Process: 607/2015-T

Date: June 21, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

This arbitration case concerns a challenge to a 2013 IRS (Personal Income Tax) assessment of €44,404.59 relating to capital gains taxation. The taxpayer disputed the Tax Authority's calculation of capital gains from securities sales, raising three main issues: (1) the Tax Authority's refusal to accept gains and losses from securities sold abroad in Switzerland as declared in Annex J, citing insufficient documentation; (2) incorrect quantification of gains from securities sold in Portugal, where the Tax Authority deemed the acquisition value as zero due to lack of proof; and (3) non-acceptance of losses from the sale of shares in company B... S.A. The taxpayer argued that bank statements from the Swiss financial institution constituted valid proof under Article 125 of the IRS Code, applying the FIFO method for calculating gains. The arbitral tribunal was constituted at CAAD on December 1, 2015, as a singular tribunal under Decree-Law 10/2011. Both parties waived the oral hearing and were granted opportunities to submit written arguments.

Full Decision

REPORT

A - PARTIES

A…, domiciled at Av. ... no. …-… Salvaterra de Magos, holder of tax identification number…, hereinafter referred to as Claimant or taxpayer.

TAX AND CUSTOMS AUTHORITY (which succeeded the General Directorate of Taxes, through Decree-Law no. 118/2011, of 15 December) hereinafter referred to as Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 01-12-2015, to examine and decide on the subject matter of the present proceedings, and automatically notified the Tax and Customs Authority on 01-12-2015, as stated in the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, wherefore, under the provisions of no. 1 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the Honorable Dr. Arbitrator Paulo Ferreira Alves, and the appointment was accepted as legally provided.

On 10-11-2015 the parties were duly notified of this appointment, having not manifested any intention to refuse the appointment of the arbitrators, in accordance with article 11, no. 1, paragraphs a) and b), of RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the singular arbitral tribunal is duly constituted on 01-12-2015.

Both parties agree with the dispensation of the meeting provided for in article 18 of RJAT.

The Claimant requested a deadline for submission of written arguments.

The parties were given the opportunity to submit written arguments.

Duly notified, the Claimant was granted a period of 10 days for submission of written arguments. The claimant did not submit its written arguments within the granted period.

Duly notified, the Respondent was granted a period of 10 days for submission of written arguments. The respondent submitted its written arguments.

The arbitral tribunal is duly constituted. It is materially competent, in accordance with articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate, and are legally represented (articles 4 and 10, no. 2, of the same diploma and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would invalidate them.

B - REQUEST

  1. The Claimant now seeks a declaration of illegality of the tax assessment acts relating to Personal Income Tax, no. 2015…, which set a total tax payable of €44,404.59 (forty-four thousand four hundred and four euros and fifty-nine cents).

C - GROUNDS FOR CLAIM

  1. To support its request for arbitral decision, the Claimant alleged, for purposes of declaring the illegality of the tax assessment act relating to Personal Income Tax already described in point 1 of this Award, in summary, the following:

  2. The 2013 IRS assessment is illegal by virtue of violation of law, more specifically by incorrect qualification and quantification of the taxable income, as:

a) The Tax Administration did not accept the Claimant's statement/complaint regarding the sale of securities (shares) carried out in Switzerland, contained in Annex J, as it understood that the document presented by the Claimant was insufficient to prove the declared values;

b) With regard to the Claimant's sale of securities (shares), the Tax Administration understood that, as to part of the declared values, the Claimant did not prove the acquisition values, and considered that the acquisition value was zero;

c) With regard to the losses of company B… S.A., the Tax Administration disregarded this loss for purposes of determining the value of income in category G.

  1. The Claimant argues that there are three issues to be examined:

i - Disregard of gains and losses obtained abroad, declared in Annex J;

ii- Incorrect quantification of gains and losses obtained in Portugal from the paid sale of securities:

iii- Non-acceptance of the losses realized by the Claimant from the sale of shares it held in the capital of company B… S.A. (ZFM).

  1. As to the disregard of gains and losses obtained abroad, the Claimant alleges that the declared income from the sale and purchase is supported by documents.

  2. The Claimant alleges that it requested in the gracious complaint that the elements declared in said Annex J be considered, which had not been declared in the first IRS declaration.

  3. The document initially sent by the Claimant to the Tax Administration at that time was the only document in the Claimant's possession attesting to those income.

  4. The Claimant states that this is a document issued by the Institution that served as the vehicle for the acquisition and sale operations of securities, which itemized the securities, the dates, and the acquisition and sale values carried out in 2013, the exchange rates, and also mentioned the method of calculation of the operation in accordance with the "FIFO" rule, also adopted by Portuguese law for calculating gains from the sale of shares.

  5. It maintains that the statement issued in favor of the Claimant by the bank "C…" attests to the operations carried out with its intervention, regarding securities held by the Claimant, in accordance with the requirements of art. 125 of the IRS Code for credit institutions and financial companies operating in Portugal.

  6. For which reason there is no valid ground to refuse its probative force, and the printing of this statement constitutes the original document that attests to the truthfulness of the operations carried out.

  7. And that the absence of the alleged original of the document does not prevent the Claimant from declaring income obtained abroad, as follows from articles 15 of the IRS Code.

  8. Indeed, the tax obligation to declare income obtained abroad is not limited only to income contained in "original" documents or that depends on acceptance by the Tax Administration.

  9. In light of the foregoing, the decision rendered in the gracious complaint insofar as it does not accept the income declared by the Claimant in Annex J is illegal, in violation of the provisions of articles 15, 9, 10 and 125 of the IRS Code, combined with articles 362, 364, no. 1 and 365 of the Civil Code, and as such, should be annulled, with the consequent annulment of the 2013 IRS assessment.

  10. As to the disregard of gains and losses obtained in Portugal from the paid sale of securities, the Claimant alleges that in the 2013 IRS declaration filed on 31 July 2014, it declared in Annex G the gains and losses realized in 2013, through a bank account of which it is the holder at D… S.A.

  11. As they appear in the statement issued by D… regarding the operations carried out in 2012, from which it is possible to gather the acquisition values of the securities transacted in 2013 and acquired in 2012.

  12. Thus, the securities as to which the Tax Administration considered that the acquisition value was zero should be corrected in accordance with the elements contained in mentioned document no. 9, calculated in accordance with the provisions of art 43, no. 6, al. d) of the IRS Code which, in determining the balance between gains and losses, adopts the FIFO rule (first in, first out) presuming that the shares sold were those acquired the longest ago.

  13. Thus:

17.1. With regard to the security "…", in 2013, 44.5 securities were sold for the value of €2,910.33, which had been acquired for the value of €2,989.95, as follows: 34.5 securities were acquired in 2012 for the value of €2,327.91 and 10 securities were acquired in 2013 for the value of €662.04, which generated a loss of €99.62.

17.2. With regard to the security "DE…", in 2013, 1,404.5 securities were sold for the total value of €38,523.18, which had been acquired for the value of €35,505.85, as follows: 104 securities were acquired in 2012 for the total value of €2,595.93; 22.5 securities were acquired in 2012 for the total value of €568.58; 22.5 securities were acquired in 2012 for the total value of €568.58; 289 securities were acquired in 2012 for the total value of €6,597.87; 966.5 securities were acquired in 2013 for the total value of €25,174.89.

