CAAD Case 541/2017-T: Deductible Expenses in IRS Category F Rental Income

Arbitral Decision

I. Report

1. The taxpayer A... (hereinafter referred to as the "Claimant"), with the tax identification number..., resident at..., submitted, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, i.e., the Legal Framework for Arbitration in Tax Matters ("RJAT"), a request for constitution of an Arbitral Tribunal in order to have declared illegal the dismissal of the Administrative Appeal and the partial allowance of the Hierarchical Appeal, both with a view to the declaration of illegality and annulment of the demonstration of assessment of Personal Income Tax ("IRS"), identified by number 2016..., as well as the respective demonstration of assessment of compensatory interest no. 2016... and the demonstration of accounts settlement no. 2016..., with the Tax and Customs Authority ("Respondent" or "AT") being the defendant.

A) Constitution of the Arbitral Tribunal

1. In accordance with the provisions of paragraph a) of Article 6(2) and paragraph b) of Article 11(1) of the RJAT, the Deontological Council of the Administrative Arbitration Centre ("CAAD") appointed the signatory as arbitrator of the sole arbitrator tribunal, who communicated acceptance of the appointment within the applicable timeframe, and notified the parties of this appointment on 28 November 2017.

2. Thus, in conformity with the provision of paragraph c) of Article 11(1) of the RJAT, and through the communication of the President of the Deontological Council of CAAD, the Sole Arbitral Tribunal was constituted on 20 December.

B) Procedural History

1. In the request for arbitral determination, the Claimant petitioned, in the cumulation of claims, that it be declared:

a) The illegality of the dismissal of the Administrative Appeal and the partial allowance of the Hierarchical Appeal with a view to the declaration of legality of the IRS assessment for the fiscal year 2012 no. 2016..., of 22 March 2016, as well as the respective demonstration of assessment of compensatory interest no. 2016... and the demonstration of accounts settlement no. 2016..., and,

b) The illegality of the aforementioned tax assessment acts.

1. The present Arbitral Tribunal accepts the cumulation of claims petitioned by the Claimant, as the requirements for cumulation established in Article 3(1) of the RJAT are fulfilled, given that the assessment regarding the declaration of illegality of the dismissal of the Administrative Appeal and the partial allowance of the Hierarchical Appeal relating to the IRS assessment no. 2016... depends on the same arguments of fact and law as the assessment regarding the illegality of the said assessment.

2. The AT presented its response, petitioning for the dismissal of the request for arbitral determination, on the grounds that there is no defect of violation of law, requesting that the tax act under analysis, since it does not violate any legal or constitutional provision, be maintained in the legal order.

3. By order of 4 June 2018, the Sole Arbitral Tribunal, in reliance on the provisions of paragraph c) of Article 16 of the RJAT, decided, without opposition from the parties, that it was not necessary to convene the meeting referred to in Article 18 of the RJAT, as a result of the simplicity of the matters in question, as well as considering that it had at its disposal all the necessary elements to make a clear and impartial decision, having set 11 June 2018 as the deadline for the issuance of the arbitral decision.

4. The Arbitral Tribunal was regularly constituted and is competent to hear the matters indicated (Article 2(1), paragraph a) of the RJAT), the parties have standing and capacity and have full legitimacy (Articles 4 and 10(2) of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March). No nullities have occurred and no exceptions have been raised, whereby nothing prevents the judgment on the merits.

5. The present proceeding is therefore in a position for the final decision to be issued.

II. Question to be Decided

1. The central question to be assessed and decided with respect to the merits of the case, as appears from the procedural documents of the parties, is whether, in the case under analysis, the expenses incurred by the Claimant relating to the real property income received in the fiscal year 2012 are deductible for IRS purposes.

III. Decision on the Facts and its Motivation

1. Having examined the documentary evidence produced, the present tribunal finds as proven, with relevance to the decision of the case, the following facts:

I. The Claimant is a non-resident taxpayer for tax purposes in Portugal, owner of a property which was, in the year 2012, being rented, earning Category F income for IRS purposes in Portugal.

