Applying the above considerations to the case sub juditio, the illegality of the assessment resulting from the retroactive application of the tax regime approved by the aforementioned Law No. 15/2010 becomes immediately evident.

In fact, the sale or alienation of the 60,000 shares in question occurred on 29-6-2010 and these were held by the applicant since 17-4-2009.

As of the date of that alienation (29-6-2010) and, consequently, of the realization of the capital gain [tax fact giving rise to taxation] Article 10-2 of the IRS Code was in effect, which excluded from taxation capital gains from the alienation of [as was the case] shares held by their holder for more than 12 months.

Therefore – and contrary to what the Tax Authority understood - the application of the alterations to this taxation made by Law No. 15/2010, of 26 July was excluded to the extent that this came into force only on 27 July 2010, that is, at a date later than the aforementioned alienation of the equity interests of the applicant.

The request for arbitral pronouncement is thus well-founded and with these grounds.

The Request for Payment of Indemnity Interest

Along with the declaration of the illegality of the assessment, the Applicant also petitions that it be recognized having the right to indemnity interest, a matter that falls within the scope of the competence of this Tribunal, as expressly provided for in n.º 5 of Article 24 of the RJAT.

Once the illegality of the assessment is determined and its consequent annulment and finding that the tax debt owed has been paid (in whole or in part), the right to indemnity interest subsists, whenever such results from an error attributable to the services of the Tax Authority, as provided for in n.º 1 of Article 43 of the General Tax Law (LGT).

In the present case, this is an assessment determined by the Tax Authority that turned out to be legally unjustified.

That is: it occurred not as a result of any act or procedure, even if excusable or involuntary, of the taxpayer, but as a result of an erroneous understanding of the assumptions for the assessment.

This alone is enough to consider verified the error attributable to the services with the consequent obligation to pay indemnity interest on the amount improperly assessed and paid, counted from the day following the improper payment until the date of issuance of the respective credit note – Articles 43-1 and 2 of the LGT and 61, of the Tax Procedure and Process Code.

Thus, based on the provisions of n.º 1 and 2 of Article 43 of the LGT and Article 61 of the Tax Procedure and Process Code, indemnity interest is owed, at the legal rate, on the amount improperly assessed and paid, counted from the day following the improper payment until the date of issuance of the respective credit note.

III JUDGMENT

In keeping with the foregoing, the arbitrators of this Arbitral Tribunal agree to:

a) Declare well-founded the request for annulment of the additional Personal Income Tax assessment for the year 2010 [additional assessment No. 2014…, of 22/04/2014 (tax relating to autonomous taxation in the amount of €129,196.60, increased by compensatory interest in the amount of €12,247.12), everything totaling €141,443.72], condemning the Tax and Customs Authority to annul such act;

b) Declare well-founded the request for reimbursement of the tax paid, with indemnity interest as formulated, condemning, in consequence, the Tax and Customs Authority to reimburse the applicant the amount paid [€64,598.30] with indemnity interest from the day following payment until the date of issuance of the respective credit note – Articles 43-1 and 2 of the LGT and 61, of the Tax Procedure and Process Code.

c) Declare as withdrawn the examination of the remaining issues raised.

Value of the Case

In accordance with the provision of Article 306, n.º 2, of the Code of Civil Procedure and 97-A, n.º 1, subsection a), of the Tax Procedure and Process Code and 3, n.º 2, of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the case is fixed at already fixed amount of € 141,443.72.

Court Costs

Pursuant to Article 22, n.º 4, of the RJAT, the amount of court costs is fixed at € 3,060.00, in accordance with Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 9 January 2015

The Arbitral Tribunal,

José Poças Falcão

(President)

José Rodrigo de Castro

(Tribunal Member)

José Nunes Barata

(Tribunal Member)

[1] Summary: The alterations introduced to the tax regime for movable capital gains by Law No. 15/2010, of 26 July apply only to tax facts occurring at a date later than its coming into force (27 July 2010 – Article 5 of Law No. 15/2010).

II - In capital gains resulting from onerous alienation of securities subject to IRS as capital increments the tax fact occurs at the moment of alienation (Article 10, n.º 3 of the IRS Code), being that moment relevant for purposes of application in time of the new law, in the absence of express provision of the legislator to the contrary (Articles 12, n.º 1 of the LGT and the Civil Code).

III - As the annual income for purposes of IRS is a complex fact of successive formation, in the absence of express norm to the contrary, the new law may be applied, without proper or authentic retroactivity, to the facts that integrate it occurring from its coming into force (Article 12, n.º 2 of the General Tax Law).

[2] Cf. cited Judgment of the Administrative Court of Justice.

[3] Idem.