Process: 619/2016-T

Date: April 28, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration addresses the calculation of real estate capital gains (mais-valias) for IRS purposes when property was acquired through inheritance under the former CIMSISD regime. The taxpayers inherited property in 1989/1990 and sold it in 2013, triggering an IRS assessment of €47,303.72. The core dispute concerns Article 45 of the Portuguese IRS Code (CIRS) and which acquisition value applies for capital gains calculation. The claimants argued that the patrimonial tax value (valor patrimonial tributário) at the date of sale (2013), determined under Decree-Law 287/2003, should be used rather than the historical tax value from 1989/1990 when inheritance occurred. They contended that using the old CIMSISD valuation creates disproportionate inequality compared to post-2004 inheritances subject to mandatory evaluation, violating constitutional principles of equality (Article 13 CRP) and tax justice (Articles 103 and 104 CRP). The Tax Authority defended that Article 45 CIRS applies uniformly to all taxpayers, requiring use of the tax value at acquisition date regardless of which regime applied. The Authority argued that evaluation methods existed both before and after 2004, and that taxpayers could have requested property evaluation under CIMSISD Article 87. The case illustrates the temporal application challenges created by Decree-Law 287/2003's transition from CIMSISD to Stamp Duty, particularly regarding valuation methodologies for inherited property and their impact on subsequent IRS capital gains taxation when such property is later sold.

Full Decision

Arbitration Decision

I – Report

  1. On 14.10.2016, the Claimants, A…, taxpayer no. … and B…, taxpayer no. …, married, residents at Square …, no. …, …, in Lisbon, having been notified of the dismissal decision issued in the gracious complaint proceedings concerning the assessment of Personal Income Tax (hereinafter "CIRS") for the year 2013, in the amount of € 47,303.72, requested the CAAD to constitute an arbitral tribunal, pursuant to Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter "RJAT"), with the Tax and Customs Authority as Respondent, with a view to annulling those acts.

The Claimants also petition for restitution of the amount of the assessment which they claim to have paid, plus compensatory interest.

  1. The request for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of no. 1 of Article 6 of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed arbitrator, who communicated acceptance of the task to the Deontological Council and to the Administrative Arbitration Centre within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 30-12-2016.

  1. The grounds presented by the Claimant in support of their claim were, briefly, as follows:

The Claimants consider that the calculation of the Capital Gains realized, and the consequent assessment of IRS for 2013, was effected disregarding the applicable legal norms, inasmuch as the tax value as of the date of acquisition by gratuitous title through succession was taken into account as the realization value and the table resulting from the framework for updating the currency devaluation coefficients referred to in Article 50 of the CIRS was applied, when the Assessment should have taken into account, as the acquisition value, the tax value as of the date of realization of the capital gains, which occurred on 25 October 2013 and which was effected in accordance with Decree-Law no. 287/2003 of 12/11.

Article 45 of the CIRS refers to cases where the acquisition was by gratuitous title as in the case under analysis here.

In the case in question, it was a gratuitous transmission, but not subject to, nor exempt from, stamp duty.

The tax value as of the date of acquisition by succession had rules for determining that value that were quite different, which changed completely with Decree-Law 287/2003, a reality that cannot be ignored for tax purposes.

Faced with identical situations, in nature and kind, such as for example acquisition by gratuitous title without exemption from succession tax, the taxation of capital gains in IRS, in such temporally different realities, are taxed in a disproportionately unequal manner.

It is essential to standardize the criteria for prevalence of tax justice, with the acquisition value also being updated in accordance with the tax value as of the date of realization, that is, of the sale of the units.

The disputed assessment violates Article 13 and 103, no. 3, combined with Article 104, no. 3, of the Constitution of the Portuguese Republic and the legally imposed principles that guide the assessment and collection of taxes.

  1. The ATA – Tax and Customs Authority, called upon to rule, contested the Claimant's claim, defending itself by objection, in summary, with the following grounds:

At the date of acquisition, 1989 – since the Claimants indicate a judicial partition that became final in 1990, and this, pursuant to Article 2119 of the Civil Code, has retroactive effect to the date of opening of the succession – the Municipal Property Transfer Tax Code and the Inheritance and Gifts Tax Code (hereinafter "CIMSISD") was in force, revoked in 2003 by D.L. no. 287/2003, of 12/11, with gratuitous transmissions then being subject to Stamp Duty, entering into force on 1 January 2004.

It is thus undisputed that in gratuitous transmissions of assets, especially by hereditary succession, occurring after the entry into force of Dec. Law no. 287/2003, that is, from 1 January 2004 onwards, inclusive, Stamp Duty applied to the value of the transmitted assets, revealed as of the date of transmission, through the evaluation imposed by no. 2 of its Article 15.

