IMT Tax on Marital Property Division: Waiver of Compensation Payments Ruled as Donation (Case 348/2017-T)

ARBITRAL DECISION

I. REPORT

On 29 May 2017, A…, with Tax Identification Number (NIF)…, resident at Rua …, no.…, … – Vila Nova de Gaia (hereinafter referred to as the Claimant), hereby requested, under the combined provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (RJAT), the constitution of a Singular Arbitral Tribunal, in which the Tax and Customs Authority (hereinafter AT or Respondent) is the Respondent, with a view to the declaration of illegality and consequent annulment of the assessment of Municipal Tax on Onerous Real Estate Transactions for the year 2007, evidenced by payment document no.…, in the amount of € 6,217.48 (six thousand, two hundred and seventeen euros and forty-eight cents), the economic value attributed to the claim.

Summary of the Parties' Positions

a. Of the Claimant:

As grounds for the request to annul the act of assessment of Tax on Onerous Real Estate Transactions (IMT), relating to the year 2007 and to the facts described in the deed of partition of the common assets of the couple, executed on 9 October 2007, which gave rise to it, the Claimant invokes the following:

The assessment of IMT which is being challenged is based on the premise that from the partition of the common assets of the couple, granted between the Claimant and her Spouse as a consequence of their judicial separation of person and property, results in the subjection of the Claimant to IMT, because she was allocated real property assets of value superior to that of her spousal share.

However, in the concrete case, the partition effected between the Claimant and her Spouse does not constitute an onerous transfer of assets, within the terms of article 2, no. 5, paragraph c), of the IMT Code.

Although it results from the partition operations that the Claimant carries assets exceeding that which corresponds to her spousal share in the amount of € 140,757.61, the husband waived the balance payments (tornas), receiving nothing.

In this case, the Claimant's husband made patrimonial attributions to her without any consideration, which constitutes a gift, within the terms of article 940, no. 1, of the Civil Code, since in that allocation of assets there was mere spirit of liberality, being applicable thereto the regime of gratuitous transfers of assets between spouses and, consequently, subject to Stamp Tax, although exempt, within the terms of article 6, paragraph e) of the Stamp Tax Code.

The AT, in the decisions rejecting the administrative appeal and the subsequent hierarchical appeal, understood that the situation falls within paragraph c) of no. 5 of article 2 of the IMT Code, in conjunction with no. 1 of the same article, by considering that the taxable event occurred at the moment when the value exceeding her spousal share was attributed to the Claimant in the partition, and that the fact that the husband waived receipt of balance payments is what would constitute remission of debt, within the terms of no. 2 of article 863 of the Civil Code.

The Claimant disagrees with the moment indicated by the AT for the constitution of the taxable event, in the context of IMT, as well as with regard to the application of the regime of remission or waiver, because it configures an artificial division of the will of the Claimant and, in particular of her husband, in the act of partition.

For which reasons she requests the annulment of the challenged assessment, with all legal consequences.

b. Of the Respondent:

Notified in accordance with the terms and for the purposes provided in article 17 of the RJAT, the AT presented its response and attached the administrative file (PA), in which it came to defend the legality and maintenance of the act of assessment object of the present request for arbitral pronouncement, with the following grounds:

Just as was decided in the appreciation of the Hierarchical Appeal, the objective prerequisites for subjection to tax, with respect to the waiver of balance payments, are found in article 2, no. 1 and no. 5, paragraph c), of the IMT Code, in which it is established, respectively, that "IMT applies to transfers, on an onerous basis, of the right of ownership or of partial interests in that right, over real property situated in the national territory" and that "By virtue of what is provided in no. 1, are also subject to IMT, in particular: c) The excess of the share portion to which the acquirer is entitled, in real property, in an act of division or partition, as well as the alienation of inheritance or hereditary share", with the share portion being determined in accordance with article 12, no. 4, rule 11, by reference to the taxable property value of the transferred real property, or, if it is higher, to the value which served as the basis for the partition.

