Summary
Full Decision
ARBITRAL DECISION
The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority on 27-04-2017. In accordance with the provisions of paragraph a) of n.º 2 of article 6.º and paragraph b) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of January 20, as amended by article 228.º of Law n.º 66-B/2012, of December 31, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the office and notified the parties of this appointment on 12-06-2017. Thus, in accordance with the provision of paragraph c) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of January 20, as amended by article 228.º of Law n.º 66-B/2012, of December 31, the Arbitral Tribunal was constituted on 03-07-2017, following the regular procedure.
I – REPORT
1- On 18-04-2017, the taxpayer A…, NIF …, and B…, taxpayer …, resident in …, …, …, …, United Kingdom, filed a request for constitution of the single arbitral tribunal, pursuant to the combined provisions of articles 2.º and 10.º of Decree-Law n.º 10/2011, of January 20 (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), against the Tax and Customs Authority.
2- The Requesters come to challenge the assessment of Personal Income Tax (IRS), for the fiscal years 2013 and 2014, of which they were notified as follows:
- IRS assessment act n.º 2016…, (compensatory interest assessment act n.º 2016… and Account Settlement Statement n.º 2016…), relating to the year 2013 from which resulted an amount payable of € 6.072,08;
- IRS assessment act n.º 2016…, (compensatory interest assessment act n.º 2016… and Account Settlement Statement n.º 2016…), relating to the year 2014, from which resulted an amount payable of € 9.623,05.
All in the total amount of € 15.695,14.
3- The Requesters request that this Tribunal rule on the said assessments, declaring their annulment, as being illegal, invoking:
- Defect of lack of reasoning
- Defect of violation of law due to errors in the factual and legal grounds, insofar as the income earned was considered as falling within category F and not within category B of IRS.
- Alternatively, even if it were admitted that the income obtained by the Requesters were income from Category F, the expenses incurred by the Requesters for maintaining the source of such income should be taken into account.
4- THE REQUESTERS ALLEGE, in summary…
In not sustaining in the Conclusions of the Final Tax Inspection Report, in a clear and unequivocal manner, the facts upon which they based themselves to conclude that the income earned by the Requesters was income from category F, they failed to comply with the legal duty, constitutionally enshrined, of express, clear and full reasoning of decisions which are incumbent upon them, and therefore, the contested tax acts should be annulled.
On the other hand
It follows from the provision of paragraph a) of n.º 1 of article 3.º and paragraph h) of n.º 1 of article 4.º, both of the IRS Code, that the income earned by the Requesters is, in fact, income from Category B of the IRS Code and not income from Category F.
Within the scope of paragraph a) of n.º 1 of article 3.º of the IRS Code, as the legislator used the term "activity" without delimiting (restrictively) its scope, it is evident that it intended to include all income obtained, in any way, from direct exploitation or through the contracting of services to obtain such income.
It is therefore verified that "activity" for purposes of taxation under Category B should not be limited – when the legislator did not do so – to the consideration of operational activity, excluding those who obtain income as a result of the cessation of exploitation and consequent contracting of services, as occurred in the present case.
For the Requesters, the term "activity" also comprises the set of operations whose purpose is the realization of investments and the choice of the appropriate form of management, which in the present case becomes even more pertinent, considering that the Requesters are non-resident taxpayers.
The position and restrictive interpretation carried out by the Tax Administration lacks legal foundation, since, having regard to the legal concept of activity, it must necessarily be concluded that the income in question must be taxed under paragraph a) of n.º 1 of article 3.º of the IRS Code and not under the terms of n.º 2 of article 8.º of the same instrument.
It appears, therefore, illegitimate and illegal that the Tax Administration intends to tax the income earned by the Requesters under paragraph a) of n.º 1 of article 3.º of the IRS Code (Category B) according to paragraph a) of n.º 2 of article 8.º of the same instrument (Category F), through its own interpretation contrary to law regarding the exercise of activity.
Thus, because the contested tax acts are based on an interpretation contrary to law, they should be annulled as manifestly illegal.
Even if it were admitted that the income obtained by the Requesters is income from Category F of the IRS Code, but without conceding, the reality is that the taxable income of the Requester would never be in the value determined by the Tax Inspection Services in the course of tax inspection, since the position taken in the Inspection Report did not account, for all legal purposes, to the totality of expenses incurred by the Requesters in maintaining the source of the said income.
