Summary
Full Decision
ARBITRAL DECISION
REPORT
A - PARTIES
A… with Tax Identification Number …, and as head of the estate and sole heir of his father B…, resident at Avenue …, no. … - …, …-… Lisbon, hereinafter referred to as the Claimant or taxpayer.
Tax and Customs Authority, hereinafter referred to as the Respondent or AT.
The petition for establishment of the Arbitral Tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was accordingly regularly constituted on 27-06-2017, to assess and decide the subject matter of this dispute, and the Tax and Customs Authority was automatically notified on 27-06-2017, as appears from the respective minutes.
The Claimant did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of Article 6, paragraph 1 and Article 11, paragraph 1, letter b) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated Arbitrator Paulo Ferreira Alves, whose appointment was accepted in accordance with legal provisions.
On 11-08-2017, the parties were duly notified of this appointment, in accordance with Article 11, paragraph 1, letters a) and b), of the Rules of Tax Arbitration Procedure and Articles 6 and 7 of the Deontological Code, and did not manifest any intention to refuse the Arbitrator's appointment.
In accordance with the provisions of Article 11, paragraph 1, letter c) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the single Arbitral Tribunal was accordingly regularly constituted on 20-09-2017.
On 05-01-2018, the meeting referred to in Article 18 of the Rules of Tax Arbitration Procedure took place, and witness testimony was heard. Both parties presented successive written submissions.
The Arbitral Tribunal is regularly constituted and materially competent, in accordance with Articles 2, paragraph 1, letter a), and 30, paragraph 1, of Decree-Law no. 10/2011, of 20 January.
The parties possess legal personality and capacity, are legitimate, and are legally represented (Articles 4 and 10, paragraph 2, of the same decree and Article 1 of Administrative Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from defects that would invalidate them.
B - CLAIM
The Claimant hereby requests the declaration of illegality of the tax assessment acts for the taxation of Income Tax of Individuals for the year 2014, formalized by the assessment notice no. 2015…, in the amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents).
C - GROUNDS FOR THE CLAIM
To support its petition for arbitral pronouncement, the Claimant alleged, with a view to the declaration of illegality of the tax assessment act for the taxation of Income Tax of Individuals, already described in point 1 of this Award, in summary, the following:
On 31 October 1974 a preliminary contract for the purchase and sale of rustic property registered in the property register of the Union of Parishes of …, … and …, under article … of Section A was executed.
Under the terms of the said preliminary contract, the price of PTE 140,000.00 (one hundred and forty thousand escudos) was established.
That amounts were due and fully paid, in accordance with the terms provided in the contract governing the relationship between the parties, namely PTE 139,000.00 with the preliminary purchase and sale contract and PTE 1,000.00 by 31 October 1975.
With the execution of the preliminary contract for the purchase and sale of the land, the Claimant took effective possession thereof, proceeding to act as its legitimate owner and possessor, which it also was.
Indeed, as early as 1974, the Claimant began the construction of a residence on its parcels of land, as is clear from the survey obtained from the Portuguese Geographic Institute for reference on 29 August 1977.
It should also be properly noted that the said property, for personal residence, was built in the form of self-construction in AUGI (Association of Property Owners), which was completed on 31 July 1989.
From that moment onwards, the Claimant proceeded to act as the true owner of the acquired property – which it was – enjoying it and modifying it without being accountable to anyone, given that, as legitimate owner and possessor, it was not obliged to do so.
Due to various illegal constraints, which are matters of public knowledge, only on 18 April 2012 was the Claimant able to execute the public deed of purchase and sale through which it was possible for the legal truth to coincide with the truth that emerges from the facts of real life.
That is to say, only in the civil year 2012, and due to facts not attributable to the Claimant, the legal world recognized the truth of the facts, namely, that the Claimant is owner of 285/27720 shares of the rustic property above identified, at the price of €698.32.
Subsequently, the Claimant (and his now deceased Father), on 16 October 2014 sold the said property, for the value of €70,000.00 (Seventy thousand euros).
Finally, the Claimant, by reference to the fiscal year 2014, timely submitted his Income Tax return Model 3 where he recorded the said sale of the property.
Following the submission of the said return, the Tax and Customs Authority carried out the act of assessment of Income Tax no. 2015…, which also constitutes the subject matter of the present petition for arbitral pronouncement.
It should be noted that it did so by completing Annex G for the simple reason that, until the expiration of the legal deadline for submission of the return, it failed to find the documents that would demonstrate that the said transaction is not subject to Income Tax.
It was only for this reason that, subsequently, and once the documents that allow demonstration of the reality of the facts had been discovered, the Claimant through its sole Heir addressed the Tax and Customs Authority, through the administrative appeal that precedes this, in order to restore legality (document which will be attached with the administrative procedure).