17.3. With regard to the security "DE…", in 2013, 220 securities were sold for the total value of €6,144.65, which had been acquired in 2013 for the value of €5,910.81, as follows: 94 securities were acquired on 16/08/2013 for the value of €2,501.25 corresponding to the acquisition of the security previously called "DE…"; 126 securities were acquired in 2013 for the total value of €3,409.56.

17.4. With regard to the security "ES…", in 2013, 886.50 securities were sold for the total value of €3,259.86, which had been acquired for the total value of €3,259.86, as follows: 156.50 securities were acquired in 2012 for the value of €516.45; 197.50 securities were acquired in 2012 for the value of €651.75; 532 securities were acquired in 2013 for the total value of €2,098.95; which generated a loss of €2.05.

17.5. With regard to the security "ES…", in 2013, 1,239 securities were sold for the total value of €4,858.21, which had been acquired for the value of €4,874.29, as follows: 35 were acquired in 2012 for the value of €136.77; 68.50 were acquired in 2012 for the value of €256.87; 124.50 were acquired in 2012 for the value of €474.54; 19 were acquired in 2012 for the value of €72.07; 73.50 were acquired in 2012 for the value of €277.09 (73.50"€3.77); 966 were acquired in 2013 for the value of €3,836.02; which generated a loss of €16.08.

17.6. With regard to the security "ES… - Prossegur Comp Seguridad", 179 securities were sold for the total value of €804.63, acquired in 2013 for the total value of €778.65, which corresponds to the securities previously called "ES… - Prossegur Comp- Seguridad".

17.7. With regard to the security called "ES…", 886.50 securities were sold for the value of €9,257.69, which had been acquired for the value of €9,881.45, as follows: 12.50 were acquired in 2012 for the value of €152.87; 874 were acquired in 2013 for the total value of €9,728.58.

17.8. With regard to the security "FR…" in 2013, 46.50 securities were sold for the total value of €2,393.77 which had been acquired in 2012 for the value of €1,139.25.

17.9. With regard to the security "FR…", 955 securities were sold for the total value of €16,100.30, which had been acquired for the value of €15,124.66, as follows; 69 securities were acquired in 2012 for the value of €1,096.69; 38 were acquired in 2012 for the value of €582.54; 99 were acquired in 2012 for the value of €597.83; 115 were acquired in 2012 for the value of €1,729.96; 93 were acquired in 2012 for the value of €1,437.91, and 601 were acquired in 2013 for the value of €9,679.75.

17.10. With regard to the security "FR…", 164 securities were sold for the total value of €6,693.74, which had been acquired for the value of €6,117.12, as follows; 66 securities were acquired in 2012 for the value of €2,333.76; 98 securities were acquired in 2013 for the value of €3,783.36.

17.11. With regard to the security "GB…", 3,593 securities were sold for the total value of €1,172.40, which had been acquired for the value of €1,190.85, as follows: 1,753 were acquired in 2012 for the value of €575.68; 1,840 were acquired in 2013 for the value of €615.17, which generated a loss of €18.25.

17.12. With regard to the security "GB…", 419 securities were sold for the value of €4,532.47, acquired for the value of €4,191.90, as follows: 124 securities were acquired in 2012 for the value of €1,171.58; 58.50 securities were acquired in 2012 for the value of €556.32; 236.5 securities were acquired in 2013 for the value of €2,464.00.

17.13. With regard to the security "GB…", 208.5 securities were sold for the value of €2,908.85, acquired for the value of €3,041.03, as follows: 117.50 securities were acquired in 2012 for the value of €1,737.29; 41.50 securities were acquired in 2012 for the value of €611.77; 49.50 securities were acquired in 2013 for the value of €691.97.

17.14. With regard to the security "GB…", 25 securities were sold for the value of €1,193.38, acquired in 2012 for the value of €1,152.07.

17.15. With regard to the security "GB…", 105 securities were sold for the value of €1,140.77, acquired in 2012 for the value of €1,157.69, as follows: 52.50 securities were acquired for the value of €576.61; b) 52.50 securities were acquired for the value of €581.08, which generated a loss of €16.92.

17.16. With regard to the security "…", 113 securities were sold for the value of €3,772.46, acquired in 2012 for the total value of €3,377.47, as follows: 18.5 securities were acquired for the value of €559.98; 19 securities were acquired for the value of €568.44; 75.5 securities were acquired for the value of €2,249.05.

17.17. With regard to the security "…", in 2013, 53 securities were sold for the value of €7,930.78, acquired for the value of €8,151.45, as follows: 5.50 were acquired in 2012 for the total value of €831.60; 47.50 were acquired in 2013 for the value of €7,319.85, which generated a loss of €220.70.

17.18. With regard to the security "…", in 2013, 228.50 securities were sold for the value of €3,500.00, which were acquired for the value of €3,487.56, as follows: 80 securities were acquired in 2012 for the total value of €831.60; 148.50 securities were acquired in 2013 for the value of €2,321.12.

17.19. With regard to the security "…", in 2013, 104 securities were sold for the value of €11,690.51, acquired for the value of €10,866.51, being that: 50 securities were acquired on 30 November 2011 for the total value of €5,286.50; 2.5 securities were acquired in 2012 for the total value of €267.80; 48.5 securities were acquired in 2012 for the value of €5,312.21;

17.20. With regard to the security "…", in 2013, 118,452.50 securities were sold for the value of €12,883.92, acquired for the value of €11,332.23, as follows: 16,078 securities were acquired in 2012 for the value of €1,141.54; 10,898 securities were acquired in 2012 for the value of €831.88; 3,562.5 securities were acquired in 2012 for the value of €277.88; 87,914 securities were acquired in 2013 for the value of €9,080.93.

17.21. With regard to the security "…", in 2013, 629.50 securities were sold for the value of €7,490.93, acquired for the value of €11,332.23, as follows: 101 securities were acquired in 2012 for the value of €1,186.00; 51 securities were acquired in 2012 for the value of €599.11; 46.50 securities were acquired in 2012 for the value of €548.72; 431 securities were acquired in 2013 for the value of €5,243.00.

17.22. With regard to the security "…", in 2013, 801.5 securities were sold for the value of €2,942.48, which were acquired for the value of €3,549.43, as follows: 22 securities were acquired in 2012 for the value of €63.80; 200 securities were acquired in 2012 for the value of €601.14; 579.5 securities were acquired in 2013 for the value of €2,884.49, which generated a loss of €606.95.

17.23. With regard to the security "US…", in 2013, 69.50 securities were sold for the value of €2,875.39, acquired in 2012 for the value of €2,921.80, as follows: 4.5 securities were acquired in 2012 for the value of €178.11; 7 securities were acquired in 2012 for the value of €278.13; 14.5 securities were acquired in 2012 for the value of €631.31; 13 securities were acquired in 2012 for the value of €556.82; 10 securities were acquired in 2012 for the value of €422.48; 15.5 securities were acquired in 2012 for the value of €655.53; 5 securities were acquired in 2012 for the value of €199.42, which generated a loss of €-46.41.