In addition to expenses inherent to insurance, security, etc., the costs relating to cleaning, gardening, electricity, water, gas, repairs and painting should also be considered. Such expenses should be deducted from the taxable income as they are essential expenses for obtaining the said income.
5- The Tax and Customs Authority (AT) argues that the assessments in question embody a correct interpretation and application of law to the facts and do not suffer from a defect of violation of law, and consequently, the total lack of merit of the request should be declared, maintaining the act and absolving it of the request.
Regarding the alleged lack of reasoning of the corrections now under scrutiny, it must be disagreed with the understanding sought by the Requesters, not least because, from the reading of the inspection report, it results that an average person, placed in the position of recipient, is able to understand its meaning and conclusion.
In the present case, the AT understands that the reasoning is sufficiently clear and unequivocal, all the more so because the Requester, by means of the present request for arbitral ruling, admits and demonstrates, in light of the arguments set forth throughout its pleading, to have fully understood the factual and legal framework upon which the Respondent's decision was based, attempting to refute its action and imputing defects to the AT's arguments.
Furthermore, the AT argues
Insofar as income relating to the cession of use of the property or part thereof is concerned, the amounts received by the owners, as consideration for the cession of use of the apartments, are considered real property income, in accordance with the provision of paragraph a) of n.º 2 of article 8.º of the IRS Code regardless of the fact that the amount received is not fixed.
Contrary to what was alleged and concluded by the Respondent, it is not the owners who exploit their tourist apartments, as stated in the "contract for cession of tourist exploitation of the unit …": - "…The first party hereby grants to the manager exclusive authorization to exploit the unit for its own account, according to the rates it freely establishes,…" …
In this way the income that the Requesters earn derives in a purely passive manner, as a result of the pursuit of a commercial activity by another company, whereby the income earned derives from the availability to third parties of the property, whereby they are classified in category F of IRS as property income.
Regarding the claimed acceptance of all expenses with staff salaries, cleaning, electricity, gas and water, which were not considered in the inspection procedure, it submits that "pursuant to article 41º n.º 1 of the IRS Code, as worded at the date of the facts, …to the gross income referred to in article 8.º are deducted the maintenance and conservation expenses that are incumbent on the taxpayer, incurred by him and found to be documentally proven, as well as the municipal property tax and the stamp duty that falls on the value of the properties or part of properties whose income is subject to taxation.
Therefore, the expenses mentioned by the Requesters do not constitute conservation expenses nor, indeed, maintenance expenses". And that "on the other hand, and as regards expenses with salaries and cleaning, it follows from the cession contract that these charges are the responsibility of the Manager, which means that they are not the responsibility of the Requesters".
II- The proceedings do not suffer from nullities.
III- There is no obstacle to consideration of the merits of the case.
IV- FACTUAL MATTERS
1- On 2016.08.30, an OI n.º OI2016…/ …/… was opened, determined by order of the Director of Finance of Faro, for the purpose of monitoring property rental, and had partial scope in IRS, as provided in paragraph b) of n.º 1 of article 14.º of the Supplementary Regime of Tax and Customs Inspection Procedure (RCPITA), extending to the years 2012, 2013 and 2014.
2- As a result of the Inspection, corrections were found to taxable income of IRS, of a purely arithmetic nature, in the amounts of -373,08€, 19.548,13€ and 32.790,09€ in the years 2012, 2013 and 2014 respectively, arising from rental income related to properties located in national territory.
3- Requester A…, NIF … is registered in "CAE 55123 – Tourist Apartments without Restaurant" since 30-06-2008, being framed in the Normal quarterly VAT system and in the Organized Accounting regime by Option in IRS.
Requester B…, NIF …, appears as Passive Subject B in the Income Declaration referred to the years under analysis.
4- The Requesters are non-resident taxpayers on national territory, having as representative C… NIF … with tax address in … … – … Quarteira and as VAT representative the company D… Lda NIF … with headquarters in Rua …, …, …, … – … Quarteira.
5- The Requesters are owners of the urban property registered in the urban property matrix of the Union of parishes of … and … under article … fraction "A", located in "…", which they acquired from E… SA NIF … .
6- Between the Requesters and the selling company was signed a contract for cession of tourist exploitation of the unit …, pursuant to which a commercial company would be established for the management of the "…", a situation which came to take place with the establishment of the company "F… SA", NIPC … .
7- The Requesters granted F… exclusive authorization to exploit for tourism and for its own account, the apartment of which the Requesters are owners.
