Capital Gains Tax (IRS) Dispute: Realization Value Under Article 44 CIRS and Tribunal Jurisdiction – CAAD Case 421/2015-T

ARBITRAL DECISION

I - REPORT

1. On 28 June 2015, A…, taxpayer no.…, with tax domicile at Rua…, …, 6th fl. …-…, in Lisbon, B…, NIF…, with domicile at Rua…, …, 9th fl. …-…, in Lisbon and his brother C…, NIF…, with the same domicile (hereinafter the Claimants) filed a request for arbitral pronouncement, based on article 99(a) of the Code of Tax Procedure and Process, regarding the assessment acts and the final decisions rendered on their complaints and hierarchical appeals filed by the Tax and Customs Authority (hereinafter the AT or the Respondent):

• …2014 …(A…) - file DAJ REC …/14 – IRS 2013 – Lisbon…;
• …2014 …(B…) - file DAJ REC …/14 – IRS 2013 – Lisbon…;
• …2014 …(C…) – file DAJ REC …/14 – IRS 2013 – Lisbon…

1. The request for arbitral pronouncement was accepted on 10 July 2015.

2. As the Claimants did not nominate an arbitrator, the following were designated by order of the President of the Deontological Council of the Administrative Arbitration Center, dated 28 August 2015: Judge Manuel Luís Macaísta Malheiros, Dr. Jorge Carita and Prof. Dr. João Ricardo Catarino.

3. The arbitral tribunal was constituted on 14 September 2015.

4. The Respondent filed its response on 20 October 2015.

5. By order of 22 October 2015, the tribunal scheduled 18 November for the meeting referred to in article 18 of the RJAT.

6. At that meeting, the Claimants were given a period of five days to identify witnesses to be heard, as well as the factual matters on which they would testify.

7. The Claimants identified the witnesses by petition of 20 November 2015.

8. In response to the submission of this petition, the Respondent, by petition of 26 of the same month, requested dismissal of the petition filed by the Claimants.

9. The tribunal ruled on 4 December 2015, ordering the dismissal of the Claimants' petition, regarding the hearing of witnesses whose identity was only contained in a deed attached to the file, on the grounds that they had not properly identified the witnesses and had exceeded all admissible time limits for requesting their hearing, such conduct being incompatible with the principle of procedural cooperation and due diligence. It accepted hearing the two witnesses whose identities were properly identified.

10. The Claimants objected to this order by petition of 21 December 2015.

11. On 12 January 2016, the two witnesses accepted by the tribunal were heard.

12. The Claimants and the Respondent presented their respective arguments on 21 January 2016 and 4 February, respectively.

II - THE POSITION OF THE PARTIES

The Claimants submit the following:

1. On 15 July 2014, the Claimants were notified of three IRS assessments, the first for €45,028.18, the second for €26,424.47 and the third for €26,417.49. The payment deadline for the assessed IRS amount was 18 September.

2. The Claimants made payment of the amounts in question, filed Complaints on 9 September against the assessments made, and also submitted new declarations for IRS purposes.

3. The Complaints were dismissed, whereupon a hierarchical appeal was filed jointly on behalf of all three present Claimants.

4. The Claimants presumed tacit dismissal of the appeal, as they received no response within the 15-day period provided in section 3 of article 66 of the CPTA, nor within the subsequent 60-day period provided in section 5 of that article.

5. The three Claimants were the owners of two quotas that comprised the entirety of the share capital of company D…, Lda. The nominal value of each of the two quotas was €2,500.00, for a total of €5,000.00 of share capital, with Claimant A… holding one quota and her nephews C… and B… holding the second quota jointly.

6. On 15 November 2013, the shareholders sold their quotas by public deed, each of the quotas, after division, being sold at the declared value of €162,500.00.

7. Due to a declarative error and lack of information, the Claimants proceeded with their tax declarations for the year 2013 – IRS – declaring the sale value of the quotas and the capital gains resulting from the difference between the nominal value of the quotas – €2,500.00 and the declared sale value: €162,500.00.

8. The Authors subsequently proceeded to rectify their IRS declarations because with the sale of the quotas, the Authors also ceded to the acquirers of the quotas the value of their capital contributions, which in the case of Claimant A… amounted to €93,091.08 and in the case of her nephews C… and B…, to €109,398.58.

9. Furthermore, company D… owned only one asset, which was a property corresponding to numbers … and … of Rua do…, in Lisbon, acquired through a bank financing of €450,000.00, secured by mortgage and for which the Claimants were guarantors, thereby incurring responsibility before the bank in case the company failed to meet its obligations to the bank. Except for recovery of this property, intended for resale, company D… had no other commercial activity.

10. When proceeding with the sale, the shareholders ceded their respective quotas, as well as the capital contributions they had made to the company and assumed the obligation to, on the same date of the deed and in the same act, make full payment to the Millennium bank of the remaining balance of the mortgage credit.

11. On the same date as the deed of sale of the quotas, a check for €254,710.44 was deposited in the company's account and the existing loan was discharged with the same date value. The check did not even become part of the assets of the selling shareholders, as it passed directly from the hands of the acquirers to the bank, which on the same date delivered to the acquirers the deed of cancellation of the mortgage on the property that was an asset of the company.

12. This means that the selling shareholders actually received, on account of their quotas and capital contributions, the sum of €70,290.00.

13. As the capital contributions, in the case of Claimant A…, were €93,091.08 and in the case of Claimants C… and B…, were €109,398.58, in this sale of quotas, the shareholders incurred a substantial actual loss (corresponding to the difference between the property financing value – €450,000.00 – and the sale value of the quotas – €325,000.00, which in reality encompassed the nominal value of the quotas, the capital contributions ceded and the obligation to pay the bank the outstanding loan).

14. As the total of these capital contributions equals the value of the property acquisition plus accrued interest, the sale of quotas for a value less than the total capital contributions made to the company by the shareholders constitutes for them a loss, whose evidence would seem unnecessary to emphasize.

15. It is true that the disputed assessments took into account the shareholders' receipt, collectively, of €325,000.00 for the sale of quotas with a nominal value of €5,000.00, because these assessments corresponded to a declarative error by the Claimants that induced the AT into error regarding the real value of the transaction carried out.

16. A fact of the utmost importance to emphasize is that the Claimants, having sold their quotas, did not become creditors of the company, neither for the value of their loans – which were ceded to the acquirers – nor for the value of payment to the bank – which was part of the set of their obligations at the time of sale.

17. The argument contained in point 4 of the three service reports that supported the dismissals, without pronouncing on the evidence submitted regarding the alleged facts, dismisses evidence and facts with the argument that the "declared value has express confirmation in the deed of assignment."

18. Without prejudice to such deed being rectified to adjust it to the reality of the transaction carried out, the alleged facts, all proven by documents whose veracity was not questioned, prove that the economic substance of the transaction is other and entirely different from what appears in the deed, which does not contain either a) the assignment of the loans; or b) the obligation to pay the bank the amount owed with mortgage guarantee, at the date of assignment of the quotas.

