Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A..., Tax Identification Number [1]..., with residence at Rue ..., ..., ... ..., France, filed a request for constitution of an Arbitral Tribunal and consequent ruling, under the provisions of paragraph a) of Article 2(1), Article 3(1) and paragraph a) of Article 10(1), all of the RJAT [2], requesting the ATA [3], against the Personal Income Tax (IRS) [4] assessment No. 2018..., dated 14.09.2018, in the amount of € 11,691.56 of tax and corresponding compensatory interest, relating to the year 2015, issued by the ... Tax Office of Lisbon, which the applicant considers illegal, requesting its partial annulment, under the terms and grounds contained in the respective petition.
The request was filed without exercising the option of designating an arbitrator, having been accepted by the Honourable President of CAAD [5], on 28/01/2019, notified to the ATA on the same date.
In accordance with and for the purposes of Article 6(2), paragraph a) of the RJAT, by decision of the Honourable President of the Ethics Council, duly communicated to the parties within legally applicable periods, on 15/02/2019, licenciate Arlindo José Francisco was appointed as arbitrator, who communicated acceptance of the appointment within the legally stipulated period.
The Tribunal was constituted on 04/04/2019, in accordance with the provisions contained in paragraph c) of Article 11(1) of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December.
With his petition, as already stated, the applicant seeks the partial annulment of the aforementioned assessment in the amount of € 6,334.78, whereby € 5,356.77 corresponds to undue IRS and € 978.01 to compensatory interest, a value that should be increased by indemnificatory interest, calculated on the aforementioned value (€ 6,334.78), from the date of the respective payment (23.10.2018) until full payment of the amount that should be reimbursed, at the legal supplementary rate of 4%, by virtue of the application of Articles 43, nos. 1 and 4 and Article 35, no. 10, all of the LGT [6], as well as Article 61 of the CPPT [7].
He supports his viewpoint, in summary; in the understanding that, being a non-resident domiciled in a Member State of the European Union, he was subject to a higher tax burden than that applied to resident taxpayers (who benefit from the limitation provided for in Article 43, no. 2 of the CIRS [8]), finding himself, therefore, in a less favourable situation than the latter.
In doing so, the ATA violated European Union Law, in particular, the freedom of capital movement enshrined in Article 63 of the TFEU [9], constituting unjustified discrimination, and being, to that extent, the assessment in question illegal.
He considers that the ATA, by relying on the optional regime of equalization of non-residents with residents, provided for in nos. 9 and 10 of Article 72 of the CIRS, does not eliminate the discriminatory character of no. 2 of Article 43 of the same Code, nor the illegality of the aforementioned assessment; in fact, the aforementioned option merely allows a non-resident taxpayer to choose a less discriminatory tax regime, but which remains so nonetheless.
He cites jurisprudence of the CJEU [10], of the STA [11] and of Tribunals constituted under CAAD, whose decisions are in the sense he advocates that the assessment in question violates European law and should be partially annulled in the amounts already mentioned.
He concludes by requesting the condemnation of the respondent to reimburse the amount unduly paid of € 6,334.78, accompanied by the payment of indemnificatory interest, at the rate of 4%, from the date on which the Applicant made the payment of assessment No. 2018... (23.10.2018), until full payment of the amount that should be reimbursed.
For its part, the ATA, also in summary, considers that the request cannot be granted, in view of the amendment to Article 72 of the CIRS, made by Law No. 67-A/2007, of 31/12, namely the addition of nos. 7 (current no. 9) and 8 (current no. 10).
In fact, the legal framework applicable to the income in question in the year 2015, as well as the declaration obligation, differs from that which existed at the date of the CJEU Judgment C-443/06, invoked by the applicant, since the national legislature, as already seen, effected the adaptation of national law to European law.
It emphasizes that by virtue of that legislative amendment, income declarations for the fiscal years 2008 (in force from January 2009) and subsequent, more specifically Form 3, have a field to exercise the option for the rate of Article 68 of the CIRS and, having consulted the IRS Form 3 declaration filed in the name of the Applicant (relating to the fiscal year 2015), it is verified that in table 8 B of Form 3, field 4 was marked (non-resident) and field 7 (requests taxation under the general regime applicable to non-residents).
