IRS on Urban Lot Development Income: CAAD Arbitration on Category G Classification (301/2015-T)

ARBITRAL DECISION

The Arbitrators Maria Fernanda dos Santos Maçãs (Presiding Arbitrator), Nuno Maldonado Sousa and Paulo Mendonça, designated by the Deontological Council of the Center for Administrative Arbitration to constitute an Arbitral Tribunal established in CAAD – Center for Administrative Arbitration in accordance with the legal regime established by Decree-Law No. 10/2011 of January 20[1], do hereby decide:

1.1. Report

1.2. Constitution of the Arbitral Tribunal

A…, taxpayer No. …, resident at Rua … No. …, in Coimbra, submitted an application for constitution of the arbitral tribunal, in accordance with the combined provisions of articles 2nd and 10th of RJAT and articles 1st and 2nd of Portaria No. 112-A/2011, of March 22, in which the Tax and Customs Authority is the Respondent[2].

The application for constitution of the arbitral tribunal was accepted by the President of CAAD on 13-05-2015 and was notified to the AT on 26-05-2015.

In accordance with the provisions of article 6th, No. 2, subsection a), and article 11th, No. 1, subsection b), of RJAT, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories hereto, who communicated acceptance of the appointment within the applicable timeframe, and notified the Parties of such designation on 09-07-2015. In conformity with the rule contained in article 11th, No. 1, subsection c), of RJAT, the arbitral tribunal was constituted on 24-07-2015.

By order of 20-01-2016, given that the six-month period to issue the arbitral decision, as established in No. 1 of article 21st of RJAT, includes periods of judicial recess, the arbitration deadline was extended by two months in accordance with No. 2 of the same provision. This period was further extended for the same reasons, by order of March 21, 2016, setting May 24, 2016 as the deadline for issuing the arbitral decision.

1.3. The Claimant's Application

In her Initial Application the Claimant petitioned for a declaration of illegality of the assessment of Personal Income Tax (IRS) and compensatory interest, relating to the year 2008 (assessment No. 2011…, dated 07/11/2011), in the amount of 149,451.86 € and its consequent annulment.

The Claimant bases her application, as a primary argument, on the conceptual framework she constructs regarding the categorization of income from the promotion and sale of urban land subdivision, which she considers to be included in Category G of the IRS.

For that purpose, she invokes, among other matters, that for activity "urbanistic and exploitation of land subdivisions," the legislator presupposes that "with the performance of acts - land subdivision operations - there is an intention to obtain profit, as is also presupposed in the exercise of any commercial activity" (art. 15th of the Application).

However, neither the Claimant "nor her niece (co-owner of 50% in the properties) had any interest, whether the subdivision of the property (which was a family estate) be carried out, or to obtain any profit from it" (art. 17th of the Application).

"The subdivision operation was imposed by the Municipal Council of…, under threat of an expropriation, whose decision, moreover, was ready for publication in the Official Journal" (art. 18th of the Application).

Thus, in the Claimant's view "(…) it cannot be considered that the income obtained is classifiable in Cat. G (capital gains) to the extent that it accrued to her fortuitously, that is, outside the intentional practice of obtaining gains" (art. 27th of the Application).

As a subsidiary argument, the Claimant sustained that «the income actually and effectively obtained was that declared in the deed of transfer» (37th IR) and that the tax should be calculated on this value, rejecting that the VPT[3] constitutes the tax base (51st IR). To justify this claim, she relies on the nature of the rebuttable presumption contained in the provision of article 31st-A of CIRS. However, the Claimant did not initiate, at the appropriate time, the procedure provided in art. 139th of CIC to effect the rebuttal of the presumption, because, among other reasons, in January of the year following the transfer she did not envisage that she might be confronted with the question (41st IR) and considers she lost the opportunity to do so (43rd IR).

Finally, the Claimant argues that, not being permitted to demonstrate the effective price contained in the contract, "we are faced with taxation that is manifestly exaggerated and disproportionate to the reality and to the taxpayer's contributive capacity" (art. 52nd of the Application), in violation of the most elementary principles of justice, legality, and taxation according to actual income.

1.4. The Position of the AT

The Tax and Customs Authority submitted its Response[4] maintaining the legality of the assessment and defending the inadmissibility of the application and its grounds, contending that the income generated by the sale of the land lots for construction that the Claimant constituted derives from the exercise of commercial and industrial activity and should be classified in Category B of the IRS.

In turn, the AT argues that the demonstration of the effective price implies the conduct of a prior procedure with its services, following the procedure established in article 139th of CIRC (5th R-AT) and that being assigned by law that competence, the arbitral tribunal does not have powers to decide on the determination or proof of effective price (8th and 9th R-AT). It adds that the procedure in question is the appropriate means to rebut the presumption established in article 64th, No. 2, of CIRC (13th R-AT) and that this is regulated in article 91st of LGT (16th R-AT), constituting this the «mechanism» for rebuttal of the presumption, further adding that «in light of what is provided in No. 3 of Art. 86th of LGT the demonstration of proof of effective price is not susceptible to autonomous contention-based challenge, without the exhaustion of all gracious remedies for such purpose» (article 19th R-AT).

The AT concludes by maintaining the legality of the IRS assessment and accordingly prays for its absolution from the application.

1.5. Instruction of Proceedings and Allegations

At the tribunal's invitation, the Claimant came to refine the initial application, by indicating the value of the case.

On 26-10-2015 the Administrative File was submitted by the AT.

On November 11, 2015, an order was issued with the following content: "Given that the proceedings reveal facts that may raise illegality of the tax acts subject of the present proceedings due to lack of the subjective element indispensable to the incidence of IRS, given the allegation by the Claimant of the status of co-owner, notify both Parties to, if they wish, pronounce themselves on this question (...)".

Both the AT and the Claimant exercised their right to reply.

On November 20, 2015, the first meeting of the tribunal with the parties took place, and on 04-12-2016, a second session was held, where the witnesses presented by the Claimant were examined, and there, immediately, the deadline referred to in article 21st/1 of RJAT was extended by 2 months.

A deadline was granted for the submission of written arguments, which were indeed submitted by the Parties, reiterating and developing their respective legal positions.

1.6. Sanitation

The arbitral tribunal was properly constituted and has competence ratione materiae according to the provisions of article 2nd, No. 1, subsection a), of RJAT.

The Parties are holders of legal standing and legal capacity (the AT's in accordance with the discipline contained in article 4th, No. 1 of RJAT and 10th, No. 2, of the same statute and article 1st, subsection a) of Portaria No. 112-A/2011, of March 22), are legitimate and are properly represented.

As noted, the Claimant formulates a primary application and a subsidiary one. As to this application the AT raises the dilatory exception of incompetence of the Arbitral Tribunal to hear the effective price of the transfers of the real properties, which must be examined in sanitation proceedings.

Let us examine this.