8- The Requesters mandated the company F… to in its own name and for its own account receive the remuneration relating to the exploitation of its property, the same being entitled to retain 25% of the gross revenue of the respective exploitation.
9- Within the scope of the said Tourist Exploitation Program, the managing entity (F…) was obliged to manage, on behalf of the Requesters, the operational aspects (current management) inherent to the tourist exploitation of the apartments above identified, namely dealing with the collection of payments due, collection of expenses and management of reserves, determination of rates.
10- The managing entity (F…) was also responsible for the general administration services of the units. The nature and object of these services to be provided in this scope shall be determined by the manager and include accounting, sales and marketing, travel agency costs and/or commissions of tourist operators and their incurred expenses, expenses with services related to the Tourist Exploitation Program and expenses for reception services and other expenses related to it.
11- Within the scope of "general unit administration services," the managing entity (F…) agreed to carry out routine maintenance services that it freely considered necessary to keep the units appropriate for guest occupancy, namely routine maintenance, such as changing light bulbs, unblocking toilets, restoring/connecting circuits, and maintenance of gardens and landscaping.
12- The managing entity (F…) would further handle the cleaning and arrangement services of the units, namely providing household linens and cleaning of the units, emptying garbage, changing towels, kitchen cloths and bed linens, daily arrangement of the kitchen, dining and living rooms, bathroom and bedrooms (such as dish washing, cleaning counters, sweeping floors, dusting, vacuuming, cleaning mirrors, and making beds) and also cleaning after guest departure and annual cleaning.
13- The exploitation contract was performed according to the agreed terms.
14- The owners had no intervention in obtaining licensing.
15- The tax was paid in the amounts assessed.
V- Proven facts and their reasoning
With regard to the factual matters, the Tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to discriminate between the proven and unproven facts (see art.º 123.º, n.º 2, of CPPT and article 607.º, n.º 3 of CPC, applicable ex vi article 29.º, n.º 1, paragraphs a) and e), of RJAT).
In this way, the facts relevant to the judgment of the case are chosen and delineated according to their legal relevance, which is established having regard to the various plausible solutions of the legal question(s) (see former article 511.º, n.º 1, of CPC, corresponding to the current article 596.º, applicable ex vi article 29.º, n.º 1, paragraph e), of RJAT).
All documents attached to the proceedings, in the various phases of the proceeding, by
the Requesters were analyzed and taken into account in the assessment of the evidence.
Testimonial evidence carried out in the course of proceedings n.º 271/2017-T was not considered, as requested, for the reasons set forth in the Arbitral Order that rejected this type of evidence in the present proceedings.
Thus, having regard to the positions taken by the parties, in light of article 110.º/7 of CPPT and the documentary evidence attached to the proceedings, it was considered proven, with relevance to the decision, all the facts listed above, with no factual matter given as unproven.
VI- LAW
The disputed points in the present arbitral action, which require ruling, concern the following questions:
- Whether there is understanding that the Tax Inspection Report and, consequently, the contested assessment acts, suffer from the defect of lack, incongruity or insufficiency of reasoning.
- To ascertain whether the income earned by the Requesters constitutes income from category B of IRS (as they allege) or whether the same should, instead, be qualified as income from category F of IRS, (according to the understanding of the Respondent).
- Alternatively, to know whether, under Category F, all expenses incurred by the Requesters for the property generating the said income can be deducted.
The questions stated have already been dealt with, to our knowledge, in two proceedings (of identical object) of this CAAD, resulting, nevertheless, in contradictory understanding in the decisions handed down, converging, however, in the lack of merit of the argument of lack of reasoning, a position with which we agree.
a- In fact, it has been prevailing jurisprudence that, as the Respondent maintains, the reasoning of acts in tax matters such as assessments or Inspection Reports must, in fact, be sufficient, containing the necessary, apt and suitable requirements to support its occurrence.
The Tax Services must therefore verify and weigh all elements so that the concrete reasoning is sufficient to reveal deliberative reflection on the interests and points of view in conflict and the choice or option made.
Insufficient reasoning is equivalent to lack of reasoning because it does not ensure justification of the action or corrections made.
However, it is not just any apparent lack of clarity, congruity or sufficiency of reasoning that leads to considering that the procedure is not reasoned. The defect of reasoning must be such that it is impossible, or at least difficult, to understand the act and its reasoning.
