Summary
Full Decision
ARBITRAL DECISION
I. REPORT
- On 26 June 2017, A…, NIF…, resident in …, …, …, Lisbon, (hereinafter, Claimant), filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2, No. 1, paragraph a), and 10, Nos. 1, paragraph a), and 2, of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Tax Arbitration, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviatedly designated RJAT), seeking:
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The declaration of illegality and annulment of the act of dismissal of the administrative review complaint No. …2016…, which was processed by the Finance Directorate of Lisbon, filed against the act of assessment of IRS No. 2015…, relating to the year 2014;
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The declaration of illegality and annulment of the act of assessment of IRS No. 2015…, relating to the year 2014.
The Claimant attached six (6) documents and requested the taking of party statements and the production of testimonial evidence.
The Respondent is AT – Autoridade Tributária e Aduaneira (hereinafter, Respondent or AT).
1.1. In essence and in brief summary, the Claimant alleged as follows:
On 31 October 1974, a promise to buy and sell contract for a rural property was executed, under the terms of which the price of 140,000$00 was established, which was paid in full in accordance with the contractually established terms, that is, 139,000$00 upon execution of the promise contract and 1,000$00 by 31 October 1975.
With the execution of the aforementioned promise to buy and sell contract, the Claimant took effective possession of the same, acting as its legitimate owner and possessor, and in 1974 began the construction of a dwelling thereon.
Thus, from that time forward, the Claimant acted as the true owner of the said property, enjoying it and modifying it without accounting to anyone, as he was not obliged to do so.
Due to various legal constraints and facts not attributable to him, only on 18 April 2012 did the Claimant execute the public deed of purchase and sale through which he acquired 285/27720 shares of the aforementioned rural property.
Subsequently, on 16 October 2014, the Claimant and his deceased father disposed of the said property for the amount of €70,000.00.
By reference to the fiscal year 2014, the Claimant timely submitted the respective income tax return (Model 3) for IRS, where he declared the aforementioned disposal of the said rural property, which he did by filling out Annex G for the simple reason that, until the deadline for filing the return had elapsed, he was unable to find the documents that would demonstrate that the aforementioned transaction was not subject to IRS.
Following the filing of the aforementioned income tax return, AT performed the disputed IRS assessment act, which was "paid" insofar as a tax refund was determined to be due.
At a later time and once the documents were discovered that would demonstrate the reality of the facts, the Claimant turned to AT through an administrative review complaint, in order to restore legality; however, AT disregarded the truth of the facts and maintained an unjust, excessive and illegal taxation.
It being uncontested that the transaction in question, if carried out under the Capital Gains Tax Code, would not be subject to taxation, it is necessary to determine the date of acquisition, for tax purposes, of the rural property.
Contrary to what appears to be AT's understanding, the concept of transfer for tax purposes does not coincide with the civil law notion; tax transfer is based, above all, on the economic effects resulting from the sale.
Now, there is no doubt that the land lots in question were "tax transferred" to the Claimant on the date of execution of the promise to buy and sell contract, with delivery of the goods.
Even if this is not understood, the assessment act should be annulled insofar as the acquisition value should always be corrected through the application of the respective monetary correction coefficient, by reference to the year 1989, the date when the dwelling that was subsequently built was registered in the property matrix.
It is therefore manifest the illegality of both the disputed IRS assessment act and the decision on the administrative review complaint, by violation of Article 5 of Decree-Law No. 442-A/88, of 30 November.
The Claimant further alleges that there are other defects determining the annulment of the decision on the administrative review complaint, specifically the decision violates the provisions of Articles 55, 60, No. 7 and 77 of the LGT, 69 of the CPPT and 266 of the CRP.
The Claimant contends that from the annulment of the assessment act should result the reimbursement of the amount of tax wrongfully paid, plus indemnity interest calculated at the legal rate.
The Claimant concludes his initial pleading by requesting as follows:
"Accordingly, and in all other respects, the admission of this request for arbitral pronouncement is requested, under the terms and for the purposes of the RJAT, and it should be judged wholly well-founded because proven and, consequently, the disputed tax assessment acts declared illegal and, likewise, the order of the Division Head (in substitution) declared illegal, with the assessment act and the aforementioned order being annulled accordingly and recognition of the Claimant's right to Indemnity Interest."
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The request for the constitution of an arbitral tribunal was accepted and automatically notified to AT on 29 June 2017.
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The Claimant did not proceed to appoint an arbitrator, therefore, pursuant to the provisions of No. 1 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the CAAD Deontological Council appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who accepted the assignment within the applicable period.
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On 11 August 2017, the Parties were duly notified of this appointment, and neither manifested a desire to challenge the appointment of the arbitrator, in accordance with the combined provisions of Article 11, No. 1, paragraphs b) and c), of the RJAT and Articles 6 and 7 of the CAAD Deontological Code.
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Thus, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 20 September 2017.
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On 26 October 2017, the Respondent, duly notified for this purpose, filed her Answer in which she specifically contested the arguments raised by the Claimant and concluded by requesting dismissal of the present action, with her consequent absolution from the claim.
The Respondent attached no documents and requested the production of no other evidence.
6.1. In essence and also in brief form, it is important to highlight the most relevant arguments upon which the Respondent based her Answer:
The Claimant and his father, as acquirers of the property in question, only acquired it for tax purposes on 18 April 2012, upon execution of the public deed of purchase and sale and payment of IMT and IS.
The Claimant neither alleges nor proves that he paid SISA at the time of execution of the promise to buy and sell contract in 1974, when such payment was due.
Even granting that the Claimant was in possession of the property, that possession was merely precarious and de facto the transfer of ownership only took place on 18 April 2012, with the execution of the public deed of purchase and sale.
Thus, with the execution of the promise contract, the Claimant did not acquire ownership of the property, even though he paid the full price and entered into possession of the property, since the valid acquisition of a property was then dependent on the execution of a public deed, as a formal requirement of the respective contract.
For this reason, the acquisition of ownership of the property can only be considered to have occurred on 18 April 2012 with the purchase through public deed, therefore the Claimant is not exempt from capital gains on the disposal of the property in question, which occurred in the year 2014; in fact, the capital gain is not covered by the transitional regime established in No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30 November, for taxation of income in category G, under IRS, because the acquisition of the property was effected after the entry into force of the IRS Code, which occurred on 1 January 1989.
With regard to the alleged defect of lack of reasoning in the decision to dismiss the administrative review complaint, it is demonstrated from the outset that the Claimant understood perfectly the meaning and scope of the assessment and the decision on the administrative review complaint upon which the present request for arbitral pronouncement falls, thereby demonstrating that the reasoning is clear, sufficient, congruent and perceptible.
Furthermore, the Claimant does not allege what new facts he presented during the right of hearing that, had they been analyzed, would have led to a necessarily different decision; accordingly, it is neither demonstrated that the Claimant presented new facts to the proceedings, nor that the final decision failed to analyze any element that it should have analyzed.