The Claimant maintains that, in accordance with the provisions of Article 5, paragraph 1, of Decree-Law no. 442A/88, of 30 November, the transaction in question, if carried out, was not subject to taxation, making it necessary to determine the date of acquisition (for tax purposes) of the rustic property.
The Claimant maintains that, if such acquisition occurred prior to 1989, the subsequent sale would not be subject to tax; if, on the other hand, the acquisition occurred after 1 January 1989, the sale would be subject to Income Tax.
For all the foregoing reasons, and having considered that the Claimant (Father): a) Paid the entirety of the agreed purchase price at a date (well) before 1 January 1989; and, b) immediately took possession of the parcels of land acquired – so much so that it immediately began construction of residential houses.
The Claimant alleges that from the application of the facts to the doctrine emanating from the said administrative instructions it follows that the parcels of land in question were "fiscally transferred" to the Claimant on the date of execution of the preliminary contract – purchase and sale, with delivery of the goods.
The Claimant argues that, without conceding anything, the assessment act should be annulled to the extent that the acquisition value should always be corrected through the application of the respective monetary correction coefficient, by reference to the year 1989, the date on which the residence meanwhile constructed was registered in the property register.
Additionally, the Claimant seeks the annulment of the decision on the administrative appeal, as said decision is not adequately supported in legally required terms, in accordance with Article 60, paragraph 7, of the General Tax Law.
The Claimant concludes by maintaining that the present petition for arbitral pronouncement, under the terms and purposes of the Rules of Tax Arbitration Procedure, should be judged as entirely successful because proven, and consequently the tax assessment acts contested are declared illegal, and also the decision of the Division Chief (in substitution) is declared illegal, with both the assessment act and the said decision being annulled accordingly, and the Claimant's right to compensatory interest being recognized.
D - THE RESPONDENT'S ANSWER
The Respondent, duly notified for such purpose, timely presented its answer in which, in brief summary, alleged the following:
As for the rest, it will be stated that, contrary to the Claimant's allegation, the taxation of gains obtained from the sale of the rustic property on 16 October 2014 is warranted.
As follows from the information supporting the decision to reject the administrative appeal procedure, the moment that is relevant for the purposes of applying Article 5 of Decree-Law no. 442-A/88, of 30 November, is the moment of acquisition.
In the face of the public deed of acquisition, dated 18 April 2012, it is undeniable that the purchase and sale occurred at this moment, this being the moment of acquisition for purposes of taxation.
The Respondent argues that the date of acquisition is the date on which the public deed of purchase and sale of the rustic property was executed, namely, 18 April 2012.
What determines that, at the moment when the Claimant proceeds to sell the property in question, on 16 October 2014, the income derived therefrom, which constitutes a capital gain, is subject to Income Tax, in accordance with Articles 9 and paragraph 1, letter a), of Article 10, both of the Personal Income Tax Code.
The Respondent concludes that the assessment does not suffer from the illegality invoked by the Claimant, and should be maintained, producing all its legal effects.
E - FACTUAL BASIS
Prior to addressing the question submitted for arbitral pronouncement, it is necessary to present the factual matter relevant to its understanding and decision, based on documentary evidence and witness testimony, and on the facts alleged.
Thus, in accordance with the principle of free assessment of evidence, given that the evidence was provided through documents and that the parties did not question the authenticity or probative value of the documents submitted, this Tribunal accepts the submitted documents as true, suitable, and authentic in accordance with Article 75, paragraph 1 of the General Tax Law.
As a matter of fact relevant, this Tribunal establishes as proven the following facts:
On 31 October 1974, B… executed a preliminary purchase and sale contract for the acquisition of a rustic property (registered in the property register with article number…, section A), in the amount of PTE 140,000.00, having paid as a deposit the amount of PTE 139,000.00.
The Claimant constructed a residence on the land.
On 18 April 2012, B… and the Claimant herein executed a public deed of purchase and sale by which they acquired 285/27720 shares of the rustic property indicated, for the amount of €698.32.
On 16 October 2014, B… and the Claimant herein executed a purchase and sale contract by which they sold the rustic property identified for the amount of €70,000.00.
On 24 May 2015, B… submitted the Income Tax return for the year 2014, with Annex G of Model 3 showing the realization value of €35,000.00 in 2014 and the acquisition value of €349.16 in 2012, and expenses and charges of €3,075.00.
The Claimant was notified of the assessment act 2015… in the amount of €6,489.55, with payment deadline of 31-05-2015.
The Claimant filed a request for review of the tax act by means of an administrative appeal on 28 December 2015.
On 16 January the Claimant was notified of the draft administrative appeal and of the right to be heard.