17.24. With regard to the security "US…", in 2013, 36 securities were sold for the value of €2,334.26, acquired in 2012 for the value of €3,549.43, as follows: 1 security acquired in 2012 for the value of €63.86; 35 securities acquired in 2012 for the value of €2,238.22, which generated a loss of €67.64.

17.25. With regard to the security "US…", in 2013, 260.50 securities were sold for the value of €13,684.44, acquired in 2012 for the value of €13,942.92, as follows: 43.5 securities acquired in 2012 for the value of €2,300.00; 33 securities acquired in 2012 for the value of €1,734.37; 11 securities acquired in 2012 for the value of €571.03; 21.5 securities acquired in 2012 for the value of €1,117.83; 21.5 securities acquired in 2012 for the value of €1,111.55; 17 securities acquired in 2012 for the value of €859.79; 11.5 securities acquired in 2012 for the value of €574.62; 13.5 securities acquired in 2012 for the value of €656.70; 35 securities acquired in 2012 for the value of €2,238.22; 88 securities acquired in 2013 for the value of €5,016.51, which generated a loss of €258.48.

17.26. With regard to the security "US…", in 2013, 260.50 securities were sold for the value of €2,966.20, which were acquired in 2012 for the value of €2,419.60, which generated a loss of €546.60.

  1. The Claimant alleges the illegality of the IRS assessment as a result of the non-consideration of the acquisition values mentioned above.

  2. In the case of securities, the taxable gain is constituted by the difference between the realization value and the acquisition value, net of the part qualified as income from capital.

  3. The acquisition value, in the case of acquisition of securities listed on the stock exchange, corresponds to the cost documented or, in its absence, that of the lowest quotation verified in the two years preceding the date of sale, if no lower one is declared.

  4. The rule fixed in the second part of art. 48 operates in cases where there is no documentation for the acquisition value, determining the rules that should govern the determination of that value.

  5. In these cases, the law provides that the acquisition value corresponds to the lowest plausible value, that is, the lowest quotation verified in the two years preceding.

  6. In accordance with the regime for taxation of gains from securities realized by taxpayers resident in Portugal under IRS in force in 2013, the Tax Administration, having established that the monetary values in question - all listed on the stock exchange - had been acquired by the Claimant, could not consider that the acquisition value was zero.

  7. When the paid sale of securities is at issue, the criteria to be adopted in determining the acquisition value of such goods is done in accordance with the criteria provided in art. 48 of the IRS Code/2013.

  8. The general rule provided here in paragraph a) is that the acquisition value corresponds to the real cost documented or, if this cannot be determined, regard shall be had to the value of the stock exchange quotation.

  9. Thus, the decision rendered in the gracious complaint and the consequent 2013 IRS assessment, insofar as it disregards the acquisition value of the securities sold in 2013 and acquired in previous years as zero, erred in the qualification and quantification of taxable income in category G, and is illegal by virtue of violation of law, and should be annulled.

  10. And, consequently, the illegality of the IRS assessment should be declared due to error in the quantification of taxable income and violation of art. 10, no. 1, 3, 4, al. a), combined with art. 44 and 48 of the IRS Code.

  11. As to the disregard of losses realized as a consequence of the dissolution, distribution, and liquidation of company B… S.A. (Madeira Free Zone), the Claimant alleges that on 8 May 1995, the Claimant subscribed to 10,800 shares of company E… S.A., NIPC…, with a nominal value of 1,000$00 each, at the price of 3,500$00 each, in the capital of that company, for the total amount of 37,800,000$00, whose equivalent in euros is €188,545.61.

  12. The Claimant maintains that by public deed dated 18/04/1997, drawn up at the Notary Office … of the Madeira Free Zone, the company B… S.A. (MADEIRA FREE ZONE) was established, NIPC…, which had its headquarters in Funchal, on Rua … no…, …, Room …, If, 9000059 Funchal, with a capital of 1,955,058,000$00.

  13. The capital, in the amount of 1,080,000,000$00, was realized in kind, through the transfer of nominative shares, representative of the capital of company E… S.A., NIPC… In this sequence, the partner, now Claimant, A…, transferred the 10,800 shares of which she was holder in the capital of company E… S.A., with the attributed value of 72,900,000$00, becoming holder of 72,900 shares, with a value of one thousand escudos each.

  14. The Claimant alleges that by a decision published on 9 May 2013, in the context of the Administrative Dissolution Process, instituted ex officio, a decision was rendered for the dissolution and liquidation of company B….

  15. By a decision published on 28 May 2013, the dissolution and closing of the liquidation became final, with mention that no active or passive assets resulted from the process to be liquidated, and therefore, in the distribution, no value was attributed to the partners.

  16. Which means that as a result of the Liquidation, the Claimant received nothing in the distribution of the company, and a loss of €188,545.61 was realized.

  17. To determine the value of income to be taxed as gains, the losses realized in that same year must be taken into account. Including, in the determination of that amount, the value attributed to the partners as a result of the distribution, to be made in accordance with the rules of art. 81 of the IRC Code.

  18. The determination of the result of the distribution is made, if applicable, in accordance with the provisions of art. 81 of the IRC Code.

  19. This loss is considered for purposes of determining the income qualified as gains, in accordance with art. 43, no. 1.

  20. Thus, the value attributed to the partners as a result of the distribution and/or liquidation of the company constitutes a gain subject to IRS tax. If it is so, and when there is a positive balance, it will be so when the balance is negative.

  21. Alleging that the 2013 IRS assessment is illegal insofar as it does not consider the loss resulting from the result of the distribution, by virtue of violation of law, by error in the interpretation and application of art. 10, no. 1, al. b) and 43 of the IRS Code, combined with art. 81 of the CIRC.

  22. The Claimant concludes by alleging that, as there is no grounds for the Tax Administration to refuse the document opportunely delivered by the Claimant, the disputed assessment should be annulled.

D - RESPONSE OF THE RESPONDENT

  1. The Respondent, duly notified for this purpose, timely submitted its response in which, in abbreviated summary, alleged the following:

  2. As to the disregard of gains and losses obtained abroad, the respondent alleges that, in the first place, both the document allegedly issued by the entity "C…", titled "Informations pour votre déclaration d'impôt", constitute documents drawn up in a foreign language and not accompanied by the respective translation, as required by law.

  3. The respondent alleges that a document titled "Informations pour votre déclaration d'impôt" is found and that the same contains a reference to «C…», «Avis sans signature», but on the other hand, on pages 39 to 47 of the PA is found a copy of a bank statement in which no identification is made as to: 1) issuing bank, 2) customer to which it refers (identifying the Claimant here by name or any type of personal identification number, or in the capacity of customer) which would allow establishing any connection between said bank statement, said bank, and the Claimant here, and allegedly customer and holder of the income in question.

  4. Further, it defends that nothing permits even establishing any relationship of belonging of said statement to the first part of the letter titled "Informations pour votre déclaration d'impôt", nor even a possible sequential pagination or a reference to any annex to the letter.

  5. The respondent argues regarding Doc. no. 8, attached to the request for arbitral decision, to which the Claimant refers in article 17 of the PI, as dealing with a «new statement with the list of gains and losses realized in 2013», the same is completely illegible due to deficient digitization/printing, or for any other reason unknown, which, however, makes it impossible to even read the document in question.