The AT argues that the demonstration of the effective price implies the conduct of a prior procedure with its services, following the procedure established in article 139th of CIRC (5th R-AT) and that being assigned by law that competence, the arbitral tribunal does not have powers to decide on the determination or proof of effective price (8th and 9th R-AT). It adds that the procedure in question is the appropriate means to rebut the presumption established in article 64th, No. 2, of CIRC (13th R-AT) and that this is regulated in article 91st of LGT (16th R-AT), further adding that «in light of what is provided in No. 3 of Art. 86th of LGT the demonstration of proof of effective price is not susceptible to autonomous contention-based challenge, without the exhaustion of all gracious remedies for such purpose» (19th R-AT).

In consonance with the principles that govern all taxation, fiscal law is prevented from creating irrebuttable presumptions, establishing that it is always possible to adduce proof to the contrary (73rd LGT[5]). The admission of rebuttal in any situation is the way the law establishes to guarantee to the taxpayer that his taxation is made according to the actual value of the income, avoiding values that have been presumed. It is ultimately the way to harmonize the existence of presumptions that fiscal law establishes with the aforementioned principles, which even have constitutional source.

Let us examine the situation of the proceedings more closely. For onerous transfers of real rights over immovable property, the law establishes a presumption for cases in which the value contained in the contract is lower than the final VPT[6] of the property, in the provision of article 31st-A, No. 1, of CIRS. More specifically, this provision establishes that, in situations where the value contained in the contract is lower than the VPT, this – higher – value should be considered in determining taxable profit.

As previously mentioned, this presumption is rebuttable, i.e., admits proof to the contrary, although such proof is not free, and must follow a certain procedure.

Indeed, the law has designed a specific regime for rebuttal of that presumption in CIRC and mandated its application by express provision of the aforementioned article 31st-A, of CIRC, although subject to "necessary adaptations." This regime is regulated in article 139th, Nos. 3 to 6, of CIRC, establishing in these provisions and complementarily in the regulations contained in articles 86th, No. 4, 91st and 92nd of LGT, the respective discipline. It thus appears clear that the law does not content itself with general means of proof for the taxpayer to demonstrate that the effective price was less than the VPT. More than that, it opted to create a regulated procedure to set aside the presumption, whose procedure is duly structured in LGT and involves the request for its opening, indication of an expert by the taxpayer, designation of an expert by the AT, the appointment of an independent expert, meeting of experts, contradictory debate between experts and decision by agreement or by the competent body (articles 91st and 92nd of LGT).

It is settled that the Claimant did not initiate this procedure and the law does not content itself with the sending of documents to the AT, nor in the manifestation of willingness to permit access to banking information; the law requires that a formal procedure be initiated, with submission of an application addressed to the competent director of finances (article 139th, No. 3, of CIRC) and following the procedure stipulated in articles 91st, 92nd and 84th, No. 3 of LGT, with necessary adaptations (article 139th, No. 5, of CIRC).

In harmony with the establishment of a specific procedure for rebuttal of the presumption, the law also established the impossibility of challenging assessments made on the basis of the price presumption, whenever the taxpayer has not resorted to the established procedure. It is thus that the provision of article 139th, No. 7, of CIRC subordinates the possibility of challenging the tax assessment made on the basis of the presumption established in article 64th, No. 2, of CIRC or in article 31st-A, No. 1, to the prior conduct of the procedure. In other words, the taxpayer can only challenge corrective assessments made on the basis of the presumption established in article 31st-A, No. 1, of CIRS if previously it instructs the proof procedure established in article 91st CIRC.

The procedure for proof of price thus constitutes a condition of challengeability of the assessment made on the grounds of the presumption of article 31st-A, No. 1, of CIRS. Without its existence the challenge cannot be examined[7].

It shall thus be necessary to absolve the AT from the instance (278th, No. 1, subsection e), of CPC, ex-vi 29th, No. 1, subsection e), of RJAT) from the application for annulment of the assessments with this ground.

In any case, examination of the assessment of compensatory interest is prejudiced, given the dependence it has on the tax assessment.

There are no nullities that taint the proceedings, nor preliminary questions of a procedural nature.

There is no other impediment to examination of the merits of the case, which makes it necessary to decide.

1.7. On the Merits

1.8. Factual Matters

1.8.1. Facts Considered Proven

The following facts were established in these proceedings:

A. The Claimant was notified of IRS assessment No. 2011…, dated 07/11/2011, relating to income from the year 2008 which including compensatory interest totaled the amount to pay of 149,451.86 €. [RI:1st; RI: doc. 1].

B. The Claimant was also notified of the assessment, with compensation date of 10-11-2011, of compensatory interest for the periods of 19-01-2010 to 10-10-2011 and of 27-05-2009 to 10-10-2011, relating to the assessment referred to in A), in the amounts of, respectively, 53.91 € and 12,963.16 € [RI:1st; RI: doc. 2].

C. On 13-04-2012 the Claimant lodged an application for revision of the assessment referenced in A), having been determined its conversion into a gracious complaint, by order of 14-10-2013, which was notified to the Claimant. [RI:2nd; RI: doc. 3; PA10: pp. 24-30].

D. The gracious complaint referenced in C) was denied by order of 17-07-2014, which was notified to the Claimant. [RI:2nd; RI: doc. 4].

E. On 14-08-2014 the Claimant lodged a hierarchical appeal of the decision referred to in D), having been denied approval by order of 17-07-2014, which was notified to the Claimant. [RI:5th and 6th; RI: doc. 5].

F. The IRS assessment referred to in A) results from corrections introduced to the income return as a consequence of external inspection based on service order No. O12011…, which are those contained in the respective Tax Inspection Report, dated 10/10/2011, where among other things contained therein, it was recorded that: [RI:9th and 10th; RI: doc. 4: p. 9; PA4: pp. 23-35].

From the analysis of the documents sent by the Finance Directorate of…, the following is ascertained:

• the existence of Land Subdivision License No. …/2000, issued by the Municipal Council of … on March 10, 2000, in the name of A… and B…, through which the subdivision and the respective urbanization works were licensed, which affected the properties located in… . Estate … or Estate…, municipality of …and Parish of…, registered in the rustic land registry under the numbers … and…, which derived from the above-mentioned articles;

• the existence of a deed of sale and purchase, executed at the Notarial Office of … on November 28, 2008, in which it appears that A… and her niece B… sold 50 lots of land belonging to the aforementioned subdivision.

Now, the income resulting from the sale of the aforementioned properties, as they are inserted in a land subdivision operation, meet the requirements for taxation in Category B of the Personal Income Tax Code.

In the Tax Inspection Report, dated 10/10/2011 the following summary tables are also contained: [PA4: p. 26]

On 14-04-1998 a contract was entered into between the Claimant and B… on the one hand and by the Municipality of … on the other hand, the title of which is included in the administrative file, where among other things, it can be read that: [RI:37th; PA7: pp. 17-20].

CLAUSE B – The first parties hereto bind themselves to subdivide the entire property (…);

CLAUSE C – The second party [the Municipality of…] binds itself to urbanize the entire area to be subdivided referred to in clause B.