On 31 January 2017 the Claimant exercised the right to be heard.
The Claimant was notified of the final decision of rejection of the Administrative Appeal, by registered letter (postal registration no. RD…PT), on 27 March 2017.
F - UNPROVEN FACTS
Of the facts with interest for the decision of the case, contained in the challenge, all subject to concrete analysis, those which do not appear in the factual matter described above were not proven.
G - QUESTIONS TO BE DECIDED
In light of the positions assumed by the parties in the arguments presented, the following constitute the central questions to be decided, which must therefore be assessed and decided:
Alleged by the Claimant:
The declaration of illegality of the tax assessment acts for the taxation of Income Tax of Individuals for 2014, formalized by the assessment notice no. 2015…, in the amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents).
Condemnation to pay compensatory interest.
H - SUBSTANTIVE LAW
In light of the positions assumed by the parties in the pleadings presented, the central question to be decided by this Arbitral Tribunal consists in assessing the legality of the acts of assessment of Income Tax of Individuals for 2014, formalized by the assessment notice no. 2015…, in the amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents).
The crux of the present petition for arbitral pronouncement concerns the following question: at what juridical-tax moment does the acquisition of the property occur for the purpose of taxation of capital gains under Income Tax.
According to the Claimant's argument, the property was transferred to the taxpayer's sphere in 1974, on the date the preliminary contract was executed, and it was also communicated in 1989 through a specific form to the General Directorate of Contributions (now AT) regarding the registration of the property in the register, for payment of Property Tax. And as such it would not be subject to taxation as it was acquired before 1988, in accordance with Article 5 of Decree-Law no. 442-A/88, of 30 November. The Claimant further argues subsidiarily that if this is not accepted, the property should be considered as acquired in 1989, the date on which he registered it in his name with the General Directorate of Contributions for purposes of Property Tax.
The Respondent counter-argues that the moment of acquisition of the property occurred with the execution of the public deed of purchase and sale, carried out on 18 April 2012.
This tribunal must make a small caveat before delving deeply into the legal reasoning. The present question and the contested act concerns Income Tax of Individuals, excluding any assessment of the tax implications that may exist under other taxes, such as the case of Property Tax, Municipal Tax on Real Estate, or Real Estate Transfer Tax, or regarding the tax treatment afforded to the taxpayer in the operations that involved the property in question here. These are legal-factual situations that in no way impact the present analysis, and which should be analyzed in their appropriate venue.
The Claimant alleges that it proceeded with the construction of a residence on the land.
In 1989 the Claimant submitted to the Directorate General of Contributions, Collections and Taxes the "STATEMENT FOR REGISTRATION OR ALTERATION OF REGISTRATION OF URBAN PROPERTIES IN THE REGISTER," which registered the property with the DGCI (now AT) for purposes of Property Tax as being his own and the AT having assessed the respective tax annually.
The property was registered as a residence built in the form of self-construction in AUGI (Association of Property Owners).
Thus from 1989 the Claimant has paid Property Tax, which was meanwhile replaced by Municipal Tax on Real Estate (IMI).
The DGCI (now AT) since 1989 has had knowledge of the situation and assessed the tax against the Claimant.
Thus, it is from the date of registration with the Directorate General of Contributions, Collections and Taxes that should be considered for purposes of tax assessment.
In 1974 the tax "SISA" was in force, which similarly to the current Municipal Tax on Real Estate, considers that for purposes of incidence, it applies to preliminary purchase and sale contracts accompanied by delivery of the good (Articles 2 and 3 of the Municipal Tax on Real Estate Code).
The Claimant communicated to the DGCI (now AT) in 1989 the registration of the property in his name.
The Claimant proceeded with the full payment of the property within the scope of the preliminary contract, with PTE 139,000.00 paid upon execution of the contract and the remainder PTE 1,000.00 on 31 October 1975.
In procedural and process matters, precedence should be given to substance over form, as a corollary of the principle of material truth, and it is on the basis of this principle that this arbitral decision is developed.
Correction or rectification is based on the premise that the declarations submitted by the taxpayer are true, and in the present proceedings its falsity is not invoked.
Moreover, it is stated that in accordance with the principle of free assessment of evidence, and especially given that the parties have not questioned the suitability or veracity of the declarations submitted, this Tribunal accepts the declarations submitted as true and suitable, in accordance with Article 75, paragraph 1 of the General Tax Law.
In accordance with the legal regime of capital gains provided for in Article 10 of the Personal Income Tax Code, applicable to the year 2014 by the amendment effected by Law no. 83-C/2013, of 31 December, the moment of birth of the tax obligation is the date of the onerous sale of the property, which in the present case materialized on 16 October 2014, with a purchase and sale contract by which the Claimants sold the identified rustic property for the amount of €70,000.00.
