Summary
Full Decision
ARBITRAL DECISION
The arbitrators Fernanda Maçãs (presiding arbitrator), André Bacelar Gonçalves and Jaime Carvalho Esteves (arbitrator members) appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 6 April 2016, hereby agree as follows.
I. Report
1.1
The Claimant A..., taxpayer no. ..., resident at ... Street, no. ..., ..., in ..., ..., hereinafter referred to as the Claimant, submitted on 22 January 2016 a request for arbitral determination, in which it requests that the act of assessment of Income Tax on Natural Persons (IRS) with no. 2011..., issued by the Excellency the Director-General of the (then so-called) General Directorate of Taxes, by reference to the year 2010, in the amount of € 216,670.46 (two hundred and sixteen thousand, six hundred and seventy euros and forty-six cents) be declared illegal and annulled and, moreover, the annulment of the express denial of the request for official revision presented against the same, with the necessary legal consequences, namely the refund of the tax paid unduly in excess by the Claimant, plus the respective compensatory interest at the legal rate.
1.2
Complying with the provision of art. 17, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (RJAT), cited to answer (order of 6 April 2016), the Respondent came to request the revocation of the same, arguing that the Claimant had not attached to the file a document that, in the Initial Petition, it had stated it would subsequently attach to the proceedings, an absence that the Respondent had already mentioned in a petition filed at an earlier moment. It therefore formulated a request for revocation of the aforementioned order and that the Respondent entity be notified of a new order when all missing elements were together in the file. This request was denied, by order of the court, of 20 April 2016, because, among other things, it would imply the suspension of proceedings and thus lack legal basis. This without prejudice to the possibility of a request for extension of the deadline to answer, or the subsequent exercise of the right of reply, after the document in question is attached to the proceedings, should that occur.
1.3
It transpired that on 19 April 2016 the Claimant came to request the expansion of the request and of the instance, given that an express subsequent denial had occurred, and that request was admitted by order of 25 April 2016, notwithstanding the prior opposition of the Respondent, and a supplementary period was then granted for the exercise of the right of reply, by way of presentation of an Answer.
1.4
The Claimant came to attach the missing document which was the cause of the implicit request for suspension of the instance, and a period was granted to the Respondent for the exercise of the right of reply.
1.5
It came to present its Answer on 18 May 2016.
1.6
In it, it defends itself by way of exception, invoking:
a) breach of legal formality (art. 59 of the CPPT);
b) untimeliness of the request for official revision (art. 78, nos. 1 and 4 of the LGT);
c) non-fulfillment of the requirements for its consideration due to the absence of error attributable to the services in accordance with no. 1 of the aforementioned article;
d) abuse of right in the modality of venire contra factum proprium, by opposition to prior conduct (art. 334 of the CC).
1.7
And by way of merits, contesting also specifically, the alleged:
a) lack of substantiation of the tax act in question;
b) lack of prior hearing of the taxpayer;
c) illegality of the assessment and retroactivity of the applied rule;
d) violation of the principle of legitimate expectation.
1.10
Moreover, the Respondent further contests that compensatory interest is owed, which is understood to intend to assert even if the request is granted, due to the absence of error attributable to the services.
1.11
On 25 May 2016 the Claimant presented a petition requesting the modification of the list of witnesses and indicated the facts on which it intended to produce witness evidence.
1.12
On that same date it presented a reply to the exceptions, contesting them specifically, arguing for the merits of the request.
1.13
By order of 31 May 2016 the arbitral tribunal dispensed with the meeting referred to in art. 18 of the RJAT, fixed the date for the holding of the hearing, granted the request for modification of the list of witnesses formulated by the Claimant and ordered notification to the parties regarding the intention to offer pleadings.
1.14
The Claimant further requested the use of the witness evidence produced in the proceedings that took place in the arbitral courts functioning under the aegis of the CAAD with no. 26/2016-T, which after a conditional order of the arbitral court of 15 June 2016 (namely, identity of the parties, of the witness in question and that the fact whose evidence is intended to be produced be coincident with that other whose evidence is intended to be used) and having heard the Respondent (who gave its consent), came to be granted by arbitral order of 17 June 2016 by which the hearing was dispensed with and a deadline was fixed for the production of pleadings and for the rendering of the arbitral decision.
1.15
The Claimant came to present a petition and also offered documents, as well as the arbitral decisions issued in proceedings 26 and 27/2016-T, which took place in the arbitral courts functioning under the aegis of the CAAD, and the respondent was given the opportunity to pronounce itself.
1.16
The parties offered pleadings, the Claimant on 28 June 2016 and the Respondent on 12 July 2016, reiterating the arguments already invoked in the previous pleadings.
1.17
By arbitral order of 1 October 2016 the deadline for arbitration was extended by two months and the deadline of 4 December 2016 was fixed for the rendering of the arbitral decision.
2.
The claim that is the object of the request for arbitral determination consists in the annulment of a tax act of assessment of capital gains calculated in the onerous transfer of shares of capital that occurred in 2011, on the grounds that at the time of the transfer such gains were excluded from taxation.
Thus, with the request presented on 22 January 2016, the Claimant seeks the annulment of the tax act already identified, corresponding to the assessment of IRS for 2010 (mediately) and immediately to the express denial of the request for official revision and, subsequently, with the expansion of the request, to the express denial of that same request for official revision, as well as the condemnation of the Respondent to pay compensatory interest.
3.
On 5 February 2016 the request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority.