CLAUSE F – As mediate consideration the first parties hereto bind themselves to transfer to the second party half of the lots (…), in the total of thirty-one lots.

In accordance with the Land Subdivision License No. …/2000 of the Municipal Council of…, dated 10.03.2000, issued in the name of the Claimant and B…, the subdivision was licensed with reference to properties located in…, Estate … or Estate…, …, registered in the rustic land registry under articles … and… . [R-AT[8]:3rd-vii; PA6: pp. 7-15].

In an ordinary session the Municipal Council of…, resolved to approve the amendment/1st deferral to urban land subdivision license …/2000 of March 10, with the principal objective of dividing into lots the property designated as "Remaining Area – Urban Reserve," with the creation of 16 additional lots. [R-AT:3rd-ix; PA6: pp. 16-24]

In the ordinary session of the Municipal Assembly of…, held on 28-04-2003 was approved the proposal presented for "amendment to the contract relating to the urbanization of the Municipal Council and surrounding area, approved in the ordinary session of the Municipal Assembly of …, held on 30-06-1998", contained in the respective minutes, among other things, that: [RI:37th; PA8: pp. 20-21].

The president of the Parish Board of…, C… took the floor to clarify that the amendment of subsection f) of the contract was intended exclusively to grant authorization so that the sale of the lots could be made in their entirety by the owners, by the best offer, with the Municipal Council collecting 50% of the proceeds from the sale.

On 28-11-2008 the Claimant and B… sold to "D…, Lda.", for the price of 1,250,000.00 €, 50 lots of land for construction located at…, Estate … or Estate…, parish of…, municipality of…, [RI:37th; R-AT: 62nd; PA5: pp. 1-20].

The patrimonial value of the properties sold to "D…, Lda." is 3,329,520.00 €. [R-AT:3rd-xi and 63rd; PA6: p. 2].

On 02-12-2008 the Claimant paid to the Municipal Council of … the sum of 625,000.00 € "relating to 50% of the proceeds from the sale of the lots of the Urbanization (…) as better appears in the Protocol executed (…) on 14-04-1998, supplemented with the resolution of the Municipal Assembly of April 28, 2003". [RI:37th; PA8: p. 26].

On 27-11-2008 the patrimonial values of the lots sold to "D…, Lda." were registered in the respective property records. [RI:40th; 64th R-AT; 74th R-AT; PA5: pp. 1-20].

On 13-07-2011 the Claimant subscribed authorizations for access to her banking information by the Finance Directorate of … with respect to bank accounts at E… and at Bank F…[RI:44th; RI: doc. 6].

1.8.2. Facts Considered Not Proven

No proof was produced regarding the lack of interest of the Claimant and her niece in the aforementioned subdivision being carried out or that they did not have the intention to derive income from this operation or that the price was imposed on them (17th and 50th RI).

Nor was any proof produced to the effect that the subdivision operation was imposed by the MC… on the Claimant or that imminent public expropriation was ready for publication, or that they were obliged (threatened) to accept the subdivision on penalty of being left with nothing (18th, 20th and 26th RI).

No other facts with interest for the decision of the case were alleged.

1.8.3. Justification of Proven and Unproven Factual Matters

The tribunal's conviction was based on the documentary evidence contained in the proceedings, on the position taken by each of the Parties on each fact in the pleadings, specifically identified at each point, and on witness testimony.

The facts given as not proven are based, in addition to the documents contained in the proceedings, on witness testimony, which proved to be assertive, with the witnesses manifesting effective and coherent knowledge of the situation. Witness G… testified especially on the antecedents of the subdivision and on personal events surrounding the development of the urbanization as well as the vision he had of the procedure as president of the Municipal Council. The testimony of witness H… concerned the family origin of the properties and related questions.

Indeed, witness G…, called by the Claimant and who was President of the Municipal Council in question at the time the urbanization had its genesis and developed, clearly stated that the idea for the urbanization was his. He further clarified that everything was handled in a friendly manner, that he proposed that they entrust the matter to the Municipal Council which would take care of everything, including the infrastructure. In that agreement, the owners would retain half of the urbanization and the Municipality, which bore all urbanization costs, would retain the other half. He further stated that he had no idea that a declaration of public utility for expropriation of the land had been requested in the time of the previous president. Also witness H…, called by the Claimant, stated that the latter accepted the terms proposed by the Municipal Council so as not to contradict her father, since the property had its origin in her family branch.

1.9. Matters of Law

Consequently, the questions raised by the Parties, as to the merits, which need to be resolved are the following:

· The nature of the invalidity imputed to the IRS assessment, requiring determination of whether it constitutes nullity or voidability;

· The legality of the challenged assessment as to the origin of the income, which presupposes determination of the applicable IRS regime, namely whether the income is classifiable in Category B or Category G;

· The legality of the challenged assessment, taking into account the requirements of the principles of proportionality, contributive capacity and justice.

Before entering into the analysis of the questions to be resolved, it is important to make considerations regarding the powers of cognition that are committed to this arbitral tribunal in this specific case. In this matter, it is necessary to bear in mind that the regime established in article 123rd of CPPT, which should be integrated with the provisions of the Code of Civil Procedure([9]), in particular with those now contained in its article 607th and following. The subject is of particular importance since the tribunal's pronouncement on questions it should not know goes toward the decision with its nullity (125th, No. 1, CPPT).

In accordance with the provision of article 608th, No. 2, of CPC([10]), applicable as explained, the tribunal may only occupy itself with questions raised by the parties, except in cases where the law permits or imposes different behavior. These questions must have been presented by the applicant in their petition, with the burden falling on them to identify the act they intend to challenge and to set forth the facts and the reasons of law that support their application (108th, No. 1, CPPT, ex-vi 29th, No. 1, subsection a), of RJAT) ([11]).

It seems settled in civil procedural doctrine that has addressed this provision more deeply, that this set of facts and grounds ultimately constitutes the cause of action. One can thus state that the causa petendi is composed of «the set of facts and grounds of law of the claim alleged by the plaintiff. It includes the legal provision or provisions alleged, the main facts alleged as the concrete substrate of these provisions and the instrumental facts alleged as the concrete substrate of these main facts» ([12]). It is also necessary to bear in mind that the cause of action was delimited by the proponent in their application for suit, being irrelevant for this purpose what was said in subsequent pleadings since «only facts alleged as the ground of the alleged claim integrate the cause of action» ([13]).

Similarly, in tax litigation, the process of judicial challenge is, in the words of JORGE LOPES DE SOUSA (op. cit., p. 325), structured as a process of mere annulment, which aims to determine the legality of the challenged act and to annul it or declare its non-existence or nullity, similar to what occurred with contention-based appeal provided in LPTA". In this context, each of the defects imputed to the challenged act constitutes a cause of action, with what follows from the provision in the final part of No. 4 of article 581st of CPC being applicable, in which it is established that in annulment actions the cause of action is «the specific nullity invoked to obtain the desired effect».

