Process: 27/2016-T

Date: June 29, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

This arbitral decision addresses a dispute over IRS assessment 2011... for the 2010 tax year involving capital gains taxation on share sales. The claimant challenged both the assessment and the tacit dismissal of an official review request (pedido de revisão oficiosa) filed on June 26, 2015, seeking annulment and reimbursement with compensatory interest. The case centers on shares in E.../I... S.A., initially acquired in 1983 and 1988 through capital contributions, then sold in 2000. The claimant declared the transactions in IRS Form 3 Annex G but did not file Annex G1, which calculates capital gains. The Tax Authority assessed capital gains based solely on the information provided. In its defense, the Tax Authority raised several procedural exceptions: omission of formality under Article 59 of the Tax Procedure Code (CPPT), time-barring of the official review request, absence of error attributable to tax services, and abuse of right given alleged contradictory conduct by the claimant. The fundamental issues include whether the assessment lacked proper legal basis (falta de fundamentação), how intertemporal tax law applies to capital gains from shares acquired before current IRS rules, and whether procedural time limits bar the official review. The arbitral tribunal, constituted under RJAT (Administrative Tax Arbitration Regime), determined it had jurisdiction and proceeded to analyze these preliminary exceptions before addressing the merits. The case illustrates critical aspects of Portuguese tax procedure including official review mechanisms, time-barring rules, the requirement for adequate legal basis in assessments, and taxpayers' rights to challenge assessments through administrative and arbitral proceedings while claiming compensatory interest for undue tax payments.

Full Decision

ARBITRAL DECISION

The arbitrators Cons. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Ricardo Marques Candeias and Dr. José Coutinho Pires (arbitrator-members), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-04-2016, agree as follows:

1. Report

A…, taxpayer no.…, with address at Rua…, no.…, …º, …-… Lisbon, hereinafter designated as Claimant, came, in accordance with the terms and for the purposes of article 2, no. 1, paragraph a), and article 10, no. 1, paragraph a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter designated as RJAT), to request the constitution of an Arbitral Tribunal with a view to declaring the illegality and annulment of the Personal Income Tax (IRS) assessment no. 2011…, relating to the year 2010, and also the decision of tacit dismissal of the request for official revision submitted against it, with reimbursement of the tax paid unduly in excess by the claimant, increased by the respective indemnity interest at the legal rate.

The respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 05-02-2016.

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 21-03-2016 the parties were duly notified of this appointment, having not manifested the will to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 06-04-2016.

The Tax and Customs Authority replied, raising the exception of omission of formality set forth in article 59 of the Code of Tax Procedure, and defending that the request for official revision should be declared time-barred, that it should be declared that there is no error attributable to the services, that the request for official revision and the request for arbitral ruling are in contradiction with the conduct previously assumed by the Claimant, and therefore constitutes abuse of right.

Subsidiarily, the Tax and Customs Authority understands that the request for arbitral ruling should be judged unfounded.

By order of 06-05-2016 the holding of a hearing was dispensed with and it was decided that the case would proceed with written pleadings.

The parties presented pleadings.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, enjoy legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same diploma and article 1 of Order no. 112-A/2011, of 22 March).

The case does not suffer from nullities.

The Tax and Customs Authority raises issues that may constitute obstacles to the assessment of the merits of the case, which must be assessed as a priority.

2. Matter of Fact

2.1. Proven Facts

On the basis of the elements contained in the file and in the administrative file attached to the records, the following facts are considered proven:

a) On 27-06-2011, the Personal Income Tax assessment no. 2011…, relating to the Claimant and referring to the year 2010, was issued (document no. 2 attached with the request for arbitral ruling, whose contents are deemed reproduced);

b) On 26-06-2015, the Claimant presented a request for revision of that assessment (document no. 1 attached with the request for arbitral ruling, whose contents are deemed reproduced);

c) Until 22-01-2016, no decision was issued on the aforementioned request for revision of the tax act;

