Summary
Full Decision
ARBITRAL DECISION
The arbitrators Counsellor Jorge Lopes de Sousa (arbitrator-president), Prof. Doctor Vasco Valdez and Dr. Hélder Faustino (arbitrators-members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 11-02-2019, agree as follows:
1. Report
A... and B... (hereinafter referred to as the "Claimants"), married, holders of tax identification number ... and tax identification number ..., respectively, resident in ..., ... London, United Kingdom, have, in accordance with Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Tribunal.
The Claimants request that the illegality be declared of the Personal Income Tax ("IRS") assessments numbered 2018..., in the amount of €30,775.95 and No. 2018..., in the amount of €30,767.36, requesting their annulment (article 2 of the request for arbitral pronouncement).
The Claimants further seek compensation for any costs incurred in providing a guarantee.
The Respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 30-11-2018.
In accordance with the provisions of sub-paragraph a) of paragraph 2 of article 6 and sub-paragraph b) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Arbitrators who were initially appointed by the Deontological Council communicated their acceptance of the appointment within the applicable period.
On 22-01-2019, the parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, sub-paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provision of sub-paragraph c) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 11-02-2019.
The Tax and Customs Administration filed a Response in which it defends the dismissal of the request for arbitral pronouncement.
The Tax and Customs Authority further considers that "this arbitral instance should be suspended and the matter should be referred to the Court of Justice, in accordance with the provisions of the preliminary ruling procedure (article 267 of the TFEU)", as there is no case law of the CJEU on the question of European Union Law raised by the Claimants.
By order of 20-03-2019, the meeting provided for in article 18 of the RJAT was dispensed with and the Parties were notified to submit their views on the issues to be raised in a possible preliminary ruling.
The Tax and Customs Authority indicated the issues that it considered should be raised in preliminary ruling proceedings and the Claimants submitted their views that a preliminary ruling is unnecessary as there is applicable CJEU case law to the situation in question.
The issues that the Tax and Customs Authority suggested should be raised in preliminary ruling proceedings are as follows:
1 - The amendment introduced to article 72 of the Personal Income Tax Code ("CIRS"), by Law No. 67-A/2007, of 31/12, following the decision handed down in the Judgment of the Court of Justice (Fourth Chamber), of 11 October 2007, in case No. C443-06 (Hollmann Judgment), allowing "residents of 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", to opt for the application to the capital gain resulting from the onerous transfer of real rights over immovable property, "for taxation of such income at the rate which, in accordance with the table provided for in paragraph 1 of article 68, would be applicable if they were earned by residents in Portuguese territory", and "for the purposes of determining the rate referred to in the preceding paragraph, all income is taken into account, including that obtained outside this territory, in the same conditions as applicable to residents", or by the autonomous rate of 28% provided for in paragraph 1, sub-paragraph a) of the same article, still constitutes a violation of articles 18, 21, 45, 49 and 63 of the TFEU?
2 - That is, if it grants to "residents of 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" the option for taxation applicable in the exact same manner to residents in national territory, in derogation of taxation at the autonomous rate of 28%, applicable alternatively to them, and to which the latter have no right, still constitutes a violation of articles 18, 21, 45, 49 and 63 of the TFEU?
3 - Is the Tax Authority required to apply to "residents of 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" the general system of determining taxable income (consideration of capital gains in only 50%) without consideration of income of universal origin, contrary to what is required of residents in national territory?"
The Arbitral Tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, sub-paragraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.
The Parties are duly represented, have legal personality and capacity and are legitimate (articles 4 and 10, paragraph 2, of the same statute and article 1 of Order No. 112-A/2011, of 22 March).
The proceedings contain no defects of nullity.