In order to be taxed at the rate of Article 68°, that is, as a resident, it was necessary to have completed fields 9 (option for the rates of Article 68° of the IRS Code) and 11 (total income obtained abroad), which he did not do and thus no. 2 of Article 43° of the CIRS does not apply to him.
Finally, it considers that in view of the jurisprudence invoked by it, there is no support to accept the Applicant's understanding without prior consultation with the CJEU, so that it may exercise its own competencies, under the terms of the Treaties, suspending the proceedings until its decision establishing binding interpretation on the matter.
II - SANCTION OF IRREGULARITIES
The Tribunal was regularly constituted, the parties have legal capacity and standing, show themselves to be legitimate and are regularly represented in accordance with Articles 4 and 10, no. 2 of the RJAT and Article 1 of Portaria No. 112-A/2011, of 22 March.
Attached to the respondent's reply, the Tribunal issued, on 20/05/2019, the following order: "In the respondent's reply, the absence of the need for witness examination and the holding of the meeting provided for in Article 18 of the RJAT is manifested, whereupon the Tribunal decides that the claimant pronounces itself, within 10 days, if it so wishes, on the aforementioned proposals. Notify".
The applicant filed a motion on 30/05/2019 in which it did not oppose the waiver of witness evidence and also admitted as possible the waiver of the meeting provided for in Article 18 of the RJAT, exercised its right to respond to the request for a preliminary reference to the CJEU.
On the same date the Tribunal issued the following order: "Having regard to the case:
- The unanimity of the parties is accepted regarding the waiver of the meeting alluded to in Article 18 of the RJAT;
- Considering EU law clear which, together with the jurisprudence of the CJEU on the matter, dispenses with the need for a preliminary reference;
- The proceedings continue with optional written arguments, for a period of 10 days, beginning, with notification of this order, the period for arguments by the applicant and with notification of the presentation of the same, the period for arguments by the respondent;
- The date of 10/07/2019 is set for the pronouncement of the arbitral decision, and until that date the claimant must provide proof, before CAAD, of payment of the subsequent court fee.
Notify".
The claimant produced written arguments, in accordance with a motion of 12 June last, which merely repeats and sustains the viewpoint contained in the petition.
The respondent, in a motion of 17 of the aforementioned month of June, presented its arguments, referring to the reply duly presented, concluding that the applicant, in the arguments produced, maintained the meaning and argumentation of the petition.
There being no other formalities to fulfill and the case not suffering from any nullities, it is necessary to decide.
III - GROUNDS FOR DECISION
– The questions to be resolved, of interest to the case, are as follows:
The tribunal must decide whether the assessment in question should be partially annulled as illegal in the terms presented by the applicant with the consequent payment of indemnificatory interest, or, if on the contrary, it should be maintained in the legal order, as it suffers from no illegality, as the respondent requests.
- Factual Matter
The tax act in question concerns the taxation of capital gains income obtained in Portugal, in accordance with the IRS assessment No. 2018..., dated 14.09.2018, relating to the period 2015, issued by the ATA, in the total amount of € 11,691.56, being € 10,713.55 of tax and € 978.01 of compensatory interest, paid on 23/10/2018.
The applicant had, at the time, tax residence in France, specifically at Rue ..., ..., ... ...
The capital gain realized resulted from the disposal of real property registered in the property register under urban article no.... of the parish union of ..., ... and ..., municipality of Braga, in accordance with a deed of 03 December 2015, acquired by him for the price of € 12,469.95 in the year 1990.
The capital gain was € 38,262.68, determined as follows:
| Acquisition | Correction coefficient, calculated under Portaria 400/2015 | Corrected value | Sale | Charges | Fiscal capital gain |
|---|---|---|---|---|---|
| 12,469.95 € | 2.22 | € 27,683.28 | € 75,000.00 | 9,054.03 € | 38,262.68 € |
This capital gain was the only income declared in Portugal, following notification by the respondent to present the respective IRS Form 3 declaration, with the remainder of the applicant's income obtained and declared in France.