It is also certain that, in light of the provisions of Article 20, § 2, of the CIMSISD, succession tax relating to real property registered in the land register applied to the value shown in that register, or to the value that, if higher, was attributed to them in inventory or other partition title, the Public Treasury being prohibited, in these circumstances, from proceeding to their evaluation for the purpose of assessing this tax, as results from Article 79, 6, 1st part, of the said legal instrument.

However, the limitation thus imposed on the Public Treasury was clearly waived as to the subject of the tax who, in view of notification of the tax assessment, and disagreeing with it, could request the evaluation of the transmitted assets, pursuant to Article 87 of the same legal instrument.

This means, from the outset, that the determination of the actual value of the properties with reference to the date of gratuitous acquisition, by evaluation, could and should, equally, occur both before and after 1 January 2004, since, as stated, Dec. Law no. 287/2003 merely imposed an evaluation which, before its entry into force, was merely optional, depending on intent manifested by the taxpayer.

It is also beyond question that, in this context, and just as all other taxpayers who were taxed on stamp duty, or even on succession tax, based on the actual value of the assets determined by evaluation, the Claimants would pay the capital gains resulting from the difference between that actual value of the assets, determined by evaluation as of the date of acquisition – then the basis for assessing succession tax – and that deriving from the sale price, since the general and abstract character of Article 45 of the CIRS thus determines.

It is thus necessary to conclude that the criterion inherent in Article 45 of the CIRS, of a general and abstract nature, applying, consequently, equally to all taxpayers who find themselves in an identical situation, could never violate the principles listed by the Claimants.

the assessment sub judice, as we have seen throughout the entire exposition, is in accordance with the applicable law and the taxation undertaken does not violate, but rather implements, the principle of equality, legality and material justice.

  1. Verifying the absence of any situation provided for in Article 18, no. 1, of the RJAT, which would make necessary the arbitral meeting provided for there, its holding was dispensed with, on the ground of the prohibition of useless acts.

Having been notified for this purpose, the parties did not present optional written pleadings.

  1. The tribunal is materially competent and is regularly constituted pursuant to the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from defects that would render them invalid.

  1. It is necessary to resolve the following issues:

a) Whether the assessment and the decision dismissing the gracious complaint, object of the present proceedings, are illegal and, consequently, should be annulled.

b) In the event of annulment of the assessment, whether the Respondent should be condemned to refund the amount of the assessment which the Claimants claim to have paid, as well as the respective compensatory interest.

II – Relevant Facts

  1. The following facts are considered proven:

The Claimants filed their IRS Model 3 declaration for the year 2013 on 22 May 2014 and included in the respective Annex G, for the purpose of calculating Capital Gains, the disposal of one-sixth of the autonomous units corresponding to letters A, D, E and F, of the urban property located at Square … nos. … to …, in Lisbon, parish of …, registered in the urban land register under item …, of the parish of ….

The Claimant had acquired the ownership right corresponding to one-sixth of the totality of the urban property to which the aforementioned units relate, and whose horizontal property was established on 30 October 1995, jointly with the other heirs, following the death of their paternal grandmother C…, who died on 22 May 1989 and consequent judicial partition, with the tax value of the property being declared and considered for the purposes of assessment and payment of the respective succession tax, as in force at that time.

In the IRS Model 3 declaration, the Claimants indicated as acquisition value the tax value considered for the purposes of assessing succession tax upon the death of C…, with the monetary correction provided for in Article 50 of the CIRS.

The identified units were disposed of on 25.10.2013 for the following global amounts:

Unit A – € 300,000.00
Unit D – € 200,000.00
Unit E – € 255,000.00
Unit F – € 295,000.00

The same units were evaluated on 17.03.2013, and the following tax values were assigned to them:

Unit A – € 180,720.00
Unit D – € 151,290.00
Unit E – € 151,290.00
Unit F – € 151,290.00

On 7.06.2014, the Respondent effected the assessment object of the present proceedings, from which resulted an amount payable of € 47,303.72.

In this assessment, income from category G was considered, having as its basis, as acquisition value, the value considered for the purposes of assessing succession tax upon the death of C…, with the monetary correction provided for in Article 50 of the CIRS.

The Claimants paid the amount of the assessment on 4.08.2014.

Having disagreed with the assessment, the Claimants presented a Gracious Complaint which was dismissed, and the Claimants were notified of this decision on 25.07.2016.

There are no unproven facts of interest for the decision of the case.

  1. The Tribunal's conviction as to the decision of the factual matter was based on the documents contained in the proceedings, it being notable that there is complete agreement between the parties regarding the factual matter, with the disagreement being limited to the matter of law.

III – The Applicable Law

  1. Article 45 of the CIRS determines, in its current wording:

1 – For the determination of gains subject to IRS, the acquisition value is considered, in the case of assets or rights acquired by gratuitous title:

a) The value that was considered for the purposes of stamp duty assessment;

b) The value that would serve as the basis for stamp duty assessment, if it were due.

