Summary
Full Decision
ARBITRAL DECISION
1. Report
A..., taxpayer no. ..., and B..., taxpayer no. ..., married to each other and both resident at ..., no. ..., ..., ...-... Lisbon, hereinafter "Claimants" or, when individually referred to, respectively "Claimant Husband" and "Claimant Wife", came, pursuant to articles 2, no. 1 lit. a) and 10, no. 1 lit. a) of the Legal Framework for Tax Arbitration (Decree-Law no. 10/2011, of 20 January, hereinafter "RJAT"), to request the constitution of the Arbitral Court.
They thereby petition for the declaration of illegality of acts of tax assessment, more specifically of Personal Income Tax (IRS).
The Tax and Customs Authority (hereinafter "TA" or "Respondent") is the respondent.
The Claimants intend that the illegality of their IRS assessment for the year 2016 be declared, in the part relating to taxation of capital gains, for which the total amount of €24,062.05 is reached, on account of - in their view - improper subjection. The capital gains in question did indeed exist, having resulted from the onerous sale, in the year to which the assessment in question refers, of immovable property that had been acquired by the Claimant Wife through succession. The inheritance at the origin of the acquisition, by the Claimant Wife, of the immovable property in question was opened by the death of her father in 1988, with three heirs then being entitled and subsequently, in 2014, one of the three hereditary shares - namely, that of the deceased's spouse - being donated to the Claimant Wife and her brother in equal parts.
The Claimants base their claimed non-subjection to tax of the capital gains thus obtained in 2016 on article 5 of Decree-Law no. 442-A/88, of 30 November (hereinafter "DL no. 442-A/88") which approved the Personal Income Tax Code (hereinafter "CITX"). A provision that establishes a transitional regime (see the heading itself: "Transitional Regime of Category G") under which capital gains (hereinafter also "CG") are not subject to taxation of gains that were not subject to such taxation prior to the entry into force of the CITX, except when the acquisition of the assets or rights that come to generate such gains has already occurred during the CITX's validity.
In the Claimants' view, since the income in question was not subject to CG taxation prior to the entry into force of the CITX, and the date of death of the deceased being the relevant date for the acquisition, by the heirs, of the assets that make up the estate's assets, with the Claimant Wife's father having died in December 1988 and the CITX having come into force only in January 1989, there is no ground for subjection. Consequently, they request that the following be determined:
(i) the annulment of the assessment in question;
(ii) the refund of the tax paid in an amount exceeding the legally due amount; and, as well,
(iii) the payment of compensatory interest.
They argue for the aforementioned understanding notwithstanding that, already during the CITX's validity, in 2014, the aforementioned donation took place in favour of the Claimant Wife of half of her mother's hereditary share.
Subsidiarily, in the event that the Court does not decide as first requested, they ask for the annulment of the CG assessment under IRS on the grounds of a calculation error in the amount that was subject to taxation, i.e., for having been wrongly calculated in excess by considering as acquired by the Claimant Wife through the 2014 donation a portion corresponding to 66.67% of the immovable property that came to generate CG in 2016.
The IRS Return which gave rise to the assessment in question was presented by the Claimants in replacement of the Return initially presented, following a procedure by divergences.
The request for constitution of the Arbitral Court was accepted by the President of CAAD and notified to the TA on 05.12.2017.
Pursuant to the provisions of lit. b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed the undersigned as arbitrator of the singular Arbitral Court, who duly accepted the appointment.
On 22.01.2018 the parties were notified of the arbitrator's appointment and did not express any intention to challenge it (see article 11, no. 1, lit. a) and b) of the RJAT and articles 6 and 7 of the Deontological Code).
Pursuant to the provisions of lit. c) of no. 1 of article 11 of the RJAT, the singular Arbitral Court was constituted on 14.02.2017.
Notified to that effect, the TA presented a Reply, arguing for the dismissal of the Claim, albeit acknowledging that the Claimants are, in part, correct. Namely, as regards the calculation of the value of CG subject to taxation. The Respondent understands, in summary, that the CG assessment under IRS in this case is due, as a result of the donation of a hereditary share that occurred in 2014, but that there was indeed a calculation error in determining the amount subject to taxation. And that the correction of the calculation error incurred leads to an amount subject to taxation lower than that contained in the assessment. Here generally accompanying the Claimants' subsidiary request.
Indeed, it understands that, differently from what occurred in the assessment in question, the amount to be subjected to CG taxation under IRS is that corresponding to 33.34% (and not 66.66%) of the realization value in the sale of the immovable property generating the capital gains, for each of the two fractions sold. Which translates, it states, into an amount of €63,346.00 to be entered, for each fraction, in Annex G (subject to taxation under IRS - Capital Gains/Annex G) because corresponding to the share of the inheritance acquired by the Claimant Wife in 2014, and not at the time of the death of the deceased. An amount that is lower than that contained in the assessment in question.