The determination of tax was on the entirety of the capital gain determined, without taking into account the 50% taxation exclusion regime provided for in Article 43, no. 2 of the CIRS, calculating the tax and compensatory interest already mentioned, in the total amount of € 11,691.56 paid on 23/10/2018.
The Applicant opted for autonomous taxation of category G income, since it did not exercise the option for consolidation thereof, having in table 8 B of Form 3 marked field 4 (non-resident) and field 7 (requests taxation under the general regime applicable to non-residents).
This is the factual matter that the Tribunal selected, considered proven and pertinent to the decision of the case which results from the elements attached to the case by the parties and accepted by them, the respondent having declared that the non-attachment of the Administrative File is due to the fact that it does not exist.
We do not find the existence of facts relevant to the decision that have not been established as not proven.
3 - Legal Matter
3.1 – On the Legality of the Assessment
It follows from paragraph a) of no. 1 of Article 10 of the CIRS that capital gains constitute gains obtained which, not being considered business and professional income, capital or real property income, result, among others, from the costly disposal of real property rights over real property. No. 4 of the same provision stipulates that the gain subject to taxation corresponds to the positive difference between the realization value and the acquisition value, the latter being corrected by the application of the monetary depreciation coefficient, increased by the charges and expenses necessary and actually incurred, inherent to the acquisition and disposal of real property, in accordance with Articles 50 and 51 of the CIRS.
The value of income qualified as capital gains is the value corresponding to the balance calculated between capital gains and capital losses realized in the same year, in accordance with Article 43, no. 1, of the CIRS, its no. 2 stipulating that this balance is only considered in 50% of its value, in the case of transfers made by residents (wording prior to Law No. 71/2018, of 31 December).
Even further, on this value, the general rates provided for in Article 68 of the CIRS apply. Different is the situation for non-residents in Portuguese territory; Article 72, no. 1, paragraph a), of the CIRS provides for the application of a special autonomous rate of 28%, applicable to the entirety of capital gains.
Article 63 of the TFEU establishes the prohibition of all restrictions on movements of capital and payments between Member States and between these and third countries, in accordance with the wording transcribed as follows: "1. Within the scope of the provisions of this Chapter, all restrictions on movements of capital between Member States and between Member States and third countries are prohibited. 2. Within the scope of the provisions of this Chapter, all restrictions on payments between Member States and between Member States and third countries are prohibited".
Under this provision, the CJEU considered incompatible with European Union Law the regime instituted by no. 1 of Article 72 of the CIRS, in the wording prior to Law No. 67-A/2007 of 31 December, as it considered it contrary to free movement of capital, in accordance with Judgment C-443/06.
We have already seen, albeit succinctly, the position of the parties, the respondent having raised the question of a preliminary reference and the suspension of proceedings until a decision, the applicant having considered the preliminary reference unnecessary, since the jurisprudence of the CJEU is clear in considering discriminatory the treatment given to non-residents, in relation to residents in what concerns this matter. The Tribunal, in the sanction order, also understood EU law to be clear which, together with the jurisprudence of the CJEU on the matter, considered the preliminary reference dispensable.
We shall consider the question of the preliminary reference raised by the respondent adhering to the decision in Case 600/2018 of CAAD, which, with due deference, we transcribe, in the part we consider applicable to the situation at hand.
