Summary
Full Decision
Arbitral Decision
I - Report
A - Identification of the Parties
Claimant: A..., taxpayer number ..., with tax domicile at Rua ..., ..., ... Estoril, hereinafter referred to as the Claimant or taxpayer.
Respondent: Tax and Customs Authority, hereinafter referred to as the Respondent or AT.
The Claimant filed a request for the constitution of an Arbitral Tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of subparagraph a) of paragraph 1 of Article 2 and subparagraph a) of paragraph 1 of Article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter briefly referred to as RJAT.
The request for constitution of the Arbitral Tribunal was accepted by the President of the Centre for Administrative Arbitration (CAAD), and in accordance with the provisions of subparagraph c) of paragraph 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 Tax Authority was notified on 2018-02-21.
The Claimant did not proceed to appoint an arbitrator, whereupon, pursuant to the provisions of paragraph 1 of Article 6 and subparagraph b) of paragraph 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 designated Dr. Rita Guerra Alves as Arbitrator, accepted by her in accordance with legal provisions.
On 2018-04-11, the parties were duly notified of this designation, and neither manifested a desire to refuse the arbitrator's designation, in accordance with Article 11, paragraph 1, subparagraphs a) and b), of RJAT and Articles 6 and 7 of the Deontological Code.
The Singular Arbitral Tribunal was regularly constituted on 2018-05-03 to consider and decide on the object of the present dispute, and on that same day the Tax and Customs Authority was automatically notified, as evidenced in the respective minutes.
No testimonial evidence was entered, whereupon, in the procedural sequence, the meeting referred to in Article 18 of RJAT was dispensed with.
On 2018-06-28, the Tax Authority was notified, in accordance with Articles 16, 17, and 18 of RJAT, to attach to the case file the Administrative Case. The AT proceeded to do so.
On 2018-07-03, the AT was notified again, in accordance with subparagraph e) of Article 16 of RJAT, to submit, within five days, information or attach to the case file the document supporting the fact set out in point 9 of its response: "information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by Switzerland, for the year 2013". Following an extension of the deadline, a response was provided.
The parties possess legal personality and capacity, are legitimate, and are represented (Articles 4 and 10, paragraph 2, of the same statute and 1 of Ordinance No. 112-A/2011, of 22 March).
The case does not suffer from defects that would invalidate it.
B - Claim
The Claimant petitions for a declaration of illegality of the tax act for an additional assessment of Personal Income Tax (IRS) No. 2017..., relating to the fiscal year 2013, in the total amount of €16,066.64 (sixteen thousand, sixty-six euros and sixty-four cents).
C - Grounds for Claim
To support its request for arbitral pronouncement, the Claimant alleges, with a view to declaring the illegality of the tax act for the assessment of Personal Income Tax (IRS), already described in point 1 of this Award, the following:
The Claimant is resident in Portuguese territory and is subject to IRS here for the universality of its income. It filed, in a timely manner, its annual IRS declaration form 3, relating to the fiscal year 2013, which included Annex J, relating to income obtained abroad or, technically, outside Portuguese territory.
Based on the declaration filed by the Claimant, assessment No. 2014..., of 11-07-2014, was issued, with an amount due of €47,838.38, with a payment deadline of 18-09-2014, and paid on 15-09-2014.
Through official letter No.... of 04-04-2017, the Claimant was notified by the Income Tax Assessment Division and Expenses of the Finance Directorate of Lisbon, of a proposed correction to its IRS declaration, in the amount of €98,480.78, of interest income obtained outside Portuguese territory and transmitted to the Portuguese tax authorities by the Swiss tax authorities pursuant to the Savings Directive (Directive 2003/48/EC).
Specifically, such "interest" would be itemized as follows: B... S.A., account No. ... in the amount of €61,972.96; B... S.A., account No. ... in the amount of €31,336.75; and C..., AG account No. ... in the amount of €5,171.07.
In the exercise of the right to prior written hearing, on 18-04-2017, the Claimant informed the notifying entity that, in Annex J that was part of its form 3 declaration relating to the year 2013, it had declared all income obtained abroad, including that subject to the regime established by the Savings Directive, in accordance with the bank statements it received from the banking entities and accounts referred to, which it attached.
Subsequently, on 30-05-2017, it attached to the case file Statements of Account ... (B...) and ... (C...) in the part it had not submitted with the right to prior hearing initially exercised.
On 3-07-2017, following the course of the correction procedure, it set forth the factual assumptions that guided the completion of Annex J, provided additional clarifications regarding the ownership of one of the accounts whose interest had been declared and which did not appear in the "information" received from the Swiss tax authorities, and requested that Annex J be accepted as it had been originally completed.