Regarding the subject of reasoning, the jurisprudence of the Supreme Administrative Court (STA) has uniformly held that the reasoning of an act is a relative concept that varies according to the type of act and the circumstances of the specific case.
Now, in the case under analysis, the reasoning of the Tax Inspection Report upon which the contested assessments are based is presented sufficiently clear and unequivocal, enabling a normal recipient to know and understand the cognitive and evaluative itinerary followed by the authors of the act, that is, it enables, in manifest manner, knowing the reasons and understanding the reasons that led to the decision and manner of procedure.
As can be seen, the Requesters, in the arguments presented, reveal having fully understood the factual and legal framework upon which the Respondent's decision was based.
As is well noted in one of the judgments referred to:
One may not agree with the reasoning in itself, but the factuality that occurred is reflected in the Inspection Report and also in the reading that the AT draws from the application of the law to those facts. We do not see how it can be considered that n.º 3 of article 268º of the CRP and article 77º of the LGT, regarding the duty of reasoning of the inspection report and of the assessment acts, were not complied with.
A different question would be the possible incongruity that one might wish to impute to the reading of law carried out there, which would have to do with the verification of possible inconsistency in relation to law, pursuant to paragraph a) of article 99º of CPPT.
Also, this STA does not see how it can be considered that there is insufficient reasoning. The reasoning in question allowed the Requesters to act through an extensive request for arbitral ruling, with no evidence that their defense rights were called into question or that it did not allow them to understand the reasoning adopted by the AT that led to the additional assessments.
THEREFORE, in this part, the Requesters' argument is without merit.
b- Regarding what concerns the true question that requires taking a position and ruling, that is the alleged violation of law due to error in the factual and legal grounds - due to the qualification of the income earned - the same, as was said, was subject to treatment in two proceedings of this CAAD, with identical factuality, resulting in contradictory understanding in the decisions handed down:
Proc. n.º 271/2017-T
(…) As can be drawn from the content of the official form model (which, as is well known, is presumed to contain the correct reading and application of law), the framing of the Finance Service where the declaration is filed allows the AT to disregard an incorrect framing requested by the taxpayer. Only in case of consonance between what is requested and the AT's assessment, will a given registration produce effects between the taxpayer and the AT, in light of the principles that govern the relations between taxpayers and the Tax Administration.
In the case here under discussion, the framing communicated by the Requesters has subsisted at all times and to the present date.
…The question of the framing, in concrete terms, of the Requesters in the Taxpayer Registration Management System was analyzed in 2010, with regard to a VAT refund request, by the VAT Services Department, and it was concluded in the sense of confirming its correct registration, the AT not applying the VAT exemption norm (article 9º n.º 29) of CIVA).
There is at least one situation that may have some parallelism with what is discussed here, of harmonization of the rules of incidence of a tax, with the regime of VAT exemptions. It would be the case of the exemption regime for financial operations enshrined in n.º 27) of article 9º of the VAT Code. Financial operations are either subject to VAT (because not exempt from it under n.º 27) of article 9º of CIVA), or, being exempt from VAT, are subject to stamp duty, as results from n.º 2 of article 1º of the Stamp Duty Code, combined with item 17 of the General Table of Stamp Duty.
The same reasoning may be applied in the case here under discussion, to help find coherence and harmonization between the incidence regimes (and the exemptions) of the two taxes, in this case VAT versus IRS, and in the situation here under discussion, it appears to us that the regime established in VAT seems should determine the regime to be applied in terms of qualification of income at the level of IRS (category B or category F).
Concluding, in terms of integration of the concrete income earned by the Requesters, as the AT concluded in 2010 and as it concluded when it accepted the registration of commencement or alteration of activity, it will be considered that this income will be taxable in IRS, according to the regime of paragraph a) of n.º 1 of article 3º and paragraph h) of n.º 1 of article 4º, both of the IRS Code (income from category B).
....Although in its submissions, the AT comes to express that the binding information from which the above-mentioned text resulted, was taken in a situation that has no parallelism with the situation here at issue, the truth is that the reasoning expended there seems to be applicable to the situation under discussion in this proceeding.
Now, this position is only configured, in the analysis of this STA, as consonant with the consideration that it is a question of income falling within n.º 1 of article 3º of the IRS Code and paragraph h) of n.º 1 of article 4º of the IRS Code (and paragraph a) of n.º 29) of article 9º of the VAT Code), that is, income resulting from a commercial activity similar to that of hotels, capable of integrating category B of IRS income, given that they are earned by natural persons.