  6. Reason for which the Respondent can only challenge the content of both documents and as such the totality of the values contained therein, as these cannot constitute any suitable proof regarding the values declared by the Claimant in Annex J of the Model 3 IRS Declaration controlled in these proceedings.

  7. The respondent alleges that it is the responsibility of the taxpayer to present suitable supporting documents, from which it results with rigor that the realization and acquisition values declared correspond to the truth, and that, consequently, resulted in the year in question in the receipt of a security loss.

  8. And the respondent alleges that the documents presented by the Claimant are not suitable to prove the income from securities obtained in Switzerland, because, in addition to being drawn up in a foreign language and not accompanied by a legal translation: a) they were issued by a banking entity that is not possible to identify in the statement b) because such statement does not allow identifying the Claimant as being the holder of that income, and c) since doc. 8 attached to the PI is completely illegible.

  9. Concluding that the documents presented by the Claimant do not serve as proof of the income earned in Switzerland, which is why the values contained in Annex J were not and cannot be accepted.

  10. As to the disregard of gains and losses obtained in Portugal from the paid sale of securities, the respondent alleges that the statement from D…, submitted by the Claimant, referring to operations carried out in 2012, in order to prove the acquisition values of securities acquired in 2012. The document attached for this purpose is presented incomplete, making it impossible to impugn in full what is alleged by the Claimant as to the amounts spent on the acquisition of the securities in question.

  11. Maintaining that it is a matter of a final balance of gains and losses that depends on the analysis of the document attached by the Claimant with no. 10, and the AT cannot accept the presentation of the same incomplete.

  12. As to the disregard of losses realized as a consequence of the dissolution, distribution, and liquidation of company B… S.A. (Madeira Free Zone), the respondent alleges, in accordance with paragraph d) of article 10 of the CIRS, that gains are constituted which, not being considered business and professional income, capital or property income, result from the paid sale of company shares or other securities, and also the value attributed to the partners as a result of the distribution which, in accordance with article 81 of the CIRC, is considered as a gain.

  13. And it maintains that the Claimant did not proceed with the paid sale of shares of company B…, S.A., what happened was that it was dissolved and liquidated by order rendered in the Administrative Process instituted ex officio after communication from the Tax Authority, as it appears in the registration of the company that by order of the Secretary of the Regional Plan and Finance the revocation of the license for the company to operate within the institutional framework of the Madeira Free Zone was declared.

  14. Alleging that there was no paid sale of the partnership shares, nor was any value attributed to the partners as a result of the distribution, which is why the incidence rules in question are not met, and consequently the extinction of the company cannot be considered for purposes of gains and losses for tax purposes, in accordance with the provisions of article 10 of the CIRS.

  15. The respondent concludes its response that, in light of the arguments advanced, the legality of the acts which are the subject of the present arbitral request is evident, and consequently the claims made by the Claimant are lacking in foundation.

  16. Additionally, the respondent, duly notified to submit its response to the request and documents attached later by the Claimant, did so in the following terms:

  17. As to the bank statement issued by C…, now attached to the present proceedings accompanied by the respective legal translation, notwithstanding the current legal compliance of the document in question from the procedural point of view, in view of the provisions of articles 133 and 134 of the Code of Civil Procedure (CPC), still, with due respect, the allegations made by the Claimant regarding the suitability/sufficiency of the document in question to prove the income obtained abroad in the year in question cannot proceed because the same are contrary to law.

  18. Indeed, in accordance with the provisions of articles 13 and 15, no. 1 of the IRS Code (CIRS), the Claimant, in its capacity as a taxpayer resident in Portuguese territory, is subject to IRS which applies to the totality of income, including that obtained abroad.

  19. It further notes that, as it concerns gains or losses from securities, in the terms of article 13 of the Convention to Avoid Double Taxation concluded between Portugal and Switzerland (CDT), Portugal as the country of residence always has the competence to tax.

  20. Namely, how can the AT know that these were the only gains and losses obtained in Switzerland by the Claimant. Indeed, since the document in question is a statement issued by a banking institution, it alone is not suitable for it to be possible to determine with certainty that the Claimant did not obtain other income from securities, for example, through another banking institution, and which might even constitute a change in the balance obtained between the gains and losses declared by the Claimant.

  21. Indeed, only an official declaration from the source of the income would allow confirmation of the declared values regarding the gains and losses obtained, and as such, be accepted as suitable proof of all income earned.

  22. Which is why, being the proof in question a proof of a substantive nature, the document presented is not suitable as proof of the declared income.

  23. The respondent argues regarding the document attached to the request for arbitral decision as doc. 10 (incomplete), and now attached to the present proceedings complete (composed of 35 pages) and which constitutes a Statement of movements of registration/deposits of securities issued by D….

  24. Having analyzed said document, it is concluded that from it does not result the proof of the acquisition values of the securities acquired in 2012, which proof the Claimant intended to effect.

  25. The respondent alleges that the acquisition values of 2012 are not proven regarding D…, ES…; ES…; ES…; LU….

  26. The respondent alleges that the Claimant attached supporting documents for the dates and values of acquisition of the partnership shares and securities declared in section 8 of Annex G, acquired on dates prior to 2013, which is why there remain no doubts that, even if admitted (without conceding) that the said proof succeeded in carrying out through this latter document alone attached to the proceedings on 22/03/2016, and therefore in a phase subsequent to the pleadings, the respondent can never be condemned to pay indemnity interest on the basis of error attributable to the services, nor either, be attributed to the respondent responsibility as to procedural costs (arbitration fee), in case of total or partial success of the present arbitral action.

  27. The respondent concludes that the Claimant should be, in the matter of procedural costs, condemned to costs, the party that gave rise to the arbitral proceedings, it was unequivocally the Claimant who gave cause to the present action by making proof of the facts constitutive of its rights, not only after the end of the gracious procedure, but much after the date of filing of the action itself, thus making impossible any eventual revocation of the impugned act within the period provided for in article 13 of the RJAT, that is, before the constitution of the Arbitral Tribunal.

  28. The respondent presented written arguments, in which in summary sustains the following:

  29. The thema decidendum in the present proceedings is divided into three essential issues which, according to the Claimant, should have led to the full granting of the gracious complaint presented and consequently to the reform of the 2013 IRS assessment, in accordance with the elements declared in the Model 3 IRS declaration filed on 31 July 2014. The disregard of gains and losses obtained abroad, declared in Annex J; The incorrect quantification of gains and losses obtained in Portugal with the paid sale of securities; And the non-acceptance of the losses realized by the Claimant from the sale of shares it held in the capital of company B…, S.A. (ZFM).

  30. The Respondent understands that it has been demonstrated in the proceedings that its position is correct, resulting unequivocally from the PA, the documents attached by the Claimant to the request for arbitral decision, and also from the facts set forth above.

E - FACTUAL FOUNDATION

  1. Before proceeding to examine these issues, it is necessary to present the factual matter relevant to the respective understanding and decision, which was made on the basis of documentary evidence and taking into account the facts alleged.

  2. As to the factual matter relevant, the present tribunal deems the following facts to be established:

  3. The Claimant filed the Model 3 IRS declaration on 30 May 2014, from which resulted the assessment no. 2014…, dated 16 June 2014, which gave rise to the notice of collection no. 2014… of 16/06/2014 in the amount of 44,404.59€.