CPPT does not follow, in this matter, the regime now contained in article 95th, No. 3, of CPTA, introduced with the 2002 reform, and according to which the tribunal "must pronounce itself on all grounds of invalidity that have been invoked against the challenged act, except when it cannot dispose of the indispensable elements for that purpose, and must also identify the existence of grounds of invalidity other than those alleged, having heard the parties for supplementary arguments in the common period of 10 days, when required by respect for the principle of contradiction".

In fact, although LGT and CPPT have been amended several times since that reform of tax litigation entered into force, article 99th of LGT has continued to establish the limitation of powers of cognition of the courts by the facts alleged and article 124th of CPPT continued to refer, in addition to defects of the challenged act of ex officio knowledge (non-existence and nullity), to «defects alleged that lead to its annulment», which reveals that, as to defects generating mere voidability, the powers of cognition of tax courts were limited to those invoked by the challenger, not adopting, thus, the broader concept of the object of the challenge process that can be found in CPTA.

In this model of tax litigation in which knowledge of defects generating voidability depends on invocation by interested parties, it has been uniformly understood that one can only know of defects not invoked in the initial petition when they have come to the challenger's knowledge at a moment later than their presentation[14] or where defects are of ex officio knowledge, as occurs with invalidity that has the consequence of nullity.

Having traced the limits within which the tribunal must exercise its powers, it is important to see how the subject matter of the proceedings fits within them.

1.9.1. The Nature of the Invalidity Imputed to the IRS Assessment

Notified of the order of November 11, 2015, the Claimant came, in exercise of her right to reply, to allege that, in summary, the tax incidence should have fallen on the irregular partnership, and not on her own person, "Thus lacking, to the tax act subject of the present proceedings its subjective element, the taxpayer, since the taxpayer of the tax relationship configured by the AT is the irregular partnership which is the taxpayer of corporate tax". In the Claimant's view, the lack "of essential elements of the tax act, as is the case with the subjective element, is a defect generating nullity, in accordance with what was provided, at the date the act was made, in art. 133rd, No. 1 of CPA (…)", and nullity is invocable at any time.

For its part, the AT came to allege, among other matters, that "at no moment, either in the gracious procedure – gracious complaint – or in the scope of the application for arbitration pronouncement, did the Claimant raise the illegality of the assessments on the grounds of non-verification of the subjective element of IRS, as being co-owner of the properties", for which reason it is "prohibited for the Tribunal to issue pronouncement on facts and grounds that were not invoked by the Appellant".

Let us examine this.

In accordance with the provisions of article 99th of CPPT, any illegality constitutes a ground for challenge, constituting illegality and, consequently, a defect of the administrative act or tax act, any offense to the applicable legal principles or rules, which may involve voidability, nullity, or non-existence.

For its part, article 102nd of the same Code establishes that judicial challenge is presented within a period of 90 days counted from the facts indicated in the various subsections of its No. 1, as well as within the periods indicated in its Nos. 2 and 4, although it may be brought at any time, if the ground is nullity (No. 3 of the same article).

As LGT or CPPT do not provide any notion of what are null tax acts, it is necessary to resort to what this matter provides (null administrative acts) in the CPA[15], subsidiarily applicable by virtue of the provisions of articles 2nd, subsection d), of CPPT and 2nd, subsection c), of LGT.

The defects of the challenged act[16] are, as a rule, grounds for its voidability, only implying its nullity when there is a lack of any of the essential elements of the act or when there is a law that expressly provides for this form of invalidity (cf. articles 133rd, No. 1, and 135th of CPA)[17].

In accordance with article 133rd of CPA (according to the wording in effect at the date of the facts) «null are acts lacking any of the essential elements or for which the law expressly provides for this form of invalidity».

A mixed regime was opted for in the provision of defects leading to the nullity of the administrative act: the criterion of nullity by nature was admitted (principle of general clause), but, on the other hand, this criterion was combined with that of exemplary enumeration - the so-called nullity by determination of law.

As teach MÁRIO AROSO DE ALMEIDA / CARLOS FERNANDES CADILHA[18] «nullity constitutes the exception regime, whereas voidability is the rule-regime. This is what can be gathered from the provisions of article 135th of CPA, according to which «administrative acts are voidable with offense to applicable legal principles or rules for whose violation no other sanction is provided.»

(...) Voidability constitutes a form of invalidity of the administrative act that can be attributed to the violation of a rule or legal principle of a formal nature (of competence, form or procedure) or substantive. In the first group are included: (a) violation of rules relating to the competence of the author of the act, when not involving the extreme situations of lack of attribution, generating nullity (relative incompetence); (b) defects of form, which may consist in the omission of formalities within the scope of administrative procedure (arts. 54th and following of CPA), in the omission or deficiency with respect to the form of the act (art. 120th of CPA), provided it does not amount to an absolute lack of legal form, or in the omission or deficiency concerning the statement of the object and elements of the act (art. 123rd of CPA)».

On the structure and requirements of validity of the administrative act, VIEIRA DE ANDRADE[19] adopts the practical and teleological model, in which it seeks to identify the moments that are relevant for the purposes of locating the various defects, highlighting as such: "the subject, the object and the enactment, distinguishing, within this, the aspects substantive relating to purpose and content, and the formal aspects, which include the procedure of formation and the form of externalization".

With reference to this model, the Author[20], in referring to the concept of "essential elements" for purposes of article 133rd, No. 1, of CPTA, considers that these are "the indispensable ones for constituting any administrative act, not being able to serve as such a decision without author, without addressee, without public purpose, without content, without form or with serious defects equivalent to such absolute lacks", and "a function of the type of act".

Referring in particular to the requirement of validity regarding the subject, we have that the typical subjects of the administrative act, although other subjects are admitted, including private entities that exercise public powers, are the collective persons that integrate the Public Administration and that act through their respective bodies.

Applying the foregoing to the case at hand, it is concluded that the assessment act in question does not suffer from the lack of the subjective element nor of any other essential element or moment.

Indeed, the assessment act subject of the present proceedings constitutes an authoritative enactment, produced by a body of the administration (the subject), under the aegis of rules of public law, to produce concrete effects (in relation to the Claimant). There thus does not lack to the assessment act any essential element nor does it suffer from any other type of invalidity of such gravity[21] that it may have the consequence of nullity.

We are instead faced with an erroneous qualification of the facts as to the nature of the income in question and the definition of subjective incidence, an error which leads to mere voidability.

Furthermore, even if the regime of article 95th, No. 3, of CPTA were to be considered applicable, the truth is that no elements were brought to the proceedings that would permit the tribunal to identify the existence of an irregular partnership between the Claimant and the niece.

The alleged defect of the assessment act in question generating nullity, as invoked by the Claimant, is thus unfounded.

1.9.2. The Legality of the Assessment Challenged as to the Origin of the Income

The substantive question thus consists of determining what rules govern the assessment of income earned by the Claimant from the sale of the properties at issue. In confrontation are the thesis of the Claimant sustaining that the income should be classified in IRS Category G and the thesis of the AT which affirms that it is through Category B that taxation should be made.