Even if it were not so, the AT founding the assessments here in question on a change in point of view, contained in circular 5/2013 of 02.07.2013, should be considered a generic orientation under article 68ºA of the LGT, we do not see how it can be invoked as the basis for an additional assessment for 2013 (at least for periods before 02.07.2013) and 2012, having regard to n.º 2 of article 68º A of the LGT, which prohibits the retroactive application of generic orientations.
In fact, it is notorious that the Requesters, given the proven factual matters, not only acted in good faith and based on a plausible interpretation of tax law, but also acted in accordance with express indications from the AT that bind it (registration current in the Taxpayer Registration Management System and in consonance with the result of a prior inspection).
…Regardless of whether it results from a legal or contractual source, the type of organization of the tourism enterprise adopted (current management of the units together by a single mandated entity for this purpose) would be the one that could best enhance revenues and would allow for the optimization of expenses, and could even contribute to an increase in tax revenues, whether they are considered as income from category F or category B of IRS.
The form of organization at the level of current management, by itself, does not appear to us that it should be considered as determinative, for purposes of the qualification of income in one or another category (rules of subjection to tax) in light of what is stated in n.º 3 of article 11º of the LGT, which directs attention to economic substance and not form. (…)
NOW, notwithstanding the merit and consistency of the grounds put forward in the decision (in part transcribed above) and in the excellent argumentation of the Requesters, the truth is that there are limits (legal), which in no case can we exceed in law (and its application, even in tax matters), whereby we tend to agree with the decision handed down in Proc. 275/2017-T of this CAAD.
As has been stated in other decisions, we understand that, in fact, "in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed"
It is certain that we cannot fail to note that in Tax Law the principle of specific typicity is in force, an element of the principle of legality, which, for what matters, requires the exhaustive enumeration of facts or realities that, "within each generic type of the normative object of incidence, are indicated by law as object of incidence".
Nevertheless, as was said, the limits imposed by legal dictates can never be exceeded, even if not integrated in specific tax law, but which decisively condition its application.
IN THIS MEASURE AND REASON we must agree with the decision referred to most recently, making, with due deference, our own the grounds that support it:
(…)
In order to determine whether the income earned by the Requesters should be framed, in light of the cited provisions, in category B or category F of income, for purposes of IRS, it is important to know, in the present case, whether the same derive from the exercise of a commercial activity (as the Requesters allege) or whether, differently, they result from the mere cession of the property (as the Respondent contends).
It has been the understanding of the jurisprudence of the superior courts, reiterated in the Judgment of the STA of 11-01-2017, handed down in the course of proceeding 01622/15, that "the concept of commercial or industrial activity must be determined by the economic concept of commercial or industrial activity, which encompasses activities of mediation between supply and demand and activity of incorporation of new utilities into matter, in both cases with speculative purposes, that is, with the objective of obtaining profits".
…Now, as results from the tourist exploitation contract, it falls to...the contracted company (F…) to ensure the tourist exploitation of the real estate fraction of which the Requesters are owners and which ensures the commercial activity as referred to.
It is important, in any case, to note the fact, to which the Requesters draw attention…that, as stipulated in the contract for cession of tourist exploitation, that activity of the...contracted company... is developed "on account" of the owners.
Note, in this regard, that acting "on account of" does not mean the same as acting "in the name of" – the first expression is appropriate for referring to the relationship existing between principal and agent in a mandate without representation (article 1180.º of the Civil Code), while the second allows for reference to the relationship established between principal and agent in a mandate with representation (article 1178.º, n.º 1 of the Civil Code).
The exploitation of the real estate fraction is therefore carried out by the...company referred to... "on account" of the Requesters-owners, but not "in the name" of these.
This Tribunal cannot, in any case, ignore that in the present case we are dealing with a contract for cession of tourist exploitation.
These contracts have been qualified by jurisprudence as atypical or unnamed contracts (see Judgments of the Supreme Court of Justice of February 9, 2011, handed down in the course of 572/03.8TCFUN.L1.S1, and of June 9, 2009, handed down in the course of proceeding n.º 823/06.7TCFUN.S1), and should be understood in light of the legal regime for the establishment and operation of tourist enterprises in force (approved by Decree-Law n.º 39/2008, of March 7, with the amendments introduced by Decree-Law n.º 228/2009, of September 14, and by Decree-Law n.º 15/2014, of January 23, having that one repealed Decree-Law n.º 167/97, of July 4, with the amendments that had been introduced to it by Decree-Law n.º 305/99, of August 6, by Decree-Law n.º 55/2002, of March 11, and by Decree-Law n.º 217/2006, of October 31).