As can be verified in Article 10 of the Personal Income Tax Code, "1 - Capital gains consist of gains obtained which, not being considered as business and professional income, capital gains or real estate income, result from: a) Onerous sale of real estate rights and commitment of any assets of the personal estate to business and professional activity carried out in individual name by its owner;".
Both parties accept that the act which gave rise to the capital gain in question resulted from the purchase and sale contract of 16 October 2014.
The question at issue concerns defining the moment at which acquisition is to be considered for purposes of taxation under Income Tax.
First, it should be stated that communication of the acquisition of a real estate asset does not constitute a tax obligation under Income Tax, only its onerous sale does.
Article 10 of the Personal Income Tax Code is not clear on this matter, as it only refers to the moment when the gain is realized, namely, the moment when it is sold.
However, it follows from Article 10, paragraph 3, letter a) of the Personal Income Tax Code, the following: "a) In cases of preliminary purchase and sale contracts or exchange, the gain is presumed to be obtained as soon as delivery or possession of the assets or rights which are the object of the contract is verified;".
A broad interpretation of Article 10, paragraph 3, letter a) of the Personal Income Tax Code results in the fact that in preliminary contracts in which there is delivery or possession of the assets, this is considered to be the moment at which the gain is obtained.
This is also established by the Municipal Tax on Real Estate Code and the SISA tax.
But if we carry out a contrarium sensum interpretation of Article 10, paragraph 3, letter a), it follows that by considering that the gain occurs in preliminary contracts at the moment of delivery or possession of the assets, we must also consider that it is at that moment that the asset is acquired by the promise-buyer.
If this were not so, we would be treating two simultaneous and complementary moments differently for tax purposes. That is, by considering that the gain is obtained from the promise-seller with the delivery or possession of the asset, we must also consider that the moment of acquisition by the promise-buyer is at that same moment simultaneously.
Existing a preliminary purchase and sale contract, it falls to the interested party to prove that there was delivery or possession of the asset.
The burden of proof rests with the party invoking it.
Thus, with the Claimant invoking that delivery of the asset occurred within the scope of the preliminary contract and not with the execution of the public deed, the burden of proof of these constitutive facts falls on it. As follows:
With regard to the legal regime of burden of proof, Article 74, paragraph 1 of the General Tax Law and Article 342, paragraph 1 of the Civil Code provide that the burden of proof rests with whoever invokes it.
As follows from Article 74 of the General Tax Law "1 - The burden of proving the facts constitutive of the rights of the tax administration or taxpayers rests with whoever invokes them.", in keeping with Article 342, paragraph 1 of the Civil Code, "He who invokes a right is bound to prove the constitutive facts of the alleged right".
The inquisitorial principle is situated upstream of the burden of proof.
As for the burden of proof, it falls to the Claimant, and it has the interest in submitting all evidence to the AT that it considers relevant.
The Claimant, to prove that there was delivery or possession of the asset within the scope of the preliminary contract, submitted the following documents:
The preliminary contract, which is a private document and was not subject to registration.
The registration for Property Tax in 1989 with the DGCI.
An analysis of the 1974 preliminary contract verifies that the Claimant proceeded with full payment of the price, however the Claimant failed to prove, either by documentary evidence or witness testimony, that there was delivery or possession of the asset between 1974 and 1989.
Indeed, if it had managed to demonstrate that with the preliminary contract there was delivery of the asset, case law understands that these situations are not covered by the non-subjection provided for in Article 5 of Decree-Law no. 442-A/88, of 30 November.
As follows, regarding the interpretation to be given to the moment of acquisition for purposes of Article 5 of Decree-Law no. 442-A/88, of 30 November, the Supreme Administrative Court has already ruled, in the context of the Award of 30 January 2013, rendered in case no. 1072/12:
"The most complex question, for purposes of interpreting Article 5, consists therefore in determining the moment at which, for tax purposes, it can be considered that the appellant acquired the right of ownership of the rustic property.
The controversy resides here: while the sentence held that the transfer of ownership occurred with notarial justification, the appellant understands that it occurred with the beginning of possession.
Article 5 above transcribed does not give a direct answer to the problem, since it makes a negative delimitation of the objective scope of Income Tax by reference to onerous sales of properties devoted to agricultural purposes whose 'acquisition of the assets or rights to which they relate was made after the entry into force of this Code', but without distinguishing the modalities that such acquisition may take. As the taxpayer can become holder of the right of ownership through original acquisition or derivative acquisition, it can be questioned whether the rule contemplates, and under what conditions, both forms of acquisition of rights.