In matters of fact, with special interest for determining the applicable regime, it was established that the Claimant entered into a contract with the Municipality of … by which she bound herself to subdivide her property identified in the proceedings. For its part, the Municipality of … bound itself to urbanize the entire area to be subdivided, receiving in return half of the lots to be constituted. The subdivision was licensed to the Claimant by the Municipal Council of … . Complementarily it was clarified that the sale of the lots be made in their entirety by the Claimant and the other co-owner, with the Municipal Council collecting 50% of the proceeds from the sale.

On 28-11-2008 the Claimant and the other co-owner sold to "D…, Lda.", for the price of 1,250,000.00 €, 50 lots of land for construction and on 02-12-2008 the Claimant paid to the Municipal Council of …the sum of 625,000.00 €, relating to 50% of the proceeds from the sale of the lots of the urbanization.

Following the thesis of the Claimant the facts would be subsumable to the following provisions of CIRS incidence[22]:

Article 9th – Income of Category G

1 – Constitute patrimonial increments, provided they are not considered income of other categories:

a) Capital gains, as defined in the following article;

(…)

Article 10th – Capital Gains

1 – Constitute capital gains the gains obtained that, not being considered commercial and professional, capital or real estate income, result from:

a) Onerous alienation of real rights over immovable property and affectation of any property of the private patrimony to commercial and professional activity exercised in individual name by its owner;

(…)

Following the thesis of the AT the facts would be subsumable to the following provisions of CIRS incidence:

Article 3rd – Income of Category B

1 – Are considered commercial and professional income:

a) Those arising from the exercise of any commercial, industrial, agricultural, silvicultural or livestock activity;

(…)

Article 4th – Commercial and industrial, agricultural, silvicultural and livestock activities

1 – Are considered commercial and industrial activities, in particular, the following:

a) Purchase and sale;

b) Manufacturing;

c) Fishing;

d) Mining operations and other extractive industries;

e) Transportation;

f) Civil construction;

g) Urbanistic activities and exploitation of land subdivisions;

h) Hotel and similar activities, catering and beverages, as well as sale or exploitation of the real right to periodic housing;

i) Travel and tourism agencies;

j) Crafts;

l) Agricultural and livestock activities not connected with land exploitation or in which the latter is manifestly accessory in character;

m) Agricultural, silvicultural and livestock activities integrated in others of a commercial or industrial nature.

In an isolated analysis of the provisions in question, it could be said that the facts ascertained are susceptible to being framed in either of the regimes.

Nevertheless, it is necessary to resort to the rules proper to legal interpretation and these require that legislative intent be reconstructed taking into account the unity of the system (article 9th, No. 1, of the Civil Code), which implies (i) that consideration be given to the inter-relationship between the provisions of the same segment of the legal order, established by the legislator himself, designedly when he indicates precedence or subsidiarity; (ii) that in the interpretation of a particular provision there be consideration of the interpretation of all others in general but especially those with which it relates directly, as they are complementary and together fill a particular sector of the legal order.

The provisions that govern capital gains leave no room for doubt on one aspect: they are only applicable to income that is not considered in other categories (article 9th, No. 1, of CIRS). This principle is reaffirmed regarding income susceptible to being considered commercial and professional income that results from onerous alienation of real rights over immovable property, which are excluded from the capital gains regime (article 10th, No. 1, of CIRS). Everything seems to indicate that income originated by operations of alienation of immovable property shall only be taxed through Category G if it has no framework in Category B, which shall take precedence. The application of the Category G regime to income from alienation of immovable property is, in this way, residual; they shall be taxed as capital gains if they are not covered by another regime (articles 9th, No. 1 and 10th, No. 1, of CIRS). In this sense, it was stated in the Decision of the STA, of 24/2/2016, Proc No. 0580/2016 that "(…) patrimonial increments of whatever origin, are only classifiable in Category G, as clearly expressed in article 10th of IRS if they meet a first and fundamental negative legal requirement - «not being considered commercial and professional, capital or real estate income», whereby the legal framing of the situation should begin with verification of the possibility of framing the «patrimonial increment», in one of the other categories of income taxation - A to E".

The Claimant argues that she did not exercise any commercial or industrial activity susceptible to taxation under Category B of the IRS.

It is then necessary to analyze one final question, which is whether the acts performed by the Claimant constitute urbanistic activities and exploitation of land subdivisions, in the terms and for the purposes of article 4th of CIRS.

Here also it is necessary to interpret the provision taking into account the existence of others with which it relates in the system in which it is inserted.

The provision of article 3rd, No. 1, subsection a), of CIRC regulates in the sense that income arising from the exercise of any commercial and industrial activity shall be taxed through Category B. For its part, the provision of article 4th, No. 1, of CIRS tells us what these activities are, referring among them (in its subsection g) urbanistic activities and exploitation of land subdivisions. It is clear that one can always argue that Category B will encompass the income earned with urbanization and land subdivision activities, when these are the result of the habitual exercise of that business but no longer when only a single operation characteristic of the exercise of that activity is at issue.

It is believed that the argument of lack of habituality does not hold. The basic provision that delimits objective incidence is, after all, the one contained in article 3rd, No. 1, subsection a) of CIRS, whose prediction is specified by the provision of article 4th, No. 1, subsection g), of that body of rules.

Now, income from activities to which the referred provision refers [3rd, No. 1, subsection a)] is included in Category B even if it derives from the practice of isolated acts, as stipulates the same article 3rd, in its No. 2, subsection h).

It thus appears clear that income resulting from urbanization and land subdivision activities are income from commercial and/or industrial activities and consequently professional income, even when these activities are not developed repeatedly, or even when they result from an isolated act. It is believed that this is the best interpretation combined with the provisions of articles 3rd, No. 1, subsection a), 3rd, No. 2, subsection h), and 4th, No. 1, subsection g), in interaction with the dispositions of articles 9th, No. 1 and 10th, No. 1, of CIRS.

It is also in this sense that jurisprudence of the STA has pronounced itself uniformly and repeatedly, as was stated in recent Decisions of 09-09-2015, proceeding 0810/14 and of 24-02-2016, proceeding 580/15. In the first decision, with reference to gains from the alienation of land lots, resulting from a land subdivision operation, it can be read, in particular, that "(…) the sale of land, under these circumstances and conditions (after land subdivision operations) manifestly configures commercial activity, presupposing the intentional performance of an entire set of transformative acts aimed at enhancing the value of the land lots in question…".

In the same decision, the STA distinguishes the different nature of these gains, classifiable in the aforementioned subsection a) of No. 1 of article 3rd, in conjunction with subsection g) of No. 1 of article 4th, both of CIRS, from patrimonial increments that the law considers as capital gains taxable in Category G, which "(…) correspond, essentially, to gains resulting from an appreciation of property due to exterior circumstances, independent of a productive activity of its holder : correspond to gains brought by the wind" (windfall gains)".