Moreover, the impugned decision is also duly reasoned with respect to the dismissal of the hearing of the witness called by the Claimant, and testimonial evidence is not considered essential, since in this case, there is no true divergence between Claimant and Respondent regarding the vast majority of the facts at issue, but rather a matter of law regarding the same.
Effectively, the essential question to be resolved concerns the moment of acquisition of ownership and this question is relevant to determining the moment when the property was legally and fiscally transferred, for purposes of taxation of capital gains in IRS, but cannot be proven by testimonial evidence.
In view of the foregoing, the Claimant's claim should be considered unfounded, and he has no right to payment of any indemnity interest.
The Respondent concludes her pleading as follows:
"Accordingly, and in all other respects that Your Excellencies will duly supplement, the present request for arbitral pronouncement should be judged unfounded, maintaining in the legal order the disputed tax assessment act and absolving, accordingly, the respondent entity from the claim."
6.2. On the same date, the Respondent attached to the record her administrative file (hereinafter, abbreviatedly designated PA).
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On 19 December 2017, the meeting referred to in Article 18 of the RJAT took place, in which the matters contained in the respective minutes were addressed, which are hereby reproduced, it being important to highlight the fixing of 20 March 2018 as the deadline for the pronouncement of the arbitral decision.
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Subsequently, following a request submitted by the Claimant at the aforementioned meeting, which was granted, pursuant to the provisions of Article 421, No. 1, of the CPC applicable ex vi Article 29, No. 1, paragraph e), of the RJAT, an audio file containing the statements given by the here Claimant and the witness called by him, E…, within the scope of case No. 391/2017-T of the CAAD, was attached to the record.
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Both Parties submitted written submissions, in which they reiterated the positions previously taken in their respective pleadings.
II. CASE MANAGEMENT
The Arbitral Tribunal was regularly constituted and is competent.
The case does not suffer from any nullities.
The parties have legal standing and capacity, are duly represented, and are legitimate.
There are no exceptions or any preliminary questions that prevent consideration of the merits, and there is nothing requiring consideration thereof.
III. REASONING
III.1. ON FACT
§1. PROVEN FACTS
The following facts are considered proven:
a) On 31 October 1974, a Promise to Buy and Sell Contract was executed between C… (promising seller) and B… (promising buyer and father of the Claimant), whereby the former promised to sell and the latter promised to buy "2 (two) parcels of unapproved land, located in …, with areas of 280 m2 (two hundred and eighty square meters) and 290 m2 (two hundred and ninety square meters), totaling 570 m2 (five hundred and seventy square meters) and designated by the numbers 21 (twenty-one) and 22 (twenty-two) of a private plan drawn up for this property". [cf. document No. 3 attached to P. I.]
b) The same Promise to Buy and Sell Contract also contains, among others, the following clauses [cf. document No. 3 attached to P. I.]:
"SECOND – The price of the lots referred to above is Esc. 140,000$00 (one hundred forty thousand escudos), on account of which the promising seller received, in this act, from the promising buyer(s), as earnest money and part payment, the sum of Esc. 139,000$00 (one hundred thirty-nine thousand escudos).
THIRD – The payment of the balance of the price, Esc. 1,000$00 (one thousand escudos), shall be made by the following promissory notes: 1 (one) note of 1,000$00 (one thousand escudos) due on 31 October 1975.
(…)
SIXTH – The definitive deed of purchase and sale shall be executed when the price is completely satisfied and the respective documentation is in order."
c) Upon execution of that Promise to Buy and Sell Contract, there was a delivery of the parcels of land promised to be sold to the respective promising buyer (father of the Claimant).
d) The price stipulated in that Promise to Buy and Sell Contract was paid in full on 31 October 1975.
e) The execution of the said Promise to Buy and Sell Contract, with delivery of the parcels of land promised to be sold, did not give rise to the assessment and payment of SISA tax.
f) The promising buyer (father of the Claimant), following execution of the aforementioned Promise to Buy and Sell Contract, began the construction of a dwelling on the parcels of land promised to be sold.
g) On 24 August 1989, B…, father of the Claimant, submitted a "Declaration for Registration or Amendment of Registration of Urban Properties in the Matrix" (Model No. 129) regarding a property of ground floor, 1st floor, annex and outbuildings, with a covered area of 175.42 m2 and an uncovered area of 437.08 m2, totaling an area of 612.50 m2, located in …, Lot…, parish of …, municipality of …, indicating that it was a new property and registering 31/07/1989 as the date of completion of works. [cf. document No. 5 attached to P. I.]
h) On 18 April 2012, a public deed of purchase and sale was executed, whereby the Claimant and his father acquired, for the price of €698.32 (six hundred ninety-eight euros and thirty-two cents), 570/27720 undivided shares of the rural property with an area of 27,720.00 m2, named …, located in …, parish of …, municipality of …, described in the … Property Registry Office of … under No. … of the aforementioned parish and registered in the respective matrix under article … of Section A. [cf. document No. 6 attached to P. I.]
i) On 16 October 2014, a public deed of purchase and sale was executed, whereby the Claimant and his father sold, for the price of €70,000.00 (seventy thousand euros), 570/27720 undivided shares of the rural property composed of arable land and olive groves, with an area of 27,720.00 m2, located in …, …, municipality of …, described in the … Property Registry Office of … under No. … of the aforementioned parish and registered in the property matrix of the Union of Parishes of …, … and … under article … of Section A. [cf. PA attached to the record]
j) On 27 May 2015, the Claimant and his wife, D…, filed the IRS Model 3 income tax return for the year 2014 (identified with No. …-2014-…-…), having declared in the respective Annex G (Capital Gains and Other Patrimonial Increments) their share (50%) in the aforementioned onerous disposal, entering the amount of €35,000.00 (thirty-five thousand euros) as the value of realization in 2014/10 and the amount of €349.16 (three hundred forty-nine euros and sixteen cents) as the acquisition value in 2012/04. [cf. PA attached to the record]
k) On 26 June 2015, IRS assessment No. 2015… was made, relating to the year 2014 and respecting the Claimant and his wife, from which resulted the value to be refunded of €4,774.39 (four thousand seven hundred seventy-four euros and thirty-nine cents), which was duly notified to them and is hereby fully reproduced. [cf. document No. 2 attached to P. I. and PA attached to the record]
l) On 18 September 2015, B…, father of the Claimant, passed away, and the Claimant himself succeeded him as sole heir. [cf. PA attached to the record]
m) On 28 December 2015, the Claimant filed a request for official revision of the said IRS assessment, which was filed under case No. …2015… in the Tax Office of Lisbon-…, the respective initial request being hereby fully reproduced, which the Claimant concludes by requesting as follows [cf. PA attached to the record]:
"For the foregoing reasons, the following is requested:
1 – That the exemption from taxation of capital gains resulting from the sale of the property in question be declared.