II. Under Service Order no. OI2015..., of 17 September 2015, a partial scope inspection action was undertaken with respect to the present Claimant for the fiscal year 2012, concerning the procedures adopted in the course of IRS determination.

III. As a result of the aforementioned inspection action, the Claimant was notified of the Inspection Report by Letter no. ... of 8 March 2016, and of the respective demonstrations of IRS assessment and compensatory interest, identified above, which resulted in a correction, in IRS, of Euro 15,159.85, resulting in a tax amount payable of Euro 2,501.38.

IV. The said corrections were based on i) the deductibility of expenses under Article 41 of the IRS Code; ii) other non-deductible expenses; and, iii) the proportionality of expenses based on the number of days of rental of the properties.

V. On 18 May 2016, notwithstanding disagreement with the corrections set out in the AT's Inspection Report, the Claimant made payment of the amount stated in the demonstration of IRS assessment, as well as in the demonstration of assessment of compensatory interest, in the total amount of Euro 2,777.40,

VI. Having submitted, in parallel, an Administrative Appeal, within the applicable timeframe, with the intention of having the aforementioned demonstrations of assessment annulled, which was dismissed by order of the competent body of the AT's services.

VII. Not accepting the dismissal of the Administrative Appeal, the Claimant filed a Hierarchical Appeal in which it set out the factual context of its situation in the Tax Office of ..., which was partially allowed by Letter no... of 6 July 2017.

VIII. Following the partial allowance of the Hierarchical Appeal, expenses were accepted with respect to which, during the inspection, adequate documentation/description had not been provided, with the following corrections being maintained: i) non-acceptance of the deductibility of expenses considered as "current expenses"; and ii) proportionality of expenses incurred based on the number of days of rental of the properties.

1. The conviction of the present tribunal regarding the facts found as proven resulted from the documents attached to the case file and from the uncontested allegations of the parties, as specified in the points of the facts above stated.

2. There is no factual matter relevant to the decision of the case found as not proven.

IV. On the Law

A) Legal Framework

1. Given that the legal question to be decided in the present proceeding requires interpretation of the relevant legal texts, it is important, first of all, to set out the provisions that comprise the relevant legal framework, at the date of the occurrence of the facts.

2. In this sense, and given that the disputed question concerns the deductibility of expenses incurred in connection with real property income (Category F) earned by the Claimant in the fiscal year 2012, it is necessary to set out the relevant legal provisions of the IRS Code.

3. Article 8 of the IRS Code provides, in this regard, that real property income is "the rents of urban properties paid or made available to their respective owners", being considered as "rents" the amounts relating to the granting of use of the property or part thereof and the services related to that granting.

4. In turn, as far as the specific deductions to be made from these income is concerned, understanding Article 41 of the IRS Code is essential, which provides, in particular:

Deductions

"1 – From the gross income referred to in Article 8 shall be deducted the expenses for maintenance and conservation that are the responsibility of the taxpayer, borne by it and proven by documentation, as well as the tax on real property and the stamp duty that applies to the value of the properties or part of the properties whose income is subject to taxation in the fiscal year.

2 – In the case of an autonomous unit of a property in a horizontal property ownership regime, the costs of conservation, enjoyment and others which, under the terms of civil law, the condominium must necessarily bear, borne by it, and proven by documentation, are also deducted.

3 – In the case of subletting, the difference between the rent received by the sublessor and the rent paid by it does not benefit from any deduction".

1. In this context, the applicable law results from the aforementioned legal provision, and it is important to emphasize the legal requirements demanded in the provision for consideration of the expenses and charges incurred, namely:

a) Maintenance and conservation expenses that are the responsibility of the taxpayer;

b) Expenses actually borne and proven by documentation;

c) Real Property Tax (IMI) applicable to the value of the rented property, whose income is subject to taxation in the fiscal year, that is, paid in the year of the income subject to IRS taxation.

