Process: 598/2017-T

Date: July 27, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 598/2017-T) addresses the IRC (Corporate Income Tax) assessment procedure for proving effective prices in property transfers when selling below Tax Property Values (VPT). A..., S.A., a credit institution, challenged an IRC assessment of €63,510.20 for fiscal year 2013, arguing that the Tax Authority incorrectly used outdated VPTs instead of actual sale prices for 13 properties sold below their official valuations. The bank had acquired these properties through dation in payment and judicial adjudication following borrower defaults on mortgage loans. Due to Bank of Portugal requirements limiting the holding period for such assets, the institution needed to liquidate properties quickly, often below VPT. The claimant filed 204 requests for proof of effective selling prices in January 2014, reaching agreement with the Tax Authority on all but 13 cases. The legal dispute centered on Article 139 of the Corporate Income Tax Code (CIRC), which governs valuation procedures for property transfers. The claimant alleged multiple grounds for illegality: error concerning factual presuppositions due to outdated VPTs, violation of the principle of material truth, defective reasoning in the assessment, incorrect interpretation of Circular Notice 20136, and violation of constitutional principles of taxpaying capacity and tax equality. The case illustrates the tension between standardized tax valuations and actual market conditions, particularly for financial institutions forced to liquidate real estate assets under regulatory time constraints in distressed market circumstances.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

I – REPORT

On 14 November 2017, A..., S.A., Credit Institution (...), Tax ID..., with registered office..., ..., ..., ..., ...-... Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012 of 31 December (hereinafter, abbreviated as RJAT), seeking declaration of illegality of the Corporate Income Tax (IRC) assessment act No. 2017..., relating to the fiscal year 2013, in the amount of € 63,510.20.

To support its request, the Claimant alleges, in summary:

  • the illegality of the assessment due to error concerning the factual presuppositions, on the grounds of outdated Tax Property Values (VPTs);

  • the illegality of the assessment due to violation of the principle of material truth and error in quantifying the taxable base;

  • the illegality of the assessment on the grounds of defective lack of reasoning;

  • the illegality of the assessment for resting on illegal interpretation of the criteria set out in Circular Notice 20136 of 11-03-2009;

  • the illegality of the assessment due to interpretation of article 139 of the Corporate Income Tax Code (CIRC) inconsistent with the principle of taxpaying capacity and the principle of tax equality.

On 15-11-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant failed to appoint an arbitrator, and therefore, pursuant to article 6(2)(a) and article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable timeframe.

On 08-01-2018, the parties were notified of such appointments and did not manifest any intention to reject any of them.

In accordance with article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 30-01-2018.

On 05-03-2018, the Respondent, duly notified for that purpose, submitted its answer, defending itself solely by way of objection.

Pursuant to articles 16(c) and (e) and article 29(2) of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

A deadline being granted for submission of written statements, the same were submitted by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

A deadline of 30 days was set for pronouncement of final decision following submission of statements by the Respondent, which deadline was extended until the end of the deadline provided in article 21(1) of the RJAT.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2(1)(a), 5, and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011 of 22 March.

The proceedings are not affected by any defects.

Therefore, there is no obstacle to examination of the case.

Having considered everything, it is appropriate to pronounce

II. DECISION

A. MATTERS OF FACT

A.1. Facts Held as Proven

  • The Claimant is, and was in 2013, a branch of B..., with registered office in Spain.

  • The Claimant is, and was in 2013, for IRC purposes, a non-resident taxpayer with a permanent establishment.

  • The Claimant was registered with CAE 64921 – "Activities of credit financial institutions" – and was essentially engaged in the granting of mortgage credit, with its activity supervised by the Bank of Portugal.

  • The Claimant had as its corporate purpose:

    • the granting of loans and credit, including consumer credit, mortgage credit and the financing of commercial transactions;

    • "factoring," with or without recourse and complementary activities thereof, such as investigation and classification of clientele, accounting for debtors and, in general, any other activity tending to promote the administration, evaluation, security and financing of credits originating from national or international commercial traffic granted to it;

    • financial leasing including the following complementary activities: 1- activities of maintenance and conservation of leased assets; 2 – granting of financing related to a financial leasing transaction, current or future; 3- intermediation and management of financial leasing transactions; 4- non-financial leasing activities that may or may not be complemented with a purchase option;

    • issuance and management of credit cards;

    • granting of guarantees and sureties and subscription of similar commitments.

  • The Claimant is, and was in 2013, subject to the general regime for determination of taxable profit for IRC purposes and obligated to maintain organized accounting.

  • In the course of its activity, the Claimant granted loans to individuals for construction, carrying out works, acquisition or refinancing of real property intended for own residence, secondary residence or rental.

  • In cases where granted loans fell into situations of repeated or prolonged breach, borrowers presented proposals for dation in payment of real property given as security for such loans.

  • Alternatively, the Claimant instituted enforcement proceedings, which sometimes culminated in adjudication to the Claimant of real property mortgaged in its favor.

  • By requirement of the Bank of Portugal, the Claimant had a limited period for holding real property acquired in the context of adjudication and dation in payment proceedings in order to mitigate exposure to risk resulting from acquisition of real property in repayment of its own credit.

  • In the year 2013, the Claimant transferred certain real properties at prices lower than the respective VPTs.

  • Some of the VPTs of the real properties in question resulted from evaluation carried out pursuant to article 37 of the Municipal Property Transfer Tax Code (CIMI) and/or from the three-yearly alteration carried out pursuant to article 138 of the CIMI.

  • The Claimant presented in January 2014, 204 requests for proof of effective selling prices.

  • Of the 204 procedures for proof of effective prices in transmission of real properties alienated in 2013 below the VPT, only in 13 procedures instituted (identified in the table below) the experts of the Claimant and the AT did not reach an agreement.

