Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A) THE PARTIES AND CONSTITUTION OF THE ARBITRAL TRIBUNAL
1. A..., taxpayer no. ..., resident in ..., ..., ..., United Kingdom (hereinafter referred to as Claimant), filed with the Administrative Arbitration Centre a request for constitution of a singular Arbitral Tribunal, under the combined provisions of articles 2, no. 1, paragraph a), 3, no. 1, 5, no. 3, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (hereinafter RJAT), with a view to the declaration of illegality and consequent annulment of the Personal Income Tax (IRS) assessment no. 2018..., for the year 2017, in the amount of €38,231.36 (thirty-eight thousand, two hundred and thirty-one euros and thirty-six cents).
2. The request for constitution of the Arbitral Tribunal was filed by the Claimants on 14-11-2018 and on the same date was accepted by His Excellency the President of the CAAD. The Tax and Customs Authority was notified on 20-11-2018. The Claimant chose not to appoint an arbitrator, wherefore, pursuant to article 6, no. 1 of the RJAT, the undersigned was appointed by the Deontological Council of the Administrative Arbitration Centre on 04-01-2019 as Arbitrator to form part of the singular arbitral tribunal, which was constituted on 24-01-2019, in accordance with the provision in paragraph c), no. 1, article 11, of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December. On the same date, namely on 24-01-2019, an arbitral order was issued to the Tax and Customs Authority (AT) to submit its response within the statutory time limit, in the terms and for the purposes provided in nos. 1 and 2 of article 17 of the RJAT.
3. On 26-02-2019, the Respondent AT attached its response to the case file, which is deemed to be fully reproduced herein. It did not attach the administrative file (PA), as this did not exist.
4. On 03-04-2019, an arbitral order was issued in the case file for the parties to pronounce themselves on the possibility of waiving the holding of the meeting provided for in article 18 of the RJAT, and on 17-04-2019 an arbitral order was issued whose reasoning is deemed to be fully reproduced herein, waiving the holding of the meeting provided for in article 18 of the RJAT, given the absence of witness testimony to be produced and the evident nature of the issues raised by the parties, which are configured as exclusively legal questions, wherefore the case was in a position to proceed to written submissions, optional submissions and final decision. In this regard, the arbitral tribunal, in the same order, granted the parties the possibility of submitting their written submissions, fixing a period of 15 days, equal and successive, for this purpose. In the same order the parties were notified of the probable deadline for issuing the arbitral decision, until the end of the period set in article 21 of the RJAT and of the payment period for the subsequent court fee, to be made within 10 days before the deadline for issuing the decision.
5. The Claimant submitted its written submissions on 06-05-2019 and the Respondent submitted its submissions on 24-05-2019. On 04-07-2019 an arbitral order was still issued requesting the parties to send their respective computer files, within the scope of the principle of collaboration, and a date was fixed for issuing the arbitral decision by 24-07-2019.
6. The Claimants paid the subsequent court fee on 08-07-2019.
B) THE CLAIM FORMULATED BY THE CLAIMANT:
7. The Claimant in the present arbitral request seeks the declaration of illegality of the IRS assessment for the year 2017 and its annulment, in whole or in part, as well as the restitution of the tax paid in excess by the claimant plus the compensatory interest owed, in the terms provided for in articles 43 and 100 of the LGT, from the date of payment until effective reimbursement. It alleges, in summary, that this tax act is affected by a defect of violation of law, inasmuch as in the determination of its taxable income, the AT did not apply the rule contained in article 43, no. 2 of the CIRS, which provides for the reduction to half of the gain resulting from capital gains generated by the onerous alienation of property rights.
8. According to the Claimant, the AT's understanding, underlying the impugned acts, is based on an interpretation and application of no. 2 of article 43 of the CIRS, to the effect of excluding from the limitation of tax incidence to 50% (fifty percent) capital gains resulting from the onerous alienation of real rights over real property situated in Portugal, carried out by a taxpayer resident in another Member State of the European Union, limiting such tax incidence only to taxpayers resident in Portuguese territory, constitutes a violation of the current article 63 of the Treaty on the Functioning of the European Union (TFEU), which corresponds to article 56 of the Treaty establishing the European Community, as it translates into a discriminatory tax regime for residents of another Member State of the European Union. It alleges, in summary, that article 43, no. 2 of the CIRS, by establishing a differentiated regime for taxation of capital gains realized by residents and non-residents in national territory, establishes unacceptable discrimination in light of the provisions of article 56 of the Treaty of the European Union, when applied to residents of another member state who realize capital gains arising from the alienation of real property situated in Portugal. Thus, the Claimants understand that the impugned assessment is illegal, as it has its origin in the application of the provision of article 43, no. 2 of the CIRS, from which resulted, in the concrete case, the application of the IRS rate to the totality of the capital gain and not only to 50%, solely because the Claimants, being residents of another State of the European Union, do not fulfill the requirement provided for in the legal rule in question. In support of their understanding, they invoke diverse jurisprudence, both arbitral and from our superior courts, as well as from the CJEU.
C – THE RESPONDENT'S RESPONSE
9. The Respondent AT, duly notified to this effect, submitted its response within the legal time limit in which it contends for the maintenance in the legal order of the impugned act. It consents that the facts alleged by the Claimant in articles 1 to 12 of the arbitral request are true, with only the mention that the amount of €3,296.43 was reimbursed to the Claimant, transferred to the Claimant on 26-11-2018, a date subsequent to the filing of the present request with the CAAD.
10. It alleges, in summary, that the Claimant's position should not succeed, in light of the amendment to article 72 of the CIRS, carried out by Law no. 67-A/2007, of 31/12, namely the addition of nos. 7 (current no. 9) and 8 (current no. 10). Thus, no. 8 (current no. 10) of article 72 of the CIRS is mandatory, to the effect that all income obtained in that year must be included (whether in Portugal or abroad). The same is referred to in no. 1 of article 15 of the IRS Code: being persons resident in Portuguese territory, the IRS applies to all of their income, including that obtained outside that territory. As such, the AT understands that for purposes of taxation by 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). This means that the legal framework (as well as the declaration obligation) is no longer that which existed at the time of the CJEU jurisprudence invoked here by the Claimants, taking into account that the law was amended by virtue of the addition of nos. 7 and 8 (current 9 and 10) to article 72 of the IRS Code by Law no. 67-A/2007, of 31/12. It further points out that the AT the article which the Claimant seeks to have applied to it (43, no. 2 of the IRS Code) is included in Chapter II of the IRS Code which has the heading "Determination of taxable income". For purposes of application (regarding capital gains), the relevant articles are 9 and 10 of the IRS Code. Thus, the provision of no. 2 of article 43 of the IRS Code cannot be applicable to the case under analysis. In summary, what is alleged by the AT leads to the conclusion that it considers that the fact that the holders of capital income (capital gains) are residents or not in Portugal places them in an objectively different situation, not simply by the fact that they find themselves in a situation of different residence, but rather by what such represents in terms of the tax legal regime established by Portuguese law. In fact, the AT recognizes that, where taxpayers are residents, the positive balance determined with respect to capital gains – which are mandatory for aggregation – is relevant for purposes of taxation at general IRS rates, in only 50% of their value. According to the provision of no. 1 of article 15 of the CIRS, being persons resident in Portuguese territory, the IRS applies to all of their income, including that obtained outside that territory. That is, it follows unequivocally from the tax regime just explained that resident and non-resident taxpayers are in no way in an identical situation, from the point of view of annual taxation of their income, under IRS. In the case at hand, the Claimants, being, as they are, non-resident taxpayers, and not opting for taxation as a resident, the assessment was made to them in accordance with the provision of article 72, no. 1 of the CIRS, which determines the application of a proportional rate of 25% to the value of capital gains realized, in this case with the onerous alienation of real rights over real property.