19. The truth is that capital gains are the difference between the acquisition value and the realization value of an asset. In this case, the acquisition value corresponds to the total value contributed by the selling shareholders to the company, beyond the share capital, namely the total capital contributions that between principal and interest exceeded the €450,000.00 borrowed by the bank to acquire the only asset in company D…'s balance sheet. The realization value corresponds to the net value received by the shareholders for their quotas after deduction of the value of the capital contributions made over the years and on the date of the deed and which are recorded on the company's balance sheet as credit of the new shareholders. That net value is negative, so there are no capital gains whatsoever.

20. The Claimants consider that the alleged and proven factual matters are such as to impose reconsideration of the decision notified to them, which commits the absurdity of subjecting them to violent taxation of capital gains in a transaction in which they incurred evident losses.

21. On 21 January 2016, the Claimants submitted their arguments, in which they reiterate that with the sale of the quotas, after deduction of the capital contributions they made to the company, they realized a negative value, that is, losses.

22. They argue that, in the case at hand, it became very clear that the shareholders' credits over the company had a character of permanence well exceeding one year: in this case, until the company realized assets that would allow it to reimburse the capital contributions to the shareholders. They cite in this regard Court of Appeal Decision no. 04627/04 of the Central Administrative Court North of 26 June 2008 which states: "I - Capital contributions constitute loans of money made by shareholders to the company or the extension of collection of a credit owed by the company to them, for a period exceeding one year."

23. They continue to maintain that the value of €325,000.00 covered all the assets of the company whose quotas were sold, with the respective liabilities – capital contributions and bank debts – being ceded to the acquirers and paid to the bank on that same date, affirming that the set of documents delivered with the arbitration request, read in light of the deed of assignment of quotas, in that this deed imposes on the cedents the assignment of their quotas for the value of €325,000.00, the total release of the company from any liens, encumbrances or debts to third parties, a fact that the cedents attest (and in fact could attest, because on that date they proceeded to payment to the Bank of the only relevant debt existing), as well as the testimonial evidence produced prove their thesis.

24. They argue that the AT confessed the facts pointed out to it, by accepting the substitute IRS declaration of one of the Claimants, meaning with that attitude treating equal situations differently. Indeed, they conclude, if the AT confessed to having accepted, because it understood and grasped, the arguments of Claimant B…, with the consequence that it proceeded to a new assessment and refund of the amounts unduly paid, it has no choice but, a fact to which the Tribunal cannot be indifferent, to give equal consequence to the substitute declarations of the other two Claimants whose tax relationship emerges from the very same tax facts.

25. Regarding the legitimacy of Claimant B… to be a party to this action and which is contested by the AT, the Claimants argue that, notwithstanding the AT having given him reason, the truth is that it did not act as it should have.

The Respondent submits the following:

1. It objects regarding Claimant B… on the grounds that due to his substitute declaration having been accepted, his request for arbitral pronouncement has no object, making the acts invoked by that Claimant unimpugnable.

2. In fact, the substitute declaration of taxpayer B… was assessed on 2014.12.26, showing global income of €19,844.34, autonomous taxation of €0.00, and final tax payable of €4,164.47, as appears from doc. 4 of the response (demonstration of assessment, substitute, no. 2014…), a value that replaces the previous €26,417.49 of tax payable, resulting from assessment no. 2014….

3. In this context, the validation of the substitute declaration of taxpayer B…, ending the divergence without corrections, to the detriment of the analysis of the gracious complaint procedure and the decision that came to be issued, implied the consideration of the data declared by the taxpayer for purposes of defining his tax situation; because the dismissal of the gracious complaint, when decided, was already in a perfectly innocuous manner, that is, ineffective, since the contested declaration was no longer in effect, with tax having been assessed in accordance with what resulted from the taxpayer's declarations upon delivery of the substitute declaration.

4. Neither the express dismissal of the gracious complaint nor the tacit dismissal of the hierarchical appeal are acts harmful to any right of taxpayer B…. Consequently, they are, in these terms, unimpugnable, lacking object the request for arbitral pronouncement formulated by Claimant B….

5. The Respondent defends itself by exception invoking the material incompetence of the arbitral forum constituted under the RJAT for consideration of the Claimants' requests. The material incompetence of the Tribunal for consideration of the identified requests constitutes a dilatory exception that prevents continuation of the process, leading to absolution of the instance as to the claims in question, in accordance with articles 576, section 2, 577, paragraph a) of the Code of Civil Procedure (CPC), applicable ex vi article 29, section 1, paragraph e) of the RJAT.

6. What the Claimants seek is the recognition of rights, as well as the condemnation of the AT to the performance of an act which they consider due.

7. The competence of arbitral tribunals is, from the start, limited to the matters indicated in section 1 of article 2 of the RJAT. As the competence of arbitral tribunals derives from section 1 of article 2 of the RJAT as well as from Ordinance no. 112-A/2011, of 22 March, ex vi article 4 of the RJAT, we have that, as well noted by Jorge Lopes de Sousa:

"the competence of Arbitral Tribunals comprises the consideration of claims relating to the declaration of illegality:

a) Of tax assessment acts whose administration is entrusted to the Tax and Customs Authority (AT) […];

b) Of acts of self-assessment, withholding at source and payment on account of taxes whose administration is entrusted to the AT, provided they have been preceded by resort to the necessary prior administrative procedure, as provided in articles 131 to 133 of the Code of Tax Procedure and Process (CPPT) […];

c) Of acts fixing the taxable matter without recourse to indirect methods, when it does not give rise to the assessment of any tax […];

d) Of acts of determination of the taxable matter without recourse to indirect methods […];

e) Of acts fixing of property values, for tax purposes, whose administration is entrusted to the AT […];

f) Of acts of assessment of customs duties and equivalent charges on export of goods […];

g) Claims relating to export duties established under the Common Agricultural Policy (CAP) or under specific regimes applicable to certain goods resulting from the transformation of agricultural products […];

h) Of acts assessing value added tax (VAT), special consumption taxes (IECs) and other indirect taxes on goods not subject to import duties […]" – cf. Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration, Guide to Tax Arbitration, Almedina, 2013, pp. 105-108).

1. In addition to competence for the direct consideration of the legality of such claims, arbitral tribunals functioning at CAAD may consider second or third-degree acts that have as their object the consideration of the legality of acts of those types, namely acts deciding gracious complaints and hierarchical appeals, as results from the references in paragraph a) of section 1 of article 10 of the RJAT to section 2 of article 102 of the Code of Tax Procedure and Process (CPPT), which refers to judicial challenge of gracious complaints, and to the "decision of the hierarchical appeal."

2. As such, it is clear that the consideration of claims for recognition of rights does not fall within the scope of these competences, nor is the condemnation of the AT to the performance of legally due acts covered within the material competence of the Arbitral Tribunal. Since there is no legal basis that permits condemnations of a nature other than those arising from the powers established in the RJAT, even if they would constitute a consequence, in terms of execution, of the declaration of illegality of assessment acts.

3. As provided in article 24 of the RJAT, the definition of acts in which the execution of arbitral awards should be concretized is the responsibility, in the first instance, of the AT, with the possibility of recourse to tax courts to seek coercive execution, under the process of execution of awards, provided in article 146 of the CPPT and articles 173 et seq. of the Code of Procedure in Administrative Courts – cf. arbitral award of 2015-01-15, issued in proceedings no. 587/2014-T (particularly pages 3-6 thereof).

