Summary
Full Decision
ARBITRAL DECISION
The Arbitrator, Dr. Henrique Nogueira Nunes, designated by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Arbitral Court, constituted on 3 July 2017, hereby decides as follows:
1. REPORT
1.1. A…, with tax identification number … and B…, with tax identification number …, hereinafter referred to as "Claimants", requested the constitution of the Arbitral Court under Articles 2, no. 1, subparagraph a) and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT").
1.2. The request for arbitral decision concerns additional Personal Income Tax assessment notices no. 2016…, relating to the year 2012, no. 2016…, relating to the year 2013 and no. 2016…, relating to the year 2014, all in the total amount of € 25,597.97.
1.3. To substantiate their request, the Claimants allege, in summary, the following:
- Defect of lack, incongruence or insufficiency of reasoning of the tax inspection report in general, inasmuch as the Tax Authority did not sustain in the Conclusions of the Final Tax Inspection Report, in a clear and unequivocal manner, the facts on which they based their conclusion that the income obtained by the Claimants was income from Category F, thereby failing to comply with the legal duty, constitutionally enshrined, of express, clear and complete reasoning of decisions affecting the same, and therefore the contested tax acts should be annulled.
- Defect of violation of law due to error in the factual and legal presuppositions, in the part where the Tax Authority considered income classifiable in Category F and not in Category B of the Personal Income Tax, inasmuch as they understand that the tourism exploitation activity exercised and the income generated thereby were obtained in the context of a business activity (even though they result from the exploitation of real property) by virtue of the principle of preponderance of this Category in relation to income that falls within other income categories, but which are obtained in connection with a business activity (in this case, a commercial activity). Analyzing the concept of activity, they consider that under subparagraph a) of no. 1 of Article 3 of the Personal Income Tax Code, given that the legislator used the term "activity" without restrictively delimiting its scope, it is evident that it intended to include all income obtained, in any manner, from direct exploitation or through the hiring of services to perform the income in question.
And that the term "activity" also comprises the set of operations intended to carry out investments and the choice of the appropriate form of management, which in the present case becomes even more relevant, considering that they are non-resident taxpayers.
They understand that the position and restrictive interpretation carried out by the Tax Authority lacks legal foundation, inasmuch as, given the legal concept of activity, it must necessarily be concluded that the income in question should be taxed under subparagraph a) of no. 1 of Article 3 of the Personal Income Tax Code and not in accordance with no. 2 of Article 8 of the same statute.
It appears to them, therefore, illegitimate and illegal that the Tax Authority intends to tax the income obtained by the Claimants under no. 2 of Article 8 of the same statute (Category F), through its own interpretation and contra legem interpretation thereof with respect to the exercise of activity, instead of considering it under subparagraph a) of no. 1 of Article 3 of the Personal Income Tax Code (Category B).
They understand that they are not bound by generic administrative guidance issued by the Tax Authority, inasmuch as the contested tax acts are founded on a contra legem circular, they should be annulled as manifestly illegal.
Finally, they consider that even if it were admitted that the income obtained by the Claimants is income from Category F of the Personal Income Tax Code, without conceding, the reality is that the Claimants' taxable income would never be in the amount determined by the Tax Inspection Services in the course of tax inspection, inasmuch as the position assumed in the Inspection Report did not, for all legal purposes, take into account the totality of expenses borne by the Claimants with the maintenance of the source of income in question.
Beyond the expenses inherent to insurance, security, etc., there should also be considered the costs relating to cleaning staff, gardener's salary, electricity, water, gas, expenditures with repairs and painting. Such expenses should be deducted from taxable income inasmuch as they are essential expenses for obtaining the income in question and whose values they claim will be determined at the end in the course of judgment execution.