By Order of 26.03.2018 this Court decided to dispense with the meeting provided for in article 18 of the RJAT and that the process should proceed with optional written submissions.
The Claimants did not present submissions. The Respondent limited itself in its submissions to briefly reiterate what it had already stated in the Reply and concluded for the dismissal of the Request for Arbitral Pronouncement (hereinafter "RAP").
The Arbitral Court was regularly constituted, is competent and the parties have legal personality and capacity, are legitimate and are duly represented (see articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March). Regarding legitimacy, it should be noted from the outset that there is a situation of necessary active litis consortium (see article 33 of the CPC, applicable ex vi article 29, no. 1 of the RJAT), a procedural requirement that is fulfilled.
The Process does not suffer from nullities and there is no matter of exception.
2. Factual Matter
2.1. Proven Facts
The following facts are considered proven:
a) The Claimants are married to each other under the regime of community of acquisitions;
b) In the year 2016 the Claimants opted for joint taxation in IRS;
c) The Claimant Wife acquired through succession opened by the death of her father various immovable properties;
d) C..., father of the Claimant Wife, died on 11 December 1988 in the married state with the mother of the Claimant Wife;
e) As of the date of opening of the succession in December 1988, three heirs were entitled in equal parts;
f) The entitled heirs were the spouse of the deceased, the son and daughter of the couple;
g) The Claimant Wife is the daughter of the deceased, referred to in f);
h) Each of the three heirs held, as of the date referred to in d), a percentage of the inheritance of 33.33%;
i) In July 2014 the heir spouse of the deceased donated her share of 1/3 in the inheritance in favour of the other two heirs, her children, in equal parts;
j) The donation referred to in i) was formalized by Public Deed of 23 July 2014, a copy of which is attached to the record by the Claimants as doc. no. 5, with its content hereby reproduced, and in which is stated, among other things, and as regards the first act - which is the free cession and in equal parts of the hereditary share belonging to the Claimant Wife's mother in the inheritance - the following: "BY THE FIRST GRANTOR IT WAS STATED: I - That, by this deed and for account of the disposable share, she cedes, gratuitously and in equal parts, to the second grantor husband [the brother of the Claimant Wife] and to the third grantor wife [the Claimant Wife], the hereditary share that belongs to her in the illiquid and undivided inheritance opened by the death of her husband, C..., (...). (...) That the said hereditary share corresponds to 1/3 of the inheritance, assigning to it, for purposes of this donation, the overall value of two hundred and eight thousand five hundred and thirty-three euros and thirty-three cents. BY THE SECOND GRANTOR husband and THIRD GRANTOR wife IT WAS STATED: That they accept the present donation, in accordance with what is stated." (underlines ours)
k) In the same Public Deed referred to in j) the heir children (the Claimant Wife and her brother) proceeded, in an act subsequent to that referred to in j), to the partition of the inheritance;
l) By the partition four immovable properties were adjudicated to the Claimant Wife on account of the fulfillment of her respective hereditary share of 1/2 of the inheritance, the Public Deed referring to the partition act, among other things, the following: "V - That, by this deed, they proceed to the partition of the identified property as follows: a) To the SECOND GRANTOR husband, (...); b) To the THIRD GRANTOR wife, B..., the property identified under the verbs TWO, THREE, SIX and SEVEN are adjudicated, in the overall value of three hundred and twelve thousand eight hundred euros, thus fulfilling her share." (underlines ours)
m) Among the four immovable properties adjudicated to the Claimant Wife by the partition are the two immovable properties by her sold in 2016;
n) By the partition there was no payment of compensations nor attribution of any excess;
o) The two immovable properties sold by the Claimant Wife in 2016 correspond to fractions "G" and "C" of the urban property registered in the property roll under the article..., parish of..., municipality of Lisbon;
p) The two immovable properties sold by the Claimant Wife in 2016 generated capital gains;
q) The Claimants presented the IRS Return relating to 2016 within the legal period;
r) In the IRS Return referred to in q) the Claimants entered in Annex G - "Capital Gains and Other Patrimonial Increments" - the income (CG) obtained from the sale of the two properties referred to in o), with a quota share subject corresponding to 33.33%;
s) In Annex G1 - "Non-Taxed Capital Gains" - the Claimants entered the share of the realized capital gains corresponding to 66.67%;
t) After the presentation of the IRS Return, the TA opened a procedure of divergences;
u) The divergences related to the amounts entered in Annexes G and G1 as subject and not subject to taxation;
v) In July 2017 the Claimants presented a Substitute Return;
w) The Substitute Return was presented after informal contacts with the Respondent TA and in accordance with its advice;
x) The IRS Return at the origin of the assessment in question is the Substitute Return;
y) In the Substitute Return the Claimants entered in Annex G - "Capital Gains and Other Patrimonial Increments" – the share of the capital gains generated corresponding to 66.67%;
z) The Claimants were notified of the IRS assessment with a period for voluntary payment until 31 August 2017;
aa) On 29 August 2017 the Claimants proceeded to pay the assessment, in the amount of €24,062.05;
bb) On 29 November 2017 the Claimants presented the RAP which gave rise to the present process.