4. The Respondent also defends itself, as a precaution, by impugning, arguing that the national tax system is governed by the principle of declaration, with the procedure beginning with the declaration of taxpayers. As provided in article 59 of the CPPT, it is the responsibility of the passive subject to submit the declaration "as provided by law," which must also be understood as encompassing the time limits provided by law.

5. Furthermore, it is also the responsibility of the passive subject to provide to the tax administration the elements essential to verification of his tax situation. A fundamental component for the balance of the system, since the taxpayer benefits from a presumption of truthfulness of his declarations, under article 74 of the LGT.

6. On the other hand, the tax administration, that is, the AT, is entrusted with pursuing its attributions and the public interest, in accordance with legal requirements, Namely, having a temporal boundary that allows it to verify the tax situation of taxpayers.

7. To reinforce its argument, the Respondent invokes the decision issued in proceedings CAAD no. 10/2013T, according to which "there will only be place for the presumption of truthfulness of declarations submitted by passive subjects, when the same are submitted within the legally established time limit for such, as referred to above. Now in the disputed case subject to arbitral pronouncement, the periodic corporate income tax return could not benefit from the presumption of truthfulness since it was submitted outside the time limit."

8. Thus, the Respondent continues, it was the responsibility of the Claimants, as follows from the general rules of distribution of the burden of proof, enshrined in article 74 of the LGT, to demonstrate that, after all, the first declarations made in accordance with law and, therefore, presumptively true, were not.

9. To defend its position, the Respondent cites Prof. Anselmo de Castro, Lessons of Civil Procedure, vol. 4 (photocopied), p. 114), and Carlos Alberto Fernandes Cadilha, in Dictionary of Administrative Contention, Coimbra, Almedina, 2006, as well as Counselor Lopes de Sousa, in annotation to article 100 (cf. Code of Tax Procedure and Process Annotated and Commented, Lisbon, Áreas Publisher, 6th Ed., 2011. As for jurisprudence, the AT cites the award of the STA of 31 October 2007, issued in proceedings no. 0338/07.

10. The AT considers, therefore, that the key to resolving the dispute lies precisely in the scope and extent to be attributed to article 74 of the LGT.

11. In this regard, it says the AT, it is clear that the right that is sought to be recognized must result, on one hand, from the means of proof presented, to demonstrate the constitutive facts; and, on the other hand, from the law, so as to decide on the subsumption of the proven facts to the legal provision, whereby it will be proper to analyze whether such demonstration was made before the Administration and now, before the Arbitral Tribunal.

12. From the reading of what was petitioned by the Claimants, it results that they did not do so.

13. The Respondent proceeds, moving to IRS, to state that in accordance with paragraph b) of section 1 of article 10 of the IRS Code, capital gains constitute the gains obtained that, not being considered business and professional income, capital or property income, result from the onerous sale of shares and other securities. On the other hand, paragraph a) of section 4 of that article of the same Code defines that, in the case of onerous sale of shares, the gain subject to IRS is constituted "by the difference between the realization value and the acquisition value."

14. And for the determination of those gains, paragraph f) of section 1 of article 44 of the IRS Code establishes that the "realization value" is considered as the value of the respective consideration; whereas paragraph b) of section 1 of article 48 of that IRS Code identifies the "acquisition value" as the cost documentarily proven or, failing that, its respective nominal value.

15. Consequently, the AT concludes, in the situation at hand, and in light of the deed of "Assignment of quotas, waiver and appointment of manager and amendment of partnership agreement," dated 2013-11-15, it is to be concluded that the capital of €5,000.00 of company "D…, Lda", was assigned by the following amounts:

Assigning partner | Nominal value of quota | Value of assignment of quota | Acquiring party of quota
A… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | E… F…
B… and C… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | G… F…
TOTAL | €5,000.00 | €325,000.00 |

1. In light of the foregoing, the AT argues, the onerous assignment of the share portion of "D…, Lda" is correctly completed by the assigning shareholders and declared in table 8 of annex G of the model 3 declarations, relating to the fiscal year 2013, initially presented and submitted on 2014-05-31.

2. The Respondent states that it does not result from the evidentiary elements that the Claimants joined, nor from the correct application of evidentiary, substantive and procedural law applicable, proven the justifying reasons for the error invoked by the Claimants for the submission of substitute declarations and complaints.

3. Contrary to what the here impugners wish to make believed, capital contributions do not constitute the nature of capital, but rather financial liability accounts. This is precisely what is reflected in the company "D…, Lda" accounting by recording the shareholders' loans in class 2 "Accounts receivable and payable."

4. In truth, in the capital account only supplementary contributions and other financial instruments (or their components) that do not fit within the definition of financial liability are to be recognized. This means that the capital contributions in question, because they do not constitute capital, were not included in the business declaration contained in the public deed.

5. Whereby, in the deed of "Assignment of quotas, waiver and appointment of manager and amendment of partnership agreement" dated 2013-11-15, the assignment of capital contributions is not reflected. Now, such deed constitutes full proof of the business declarations made in the presence of the public official. As well as it constitutes full proof of the business declarations that were not made in the presence of the same public official. That is, the said deed, in the same way that it constitutes full proof that the assignors declared to assign their quotas for the value x, constitutes full proof that they did not declare to assign the capital contributions.

6. Now, in accordance with article 347 of the Civil Code, "full proof can only be contradicted by means of proof showing the fact that is its object to be untrue, without prejudice to other restrictions specially determined in law." In these terms, were there to have been such a transaction, as was subsequently invoked by the Claimants, the establishment of that fact requires other elements of proof.

7. To support its thesis, the Respondent transcribes excerpts from the Award of the STA of 7 September 2014, issued in proceedings no. 28252/10.0T2SNT.L1.S1.

8. Thus, the Respondent reiterates its position that the Claimants did not prove that they are creditors of the company whose quotas they assigned.

9. Whereby there remained to the AT no course of action other than to dismiss the claim filed by the then complainants, now Claimants. All the more so since other documentary elements, contrary to weakening what has been stated, confirm it.

10. Indeed, and by consultation of the trial balance dated October 2013, it is confirmed only that capital contributions by the assigning shareholders in the total amount of €202,489.67 were recorded, providing no information whatsoever regarding the date of assignment of the quotas (2013-11-15) or the subsequent period. On the other hand, the balance dated 2013-12-31 only reflects a balance of €547,123.43 in the account "Current liabilities - shareholders/partners," being completely omissive as to its discrimination and origin.

11. Furthermore, the financing operation for acquisition of property is reflected in the accounting as an operation carried out within the framework of company "D…, Lda" activity. Similarly, by consultation of the company's bank statement from 1.08.2013 to 31.12.2013 – it is observed that the check deposit to discharge financing loan was reflected, and properly, in the accounting of company "D…, Lda."

12. Consequently, the alleged intervention of the here Claimants in the discharge operation should only be understood as a requirement of theirs to ensure payment of the debt, thereby preventing that, in the future, their status as guarantors in the mentioned loan could be invoked, in which they appeared as responsible before the bank for the mortgage debt, at a time when they no longer held a shareholding interest in the company holding the property.