2 – In the alternative, official revision under Article 78 of the LGT, due to serious and patent unfairness, and because there is taxation that is out of step, as in this case the Monetary Depreciation Coefficient was 34.41 on the 140,000$00 (one hundred forty thousand escudos), which gives an acquisition value of €24,029.00 (twenty-four thousand and twenty-nine euros), and placing the capital gain in the difference between this value and the €70,000.00 (seventy thousand euros), with the tax to be paid, both for the deceased B… and for the claimant, falling on half of the result of the aforementioned transaction.
3 – The correction, accordingly, of the IRS return in question relating to both B… and the claimant, A…."
n) On 25 July 2016, by order of the Division Head (in substitution) of the Administrative Justice Division of the Finance Directorate of Lisbon, the aforementioned request for official revision of the 2014 IRS assessment was converted into an administrative review complaint. [cf. PA attached to the record]
o) Subsequently, the administrative review complaint was filed under case No. …2016… in the Tax Office of Lisbon-…, referred to the Finance Directorate of Lisbon, and, once the case was processed, the respective Draft Decision was drawn up, which was notified to the Claimant – through official letter No.…, dated 17 January 2017, from the Administrative Justice Division of the Finance Directorate of Lisbon, sent by registered mail (registered mail RD … PT) – for the purpose of exercising, if desired, the right of participation in the form of prior hearing. [cf. PA attached to the record]
p) The Claimant exercised the right of hearing on 31 January 2017, in accordance with the terms contained in the respective request contained in the PA attached to the record and hereby fully reproduced. [cf. PA attached to the record]
q) By order dated 20 March 2017, from the Division Head (in substitution) of the Administrative Justice Division of the Finance Directorate of Lisbon, by subdelegation, the aforementioned administrative review complaint was dismissed, in accordance with the grounds proposed in the Report dated 2017.02.20, which is contained in document No. 1 attached to P. I. and the PA attached to the record and is hereby fully reproduced, with the following segments being important to highlight:
"(…) The complainant herein declared the capital gain in the manner he did for the simple reason that at that time he did not possess the means of proof necessary for him to declare in accordance with the reality of the facts."
"The examination of the witness is an essential element for the discovery of material truth;"
"The immovable property in question was acquired in 1974 and not in 2012, however, 'it was not possible to execute the respective deed, due to legal and political constraints', having paid the entire price on that date and having had the property transferred to him as true owner, with tax transfer not to be confused with civil law transfer."
Following analysis of the aforementioned statement, it appears that the complainant herein does not allege grounds of fact and law capable of altering the meaning of the decision, and that the question of the relevant date has already been thoroughly addressed, having regard to the legal grounds invoked and the Jurisprudence and Doctrine referred to above.
Thus, as per the public deed provided by the complainant herein, it is found that the date of acquisition, in this case, is the date of execution of the definitive purchase and sale contract.
It should also be noted that, even if this were not the case, it is also not apparent from the promise contract provided at sheets 24 of the proceedings of the official revision procedure that there was possession/delivery of the immovable property in question on that date, nor has the complainant herein provided to the record any documents proving that there was possession/delivery of the property with the execution of the promise contract, specifically any expenses and charges relating to that property borne by him.
It should be emphasized that from testimonial evidence alone cannot it be inferred that the date of acquisition was different, such date being proven by the public deed of purchase and sale."
q) The Claimant was notified, through official letter No…, dated 23 March 2017, from the Finance Directorate of Lisbon, sent by registered mail (registered mail RD … PT), of the decision to dismiss the aforementioned administrative review complaint. [cf. document No. 1 attached to P. I. and PA attached to the record]
r) On 26 June 2017, the Claimant filed the request for the constitution of an arbitral tribunal that gave rise to the present case. [cf. CAAD procedural management computer system]
§2. UNPROVEN FACTS
With relevance to the consideration and decision of the case, there are no facts that have not been proven.
§3. REASONING ON THE FACTUAL MATTER
With regard to the factual matter proven, the conviction of the Tribunal was based on the facts alleged by the Parties (in particular by the Claimant), whose correspondence to reality was not challenged, the documents and the respective administrative file attached to the record, and also the statements given by the Claimant and the witness called by him, E…– which we consider to be clear, objective and impartial as to the facts upon which they fell, revealing unambiguous direct knowledge thereof, and which we find to be wholly credible –, which corroborated the factuality already proven by agreement and documentally, having brought nothing substantially new.
III.2. ON LAW
In the present case, there is at issue (immediately) the impugning of the decision to dismiss the aforementioned administrative review complaint and (mediately) the impugning of the disputed IRS assessment.
The Claimant ascribes to the said decision act both formal defects, rooted in its insufficient reasoning, in the failure to weigh the arguments raised in the prior hearing and in the failure to produce the requested testimonial evidence, and substantive defects, arising from the violation of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November and Article 50 of the IRS Code.
With regard to the disputed IRS assessment act, the Claimant ascribes to it the aforementioned substantive defects leveled against the act of dismissal of the administrative review complaint that was its subject.
Accordingly.
Article 124 of the CPPT, applicable ex vi Article 29, No. 1, paragraph a), of the RJAT, provides as follows:
Article 124
Order of knowledge of defects in the judgment
In the judgment, the court shall prioritarily address defects that lead to the declaration of non-existence or nullity of the impugned act and, thereafter, the defects alleged that lead to its annulment.
In the aforementioned groups the assessment of defects is carried out in the following order:
In the first group, that of defects whose procedence determines, according to the prudent discretion of the judge, more stable or effective protection of the injured interests;
In the second group, that indicated by the impugner, whenever it establishes between them a relationship of subsidiarity and no other defects are alleged by the Public Prosecutor or, in the other cases, that fixed in the preceding paragraph.
This legal provision establishes a priority for the knowledge of defects whose procedence determines, according to the prudent discretion of the judge, more stable or effective protection of the injured interests.
It is important, however, to bear in mind that "although the most effective protection of the appellant's interests would, in principle, require the prioritary knowledge of substantive or substantive defects in relation to formal defects, in particular the defect of lack of reasoning (given that the verification thereof does not prevent the renewal of the act with the same legal configuration, naturally purged of the defect that led to the annulment) – cf., among others, the judgment of the 1st Section of the STA, handed down on 23.04.97, in case No. 35.367 –, this rule is not, however, absolute, since it may happen that only the reasoning can reveal substantive defects by clarifying the factual and legal framework on which the impugned act was based. That is, the precedence of the formal defect may be justified when the inquiry into the concrete motivation of the act proves to be indispensable for the control of substantive defects. Reason by which it has been recognized that more effective protection of the appellant's interests may pass through the prioritary knowledge of formal defects, specifically the defect of lack of reasoning, whenever the discovery of the motivation of the act may offer necessary elements to the assessment of substantive defects, which happens whenever there is an absolute lack of reasoning (factual and/or legal), as it implies the impossibility of knowledge of the facts on which the act was based and/or its legal framework, making impossible the judicial control of substantive defects – cf., among others, the judgments handed down by the 1st Section of the STA on 08.07.1993, in case No. 31.138, on 22.09.1994, in case No. 32.702, and on 20.05.1997, in case No. 40.433." (judgment of the Supreme Administrative Court, handed down on 17.11.2010, in case No. 01051/09, available at www.dgsi.pt).