Finally, the AT alleged that, should this not be understood otherwise, a preliminary reference should be made to the CJEU. As explained above, the legal framework (as well as the declaration obligation) is no longer that which existed at the time of the Judgment of the Court of Justice of the European Communities, taking into account that the law was amended by virtue of the addition of nos. 7 and 8 (current 9 and 10) to article 72 of the IRS Code by Law no. 67-A/2007, of 31/12. In fact, the AT alleges that, after the decision handed down in Judgment C-443/06 of the Court of Justice of the European Communities of 2007OUT11 (Hollmann), the national legislator proceeded to adapt the national legislation to the decision endorsed there, adding to article 72 of the IRS Code, by Law no. 67-A/2007, of 31/12, no. 7 (current no. 9) and no. 8 (current no. 10) whose content at the time of the facts was as follows:
"9 - Residents in another Member State of the European Union or of the European Economic Area, provided that, in the latter case, there is an exchange of information in tax matters, may opt, with respect to the income referred to in paragraphs a) and b) of no. 1 and in no. 2, for the taxation of such income at the rate which, in accordance with the table provided for in no. 1 of article 68, would be applicable if they were earned by residents in Portuguese territory."
Now, the AT considers that for purposes of determining the rate referred to in the previous number all income is taken into account, including that obtained outside this territory, on the same conditions as are applicable to residents. On this basis, the decision handed down in Judgment Hollmann refers to situations occurring during the validity of the wording prior to Law no. 67-A/2007, of 31/12, of article 72 of the IRS Code. The AT further alleges that it was the Claimants themselves who chose the taxation regime, being that they did not opt for the general rates of article 68 of the CIRS – with respect to income subject to final withholding – article 72, no. 7 of the CIRS chose, freely and knowingly, the taxation described, in broad terms, in the previous article. A choice regime which had (and has) as an effect a neutralization of any eventual discriminatory treatment conferred on non-residents in Portugal in relation to residents, in the matter of taxation of capital gains in the case of alienation of real rights over real property. It concludes contending for the legality of the impugned IRS assessments and for the rejection of the arbitral request and, should it be understood otherwise, it understands that the arbitral tribunal should find that the hypothesis of a clear act or an aclarado act is not verified, wherefore it must necessarily consider that there are sufficient doubts that prevent the acceptance of the Claimant's understanding without prior consultation with the CJEU, so that it may exercise its own competencies, in accordance with the Treaties.
II - PROCEDURAL REQUIREMENTS
11. The Arbitral Tribunal is regularly constituted. It is materially competent, in accordance with article 2, no. 1, paragraph a) of the RJAT.
12. The Parties enjoy legal personality and capacity, are legally entitled and are properly represented (cf. articles 4 and 10, no. 2 of the RJAT and art. 1 of Portaria no. 112/2011, of 22 March).
13. The case does not suffer from defects that would render it invalid.
14. Taking into account the documentary evidence attached to the case file, it is necessary to establish the factual matter relevant to the understanding of the decision, which is set out as follows.
III – DECISION ON FACTUAL MATTERS
A) Proven Facts
15. As relevant factual matter, the tribunal establishes the following facts:
a) The Claimant, at the date of the tax event, was a resident of the United Kingdom, specifically in ..., ...;
b) On 26 October 2017, the Claimant proceeded to sell its share of 50% of the autonomous fraction designated by the letter "C", corresponding to the first floor left of the building in horizontal property regime situated on Rua ..., nos. ..., in Lisbon, inscribed in the property registry under article ... of the parish of ... and described in the Land Registry Office of Lisbon under number ..., of which it was co-owner with B..., and which it had acquired by donation on 17 July 2008, as results from documents nos. 3 and 4 attached to the arbitral request;
c) The Claimant, in the follow-up to the aforementioned alienation, reported to a real property situated in national territory, of which it held a 50% share, individually presented the IRS Statement Form 3, accompanied by Annex G, for declaration of such onerous alienation, in its respective proportion, as well as of expenses and charges relevant for determining capital gains;
d) In that IRS statement was mentioned the status of "Non-resident" and "Resident in an EU country", and requested taxation by the general regime, as is clear from section 8B, fields 04, 06 and 07 of the IRS Form 3;
e) This statement was filed in replacement of a first one, in which the condition of non-resident had not been mentioned and, therefore, income from work obtained outside national territory was aggregated, resulting in the issuance of IRS assessment no. 2018 ... which determined income tax due in the amount of 41,527.79 €, which the claimant paid on 31.08.2018 as shown in the AT's computer system, evidenced in documents nos. 6 and 7 attached to the arbitral request;
f) As a result of the filing of the replacement statement, consisting solely of Annex G for declaration of the aforementioned onerous alienation, the AT proceeded to issue the impugned IRS assessment no. 2018..., dated 31.08.2018, determining income tax due in the amount of €38,231.36 and, consequently, a reimbursement of €3,296.43, resulting from the excess of the previous assessment value;
g) This amount was reimbursed to the Claimant on 26-11-2018, already after the filing of the present arbitral request;
h) In the impugned IRS assessment the AT determined the claimant's total income resulting from the capital gain from the aforementioned onerous alienation, in the amount of 136,540.59 €, to which it applied the rate of 28% provided for in article 72, no. 1, paragraph a) of the CIRS for non-residents' income, resulting in income tax payable in the amount of 38,231.36 €.