In the case at hand, it is settled – even for the Claimant – that she herself effectively developed a land subdivision and urbanization operation of her property, even though, by contract, she entrusted to the Municipal Council of …the task of executing the urbanization works. The income she earned results from this performance and no longer from the sale of the pre-existing property of which she was owner. Therefore, whatever the motivation of the Claimant, she did not proceed to the sale of the land she possessed, having instead proceeded to its transformation (in the legal sense), subdividing it into lots. Furthermore, it was the Claimant who made the request for subdivision and who benefited from it, for which reason, with the income resulting from that activity of the Claimant, even though without the character of habituality, it is in Category B that it is classified.

Moreover, even if such arguments could be relevant, which has already been demonstrated not to be admissible, it is in no way possible to conclude in the sense intended by the Claimant as to having been coerced into concluding a transaction that she did not intend to make, that she had no interest in the subdivision of the property being carried out and that the «subdivision operation was imposed by the M.C. of …», with the elements contained in the proceedings, whether those carried by the AT or those brought by herself, including as a result of witness testimony.

Finally, neither are the arguments of a legal nature lined up by the Claimant admissible, namely that she did not have the purpose of exercising any commercial activity, as she never had intent to obtain gains or profit. It has already been seen what are the requirements for application of the tax provisions in question, which are in opposition with the solution defended by the Claimant.

The Claimant's application does not thus proceed, in the part in which she imputes the illegality of the assessment to error in determining the rules of CIRS incidence that are applicable for that purpose.

1.9.3. The Legality of the Assessment Challenged, Taking into Account the Requirements of the Principles of Proportionality, Contributive Capacity and Justice.

The Claimant invokes that not taxing on the basis of the price contained in the contract, embodies, among other matters, grave and notorious injustice of the taxation effected, as manifestly exaggerated and disproportionate.

Now, the circumstance that in the present proceedings there was no revision of the patrimonial value is, however, due to reasons exclusively imputable to the Claimant, who did not make use of the procedural means that the law places at her disposal for that purpose. A means that constitutes, as we have seen, not only a prerequisite for proof of the effective price, but also a requirement for judicial challenge on that ground.

The position sustained by the Claimant thus does not proceed.

In light of the foregoing, with the Claimant's application not proceeding, with the consequent maintenance of the challenged assessment, examination of the assessment of compensatory interest is prejudiced, given the dependence it has on the tax assessment.

1.10. Decision

Considering the factual and legal elements collected and set forth, this arbitral tribunal decides to judge the application for arbitral pronouncement inadmissible. Consequently:

a) The AT is absolved from the instance regarding the application for annulment of the IRS assessment on the basis of the erroneous value attributed to the income.

b) The AT is absolved from the application for annulment on the basis of the illegality of the IRS assessment, as to the origin of the income.

c) Examination of the application for annulment of the assessment of compensatory interest is judged prejudiced, in light of the foregoing decisions.

1.11. Value of the Case

In harmony with the provisions of article 306th, No. 2, of CPC, ex-vi 29th, No. 1, subsection e), of RJAT and article 97th-A, No. 1, subsection a), of CPPT ex-vi 3rd, No. 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is set at 149,451.86 €.

1.12. Costs

In accordance with article 22nd, No. 4, of RJAT and Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs charged to the Claimant is set at 3,060.00 €.

Notify.

Lisbon, April 18, 2016

The Arbitrators,

(Maria Fernanda dos Santos Maçãs, Presiding Arbitrator),

(Nuno Maldonado Sousa)

(Paulo Mendonça, with declaration of dissenting vote, attached)

DECLARATION OF DISSENTING VOTE

I hereby present the arguments that lead me to conclude, with respect to Proceeding No. 301/2015-T-CAAD, that the classification of the income earned by the claimant should be made within Category G of the IRS and not, as the respondent argues, in Category B.

The law, in the relevant part for the question at hand, provides as follows:

"Article 3rd
Income of Category B

1 - Are considered commercial and professional income:

a) Those arising from the exercise of any commercial, industrial, agricultural, silvicultural or livestock activity;

(…)

2 - Are also considered income of this category:

a) Real estate income attributable to commercial and professional income-generating activities;

Article 4th
Commercial and industrial, agricultural, silvicultural and livestock activities

1 - Are considered commercial and industrial activities, in particular, the following:

(…)

g) Urbanistic activities and exploitation of land subdivisions;

(…)

Article 9th
Income of Category G

1 - Constitute patrimonial increments, provided they are not considered income of other categories:

a) Capital gains, as defined in the following article;

(…)

Article 10th
Capital Gains

1 - Constitute capital gains the gains obtained that, not being considered commercial and professional, capital or real estate income, result from:

a) Onerous alienation of real rights over immovable property and affectation of any property of the private patrimony to commercial and professional activity exercised in individual name by its owner;

(…)"

Regarding the aforementioned provisions, the general principle, consecrated in No. 1st of Art. 11th of the General Tax Law, that the rules and general principles of interpretation and application of laws shall be observed, proves objectively insufficient since, through that process, and having in particular regard to the literal, historical, systematic and teleological elements, no conclusion whatsoever can be drawn that, in a minimally clarifying manner, enables the correct application of the general normative to the concrete case.

It is thus necessary to resort to the provision in No. 3 of Art. 11th of the General Tax Law, where it is determined that if doubt persists on the sense of the rules of incidence to be applied, the economic substance of the tax facts should be considered.

Whereas the law does not, as a rule, provide for the supersession of economic substance over legal form, that supersession will not fail to manifest itself and prevail in cases of doubt about the sense of incidence rules. Now, the subject matter under analysis is prolific as regards doubts of interpretation.

António Lima Guerreiro comments (General Tax Law Annotated - Rei dos Livros - p. 86) that "the interpretation of fiscal law rules according to economic substance acts as a corrective element of taxation in case of violation of the principle of equality, as identical manifestations of contributive capacity may be treated discriminatorily by fiscal law".

And J. L. Saldanha Sanches specifies (Manual of Tax Law - Coimbra Editora - p. 212) that "this does not mean that the law must guarantee, in its application, an equal result for each of its addressees; it rather means that differentiation of results must correspond to the actual difference between addressees. The differentiation of results must be a function of the concrete situation of each taxpayer and thus constitute a differentiation that is the object of specific protection by the legal order".

The interpretation according to the economic substance of facts, according to Ana Paula Dourado (Tax Law - Lessons, Almedina, p. 259) is justified as a reaction to models of taxation "(…) of each taxpayer not according to his individual contributive capacity, but according to the measure of the average type, presuming the income and contributive capacity and legitimizing confiscatory taxation".

The controversial subject matter of commercial or industrial income led the legislator, according to Manuel Faustino (IRS – Theory and Practice, Tax, p. 132) to seek to "avoid the polemic by using a dual technique: on the one hand, it ceased to refer to activities of a commercial or industrial nature to mention commercial or industrial activities; and on the other, although not running the risks of a taxative enumeration, it listed a large number of activities considered commercial or industrial, in which all those whose characterization could still raise doubts are included. It will be said, then, that the material criterion continues to be essentially an economic criterion and not a strictly legal criterion".

