Summary
Full Decision
ARBITRAL DECISION
The arbitrators Counselor Fernanda Maçãs (arbitrator president), Dr. Luís M. S. Oliveira and Prof. Francisco Nicolau Domingos (arbitrators members) designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Court, constituted on 06/04/2016, agree as follows:
- REPORT
1.1. A… and B…, taxpayer no. … and no.…, respectively, residents at …, no.…, …, Funchal, hereinafter designated as Applicants, submitted on 22/01/2016 a request for arbitral pronouncement, in which they request that the act of assessment of Personal Income Tax (IRS) with no. 2011…, performed by His Excellency the Director-General of the (then so designated) Directorate-General of Taxes, by reference to the year 2010, in the amount of € 215,658.27 be declared illegal and annulled, and likewise, the annulment of the tacit dismissal of the official review request presented against the same, with the necessary legal consequences, namely, the refund of the tax paid unduly in excess by the Applicants, plus the respective indemnification interest at the legal rate.
1.2. His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated on 21/03/2016 as arbitrator-president Counselor Maria Fernanda Maçãs and as co-arbitrators Dr. Luís M. S. Oliveira and Prof. Francisco Nicolau Domingos, who declared they accepted, in accordance with legal provisions.
1.3. On 06/04/2016 the arbitral court was constituted.
1.4. In compliance with the provision of art. 17, no. 1 and 2, of Decree-Law no. 10/2011, of 20 January (RJAT), cited to contest (order of 06/04/2016), the Respondent came to request the revocation of the same, invoking that the Applicants had not joined to the process a document which, in the Initial Petition, had protested to subsequently attach to the case file, absence which the Respondent had mentioned in a petition submitted by it at an earlier time. He formulated, for such purpose, a request to revoke the order of 6/4/2016 and that the Respondent entity be notified of a new order when all the missing elements were attached to the process. This request was dismissed, by order of the court of 20/4/2016, because, among other reasons, by implying the suspension of the process, it lacked legal basis.
1.5. On 05/05/2016, the Respondent submitted its response, in which it defends itself by exception, invoking the absolute incompetence of the arbitral court and its passive illegitimacy, sustaining, namely, that the request for declaration of illegality of the assessment at issue should be judged unfounded.
1.6. The court, faced with the Respondent's response, determined on 08/05/2016 that the Applicants be notified to, if they so wished, exercise the right to be heard and specify the points of fact of their request for arbitral pronouncement on which they intended to produce testimonial evidence.
1.7. On 20/05/2016 the Applicants submitted a petition requesting the alteration of the list of witnesses and indicated the facts on which they intended to produce testimonial evidence.
1.8. The Applicants, on 23/05/2016, submitted their response to the dilatory exceptions invoked, in which they defend, namely, that the arbitral court is competent to hear the request and conclude for the unfoundedness of the exception of passive illegitimacy.
1.9. The court, on 31/05/2016, dispensed with the meeting referred to in art. 18 of the RJAT, set the date for holding the hearing and granted the request for alteration of the list of witnesses formulated by the Applicants.
1.10. The Applicants, on 14/06/2016, submitted a petition, in which they request the use of testimonial evidence produced in the scope of arbitral process no. 26/2016-T.
1.11. By order of 16/06/2016, the court decided, namely, to grant the Applicants a period to prove the identity of the parties, of the witness in question and that the fact whose evidence the Applicants intended to produce is coincident with that other one whose evidence they intended to use, all in relation to the above-referenced arbitral process.
1.12. The Respondent, by petition submitted on 16/06/2016, gave its consent to the use of evidence.
1.13. The Applicants, on 17/06/2016, submitted a petition and attached documents to comply with the court's order referred to in 1.11 hereof.
1.14. The court, by order of 19/06/2016, having obtained the agreement of the Respondent, granted the request for use of evidence, decided to dispense with the hearing that was scheduled and granted a period to the parties to, if they wished, submit final written arguments of a successive nature. Furthermore, 06/10/2016 was set as the deadline for issuing the arbitral decision.
1.15. The parties submitted final written arguments reiterating the arguments already invoked in the other pleadings.
- POSITIONS OF THE PARTIES
The Applicants begin by previously noting that the act of assessment of IRS with no. 2011 … of 25/06/2011 is not reasoned, either factually or legally, given that there is a total omission of grounds, by which they impute to the assessment the defect of lack of reasoning.
Secondly, they add that the act in question should be annulled for breach of legal formality, more specifically the right to be heard, thereby preventing their participation in the decision of the Tax and Customs Administration (AT) which is embodied in the assessment act.
Thirdly, they allege that the capital gains on securities determined by the Applicants in the course of 2010 result from a single operation of disposal of shares held for more than 12 months, carried out before the entry into force of Law 15/2010, of 26 July and that, in accordance with the law that was in force at the date of disposal of said shares, the capital gains resulting therefrom were excluded from taxation. Reason by which the act would be illegal.
To support such conclusion, they state that, in the specific case, it is not possible to subject to taxation the capital gains arising from the disposal of shares under the legal regime instituted by Law no. 15/2010, of 26 July, which entered into force on 27 July and which provides: i) an increase in the special taxation rate applicable to the positive balance between gains and losses on securities, which increased from 10% to 20% and ii) the elimination of the exclusion from taxation of capital gains from the disposal of shares held for more than 12 months and of bonds and other debt securities, which now become subject to taxation at the said rate of 20%.
In truth, they sustain that, given that Law 15/2010, of 26 July, which entered into force on the day following its publication (art. 5), did not determine a reference date for the beginning of the production of effects of the changes it introduced, article 12 of the General Tax Law (LGT) must be applied to assess the legal regime applicable to disposals of shares that took place before the entry into force of the new regime for taxation of capital gains on securities. Therefore, such legislative change shall only be applicable to tax facts occurring after its entry into force.
They further add that the relevant moment for purposes of taxation of capital gains on securities is that in which the capital gain is realized and, thus, in which the disposal occurs. Or, in other words, if the tax fact that gives rise to the tax is exhausted in the realization of the capital gain, in the specific case, the capital gains determined are excluded from taxation.
The Applicants further allege that the assessment violates the principle of prohibition of retroactive taxation, provided for in art. 103 of the Constitution of the Portuguese Republic (CRP), insofar as the tax act in question results from the application of Law 15/2010, of 26 July, when the tax-generating fact occurred at a moment prior to the date of entry into force of such diploma.
The Respondent, in its response, begins by defending itself by exception invoking:
The incompetence of the arbitral court.
