Process: 439/2015-T

Date: December 15, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

This arbitral decision from CAAD (Administrative Arbitration Center) addresses Process 439/2015-T concerning an ex officio IRS assessment for the 2013 tax year. The taxpayer, a foreign national residing in Portugal, failed to file their IRS return despite being notified, leading the Tax Authority (AT) to conduct an unofficial assessment based on mandatory third-party reporting under article 123 of CIRS. The AT initially assessed capital gains of €170,000 from real property sales and €51,925.10 from securities transactions. The taxpayer challenged this assessment through a gracious complaint (reclamação graciosa), which was partially upheld. The AT accepted there were no capital gains on the real property and only €20.10 on B... SAD shares, but maintained a €50,275.00 capital gain on 50 C... securities, arguing insufficient proof that the securities sold in 2013 were the same ones acquired in 2009. The core dispute centered on the calculation methodology for capital gains on securities (mais-valias mobiliárias). Portuguese tax law requires considering both acquisition and sale values to determine taxable capital gains. The taxpayer submitted a 2009 Notice of Assessment showing acquisition of 50 securities for €47,625.00, plus a July 2015 bank statement confirming these were the same securities sold in 2013. The arbitral tribunal found the AT's ex officio assessment problematic, noting suspicious coincidences where acquisition and sale dates were identical. The tribunal considered it proven (fact 2.6) that the bank documentation established the securities' identity and acquisition cost. The case illustrates important principles: taxpayers can challenge ex officio assessments through CAAD arbitration under RJAT article 2; the burden of proof in capital gains calculations requires proper documentation of both acquisition costs and sale proceeds; and the AT must consider all evidence presented, including documentation establishing the chain of ownership for securities transactions to ensure accurate IRS assessments.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – A..., Taxpayer (CF)[1] ..., with tax domicile in ... Lisbon, not accepting the decision rendered by the Financial Directorate of Lisbon regarding the tax appeal .../15, filed on 16/07/2015 a petition for constitution of an arbitral tribunal, pursuant to the provisions of paragraph a) of no. 1 of article 2, no. 1 of article 3 and paragraph a) of no. 1 of article 10, all of the Legal Framework for Arbitration in Tax Matters (RJAT)[2], with the Tax Authority (AT)[3] being summoned, with a view to assessing the legality of the tax acts assessing Personal Income Tax (IRS)[4] for the year 2013, according to the assessment note no. ..., issued following an ex officio statement of income, and also against the decision rendered in the aforementioned tax appeal in the part unfavorable to the petitioner.

2 – The petition for constitution of the arbitral tribunal was filed without exercising the option to designate an arbitrator, coming to be accepted by His Excellency the President of the Administrative Arbitration Center (CAAD)[5] and automatically notified to the AT on 16/07/2015.

3 – In accordance with and for the purposes of the provisions of no. 1 of article 6 of the RJAT, by decision of His Excellency the President of the Professional Conduct Council, duly communicated to the parties within the legally applicable time limits, Arlindo José Francisco was appointed as arbitrator, who communicated to the Professional Conduct Council and to the Administrative Arbitration Center the acceptance of the assignment within the regularly stipulated time period.

4 - The tribunal was constituted on 15/09/2015 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012 of 31 December.

5 – With his petition, the petitioner seeks the declaration of illegality of the tax acts concerning the ex officio assessment of 2013 ... of Personal Income Tax (IRS), as well as of the decision rendered by the Financial Directorate of Lisbon in the voluntary reclamation already referred to, in the part unfavorable to the petitioner.

6 - He invokes for this purpose, in summary, the following:

6.1 - The petitioner is a foreign national with residence in Portugal, not considering himself sufficiently familiar with the national tax system, accepting as valid the information from a third party that he would not be obliged to file the income tax return for the year in question.

6.2 Although notified to do so, he did not understand the scope of the notification and maintained his conviction that he did not meet the requirements to comply with the notification, regretting now not having made the respective demonstration.

6.3 – Upon being notified of the assessment carried out by the AT, he filed a reclamation against it and attached documents that challenged the income officially considered by the AT.

6.4 – However, he verified that the AT only partially upheld his claim, by accepting that in the sale of the real property there were no capital gains and that in the sale of the securities of B... SAD the capital gain was only € 20.10;

6.5 – But with respect to the sale of the securities of C..., the AT only considered the value of the sale, not taking into account the value of acquisition, given that it was not sufficiently demonstrated whether the same securities were those that had been acquired in 2009.