  4. On 31 July 2014, the Claimant submitted a replacement declaration of the Model 3 IRS to which was assigned the no. …-2013-…-….

  5. On 2 October 2014, the Claimant filed a gracious complaint of both acts pursuant to article 68 of the CPPT, to which was assigned the number Proc. no. …2014….

  6. On 22 December 2014, the Claimant made a partial payment of the 2013 IRS in the amount of 13,854.06€.

  7. The Claimant was notified of the express rejection of the gracious complaint by official letter no. … of 19.06.2015.

F - UNPROVEN FACTS

  1. Of the facts of interest for the decision of the case, contained in the impugnation, all objects of concrete analysis, those not contained in the factuality described above were not proven.

G - QUESTIONS TO BE DECIDED

  1. In light of the positions of the parties assumed in the arguments presented, the central issues to be decided are the following, which must therefore be examined and decided:

a. Alleged by the Claimant:

Declaration of illegality of the tax assessment act relating to Personal Income Tax, no. 2015…, which set a total tax payable of €44,404.59 (forty-four thousand four hundred and four euros and fifty-nine cents).

H - MATTERS OF LAW

  1. Having regard to the positions of the parties assumed in the pleadings presented, the central issue to be decided by the present arbitral tribunal consists of examining the legality of the acts of assessment of Personal Income Tax, no. 2015…, which set a total tax payable of €44,404.59, for the vice of violation of law as to incorrect qualification and quantification of taxable income.

  2. In the present case, it falls to the tribunal to decide on three situations:

I. As to the sale of securities obtained abroad, specifically in Switzerland;

II. As to the sale of securities carried out in Portugal;

III. And as to the sale of securities in the Madeira free zone of company B…, S.A.

  1. The tax year of reference for all the situations described above is the fiscal year 2013, and the law applicable is that in force on that date.

  2. Having not been impugned by the parties the place of taxation of the income, it is established that the same is Portugal, in accordance with article 15 of the CIRS, and in the terms of article 13 of the Convention to Avoid Double Taxation concluded between Portugal and Switzerland.

I - As to the sale of securities obtained abroad

  1. The Claimant realized in 2013 gains and losses from the paid sale of securities (shares) in Switzerland, having declared these operations in Section 4B of the IRS declaration.

  2. The Claimant, to prove the transactions, presented a statement issued by "C…" titled "Informations pour votre déclaration d'impôt", however the translation of these documents was only attached later during the present arbitral proceedings.

  3. The Respondent understands that the documents presented by the Claimant do not serve as proof of the income obtained in Switzerland, and for this reason were not, and cannot be accepted, the values contained in Annex J.

  4. The argument invoked by the Respondent, that a statement issued by a banking institution is not suitable for it to be possible to determine with certainty that the Claimant did not obtain other income from securities, and that only an official declaration from the source of the income would permit confirmation of the declared values, has no legal basis whatsoever.

  5. However, it is not sufficient for the respondent to invoke the alleged lack of suitability of the document and the possible existence of other income earned by the Claimant in Switzerland without demonstrating or presenting documentary or testimonial proof to accompany the invocation.

  6. In accordance with articles 74, no. 1 of the LGT and 342, no. 1 of the CC, the burden of proof falls on whoever invokes it, and it falls to the AT to prove that the document is not suitable and that there is other income earned by the Claimant in Switzerland.

  7. The Respondent did not make sufficient proof or join elements that would demonstrate that the statement issued by "C…" is not suitable and that its content does not correspond to the truth.

  8. Indeed, according to the assessment in question, the gains obtained in Switzerland declared by the taxpayer in its income declaration are taxed and accepted by the AT, and the document joined by the Claimant proves the same, it is not logical that the losses obtained abroad and justified by the same document are not also accepted.

  9. Further, the Respondent invoking that other income may have been earned by the Claimant in Switzerland not declared by the Claimant, there are legal mechanisms designed for this purpose to determine such situation, and mere invocation of it is not sufficient.

  10. It is important to emphasize that according to the principle of free evaluation of evidence, the Court bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its experience of life and knowledge of persons (see art. 607, no. 5, of the C.P. Civil, as amended by Law 41/2013, of 26/6).

  11. In these terms, it falls to the present tribunal to set forth the legal regime and the legal requirements necessary to prove the transactions in question.

  12. It is the responsibility of the taxpayer to make proof of the income earned, as results from article 128, and from article 74, no. 1 of the LGT, which tells us "the burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them," in consonance with article 342, no. 1 of the CC, "He who invokes a right has the burden of proving the facts constitutive of the right claimed."

  13. Of importance to the case is article 128 of the CIRS, which we cite:

Obligation to prove the elements of the declarations

1 - Persons subject to IRS must present, within the period set for them, the documents evidencing the income earned, the deductions and allowances and other facts or situations mentioned in their respective declaration, when the General Directorate of Taxes requests them. (Amendment of DL 198/2001, of 3 July)

2 - The obligation established in the preceding number is maintained during the four years following that to which the documents refer. (Amendment of DL 160/2003, of 19 July)

3 - The loss of the documents referred to in no. 1 for reasons not attributable to the taxpayer does not prevent him from using other elements of proof of those facts.

  1. Additionally, it follows in accordance with article 365 of the Civil Code, as to documents passed in a foreign country,

"1. Authentic or private documents passed in a foreign country, in accordance with the respective law, make proof as they would be made of documents of the same nature executed in Portugal.

  1. If the document is not legalized, in accordance with procedural law, and there are well-founded doubts about its authenticity or the authenticity of the recognition, it may be required to be legalized."

  2. Further says article 366 of the Civil Code, "The probative force of the written document which lacks some of the requirements required by law is freely evaluated by the tribunal."

  3. In conformity with the principle of free evaluation of evidence and with the legal framework referred to above, specifically articles 128 of the CIRS and articles 365 and 366 of the CC, it results that the documents make proof as the documents executed in Portugal would make.

  4. Additionally and of importance for the situation in question, article 75, no. 1 of the LGT, which prescribes:

"The declarations of taxpayers presented in accordance with the provisions of law are presumed to be true and in good faith, as well as the data and determinations entered in their accounting or accounts, when these are organized in accordance with commercial and tax legislation, without prejudice to the other requirements on which the deductibility of expenses depends. (Amendment of Law no. 80-C/2013 of 31 December)".

  1. Having not been rebutted the presumption provided in accordance with article 75, no. 1 of the LGT, the declarations of the taxpayers are presumed to be true and in good faith, the document joined by the Claimant must be accepted as suitable, valid.

  2. Thus they are accepted as documents of proof of the income earned.

  3. Now regarding the question of whether its content is sufficient to prove the income earned by the Claimant in accordance with article 128 of the CIRS, it falls to the present tribunal to determine.

  4. Regarding the document joined by the Claimant to prove the income earned in Switzerland, in accordance with article 128 of the CIRS, there is no obligation for the taxpayer to deliver a specific document, or a document issued by the Tax Authorities of the country where the operation was carried out.

  5. It results that the document presented, a statement issued by "C…", is issued by a Banking Institution, globally recognized, joined by the Claimant in accordance with article 128 of the CIRS and article 75, no. 1 of the LGT, it is presumed that its content is true.