3.1
The Claimant did not proceed to the appointment of an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the President of the Ethics Council appointed as presiding arbitrator, Counselor Maria Fernanda Maçãs and as co-arbitrators Drs. André Bacelar Gonçalves and Jaime Carvalho Esteves, who declare acceptance of the appointment, in the manner legally provided.
3.2
On 21 March 2016, the parties were notified of the appointment of the arbitrators and raised no objection.
3.3
In accordance with the provision in paragraph c) of no. 11 of the RJAT, the collective arbitral tribunal was constituted on 6 April 2016.
3.4
In these terms, the Arbitral Tribunal is regularly constituted to consider and decide the object of the proceedings.
4.
To support the request for arbitral determination the Claimant alleges, in a summary of very broad strokes, the illegality of the act of IRS assessment for 2010, as well as the express and previously implicit denials of the request for official revision of that tax assessment. This because it included as a positive component of taxable income, capital gains from the onerous transfer of shares, whose taxation would not be due at the time of transfer, given that the publication of the new law (which came to tax these gains) is subsequent to the date of the transfers in question. Thus, for the Claimant, the application of that new law to the capital gains resulting from the transfers in question would be retroactive and, therefore, unconstitutional. Moreover, notwithstanding having declared such gains as taxable, the Claimant understands that the illegality of the assessment is attributable to an error of the services, either because the assessment was carried out by the services, or because the form made available for the annual declaration of income subject to IRS did not allow declaring any gains calculated in that year as gains excluded from taxation.
4.1
More specifically, the Claimant begins by claiming that the act of IRS assessment in question is not substantiated, either in fact or in law, given that there is a complete omission of substantiation. Therefore, it imputes to the act of assessment the defect of lack of substantiation.
4.2
In the second place, it adds that the act in question should be annulled for breach of legal formality, more specifically, the right to hearing, which prevented its participation in the decision of the Tax and Customs Authority (AT) that is embodied in the act of assessment.
4.3
In the third place, it raises the fact that the capital gains it calculated in the course of 2010 result from the transfer of shares held for more than 12 months, carried out before the entry into force of Law 15/2010, of 26 July and in accordance with the law that was in force on the date of transfer of those shares, the gains resulting from the same were excluded from taxation. For this reason, the act would be illegal, as it would not be possible to subject those gains to taxation resulting from the legal regime established by Law no. 15/2010, of 26 July, which entered into force on 27 July and which provides: i) an increase in the rate of special taxation applicable to the positive balance between capital gains and losses from moveable securities, which increased from 10% to 20% and ii) the elimination of the exclusion from taxation of gains from the transfer of shares held for more than 12 months and bonds and other debt securities, which become subject to taxation at a rate of 20%.
This is because Law 15/2010, of 26 July entered into force on the day following its publication (art. 5) and despite there having been no determination of a reference date for the beginning of the effects of the amendments introduced by the said diploma, article 12 of the General Tax Law (LGT) should be applied to ascertain the legal regime applicable to the transfers of shares verified before the entry into force of the new regime of taxation of capital gains from moveable securities. Thus, such legislative amendment would only be applicable to tax facts occurring after its entry into force. Being that the Claimant understands that the relevant moment for purposes of taxation of capital gains from moveable securities corresponds to that in which the gain is realized and, thus, in which the transfer occurs and not the end of the year in which they were formed. In other words, the tax fact that gives rise to the tax would be exhausted in the realization of the gain, not corresponding to an annual balance, for which reason the gains in question would be excluded from taxation.
4.4
If this understanding is not adopted, for the Claimant, there is a violation of the principle of prohibition of tax retroactivity provided for in art. 103 of the Constitution of the Portuguese Republic (CRP), in the sense that the tax act in question results from the application of Law 15/2010, of 26 July to a tax-generating fact occurring at a moment prior to the date of entry into force of that Law.
4.5
Considering that the illegality of the assessment is attributable to the services, the Claimant intends to be reimbursed for the tax it paid, plus compensatory interest.
5.
The Tax and Customs Authority presented an answer and attached the investigative file, invoking in summary,
- by way of exception, that there is:
a) breach of legal formality (art. 59 of the CPPT);
b) untimeliness of the request for official revision (art. 78, nos. 1 and 4 of the LGT);
c) non-fulfillment of the requirements for its consideration due to the absence of error attributable to the services in accordance with no. 1 of the aforementioned article;
d) abuse of right in the modality of venire contra factum proprium, by opposition to prior conduct (art. 334 of the CC);
- and by way of merits, the non-existence of the alleged:
a) lack of substantiation of the tax act in question;
b) lack of prior hearing of the taxpayer;
c) illegality of the assessment and of the invoked retroactivity of the applied rule;
d) of the violation of the principle of legitimate expectation;
e) obligation to pay compensatory interest.
5.1
More specifically, it can be said that the Respondent begins to defend itself by way of exception.
From the outset it invokes untimeliness of the request because when a request for official revision was presented the periods of 3 and 4 years provided for in nos. 4 and 1 of art. 78 of the LGT would have already elapsed, understanding that because there is no error attributable to the services, the period of the request for revision would be 3 years and not 4 years.
In fact, the Respondent understands that the error in the declaration is not attributable to the services, but to the Claimant who would not have filled in annex G1 in the model 3 declaration of IRS, as it was obliged to do and, if so, not only are the procedural prerequisites for official revision not met, but also such request for revision, by contradicting prior conduct – declaration in annex G, table 8, of transfer of shares not excluded from taxation, constitutes an abuse of right, in the modality of venire contra factum proprium.
5.2
It also understands that for official revision of the tax act to be viable it would be necessary to present a substitute declaration, within the periods and limits provided for in no. 3 of article 59 of the Code of Tax Procedure and Process (CPPT) by the Claimant.