In fact, it sustains that fiscal competence for the assessment of IRS with respect to individuals or legal entities with domicile, seat or effective management in the Autonomous Region of Madeira (ARM) belongs to its Regional Government, so that, if the binding to the jurisdiction of tax arbitral courts constituted under the aegis of the CAAD is limited to the services that compose the AT, the Regional Directorate of Tax Affairs (DRAF) would not be bound to such jurisdiction.
The passive illegitimacy.
Along such lines, it adds that, as a result of the incompetence of the arbitral court, the Respondent entity has no passive legitimacy in the scope of this process, since procedural legitimacy derives from the quality of party in the material relationship, resulting in the interest to act in court, as well as the interest in exercising the right to be heard against the claim deduced. Thus, it sustains that if the Applicants have their domicile in the ARM, the AT is not the active subject of the tax.
The untimeliness of the arbitral request.
Within the scope of its defense it sustains that the official review request is untimely, because if the act of assessment of IRS was notified to the Applicants on 25/06/2011 and the official review request was submitted on 25/06/2015 the periods of 3 and 4 years set forth in no. 4 and 1 of art. 78 of the LGT would have already elapsed.
According to the Respondent, if there is no error attributable to the services, the period for review would be 3 years and not 4.
For the Respondent, the error in the declaration is not attributable to the services, but to the Applicants themselves, who did not fill in the G1 annex in the model 3 declaration of IRS, as they were obliged to do, and if it is so, not only are the procedural prerequisites for official review not met, but such review request, by contradicting a prior conduct – declaration in the G annex, section 8, of disposal of shares not excluded from taxation, constitutes an abuse of rights, in the form of venire contra factum proprium.
Omission of the formality provided for in no. 3 of article 59 of the CPPT.
He further alleges that, if official review of the tax act were viable, it would be necessary to submit a substitute declaration, within the periods and limits set forth in no. 3 of article 59 of the Code of Procedure and Tax Process (CPPT) by the Applicants. Having breached the formality of article 59 of the CPPT, the official review request could not serve to reopen the period that the Applicants allowed to lapse, within the scope of that provision, as, moreover, peremptorily states no. 6 of that norm.
Along such lines, it argues that there can never be any error attributable to the services, so that the prerequisites on which the official review request depends, to be filed within the period of 4 years, are not met, in accordance with the provision of no. 1 of art. 78 of the LGT.
In the defense by impugnation, the Respondent alleges, as to the defects of lack of reasoning and breach of prior hearing imputed by the Applicants to the tax act in question, that the assessment object of the present proceedings was made based on the elements declared by the Applicants themselves and, as such, the assessment merely reflects the values that were declared and presented in the income declaration model 3. To support this conclusion, it states that the reasoning is sufficiently clear and unequivocal, so much so that the arguments used by them in their request for arbitral pronouncement demonstrate that they fully understood the factual and legal framework on which the Respondent's decision was based and that it was exempt from proceeding with the prior hearing of the Applicants, as art. 60, no. 2, al. b), of the LGT so provides.
Finally, the Respondent observes that the illegality of the assessment alleged by the Applicants has no regulatory basis, in defending that the fact that the law states that it enters into force on the day following its legal publication allows the exclusion of its application to the factual situation set out in the case. To formulate this conclusion it states that: i) the legislator, by not establishing in the law any rule of transitional law that would safeguard possible tax facts in formation, actually intended that situations of realization of capital gains during the year 2010 – from which a positive balance would result – be subject to effective taxation, regardless of the date of their realization; ii) the legislator itself clearly and expressly intended that the new regime be applicable to the result of capital gains determined throughout the year 2010; iii) it is settled that the tax-generating fact occurs on the date of 31 December of each year, thus understanding the unitary and global character of income taxation; iv) the tax-generating fact is not the gain resulting from the disposal, but rather the positive balance, determined in a given tax period, between gains and losses, therefore, it argues that it makes no sense to assert that there exists in the present case a situation of first-degree retroactivity with respect to the alteration advocated by Law 15/2010, of 26 July, when the legal solution concerns factuality still in formation and v) if the rule of annuality of IRS leads to the agglomeration of all tax-generating facts and income that occur until 31 December of the period in question, it makes no sense, in its judgment, to apply article 12 of the LGT to the present case for purposes of fixing the temporal application of Law 15/2010, of 26 July. In this way, the assessment does not violate the principle of prohibition of retroactive taxation or the constitutional principle of trust.
It concludes by stating that if the tax act in question is not illegal and corresponds to the elements that were declared by the Applicants themselves, there is no error attributable to the services and, thus, the requirements for recognition of the right to indemnification interest are not met.
Thus, these are the issues that the court must address:
i) Whether the arbitral court has competence to hear the request for arbitral pronouncement;
ii) Whether the Respondent entity is a party with passive illegitimacy in this case;
iii) Whether the official review request is timely;
iv) Whether the assessment act suffers from error as to the legal prerequisites, by violation of article 103 of the CRP.
v) Whether there is abuse of rights on the part of the Applicants;
vi) Whether the assessment act suffers from the defect of lack of reasoning due to absolute absence of any elements of fact and law and whether the assessment act breached an essential formality;
vii) Whether there is entitlement to the payment of indemnification interest.
- PRELIMINARY MATTERS AND CASE MANAGEMENT
3.1. INCOMPETENCE OF THE ARBITRAL COURT
The Respondent, in its response, invoked the absolute incompetence of this court, insofar as it considers that the tax in question is not assessed by the AT, but by the Regional Directorate of Tax Affairs (DRAF) and that the Applicants have their tax domicile in Funchal, that is, in the ARM. Consequently, the only organism of the Ministry of Finance that is bound to the jurisdiction of courts constituted under the aegis of the CAAD is the AT.
In response to such matter of exception, the Applicants defended that, in accordance with the provision of art. 12, no. 1 of Regional Regulatory Decree no. 2/2013/M, of 1 February, it is provided that the AT shall continue, through its departments and services, to ensure the realization of the procedures in administrative and computational matters necessary to the exercise of the attributions and competencies transferred to the ARM, including those relating to the assessment and collection of taxes that constitute the ARM's own revenue. As well as, in defense of their position, they observe that the document that evidences the assessment act: i) was issued by the Directorate-General of Taxes; ii) was signed by the Director-General of Taxes; iii) the logo affixed to it is that of the Directorate-General of Taxes; iv) the indication of "Income Tax" is made and v) the address registered therein is "…, …, …-… Lisbon…".