13. Finally, and once the statement and supporting documents of the account "Current liabilities - shareholders/partners," with the balance of €547,123.43, as of 2013-12-31, were not presented, one cannot validate the understanding that the capital contributions to the company made by the here Claimants, as well as the amount owed on the loan to the Bank (€202,489.66 + €254,710.44 = €457,200.10), were not borne by the new shareholders, on behalf of the company, and with reflection in the accounting in accounts of assets and liabilities.

14. That is: (i) the new shareholders could have financed payment of the capital contributions to the former shareholders, and (ii) the new shareholders could have financed discharge of the bank loan. Such that, in practical terms, these operations would be reflected among accounts of assets and liabilities and not in accounts of equity, that is (i) the financing would continue in the shareholders' account, changing only its title and (ii) the financing would cease to occur by bank loan, coming to be secured by the shareholders. Thus, contrary to what is alleged by the Claimants, the trial balance as of 31.12.2013 does not prove the situation invoked by them.

15. Being certain that, in the present situation, the burden of proof is undoubtedly that of the Claimants, under the terms above stated in conditions of particular requirement, it falling to them to prove fact contrary to that contained in an authentic document, which constitutes full proof. Whereby the doubts raised must necessarily resolve against the claim filed by them.

16. In its arguments, the Respondent maintains the position it defended in its response.

17. To justify the alleged material incompetence of the Tribunal, it invokes the arbitral award of 15 January 2015, issued in proceedings no. 587/2014-T, as well as the decision issued in proceedings no. 17/2012-T.

18. To reinforce the lack of object of litigation on the part of Claimant B…, it invokes the award of the STA of 22 May 2013, issued in proceedings no. 0340/13.

III – DISMISSAL OF PRELIMINARY ISSUES

1. The Tribunal was regularly constituted.

2. The parties have legal personality and capacity and are regularly represented.

3. No procedural nullities were invoked or identified.

4. The Respondent raised two exceptions:

(i) The first relating to the absence of object of litigation on the part of Claimant B… and

(ii) The second relating to the material incompetence of the arbitral forum for consideration of the dispute.

1. The issues to be resolved in the present process are, in summary, the following:

A) Material incompetence of the Tribunal to know of the claim;

B) Peremptory exception of performance regarding Claimant B…:

C) The issue of proof of the realization value of the assigned quotas.

IV – REASONING

IV.I – The Tribunal considers the following facts proven:

1. On 15 July 2014, the Claimants were notified of three IRS assessments, the first for €45,028.18, the second for €26,424.47 and the third for €26,417.49. The payment deadline for the assessed IRS amount was 18 September.

2. The Claimants made payment of the amounts in question, filed Complaints on 9 September against the assessments made, and also submitted new declarations for IRS purposes.

3. A settlement of accounts was made on 2.01.2015 between the payment that had been made as a result of the first assessment (€26,424.47) and the tax assessed in the second assessment (€4,164.47), which resulted in a refund of €22,260.00, as shown in the IRS summary table for 2013 of this taxpayer.

4. As a result of said compensation between the €26,424.47 previously paid and the €4,164.47 payable, refund no. 2015… was issued, with creation date of 2.01.2015, which is in regularized status.

5. The Complaints were dismissed, whereupon a hierarchical appeal was filed jointly on behalf of the three Claimants.

6. The Claimants presumed tacit dismissal of the appeal, as they received no response within the 15-day period provided in section 3 of article 66 of the CPTA, nor within the subsequent 60-day period provided in section 5 of that article.

7. The three Claimants were the owners of two quotas that comprised the entirety of the share capital of company D…, Lda. The nominal value of each of the two quotas was €2,500.00, for a total of €5,000.00 of share capital, with Claimant A… holding one quota and her nephews C… and B… holding the second quota jointly.

8. On 15 November 2013, the shareholders sold their quotas by public deed, each of the quotas, after division, being sold at the declared value of €162,500.00.

9. The Claimants made their tax declarations for the year 2013 – IRS – declaring the sale value of the quotas and the capital gains resulting from the difference between the nominal value of the quotas – €2,500.00 and the declared sale value: €162,500.00.

10. The Authors subsequently proceeded to rectify their IRS declarations.

11. Company D… owned only one asset, which was a property corresponding to numbers … and … of Rua…, in Lisbon, acquired through bank financing of €450,000.00, secured by mortgage and for which the Claimants were guarantors.

12. In proceeding with the sale, they assumed the obligation to, on the same date of the deed and in the same act, make full payment to bank H… of the remaining balance of the mortgage credit.

13. On the same date as the deed of sale of the quotas, a check for €254,710.44 was deposited in the company's account and the existing loan was discharged with the same date value.

14. The substitute declaration of taxpayer B… was assessed on 2014.12.26, showing global income of €19,844.34, autonomous taxation of €0.00, and final tax payable of €4,164.47, as appears from doc. 4 of the response (demonstration of assessment, substitute, no. 2014…), a value that replaces the previous €26,417.49 of tax payable, resulting from assessment no. 2014….

15. Consequently, the AT concludes that, in the situation at hand, and in light of the deed of "Assignment of quotas, waiver and appointment of manager and amendment of partnership agreement," dated 2013-11-15, it is to be concluded that the capital of €5,000.00 of company "D…, Lda", was assigned by the following amounts:

Assigning partner | Nominal value of quota | Value of assignment of quota | Acquiring party of quota
A… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | E… F…
B… and C… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | G… F…
TOTAL | €5,000.00 | €325,000.00 |

1. Whereby, in the deed of "Assignment of quotas, waiver and appointment of manager and amendment of partnership agreement" dated 2013-11-15, the assignment of capital contributions is not reflected.

2. In the accounting of company "D…, Lda", the shareholders' loans were recorded in class 2 "accounts receivable and payable."

3. In the deed of "Assignment of quotas, waiver and appointment of manager and amendment of partnership agreement" – cf. deed attached at fls 4/17 to 10/14 of file PA 2 – dated 2013-11-15, the assignment of capital contributions is not reflected.

4. From the company's bank statement from 1.08.2013 to 31.12.2013, it results that the check deposit to discharge the financing loan was reflected in the accounting of company "D…, Lda".

5. It was not proven that the amount of €325,000.00 aimed to remunerate the values of the quotas plus the company's debts to the shareholders, from advances that they would have made for the company to meet the necessary expenses for its operation and maintenance.

The facts given as proven result from the documents joined to the file and from the testimony of the witnesses called, who answered with impartiality, truthfulness and clarity.

No other facts relevant to consideration of the case were proven, beyond that referred to in section 20.

V - THE LAW

The issues to be resolved in the present process are, in summary, the following:

A) Material incompetence of the Tribunal to know of the claim;

B) Alleged peremptory exception of performance regarding Claimant B…:

C) The issue of proof of the realization value of the assigned quotas.

A) Material Incompetence of the Arbitral Tribunal to know of the claim.

1. The Claimants come before this Tribunal to request, finally, in the petition they formulated in section I the following:

"1. That the AT be condemned to consider that the substitute declaration presented by the Authors and which takes into account the losses incurred in the sale of their respective quotas should be the basis for the assessment of IRS tax payable by the Authors;

1. That it be declared that the Authors incurred no capital gains in the sale of their quotas, but rather, losses.

2. Consequently, that the AT be condemned to proceed with a new assessment of IRS tax to the Authors, returning to them the amounts already paid by virtue of the assessment made.