1. Having established the legal framework applicable at the date of the facts, a brief exposition of the arguments of the parties is necessary.

B) Arguments of the Parties

1. In the present request for arbitral determination filed against the dismissal of the Administrative Appeal, the partial allowance of the Hierarchical Appeal and, consequently, the IRS assessment act, the Claimant alleges, in summary, that these are vitiated by illegality on the grounds of i) defect of form due to lack of reasoning; and ii) error regarding the assumptions of fact and law.

2. With respect to the defect due to lack of reasoning, the Claimant alleges: "the Inspection Report abstains from indicating which are specifically the expenses that are not deductible when the description does not allow classification of the good/service provided and supported, those that are not deductible because they are 'current expenses' or the other non-deductible expenses" (Article 34 of the request for arbitral determination).

3. Additionally, the Claimant further argues that, regarding the elements invoked in the Inspection Report to apply the proportionality of expenses incurred based on the number of days of rental of the properties, these should be stated "in a way that would construct an overall, solid and coherent framework, capable of allowing with reasonable certainty the conclusion of a misinterpretation of the laws by the Claimant" and that, in the concrete case, the Claimant does not find "any consistent and adequate element that proportionality is legitimized by law" (Articles 55 and 56 of the request for arbitral determination).

4. Thus, the Claimant concludes that the AT did not comply, in its Inspection Report, with the obligations of reasoning to which it is bound, citing, for this purpose, the provisions of Article 77(1) of the General Tax Code ("LGT"), which provides, in particular, that "The decision of procedure is always reasoned by means of a brief exposition of the reasons of fact and law that motivated it, and the reasoning may consist of a mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that form part of the tax inspection report".

5. In parallel, the Claimant argues that, even if the assessment acts are not annulled due to defect of form, they nonetheless contain errors regarding the assumptions of fact and law.

6. Supporting this position, the Claimant chooses to decompose its defense against the corrections proposed by the AT, addressing the following topics:

a) The deductibility of expenses incurred under Article 41 of the IRS Code; and

b) The proportionality of expenses based on the number of days of rental of the property.

1. In this context, and regarding the deductibility of expenses incurred, the Claimant highlights, in summary, the following arguments:

2. Citing the existing doctrine on this matter, "maintenance expenses" should be "charges that, being properly documented, have a direct and immediate connection with the property as an economic reality capable of producing income and have actually contributed to obtaining that same income, or from which it cannot (...) be separated" (Article 97 of the request for arbitral determination).

3. And, further in this sense, the Claimant cites arbitral jurisprudence that supports "maintenance expenses are those that relate to the day-to-day operation of the building, such as, by way of example, those for energy, water, elevator maintenance, cleaning, building porters, and all current operating expenses" (Article 101 of the request for arbitral determination).

4. Therefore, in the opinion of the Claimant, all expenses should be accepted, for the purposes of deductibility from real property income (Category F) earned in IRS, which, having presented sufficient evidence, have a direct causal relationship with the property, in its economic sense, that is, the production of income.

5. The Claimant further adds, in this regard, that the non-acceptance of the deductibility of these expenses would violate the constitutionally enshrined principle of taxable capacity, arguing, for this purpose, that what Category F of income seeks to tax, in IRS, is the net income resulting from rents, minus the charges incurred that are essential for obtaining these rents.

6. Therefore, the non-acceptance of all expenses that proved essential to obtaining the rents that are being taxed in IRS violates the principle of taxable capacity.

7. Additionally, and now addressing the thesis of the proportionality of expenses based on the number of days in which the property was rented, advanced by the AT, the Claimant exposes that, in its understanding, such allocation finds no correspondence in the law, and therefore violates the constitutional principle of legality, established in Article 103(2) of the Constitution of the Portuguese Republic ("CRP").