2. Matter of Fact
2.1. Proven Facts
The following facts are considered proven:
A) The Claimants are married to each other;
B) Until 09-09-2010, the Claimants resided in Portugal, at Rua ... No. ..., ...-..., Lisbon, autonomous fraction designated by the letter "O", which corresponds to the third floor "D", corresponding to the urban property registered under Article ..., of the Parish ..., as per copy of the urban property register attached as document No. 8 with the request for arbitral pronouncement, the contents of which are hereby reproduced;
C) Said fraction belonged to the Claimants, who acquired it on 04-06-2002, having the Claimants and the banking institution C..., S.A. executed a loan contract with mortgage, in the amount of €134,675.00 (document No. 9 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
D) Until 09-09-2010, the Claimants resided in said fraction, continuously, having their tax domicile there;
E) On 09-09-2010, the Claimants changed their tax domicile to the United Kingdom;
F) The move to the United Kingdom occurred as part of an international assignment contract of Claimant A..., promoted by his employer (document No. 5 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
G) Said initial contract had a duration of one year, renewable, with the employment relationship with the employer in Portugal temporarily suspended (document No. 6 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
H) Given the temporary nature of said assignment, the Claimants proceeded to temporarily lease a property in the United Kingdom, as per copy of the lease contract in the United Kingdom, attached with the request for arbitral pronouncement as document No. 7, the contents of which are hereby reproduced;
I) In 2011, the international assignment contract of the Claimant was renewed for one more year, whereby the Claimants and their respective family unit had to maintain their tax domicile in the United Kingdom;
J) In 2012, the international assignment contract of the Claimant was renewed for one more year, whereby the Claimants and their respective family unit had to maintain their tax domicile in the United Kingdom;
K) The Claimants' conviction was that, at the end of the international assignment contract of the Claimant, based on professional requirements, they would return to Portugal, where they maintained the fraction indicated;
L) In 2013, Claimant A..., faced with an unfavorable economic situation in Portugal, in the aftermath of the economic crisis of 2008 and confronted with highly unfavorable conditions for return to Portugal proposed by his employer, was forced to terminate his employment relationship with the entity in Portugal;
M) Claimant A... proceeded to exercise functions at the company where he had previously worked, under an international assignment contract, maintaining, however, the desire to return to Portugal together with his family as soon as possible;
N) From 03-07-2013, the Claimants maintained the lease contract in the United Kingdom, at the location indicated in document No. 10 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced, and maintained in Portugal the fraction referred to;
O) In the year 2017, the Claimants, together with their family unit, decide to settle permanently in the United Kingdom;
P) On 28-07-2017, the Claimants sold the fraction they owned in Portugal, located at Rua ... No. ..., for the price of €410,000 (document No. 11 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
Q) On 28-05-2018, in fulfillment of their declarative obligations in Portugal by reference to the tax year 2017, the Claimants submitted separate Personal Income Tax returns "Form 3", with identification No. ... and identification No. ..., copies of which are contained in documents Nos. 12 and 13 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced;
R) In said returns, the Claimants indicated their personal situation as married, non-tax resident status, and declared all income earned in 2017 from Portuguese sources, namely property income and capital gains;
S) In Tables 4 of Annex G of each of the income returns, each Claimant declared his/her share (50%) of the amount realized resulting from the sale of the fraction referred to, effected in June 2017 (€205,000) and his/her share of the acquisition value (€67,294.50);
T) In said Tables 4, each of the Claimants indicated his/her share of expenses and charges incurred (€12,796.60) corresponding namely to the commission on the sale of the apartment and energy certification services (documents Nos. 14 and 15 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
U) In Table 5 of Annex G of the Personal Income Tax Return Form 3, the Claimants manifested their intention to reinvest in the acquisition of another property intended for own permanent residence the entire amount realized, minus the amount of loan amortization at that date totaling €92,381.20 (document No. 16 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
V) The Tax Authority calculated the tax due, in accordance with paragraph 1 of article 43 of the CIRS, applying the special rate of 28% to the entire amount of the capital gain calculated at €108,085.28 per taxpayer, without giving effect to the option indicated by the Claimants regarding reinvestment (in Table 5 of Annex G), and considering the entire capital gain realized from the sale of the property located at Rua ... No. ...;
W) On 18-05-2018, the Claimants proceeded to acquire a property in the United Kingdom, for the price of £775,000 (approximately €887,489.26, at that date) where they proceeded to have their own permanent residence (document No. 17 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
X) For the acquisition of the property, the Claimants contracted a bank loan in the amount of £700,000 (seven hundred thousand pounds) - approximately €801,603.21 at that date, having reinvested £75,000 - approximately €85,886.05, at that date;
Y) The fraction that the Claimants owned in the property located at Rua ... No. ... was temporarily leased, at least in the year 2017 (article 59 of the request for arbitral pronouncement and Fields 4001 and 4002 of Annex F of the income returns contained in documents Nos. 12 and 13 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
Z) The Claimants did not pay the amounts assessed and tax enforcement proceedings were initiated for their coercive collection (documents Nos. 18 and 18 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);
AA) On 29-11-2018, the Claimants filed the request for arbitral pronouncement that gave rise to the present proceedings.