Given that this formality provided for in article 59 of the CPPT was breached, the request for official revision could not serve to reopen a period that the Claimant allowed to expire, within that provision, as it understands peremptorily refers to no. 6 of that rule. In this line, it argues that there could never be error attributable to the services, therefore the prerequisites on which depends the request for official revision to be filed within 4 years, in accordance with the provision of no. 1 of art. 78 of the LGT, would not be met.
5.3
In its defense by way of merits, the Respondent argues, regarding the defects of lack of substantiation and breach of prior hearing imputed by the Claimant to the tax act in question, that the assessment that is the object of these proceedings was carried out on the basis of the elements declared by the Claimant itself and, as such, the assessment merely reflects the values that were declared and presented in the model 3 income statement.
In support of this conclusion, it notes that the substantiation is sufficiently clear and unequivocal, so much so that the arguments used in the request for arbitral determination demonstrate that the Claimant fully understood the factual and legal framework in which the Respondent's decision was based and that it was exempted from proceeding to the prior hearing of the Claimant, as follows from art. 60, no. 2, paragraph b) of the LGT.
5.4
Finally, the Respondent observes that there is no normative basis for the illegality of the assessment alleged by the Claimant based on the fact that the law states that it enters into force on the day following its publication, which would allow the exclusion of its application to the factual situation of the proceedings. This is because:
a) the legislator did not establish in the law any rule of transitional law that would safeguard any tax facts in formation, having instead intended that situations of realization of capital gains during the course of 2010 – from which resulted a positive balance – be subject to actual taxation, regardless of the date of its realization;
b) the legislator itself intended clear and expressly that the new regime be applicable to the result of capital gains calculated throughout 2010;
c) it is settled that the tax-generating fact is verified on the date of 31 December of each year, thus understanding the unitary and global character of income taxation;
d) the tax-generating fact is not the gain resulting from the transfer, but rather the positive balance, calculated in a certain taxation period, between capital gains and losses, for which reason it would make no sense to state that in the present case there is a situation of retroactivity of the first degree with respect to the amendment provided by Law 15/2010, of 26 July, when the legal solution respects to factuality still in formation;
e) the rule of annuality of IRS leads to the agglomeration of all tax-generating facts and income that occur until 31 December of the period in question, for which reason it would make no sense to apply to the concrete case article 12 of the LGT for the purposes of fixing the temporal application of Law 15/2010, of 26 July.
In this manner, the Respondent argues that the assessment does not violate the principle of prohibition of tax retroactivity, nor the constitutional principle of legitimate expectation.
5.5
Moreover, the Respondent argues that corresponding to taxation the very elements that were declared by the Claimant, the later invocation of different tax treatment would correspond to abuse of right in the modality of venire contra factum proprium.
5.6
Furthermore, for the Respondent, if the tax act in question is not illegal and corresponds to the very elements that were declared by the Claimant, there is no error attributable to the services and, thus, the requirements for recognition of the right to compensatory interest are not met.
6.
Thus these are the questions of which the arbitral tribunal should be aware:
i) Whether the request for official revision is timely;
ii) Whether the act of assessment suffers from error as to the prerequisites of law, by violation of article 103 of the CRP.
iii) Whether there is abuse of right on the part of the Claimant;
iv) Whether the act of assessment suffers from the defect of lack of substantiation due to absolute absence of any elements of fact and law;
v) Whether the act of assessment breached an essential formality;
vi) Whether compensatory interest is payable.
II. Preliminary Issues
7.1
The parties have legal personality and capacity, prove themselves legitimate and are regularly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).
7.2
The tribunal is materially competent to know and decide the request and is regularly constituted.
7.3
The proceedings do not suffer from nullities.
7.4
The exception of untimeliness of the request was raised, which will be analyzed after determination of the facts proven and not proven.
7.5
There are no other circumstances that prevent knowledge of the merits of the case.
7.6
Consequently, the conditions for the rendering of the final decision are met.
III. Merits
III.1. Statement of Facts
8. Facts Proven
8.1.
With relevance for the consideration and decision of the questions raised, preliminary and on the merits, the following facts are accepted and proven:
a) On 27 June 2011 the AT issued assessment no. 2011... in the amount of € 215,977.00 regarding the Claimant, as IRS and relating to the year 2010, to which was added the reversal of the refund resulting from assessment 2011..., in the amount (negative) of € 693.46, from which resulted the amount to pay, until 30 September 2011, and actually paid on that same date, of € 216,670.46, as follows from the reconciliation statement 2011...
b) The Claimant presented a request for revision of such assessment on 26 June 2015.
c) Until 22/01/2016 no decision was issued regarding such request for official revision of the tax act.
d) That request came to be expressly denied by Order of the Director of Services of the DSIRS dated 2 March 2016.
e) On 22 May 2011, the Claimant delivered a Mod.3 corresponding to 2010, having in field 8 of Annex G of that declaration, mentioned as the sale value of the shares it held in company B... – Tourism Activities, S.A., the sum of the amounts of € 2,333,310.00 and € 8,334.00, in a total amount of € 2,341,644.00, a declaration which resulted in a total amount to pay of € 215,977.00.
f) The Claimant mentioned opting for non-grouping of the corresponding capital gains.
g) That declaration is a substitute declaration of the declaration that had been presented on 11 May 2011 and in which the Claimant did not present annex G, that declaration having given rise to a first IRS assessment with a refund of € 693.40, a sum that was considered in the reconciliation statement.
h) The AT carried out the assessment in accordance with the data entered by the Claimant in the model 3 declarations that it successively presented.