First of all, it is important to note that the issue raised by the Respondent is not new, having been already subject to analysis by doctrine and jurisprudence. In this respect, some doctrine defends that: "…the taxes collected in the Autonomous Region of Madeira are outside the material scope of arbitration because the Binding Ordinance imposes as a limit the taxes managed by the Tax and Customs Authority. (…) The Autonomous Region of Madeira does not have its tax system adaptation measures consolidated in a single diploma, this adaptation being carried out through several individual decrees. In truth, with regard to Madeira, a process of regionalization of tax administration was carried out through Decree-Law no. 18/2005, of 18/1, and Regional Regulatory Decrees nos. 1/A/2001/M, of 13/3, 29-A/2005/M, of 31/8, 5/2007/M, of 23/7, 27/2008/M, of 3/7, 8/2011/M, of 14/11, 4/2012/M, of 9/4, and 2/2013/M, of 1/2. Thus, having in consideration that art. 1 of Decree-Law no. 18/2005, of 18/1, enshrines the transfer to the Autonomous Region of Madeira of the fiscal attributions and competencies that within the scope of the Finance Directorate of the Autonomous Region of Madeira and of all the services dependent on it were being exercised in the territory of the Region by the Government of the Republic, the taxes collected in the Autonomous Region of Madeira are outside the material scope of arbitration because the Binding Ordinance imposes as a limit the taxes managed by the Tax and Customs Authority"[1].
Along this doctrinal line, jurisprudence has also pronounced itself[2], using in its argumentative foundations the following: i) the Regional Directorate of Tax Affairs is not explicitly listed in Ordinance no. 112-A/2011, of 22 March, or implicitly, because the Autonomous Region is not confused with another legal reality, the State and ii) the list of services bound to the jurisdiction of the CAAD in the binding ordinance has a taxative nature and, consequently, the DRAF is not contained therein.
In the opposite sense, arbitral jurisprudence has also pronounced itself, in the scope of processes 260/2013-T, of 06/05/2014 and 90/2014-T, of 26/09/2014. In the first arbitral decision it was concluded in this way: i) the competence of tax arbitral courts requires, in the first place, that the court assess the legality of the act, cfr. art. 2 of the RJAT and art. 2 of Ordinance no. 112-A/2011, of 22 March; ii) it must be determined whether the AT as the successor of the entities described in art. 1 of the Ordinance, has an interest in contesting the claim of the Applicant of the request for arbitral pronouncement and whether the case that is formed at the end has useful effect and iii) art. 1 of Decree-Law no. 18/2005, of 18 January, only comprises the transfer to the ARM of the fiscal attributions and competencies proper to the Finance Directorate of the Autonomous Region of Madeira and of all the services dependent on it and, thus, excluding the competencies exercised by delegation or any other form of representation of other organs[3]. In the same sense, jurisprudence adds: "…it follows from the legislative journey set out above that the AT never ceased to "ensure the realization of the procedures in administrative and computational matters necessary to the exercise of the attributions and competencies transferred to the ARM", including those relating to the assessment and collection of taxes that constitute the ARM's own revenue, including under Regional Regulatory Decree no. 2/2013, in force at the time of the assessments sub judice, so that the Respondent had the necessary powers to practice the assessments in question, and it can still be considered that, unequivocally, the tax was subject to its administration"[4].
Thus, it is necessary to question, from the outset, whether this court has competence to hear the request for arbitral pronouncement.
To resolve such issue it is necessary to mobilize the pertinent regulatory framework, that is, the RJAT and Ordinance no. 112-A/2011, of 22 March, which established the terms of the binding of the Tax Administration to the jurisdiction of the CAAD. More specifically, art. 2, no. 1 of the RJAT provides that: "The competence of the arbitral courts comprises the assessment of the following claims: a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account; b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable income and of acts of determination of asset values;…".
However, the binding to the jurisdiction of courts constituted under the aegis of the CAAD encompasses, as provided by art. 1 of Ordinance no. 112-A/2011, of 22 March: "…the following services of the Ministry of Finance and Public Administration: a) The Directorate-General of Taxes (DGCI); and b) The Directorate-General of Customs and Special Taxes on Consumption (DGAIEC)". It happens that, through Decree-Law no. 118/2011, of 15 December, such services were merged into the Tax and Customs Authority. Moreover, art. 2, no. 1 of the aforementioned ordinance adds that: "The services and organisms referred to in the preceding article bind themselves to the jurisdiction of arbitral courts operating in the CAAD that have as their object the assessment of claims relating to taxes whose administration is entrusted to them (our emphasis) referred to in no. 1 of art. 2 of Decree-Law no. 10/2011, of 20 January…".
The Organic Law of the Regional Directorate of Tax Affairs (Regional Regulatory Decree no. 2/2013/M, of 1 February), in art. 2, no. 3 determines that: "It is incumbent particularly on the DRAF and with respect to its own fiscal revenues: a) Ensure the assessment and collection of taxes on income, on assets and on consumption and other taxes that it is incumbent upon it to administer, as well as collect and recover other revenues of the Region or of public law entities;…". However, art. 12, no. 1 of the same decree provides that: "Until all the logistical means necessary for the exercise of the full extent of the attributions and competencies provided for in article 2 of this decree are installed, the AT, through its departments and services, shall continue to ensure the realization of the procedures in administrative and computational matters necessary to the exercise of the attributions and competencies transferred to the ARM, including those relating to the assessment and collection of taxes that constitute the ARM's own revenue".
Now, in the specific case, there are regulations that demonstrate that the administration of IRS is the responsibility of the AT. Indeed, art. 75 (in the wording in force at the time of the tax fact) of the IRS Code provides that: "The assessment of IRS is the responsibility of the Directorate-General of Taxes". As well as art. 90 of the IRS Code states that: "Whenever, with respect to the entities to which the regime defined in art. 20 applies, there are corrections that determine alteration of the amounts attributed to their respective members or partners, the Directorate-General of Taxes proceeds to reform the assessment carried out on them, collecting or annulling in consequence the differences determined".
Thus, in the assessment in question the logo of the AT appears and not that of the DRAF, which also demonstrates that the administration of the tax in question is entrusted to the AT, which is sufficient to conclude the material competence of this court to assess the defects imputed by the Applicants to the disputed assessment.
It is further believed that such interpretive sense is reinforced when the care of the regional legislator is observed in the cited art. 12, no. 1 of Regional Regulatory Decree no. 2/2013/M, of 1 February, when it states that the AT shall continue to carry out procedures in administrative matters, until the DRAF has all the necessary means for the exercise of all the attributions and competencies provided for in art. 2 of the same decree and in which there are "assessment and collection of taxes…on income…".
In sum, the alleged incompetence does not occur, which is declared, judging the alleged exception unfounded.
3.2. PASSIVE ILLEGITIMACY OF THE RESPONDENT
The Respondent invokes that it is a party with passive illegitimacy in the present proceedings, given that it understands that it is not the active subject of the tax, insofar as the Applicants have their tax domicile in the ARM.