i) The rate provided for non-residents' income was applied to the totality of the capital gain determined;
j) The value of acquisition of the share of the alienated real property was 1,748.29 €, as the tax property value of the real property donated to the claimant and B..., in equal shares, was 3,496.57 €, over which Stamp Duty would be payable if applicable, a value which corrected by the currency devaluation coefficient of 1.08 resulting from Portaria no. 326/2017, of 30.10, is 1,888.15 €.
k) And the value of realization from the alienation of the share pertaining to the Claimant is 147,500 €, corresponding to half of the sale price of 295,000 €, less expenses and charges in the amount of 9,071.25 € mentioned in the IRS statement, thus amounting to 138,428.75 €, as results from the elements contained in the deed of sale and purchase and the IRS Form 3 submitted, as results from docs. 3 and 5 attached with the arbitral request;
l) The difference between these values, translated into the capital gain obtained by the claimant, is 136,540.59 €.
m) Now, the IRS assessment impugned here mentions total income of 136,540.59 €, which corresponds to the totality of the capital gain obtained by the claimant, to which the rate of 28% provided for in article 72, no. 1, paragraph a) of the CIRS was applied for non-residents' income, and did not consider the provision of no. 2 of article 43 of the CIRS, and, consequently, taxed only 50% of the capital gain realized by the claimant,
n) On 13-11-2019 the Claimant filed the present arbitral request.
B) FACTS NOT PROVEN
16. With relevance to the decision, there are no facts that should be considered as not proven.
C) SUBSTANTIATION OF PROVEN FACTS
17. The facts described above were established based on the documentary evidence which the claimants attached to the case file and the AT's position, which accepted as true the facts supported by the documentary evidence presented. Thus, the facts listed above are considered proven, with relevance to the decision, supported by documentary evidence and consensually recognized and accepted by the parties.
V – DECISION ON LEGAL MATTERS: substantiation of the decision on the merits
18. Having established the factual matter, it is necessary to address the legal question raised by the Claimant.
In the present case, the issue is to determine whether, in the case of capital gains resulting from the alienation of real property, the differentiated taxation regime applicable to residents and non-residents in national territory, as it results from the provision of the CIRS. In fact, the legislator introduced in the CIRS a limitation on tax incidence, for residents, which burdens only 50% of the balance of capital gains. The question is whether the non-application of this principle to non-residents, when they reside in another Member State of the EU, in the exact terms as it is provided for residents, constitutes a situation of discrimination in the field of freedom of movement of capital, inadmissible in light of article 63 of the Treaty on the Functioning of the European Union.
To this end the AT invoked the need to proceed with a preliminary reference to the CJEU. Thus, it is necessary to decide this question first, which is necessarily preliminary.
A) Regarding the Question of Preliminary Reference:
19. The thema decidendum in the present case refers to the regime of autonomous taxation applicable to capital gains from real property, earned by non-residents in Portuguese territory but residents in another Member State of the European Union (in this case, in Germany), resulting from the combined provisions of articles 10, no. 1, paragraph a), 13, no. 1, 18, no. 1, paragraph h), 43, nos. 1 and 2 and 72, no. 1, paragraph a), all of the Personal Income Tax Code (CIRS). It is specifically a matter of determining whether, in light of the provision of article 43, no. 2 of the IRS Code, the positive balance determined as capital gains, in the year 2017, should or should not be considered in only 50% of its value, once the Claimants are residents in Germany.
For the Claimant, the value determined as capital gain should be considered in only 50% of its value, as they understand that the provision of article 43, no. 2 of the IRS Code is also applicable to non-residents in Portugal, but residents in a Member State of the European Union. In support of this understanding they invoke diverse jurisprudence of the Supreme Administrative Court (STA) and arbitral, both anchored in the jurisprudence of the Court of Justice of the European Union (CJEU), namely in case C-443/06, on 11 October 2007 (Hollmann case).
20. Effectively, in this legal question it is important to take into account the arbitral jurisprudence of the Administrative Arbitration Centre in the arbitral decisions handed down:
(i) In Case no. 45/2012-T, of 05/07/2012;
(ii) In Case no. 127/2012-T, of 14/05/2013;
(iii) In Case no. 748/2015-T, of 27/07/2016;
(iv) In Case no. 89/2017-T, of 05/07/2017;
(v) In Case no. 644/2017-T, of 30/05/2018;
(vi) In Case no. 520/2017-T, of 04/06/2018;
(vii) In Case no. 617/2017-T, of 22/06/2018;
(viii) In Case no. 590/2018-T, of 8/07/2019,
All available at www.caad.org.pt, as we agree with that jurisprudence and are in full agreement with it, arbitral decisions that decided in the same sense on the matter, regarding the same legal question that is raised in the present arbitral case, being that the general regime of the CIRS that framed and founded the cited jurisprudence remains unchanged.
21. This same legal question has also been decided uniformly by the Supreme Administrative Court (Tax Contentious Section of the Supreme Administrative Court) in the Judgments handed down:
(i) In Case no. 0439/06, of 16/01/2008 (Rapporteur, Counsellor JORGE DE SOUSA);
(ii) In Case no. 01031/10, of 22/03/2011 (Rapporteur, Counsellor ISABEL MARQUES DA SILVA);
(iii) In Case no. 01374/12, of 30/04/2013 (Rapporteur, Counsellor ISABEL MARQUES DA SILVA); and
(iv) In Case no. 01172/14, of 03/02/2016 (Rapporteur, Counsellor FONSECA CARVALHO),
All available at www.dgsi.pt.
22. Moreover, this same question was also the subject of a preliminary reference by the Supreme Administrative Court (Judgment handed down in Case no. 0439/06, of 28/09/2006, Rapporteur, Counsellor JORGE DE SOUSA), and on it pronounced itself the Court of Justice of the European Union (Fourth Chamber), in the Judgment handed down in Case C-443/06, of 11/10/2007 ("Hollmann Judgment", Rapporteur, R. SILVA DE LAPUERTA), available at www.curia.europa.eu, a copy of which is attached as Doc. no. 8, Community jurisprudence which was adopted by the Supreme Administrative Court, in the aforementioned Judgment, handed down in Case no. 0439/06, of 16/01/2008 (Rapporteur, Counsellor JORGE DE SOUSA). In this Judgment, the STA decided (rightly) that article 56 EC "must be interpreted to the effect that it precludes national legislation, such as that at issue in the main proceedings, which subjects capital gains resulting from the alienation of a real property situated in a Member State, in this case Portugal, when such alienation is carried out by a resident of another Member State, to a tax burden higher than that which would apply, with respect to this same type of operation, to capital gains realized by a resident of the State where such real property is situated."