2.2. Unproven Facts
With relevance to the decision of the case, there are no unproven facts.
2.3. Substantiation of Factual Matter
The facts given as proven were so based on the documents attached with the RAP and in the Administrative Process, documents which are deemed to be fully reproduced, and, as well, based on the positions manifested by the parties in the pleadings, with no controversy regarding them.
It is incumbent upon the Court to select, from among those alleged by the parties, the facts that matter to the appraisal and decision of the case (see article 16, lit. e) and article 19 of the RJAT and, also, article 123, no. 2 of the TCTP and article 596 of the CPC[1]).
3. Legal Matter
Preliminarily
As regards legitimacy, it should only be noted that, since the Claimants present their respective IRS Return jointly, we are in the present arbitral process before a case of plurality of parties with unity of the disputed material relationship, thus configuring a litis consortium. The procedural requirement of necessary active litis consortium arising from the nature of the legal relationship is met (see article 33, nos. 2 and 3 of the CPC, applicable ex vi article 29, no. 1 of the RJAT), being essential the intervention of all interested parties so that the decision to be rendered produces its normal useful effect. A requirement that is thus met as it should be.
Regarding the timeliness of the RAP, no issue also arises, as it was presented within the legal period of 90 days - see lits. z) and bb) of the proven facts and pursuant to article 10, no. 1 lit. a) of the RJAT.
3.1. Questions to be Decided
The following are essentially the questions to be decided:
A) Are the income or capital gains (see article 10, no. 1, lit. a) of the CITX) generated by the onerous sale of the two immovable properties acquired gratuitously by the Claimant Wife (identified in lit. o) of the proven facts), and by her sold in 2016, subject or not subject to taxation (and, a condition thereof, the question of what is the date of acquisition of such properties by the Claimant Wife);
B) In the event of an affirmative answer to question A), what share of the CG generated in 2016 should be considered subject to taxation;
Finally, it will be necessary to decide as to:
(i) refund of the amounts paid and, if to be refunded, to what extent;
(ii) compensatory interest.
As follows.
3.1.1. On the Subjection or Non-Subjection to Taxation of Capital Gains Generated by the Sale in 2016 of Immovable Property Acquired by the Claimant Wife Gratuitously
And we refer to "acquired gratuitously" and not yet "acquired through succession", as we believe it should begin here by raising another question, namely:
In 2014 there was, by way of donation and, therefore, gratuitously, (i) a transmission of assets, or was there, differently, (ii) a transmission of a hereditary share of an illiquid and undivided inheritance?
In (i) we would have a gratuitous acquisition of determined assets, and in (ii) a gratuitous acquisition of an ideal quota of undivided inheritance, an inheritance of which assets form part, assets which are yet to be partitioned.
We have no doubts that the situation in the record is the latter: the donation that occurred in 2014 constitutes the gratuitous transmission not of certain immovable property, but rather of an ideal quota of an inheritance yet to be partitioned and, therefore, illiquid and undivided. As will be demonstrated below.
That in 2014, by the said donation, we are not dealing with a transmission of immovable property is easy to see, from the outset, if we focus on the very concept of the right of ownership. For the donation in question in the record to be considered a cause of transmission of immovable property, we would have to identify, in that act, the transmission of the content proper to the right of ownership. Now, article 1305 of the Civil Code (hereinafter "CC")[2] tells us that there is integrated the enjoyment in full and exclusive manner - by the owner - of the rights of use, enjoyment and disposal of things that belong to him.
Would the Claimant Wife's mother, by being the holder of a share of the inheritance corresponding to 1/3 of it (and in which she occupied a position in all respects identical to that of each of the other two heirs) be enjoying in full and exclusive manner the rights of use, enjoyment and disposal of "things that belong to her", and which would be, in the case, the immovable property that the Claimant Wife would later, in 2016, sell? Clearly not, as we shall see better below. Therefore, she could not have then, by the donation of the hereditary share, transmitted them.
That is, right from here the possibility of adherence to the understanding, followed by the Respondent, that the immovable property in question were transmitted by the donation at issue is ruled out.