The subject liable to the tax is, in accordance with what is provided in paragraph a) of article 4 of the same code, the acquirer of real property assets.

And it is concluded, in that decision, that "In the present case, the taxable event occurred at the moment when the value attributed to the claimant, in the partition, exceeded the share portion to which she would be entitled. There is, therefore, an onerous transfer, embodied in the difference between the spousal share and the value which was attributed to her in the partition of common real property. This difference, subject to balance payments, is sufficient to realize the onerous nature of the transfer in this part and, by virtue thereof, the subjection to IMT."

The Claimant argues that through the partition deed no right to balance payments was constituted in the legal sphere of the spouse, since he waived them, arguing, therefore, that it was a gratuitous transfer.

However, the IMT Code provides that which is subject to tax is "the excess of the share portion to which the acquirer is entitled, in real property, in an act of division or partition".

The Claimant intends that it be considered to be a gratuitous transfer and that the right to balance payments was not even constituted, by effect of waiver thereof, which has no legal support whatsoever.

For, having been allocated to the Claimant, in the partition deed, real property assets of value superior to that of her share portion in the common assets, the right to balance payments of the other spouse is constituted, immediately verifying the prerequisite contained in paragraph c) of no. 5 of article 2 of the IMT Code.

Thus concludes the Respondent that "(…) insofar as the right to balance payments of which the waiving party is holder was extinguished simply, through unilateral non-receptive declaration, the waiver of balance payments constituted an abdicative waiver, which is not valued in IMT, in the same way as it is, notably in Stamp Tax".

Since the disputed issue in the present proceedings is exclusively of law and, there being no exceptions and the position of the parties being fully defined in the proceedings, supported by the evidence produced by the Claimant, the AT requests the waiver of the meeting referred to in article 18 of the RJAT.

Through arbitral order of 4 October 2017, the holding of the meeting referred to in article 18 of the RJAT was waived, the Parties were invited to, if they wished, produce written submissions within a successive period of ten days, beginning with the Claimant, warning the latter that, until 17 November 2017, the date set for the pronouncement of the arbitral decision, it should proceed with payment of the subsequent arbitral fee.

The parties did not produce submissions.

II. PRELIMINARY EXAMINATION

1. The singular arbitral tribunal is competent and was regularly constituted on 31 July 2017, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.

2. The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. The proceedings do not suffer from defects that invalidate it.

4. No exceptions requiring appreciation and decision were invoked.

III. GROUNDS

III.1 MATTER OF FACT

a. Proven Facts:

The factual matter relevant to the understanding and decision of the case, motivated by the critical examination of the documentary evidence offered and of the PA attached to the proceedings, is determined as follows:

a) Through office no.… of the Finance Service of Vila Nova de Gaia …, of 2 February 2009, dispatched by registered letter with acknowledgement of receipt, the Claimant was notified to, within a period of 30 days from the notification, proceed with payment of IMT, in the amount of € 6,217.48, "corresponding to the spousal share contained in the deed of Partition executed on 09.10.2007, at the Notarial Office of B…, located at Rua …, no. … –…º, room …, in Vila Nova de Gaia." – Doc. 2, attached to P.I. and PA;

b) On 29 October 2007, a deed of "PARTITION AND DONATION" was executed at the Notarial Office already indicated – Doc. 4, attached to P.I. and attached to the PA –, in which executed, in the capacity of first Executing Party, C…, married to the Second Executing Party, but judicially separated from her as to person and property, and, in the capacity of second Executing Party, A…, married to the first Executing Party, but judicially separated from him as to person and property, through which they proceeded to the partition of the common assets of the couple;

c) From the aforementioned deed of "PARTITION AND DONATION" the following facts appear:

1. An active amount of € 283,515.23 was determined, with the spousal share of each spouse of the value of € 141,757.63; of the liabilities of € 59,000.00, each one received the value of € 29,500.00;

2. Real property assets totaling € 282,515.23 were allocated to the Claimant, carrying more than what belonged to her the amount of € 140,747.61; the husband spouse assumed responsibility for the full payment of the debt of € 59,000.00, whose share accrued to the amount of balance payments already determined, but which he waived, receiving nothing;