2 – (Repealed)

3 – In the case of real rights over real property acquired by gift exempt, pursuant to clause e) of Article 6 of the Stamp Duty Code, the acquisition value is the tax value contained in the register up to the two years prior to the gift.

In turn, Article 43 of the same Code determined, in the wording as of the date of acquisition of the rights whose disposal gave rise to the capital gains at issue in the present proceedings:

1 – For the determination of gains subject to IRS, the acquisition value is considered, in the case of assets or rights acquired by gratuitous title, that which was considered for the purposes of assessment of inheritance and gifts tax.

2 – Where assessment of the tax referred to in the preceding number does not take place, the values that would serve as its basis shall be considered, if it were due, determined in accordance with the rules specific to that tax.

  1. The Claimants understand that what should have been considered as the basis of the acquisition value of the rights relating to the units disposed of is the tax value resulting from the first evaluation after the entry into force of the amendments to the Stamp Duty Code (hereinafter "CIS") effected by Decree-Law no. 287/2003, of 12 November.

However, for the gratuitous acquisition in favor of the Claimant, no Stamp Duty was assessed, nor could it have been, since, as of the date of the respective taxable event, such taxation was not provided for in this code, but rather in the CMSISD.

On the other hand, it would lack any reasonableness to apply to an acquisition occurring in 1989 legal evaluation criteria approved by a legislative diploma of 12.11.2003. Such a solution would, moreover, be contrary to the criterion of the Stamp Duty Code itself, which, with respect to gratuitous transmissions, establishes in Article 13 that "The value of real property is the tax value contained in the register in accordance with CIMI as of the date of transmission, or that determined by evaluation in cases of properties omitted or registered without tax value."

With some alterations, the taxation of gratuitous acquisitions of assets moved from CIMSISD to CIS, there being no change as to the nature and internal system of this taxation, but only its insertion into another legal compendium, in relation to which the heterogeneity of the realities to which it applies is recognized.

Thus, for gratuitous acquisitions occurring during the validity of CIMSISD, the reference in clause a) of no. 1 of Article 45 must be understood as referring to the assessment effected under this tax, since it was the only one that could have occurred at the time and was the one that actually occurred.[1] [2]

Although with argumentative discourse not entirely coinciding, it was this, in the face of a situation, in essence, analogous, the solution adopted by the Court of Audit Decision of 23 April 2013, handed down in case no. 442/2012,[3] where, in particular, one can read:

"the legal criterion in this matter, contained in nos. 1 and 2 of Article 45 of the CIRS, in the version introduced by Law no. 53-A/2006, of 29.12, applicable in the present case, does not diverge substantially from that which was originally enshrined in Article 43 of that legal instrument"

  1. As to the alleged violation of constitutional principles invoked by the appellants, we align with the understanding adopted in that decision when it states that:

"(…) in view of the principle of self-revision of laws and the inherent legitimacy of the legislator to define a new legal regime in function of justified legislative policy options, the norms contained in Dec. Law no. 287/2003 could never conflict with the principles invoked by the appellant, from the outset because the question of the principle of equality only arises in the face of identical and synchronic situations and, on the other hand, as referred to in the cited Constitutional Court decision no. 306/10, «(…) the principle of contributory capacity must be reconciled with other principles with constitutional dignity, such as the principle of the Social State, the legislator's freedom of configuration, and certain requirements of practicability and knowability of the tax fact, also indispensable for the fulfillment of the objectives of the fiscal system (the cited Decision no. 142/04).»

  1. It is thus understood that the disputed assessment did not violate any legal or constitutional command, and therefore the same cannot fail to be upheld in the legal order, with the consideration of the other claims invoked by the Claimants thus becoming moot, as they depend on the annulment of the assessment object of the present proceedings.

IV – Decision

Thus, the Arbitral Tribunal decides to dismiss entirely the request for arbitral adjudication.

Amount in controversy: € 47,303.72 (forty-seven thousand three hundred and three euros and seventy-two cents) pursuant to the provisions of Article 306, no. 2, of the CPC and 97-A, no. 1, clause a), of the CPPT and 3, no. 2, of the Regulations on Costs in Arbitration Proceedings.

Costs to be borne by the Claimants in the amount of € 2,142.00 (two thousand one hundred and forty-two euros) pursuant to no. 4 of Article 22 of the RJAT.

Let notice be given.

Lisbon, CAAD, 28.04.2017

The Arbitrator

Marcolino Pisão Pedreiro

[1] It should be noted that Article 15 of Dec. Law no. 287/2003, of 12/11 establishes that:

1 – Until a general evaluation is carried out, urban properties already registered in the land register shall be evaluated, pursuant to CIMI, upon the first transmission occurring after its entry into force, without prejudice, as to rented properties, of the provisions of Article 17.