23. In the arbitral request the Claimant concludes that the regime of taxation of capital gains, resulting from the provision in articles 10 and 43, no. 2 of the CIRS, is incompatible with European law, with such incompatibility not being remedied by the addition to article 72 of the IRS Code of its numbers 7 and 8 (current numbers 9 and 10), by Law no. 67-A/2007, of 31 December (State Budget 2008), as there persists a situation of discrimination in the treatment of residents and non-residents, to the detriment of the latter, even if they reside in an EU country.
24. The Respondent, for its part, understands that the legal framework, as well as the declaration obligation, is no longer that which existed at the time of the judgment handed down by the CJEU, taking into account the aforementioned legislative change to article 72 of the IRS Code; thus, according to the Respondent, the Hollmann judgment refers to situations occurring during the validity of article 72 of the IRS Code, in the wording prior to that introduced by Law no. 67-A/2007, of 31 December. It further states that the question under consideration does not correspond to what is called an aclarado act, by the decision handed down in the Hollmann judgment, as the referenced legislative amendment has not yet been subject to examination by the CJEU, in the context of a preliminary reference, for purposes of assessing compliance with the combined provisions of articles 18, 63, 64 and 65 of the TFEU. In sum, the Respondent understands that the Arbitral Tribunal should consider that the aforementioned jurisprudence is not binding, in view of the current legal framework, as well as find that the hypothesis of a clear act or of an aclarado act is not verified, wherefore it must necessarily consider that there are sufficient doubts that prevent the acceptance of the understanding advocated by the Claimant, without prior consultation with the CJEU.
25. In this framework, it falls to this arbitral tribunal to decide whether it should suspend the present arbitral proceedings and submit the question under consideration to the CJEU, by means of a preliminary reference, in accordance with article 267 of the TFEU.
Now, this arbitral tribunal understands that there is no need to proceed with the Preliminary Reference, for the reasons set out below, which are moreover corroborated and grounded in extensive jurisprudence, both arbitral and from our superior courts.
Thus, all things considered, we have no doubts that the requirements for admissibility of the preliminary reference to the CJEU, provided for in article 267 of the TFEU, are not met, and, in light of the extensive jurisprudence on this matter, given that the case in question does not constitute "a new or differentiated case to be decided in a framework that is entirely or partially new". On the other hand, the CJEU itself has already pronounced on the discriminatory character of an option regime such as that at issue here, in the Gielen judgment, handed down on 18/03/2010, in case C-440/08, and the theory of the clear act is applicable in this case, contrary to what is alleged by the AT, as will be better clarified below.
Article 19, no. 3, of the TEU provides as follows:
"3. The Court of Justice of the European Union shall act in accordance with the provisions of the Treaties:
a) On appeals filed by a Member State, an institution or by natural or legal persons;
b) By way of preliminary ruling, at the request of national courts, on the interpretation of Union law or on the validity of acts adopted by institutions;
c) In the other cases provided for by the Treaties.
Article 267 of the TFEU provides as follows:
"The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:
a) The interpretation of the Treaties;
b) The validity and interpretation of acts adopted by the institutions, bodies or agencies of the Union.
Where a question of this kind is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a preliminary ruling thereon.
Where a question of this kind is raised in a case pending before a court or tribunal of a Member State whose decisions are not subject to a right of appeal provided for under national law, that court or tribunal shall bring the matter before the Court.
If a question of this kind is raised in a case pending before a court or tribunal of a Member State with regard to a person in custody, the Court shall act with the utmost urgency."
26. The first question that arises here concerns the competence to submit preliminary questions to the CJEU, which belongs to the courts of the Member States of the European Union; however, the quality of a court is not defined in any of the Treaties of the Union, with such a concept being interpreted by the CJEU.
Regarding arbitral tribunals, provided that they meet the requirements listed in the CJEU's jurisprudence – the legal origin of the body that submitted the request to it, its permanence, the binding nature of its jurisdiction, the adversarial nature of the proceedings, the application by such a body of the rules of law and its independence – this tribunal has not hesitated to qualify them as courts for the purposes of article 267 of the TFEU. In the preamble of the legal instrument that established the RJAT the following is stated: "In cases where the arbitral tribunal is the last instance for decision of tax disputes, the decision is susceptible to a preliminary reference in compliance with §3 of article 267 of the Treaty on the Functioning of the European Union."
Furthermore, this question is now settled in light of the jurisprudence of the CJEU, contained in the "Ascendi" Judgment, handed down on 12/06/2014, in case C-377/13, in which the CJEU concluded that arbitral tribunals in tax matters, constituted under the auspices of the CAAD, are qualified as courts of a Member State, for the purposes of article 267 of the TFEU.
Thus, it is currently beyond question that Portuguese arbitral tribunals in tax matters are qualified as courts of a Member State and, therefore, they are permitted to submit preliminary questions to the CJEU, provided that this appears necessary and appropriate in light of the basic requirements for operationalizing the preliminary reference.
It happens, however, that in the case in question there is no indication of the need to proceed with this reference. As clearly results from the CJEU's jurisprudence on this question, "the preliminary reference is an instrument of judicial cooperation (…) by which a national court and a Community court are called upon within their respective competencies, to contribute to a decision that ensures the uniform application of Community law throughout the Member States" (Schwarze judgment, of 01/12/1965, case no. 16/65).
27. Thus, a preliminary question is understood, in the context of the preliminary reference procedure, to be any question that a national court considers necessary to the resolution of a pending dispute; such preliminary questions submitted to the CJEU may be, on one hand, concerning validity or interpretation and, on the other hand, concerning mandatory or optional preliminary reference. Whenever a preliminary question is raised in a case pending before a national court whose decisions are not susceptible to judicial appeal, provided for in national law, the preliminary reference is mandatory. If an ordinary appeal lies from the decision of the national court, in accordance with national law, then the reference is in principle optional.
Arbitral decisions handed down by tax arbitral tribunals constituted under the auspices of the CAAD are, as a rule, irrevocable as to the merits; indeed, the possibility of appeal is confined to cases of violation of constitutional norms (appeal to the Constitutional Court) or of disregard for the jurisprudence of the Central Administrative Court or of the Supreme Administrative Court (appeal by opposition of judgments to the Supreme Administrative Court). It happens, however, that, as decided by the CJEU (Cilfit judgment, of 06/10/1982, case C-283/81), the aforementioned obligation to refer does not apply "when, being the preliminary question one of interpretation, (a) there already exists jurisprudence on the matter – and provided that the possibly new framework does not raise any real doubt as to the possibility of applying that jurisprudence to the concrete case – or (b) whenever the correct manner of interpretation of the legal rule in question is unequivocal, or (c) the preliminary question is neither necessary nor relevant to the judgment of the dispute in the national court."