1.4. The Tax Authority, for its part, defends itself, in summary, alleging:
- As to the lack of reasoning for the corrections, it disagrees, inasmuch as it understands that from a reading of the inspection report it results that an average person, placed in the position of recipient, can grasp its meaning and conclusion and that the reasoning is sufficiently clear and unequivocal, all the more so inasmuch as the Claimants, through the presentation of the request for arbitral decision, admit and demonstrate, in light of the arguments explained throughout their pleading, that they have fully understood the factual and legal framework on which the Respondent's decision was based.
- As to the alleged defect of violation of law due to error in the presuppositions, it states that to claim, as the Claimants do in Article 76 of their request for arbitral decision, that the fact of having declared commencement of activity, affirming the intention to exercise a tourism exploitation activity (when, in fact, nothing more was done than to acquire real property), should be valued as sufficient for the qualification of income as attributable to Category B, when thereafter the declared activity is not actually exercised, would be to give primacy to form over substance, contrary to the most elementary principles of tax law. It considers that the Claimants acquired real property for a period of five years, never having performed any act that would indicate a will to exercise any type of exploitation thereof, as they did not even have at their disposal the possibility of not ceding such exploitation, for which reason the income received should be qualified as real property income.
With regard to acceptance of all expenses with staff salaries, cleaning, electricity, gas and water, it understands that the expenses mentioned by the Claimants do not constitute conservation expenses nor, likewise, maintenance expenses and that, on the other hand, with regard to expenses with salaries and cleaning, it is clear from Sections 5 and 6 of the exploitation cession contract that these charges are the responsibility of the Managing Company, which means that they are not the responsibility of the Claimants, here the landlords.
It thus urges the dismissal of the request, with the challenged acts remaining in the legal order.
1.5. The Arbitral Court decided to waive the holding of the first meeting of the Arbitral Court, in accordance with Article 18 of the RJAT and, likewise, waived the witness evidence requested by the Claimants, as it considered that the process contains extensive documentary evidence and that the question to be decided is fundamentally a well-delimited legal question in the record.
Both parties were equally notified to present Written Arguments, should they wish to do so, and both decided to do so.
In their Written Arguments, the Claimants joined new documents which were admitted by the Court in a reasoned ruling dated 26/12/2017 (although only notified to the parties on 15/01/2018) and granting a period of 10 days to the Respondent so that, should it wish, in compliance with the principle of contradiction, it could pronounce itself on the same in addition to the considerations already explained in its Written Arguments.
Considering that the deadline for rendering the arbitral decision was scheduled for 3 January 2018, the granting of the 10-day period for the Tax Authority to pronounce itself on the joining of documents made it impossible for the arbitral decision to occur by the end of the six-month period (as provided in no. 1 of Article 21 of the RJAT), for which reason the rendering of the arbitral decision was extended by two months in accordance with no. 2 of the same article.
* * *
1.6. The Arbitral Court was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.
The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. Articles 4 and 10, no. 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).
No procedural nullities were identified.
2. QUESTIONS TO BE DECIDED
- Defect of lack or incongruence of reasoning of the Tax Inspection Report;
- Defect of violation of law, by error as to the factual and legal presuppositions, in the part where the income obtained is framed in Category F by the Tax Authority;
- Subsidiarily, should it be considered that the income should be taxed under Category F, the consideration of expenses in the calculation of the respective income.
3. FACTUAL MATTERS
For purposes of appraisal and decision on the merits, the following facts are established as proven:
A) The Claimant, A… is registered for the exercise of the activity "Tourist apartments without restaurant" CAE 55123 as of 2011-08-22, being framed under the normal quarterly periodicity regime in VAT and, by option, under the organized accounting regime in Personal Income Tax (cf. Administrative file submitted by the Respondent).
B) The Claimants are married taxpayers, non-resident in national territory and, according to the Tax Authority's computer system, the firm B…, Lda was appointed as tax representative for both (cf. Administrative file submitted by the Respondent).