8. In its defense, the Claimant cites arbitral jurisprudence handed down on this matter, arguing, further, that, since IRS is a tax of an annual nature, Article 41 of the IRS Code should be interpreted in the sense of allowing the deduction of maintenance and conservation expenses incurred in a given year from the gross income of that year,

9. Especially since, the Claimant argues, some of the expenses incurred, by their nature, would always have to be borne regardless of the occupancy rate of the property.

10. Thus, by the foregoing, the Claimant requests that the illegality of the dismissal of the Administrative Appeal, and the partial allowance of the Hierarchical Appeal and, consequently, the IRS assessment act be declared and that it be recognized the right to reimbursement of the amounts paid,

11. Also requesting that it be paid the due compensatory interest.

12. For its part, the Respondent, after being duly notified to that effect, presented its response in which, in summary, and citing the arguments already presented when the Administrative Appeal was dismissed, and when the Hierarchical Appeal was partially allowed, alleged the following:

13. Regarding the lack of reasoning in the Inspection Report, it argues that the Claimant's position has no support whatsoever, specifically because "(...) an act is reasoned when, by the motivation adduced, it is capable of revealing to a normal recipient the reasons of fact and law that determine the decision, enabling it to react effectively through legal means against its unlawfulness" (Article 11 of the AT's Response).

14. In this sense, "Now, it is demonstrated that the Claimant understood perfectly the meaning and scope of the assessment on which the present request for arbitral determination falls, as is apparent from the very juridical-argumentative exercise it undertakes in its extremely lengthy excursion" (Article 18 of the AT's Response).

15. In parallel, and in order to rule out the Claimant's arguments with regard to the alleged defects of error regarding the assumptions of fact and law, the Respondent further alleges that "Once, for taxation purposes under Category F of the IRS Code, one takes into account the net income obtained, i.e., the rents received minus the expenses and charges borne to produce the real property income included and to maintain the productive source intact, that is, the properties being rented, such expenses should be proportionally considered based on the number of months of rental" (Article 45 of the AT's Response).

16. And the Respondent further elaborates, "(...) in the absence of gross income, no charge borne can be considered, because, in such a situation, there would be no need to proceed to the determination of a net income subject to taxation under Category F of the IRS Code.

In the same vein and in a situation of partial rental, that is, in which the property is rented only during part of the year, only those expenses can be considered as eligible for the purposes of what is established in Article 41 of the IRS Code that, proportionally, prove attributable to the number of months of rental" (Articles 52 and 53 of the AT's Response).

1. The Respondent's conclusion on this question being "it does not make sense that a property that generated income for only a few months be associated with an annual expense." (Article 80 of the AT's Response).

C) Court Assessment

1. As a preliminary matter, it is incumbent upon this Tribunal to address the questions of form alleged by the Claimant regarding the lack of reasoning in the Inspection Report.

2. In this context, reference should be made to the doctrine on this matter, in particular by Professor Antunes Varela[1], which states that a particular act is properly reasoned whenever it is possible, through it, to discover what cognitive path its author used to reach the final decision.

3. Analyzing, thus, the cognoscibility of the Respondent's volitional iter or cognitive path with regard to the IRS assessment, reiterating established jurisprudence, it shall be said that the reasoning... "(...) Does not mean an exhaustive description of all the reasons that determine its performance, but implies properly clarifying its recipient of the motives that are at the genesis and the reasons that support its content. (...)An act is properly reasoned whenever the administrated party, placed in its position as normal recipient – the bonus pater familias spoken of in Article 487(2) of the Civil Code – is clarified about the reasons that motivated it."[2]

4. In this sense, the present Arbitral Tribunal understands, in line with what is argued by the Respondent, that, for the duty of reasoning to be fulfilled, it will be sufficient that the reasons of fact and law expressed in the act are capable, apt, and sufficient to allow a normal recipient ("the reasonable parent") to grasp the cognitive and evaluative itinerary of the decision.

