CAAD Process 5/2019-T: IRC Capital Gains Corrective Assessment and Statute of Limitations Ruling

ARBITRAL DECISION

I. Report

1. A..., taxpayer no. ... and B..., taxpayer no..., married, with residence at ..., no..., ...-... ..., notified of the Personal Income Tax (IRS) assessment act no. 2018... and the Statement of Account Adjustment no. 2018..., relating to the year 2013, in the amount of € 31,027.43, hereby, pursuant to the provisions of Articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), of the Legal Framework for Tax Arbitration (RJAT) approved by Decree-Law no. 10/2011, of 20/01, submit a request for constitution of an Arbitral Tribunal, in which the Tax and Customs Authority (AT) appears as the Respondent.

2. The request for arbitral pronouncement, submitted on 03-01-2019, seeks a declaration of illegality of the aforementioned assessment, with its consequent annulment, invoking, for this purpose, the occurrence of expiration of the right to assess the tax in question, as well as the alleged rebuttal of the legal presumption which, in their understanding, is contained in Article 45, no. 3, of the IRS Code.

3. In response to what is requested, the Tax and Customs Authority (AT) pronounced itself in the sense of the inadmissibility of the present request for arbitral pronouncement, expressing an understanding that the impugned act should be maintained in the legal system and, accordingly, the tribunal should pronounce itself on the absolution of the respondent entity.

4. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT).

5. The Claimant did not proceed to appoint an arbitrator.

6. Pursuant to the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of Decree-Law no. 10/2011, of 20/01, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the assignment within the applicable time limit and duly notified the parties.

7. Duly notified of this appointment, the parties did not express a desire to challenge the appointment of the arbitrator, pursuant to the combined provisions of Article 11, no. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

8. Accordingly, in compliance with the provision of paragraph c) of no. 1 of Article 11 of RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the collective arbitral tribunal was constituted on 18-03-2019.

9. Having regard to the knowledge derived from the procedural documents submitted by the Parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the meeting referred to in Article 18 of RJAT.

10. Thus, by order of 22-05-2019, subject to timely notice, it was decided, absent objection by the Parties, to dispense with the aforementioned meeting, and a period of 20 days was granted for submission of written arguments.

11. Only the Claimant submitted written arguments, essentially reaffirming the position previously expressed in its petition.

II. Preliminary Matters

1. The Arbitral Tribunal is regularly constituted and is materially competent, pursuant to paragraph a) of no. 1 of Article 2 of Decree-Law no. 10/2011, of 20/01.

2. The Parties have legal personality and capacity, are legitimate and are legally represented (see Article 4 and no. 2 of Article 10 of Decree-Law no. 10/2011 and Article 1 of Regulation no. 112/2011, of 22/03).

3. The proceeding does not suffer from defects that would invalidate it and no issues have been raised that prevent consideration of the merits of the case.

III. Findings of Fact

1. Based on the documentary evidence included in this proceeding, the following factual elements are highlighted which, not being contested by the Parties, are considered entirely proven:

15.1. By public deed dated 30-12-2010, C... and D..., donated to their daughter A..., now Claimant, for the purpose of their disposable portion, the autonomous fraction designated by the letter "O", corresponding to the seventh floor left of the urban property, located at ..., no..., parish of ..., municipality of Lisbon, described in the Property Registry Office of Lisbon under the number .../... and registered in the urban property matrix under article ... (see Doc.8).

15.2. At the date of execution of the public deed of donation, the real estate in question had a tax patrimonial value (VPT) of € 334.46.

15.3. In that a first transfer occurred after the entry into force of the Municipal Property Tax Code (CIMI), the donated property was subject to evaluation, pursuant to the provisions of Article 15 of Decree-Law no. 287/2003, of 12/11, as then in force, and was assigned the tax patrimonial value of € 73,300.00.

15.4. The donation benefited from an exemption from Stamp Duty, pursuant to Article 6, paragraph e), of the respective Code.

15.5. In August 2013, the Claimants sold the aforementioned autonomous fraction for the price of € 160,000.00.

15.6. On 01-06-2014, the Claimants submitted the periodic tax return—IRS Form 3—relating to the year 2013, declaring, in the respective Annex G, the onerous disposal of the property, indicating as acquisition value € 148,000.00 and € 160,000.00 as realisation value.

15.7. There was also declared as a deductible expense, pursuant to the provisions of Article 51 of the IRS Code, the amount of € 9,840.00 relating to costs incurred with the disposal of the property.

15.8. From the same return (Annex G) it appears as the acquisition date the month of July 2013.

15.9. Operated on the basis of the declared elements, assessment no. 2014... was made, with the amount to be reimbursed being calculated at € 1,358.05.

15.10. On 19-06-2014, the Tax and Customs Authority (AT) instituted a value verification procedure aimed at substantiating the values declared in Annex G of the IRS Form 3 for the year 2013.