  6. [paragraph number appears but no content provided in original]

  7. In light of the foregoing, the gains and losses from securities (shares) obtained and realized in Switzerland and declared by the taxpayer in its income declaration and respective Annex J are considered valid and proven.

  8. In these terms, it is illegal by virtue of violation of law, the tax assessment acts relating to Personal Income Tax, no. 2015…, as to the incorrect application.

As to the sale of securities carried out in Portugal.

  1. As to the sale of securities carried out in Portugal, the Claimant alleges that the AT, not having been able to determine the acquisition value of the securities acquired in 2013, considered the acquisition value of the same as zero.

  2. The Claimant declared the realization value of 1,150,316.23€, and the acquisition value is 1,119,235.38€, which generates a gain of 31,080.85€.

  3. The respondent alleges that the documents joined by the Claimant for justification of the acquisition values resulted in a determination of a realization value of €569,888.12 and an acquisition value of 484,737.13€.

  4. In light of the foregoing, it falls to the taxpayer to make proof of the income earned, as results from article 128, and from articles 74, no. 1 of the LGT, which tells us "the burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them," in consonance with article 342, no. 1 of the CC, "He who invokes a right has the burden of proving the facts constitutive of the right claimed."

  5. In these terms, the Claimant joined as documentary proof to prove the income a statement from D… S.A.

  6. In accordance with the principle of free evaluation of evidence, and especially having not been raised by the parties the suitability or truthfulness of the document joined, the present tribunal accepts the document joined as true and suitable, in accordance with article 75, no. 1 of the LGT.

  7. Succinctly, resorting to article 10 of the CIMI, gains are constituted by the earnings obtained from the paid sale of company shares and of other securities, it being that the gain subject to IRS is the difference between the realization value and the acquisition value, net of the part qualified as income from capital.

  8. Additionally, article 43, no. 1 states "1 - The value of income qualified as gains is that corresponding to the balance determined between the gains and losses realized in the same year, determined in accordance with the following articles" and in particular for the case sub judice article 43, no. 1 "d) In the case of securities of the same nature and which confer identical rights, those sold are those acquired the longest ago;"

  9. It falls to the present tribunal to examine the document joined and its respective content and determine what the realization value is.

  10. In accordance with article 44, no. 1, paragraph f) of the CIRS, the realization value is considered to be the value of the respective consideration.

  11. And the acquisition value is understood as the documented cost or, in its absence, the respective nominal value, art. 48, no. 1, paragraph b) of the CIRS.

  12. In accordance with the legal framework set forth above, it is presumed that the document joined "Statement of movements of registration/deposits of securities issued by D…" is true and in good faith.

  13. From said document it is possible to verify the acquisition values of the securities acquired in 2012 and transacted in 2013.

  14. Thus as to the acquisition values, the value attributed by the AT to the securities acquired in 2012, respectively the value of zero euros, cannot be accepted.

  15. In light of the foregoing and the documentary evidence joined by the claimant, the realization and acquisition value is established as proven, which should be used for the calculation of the gains described below:

122.1. With regard to the security "BE…", in 2013, 44.5 securities were sold for the value of €2,910.33, which had been acquired for the value of €2,989.95, as follows:

122.1.1. 34.5 securities were acquired in 2012 for the value of €2,327.91 and 10 securities were acquired in 2013 for the value of €662.04;

122.1.2. which generated a loss of €99.62.

122.2. With regard to the security "DE…", in 2013, 1,404.5 securities were sold for the total value of €38,523.18, which had been acquired for the value of €35,505.85, as follows:

122.2.1. 104 securities were acquired in 2012 for the total value of €2,595.93; 22.5 securities were acquired in 2012 for the total value of €568.58; 22.5 securities were acquired in 2012 for the total value of €568.58; 289 securities were acquired in 2012 for the total value of €6,597.87; 966.5 securities were acquired in 2013 for the total value of €25,174.89.

122.2.2. which generated a gain of €3,017.33.

122.3. With regard to the security "DE…", in 2013, 220 securities were sold for the total value of €6,144.65, which had been acquired in 2013 for the value of €5,910.81, as follows:

122.3.1. 94 securities were acquired on 16/08/2013 for the value of €2,501.25 corresponding to the acquisition of the security previously called "DE…"; 126 securities were acquired in 2013 for the total value of €3,409.56.

122.3.2. which generated a gain of €233.84.

122.4. With regard to the security "ES…", in 2013, 886.50 securities were sold for the total value of €3,259.86, which had been acquired for the total value of €3,267.15, as follows:

122.4.1. 156.50 securities were acquired in 2012 for the value of €516.45; 197.50 securities were acquired in 2012 for the value of €651.75; 532 securities were acquired in 2013 for the total value of €2,098.95;

122.4.2. which generated a loss of €7.59.

122.5. With regard to the security "ES…", in 2013, 1,239 securities were sold for the total value of €4,858.21, which had been acquired for the value of €4,874.29, as follows:

122.5.1. 35 were acquired in 2012 for the value of €136.77; 68.50 were acquired in 2012 for the value of €256.87; 124.50 were acquired in 2012 for the value of €474.54; 19 were acquired in 2012 for the value of €72.07; 73.50 were acquired in 2012 for the value of €277.09 (73.50"€3.77); 966 were acquired in 2013 for the value of €3,836.02;

122.5.2. which generated a loss of €16.08.

122.6. With regard to the security "ES… - Prossegur Comp Seguridad", which corresponds to the securities previously called "ES… - Prossegur Comp- Seguridad", 179 securities were sold for the total value of €804.63, acquired in 2013 for the total value of €778.65:

122.6.1. which generated a gain of €25.98.

122.7. With regard to the security called "ES…", 886.50 securities were sold for the value of €9,257.69, which had been acquired for the value of €9,881.45, as follows:

122.7.1. 12.50 were acquired in 2012 for the value of €152.87; 874 were acquired in 2013 for the total value of €9,728.58.

122.7.2. which generated a gain of €623.76.

122.8. With regard to the security "FR…" in 2013, 46.50 securities were sold for the total value of €2,393.77 which had been acquired in 2012 for the value of €1,139.25.

122.8.1. which generated a gain of €1,254.52.

122.9. With regard to the security "FR…", 955 securities were sold for the total value of €16,100.30, which had been acquired for the value of €15,124.66, as follows:

122.9.1. 69 securities were acquired in 2012 for the value of €1,096.69; 38 were acquired in 2012 for the value of €582.54; 99 were acquired in 2012 for the value of €597.83; 115 were acquired in 2012 for the value of €1,729.96; 93 were acquired in 2012 for the value of €1,437.91, and 601 were acquired in 2013 for the value of €9,679.75.

122.9.2. which generated a gain of €975.64.

122.10. With regard to the security "FR…", 164 securities were sold for the total value of €6,693.74, which had been acquired for the value of €6,117.12, as follows:

122.10.1. 66 securities were acquired in 2012 for the value of €2,333.76; 98 securities were acquired in 2013 for the value of €3,783.36.

122.10.2. which generated a gain of €1,449.60.

122.11. With regard to the security "GB…", 3,593 securities were sold for the total value of €1,172.40, which had been acquired for the value of €1,190.85, as follows:

122.11.1. 1,753 were acquired in 2012 for the value of €575.68; 1,840 were acquired in 2013 for the value of €615.17;

122.11.2. which generated a loss of €18.25.