28. In the concrete case, two of the three listed exceptions to the obligation of preliminary reference to the CJEU are satisfied. On one hand, there is extensive jurisprudence on this matter, examples of which are the diverse arbitral decisions handed down by tax arbitral tribunals constituted under the auspices of the CAAD, already cited above.
On the other hand, there are also no doubts regarding the correct interpretation of the legal rules at issue in this case; indeed, the rules are perfectly clear and, therefore, it is no longer a matter of interpreting them, but rather of applying them, which is the responsibility of the Arbitral Tribunal, and the theory of the clear act is fully applicable here.
The CJEU itself has had the opportunity to pronounce on all the questions that the Respondent raises at the level of Community law.
Thus, regarding the existence of an option regime, entirely similar to that introduced in article 72 of the IRS Code, by Law no. 67-A/2007, of 31 December, the CJEU pronounced itself in the Gielen judgment, handed down on 18/03/2010, in case C-440/08, to which we referred above. It is true that, as the Respondent points out, that referred Judgment has as its underlying subject the freedom of movement of persons, and not the freedom of movement of capital, which is the framework for the matter under discussion in the present case. Nevertheless, the jurisprudence contained in that judgment is transferable to the matter relating to the freedom of movement of capital, namely, when it is stated that: "the Court of Justice clarified that, in the face of a tax advantage whose benefit is refused to non-residents, a difference in treatment between these two categories of taxpayers may be qualified as discrimination, within the meaning of the Treaty FEU, when there is no objective difference in situation susceptible of justifying differences in treatment, as to this aspect, between the referred categories of taxpayers (judgments already referred to, Talotta, no. 19 and the jurisprudence cited, and Renneberg, no. 60)."
Now, this second question, relating to the existence or not of an "objective difference in situation susceptible of justifying differences in treatment" in the matter which now occupies us, was also already addressed by the CJEU in the Judgment handed down in case C‑184/18, where it can be read that "there is no objective difference in the situations of these two categories of taxpayers (...) that justifies the unequal tax treatment regarding the taxation of capital gains realized by them as a result of the alienation of a real property situated in Portugal. Consequently, the situation in which non-resident taxpayers find themselves, (...) is comparable to that of resident taxpayers."
29. To what is stated above is added the fact that from the aforementioned Gielen Judgment clearly results that it is the court making the reference that has the task of determining, in particular, whether the applicable regime "is linked to the personal capacity of taxpayers", and the understanding that Community jurisprudence on the matter is sufficiently clear on the matter, is equally confirmed by the jurisprudence of the STA, which in the Judgment of 20-02-2019, handed down in case 0901/11.0BEALM 0692/17, decided a question identical to that raised in the case sub iudice, without proceeding to any preliminary reference.
In these terms, we conclude that there is no justification for proceeding with the requested preliminary reference to the CJEU which, therefore, is dismissed.
It remains, thus, to address the legal question raised in the present case.
B) The Legal Question to be decided in the present case
30. Having resolved the question relating to the preliminary reference, it is established that the main question to be decided is, thus, whether the differentiation, established by national legislation, in article 43, no. 2 of the CIRS, for residents and non-residents in national territory, of the basis of IRS incidence of capital gains derived from the onerous alienation of real rights over real property is or is not incompatible with the freedom of movement of capital provided for in article 63 of the Treaty on the Functioning of the European Union. The question arises, naturally, for non-residents in Portugal who reside in another Member State of the EU, by virtue of the prohibition on discrimination, both the generic prohibition, as results from article 18 of the Treaty, and the prohibition of any restriction (direct or indirect) on the freedom of movement of capital, by virtue of such discrimination translating into a less favorable tax regime for non-residents.
31. In the case under consideration in the present case, it was proven that the AT considered, for purposes of determining taxable income and consequent assessment of IRS to the Claimant, a non-resident in Portugal but in another Member State of the EU, the totality of the capital gain realized in the alienation of the real property identified in the case. That is, in the present case the application of the regime provided for in no. 2 of article 43 of the IRS Code was declined, according to which: "The balance referred to in the previous number, concerning transfers carried out by residents provided for in paragraphs a), c) and d) of no. 1 of article 10, positive or negative, is only considered in 50% of its value". (emphasis added)
The AT understands that such discipline is only applicable to taxpayers who are subject to the specificities of the internal regime of taxation of natural persons, in force in Portugal, based on the principle of aggregation and progressivity. In this context, the AT alleges that the Claimants could benefit from the same benefit and that if this does not occur it is not because they are non-residents, but rather because they do not opt for aggregation and application of the normal taxation regime applicable to residents. Now, we cannot accept such an argument, as this would be to require an impossible condition for the Claimants, as well as for all European citizens residing in another EU country, as they would never be in a position to submit to such a condition. In other words, following the AT's understanding, only residents could effectively benefit from the provision of article 43, no. 2 of the CIRS. Indeed, this is precisely what constitutes the discrimination.
32. The question in question was already examined by the Court of Justice of the European Union (CJEU), in the Judgment of 11 October 2007, handed down in case C-443/06, designated as the "Hollmann Judgment". Following this Judgment, the Portuguese Supreme Administrative Court (STA) concluded that "no. 2 of article 43 of the IRS Code, (…) which limits the incidence of tax to 50% of capital gains realized only for residents in Portugal, violates the provision of art. 56 of the Treaty Establishing the European Community, by excluding from such limitation capital gains that have been realized by a resident of another Member State of the European Union."
The Jurisprudence invoked by the Claimant is not questioned by the AT, although it defends a different interpretation, on the grounds that the introduction, by the State Budget Law for 2008 (Law no. 67-A/2007 of 31 December) of the possibility of the non-resident opting for taxation in accordance with the rates provided for in article 68 of the CIRS, although in that case, all income is considered, including income earned outside national territory. This regime, contained in article 72 of the CIRS, restores equal treatment between residents and non-residents, wherefore, from the AT's perspective, any discrimination would be settled.
33. It should be noted that nos. 9 and 10 of article 72 of the CIRS were introduced with the State Budget Law for 2008. The AT thus alleges that in addition to the general regime which remained identical, the national legislator instituted, by means of Law no. 67-A/2007, of 31 December, subsequent to the jurisprudence of the Hollmann Judgment, an option regime, allegedly, to equate non-residents with residents, with the objective of avoiding the differentiated treatment of Community non-residents and of the European economic area who realize real property capital gains in Portugal.
Having arrived here, it will be necessary to assess whether with this amendment the cause that is at the origin of the discriminatory treatment between residents and non-residents will have been settled, where the latter are residents in some EU state.