In all the Claimant's documents, it was stated that it was unaware of the origin of the information transmitted by the Swiss tax authorities regarding its amount, its non-conformity with the elements that the credit institutions had provided to the Claimant, and it was presumed to be incorrect, incoherent, or inconsistent.
The tax authorities never directly confronted the Claimant with the substance of the information received from the Swiss tax authorities: only with an alleged summary, which the Claimant does not know whether it is summative, as it was received, of amounts attributed to accounts of two credit institutions headquartered in Switzerland.
The Portuguese tax authorities did not obtain, or if they did, did not disclose to the Claimant, from the Swiss tax authorities any additional clarification regarding the transmitted information, specifically regarding the disaggregation of the communicated totals or the transactions that gave rise to them, limiting themselves, if the information received was of a summative type, as it was transcribed to it in the initial notification of the procedure, to "deeming proven" the accumulated value contained in the information received.
In the notification of the Final Decision of the Procedure, made through official letter No.... of 6-10-2017, which attaches the Information supporting the correction it ultimately proposes, it is important to note the order that sanctions and "accepts" that the Claimant declared, in Annex J, in Section 4-A, income covered by the Savings Directive regime in the amount of €18,763.40, but should have declared €70,235.14, whereby it was considered that the omission in the said Annex was the amount of €51,471.74.
And it was ultimately the amount of €51,471.74 that was corrected, by addition, at the initiative of the Portuguese tax administration, based on a communication from the Swiss tax administration of income covered by the Savings Directive that the Claimant did not fully substantiate, to the form 3 declaration relating to the year 2013 filed by it in time, which gave rise to the additional IRS assessment whose legality is here reviewed.
Throughout the procedure that led to the assessment whose legality is here reviewed, the Tax Administration limited itself to invoking a communication received from a foreign country, pursuant to an Agreement that the European Community, of which Portugal was an integral part, concluded with it, but apparently does not meet the requirements provided therein.
The Claimant presented all documents on the basis of which it completed Annex J of the form 3 IRS Declaration relating to the year 2013 and which, strictly speaking, contained income that should also have been reported to the Portuguese tax administration by the Swiss tax administration and apparently were not.
At issue are the income, which specifically includes interest within the meaning of the Savings Directive, reflected in the account..., also opened at B....
In the internal information, on the basis of which the Portuguese tax authorities issued the final decision, it was accepted that the Claimant's Annex J was properly completed by adopting the internal qualification for a certain type of transactions, some even in field 4-B, which decreased to €51,471.74 the "amount omitted from Annex J".
That is, the Portuguese tax authorities had to accept, because the Claimant thus proved it, that the amount reported by the Swiss tax authorities and which, at first, they intended to be entirely omitted from its Annex J, was not consistent, was not sustainable, thus having its veracity been put into question.
And the Claimant cannot fail to argue against the Portuguese tax authorities of inertia, because, even after being confronted with the inconsistency and unsustainability of the communication received from the Swiss authorities, to its knowledge, they have not requested additional clarification from them regarding the reported amounts, their disaggregation, or the identification of the transactions that gave rise to them.
It is therefore incumbent upon the Portuguese tax authorities to prove that that amount "in gross" still considered omitted was, in fact, an amount related to interest within the meaning of the savings directive, or, in other words, the Agreement concluded between the European Community and the Swiss Confederation, in order then to be able to assert, with propriety, that the Claimant was in default in its Annex J.
The mere communication made by the Swiss tax authorities does not transform the amount communicated into a fact or data that does not need to be proven: nowhere does the law even assign it a presumption of truth, especially in the state in which it was, if it was, communicated: an accumulated value, without disaggregation of the credits, payments, or transactions that are at its origin.
On the other hand, and in accordance with the test performed on all transactions reflected in the bank statements of the accounts held in Switzerland by the Claimant, one of which in co-ownership, and what it declared in Annex J of its IRS, the differences are of immateriality (cents) and, whoever, out of mere curiosity, adds the positive results obtained in them, including capital gains, reaches the value of €98,541.94, an amount only higher by €61.16 than what the Swiss authorities reported to the Portuguese tax authorities.
It being incumbent upon the Portuguese tax authorities, within the framework of the burden of proof that was owed to them, according to what the Claimant understands, to request additional clarification from the Swiss tax authorities regarding the disaggregation of income as to payments, credits, and transactions that generated them, and having failed to do so, falls into an impasse incapable of being overcome and which can only be decided in its favor.
It was the Claimant who produced all the evidence that was required of it and which proves what it declared regarding the matter at issue and which, let it be recalled, concerns only interest, within the meaning of the Savings Directive, and was not confronted with equivalent evidence capable of destroying what it presented, but only with total amounts that, by the evidence it produced, were proved to be incoherent, inconsistent, and unsustainable.