122.12. With regard to the security "GB…", 419 securities were sold for the value of €4,532.47, acquired for the value of €4,191.90, as follows:

122.12.1. 124 securities were acquired in 2012 for the value of €1,171.58; 58.50 securities were acquired in 2012 for the value of €556.32; 236.5 securities were acquired in 2013 for the value of €2,464.00.

122.12.2. which generated a gain of €340.57.

122.13. With regard to the security "GB…", 208.5 securities were sold for the value of €2,908.85, acquired for the value of €3,041.03, as follows:

122.13.1. 117.50 securities were acquired in 2012 for the value of €1,737.29; 41.50 securities were acquired in 2012 for the value of €611.77; 49.50 securities were acquired in 2013 for the value of €691.97.

122.13.2. which generated a gain of €132.18.

122.14. With regard to the security "GB…", 25 securities were sold for the value of €1,193.38, acquired in 2012 for the value of €1,152.07.

122.14.1. which generated a gain of €41.07.

122.15. With regard to the security "GB…", 105 securities were sold for the value of €1,140.77, acquired in 2012 for the value of €1,157.69, as follows:

122.15.1. 52.50 securities were acquired for the value of €576.61; 52.50 securities were acquired for the value of €581.08;

122.15.2. which generated a loss of €16.92.

122.16. With regard to the security "IE…", 113 securities were sold for the value of €3,772.46, acquired in 2012 for the total value of €3,377.47, as follows:

122.16.1. 18.5 securities were acquired for the value of €559.98; 19 securities were acquired for the value of €568.44; 75.5 securities were acquired for the value of €2,249.05.

122.16.2. which generated a gain of €394.99.

122.17. With regard to the security "…", in 2013, 53 securities were sold for the value of €7,930.78, acquired for the value of €8,151.45, as follows:

122.17.1. 5.50 were acquired in 2012 for the total value of €831.60; 47.50 were acquired in 2013 for the value of €7,319.85;

122.17.2. which generated a loss of €220.70.

122.18. With regard to the security "…", in 2013, 228.50 securities were sold for the value of €3,500.00, which were acquired for the value of €3,487.56, as follows:

122.18.1. 80 securities were acquired in 2012 for the total value of €831.60; 148.50 securities were acquired in 2013 for the value of €2,321.12.

122.18.2. which generated a gain of €12.44.

122.19. With regard to the security "LU…", in 2013, 104 securities were sold for the value of €11,690.51, acquired for the value of €10,866.51, as follows:

122.19.1. 50 securities were acquired on 30 November 2011 for the total value of €5,286.50; 2.5 securities were acquired in 2012 for the total value of €267.80; 48.5 securities were acquired in 2012 for the value of €5,312.21;

122.19.2. which generated a gain of €824.00.

122.20. With regard to the security "…", in 2013, 118,452.50 securities were sold for the value of €12,883.92, acquired for the value of €11,332.23, as follows:

122.20.1. 16,078 securities were acquired in 2012 for the value of €1,141.54; 10,898 securities were acquired in 2012 for the value of €831.88; 3,562.5 securities were acquired in 2012 for the value of €277.88; 87,914 securities were acquired in 2013 for the value of €9,080.93.

122.20.2. which generated a gain of €1,551.69.

122.21. With regard to the security "…", in 2013, 629.50 securities were sold for the value of €7,490.93, acquired for the value of €11,332.23, as follows:

122.21.1. 101 securities were acquired in 2012 for the value of €1,186.00; 51 securities were acquired in 2012 for the value of €599.11; 46.50 securities were acquired in 2012 for the value of €548.72; 431 securities were acquired in 2013 for the value of €5,243.00.

122.21.2. which generated a gain of €3,841.30.

122.22. With regard to the security "…", in 2013, 801.5 securities were sold for the value of €2,942.48, which were acquired for the value of €3,549.43, as follows:

122.22.1. 22 securities were acquired in 2012 for the value of €63.80; 200 securities were acquired in 2012 for the value of €601.14; 579.5 securities were acquired in 2013 for the value of €2,884.49.

122.22.2. which generated a loss of €606.95.

122.23. With regard to the security "US…", in 2013, 69.50 securities were sold for the value of €2,875.39, acquired in 2012 for the value of €2,921.80, as follows:

122.23.1. 4.5 securities were acquired in 2012 for the value of €178.11; 7 securities were acquired in 2012 for the value of €278.13; 14.5 securities were acquired in 2012 for the value of €631.31; 13 securities were acquired in 2012 for the value of €556.82; 10 securities were acquired in 2012 for the value of €422.48; 15.5 securities were acquired in 2012 for the value of €655.53; 5 securities were acquired in 2012 for the value of €199.42.

122.23.2. which generated a loss of €-46.41.

122.24. With regard to the security "US…", in 2013, 36 securities were sold for the value of €2,334.26, acquired in 2012 for the value of €3,549.43, as follows:

122.24.1. 1 security acquired in 2012 for the value of €63.86; 35 securities acquired in 2012 for the value of €2,238.22.

122.24.2. which generated a loss of €67.64.

122.25. With regard to the security "US…", in 2013, 260.50 securities were sold for the value of €13,684.44, acquired in 2012 for the value of €13,942.92, as follows:

122.25.1. 43.5 securities acquired in 2012 for the value of €2,300.00; 33 securities acquired in 2012 for the value of €1,734.37; 11 securities acquired in 2012 for the value of €571.03; 21.5 securities acquired in 2012 for the value of €1,117.83; 21.5 securities acquired in 2012 for the value of €1,111.55; 17 securities acquired in 2012 for the value of €859.79; 11.5 securities acquired in 2012 for the value of €574.62; 13.5 securities acquired in 2012 for the value of €656.70; 35 securities acquired in 2012 for the value of €2,238.22; 88 securities acquired in 2013 for the value of €5,016.51.

122.25.2. which generated a loss of €258.48.

122.26. With regard to the security "US…", in 2013, 260.50 securities were sold for the value of €2,966.20, which were acquired in 2012 for the value of €2,419.60:

122.26.1. Which generated a loss of €546.60.

  1. In light of the foregoing, the acquisition and realization values described above of the securities acquired by the taxpayer are considered proven.

  2. Consequently, and in accordance with the document from D…, it results that the realization value is 1,150,316.23€ and the acquisition value is 1,119,235.38€, which generates a gain of 31,080.85€.

  3. In these terms, it is illegal by virtue of violation of law, the tax assessment acts relating to Personal Income Tax, no. 2015…, and the respective annulment of the acquisition value attributed by the AT proceeds and the respective correction in accordance with the documentary proof joined.

III - As to the sale of securities in the Madeira free zone of company B… S.A.

  1. The Claimant understands that the result in the amount of 188,545.61€ (37,800,000$00), resulting from the distribution and liquidation of the extinct company B…, S.A. should be considered as a loss for purposes of determining the balance of gains taxable under IRS.

  2. The position assumed by the Respondent understands that the taxation of gains is intended to tax the seller for the patrimonial gains resulting from the sale of a particular asset for a value greater than that at which it was acquired, and that there was no paid sale of the partnership shares, nor was any value attributed to the partners as a result of the distribution.