d) In the Personal Income Tax Return Form 3, the Claimant entered in Box 8 of Annex G the onerous alienations of partnership shares and other securities, in the following terms:

e) The Claimant did not present Annex G1 to the said Form 3 return;

f) The Tax and Customs Authority made the assessment in accordance with the elements provided by the Claimant in the Form 3 return;

g) By public deed dated 28-06-1983, the CLAIMANT established, together with B…, C… and D…, the limited liability company "E…, Lda" (Documents nos. 3 and 4, attached with the request for arbitral ruling, whose contents are deemed reproduced);

h) At that date, the said company had a share capital fully subscribed and paid in the amount of 300,000$ (three hundred thousand escudos), which was divided into one share worth 200,000$ (two hundred thousand escudos), belonging to B…, and two equal shares worth 50,000$ (fifty thousand escudos) each, belonging to the CLAIMANT and C…. Shareholder B… would later divide her share into three new shares, retaining for herself a share of 50,000$ and transferring a share of 100,000$ (one hundred thousand escudos) to F… and a share of 50,000$ (fifty thousand escudos) to G… (documents nos. 3 and 4 attached with the request for arbitral ruling, whose contents are deemed reproduced);

i) By public deed of 20 December 1988, the share capital of E…, Lda. was increased from 300,000$ (three hundred thousand escudos) to 40,000,000$ (forty million escudos), through a contribution of 39,700,000$ (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$ (nineteen million eight hundred and fifty thousand escudos), by A…. and by C…, who are admitted as new shareholders (cf. Documents nos. 5 and 6, attached with the request for arbitral ruling, whose contents are deemed reproduced);

j) On 29-05-1996, the company E…, Lda. was transformed into a joint-stock company, becoming known as "I… S.A.", with share capital of 40,000,000$ (forty million escudos) and divided into 40,000 shares with a nominal value of 1,000$ (one thousand escudos) each (Documents nos. 7 and 8, attached with the request for arbitral ruling, whose contents are deemed reproduced);

k) On the same date, a capital increase of the I…, S.A. was carried out from 40,000,000$ (forty million escudos) to 200,000,000$ (two hundred million escudos), through a contribution of 160,000,000$ (one hundred sixty million escudos), carried out as follows:

– incorporation of revaluation reserves of fixed assets in the amount of 70,470,000$ (seventy million four hundred seventy thousand escudos), to be subscribed by each of the aforementioned shareholders, in the proportion of capital held by each;

– new contributions in kind of movable property, in the value of 18,130,000$ (eighteen million one hundred thirty thousand escudos), corresponding to 18,130 new ordinary shares, with a nominal value of 1,000$ each, subscribed and paid, in equal parts, by shareholders A… and C…;

– new cash contribution by the company J…, S.A., in the amount of 150,000,000$ (one hundred fifty million escudos), for subscription and payment of 71,400 ordinary shares with a nominal value of 1,000$ each (Documents nos. 9 and 10, attached with the request for arbitral ruling, whose contents are deemed reproduced);

l) On 27-07-2000, shareholders A… and C… sold, at their respective nominal value, all the shares they held in the company I…, S.A. – 127,772 shares, in the proportion of 50% for each, with a nominal value of 1,000$ per share (Document no. 11 attached with the request for arbitral ruling, whose contents are deemed reproduced);

m) With the redenomination of the share capital and shares into euros, the share capital of the company I…, S.A. became € 1,000,000 (one million euros), represented by 200,000 (two hundred thousand) shares, with a nominal value of € 5 (five euros) each, and the values of shareholdings in the company I…, S.A. became as follows:

a) A…– 21,434 shares, with a nominal value of € 107,170, corresponding to 10.717% of share capital;

b) F…– 21,434 shares, with a nominal value of € 107,170, corresponding to 10.717% of share capital;

c) B…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

d) C…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

e) G…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

f) K…- 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

g) J…, S.A. – 71,400 shares, with a nominal value of € 357,000, corresponding to 35.7% of share capital;