Note that although article 10, no. 1, lit. a) of the CITX[3] refers generically to "real rights over immovable property", we are, in our case, clearly dealing with transmission - onerous, in 2016 - of the right of ownership over immovable property. If there were any doubts, see the content of the respective Public Deed of purchase and sale of the autonomous fractions in question, executed in February 2016, attached to the record by the Claimants as doc. no. 2, where it reads, among other things: "(...) that, for the price of (...) sells (...) free of any liens or encumbrances, the following autonomous fractions (...)". And see, also, article 874 of the CC, pursuant to which "Purchase and sale is the contract by which the ownership of a thing is transmitted (...)" and article 879 of the same Statute, where it is stipulated that the purchase and sale has as essential effects "a) The transmission of the ownership of the thing (...)".
It is the transmission of that right of ownership that generates, in the case, capital gains (in 2016). Therefore, it is that same right of ownership or, better, the moment in which that same right of ownership entered into the legal sphere of the Claimant Wife, the essential point to be appraised in the record, and from which the direction of our Decision will follow.
This is because, for the gains resulting from the onerous transmission of such right of ownership, by purchase and sale in 2016, to be subject to IRS, that same right of ownership must have entered into the legal sphere of the owner and seller of the respective assets (the Claimant Wife) at a moment subsequent to the entry into force of the CITX (which occurred on 1 January 1989)[4].
Which, in our case, could only have possibly occurred, even if only partially (in the sense of only as to a quota share of such assets), at the time of the donation in 2014. As the Respondent understands.
Let us then examine the question again. Now from the perspective of the very nature and concept of hereditary share.
Concept and Nature of Hereditary Share
We are, in 2014, facing a donation of a hereditary share. If we first focus on the Public Deed attached to the record as doc. no. 5 (hereinafter "Public Deed" or "Deed"), already transcribed by us in the relevant part (see above lits. j) and l) of the proven facts), we apprehend with relative ease the content transmitted by the donation in question. As can be read there, as to the first act executed: "BY THE FIRST GRANTOR IT WAS STATED: I - That, by this deed (...) she cedes, gratuitously and in equal parts, (...) and to the third grantor wife [the Claimant Wife], the hereditary share that belongs to her in the illiquid and undivided inheritance opened by the death of her husband (...). (...) That the said hereditary share corresponds to 1/3 of the inheritance, assigning to it, for purposes of this donation, the overall value of (...). BY THE SECOND (...) and THIRD GRANTOR wife IT WAS STATED: That they accept the present donation, in accordance with what is stated." (underlines ours)
It is, therefore, a transmission of something that necessarily then formed part of the legal sphere of the donor, mother of the Claimant Wife. And which could only be a right, which was his up to then, to share in the inheritance of his deceased husband. Precisely the said hereditary share, which corresponded to 1/3 of the inheritance, to which he had been called ex lege together with the other legitimate heirs, the two children, all of the same class of succession and who thus succeeded per capita or in equal parts (see article 2136 of the CC).
It should also be noted that it is with the opening of the succession, at the moment of death of its author, that is, in the case of the record, on 11 December 1988, that the call of the successors to the ownership of the legal relations of the deceased takes place, see articles 2031 and 2032, no. 1 of the CC. And the effects of the acceptance are retroactive to the moment of opening of the succession, see article 2050, no. 2 of the CC.
The donor, who accepted the inheritance like the other two heirs, was thus invested in the ownership of a hereditary share from 11 December 1988. And it was that hereditary share that was the object of donation in 2014.
We have already seen that a hereditary share does not translate into a right of ownership over determined assets. But let us delve a bit deeper into the nature and concept of the same.
Under the heading "Class of Successors", article 2030 of the CC defines heir as follows: "2. An heir is called the one who succeeds to the whole or a quota of the deceased's patrimony and legatee the one who succeeds in determined assets or values." (underlines and bold ours)
The legislator thus wishing to refer that the heir succeeds in the patrimony as a universality. An heir is the universal successor. What the heir receives is always a universality. Whether it corresponds to the whole, i.e., to the totality of the deceased's patrimony, whether it is a universality in a quota thereof, in a quota of the deceased's patrimony. See, in this sense, Inocêncio Galvão Telles[5], who argues that the legislator could have been more felicitous namely if it had followed the version of article 5 of the draft, in which it expressly referred that "succession may be universal or singular" and that "universal succession is called inheritance and deals with the universality or a quota of the deceased's property (...)."
The same Author[5] writes with clarity thus: "(...) in summary (...) heir is the one who succeeds in the "universum ius" of the deceased or in a quota of that "universum ius", understanding thereby the patrimony as a legal unit. In one case or the other there is universal succession. The difference is that in the first case the universality is held by a single heir, whereas in the second it is held by two or more, and then each one has a quota."
And here already we see how, within the scope of universal succession, the concept of hereditary share arises. The heirs succeed in the patrimony considered in its entirety, one, patrimony as a universality. Being various heirs, they succeed in a quota part of it. But always a quota part of a universality.