7 – For its part, the AT, in summary, holds:

7.1 - That the petitioner's arguments are without merit since he did not file the income tax return despite being notified to do so, and submitted the proof document of the acquisition of the securities only now in the contentious phase, when he could have done so in the administrative phase.

7.2 - By such conduct he violated the duties of cooperation with the AT, therefore it holds that the petition for arbitral pronouncement should be judged as lacking merit.

I – SANATION

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

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

Having held on 20 November 2015 the meeting referred to in article 18 of the RJAT, the tribunal, with the agreement of the parties, waived the production of written or oral pleadings and considered the conditions to be met for the rendering of the final decision.

III – GROUNDS

1 – Issue to be determined in the present proceedings

To determine whether the tax acts concerning the ex officio assessment of 2013 ... of Personal Income Tax (IRS) should be maintained or should be corrected in the sense that the capital gain determined should be only € 2,650.00 and, consequently, the decision of partial allowance of the voluntary reclamation rendered by the Financial Directorate of Lisbon should be revoked.

2 – Matter of Fact

The matter of fact relevant and proven based on the elements attached to the case file is as follows:

2.1 - The petitioner did not file the income tax return for 2013 despite being notified to do so.

2.2 - He was notified of the assessment note prepared following the ex officio statement by the AT.

2.3 - In the said ex officio assessment it was stated that the petitioner in 2013 would have received income from capital gains on the sale of real property in the amount of € 170,000.00 and € 51,925.10 from the sale of partnership interests.

2.4 - Against this assessment the petitioner filed a voluntary reclamation which was partially upheld, given that the documents attached to it, in the AT's understanding, proved that there were no capital gains income from the sale of the real property and that the sale of 200 securities of B... only resulted in a capital gain of € 20.10, with the capital gain value from the sale of 50 securities of C... remaining at € 50,275.00 given that it was not clearly established whether the securities acquired in 2009 were the same as those sold in 2013.

2.5 - In the prior hearing the petitioner submitted a document "Notice of Assessment" in which it was verified that on 23/03/2009 he acquired 50 securities of ..., for the amount of € 47,625.00, which the AT did not consider sufficient for the proof sought, given the lack of the security code which would prevent "without a shadow of a doubt" that these were the securities sold in 2013.

2.6 - The statement issued by the ..., on 14 July 2015, attached to the case file by the petitioner, proves that the 50 securities of ... were acquired by the petitioner in 2009 and were sold by him in 2013.

2.7 – The AT prepared the ex officio assessment in question based on the elements mandatorily provided by the entities mentioned in article 123 of the Code for Personal Income Tax (CIRS)[6].

3 – Of the Law

3.1 – The ex officio statement here challenged was carried out pursuant to article 76 no. 1 paragraph b) of the CIRS.

3.2 - In the same, the following is verified, as per the tables reproduced below:

3.2.1 With regard to capital gains on the sale of real property:

Ex officio the date of realization of 2013 month 06 was mentioned and the date of acquisition coincided with the date of realization.

3.2.2 With regard to capital gains on the sale of partnership interests and other securities

The coincidence of the dates of acquisition with the dates of realization was also verified.

3.3 - Although the tribunal does not consider these coincidences at all impossible, they do not appear to it as normal, and the proof is that the AT as soon as confronted with the taxpayer's reclamation came to reconsider them in their entirety with respect to the capital gains from the sale of real property and as to the capital gains from partnership interests of 200 securities of B....

3.4 - The AT only maintained the ex officio assessment regarding the securities of ... (50 securities), by considering not justified, in its view, "without a shadow of a doubt" the date of acquisition of the same.

3.5 - The petitioner with his conduct of non-cooperation with the AT disrespected the provision of article 59 of the General Tax Law (LGT)[7], although arguing his quality as a foreign national, the negligible value of his income in 2013 and the (unofficial) information that he did not meet conditions for filing the return, he remained expectant, only reacting when confronted with the ex officio assessment.

3.6 – Against the said ex officio assessment, the petitioner filed a voluntary reclamation, attaching documents that, in his understanding, proved his point of view, which was not accepted, as already seen, with respect to the sale of the 50 securities of ....

3.7 - Taking shelter in the rebuttable presumption of article 75 of the LGT, he came to say that it would be incumbent on the AT to demonstrate that his declarations would not be truthful, forgetting, however, that such presumption will be set aside, in accordance with no. 2 paragraph b) of the same article, in the present case, not having been responsive to the notification to file the income tax return for 2013.