2 – The provisions of no. 1 apply to the first gratuitous transmissions exempt from stamp duty, as well as to those provided for in clause e) of no. 5 of Article 1 of the Stamp Duty Code, occurring after 1 January 2004, inclusive.

No legislative intent is detected in these norms to confer relevance to the tax values resulting from the new evaluations to gratuitous acquisitions occurring before 1 January 2004.

[2] With some relevance for understanding the lesser legislative care in this matter, it should be noted that the expression "stamp duty" was only introduced in Article 45 of the CIRS by the wording given by Article 46 of Law no. 53-A/2006 of 29/12), whereas in the previous wording the expression "inheritance and gifts tax" appears, similar to what occurred in Article 43 in the wording prior to the revision of the articles effected by DL 198/2001, of 3 July. On the other hand, in no. 2 of Article 28 of Decree-Law no. 287/2003, of 12 November it states that "All legal texts that mention Municipal Property Transfer Tax Code and Inheritance and Gifts Tax Code, municipal property transfer tax or inheritance and gifts tax shall be understood as referring to the Municipal Code on Onerous Property Transfers (CIMT), the Stamp Duty Code, the municipal tax on onerous property transfers (IMT) and stamp duty, respectively."

[3] Available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

How are real estate capital gains (mais-valias) calculated for IRS when property was acquired through gratuitous transfer (inheritance)?
Real estate capital gains for IRS are calculated as the difference between the sale price (valor de realização) and the acquisition value (valor de aquisição). For property acquired through gratuitous transfer such as inheritance, Article 45 of CIRS establishes special rules: the acquisition value is the tax value (valor que serviu de base à liquidação) used for Stamp Duty purposes or, for pre-2004 inheritances, the value that served as basis for succession and gift tax (imposto sucessório) under the former CIMSISD regime. Currency devaluation coefficients may be applied to update this historical value.
What acquisition value applies for IRS capital gains when the property was inherited under the former CIMSISD regime?
For property inherited under the former CIMSISD regime (pre-2004), the acquisition value for IRS capital gains purposes is the tax value at the date of inheritance as determined under CIMSISD rules. Under Article 20 of CIMSISD, succession tax on registered real property applied to the value shown in the land registry (matriz predial) or, if higher, the value attributed in inventory or partition title. This historical value - not any subsequent revaluation - serves as the acquisition cost basis under Article 45 CIRS, subject to updating through applicable currency devaluation coefficients (coeficientes de desvalorização da moeda).
Can the patrimonial tax value (valor patrimonial tributário) at the date of sale be used instead of the value at the date of inheritance for capital gains purposes?
No. According to the Tax Authority's interpretation of Article 45 CIRS, the patrimonial tax value at the date of sale cannot substitute the value at the date of inheritance. Article 45 specifically mandates using the value that served as basis for succession tax or Stamp Duty at the acquisition date. While Decree-Law 287/2003 introduced mandatory evaluation at transfer for post-2004 inheritances, this does not apply retroactively to pre-2004 acquisitions. The law requires consistency: the acquisition value must reflect the tax basis at acquisition, not at disposal, to properly measure the capital gain realized during the holding period.
What does Article 45 of the Portuguese IRS Code (CIRS) establish regarding the acquisition value for gratuitously acquired property?
Article 45 of the Portuguese IRS Code (CIRS) establishes that for property acquired through gratuitous transfer (aquisição a título gratuito), the acquisition value for capital gains calculation is the tax value that served as basis for assessing Stamp Duty (Imposto do Selo) or, for pre-2004 acquisitions, succession and gift tax under CIMSISD. This value is determined as of the date of acquisition, not the date of subsequent sale. The article creates a general and abstract rule applying uniformly to all taxpayers who acquired property gratuitously, regardless of the specific tax regime in force at their acquisition date, ensuring consistent treatment across different temporal scenarios.
How did Decree-Law 287/2003 change the valuation rules for inherited property and its impact on IRS capital gains taxation?
Decree-Law 287/2003, effective January 1, 2004, fundamentally reformed Portuguese transfer taxation by revoking CIMSISD and subjecting gratuitous transfers to Stamp Duty. Critically, Article 15(2) mandated property evaluation at transfer to determine actual value (valor real), replacing CIMSISD's system where succession tax typically applied to registry values unless evaluation was specifically requested under Article 87 CIMSISD. For IRS capital gains purposes, this creates a temporal divide: post-2004 inheritances have acquisition values based on mandatory professional evaluation, while pre-2004 inheritances use historical CIMSISD values (typically lower registry values). This valuation gap can result in higher taxable capital gains for pre-2004 inheritances, though the Tax Authority maintains this reflects proper application of Article 45 CIRS rather than discriminatory treatment.