C) On 3 August 2011, the Claimant A… entered into a promise-to-sell agreement with the company D…, S.A. (TIN…), hereinafter referred to as "D…", for the purpose of purchasing real property designated "Apartment…", inscribed in the urban real property register of the Union of Parishes of … and … under article …, under letter E, located in the development "Apartments …", from which time he became the possessor thereof, for all legal purposes (cf. Recital A of Document 4 attached by the Claimants).
D) On the same date, the aforesaid Claimant executed with D… a contract for the cession of tourism exploitation of the unit …, and appointed E…, S.A., ("E…") as the managing entity (cf. Clause 2.1 of Document 4 attached by the Claimants) and on 8 February 2008 the constitutive title of the Apartments … was deposited with the then General Directorate of Tourism (cf. Document 5 attached by the Claimants).
E) Since 22 August 2011, the Claimant A… has been registered with CAE 55123 "tourist apartments without restaurant" and framed under the normal quarterly periodicity regime in VAT and the regime of organized accounting, by option, for purposes of Personal Income Tax (Category B).
F) The Claimant A… recognized and accepted that E… intends to exploit the tourism unit in question, on behalf of the latter (cf. Clause 2.1 of Document 4 attached by the Claimants).
G) E… was entrusted with exploiting the tourist apartments on behalf of the respective owners, providing them with all services necessary to effectuate such exploitation (cf. Clause 2.2 of Document 4 attached by the Claimants).
H) The Claimants accepted that during the entire duration of the contract they would not exploit, rent or in any other manner make available the unit to third parties in exchange for payment, rent, remuneration or any other means of payment, recognizing and accepting not to disclose, nor to allow any other individual or legal entity to disclose the Unit as being available for occupation (cf. Clause 3.8 of Document 4 attached by the Claimants).
I) In the context of the aforesaid Tourism Exploitation Program, E… was obligated to manage, in the name of the Claimants, the operational aspects (current management) inherent to the tourism exploitation of the apartment identified above, namely dealing with the collection of payments due, collection of expenses and management of reservations, determination of tariffs (cf. Clauses 3.1 to 3.5 of Document 4 attached by the Claimants).
J) E… was furthermore responsible for general administration services of the unit. The nature and purpose of such services to be provided in this context shall be determined by the Managing Company and include accounting, sales and marketing, travel agency costs and/or commissions of tourism operators and respective expenses incurred, expenses with central services related to the Tourism Exploitation Program and expenses for reception services and other related expenses, and likewise, for the payment of expenses, in its name, but on behalf of the Claimant A…, of the operation of the Tourism Exploitation Program (cf. Clauses 4 and 3.11 of Document 4 attached by the Claimants).
K) E… was entitled, under the terms of the contract attached as Document 4, to receive and retain 25% of the Gross Tourism Exploitation Revenue, or any other percentage that might be agreed periodically between the Managing Company and the Claimants (cf. Clause 2.3 and Section 7 of Document 4 attached by the Claimants).
L) The real property was managed and maintained by the company E…, which held control of the keys to the property (Clause 13.3 of Document 4 attached by the Claimants).
M) Under the terms of Clause 20.4.2 of the Exploitation Cession Contract, in the first five years of said contract, E… guaranteed the Claimants a minimum return, which consisted of a minimum annual remuneration of 5% calculated on the purchase price of the property (cf. the said Clause of Document 4 attached by the Claimants).
N) The Claimant A… proceeded with the acquisition of a standard furniture package, which represented an expense of € 34,440.00 including VAT at the applicable legal rate, which was borne and paid exclusively by the latter on the date of execution of this Contract (cf. Clause 3.12 of Document 4 attached by the Claimants).
O) On 18.08.2016, an inspection (OI2016…/…/…) was opened, ordered by the decision of the Director of Finance of Faro, for purposes of controlling rental of real property, and had partial scope in Personal Income Tax, as provided in subparagraph b) of no. 1 of Article 14 of the Complementary Rules for Tax and Customs Inspection Procedure (RCPITA), with extension to the years 2012, 2013 and 2014 (cf. Administrative file submitted by the Respondent).