3.8 – However, today there are no doubts, not even for the AT, that in view of the statement from the bank ... of 14 July 2015, attached to the case file, the 50 securities of ... sold in 2013 for € 50,275.00 by the petitioner were the same that he had acquired in 2009 for € 47,625.00 and thus the capital gain to be determined would be only € 2,650.00. Indeed this would already be apparent in the document attached by the petitioner with his reclamation and, if there were any doubts, they should have been clarified before the decision thereon was rendered.

3.9 – From the tribunal's point of view there was negligence of the petitioner, however, having in mind the principle of tax legality inherent in article 8 of the LGT, the AT should treat the data communicated to it by the various entities in such a way as not to practice acts that collide with the tax situation of taxpayers in respect for legality.

3.10 – Article 120 of the CIRS requires the entities issuing securities to communicate to the AT, by the end of July of each year, the elements referred to in the said provision.

3.11 – Also article 123 of the CIRS requires notaries, registry officers, judicial secretaries, technical secretaries of justice and professionals with competence to authenticate private documents, to send to the AT, by the 15th of each month, a list of the acts that entail subjection to registration of real property and of the operations provided for in paragraphs b), e), f) and g) of no. 1 of article 10 of the CIRS.

3.12 – Now, the AT, in possession of this data, should treat them in such a way as to confirm, for example, the dates of acquisition and of realization, with a view to better ascertaining the real tax situation of taxpayers, all the more so in an ex officio assessment, therefore at its initiative.

3.13 - In the case at hand, what occurred, from the tribunal's point of view, is that this data either was not sufficiently cross-referenced or treated, using only that of the sale without taking care of that of acquisition which would have been mandatorily communicated to the AT.

3.14 – So much so was this the case that the dates of realizations were made to coincide with those of acquisition in the ex officio assessment, as already seen, which while not being impossible, does not seem reasonable and which, came to be proved, did not correspond to the real situation.

3.14 - Concluding, if on the one hand the taxpayer disrespected his duty of cooperation which, if used at an appropriate time, could have prevented the AT's procedure, the AT itself did not properly treat the data it legally possesses by issuing an ex officio assessment incompatible with them and by rendering a decision of partial allowance of the reclamation without clarifying the "shadow of a doubt" that it invoked for the act, when it possesses in its power the data mandatorily provided pursuant to article 123 of the CIRS.

IV – OPERATIVE PART

Given the foregoing, the tribunal decides as follows:

a) To declare the petition for arbitral pronouncement well founded with the consequent annulment of the ex officio income tax assessment acts here challenged regarding the year 2013, the capital gain to be determined from the sale of the 50 securities of ... being only € 2,650.00 and consequently revoking the decision rendered in the respective voluntary reclamation proceeding in the part unfavorable to the complainant, now petitioner.

b) To fix the value of the case at € 14,077.00, considering the provisions contained in articles 299 no. 1 of the Code of Civil Procedure (CPC)[8], 97-A of the Code of Tax Procedure and Process (CPPT)[9] and article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT)[10].

c) To fix the costs at € 918.00 at the charge of the respondent 50% (€ 459.00) and of the petitioner the remaining 50% (€ 459.00) pursuant to no. 2 of article 12 and no. 4 of article 22, both of the RJAT, taking into account table I of the RCPAT.

Notify.

Lisbon, 15 December 2015

Text prepared by computer, in accordance with article 131 no. 5 of the Code of Civil Procedure, applicable by reference to article 29 no. 1, paragraph e) of the RJAT, with blank lines and reviewed by me.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Taxpayer (Contribuinte Fiscal)

[2] Acronym for Legal Framework for Arbitration in Tax Matters (Regime Jurídico da Arbitragem em Matéria Tributária)

[3] Acronym for Tax Authority (Autoridade Tributária e Aduaneira)

[4] Acronym for Personal Income Tax (Imposto Sobre o Rendimento das Pessoas Singulares)

[5] Acronym for Administrative Arbitration Center (Centro de Arbitragem Administrativa)

[6] Acronym for Code for Personal Income Tax (Código do Imposto sobre o Rendimento das Pessoas Singulares)

[7] Acronym for General Tax Law (Lei Geral Tributária)

[8] Acronym for Code of Civil Procedure (Código de Processo Civil)

[9] Acronym for Code of Tax Procedure and Process (Código de Procedimento e de Processo Tributário)