Thus, and again in the words of Inocêncio Galvão Telles in this regard[7]: "There may be a sole heir and then he receives the universality alone. (...) But on the contrary there may be two or more heirs, and in this case the universality is acquired by all. The patrimony becomes common to all of them. Moreover, to one succeeds one, here to one succeeds a plurality. The existence of a plurality gives rise to the idea of quota: quota of the abstract set which is the patrimony as "universitas". Each heir gets a part of that set. (...) The quota expresses a numerical relationship with the set, (...) If the heirs are called by law (...) The set is directly divided into as many parts as there are heirs and the parts are all of the same value. Each quota is proportional to the number of heirs: one half if there are two, one third if there are three, etc. This is what is called succession per capita (per capita) (article 2136). (...)" (underlines ours)
Now, it is only possible for an heir to transmit his quota share in the universality - universality which is the deceased's sole and undivided patrimony, an abstract set - as long as one remains in such undivided state. That is, the alienation of the hereditary share is only possible until the partition of the inheritance. Once the inheritance is partitioned (and partition being the act by which concrete assets of the inheritance are adjudicated to each heir to fulfill their respective hereditary share) by definition there no longer exists a hereditary share. From the outset because, as an effect of the partition, the assets that will have come to fill the respective hereditary share are then confused with the personal patrimony of the heir.
As R. Capelo de Sousa[8] writes, "(...) being several heirs and before the partition is effected, each of them, although he does not have a real right over the concrete assets of the inheritance, nor even over a quota part in each of them, nevertheless holds a right to a hereditary share, that is, to the respective ideal quota-part of the global inheritance in itself. Rights of which such heirs have the ownership, (...)." (underlines and bold ours)
That is, what in this context (see article 2124 of the CC) the heir transmits is, and only that can be, the right - which is his, which integrates his legal sphere - to the inheritance or, in the expression of R. Capelo de Sousa "right to a hereditary share" (see above). Which ultimately translates an ideal quota-part of the inheritance as a whole. And he can do so whether onerous, whether, as in the case of the record, gratuitously.
Again in the words of R. Capelo de Sousa[9], "By the alienation of an undivided hereditary share the right to the share in question is transferred to the acquirer, which includes, e.g., management rights (article 2091 of the CC), rights to reception of income (article 2092 of the CC) and rights to demand partition and composition of the quota (article 2101 of the CC).(...)" (underlines ours)
By the donation that occurred in 2014, in favour of the Claimant Wife, there was thus transmitted a right to share in the inheritance opened by the death of her deceased father, a right which until then formed part of the legal sphere of the donor, her mother. By the donation of her hereditary share the Claimant Wife's mother ultimately renounced, in favour of the two children and in equal parts, her right to a quota-part ideal in the inheritance opened by the death of her deceased husband.
This, and only this, was the right acquired by the Claimant Wife in 2014.
In this sense, see, moreover, the remainder of the Doctrine in the matter of Succession Law, which is essentially uniform in this respect, and, also, the settled Jurisprudence in these same matters, to which we will make some reference[10].
See, among others, the Judgment of the Supreme Administrative Court of 28.01.2015, rendered in process no. 0450/14, where it reads, among other things: "(...) Although each of the heirs has from the opening of the succession a right to an ideal part of the inheritance, it is only with the partition that that right becomes concrete making certain and determined the assets that fall to the heir. And only after the partition is the heir a full holder of the rights that fall to him by it. And even if the inheritance is constituted by immovable property, only with the partition does he become the holder of the right of ownership over them and in that capacity is able to exercise the corresponding rights. (...)"
We are, therefore, in the case, always and only, in the matter of acquisition of assets - by the Claimant Wife - through succession. And not before a gratuitous transmission of part of them by donation.
Being so and having arrived here, it behooves us to ask how the acquisition of assets through succession is processed. With a view to clarifying the moment in which the immovable property is, in the case, acquired by the Claimant Wife.
Acquisition of Assets through Succession
The right of ownership is acquired, among other ways, by succession by death (see article 1316 of the CC), and the moment of its acquisition is, in that case, that of the opening of the succession (see 1317, lit. b) of the CC).
The opening of the succession coincides with the moment of death of the deceased (see article 2031 of the CC), as we have seen. And it is by force of the partition of the inheritance that each of the heirs comes to be considered from that same moment, of death and opening of the inheritance, as the sole successor of the assets that will then (at the time of partition) be attributed to him, see article 2119 of the CC.
As to what this very thing means, Pires de Lima and Antunes Varela[11] write as follows: "The idea that the heirs who participate in the partition are holders of the assets from the moment of death of the author of the inheritance means that the others are not holders of those assets or rights at any moment of the succession phenomenon, except as regards the fruits (...)."