It has already been mentioned that the ratio legis of Article 5 was to prevent the new regime of taxation of gains obtained with the appreciation of rustic properties from having retroactive effects. With the new Personal Income Tax Code, all onerous transfers of real estate began to be taxed as income of category G (capital gains), including sales that until then were not covered by the revoked Capital Gains Tax Code. To prevent the retroactivity of the new regime, it was established that for such transfers to be taxed it was necessary that the assets covered were acquired and sold within the force of the new law, with the exception of those that were already previously taxed by force of the Capital Gains Tax Code, namely, construction land, which would now be taxed under the Personal Income Tax Code.
But the rationality that inspires the transitional norm is a point of reference for another demarcation: the gains from sales of rustic properties that would not be subject to the capital gains tax if carried out before the entry into force of the Personal Income Tax Code are not subject to Income Tax. If on 1/1/89 the seller could not validly transfer the property, neither could there exist gains which, by the constitutional prohibition of retroactivity, would have to be subtracted from the new tax. Hence the regulatory expression 'acquisition of assets and rights' must be interpreted in the sense of acquisition that legitimizes the holder to validly dispose of the acquired asset or right."
The said award focused on a situation of adverse possession, and its principles are fully applicable to the present case, since the question at issue results from the definition of the moment of acquisition.
According to the said award, the moment of acquisition is considered to be the moment at which the holder can validly dispose of the rustic property, or according to the award "In the case of acquisition by adverse possession, the non-subjection to Income Tax of gains obtained from the sale of the rustic property depends on the proof that on the date of entry into force of the Personal Income Tax Code the seller could already invoke adverse possession, even though the notarial justification deed was executed at a later date."
That is, it depends on the Claimant's ability to prove that prior to the entry of the Personal Income Tax Code, he had the capacity to validly dispose of the rustic property.
Thus, it is necessary to analyze the legal framework of the preliminary contract (1974) and the purchase and sale contract (2012), to determine based on this analysis of the legal regime of the contracts in question, the moment at which these contracts verify the transfer of the capacity to dispose of the rustic property to the Claimant's sphere.
Regarding preliminary contracts, provided for in Article 410 and following of the Civil Code, in its version by Decree-Law no. 47344/66, of 25 November, establishes that they are "an agreement by which someone obliges themselves to execute a certain contract; to the preliminary contract are applicable the legal provisions relating to the promised contract, excepted those relating to form and those which, by reason of their nature, should not be considered as extending to the preliminary contract."
According to Galvão Telles, "The preliminary contract is a preliminary agreement that has as its object a future agreement, the promised contract. But in itself it is a complete agreement, which distinguishes itself from the subsequent contract". Galvão Telles, Obligations, 3rd ed., page 80.
Nothing prevents the property from being delivered to the promise-buyer, and "If delivery of the promised property for sale is made to the promise-buyer, the latter enjoys the legal condition of possessor and the right to the corresponding defense of possession, even against the promise-seller, while the preliminary contract does not terminate." (RP, 14-5-1998: BMJ, 477-564)
The preliminary contract presupposes a future agreement, which in the present case is embodied in a purchase and sale contract.
Regarding the purchase and sale contract provided for in Article 874 and following of the Civil Code, in its version by Decree-Law no. 47344/66, of 25 November. The legal regime establishes that "Purchase and sale is the contract by which ownership of a thing or other right is transferred, at a price." and from this contract it follows that the "Transfer of ownership of the thing or entitlement of the right" is made, Article 879.
In the preliminary contract with delivery of the thing which constitutes the object of the promised contract, the promise-buyer is not, as a rule, a possessor, but mere holder, as it lacks the animus or intention to exercise the power of fact in terms of a real property right or other.
However, such delivery does not constitute the transfer of ownership to the buyer's sphere, such transfer only operates through a purchase and sale contract in accordance with Article 874 of the Civil Code.
Given the position of the Supreme Administrative Court, which states that the capacity to validly dispose of the property is necessary, in the case in question, it is clear that the taxpayer only acquired this capacity with the public deed of purchase and sale in 2012.
However, one should not confuse the capacity to validly dispose of the asset for purposes of the non-subjection provided for in Article 5 of Decree-Law no. 442-A/88, of 30 November, and the moment of acquisition for purposes of calculating capital gains.
With a preliminary contract, including with the price paid in its entirety, the Claimant did not have this capacity, whereby it is covered by the Personal Income Tax Code.
However, Article 10 of the Personal Income Tax Code provides that the moment of acquisition/sale may occur with the preliminary contract with delivery of the asset, whereby the legislation and the aforementioned case law do not exclude the possibility of considering that the moment of acquisition for calculation of capital gains may occur at an earlier moment than when the capacity to validly dispose of the rustic property is acquired.
However, as already stated, the Claimant failed to prove that in 1974 there was delivery or possession of the asset.