3. Both spouses accepted the partition in the aforementioned terms, "finding themselves fully and reciprocally satisfied";

4. In the same public deed, the Claimant's husband made a donation to her of real property, his own assets, and on account of his disponible share, with the taxable property value of € 27,961.75, which donation the Claimant accepted, in the terms stated;

5. Stamp Tax was assessed in the total amount of € 1,348.75, with the following breakdown: € 1,126.06 from the partition and € 223.69 from the donation, from item 1.1 and the amount of € 25.00, from item 15.1, both from the General Table of Stamp Tax, without IMT having been assessed on the partition;

d) On 13 May 2009, the IMT assessment was issued based on the declaration of form 1 presented on the same date, in the amount of € 6,217.48, for "Excess of share portion of real property in divisions or partitions", on a total value of € 140,757.61, by reference to the following urban properties located in the municipality of Vila Nova de Gaia:

1. Article …, of the parish of …, intended for own and permanent residence, with the taxable property value (TPV) of € 175,530.00;

2. Article …, of the parish of …, intended for residence, with the (TPV) of € 67,600.00;

3. Article …, fraction A, of the parish …, intended for warehouse, with the TPV of € 80,670.00 and,

4. Article …, fraction B, parish of …, intended for commerce, with the TPV of € 42,510.00;

e) Against the aforementioned IMT assessment the Claimant presented, on 15 April 2009, an administrative appeal which, initiated under no. …2009…, was rejected by order of the Head of the Finance Service of Vila Nova de Gaia …, notified to the Claimant by office no…. of that Service, of 20 July 2009;

f) On 4 August 2009, hierarchical appeal no. …2009… was presented, rejected by order of the Director of Services of DSIMT of 24 January 2017, the decision of which was notified to the Claimant through office no. 2017… of the Finance Service of Vila Nova de Gaia …, of 14 February 2017, sent by registered letter with acknowledgement of receipt (CTT registration no. RF…PT) and received on 27 of the same month;

g) From the grounds of the rejection of the hierarchical appeal the following appears:

"It would be necessary (…) to determine whether (…) for tax purposes there is or is not (…) the onerous character of the transfer, bearing in mind that the onerous nature of a transaction centers on the existence or non-existence of a consideration.

For this purpose, the moment of constitution of the taxable event is relevant, since it is by the verification of the taxable event that the tax legal relationship is constituted (See article 36 of the LGT).

(…) the event occurred at the moment when the value attributed to the claimant, in the partition, exceeded the share portion to which she would be entitled. There is, therefore, an onerous transfer, embodied in the difference between the spousal share and the value which was attributed to her in the partition of common real property. This difference, subject to balance payments, is sufficient to realize the onerous nature of the transfer in this part and, by virtue thereof, the subjection to IMT.

The fact that the holder of the right to balance payments waived them, in accordance with what is provided in no. 2 of article 863 of the Civil Code, is not determinative for the qualification of the legal transaction by the Tax Administration (See no. 4 of article 36 of the LGT). Indeed, the taxable event already showed itself to be constituted, and cannot be influenced by that later event.

The waiver of balance payments by the husband of the claimant is relevant for purposes of subjection to stamp tax, in accordance with no. 3 of article 1 of the Stamp Tax Code, as it is a gratuitous transfer. Being the spouse the beneficiary of that transfer, the same is exempt from stamp tax, in accordance with what is provided in paragraph e) of article 6 of the Stamp Tax Code.".

b. Unproven Facts:

There are no facts with interest for the decision of the case that should be considered as unproven.

III.2 MATTERS OF LAW

1. Preliminary Issue

In the judgment, the judge must pronounce himself on all issues that he should appreciate (final segment of no. 1 of article 125 of the Code of Tax Procedure and Process – CPPT, applicable subsidiarily to the tax arbitral proceedings, by force of what is provided in article 29, no. 1, paragraph a), of the RJAT).