Transcription:
"The CJEU considered incompatible with European Union Law, as it constituted a differentiated treatment incompatible with the free movement of capital guaranteed by Article 63 of the Treaty on the Functioning of the European Union (former Article 56), the regime of Article 72, no. 1, of the CIRS, in the wording prior to Law No. 67-A/2007, of 31 December, in Case C-443/06, judgment of 11-10-2007, Hollmann versus Public Treasury, for taxing the capital gains of non-resident taxpayers at a fixed rate (in 2017, of 28%), whilst residents are subject to a progressive income tax. In that judgment it was held that it is incompatible with the provision that guarantees that freedom of capital movement a regime that 'subjects capital gains resulting from the disposal of real property situated in a Member State, in the case in question in Portugal, when that disposal is carried out by a resident of another Member State, to a higher tax burden than that which would apply, in relation to this same type of operation, to capital gains realized by a resident of the State where that real property is situated'. This jurisprudence was recently reaffirmed in the Ruling of the CJEU (seventh chamber) of 06-09-2018, Case C-184/18, in which it was held that 'legislation of a Member State, such as that at issue in the main proceedings, which subjects capital gains resulting from the disposal of real property situated in that Member State, carried out by a resident of a third country, to a higher tax burden than that which would apply, in that same type of operations, to capital gains realized by a resident of that Member State constitutes a restriction on the free movement of capital which, subject to verification by the referring court, is not covered by the exception provided for in Article 64, no. 1, TFEU and cannot be justified by the reasons cited in Article 65, no. 1, Treaty on the Functioning of the European Union'. However, this latter decision was also issued on the basis of the wording of Article 72 introduced by Law No. 109-B/2001, of 27 December, prior to Law No. 67-A/2007. Thus, as the Tax and Customs Authority states, there is no specific jurisprudence of the CJEU on the compatibility of the regime introduced by Law No. 67-A/2007, in nos. 7 and 8 of the CIRS with Article 63 of the Treaty on the Functioning of the European Union. However, the CJEU understood in that judgment of Case C-443/06, that the essence of the incompatibility of the regime of Article 71, no. 1, with Union law results from establishing 'an unequal tax treatment for non-residents, in that it permits, in the case of capital gain realization, more onerous taxation and, therefore, a higher tax burden than that borne by residents in an objectively comparable situation' (§ 54). In the same vein, the CJEU decided in the judgment of 19-11-2015, Case C-632/13 (Skatteverket versus Hilkka Hirvonen) that 'the refusal, in the context of income taxation, to grant non-resident taxpayers, who derive the bulk of their income in the home State and who have opted for the withholding tax regime, the same personal deductions as are granted to resident taxpayers, under the ordinary taxation regime, does not constitute discrimination contrary to Article 21 TFEU when non-resident taxpayers are not subject to an overall higher tax burden than that borne by resident taxpayers and persons assimilated to them, whose situation is comparable to theirs'. Thus, what is essentially relevant for this purpose is to know whether or not there is negative discrimination in the application to the Applicants of the regime that was applied to them. The regime provided by default (in the absence of an option) in no. 1 of Article 72 is more burdensome for non-residents than for residents, since whilst the maximum rate applicable to capital gains realized by residents is 24% of its value (maximum rate of 48% provided for in Article 68, applicable to 50% of the balance of capital gains), the rate provided for in no. 1 of Article 72 of the CIRS is 28%, applicable to the entirety of the balance. (…)
Thus, it is certain that the regime of taxation at a liberatory rate provided for in Article 72 of the CIRS, in the wording in force in 2017, is incompatible with the aforementioned Article 63 of the Treaty on the Functioning of the European Union, since it makes the transfer of capital less attractive for non-residents and constitutes a restriction on movements of capital prohibited by the Treaty. It was this regime negatively discriminatory to non-residents that was applied in the assessments impugned. The fact that this regime can now be averted by taxpayers, if they manifest an option, does not remove the negative discrimination, since an obligation of option is imposed on them that is not extensive to residents. Moreover, in line with what the CJEU understood in the judgment of 18-03-2010, Case C-440/08 (F. Gielen versus Staatssecretaris van Financiën), with respect to a parallel question of the possible relevance of the option to avert a discriminatory regime (in that case in relation to Article 49 of the Treaty on the Functioning of the European Union), the conclusion that incompatibility occurs 'is not put in question by the argument that non-resident taxpayers may opt