[Table of properties with codes, articles, fractions, type, declared value, VPT, alienation date, and acquisition method - details as per original]

In the expert's report of the Claimant's expert regarding fraction A of the real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • "in the request timely presented by A..., a set of documentation was attached which in itself should be sufficient to prove that the price practiced was effectively €33.000"

  • In the context of the revision procedure, the Claimant successfully demonstrated that: a) "the sale value of €33.000 practically corresponds to the quick sale value (€33.600) appearing in the report of the appraiser expert [...] which is what happened since the dation occurred in July and the sale in October, both in 2013"; b) the Claimant "had on 31/12/2012 in its assets (account 25001) a total of €27.514.510 of real properties resulting from adjudication/dation processes in face of default of obligations of persons to whom financing was granted" so the context in which the Claimant sells real properties "which against its will had to accept" must be revealed; c) The Claimant has, by requirement of the Bank of Portugal, "a limited period of possession of these real properties";

  • The Claimant attached to the revision procedure an article published in the ... Journal that evidenced the state of recession in which the real estate market found itself at the date of the relevant facts;

  • The Claimant fully clarified all doubts raised by the AT regarding the sale operation, attaching all supporting documentation;

  • It was reiterated by the Claimant that "the sale value corresponds 'roughly' to the quick sale value defined by the appraiser expert in his report, this apart from the comparables that A... made available in the request";

  • Despite not understanding the relevance of the information requested by the AT regarding the credit operation at the origin of the dation in payment of the real property in question, the Claimant presented all requested documentation and provided all clarifications that the AT deemed necessary.

In the report of the AT's expert, regarding fraction A of the real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • "On 31/07/2013, when breach of the loan of €57.250 (secured by the fraction analyzed here) occurred, it was delivered to A... [...] by dation in payment, having been attributed the value of €37.600, allegedly determined by evaluation of independent expert (cf. Title of dation in payment)";

  • "the A... clarified that the debt not covered by dation was subject to a new financing contract of €29.500 – this carried out on the same date, 31/07/2013, and without any security supporting it (cf. loan deed with mortgage)";

  • Thus, the AT understood that, "on 31/07/2013, the simultaneous occurrence of:

    • dation of the property by the value of €37.600 for payment of an enforceable debt of €63.052,30;

    • loan by A... in the value of €29.500 to the same debtors who had just delivered this property to them for having ceased to pay the loan contracted";

  • The AT's expert further added that, in her understanding, "the granting of another financing (multi-purpose) to persons who had just delivered to A... a house for non-payment, only has justification if that property which A... had just received, actually has a value that covers the new amount now loaned"

  • Thus, the AT's expert understands that "the property in question [...] was worth at least €67.100 (€37.600 that were attributed in evaluation, for purposes of dation in payment plus €29.500 that A... concludes that this property was still worth, to the point of granting to the debtors another financing in that amount"

  • "On 18/10/2013, A... proceeded with the sale of the property [...] by the value written in the deed of €33.000"

  • The Claimant had "a period of 5 years to proceed with its sale [...] i.e. until 12/07/2018" so "the fact that the sale of the property occurred in the short space of two months clearly indicates that this is a good business opportunity, not compatible with the written sale value."

  • Thus, the AT's expert considers "fair in light of all demonstrated, that the sale value on 18/10/2013, to be considered for IRC taxation purposes, pursuant to article 64(2) of the CIRC be the one corresponding to the VPT (€63.770,00)";

  • Pursuant to Circular Notice No. 20136 of 11/03/2009: "Access to the claimant's bank accounts and those of its administrators does not result in absolute proof that the price effectively practiced corresponds to the value stated in the contract" and it is still necessary to justify "the abnormal market conditions in which the transmission took place, which resulted in fixing a price lower than the final tax property value of the transmitted property";

  • Thus concluding that "The burden of proof falling on the taxpayer entity, as follows from No. 1 of article 74 of the General Tax Law (LGT) and No. 1 of article 139 of the CIRC [...], and concrete and unequivocal proof not having been presented that fully justify its arguments [...] it is concluded that one of the essential requirements was not fulfilled:

    • proof that the effective price depends on abnormal market conditions in which the transmission took place which resulted in fixing a price lower than the final tax property value of the transmitted property"

Not being, for that reason, "conditions met to waive the anti-abuse rule provided in art. 64 of the CIRC" and should apply "No. 2 of art. 64 to the case in question".

  • The Deputy Finance Director made a decision, on 14 April 2015, to maintain for purposes of determining the taxable base for the 2013 fiscal year the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property values that served as the basis for IMT assessments, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the competent Finance Director and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to the fraction designated by the letter "A" of the urban real property, registered in the urban property registry of the parish of ..., municipality of Sesimbra, under article..., was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code (CIMT).

The Claimant alleges that, by deed of purchase and sale, drawn up on 18.10.2013, the property in question was alienated by €33.000, a value lower than its Tax Property Value of €63.770.

The reference made in No. 5 of article 139 of the CIRC to the procedural means of articles 91 and 92 of the L.G.T., encompasses the necessity of conducting a meeting of experts, with the purpose of reaching an agreement on the prices effectively paid by the acquirer of the real properties, based not only on elements resulting from access to banking secrecy, but also on examination of the special or normal market conditions that surrounded the transmission.

The burden of proof, that the prices effectively practiced in the transmissions of the properties were lower than the VPTs, falls on the taxpayer. The proof that the effective prices correspond to the values stated in the contracts depends, therefore, on justification of the abnormal market conditions in which the transmissions took place, which resulted in fixing prices lower than the final VPTs of the real properties.

Having regard to all the arguments presented and the documents exhibited, it is found that it was not demonstrated by the taxpayer, nor by its expert, that the prices effectively practiced in the onerous transmissions in question were lower than the VPTs fixed, as required by No. 1 of article 139 of the CIRC.

This position is also defended by the AT's Expert, as stated in his report that: "...it was not possible to reach an Agreement with the Claimant's Expert, taking into account that it was not possible to unequivocally prove that the price effectively practiced was lower than the Tax Property Value [...]".

In the report of the Claimant's expert regarding the procedure for proof of effective sale price of fraction BZ of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • "In light of the proof presented, the A... expert cannot understand the reasons why this is not sufficient to prove the effectiveness of the price at which the property was alienated";

  • "[...] not having the AT presented any actual proofs that the price practiced was different from that recorded in the A... accounts, this should be the one considered for purposes of determining its taxable result…"

  • The Claimant attached to the revision procedure an article published in the ... Journal that evidenced the state of recession in which the real estate market found itself at the date of the relevant facts, demonstrably proving the "abnormal" market conditions and the specific market context of strong recession that existed at the date of the property sale (i.e. in October 2013);

  • It was reiterated by the Claimant that "in this specific case of this property the sale value (€ 62.000) corresponds roughly to the value estimated by the appraiser expert in his report in a quick sale scenario (€ 62.600)";

  • The Claimant presented all requested documentation and provided all clarifications that the AT deemed necessary, having even "made available the opening of banking secrecy, its own and that of its representatives, which the AT did not use because it must have understood it was not necessary, this decision being entirely its responsibility."