In the concrete case, it is clear that none of the defects invoked by the Claimant can be considered as arising from situations that may determine the nullity of the disputed acts in light of the legal criteria that characterize them, nor did the Claimant establish an order of priority for such knowledge, therefore the maximum efficacy in the protection of his interests would, in principle, require the prioritary knowledge of the alleged defects of violation of law in relation to the indicated formal defects.
However, following the aforementioned judgment, we opt for the prioritary knowledge of the pointed formal defects, starting with the deficient reasoning of the act of dismissal of the administrative review complaint, since, alleging the Claimant, essentially, that AT's understanding suffers from error in its respective factual and legal assumptions regarding the framing of the concrete situation in the context of IRS, which cannot proceed, since such constitutes, from the outset, a violation of Article 5 of Decree-Law No. 442-A/88, of 30 November, it is necessary to conclude that knowledge of this substantive defect depends on the prior determination of the reasoning base of the impugned act. Because the assessment and possible procedence of the invoked defects of violation of law depends on the content of the reasoning discourse of the decision act on the administrative review complaint which is the (immediate) object of impugning, because only it can furnish the reason or legal basis that supports the act, therefore knowledge of those defects would be curtailed without this prior disclosure and clarification of the framework on which the act was based.
§1. OF THE FORMAL DEFECTS OF THE ACT OF DISMISSAL OF THE ADMINISTRATIVE REVIEW COMPLAINT
OF (INSUFFICIENT) REASONING OF THE ACT
In this regard, the Appellant alleges that "the decision [on the administrative review complaint] is not reasoned in adequate and legally required terms."
Reasoning is a requirement of tax acts in general, being a requirement, from the outset, constitutional (cf. Article 268, No. 3, of the CRP), but also legal (cf. Article 77 of the LGT).
However, as Paulo Marques and Carlos Costa note (The assessment of tax and its reasoning, Coimbra Editora, Coimbra, 2013, p. 68), contrary to what occurs in the "constitutional text (Article 268, No. 3, of the Constitution), which requires the reasoning of acts 'when they affect rights or legally protected interests', in the context of the tax procedure (Article 77 of the LGT), it was not understood to restrict the requirement of the reasoning of the decision only to acts unfavorable to the taxpayer, although there should be greater density of reasoning in these latter cases."
As stated by Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa (General Tax Law, Annotated and Commented, 4th Edition, Encontro da Escrita Editora, Lisbon, 2012, pp. 675-676), in the tax context, "the duty of reasoning of the decision acts of tax procedures and of tax acts is concretized in Article 77 of the LGT.
As the STA has understood, the legal and constitutional requirement of reasoning aims, primarily, to allow interested parties knowledge of the reasons that led the administrative authority to act, in order to enable them a conscious choice between acceptance of the legality of the act and its judicial impugning.
In order to achieve such objective, the reasoning must provide the recipient of the act with the reconstruction of the cognitive and evaluative itinerary followed by the authority that performed the act, so that it can be clearly known what reasons led it to decide as it decided and not differently.
In the present Article 77 [of the LGT] the duty of reasoning is extended to all decisions of tax procedures, therefore it is mandatory even in decisions favorable to the subjects of taxation.
This requirement is understood in view of the plurality of reasons that impose the requirement of reasoning of administrative acts, which range from the need to enable the administered the formulation of a conscious judgment on the advisability or not of impugning the act, to the guarantee of transparency and weighing of the administration's actions and the need to ensure the possibility of hierarchical and judicial control of the act."
Still according to these authors (ob. cit., p. 676), the reasoning should "consist, at minimum, of a brief exposition of the factual and legal grounds that motivated the decision, or a declaration of agreement with the grounds of prior opinions, reports or proposals, including those that form part of the tax inspection report."
As Joaquim Freitas da Rocha preconizes (Lessons of Tax Procedure and Process, 3rd Edition, Coimbra, Coimbra Editora, pp. 113-114), reasoning – "which, in general, encompasses both the duty of motivation (i.e., the exposition of the reasons or motives justifying the decision, namely when there are discretionary areas) and the duty of justification (that is, the ordered reference to the factual and legal prerequisites that support that same decision)" – must be done officially, completely, clearly, currently and expressly, with a view to "allowing a 'normal recipient' the reconstruction of the cognitive and evaluative itinerary followed by the author of the act to issue the decision. The lack of these requirements – incomplete, obscure, abstractly remissive reasoning – as well as the lack of reasoning itself, constitutes illegality, susceptible of leading to the annulment of the act in question, through gracious or contentious means."
Now, if reasoning is, as stated, necessary and mandatory, this cannot and should not be understood in an abstract and/or absolute manner, that is, the reasoning required of a concrete tax act should be that which is functionally necessary so that it does not present itself to the taxpayer as a pure demonstration of arbitrariness.
In this regard, our superior courts have repeatedly decided in the manner found in the judgment of the Central Administrative Court South, handed down on 04.12.2012 in case No. 06134/12, available at www.dgsi.pt:
"Reasoning is a relative concept that may vary depending on the legal type of administrative act we are examining.
It has been the constant understanding of jurisprudence and doctrine that a particular act (in the case an administrative-tax act) is duly reasoned whenever it is possible, through it, to discover what cognitive course its author used to reach the final decision (cf. ac. S.T.J. 26/4/95, C.J.-S.T.J., 1995, II, p. 57 and following; A. Varela and others, Manual of Civil Procedure, Coimbra Editora, 2nd edition, 1985, p. 687 and following; Alberto dos Reis, Annotated Code of Civil Procedure, Coimbra Editora, 1984, V, p. 139 and following). That is. Using the language of various judgments of the S.T.A. (cf. for all, ac. S.T.A-1st Section, 6/2/90, A.D., No. 351, p. 339 and following) the administrative act is only reasoned if a normally diligent or reasonable recipient – a normal person – placed in the concrete situation expressed by the reasoning statement and before the concrete act (which will determine, depending on its different nature or type, a greater or lesser requirement of the density of reasoning elements) is in a position to know the functional itinerary (not psychological) cognitive and evaluative of the author of the act. It will also be said that reasoning may be express or consist in mere declaration of agreement of prior opinion, report or proposal, which, in this case, forms an integral part of the respective act (the so-called "per relationem" reasoning – cf. art. 125 of the Administrative Procedure Code).