Differently, the Applicants defend, in summary, that the ARM does not have the prerogative of authority in the administration of the tax, that task being exercised, exclusively, by the AT, as its representative and interlocutor with the taxpayer.
Art. 30, no. 1 and 2 of the Code of Civil Procedure (CPC) provides that: "1. The plaintiff is a party with active legitimacy when he has direct interest in filing suit; the defendant is a party with passive legitimacy when he has direct interest in contesting. 2. The interest in filing suit is expressed by the utility derived from the success of the action and the interest in contesting by the prejudice that would result from such success…".
Procedural legitimacy is thus assessed by the party's relationship and interest with the object of the action.
Art. 9, nos. 1 and 4, of the CPPT, applicable by force of art. 29, no. 1, al. a), of the RJAT provides that the AT, which comprises the extinct Directorate-General of Taxes and Directorate-General of Customs and Special Taxes on Consumption, has legitimacy to intervene in the tax procedure and in the tax judicial process.
In truth, as doctrine sustains: "…all persons who have legitimacy to intervene in the tax procedure also have legitimacy to intervene in the tax judicial process"[5].
Now, in the case sub judice we are in the presence of an act of assessment practiced by the Respondent, for which it has competence, and is also responsible for the administration of the tax as already explained in this decision. In truth, if it was the Respondent who practiced the act, it will be the entity that will best be able to proceed with the judicial sustenance of its legality.
Thus, if it is a holder of legitimacy for the tax procedure, having practiced the assessment act, it cannot cease to be admitted that it has legitimacy for the tax arbitral process.
For such sum of reasons, it is declared that the Respondent has passive legitimacy in the present proceedings, thus judging the invoked exception unfounded.
As to the exception of untimeliness of the arbitral request, based on grounds, both in the non-verification of the prerequisites of nos. 1 and 4 of art. 78 of the LGT, given that there was no error attributable to the services, and in the non-verification of the formality provided for in no. 3 of art. 59 of the CPPT, the same shall be assessed after analysis of the merits, since the procedence of this exception depends on that assessment.
3.3. CASE MANAGEMENT
The process does not suffer from nullities, the arbitral court is regularly constituted and is materially competent to know and decide the request, the conditions being consequently verified for the final decision to be delivered.
- FACTUAL MATTERS
4.1. FACTS CONSIDERED PROVED
4.1.1. On 25/06/2011 the AT issued assessment no. 2011 … in the amount of € 215,658.27 concerning the Applicants, by way of IRS and with respect to the year 2010.
4.1.2. The Applicants submitted a request for review of such assessment on 25/06/2015.
4.1.3. Until 22/01/2016 no decision was issued regarding such official review request of the tax act.
4.1.4. On 19/05/2011 the Applicants, in field 8 of Annex G of the model 3 declaration of IRS, declared as the sale value of the shares that Applicant A… held in the company C… – ..., S.A., the amount of € 2,333,333.00.
4.1.5. The Applicants did not submit annex G1 with said model 3 declaration.
4.1.6. The AT made the assessment in accordance with the data entered by the Applicants in the model 3 declaration.
4.1.7. By public deed dated 28/06/1983, the private limited company "H…, Lda." was established between D…, E…, F… and G….
4.1.8. At that date, said company had a share capital fully subscribed and paid in the amount of 300,000$00 (three hundred thousand escudos), which was divided into one share in the amount of 200,000$00 (two hundred thousand escudos), belonging to F… and two equal shares in the amount of 50,000$00 (fifty thousand escudos) each, belonging to D… and E….
4.1.9. Partner F… would divide her share into three new shares, retaining for herself one share of € 50,000$00 (fifty thousand escudos) and transferring one share of 100,000$00 (one hundred thousand escudos) to the now Applicant A… and one share of 50,000$00 (fifty thousand escudos) to I….
4.1.10. By public deed of 20/12/1988, the share capital of H…, Lda. was increased from 300,000$00 (three hundred thousand escudos) to 40,000,000$00 (forty million escudos), through the increase of 39,700,000$00 (thirty-nine million seven hundred thousand escudos), fully paid in cash and subscribed in equal parts, that is, each with the amount of 19,850,000$00 (nineteen million eight hundred fifty thousand escudos), by D… and E…, who are admitted as new partners.
4.1.11. On 29/05/1996, the company H…, Lda. was transformed into a joint-stock company, becoming designated "C… – ..., S.A.", with a share capital of 40,000,000$00 (forty million escudos) and divided into 40,000 shares with a nominal value of 1,000$00 (one thousand escudos) each.
4.1.12. On the same date the increase of the share capital of C… – ..., S.A. from 40,000,000$00 (forty million escudos) to 200,000,000$00 (two hundred million escudos) was promoted, through the increase of 160,000,000$00 (one hundred sixty million escudos), carried out in the following way:
i) incorporation of revaluation reserves of fixed assets in the amount of 70,470,000$00 (seventy million four hundred seventy thousand escudos), to be subscribed by each of the shareholders mentioned above, in the proportion of the capital held by each one;
ii) new contributions in kind of movable assets, in the value of 18,130,000$00 (eighteen million one hundred thirty thousand escudos), corresponding to 18,130 new ordinary shares, in the nominal value of 1,000$00 (one thousand escudos) each, subscribed and paid, in equal parts, by shareholder D… and E…;
iii) new cash contribution from the company J… – ..., S.A., in the amount of 150,000,000$00 (one hundred fifty million escudos), for subscription and payment of 71,400 ordinary shares in the nominal value of 1,000$00 (one thousand escudos) each.
4.1.13. On 27/06/2000, the shareholders D… and E… sold, at their respective nominal value, all the shares they held in the company C… – ..., S.A. – 127,772 shares, in the proportion of 50% for each, with a nominal value of 1,000$00 (one thousand escudos) per share.
4.1.14. With the redenomination of the share capital and shares to euros, the share capital of the company C… – ..., S.A. became € 1,000,000 (one million euros), represented by 200,000 shares, with the nominal value of € 5 (five euros) each and thus the values of the equity stakes in the company C… – ..., S.A. became the following:
i) D…– 21,434 shares, with the nominal value of € 107,170 (one hundred seven thousand one hundred seventy euros), corresponding to 10.717% of the share capital;
ii) A…– 21,434 shares, with the nominal value of € 107,170 (one hundred seven thousand one hundred seventy euros), corresponding to 10.717% of the share capital;
iii) F…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
iv) I…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
v) K…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
vi) J… – ..., S.A. – 71,400 shares, with the nominal value of € 357,000 (three hundred fifty-seven thousand euros), corresponding to 35.7% of the share capital.