3. That the AT be condemned in costs of this process, arbitration costs and party costs according to the prudent discretion of that Tribunal." (cf. the request formulated)

4. These requests were subsequently reproduced in their Final Arguments, point 43, in line with what the Claimants had already repeatedly requested in Hierarchical Appeal proceedings and, previously, in Gracious Complaint proceedings.

5. Now, it constitutes constant Arbitral Jurisprudence, emanating from CAAD, that the competence of arbitral tribunals functioning at CAAD is defined, in the first instance, by article 2, section 1 of the RJAT, which establishes the following:

1 – The competence of arbitral tribunals comprises the consideration of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts fixing the taxable matter when it does not give rise to assessment of any tax, of acts of determination of the collectible matter and of acts fixing of property values;

1. It is added that, in second instance, the competence of arbitral tribunals functioning at CAAD is also limited by the binding of the AT - Tax and Customs Authority which, under article 4, section 1 of the RJAT, came to be defined by Ordinance no. 112-A/2011, of 12 March, which establishes the following, as directly relevant here:

The services and organisms referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals functioning at CAAD that have as their object the consideration of claims relating to taxes whose administration is entrusted to them referred to in section 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative procedure as provided in articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts of determination of the collectible matter and acts of determination of the taxable matter, both by indirect methods, including the decision of the review procedure;

c) Claims relating to customs duties on imports and other indirect taxes on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or procedures to be carried out by another Member State under the framework of administrative cooperation in customs matters.

1. As can be concluded from the foregoing, Ordinance no. 112-A/2011, with respect to acts framed in the article 2 indicated, clearly excluded from the scope of the binding of the Tax Administration, in non-customs matters, among others, claims relating to acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative procedure and claims relating to acts of determination of the collectible matter and acts of determination of the taxable matter, both by indirect methods, including the decision of the review procedure.

2. On the other hand, the legislative authorization law under which the Legal Regime of Arbitration in Tax Matters was approved provided, in its article 124, section 4, paragraph a), that the object of the tax arbitration process could include "acts of assessment of taxes, including self-assessment, withholding at source and payments on account, fixing of the taxable matter, when they do not give rise to assessment, total or partial dismissal of gracious complaints or requests for review of tax acts, administrative acts that entail consideration of the legality of assessment acts, acts fixing of property values and rights or legitimate interests in tax matters" (emphasis ours).

3. From the comparison between the two precepts, it is inferred that the legislator restricted the scope of the jurisdiction of tax arbitral tribunals, by comparison with what had been established in the legislative authorization law, removing from it the claims conducive to the declaration or recognition of rights or legitimate interests in tax matters.

4. Consequently, it is thus to be concluded that tax arbitral tribunals are not competent to know of claims that have as their immediate object the recognition of a right of the passive subject.

5. It is certain that tax arbitral tribunals may consider questions relating, for instance, to the right to interest, as has frequently happened in tax arbitration, when such questions are in connection with a request for declaration of illegality of one of the acts named in paragraphs a) and b) of section 1 of article 2 of the RJAT, which is justified because, without such competence, the jurisdiction of tax arbitral tribunals would be impaired in its effectiveness.

6. But the law is sufficiently clear regarding the exclusion of the competence of arbitral tribunals to rule on claims directly aimed at the declaration of a tax right.

7. In this sense, it is fitting to cite Jorge Lopes de Sousa, in Commentary on the Legal Regime of Tax Arbitration, N. Villa-Lobos and M. Brito Vieira (coord.), Guide to Tax Arbitration, Almedina, Coimbra, 2013, p. 105, according to which "even with regard to challenging acts performed within tax procedures, the competence of these arbitral tribunals is restricted to the activity connected with acts of assessment of taxes, being outside their competence the consideration of the legality of administrative acts (…) as well as other administrative acts relating to tax matters that do not involve consideration of the legality of the assessment act (…)" (see, for all, Arbitral Awards nos. 38/2014-T; 168/2015-T).

8. Consequently, it is clear that the claims formulated by the Claimants cannot be considered within the scope of the present process, as they are foreign to the powers conferred on arbitral tribunals constituted in accordance with the provisions of the RJAT.

9. Indeed, what the Claimants expressly declare they intend is the recognition of rights (declared that the Authors incurred no capital gains in the sale of their quotas, but rather, losses). As well as the condemnation of the AT to the performance of an act which they consider due (that the AT be condemned to proceed with a new assessment of tax).

10. Now, as the AT properly brings out in its Response, knowledge of such matters exceeds the competence of this Tribunal, since, as results from the foregoing, the competence of arbitral tribunals is circumscribed to the matters indicated in section 1 of article 2 of the RJAT.

11. Since the competence of arbitral tribunals derives from section 1 of article 2 of the RJAT as well as from Ordinance no. 112-A/2011, of 22 March, ex vi article 4 of the RJAT, it is certain that, as well noted by Jorge Lopes de Sousa, "the competence of Arbitral Tribunals comprises the consideration of claims relating to the declaration of illegality:

a) Of acts of assessment of taxes whose administration is entrusted to the Tax and Customs Authority (AT) […];

b) Of acts of self-assessment, withholding at source and payment on account of taxes whose administration is entrusted to the AT, provided they have been preceded by resort to the necessary prior administrative procedure, as provided in articles 131 to 133 of the Code of Tax Procedure and Process (CPPT) […];

c) Of acts fixing the taxable matter without recourse to indirect methods, when it does not give rise to the assessment of any tax […];

d) Of acts of determination of the taxable matter without recourse to indirect methods […];

e) Of acts fixing of property values, for tax purposes, whose administration is entrusted to the AT […];

f) Of acts of assessment of customs duties and equivalent charges on export of goods […];

g) Claims relating to export duties established under the Common Agricultural Policy (CAP) or under specific regimes applicable to certain goods resulting from the transformation of agricultural products […];

h) Of acts assessing value added tax (VAT), special consumption taxes (IECs) and other indirect taxes on goods not subject to import duties […]" – cf. Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration, Guide to Tax Arbitration, Almedina, 2013, pp. 105-108). In addition to competence for the direct consideration of the legality of such claims, arbitral tribunals functioning at CAAD may consider second or third-degree acts that have as their object the consideration of the legality of acts of those types, namely acts deciding gracious complaints and hierarchical appeals, as results from the references in paragraph a) of section 1 of article 10 of the RJAT to section 2 of article 102 of the Code of Tax Procedure and Process (CPPT), which refers to judicial challenge of gracious complaints, and to the "decision of the hierarchical appeal."

1. It results, on one hand, from the express tenor of the claims formulated and, on the other, from the specific competences of the tax tribunals that the consideration thereof does not fall within the scope of these competences the consideration of claims for recognition of rights, nor being the condemnation of the AT to the performance of legally due acts covered, in the same manner, within the material competence of the Arbitral Tribunal.

Since there is no legal basis that permits condemnations of a nature other than those arising from the powers established in the RJAT, even if they would constitute a consequence, in terms of execution, of the declaration of illegality of assessment acts.