  • "The sale of the property in question was carried out through an operation [...] which does not constitute the activity of A..." and "these operations of sale of real properties must be understood, because in substance they are, by whoever is auditing them as a way to mitigate losses related to breaches of entities to whom financing was granted for the purchase of housing and not as an intrinsic activity of A..."

  • It should therefore be considered that the proof brought to the revision procedure and the clarifications provided by the Claimant are sufficient for demonstrating the effective price of the property, and no correction should be promoted by the AT.

From the report of the AT's expert regarding the procedure for proof of effective sale price of fraction BZ of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following appears:

  • "From the cross-referencing of data from the information contained in the AT's database regarding property, verification was made that, regarding the year 2013, there existed a positive difference of € 45.460,00 (107.460,00 – 62.000,00), between the tax property value of the property (€ 107.460,00) and the value appearing in the respective deed of purchase and sale (€ 62.000,00.)[...]";

  • "The respective authorizations of access to bank accounts [...] were given, which were not used taking into account that the documentation presented proved sufficient to proceed with conclusion of the revision procedure."

  • The proofs presented by the Claimant are based on: "documents and obvious circumstances revealing nothing more than what is already known and is in the public domain, thus remitting the matter to analysis of the reasonableness of the values practiced in a market perspective."

  • The "confirmation and evaluation of the credibility of the values presented" carried out by the AT took into account the jurisprudence contained in "decision No. 301/12 of 25/05/2012 of the Supreme Administrative Court, which states that: "A transaction occurring within the scope of a public tender, constitutes a unique and non-repeatable phenomenon, without standard of reference, taking above all into account the specific purpose that presided over the adjudication of an asset within the scope of a tender, and therefore, as it is not possible to repeat the transaction to be able to conclude whether there is a gap between the market value of that asset and the price practiced, the market value of that asset must therefore correspond to the price of adjudication.""

  • Thus concluding that: "the market price of the property in question on 31/10/2012, was € 70.000,00 identical to the value at which it was adjudicated on that date, in accordance with Title of Transmission issued by the Enforcement Solicitor C..."

  • The AT's Expert justifies his thesis on the basis of: (i) statistics of average sale value per m², in properties of the same type and same locality obtained from sites such as F... and D... or through "Ci - Confidential Real Estate", publication of H...; and also: (ii) information contained in the AT's computer system, on the basis of which a property of equal typology and condition in the same building would allegedly have been sold on 4 April 2014 for €75.000;

  • Thus, the AT's Expert considers that: "that having no occurrence between the dates of purchase and sale of any event determining an exceptional depreciation of the property, nor the contraction of the market, which is indeed a reality, is sufficiently expressive to explain the difference in prices practiced in alienation of the property in question."

  • He further assented that, "pursuant to article 64 of the CIRC it is the obligation of the contracting parties to adopt fair market values for IRC purposes" which he considers did not happen in the case in question since, in the opinion of the AT's Expert, the Claimant: "reduced by its own decision the taxpayer, the value of the taxable base for IRC 2013 (…), not having adduced convincing proof of the inevitability of this decision, as well as of the reality of this value, fruit of the alleged abnormal market conditions."

  • Thus concluding that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, (…) and consequently the respective tax property value should be considered for purposes of determining the taxable base for IRC."

The Deputy Finance Director thus made a decision, on 24 April 2015, to maintain, for purposes of determining the taxable base for the 2013 fiscal year, the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property value that served as the basis for IMT assessment, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the competent Finance Director and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to fraction designated by the letters "BZ" of the urban real property, registered in the property registry under the article..., of the parish of ..., municipality of Silves, was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code.

The Claimant alleges that, by deed of purchase and sale, drawn up on 20.08.2013, the property in question was alienated by €62.000,00, a value lower than its Tax Property Value of € 107.460,00.

The reference made in No. 5 of article 139 of the CIRC to the procedural means of articles 91 and 92 of the L.G.T., encompasses the necessity of conducting a meeting of experts, with the purpose of reaching an agreement on the price effectively paid by the acquirer of the real properties, based not only on elements resulting from access to banking secrecy, but also on examination of the special or normal market conditions that surrounded the transmission.

The burden of proof, that the prices effectively practiced in the transmissions of the properties were lower than the VPTs, falls on the taxpayer.

The proof that the effective prices correspond to the values stated in the contracts depends, therefore, on justification of the abnormal market conditions in which the transmissions took place, which resulted in fixing a price lower than the final VPT of the real property.

Having regard to all the arguments presented and the documents exhibited, it is found that it was not demonstrated by the taxpayer, nor by its expert, that the price effectively practiced in the onerous transmission in question was lower than the VPT fixed, as required by No. 1 of article 139 of the CIRC.

This position is also defended by the AT's Expert, as stated in his report that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, not being thus possible agreement between the experts, and consequently the respective tax property value should be considered for purposes of determining the taxable base for IRC".

In the report of the Claimant's expert, in the context of the procedure for proof of effective sale price of fraction A of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • The sale price of a property is influenced by various circumstances, such as: a) the economic situation of the real estate market at the date of alienation; b) the period the Claimant has to sell the property (which is limited by requirement of the Bank of Portugal); c) the specific conditions of the property itself; d) market values practiced at the date of alienation of the property;

  • What must be demonstrated in this procedure is the effectiveness of the price of €33.000, which the Claimant has successfully demonstrated in the context of the revision procedure;

  • There exists no practice of good commercial and accounting management any other proof that could be required beyond that presented by the Claimant to demonstrate that the sale price stated in the deed of purchase and sale corresponds to the price effectively practiced;

  • The effective price for which the property was alienated resulted from the market conditions existing at the date of sale;

  • Despite not being obliged to do so, the Claimant carried out a market survey for comparable properties, from which it resulted that the price practiced corresponded to the normal market price;

  • Furthermore, it is important not to forget that the sale of properties acquired under these circumstances (i.e. by dation or adjudication) is a way of mitigating losses related to breaches of entities to whom financing was granted and not an intrinsic activity of the Claimant;

  • The sale price practiced by the Claimant "reflects a downward revision of the initial marketing value, a value that reflects the non-existence of interested parties in the business, as well as the economic situation and the contraction of the real estate market."