2.2. Unproven Facts and Reasoning of the Decision on the Matter of Fact
2.2.1. It was not proven that the Claimants provided a guarantee to suspend the tax enforcement proceedings initiated for coercive collection of the amounts assessed.
The Claimants, moreover, allege that they may have to provide a guarantee and not that they have already provided one (article 104 of the request for arbitral pronouncement).
2.2.2. It was not proven that the Claimants maintained permanent residence in the fraction referred to in the case file, from the moment it was leased, as the Claimants themselves acknowledge in article 59 of the request for arbitral pronouncement.
In fact, from Fields 4001 and 4002 of Annex F of the income returns for the year 2017 contained in documents Nos. 12 and 13 attached with the request for arbitral pronouncement, it appears that the fraction generated property income in that year.
As for the intention of the Claimants to re-occupy the fraction, it appears to be presumable, in that they maintained it until the moment it was leased, which occurred in the year 2017, at least.
2.2.3. The proven facts are based on documents submitted by the Claimants and on their statements.
The Tax and Customs Authority did not submit an administrative file, which it reported did not exist.
3. Matter of Law
In accordance with sub-paragraph a) of paragraph 1 of article 10 of the Personal Income Tax Code, "capital gains are gains obtained which, not being considered as business and professional income, capital income or property income, result from (...) onerous transfer of real rights over immovable property"
However, paragraph 5 of the same article expressly provides for the exclusion of taxation of capital gains resulting from the transfer of own permanent residence when there is acquisition of a new property with the same purpose and provided that certain requirements indicated there are observed.
In accordance with paragraph 4 of the same article 10, the gain subject to taxation corresponds to the positive difference between the amount realized and the amount acquired.
The acquisition value is adjusted by application of the monetary depreciation coefficient, plus charges and expenses necessary and actually incurred, inherent to the acquisition and transfer of the property (articles 50 and 51 of the CIRS).
The value of income qualified as capital gains corresponds to the balance calculated between capital gains and losses realized in the same year (article 43, paragraph 1, of the CIRS), but, in the case of transfers effected by residents, the balance "is only considered in 50% of its value" (paragraph 2 of the same article, in the wording prior to Law No. 71/2018, of 31 December).
Regarding residents, the general rates provided for in article 68 of the CIRS apply to that value.
Regarding non-residents in Portuguese territory, article 72, paragraph 1, sub-paragraph a), of the CIRS provides for the application of a special autonomous rate of 28%, applicable to the entire amount of capital gains.
However, "residents of 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 sub-paragraphs a) and b) of paragraph 1 and in paragraph 2, for taxation of such income at the rate which, in accordance with the table provided for in paragraph 1 of article 68, would be applicable if they were earned by residents in Portuguese territory" (paragraph 9 of article 72 in the wording of Law No. 82-E/2014, of 31 December, in force in 2017). In accordance with paragraph 10 of this article "for the purposes of determining the rate referred to in the preceding paragraph, all income is taken into account, including that obtained outside this territory, in the same conditions as applicable to residents".
In the case at issue, the Claimants did not make this option provided for in paragraph 9 of article 72 and the disputed Personal Income Tax assessments applied the special autonomous taxation rate of 28% to the entire amount of the capital gain calculated at €108,085.28 per Taxpayer.
The indications made in Table 5 of Annex G of the Personal Income Tax return Form 3 by both Claimants regarding reinvestment of the amount realized, which they considered realized from the sale of property intended for own permanent residence (located at Rua ..., No. ...), were not taken into account for this purpose.