15.11. In the context of the aforementioned value verification procedure, AT notified the now Claimants to present the documents proving the declared elements and to exercise the right to prior hearing regarding the alterations proposed in the official return meanwhile drawn up, in which, namely, the modification of the acquisition value from € 148,000.00 to € 334.06 and the non-consideration of the declared expenses relating to acquisition and disposal are considered.

15.12. From the official return, collected on 21-11-2014, resulted in an additional IRS assessment and compensatory interest no. 2014..., of 10 December following, in the total amount of € 34,040.02.

15.13. On 11-02-2015, the Claimants deduced a petition for administrative reconsideration against the assessment act seeking to correct the acquisition date of the property to December 2010 and the acquisition value to € 73,000.00, with administrative reconsideration process no. ... being instituted on 16 of the same month.

15.14. The petition for administrative reconsideration was partially granted, to the effect that 30-12-2010—the date of execution of the donation deed—is considered as the acquisition date of the property, but maintaining the acquisition value fixed at € 334.46, by virtue of this being the tax patrimonial value in the two years preceding the donation, in compliance with the provision of Article 45, no. 3, of the IRS Code.

15.15. Dissatisfied with the aforementioned decision of partial granting, the Claimants, on 03-01-2019, requested constitution of the arbitral tribunal, with process no. 533/2015-T being instituted.

15.16. As grounds for their request, which would be accepted on 07-09-2016, the Claimants alleged, in summary:

(i) the illegality of the assessment act, due to the omission of an essential legal formality as a consequence of violation of Article 60, no. 1, paragraph a) of the LGT, contending that they were never notified to exercise their right to prior hearing regarding the corrections that gave rise to the impugned tax acts;

(ii) the illegality of the IRS assessment and compensatory interest act due to lack of substantiation, resulting from violation of Articles 268, no. 3 of the Constitution and Article 77 LGT;

(iii) the illegality of the assessment act due to error regarding the factual and legal presuppositions, namely, in that it was not considered the possibility of rebuttal of the presumption contained in the provision of Article 45, no. 3 of the IRS Code.

15.17. By arbitral decision of 05-11-2016, it was ruled "that the request for arbitral pronouncement is granted, with the consequent annulment, with all legal effects, of the assessment acts identified in the file."

15.18. However, this decision did not become final, being subject to impugnation by the Tax and Customs Authority, pursuant to the provision of Article 27 and paragraphs a) and c) of no. 1 of Article 28 of RJAT, on the following grounds:

(i) non-specification of the factual and legal grounds justifying the decision; and

(ii) omission of pronouncement, pursuant to the provision of paragraphs a) and c) of no. 1 of Article 28 of RJAT, defects which constitute causes of nullity of the impugned decision, pursuant to the provision of Article 125 of the Tax Procedure and Process Code (CPPT) and Articles 195, no. 1 and 615 of the Civil Procedure Code (CPC).

15.19. By judgment of 12-12-2017, the Central Administrative Court of the South [i] ruled the impugnation to be granted, considering that "... the aforementioned lack of substantiation of the decision on the matter of fact is indeed verified. In reality, the arbitral decision in question did not proceed to the specification of proven and unproven facts, did not perform critical analysis of the evidence, and reached no conclusions on the matter of fact to be subsumed under the applicable legal provisions. Which leads to the nullity of the decision now impugned, by virtue of paragraph b) of no. 1 of Article 615 of the CPC and the propriety of the present Impugnation. The remaining grounds of the present impugnation are thus prejudiced."

15.20. On 09-04-2018, following this judgment of the Central Administrative Court of the South, a new decision [ii] was issued, the Arbitral Tribunal having considered that the "(...) formal defect alleged by the Claimants exists, given the violation of the provision of Article 60 of the LGT, and consequently, the assessment that is the subject of the present arbitral proceeding should be annulled, as well as the acts that presuppose its validity, namely the compensatory interest assessment and the decision of the administrative reconsideration procedure, with the arbitral request formulated being granted. Given what has been decided, knowledge of the remaining issues raised by the Claimants is prejudiced."

15.21. On 10-04-2018 the Tax and Customs Authority (AT) was notified of the above-mentioned arbitral decision which, not being impugned, became final on 14-05-2018.

15.22. As the arbitral decision was substantiated exclusively on the omission of the legal formality of prior hearing, the Finance Service, in execution thereof, proceeded to annul the initial assessment by promoting a new assessment procedure, purged of the formal defect that substantiated the arbitral decision.

15.23. In the context of this procedure, the aforementioned Finance Service sent, for purposes of exercise of the right to prior hearing, Office no. .../2018, of 15-06-2018, informing the Claimants of the inaccuracies considered to be contained in the return they submitted, of the obligation to present documents substantiating the amounts and dates declared in Annex G as well as the intention to proceed with their correction, with indication of its exact scope.