  • Thus, considering that the documentation presented leaves no margin for doubt that the price effectively practiced corresponds to the stated value (€33.000) and that the Claimant provided all clarifications that the AT deemed useful/necessary, it should be concluded that the Claimant proved that the effective price of the property corresponds to the stated value, and no correction should be promoted by the AT.

From the report of the AT's expert, in the context of the procedure for proof of effective sale price of fraction A of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following appears:

  • "From the automatic cross-referencing of information, contained in the AT's database on property, verification was made that, regarding the year 2013, there existed a positive difference between the final tax property value of the property alienated by the claimant and the value appearing in the respective deed of purchase and sale.", which "totaled € 6.980,00 (…)."

  • The Claimant acquired ownership of the property "by adjudication in judicial proceedings, at the value of €66.000 and carried out its alienation on 20/12/2013 at €33.000, which value is below the VPT fixed by the AT, which at the date of the facts was €39.980."

  • Such property had been acquired by the Executed, on 16 November 2006, at the amount of €85.600, with the Claimant loaning on that occasion the amount of €85.600.

  • The Claimant presented: "various documents, namely, copy of the title of transmission (adjudication to the claimant), copy of the deed of purchase and sale, appraisal form, real estate mediation contracts, translated copy of the power of attorney granted by the now claimant, declaration of authorizations for access to bank accounts [...] deed of acquisition of the property acquired by the executed where the financing conditions appear, as well as a real estate mediation contract and the 1st appraisal of the property, with the claimant's expert having attached the appraisal form of said loan, as well as some additional accounting elements."

  • Authorizations for access to bank accounts [...] were given (by the Claimant and its representatives) which were not used taking into account that the documentation presented proved sufficient to proceed with conclusion of the revision procedure and that the claimant and some of the authorizing parties have residence outside Portugal, in addition to which it is not absolute proof of the price practiced."

  • "[...] the accounting elements do not identify the property in such a way as not to raise doubts that this is actually the aforesaid property;" and "the petition does not identify what reference was attributed to the property in the accounting elements [...] sent"

  • For purposes of "confirmation and evaluation of the credibility of the values presented" carried out by the AT's Expert: "he took into account the jurisprudence contained in "decision No. 301/12 of 25/05/2012 of the Supreme Administrative Court, which states that: "A transaction occurring within the scope of a public tender, constitutes a unique and non-repeatable phenomenon, without standard of reference, taking above all into account the specific purpose that presided over the adjudication of an asset within the scope of a tender, and therefore, as it is not possible to repeat the transaction to be able to conclude whether there is a gap between the market value of that asset and the price practiced, the market value of that asset must therefore correspond to the price of adjudication.""

  • Thus concluding that: "the market price of the property in question on 29/10/2010, was € 66.000,00 equal to the value at which it was adjudicated on that date, in accordance with Title of Transmission issued by the Enforcement Solicitor C... ."

  • The AT's Expert justifies his thesis on the basis of: (i) statistics of average sale value per m², in properties of the same type and same locality obtained from sites such as D...; and also (ii) information contained in the AT's computer system, on the basis of which a property of equal typology and condition in the same building would allegedly have been sold on 20 June 2014 at €46.810;

  • Thus, the AT's Expert considers that: "pursuant to article 64 of the CIRC it is the obligation of the contracting parties to adopt fair market values for IRC purposes" which he considers did not happen in the case in question since, in his understanding, the sale price practiced by the Claimant departed: substantially from the price practiced both from the values of acquisition practiced in enforcement proceedings and from appraisal values, evaluation which takes into account the various variables to which the property is subject, as opposed to what is defended by the claimant." and "reduced by its own decision the taxpayer, the value of the taxable base for IRC 2013 in the amount of €6.980,00, thus recording losses on these sales, not having adduced convincing proof, of the real effect of the alleged abnormal market conditions, nor of the inevitability of this decision."

  • Thus concluding that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, (…) and consequently the respective tax property value should be considered for purposes of determining the taxable base for IRC."

The Deputy Finance Director thus made a decision, on 6 April 2015, to maintain for purposes of determining the taxable base for the 2013 fiscal year the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property value that served as the basis for IMT assessment, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the competent Finance Director and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to the autonomous fraction designated by the letter "A" of the urban real property, registered in the property registry under the article..., of the parish of ..., Municipality of Sintra, was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code.

The Claimant alleges that, by deed of purchase and sale, drawn up on 20.12.2013, the property in question was alienated by €33.000,00, a value lower than its Tax Property Value of € 39.980,00.

The reference made in No. 5 of article 139 of the CIRC to the procedural means of articles 91 and 92 of the L.G.T., encompasses the necessity of conducting a meeting of experts, with the purpose of reaching an agreement on the price effectively paid by the acquirer of the real properties, based not only on elements resulting from access to banking secrecy, but also on examination of the special or normal market conditions.

The burden of proof, that the price effectively practiced in the transmission of the property was lower than the VPT, falls on the taxpayer.

The proof that the effective price corresponds to the value stated in the contract depends, therefore, on justification of the abnormal market conditions in which the transmissions took place, which resulted in fixing a price lower than the final VPT of the real property.

Having regard to all the arguments presented and the documents exhibited, it is found that it was not demonstrated by the taxpayer, nor by its expert, that the price effectively practiced in the onerous transmission in question was lower than the VPT fixed, as required by No. 1 of article 139 of the CIRC.

This position is also defended by the AT's Expert, as stated in his report that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, not being thus possible agreement between the experts, and consequently the respective tax property value should be maintained for purposes of determining the taxable base for IRC".