The Claimant Wife's mother was not, therefore, as we have already seen, the holder of the right of ownership of the immovable property only later adjudicated, by the partition, to her daughter and here Claimant Wife.
And returning to those distinguished Authors, they continue thus: "However, for the partition to have retroactive effect is one thing – which is enough, moreover, to condemn the idea (of Romanist origin) that it is only with the partition that the heir's right over the hereditary thing arises. Another thing, very different, is the partition possessing merely declarative, or recognitive effect, as if the heir's exclusive right over a certain and determined thing of the inheritance existed from the moment of death of the deceased. And it is not so. / Two things are undeniable as to the partition. On the one hand, the heir's right over the inheritance exists from the moment of its opening – it does not arise only at the moment of partition. On the other hand, if it is not a business attributive or constitutive, it is also true that the partition does not constitute a pure declarative or recognitive act, as it is a true modifying or conversion act. The partition converts the various rights to a simple quota (indeterminate) of a whole (determined) into exclusive right to a determined portion of the whole." (underlines ours)
There cannot be, there cannot be, a transmission (whether onerous, whether gratuitous) of concrete and determined assets forming part of the inheritance while it remains undivided. By the very nature of things and in the sequence of what we have just examined.
It being settled that by the donation in 2014 there was no transmission of the right of ownership over the immovable property from whose sale in 2016 the capital gains resulted, and determining when the same were in fact acquired by the Claimant Wife, we have no doubts.
We return to article 2119 of the CC which under the heading "Retroactivity of Partition" stipulates that, once the partition is made, "each of the heirs is considered, from the opening of the inheritance, the sole successor of the assets that were attributed to him (...)." And the opening of the succession, we have also already seen, takes place at the moment of death of its author, see article 2031 of the CC.
Only after the partition was made – but from the opening of the inheritance - the Claimant Wife came to be considered the sole successor of the assets in question[12].
The assets in question were therefore wholly acquired by the Claimant Wife, integrating into her legal sphere through succession, on 11 December 1988. By force of the partition of the inheritance.
With an understanding in the same sense of the appraisal we have just made, see, among others, the Judgment of the Supreme Court of Justice of 30.01.2013, rendered in proc. 1100/11.7TBABT, in which it reads: "I – Both the Jurisprudence, and the most respected doctrine in the field, point decisively in the sense that one can only divide the assets of the inheritance of which one is the owner, that is, that have been attributed to the heirs in partition previously made. II – The ratio of such a solution is very simple: it is that, until the partition, the co-heirs of a common patrimony, acquired by succession "mortis causa", are not owners of the assets that make up the hereditary estate, nor even in a co-ownership regime, as they are only holders of a right over the inheritance (set of rights and obligations) which affects a quota or fraction thereof for each heir, but without knowing which concrete assets will fulfill such quota. III- It is by the partition(...) that the assets of that universality which is inheritance will be adjudicated and which will fulfill those quotas. Therefore, as it was pondered in this Supreme Court's judgment, of 04.02.1997 cited above: "Co-ownership presupposes a right of common ownership over a thing or concrete and individualized asset, unlike what happens in the co-holding of the right to inheritance which concerns a universality of assets, not knowing over which or which of them the hereditary right will be concretized". (...)"
Normative Framework – Rule of Incidence
We have already seen above[13] that the determination of the date of acquisition of the assets in question by the Claimant Wife depends on the subjection or non-subjection to taxation of the capital gains under IRS.
We have already seen that such acquisition did not occur, even partially, in 2014. It did occur in December 1988.
We have also seen that the rule of incidence of article 10, no. 1 lit. a) of the CITX does not raise doubts of interpretation as to its meaning.[14]
Pursuant to the combined provisions of articles 9, no. 1 lit. a) and 10, no. 1 lit. a), both of the CITX, the gains generated with the sale of the immovable property by the Claimant Wife in 2016 constitute capital gains taxable under IRS, Category G, as they result from onerous transfer of real rights over immovable property and do not fall within any other category of income.
Thus, the capital gains in the case would be, from the outset, subject to taxation as falling within the rule of incidence of the said article 10 of the CITX.[15]
However, the legislator understood, by way of article 5 of DL no. 442-A/88 (DL which, as we have already seen, approved the CITX), to establish a transitional regime of taxation in Category G, which remains in force, and pursuant to which gains that were not, prior to the entry into force of the CITX, subject to capital gains taxation (by the Capital Gains Tax Code, hereinafter "CGTC", see Decree-Law no. 46 673, of 9 June 1965) are only subject to IRS in the event that the acquisition of the assets or rights to which they relate has already occurred during the CITX's validity.
Now, within the scope of the CGTC, in the matter of gains from the alienation of immovable property, only gains obtained from the alienation of land for construction were subject[16].