for equalization, which allows them to choose between the discriminatory regime and the regime applicable to residents, given that this option is not capable of eliminating the discriminatory effects of the first of these two tax regimes. In fact, the recognition of such an effect to the aforementioned choice would have the consequence of validating a tax regime that would continue, in itself, to violate Article 49 TFEU on account of its discriminatory character. On the other hand, a national regime that restricts freedom of establishment is incompatible with Union law, even if its application is facultative. It follows from the above that the choice granted to the non-resident taxpayer through the equalization option does not neutralize the discrimination'. In the same sense the CJEU pronounced itself in the judgment of 28-02-2013, Case C-168/11: 62 Even if such a system were to be deemed compatible with Union law, it nevertheless follows from the jurisprudence that a national regime restrictive of the freedoms of movement may remain incompatible with Union law, even if its application is facultative (see, in this sense, judgment of 12 December 2006, Test Claimants in the FII Group Litigation, C-446/04, Coll., p. I-11753, no. 162, and of 18 March 2010, Gielen, C-440/08, Coll., p. I-2323, no. 53). In this respect, the existence of an option that would possibly allow rendering a situation compatible with Union law does not have the effect of curing, by itself, the illegal character of a system, such as that provided for by the contested regulation, which comprises a taxation mechanism not compatible with this law. It is important to add that this is true a fortiori in the case where, as in the case in question, the mechanism incompatible with Union law is the one that is automatically applied in the absence of a choice made by the taxpayer.
Again in the same sense the CJEU pronounced itself in the judgment of 08-06-2016, Case C-479/14: 42. With respect to the facultative character of the aforementioned taxation mechanism, it should be noted that, even if it is admitted that this mechanism is compatible with Union law, it is settled jurisprudence that a national regime restrictive of the freedoms of movement may continue to be incompatible with Union law, even if its application is facultative. The existence of an option that would possibly allow rendering a situation compatible with Union law does not have the effect of curing, by itself, the illegal character of a system, such as the one in question, which continues to comprise a taxation mechanism not compatible with this law. It is important to add that this is true a fortiori in the case where, as in the proceedings in question, the mechanism incompatible with Union law is the one that is automatically applied in the absence of a choice made by the taxpayer (see, in this sense, judgment of 28 February 2013, Beker, C-168/11, EU:C:2013:117, no. 62 and jurisprudence cited). It is in light of this jurisprudence that the request of the Tax and Customs Authority for a preliminary reference must be assessed. Under Article 8, no. 4, of the CRP 'the provisions of the treaties governing the European Union and the rules emanating from its institutions, in the exercise of their respective competencies, are applicable in the internal order, under the terms defined by Union law, with respect for the fundamental principles of the democratic rule of law'. As has been peacefully understood by jurisprudence and is a corollary of the obligation of preliminary reference provided for in Article 267 of the TFEU (which replaced Article 234 of the Treaty of Rome, former Article 177), the jurisprudence of the CJEU is binding on the national courts, when it has as its object issues connected with European Union Law. And, when a question of interpretation and application of European Union Law is raised, the national courts must submit the question to the CJEU through a preliminary reference.
However, when EU law is clear and when there is already a precedent in European jurisprudence interpreting European Union Law results already from the jurisprudence of the CJEU it is not necessary to carry out this consultation, as the CJEU concluded in the Judgment of 06-10-1982, Case Cilfit, Proc. 283/81. Even when the questions in question are not strictly identical (doctrine of the clarified act) and when the correct application of European Union Law is so obvious that it leaves no room for any reasonable doubt as to the way of resolving the issue of EU law raised (doctrine of the clear act). In the case in question, it is concluded with certainty from the reiterated jurisprudence of the CJEU that the illegality of the application of the discriminatory regime is not cured by the possibility of its removal, which dispenses with the need for a preliminary reference. Moreover, the Supreme Administrative Court, in the recent judgment of 20-02-2019, Case No. 0901/11.0BEALM 0692/17, without raising the need for a preliminary reference, concluded on the illegality of the regime that results from the conjunction of Article 43, no. 2, with Article 72 of the CIRS, in relation to a situation in which the capital gains were realized in 2010, therefore already in force of Law No. 67-A/2007".