P) The Claimants were notified, on 10 October 2016, through Official Letter no. …, dated 4 October 2016, of their respective Draft Tax Inspection Report (cf. Document 7 attached by the Claimants).
Q) In the aforesaid Draft Inspection Report, corrections to the Claimants' taxable income were proposed: € 46,071.72 for the year 2012, € 27,931.78 for the year 2013 and € 9,499.98 for the year 2014 (cf. cited Document 7).
R) Not conforming to the Draft Inspection Report, the Claimants exercised, on 18 October 2016, their right of prior hearing thereon (cf. Document 8 attached by the Claimants).
S) Subsequently, the Claimants were notified of the Final Inspection Report, in which the Tax Inspection Services maintained the corrections to taxable income in accordance with the terms initially proposed (cf. Document 9 attached by the Claimants).
T) The Claimants were notified of additional Personal Income Tax assessment notices no. 2016…, relating to the year 2012, as well as additional Personal Income Tax assessment notice no. 2016…, compensatory interest assessment notice no. 2016…, and Statement of Account Adjustment no. 2016…, all relating to the year 2013, and finally, notified of additional Personal Income Tax assessment notices no. 2016… and Statement of Account Adjustment no. 2016…, relating to the year 2014, which resulted in tax due in the amount of € 25,597.97 (cf. Documents 1 to 3 attached by the Claimants).
U) On 24 April 2017, the Claimant submitted an application for constitution of the Arbitral Court to CAAD – cf. electronic application in the CAAD system.
4. UNPROVEN FACTS
There are no facts with relevance to the decision on the merits that have not been proven.
5. REASONING OF THE DECISION ON FACTUAL MATTERS
As to the essential facts, the settled matter is conformably shaped in an identical manner by both parties and the Tribunal's conviction was formed on the basis of the official documentary elements attached to the process and discriminated above, whose authenticity and truthfulness was not questioned by either party.
It should be noted that the Tribunal does not have the duty to pronounce on all the matters alleged, but rather the duty to select only that which is relevant to the decision, taking into account the cause (or causes) of action that substantiate(s) the request formulated by the Claimants as plaintiffs (cf. Articles 596, no. 1 and 607, nos. 2 to 4, of the Civil Procedure Code, as amended by Law 41/2013, of 26/6) and to state whether it considers it proven or not proven (cf. Article 123, no. 2, of the Tax Procedure Code).
According to the principle of free appraisal of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed on the basis of the examination and appraisal it makes of the evidence presented to the process and in accordance with its experience of life and knowledge of people (cf. Article 607, no. 5, of the Civil Procedure Code, as amended by Law no. 41/2013, of 26/6). Only when the probative force of certain evidence is pre-established in Law (e.g., full probative force of authentic documents - cf. Article 371, of the Civil Code) does the principle of free appraisal not govern the appraisal of evidence produced.
6. ON THE LAW
6.1. On the alleged lack, incongruence and insufficiency of reasoning of the Tax Inspection Report.
The Claimants allege that the reasoning of the final tax inspection report "is not congruent, nor, likewise clear".
Let us examine this.
The reasoning of a tax act, as with any administrative act, must be clear (the factual and legal grounds cannot be confused or ambiguous, under penalty of failing to make known what determined the agent to perform the act or to choose its content), congruent (the content of the act must have a logical relationship with the grounds invoked), sufficient (so as to make clear the presuppositions taken into account by the author of the act) and must be express (in this sense, see the Decision of the Southern Regional Administrative Court no. 07442/14, 2nd Section – 2nd Court, dated 05/02/2015).
A defect of lack of reasoning in the inspection report occurs, which renders defective the subsequent assessment notice, if that report does not allow one to discern the reason why the Tax Authority made all the corrections in question in the present arbitral proceedings.