15.24. On 29-06-2018, the Claimants, in the exercise of the aforementioned right, alleged:
"- Expiration of the right to assessment as the assessment was not validly notified to the taxpayers within four years;

• As a result of the inspection procedure, with respect to IRS and the year 2013, notification of assessment no. 2014... was received and a petition for administrative reconsideration was deduced;

• The documentation substantiating the values declared in IRS Form 3 has already been submitted in the context of the aforementioned petition which obtained partial approval;

• Because they did not accept the result of the petition for administrative reconsideration, they submitted a request for arbitral pronouncement (CAAD Process no. 533/2015-T) which was ruled entirely granted and, consequently, the annulment of assessment no. 2014... was determined, as well as the order dated 05 May 2015 which partially denied the petition for administrative reconsideration;

• Furthermore, AT should refrain from initiating a new inspection procedure for the same tax and for the same period."

15.25. From the analysis of the elements provided by the Claimants, particularly documents submitted—deed of donation of 30-12-2010, deed of Sale and Purchase of 30-08-2013 and invoice concerning the commission paid to the Real Estate Agent issued on 29-08-2013—the Tax Services, on 03-07-2018, prepared the competent correction document no. ..., making reference therein to the arbitral decision issued in proc. 533/2015-T.

15.26. In the aforementioned document—Annex G of the official return—the following elements, relevant to the assessment, were considered:

• Date of realisation (Deed of Sale and Purchase – 2013-08);
• Realisation value of € 160,000.00, pursuant to Article 44 of the IRS Code;
• Date of acquisition: date of donation of the property – 2010-12);
• Acquisition value: considered the tax patrimonial value (VPT) of € 334.46 appearing in the matrix up to two years prior to the donation, pursuant to no. 3 of Article 45 of the IRS Code;
• Expenses with the disposal of the property in the amount of € 9,840.00, pursuant to Article 51 of the IRS Code.

15.27. On 01-10-2018, based on the aforementioned elements, IRS assessment no. 2018..., relating to the year 2013, was issued in the amount payable of € 31,027.43, notified to the Claimants on the 9th of the same month (see Doc. 1).

1. The findings of fact are based on the documents included in the proceeding, and there are no facts that should be considered as unproven that are relevant to the decision.

III. Matters of Law

1. In the request for arbitral pronouncement, the Claimants submit to the consideration of this tribunal the legality of the IRS assessment act effected on 01-10-2018—Assessment no. 2018... and Statement of Account Adjustment no. 2018...—in the amount of € 31,027.43—relating to the year 2013, invoking, in essence, the expiration of the right to assess the tax, as well as the rebuttal of the legal presumption implicit in Article 45, no. 3 of the IRS Code.

2. Pronouncing itself on the request and the substantiation supporting it, the Respondent considers that the Claimants are not correct, and therefore the present request for arbitral pronouncement should be judged inadmissible, as not proven, with the impugned tax assessment acts remaining in the legal system, absolution of the Respondent entity being accordingly pronounced.

3. For this purpose, with respect to the alleged expiration of the right to assess, the Respondent contends, in conclusion, that "the assessment act in question does not suffer from expiration given that it was consequent with the decision of annulment of the IRS assessment for the year 2013, issued in the context of CAAD process no. 533/2015-T, having been practiced within the 90-day period following notification of the annulment decision, which occurred on 2018/04/10, through collection of a return on 2018/07/03, subsequent to the exercise of the right to prior hearing, as results from the provision of Article 175, nos. 1 and 3 of CPTA."

4. With respect to the rebuttal of the presumption which, according to the Claimants allege, would be implicit in Article 45, no. 3, of the IRS Code, the Respondent considers that the provision in question does not fit within the legal definition of presumption, in that the legislator does not fiction the existence of any value that results in the quantification of presumed income, nor does it determine the prevalence of a particular value to the detriment of another. Thus concluding that "In reality, the provision merely refers to a concrete value, which is the tax patrimonial value appearing in the matrix up to two years prior to the donation, being this a special rule, which was intended to put an end to a tax planning maneuver."

5. Being thus alleged in the petition that gave rise to the present proceeding the defect of expiration of the right to assess and incorrect determination of the acquisition value of the property for purposes of determining taxable income, it is important to first define the order of examination of the defects.

On the Order of Examination of Defects

1. Pursuant to the provision of Article 124, no. 1, of the Tax Procedure and Process Code (CPPT), subsidiarily applicable to the tax arbitral proceeding by virtue of the provision of Article 29, no. 1, paragraph a), of Decree-Law no. 10/2011, of 29/01, "the tribunal shall examine as a priority the defects that lead to a declaration of non-existence or nullity of the impugned act and, thereafter, the defects alleged that lead to its annulment."

2. Pursuant to paragraph a), of no. 2, of the same article, in the absence of defects leading to a declaration of non-existence or nullity of the impugned act, the tribunal should examine "defects whose propriety determines, according to the prudent discretion of the judge, more stable or effective protection of the offended interests;"

3. As the defect of expiration of the right to assess is invoked, which, if verified, would taint the impugned act with illegality, the tribunal understands that its recognition is capable of guaranteeing more effective protection of the interest of the Claimants.