The Claimant concludes by arguing that the Tribunal declare illegal the additional IRS assessment that was imposed upon it with reference to the fiscal year 2013, for a formal defect, for lack of substantiation, and for violation of the principle of contributive capacity, by seeking to tax income that the Claimant effectively did not earn, with all legal consequences, including the payment of compensatory interest calculated from the date of payment until the date on which the respective refund is processed.
D - RESPONSE OF THE RESPONDENT
The Respondent, duly notified to this effect, timely filed its response, in which, in abbreviated summary, it alleged the following:
The Claimant's income declaration, form 3 for the year 2013, was selected for analysis of income in the form of interest obtained abroad.
Indeed, by virtue of information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by Switzerland, it was found that, in the year 2013, the Claimant received from paying agents B... S.A. (B...) and C... AG (C...), interest income in the amount of €93,309.71 and €5,171.07, respectively, which totals interest income of €98,480.78.
In view of the information transmitted, the Claimant was notified, so that, in accordance with paragraph 4 of Article 65 of CIRS, it would regularize the situation within 15 days, and was equally notified that, if it wished, it could exercise its right to prior hearing, in accordance with subparagraph a) of paragraph 1 of Article 60 of LGT.
In view of the arguments put forward by the Claimant, the services determined that the values entered in Declaration Form 3 be corrected, in field 418 (Income from Savings Directive No. 2003/48/EC Countries/territories – Transition Period – Article 10 of the Directive), the value to be declared of €70,235.14 and not the value declared by the Claimant of €18,763.40.
Considering the provisions of the Savings Directive No. 2003/48/EC and Decree-Law No. 62/2005 of 11/03, which transposed said Directive into the internal legal order, and the typology of the income earned, the following is highlighted: Income covered by the Savings Directive is subject to mandatory declaration and is taxed at the special rate provided for in Article 72 of CIRS, and may be consolidated at the taxpayer's option.
As provided in Article 6, income covered by the Directive is that derived from the payment of interest, whether such payment is made directly or through an entity.
Although the Directive classifies as interest the income realized at the time of assignment, redemption, or surrender of shares or units of participation, as defined in subparagraph d) of paragraph 1 of Article 6 in conjunction with Article 4 of the legal statute that transposed it into the internal order, under CIRS those income are classified as capital gains.
Whereby, in accordance with subparagraph b) of paragraph 1 of Article 10 of CIRS, income qualified as capital gains from the onerous disposal of shares and other securities may be declared in Section 4B-Annex J, in detriment to being considered in Section 4 of said Annex.
That said, in view of the Claimant's arguments, it is found that €98,480.78 was reported to the AT, pursuant to the Savings Directive, with the value of €93,309.71 relating to entity B... (€61,972.96 of account ... and €31,336.75 of account ...) and the value of €5,171.07 of entity C....
The Claimant declared as income obtained abroad in fields 408; 418; 420; 422; and 423 of Section 4A, the value of €45,599.26, as per the attached table – Values declared in the fields of Section 4A of Annex J – proved by the Claimant itself.
The Claimant proved to be co-owner of account No. ... of entity B..., declaring in fields 450 and 451 of Section 4B of Annex J, the declared value of €6,719.95, but in the documents presented, nothing indicates that this account is related to account No....
Furthermore, it proved, on a discretionary basis, the value of €28,931.70 of account No. ... of entity B... declared in fields 450 and 451 of Section 4B of Annex J.
On the other hand, of the amount communicated to the AT, pursuant to the Savings Directive, relating to account No. ... of entity B..., €93,309.71, the value of €41,837.97 was proved (€28,931.70 + €12,906.27), whereby the amount omitted from Annex J is obtained as €51,471.74.
The Claimant did not substantiate with the AT the declared value in fields 450 and 451, regarding 44 of the 70 items declared in Annex J.
Whereby, the services acted correctly in understanding that the values pertaining to securities transactions and the disposals of UP's reported by the Swiss authorities should be considered in accordance with national legislation, with these income configuring capital gains and not interest titled and covered by the Directive, accepting as valid the amounts expressed in Section 4B of Annex J regarding account No. ... of entity B....
In light of the transition periods provided for in Article 10 of the Savings Directive No. 2003/48/EC of 3 June and set forth in paragraph 4 of Article 12 of Decree-Law No. 62/2005, of 11 March, the income that is considered omitted, relating to account No. ... of entity B..., considering that the same was reported pursuant to the Directive by Switzerland (country that appears on the transition period list provided for in Article 10 of the Savings Directive), should be included in field 418 of Annex J of the Claimant's declaration.