In the report of the Claimant's expert regarding the procedure for proof of effective sale price of fraction E of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • The sale price of a property is influenced by various circumstances, such as: a) the economic situation of the real estate market at the date of alienation; b) the period for holding these properties in the Claimant's assets (which is limited by requirement of the Bank of Portugal); c) the specific conditions of the property itself; d) market values practiced at the date of alienation of the property, d) the fact that the Claimant's activity is not the purchase and sale of real property. Consequently, said sale: "cannot be audited outside the context in which it occurred"

  • The holding of properties (acquired by dation in payment or through adjudication in enforcement proceedings), whose total value amounted to €27.514.510 on 31 December 2012, "carries for A... an exceptionally high opportunity cost which management is obliged to reduce by promoting the sale of these properties;

  • The real estate market "in the last 5/6 years suffered brutal depreciation with particular impact in the districts of Lisbon (locality of the Sintra line - ...), Setúbal and Porto".

  • "In this specific case the property is located in one of the most difficult areas to dispose of (...)."

  • What the Claimant "was obliged to do in order to prove the effectiveness of the price [in this case, of €35.000] was done with the documentary proofs habitually used in economic activity (deeds, accounting extracts, appraisal reports, real estate mediation contracts)";

  • There exists no practice of good commercial and accounting management any other proof that could be required beyond that presented by the Claimant to demonstrate that the sale price stated in the deed of purchase and sale corresponds to the price effectively practiced;

  • The Claimant "as was its obligation, made available the opening of banking secrecy its own and that of its representatives, which the AT did not use because it must have understood it was not necessary, this decision being entirely its responsibility."

  • "The sale of the property was effected in a specific context of a market in strong recession (particularly in the area where the property is located), in an operation that does not constitute the activity of A..."

  • Furthermore, it is important not to forget that the sale of properties acquired under these circumstances (i.e. by dation or adjudication) should be understood as a way of mitigating losses related to breaches of entities to whom financing was granted and not as an intrinsic activity of the Claimant;

  • In light of the foregoing: "there are no well-founded reasons for the value of €35.000 not to be considered for purposes of determining the taxable result."

From the report of the AT's expert regarding the procedure for proof of effective sale price of fraction E of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following appears:

  • "From the automatic cross-referencing of information, contained in the AT's database on property, verification was made that, regarding the year 2013, there existed a positive difference of €11.141,90 (€46.141,90 - €35.000,00) between the tax property value of the property (€46141,90) and the value appearing in the respective deed of purchase and sale (35.000)."

  • The Claimant acquired ownership of the property "through a deed of dation in payment at the value of €47.000 on 25/07/2013" and sold "at the value of €35.000 (on 28/11/2013). From which it is gathered that the fair price of the property (agreed between the parties) on 25/07/2013, was €47.000, a value that was above the VPT that was €46.141,90"

  • The Claimant presented: "various documents, namely, copy of the deed of purchase and sale and dation deed, appraisal form, real estate mediation contract, extract from current account with accounting record of acquisition and sale of the property, as well as of a deposit in a demand account at the value of €35.0000" and, as well as "document regarding an appraisal requested by it in which the expert attributes the value of €47.000 to the property in question and two queries to the site "D..." and another site "E..." regarding offers of sale of three properties (T2) in the same area."

  • Authorizations for access to bank accounts [...] were given (by the Claimant and its representatives) which were not used taking into account that the documentation presented proved sufficient to proceed with conclusion of the revision procedure and that the claimant and some of the authorizing parties have residence outside Portugal, in addition to which it is not absolute proof of the price practiced."

  • The AT's Expert justifies his thesis on the basis of: (i) statistics of average sale value per m², in properties of the same type and same locality based on information contained in sites such as F... and D...; (ii) or through consultation of "Ci – Confidential Real Estate", publication of H..., through which the AT concluded that "there was a continuous decline in average market prices, which in accordance with the CI, stabilized in 2014 [i.e. one year after the sale of the property in question) and, as well as: (iii) information contained in the AT's computer system, on the basis of which two fractions of the property in question of equal typology were sold in 2014 and 2017 at prices higher than their respective VPTs;

  • "Before the lapse of a short space of time that occurred between the date of acquisition and the date of sale [...] it is not understood what was the reason that led the claimant to sell the property with such a significant loss (€12.000), given that the reasons it invokes, obviously do not deserve credibility, since this is a company specialized in real estate business and knowledgeable of the market."

  • Thus concluding the AT's Expert that the Claimant "reduced by its own decision [...] the value of the taxable base for IRC 2013 (€12.000 in accounting terms) not having adduced convincing proof, of the real effect of the alleged abnormal market conditions, nor of the inevitability of the decision to sell at that date below the cost price" and that, for that reason: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, (…) and consequently the respective tax property value should be considered for purposes of determining the taxable base for IRC."

On 22 April 2015, the Deputy Finance Director made a decision to maintain, for purposes of determining the taxable base for the 2013 fiscal year, the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property value that served as the basis for IMT assessment, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the Finance Director competent and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to the autonomous fraction designated by the letter "E", which corresponds to the first floor right, of the urban real property located on Rua ..., No.…, ..., parish of..., municipality of Sintra, registered in the registry under the article..., of the parish ..., Municipality of Sintra, was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code.

The Claimant alleges that, by deed of purchase and sale, drawn up on 30.04.2013, the property in question was alienated by €35.000,00, a value lower than its Tax Property Value of € 46.141,90.

The reference made in No. 5 of article 139 of the CIRC to the procedural means of articles 91 and 92 of the L.G.T., encompasses the necessity of conducting a meeting of experts, with the purpose of reaching an agreement on the price effectively paid by the acquirer of the real properties, based not only on elements resulting from access to banking secrecy, but also on examination of the special or normal market conditions that surrounded the transmission.

The burden of proof, that the price effectively practiced in the transmission of the property was lower than the VPT, falls on the taxpayer.

The proof that the effective price corresponds to the value stated in the contract depends, therefore, on justification of the abnormal market conditions in which the transmissions took place, which resulted in fixing a price lower than the final VPT of the real property.

Having regard to all the arguments presented and the documents exhibited, it is found that it was not demonstrated by the taxpayer, nor by its expert, that the price effectively practiced in the onerous transmission in question was lower than the VPT fixed, as required by No. 1 of article 139 of the CIRC.

This position is also defended by the AT's Expert, as stated in his report that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, not being thus possible agreement between the experts, and consequently the respective tax property value should be maintained for purposes of determining the taxable base for IRC".