The issues falling within the powers of cognition of the tribunal are, in accordance with no. 2 of article 608 of the Code of Civil Procedure (CCP), of subsidiary application to arbitral proceedings, by referral of article 29, no. 1, paragraph e), of the RJAT, "the issues which the parties have submitted to its appreciation, excepting those whose decision is prejudiced by the solution given to others; (…) unless the law permits or requires it to have knowledge of others."

Among the issues of ex officio knowledge in tax proceedings is that of timeliness of the request for arbitral pronouncement, since the expiration of the right to challenge constitutes a dilatory exception, in accordance with article 89, nos. 2 and 4, paragraph k), of the Code of Procedure in the Administrative Courts (CPTA), by force of article 29, no. 1, paragraph c), of the RJAT.

Although the AT does not invoke any exception, it does not fail to stress in its response that "From the rejection of the appeal the Claimant presented a Hierarchical Appeal, which also obtained no. …2009… and was also rejected by order of 24-01-2017" and that "The Claimant presents the present request for arbitral pronouncement on 29/05/2017."

Indeed, as appears from the evidence above, the decision rejecting the hierarchical appeal was notified to the Claimant through office no. 2017…, of the Finance Service of Vila Nova de Gaia …, of 14 February 2017, sent by registered letter with acknowledgement of receipt (registration no. RF…PT), received on 27 of the same month.

Verifying itself, thus, that on the date of the request for arbitral pronouncement, on 29 May 2017, the period of 90 days referred to in article 10 of the RJAT had already elapsed. However, the act was performed within the three days following the expiration of the period, as permitted by no. 5 of article 139 of the CCP, independently of just impediment and, not providing the regime of tax arbitration for the payment of any fine, the request is deemed timely.

2. The Issue to be Decided

The issue to be decided in the present proceedings is whether, in the partition of common assets of the couple, by judicial separation of person and property, in which one of the spouses carries real property assets of value superior to that of his spousal share, the other spouse having waived the balance payments to which he was entitled, there is an onerous transfer of real rights over real property, subject to Tax on Onerous Real Estate Transactions (IMT), as the AT argues, or whether, on the contrary, it is a gratuitous transfer, subject to the rules of Stamp Tax, as the Claimant contends.

In the grounds of the decision rejecting the hierarchical appeal, the AT argued that "the [taxable] event occurred at the moment when the value attributed to the claimant, in the partition, exceeded the share portion to which she would be entitled", that "The fact that the holder of the right to balance payments waived them, in accordance with what is provided in no. 2 of article 863 of the Civil Code, is not determinative for the qualification of the legal transaction by the Tax Administration (See no. 4 of article 36 of the LGT)", but that "The waiver of balance payments by the husband of the claimant is relevant for purposes of subjection to stamp tax, in accordance with no. 3 of article 1 of the Stamp Tax Code, as it is a gratuitous transfer. Being the spouse the beneficiary of that transfer, the same is exempt from stamp tax, in accordance with what is provided in paragraph e) of article 6 of the Stamp Tax Code."

Already in the Response, within the scope of the arbitral proceedings, the AT would come to clarify that "the onerous nature of the transfer centers on the existence of consideration" and that "insofar as the right to balance payments of which the waiving party is holder was extinguished simply, through unilateral non-receptive declaration, the waiver of balance payments constituted an abdicative waiver, which is not valued in IMT, in the same way as it is, namely in Stamp Tax".

Let us examine:

The taxable event, defined abstractly by the legislator in the rules of incidence and without which the tax legal relationship is not constituted, is composed of an objective element and a subjective element. While the objective element relates to the material aspect, to the "factual situation revealing the capacity typified in the tax norm", the subjective element "consists in the connection existing between the objective element and the subject liable to the tax"[1].