On the Expiration of the Right to Assess

1. In support of the claim they formulate, the Claimants allege that the assessment act which is the subject of the present request was effected after the expiration period provided for in Article 45, no. 1, of the General Tax Law (LGT).

2. In accordance with this provision, the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, unless the law fixes another period. Pursuant to no. 4 of the same article, this period is calculated, in periodic taxes, as is the case with IRS, from the end of the year in which the respective tax event occurred.

3. As results from the aforementioned legal norms, the assessment act in question, relating to a periodic tax (IRS) and to the year 2013, should have been, without fail, notified to the Claimants during the four years following the end of the year in which the alleged tax event would have occurred, 31-12-2013, that is, by 31-12-2017, which did not occur.

4. Thus the Claimants conclude that "as results from the IRS assessment act in question, it was only practiced in July 2018, that is, at a time after the expiration of the respective period of expiration of the State's right to assess. Thus, the tax administration having failed to ensure the practice and valid notification of the assessment act in question to the CLAIMANTS within the legally prescribed time limit, the legal system, guided by the aforementioned principles of legal certainty and security, sanctions it through the illegality of the act practiced (see Article 135 of the Administrative Procedure Code), which is hereby requested to be determined."

5. Pronouncing itself on the request and respective grounds, on the segment relating to the alleged expiration of the right to assess, the Respondent states:

(...)

"20. In accordance with Article 24 of RJAT, the arbitral decision on the merits of the claim to which no appeal or impugnation applies binds the Tax and Customs Authority (AT) from the end of the period established for appeal or impugnation, and the decision issued in process no. 533/2015-T implies that AT is obliged to comply, which determines the annulment of the IRS assessment and Compensatory Interest no. 2014..., for the year 2013, in the amount of € 34,040.02, due to the omission of the legal formality of prior hearing.

1. Thus, AT practiced a new assessment act purged of the formal defect which was grounds for annulment, having done so within the 90-day period for spontaneous execution which is established by Article 175, nos. 1 and 3, of CPTA, it being stressed that the steps aimed at notifying for the exercise of the right to prior hearing and the subsequent emission of the assessment were effected in the strict measure of the spontaneous execution of the judgment, which became final on day 14-05-2018, and within the 90-day period legally established therefor, given that it concerns the 2013 fiscal year, which is already expired pursuant to Article 45 of the LGT.

...

1. Thus, what is established by the administrative proceeding attached is that the Finance Service of ..., having annulled the IRS assessment for the year 2013, in obedience to the arbitral decision, proceeded to a new assessment act, purged of the formal defect which was grounds for annulment, having sent notification for prior hearing as per Office no. .../2018, of 15 June.

2. Having received the aforementioned Office, the right to hearing was exercised by the Claimants, and, after analysis of the allegations and documents attached, the correction document was prepared on 2018/07/03 (...), with an additional IRS assessment for the year 2013, no. 2018..., being issued on 2018/10/01, resulting in the determination of tax payable of € 31,027.43.

3. It is thus concluded that the assessment act in question does not suffer from expiration given that it was consequent with the decision of annulment of the IRS assessment for the year 2013, issued in the context of CAAD process no. 533/2015_T, having been practiced within the 90-day period following notification of the annulment decision, which occurred on 2018/04/10, through collection of a return on 2018/07/03, subsequent to the exercise of the right to prior hearing, as results from the provision of Article 175, nos. 1 and 3 of CPTA."

4. In the arguments, the Claimants, maintaining the understanding that substantiates the request for arbitral pronouncement, further add, in reference to the position sustained by the Respondent in its Response:

(...)

"26. It is fitting, finally and still with respect to the expiration argument, to note that, even accepting the Respondent's thesis on this point—which is not conceded and only by mere caution of legal representation is contemplated—the assessment now contested (additional IRS assessment no. 2018...) was issued well beyond the 90-day period established for spontaneous execution of the arbitral decision issued within the context of process no. 533/2015-T.

1. Indeed, considering that the finality of the arbitral decision issued within the context of the aforementioned process no. 533/2015-T occurred on 14.05.2018, the end of the procedural period for spontaneous execution of the arbitral decision (90 days) occurred on 19.09.2018.

2. Now, as the Respondent itself recognises, the new assessment (additional IRS assessment no. 2018...) was only issued on 01.10.2018 and notified to the Claimants on 09.10.2018, at which time the period within which the Respondent could practice the aforementioned tax act had already been exhausted.

3. For the above reasons, the Respondent having failed to issue the additional IRS assessment no. 2018... within the period for spontaneous execution of the arbitral decision issued within the context of the aforementioned arbitral process no. 533/2015-T, it cannot but be considered, even under the thesis defended by the Respondent, that the aforementioned tax act was practiced outside the period of expiration of the right to assess, provided for in Article 45 of the General Tax Law, and should be annulled accordingly."