The principle of non-discrimination, provided for in the Treaty, is a fundamental principle in the construction of the European Union, imperative since the inception of the European project, and should be read as an imposition of equal treatment among European citizens, irrespective of their nationality or residence. This principle is, moreover, well settled in the jurisprudence of the Court of Justice, which over the last decades has been asserting it with clarity and determination. Also the jurisprudence of the STA has been firm in the decisions handed down on this matter, as has the arbitral jurisprudence already handed down on this matter.
In this framework, it is beyond doubt that the provision of no. 2 of article 43 of the CIRS constitutes, objectively, a discrimination in treatment between residents and non-residents. The AT itself, the respondent entity in the present case, is aware of this discrimination, as can be seen from the analysis of the statements attached to the case file.
34. Nevertheless, the AT alleges that the introduction of the option to opt for taxation under the general regime of the rates provided for in article 68 of the CIRS restores the necessary equal treatment, it being sufficient for this that the taxpayer opt for taxation in these terms. From this it concludes that, if discrimination existed in the case of the present case, it was due exclusively to the Claimant's decision, by not exercising the legal option at its disposal. According to the AT, this equalization option, to which the AT refers, allows non-residents in Portugal, but residents in one of the EU Member States, to opt for the taxation of such income in conditions similar to those applicable to residents in Portugal, eliminating any discrimination.
Will this be sufficient for us to conclude that there is no violation of the principle of non-discrimination?
If this were so, why did the Portuguese legislator not opt for the simple elimination of the reference to "residents," in the text of article 43, no. 2 of the CIRS, with any necessary adjustments?
It would have been simpler and would have resolved the problem without any margin for doubt. But, it is evident that the legislator did not make that choice and preferred a path by which all non-residents would be equally discriminated against, as to submit to the application of the same taxation regime as residents they would have to meet a condition that is not appropriate or compatible with their status as non-residents.
It is, therefore, the understanding of this arbitral tribunal that the solution adopted by the Portuguese legislator does not guarantee, as the AT alleges, the elimination of the discrimination resulting from no. 2 of article 43. Articles 8 and 9 of article 72 of the IRS Code (version introduced by Law no. 66-B/2012 of 31 December – State Budget 2013) provide:
"8 – The income provided for in nos. 4 to 7 may be aggregated by option of their respective holders resident in Portuguese territory.
9- Residents in another Member State of the European Union or of the European Economic Area, provided that, in the latter case, there is an exchange of information in tax matters, may opt, with respect to income referred to in nos. 1 and 2, for the taxation of such income at the rate which, in accordance with the table provided for in no. 1 of article 68, would be applicable if they were earned by residents in Portuguese territory
10 - For purposes of determining the rate referred to in the previous number, all income is taken into account, including that obtained outside this territory, on the same conditions as are applicable to residents."
Now, such a regime, it is considered, does not resolve the question.
This is clearly evident in the Hollmann decision, on the exclusive application to residents in Portugal of the limit of IRS incidence to 50% of real property capital gains, provided for in no. 2 of article 43 of the respective Code, and its non-conformity with the provision of article 56 of the Treaty Establishing the European Community (current article 63 of the TFEU). It should be noted that the CJEU, in the Judgment handed down in case C‑184/18, came to say that even with respect to non-residents in the EU space, the limitation will not be acceptable.
35. The question under consideration should also take into account the principles of the primacy of European law and the prevalence of the CJEU's interpretation of law of Community origin, as indeed results from no. 4 of article 8 of the Constitution of the Portuguese Republic (CRP).
In this framework, it is to be said that the Hollmann jurisprudence, handed down by the CJEU, concluded that the national rule, contained in no. 2 of article 43 of the IRS Code, violates article 63 of the TFEU (former art. 56 of the TEU), by having a discriminatory character (less favorable) for non-residents and being, consequently, restrictive of the freedom of movement of capital between Member States. This interpretation is therefore unequivocal and clear.
The decision handed down in the aforementioned Judgment is substantiated, among others, with the following argumentative topics:
"- An operation of liquidation of an immovable investment constitutes a movement of capital, the Treaty providing for a specific rule that prohibits all restrictions on capital movements;
- In the case of sale of a real property situated in Portugal, with the realization of capital gains, non-residents are subject to a higher tax burden than that which is applied to residents, thus finding themselves in a situation less favorable than the latter;
- Indeed, while a 28% rate is applied to a non-resident on the totality of capital gains realized, the consideration of only half of the taxable income corresponding to capital gains realized by a resident allows the latter to systematically benefit, to this extent, from a lower tax burden, whatever the tax rate applicable to all of their income, since the taxation of resident income is subject to a progressive tax rate schedule whose highest bracket is 42%;
- This regime makes capital transfer less attractive for non-residents and constitutes a restriction on capital movements prohibited by the Treaty;
- The discrimination of the national rule is not justifiable by the objective of avoiding penalizing residents (who are subject to a progressive tax rate schedule that may be much higher and are taxed on a worldwide basis, unlike non-residents, who are taxed at the proportional rate of 28%, with no aggregation), because, as highlighted above, since the highest bracket is 42%, it always, under the same conditions, leads to more onerous taxation of the non-resident, taking into account the reduction to 50% of the resident's taxable income, with no objective difference justifying this inequality of tax treatment with respect to the taxation of capital gains, between the two categories of taxpayers."
36. Also on this point, as is well noted, among others, in arbitral decisions nos. 45/2012-T and 127/2012-T, considering the provision of article 43, no. 2 of the CIRS, we are faced with a discriminatory regime incompatible with Community Law, by violation of article 63 of the TFEU. This understanding has been maintained in several subsequent arbitral decisions, as invoked by the Claimants. This understanding, in turn, confirmed by the jurisprudence of the STA.
It is that, in the eyes of the cited arbitral jurisprudence and corroborated by our superior courts, the equalization option, introduced in the Portuguese tax system, after the Hollmann Judgment was handed down, contained in nos. 8 to 10 of article 72 of the IRS Code, in force at the date of the tax event, does not make it possible to set aside the judgment of discrimination of the CJEU on the restrictive provision of no. 2 of article 43 of the IRS Code to resident taxpayers. First and foremost, it is to be noted that the solution introduced by the legislator to remedy the discrimination contained in the aforementioned national rule does not guarantee that the balance determined between capital gains and capital losses realized in the same year, concerning transfers carried out by non-residents provided for in paragraphs a), c) and d) of no. 1 of article 10, positive or negative, be considered only in 50% of its value, as is the case with residents, by virtue of the provision of art. 43/1 and 2 of the CIRS.