i) By public deed dated 28/06/1983 the company "G..., Ltd." had been established between C..., D..., E... and F..., a limited liability company; that company, at the date, having fully subscribed and paid-in share capital in the amount of 300,000$00 (three hundred thousand escudos), which was divided into one share in the amount of 200,000$00 (two hundred thousand escudos), belonging to E... and two equal shares in the amount of 50,000$00 (fifty thousand escudos) each, belonging to C... and D...
j) The shareholder E... would later divide her share into three new shares, reserving for herself a share of € 50,000$00 (fifty thousand escudos) and transferring a share of 100,000$00 (one hundred thousand escudos) to H... and a share of 50,000$00 (fifty thousand escudos) to I...
l) By public deed of 20/12/1988, the share capital of G..., Ltd. was increased from 300,000$00 (three hundred thousand escudos) to 40,000,000$00 (forty million escudos), by way of an increase of 39,700,000$00 (thirty-nine million seven hundred thousand escudos), fully paid in cash and subscribed in equal parts, that is, each with the amount of 19,850,000$00 (nineteen million eight hundred and fifty thousand escudos), by C... and D..., who are admitted as new shareholders.
m) On 29/05/1996, the company G..., Ltd. was transformed into a joint-stock company, now named "B... – Tourism Activities, S.A.", with a share capital of 40,000,000$00 (forty million escudos) and divided into 40,000 shares with a nominal value of 1,000$00 (one thousand escudos) each.
n) On the same date the increase of the share capital of B... – Tourism Activities, S.A. from 40,000,000$00 (forty million escudos) to 200,000,000$00 (two hundred million escudos) was promoted, by way of an increase of 160,000,000$00 (one hundred and sixty million escudos), carried out as follows:
i) incorporation of revaluation reserves of fixed assets in the amount of 70,470,000$00 (seventy million four hundred and seventy thousand escudos), to be subscribed by each of the shareholders mentioned above, in the proportion of the capital held by each;
ii) new capital contributions in kind of moveable assets, in the amount of 18,130,000$00 (eighteen million one hundred and thirty thousand escudos), corresponding to 18,130 new ordinary shares, with a nominal value of 1,000$00 (one thousand escudos) each, subscribed and paid in equal parts, by shareholder C... and D...;
iii) new capital contribution in cash from the company J... – Risk Capital, S.A., in the amount of 150,000,000$00 (one hundred and fifty million escudos), for subscription and payment of 71,400 ordinary shares with a nominal value of 1,000$00 (one thousand escudos) each.
o) On 27/06/2000, the shareholders C... and D... sold, at their respective nominal value, all the shares they held in company B... – Tourism Activities, S.A. – 127,772 shares, in the proportion of 50% for each, with a nominal value of 1,000$00 (one thousand escudos) per share.
p) With the redenomination of share capital and shares to euros, the share capital of the company B... – Tourism Activities, S.A. became € 1,000,000 (one million euros), represented by 200,000 shares, with a nominal value of € 5 (five euros) each and thus the values of the shareholdings in the company B... – Tourism Activities, S.A. became the following:
i) C... – 21,434 shares, with a nominal value of € 107,170 (one hundred and seven thousand one hundred and seventy euros), corresponding to 10.717% of the share capital;
ii) H... – 21,434 shares, with a nominal value of € 107,170 (one hundred and seven thousand one hundred and seventy euros), corresponding to 10.717% of the share capital;
iii) E... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
iv) I... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
v) K... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
vi) J... – Risk Capital, S.A. – 71,400 shares, with a nominal value of € 357,000 (three hundred and fifty-seven thousand euros), corresponding to 35.7% of the share capital.
q) By contract of purchase and sale concluded on 13/05/2003, the shareholder J... – Risk Capital, S.A. sold to the company B... – Tourism Activities, S.A. its 71,400 shares, corresponding to 35.7% of the share capital and, in consequence, the distribution of shareholdings became the following:
i) C... – 21,434 shares, with a nominal value of € 107,170 (one hundred and seven thousand one hundred and seventy euros), corresponding to 10.717% of the share capital;
ii) H... – 21,434 shares, with a nominal value of € 107,170 (one hundred and seven thousand one hundred and seventy euros), corresponding to 10.717% of the share capital;
iii) E... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
iv) I... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
v) K... – 21,433 shares, with a nominal value of € 107,165 (one hundred and seven thousand one hundred and sixty-five euros), corresponding to 10.7165% of the share capital;
vi) B... – Tourism Activities, S.A. – 71,400 shares, with a nominal value of € 357,000 (three hundred and fifty-seven thousand euros), corresponding to 35.7% of the share capital.
r) Subsequently, the company B... – Tourism Activities, S.A. resolved to:
i) Reduce the share capital of the company in the amount corresponding to € 357,000 (three hundred and fifty-seven thousand euros), through the extinction of the 71,400 treasury shares held by it;
ii) Cancel the discount on acquisition of extinct treasury shares through the allocation of the amount of € 892,500 (eight hundred and ninety-two thousand five hundred euros) of free reserves for that compensation;
iii) Increase share capital, in the amount of € 357,000 (three hundred and fifty-seven thousand euros), by incorporation of free reserves, through the issuance of 71,400 shares, attributed to shareholders in proportion to their respective shareholdings.