n) By purchase and sale agreement executed on 13 May 2003, shareholder J…, S.A. sold to the company I…, S.A. its 71,400 shares, corresponding to 35.7% of share capital (Document no. 12, attached with the request for arbitral ruling, whose contents are deemed reproduced):

o) The distribution of shareholdings in the company I…, S.A. became as follows:

a) A…– 21,434 shares, with a nominal value of € 107,170, corresponding to 10.717% of share capital;

b) F…– 21,434 shares, with a nominal value of € 107,170, corresponding to 10.717% of share capital;

c) B…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

d) C…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

e) G…– 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

f) K…- 21,433 shares, with a nominal value of € 107,165, corresponding to 10.7165% of share capital;

g) I…, S.A. – 71,400 shares, with a nominal value of € 357,000, corresponding to 35.7% of share capital.

p) Subsequently, the company I…, S.A. resolved:

i. To reduce the share capital of the company in the amount corresponding to € 357,000, through the extinction of the 71,400 treasury shares held by it;

ii. To cancel the discount on acquisition of extinct treasury shares through the allocation of € 892,500 of free reserves for that compensation;

iii. To increase share capital, in the amount of € 357,000, by incorporation of free reserves, through the issuance of 71,400 shares, allocated to shareholders in the proportion of their respective shareholdings.

q) The distribution of shareholdings in the company I…, S.A. became as follows:

a) A…– 33,334 shares, with a nominal value of € 166,670, corresponding to 16.667% of share capital;

b) F…– 33,334 shares, with a nominal value of € 166,670, corresponding to 16.667% of share capital;

c) B…– 33,333 shares, with a nominal value of € 166,665, corresponding to 16.6665% of share capital;

d) C…– 33,333 shares, with a nominal value of € 166,665, corresponding to 16.6665% of share capital;

e) K…– 33,333 shares, with a nominal value of € 166,665, corresponding to 16.6665% of share capital;

f) G…– 33,333 shares, with a nominal value of € 166,665, corresponding to 16.6665% of share capital;

r) On 24 May 2010, the shareholders of I…, S.A. alienated all the shares they held in this company – 200,000 shares with a nominal value of € 5.00 each, representing 100% of its share capital -, for the overall price of € 14,000,000 (Document no. 13, attached with the request for arbitral ruling, whose contents are deemed reproduced);

s) The participation of the CLAIMANT in the share capital of I…, S.A. – 33,334 shares, with a nominal value of € 166,670 - was sold for a price corresponding to € 2,333,380.00 (two million three hundred thirty-three thousand three hundred eighty euros) [€ 14,000,000 x 16.667%];

t) The price for the purchase of the shares (€ 14,000,000) was fully paid to the shareholders of I…, S.A.;

u) Of the alienations referred to in Annex G of the said Form 3 return, only those referred to in fields 809 and 810 of Annex G of Form 3 return relate to shares held for more than 12 months, with the one referred to in field 809 being considered at 50% of the value, because it concerns the transfer of shareholdings in a non-listed small company;

v) The alienations referred to in fields 802 and 804 of Box 8 of Annex G of Form 3 return relate to bonds (documents nos. 21 and 22 attached with the request for arbitral ruling, whose contents are deemed reproduced);

w) The balance between gains and losses realized until 27-07-2010, relating to shares held for more than 12 months and bonds, amounts to € 1,098,478.12 [€ 15,123.12 + € 1,083,355.00)];

x) In the assessment it made, the Tax and Customs Authority applied to the entire balance of gains and losses declared in Box 8 of Form 3 return the regime instituted by Law no. 15/2010, of 26 July, applying the rate of 20% to the entire positive balance between gains and losses determined by the Claimant in the course of 2010 (€ 1,103,324.71), having calculated the tax of € 220,664.95;

y) The Claimant made payment on 30-09-2011 of the amount of € 220,663.73, referred to in assessment no. 2011… (document no. 24 attached with the request for arbitral ruling, whose contents are deemed reproduced);

z) On 22-01-2016, the Claimant presented the request for constitution of the arbitral tribunal that gave rise to the present case.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

2.3. Justification of the Determination of the Matter of Fact

The proven facts are based on the documents attached by the Claimant with the request for arbitral ruling and are not disputed.