Now, in the present case, all the conduct of the Claimants throughout the tax procedure, whether in the exercise of their right of prior hearing or in the present arbitral proceedings, reveals that they fully understood what was being imputed to them.
Moreover;
It is perfectly possible to follow the cognitive and evaluative itinerary carried out by the Respondent throughout the tax inspection report.
The additional assessment notice is sufficiently reasoned if the conclusions of the inspection report clarify, minimally, the taxpayer, who was notified thereof, of the factual and legal grounds that led the Tax Authority to assess the tax in question, and such was the case in the present proceedings.
In sum, the Tribunal understands that the tax inspection report in question in the present proceedings does not suffer from the defects imputed to it by the Claimants, for which reason on this point their request is dismissed.
6.2. On the alleged defect of violation of law, by error as to the factual and legal presuppositions, in the part where the income obtained is framed in Category F by the Tax Authority.
The fundamental question to be decided in the present arbitral proceedings has been the subject of numerous arbitral proceedings with the same factuality as the present proceedings. It can be observed that there are already several decisions in favor of the Tax Authority (by way of example the proceedings 211/2017-T; 270-2017-T, 273/2017-T; 274/2017-T and 275/2017-T) and some in favor of the Claimants (by way of example, the proceedings 237/2017-T and 271/2017-T).
The Arbitral Courts judge according to the principle of legality, being prohibited by law from resorting to equity (Article 2, no. 2 of the RJAT), which means that they must judge in accordance with the provisions of law and not in accordance with what they understand to be the fairest solution for the present case.
What is in question in the present proceedings is to qualify, for purposes of Personal Income Tax, the income obtained by the Claimants under the contract for cession of the exploitation of tourism unit … and which is attached as Document 4 by them.
That is the question to be decided.
Not in question in the present arbitral proceedings is the qualification, for VAT purposes, of the income obtained through this contract, and the documents attached by the Claimants with their Written Arguments (and which were admitted by the Tribunal) are, in their essence, Tax Authority documents, dated 2010, which analyzed from a VAT perspective various VAT refund processes requested by various taxpayers (and based on the exercise of prior hearing rights presented by those taxpayers solely for VAT purposes) and an Information (no. … of 2010.09.17) from the VAT Services Directorate which analyzed for VAT purposes some tourism exploitation cession contracts for the aforesaid unit, contracts which were not made available and which may, in fact, not coincide in their clauses with what is in question in the present arbitral proceedings.
This Tribunal understands that the Claimants are not correct when they allege that the income obtained has the nature of business or commercial income.
Under subparagraph a) of no. 1 of Article 3 of the Personal Income Tax Code, relating to Category B income, "business and professional income shall be deemed to be those derived from the exercise of any commercial, industrial, agricultural, forestry or livestock activity […]".
The legislator lists, by way of example, in no. 1 of Article 4 of the Personal Income Tax Code, various activities considered commercial and industrial, among which are found "hotel and similar activities, catering and beverages, as well as the sale or exploitation of the real right of periodic housing" [subparagraph h)].
On the other hand, Article 8 of the Personal Income Tax Code, concerning Category F income, provides, in the wording applicable as of the date of the facts, the following:
"1 - Real property income shall be deemed to be rents from rural, urban and mixed properties paid or placed at the disposal of their respective holders.
2 - Income shall be understood to include:
a) Amounts relating to the cession of the use of the property or part thereof and services related to that cession;
b) Amounts relating to the rental of machinery and furniture installed in the leased property; […]"
In order to determine whether the income obtained by the Claimants should be framed, in light of the aforesaid provisions, in Category B or Category F income, for purposes of Personal Income Tax, it is important to know, in the present case, whether the same derive from the exercise of a business activity (as the Claimants allege) or whether, differently, they result from mere cession of the property (as the Respondent argues).