The enterprise "…" is subject to the legal regime for the establishment and operation of tourist enterprises, as, moreover, is recognized in the constituent title itself.
At the date of filing of the constituent title of the enterprise "…" (February 8, 2008), the legal regime for the establishment and operation of tourist enterprises (RJIFET) was that which had been approved by Decree-Law n.º 167/97, of July 4, with the amendments introduced by Decree-Law n.º 305/99, of August 6 and by Decree-Law n.º 55/2002, of March 11, whose article 1.º, n.º 1, defined tourist enterprises as "those establishments intended to provide temporary accommodation services, catering or tourist entertainment, having, for their operation, an appropriate set of structures, equipment and complementary services".
Regarding the exploitation of tourist enterprises, article 44.º of the RJIFET provided the following:
"1- The exploitation of each tourist enterprise must be the responsibility of a single entity.
2- The unit of exploitation of the enterprise does not prevent the ownership of the various real estate fractions that compose it belonging to more than one person.
3- Only the accommodation units may be withdrawn from the exploitation of the tourist enterprises and only in the cases and in the manner established in the regulation provided for in n.º 3 of article 1.º.
4- The accommodation units that have been withdrawn from the exploitation of a tourist enterprise may not be subject to any other commercial exploitation, tourist or otherwise".
The legislator here clearly distinguished between the ownership of the various real estate fractions that compose the enterprise, which may be plural, and its exploitation, which "must be the responsibility of a single entity".
In other words, the legislator admits plural ownership, but imposes the uniqueness of exploitation.
From this arises the indispensability of entering into contracts for cession of tourist exploitation between the owners of the real estate fractions and the entity responsible for the tourist exploitation.
The execution of such contracts results from the need to comply with the law, and not from the will of the contracting parties – it is not, therefore, a matter of management choice on the part of the fraction owner, but rather a necessary condition for the acquisition of the real estate fraction.
57. As regards the income in question in the present proceeding relating to the year 2013, the RJIFET approved by Decree-Law n.º 39/2008, of March 7, with the amendments introduced by Decree-Law n.º 228/2009, of September 14 (applicable, as a rule, to tourist enterprises existing at the date of its entry into force, by virtue of the provision of n.º 1 of article 75.º), was in force, whose n.º 1 of article 44.º maintains the legal consecration of the rule of uniqueness of exploitation, and in which article 45.º provided the following:
"1- Without prejudice to the provision of article 49.º, the accommodation units are permanently in a tourist exploitation regime, the operating entity must assume the continued exploitation of all of them, even if occupied by their respective owners.
2- The operating entity must ensure that the accommodation units remain at all times furnished and equipped in full condition to be leased for accommodation to tourists and that the mandatory services of the category attributed to the tourist enterprise are provided therein.
3- When the ownership and tourist exploitation do not belong to the same entity or when the enterprise is in a plural property regime, the operating entity must obtain from all owners a legal title that enables it to exploit all accommodation units.
4- The title referred to in the previous number must provide for the terms of tourist exploitation of the accommodation units, the participation of the owners in the results of the exploitation of the accommodation unit, as well as the conditions for its use by the respective owner".
N.º 3 of the cited article makes explicit what already resulted implicitly from the prior version of the RJIFET – the indispensability of a legal title that enables the exploitation of all accommodation units.
The amendments to the RJIFET introduced by Decree-Law n.º 15/2014, of January 23, had no implications for the text of n.º 1 of article 44.º or of 45.º, whereby what has been said regarding the year 2013 applies equally to the year 2014.
In conclusion, the tourist exploitation of the real estate fraction of which the Requesters are owners, in the years 2013 and 2014, which are of interest in the present case, was ensured by the company ..., in compliance with the rule of uniqueness of exploitation enshrined in n.º 1 of article 44.º of the RJIFET.
The Requesters limited themselves to ceding the real estate fraction for exploitation, whereby the income they earned has the nature of rents, as these are defined in paragraph a) of n.º 2 of article 8.º of the CIRS, constituting property income (as results from n.º 1 of article 8.º of the CIRS), falling within category F of income.