Yet, in 1989 with the registration in Property Tax, and until the execution of the public deed in 2012, the parties did not invoke that there had been any change of taxpayer in the payment of Property Tax, with the Claimant always being the one to pay the tax from that date.
This act filed with the DGCI is clarifying, and proves that the Claimant from 1989 acts as owner of the asset and thus there was delivery or possession of the asset within the scope of the preliminary contract.
However, it can even be invoked that at this moment a tax on the transfer of ownership of real estate should have been assessed – SISA – or the declaration of the capital gain obtained by the promise-seller within Income Tax at that date. But, and as already stated, the assessment of the legality thereof must be analyzed in its proper venue and in no way affects the present decision.
Indeed, the fact that the Claimant assessed the tax on the transfer of the property only in 2012 does not constitute an acknowledgement on the part of the Claimant for purposes of Income Tax that it only acquired the property at that date.
In these terms, it is considered that there was delivery of the asset within the scope of the preliminary contract in 1989 with the registration in Property Tax, it was at that moment that the AT itself gave tax relevance to the ownership of the property by the Claimant.
The moment at which the Claimant succeeds in proving in the present proceedings that there was delivery or possession of the asset.
The Claimant, from 1989, is registered and communicated to the DGSI that it was acting as owner of the property, and at no moment from that date did the DGSI oppose this reality. In fact, the position of the AT, understanding that the transfer of ownership only occurred in 2012, would mean that all assessments of Property Tax and Municipal Tax on Real Estate from 1989 to 2012 would hypothetically be illegal as they were assessed to the illegitimate holder of the property.
This tribunal has no knowledge that the DGSI and AT have altered or reviewed the assessment of Property Tax and Municipal Tax on Real Estate against the Claimant.
Whereby, from 1989, the DGSI and AT had knowledge that the Claimant was acting as owner of the property, lacking only the respective public deed, that is, the respective form.
The execution of the public deed in 2012 came only to confirm the transfer of the property, which was already in the possession of the Claimant.
The fact that the execution of the public deed is lacking does not have such a relevant effect for the defense of possession, for two reasons.
First reason, it is due to the principle of material truth which protects tax-legal relationships. Principle, quite evident in the tax legislation applicable to preliminary purchase and sale contracts with delivery of the asset. As we can see, the birth of the tax obligation under SISA, Municipal Tax on Real Estate and Income Tax results from delivery of the asset and not from the public deed.
The objective scope of the said taxes does not limit that such transfer be made exclusively by means of a purchase and sale deed. In fact, both expressly contemplate that the concept of transfer of real estate includes "promises of acquisition and sale, as soon as delivery is verified for the promise-buyer, or when the latter is enjoying the assets" (Article 2, paragraph 2, letter a) of the Municipal Tax on Real Estate Code)
Second reason, case law argues that, provided that certain requirements are met, the promise-buyer has the right of defense of possession over the property, following the principle of material truth.
National case law, on various occasions, has understood that inconceivable situations exist in which the legal position of the promise-buyer meets exceptionally all the requirements of true possession; in these exceptional situations, in which the promise-buyer has possession in his own name relative to the property promised to be sold to him.
It is therefore necessary to verify whether the Claimant's situation meets the exceptional requirements listed by case law and doctrine.
The Award of the Central Administrative Court of the South, no. 08884/15 of 10/22/2015, very well synthesizes the case law and doctrine on this matter, which we now cite "In our legal system, what is called the subjective conception of possession has been established, that is, a conception that involves an objective element and a subjective element; a corpus and an animus. The first element is characterized by the exercise of powers of fact over a thing; the second by the existence of an intention to, in exercising such powers, be acting as holder of the right to which the acts performed correspond.
2- Inconceivable situations exist in which the legal position of the promise-buyer meets exceptionally all the requirements of true possession; in these exceptional situations, in which the promise-buyer has possession in his own name relative to the property promised to be sold to him and which, meanwhile, was seized, such possession will found the merits of third-party objections which, based on it, are filed.
3 – If those objecting intend the defense of their possession of the seized property, they are required to allege and demonstrate such possession, whether in the material aspect, or in the intentional aspect.
4 – In the case, in the face of delivery of the asset, payment made and the conduct that followed – specifically, the construction of a house on the land, which became the family residence of the Objector – it can be concluded that the parties anticipated the effects of the definitive contract – the transfer of ownership to the buyer – and it can be said that the promise-buyer proceeded to act as if he were the owner of the thing."