3. Matter of Law

3.1. Object of the Case

The Claimant, in the request for official revision, attributed to the contested assessment defects of lack of substantiation and omission of the right to be heard, in addition to arguing that, in light of the jurisprudence of the Supreme Administrative Court, "gains resulting from the alienation of shares held for more than twelve months, until the date of entry into force of Law no. 15/2010, of 26 July - 27 July 2010 -, benefit from the regime of exclusion from taxation provided in article 10, no. 2, of the Personal Income Tax Code".

The Claimant did not make any reference in the request for official revision to any substantive illegality of the assessment regarding gains resulting from alienation of bonds, and therefore it must be understood that no substantive defect was invoked regarding these gains, namely arising from the application of Law no. 15/2010, of 26 July.

Therefore, beyond the aforementioned defects of lack of substantiation and omission of legal formality, the case concerns only the assessment of the legality of the assessment regarding gains obtained from the alienation of shares before 26-07-2010.

The Claimant alienated shares of joint-stock companies before 27-07-2010 that he held for more than twelve months.

Before that date, the version of the Personal Income Tax Code resulting from Law no. 109-B/2001, of 27 December, and Decree-Law no. 228/2002, of 31 October, applied, in the following terms:

Article 10
Gains

1 - Gains consist of profits obtained which, not being considered business and professional income, capital income or real property income, result from:

(...)

b) Onerous alienation of partnership shares, including their redemption and amortization with reduction of capital, and of other securities, and as well as the value attributed to associates as a result of distribution which, in accordance with article 75 of the Corporate Income Tax Code, is considered as gain; (as amended by Law no. 109-B/2001, of 27 December)

(...)

2 - The following are excluded from the provisions of the preceding number:

a) Shares held by their holder for more than 12 months; (As amended by Decree-Law no. 228/2002, of 31 October)

b) Bonds and other debt securities. (As amended by Decree-Law no. 228/02, of 31-10)

Law no. 15/2010, of 26 July, repealed this no. 2, this Law having entered into force on 27-07-2010.

In light of this legislative context, the Tax and Customs Authority understood in the contested assessment that the gains resulting from alienations of shares held for more than 12 months occurring in the year 2010 are subject to taxation in Personal Income Tax, even though the alienations occurred before the publication of the said Law no. 15/2010, and applied the rate of 20% provided in article 72, no. 4, of the Personal Income Tax Code as amended by that Law, to the entire balance of gains and losses resulting from those alienations.

The Supreme Administrative Court issued several decisions contrary to this understanding of the Tax and Customs Authority, including through the Standardising Decision no. 5/2015, of 16-09-2015, decided in case no. 1292/14, published in the Official Journal, I Series, of 26-10-2015, in which it was decided that "gains resulting from acts of alienation of shares held for more than 12 months that occurred before the entry into force of Law no. 15/2010, of 26 July, particularly in the period between 1 January and 26 July 2010, continue to follow the legal regime of non-subjection to taxation provided in no. 2, paragraph a), of article 10 of the Personal Income Tax Code, and, as such, do not contribute to the formation of the annual taxable balance of gains referred to in article 43 of the Personal Income Tax Code".

In light of the authority of the Supreme Administrative Court and the fact that the jurisprudence was adopted unanimously in a standardising decision, this jurisprudence should be upheld, which, moreover, is mandatory for the Tax and Customs Authority, in light of article 68-A, no. 4, of the General Tax Law, in which it is established that "the tax administration must revise the generic guidelines referred to in no. 1 taking into account, in particular, the jurisprudence of the superior courts".

Thus, despite there being good reasons to disagree with the jurisprudence of the Supreme Administrative Court, which was given relevance in various arbitral decisions, it must be concluded from the issuance of a standardising decision issued unanimously that, from a legislative perspective, the time for discussion of the issue by the courts has passed and there is a duty to follow the standardised jurisprudence, whether by the Tax and Customs Authority or by the Courts, thus implementing "a uniform interpretation and application of law" (article 8, no. 3, of the Civil Code), required by the principle of equality (article 13 of the Constitution of the Portuguese Republic).