1. In such manner, this Tribunal is of the opinion that the dilatory exception of material incompetence of the Tribunal for consideration of the claims identified above is well-founded, which prevents continuation of the process, leading to absolution of the instance as to the claims in question, in accordance with articles 576, section 2, 577, paragraph a) of the Code of Civil Procedure (CPC), applicable ex vi article 29, section 1, paragraph e) of the RJAT.

2. There is thus verified the well-foundedness of the exception of absolute incompetence of this arbitral tribunal by reason of the subject matter, which determines, as a dilatory exception it is, absolution of the Respondent from the instance, in conformity with paragraph e) of section 1 of article 278 of the CPC, applicable ex vi paragraph e) of section 1 of article 29 of the RJAT.

3. As a consequence of the well-foundedness of this exception, knowledge of the other exceptions raised is prejudiced and consideration of the merits of the case is foreclosed.

4. However, this Arbitral Tribunal understands, for the hypothesis that it is admitted only for purposes of reasoning, if the Tribunal were considered competent, it should pronounce itself only subsidiarily on the two issues raised in this dispute:

• The invoked peremptory exception regarding Claimant B…;

• The issue of proof of the realization value of the assigned quotas.

B) Peremptory Exception of Performance regarding Claimant B…, which is considered only subsidiarily

1. The Respondent objects in its response to the petition of the Claimants, regarding the absence of object for litigation on the part of Claimant B…, alleging, in summary:

The substitute declaration delivered on 2014-09-17 by passive subject B… was validated by the services, coming into force in the taxpayer's tax situation through assessment no. 2014…. Thus ending, without corrections, the divergence caused by delivery outside the time limit.

In fact, the substitute declaration of taxpayer B… was assessed on 2014.12.26, showing global income of €19,844.34, autonomous taxation of €0.00, and final tax payable of €4,164.47, as appears from doc. 4 of this response (demonstration of assessment, substitute, no. 2014…). A value that replaces the previous €26,417.49 of tax payable, resulting from assessment no. 2014…, the demonstration of which is attached as doc. 5 of this response.

By contrast, regarding taxpayer A… and taxpayer C…, the declarations first presented, which appear in the system as type 1, are indicated as current (Status V); having given rise to assessments (no. 2014… of taxpayer A… and no. 2014… of taxpayer C…) that were the object of gracious complaint, the demonstrations of which are attached as docs. 6 and 7, respectively.

Regarding taxpayer B…, this did not occur in the same manner.

In this context, the validation of the substitute declaration of taxpayer B…, ending the divergence without corrections, to the detriment of the analysis of the gracious complaint procedure and the decision that came to be issued, implied the consideration of the data declared by the taxpayer for purposes of defining his tax situation.

Consequently, the claim regarding this Claimant (gracious complaint no. …/14-…) lacks object, which had as its object assessment no. 2014…, in the meantime replaced (which results from the indication of status S) by no. 2014… (which bears the indication of status V – current). Because the dismissal of the gracious complaint, when decided, was already in a perfectly innocuous manner, that is, ineffective, since the contested declaration was no longer current, with tax having been assessed in accordance with what resulted from the taxpayer's declarations upon delivery of the substitute declaration.

Because, despite having presented a gracious complaint and it having been expressly dismissed, the described situation demonstrates that the assessment act of which the taxpayer had complained no longer produces any effects, having been in the meantime replaced.

In these terms, neither is the impugned assessment, object of complaint and of hierarchical appeal, harmful to any right of taxpayer B…, since it was replaced and produces no effects on his tax situation. Neither the express dismissal of the gracious complaint, nor the tacit dismissal of the hierarchical appeal, are acts harmful to any right of taxpayer B….

Therefore, these are, in these terms, unimpugnable, which is expressly invoked for all legal purposes. Lacking object the request for arbitral pronouncement formulated by Claimant B….

A settlement of accounts was made on 2.01.2015 between the payment that had been made as a result of the first assessment (€26,424.47) and the tax assessed in the second assessment (€4,164.47), which resulted in a refund of €22,260.00, as shown in the IRS summary table for 2013 of this taxpayer that was attached as doc. 8 of the response.

It was, therefore, and as a consequence of said compensation between the €26,424.47 previously paid and the €4,164.47 payable, that refund no. 2015… was issued, with creation date of 2.01.2015, which is in regularized status - all cf. detail of refund that was attached as doc. 9 of the response.

It is not understood how the here Claimant B… could ignore all this situation. Because, in light of the absence of an IBAN indicated, the means of receipt of the refund was check no.…, for the value of the said €22,260.00 (resulting from the said settlement of accounts) - cf. consultation of means of receipt that is attached as doc. 10 of this response. A check which is in paid status since 2.02.2015 – cf. results from said doc. 10 and also from the consultation of means of receipt – check, that was attached as doc. 11 of the response.

Both the demonstration of the new assessment (substitute) and the demonstration of compensation and the check issued for payment of the refund to the taxpayer were the subject of sending by registered mail to the tax domicile of taxpayer B….

The first (demonstration of substitute assessment, by registered mail RY…PT, of 6.01.2015, and the latter (demonstration of compensation and check) through registered mail RY6…PT, of 12.01.2015, – cf. detail of issuance that was attached as doc. 12 of the response.

In these terms, it results from comparison between the said documents and the data contained in the application for tracking of mail deliveries by CTT [Portuguese postal service], that the taxpayer received the demonstration of the substitute assessment on 7.01.2015 - cf. print from the CTT website relating to registered mail RY…PT, that was attached as doc. 13 of the response. As well as it results that he received the check on 14.01.2015 – cf. print from the CTT website, in relation to registered mail RY…PT – that is attached as doc. 14 of this response. Because the unimpugnability of acts constitutes a dilatory exception that prevents continuation of the process, leading to absolution of the instance, in accordance with articles 54 of the CPPT, 55 and article 89, section 1, paragraph c) of the Code of Procedure in Administrative Courts (CPTA), and likewise, under the terms of paragraph e) of section 1 of article 278 and section 2 of article 576 of the Code of Civil Procedure (CPC), all applicable ex vi section 1 of article 29 of the RJAT.

In fact, the cause of action alleged by the Claimants in the gracious means previously used and in the present contentious means (that is, the facts invoked and which can be summarized as having realized losses rather than the capital gains initially declared) are, in all respects, referable to the facts which they made to appear in the substitute declarations. What was, under the terms amply stated, with respect to taxpayer B…, reflected in the assessment in the meantime issued and in the refund made.

Whereby, equally, Claimant B… lacks any interest in acting, which "is translated as "the need to use the process, to institute or have a proceeding continue," or "in the interest in using the judicial remedy – in resorting to the process." And it is, as is well known, considered "an unnamed procedural requirement, whose absence is capable of leading to absolution of the instance."

1. The Claimants, in their arguments, responded in the following manner:

The AT intends that Claimant B… lacks standing to be in these proceedings, and furthermore that in any event his right to litigate would have expired on 14 April 2015, because on that date three months would have elapsed from the tacit act (knowledge of the refund).