s) In this manner, the distribution of shareholdings in the company B... – Tourism Activities, S.A., became the following:
i) C... – 33,334 shares, with a nominal value of € 166,670 (one hundred and sixty-six thousand six hundred and seventy euros), corresponding to 16.667% of the share capital;
ii) H... – 33,334 shares, with a nominal value of € 166,670 (one hundred and sixty-six thousand six hundred and seventy euros), corresponding to 16.667% of the share capital;
iii) E... – 33,333 shares, with a nominal value of € 166,665 (one hundred and sixty-six thousand six hundred and sixty-five euros), corresponding to 16.665% of the share capital;
iv) D... – 33,333 shares, with a nominal value of € 166,665 (one hundred and sixty-six thousand six hundred and sixty-five euros), corresponding to 16.665% of the share capital;
v) K... – 33,333 shares, with a nominal value of € 166,665 (one hundred and sixty-six thousand six hundred and sixty-five euros), corresponding to 16.665% of the share capital;
vi) I... – 33,333 shares, with a nominal value of € 166,665 (one hundred and sixty-six thousand six hundred and sixty-five euros), corresponding to 16.665% of the share capital.
t) On 24/05/2010 the shareholders of B... – Tourism Activities, S.A. transferred all the shares they held in this company – 200,000 shares with a nominal value of € 5.00 each, representing 100% of the respective share capital, for the global price of € 14,000,000.
u) The shareholding of the Claimant corresponds to two lots, one acquired in 2000 and another in 2008, for tax purposes, having been transacted for the aforementioned values of € 2,333,310.00 and € 8,334.00, respectively, having an acquisition cost of € 166,665.00 for the first and € 8,334.00 for the second.
v) The price for the purchase of those shares was paid in full to the shareholders, including the Claimant.
x) The transfer entered in annex G of the model 3 IRS declaration concerns shares held for more than 12 months, as the acquisition occurred in 2000 with respect to the first lot and in 2008 with respect to the second.
z) The capital gain resulting from the operation was considered at 50% of its value, as it was in the presence of a small unlisted company.
aa) The balance between capital gains and losses realized until 27/07/2010 concerning shares held for more than 12 months derives from the difference between those amounts.
bb) In the assessment that the AT carried out it applied a taxation rate of 20% to the balance of capital gains and losses calculated by the Claimant in 2010, having calculated the total tax referred to above.
cc) The Claimant made the payment of the amount determined in the second IRS assessment and reconciliation on 30 September 2011.
dd) A date coinciding with the deadline for that payment.
ee) The Claimant presented the request for constitution of the arbitral tribunal that led to the present proceedings on 22 January 2016.
ff) Annex G made available by the AT for 2010 did not allow distinguishing between capital gains from the transfer of shareholdings subject to taxation and those not subject to it, but allowed declaring the month of transfer.
gg) The Claimant declared as the month of transfer the month of May of the year in question.
8.2.
The facts proven were based on the documents offered by the parties, which are not disputed.
8.3.
There are no other facts with relevance for consideration of the merits of the case that have not been proven.
III.2. Legal Matters
2.1. Of the Exceptions Invoked by the Respondent
As stated above, the Respondent invokes 4 exceptions, namely: (i) breach of the formality provided for in art. 59 of the CPPT; (ii) the untimeliness of the request for official revision; (iii) the non-fulfillment of the requirements for its consideration; and (iv) "venire contra factum proprium", this latter, as it does not constitute an exception, will be the subject of analysis within section 2.2, below.
2.1.1. Of the Breach of the Formality Provided for in art. 59 of the CPPT
On this matter, the Respondent notes, succinctly, that if the Claimant intended to exclude from taxation the onerous transfers of shares in question, it should have declared this fact in annex G1 of the income statement, therefore, having the Claimant declared the transfer of shares in annex G, it subjected them to taxation.
The Respondent understands that the assessment in question did no more than reflect the facts declared by the Claimant itself, as the formality contained in article 59 of the CPPT was breached, the request for official revision could not serve to reopen the period that the Claimant allowed to expire within article 59 of the CPPT, as, moreover, peremptorily refers to no. 6 of that rule.
Now, as stated in the decision issued within proceedings 30/2016T, which ran in the CAAD and which we fully support on this matter, "in accordance with the provision of art. 78, no. 1, of the LGT, the revision of tax acts does not depend on the initiative of taxpayers, being permitted to be carried out «…by initiative of the tax administration, within four years after the assessment or at any time if the tax has not yet been paid, on the ground of error attributable to the services».
In fact, despite the designation of the revision as «official», the doctrine notes that the taxpayer can initiate the revision by the AT, through a request for its performance, which is confirmed by no. 1 of article 49 of the LGT by reference to the «request for official revision of the tax assessment»[1].
For this reason there is no legal basis for making official revision dependent on the prior presentation of a substitute declaration, therefore the defense of the Respondent on the question under analysis is unfounded".
In light of the above, the exception of breach of formality provided for in art. 59 of the CPPT, invoked by the Respondent, is unfounded.
2.1.2. Of the Untimeliness of the Request for Official Revision
The Respondent argues, briefly, that there is no error attributable to the services in the case in point, in that the assessment reflects in full the values declared by the Claimant in the Model 3 IRS declaration Annex G, the error being exclusively attributable to the Claimant itself, as it presented in the Model 3 IRS declaration of 2010, more specifically in Table 8 of Annex G, the transfers of shares that it thought were excluded from taxation, instead of having declared this fact in Annex G1, this one being for the transfer of shares excluded from taxation.
As to the exception in question, we also follow the arbitral decision issued within proceedings 30/2016T.
Indeed, art. 78 of the LGT provides and legitimizes the presentation of the request for revision of the tax act within 4 years after the assessment, or at any time if the tax has not yet been paid, on the ground of error attributable to the services.