5. Thus, looking at the content of the present request for arbitral determination – particularly with respect to the arguments used by the Claimant to justify its position regarding the defect of error regarding the assumptions of fact and law – it seems clear to this Arbitral Tribunal that the Respondent reasoned the assessment act sufficiently to allow the Claimant to understand the criteria and legal methods applicable from which the corrections arose that gave rise to the assessments that are the subject of the present request for arbitral determination.

6. Indeed, the fact is that the Claimant addresses, throughout the request for arbitral determination, several times the methodology used by the Respondent to arrive at the amounts of the corrections argued, as well as the rationale presented by the Respondent for the presentation of the corrections.

Therefore,

1. The argument of defect of form due to lack of reasoning in the Inspection Report that gave rise to the assessments that are the subject of the present request for arbitral determination is unfounded.

2. Having established that the Respondent's act does not suffer from any defects of form, it should be noted that, in the eyes of this Arbitral Tribunal, the question to be decided concerns establishing, based on the facts found as proven, the legality of the IRS assessment, regarding the deductibility of expenses incurred under Category F of the IRS Code.

3. In this manner, the present tribunal will seek to establish, in the case at hand, which expenses should be deductible from the real property income earned in fiscal year 2012, for the purposes of Article 41 of the IRS Code, and whether a proportionality coefficient should be applied to them regarding the occupancy rate of the property.

4. In this sense, and in order to properly frame the question, it is necessary, first of all, to examine, in light of Article 41 of the IRS Code, which categories of charges are deductible from real property income (Category F), taking into account their intrinsic and inseparable relationship with the principle of taxable capacity.

5. In this respect, reference should be made to Article 104 of the CRP, which expressly provides for the taxation of income as the main indicator of the taxable capacity of the taxpayer, in order to obtain a fair distribution of tax burdens, with it being necessary to calculate the net or taxable income.

6. In this context, the principle of taxable capacity implies, for income taxes, the so-called principle of net income, according to which only the amount of net income constitutes (true) income for the payment of taxes – that is,

7. To each category of income, the specific expenses for its production should be deducted.

8. This means that, in principle, all expenditures necessary for the production or obtaining of certain income, as a negative expression of taxable capacity that they are, should be excluded from that income.

9. This principle, imposing an adjustment of the tax to the economic possibilities of the taxpayer, corresponds to the ratio legis of the deduction provided for in Article 41 of the IRS Code.

10. Indeed, according to the constitutional principle of taxable capacity, in the present case, there must be a correspondence between the rents and the taxable capacity of the taxpayer, so that the charges to obtain a patrimonial increase must be taken into account for its calculation.

11. In this sense, we cite Arbitral Decision no. 435/2014-T[3], handed down on 10/11/2014, in which it is argued that "What is intended to be taxed is not the gross income from rents, but rather the patrimonial increase, resulting from rents minus the charges that the taxpayer had to incur to obtain those real property income".

12. With this legal framework in mind, it is necessary to pay attention to the concepts of "maintenance expenses" and "conservation expenses", concepts that must be reconciled with the requirements of deduction from gross income.

13. Since neither the IRS Code nor the LGT define maintenance and conservation expenses, recourse must be had to the general rules for interpretation of laws.

14. In this context, and paying attention to the binding information issued by the AT on this matter, the Respondent argues that one should understand as "conservation expenses" those incurred with works intended to maintain a building in the conditions existing at the date of its construction, reconstruction, expansion or alteration, in particular the works of restoration, repair and cleaning; and

15. As "maintenance expenses" those incurred with energy and maintenance of elevators, escalators and lifts, building porters, cleaning, energy for lighting, heating or central air conditioning and property insurance premiums.

16. In turn, as cited in the order allowing the Hierarchical Appeal in part, the AT, through the issuance of binding information, has come to understand that should be excluded from the concept of maintenance or conservation expenses accepted for deduction from real property income (Category F), "a) commissions due for customer acquisition, b) electricity, water, gas bills, c) property cleaning services considered as current expenses" (emphasis added).