4.1.15. By contract of purchase and sale entered into on 13/05/2003, the shareholder J… – ..., S.A. sold to the company C… – ..., S.A. its 71,400 shares, corresponding to 35.7% of the share capital and, in consequence, the distribution of equity stakes became the following:
i) D…– 21,434 shares, with the nominal value of € 107,170 (one hundred seven thousand one hundred seventy euros), corresponding to 10.717% of the share capital;
ii) A…– 21,434 shares, with the nominal value of € 107,170 (one hundred seven thousand one hundred seventy euros), corresponding to 10.717% of the share capital;
iii) F…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
iv) I…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
v) K…– 21,433 shares, with the nominal value of € 107,165 (one hundred seven thousand one hundred sixty-five euros), corresponding to 10.7165% of the share capital;
vi) C… – ..., S.A. – 71,400 shares, with the nominal value of € 357,000 (three hundred fifty-seven thousand euros), corresponding to 35.7% of the share capital.
4.1.16. Subsequently, the company C… – ..., S.A. resolved:
i) To reduce the share capital of the company in an amount corresponding to € 357,000 (three hundred fifty-seven thousand euros), through the extinction of the 71,400 treasury shares held by it;
ii) To annul the discount on acquisition of extinct treasury shares through the allocation of the amount of € 892,500 (eight hundred ninety-two thousand five hundred euros) of free reserves for such compensation;
iii) To increase the share capital, in the amount of € 357,000 (three hundred fifty-seven thousand euros), by incorporation of free reserves, through the issuance of 71,400 shares, attributed to shareholders in the proportion of their respective equity stakes.
4.1.17. Thus, the distribution of equity stakes in the company C… – ..., S.A. became the following:
i) D…– 33,334 shares, with the nominal value of € 166,670 (one hundred sixty-six thousand six hundred seventy euros), corresponding to 16.667% of the share capital;
ii) A…– 33,334 shares, with the nominal value of € 166,670 (one hundred sixty-six thousand six hundred seventy euros), corresponding to 16.667% of the share capital;
iii) F…– 33,333 shares, with the nominal value of € 166,665 (one hundred sixty-six thousand six hundred sixty-five euros), corresponding to 16.665% of the share capital;
iv) E…– 33,333 shares, with the nominal value of € 166,665 (one hundred sixty-six thousand six hundred sixty-five euros), corresponding to 16.665% of the share capital;
v) K…– 33,333 shares, with the nominal value of € 166,665 (one hundred sixty-six thousand six hundred sixty-five euros), corresponding to 16.665% of the share capital;
vi) I…– 33,333 shares, with the nominal value of € 166,665 (one hundred sixty-six thousand six hundred sixty-five euros), corresponding to 16.665% of the share capital.
4.1.18. On 24/05/2010 the shareholders of C… – ..., S.A. disposed of all the shares they held in this company – 200,000 shares with the nominal value of € 5.00 each, representing 100% of its share capital, at the overall price of € 14,000,000.
4.1.19. The stake of Applicant A… in the share capital of C… – ..., S.A – 33,334 shares, with the nominal value of € 166,670 was sold at a price corresponding to € 2,333,380.00 (€ 14,000,000 x 16.667%).
4.1.20. The price for the purchase of the shares (€ 14,000,000) of C… – ..., S.A. was fully paid to the shareholders.
4.1.21. The disposal entered in annex G of the model 3 declaration of IRS concerns shares held for more than 12 months, the capital gain resulting from the operation (€ 2,333,380.00 - € 166,670.00 = € 2,166,710.00 : 2 = € 1,083,355.00) having been considered at 50% of its value, given that it was a small unlisted company.
4.1.22. The balance between gains and losses realized up to 27/07/2010 concerning shares held for more than 12 months amounts to € 1,083,355.00.
4.1.23. In the assessment that the AT made, it applied the tax rate of 20% to the balance of gains and losses determined by the Applicants in the year 2010, having calculated a tax of € 215,658.27.
4.1.24. The Applicants made on 30/09/2011 the payment of the amount determined in assessment no. 2011….
4.1.25. The Applicants submitted the request for constitution of the arbitral court that led to the present proceedings on 22/01/2016.
4.2. FACTS NOT CONSIDERED PROVED
There are no facts relevant to the decision that have not been taken as proved.
4.3. JUSTIFICATION OF THE FACTUAL MATTER CONSIDERED PROVED
The factual matter taken as proved has its source in the documents used for each of the alleged facts and whose authenticity was not called into question.
- ON THE LAW
5.1. As to the alleged error in the legal prerequisites, by violation of article 103 of the CRP
In the interpretation of the Applicants, the law applicable to assess the subjection to tax of capital gains realized is that which was in force at the date of disposal of the shares, that is, al. a), of no. 2, of article 10 of the IRS Code, in the wording in which it excluded from taxation capital gains arising from the disposal of shares held for more than twelve months.
Article 5 of Law no. 15/2010, of 26 July – which entered into force on the day following its publication – altered the regime of taxation of capital gains on securities, increasing the special tax rate applicable to the positive balance between gains and losses on securities, from 10% to 20%, and eliminating the exclusion from taxation of capital gains from the disposal of shares held for more than 12 months. Law no. 15/2010 did not set the reference date for the beginning of the production of effects of this alteration.
Thus – the Applicants argue –, given that no legal provision was established to apply the modified provisions of the IRS Code to a tax period prior to the date of the alteration, it must be understood that Law no. 15/2010 entirely referred to the general rule for the application of tax law in time, inscribed in article 12 of the General Tax Law: "tax rules apply to facts subsequent to their entry into force, and retroactive taxes cannot be created".
Specifically, they defend that the relevant moment for purposes of determination and taxation of capital gains on securities is the moment in which the capital gain is realized, in which the disposal occurs, and that this understanding is not opposed by the circumstance that the balance determined between gains and losses realized in the same year is taxed, since what is at issue in no. 1 of article 43 of the IRS Code is, alongside the rules governing the determination of the gain subject to tax, the determination of taxable income as it relates to income resulting from capital gains. It is not, therefore, a rule of incidence, that has its basis in article 10 of the IRS Code, where in no. 3 it is established that gains are considered obtained at the moment of the performance of the acts in no. 1 of the same legal provision. Thus, in capital gains resulting from the disposal of equity stakes and other securities, the tax bears on operations that occur and are exhausted instantaneously, even if there is an annual consolidation of gains and losses for the purpose of determining taxable income, on which the special rate will apply or which will be included in the income of the other categories.
In the version of the Applicants, only this interpretation does not collide with art. 103, no. 3, of the CRP.