That is, whether, in the present case, one is faced with the performance of an operational activity directed at achieving profit through the performance of acts designed to promote commercialization, or whether, on the contrary, one is faced with the availability of real property to third parties in a more passive manner.
In this respect, we adhere to the decision rendered in arbitral proceeding no. 275-T/2017 which analyzed precisely the same question.
In that aforesaid decision, one may read and we quote:
(…)
It has been the understanding of the jurisprudence of the superior courts, reiterated in the Decision of the Superior Administrative Court of 11-01-2017, rendered in the context 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 in matter, in both cases with speculative ends, that is, with the objective of obtaining profits".
Thus, and as follows from the aforesaid contract, it falls to … to ensure the tourism exploitation of the real property unit of which the Claimants are owners.
In other words, and in line with the words of the Superior Administrative Court in the cited decision (…), it is … that develops the activities of mediation between the supply and demand of tourism accommodation.
That is, it is … that ensures the commercial activity consisting of the tourism exploitation of the real property unit of which the Claimants are owners.
It is important, in any case, to note the fact, to which the Claimants draw attention (…), that, as stipulated in the contract for cession of tourism exploitation, that activity (…) is developed "on behalf of" the owners.
Note, in this respect, that acting "on behalf of" does not mean the same as acting "in the name of" – the former expression is appropriate for us to refer to the relationship existing between principal and agent in a mandatum without representation (Article 1180 of the Civil Code), while the latter allows us to refer to the relationship that is established between principal and agent in a mandatum with representation (Article 1178, no. 1 of the Civil Code).
The exploitation of the real property unit is, therefore, conducted by the "company referred to"… "on behalf of" the Claimants-owners, but not "in the name of" the latter.
The Tribunal cannot, in any case, disregard the fact that in the present case one is faced with a contract for cession of tourism exploitation.
These contracts have been qualified by jurisprudence as atypical or unnamed contracts (cf. Decisions of the Supreme Court of Justice of 9 February 2011, rendered in the context of 572/03.8TCFUN.L1.S1, and of 9 June 2009, rendered in the context of proceeding no. 823/06.7TCFUN.S1), and should be understood in light of the legal regime for the installation and operation of tourism enterprises in force (approved by Decree-Law no. 39/2008, of 7 March, with amendments introduced by Decree-Law no. 228/2009, of 14 September, and by Decree-Law no. 15/2014, of 23 January, which revoked Decree-Law no. 167/97, of 4 July, with amendments introduced by Decree-Law no. 305/99, of 6 August, by Decree-Law no. 55/2002, of 11 March, and by Decree-Law no. 217/2006, of 31 October).
The enterprise "…" is subject to the legal regime for the installation and operation of tourism enterprises, as, moreover, is recognized in the constitutive title itself.
On the date of deposit of the constitutive title of the enterprise "…" (8 February 2008), the legal regime for the installation and operation of tourism enterprises (RJIFET) was that which had been approved by Decree-Law no. 167/97, of 4 July, with amendments introduced by Decree-Law no. 305/99, of 6 August and by Decree-Law no. 55/2002, of 11 March, whose Article 1, no. 1, defined tourism enterprises as "establishments intended to provide temporary accommodation, catering or entertainment services to tourists, having, for their operation, an adequate set of complementary structures, equipment and services".
As to the exploitation of tourism enterprises, Article 44 of the RJIFET provided the following:
"1- The exploitation of each tourism enterprise must be the responsibility of a single entity.
2- The unit of exploitation of the enterprise is not precluded from the ownership of the various real property fractions that compose it belonging to more than one person.
3- Only accommodation units may be withdrawn from the exploitation of tourism enterprises and only in the cases and terms established in the regulation provided for in no. 3 of Article 1.
4- Accommodation units that have been withdrawn from the exploitation of a tourism enterprise may not be subject to any other commercial, tourism or otherwise commercial exploitation".
The legislator here clearly distinguished between the ownership of the various real property fractions that compose the enterprise, which may be plural, and the exploitation thereof, which "must be the responsibility of a single entity".