In the case of the Municipal Tax on Onerous Real Estate Transactions (IMT), in order for there to be subjection to tax, it is necessary that the factual situation configure not only a transfer of the right of ownership or of partial interests in that right, over real property situated in the national territory (also encompassing, in accordance with article 2, no. 5, paragraph c), of the IMT Code, "The excess of the share portion to which the acquirer is entitled, in real property, in an act of division or partition, as well as the alienation of inheritance or hereditary share"), but also that such transfer be effected on an onerous basis, as provided in article 2, no. 1, of the IMT Code.

In order to determine the onerous or gratuitous nature of the transfer of real rights over real property operated by the partition of common assets of the couple, it is necessary, making use of the elements referred to in article 9 of the Civil Code, to "reconstruct from the texts the legislative intent", taking into account that the letter of the law is the minimum limit of the interpretative task (in the sense that it is from the legislative text that one must depart to determine the meaning of the norm), but also its maximum limit (in the sense that it is not possible to attribute to the norm a meaning that is not minimally provided for in its letter) and that, in case of doubt about the meaning of the rules of incidence to apply, regard should be had to the economic substance of the tax facts (article 11, no. 3, of the LGT).

The law does not define the notion of "gratuitous transfer" or "onerous transfer", but doctrine makes allusion to what should be understood by gratuitous contracts and by onerous contracts, "according as they give rise, in accordance with the intention of the parties, to advantages for one alone or for both"[2].

Now: the AT recognizes that the onerous nature of a transaction centers on the existence of a (counter)performance; for this reason it considers that, in the case under analysis, the consideration occurred at the moment when, in the partition deed, real property assets of value superior to that of her spousal share were allocated to the Claimant, creating for her the obligation of payment of balance payments to the husband, who waived them. And from this it concludes that the transfer operated by the partition is an onerous transfer of real rights over real property, subject to IMT.

However, properly viewed, it is necessary to distinguish the concepts of obligation and performance.

Indeed, according to the definition of article 397 of the Civil Code, "Obligation is the legal bond by virtue of which one person becomes bound to another for the realization of a performance", creating a right in the sphere of the counterparty.

We have thus that performance does not equate to obligation as a legal bond, but rather is its object.

And if, in the great majority of cases, obligations are extinguished by performance, that is, by the realization of the performance or by another means of satisfaction of the interest of the creditor (e.g., by payment in kind, consignment, compensation or novation), "[m]uch different from this is the functional arrangement (…) of remission (article 863)" in which, although with the acquiescence of the debtor, "the right of credit does not come into function; the interest of the creditor to which the obligation is bound does not come to be satisfied, even indirectly or potentially. The obligation is extinguished without there coming to be performance."[3]

Hence the legislator admitted the contractual nature of remission, establishing in no. 2 of article 863 of the Civil Code that, when it has the character of liberality, that is, when there is no advantage for the remitting party, but only for its beneficiary, the remission by transaction between living parties is deemed a gift, in conformity with articles 940 and following of the Civil Code.

Now, having the declaration of waiver of balance payments by the Claimant's husband been expressed in the public partition deed, which she accepted, it should be concluded that the same was contractually established.

Faced with such conclusion, and there being no proof that in such waiver there was consideration (advantage for the husband spouse), it is not understood how the AT can consider that the value allocated to the Claimant, in the part exceeding her spousal share in the common assets of the couple, configures an onerous transfer and, simultaneously, a gratuitous transfer, subject to Stamp Tax, although exempt therefrom, in accordance with paragraph e) of article 6 of the Stamp Tax Code, as is, contradictorily, affirmed in the decision rejecting the hierarchical appeal.

A posteriori, the AT comes to say in the context of the Response that, in fact, "insofar as the right to balance payments of which the waiving party is holder was extinguished simply, through unilateral non-receptive declaration, the waiver of balance payments constituted an abdicative waiver, which is not valued in IMT, in the same way as it is, namely in Stamp Tax".

It is necessary, first and foremost, to reaffirm that the waiver of the right to balance payments by the Claimant's husband (and one can only waive rights already constituted) was not conveyed by a unilateral declaration on his part, since, as has been seen, such declaration was expressed in the partition deed and both spouses accepted that partition reciprocally, in the precise terms stated in that deed.