[10] Acronym for Regulation of Costs in Tax Arbitration Proceedings (Regulamento de Custas nos Processos de Arbitragem Tributária)

Frequently Asked Questions

Automatically Created

What are the tax rules for capital gains on securities (mais-valias mobiliárias) under Portuguese IRS?
Under Portuguese IRS law, capital gains on securities (mais-valias mobiliárias) are calculated as the difference between the sale value and the acquisition value of the securities. According to the CIRS (Personal Income Tax Code), when securities are sold, the taxpayer must determine the taxable gain by subtracting the documented acquisition cost from the sale proceeds. The Tax Authority is required to consider both values when assessing capital gains. In this case, the tribunal emphasized that proper calculation requires evidence of both the acquisition value (€47,625.00 for 50 securities acquired in 2009) and the sale value (€50,275.00 in 2013) to determine the actual capital gain of approximately €2,650.00, not the full sale value as initially assessed by the AT.
Can a taxpayer challenge an unofficial IRS tax assessment (liquidação oficiosa) through CAAD arbitration?
Yes, taxpayers can challenge an ex officio IRS assessment (liquidação oficiosa) through CAAD arbitration. This case demonstrates the process under the RJAT (Legal Framework for Arbitration in Tax Matters). When the Tax Authority conducts an unofficial assessment due to failure to file a return, the taxpayer first must file a gracious complaint (reclamação graciosa) with the Tax Authority. If this administrative remedy is unsuccessful or only partially successful, the taxpayer can then petition for arbitration under article 2, paragraph a), number 1 of RJAT. The taxpayer filed their arbitration petition on July 16, 2015, after the Financial Directorate of Lisbon's decision on their gracious complaint was unfavorable, seeking review of both the original assessment and the administrative decision.
How is the acquisition value of securities determined when calculating capital gains for IRS purposes?
The acquisition value of securities for calculating IRS capital gains is determined based on documented evidence of the original purchase. In this case, the tribunal accepted a 'Notice of Assessment' from March 23, 2009, showing the taxpayer acquired 50 securities for €47,625.00, plus a bank statement from July 14, 2015, confirming these specific securities were acquired in 2009 and sold in 2013. The Tax Authority initially rejected this evidence during the administrative phase, claiming lack of security codes prevented certainty that the acquired and sold securities were identical. However, the arbitral tribunal found (fact 2.6) that the bank documentation sufficiently proved the identity and acquisition cost of the securities. This demonstrates that taxpayers should maintain comprehensive documentation including purchase confirmations, bank statements, and broker records showing the complete transaction chain.
What is the procedure for filing a gracious complaint (reclamação graciosa) against an IRS assessment in Portugal?
The procedure for filing a gracious complaint (reclamação graciosa) against an IRS assessment in Portugal involves several steps demonstrated in this case. First, the taxpayer receives notification of the assessment note issued by the Tax Authority. The taxpayer must then file a written complaint with the competent tax authority (here, the Financial Directorate of Lisbon) within the legal deadline, challenging the assessment and presenting supporting documentation. In this case, the taxpayer attached documents proving no capital gains existed on real property sales and evidence regarding securities transactions. The Tax Authority reviews the complaint and issues a decision, which may fully or partially uphold the complaint or reject it entirely. Here, the AT partially upheld the complaint, accepting corrections for real property and B... securities but maintaining the assessment for C... securities. If unsatisfied with this administrative decision, the taxpayer can escalate to judicial review or arbitration through CAAD.
Does the Portuguese Tax Authority have to consider both acquisition and sale values when assessing capital gains on share transactions?
Yes, Portuguese Tax Authority is legally required to consider both acquisition and sale values when assessing capital gains on share transactions for IRS purposes. This case highlights a critical error in the AT's methodology. The ex officio assessment under article 76 no. 1 paragraph b) of CIRS improperly treated the full sale value of €50,275.00 as taxable capital gain, without deducting the acquisition cost. The arbitral tribunal noted suspiciously that the AT's initial assessment showed identical acquisition and sale dates for the securities, suggesting the AT had not properly investigated acquisition values. Portuguese tax law requires net capital gains calculation: sale proceeds minus documented acquisition costs. When the taxpayer provided evidence of the €47,625.00 acquisition cost from 2009, the actual capital gain should have been approximately €2,650.00. The tribunal found the bank statement (fact 2.6) conclusively proved both the acquisition value and that the securities sold were those acquired in 2009, requiring the AT to adjust its assessment accordingly.