Effectively, the regime of nos. 9 and 10 of art. 72 of the CIRS does not provide for the basis of incidence, but only for the rate applicable to the income referred to in nos. 1 and 2 of the same art. 72, and it is therefore true, as the Respondent reiterates in the arbitral hearing, that that regime does not imply the taxation of all income earned by non-residents, but only of the capital gain. Indeed, from the regime in question, there is no change in the basis of incidence, being the income taxed the same, and only a change in the applicable rate being provided for, which ceases to be that of nos. 1 and 2 of that art. 72, and becomes that which results from art. 68, no. 1 of the CIRS (which means, first and foremost, that such rate may be lower than that enshrined in nos. 1 and 2 of that art. 72 – provided that the average rate is less than 28% – or higher).
37. The discrimination proscribed by the Hollmann Judgment between residents and non-residents continues, therefore, to be verified. It is that, if nos. 9 and 10 of art. 72 provide for the rate, and not for the basis of incidence, the latter is not altered by the option enshrined in the same, that is: the basis of incidence will be – whether or not the option provided for in those rules is exercised – the same, which means that whether or not they exercise that option, non-residents will in no case see the balance determined between capital gains and capital losses realized by them in the same year, concerning the transfers provided for in paragraphs a), c) and d) of no. 1 of article 10, positive or negative, be considered only in 50% of its value.
On the other hand, being the AT's understanding, underlying the tax act under consideration, that article 43, no. 2 of the CIRS is not applicable to non-residents, for purposes of their taxation in accordance with no. 1 of art. 72, the same rule will continue not to be applicable, if they exercise the option enshrined in nos. 9 and 10 of that same article 72, as such rules, as stated, do not alter the basis of tax incidence, but only the rate to be applied to it.
38. Specifically, as no. 10 of art. 72 of the CIRS only provides for the application of the rules applicable to residents, for purposes of determining the rate and not for purposes of determining the tax base, the capital gain, in accordance with that regime, will be relevant, in 50% only for purposes of the calculation of income that will determine the rate to be applied in accordance with art. 68, no. 1 of the CIRS, but the rate thus determined will continue to be applied to 100% of capital gains, since, according to the AT, article 43, nos. 1 and 2, of the CIRS will not be applicable to non-residents, as it refers only to residents and does not result, as has been seen, from nos. 9 and 10 of art. 72 the application of those rules (nos. 1 and 2 of art. 43 of the CIRS), for purposes of determining the tax base.
39. Now, in harmony with the recently decided in arbitral case no. 590/2019-T, "this understanding translates, precisely, the discriminatory treatment between resident and non-resident condemned by the Hollmann judgment, since residents will always pay the rate that results from art. 68, no. 1 on 50% of capital gains, while non-residents will pay either that rate, determined in accordance with the rules applicable to residents, or 28%, always on 100% of capital gains.
To this is added another consideration that results from the complexity of how the tax works, aggravated by the "option for aggregation" of all income obtained in the other country, in addition to other issues relevant to the principle of territoriality provided for in article 15 of the CIRS, to the conditions of personal application and to the progressivity of the tax, hardly compatible with an adequate consideration of the values earned in another member state, in the current state of Community law. Which is to say that the legislative amendment made is based on premises tainted by the intention to maintain more onerous taxation on non-residents, even if they reside in the EU space, which appears unacceptable in light of the aforementioned CJEU jurisprudence."
40. In other words, the AT has not demonstrated (and could not have) that the option for aggregation, as a means of equalization, as introduced in nos. 9 and 10 of article 72 of the CIRS, is sufficient to exclude the discrimination in question. Furthermore, as we have seen, there would always remain the doubt about the reason that led the legislator not to opt for the path of direct elimination of the discrimination contained in the rule of article 43, no. 2 of the CIRS.
The AT's allegation that the solution adopted in article 72, nos. 8 to 10 is sufficient does not therefore hold, as it is also the case for residents in Portuguese territory that these income are subject to aggregation. Now, such an argument does not seem appropriate as it does not take into account all the other taxation conditions inherent to the functioning of a tax with the characteristics of personal income tax and evidences an intention of taxation based on income earned in the other country (when aggregated) while well knowing that these are incomparable realities, easily distorted by a whole underlying reality that escapes the fiscal sovereignty of the Portuguese state.
We have, therefore, no doubt that the solution adopted by the Portuguese legislator does not eliminate the discriminatory character in the treatment of residents and non-residents, in the matter of capital gains arising from the alienation of real property.
41. Further in this sense and in reinforcement of what has been stated, reference must be made to another CJEU Judgment, in which the Court pronounced on a question similar to that which results in the present case, regarding the assessment of the option introduced by the Portuguese legislator. Thus, the CJEU pronounced itself, in the Judgment of 18 March 2010, handed down in case C-440/08, designated as the "Gielen Judgment", in a situation identical to that which we now assess, with the only difference being that in this case the violation of article 49 and not of article 63 of the TFEU was at issue.
Now, in this Judgment the CJEU emphasizes that "the equalization option allows a non-resident taxpayer, (…) to choose between a discriminatory tax regime and another allegedly non-discriminatory regime".
It further considers, in the same Judgment, that such an option is not capable of excluding all the discriminatory effects of the first of these two tax regimes, adding that "the recognition of such an effect of the said choice would have the consequence (…) to validate a tax regime that would continue, in itself, to violate article 49 TFEU by reason of its discriminatory character."
It concluded, therefore, that the CJEU "is opposed to a national regulation that discriminates against non-resident taxpayers in granting a tax benefit (…) notwithstanding that such taxpayers can opt, with respect to that benefit, for the regime applicable to resident taxpayers".
As is well noted in Arbitral Decision no. 45/2012-T, the consequences of what has been set out, in accordance with the CJEU jurisprudence referred to above, may possibly result in a more favorable taxation of real property capital gains earned by non-residents in Portugal, residing in the European Union, than by residents, as, in addition to benefiting equally from the reduction to 50% of the basis of IRS incidence, they are subject to a taxation rate which will, in the majority of cases, be lower than the progressive rates of residents, in accordance with the table provided for in no. 1 of article 68 of the IRS Code, to which is added the fact that the latter must aggregate all of their income. However, this is a consequence of direct taxation being a domain of the competence of the Member States, it being up to them to resolve this type of discrepancy internally.
One thing is certain and inescapable, in the current stage of European Union Law, there is no principle or rule that prevents positive discrimination of non-residents in relation to residents, but the prohibition of discrimination of non-residents is clear, in the terms above explained.