3.1. Issue of Reinvestment of the Amount Realized from Property Intended for Own Permanent Residence
The first issue raised by the Claimants is whether they are entitled to the exclusion of taxation of capital gains provided for in paragraph 5 of article 10 of the CIRS, as they manifested the intention to reinvest the amount realized, which they indicated.
However, it is a requirement of this exclusion that the transferred property be intended for own permanent residence of the taxpayers.
This destination did not exist when the property was sold, in July 2017, since the Claimants no longer resided in the property for several years and in that year 2017 the property was leased. That is, the property was intended for lease and not for own residence of the Claimants.
Under these circumstances, as the property was being used for leasing and not for own permanent residence of the Claimants, it is excluded that they could be applied the regime of exclusion of taxation of capital gains provided for in paragraph 5 of article 10 of the CIRS.
Thus, the disputed assessments do not suffer from this defect that the Claimants allege.
Therefore, the request for arbitral pronouncement is dismissed, as to this issue.
3.2. Issue of Consideration in Only 50% of the Capital Gain Value
The Claimants argue that the taxation of the amount realized that was not the subject of reinvestment should have been considered by the Tax Authority in only 50%.
3.2.1. Positions of the Parties
The Claimants state the following, in summary:
– taxpayers who are non-residents in Portuguese territory are only subject to taxation in Personal Income Tax in Portugal regarding income from Portuguese sources (article 15, paragraph 2 of the Personal Income Tax Code);
– for this purpose, in accordance with sub-paragraph h) of paragraph 1 of article 18 of the Personal Income Tax Code, income from Portuguese sources are considered, namely, income relating to property located therein, including capital gains resulting from its transfer;
– as regards the system of taxation of capital gains resulting from the onerous transfer of immovable property, taxpayers who are residents in Portuguese territory are subject to the general progressive rates provided for in article 68 of the Personal Income Tax Code, while taxpayers who are non-residents are subject to taxation at the special rate of 28%, in accordance with sub-paragraph a) of paragraph 1 of article 72 of the Personal Income Tax Code;
– the value of income qualified as capital gains, corresponding to the balance calculated between capital gains and losses realized in the same year, in the case of onerous transfers of rights over immovable property effected by residents, said balance, positive or negative, is only considered in 50% of its value, as established in paragraph 2 of article 43 of the CIRS;
– it constitutes a consolidated understanding and widely replicated in the various case law of the Court of Justice of the European Union ("CJEU"), the prohibition of discrimination between taxpayers resident in one Member State (in this case Portugal) and those resident in another Member State.
The Tax and Customs Authority argues that the aforementioned case law is based on the wording of article 72 of the CIRS prior to Law No. 67-A/2007, of 31 December, which created said option regime with the addition of paragraphs 7 and 8 (later paragraphs 9 and 10, in the wording of Law No. 82-E/2014, of 31 December).
The Tax and Customs Authority states, in summary, that
– the initial regime of article 72 of the CIRS was considered incompatible with European Union Law by the judgment of the CJEU handed down in case No. C-443/06 (Hollmann judgment);
– with Law No. 67-A/2007, of 31 December, paragraphs 9 and 10 of article 72 of the Personal Income Tax Code began to provide for a limitation of taxation to 50% of capital gains realized, no longer ONLY for residents in Portugal, but ALSO for non-residents, provided they are residents of another Member State of the European Union or of the European Economic Area;
– the legislative amendment introduced to article 72 of the Personal Income Tax Code by Law No. 67-A/2007, of 31/12, has not yet been subject to review by the CJEU, in preliminary ruling proceedings, for the purpose of assessing compliance with the combined provisions of articles 18, 63, 64 and 65 of the Treaty on the Functioning of the European Union;
– the Claimants could have opted for the regime provided for in paragraphs 9 and 10 of article 72 and did not do so;
– a preliminary ruling should be made on the compatibility of the wording of article 72 introduced by Law No. 67-A/2007 with articles 18, 63, 64 and 65 of the Treaty on the Functioning of the European Union, which the CJEU found to be violated by the previous wording.
The Claimants stated that a preliminary ruling is unnecessary because, in summary, the case law of the CJEU is already clear to the effect that it is discriminatory with respect to residents in Member States of the European Union a regime more burdensome than that applicable to residents in Portuguese territory, even if they are permitted the possibility of opting for the regime applicable to residents.