Therefore, it must be presumed that the said assessment suffers from error as to the legal presuppositions by applying the new regime of taxation to gains resulting from alienations of shares held for more than 12 months occurring before 27-07-2010.

It is in light of this presumption that the issues raised by the Tax and Customs Authority as obstacles to the application of this understanding to the situation in this case must be assessed.

3.1. Failure to Comply with Article 59 of the Code of Tax Procedure

The Tax and Customs Authority understands that, if official revision of the tax act is to be viable, the submission of a replacement declaration is necessary in accordance with article 59 of the Code of Tax Procedure.

However, as results from article 78 of the General Tax Law, the revision of tax acts does not depend even on the initiative of taxpayers, and can be carried out "on the 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 grounds of error attributable to the services" (no. 1 of this article).

On the other hand, from no. 7 of the same article it can be concluded that, although the revision is called "official", the taxpayer can initiate the revision by the Tax and Customs Authority through a request for its execution, which is confirmed by no. 1 of article 49 of the General Tax Law when it refers to "request for official revision of the tax assessment".

Thus, there is no legal basis for making official revision requested by petition dependent on the prior submission of a replacement declaration.

3.2. Question of Timeliness of the Request for Official Revision

The Tax and Customs Authority argues that the request for official revision was submitted out of time.

In accordance with no. 1 of article 78 of the General Tax Law, the revision of the tax act on the initiative of the tax administration can be made within four years after the assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services.

This is the applicable period and not the three-year period provided in no. 4 of the same article, which refers to the revision of the taxable matter and not illegalities arising from the applicable legal regime.

The assessment was made on 27-06-2011 and the request for official revision was submitted on 26-06-2015, before the four-year period elapsed.

On the other hand, the submission of the request for official revision caused the period for conducting the revision to be interrupted, as results from the provision in article 78, no. 7, of the General Tax Law.

Therefore, if there is an error attributable to the services, it must be concluded that the request for official revision was timely submitted.

3.3. Question of Non-existence of Error Attributable to the Services

An error affecting an assessment act is attributable to the services when it is not attributable to the taxpayer.

The error will be attributable to the taxpayer, in particular, when the taxpayer omits information or provides incorrect information about the facts on which taxation is based, or fails to satisfy any requirement of a declaratory nature by appropriate means.

In the case at hand, the Claimant declared alienations of shares occurring before July 2010 in fields 809 and 810 of Box 8, relating to "ONEROUS ALIENATION OF PARTNERSHIP SHARES AND OTHER SECURITIES - Article 10, no. 1, paragraph b) of the Personal Income Tax Code", and therefore made the declaration in exact terms.

On the other hand, the fact invoked, as potentially leading to a conclusion of error attributable to the taxpayer by the Tax and Customs Authority, that these alienations were not indicated in Annex G1 to Form 3 return, relating to "Non-taxed Gains", cannot have that effect.

In fact, as the Claimant correctly notes, Order no. 1303/2010, of 22 December, which approved the models of annexes to Form 3 return to be used for the year 2010, expressly indicates that only the onerous alienation, in 2009 or prior years, of shares held for more than 12 months should be indicated in Annex G1, in the following terms:

"This annex is intended to declare the onerous alienation of real property not subject to taxation, in accordance with no. 4 of article 4 and article 5 of Decree-Law no. 442-A/88, of 30 November, as well as the alienation of real property to real estate investment funds for residential rental (FIAH) and real estate investment companies for residential rental (SIIAH) covered by the special regime approved by article 102 and following of Law no. 64-A/2008, of 31 December, and also the onerous alienation, carried out in the years 2009 and prior, of shares held for more than 12 months".