Moreover, the Applicants support this position in the doctrine of several decisions, in uniform sense, of the Supreme Administrative Court: the Judgments delivered in Processes nos. 1078/12, of 8 January 2014, 013/15, of 20 May 2015, 1292/14, of 16 September 2015, 1504/14, of 16 September 2015, and especially the Judgment for Uniformization of Jurisprudence, in Process 734/15, of 2 December 2015. As well as in several decisions of the CAAD, delivered in Processes nos. 223/2014-T, 338/2014-T, 402/2014-T, 509/2014-T and 770/2014-T, to which, in a subsequent petition, they added the one delivered in Process no. 27/2016-T.
The Respondent understands that the tax-generating fact is not the gain resulting from the disposal, but rather the (positive) balance determined, in a given tax period, between gains and losses, so that to argue, in the case of the proceedings, that the tax-generating fact is the disposal of shares that gave rise to the capital gains taxed, in addition to distorting the annual character of the tax, goes against its unitary character, understood as a basic and structuring principle of the reform carried out in 1989.
Let us see.
The Applicants disposed of, on 24 May 2010, shares that they held for more than twelve months.
On that date the following wording of article 10 of the IRS Code was in force, insofar as now relevant:
"1 - Capital gains are constituted by gains obtained that, not being considered as business and professional income, capital or real estate income, result from:
b) Onerous disposal of equity stakes, including their redemption and amortization with capital reduction, and other securities and, as well, the value attributed to members as a result of partition which, in accordance with article 75 of the Corporate Income Tax Code, is considered as a capital gain;
2 - The following are excluded from the foregoing provisions gains arising from the disposal of:
a) Shares held by their holder for more than 12 months;"
Law no. 15/2010 revoked no. 2, having entered into force on 27 July 2010.
The AT understood that the gains resulting from all disposals of shares – even if held for more than 12 months – occurring in the year 2010, are subject to taxation in IRS. That is, that subjection occurs even if capital gains arise from disposals occurring before the entry into force of Law no. 15/2010, and applied the rate of 20% provided for in no. 4 of article 72 of the IRS Code (in the wording of the same Law), to the entire balance of gains and losses resulting from those disposals.
The Supreme Administrative Court issued several decisions in a sense contrary to this understanding of the AT.
In particular, in the Judgment for Uniformization of Jurisprudence, in Process 734/15, of 2 December 2015, the Supreme Administrative Court came to recall that: "…in Full Session and by unanimous vote, it has already expressed its understanding on the controversial issue also in the case of the proceedings, this position being one to reaffirm here. Hence, by the grounds expressly stated in the Judgments of this STA of 16 September 2015, delivered in appeals nos. 1292/14 and 1504/14, for whose grounds reference is made and here also accepted, it is necessary, without further ado and in allowing the appeal, to annul the disputed arbitral decision (article 152, no. 6 of the CPTA) and, in substitution, to judge the claims as well founded, annulling the litigated assessments."
Now, in the Judgment in Process no. 1292/14, the Supreme Administrative Court understood – a position we endorse – the following: "(…) we consider that the tax-generating fact relates to the moment in which capital gains are realized, or, in other words, the tax-generating fact that originates and shapes them is born and exhausted in the precise moment (autonomous and complete) of the disposal and coetaneous realization of capital gains, being, therefore, an instantaneous tax-generating fact, and not a complex tax-generating fact of successive formation over a year.
It is certain that capital gains, like other income subject to IRS, are declared annually (article 57 of the IRS Code) and that the annual taxable income of the taxpayer corresponds to the positive balance determined between gains and losses that have been realized in the same year (article 43, no. 1 of the IRS Code). But this operation of aggregation between gains and losses does not have the power to alter or transmute the nature of the underlying tax-generating facts. What can be concluded from this is, merely, that gains and losses achieved during the same year are declared at a single moment — in the annual IRS declaration — and that both compete for the determination of the final balance that will serve to determine and quantify the annual income subject to taxation in IRS.
In other words, the rule that provides for the necessary aggregation for determining the positive balance between gains and losses in light of all disposal acts occurring in the year constitutes a rule on the determination of the taxable base for IRS purposes, that is, a rule on the determination of taxable income, and not a rule of incidence, as, indeed, emerges from the systematic organization of the IRS Code, where the reference to this balance is found inserted in the chapter that deals with the determination of taxable income and not in the chapter that deals with the incidence of the tax. And, as is obvious, the tax-generating fact must be located in time in relation to its rule of incidence, and not in relation to the rule for determination of taxable income.
In sum, the positive balance that will be taxed is not confused with the tax-generating fact itself. Such balance has relevance only for the accuracy of taxable income and determination of the tax obligation that emerges (or not) for the taxpayer in IRS proceedings, lacking relevance for the formation of the tax-generating fact itself, since this, as seen, arises isolated in time, occurring as a mere effect of the obtaining of the gain at the moment of each disposal act of the movable assets in question.
And the fact that IRS is a tax of periodic nature does not make it impossible for it to be composed of income of instantaneous formation and income of successive formation. In fact, while some income is, by the nature of its tax-generating fact, of successive formation in time, others, like the patrimonial increases that fiscal law considers as taxable capital gains in Category G, stem from operations individually or instantaneously realized, in which each tax-generating fact presents itself as autonomous and complete, that is, without requirement of any fact or subsequent occurrence."
And further on:
"This Law no. 15/2010 is silent on the establishment of specific rules regarding its application in time (…), limiting itself to prescribe that "This law enters into force on the day following its publication". Which cannot fail to represent a silent choice of the legislator on this matter, all the more so because this problematic, the application in time of the legislative changes that the diploma came to introduce in the taxation of capital gains, was raised and discussed in the framework of the parliamentary debate that preceded the approval of this Law.
Now, having the legislator chosen not to regulate this matter, limiting itself to determine the date of entry into force of the diploma on the day following its publication, without establishing any rule that would allow its application to a previous tax period, it is necessary, necessarily, to apply the general rule governing the application of substantive tax law in time, embodied in article 12 of the LGT, being untenable to disregard such rule or general principle with the argument that there will be historical and genetic elements that allow inferring that the legislator will have intended that the new law apply to all share disposals – even those that took place before the date of entry into force of such diploma – occurring in the year 2010. Because even if that were the legislator's initial intention, the fact is that it ended up not expressing and conforming it in the legislative text, and such necessarily leads to the application of the general principle on the application of tax law in time, according to which tax rules apply only to facts subsequent to their entry into force.
Reason by which we consider that the applicable law is that in force at the date of occurrence of the instantaneous tax-generating fact. And there is, in the case, no difficulty in locating that fact in time, given that the disposal is dated (…), nor is there any question that arises regarding the principle of progressivity of the tax, since the consequence of the application of article 12, no. 1 of the LGT is the non-consideration of the capital gains in question for purposes of assessment of the tax.