In the report of the Claimant's expert regarding the procedure for proof of effective sale price of fraction G of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • The sale price of a property is influenced by various circumstances, such as: a) the economic situation of the real estate market at the date of alienation; b) the period for holding these properties in the Claimant's assets (which is limited by requirement of the Bank of Portugal); c) the specific conditions of the property itself; d) market values practiced at the date of alienation of the property, d) the fact that the Claimant's activity is not the purchase and sale of real property. Consequently, said sale: "cannot be audited outside the context in which it occurred";

  • The holding of properties (acquired by dation in payment or through adjudication in enforcement proceedings), whose total value amounted to €27.514.510 on 31 December 2012, "carries for A... an exceptionally high opportunity cost which management is obliged to reduce by promoting the sale of these properties;

  • The real estate market "in the last 5/6 years suffered brutal depreciation with particular impact in the districts of Lisbon (locality of the Sintra line - ...), Setúbal and Porto";

  • What must be demonstrated in this procedure is the effectiveness of the price of € 65.000, which the Claimant has successfully demonstrated in the context of the revision procedure;

  • There exists no practice of good commercial and accounting management any other proof that could be required beyond that presented by the Claimant to demonstrate that the sale price stated in the deed of purchase and sale corresponds to the price effectively practiced;

  • "The sale of the property was effected in a specific context of a market in strong recession (particularly in the area where the property is located in an operation that does not constitute the activity of A..., in a set of approximately 200 properties under identical circumstances that also gave rise to requests similar to this one."

  • Furthermore, it is important not to forget that the sale of properties acquired under these circumstances (i.e. by dation or adjudication) is a way of mitigating losses related to breaches of entities to whom financing was granted and not an intrinsic activity of the Claimant;

  • The Claimant carried out a market survey for comparable properties, from which it resulted that the price practiced corresponded to the normal market price, being even higher than the value estimated by the independent expert in a quick sale context;

  • Indeed, the sale price practiced by the Claimant (€65.000) "is higher than the value estimated by the appraiser expert in his report in a quick sale scenario (€ 63.800)";

  • The Claimant "as was its obligation, made available the opening of banking secrecy its own and that of its representatives, which the AT did not use because it must have understood it was not necessary, this decision being entirely its responsibility."

  • Thus, considering that the documentation presented leaves no margin for doubt that the price effectively practiced corresponds to the stated value (€65.000) and that the Claimant provided all clarifications that the AT deemed useful/necessary, it should be concluded that the Claimant proved that the effective price of the property corresponds to the stated value, and no correction should be promoted by the AT.

From the report of the AT's expert regarding the procedure for proof of effective sale price of fraction G of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following appears:

  • "The taxpayer acquired ownership of the property registered in the registry under article ... – fraction G […] by deed of dation in payment on 27/11/2012, at the value of € 75.000,00.";

  • "On 11.04.2013, by public deed of purchase and sale, loan with mortgage it proceeded with the alienation [of the property acquired by dation] at the price of €65.000."

  • "At the date of the deed, the tax property value was €74.630,00.";

  • Notwithstanding the taxpayer having promoted "the commercial sale of the property in question, having entered into a real estate mediation contract […] with the marketing value of € 75.000", due to the non-existence of interested parties, the property was sold at €65.000;

  • "Before the contradictory debate, the taxpayer's expert attached the file form with identification of the accounting record registration number, account extracts and copy of the cheque"

  • "The VPT previously referred to [...] was fixed by general appraisal of urban property on 04/01/2013, from which A... has not filed a request for 2nd appraisal, conforming itself with the attributed value"

  • There was not a lapse of time between the dation in payment (27/11/2012) and the sale (11/4/2013) that would justify the difference in price practiced "with a decrease of 14%, since at the date of Dation in Payment the adverse market conditions already existed, arising from the economic crisis installed since 2008";

  • The Claimant "did not demonstrate what adverse conditions existed at the date of sale that did not exist already at the date of the Dation."

  • Thus, the AT's Expert considers that: "(…) in the absence of sufficient proof presented, that refutes the correction provided in article 64 of the CIRC, (…) should maintain the tax property value for purposes of determining the taxable base for IRC."

The Deputy Finance Director thus made a decision, on 8 June 2015, to maintain for purposes of determining the taxable base for the 2013 fiscal year the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property value that served as the basis for IMT assessment, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the Finance Director competent and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to the autonomous fraction designated by the letter "G" [...] of the urban real property located on ... and on Rua ...No.…, parish of ..., municipality of Seixal, registered in the registry under the article..., was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code.

The Claimant alleges that, by deed of purchase and sale, loan with mortgage drawn up on 11.04.2013, the property in question was alienated by €65.000,00, a value lower than its final Tax Property Value, which in the case in question is € 74.630,00, fixed by general appraisal effected on 04.01.2013, of which it was notified on 12.01.2013, by official letter No. ... of 12.01.2013 and against which it did not file a request for second appraisal.

The reference made in No. 5 of article 139 of the CIRC to the procedural means of articles 91 and 92 of the L.G.T., encompasses the necessity of conducting a meeting of experts, with the purpose of reaching an agreement on the price effectively paid by the acquirer of the real properties, based not only on elements resulting from access to banking secrecy, but also on examination of the special or normal market conditions that surrounded the transmission.

The burden of proof, that the price effectively practiced in the transmission of the property was lower than the VPT, falls on the taxpayer.

The proof that the effective price corresponds to the value stated in the contract depends, therefore, on justification of the abnormal market conditions in which the transmissions took place, which resulted in fixing a price lower than the final VPT of the real property.

Having regard to all the arguments presented and the documents exhibited, it is found that it was not demonstrated by the taxpayer, nor by its expert, that the price effectively practiced in the onerous transmission in question was lower than the VPT fixed, as required by No. 1 of article 139 of the CIRC.

This position is also defended by the AT's Expert, as stated in his report that: "… In the absence of sufficient proof presented that refutes the correction provided in article 64 of the CIRC, it was not possible agreement between the experts…for which reason… the tax property value should be maintained for purposes of IRC taxation…".

It is further provided in No. 11 of Circular Notice No. 20136 of 11.03.2009 of the Directorate of Services of the Tax on Income of Legal Persons, that the promotion of a meeting of experts, with the purpose of reaching an agreement on the price effectively paid by the acquirer of the asset, should not be based only on elements of access to banking secrecy, but also on examination of the special or normal market conditions that surrounded the transmission.