Thus, it must be concluded that, by including the references to the alienations in question in Box 8 of Annex G, the taxpayer did not omit any declaratory duty arising from the rules applicable to Form 3 return, and therefore no error attributable to the taxpayer occurred.

Therefore, the error embodied in the application of a regime that is considered illegal, in light of the aforementioned standardised jurisprudence, is attributable to the Tax and Customs Authority, which had the relevant elements to apply the regime adopted by it.

3.4. Question of Abuse of Rights

The Tax and Customs Authority imputes to the Claimant "venire contra factum proprium" [contradiction with prior conduct], because the Claimant was the one who declared the alienations in question in Box 8 of Form 3 return and subsequently came to contest the assessment made on the basis of his declaration.

However, as results from what has already been said, it was precisely that box which was appropriate for that purpose, in light of Order no. 1303/2010, and therefore the taxpayer did not mislead the Tax and Customs Authority, it being the latter that, having the necessary elements, should, in light of the aforementioned standardised jurisprudence, have made the assessment differently.

Therefore, since the error in which the assessment suffers is not attributable to the Claimant, it must be concluded that the conduct of the Claimant cannot be considered to embody "venire contra factum proprium".

3.5. Question of Lack of Substantiation of the Assessment and Violation of the Right to Be Heard

As results from the express wording of article 78, no. 1, of the General Tax Law, official revision is only viable in cases of error attributable to the services, which excludes the relevance of procedural and formal defects of assessment acts, which do not fit within the concept of "error", which encompasses only error as to the factual presuppositions and error as to the legal presuppositions.

Therefore, the procedural and formal defects imputed by the Claimant cannot justify the revision of the assessment.

The request for arbitral ruling is therefore unfounded as to the request for declaration of illegality and annulment on the grounds of these defects.

3.6. Question of the Illegality of the Assessment and the Tacit Dismissal of the Request for Official Revision

Given that the aforementioned jurisprudence of Standardising Decision no. 5/2015 should be upheld, it must be understood that "gains resulting from acts of alienation of shares held for more than 12 months that occurred before the entry into force of Law no. 15/2010, of 26 July, particularly in the period between 1 January and 26 July 2010, continue to follow the legal regime of non-subjection to taxation provided in no. 2, paragraph a), of article 10 of the Personal Income Tax Code, and, as such, do not contribute to the formation of the annual taxable balance of gains referred to in article 43 of the Personal Income Tax Code".

In the case at hand, the alienations referred to in fields 809 and 810 of Box 8 of Form 3 return occurred in the period between 1 January and 26 July 2010 and relate to shares held for more than 12 months, and therefore it must be concluded that they are illegal for purposes of Personal Income Tax assessment, as they were excluded from taxation.

Therefore, the contested assessment suffers from error as to the legal presuppositions, by violation of paragraph a) of no. 2 of article 10 of the Personal Income Tax Code.

Consequently, the tacit dismissal of the request for official revision suffers from the same defect.

This defect justifies the declaration of illegality of the assessment, in the part corresponding to the taxation of gains obtained from the alienation of shares indicated in fields 809 and 810 of Form 3 return, as well as the respective annulment, in that part (article 163, no. 1, of the Administrative Procedure Code of 2015, subsidiarily applicable in accordance with article 2, paragraph c), of the General Tax Law).

4. Indemnity Interest

The Claimant requests reimbursement of the amount paid and indemnity interest.

As a consequence of the partial annulment of the assessment, there is entitlement to reimbursement of the amount unduly paid.

No. 1 of article 43 of the General Tax Law recognizes the right when it is determined in a procedure of voluntary remedy or judicial challenge that there was error attributable to the services.

The request for revision of the tax act is equivalent to a voluntary remedy when submitted within the period of the administrative complaint referred to in no. 1 of article 78 of the General Tax Law, as referred to in the decision of the Supreme Administrative Court of 12-7-2006, decided in case no. 402/06.

As also referred to in the same decision, "in cases of official revision of the assessment (when not made at the request of the taxpayer, within the period of the administrative complaint, a situation which is equivalent to that of voluntary remedy) (...) indemnity interest is only due in accordance with article 43, no. 3, of the General Tax Law".

