Process: 390/2017-T

Date: March 1, 2018

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

In CAAD Process 390/2017-T, taxpayers A and B challenged an additional IRS assessment of €44,258.37 for 2012, disputing the Tax Authority's classification of income from land subdivision and sale under the simplified regime for Category B business income. The taxpayers had sold 10 land lots resulting from a subdivision operation for €509,100, after acquiring the property by exchange in 2007 for €400,000 plus additional investments of €398,526.56. The Tax Authority classified this activity as 'Purchase and Sale of Real Estate' (CAE 68100) under Category B business income in the simplified regime, applying the 0.20 coefficient to sales value (€509,100 × 0.20 = €101,820 taxable income) pursuant to Article 31 of the IRS Code. The taxpayers argued they should have been mandatorily classified in the organized accounting regime, which would allow deduction of the initial acquisition cost (€400,000), investments (€398,526.56), and municipal property tax (IMI) of €4,123.51. The Tax Authority maintained that land subdivision exploitation constitutes commercial activity under Article 4(1)(g) of the IRS Code, classifying gains as business income rather than capital gains (Category G), even when exercised occasionally. The dispute centered on whether the subdivision and sale activity met the legal conditions for simplified regime inclusion versus mandatory organized accounting treatment, and the corresponding impact on deductible expenses and taxable income calculation under Article 28 and Article 32 of the IRS Code.

Full Decision

ARBITRAL DECISION

Arbitrator Raquel Franco, designated by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the collective arbitral tribunal constituted on 29 August 2017, decides as follows:

REPORT

On 27 June 2017, A... and B..., married, residing at ... Street, no. ..., ...-..., Caxias, holders of taxpayer identification numbers ... and ..., respectively, filed, pursuant to the provisions of paragraph a) of no. 1 of article 2, paragraphs a) and b) of no. 2 of article 5, and no. 1 of article 6, all of the Legal Regime for Tax Arbitration (hereinafter "LRTA"), a request for the constitution of a singular arbitral tribunal and for an arbitral ruling on the assessment notice no. 2016..., dated 1 July 2016, as well as on the decision rejecting the Gracious Objection filed within the scope of procedure no. ...2017..., which upheld that assessment.

Following the relevant legal procedures, the President of the Ethics Council of the CAAD, in accordance with the provisions of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, notified the Parties of the constitution of the singular arbitral tribunal on 29 August 2017. On that same date, the Tribunal notified the Tax and Customs Authority (hereinafter, AT) to file its response, as well as the administrative file, which occurred on 2 October 2017 and 4 October 2017, respectively.

On 5 October 2017, the Tribunal notified the Parties of the decision to waive the meeting provided for in article 18 of the LRTA, of the deadline for filing arguments, and of the deadline for issuing the arbitral decision.

The Parties filed their arguments on 23 October 2017 and 3 November 2017, respectively Claimants and Respondent.

PROCEDURAL SOUNDNESS

The arbitral tribunal was properly constituted, in accordance with the provisions of arts. 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The Parties are duly represented, possess legal personality and legal capacity, have standing, and are represented (arts. 4 and 10, no. 2, of the same legislation and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The case is free from nullities.

Positions of the Parties

In the request for arbitral ruling they filed, the Claimants contend the illegality of (i) the additional assessment of Personal Income Tax (IRS) no. 2016..., dated 1 July 2016, referring to 2012, in the amount of EUR 44,258.37 (forty-four thousand two hundred and fifty-eight euros and thirty-seven cents), an amount which includes the value of EUR 4,861.47 (four thousand eight hundred and sixty-one euros and forty-seven cents) for compensatory interest, sustained in assessments 2016... and 2016..., and (ii) the decision rejecting the Gracious Objection filed within the scope of procedure no. ...2017... in the following defects:

a) Defect of violation of nos. 2 and 10 of article 28 of the IRS Code through incorrect classification in the simplified regime, and consequently,

b) Defect of violation of paragraph b) of no. 1 of article 28 and of article 32 of the IRS Code through error in the determination of taxable income.