4. Having set forth, in summary and with partial transcription, the positions of the Parties, it is clear that the central question to be decided, with respect to the invoked expiration of the right to assess, consists of knowing:

a) Whether, in the situation under analysis the general four-year period provided for in Article 45 of the LGT is applicable, as the Claimants contend;

or

b) Whether this general period is set aside when assessment effected in the context of execution of a judgment is involved, in which case the period of expiration is the period for spontaneous execution of judicial decisions, provided for in Article 175 of CPTA, as the Respondent understands.

1. With respect to this matter, and with respect to IRS, Article 92, no. 1, of the respective Code provides that "1 - The assessment of IRS, even if additional, as well as the reform of the assessment is effected within the period and in the terms provided for in Articles 45 and 46 of the general tax law."

2. Article 45 of the LGT establishes, in its no. 1, that "the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, when the law does not provide otherwise", establishing in no. 4 of the same article that this period is calculated, in periodic taxes, from the end of the year in which the tax event occurred.

3. In the situation under analysis, the period of expiration, calculated in accordance with the general terms, commenced on 01-01-2014 and terminated on 31-12-2017, as the Claimants rightly point out.

4. However, on that aspect, the situation offers no doubt. The question that, on this matter, arises, relates essentially to the specificity of situations involving assessment acts effected in the context of the execution of a judgment which, according to the Respondent's understanding, are subject to specific rules regarding the temporal period of execution.

5. On this matter, both doctrine and jurisprudence have come to pronounce themselves in the sense that, for purposes of delimiting the period of expiration of the right to assess taxation, a distinction must be made between corrective assessment, operated in the sequence of annulment of a prior assessment act, and innovative assessment, which involves appraisal of tax for an amount higher than that determined in a prior assessment, without the former being related to a prior annulment act. In the first case, of corrective assessment, the jurisprudential understanding is oriented in the direction that the moment relevant for purposes of delimiting the period of expiration is that of issuance of the initial assessment, and this period cannot be considered exceeded even if the corrective assessment comes to occur after the expiration of the general four-year period calculated, in periodic taxes, from the end of the year in which the tax event occurred. In the second case, innovative assessment—additional assessment or reform of assessment—it is considered that this constitutes an autonomous tax act different from the prior one, with expiration being verified if, at the moment of issuance of this new act, the general period has already elapsed.[iii]

6. With respect to the verification of the occurrence of expiration of the right to assess in the context of execution of an arbitral decision, Councillor Jorge Lopes de Sousa states:[iv]

"In paragraph b) of no. 1 of Article 24 of RJAT, the obligation is imposed upon the Tax Administration of 'restoring the situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for such purpose'.

Article 173, no. 1, of CPTA, which establishes the general principle regarding execution of judgments annulling administrative acts, provides that 'without prejudice to the eventual power to practice a new administrative act, in compliance with the limits dictated by the authority of the matter judged, the annulment of an administrative act obligates the Administration to restore the situation that would have existed if the annulled act had not been practiced, as well as to comply with the duties which it failed to comply with based on the act meanwhile annulled, by reference to the legal and factual situation existing at the moment in which it should have acted'.

Comparing the two formulations, it is noted that in RJAT the initial part of Article 173, no. 1, of CPTA, in which reference is made to the 'eventual power to practice a new administrative act, in compliance with the limits dictated by the authority of the matter judged', is not included.

However, the omission of reference to the possibility of practicing a new act does not mean that the Tax Administration cannot renew the act, provided that such is compatible with what was decided by the arbitral tribunal, which results clearly from paragraph d) of no. 1 of Article 24 of RJAT, which refers to the duty to 'assess the tax obligations in accordance with the arbitral decision'.

However, as a result of the assessment acts imposing duties on the recipients, they cannot have retroactive effect, as this is prohibited by no. 2 of Article 173 of CPTA. For this reason the effects of acts that impose duties on the taxpayer only produce effects in relation to him from the moment in which his renewal occurs.

In cases in which the reason for declaration of nullity or annulment of the impugned act was a procedural or formal defect (such as failure to afford hearing to the taxpayer or failure to substantiate) or incompetence, there will be, in principle, no obstacle to the Tax Administration practicing a new assessment act purged of the defect that motivated the annulment.

There may, however, arise the question of whether there is an impediment to the practice of a new act derived from the periods of expiration of the assessments applicable (Article 45 of the LGT).

However, the most adequate understanding of the regime for execution of judgments would be that, during the period of spontaneous execution, the Administration, in the sequence of annulment of the act, has the aforementioned 'power to practice a new administrative act, in compliance with the limits dictated by the authority of the matter judged' (Article 173, no. 1, of CPTA), having no other limitations than those derived from the authority of the annulment decision and those provided for in the procedure for execution of judgments.

During this period of spontaneous execution of judgments, the Tax Administration is not exercising its autonomous power to practice tax acts, within the framework of the procedure proper to such practice, but is instead, by force of the provision of Article 100 of the LGT and 24, no. 1, paragraph b), of RJAT, exercising a power/duty to execute the judgment created by the annulment decision, a power to be exercised within the framework of the special procedure for spontaneous execution of judgments, governed, in the first place, by its own rules, aiming at the 'restoration of the legality of the act or situation that is the subject of the dispute' imposed by that Article 100, which includes the restoration of the 'situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced'.