This not being the case in the record, where we are dealing with autonomous fractions of urban property, it is necessary to conclude that - the acquisition of the immovable property, on 11 December 1988, being prior to the entry into force of the CITX, on 1 January 1989 – the capital gains in question in the record are not subject to taxation, as they benefit from the said transitional regime.
With interest, see in this respect the recent Judgment of the Supreme Administrative Court of 07.03.2018, rendered in proc. no. 0971/17, where it reads, among other things: "(...) II- The claimant acquired the asset that she sold at the moment in which the death of the person from whom she inherited it occurred, without this suffering any alteration by the partition of the inheritance having taken place at a later moment (...). III – The moment of acquisition of the immovable property is one and unique, the moment of death of the author of the succession, being the partition only a means of distributing the assets to the heirs in conformity with the law (...) in fulfillment of their respective hereditary shares, always, in all situations, with effects retroacted to that initial moment of hereditary succession."
3.1.2. What is the Quota-Share of the CG Generated in 2016 that Should be Considered Subject to Taxation
The question above having been answered in the negative, this second question is rendered moot.
4. Refund of Amounts Paid and Compensatory Interest
The assessment in question is thus tainted with illegality, due to error in the application of Law. It should consequently be annulled, which by this is decided, and the respective amounts, wrongfully paid, restituted to the Claimants.
The Claimants also petition for compensatory interest. Let us see if, in this regard, they are also correct.
Article 24, no. 5 of the RJAT establishes the obligation to pay interest, whatever its nature, pursuant to the terms provided for in the LGT and the TCTP.
Pursuant to the provisions of no. 1 article 43 of the LGT, the obligation to pay compensatory interest arises when it is determined that there has been error, attributable to the services, from which results payment of the tax debt in an amount exceeding the legally due amount.
We have already seen that there was error, of law, from which resulted wrongful payment. It remains to ascertain whether such error is attributable to the services.
No. 2 of the same article stipulates that it is also considered that there is error attributable to the services "in cases where, although the assessment is made on the basis of the taxpayer's return, the latter has followed, in its completion, the generic guidelines of the tax administration, duly published."
In the case of the record, the assessment in question was made by the TA based on the Substitute Return presented by the Claimants. However, these presented the Substitute Return as a result of the Respondent having opened a procedure for divergences and, in that context, having advised the Claimants to present the Substitute Return in accordance with the understanding held by it, the Respondent, for the situation. Facts alleged by the Claimants and not disputed by the Respondent. The Respondent itself refers, moreover, that "When questioned, the IRS Services Directorate, at the time of the filing of this RAP, found that there had been a lapse in the values indicated in the substitute return, partly conceding to the Claimants."[17]
From the letter of the law, in particular from no. 2 of article 43 of the LGT, there does not directly flow the obligation to pay compensatory interest in the case of the record. For although the Claimants followed guidance from the Respondent, the same was given to them informally, not forming part of published generic guidelines. However, and the interpreter not being obligated to confine itself in the interpretation to the letter of the law, see article 9 of the CC, it is our understanding that in a situation such as that of the record, the error of law is, nonetheless, attributable to the services.
Indeed, the Claimants presented the Substitute Return by advice of the Respondent and in adherence to the understanding manifested by it in the divergences procedure. Taking into account the factors to which no. 1 of article 9 of the CC directs attention in the interpretation of law, and considering that it cannot be otherwise understood than that there is in no. 2 of article 43 a minimum of verbal correspondence allowing it to be framed there such a situation as that of the present process, we understand that compensatory interest is due as it cannot be otherwise understood than that there has been error by the services. Error which is attributable to the services. And for purposes of which, as is known, verification of fault is not required[18].
In this sense see how Jorge Lopes de Sousa[19] writes: "Outside cases where it is the taxpayer who determines the amount of tax to be paid, the assessment is made by the services and, therefore, errors of law, embodied in the application of the law to determined facts, will be attributable to the tax administration. However, even in these cases, it may happen that the incorrect application of the law is based on incorrect information from the subject and, in such cases, responsibility for the error affecting the assessment cannot be imputed to the Tax Administration.
(...) Indeed, in face of these duties [duties of information assigned by law to the TA to inform taxpayers on the interpretation of tax laws and on the manner of complying with them], it will not only be in cases of acting in accordance with generic guidelines, but also in all other cases in which the subject acts in accordance with instructions of the Tax Administration and in good faith that it should be understood that the error is attributable to the services. In fact, if the error that affects the return or the assessment is derived from incorrect instructions of the Tax Administration, it cannot be otherwise considered attributable to this, as, naturally, what the law imposes on it is the provision of correct information and, by not doing so, there will be action on its part of non-compliance with its duties, which can only be attributed to it.