Thus it can be concluded, regarding the relevant factuality, that the amounts identified by the Swiss tax authorities, as payments by B... made to bank accounts of which the Claimant was the owner, were not subject to declaration, for purposes of IRS for the year 2013.
There is therefore, contrary to what is alleged, no burden of proof on the AT to substantiate the information provided by the Swiss tax authorities.
From the elements adduced by the taxpayer in the tax procedure that resulted in the contested assessment in the present arbitral proceedings, no legal obligation results for the Legal Administration to undertake any "additional investigation".
The Tax Administration was therefore legitimated to alter the values entered in the taxpayer's form 3 IRS declaration, as results from the provisions of paragraph 4 of Article 65 of CIRS.
Allowing Article 72 of LGT to the instructing body to use, for knowledge of the facts necessary to the decision of the procedure, all means of evidence admitted in law.
Article 362 of the Civil Code clarifies that documentary evidence is that which results from a document, adding that a document is any object produced by man for the purpose of reproducing or representing a person, thing, or fact.
The information, duly certified, was received from the Swiss Tax Authorities.
As such, it is documentary evidence that substantiates the administration's action regarding the alteration of income declared by taxpayers.
In the case under analysis and as demonstrated, the Claimant's income declaration for the year 2013 presents an omission in the declaration of interest income from a foreign source that does not reflect its actual taxable matter.
In fact, the information on international collaboration and control within the scope of the Savings Directive made it possible to show that the Claimant omitted the declaration of income in the amount of €51,471.74.
The Respondent concludes by arguing that the AT merely taxed in Portugal, in strict compliance with the law, income subject to tax and not declared, in accordance with information provided by the Swiss authorities, and which the Claimant failed to refute, and it is to be maintained in the legal order, the additional IRS assessment now impugned.
E - FINDINGS OF FACT
Prior to addressing the issues raised, it is necessary to present the factual matter relevant to its understanding and to the decision to be rendered, based on the facts alleged and the documentary evidence produced in the case file.
As to matters of fact deemed relevant, this Tribunal finds the following facts as established:
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The Claimant declared for the year 2013, in its IRS declaration, the tax due of €47,838.38, on which the respective assessment No. 2014... of 11-07-2014 was issued.
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The Claimant declared for the year 2013, as interest covered by the Savings Directive, in field 418 of Section 4 of Annex J, the value of €18,763.40.
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The Claimant declared for the year 2013, in fields 408, 418, 420, 422, and 423 of Section 4A, the total value of €45,599.26.
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The Claimant was notified of the correction draft of 30 March 2017, through official letter No.... of 2017/04/04, in which a "correction to the income delivered, by entering the amount of €98,480.78 in field 422 of Section 4 of Annex J" is promoted.
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The final decision states that the values pertaining to securities transactions and disposals of UP's reported by the Swiss authorities, under national legislation, constitute capital gains income and not interest titled and covered by the Directive, with the AT accepting as valid the amounts expressed in Section 4B of Annex J relating to account No. ... of entity B.... In light of the transition periods provided for in Article 10 of the Savings Directive No. 2003/48/EC of 3 June and set forth in paragraph 4 of Article 12 of Decree-Law No. 62/2005, of 11 March, the income that is considered omitted, relating to account No. ... of entity B..., considering that the same was reported pursuant to the Directive by Switzerland (country that appears on the transition period list provided for in Article 10 of the Savings Directive), should be included in field 418 of Annex J of the Claimant's declaration.
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From the administrative case and the present case, there is no document on the information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC) by Switzerland, of which the taxpayer will have received in the year 2013, in Switzerland, positive income in the total amount of €98,480.78, respectively in the amount of €93,309.71 relating to entity B... and €5,171.07 relating to entity C....
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The Claimant was notified of the final decision, with official correction of form 3 declaration for the year 2013, specifically regarding Annex J, Section 4-A, field 418, now showing the value to be declared of €70,235.14, in dissonance with the value declared by the taxpayer of €18,763.40 in that field 418, with the difference amounting to €51,471.74.
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The difference of the amount €51,471.74 results from the value of €93,309.71 relating to income from the 2 Bank Accounts held by the Claimant at entity B... based on the alleged information provided by the Swiss Authorities to the AT and the value of €41,837.97 that the AT deemed proved in the administrative procedure by virtue of the Respondent's defense.
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The income declared by the Claimant in the 2013 IRS declaration are respectively the values of €5,720.72 for Account No. ... of entity C..., the value of €10,974.15 of Account No. ... of entity B... (in which it is a co-owner), the value of €28,931.70 of Account No. ... of entity B....