For the same reason that the power/duty to execute annulment decisions is autonomous in relation to the power/duty general to assess taxes, the Tax Administration is not conditioned by the temporal limitations that the law establishes for the exercise of this latter power/duty, but rather by the temporal limits proper to the execution of judgments.

This means that, in the sequence of contentious annulment of an assessment act, for a defect that does not prevent renewal of the act, the Tax Administration may and shall practice, within the period for spontaneous execution, a new assessment act purged of the defect which was grounds for annulment, regardless of whether or not the period of expiration that was in effect for the exercise of the primitive autonomous power to practice the assessment act has elapsed. But, only during this legal period for spontaneous execution is the Tax Administration invested by the annulment decision with the power to practice this assessment act, which cannot have retroactive efficacy, because it is unfavorable to the taxpayer (no. 2 of the aforementioned Article 173). There are here no expectations of the taxpayer that deserve protection derived from the lapse of the primitive period of expiration of the right to assess, since this execution is a legal corollary of the decision in the arbitral process in which it was a party.

For this reason, the prohibition against practicing acts endowed with retroactive efficacy, which is contained in no. 2 of Article 173 of CPTA, is not an obstacle to the practice of a new assessment act in execution of a judgment, with effects for the future.

If the Tax Administration does not spontaneously execute the annulment decision, practicing a new assessment act within the period for spontaneous execution, the power of the latter to practice a new act that emanates from the annulment decision will be extinguished, so that the practice of new acts will only be possible if it can still be based on the original power which is granted to the Tax Administration to practice assessment acts. In this case, the exercise of this power will be subject to the general rules of the tax procedure and to the temporal limits imposed by the rules on expiration of the right to assess, that is, a new assessment act may be practiced compatible with what has been decided in the annulment judgment (if it violates the matter judged the act will be null, pursuant to Article 133, no. 2, paragraph h), of CPA) if the entirety of the period of expiration of the right to assess has not already elapsed.

This is the solution which, besides being what results straightforwardly from the legal texts, and being the most balanced, since, as the expiration of the right to assess finds its specific foundation in the need for legal certainty and security, there is no obstacle to a new assessment occurring within the period for execution of a judgment, since, during this period, this is something with which the taxpayer must count.

On the other hand, the application of the period for expiration of the right to assess to a situation in which the duty to assess results from an annulment decision would lead to the result that, in many cases, when the assessment is effected very close to the end of the legal period of expiration (which, in practice, occurs in a large part of additional assessment cases), it would be impossible to effect the adequate execution of the judgment, with the effectuation and notification of the due assessment, since, even considering the suspension of the period of expiration provided for in Article 46, no. 1, paragraph d), of the LGT, in many cases it would not be possible to effect the assessment and its respective notification before the expiration of the period of expiration. Now, this impossibility of renewing the act, in the sequence of an annulment decision, in cases in which it is possible to renew it without the defect that motivated the annulment, is in manifest dissonance with the legislative intent that the 'legality of the act or situation that is the subject of the dispute' be restored and that the 'situation that would have existed if the annulled act had not been practiced' be restored, as stated in Articles 100 of the LGT and 173, no. 1, of CPTA.

For this reason, this is the most correct solution, which must be presumed to have been legislatively established (Article 9, no. 3, of the Civil Code)."

1. In the same sense, the Central Administrative Court of the North pronounced itself, in judgment of 17-09-2015, issued in proc. 00862/12.9BEAVR, of which the following is transcribed:

"Pursuant to the provision of Article 100 of the General Tax Law, 'The administration is obliged, in the event of total or partial approval of claims or administrative appeals, or of judicial process in favor of the taxpayer, to the immediate and complete restoration of the situation that would have existed if the illegality had not been committed, comprehending the payment of indemnificatory interest, pursuant to the terms and conditions provided for in the law'.

In accordance with such provision, the Tax Administration is, therefore, obliged to effect the effective reintegration of the legal system that was violated, eliminating all effects that persist therein resulting from the act judged to be illegal.

This provision represents merely a postulate of the constitutional principle which provides that the decisions of the courts that have become final are binding upon all public and private entities and prevail over those of any other authorities (Article 205 of the Constitution)—see Diogo Leite de Campos, Benjamim Rodrigues and Jorge Lopes de Sousa 'LGT—Annotated and Commented', Writing Meeting, 4th ed. (2012), at page 868.

The restoration of the violated legal system takes place through the practice of the reintegrating acts aimed at complying with the judgment.

Such reintegrating acts, when it concerns the execution of a judgment that partially annuls an assessment act, are carried out through the practice of another assessment act aimed at purging the part of the earlier one affected by illegality. This is what is designated as corrective assessment.