The Circular Notice mentioned above and, namely its No. 15 provides that the proof of the effective price corresponding to the value stated in the contract, depends on 2 requirements, which must be met cumulatively: - Justification of the abnormal market conditions in which the transmission took place, which resulted in fixing a price lower than the final tax property value of the transmitted property;

  • Express waiver by the claimant and the representatives or managers of the protection conferred by banking secrecy.

Now in the case in question the abnormal market conditions in which the transmission on 11.04.2013 was carried out were not unequivocally justified, which resulted in fixing a price lower than the tax property value, and therefore one of the necessary and required conditions is not met.

In the report of the Claimant's expert regarding the procedure for proof of effective sale price of fraction N of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following is stated:

  • The sale price of a property is influenced by various circumstances and the sale of the property cannot be audited outside the context in which it was carried out;

  • "In this specific case as referred to in Doc. 9 of the request the property is located in a Social Housing Estate, being a 3rd floor which in reality corresponds to a 4th floor, without elevator and without garage. It needed repair work due to leaks and dampness. All these facts appear in the appraisal expert's report (Doc. 6 - point 14)"

  • Moreover it adds that: "Also as appears in point 6 of Doc. 9 in the market study carried out at the time of sale the sale price practiced was within current market prices."

  • To the foregoing is added that "the activity of A... is not the purchase and sale of real property but rather the granting of credit".

  • The holding of properties (acquired by dation in payment or through adjudication in enforcement proceedings), whose total value amounted to €27.514.510 on 31 December 2012, "carries for A... an exceptionally high opportunity cost which management is obliged to reduce by promoting the sale of these properties";

  • The real estate market "in the last 5/6 years suffered brutal depreciation with particular impact in the districts of Lisbon (locality of the Sintra line -...), Setúbal and Porto".

  • What must be demonstrated in this procedure is the effectiveness of the price of €40.000, which the Claimant has successfully demonstrated in the context of the revision procedure;

  • "What A... was obliged to do in order to prove the effectiveness of the price was done with the documentary proofs habitually used in economic activity (deeds, accounting extracts, appraisal reports, real estate mediation contracts" and "in the debate with the AT's expert nothing of what was presented was questioned regarding its suitability.";

  • There exists no practice of good commercial and accounting management any other proof that could be required beyond that presented by the Claimant to demonstrate that the sale price stated in the deed of purchase and sale corresponds to the price effectively practiced;

  • Despite not being obliged to do so, the Claimant carried out a market survey for comparable properties, from which it resulted that the price practiced corresponded to the normal market price, being even higher than the value estimated by the expert in a quick sale context;

  • Indeed, the sale price practiced by the Claimant (€40.000) "is higher than the value estimated by the appraiser expert in his report in a quick sale scenario (€ 36.000)".

  • The Claimant "as was its obligation, made available the opening of banking secrecy its own and that of its representatives, which the AT did not use because it must have understood it was not necessary, this decision being entirely its responsibility."

  • "The sale of the property was effected in a specific context of a market in strong recession (particularly in the area where the property is located in an operation that does not constitute the activity of A..., in a set of approximately 200 properties under identical circumstances that also gave rise to requests similar to this one."

  • Thus, considering that the documentation presented leaves no margin for doubt that the price effectively practiced corresponds to the stated value (€40.000) and that the Claimant provided all clarifications that the AT deemed useful/necessary, it should be concluded that the Claimant proved that the effective price of the property corresponds to the stated value, and no correction should be promoted by the AT.

From the report of the AT's expert, in the context of the procedure for proof of effective sale price of fraction N of the urban real property registered in the urban property registry of the parish of ... under registration article..., the following appears:

  • "From the automatic cross-referencing of information, contained in the AT's database on property, verification was made that, regarding the year 2013, there existed a positive difference between the final tax property value of the property alienated by the claimant and the value appearing in the respective deed of purchase and sale.", which "totaled € 13.411,33 (…)."

  • The Claimant acquired ownership of the property "by adjudication in judicial proceedings, at the value of €73.000 and carried out its alienation on 14/11/2013 at €40.000, which value is below the VPT fixed by the AT, which at the date of the facts was €53.411,33."

  • The Claimant presented: "various documents, namely, copy of the title of transmission (adjudication to the claimant), copy of the deed of purchase and sale, appraisal form, real estate mediation contracts, translated copy of the power of attorney granted by the now claimant, declaration of authorizations for access to bank accounts [...] detail of movements in a demand account; sales diary of the property; [...] real estate mediation invoice and [...] POV vs VPT report."

  • In the first meeting, additional elements were presented, namely: "the mortgage credit form effected in the initial contract to the executed, property registration form, extract from accounts 57200,23500, 49900, 68510 and a copy of the deposit slip."

  • Authorizations for access to bank accounts were given (by the Claimant and its representatives), which were not used "taking into account that the documentation presented proved sufficient to proceed with conclusion of the revision procedure and that the claimant and some of the authorizing parties have residence outside Portugal, in addition to which it is not absolute proof of the price practiced."

  • "[...] the accounting elements do not identify the property in such a way as not to raise doubts that this is actually the aforesaid property;" and "the petition does not identify what reference was attributed to the property in the accounting elements [...] sent"

  • "The detail of movements of the demand account, do not identify what property this record refers to, with the only movement marked on the date of the deed, epigraphed as multiple deposit without any other means of proof of who promoted this deposit."

  • In the first meeting, the Claimant presented "a deposit slip for the value of €40.000. However, this is not sufficient proof, capable of alone proving said price."

  • For purposes of "confirmation and evaluation of the credibility of the values presented" the AT's Expert: "took into account the jurisprudence contained in "decision No. 301/12 of 25/05/2012 of the Supreme Administrative Court, which states that: "A transaction occurring within the scope of a public tender, constitutes a unique and non-repeatable phenomenon, without standard of reference, taking above all into account the specific purpose that presided over the adjudication of an asset within the scope of a tender, and therefore, as it is not possible to repeat the transaction to be able to conclude whether there is a gap between the market value of that asset and the price practiced, the market value of that asset must therefore correspond to the price of adjudication.""

  • Thus concluding that: "the market price of the property in question on 27/09/2010, was €73.000,00 equal to the value at which it was adjudicated on that date, in accordance with Titles of Transmission."