The income earned by the Requesters does not therefore derive from the exploitation of the tourist real estate fraction of which they are owners, but rather from the cession of the same for exploitation by another entity …
For this conclusion, it is irrelevant that the Requesters are registered for the exercise of commercial activities, namely that referred to as "tourist apartments without restaurant", just as it is irrelevant the VAT regime in which they are framed.
Also not relevant to the case is the profit motive that may have motivated the Requesters in the acquisition of the real estate fraction of the tourist enterprise.
Nor is it relevant the fact that the Requesters may have had some organization for the development of the commercial activities for which they are registered for tax purposes.
It should be emphasized that the question at issue in the present proceeding is not whether the Requesters exercise or not the commercial activity for which they are registered.
What is at issue is whether the income earned in the present case, and only this income, with the legal contours that frame the exercise of the activity of tourist exploitation, can be imputed to the Requesters as a title of commercial income (falling within category B), and the answer to this question is negative.
Whence it is evident what has already been stated supra – that the decision of the case sub judice centers on questions of law, and not of fact.
What is decisive is that, by legal requirement, the tourist exploitation of the real estate fraction of which the Requesters are owners cannot be ensured by the same, whereby the income earned by them, and which are at issue in the present proceeding, cannot, logically, be imputed to such activity.
The income earned derives from the cession of the real estate fraction, whereby it takes on the nature of property income.
The fact that the income in question cannot be imputed to commercial activity developed by the Requesters also makes the criterion of preponderance of category B inapplicable – this would only be relevant if the income in question could simultaneously be framed in category B and in another category (in this case, in category F), which is not the case sub judice.
As has already been demonstrated, it follows from the RJIFET the legal inadmissibility of exploitation of the real estate fractions integrated in tourist enterprises by the various owners thereof, whereby the income obtained by the Requesters cannot be imputed to such exploitation nor, consequently, be framed in category B of income, for purposes of IRS.
The qualification of the income in question as property income, falling within category F, results from the interpretation and application of law, independently of the content of any administrative circular, namely Circular n.º 5/2013 of the Tax Services Directorate for IRS, which, as the Requesters rightly point out, only binds the AT's services.
Just as this Tribunal's decision is not bound by any administrative circular, neither is it limited by the tenor of any decision-making acts of the AT, performed as a consequence of other administrative procedures, namely inspection procedures in VAT or even in IRS.
As for the AT's non-acceptance of the deduction of certain expenses in the context of determining the net income of category F, we also agree with the decision that has been followed in assuming them in full.
(…) N.º 1 of article 41.º of the CIRS, as worded at the date of the facts, provided the following:
"To the gross income referred to in article 8.º are deducted the maintenance and conservation expenses that are incumbent on the taxpayer, incurred by him and found to be documentally proven, as well as the municipal property tax and the stamp duty that falls on the value of the properties or part of properties whose income is subject to taxation in the fiscal year" (Wording given by Law n.º 66-B/2012, of December 31).
Thus, it must be determined whether the said expenses constitute maintenance and conservation expenses incumbent on the taxpayer.
For this purpose, it is important to consider the relevant provisions of the RJIFET.
In fact, if the RJIFET cannot fail to be considered for purposes of qualification of income, it also cannot be ignored for the purpose of delimiting the scope of deductible expenses, taking into account the specificities of the activity regulated therein.
Article 56.º of Decree-Law n.º 39/2008, of March 7, in the wording given to it by Decree-Law n.º 228/2009, of September 14, provided, at the date of the facts, the following:
"1 — The owner of a lot or autonomous fraction of a tourist enterprise in plural property must pay to the managing entity of the enterprise the periodic payment fixed in accordance with the criterion determined in the constituent title.
2 — The periodic payment is intended to meet the expenses of maintenance, conservation and operation of the enterprise, including those of the accommodation units, the common facilities and equipment and the services of common use of the enterprise, as well as to remunerate the provision of permanent reception services, security and cleaning of the accommodation units and common parts of the enterprise.
3 — In addition to what is provided in the previous number, the periodic payment is intended to remunerate the services of the official auditor and the managing entity of the enterprise, and may support other expenses provided they are envisaged in the constituent title.
[…]
8 — A percentage of not less than 4 % of the periodic payment must be allocated to the establishment of a reserve fund intended exclusively for the realization of works of repair and conservation of the common use facilities and equipment and of other expenses expressly provided for in the constituent title [with the amendments introduced by Decree-Law n.º 15/2014 of January 23, became n.º 9].