In the concrete case, as in the aforementioned proceedings 30/2016T whose decision on this matter we follow, the assessment was made on 25/06/2011 and the request for official revision was presented on 25/06/2015, that is, within the 4-year period provided for in art 78 of the LGT.
Furthermore, the presentation of the request for official revision caused the interruption of the period to carry out the official revision of the assessment in question (cfr. Art 78, no. 7 of the LGT).
Thus, the fundamental question to ascertain the timeliness of the request for official revision boils down to the existence of error attributable to the services.
On this matter we refer to the arbitral decision issued within proceedings 30/2016T, which we follow on this matter and whose facts are identical to those that are the object of this proceedings, which states that: "As was stated in the Arbitral Decision no. 27/2016-T "The error in the declaration will be attributable to the taxpayer when this one, namely, withholds information about the facts on which the taxation is based or when it fails to comply with any declarative requirements by the appropriate means".
In the concrete case, the Claimant declared the transfer of shares occurring chronologically before 27/07/2010 in annex G, table 8, regarding the «Onerous Transfer of Shareholdings and other Moveable Securities», whereby it did so in the appropriate manner.
Indeed, Regulation no. 1303/2010, of 22 December which approved the models attached to the model 3 declaration to be used for the year 2010, states expressly and specifically that must be indicated in annex G1 the onerous transfer, in 2009 or prior years, of shares held for more than 12 months. Its content is as follows: «This annex is intended to declare the onerous transfer of real property not subject to taxation, in accordance with no. 4 of art. 4 and of art. 5 of Decree-Law no. 442-A/88, of 30 November, as well as the transfer of real property to real estate investment funds for residential leasing (FIAH) and real estate investment companies for residential leasing (SIIAH) covered by the special regime approved by art. 102 and following of Law no. 64-A/2008, of 31 December, and also the onerous transfer, made in the years 2009 and prior, of shares held for more than 12 months».
For this reason it must be concluded that, with the reference to the transfer in question in annex G, table 8, the Claimant did not omit or withhold any declarative duty resulting from the rules applicable to the model 3 declaration, therefore no error occurred that is attributable to it.
For this reason, the AT cannot maintain that it did not have all the necessary elements to apply the legal regime arising from the onerous transfer of shares held for more than 12 months."
Now, in the case in question, the Claimant also declared the transfer of shares occurring chronologically before 27/07/2010 in annex G, table 8, regarding the «Onerous Transfer of Shareholdings and other Moveable Securities», whereby it did so in the appropriate manner, not having withheld any declarative duty resulting from the rules applicable to the model 3 declaration, therefore no error occurred that is attributable to it.
Thus, since the error is attributable to the services, the 4-year period provided for in art. 78, no. 1 of the LGT applies, concluding that the request for official revision in question is timely.
In light of the above, the exception of untimeliness of the request for official revision, invoked by the Respondent, is unfounded.
2.1.3. Of the Non-fulfillment of the Requirements for Consideration of the Request for Official Revision
The Respondent argues, briefly, that the error is exclusively attributable to the Claimant itself, as it presented in the Model 3 IRS declaration of 2010, more specifically in Table 8 of Annex G, the transfers of shares that it thought were excluded from taxation, instead of having declared this fact in Annex G1, this one being for the transfer of shares excluded from taxation.
Now, it becomes evident from the above, sustaining the unfoundedness of the exceptions argued by the Respondent, that the error is not attributable to the Claimant, but to the Respondent.
Indeed, the Claimant did not withhold or omit any duty of information to the Tax Authority, therefore no error occurred that is attributable to it.
Therefore, the exception invoked by the Respondent is unfounded.
2.2. Of the Legal Matters Proper
On 24 May 2010, the Claimant transferred shares it had held for more than 12 months in the company B... – Tourism Activities, SA.
On that date, the following version of article 10 of the CIRS was in force, as now relevant:
«1 - Capital gains constitute the gains obtained which, not being considered business and professional income, capital or property income, result from:
b) Onerous transfer of shareholdings, including their redemption and amortization with reduction of capital, and of other moveable securities and, as well, the value attributed to associates as a result of the partition which, in accordance with article 75 of the Corporate Income Tax Code, is considered as a capital gain;
2 - The following are excluded from the provision of the preceding number the capital gains resulting from the transfer of:
a) Shares held by their holder for more than 12 months;»
Law no. 15/2010 repealed no. 2, having entered into force on 27 July 2010.
Contrary to the position of the Claimant, which advocates the exclusion from taxation of the gains generated by this operation, under the above-mentioned article, the AT understood that the gains resulting from all transfers of shares – even if held for more than 12 months – occurring in the year 2010, are subject to taxation in IRS. That is, that the subjection occurs even though the capital gains are from transfers occurring before the entry into force of Law no. 15/2010, and applied the 20% rate provided for in no. 4 of article 72 of the CIRS (as amended by the same Law), to the entire balance of capital gains and losses resulting from those transfers.
The Supreme Administrative Court issued several decisions in a sense contrary to this understanding of the AT.
In particular, in the Decision for Uniformization of Case Law, in Case 734/15, of 2 December 2015, the Supreme Administrative Court came to recall that: «…in Plenary of the Section and by unanimity, it already expressed its understanding on the controversial question also in the case of the proceedings, and this position is to be reaffirmed here. Therefore, based on the grounds expressed in the Decisions of this SAC of 16 September 2015, issued in appeals no. 1292/14 and 1504/14, for which basis it refers and here also accepts, it is necessary, without further ado and in granting the appeal, to annul the arbitral decision appealed (article 152, no. 6 of the CPTA) and, in substitution, to judge the requests as well-founded, annulling the assessments in question.»