To ascertain whether an administrative-tax act is, or is not, reasoned, it is first necessary to make a distinction between formal reasoning and material reasoning: one thing is to know whether the Administration made known the reasons that determined it to act as it acted, the reasons on which it founded its actions, a question that falls within the scope of the formal validity of the act; another, quite different and situated already in the scope of the substantive validity of the act, is to know whether those reasons correspond to reality and whether, corresponding, they are sufficient to legitimize the concrete administrative action (cf. ac. S.T.A.-2nd Section, 13/7/2011, rec. 656/11; ac. T.C.A.South-2nd Section, 19/6/2012, proc. 3096/09).
If formal reasoning does not concretely clarify the motivation of the act, due to obscurity, contradiction or insufficiency, the act is considered not reasoned (cf. art. 125, No. 2, of the Administrative Procedure Code). There will be obscurity when the statements made by the author of the decision do not make it clear what reasons determined him to decide the way he decided. In other words, the grounds of the act must be clear, so that the sense of the reasons that determined the performance of the act may be perfectly apprehended, thus use of dubious, vague and generic expressions should not be permitted. Contradiction of reasoning will occur when the reasons invoked to decide justify not the decision handed down, but a decision of opposite meaning (contradiction between grounds and decision), and when grounds are invoked that are in opposition to others. In other words, the grounds of the decision must be congruent, that is, they must be premises that lead inevitably to the decision that functions as a logical and necessary conclusion of the alleged motivation. Finally, reasoning is insufficient if its content is not sufficient to explain the reasons why the decision was taken. In other words, the reasoning must be sufficient, in the sense that no reasons are left unsaid that explain appropriately the final decision (cf. Marcello Caetano, Manual of Administrative Law, vol. I, Almedina, 1991, p. 477 and following; Diogo Freitas do Amaral, Course of Administrative Law, vol. II, Almedina, 2001, p. 352 and following; Diogo Leite de Campos and others, Annotated and Commented General Tax Law, Vislis, 2003, p. 381 and following; ac. T.C.A.South-2nd Section, 2/12/2008, proc. 2606/08; ac. T.C.A.South-2nd Section, 10/11/2009, proc. 3510/09; ac. T.C.A.South-2nd Section, 19/6/2012, proc. 3096/09)."
As a more recent example of this same jurisprudential current, we have the judgment of the Central Administrative Court South, handed down on 28.09.2017 in case No. 578/13.9BEALM, available at www.dgsi.pt:
"It is important not to lose sight of, as jurisprudence has repeatedly affirmed, that the elevation to the category of guarantee of the taxpayer of the duty of reasoning is easily understood when we look at the objectives of this institute, whether it be the purpose of pacification of relations between the Administration and the administered, whether in the perspective of the defense of the taxpayer, or, also, with a view to the Administration's own self-control.
In truth, a taxpayer aware of the reasons for the act performed can convince himself of its justice and accept it or, knowing the reasons and disagreeing with them, can attack the act putting its grounds in crisis and, also, such duty will function as a form of the Administration itself exercising self-control as a result of reflection and consideration of the reasons that are at the root of the act (among many judgments, see the judgment of the TCAN of 17/05/12, proc. No. 137/02-Porto).
It is true that, in many cases, the guarantee of reasoning is fulfilled even if carried out summarily, through a declaration of agreement with prior information, opinions or proposals. However, and in tax matters, such duty of reasoning (although not always with the same degree of requirement) should always contain the applicable legal provisions, the qualification and quantification of tax facts, as well as the operations of determination of the taxable matter and the tax.
Indeed, the reasoning of the tax act, like any administrative act, must be clear (reasons of fact and law cannot be confused or ambiguous, under penalty of not making known what determined the agent to perform the act or to choose its content), congruent (the content of the act must have a logical relationship with the grounds invoked) sufficient (in order to make clear the prerequisites taken into account by the author of the act) and must be expressed (under penalty of undermining the functionality and objectives of the institute itself) - among many others, see the judgments of 12/03/13, case No. 01674/13, of the STA and the judgment of the TCAS of 26/06/14, case No. 5778/12."
Specifically concerning the reasoning on law, the Supreme Administrative Court "has decided that, for it to be considered sufficient, it is not always necessary to indicate the applicable legal provisions, reference to the pertinent principles, the legal regime or a well-determined legal framework being sufficient, the act being considered reasoned on law when it is inserted in a perfectly cognoscible legal-normative framework – among so many others, the judgments handed down by the 1st Section of the STA on 27/02/1997, on 17/05/1998, and on 28/02/2002, in cases No. 36,197, 32,694 and 48071, respectively."[1]
Returning to the case at hand and once examined the content of the decision to dismiss the administrative review complaint in question, it is meridianly evident that it is duly reasoned both factually and legally, since it describes in detail all the factuality under analysis and proceeds with its respective subsumption to the normative framework it deems applicable, which is expressly stated (cf. proven fact p)), with no ambiguity, imprecision or insufficiency being discernible in that reasoning. Whether it did so correctly or incorrectly is already a question that goes beyond the fulfillment of the formal duty of reasoning.
Indeed, it is clear that, rightly or wrongly, AT explained the argumentative itinerary – factual and legal – that led it to conclude as it did, that is, advocating the subjection to IRS of the gains obtained by the Claimant with the disposal of the aforementioned property.
Naturally the Claimant may disagree with the understanding on which that decision is based – and this is clear both from the administrative review complaint previously filed and from what was alleged in the request for arbitral pronouncement –, but it is his invocation of his interpretation of the applicable normative block in this case that demonstrates to us that the Claimant understood well the decision and the respective grounds that led to its pronouncement, grounds with which, it is repeated, he does not agree.
Therefore, the decision to dismiss the aforementioned administrative review complaint does not suffer from the pointed formal defect, being shown to be duly and sufficiently reasoned.
OF THE VIOLATION OF ARTICLE 60, NO. 7, OF THE LGT
This is a question that is rooted in the previous one,[2] the Claimant alleging that in the exercise of the right of hearing, within the scope of the administrative review complaint procedure, "he referenced new aspects whose analysis is determinant for the proper decision of the concrete case", having "invoked abundant administrative jurisprudence, by itself determinant of a decision in a different sense", without AT having promoted "any critical analysis of the right of hearing exercised, limiting itself to asserting that no new elements were brought into the procedure".
Article 60, No. 7, of the LGT, provides that "[t]he new elements raised in the hearing of taxpayers are mandatorily taken into account in the reasoning of the decision".
As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa (General Tax Law, Annotated and Commented, 4th Edition, Encontro da Escrita Editora, Lisbon, 2012, p. 513), in annotation to the cited legal provision: "…if the holder of the right of hearing, in the exercise of this right, raises new elements, they should be considered in the reasoning of the decision.
The presentation of these new elements, if they are elements pertaining to the matter of fact, may justify the carrying out of new measures which should be carried out, officially or at the request of the interested parties, if they are to be considered as convenient for the determination of the factual matter on which the decision must be based (…).
The mandatory nature of taking into account these new elements in the reasoning of the decision is translated into them having to be mentioned and assessed.
The failure to assess the new factual or legal elements invoked by the interested parties will constitute a formal defect, due to deficiency of reasoning, susceptible of leading to the annulment of the decision of the procedure."