The alleged defects are, according to the Claimants, based on the following arguments:

- The Claimant should have been mandatorily classified in the organized accounting regime, and not in the simplified regime, because the conditions that the law then in force made dependent the inclusion in the simplified regime were not met;

- In the year that income was attributed to the male Claimant from the alienation of the said inventory (the 10 lots acquired by exchange in 2007), the Tax Inspection Services should have recognized the expense corresponding to the initial acquisition value (EUR 400,000), plus the other investments made in it and which, at a minimum, would be in the amount of EUR 398,526.56;

- Other costs incurred in the same year that were essential should also contribute to the formation of taxable profit, such as the IMI (Real Estate Tax) that burdened the said lots, in the amount of EUR 4,123.51.

In Response, the Respondent pronounced itself as follows:

It follows from all the elements that constitute the Administrative File that the male Claimant, after requesting clarification from the AT on what procedure he should fiscally adopt in the context of IRS regarding the alienation of land lots in the year 2012, preceded by a subdivision operation, with the buyer assuming responsibility for completing the infrastructure, and after having been properly clarified, chose not to follow the guidance that was communicated to him.

Consequently, the male Claimant was subject to a tax inspection, and was registered in the activity of "Purchase and Sale of Real Estate" – CAE 68100, for the year 2012, classified in category B – business/professional income in the simplified regime.

The AT considers that capital gains can only be classified under category G, pursuant to article 10 of the IRS Code, if they meet a first and essential legal negative requirement – "not being considered as business and professional income, capital income or real property income," whereby the legal classification of the situation should begin with verification of the possibility of classifying the "capital gain" under one of the other income taxation categories.

Now, from the combination of paragraph a) of no. 1 of art. 3 and paragraph h) of art. 2 of the IRS Code it follows that income deriving from the practice of isolated acts relating to commercial or industrial activities is considered as business income and is classified under category B income.

That is, it qualifies as commercial and industrial activities, namely urban development and land subdivision exploitation activities, and as business and professional income, in accordance with paragraph a), no. 1 of art. 3 of the IRS Code, those deriving from their exercise.

In the present situation, the sale of land lots preceded by a subdivision operation, insofar as it presupposes an activity carried out through acts of enhancement of the same, (an activity which deprives the gains obtained with the subsequent sale of the lots of the fortuitous nature characterizing capital gains), configuring them thus as acts of a commercial and industrial nature, capable of generating income subject to taxation under IRS in the context of category B, in accordance with the provisions of paragraph g) of no. 1 of art. 4 of the IRS Code.

On the other hand, for purposes of determining the tax base, only the amounts received from the sales of the land lots shall be considered, in accordance with the combined provisions of paragraphs a) and b) of no. 1 of art. 115 and paragraph a) of no. 1 of art. 116 of the IRS Code (that is, EUR 509,100.00 × 0.20 = 101,820.00), given that the income to be included for taxation purposes, by reason of technical-scientific base indicators for the various sectors of activity not yet having been approved, is that resulting from the application of the coefficient of 0.20 on the value of sales of goods and products (nos. 1 and 2 of art. 31 of the IRS Code).

Thus, given that this is the alienation of land lots resulting from subdivision operations promoted by the Claimants, that operation falls within the concept of commercial activity for IRS purposes, of "land subdivision exploitation" (para. g) of no. 1 of art. 4 of the IRS Code), even though the exercise of that activity by the Claimants may have been occasional, that is, covering that single piece of land divided into 29 lots.

Thus, having the male Claimant not filed a rectified IRS Model 3 declaration, the AT proceeded to register the income in Annex B and proceeded, pursuant to no. 4 of art. 65 of the IRS Code, to calculate the taxable income.

From this calculation of taxable income it is verified that the gross amount attributed to category B was EUR 101,820.00, whereby its classification under category B, with respect to IRS for the year 2012, is correct.

Similarly, there is no violation of paragraph b) of no. 1 of art. 28 and art. 32 of the IRS Code – error in determining income – for the reason that the male Claimant is not, in the year 2012, classified in the organized accounting regime.

What is verified is that the determination of the business and professional income provided for in art. 28 of the IRS Code of the male Claimant was made on the basis of paragraph a) no. 1 of that legal provision and the assessment of the tax was made pursuant to art. 76 of the IRS Code.

For all of this, the AT understands that it has proceeded with a correct application of the law, and no indemnificatory interest is due pursuant to article 43 of the General Tax Law.