3.2.2. Assessment of the Issue
Article 63 of the Treaty on the Functioning of the European Union establishes the following:
Article 63
(formerly Article 56 TEC)
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Within the framework of the provisions of this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
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Within the framework of the provisions of this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.
The CJEU considered incompatible with European Union Law, as it constitutes a differentiated treatment incompatible with the free movement of capital guaranteed by article 63 of the Treaty on the Functioning of the European Union (former article 56), the regime of article 72, paragraph 1, of the CIRS, in the wording prior to Law No. 67-A/2007, of 31 December, in case C-443/06, judgment of 11-10-2007, Hollmann versus Public Treasury, by taxing capital gains of non-resident taxpayers at a fixed rate (in 2017, of 28%), while residents are subject to progressive income tax.
In that judgment, it was held that incompatible with the provision that ensures that freedom of movement of capital ( ) is a regime that "subjects capital gains resulting from the transfer of an immovable property situated in a Member State, in the case at issue in Portugal, when said transfer is effected by a resident of another Member State, to a tax burden superior to that which would apply, with respect to this same type of transaction, to capital gains realized by a resident of the State where that immovable property is situated".
This case law was recently reaffirmed in the Order of the CJEU (Seventh Chamber) of 06-09-2018, case C 184/18, in which it was held that "legislation of a Member State, such as that at issue in the main proceedings, which subjects capital gains resulting from the transfer of an immovable property situated in that Member State, effected by a resident of a third country, to a tax burden superior to that which would apply, in that same type of transactions, to capital gains realized by a resident of that Member State constitutes a restriction on the free movement of capital which, subject to verification by the referring court, is not covered by the exception provided for in article 64, paragraph 1, TFEU and cannot be justified by the reasons referred to in article 65, paragraph 1, Treaty on the Functioning of the European Union".
However, this last decision was also handed down on the basis of the wording of article 72 introduced by Law No. 109-B/2001, of 27 December, prior to Law No. 67-A/2007.
Thus, as the Tax and Customs Authority states, there is no specific case law of the CJEU on the compatibility of the regime introduced by Law No. 67-A/2007, in paragraphs 7 and 8 of the CIRS with article 63 of the Treaty on the Functioning of the European Union.
However, the CJEU held in that judgment of case C-443/06, that the essential incompatibility of the regime of article 71, paragraph 1, with European Union Law results from establishing "unequal tax treatment for non-residents, in that it allows, in the case of realization of capital gains, more burdensome taxation and, therefore, a tax burden superior to that borne by residents in an objectively comparable situation" (§ 54).
In the same vein, the CJEU decided in the judgment of 19-11-2015, case C-632/13 (Skatteverket against Hilkka Hirvonen) that "the refusal, in the context of income taxation, to grant non-resident taxpayers, who earn the majority of their income in the country of origin and who have opted for the system of taxation at source, the same personal deductions that are granted to resident taxpayers, in the context of the ordinary taxation regime, does not constitute discrimination contrary to article 21 TFEU when non-resident taxpayers are not subject to a globally superior tax burden than that which falls on resident taxpayers and persons assimilated thereto, whose situation is comparable to theirs".
Thus, what essentially matters for this purpose is to know whether or not there exists negative discrimination in the application to the Claimants of the regime that was applied to them.
The regime provided by default (in the absence of an option) in paragraph 1 of article 72 is more burdensome for non-residents than for residents, since while the maximum rate applicable to capital gains realized by residents is 24% of its value (maximum rate of 48% provided for in article 68, applied to 50% of the balance of capital gains), the rate provided for in paragraph 1 of article 72 of the CIRS is 28%, applied to the entire balance.
In fact, to the taxable income of each Taxpayer in the amount of €108,085.28 there corresponded Personal Income Tax in the amount of €30,263.88 at the rate of 28%, applicable to non-residents, while even applying the maximum rate of 48% (and the average rate is necessarily lower since each bracket corresponds to the respective rate) half of that taxable income, the Personal Income Tax payable by each Taxpayer would be €25,940.47 (108,082.28 / 2 x 48%).