A position, moreover, in consonance with the jurisprudence of Portuguese courts, as appears, for example, from judgment 0371/04 of the Supreme Administrative Court (relator: Pimenta do Vale) in stating that "in the absence of a legal definition of the concept of commercial or industrial activity, for tax purposes, doctrine and jurisprudence have come to understand the economic concept of commerce and industry as applicable, which encompasses activities of mediation between supply and demand and activities of incorporation of new utilities into matter, in both cases with speculative purposes, that is, with the objective of obtaining profits".

In a broader perspective, judgment 00085/01 of the Central Administrative Court North (relator: Moises Rodriques), points out that "(…) the complex of acts performed by the owner of land for construction with a view to proceeding with the subdivision of land for construction and the sale of the lots thus constituted (namely, the realization of necessary infrastructure, the promotion of the bureaucratic process indispensable to obtaining the licenses required for that operation and the entire set of measures necessary for the actual sale of the lots) with a view to obtaining profit, should be qualified as an activity of a commercial or industrial nature. Indeed, throughout that activity its commercial or industrial character stands out, whether it relates to the economic criterion (that is, mediation between supply and demand or incorporation of new utilities into matter, with the objective of obtaining profits (…), which seems to underlie Art. 4th of CIRS, or to the legal criterion".

Entering, specifically, into the tax typification of income, as well explained by José Guilherme Xavier de Basto (IRS - Real Incidence and Determination of Net Income - Coimbra Editora - p. 187) "Category B is a dominant category, in the sense that income of another nature than professional or commercial, but obtained within a professional or commercial activity, become income of the category and are attributed to it and considered in the respective taxable result".

That is, for a certain income to be configured as arising from a commercial and industrial urbanistic activity and, more specifically, exploitation of land subdivisions, it will be necessary to assure that the same was, at least, obtained within a professional or commercial activity. Or, as clarified by J.L. Saldanha Sanches (work cited - p. 316-317) "(…) the inclusion of income in Category B presupposes an activity underlying it, that is, a practice of a minimum number of acts framed by a structure, or at least, the aptness for such, declared through the commencement of activity".

If one cannot achieve that degree of certainty, and centering now our attention, in particular, on the income earned by the claimant, one will naturally fall within the scope of Category G of the IRS or, as refers J.G. Xavier de Basto (work cited, p. 379), we shall be in the field of "(…) unexpected increases in the value of patrimonial assets. Unexpected increases because, by definition, capital gains are not income-product, as they do not constitute the counterpart of participation in productive activity (of labor effort, application of capital, assumption of risks) they are, by definition, expected, corresponding ultimately to the value added in production".

Did the claimant obtain the income subject of the litigation within a professional or commercial activity? This was in no way proven. As the entrepreneur explains, António Menezes Cordeiro (Manual of Commercial Law - Almedina - p. 223) "will appear, technically, as any economic-legal agent who occupies a position as producer or distributor. And this independently of appearing as a merchant or of holding any enterprise".

In parallel, and following J.G. Xavier de Basto closely (work cited - p. 379 and following) we cannot lose sight of some distinctive elements associated with income qualified as capital gains, namely the unexpected nature of the increase in the value of the asset and the reduced period of holding of property.

Property acquired, produced or retained with the intention of resale will normally not generate income classifiable in the concept of capital gains. The increases in value of property held by those who are neither producer nor merchant are to be presumed unexpected and, as such, to be qualified as capital gains.

The aforementioned author presents an illustrative example: "The increase in value of a property owned by someone engaged in the activity of real estate mediation does not constitute a capital gain, whereas it does constitute one for an owner of property who holds it without exercising that activity". As to the period of holding the property, if it was relatively short they are qualified as production income, contrary to increases in value in assets where holding was long, which are considered capital gains.

Now, in the concrete case, the facts proven by witness testimony, lead to the conclusion that the property that generated the income subject of the litigation belonged to the claimant's family for at least two generations, at the date of the events. And that the claimant never had any intention of subdividing the property. She did not even want to sell it. Over time it was subject to various attempts, more or less direct, at expropriation. Until, during the term of the Mayor then in office, he moved to convince the claimant, through her father, to permit the subdivision. Having achieved that objective.

The Municipal Council determined the model of the subdivision, which was presented to the claimant as an accomplished fact, provided all necessary infrastructure and carried out, on its own initiative, the necessary work, found a real estate company that acquired all the lots and, finally, fixed the sale price (having received half of the proceeds thus generated).

Now, one does not perceive any trace of entrepreneurship here (except on the part of the Municipal Council). And this would be a fundamental factor for the equating of the income generated to income of Category B.

According to Decision 6804/02 of the Central Administrative Court South (relator: Gomes Correia) "not having the owner of the land sold the land he acquired, a situation in which eventual gains would have to be considered as unexpected or fortuitous, but having sold the lots resulting from the land subdivision operation of the land on which he carried out infrastructure, having initiated the competent process with the local authority in order to obtain the necessary licenses, all with a view to profit, it must be considered that he developed an activity of a commercial or industrial nature by reference to the economic concept of commerce contained in Art. 4th of CIRS". The commerce criterion to which the decision alludes could not be farther from the reality of the facts in litigation. In fact, the claimant did not initiate any process with the Municipal Council nor, according to witness António Manuel Gomes da Costa, ever expressed interest in generating any profit with the sale of lots.

In the same line, decision 0624/03 of the Supreme Administrative Court (relator: Lúcio Barbosa) held that "the challenger, now respondent, developed an activity, occasional though it be, which had as its purpose the subdivision of land to subsequently sell it with gains. That is, we are faced with a commercial activity. (…) Indeed, and in a final aside, we even think, in the wake of the appellant, that the multiple operations necessary for subdivision, carried out by the appellant, are integrated in the concept of act of commerce, with definition in Art. 2nd of the Commercial Code". In the litigation before us, it is already clear that the claimant never intended to carry out any subdivision, the same having been idealized, conducted and executed by the Municipal Council.

Consider now the content of decision 0772/03 of the Supreme Administrative Court (relator: Vitor Meira) where it is concluded that "analyzing the proven facts it is ascertained that the land in question was subject to subdivision before the sale and only three years after obtaining the license that authorized the construction of 18 lots was it sold. This means that, regardless of the initial intention to build a residence, acts were performed in order to permit the sale of the land in lots, which cannot fail to be considered an activity of a commercial or industrial character even if that sale may have constituted an isolated act. (…) what is proven is that all acts relating to subdivision were practiced with the purpose of later selling the 18 permitted lots (…)". Now, once again the relevance of an intention to subdivide with the purpose of profit is evident, which was subtly proven not to have occurred in the case in litigation.