As observed by Saldanha Sanches and João Taborda da Gama ("Hearing-Participation-Reasoning: The co-responsibility of the subject of taxation in the tax decision", Tribute to José Guilherme Xavier de Basto, Coimbra Editora, Coimbra, 2006, p. 295, apud Paulo Marques and Carlos Costa, The assessment of tax and its reasoning, Coimbra Editora, Coimbra, 2013, pp. 77 and 78), having as background the cited legal norm, "there is dialogical reasoning in a dual sense: through new facts alleged by the subject of taxation, the fiscal Administration carries out a cognitive process that will enrich its position (what are the reasons of the subject of taxation?; do the alleged reasons correspond to the true reasons?; are, or are not, the interests it alleges worthy of legal protection?); on the other hand, the record of the dialogue between the Administration and the subject of taxation allows a reinforced clarification of the reasons for acting of the Administration, which has the effect of preventing it from being able to hide the real grounds (or the lack of grounds) for its actions."
On the jurisprudential level, we find, among others, the judgment of the Supreme Administrative Court, handed down on 23.01.2016 in case No. 039/16, available at www.dgsi.pt, in which the following was decided: "Because the activity of AT within the scope of the concrete tax procedure is strictly bound, being subject to the principle of tax legality enshrined in Article 8 of the LGT, and cannot therefore be governed by rules of opportunity or convenience, nor even technical discretion, but rather it is required that all actions proceed in accordance with the concrete rules and principles of taxation applicable to the concrete case, the formal defect appears to us, lack of prior hearing, as a secondary defect, to which should not be recognized invalidating relevance if it is concluded that AT's actions conform to law. And even if it is concluded that such non-conformity, whether total or partial, this procedural defect also does not assume that characteristic, since the same is not overcome by the force proper to substantive defects, for these are the determinants to conform the administration's activity to constituted law."; and, the judgment of the Central Administrative Court South, handed down on 17.10.2013, in case No. 05354/12, available at www.dgsi.pt, in which it was decided that "[i]n the reasoning of the tax act the Administration is obliged to weigh the new arguments that may have been raised by the taxpayer in the prior hearing and to explain the reasons why it understands not to give them relevance, under penalty of the act becoming a manifestation of abuse and arbitrariness. Thus an act is not reasoned that merely states, regarding the new issues and arguments invoked by the taxpayer in the context of prior hearing, that 'in light of the elements sent and after analysis it is to maintain the corrections effected'."
Returning to the concrete case, comparing the pertinent pieces forming the administrative review complaint procedure – initial request, draft decision, request of the now Claimant, submitted in the exercise of the right of hearing, and final decision –, we conclude, with all due respect, both that the Claimant brought nothing, effectively, substantially new (whether of fact or law) requiring special analysis and particular pronouncement by AT, and that AT took into consideration, in a manner we find adequate and sufficient, what was expounded by the now Claimant in that procedural articulation (cf. proven fact p)).
In that measure, having AT duly externalized its concrete position, its reasoning, in sum, the logical path followed and which was at the basis of the decision to disregard the arguments of the now Claimant, it cannot but (also here) be understood that the decision act in question is reasoned, having (as already stated) the Claimant clearly understood the reasons for the decision.
Thus, also in this respect, the alleged/imputed deficient reasoning of the decision to dismiss the administrative review complaint founders, and the provision of No. 7 of Article 60 of the LGT has thus been observed.
OF THE VIOLATION OF ARTICLE 69, PARAGRAPH F), OF THE CPPT
The Claimant objects to the failure to examine, within the scope of the administrative review complaint procedure, the witness called by him, alleging that this is incomprehensible given that the respective testimony is "essential for the discovery of material truth, given that the deed only entitles a legal reality and not necessarily the reality of facts – as is the case here", for which reason it was necessary "to examine the witness called whose direct knowledge of the facts is essential to the discovery of material truth and the correct application of law."
The analysis of this question convokes Article 69 of the CPPT, whose paragraph f) provides, as one of the fundamental rules of the administrative review complaint procedure, the "[l]imitation of the means of evidence to documentary form and to official elements available to the services, without prejudice to the right of the investigating body to order other supplementary measures manifestly indispensable to the discovery of material truth".
In annotation to this legal provision, Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa (ob. cit., p. 636) explain the following understanding: "The limitation of means of evidence to documentary and to official elements available to the services does not prevent the carrying out of supplementary measures that the investigating body may order, which is in harmony with the inquisitorial principle that prevails in the generality of tax procedures, and which requires the carrying out of all measures necessary to satisfy the public interest and the discovery of material truth, without subordination to the initiative of the complainant (art. 58 of the LGT). (…)
For this reason, the omission of the carrying out of measures that are indispensable for the discovery of truth will constitute a procedural defect which, having repercussions in the act of decision of the administrative review complaint, results in its annullability.
In this context, given the said duty, there is no obstacle whatsoever that the complainant himself request or suggest the carrying out of measures he considers indispensable for the discovery of truth, which will impose on the Tax Administration the duty to pronounce itself expressly on the alleged indispensability of its carrying out, if not before, at least in the final decision (…)."
In this framework, we have that the lack of measures deemed necessary for the construction of the factual basis of the decision will affect it both in the case that they are mandatory (due to violation of the principle of legality), or if the materiality of the facts considered is not proven or if relevant facts, alleged by the interested party, are lacking from that basis, due to insufficiency of evidence that AT should have collected (error in the factual assumptions).
In the case sub judice, we note that both in the context of the administrative review complaint and within the scope of this arbitral proceeding, there is no disagreement whatsoever between the Parties regarding the factuality in question, since AT does not question, nor does it impugn any of the factual aspects – specifically, the essential ones (execution of the promise to buy and sell contract with delivery of the property and its date, payment of the price and its dates, construction of a dwelling on the land, execution of the acquisition deed and its date, execution of the disposal deed and its date and the various tax returns filed by the Claimant and his father) – which are alleged by the Claimant and which allow both the procedural and procedurally reconstruction of the concrete situation and its subsumption to the applicable normative block, which are, moreover, supported documentally.
Furthermore, the Claimant does not explicitly explain, at any time and in detailed manner, the reason why he sustains that the production of such testimonial evidence constitutes a supplementary measure manifestly indispensable to the discovery of material truth, specifically by pointing to facts that he deems controversial or that he considers do not result duly and thoroughly explained/proven by the profuse documentation attached to the record.
What truly opposes the Parties, constituting the epicenter of their disagreement, is thus a purely legal question, consisting of the different interpretation that the Claimant and Respondent make of the applicable legal norms and the subsequent application to the concrete case.
Thus being, it is not defensible that the examination of the said witness appeared, in the context of the administrative review complaint, a supplementary measure manifestly indispensable to the discovery of material truth inherent to the concrete case, because, apart from AT not questioning the factology alleged therein by the Claimant, then (as now) what mattered to discover was only whether he fits or does not fit within the norm of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November.