Even considering the additional solidarity tax provided for in article 68-A, paragraph 1, of the CIRS of 2.5% applied to the part exceeding 80,000 [(108,085.28 - 80,000) x 2.5% = 702.13] and the now extinct extraordinary surtax of 3.21%, provided for in article 194, paragraph 3, of Law No. 42/2016, of 28 December, applicable to the part exceeding the annual value of the guaranteed minimum monthly remuneration of 7,798.00 ( ) [(108,085.28 – 7,798) x 3.21% = 3,219.22), it is concluded that applying the regime of residents, each of the Claimants would pay €29,861.82 (25,940.47 + 702.13 + 3,219.22), less than the amount of €30,263.88 that was assessed to each of the Claimants.
Thus, it is certain that the regime of taxation at the liberatory rate provided for in article 72 of the CIRS, in the wording in force in 2017, is incompatible with said article 63 of the Treaty on the Functioning of the European Union, since it makes the transfer of capital less attractive for non-residents and constitutes a restriction on the movement of capital prohibited by the Treaty.
It was this regime negatively discriminatory for non-residents that was applied in the disputed assessments.
The fact that this regime can currently be set aside by taxpayers, if they manifest an option, does not exclude the negative discrimination, as it imposes on them an obligation to opt that is not extended to residents.
Furthermore, in line with what the CJEU held in the judgment of 18-03-2010, case C-440/08 (F. Gielen against Staatssecretaris van Financiën), regarding a parallel question of possible relevance of the possibility of opting out of a discriminatory regime (in the case regarding article 49 of the Treaty on the Functioning of the European Union), the conclusion that there is incompatibility "is not called into question by the argument that non-resident taxpayers can opt for alignment, which allows them to choose between the discriminatory regime and the regime applicable to residents, given that this option is not capable of excluding the discriminatory effects of the first of these two tax regimes. Indeed, recognition of such an effect of the aforementioned choice would have the consequence of validating a tax regime that would continue, in itself, to violate article 49 TFEU by reason of its discriminatory character. Furthermore, a national regime that limits the freedom of establishment is incompatible with European Union Law, even if its application is optional. It follows from the foregoing that the choice granted to the non-resident taxpayer through the alignment option does not neutralize the discrimination".
In the same sense, the CJEU pronounced itself in the judgment of 28-02-2013, case C-168/11:
62 Even assuming that such a system is compatible with European Union Law, it nevertheless follows from the case law that a national regime restrictive of freedoms of movement can remain incompatible with European Union Law, even if its application is optional (v., in this sense, judgment of 12 December 2006, Test Claimants in the FII Group Litigation, C-446/04, Coll., p. I-11753, No. 162, and of 18 March 2010, Gielen, C-440/08, Coll., p. I-2323, No. 53). In this regard, the existence of an option that might eventually render a situation compatible with European Union Law does not therefore have the effect of remedying, by itself, the illegal character of a system, such as that provided for by the contested regulation, which comprises a mechanism of taxation not compatible with that law. It should be added that this applies all the more so in the case where, as in the case at issue, the mechanism incompatible with European Union Law is that which is automatically applied in the absence of a choice made by the taxpayer.
Also in the same sense, the CJEU pronounced itself in the judgment of 08-06-2016, case C-479/14:
- With respect to the optional nature of said taxation mechanism, it should be stressed that, even assuming that such a mechanism is compatible with European Union Law, it is constant case law that a national regime restrictive of freedoms of movement can continue to be incompatible with European Union Law, even if its application is optional. The existence of an option that might eventually render a situation compatible with European Union Law does not have the effect of remedying, by itself, the illegal character of a system, such as the one at issue, which continues to comprise a mechanism of taxation not compatible with that law. It should be added that this applies all the more so in the case where, as in the proceedings at issue, the mechanism incompatible with European Union Law is that which is automatically applied in the absence of a choice made by the taxpayer (v., in this sense, judgment of 28 February 2013, Beker, C 168/11, EU:C:2013:117, No. 62 and case law cited).
It is in light of this case law that the Tax and Customs Authority's contention for a preliminary ruling must be assessed.