As is verified from the Judgment to which we adhere and from the jurisprudence of the CJEU on this matter, we conclude that the illegality of the application of the discriminatory regime is not cured by the possibility that is given to avert it, this finding being evident to the Tribunal which considered the preliminary reference unnecessary.
In this perspective, we consider partially illegal the assessment placed in question here for violation of EU law, in the part in which it deprives non-residents, domiciled in a Member State, of the possibility of enjoying the provisions contained in no. 2 of Article 43 of the CIRS, considering the amount of IRS € 5,356.77 unduly collected.
The compensatory interest to be refunded in the amount of € 489.00 corresponds to the amount of the value of IRS unduly collected and not to its entirety as requested by the applicant, thus fixing the total amount to be refunded to the applicant of € 5,845.77 (€ 5,356.77 of IRS and € 489.00 of Compensatory interest).
3.2 – On the Payment of Indemnificatory Interest
The applicant requests reimbursement of the amount unduly paid of € 6,334.78, increased by indemnificatory interest, an amount which the Tribunal reduced to € 5,845.77, for the reasons previously set out.
Having regard to the provisions contained in paragraph b) of no. 1 of Article 24 of the RJAT, which is in line with the provision of Article 100 of the LGT, applicable ex vi paragraph a) of no. 1 of Article 29 of the RJAT, the ATA is obligated to restore legality which comprises the payment of indemnificatory interest, if applicable.
Under no. 1 of Article 43 of the LGT, indemnificatory interest is due when it is determined, in an amicable objection or judicial challenge, that there was error imputable to the services which resulted in the payment of the tax debt in an amount superior to that legally due.
Considering that no. 5 of Article 24 of the RJAT provides that interest is due regardless of its nature, under the terms provided for in the LGT and the CPPT, it leads us to conclude that the recognition of the right to indemnificatory interest in the arbitral proceedings is permitted.
In the case in question, the assessment being affected by the defect of violation of law, a fact imputable to the ATA which issued it, the applicant has the right to reimbursement of the IRS and compensatory interest unduly paid, in the amount of € 5,845.77, and also of indemnificatory interest calculated at the legal rate on the aforementioned amount, counted from the date of payment, until the date of reimbursement.
IV – DECISION
In view of the foregoing, the tribunal decides:
To declare the request for arbitral ruling partially granted with the consequent refund of IRS and corresponding compensatory interest in the total amount of € 5,845.77 increased by the amount of indemnificatory interest, at the legal rate, counted from the date of payment until the date of reimbursement.
To fix the value of the case at € 6,334.78, considering the provisions contained in Articles 299, no. 1 of the CPC [12], 97-A of the CPPT and 3, no. 2 of the RCPAT [13].
To fix costs, in the amount of € 612.00 in accordance with the provision of table I referred to in Article 4 of the RCPAT, being € 564.76 at the charge of the respondent and € 47.24 at the charge of the applicant, under no. 4 of Article 22 of the RJAT.
Notify.
Lisbon, 10 July 2019
Text prepared by computer, in accordance with Article 131, no. 5 of the CPC, applicable by referral from Article 29, no. 1, paragraph e) of the RJAT, with blank lines and revised by the tribunal.
The Arbitrator,
Arlindo Francisco
[1] Acronym for Tax Identification Number
[2] Acronym for Legal Framework of Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Personal Income Tax
[5] Acronym for Administrative Arbitration Centre
[6] Acronym for General Tax Law
[7] Acronym for Code of Tax Procedure and Process
[8] Acronym for Personal Income Tax Code
[9] Acronym for Treaty on the Functioning of the European Union
[10] Acronym for Court of Justice of the European Union
[11] Acronym for Supreme Administrative Court
[12] Acronym for Code of Civil Procedure
[13] Acronym for Regulation of Costs in Tax Arbitration Proceedings
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