Factual Matter

Findings of Fact

On 7 August 2007, by public deed of exchange concluded with Company C..., Lda., the Claimants acquired, for the amount of EUR 400,000.00, the property denominated "...", with an area of 34,930 m², located in the parish of ..., municipality of ..., registered in the rural property register under article ..., section ... and in the respective urban property register under articles ... and ...;

Prior to the date of the exchange deed referred to in A), the Municipal Council of ... had approved a preliminary subdivision study of the said property into 29 lots.

Of those 29 lots, the male Claimant ceded 10, designated by no. (s) 11, 12, 13, 14, 22, 23, 24, 25, 26 and 27, for the amount EUR 400,000.00 to Company C..., Lda. within the scope of the exchange referred to in A).

The male Claimant requested clarification from the DSIRS regarding the profit that would be considered in his IRS from the alienation he intended to make of 19 land lots, in the year 2012, with the buyer assuming responsibility for completing the infrastructure.

The male Claimant filed the IMI Model 1 for registration of the land lots, with the respective subdivision permit, as well as regarding the activity carried out by him in the real estate sector, in the capacity of administrator/manager of various companies in that sector;

The AT then considered that the gains possessed a business nature, resulting from an intentionally lucrative activity, producing income subject to IRS in the context of category B, pursuant to the provisions of article 3 and paragraph a) of no. 1 of art. 4 of the IRS Code;

The male Claimant bore the amount of EUR 344,850.00 relating to architectural and specialization projects for the subdivision;

The male Claimant further bore the amounts of EUR 23,452.30 and EUR 30,224.26 for work performed in the subdivision construction contract;

With reference to the year 2011, the male Claimant paid the amount of EUR 4,123.51 for IMI on the property of the said lots;

On 8 February 2012, the Claimants proceeded to sell the 19 lots to company D..., Lda., for the amount of EUR 509,100.00;

In 2013, the Claimants reported the alienation of the real estate identified above in the IRS Model 3 Income Return for the year 2012, Annex G, relating to capital gains and other capital gains;

In 2016, the Tax Inspection Services of the Finance Directorate of Lisbon (hereinafter SIT) initiated an inspection of the year 2012, pursuant to service order no. OI2014..., and whose draft report was notified to the male Claimant by letter of 15 April 2016;

In the report, the SIT concluded that the alienation of land lots for construction-subdivision should be taxed in the context of category B of IRS.

The SIT proceeded to register the male Claimant in the activity of "Purchase and Sale of Real Estate" – CAE 68100, for the year 2012, and made his classification in the simplified taxation regime;

The SIT proceeded to calculate the taxable income by applying the coefficient of 0.20, applicable in the case of sale of goods and products, to the sales value of the said lots, from which resulted an arithmetical correction in the amount of EUR 101,820.00, corresponding to the alteration of taxable income from EUR 64,492.90 to EUR 166,312.90.

The Claimants were notified, by letter no. ..., dated 3 June 2016, of the Tax Inspection Report (RIT), which upheld the correction and reiterated the arguments set out previously;

On 14 July 2016, the Claimants were notified of the additional IRS assessment, from which resulted the amount of EUR 44,258.37 to be paid;

On 14 July 2016, the Claimants were notified of compensatory interest assessments, through assessments 2016 ... and 2016 ...;

On 14 July 2016, the Claimants were notified of the statement of account reconciliation, with compensation number 2016 ..., of 5 July 2016, through which the payment of the additional assessment being challenged was required, plus the reimbursement that the AT had made, in the amount of EUR 1,205.77 for credit reversal of the 2012 assessment;

On 28 July 2016, the Claimants made payment of the required amounts.

Findings Not Proven

There are no relevant facts for the decision that have not been proven.

Justification of the Decision Regarding Factual Matter

The facts were found proven on the basis of the documents attached with the request for arbitral ruling, in the administrative file, and on facts stated by the Parties in their respective procedural documents regarding which there is no controversy.

Regarding the factual matter, the Tribunal does not have to pronounce on everything alleged by the Parties, but rather has the duty to select the facts that matter for the decision and to discriminate between proven and unproven matters (cf. article 123, no. 2, of the Tax Procedure Code and article 607, no. 3 of the Civil Procedure Code, applicable pursuant to article 29, no. 1, paragraphs a) and e) of the LRTA).