This understanding has been endorsed by the STA since 2011, as can be extracted from the jurisprudence of the Judgment of 22 March 2011, handed down in case no. 1031/10, which annulled the assessment issued by the AT, which "in view of the taxpayers' statement, assessed the tax that it considered due (as is always the case in IRS): at the rate provided for non-residents (25%, in accordance with article 72, no. 1 of the IRS Code) and on the total amount of the capital gain realized and not only on 50% of this value (article 43, no. 2 of the IRS Code), thus disregarding Community jurisprudence and that of this Supreme Court which adopted it (cf. the Judgment of 16 January 2008, case no. 439/06) regarding the incompatibility of that legal provision, as applied, with the (then) article 56 of the TEC (current article 63 of the Treaty on the Functioning of the European Union), thus subjecting in such manner, as came to pass, to the annulment in that part of the impugned assessment, given the primacy of Community law."
42. Moreover, in the STA Judgment of 20-02-2019, handed down in case 0901/11.0BEALM 0692/17, a question entirely identical to that which now occupies us was already decided, with the Supreme Court having decided in the sense of taxation of 50% of capital gains, concluding on its application to non-residents, without the option of no. 9 of art. 72 being made.
Now, courts in general, and also arbitral tribunals, it is considered, are bound by the duty to take "into consideration all cases which deserve analogous treatment, in order to obtain a uniform interpretation and application of law." (art. 8/3 of the Civil Code).
On the other hand, and in accordance with art. 25/2 of the RJAT, "An arbitral decision on the merits of the claim filed which terminates the arbitral proceedings is further susceptible to appeal to the Supreme Administrative Court when it is opposed, regarding the same fundamental legal question, to a judgment handed down by the Central Administrative Court or by the Supreme Administrative Court."
Hence a decision, in the matter sub iudice, that goes against the jurisprudence issued by the STA on the matter, with there being, as there is, identity of facts and law to be applied to them, between the present case and that already judged by the STA, would not only be susceptible to appeal in accordance with the referred art. 25/2 of the RJAT, but, with a high degree of probability, be susceptible to being revoked by the Supreme Administrative Court.
Also on this point, we equally adhere to the jurisprudence contained in the recent arbitral decision, handed down in case no. 74/2019-T (corroborated in the Arbitral Judgment handed down in case 590/2018-T, of 08-07-2019) which we hereby cite:
"Finally, the Respondent AT observes that, after the Hollmann Judgment was handed down, an equalization option was introduced in the Portuguese tax system with which it was intended to set aside the judgment of discrimination of the CJEU on the restrictive provision of no. 2 of article 43 of the IRS Code applicable to resident taxpayers.
Thus, Law no. 67-A/2007, of 31 December (State Budget Law for 2008), introduced nos. 7 and 8 of article 72 of the IRS Code establishing an optional equalization regime for non-residents (these must be residents of another Member State of the European Union or of the European Economic Area) to residents.
Later, in light of the restructuring carried out by Law no. 66-B/2012, of 31 December, these provisions became nos. 9 and 10, providing at the date 2017, as follows:
"9 - Residents in another Member State of the European Union or of the European Economic Area, provided that, in the latter case, there is an exchange of information in tax matters, may opt, with respect to income referred to in paragraphs a) and b) of no. 1 and in no. 2, for the taxation of such income at the rate which, in accordance with the table provided for in no. 1 of article 68, would be applicable if they were earned by residents in Portuguese territory.
10 - For purposes of determining the rate referred to in the previous number, all income is taken into account, including that obtained outside this territory, on the same conditions as are applicable to residents."
It happens that the existence of this regime does not set aside the invalidity of the still-in-force discriminatory regime which was applied to the IRS assessment in question.
In fact, currently, in the matter of taxation of income resulting from capital gains derived from the alienation of real rights over real property situated in Portugal, by non-residents in this territory, but residents in another Member State of the European Union or European Economic Area, it results from the provision of nos. 1 and 8 of article 72 of the IRS Code that there coexist two tax regimes:
1. The regime which subjects the income to a special rate of 28% and
2. The regime equated to that which applies for taxpayers resident in Portuguese territory, according to which, such income is subjected to the rate which, in accordance with the table provided for in no. 1 of article 68, would be applicable if they were earned by residents in Portuguese territory, taking into account, in this regime, all income, including that earned outside Portugal, the provision contained in no. 2 of the cited article 43 of the IRS Code remaining in force.
However, the provision of this optional regime places an additional burden on non-residents, compared to residents, and the equalization option is not capable of excluding the discrimination in question.
In reality, the equalization regime currently provided for in article 72 of the IRS Code does not set aside the discriminatory character of article 43, no. 2 of the IRS Code, with the taxpayer not being able to find itself in the circumstance of having to opt between two regimes, one legal and one illegal.
In this sense, the CJEU considered, in the Gielen Judgment of 18/03/2010 (Case C-440/08), in a case of evident parallelism (although in that judgment the violation of article 49 was at issue), the following:
1. "the equalization option allows a non-resident taxpayer, (…) to choose between a discriminatory tax regime and another allegedly non-discriminatory regime", stressing that such choice is not capable of excluding the discriminatory effects of the first of these two tax regimes."
2. "the recognition of such an effect of the said choice would have the consequence (…) to validate a tax regime that would continue, in itself, to violate article 49 TFEU by reason of its discriminatory character".
3. The Treaty "is opposed to a national regulation that discriminates against non-resident taxpayers in granting a tax benefit (…) notwithstanding that such taxpayers can opt, with respect to that benefit, for the regime applicable to resident taxpayers".
This guidance has been adopted at the CAAD, namely, in Cases nos. 45/2012-T, 127/2012-T, 748/2015-T, and 89/2017-T.
In particular, in Case 127/2012-T it was considered that "(…) the option which is given to a taxpayer resident in the European Union or European economic area between a regime that continues to be discriminatory, by violation of the provision of art. 63 of the TFEU and another allegedly non-discriminatory, equating them with residents in Portuguese territory, for in addition to having the obligation to opt and to declare income earned outside that territory, does not exclude nor neutralizes the discriminatory effects of the first of those two regimes."
Concluding that ruling that "by recognizing that the referred effects are not eliminated, one will be admitting that the referred option validates a tax regime that continues in itself to violate article 63 of the TFEU, for the reasons above stated, which is not in accordance with Community law."
Note that it was the AT itself that, in view of the taxpayers' income statement, assessed the tax, at the rate of 28%, provided for in paragraph a), no. 1 of article 72 of the IRS Code, considering the totality of the capital gain realized by such person and not only 50% thereof, in the terms prescribed in no. 2 of article 43 of the same legal instrument, in an interpretation and application of this legal provision that is not in accordance, either with European Union Law, which includes Community jurisprudence, or with Portuguese judicial and arbitral jurisprudence.
In this sense, also see the judgment handed down by the STA of 22/03/2011 (Case no. 1013/10), "it was the Tax Administration that, in view of the taxpayers' statement, assessed the tax that it considered due (as is always the case in I
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