  • The AT's Expert further states that: "pursuant to article 64 of the CIRC it is the obligation of the contracting parties to adopt fair market values for IRC purposes, being the irrefutable proof of these abnormal market conditions the greater condition for proving the fixing of an effective price lower than the VPT", which the same considers did not happen in the case in discussion since the sale price practiced by the Claimant departed "and from the appraisal values of the property [for IMI purposes];

  • Thus, the said Expert considers that the AT: "reduced by its own decision the taxpayer, the value of the taxable base for IRC 2013 in the amount of €13.411,00, not having adduced convincing proof, of the real effect of the alleged abnormal market conditions, nor of the inevitability of this decision."

  • Thus concluding that: "(…) in the course of this procedure insufficient proof was not presented, which would permit refutation of the correction provided in article 64 of the CIRC, (…) and consequently the respective tax property value should be considered for purposes of determining the taxable base for IRC."

The legal substitute of the Deputy Finance Director thus made a decision, on 29 July 2015, to maintain for purposes of determining the taxable base for the 2013 fiscal year the VPT that served as the basis for the IMT assessment, understanding that:

"Based on the foregoing and the elements in the file, revision request and the positions of the Experts participating in the contradictory debate, which are here given as fully reproduced, and which were addressed above, it is incumbent upon us to decide.

Article 64 of the CIRC establishes that:

"1 - The alienators and acquirers of real rights over real property must adopt, for purposes of determining taxable profit (...), fair market values that cannot be lower than the final tax property values that served as the basis for the assessment of the municipal property transfer tax (IMT) (...).

2- Whenever, in the onerous transmissions provided for in the preceding number, the value stated in the contract is lower than the final tax property value of the property, it is this value that shall be considered by the alienator and acquiror, for determining taxable profit (...)."

Notwithstanding what is established in this provision, the legislator does not restrict at all the possibility of the alienator, should it wish, to prove that the prices effectively practiced in transmissions of real rights over real property were lower than the tax property value that served as the basis for IMT assessment, as provided in No. 1 of article 139 of the same statute.

Such proof must be effectuated in proceedings instituted by request addressed to the Finance Director competent and is governed by the provisions of articles 91 and 92 of the General Tax Law (L.G.T.) (Nos. 3 and 5 of article 139 of the CIRC).

The taxpayer alienator seeks to prove that the price effectively practiced in transmission of the property corresponding to the autonomous fraction designated by the letter "N" of the urban real property, registered in the property registry under the article..., of the parish of ..., Municipality of Figueira da Foz, was lower than the tax property value determined in accordance with the rules established in the Municipal Property Transfer Tax Code.

The Claimant alleges that, by deed of purchase and sale, drawn up on 14.11.2013, the property in question was alienated by €40.000,00, a value lower than its Tax Property Value of € 53.

Frequently Asked Questions

Automatically Created

What is the procedure for proving the effective price in property transfers under Portuguese IRC tax law?
Under Portuguese IRC tax law, the procedure for proving the effective price in property transfers below Tax Property Values (VPT) is governed by Article 139 of the Corporate Income Tax Code (CIRC) and Circular Notice 20136 of 11-03-2009. When a taxpayer sells property below the VPT, they must submit a formal request to the Tax Authority with supporting documentation demonstrating the actual transaction price. This typically includes the sales contract, expert appraisal reports, evidence of market conditions, and circumstances explaining the price differential. The taxpayer may appoint an expert to conduct an independent valuation, and if disagreement persists between the taxpayer's expert and the Tax Authority's expert, a third expert may be appointed. In the banking context, additional documentation such as acquisition circumstances (dation in payment or judicial adjudication), regulatory requirements from the Bank of Portugal regarding holding periods, and evidence of quick sale valuations can support the claimed effective price. The burden of proof rests on the taxpayer to demonstrate that the declared price represents the genuine market value under the specific circumstances of the transaction.
Can a taxpayer challenge an IRC tax assessment based on outdated property tax values (VPT)?
Yes, a taxpayer can challenge an IRC tax assessment based on outdated property tax values (VPT) in Portugal. The legal grounds for such challenge include: (1) error concerning factual presuppositions when VPTs do not reflect current market reality; (2) violation of the principle of material truth, which requires tax assessments to be based on actual economic facts rather than presumptive values; (3) defective reasoning if the Tax Authority fails to adequately justify why it rejected evidence of actual sale prices; (4) violation of the principle of taxpaying capacity (Article 104 of the Portuguese Constitution), which requires taxation based on real economic capacity rather than fictional values; and (5) violation of tax equality principles when similarly situated taxpayers are treated differently. VPTs may become outdated due to market fluctuations, economic crises, property deterioration, or delays in the triennial revaluation process under Article 138 of the Municipal Property Transfer Tax Code (CIMI). Taxpayers must present concrete evidence that VPTs are outdated, such as expert appraisals, comparable sales data, market reports, or specific property conditions. The challenge can be pursued through administrative procedures (proof of effective price under Article 139 CIRC) or through arbitration or judicial appeal of the resulting tax assessment.
How does the principle of material truth apply to IRC property transfer tax assessments in Portugal?
The principle of material truth (princípio da verdade material) in Portuguese tax law requires that IRC assessments on property transfers reflect actual economic reality rather than formal or presumptive values. This constitutional principle, derived from Article 103 of the Portuguese Constitution and general tax law principles, mandates that the Tax Authority determine taxable income based on real transactions and genuine economic capacity. In property transfer contexts, this means the Tax Authority cannot mechanically apply Tax Property Values (VPT) when credible evidence demonstrates a different actual sale price. The principle obligates both the taxpayer and the Tax Authority to collaborate in establishing the true facts: taxpayers must provide comprehensive documentation of actual transaction terms, market conditions, and circumstances affecting value, while the Tax Authority must genuinely analyze this evidence rather than relying solely on cadastral values. When properties are sold below VPT due to distressed circumstances—such as forced liquidation by financial institutions under regulatory requirements, deteriorated property conditions, urgent sale needs, or depressed market conditions—the principle of material truth requires recognition of these realities. The Tax Authority's rejection of proof of effective prices must be substantiated with concrete reasons, not mere preference for administrative convenience of using VPTs. This principle ensures taxation reflects genuine economic enrichment rather than fictional values, preventing taxation of unrealized or non-existent gains.