(…) And for all the foregoing we consider it to be clear that, in the case, there occurred the application of new law to tax-generating facts of instantaneous nature already completely formed at a moment prior to the date of its entry into force, which involves authentic retroactivity, because what is relevant for that effect is not the moment of assessment or determination of the tax, but the moment in which the tax-generating fact occurs that determines a possible assessment and payment of tax, since at that time it is required that the law is in force that provides for the creation or aggravation of the tax (in obedience to the principle of legality, in the aspect grounded in the principle of protection of trust), so that the citizen can consider the fiscal consequences of his behavior."
Thus, following the cited or transcribed jurisprudence of the Supreme Administrative Court, the disputed assessment is annulled, for erroneous interpretation and application of the aforementioned legal provisions of the IRS Code, of Law no. 15/2010 and of the LGT.
Given that the disputed assessment is illegal, this illegality necessarily entails the illegality of the tacit dismissal of the official review request.
On the other hand, it is in light of these prerequisites that the other issues raised by the AT as an obstacle to the assessment of the request must be considered.
5.2. The issue of untimeliness of the request
5.2.1. Non-verification of the prerequisites of art. 78 of the LGT
As stated, the AT sustains the untimeliness of the official review request submitted, both in the non-verification of the prerequisites of nos. 1 and 4 of article 78 of the LGT, given that there was no error attributable to the services, and in the omission of the formality provided for in no. 3 of article 59 of the CPPT.
Now, art. 78, no. 1, of the LGT legitimates the presentation of the request for review of the tax act at the initiative of the AT within the period of 4 years following the assessment, or at any time, if the tax has not yet been paid, based on error attributable to the services.
Thus, it is this period that concerns illegalities arising from the applicable legal regime and not that of three years, set forth in no. 4 of art. 78 of the LGT, which concerns the review of taxable matter.
In the specific case, the assessment was made on 25/06/2011 and the official review request was submitted on 25/06/2015, that is, before the expiration of the four-year period.
On the other hand, the presentation of the official review request had the capacity to cause the interruption of the period for carrying out the review, art. 78, no. 7, of the LGT.
In sum, if there is error attributable to the services, it must be concluded that the official review request was timely submitted.
As stated in the Arbitral Judgment no. 27/2016-T "The error in the declaration will be attributable to the taxpayer when this one, namely, withholds information about the facts on which taxation is based or when it fails to comply with any declarative requirements through appropriate means".
In the specific case, the Applicants declared the disposal of shares occurring chronologically before 27/07/2010 in annex G, section 8, relating to "Onerous Disposal of Equity Stakes and other Securities", so they did so in the appropriate manner.
In fact, Ordinance no. 1303/2010, of 22 December, which approved the models annexed to the model 3 declaration to be used with respect to the year 2010, expressly and specifically states that should be indicated in annex G1 the onerous disposal, in 2009 or earlier years, of shares held for more than 12 months. Its content is as follows: "This annex is intended to declare the onerous disposal of real estate not subject to taxation, in accordance with no. 4 of art. 4 and art. 5 of Decree-Law no. 442-A/88, of 30 November, as well as the disposal of real estate 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 art. 102 and following of Law no. 64-A/2008, of 31 December, and also the onerous disposal, carried out in the years 2009 and earlier, of shares held for more than 12 months".
Reason by which it must be concluded that, with the reference to the disposal in question in annex G, section 8, the Applicants did not omit or withhold any duty of declaration resulting from the rules applicable to the model 3 declaration, so that error attributable to them did not occur.
Therefore, the AT cannot sustain that it did not have all the necessary elements to apply the legal regime resulting from the onerous disposal of shares held for more than 12 months.
On the contrary, the error embodied in the application of a regime that is considered illegal, in light of the aforementioned uniform jurisprudence, is attributable to the AT which had the relevant elements to apply the regime adopted in it.
The Respondent's argumentation thus fails.
5.2.2. Non-compliance with art. 59, no. 3, of the CPPT
The Respondent understands that, in this respect, for official review to be viable, it would first require the submission of a substitute declaration in light of no. 3 of art. 59 of the CPPT.
It happens that, in accordance with the provision of art. 78, no. 1, of the LGT, the review of tax acts does not depend on the initiative of taxpayers, it being admitted that it be carried out "…at the initiative of the tax administration, within the period of four years following the assessment or at any time if the tax has not yet been paid, based on error attributable to the services".
In truth, despite the designation of review as "official", doctrine observes that the taxpayer can trigger the review by the AT, through a request for its realization, which is confirmed by no. 1 of article 49 of the LGT by making reference to the "request for official review of the assessment of the tax"[6].
Reason by which there is no legal basis for making official review dependent on the prior submission of a substitute declaration, so the Respondent's defense on the issue under analysis fails.
In these terms, for the reasons stated, the exception of untimeliness of the arbitral request fails.
5.3. ABUSE OF RIGHTS
The Respondent defends in its response that the fact that the Applicants themselves declared in the model 3 of IRS, annex G, section 8, the capital gains and later came to contest the assessment made based on their declaration constitutes an abuse of rights, in the form of venire contra factum proprium.
It happens that the aforementioned section was the only appropriate one for such purpose, in light of Ordinance no. 1303/2010, of 22 December, so that there was no other one for the effect and, thus, the Applicants did not induce the AT into any error.
Consequently, given that the error with which the assessment is affected is not attributable to the Applicants, it is imperative to conclude that one is not in the presence of conduct that embodies this venire contra factum proprium.
5.4. LACK OF REASONING AND VIOLATION OF THE RIGHT TO BE HEARD
Art. 78, no. 1, of the LGT only legitimates official review in those instances where there is error attributable to the services, a solution that precludes the relevance of formal and procedural defects, which are not subsumed in the concept of error, whose content only encompasses error as to the facts and legal prerequisites.
In such sense jurisprudence sustains[7] that: "I – The expression "error attributable to the services" refers to "error" and not to "defect", which indicates that it seeks to bear on errors as to the facts and legal prerequisites that led the Administration to an illegal definition of the taxpayer's tax relationship, not considering the formal or procedural defects which, although impairing the legality of the act, do not necessarily imply an erroneous definition of that relationship. II – The defects of violation of the right to prior hearing and of lack of reasoning, insofar as they integrate the invoked formal or procedural defects, are not covered by "error attributable to the services"".
A legislative option that prevents the review of the assessment with origin in defects of a formal and procedural nature.
Thus, the request for arbitral pronouncement must fail as to the request for declaration of illegality with source in such defects.