17. It is thus necessary to take a position on what should be considered as a maintenance or conservation expense, for the purposes of Article 41 of the IRS Code, deductible from real property income.

18. Thus, and citing, once again, the understanding set out in the aforementioned Arbitral Decision, maintenance expenses are those that relate to the day-to-day operation of the building, such as, by way of example, expenses for energy, water, elevator maintenance, cleaning, building porters, including thus all current operating expenses.

19. Conservation expenses, on the other hand, relate to the condition and functioning of the property, such as repair works, general and periodic works, and including those that maintain or increase the value of the building, and add new added value, such as swimming pools, gyms, elevators, among others, and in particular those that confer a level of habitability identical to that existing at the date of conclusion of the rental contract.

20. It is already seen here that there is a divergence between the Respondent's position, which excludes "current expenses" from the expenses accepted for deductibility from real property income, and the jurisprudence cited.

21. It is necessary, in this sense, to take a position, based on the interpretation of the relevant legal provisions.

22. In this sense, it results from paragraph a) of Article 8(2) of the IRS Code that included in the concept of rents are the "services related to that granting", that is, the services made available to the tenant, related to the granting of use of the property and that are included in the concept of maintenance and conservation expenses.

Therefore,

1. All services that are made available to the tenant, and that are paid by it, constitute rents, and, thus, naturally, all maintenance and conservation expenses of such services must be accepted for the purposes of determining taxable real property income.

2. It should be noted, as it could not but be, that such services must be connected to the property itself, and must be properly proven and adequately documented by the tenant, in order to be able to be accepted for the purposes of Article 41 of the IRS Code.

3. In this context, and applying the legal framework to the concrete case, it is necessary to assess whether, in the case at hand, the Respondent wrongly excluded any expense that was properly documented by the Claimant and had a connection to the rented property, being indispensable for obtaining the income.

4. The present Arbitral Tribunal understands, from reading the order allowing the Hierarchical Appeal in part, that the AT is disregarding, in addition to the invoice relating to the maintenance of gardens and plants not documented in the Administrative Appeal proceeding (Euro 221.40) and the invoice relating to the aluminum door (Euro 615.00), the expenses considered as "current" that were presented by the Claimant.

Thus,

1. Having regard to the above, it should be concluded that the exclusion of "current" expenses goes against the interpretation of Article 41 of the IRS Code, given its ratio legis, and that all expenses that can be proven by documentation and that have a connection with the rented property should therefore be accepted.

2. On the other hand, as far as the application of the proportionality of expenses based on the number of days of rental of property is concerned, it is necessary to determine what the temporal period is in which the expenses materially deductible from the gross income of category F can actually be considered.

3. In other words, it is necessary to see how the period in which expenses should be considered for the purposes of determining income should be bounded.

4. In this context, it is agreed, in light of the legislation in force and the doctrinal and jurisprudential framework handed down on this matter, to affirm that IRS is levied on the annual value of income from certain categories, after the corresponding deductions and allowances are made.

5. It does not appear to us, therefore, that the basic rule of tax determination presents major issues – IRS is thus levied on the annual value of income, determined in relation to each fiscal year, which, for the purposes of this tax, coincides with the calendar year (Articles 1, 22 and 143 of the IRS Code).

6. Essentially, the (gross) income earned in each year constitutes the positive elements that contribute to determining the annual taxable income, and the negative elements of that same period must also be considered, which are the deductions and allowances.

7. Now, as the elementary operation of tax calculation consists of determining taxable income, through deductions and allowances from gross income, there is no reason why these negative components should not actually have the same period of reference that the gross income has, which is the positive component – the calendar year.

8. In this context, and notwithstanding the general rules of the annuality of IRS being subject to special provisions, it does not appear to us, in light of the letter of Article 41 of the IRS Code, that the deduction of expenses from real property income (Category F) can lead to a regime of exception with respect to the aforementioned general rule of annuality of IRS.