  3. Further it states that the incidence rules in question are not met, and consequently the extinction of the company cannot be considered for purposes of gains and losses for tax purposes.

  4. In light of the position assumed by the parties, regarding the facts proven for the present section III of the foundation and matters of law of the present arbitral decision, it is important:

a) The Claimant subscribed to 10,800 [shares] of company E… S.A., with a nominal value of 1,000$00 each, at the price of 3,500$00 each, for the total amount of 37,800,000$00, now converted to Euro in the amount of 188,545.61€.

b) By public deed executed in the Notary Office … of the Madeira Free Zone on 18.04.1997, Company B… S.A. was established.

c) The Claimant transferred 10,800 shares of which she was holder in E… S.A. to B… S.A. (NIPC…), becoming holder of 72,900 shares valued at 1,000$00 each, or 72,900,000$00.

d) By a decision published on 28.05.2013, in the context of the Administrative Dissolution Process, the decision to dissolve and liquidate company B… S.A. was rendered, a decision in which the dissolution and closing became final, and no active or passive assets resulted from the process to be liquidated.

e) According to the decision, no value was attributed to the partners resulting from the dissolution.

f) The respondent in the context of the administrative process verified that there was no active or passive assets to liquidate.

g) In accordance with article 48, paragraph b) of the CIRS, the acquisition value is 188,545.61€ (37,800,000$00).

h) The Claimant in field 808 of Annex G placed as the realization value the amount of 0.01€ (one cent), as it was not possible to place the value of 0€ (zero euros).

  1. In accordance with the legal regime for gains provided for in article 10, no. 1, paragraph b);

"1 - Gains are constituted by earnings obtained that, not being considered business and professional income, capital or property income, result from: b) Paid sale of company shares, including their redemption and amortization with capital reduction, and of other securities and also the value attributed to the partners as a result of the distribution which, in accordance with article 81 of the IRC Code, is considered as a gain; (Amendment given by Law no. 64-B/2011, of 30 December);"

  1. The reference to article 81 of the CIRC, in the version in force in 2013, with the title "Result of Distribution", provides the following:

"1 — The amount attributed to each of them as a result of the distribution, minus the acquisition cost of the corresponding partnership shares, is included for purposes of taxation of the partners in the tax period in which it is made available to them.

2 — In the inclusion, for purposes of taxation of the difference referred to in the preceding number, the following must be observed:

a) That difference, when positive, is considered as income from the application of capital up to the limit of the difference between the value that was attributed and that which, in view of the accounting of the liquidated company, corresponds to entries effectively made for the realization of capital, with any excess having the nature of taxable gain;

b) That difference, when negative, is considered as a loss, being deductible only when the partnership shares have remained in the ownership of the taxpayer during the three years immediately preceding the date of dissolution, and for the amount exceeding the tax losses transmitted in the context of the application of the special taxation regime for groups of companies and provided that the liquidated entity is not resident in a country, territory or region with a tax regime clearly more favorable than that included in a list approved by order of the Minister of Finance."

  1. In accordance with the legal regime for gains, the taxation of gains in Category G of the CIRS is the result of determining the balance of gains and losses, cf. Article 43, no. 1 of the CIRS.

  2. The legal framework of article 10, no. 1, paragraph b) of the CIRS (and of article 81 of the CIRC) considers that there is a paid sale through the distribution, considering that the value attributed as a result of the distribution in accordance with article 81 of the CIRC is that used to calculate the balance of gains.

  3. There is thus an equating of the distribution or dissolution with the paid sale of article 10, no. 1, paragraph b) of the CIRS.

  4. In the present case, it is necessarily necessary to accept that in the context of the Administrative Dissolution Process, in which a decision was rendered for the dissolution and liquidation of company B…, S.A., a value was attributed to the distribution.

  5. A value that, motivated by the fact that there was neither passive nor active in the company, was attributed the value of 0€ (zero euros).

  6. A value that must be considered for the purpose of calculating the inclusion provided for in article 81, no. 1 and 2 of the CIRC.

  7. Consequently, article 81, no. 2, paragraph b) expressly states "that difference, when negative, is considered as a loss."

  8. Additionally, this is the path followed in the regime provided in article 44, no. 1, paragraph f) of the CIRS, as to what is understood as realization value, the realization value is considered to be the value of the respective consideration, that is, the value received in exchange.

  9. However, in accordance with article 10, no. 1, paragraph b), it tells us that gains are constituted by earnings obtained that result from a paid sale.

  10. Setting forth the following, we see with clarity that the requirement of paid sale is met, as follows:

141.1. the value attributed in the context of the result of the distribution was zero, not by express will of the Claimant, but because of the decision to dissolve and liquidate the company, by reason of the fact that there was neither passive nor active in the company,

141.2. there is an exit from the legal and patrimonial sphere of the taxpayer, without any possibility of recovery;

141.3. the result of the distribution is zero, and the cost of acquisition of the corresponding partnership shares (article 81, no. 1 of the CIRC) is 37,800,000$00, corresponding to 188,545.61€.

141.4. the difference results in a patrimonial decrease of 188,545.61€ in the sphere of the taxpayer;

141.5. the Claimant had a total loss of the capital invested in the company.

  1. This patrimonial decrease is a paid sale, albeit negative, and in accordance with articles 81 of the CIRC, no. 2, paragraph b), That difference, when negative, is considered as a loss.

  2. The very concept of gains or losses is a patrimonial gain in the case of gains, or a patrimonial decrease in the case of losses, in both cases paid alienations, positive or negative.

  3. Necessarily, it cannot be considered that there is a sale of the shares free of charge or not onerous, since the value determined, although zero euros, results from an accounting and judicial work, final and conclusive, from which the result of the determination was zero euros.

  4. In light of the foregoing, the amount of 188,545.61€, resulting from the distribution and liquidation of the extinct company B…, should be considered a loss for purposes of determining the balance of gains taxable under IRS.

  5. In these terms, it is illegal by virtue of violation of law, the tax assessment acts relating to Personal Income Tax, no. 2015…, as to the incorrect application.

I - DECISION

Therefore, having regard to all the foregoing, the present Arbitral Tribunal decides:

  1. To judge the request for declaration of illegality of the tax assessment act relating to Personal Income Tax, no. 2015…, which set a total tax payable of €44,404.59 (forty-four thousand four hundred and four euros and fifty-nine cents), for the vice of violation of law, by error on the legal presuppositions, which justifies the declaration of its illegality and annulment, as well-founded.

  2. To condemn the Respondent to refund to the Claimant that amount improperly assessed and paid.

The value of the proceedings is set at €44,404.59, the amount of the assessment, having regard to the economic value of the proceedings assessed by the value of the tax assessments disputed, and in conformity the costs are set at the respective amount of 2,142.00€ (two thousand one hundred and forty-two euros) to be borne by the Respondent in accordance with article 12, no. 2 of the Tax Arbitration Regime, of article 4 of the RCPAT and of Table I attached to the latter. – no. 10 of art. 35, and no. 1, 4 and 5 of art. 43 of the LGT, art. 5, no., al. a) of the RCPT, 97-A, no. 1, al. a) of the CPPT and 559 of the CPC).

Notify.

Lisbon, 21 June 2016

The Arbitrator

Dr. Paulo Ferreira Alves