Now, in the aforementioned Decision, issued in Case no. 1292/14, the Supreme Administrative Court understood – a position which we fully support – the following: "(…) we consider that the tax fact refers to the moment in which the capital gains are realized, or, in other words, the tax fact that originates and shapes them is born and is exhausted at the precise moment (autonomous and complete) of the transfer and coexisting realization of the capital gains, being, therefore, an instantaneous tax fact, and not a tax fact of successive formation over a year.
It is true that capital gains, like other income subject to IRS, are declared annually (article 57 of the CIRS) and that the annual taxable income of the taxpayer corresponds to the positive balance calculated between the capital gains and losses that have been realized in the same year (article 43, no. 1 of the CIRS). But this operation of aggregation between capital gains and losses does not have the virtue of altering or transmuting the nature of the underlying tax facts. What from this can be concluded is, only, that capital gains and losses achieved during the same year are declared at a single moment — in the annual IRS declaration — and that both compete for the determination of the final balance that will serve to determine and quantify the annual income subject to taxation in IRS.
In other words, the rule that provides for the necessary aggregation to calculate the balance between capital gains and losses in light of all the acts of transfer occurring in the year, constitutes a rule on the determination of the tax base for purposes of IRS, that is, a rule on the determination of taxable income, and not a rule on the incidence, as, moreover, emerges from the systematic organization of the IRS Code, where the reference to this balance is found inserted in the chapter dealing with the determination of taxable income and not in the chapter dealing with the incidence of the tax. And, as is obvious, the tax fact must be located in time in light of the respective rule of incidence, and not in light of the rule on the determination of taxable income.
In short, the positive balance that will be taxed is not confused with the tax fact itself. Such balance has relevance only for the reconciliation of taxable income and determination of the tax obligation that emerges (or not) for the taxpayer in the context of IRS, lacking relevance for the formation of the tax fact itself, as this, as has been seen, arises isolated in time, occurring by mere effect of obtaining the gain at the moment of each act of transfer of the moveable assets in question.
And the fact that IRS is a periodic tax by nature does not prevent it from being composed of income of instantaneous formation and income of successive formation. Indeed, while some income is, by the nature of its tax-generating fact, of successive formation over time, other income, such as the capital gains that fiscal law considers as capital gains taxable in Category G, come from operations individually performed or instantaneous, in which each tax-generating fact presents itself as autonomous and complete, that is, without the requirement of any subsequent fact or occurrence."
And further on "This Law no. 15/2010 is silent on what concerns the establishment of specific rules as to its application in time (…), limiting itself to prescribe that "This law enters into force on the day following its publication". Which cannot fail to represent a silent option of the legislator on this matter, especially as this issue, of the application in time of the legislative amendments that the diploma introduced in the taxation of capital gains, was raised and discussed in the framework of the parliamentary debate that preceded the approval of this Law.
Now, having the legislator opted not to regulate this matter, limiting itself to determining the date of entry into force of the diploma on the day following its publication, without establishing any rule that would allow its application to a prior taxation period, it is necessary, necessarily, to apply the general rule governing the application of substantive fiscal law in time, embodied in article 12 of the LGT, it being untenable to set aside such rule or general principle with the argument that there will be historical and genetic elements that allow inferring that the legislator would have intended the new law to apply to all the transfers made in the year 2010. For even if that was the initial will of the legislator, the fact is that it ended up not expressing and shaping it in the legislative text, and such leads, necessarily, to the application of the general principle on the application of tax law in time, according to which tax rules apply only to facts occurring after their entry into force.
Reason for which we consider that the applicable law is the law in force on the date of the occurrence of the instantaneous tax fact generating it. And there is no, in the case, any difficulty in locating this fact in time, as the transfer is dated (…), nor is there any question that arises as to the principle of the progressivity of the tax, as the consequence of the application of article 12, no. 1 of the LGT is the non-consideration of the capital gains in question for purposes of the taxation of the tax.
(…) And by all the above we judge to be clear that, in the case, there occurred the application of a new law to tax facts of an instantaneous nature already completely formed at a moment prior to the date of its entry into force, which involves an authentic retroactivity, because what for that purpose is relevant is not the moment of the assessment or the determination of the tax, but the moment in which occurs the tax fact that determines a possible assessment and payment of tax, as it is at that time that is required that the law be in force which provides for the creation or increase of the tax (in obedience to the principle of legality, in the aspect based on the principle of protection of legitimate expectation), so that the citizen can equate the fiscal consequences of his behavior."
As to the invocation of the figure of abuse of right by the Respondent, which argues, briefly, that the conduct of the Claimant is an accumulation of successive abuses of legal guarantees: (i) Use of a request for official revision to challenge a conduct of the Claimant that is manifestly contrary to the conduct previously assumed by it itself; (ii) Fraudulent use of a request for official revision, as a way to circumvent the non-exercise (or the non-exercise within the legal period) of the only legal guarantee that was applicable to the situation in question: the presentation of a substitute declaration, the error is exclusively attributable to the Claimant itself.
Also on this matter we follow the arbitral decision issued within proceedings 30/2016T, when it refers regarding the procedure used by the Claimant that "the aforesaid table was the only one suitable for this purpose, in light of Regulation no. 1303/2010, of 22 December, whereby there was no other for the effect and, thus, the Claimant did not induce the AT into any error.
Consequently, as the error is not attributable to the Claimant, it is imperative to conclude that there is no conduct that reflects that venire contra factum proprium"
Therefore, the reasoning argued by the Respondent on this matter is unfounded.