This regime is justified by the lack of diligence of the taxpayer in submitting a voluntary remedy or request for revision within that period, as provided in no. 1 of article 78 of the General Tax Law.

In these cases, the taxpayer does not have the right to indemnity interest from the date of the unduly payment, but only from the date on which one year after submitting the request for revision of the tax act has elapsed, in accordance with the aforementioned paragraph c) of no. 3 of article 43 of the General Tax Law.

In the case at hand, the standard by which the entitlement to indemnity interest must be assessed is paragraph c) of this no. 3 of article 43 of the General Tax Law, which establishes that it is due "when the revision of the tax act on the initiative of the taxpayer takes place more than one year after the request, unless the delay is not attributable to the tax administration".

As results from the matter of fact established, the request for official revision was submitted on 26-06-2015, and therefore only from 27-06-2016, a date more than one year after the submission of the request, is there entitlement to indemnity interest.

The indemnity interest is due at the supplementary legal rate, in accordance with articles 43, no. 4, and 35, no. 10, of the General Tax Law, article 559 of the Civil Code and Order no. 291/2003, of 8 April.

The amount to be reimbursed and the indemnity interest shall be calculated in execution of this decision.

5. Decision

Therefore, this Arbitral Tribunal agrees as follows:

– to judge unfounded the issues raised by the Tax and Customs Authority as obstacles to the assessment of the merits of the case;

– to judge well-founded the request for arbitral ruling and to declare illegal the Personal Income Tax assessment no. 2011…, in the part which had as its basis the gains obtained from alienations of shares occurring before 27-07-2010 indicated in fields 809 and 810 of Box 8 of Annex G of Form 3 return submitted by the Claimant for the year 2010;

– to annul assessment no. 2011… in that part declared illegal;

– to judge well-founded the requests for reimbursement of the amount unduly paid and for payment of indemnity interest, from 27-06-2016, at the supplementary legal rate, on the amount to be reimbursed, and to condemn the Tax and Customs Authority to make these payments.

6. Value of the Case

In accordance with the provisions of article 306, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, paragraph a), of the Code of Tax Procedure and no. 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 220,663.73.

7. Costs

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 4,284.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Lisbon, 29-06-2016

The Arbitrators

(Jorge Lopes de Sousa)

(Ricardo Marques Candeias)

(José Coutinho Pires)