The facts are selected in accordance with their legal relevance, which is determined based on the various possible solutions for the case (cf. the previous article 511, no. 1, of the Civil Procedure Code, current 596, applicable pursuant to article 29, no. 1, paragraph e) of the LRTA).

Having regard to the positions assumed by the Parties, the facts stated above are considered proven, with relevance to the decision.

LEGAL GROUNDS

The question that needs to be decided in this case concerns the application, in the situation of the Claimants in the year 2012, of the simplified taxation regime for category B income of IRS or of the organized accounting regime.

It follows from the position assumed by the Parties that what is not in issue is the classification of income under category B, but rather its taxation pursuant to the simplified regime and not the organized accounting regime.

Now, on this question, the Claimant argues that she could not have been taxed according to the simplified regime because, pursuant to no. 2 of art. 28 of the IRS Code in the wording in force at the date of the facts, taxpayers with business and professional income could only opt for the simplified regime if they had not earned an annual gross income amount exceeding EUR 150,000.00; that in this case, the income to be considered is that resulting from the alienation of the real estate, that is, EUR 509,100.00, which is manifestly greater than the EUR 150,000.00 provided for adherence to the simplified regime, whereby the taxpayer should have been classified in the organized accounting regime, by force of the aforesaid nos. 2 and 10 of article 28 of the IRS Code.

As for the AT, it understands that the income to be taken into account is not that resulting from the alienation of the real estate, that is, the total income obtained in the context of category B, but rather the income to be included, which results from the application to total income of the coefficient of 0.20 on the value of sales of goods and products (in accordance with the provisions of nos. 1 and 2 of art. 31 of the IRS Code then in force), the result of that operation, in the concrete case, being the amount of EUR 101,820.00. In short, the value is below the threshold of EUR 150,000, whereby the taxation should occur pursuant to the simplified regime and not the organized accounting regime.

The decision of this question therefore passes through the interpretation of the provisions of nos. 2 and 10 of article 28 of the IRS Code in force at the date of the facts:

2 - The simplified regime covers taxpayers who, in the exercise of their activity, have not exceeded in the immediately prior tax period an annual gross income amount of this category of (euro) 150,000.

10 - In the exercise of commencement of activity, classification in the simplified regime is made, when the other presuppositions are met, in accordance with the estimated annual income value, contained in the commencement of activity declaration, if the option referred to in no. 3 is not exercised.

(underlining ours)

From the combination of these rules it follows, in our better judgment, that, regardless of whether the classification of the regime is made on the basis of prior tax periods or in accordance with income estimated (or already realized) for the year itself, the income to be taken into account is, unequivocally, having regard to the wording of no. 2 of article 28, gross income (the rule refers to "annual gross income amount").

Now, what the AT defends is that the income to be taken into account is already that resulting from the coefficients provided then in article 31 of the IRS Code. However, this legal provision already refers to the calculation of taxable income within the simplified regime, that is, it provides the form of obtaining income that will be subject to taxation, already discounted from the value that, in accordance with the sector of activity in question, the legislator considers appropriate to consider as a cost of the activity that permitted the calculation of total/gross income. We cannot, in our better judgment, consider that it is this value to which the legislator refers when speaking of "gross income" in no. 2 of article 28 of the IRS Code.

On this point, therefore, this tribunal understands that the Claimants have reason, and that the taxation of income obtained in the context of category B should have occurred within the organized accounting regime and not within the simplified taxation regime.

Given this, the Claimants allege that:

(i) In the year that income was attributed to the male Claimant from the alienation of the said inventory (the 10 lots acquired by exchange in 2007), the SIT should have recognized the expense corresponding to the initial acquisition value (EUR 400,000), plus the other investments made in it and which, at a minimum, would be in the amount of EUR 398,526.56;

(ii) Other costs incurred in the same year that were essential should also contribute to the formation of taxable profit, such as the IMI that burdened the said lots, in the amount of EUR 4,123.51.