In article 38 of its defense, the Respondent says that "the facts alleged by claimant B… demonstrate that the effects sought by him in the present request for arbitral pronouncement, although not by means of an express decision, made within the scope of the gracious complaint, have already been achieved by administrative means, by force of the consideration of the substitute declaration, embodied in the issuance of assessment 2014…."

The documents joined by the Respondent confirm that indeed on 14 January 2014 it made to Claimant B… a refund of the amounts paid, albeit without interest on the undue payment.

It is quite true that this refund was taken "not by means of an express decision," that is, it was a fact whose legal significance was left to the discretion of the passive subject to discover or guess. But on 2 January 2015, the same B… had received a notification from the AT – doc. attached to PI 2-C b) – under which he was notified that the complaint filed had been dismissed, and, having presented a hierarchical appeal on 28 January 2015 – doc. 2-D attached to PI – saw the time period for formation of tacit dismissal elapse, without such appeal having been attended to, or the previous dismissal notification having been corrected.

It is noted in this regard that under section 4 of article 66 of the CPPT, in the 15-day period for submission of the Appeal, the author of the challenged act may revoke it wholly or partially. That is, after 28 January, the author of the challenged act had an additional 15 days to notify the passive subject that, under the terms of the tacit act practiced on 14 January, his complaint had in fact been attended to and that, consequently, "The cause of action alleged - that is, the facts invoked and which can be summarized as having realized losses instead of the capital gains initially declared - are, in all respects, referable to the facts which they made to appear in the substitute declarations; What was, with respect to taxpayer B…, reflected in the assessment in the meantime issued and in the refund made" - articles 53 and 54 of the defense.

The Respondent did none of this, having allowed the time period for formation of the legal presumption of tacit dismissal to elapse, after which the period for contentious appeal began to run. Consequently, after the actual refund of the amount unduly paid, the AT practiced another tacit act: the refusal or omission to reconsider the complaint of the passive subject, by the very author of the express act of dismissal of the complaint. To now claim that, given this conduct of the AT, the Claimant lacked standing to be in court, is worse than absurd – it is proof of a profound bad faith in the relationship with the passive subject; aggravated by the fact – because the AT does not refrain from displaying its bad faith by stating in articles 32 and 33 of the defense, that "not being the said acts definitive of taxpayer B…'s tax situation, only with the practice of a possible new assessment of IRS regarding the year 2013 could this claimant make use of a challenging process…" because "such possible future practice of a new tax act – which would eventually have the nature of correcting the tax situation of taxpayer B…, because it is not yet practiced cannot yet be considered harmful…."

Which is to say: the AT claims that claimant B… lacks standing to be in court because the effects he sought to achieve will have been achieved by the tacit act practiced on 14 January 2014, but simultaneously he is still subject to a new act being practiced (revoking the tacit act constitutive of rights with the grounds expressed in articles 53 and 54 of the defense) that would definitively subject him to payment of IRS on the alleged capital gains…

Stating, in conclusion, that Claimant B… has a clear procedural interest that an arbitral decision define his legal position regarding the act he challenges and which is exhaustively reasoned - albeit with the wrong assumptions - all the more so when it is the AT itself that threatens that in the future it can still practice a new tax act – which would eventually have the nature of correcting taxpayer B…'s tax situation.

Moreover, it is well to bear in mind that the nature of the act allegedly practiced in January 2014 is dubious: what is involved is the existence of a fact about which there is no doubt, namely the delivery to the taxpayer of the amount he had unduly paid. Whether such delivery constituted a recognition of the well-foundedness of his substitute declaration, was a matter which the AT only now, with the defense expressed in articles 53 and 54.

In other words, only with the defense presented by the AT, in articles 16 to 60, particularly 53 and 54, did the Claimant become aware that his substitute declaration had been validated (article 16 of the defense), and with the reasons expressed in articles 53 and 54 of the same defense. Consequently, as far as he is concerned, the act of dismissal of his complaint was replaced by a fact converted into an act by the grounds expressed in the defense, whereby it should be considered that with those grounds an express act now constitutive of rights was made, of express allowance of the claims that were denied to his cohorts, but such allowance should only be considered, as far as its external effects are concerned, as of the date of the defense.

Furthermore, it being incumbent on the AT to communicate promptly to the Claimant the terms and grounds of its "validation" of the declaration of constitution and not having done so, nor within the 15 days following the entry of the hierarchical appeal, it was the AT that gave cause to the present dispute, whereby it falls to it to answer for that, in terms of process costs.

1. The Respondent (AT) in its arguments reaffirms the position assumed in its defense.

2. It results from the file that the substitute declaration delivered on 2014-09-17 by passive subject B… was validated by the services, coming into force in the taxpayer's tax situation through assessment no. 2014… – cf. doc. 3 of the response, which demonstrates that declaration no. …-2013-…, of substitute (which is indicated by the type 2 classification) of taxpayer B… gave rise to assessment no. 2014….

3. In fact, the substitute declaration of taxpayer B… was assessed on 2014.12.26, showing global income of €19,844.34, autonomous taxation of €0.00, and final tax payable of €4,164.47, as appears from doc. 4 of the response - demonstration of assessment, substitute, no. 2014….

4. A value that replaces the previous €26,417.49 of tax payable, resulting from assessment no. 2014…, the demonstration of which was attached as doc. 5 of the response;

5. Whereby, the validation of the substitute declaration of taxpayer B…, ending the divergence without corrections, to the detriment of the analysis of the gracious complaint procedure and the decision that came to be issued, implied the consideration of the data declared by the taxpayer for purposes of defining his tax situation.

6. Consequently, the claim regarding this Claimant (gracious complaint no. …/14-…) lacks object, which had as its object assessment no. 2014…, in the meantime replaced, as was amply explained and documentarily demonstrated in the response.

7. Because the dismissal of the gracious complaint became innocuous, because ineffective, since the contested declaration was no longer current, with tax having been assessed in accordance with what resulted from the taxpayer's declarations upon delivery of the substitute declaration.

8. Thus, neither is the impugned assessment, object of complaint and of hierarchical appeal, harmful to any right of taxpayer B…, since it was replaced and produces no effects on his tax situation, nor is the express dismissal of the gracious complaint, nor is the tacit dismissal of the hierarchical appeal, acts harmful to any right of taxpayer B….

9. Not being the said acts definitive of taxpayer B…'s tax situation, only with a possible new assessment of IRS regarding the year 2013 could this Claimant make use of a challenging process, such as the request for arbitral pronouncement, under the RJAT, or the judicial challenge process, regulated by articles 99 et seq. of the Code of Tax Procedure and Process.

10. Now, such possible future practice of a new tax act, at present non-existent, cannot be considered harmful, whereby it is unimpugnable.

11. Within the scope of the tax contention vigent, the principle of unitary challenge prevails, according to which there should only be contentious challenge of the final act of the procedure, that is, of the act that immediately affects the patrimonial sphere of passive subjects.

12. Indeed, the dispatch of express dismissal of the gracious complaint, here in question, did not immediately determine, by its mere effect, any prejudice to the patrimonial sphere of Claimant B….