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The income declared by the Claimant in the 2013 income declaration, in fields 408, 418, 420, 422, and 423 of Section 4A, amount to €45,599.26.
F - UNPROVEN FACTS
Of the facts with an interest in deciding the cause, contained in the claim, subject to concrete analysis, those not contained in the factuality described above were not proved.
G - ISSUES FOR DECISION
Declaration of illegality of the tax act for an additional assessment of Personal Income Tax (IRS) No. 2017..., relating to the year 2013, in the total amount of €16,066.64 (sixteen thousand, sixty-six euros and sixty-four cents).
H - LEGAL GROUNDS
In light of the positions adopted by the parties in their pleadings, the central issue to be determined by this Arbitral Tribunal consists of reviewing the legality of the additional Personal Income Tax assessment relating to the year 2013.
Given the factual matter established, it is necessary to determine the applicable law, prioritizing, in compliance with the provisions of subparagraph a) of paragraph 2 of Article 124 of CPPT, the analysis of the defects of the assessment, whose substantiation determines a more stable and effective protection of the interests of the Respondent.
The issue to be decided, in the face of the factuality deemed proven and the legal norms in force at the date of the facts, hinges primarily on a legal review of the question of the burden of proof. Referring to the present case, we have a decision by the Respondent imputing to the Claimant the fact regarding the omitted value of €51,471.74, subject to correction that resulted in the additional IRS assessment here under review.
According to what was set forth above, let us then look at who bears the burden of proof of such fact:
It results from Article 74, paragraph 1 of LGT that: "the burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls upon whoever invokes them", in accordance with Article 342, paragraph 1 of CC, "The burden of proof of the facts constitutive of the right alleged falls upon the one who invokes it." (our emphasis)
Furthermore, on the question of the burden of proof, there is extensive case law, sustaining that it falls upon the AT to prove the verification of the legal prerequisites binding legitimizing its action and that it falls upon the taxpayer to prove the facts that operate as support for the claims and rights it invokes. (see Arbitral Case No. 236/1014-T of 4 May 2015).
In that same sense, the judgment of the Supreme Administrative Court of 26.2.2014, case No. 0951/11: "In cases where the correction of the declared taxable matter stems from the fact that the AT considered that certain expenses cannot be part of the acquisition value to be considered in determining capital gains because they relate to assets that were not transferred (reason why, by means of the process generally referred to as "arithmetic corrections", it purged such expenses from the acquisition value), it falls upon the AT to prove that the legal prerequisites that legitimize its action in the direction of correcting the taxable profit are verified (that is, to demonstrate the facts that led it to conclude that those expenses do not refer to the assets transferred), only thereafter falling upon the taxpayer the burden of proving the existence of the facts it alleged as the basis of its right to see such amounts recognized negatively in determining capital gains."
The said judgment is quite enlightening regarding the distribution of the burden of proof, to which reference is made: "It is therefore necessary to answer the question – purely one of law, as we have already stated, and therefore comprehended within the scope of the powers of cognition of this Supreme Court – of knowing upon whom the burden of proof of such fact falls, against whom the question of whether the said improvements were or were not transferred must be decided.(…)
Thus, it is necessary to recall, briefly and synthetically, the rules of distribution of the burden of proof: in principle, it falls upon the AT to bear the burden of proof of the verification of the legal (binding) prerequisites of its action, specifically if aggressive (positive and unfavorable) and, in turn, it falls upon the administered party to present sufficient evidence of the illegitimacy of the act, when those prerequisites are shown to be verified, a solution now established by Art. 74, para. 1 ("The burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls upon whoever invokes them"), of LGT and which at that time should already be considered applicable because it corresponded to the general rule of Art. 342 of the Civil Code (CC), that whoever invokes a right has the burden of proof of the constitutive facts, with the opposing party bearing the burden of proving the facts that impede, modify, or extinguish.