In other words, the legislator admitted plural ownership, but imposed unity of exploitation.
From this arises the indispensability of entering into contracts for cession of tourism exploitation between the owners of the real property fractions and the entity responsible for tourism exploitation.
The entering into of such contracts follows from the necessity of compliance with the law, and not from the will of the contracting parties – it is not, therefore, a matter of a management option on the part of the owner of the fraction, but rather a necessary condition for the acquisition of the real property fraction.
As to the income in question in the present proceeding for the year 2013, the RJIFET approved by Decree-Law no. 39/2008, of 7 March, with amendments introduced by Decree-Law no. 228/2009, of 14 September was in effect (applicable, as a rule, to tourism enterprises existing as of the date of its entry into force, by virtue of the provision of no. 1 of Article 75), whose no. 1 of Article 44 maintains the legal consecration of the rule of unity of exploitation, and in which Article 45 provides the following:
"1- Without prejudice to the provision of Article 49, accommodation units are permanently in the tourism exploitation regime, with the exploiting entity to assume the continuous exploitation of all of them, even if occupied by their respective owners.
2- The exploiting entity must ensure that the accommodation units remain at all times furnished and equipped in full conditions to be rented for accommodation to tourists and that in them are provided the mandatory services of the category assigned to the tourism enterprise.
3- When property and tourism exploitation do not belong to the same entity or when the enterprise is in a plural property regime, the exploiting entity must obtain from all owners a legal title that entitles it to exploit all accommodation units.
4- The title referred to in the preceding number must provide for the terms of tourism 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 utilization thereof by the respective owner".
No. 3 of the cited article makes explicit what already resulted implicitly from the previous version of the RJIFET – the indispensability of a legal title that entitles the exploitation of all accommodation units.
The amendments to the RJIFET introduced by Decree-Law no. 15/2014, of 23 January, had no implications for the text of no. 1 of Article 44 nor of Article 45, for which reason what has been said with respect to the year 2013 applies equally to the year 2014.
The Claimants limited themselves to ceding the real property fraction for exploitation, for which reason the income they obtained has the nature of rents, as defined in subparagraph a), of no. 2 of Article 8 of the Personal Income Tax Code, constituting real property income (as results from no. 1 of Article 8 of the Personal Income Tax Code), classifiable in Category F income.
The income obtained by the Claimants does not, therefore, derive from the tourism exploitation of the real property fraction of which they are owners, but rather from the cession thereof for exploitation by another entity, the "exploiting company".
What is in question is to ascertain whether the income obtained in the present case, and only this, with the legal contours that frame the exercise of the activity of tourism exploitation, can be imputed to the Claimants as a matter of commercial income (classifiable in Category B), with the answer to this question being in the negative.
What is decisive is that, by legal imposition, the tourism exploitation of the real property fraction of which the Claimants are owners cannot be ensured by them, for which reason the income obtained by them, and which is in question in the present proceeding, cannot, logically, be imputed to such activity.
The income obtained derives from the cession of the real property fraction, for which reason it has the nature of real property income.
The fact that the income in question cannot be imputed to commercial activity developed by the Claimants also renders inapplicable the criterion of preponderance of Category B – 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 does not occur in the case sub judice.
As has already been demonstrated, it follows from the RJIFET the legal inadmissibility of exploitation of the real property fractions integrated in tourism enterprises by the various owners thereof, for which reason the income obtained by the Claimants cannot be imputed to such exploitation nor, consequently, be framed in Category B income, for purposes of Personal Income Tax.
The qualification of the income in question as real property income, classifiable in Category F, results from the interpretation and application of the law, independent of the content of any administrative circular, namely the Circular no. 5/2013 of the Personal Income Tax Services Directorate, which, as the Claimants rightly note, only binds the Tax Authority's services.