This is a situation substantially identical, in terms of attribution of error, to that of incorrect instructions contained in generic guidelines, (...) the establishment of those duties of assistance and information for the Tax Administration cannot fail to have as a corollary the attribution to this of the attribution of the error, if the taxpayer follows the instructions received. (...) When there are no such instructions [generic guidelines], the taxpayer's right to compensation for wrongful payment of the tax debt will depend on proof of the existence of incorrect instructions given to him by the Tax Administration. But what cannot be questioned, by force of what is provided for in article 22 of the Constitution, will be the right of taxpayers to compensation for actions by the Tax Administration that harm them and are carried out in violation of the duties imposed on it by law.(...)"[20]
5. Decision
For which reason this Arbitral Court decides to judge the RAP well-founded, and thus:
a) To annul the IRS assessment of the Claimants relating to the year 2016;
b) To condemn the Respondent to refund to the Claimants the wrongfully paid amount, of €24,062.05;
c) To condemn the Respondent to the payment of compensatory interest calculated from the date of wrongful payment (29.08.2017) until the issuance of the respective credit note (see article 61, no. 5 of the TCTP and article 43 of the LGT, the rate being see articles 43, no. 4 and 35, no. 10 of the LGT and article 559, no. 1 of the CC).
6. Value of the Process
Pursuant to the combined provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Processes, 97-A, no. 1, lit. a) of the TCTP, and 306, no. 2 of the CPC, the value of the process is set at €24,062.05.
7. Costs
As provided for in article 22, no. 4 of the RJAT, article 4, no. 4 of the Regulation already referred to and in Table I attached hereto, the amount of costs is set at €1,530.00, to be borne by the Respondent.
Lisbon, 25 May 2018
The Arbitrator
(Sofia Ricardo Borges)
[1] These latter legal instruments applicable to our process ex vi article 29, no. 1 of the RJAT (and thus whenever reference is made to them in this Decision).
[2] See article 11, no. 2 of the LGT, applicable ex vi article 29, no. 1, lit. a) of the RJAT, pursuant to which "Whenever, in tax provisions, terms proper to other branches of law are employed, the same should be interpreted in the same sense as that which they have there, unless otherwise results directly from the law." Which (otherwise resulting from the law), manifestly, is not the case. And, it may be added, nor do doubts arise as to the meaning of the provision of article 10, no. 1, lit. a) of the CITX, whereby the applicability of the statute contained in article 11, no. 3 of the LGT is from the outset ruled out.
[3] Which is the rule of incidence at issue in the record, and to which we shall return below.
[4] See article 5 of DL 442-A/88, to which we shall return below.
[5] Telles, Inocêncio Galvão, "Right of Succession", Fundamental Notions, 6th Ed., Coimbra Editora, 1991, p. 189.
[6] Idem.
[7] Ibidem, p. 187.
[8] Sousa, Rabindranath Capelo de, "Lectures on the Right of Succession", Vol. II, 2nd Edition, Coimbra Editora, 1997, pp. 89 and ff.
[9] Ibidem, p. 98.
[10] In the Jurisprudence and as to this particular matter of transmission of hereditary share, see, with interest, among others, the Judgment of the Supreme Court of Justice of 14.04.2013, in proc. 2044/08.5TBPVZ, in which, regarding a promise of purchase and sale contract of hereditary share and deciding for its validity, it is written: "(...) The contract-promise is valid (...) as it is not renouncing the succession of a living person, nor regulating its own succession, nor disposing of the succession of a third party whose succession has not yet opened; it is disposing, that is so, of its own right to the inheritance of another person."
[11] Lima, Pires de and Varela, Antunes, Annotated Civil Code, Vol. VI, Coimbra Editora, 1998, pp. 194 and ff.
[12] In this sense, see Lima, Pires de and Varela, Antunes, ibidem, p. 196, in annotation to article 2120 of the CC.
[13] Page 10.
[14] See Our Note no. 2, above page 9.
[15] In this regard it can be read in the Preamble of the CITX, point 12: "The taxation is extended to gains not subject to the current capital gains tax, such as those generated by the onerous transmission of any form of immovable property."
[16] Without here considering the situation of immovable property used in the exercise of professional activities.
[17] Point 10 of the Reply.
[18] On the question of fault, see Sousa, Jorge Lopes de, "Code of Tax Procedure and Process", Áreas Ed., 6th Edition, 2011, Vol. 1, pp. 537 and ff.
[19] Ibidem, pp. 536-537.
[20] See also the Judgment of the Supreme Administrative Court of 10.07.2002, proc. 026688, in which Jorge Lopes de Sousa was the reporter and where it reads: "(...) V - For purposes of the obligation to pay compensatory interest (...), where there is an error of law in the assessment and it is made by the services, it is to the administration that this error is attributable, whenever the incorrect application of the law is not based on any information from the taxpayer (...)".
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