13. Equally, the tacit dismissal of the hierarchical appeal, also here in question, did not immediately determine, by its mere effect, any prejudice to the patrimonial sphere of Claimant B…; in view of it having been considered in the definition of his tax situation what was declared in the substitute declaration, which resulted in a value payable of €4,164.47, instead of €26,424.47, as assessed at the time of the first assessment no. 2014…, which was the object of the gracious complaint - cf. docs. 4 and 5 of the response.

14. Being demonstrated that the effects sought in the administrative process and in the correlative arbitration challenge process have already been achieved by administrative means, by force of the consideration of the substitute declaration, embodied in the issuance of assessment 2014….

15. Upon presentation of the request for arbitral pronouncement, on 8.7.2015, the assessment in question had already been eliminated, by replacement, having naturally lost the capability to harm rights or legally protected interests of that Claimant, in his capacity as passive subject in the tax legal relationship.

16. As a consequence, the peremptory exception of performance is deemed well-founded, as the fact extinguishing the right embodied in the circumstance of having given effect to the assessment resulting from the substitute declaration has been proven; which constitutes a fact obstructive to the well-foundedness of the petition formulated by Claimant B…, as the petitions formulated in the gracious complaint and in the hierarchical appeal have been effectively given effect.

17. Such performance is an extinguishing fact of the claim of here Claimant B….

18. In this sense, see what results from the learned award of the Supreme Court of Justice, issued in proceedings 06B2102, on 07/06/2006: "V - As an extinguishing fact of the right invoked by the author presented as a creditor, payment integrates or constitutes, in accordance with article 493, section 3, CPC, a peremptory or substantive law exception."

19. And from the reasoning highlights itself "As immediately results from the title - "Causes of extinction of obligations other than performance" - of Chapter VIII of Title I of Book II of the Civil Code, performance is a mode of extinction of obligations."

20. Whereby the peremptory exception of performance is expressly invoked, for all legal purposes, with respect to the petition formulated by Claimant B….

21. Performance occurred prior to the institution of the action, which results in the original uselessness of the present dispute.

22. The Claimant became aware of this fact at a date much earlier than that of the institution of the action.

C) The Issue of Proof of the Realization Value of the Assigned Quotas.

1. But even if it were understood that such exception would not be well-founded, it would always have to be concluded that the legality of the assessments in question would follow, fundamentally as a result of the fact that no suitable, indisputable proof was brought to the process that the realization value of the assigned quotas would be other.

2. Indeed, throughout the procedure described in the various procedural documents, the Claimants were given the opportunity to, contractually, clarify the doubts that might assist the AT in determining the value of realization of the assigned quotas.

3. And the fact is that they never did.

4. This all the more so as it is perfectly common in legal commerce that the assignment of shares corresponds to the transmission of all the rights and obligations inherent to them or, alternatively, that some of these rights be subject to separate negotiation.

5. This is what often happens with third-party credits, those of shareholders/partners, the latter assuming the qualification of capital contributions, by cumulation of the quality of creditor with that of partner.

6. By unequivocal testimony of witness I… it was demonstrated that the amounts in question were not considered as capital contributions but as loans from third parties, and such precisiousness is, for what concerns us, irrelevant.

7. Could, therefore, as is practice in commercial usage, the Claimants have brought to the process unequivocal elements that would allow the Tribunal, and perhaps even previously to the AT itself, to prove that the value that appears in the deed of assignment of quotas did not correspond to the entirety of the price of the quotas, but included also the value of the assignment of the credit of the shareholders over their own company.

8. What was not done.

9. As also was not, with respect to the rectification itself of the deed, which nothing prevented from having been carried out.

10. Were there convergence of the parties in this, which not having occurred, legitimizes the doubt.

11. What does not prove useful for clarification of the price of realization of the quotas is all the circumstantiality surrounding the bank loan, its amortization and imputation of the amounts involved to something of relevance in the context of the present process.

12. Let us see.

13. A company acquires property, does so by recourse to bank credit, with the financing entity becoming a mortgage creditor and the shareholders/managers (?) of the company holding the property becoming guarantors and securities of the financing thus obtained.

14. With the shares of the company holding the property being assigned (with a prudent division of quotas among acquirers, so as to prevent application of the IMT incidence rule), it is natural in the context of the business that:

a) the bank loan be amortized;

b) the mortgage be discharged;

c) the guarantors be released from their responsibilities.

1. And, in this manner, the company, now with new shareholders, come to own property completely free of liens and encumbrances.

2. For their part, the former shareholders of the company released themselves from the personal responsibilities that burdened their assets in function of their quality as guarantors.

3. This reality, although necessarily considered in the context of the business that involved assignors and assignees, is not called for consideration that the law determines be made, for determination of the realization value of quotas on the part of the assigning shareholders.

4. We are faced with autonomous legal entities, completely distinct from each other – shareholders and company.

5. The debt was of the company and was paid.

6. The personal responsibility was of the guarantor shareholders and was released.

7. None of this is considered as something to "deduct" from the realization value of the quotas for purposes of determining fiscal capital gains under IRS for the shareholders.

8. And the law tells us, clearly, how these things work.

9. Capital gains constitute the gains obtained with the onerous sale of shares (See article 10, section 1, paragraph b) of the IRS Code).

10. The gain is constituted by the difference between the acquisition value and the realization value (See article 10, section 4, paragraph a), of the IRS Code).

11. By realization value is understood the value of the respective consideration (Article 44, section 1, paragraph f) of the IRS Code).

12. By acquisition value is understood the cost documentarily proven or failing that its respective nominal value (See article 48, section 1, paragraph b) of the IRS Code).

13. In the specific case, we have the following values:

Assigning partner | Nominal value of quota | Value of assignment of quota | Acquiring party of quota
A… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | E… F…
B… and C… | €1,750.00 + €750.00 €2,500.00 | €113,750.00 + €48,750.00 €162,500.00 | G… F…
TOTAL | €5,000.00 | €325,000.00 |

1. It is on these and not others that IRS of the Claimants should be assessed.

2. And not on others, which such Claimants failed to demonstrate.

3. The AT acted well by proceeding with the assessments in the manner it did, the Claimants being unable to present sufficient proof to the contrary that would allow questioning the legality of those assessments, as was their responsibility (See regarding the burden of proof the well-founded position of the AT expressed in sections 91 to 97 of its arguments).

DECISION

In light of the foregoing, the exception of absolute material incompetence of the arbitral tribunal, by reason of the subject matter, is deemed well-founded and, as a consequence, the request for arbitral pronouncement is rejected, with the Respondent being absolved of the instance.

VALUE OF THE PROCESS

The value of the process is fixed at €97,870.14 (ninety-seven thousand, eight hundred seventy euros and fourteen cents), under article 97-A, section 1, a), of the CPPT, applicable by force of paragraphs a) and b) of section 1 of article 29 of the RJAT and section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

Costs to be borne by the Claimants in accordance with article 22, section 2 of the RJAT, article 4 of the RCPAT, and Table I attached to the latter, which are fixed in the amount of €2,754.00 (two thousand, seven hundred fifty-four euros).

Let it be notified.

Lisbon, 9 March 2016

The Arbitrators,

Manuel Luís Macaísta Malheiros

(President)

João Ricardo Catarino

(Arbitrator)

Jorge Carita

(Arbitrator)