Nor can it be said that the same waiver of the right to balance payments has distinct treatments in the context of IMT and in the context of Stamp Tax, since one of the taxes deals with onerous transfers of real rights over real property while the other deals with gratuitous transfers, regardless of the nature of the asset transferred.

If we correctly understand the AT's decisional path in speaking of an abdicative waiver (or abdicatory), reported to the right of credit relating to the balance payments that would be owed by the Claimant to the husband, it goes in the direction of affirming that the latter did not waive the real rights over his share in the common real property, which he transferred to her, since a right to balance payments was created for him.

However, treating it as the partition of common assets of the couple, the situation is naturally different from that which occurs in the succession context in which, in the case of waiver of the hereditary share, the right of the waiving party is extinguished, a new right being born in the legal sphere of the beneficiaries of the waiver – the right of accretion (article 2137 of the Civil Code), which does not require acceptance as it is mere legal consequence.

We thus accompany doctrine in the consideration that, there being on the part of the waiving party an intention to give and on the part of the beneficiary a will to accept, the intent to attribute or transfer overlies the intent to abdicate, a situation in which we are faced with an indirect gift, a figure "which aims to cover all those legal acts (…) which effectively have as their result and purpose the patrimonial enrichment without reciprocal consideration on the part of a beneficiary", that is, which have as their economic substance its gratuitousness.[4]

In the case of the present proceedings, having the Claimant's husband waived the balance payments (the performance owed by her) and the AT attributing tax relevance to the declaration of waiver, expressed and accepted in the partition deed, from which does not result that, with the waiver, the husband spouse intended to be relieved of any burden, it was on the AT that the burden of proof of the onerous nature of the transfer fell, since, in accordance with no. 1 of article 74 of the LGT, "The burden of proof of the facts constituting the rights of the tax administration or the taxpayers falls on whoever invokes them."

For this purpose, the AT had the power to access information and banking documents, if there were "facts concretely identified indicative of the lack of veracity of the declared", as prescribed by paragraph a) of no. 1 of article 63-B of the LGT, in the wording in force at the time of the facts.

Not having the AT proved the onerous nature of the transfer, as was incumbent upon it, and the exercise of interpretation pointing in the direction that the transfer in question was effected on a gratuitous basis and, as such, excluded from the incidence of IMT, the challenged assessment cannot be maintained, given the error in the legal prerequisites on which it was based.

IV. DECISION

On the basis of the facts and legal grounds set out above and, in accordance with article 2 of the RJAT, it is decided, judging the present request for arbitral pronouncement entirely well-founded, to declare the illegality of the IMT assessment for the year 2007, in the amount of € 6,217.48, which is hereby annulled, with all legal consequences (article 24 of the RJAT).

VALUE OF THE CASE: In accordance with what is provided in article 306, nos. 1 and 2, of the CCP, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 6,217.48 (six thousand, two hundred and seventeen euros and forty-eight cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed thereto, in the amount of € 612.00 (six hundred and twelve euros), at the charge of the Tax and Customs Authority.

Notify.

Lisbon, 17 November 2017.

The Arbitrator,

/Mariana Vargas/

Text produced on computer, in accordance with no. 5 of article 131 of the CCP, applicable by referral of paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The drafting of the present decision is governed by the orthographic agreement of 1990.

[1] See Diogo Leite Campos and Others, General Tax Law, Annotated and Commented, 4th Edition, 2012, pages 293 and 294.

[2] Mário Júlio de Almeida Costa, Law of Obligations, 5th Edition, Almedina, 1991, page 295.

[3] Antunes Varela, On Obligations in General – Vol. II, 7th Edition, Almedina, 1997, pages 242 et seq.

[4] On the distinction between abdicative and translative waiver, see Francisco M. B. Pereira Coelho, Abdicative Waiver in Civil Law (Some Notes Aimed at Defining its Regime), in STVDIA IVRIDICA, no. 8, University of Coimbra, 1995. Especially on indirect gift, pages 50 et seq.