9 — Regardless of the criterion for fixing the periodic payment established in the constituent title, it may be altered by a proposal of the official auditor contained in its report, whenever it proves excessive or insufficient in relation to the charges it is intended for and provided that the alteration is approved in an assembly convoked for this purpose [with the amendments introduced by Decree-Law n.º 15/2014 of January 23, became n.º 10].
It follows from n.º 2 of the cited article that it is important to proceed with the distinction between expenses of maintenance, conservation and operation, with only the former being deductible (provided they are actually incurred and documentally proven), and excluding the possibility of deduction of operating expenses (recurring expenses), as results from what is provided in n.º 1 of article 41.º of the CIRS.
As understood in an express manner by the STA in its Judgment of 06-07-2016, handed down in the course of proceeding 088/16, "[m]aintenance and conservation expenses will be those expenses that are necessary for the conservation and maintenance of the real properties that generate income. They may be, as previously defined in the Urban Leasing Regime, art. 11.º, expenses made with ordinary conservation works – repair and general cleaning of the property, works imposed by the Public Administration, and, in general, those intended to maintain the property in the conditions required by the purpose of the contract and existing at the date of its execution; extraordinary conservation works – repair of construction defects of the property or supervening ones; or even improvement of the property, but always with repercussion on the property and its ability to generate income".
It is thus considered that excluded from the concepts of maintenance and conservation are expenses relating to consumption of electricity, water and gas, which may not, in light of the provision of n.º 1 of article 41.º of the CIRS, be deducted from the gross income of category F, contrary to what the Requesters intend.
As for the other expenses regarding which there is divergence in the case sub judice – expenses with cleaning and gardening personnel, repairs and painting – they fall within the concept of maintenance and conservation expenses.
To determine whether such expenses are deductible, it is necessary to determine, in light of what was agreed between the parties in the contract for cession of tourist exploitation, whether it fell to the Requesters-owners to incur them.
In accordance with what was agreed, the expenses with cleaning and gardening personnel, repairs and painting are included in the services that must be provided by the Manager and for which it is remunerated, whereby the same cannot be deducted by the Requesters-owners.
It falls to the manager … to make the payments relating to such expenses, these being incurred by the owners through the remuneration paid to it.
The deductible cost is thus the one corresponding to the remuneration paid to the Manager, which is not contested by the Requesters.
In accordance with the aforementioned, it is understood that, in this case, the expenses with salaries of cleaning and gardening personnel, electricity, gas, water, painting and repairs, relating to the years 2013 and 2014, should not be considered for purposes of deduction from income in category F of IRS, maintaining, in this part, the tax assessment act as was practiced.
WHEREBY THE REQUEST FOR ARBITRAL RULING IS WITHOUT MERIT, since the contested assessment and procedure on which it is based do not suffer from defect of lack of reasoning and defect of error regarding the factual and legal grounds, not requiring its annulment, even partial, as is requested.
As for the request for reimbursement of tax paid and compensatory interest, formulated by the Requesters (and admitted under the terms of n.º 2 of article 265.º of the Code of Civil Procedure), article 43.º, n.º 1 of the LGT establishes that compensatory interest is due when it is determined that there was an error attributable to the services resulting in the payment of tax debt in an amount greater than legally due.
In the case, for what has been stated, there is, consequently, no place for any reimbursement or payment of compensatory interest.
VII - DECISION
In these terms, it is decided to judge without merit the arbitral request formulated:
a- Not declaring the annulment, even if partial, of the contested tax assessment acts;
b- Not determining the reimbursement of the amount of tax paid and payment of compensatory interest;
c- Condemning the Requester in the costs of the proceeding.
Value of the proceeding
The value of the proceeding is fixed at €15.695,10, pursuant to article 97.º-A, n.º 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of n.º 1 of article 29.º of the RJAT and n.º 2 of article 3.º of the Regulation of Costs in Tax Arbitration Proceedings.
Costs
The value of the arbitration fee is fixed at €918,00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Requester - since the request was considered wholly without merit - pursuant to articles 12.º, n.º 2, and 22.º, n.º 4, both of the RJAT, and article 4.º, n.º 4, of the cited Regulation.
Lisbon, 03-01-2018
The Arbitrator
(Fernando Miranda Ferreira)
Frequently Asked Questions
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