Now, if it is true that, the AT not having made the correct legal classification of the tax fact, the assessment being challenged cannot be upheld because there is a defect of erroneous quantification of income, pursuant to the provisions of article 99, paragraph a) of the Tax Procedure Code, and that therefore the assessment should be annulled, this tribunal cannot substitute itself for the AT and proceed with a new assessment of tax on the basis of the organized accounting regime. Indeed, the powers of this Tribunal are framed within a regime of contentious annulment in which it is only a matter of ascertaining whether the act is legal or illegal and, in the latter case, proceeding with its annulment.

As for the request for indemnificatory interest, it follows from the provisions of articles 43, no. 1, of the General Tax Law and 61 of the Tax Procedure Code that indemnificatory interest is due when it is determined in a gracious objection or judicial challenge that there was error attributable to the services from which resulted the payment of a tax debt in an amount greater than legally due.

There is considered to be error attributable to the administration when the error is not attributable to the taxpayer and is based on erroneous presumptions of fact that are not the responsibility of the taxpayer.

In the concrete case, there is considered to have been error attributable to the AT in the calculation of the tax due, since the taxation proceeds from the erroneous classification in the simplified regime instead of the organized accounting regime. In such cases, since there is annulment of the assessment, the legislator presumes that there occurred in the sphere of the taxpayer a detriment by virtue of having been deprived of the patrimonial amount that had to be delivered to the State by virtue of an illegal assessment. Consequently, the taxpayer has the right to that indemnification, independent of any allegation or proof of the detriment suffered.

In the present case, as the Claimants paid the amounts fixed in the assessment being challenged and annulled by this arbitral decision, the provision of no. 1 of article 43 of the General Tax Law is met. Consequently, the Claimants have the right to indemnificatory interest calculated from the date of payment of the annulled tax assessment until the date of issuance of the respective credit note, the period for that payment being calculated from the beginning of the deadline for voluntary execution of this decision, pursuant to no. 4 of article 61 of the Tax Procedure Code, at the rate determined in accordance with the provisions of no. 4 of article 43 of the General Tax Law.

DECISION

For these reasons, it is decided in this Arbitral Tribunal:

a) To grant the request for annulment of the IRS assessment no. 2016..., dated 1 July 2016, referring to 2012, in the amount of EUR 44,258.37 (forty-four thousand two hundred and fifty-eight euros and thirty-seven cents), an amount which includes the value of EUR 4,861.47 (four thousand eight hundred and sixty-one euros and forty-seven cents) for compensatory interest, sustained in assessments 2016... and 2016..., and the decision rejecting the Gracious Objection no. ...2017...;

b) To grant the request for payment of indemnificatory interest, calculated from the date of payment of the assessment now annulled until the date of issuance of the respective credit note.

Value of the Case

The value of the case is set at EUR 44,258.37, in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Cases (RCPAT), 97-A, no. 1, paragraph a) of the Tax Procedure Code and 306 of the Civil Procedure Code.

Costs

The amount of costs is set at EUR 2,142.00, under the provisions of article 22, no. 4 of the LRTA and Table I annexed to the RCPAT, to be borne by the Respondent, in accordance with the provisions of articles 12, no. 2, of the LRTA and 4, no. 4 of the RCPAT.

Let it be notified.

Lisbon, 1 March 2018.

The Arbitrator

(Raquel Franco)

Text prepared by computer, pursuant to article 131, no. 5 of the Civil Procedure Code, applicable by cross-reference of article 29, no. 1, paragraph e) of the LRTA.