Just as this Tribunal's decision is not bound by any administrative circular, it is likewise not limited by the sense of any decision-making acts of the Tax Authority, performed in the sequence of other administrative proceedings, namely inspection proceedings for VAT or even Personal Income Tax purposes.
Similarly, the remuneration was itself guaranteed to the Claimants by the Managing Company, during a period of 5 years, after which they exercised or did not exercise the option to repurchase, which does not appear to be adjusted to the nature of risk that characterizes a commercial or business activity.
For which reason this point is dismissed.
6.3. On the consideration of certain expenses in the calculation of the respective income under Category F.
As expressly understood by the Superior Administrative Court in its decision of 06-07-2016, rendered in the context of proceeding 088/16, "[m]aintenance and conservation expenses shall be expenses that are necessary for the conservation and maintenance of real property that generates income. They may be, as previously defined in the Urban Lease Regime, Article 11, expenses incurred with ordinary conservation works – repair and general cleaning of the property, works imposed by Public Administration, and, in general, those intended to keep the property in the conditions required by the purpose of the contract and existing on the date of its execution; extraordinary conservation works – repair of construction defects of the property or supervening defects; or even improvement of the property, but always with repercussion on the property and on its susceptibility to generate income".
Excluded from the concepts of maintenance and conservation are, thus, expenses relating to consumption of electricity, water and gas, which cannot, in light of the provision of no. 1 of Article 41 of the Personal Income Tax Code, be deducted from gross income of Category F, contrary to what the Claimants intend.
As to the other expenses on which there is disagreement – expenses with cleaning staff, gardener's salary, repairs and painting, insurance premiums and property administration costs (which, however, are not specified), these fall within the concept of maintenance and conservation expenses.
To determine whether such expenses are deductible, it must be determined, in light of what was agreed between the parties in the contract for cession of tourism exploitation, whether it was incumbent on the Claimants to bear them.
Now, under the agreed terms, expenses with cleaning staff (6) and gardening (5.5), repairs (5.3) and painting (5.4) are included in the services to be provided by the Managing Company (cf. Section 6 and subsections 5.3, 5.4 and 5.5 of Document 4 attached by the Claimants), and for which the latter is remunerated, as results from Subsections 2.2 and 2.3 and Section 7 of the contract for cession of tourism exploitation attached to the proceedings, for which reason the same cannot be deducted by the Claimants, as such documents are not even in their name, being in the name of the managing company.
The deductible cost is, thus, that corresponding to the remuneration paid to the managing company, just as was, moreover, considered in the tax inspection report.
In conclusion, the Claimants' request for consideration, for purposes of deduction from Category F income of Personal Income Tax, of expenses with personnel costs (cleaning and gardening), electricity, gas, water, painting and repairs is dismissed.
As to insurance premiums and property administration costs (and here we are considering expenses for condominium fees), although they are in the name of the Claimants and may be considered deductible, inasmuch as they were not quantified in this arbitral proceeding, nor was any evidence presented that attests to their existence or values, the Tribunal cannot rule on this specific request.
7. DECISION
In view of the foregoing, the Singular Arbitral Tribunal hereby decides:
- To dismiss the request for arbitral decision and to absolve the Respondent of the request.
* * *
The value of the process is fixed at Euro 25,597.97, in accordance with the provisions of Articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, subparagraph a) of the Tax Procedure Code and 306 of the Civil Procedure Code.
The amount of costs is fixed at Euro 1,530.00, pursuant to Article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Claimant, in accordance with the provisions of Articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.
Notify.
Lisbon, 13 February 2018.
The Arbitrator,
Dr. Henrique Nogueira Nunes
Text prepared by computer, in accordance with Article 131, no. 5 of the Civil Procedure Code, applicable by referral of Article 29, no. 1, subparagraph e) of the RJAT.
The writing of the present arbitral decision is governed by the orthography prior to the 1990 Orthographic Agreement.
Frequently Asked Questions
Automatically Created