9. Indeed, this provision does no more than affirm the general rule: from gross income deduct the maintenance and conservation expenses, as well as the municipal property tax contribution. Certainly, nothing is said as to the period to be considered, as this was already affirmed in Article 1; it is the annual period.

10. A contrary position would lead to cases of exceptional injustice to the taxpayer, in that some of the maintenance and conservation expenses of substantial amount can only be carried out during periods when the property is not occupied, and can even result in the occupancy rate for that year being lower, in order to ensure the economic viability of the property.

11. In this sense, Arbitral Decisions no. 201/2015-T, of 7/12/2015[4] and no. 294/2015-T, of 21/1/2016[5], also hold, whereby the present Arbitral Tribunal is not taking an innovative position on this matter.

12. Indeed, even the Respondent itself, in its order allowing the Hierarchical Appeal in part, addresses this topic, arguing that arbitral jurisprudence does not bind the AT generally, because it refers to concrete cases on which arbitral determination was requested.

13. Without the present Arbitral Tribunal wishing to disagree with the Respondent on this question, it is equally important to note that the binding information issued by the AT merely corresponds to indications on how it is to be expected that the Tax Administration will proceed, exposing its understanding of the legislation in force,

14. Not corresponding, therefore, to indications with general binding force.

15. Thus, there being no doubt, in this Tribunal's view, that, if the deductions relate to the calendar year in which the real property income was paid or made available, these should, in light of Article 41 of the IRS Code, be accepted for determining taxable income, it is understood that

A) The dismissal of the Administrative Appeal and the partial allowance of the Hierarchical Appeal is vitiated by defect of violation of law due to error regarding assumptions of law and fact, and should be annulled and, consequently,

B) The IRS assessment no. 2016..., as well as the respective demonstration of assessment of compensatory interest no. 2016... and the demonstration of accounts settlement no. 2016... that are underlying it should be annulled, with the legal consequences thereof.

V. Decision

1. In terms of which the Arbitral Tribunal decides:

A) To hold the request for arbitral determination well-founded and, in consequence, declare illegal and annul the IRS assessment act mentioned above, by reference to 2012, from which resulted tax payable in the amount of Euro 2,777.40,

B) To order reimbursement to the Claimant of the amount paid up to the date hereof;

C) To condemn the Respondent, in accordance with Article 43(1) of the LGT and Article 61(2) and (5) of the Code of Tax Procedure and Process ("CPPT"), to the payment of compensatory interest, at the rate resulting from Article 43(4) of the LGT, calculated on the amount paid of Euro 2,777.40, from the day when the aforementioned assessments were paid until the day of complete reimbursement of the amount referred to; and

D) To condemn the Respondent in the costs of the proceeding.

VI. Value of the Proceeding

1. The value of the proceeding is fixed at €2,777.40, in accordance with Article 97-A(1), paragraph a), of the CPPT, applicable by virtue of paragraphs a) and b) of Article 29(1) of the RJAT and Article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT").

VII. Costs

1. In accordance with the provisions of Article 22(4) of the RJAT, the value of the arbitration fee is fixed at €612.00, in accordance with Table I of the aforementioned Regulation, to be borne by the Respondent, given the complete success of the claim.

Let it be notified.

Lisbon, CAAD, 11 June 2018

The Arbitrator

(Sérgio Santos Pereira)

[1] A. Varela and others, Manual of Civil Procedure, Coimbra Editor, 2nd edition, 1985, pp. 687 et seq, Alberto dos Reis, Civil Procedure Code Annotated, Coimbra Editor, 1984, V, pp. 139 et seq,

[2] Court of Audit judgment in case no. 016217 of 28-10-1998

[3] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=435%2F2014&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=1121

[4] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=201%2F2015&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=1494

[5] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=294%2F2015&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=1609