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority officially reclassifies a taxpayer from the simplified regime to organized accounting for IRS purposes?
When the Tax Authority officially reclassifies a taxpayer from the simplified regime to organized accounting for IRS purposes, the method of calculating taxable income changes fundamentally. In the simplified regime, taxable income is determined by applying fixed coefficients to gross income (e.g., 0.20 for sales of goods under Article 31 of the IRS Code), without deducting actual expenses. In organized accounting, taxpayers must maintain proper accounting records and calculate taxable income based on actual revenues minus documented expenses and costs. This reclassification can be done ex officio by the Tax Authority during inspections when they determine the taxpayer should have been in organized accounting from the start, either because mandatory conditions were met (such as exceeding income thresholds under Article 28(2) of the IRS Code) or because the nature of the activity requires it. The reclassification applies retroactively to the tax year in question, potentially resulting in additional assessments or refunds depending on whether actual profit exceeds or falls below the simplified regime calculation.
Can taxpayers challenge an additional IRS assessment based on incorrect classification of business and professional income?
Yes, taxpayers can challenge an additional IRS assessment based on incorrect classification of business and professional income through administrative and judicial remedies. As demonstrated in Process 390/2017-T, taxpayers can first file a gracious objection (reclamação graciosa) with the Tax Authority challenging both the regime classification and the resulting assessment. If the gracious objection is rejected, taxpayers can then resort to tax arbitration through CAAD (Centro de Arbitragem Administrativa) under Article 2(1)(a) of the Legal Regime for Tax Arbitration, as the claimants did in this case. The challenge can be based on violations of IRS Code provisions, such as Article 28 (regime classification rules) and Article 32 (determination of taxable income). Taxpayers can argue that the Tax Authority incorrectly classified them in the simplified regime when they should have been in organized accounting, or vice versa, and that this misclassification led to incorrect calculation of taxable income by either improperly applying coefficients or failing to allow legitimate expense deductions.
What is the legal basis for choosing between the simplified regime and organized accounting under Portuguese IRS rules?
The legal basis for choosing between the simplified regime and organized accounting under Portuguese IRS rules is primarily found in Article 28 of the IRS Code. Under Article 28(2), taxpayers are mandatorily classified in the organized accounting regime if they meet certain conditions, including: exceeding annual income thresholds, being required to have organized accounting under commercial law, or engaging in certain types of activities. Taxpayers who don't meet these mandatory conditions are generally placed in the simplified regime by default, but can opt for organized accounting voluntarily under Article 28(1). The simplified regime applies coefficients to gross income without considering actual expenses (Article 31), while organized accounting requires proper bookkeeping and allows deduction of documented costs (Article 32). Specific activities may trigger mandatory organized accounting classification regardless of income levels. The classification must occur at the beginning of the tax year and generally applies for at least three years. The Tax Authority can reclassify taxpayers ex officio during inspections if it determines the wrong regime was applied, as occurred in this case involving land subdivision activities.
How does the CAAD arbitration process work for disputes over IRS income classification and additional tax assessments?
The CAAD arbitration process for disputes over IRS income classification and additional tax assessments follows the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). Taxpayers file a request for arbitration under Article 2(1)(a) and Article 6(1) of RJAT, challenging the assessment notice and any rejected gracious objection. The President of the CAAD Ethics Council designates an arbitrator (or arbitrators for collective tribunals) under Article 11(1)(c), who notifies parties of the tribunal's constitution. The Tax Authority must file a response and submit the administrative file within deadlines set by the tribunal. The arbitrator may waive the hearing under Article 18 if deemed unnecessary, as occurred in Process 390/2017-T. Both parties submit written arguments, with the claimant identifying specific legal violations (such as breaches of Articles 28 and 32 of the IRS Code regarding regime classification and income determination). The arbitrator reviews the legality of the tax assessment, applicable legal provisions, and whether the Tax Authority correctly applied IRS rules. The arbitral decision is binding and has the same effects as a court judgment, providing a faster alternative to judicial tax courts.
What are the consequences of an unauthorized change in tax regime for the calculation of business and professional income under Category B of IRS?
An unauthorized change in tax regime has significant consequences for calculating business and professional income under Category B of IRS. If a taxpayer is incorrectly classified in the simplified regime when they should be in organized accounting (or vice versa), the taxable income calculation method changes dramatically. In the simplified regime (Article 31 of IRS Code), income is calculated by applying fixed coefficients to gross revenues (e.g., 0.20 or 20% for sales of goods), without deducting actual expenses—meaning a sale of €509,100 results in taxable income of €101,820 regardless of actual costs incurred. In organized accounting (Article 32), taxpayers can deduct documented expenses such as acquisition costs, improvements, operating expenses, and depreciation from gross income. As the claimants argued in Process 390/2017-T, this difference is substantial: under organized accounting, they could deduct the initial €400,000 acquisition cost, €398,526.56 in investments, and €4,123.51 in property taxes, potentially resulting in minimal or negative taxable income versus the €101,820 assessed under the simplified regime. An improper regime classification therefore directly violates the taxpayer's rights to correct tax calculation and can result in significant over-taxation or under-taxation.