Decision 00573/03 of the Central Administrative Court South (relator: Pereira Gameiro) emphasizes that "the challenger did not sell the land he acquired without any transformation, a situation in which the respective gains would have to be considered as unexpected or fortuitous and, therefore, capital gains for purposes of taxation in IRS. He sold, precisely, the lots resulting from the subdivision operation he carried out on the said land. For that operation, he carried out various infrastructure works on the land, initiated the competent process with the local authority with a view to obtaining the necessary licenses and developed the necessary measures to sell the lots, which he did all animated by the spirit of profit". Contrast this description with the absolute lack of animus lucrandi in the operation in which the claimant was involved.

Indeed, as is well explained in decision 00128/02 of the Central Administrative Court North (relator: Anibal Ferraz), "in the body of Article 10th, No. 1 of CIRS, the possibility of constituting capital gains of commercial and industrial income is excluded, because in the income of Category G (capital gains), for purposes of taxation only does profit fit inesperado or fortuitous, that is, those resulting from appreciations produced in property independent of any effort or will of its holder". The proceeds earned by the claimant were exactly obtained in this manner, that is, without any effort or will on her part. All such effort and will were assumed and made concrete by the Municipal Council.

There are cases, as that expounded in decision No. 01681/07 of the Central Administrative Court South (relator: Eugénio Sequeira), in which the inaction of a property owner in the entire process associated with subdivision, realization of infrastructure and sale of lots may not be sufficient reason to dismiss classification in Category B. But, in these point cases, there will necessarily be an active and voluntary delegation of such tasks, for example, to other co-owners. Or, as the decision well determines "In sum, a long activity cannot fail to be developed, during almost ten years, by all such co-owners, even if some or one of them could only have given their assent (…). In practice, such delegation, having underlying it a will to carry out the subdivision, sell and generate profit, is totally absent in the proceeding under analysis.

Having dealt with the questions that seem to me pertinent, it is important to summarize the key points that support my conviction that the income earned should be classified in Category G, and not B, of the IRS.

1- The resort to the economic substance of facts, as a subsidiary means of interpretation of the law, but indispensable in this case for the reasons presented, summons and justifies a perspective of analysis framed in the particular economic reality of the claimant. That is, all specificities of the concrete situation should be considered in light of its ultimate purpose, inserted in an essentially economistic context. And that purpose, as regards the claimant, did not configure conduct aimed at appreciation of her immovable patrimony. Rather, and manifestly against her will, she was "dragged" by the Municipal Council into a process in which she never saw herself and to which, for the most part, she was alien.

2- And let not the argument be used that the same practical result could have been achieved if the Municipal Council had decided to proceed with expropriation for public interest. It is true that it could have done so, but in that case, on the one hand, the proceeds earned by the claimant would be, unequivocally, taxed in Category G of the IRS and, on the other, the price that in the case under analysis was established by the Municipal Council and by the real estate company that ended up acquiring all the lots, would have been necessarily different, in accordance with applicable legislation.

3- It fails, throughout the proceeding, the justification that the income earned by the claimant derives from a commercial activity. And it is not credible that a subdivision process, carried out completely contrary to the claimant's will, by itself, once concluded, transforms her into an entrepreneur. Nor the wholesale sale of the said lots to a company and for the price indicated by the Municipal Council.

4- There was not proven any voluntary intervention of the claimant in the fundamental acts that jurisprudence associates with the performance of a commercial and industrial activity of exploitation of subdivisions, in the sense of the consideration of income generated as integrating Category B of the IRS, namely subdivision, installation of necessary infrastructure and the entire sales strategy (definition of model of lot-by-lot or wholesale sale, as happened, promotion and setting of price). Not only was no such intervention of the claimant proven but, by way of witness testimony, it became absolutely clear that all those fundamental acts were executed by the Municipal Council.

5- And there does not appear the circumstance that the entire process mentioned in the preceding paragraph, not having been conducted by the claimant, has been through a voluntary process, aiming at the ultimate purpose of profit, of delegation of all tasks to one or more persons interested in the business. In fact, from the witness testimony it was understood that the Municipal Council would always be a few steps ahead of the claimant, and that she would be informed, at most, of the accomplished facts.

In conclusion, I reiterate my conviction that the income earned by the claimant was by her correctly considered, for purposes of taxation, in Category G of the IRS, having no legal justification the respondent's contention that the appropriate treatment would be within Category B.

Paulo Manuel dos Santos Barra Mendonça

[1] In this decision designated by the abbreviated form of common usage "RJAT" (Legal Regime of Arbitration in Tax Matters).

[2] In this decision designated by the abbreviated form "AT" as is generally used.

[3] In this document the acronym "VPT" is used to designate the tax patrimonial value.

[4] In this document this application by the AT is also designated "R-AT".

[5] In this document the acronym LGT is used to designate the General Tax Law.

[6] In this document the acronym "VPT" is used to designate the tax patrimonial value.

[7] See in this sense the Decision of the Supreme Administrative Court of 06-12-2013, proceeding 0989/12 [Francisco Rhotes], accessible at www.dgsi.pt.

[8] In this document the acronym "R-AT" is also used to designate the response application referred to in article 17th-1 RJAT.

[9] In this sense see JORGE LOPES DE SOUSA - Code of tax procedure and process: annotated and commented. Vol. II. 6th Edition, Lisbon: Áreas Editora, 2011, page 316.

[10] In this document the Code of Civil Procedure is also designated "CPC".

[11] In terms identical to the discipline provided for in article 552nd-1-d) of CPC.

[12] Mariana França Gouveia, The cause of action in declaratory action, Almedina, Coimbra, 2004, pp. 523-524.

[13] Mariana França Gouveia, op. cit, p. 529.

[14] In this sense, see, among others, the Decision of the SCT of the STA, of 5-45-2010, proceeding No. 1246/09, in which it was understood that «in the domain of tax law, the judge is only obliged to pronounce itself on the defects imputed by the challenger and/or appellant to the tax act supported, in light of the grounds therefor, not being able to that one, substitute itself for the role of the tax administration and remedy such defects, grounding itself differently the corrections made by the latter».

[15] In this document the Code of Administrative Procedure is also designated "CPA".

[16] See, among others, the decs. of 22/3/2011, rec. No. 749/10 and 16/5/2012, rec. No. 275/12.

[17] See, among others, the Decisions of the STA, of 23/11/2005, rec. No. 612/05; of 13/2/2008, rec. No. 886/07; of 21/5/2008, rec. No. 220/08; of 25/5/2011, rec. No. 91/11; of 21/9/2011, rec. No. 63/11; of 16/5/2012, rec. No. 275/12; and of 21/11/2012, rec. No. 210/12.

[18] Commentary to the Code of Procedure in Administrative Courts, vol. I, p. 247.

[19] See op. cit., p. 166.

[20] See op. cit., p. 177.

[21] Such as, for example, absolute lack of legal form, lack of procedure, etc. For further developments on other situations of grave defects generating nullity, see VIEIRA DE ANDRADE, op. cit., p. 177.

[22] Wording in effect on 28-11-2008.