As is known, in the tax domain, tax assessment acts are subject to periods of expiration (Article 45 of the LGT), so that the exercise of the right to assess after the expiration of such periods taints the act practiced with illegality.

It happens, however, that, having the assessment act a corrective nature, its practice is not subject to the limitation of the periods of expiration established by law, provided that the reintegrating act is practiced within the period for spontaneous execution of the judgment (underlined by us)."

1. An identical understanding is what results from the arbitral decision of 07-02-2017, issued in proc. no. 494/2016-T, in which the following can be read:

"In truth, it results from no. 1 of Article 24 of RJAT that 'until the end of the period established for spontaneous execution of the decisions of the judicial tax tribunals' the Tax and Customs Authority must practice the acts necessary to give execution to an arbitral decision favorable to the taxpayer. And, among the acts that can and must be practiced in this period, are included, by force of the provision of paragraphs b) and d) of no. 1 of Article 24 of RJAT, 'restoring the situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for such purpose' and 'assessing the tax obligations in accordance with the arbitral decision'. Thus, during the period of spontaneous execution of the decisions of the judicial tax tribunals, the Administration, in the sequence of annulment of the act, has a power/duty to assess that is autonomous and different from that which it had before practicing the assessment that was jurisdictionally annulled, since this power arises ex novo with the finality of the arbitral decision, has limitations derived from the authority of the annulment decision and has a period of time proper to being exercised.

During this period of spontaneous execution of judgments, the Tax Administration, in effecting a new assessment, is not exercising its autonomous power to practice tax acts, within the framework of the procedure proper to such practice, but is instead, by force of the provision of Article 24, no. 1, paragraphs b) and d), of RJAT (and in consonance with Article 100 of the LGT), exercising a power/duty to execute the judgment that emanates from the annulment decision, a power to be exercised within the framework of the special procedure for spontaneous execution of judgments, governed, in the first place, by its own rules, aiming at the restoration of the 'situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced'. For this reason, the procedure with a view to execution of an arbitral decision has specific periods and rules of precusion, which are not those that apply to the autonomous activity of the administration within the framework of tax procedures for assessment of taxes. That is, as the Tax Administration, in executing the arbitral decisions, is concretizing a power/duty autonomous in relation to the power/duty general to assess taxes, it is not conditioned by the temporal limitations that the law establishes for the exercise of this latter power/duty, but rather by the temporal limits proper to execution of judgments. Thus, in the sequence of contentious annulment of an assessment act, for a defect that does not prevent renewal of the act, the Tax Administration may and shall practice, within the period for spontaneous execution, a new assessment act purged of the defect which was grounds for annulment, regardless of whether or not the period of expiration that was in effect for the exercise of the primitive autonomous power to practice the assessment act has elapsed. But, only during this legal period for spontaneous execution is the Tax Administration invested by the annulment decision with the power to practice this assessment act. There are here no expectations of legal security of the taxpayer that deserve protection derived from the lapse of the primitive period of expiration of the right to assess, since this execution is a corollary of the decision in the arbitral process in which he was a party and, for this reason, the eventual practice of a new assessment act during the period for spontaneous execution is something with which the taxpayer must count. Establishing in no. 1 of Article 24 of RJAT that the power/duty to give execution to the arbitral decision must be exercised 'until the end of the period established for spontaneous execution of the decisions of the judicial tax tribunals', it is this end date that defines the expiration of the right to assess within the scope of execution of a judgment.

The period for spontaneous execution of arbitral decisions which are not limited to the duty to pay a sum of money is 90 days, as results from the provision of Article 175, nos. 1 and 3, of CPTA, applicable by force of the provision of Article 146, no. 1, of CPPT. This is a procedural period, as is clarified now by no. 1 of Article 175 of CPTA, which is calculated from the 'end of the period established for appeal or impugnation of the decision', the moment from which the Tax Administration is bound by the arbitral decision, as results from no. 1 of Article 24 of RJAT. As the execution of arbitral decisions apply 'norms regarding the procedure in the administrative tribunals' (Article 146, no. 1, of CPPT), the rules applicable to the calculation of the period that apply to execution of judgments in the administrative tribunals shall apply, in which there is suspension of periods on Saturdays, Sundays and holidays, pursuant to Article 87, paragraph c), of the Code of Administrative Procedure."

1. The aforementioned decision was subject to appeal for uniformization of jurisprudence, being, however, confirmed in judgment of the Supreme Administrative Court, of 07-06-2017, issued in proc. no. 0237/17, of which the following excerpt is transcribed:

"(...) in the situation to which the arbitral decision now in appeal refers, the impugned assessment was practiced in the sequence and in execution of another arbitral decision that annulled an assessment for not having recognized to the taxpayer the right to a tax benefit (RFAI).

Now, in the restoration of the situation that would have existed if, ab initio, such tax benefit had been recognized, the AT must respect all the rules that the opportune recognition of such tax benefit should also respect, namely the limits that Article 92, no. 1, of the CIRC imposes on tax benefits.