For this reason, this procedural defect ascribed to the decision of the administrative review complaint must necessarily fail.
§2. OF THE VIOLATION OF ARTICLE 5, NO. 1, OF DECREE-LAW NO. 442-A/88, OF 30 NOVEMBER
Under the terms of paragraph a) of No. 1 of Article 9 of the IRS Code, patrimonial increments constitute, provided they are not considered income of other categories, capital gains.
And these, under the terms of paragraph a) of No. 1 of Article 10 of the IRS Code, are constituted by gains obtained which, not being considered business and professional income, of capital or real estate income, result from onerous transfer of real rights over immovable property.
For its part, Article 5 of Decree-Law No. 442-A/88, of 30 November, the act that approved the IRS Code, establishes, in its No. 1, a transitional regime, under the terms of which gains that were not subject to Capital Gains Tax (IMV), created by the code approved by Decree-Law No. 46 373, of 9 June 1965, only become subject to IRS if the acquisition of the goods or rights from which such transmission results shall have taken place after the entry into force of the IRS Code; under the terms of No. 2 of the same article, it falls to the taxpayer to prove that the goods or values were acquired on a date prior to the entry into force of the IRS Code.
Now, Article 1 of the repealed Capital Gains Tax Code provided that the tax was levied on gains realized through, among other acts, onerous transfer of construction land, whatever the title by which it was operated, when it resulted in gains not subject to capital gains charges provided for in Article 17 of Law No. 2 030, of 22 June 1948, or in Article 4 of Decree-Law No. 41616, of 10 May 1958, and which did not have the nature of income taxable in industrial contribution.
Whereas under the terms of § 2 of this same Article 1 of the Capital Gains Tax Code, they were considered as construction land "those located in urbanized zones or included in already approved urbanization plans and those so declared in the acquisition title".
In this regard, the following was affirmed in the judgment of the Supreme Administrative Court, handed down on 9 November 2005 in case No. 0733/05, available at www.dgsi.pt: "Art. 1 of the CIMV determined the incidence of the capital gains tax on gains realized by onerous transfer of construction land, considering as such those located in urbanized zones or covered by already approved urbanization plans, as well as those so declared in the acquisition title. What was intended to be taxed with such tax, in the words of the preamble to the code, were only 'the occasional valuations', the 'gains brought by the wind', that is, the abnormal gains that the transfer of construction land brought to the beneficiary and which were external to his activity. As Galhardo Simões, cited in the judgment No. 21702 of this Supreme Administrative Court, referred, this type of tax elects, as economically relevant taxable capacity, capital gains realized through the acts taxatively elected in the article, leaving out other cases of capital gains. What the legislator intended to tax were gains resulting from urban construction which, because of its great expansion, rose considerably and very rapidly. For this reason it has been understood in various judgments that the term 'construction' on which the tax is levied only encompasses those intended for residential, commercial or industrial purposes."
In the same sense, it was stated in the judgment of the Supreme Administrative Court, handed down on 6 June 2007 in case No. 0179/07 (available at www.dgsi.pt), that the non-taxation in IRS, as capital gains, of gains obtained with the transfer of land that at the date of entry into force of the IRS Code were qualified as agricultural land (cited Article 5 of Decree-Law No. 442-A/88) is understood "by the fact that, having opted for the calculation of taxable gains as capital gains based on the difference between the acquisition value and the transfer value, taxation in IRS of the appreciation of agricultural land that had been acquired before its entry into force would include, partially, the retroactive application of the new taxation regime to gains obtained with the appreciation of rural properties, since it would necessarily result in taxing, in addition to gains corresponding to the appreciation generated during the validity of the new Code, also some corresponding to the appreciation which, as rural properties, may have occurred before its entry into force.
Now, such retroactive application of tax incidence norms, which, from the 1997 constitutional review is absolutely prohibited by the new wording given to art. 103, No. 3, of the CRP, was only tolerable previously in special situations in which the general interest was at stake (essentially in this sense, see the judgment of the Constitutional Court No. 216/90, of 20-6-1990, case No. 203/89, published in the Bulletin of the Ministry of Justice No. 398, page 207), which are not discernible in the matter of capital gains taxation".
Therefore, by virtue of the provision of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November, gains that were not subject to Capital Gains Tax only become subject to IRS if the acquisition of the goods or rights from which such transmission results shall have taken place after the entry into force of the IRS Code, on 1 January 1989; that is, if a property was acquired before 1 January 1989 and disposed of during the validity of the IRS Code, the same will not be subject to taxation in category G, if it was not subject under the Capital Gains Tax Code.
Accordingly and returning to the situation sub judice, we encounter a question which, besides being complex, appears crucial for the purposes of interpretation of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November: the determination of the moment at which, for tax purposes, it can be considered that the Claimant acquired the right of ownership over the aforementioned property in the evidence, that is, it is particularly necessary to ascertain whether that property can be considered, or not, acquired by the Claimant before the entry into force of the IRS Code.
The controversy underlying this arbitral process lies, precisely, in the answer to be given to that question: while the Claimant contends that the reference point for the moment of acquisition of the property should be the execution of the aforementioned promise to buy and sell contract, with the respective delivery of the property, on 31 October 1974, the Respondent understands that the acquisition of the property only occurs with the execution of the aforementioned public deed of purchase and sale, on 18 April 2012.
The cited Article 5 does not provide a direct answer to that question, and as already referred, the ratio legis of that legal norm was to avoid the new taxation regime for gains obtained with the appreciation of rural properties having retroactive effects. With the new IRS Code, all onerous transfers of properties became taxed as income in category G (patrimonial increments), including transfers that until then were not covered by the repealed Capital Gains Tax Code. To avoid the retroactivity of the new regime, it was established that for such transfers to be taxed, the goods covered had to be acquired and transferred within the validity of the new law, with the exception of those that had already been taxed before under the Capital Gains Tax Code, that is, construction land, which would now be taxed under the terms of the IRS Code.
The date of acquisition of the goods or rights is, therefore, what is relevant for the purposes of the transitional regime established in Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November.
In that perspective, it is thus necessary to clarify what the legislator intended to mean by reference to acquisition of goods.
We advance, from now, that it is our understanding that when the legislator alludes to acquisition of goods, he is referring to acquisition of ownership of the goods and not to possession,[3] which is, as provided in Article 1251 of the Civil Code, the power that manifests itself when someone acts in a manner corresponding to the exercise of the right of ownership or other real right.
Regarding the moment of acquisition of the right of ownership, as a rule, this takes place by mere effect of the contract, as results from the combined provisions of Articles 1317, paragraph a) and 408, No. 1, both of the Civil Code.