But this is not always the case. The burden of proof will vary depending on the type of administrative act in question, the issue of its distribution having to be decided "in accordance with the position occupied by the parties in the procedure and with the type of legal relationship that constitutes its object and, consequently, in the field of judicial review of annulment, with the type of act to be annulled, just as the law characterizes or defines its constituent elements" (See, for all, the following judgment of the Section on Tax Litigation of the Supreme Administrative Court:
– of 17 April 2002, rendered in case No. 26,635, published in the Appendix to the Diário da República of 8 March 2004. (…) In order to proceed to the correction of declarations (and consequent additional assessment of the tax considered lacking), the AT, specifically when it understands that costs or revenues were declared that do not correspond to reality (those because they are nonexistent or higher than the actual ones, these because they are lower than the real ones), shall have to substantiate its judgment formally and substantively, with judicial review being able to cover both aspects of substantiation (the formal and the material). (…)Thus, in the case of the present proceedings, we can advance the following conclusions, in accordance with the case law long established in tax courts: because the additional IRC assessment is based on the AT's non-recognition of a portion of the acquisition value (that relating to expenses declared for the performance of improvements), it falls upon the AT to prove that the legal prerequisites legitimizing its action are verified, that is, to demonstrate the existence of serious indications that the transfer of the improvements whose value is part of the acquisition value did not occur; once such proof is made, the burden falls upon the Taxpayer to prove the existence of that transfer, which it alleged as the basis of its right to see such costs recognized negatively in determining capital gains and, consequently, in its taxable matter; in this case, it will not suffice for the Taxpayer to create doubt about its truthfulness, even if well-founded, because in this case Art. 121 of CPT has no application; in fact, the burden enshrined in that legal provision against the AT (that doubt as to the existence and quantification of the tax fact must be decided against the AT: in dubio contra Fisco) exists only when it is the AT that is asserting the existence of the tax facts and their respective quantification and not when, as in this case, it is the Taxpayer that must demonstrate the existence of the facts on which it bases its right to see certain costs recognized negatively in determining capital gains and, consequently, its taxable profit. Hence we have said that it suffices for the AT to demonstrate the verification of the "index facts" (objective and credible indications) which, combined with each other and appreciated in light of the rules of experience, permitted it to conclude that the transfer in question did not occur. If it does so, the administrative decision will be materially substantiated as to disregarding the expenses in question as part of the acquisition value to be used in determining capital gains and, consequently, the presumption of truthfulness of the books, provided for at that time in Art. 78 of CPT, will be overcome. It is this same article that refers to the presumption therein established being able to be displaced, specifically by the verification of "other well-founded indications that it does not reflect the actual taxable matter of the taxpayer" (That is, despite being faced with a legal presumption, for it to be displaced it is not necessary to have contrary evidence – differently than what, generally, is required regarding such presumptions (cfr. Art. 350, para. 2, of CC), because Art. 78, in fine, of CPT establishes, with a special character, a different regime for displacing the presumption.)."
The judgment concludes in the sense: "In cases where the correction of the declared taxable matter stems from the fact that the AT considered that certain expenses cannot be part of the acquisition value to be considered in determining capital gains because they relate to assets that were not transferred (reason why, by means of the process generally referred to as "arithmetic corrections", it purged such expenses from the acquisition value), it falls upon the AT to prove that the legal prerequisites legitimizing its action in the direction of correcting the taxable profit are verified (that is, to demonstrate the facts that led it to conclude that those expenses do not refer to the assets transferred), only thereafter falling upon the Taxpayer the burden of proving the existence of the facts it alleged as the basis of its right to see such amounts recognized negatively in determining capital gains. It suffices for the AT to demonstrate the verification of the "index facts" (objective and credible indications) which, combined with each other and appreciated in light of the rules of experience, permitted it to conclude that the assets to which the expenses in question relate were not transferred and, thus, that the administrative decision is materially substantiated as to disregarding those expenses in determining capital gains and displacing the presumption of truthfulness of the books (as provided for at that time in Art. 78 of CPT). Once such demonstration is made, it then falls upon the Taxpayer to demonstrate that those assets were actually transferred; it will not suffice for it to create doubt on that matter (Art. 121 of CPT does not apply here) because it is not the AT that is asserting the existence of an undeclared tax fact or attributing to a tax fact a dimension different from the one declared, in which case the doubt would be decided against it, but rather it is the Taxpayer that invokes its right to see recognized negatively in determining capital gains the expenses that it says relate to transferred assets, reason why doubt on that matter is unfavorable to it."