5.5. AS TO THE REQUEST FOR INDEMNIFICATION INTEREST
On 30 September 2011, and notwithstanding disagreeing with the calculation of the tax resulting from the tax act now being contested, namely with the application of a 20% rate to the entire positive balance between gains and losses on securities determined in the course of the year 2010, the Applicants promoted the full payment of the assessed tax, whereby they come to petition for reimbursement of the same, as well as the payment of indemnification interest, in accordance with the provision of article 43 of the LGT.
As a consequence of the annulment of the assessment there is entitlement to reimbursement of the amount unduly paid by way of tax.
With respect to indemnification interest, the provision invoked by the Applicants states that the taxpayer has the right to be indemnified by the tax administration, through the payment of indemnification interest, whenever there is unduly paid tax debt, due to fault attributable to the services.
On this matter, the Respondent merely argues that the tax act in question is valid and legal, either because it complies with the legal regime, or because it corresponds exclusively to the elements that were declared by the Applicants themselves, in the income declaration; hence it clearly and evidently results that there is no error attributable to the services.
Given that the application that this court makes of the Law is opposed, it is clear that the meager defense presented does not subsist with respect to this matter. However, this is not enough for the court to be able to condemn to the payment of indemnification interest, since it is always incumbent to assess whether all the legal prerequisites are met for the Applicants to have the right to the same.
Articles 43 of the LGT and 61 of the CPPT provide that the right to indemnification interest depends on the verification of three prerequisites: i) the tax being paid; ii) the respective assessment having been annulled, totally or partially, in a gracious or judicial proceeding; iii) determining, in gracious or judicial proceeding, that the annulment is based on error attributable to the services.
Now, it was the Applicants themselves who entered in the IRS declaration relating to the year 2010 the value of capital gains determined, which can induce the thesis of sibi imputet, with exclusion, therefore, of error attributable to the Services.
However, it is not believed that this is so, as has been demonstrated.
The model 3 declaration (with the respective annex G1, for non-taxed capital gains), was altered to be adapted to the legislative modification resulting from Law no. 15/2010. The aforementioned annex G1 ceased to contemplate the exclusion from taxation of capital gains resulting from the disposal of shares held for more than 12 months, except for disposals carried out in the years 2009 and earlier. The filling instructions of said annex G1 also clarify this: its respective section 4 is intended to declare disposals made in the years 2009 and earlier concerning shares held by taxpayers for more than 12 months.
Thus, only to the Respondent is it attributable the impossibility of any IRS taxpayer – like the Applicants – declaring in 2011 the disposals of shares held for more than 12 months that they made in 2010, before the entry into force of Law no. 15/2010. It is shown, therefore, that all the legal prerequisites are met for the right to indemnification interest, in the terms petitioned by the Applicants. It remains to see from when such interest is counted.
No. 1 of article 43 of the LGT recognizes the right to the same when it is determined in proceedings of gracious complaint or judicial impugnation that there was error attributable to the services.
The official review request of the tax act is only equatable to a gracious complaint, for this purpose, when submitted within the period of such, as provided by no. 1 of article 78 of the LGT.
It is stated in the Judgment of the Supreme Administrative Court of 12/7/2006, delivered in process no. 402/06: "in cases of official review of assessment (when it is not done at the request of the taxpayer, within the period of administrative complaint, a situation that is equatable to that of a gracious complaint) (…) there is only entitlement to indemnification interest in accordance with art. 43, no. 3, of the LGT".
This regime is justified by the lack of diligence of the taxpayer in submitting an administrative complaint or request for review within the period of such, as provided for in no. 1 of article 78 of the LGT.
In such cases, the taxpayer has no right to indemnification interest from the date of unduly paid tax, but only from the date on which one year was completed after having submitted the request for review of the tax act, in accordance with al. c), of no. 3, of article 43 of the LGT.
In the case at hand, the rule in light of which the existence of the right to indemnification interest must be assessed is al. c), of no. 3, of article 43 of the LGT, which establishes that they are owed "when the review of the tax act at the initiative of the taxpayer is effected more than one year after the request of the latter, unless the delay is not attributable to the tax administration".
As emerges from the factual matters fixed, the official review request was submitted on 25/06/2015, so, only from 26/06/2016, more than one year after the formulation of the request, is there entitlement to indemnification interest.
- DECISION
In these terms this Arbitral Court agrees:
To judge unfounded the exceptions of incompetence, untimeliness and passive illegitimacy raised by the AT;
To judge the request for arbitral pronouncement as well founded and declare illegal the assessment of Personal Income Tax (IRS) with no. 2011…, made by His Excellency the Director-General of the (then so designated) Directorate-General of Taxes, by reference to the year 2010, in the amount of € 215,658.27 and, likewise,
To annul the said assessment and, in consequence,
To annul the tacit dismissal of the official review request submitted against the same;
To judge the requests for reimbursement of the amount unduly paid and for payment of indemnification interest, from 26/06/2016, at the supplementary legal rate, on the amount to be reimbursed as well founded and to condemn the AT to make such payments.
- VALUE OF THE PROCEEDING
In accordance with the provision of art. 306, no. 2, of the CPC and 97-A, no. 1, letter a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of € 215,658.27 (two hundred fifteen thousand, six hundred fifty-eight euros and twenty-seven cents) is fixed to the proceeding.
- COSTS
Pursuant to art. 22, no. 4, of the RJAT, the amount of costs is fixed at € 4,284.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, borne by the AT.
Notify.
Lisbon, 4 October 2016
The Arbitrators
(Fernanda Maçãs)
(Luis M. S. Oliveira)
(Francisco José Nicolau Domingos)
[1] SÉRGIO VASQUES/ TRINDADE, The material scope of tax arbitration, in Notebooks of Tax Justice no. 00, April/June 2013, page 26 and 27.
[2] Arbitral decision delivered in the scope of process no. 89/2012-T, of 18/02/2013, in which Professor Doctor JORGE BACELAR GOUVEIA assumed the function of arbitrator.
[3] For an exhaustive analysis of all the argumentation consult the arbitral judgment delivered in such process, of 06/05/2014 in which Master JOSÉ PEDRO CARVALHO assumed the functions of arbitrator-president.
[4] Arbitral decision delivered in the scope of process no. 90/2014-T, of 26/09/2014 and in which Master MARCOLINO PISÃO PEDREIRO assumed the function of arbitrator.
[5] JORGE LOPES DE SOUSA, Code of Procedure and Tax Process – annotated, 4th edition, Vislis Publishers, 2003, page 84.
[6] DIOGO LEITE CAMPOS/BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law – annotated and commented, 4th edition, Encounter of Writing, 2012, page 705.
[7] Judgment of the Supreme Administrative Court delivered in the scope of appeal no. 080/07, of 27/06/2007 and in which Counselor PIMENTA DO VALE was rapporteur.
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