Thus and considering and following the case law cited or transcribed of the Supreme Administrative Court, equally highlighted within the framework of the aforementioned proceedings 30/2016T, the assessment in question is annulled, for erroneous interpretation and application of the aforementioned legal provisions of the CIRS, of Law no. 15/2010 and of the LGT.
Since the assessment in question is illegal, this illegality carries, in consequence, the illegality of the express and implicit denial of the request for official revision.
On the other hand, in light of the above, by manifest lack of utility we do not pronounce on the remaining arguments presented by the Claimant.
2.3. Of Compensatory Interest
As stated above, the Claimant made the full payment of the assessed tax, whereby it petitions for the refund of the same, as well as the payment of compensatory interest.
Also on this matter we follow the decision issued within proceedings 30/2016T by noting that "The provisions of articles 43 of the LGT and 61 of the CPPT establish that the right to compensatory interest depends on the verification of three requirements: i) the tax being paid; ii) the respective assessment having been annulled, totally or partially, in a gracious or judicial process; iii) it being determined, in a gracious or judicial process, that the annulment is based on error attributable to the services.
Now, it was the Claimant itself who entered in the IRS declaration relating to 2010 the value of the capital gains calculated, which can lead to the thesis of sibi imputet, with exclusion, therefore, of error attributable to the Services.
It is not judged, however, that it is thus, as has been demonstrated.
The model 3 declaration (with its respective annex G1, for capital gains not taxed), was amended to adapt to the legislative modification resulting from Law no. 15/2010. The said annex G1 ceased to contemplate the exclusion from taxation of capital gains resulting from the transfer of shares held for more than 12 months, except for transfers made in the years 2009 and prior. The instructions for completing the said annex G1 also clarify this: its respective table 4 is intended to declare the transfers made in the years 2009 and prior with respect to shares held by taxpayers for more than 12 months.
Thus, it is solely to the Respondent that is attributable the impossibility of any IRS taxpayer – like the Claimant – declaring in 2011 the transfers of shares held for more than 12 months that it made in 2010, before the entry into force of Law no. 15/2010. All the legal requirements for the right to compensatory interest are therefore met, in the manner petitioned by the Claimant. It remains to see from when such interest is counted.
No. 1 of article 43 of the LGT recognizes the right to the same when it is determined in a process of gracious reclamation or judicial challenge that there was error attributable to the services.
The request for official revision of the tax act is only equivalent to gracious reclamation, for this purpose, when presented within the period of the latter, as stated in no. 1 of article 78 of the LGT.
It is stated in the Decision of the Supreme Administrative Court of 12/7/2006, issued in case no. 402/06: «in cases of official revision of the assessment (when not made at the request of the taxpayer, within the period of administrative reclamation, a situation which is equivalent to that of gracious reclamation) (...) there is only a right to compensatory interest in accordance with art. 43, no. 3, of the LGT».
This regime is justified by the lack of diligence of the taxpayer in presenting gracious reclamation or request for revision within the period of the latter, as is provided for in no. 1 of article 78 of the LGT.
In these cases, the taxpayer has no right to compensatory interest from the date of the improper payment, but only from the date one year after having presented the request for revision of the tax act was completed, in accordance with paragraph c), no. 3, of article 43 of the LGT".
In the case in question, identical to the object of the arbitral decision issued within proceedings 30/2016T, the rule to which must be referred to the existence of the right to compensatory interest is paragraph c), no. 3, of article 43 of the LGT, which establishes that they are owed «when the revision of the tax act by initiative of the taxpayer is carried out more than one year after the request of this one, except if the delay is not attributable to the tax administration».
Thus and as follows from the facts established, the request for official revision was presented on 25/06/2015, whereby, only from 26/06/2016, more than one year after the filing of the request, is there a right to compensatory interest.
IV. Decision
In these terms the present Arbitral Tribunal agrees to:
-
Judge as unfounded the exception of untimeliness raised by the AT;
-
Judge the request for arbitral determination as well-founded and declare illegal the assessment of Income Tax on Natural Persons (IRS) with no. 2011..., issued by the Excellency the Director-General of the (then so-called) General Directorate of Taxes, by reference to the year 2010, which with the corresponding reconciliation (reversal of the refund resulting from the first tax assessment), resulted in an amount to pay of € 216,670.46 and, as well,
-
Annul the said assessment and, in consequence,
-
Annul the express denial of the request for official revision presented against the same;
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Judge as well-founded the requests for refund of the amount paid unduly and for payment of compensatory interest, from the date of payment, at the legal suppletive rate, on the amount to be refunded and until the date of issuance of the corresponding refund note and condemn the Tax and Customs Authority to make these payments.
V. Value of the Case
In accordance with the provisions of articles 306, no. 2, and 297, no. 2 of the CPC, of article 97-A, no. 1, paragraph a) of the CPPT and of article 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 216,670.46.
VI. Costs
In accordance with the provisions of articles 22, no. 4, and 12, no. 2, of the Legal Regime of Arbitration, of article 2, of no. 1 of article 3 and of nos. 1 to 4 of article 4 of the Regulation on Costs in Tax Arbitration Proceedings, as well as in Table I attached to this regulation, the total value of the costs is fixed at € 4,284.00.
Lisbon, 30 November 2016
The arbitrators,
Fernanda Maçãs
(presiding arbitrator)
André Bacelar Gonçalves
Jaime Carvalho Esteves
(arbitrator members)
[1] DIOGO LEITE CAMPOS/BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law – annotated and commented, 4th edition, Encontro da Escrita, 2012, p. 705.
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