Frequently Asked Questions

Automatically Created

What is a pedido de revisão oficiosa and how does it apply to IRS capital gains tax in Portugal?
A pedido de revisão oficiosa (official review request) is an administrative remedy under Article 78 of the Tax Procedure Code (CPPT) allowing taxpayers to request the Tax Authority to review and correct tax acts containing errors of law or fact attributable to tax services. In IRS capital gains taxation, this mechanism enables taxpayers to challenge assessments when the Tax Authority incorrectly calculated gains from asset sales, such as share disposals. The taxpayer must demonstrate that an error exists and is attributable to tax services, not to incorrect information provided by the taxpayer. In this case, filed on June 26, 2015, the claimant sought revision of a 2010 IRS assessment related to capital gains from share sales, arguing the assessment lacked proper legal basis. The official review can lead to full or partial annulment of the assessment if the Tax Authority or arbitral tribunal finds merit in the claim. If the Tax Authority does not decide within the statutory period, the silence constitutes tacit dismissal, which can then be challenged through arbitral or judicial proceedings.
Can the Portuguese Tax Authority reject an official review request as time-barred under Article 59 of the CPPT?
Yes, the Portuguese Tax Authority can argue that an official review request is time-barred under Article 59 of the CPPT, which establishes specific time limits for administrative procedures. However, the applicability and calculation of these time limits depend on when the error became known and whether it is attributable to tax services. The Tax Authority raised this exception in the present case, arguing the official review request filed in June 2015 regarding a 2010 assessment (issued June 27, 2011) exceeded applicable time limits. The general rule requires official review requests to be filed within four years from the date the tax act became definitive or when the taxpayer became aware of the error. The arbitral tribunal must analyze whether this time limit applies, considering that official review is only available for errors attributable to tax services, not taxpayer errors. If the tribunal determines the error resulted from information provided by the taxpayer rather than a mistake by tax services, it may find the official review procedurally inappropriate regardless of time-barring, as the proper remedy would be a complaint (reclamação graciosa) under different provisions.
How does the principle of application of law over time affect IRS capital gains taxation in Portugal?
The principle of application of law over time (aplicação da lei no tempo) is crucial in IRS capital gains taxation, particularly for assets acquired before significant tax regime changes. Portuguese law generally applies the tax legislation in force when the taxable event occurs—typically when the sale or disposal takes place. However, for capital gains calculation, the acquisition cost and value must be determined according to rules that may have changed between acquisition and disposal. In this case, the shares were acquired in 1983 and 1988 through various capital contributions and increases, then sold in 2000, with taxation occurring for the 2010 tax year. The tribunal must determine which legal framework governs: the rules applicable at acquisition, at sale, or at assessment. Transitional provisions often protect taxpayers by establishing special regimes for assets acquired before certain dates, potentially exempting pre-1989 acquisitions or requiring inflation adjustments. The correct intertemporal application can significantly impact taxable gain calculations, as older acquisition costs may benefit from revaluation coefficients or exemptions no longer available for recent acquisitions. Misapplication of intertemporal rules constitutes a legal error justifying assessment annulment.
What constitutes lack of legal basis (falta de fundamentação) in a Portuguese IRS tax assessment?
Lack of legal basis (falta de fundamentação) in a Portuguese IRS tax assessment occurs when the Tax Authority fails to provide sufficient legal and factual justification for its decision, violating constitutional and statutory requirements for reasoned administrative acts. Under Article 77 of the Tax Procedure Code and Article 268 of the Portuguese Constitution, tax assessments must clearly state the facts considered, the legal provisions applied, and the reasoning connecting facts to legal conclusions. In capital gains cases, proper legal basis requires the Tax Authority to specify how it calculated the acquisition cost, the sale price, allowable deductions, and applicable exemptions or reductions, citing relevant IRS Code provisions. An assessment lacks adequate legal basis when it merely states a tax amount without explaining the calculation methodology, fails to address arguments presented by the taxpayer, or does not identify which legal provisions justify the taxation. In this case, if the assessment was issued based solely on Annex G data without analyzing the actual acquisition costs, share capital increases, and applicable tax regime for shares held since 1983-1988, it may constitute inadequate legal basis. This defect renders the assessment voidable and justifies annulment through official review or arbitral challenge.
Can a taxpayer claim compensatory interest (juros indemnizatórios) after a successful arbitral challenge to an IRS assessment?
Yes, taxpayers can claim compensatory interest (juros indemnizatórios) after successfully challenging an IRS assessment through arbitral proceedings, as provided in Article 43 of the General Tax Law (LGT). Compensatory interest is payable when the State unduly retains taxpayer funds due to illegal tax collection or delayed refunds. The right arises when: (1) the taxpayer paid tax pursuant to an illegal assessment later annulled; (2) the payment occurred without legal basis; and (3) a period exceeding the statutory deadline for refunds has elapsed. The interest rate is legally fixed and calculated from the date of undue payment until actual reimbursement. In this arbitral case, the claimant expressly requested reimbursement of tax paid unduly in excess plus compensatory interest at the legal rate. If the arbitral tribunal annuls the assessment and determines the taxpayer paid more than legally owed, compensatory interest becomes mandatory, not discretionary. The Tax Authority cannot refuse payment merely because the excess resulted from administrative error or assessment annulment rather than taxpayer overpayment. This mechanism ensures taxpayers are fully compensated for the financial prejudice of having funds illegally withheld, reinforcing legal certainty and protecting against arbitrary taxation. The arbitral decision must specify the amount subject to reimbursement and order calculation of compensatory interest from the payment date.