Case law further tells us in the context of the decision of the Central Administrative Court of the North, of 18/01/12 (case 642/09.9 BEBRG), "The case law of the Supreme Administrative Court, following, above all, the doctrine of Antunes Varela, has been deciding in the sense that 'inconceivable (…) situations exist in which the legal position of the promise-buyer meets exceptionally all the requirements of true possession', giving as an example situations in which, 'having already been paid the entirety of the price or, the parties not having the purpose of executing the definitive contract, (in order, for example, to avoid SISA payment or preclude the exercise of a preferential right), the thing is delivered to the promise-buyer as if it were already his and, in this state of mind, he performs on it various material acts corresponding to the exercise of the right of property' – cf. award of the Supreme Administrative Court of 10 Feb. 2010, case 1117/09, available in full version at the address www.dgsi.pt, and that, in these exceptional situations in which the promise-buyer has possession in his own name relative to the property promised to be sold to him and which, meanwhile, was seized, such possession will found the merits of third-party objections which, based on it, are filed – in this same sense, award of the Supreme Administrative Court of 10 Apr. 2002, case 26295 and award of the Supreme Administrative Court of 27 Oct. 2010, case 0453/10, both available at the address www.dgsi.pt".
For the analysis of the question of whether in preliminary contracts in which there has been delivery of the thing, it is or is not possible for the promise-buyer to exercise possession in his own name (or if it will always remain a mere precarious holder), we recover here a synthesis of doctrine and case law presented in the award of the Court of Appeal of Coimbra, of 24/11/09, rendered in case no. 150-D/1996.C1. There it was also said, among other things, that: "The preliminary contract, by itself, is not capable of transferring possession to the promise-buyer.
If the latter obtains delivery of the thing before the execution of the transferring transaction, it acquires the corpus possessori, but does not acquire the animus possidendi, remaining, therefore, in the situation of mere holder or precarious possessor.
Inconceivable situations exist, however, in which the legal position of the promise-buyer meets exceptionally all the requirements of true possession.
Suppose, for example, that having already been paid the entirety of the price or, the parties not having the purpose of executing the definitive contract, (in order, for example, to avoid SISA payment or preclude the exercise of a preferential right), the thing is delivered to the promise-buyer as if it were already his and, in this state of mind, he performs on it various material acts corresponding to the exercise of the right of property.
Such acts are not performed in the name of the promise-seller, but rather in his own name, with the intention of exercising on the thing a true real right.
The promise-buyer acts here uti dominus, and there is no reason therefore to deny him access to the means of protection of possession".
Returning once more to this matter, it is further written by Prof. Antunes Varela (in "RLJ, 128, p. 146"): "... The promise-buyer invested prematurely in the enjoyment of the thing, which is granted to him in the pure expectation of future execution of the promised contract, is not a possessor thereof, precisely because, knowing as he does that the thing still belongs to the promise-seller and will only belong to him after the execution of the promised transferring contract, he cannot seriously act with the intention of a holder of ownership or any other real right over the thing".
In turn, as further to this purpose, Prof. Vaz Serra ("in R.L.J., Year 109, pages 347 and 348") discourses in the following terms:
"The promise-buyer, who takes control of the property and performs on it acts corresponding to the exercise of the right of property, without doing so by mere tolerance of the promise-seller, does not proceed with the intention of acting in the name of the promise-seller, but with that of acting in his own name, (…) coming to conduct himself as if the thing were his, (…) considers himself already owner of the thing, although he has not bought it, as he deems the future conclusion of the promise purchase and sale contract to be secure, whereby, in performing on the thing, possessory acts, he does so with animus of exercising in his own name the right of property".
Finally, we cannot resist citing as well, to this same purpose, Prof. Calvão e Silva (in "Deposit and Preliminary Contract, 11th edition, p. 231, note 55") in affirming: "It does not seem possible a priori to qualify as possession or mere detention the power of fact exercised by the promise-buyer over the object of the promised contract delivered in advance. Everything depends on the animus accompanying the corpus".
From the foregoing, it appears to be concluded (in support of the second line of opinion above referred to) that, as a rule, the promise-buyer who has obtained delivery of the thing only enjoys a right of enjoyment, which it exercises in the name of the promise-seller and by tolerance thereof – being, in this perspective, a precarious possessor or holder (Article 1253 of the Civil Code), since it does not act with animus possidendi, but only with corpus possessori (material relation) – Article 1251 of the Civil Code.
However, it is possible in exceptional circumstances that delivery of the thing in a preliminary contract involve the transfer of possession in favor of the promise-buyer (transforming the latter into a true possessor), everything depending on the animus accompanying the corpus and the manner in which both are exercised or revealed in the concrete reality.
And that (the qualification of the promise-buyer's possession as precarious or as possession in his own name) can only be evaluated case by case, that is, in the face of each concrete reality. (In this sense, see as well, among many others – together with those above already cited, in favor of the 2nd line of opinion adopted – the recent Award of the Supreme Court of Justice of 12/3/2009, case no. 09A0265, available in www.dgsi.pt/jstj, and which, in this part, we follow closely, and also the Award of the Court of Appeal of 17/1/2006, case 2774/06, available at www.dgsi.pt/jtrc)."