Furthermore, in the scope of case law, although on a different subject, but relevant to the substantiation of this arbitral decision, it was decided in the Arbitral Award, Case 236/1014-T of 4 May 2015, the following:
"Consequently, it falls upon the Tax Administration to bear the burden of proof of the verification of the legal prerequisites (binding) legitimizing its action, for which it must prove the facts constitutive of which the tax-administrative decision depends with a certain content and a certain direction. For its part, it falls upon the taxpayer to prove the facts that operate as support for the claims and rights it invokes.." (…) "As such, in accordance with the provisions of paragraph 1 of Art. 74 of LGT, it falls upon the Respondent to demonstrate the bases and factual situations on which the adjustments, non-recognitions, and regularizations it promoted are based, and whose tax relevance and consistency it asserts, thus falling upon the Respondent the burden of clarifying, substantiating, and documenting the operations in question and their justification.". (our bold)
(…) In this sequence, it should further be noted that it results from Article 75, paragraph 1 of LGT that the declarations of taxpayers, submitted in accordance with the provisions of the law, as well as the data and determinations entered in their accounting or books, when organized in accordance with commercial and tax legislation, are presumed to be true. However, this presumption ceases, in particular, if those declarations, accounting or books, or their supporting data, present omissions, errors, and inaccuracies, or if well-founded indications are found that they do not reflect or prevent knowledge of the actual taxable matter of the taxpayer (Art. 75, para. 2, subpara. a) of LGT). Let it be recalled further that, under paragraph 3 of Art. 75 of LGT, "[t]he evidentiary force of the taxpayer's computer data depends, unless otherwise provided by law, on the provision of documentation relating to their analysis, programming, and execution and the possibility for the tax administration to confirm them". (…) Now, whenever subparagraph a) of paragraph 2 of Art. 75 of LGT is applied, "it is upon the taxpayer that the burden of proving the facts declared or entered in his accounting or books about which there is probative doubt falls", whereby "doubts that in judicial proceedings remain about the matter of fact cannot be considered doubts that are well-founded" for the purposes of paragraph 1 of Art. 100 of CPPT (see thus Jorge Lopes de Sousa, Tax Procedure and Process Code annotated and commented, vol. II, 6th ed, 2011, p. 133).
Hence it falls upon the Respondent the burden of effectively demonstrating the facts entered and the reasons at the basis of the adjustments made in the accounting, it not sufficing to remain with doubt about the viability of their respective justification, because the provisions of paragraph 1 of Art. 110 of CPPT have their crucial application when it is the Tax Administration that asserts the existence of the tax facts and their respective quantification (cfr., thus, the judgment of the Supreme Administrative Court of 26.2.2014, case No. 0951/11). Thus, the evidence produced must ensure, with the requisite certainty, that the regularizations and adjustments made possess consistency and materiality sufficient in view of the justifications that underlie them."
According to what was set forth above, and returning to the case at issue, we hold it as certain that the burden of proof of the facts entered in its income declaration relating to the year 2013 falls upon the Claimant, that is, it is incumbent upon it to prove the income it received in the value of €45,599.26, relating to bank accounts in Switzerland. Indeed, and in accordance with the factual matter deemed proven through documentary evidence, specifically through the taxpayer's declaration and bank statements, the Claimant proved said income.
In any case, there exists a presumption of truthfulness and good faith regarding the Claimant's declarations, a principle enshrined in Article 75 of LGT, which provides:
"The declarations of taxpayers submitted in accordance with the provisions of the law, as well as the data and determinations entered in their accounting or books, when organized in accordance with commercial and tax legislation, are presumed to be true and made in good faith, without prejudice to the other requirements on which the deductibility of expenses depends. (As amended by Law No. 80-C/2013 of 31 December)".
The displacement of the presumption occurs when: "the declarations, accounting or books reveal omissions (Article 75, para. 2, subpara. a) and when the taxpayer fails to comply with the duties incumbent upon it to clarify its tax situation (Article 75, para. 2, subpara. b).
Consequently, in accordance with the provisions of paragraph 1 of Art. 74 of LGT, it falls upon the Claimant to bear the burden of clarifying, substantiating, and documenting the operations in question, including demonstrating and justifying their tax relevance and consistency, using documentary means of proof and, if necessary, supplementing with testimonial evidence the factual elements supporting its correction, once such corrections were promoted by the Claimant.
For its part, the burden falls upon the Respondent to prove the verification of the legal (binding) prerequisites legitimizing its action, that is, it is incumbent upon it to prove the fact it invoked regarding the omission by the Claimant in the 2013 income declaration of the amount of €51,471.74.
In view of what was alleged by the AT that the Claimant's declaration presented an omission (in the value of €51,471.74), then by application of the provisions of Article 75, para. 2, the presumption would be displaced and consequently the burden of proof would fall upon the Claimant.
However, the Respondent was obliged, in accordance with Articles 74, para. 1 of LGT and 342, para. 1 of CC, to prove that the Claimant's declarations do not correspond to the truth.
However, the Respondent did not produce proof that would permit displacing the presumption stipulated in Article 75, para. 1 and para. 2, subpara. a) and b) of LGT.
Consequently and because it is incumbent upon the Claimant, under Article 75, para. 1 and para. 2, subpara. b), to bear the duty of clarifying its tax situation, so as to maintain said presumption, it proved in the administrative proceeding and in the present proceedings all the income it declared in the year 2013 through the bank statements, which it attached to the case file.
From the respective bank statements, relating to bank accounts No. ... of entity C..., account No. ... of entity B..., and account No. ... of entity B..., result the values it declared in its IRS declaration.