Thus, as was stated in the arbitral decision in appeal, 'having the duty to practice in execution of the decision issued in process no. 400/2015-T an assessment act in which the RFAI tax benefit is recognized to the taxpayer to the extent that it was decided in the arbitral decision, the Tax and Customs Authority had the duty to act in the execution of the judgment in the manner it should have acted if it had recognized such tax benefit in such measure in those moments in which it concluded the inspection procedure and issued assessment 2014..., including deciding in the execution, as it should have decided in those prior moments, whether the conditions for relevance of such tax benefit are met in the fiscal year in question, in the face of the regime of Article 92 of the CIRC'.

That is, whereas in the grounding decision it was considered to exist 'new tax' as a consequence of a manifest overreaching by the AT of its powers/duties of reintegration in the sequence of annulment judgment, in the decision in appeal it was considered that the AT, in issuing the impugned assessment, had moved exclusively within the powers of reintegration and in strict execution of the annulment judgment.

This divergence of understandings, based on the diversity of the factual situations, justifies the diverse legal solution given regarding the question of the expiration of the right to assess, namely regarding the applicability of the regime of Article 45 of the LGT.

Thus, it appears to us that there is not a clear decision of the same fundamental question of law in a divergent sense, which could authorize the continuation of the appeal due to opposition of judgments."

1. Accompanying, without reservation, the jurisprudential and doctrinal orientation set forth in the preceding points, let us examine, below, its application to the situation to which the present request for arbitral pronouncement refers.

2. It is established, from the elements included in the present proceeding, that the arbitral annulment decision issued in proc. no. 533/2015-T, of CAAD, was notified to the Tax and Customs Authority on 10-04-2018, as appears from Information no. … /2019, Proc. 370/2019, of 05-02-2019, of the IRS Services Directorate.

3. Against the aforementioned decision an appeal could be filed with the Supreme Administrative Court, within the 30-day period from its notification to the Tax and Customs Authority, as results from Articles 25, nos. 2 and 3, of RJAT and 152, no. 1, of CPTA.

4. Thus, considering the suspension during judicial holidays, as determined by Article 17-A of RJAT, that period ended on 14-05-2018, the date on which that arbitral decision became final.

5. In accordance with the provision of Article 175, no. 1, of CPTA, and such circumstance provided for in no. 3 of the same article not being verified nor legitimate cause for non-execution being invoked, the decision should be executed within a maximum period of 90 days.

6. Being this a procedural period, as provides that Article 175, no. 1, of CPTA, it is calculated pursuant to Article 87, paragraph d), of CPA, from the end of the period established for appeal or impugnation of the arbitral decision, as provided for by Article 24, no. 1, of RJAT.

7. In the case under analysis, this period ended on 19-09-2018.

8. Thus, as the impugned assessment was issued on 01-10-2018 and notified to the Claimants on the 9th of the same month, it is verified that the act which is the subject of the present request for arbitral pronouncement was practiced after the exhaustion of the period for spontaneous execution of the annulment decision, so the expiration of the right to assess occurred.

9. It is further noted that it is entirely irrelevant the date of preparation of the correction document—03-07-2018—invoked by the Respondent in its Response, it being that only the assessment and its respective valid notification are relevant for this purpose, this being a requirement of the efficacy thereof, as expressly determined by Article 77, no. 6, of the General Tax Law and Article 36 of the Tax Procedure and Process Code.

10. Thus, as the request for arbitral pronouncement should be judged to be granted based on the defect of violation of law, which assures stable and effective protection of the interests of the Claimants, knowledge of the remaining issues raised is prejudiced, as being unnecessary (Article 130 of CPC).

IV. Decision

In these terms, and with the grounds set forth, the Arbitral Tribunal decides to judge the request for arbitral pronouncement to be granted, declaring the impugned assessment to be illegal and determining its annulment, with legal consequences.

Process Value: The process value is fixed at € 31,027.43, pursuant to Article 97-A, no. 1, paragraph a) of CPPT, applicable by reference from Article 29, no. 1, paragraphs a) and b), of RJAT and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Under Article 22, no. 4, of RJAT, and pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 1,836.00, to be borne by the Respondent (AT).

Lisbon, 14 July 2019,

The Arbitrator,

Álvaro Caneira

[i] See Proc. 20022/16.9BCLSB, available at www.dgsi.pt

[ii] See CAAD, Proc. 533/2015-T, available at https://caad.org.pt

[iii] See Supreme Administrative Court, Judgments of 22.3.2006, Proc. 01284/05, of 9.5.2007, Proc. 0133/07, of 8.10.2014, Proc. 0114/11 and Central Administrative Court of the South, Judgments of 3.7.2012, Proc. 04076/10 and of 27.11.2012, Proc. 05908/12.

[iv] See Jorge Lopes de Sousa, Guide to Tax Arbitration, Coordination by Nuno Villa-Lobos and Mónica Brito Vieira, Almedina Publisher, 2013, pages 216-220