In the face of the case law and doctrine cited, the same indicates a set of requirements necessary to meet exceptionally all the requirements of true possession.
Which we now identify: the existence of a preliminary contract in which the thing is delivered to the promise-buyer as if it were already his and, in this state of mind, it performs on it various material acts corresponding to the exercise of the right of property, and full payment of the price.
Let us see that the Claimant meets all the requirements above referred to.
It can thus be concluded that although the aforementioned case law is for exceptional situations, it establishes that there is possession of the promise-buyer.
Given the arguments and facts cited by the Claimant, in particular, the impossibility of executing the purchase and sale deed, the fact of having paid the entirety of the amount, the asset having been transmitted to his sphere and having constructed a residence on the land which he inhabited and mainly the respective communication and registration of the property with the DGCI in 1989. It does not appear logical, for purposes of taxation of capital gains, to decide that only with the purchase and sale deed did the Claimant acquire possession of the property, when Article 10 of the Personal Income Tax Code contemplates that the moment generating capital gains occurs with delivery of the asset and not with the public deed, when the AT itself gives tax relevance to possession with the assessment of Property Tax from 1989.
In these terms, for purposes of taxation of capital gains, in accordance with Article 10 of the Personal Income Tax Code, it is considered that the date on which delivery or possession of the asset occurred, respectively the year 1989, based on the Claimant's communication to the DGCI of the registration of the property in the register made with the submission of form 129, with relevance among other purposes in the scope of Property Tax.
In these terms, it is decided that there is illegality in the tax assessment act for the taxation of Income Tax of Individuals: no. 2015…, for not considering for purposes of calculating the capital gain within Article 10 of the Personal Income Tax Code the correct date of acquisition of the property, resulting in a tax higher than legally provided, the monetary correction coefficients provided for in Article 50 of the Personal Income Tax Code not having been applied for purposes of calculating the capital gain or loss.
J - COMPENSATORY INTEREST
The Claimant further requests payment of compensatory interest.
In light of the foregoing, the assessment of Income Tax, in the part covered by the annulment to be decreed, results from errors of fact and law attributable exclusively to the tax administration, to the extent that the Claimant fulfilled its obligation to declare and errors were committed by the latter and the latter could not be unaware of different understandings.
In fact, given that it is demonstrated that the Claimant paid the impugned tax in part higher than what is due, by force of Articles 61 of the Tax Procedural Code and 43 of the General Tax Law, the Claimant has the right to compensatory interest due, said interest to be counted from the date of payment of the undue tax (annulled) until the date of issuance of the respective credit note, with the period for such payment to be counted from the beginning of the period for voluntary execution of the present decision (Article 61, paragraphs 2 to 5, of the Tax Procedural Code), all at the rate determined in accordance with paragraph 4 of Article 43 of the General Tax Law.
The Claimant's request is allowed.
L - DECISION
Accordingly, in light of all the foregoing, the present Arbitral Tribunal decides:
To hold the petition for declaration of illegality of the tax assessment act for the taxation of Income Tax of Individuals, by the assessment notice no. 2015…, in the amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents) as successful.
To hold the petition for condemnation to pay compensatory interest, on the assessed amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents) as successful.
It condemns the Respondent to refund to the Claimant that amount improperly assessed and paid, plus the payment of compensatory interest already accrued for the period that elapsed between the date of payment of the tax, to be calculated on the amount of €6,489.55 (six thousand four hundred and eighty-nine euros and fifty-five cents), all in accordance with paragraphs 2 to 5 of Article 61 of the Tax Procedural Code and at the rate determined in accordance with paragraph 4 of Article 43 of the General Tax Law until full reimbursement.
The value of the case is fixed at €6,489.55 corresponding to the value of the assessment, given the economic value of the case determined by the value of the impugned tax assessment, and in accordance therewith the costs are fixed at €612.00 (six hundred and twelve euros), payable by the Respondent, in accordance with Article 12, paragraph 2 of the Regulation on Tax Arbitration, Article 4 of the Regulation on the Procedure for Tax Dispute Resolution and Table I annexed to the latter. – paragraph 10 of Article 35, and paragraphs 1, 4 and 5 of Article 43 of the General Tax Law, Articles 5, paragraph, letter a) of the Regulation on Tax Dispute Procedure, 97-A, paragraph 1, letter a) of the Tax Procedural Code and 559 of the Code of Civil Procedure).
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Lisbon, 1 February 2018
The Arbitrator
Paulo Ferreira Alves
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