In accordance with article 8, paragraph 4, of the Portuguese Constitution "the provisions of treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective competences, are applicable in the internal legal order, in accordance with the terms defined by European Union Law, with respect for the fundamental principles of the democratic rule of law".
As has been consistently understood by case law and is a corollary of the obligation of preliminary ruling provided for in article 267 of the TFEU (which replaced article 234 of the Treaty of Rome, former article 177), the case law of the CJEU has a binding character for national courts, when it is the subject matter of questions connected with European Union Law ( ). And, when a question of interpretation and application of European Union Law is raised, national courts must refer the question to the CJEU through a preliminary ruling.
However, when the Community law is clear and when there is already a precedent in European case law, the interpretation of European Union Law already results from the case law of the CJEU, it is not necessary to proceed with such a consultation, as the CJEU concluded in the Judgment of 06-10-1982, Case Cilfit, Proc. 283/81. Even when the questions at issue are not strictly identical (doctrine of acte aclaré) and when the correct application of European Union Law is so obvious that it leaves no room for any reasonable doubt as to how to resolve the question of EU Law raised (doctrine of acte clair) (idem, No. 14).
In the case at issue, it is concluded with certainty from the reiterated case law of the CJEU that the illegality of the application of the discriminatory regime is not healed by the possibility of its waiver, which dispenses with the necessity of a preliminary ruling.
Moreover, the Supreme Administrative Court, in the recent judgment of 20-02-2019, case No. 0901/11.0BEALM 0692/17, without raising the necessity of a preliminary ruling, concluded to the illegality of the regime resulting from the combination of article 43, paragraph 2, with article 72 of the CIRS, with respect to a situation in which the capital gains were realized in 2010, therefore already during the term of Law No. 67-A/2007.
From the foregoing, it must be concluded that the taxation as effected in the disputed assessments is illegal, which justifies its annulment, in accordance with article 163, paragraph 1, of the Code of Administrative Procedure subsidiarily applicable in accordance with article 2, sub-paragraph c), of the General Tax Law.
4. Compensation for Undue Guarantee
The Claimants request compensation for undue guarantee.
Article 53 of the General Tax Law establishes the following:
Article 53
Guarantee in Case of Undue Performance
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The debtor who, in order to suspend execution, offers a bank guarantee or equivalent, shall be indemnified wholly or partially for prejudices resulting from its performance, should he have maintained it for a period exceeding three years in proportion of the success in administrative appeal, impugnation or opposition to execution that have as their object the debt guaranteed.
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The period referred to in the preceding paragraph does not apply when it is verified, in a gracious claim or judicial impugnation, that there was error attributable to the services in the assessment of the tax.
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The indemnification referred to in paragraph 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the rate of indemnificatory interest provided for in this law and can be requested in the proper process of claim or judicial impugnation, or independently.
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The indemnification for undue guarantee performance shall be paid by deduction from the tax receipts of the year in which the payment was made.
As results from paragraph 1 of this article, the indemnification depends on a bank guarantee or equivalent being offered.
In the case at issue, it was not proven that the Claimants offered any guarantee, of any kind, to suspend the tax enforcement proceedings initiated for coercive collection of the amounts assessed.
Thus, the request for indemnification must be dismissed, without prejudice to the right being able to be recognized in execution of judgment.
5. Decision
In accordance with the foregoing, this Arbitral Tribunal agrees to:
a) Judge the request for arbitral pronouncement of declaration of illegality of the Personal Income Tax assessments numbered 2018..., in the amount of €30,775.95 and No. 2018..., in the amount of €30,767.36, to be well founded;
b) Declare illegal and annul said assessments;
c) Judge the request for compensation for undue guarantee to be ill-founded, without prejudice to the right to indemnification being able to be recognized in execution of judgment.
6. Value of the Case
In accordance with the provisions of articles 296, paragraph 1, of the Code of Civil Procedure and 97-A, paragraph 1, sub-paragraph a), of the Code of Tax Procedure and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €61,543.31.
7. Costs
In accordance with article 22, paragraph 4, of the RJAT, the amount of costs is fixed at €2,448.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.
Lisbon, 08-04-2019
The Arbitrators
(Jorge Lopes de Sousa)
(Vasco Valdez)
(Hélder Faustino)
Frequently Asked Questions
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