However, in the case of contracts for the purchase and sale of immovable property, Article 875 of the Civil Code, in its wording at the date of the facts, provided an exception, making the validity of such contracts dependent on the execution of a public deed, therefore, contrary to what is invoked by the Claimant, ownership of the property was not transferred to him in 1974. Because the acquisition of an immovable property by a contract for purchase and sale was only then valid if executed by public deed, therefore the Claimant acquired nothing with the execution of the aforementioned promise to buy and sell contract, even though he paid the full price and entered into possession of the property, since the valid acquisition of an immovable property was then dependent on a formal requirement of the contract: the execution of a public deed.
Thus, only with the execution of the public deed of purchase and sale, on 18 April 2012, did the Claimant validly acquire the property in question.
Furthermore, the transitional norm in question is a point of reference for another aspect: not subject to IRS are the gains from disposals of rural properties that would not have been subject to Capital Gains Tax if they had been made before the entry into force of the IRS Code.
Now, if on 1 January 1989 the transferor could not transfer the property validly, nor could there exist gains which, by the constitutional prohibition on retroactivity, had to be kept out of the new tax. Therefore, the normative expression "acquisition of goods and rights" has to be interpreted in the sense of acquisition that legitimizes the holder to be able to dispose validly of the acquired good or right, thus understanding the requirement that the acquisition of the good or right transferred had occurred before 1 January 1989. In fact, only in that situation is it necessary to ensure the confidence and legal expectation of the taxpayer to dispose of the property without the gains obtained being subject to tax.
Therefore, if the disposal cannot be carried out before 1 January 1989, nor does the question of the applicability of the cited Article 5 arise, which, as stated, only has reason to exist for transfers that, if carried out before that date, would not have been subject to capital gains tax.
In the case at hand – taking into account that, among us, the rule "possession proves title" does not apply and, on the other hand, the taxable fact is not the acquisition, but the gains obtained with the onerous transfer of the said property –, it was necessary that the Claimant, on 1 January 1989, had legitimacy to validly transfer the right of ownership over the property possessed. Now, in light of the factuality that resulted proven and with regard to the aforesaid, it cannot be admitted that on that date the Claimant was equipped with a suitable title to transfer the right of ownership over the aforementioned property. And, for this reason, nor could there exist any gains which, by reason of the date of acquisition, had to be kept out of taxation.
Mindful of the aforesaid, we can, therefore, conclude that, for the purposes of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November, the acquisition referred to in that legal provision and which legitimizes the Claimant to dispose validly of the acquired property is verified with the execution of the public deed of purchase and sale on 18 April 2012.
Consequently, the gain in question in this case is not covered by that transitional regime for taxation of income in category G under IRS, because we are before an acquisition effected after the entry into force of the IRS Code (1 January 1989).
The pointed defect of violation of law thus fails, due to error in the factual and legal assumptions, consisting of the erroneous interpretation of Article 5, No. 1, of Decree-Law No. 442-A/88, of 30 November, therefore the gains in question in this case, resulting from the disposal of the aforementioned property, are subject to taxation in IRS (category G).
§3. OF THE VIOLATION OF ARTICLE 50 OF THE IRS CODE
The Claimant further alleges that the "assessment act should be annulled insofar as the acquisition value should always be corrected through the application of the respective monetary correction quotient, by reference to the year 1989, the date when the dwelling that was subsequently built was registered in the matrix."
Article 50 of the IRS Code, in its wording at the date of the facts, provided as follows:
Article 50
Monetary correction
The acquisition or equivalent value of real rights over the goods referred to in paragraph a) of No. 1 of Article 10 is corrected by the application of coefficients approved for that purpose by ministerial order of the Minister of Finance, whenever more than 24 months have elapsed between the date of acquisition and the date of disposal or attachment.
The date of acquisition of acquisition is that which appears in the acquisition title, without prejudice to the following paragraphs:
In the cases provided for in No. 3 of Article 46, it is the date relevant for the purpose of registration in the matrix;
In the case provided for in Article 47, it is the date of transfer."
The coefficients of currency depreciation to be applied to goods and rights disposed of during the year 2014, whose value should be updated under the terms of Article 50 of the IRS Code, for purposes of determining the respective taxable matter, are those contained in the table attached to Order No. 281/2014, of 30 December, and it is important to note here that, for acquisitions effected in the year 1989, a coefficient of 2.49 was determined and, for acquisitions effected in the year 2012, a coefficient of 1.00 was provided.
Now, it was proven that account was taken in the disputed tax assessment and, therefore, in the calculation of the tax to be paid, of the monetary depreciation coefficient of 1.00 (cf. proven fact q)), based on the year 2012 as the date of acquisition, which appears to be correct, since this is the date on which the public deed of purchase and sale was executed, referenced in proven fact h), which constitutes the acquisition title to be taken into consideration. Indeed, from the comparison of proven facts h) and i) it results that what was disposed of by the Claimant and his father in 2014 was exactly the same property that was acquired by them in 2012: "570/27720 undivided shares of the rural property with an area of 27,720.00 m2, named …, located in …, parish of …, municipality of …, described in the … Property Registry Office of … under No. … of the aforementioned parish and registered in the respective matrix under article … of Section A"; that is, no mention is made of any construction built on that land, specifically the said dwelling built by the Claimant's father, therefore it does not matter here to invoke the norms of Article 46, No. 3 and 50, No. 2, paragraph a), of the IRS Code, in its wording at the date of the facts, in order to take into account, as the year of acquisition, the year 1989.
In this conformity, this defect of violation of law is also judged unfounded.
Given the unfoundedness of all the defects alleged by the Claimant and, therefore, the unfoundedness of the requested declaration of illegality and annulment of the act of dismissal of the administrative review complaint and the disputed IRS assessment act, the requested knowledge of the reimbursement of tax wrongfully paid and payment of indemnity interest is precluded, as moot.
IV. DECISION
In accordance with the foregoing, this Arbitral Tribunal decides:
To judge the request for arbitral pronouncement wholly unfounded and, consequently, to absolve the Autoridade Tributária e Aduaneira from the claim;
To condemn the Claimant in the payment of the costs of the case.
VALUE OF THE CASE
In accordance with the provisions of Articles 306, No. 2, of the CPC, 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 fixed at €7,104.56 (seven thousand one hundred four euros and fifty-six cents).
COSTS
In accordance with Article 22, No. 4, of the RJAT, the amount of costs is fixed at €612.00 (six hundred twelve euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Claimant.
Lisbon, 9 February 2018.
The Arbitrator,
(Ricardo Rodrigues Pereira)
[1] Judgment of the Supreme Administrative Court, handed down on 17 November 2010, in case No. 01051/09, available at www.dgsi.pt.
[2] Indeed, it could even have been addressed in the previous point; however, for methodological reasons and for the benefit of clarity of the decision, we opted to treat it autonomously.
[3] As decided in the judgments of the Supreme Administrative Court, handed down on 30.01.2013 in case No. 01072/12 and of the Central Administrative Court South, handed down on 24.09.2015 in case No. 06704/13 (available at www.dgsi.pt), judgments to which we rely and which we will follow closely.
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