Following the exposition and the normative provisions referred to above, it is concluded that it is incumbent upon the AT (Articles 74, para. 1 of LGT and 342, para. 1 of CC), once it invokes that the Respondent omitted the value of €51,471.74, relating to account No. ... of entity B..., to bear the respective burden of proof of the fact it invoked, and it is incumbent upon the taxpayer to provide the clarification of its tax situation (Article 75, para. 2, subpara. b) and substantiate through means of proof the income it declared in its income declarations.
And in case there are doubts as to the type of income communicated by the information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive, it is incumbent upon the AT, in accordance with the principle of inquiry provided for in Article 58 of LGT, to undertake all necessary measures to satisfy the public interest and to discover the material truth, including ascertaining the type of income declared in the respective declaration and the taxpayer is incumbent the duty of cooperation in accordance with Article 59 of LGT.
In sum, it is incumbent upon the AT to bear the burden of proof of the income allegedly omitted by the Respondent, in the value of €51,471.74, in accordance with the provisions of Articles 74, para. 1 of LGT and 342, para. 1 of CC, supplemented by its duty to comply with the principle of inquiry provided for in Article 58 of LGT.
It happens that the AT alleged, to substantiate its claim, information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by Switzerland, relating to account No. ... of entity B..., €93,309.71, of which amount the value of €41,837.97 was proved by the taxpayer, whereby the amount omitted from Annex J was obtained, in the amount of €51,471.74.
Let us examine the communications made pursuant to the Savings Directive No. 2003/48/EC and Decree-Law No. 62/2005 of 11/03, which effected its transposition, what they tell us:
Pursuant to Article 8 of Decree-Law No. 62/2005: the communication effected in those terms consists of the following elements: a) Identity and residence of the beneficial owner, determined in accordance with Articles 6 and 7; b) Name or denomination and address of the paying agent; c) Account number of the beneficial owner or, in the absence thereof, identification of the credit or other applications generating the income referred to in paragraph 1 of Article 4; d) The amounts of the income covered by Article 4.
Complementing Article 8 of Decree-Law No. 62/2005, we refer to the Savings Directive No. 2003/48/EC, which as to the question of communicating information, in its Article 8, paragraph 2 stipulates that "However, Member States may limit the minimum content of the information that the paying agent must communicate regarding the payment of interest to the total amount of interest or income and the total amount of the product of the assignment, redemption or reimbursement."
Thus it results from both statutes the existence of a differentiation in the communication of the payment of interest and in the communication of the payment of the products of assignment, redemption or reimbursement.
The reason for this differentiation existing is simple: interest is relevant for the calculation of interest and the products of assignment, redemption or reimbursement are relevant in the National Jurisdiction for the calculation of Capital Gains.
The differentiation is fundamental, in particular for purposes of capital gains, since the calculation is made in its proper venue contributing to its calculation (simplifying) gains and losses.
In the absence of a differentiation in the communication made in accordance with what is required by the minimum content of Article 8 Savings Directive No. 2003/48/EC, it would induce error, since one would be considering income products of assignment, redemption or reimbursement as interest, disregarding the proper regime of the product of assignment, redemption or reimbursement, that is, the regime of Capital Gains.
Income, which in light of the legislation in force at the date, are treated differently, with interest not contributing to the calculation of capital gains nor capital gains contributing to the calculation of interest.
Pursuant to Article 72 of CIRS, income covered by the Savings Directive are subject to mandatory declaration and are taxed at the special rate provided in that article, and may be consolidated at the taxpayer's option.
Indeed, it is this position assumed by the AT, which we subscribe to, "Although the Directive classifies as interest the income realized at the time of assignment, redemption or surrender of shares or units of participation, as defined in subparagraph d) of paragraph 1 of Article 6 in conjunction with Article 4 of the legal statute that transposed it into the internal order, under CIRS those income are classified as capital gains.".
Given the foregoing, it is crucial, so as to comply with the principle of material truth and so as to safeguard the rights of the taxpayer, that the communication have the minimum content of information and the respective differentiation.
As set forth in the factuality deemed proven, the AT did not attach the information transmitted to the Tax and Customs Authority, allegedly received by Switzerland pursuant to the Savings Directive (Directive No. 2003/48/EC).
This Tribunal, complying with the principle of free appreciation of facts and the free determination of the measures for producing the evidence necessary, in accordance with the rules of experience and its free conviction, in accordance with Article 16, subparagraph e) of RJAT, notified the AT to attach that document, by understanding it to have special relevance to the present decision, which supports the claim of the AT, indeed, it was exclusively on the basis of that information that the AT initiated the process of analyzing the taxpayer, as per information provided by the AT in the administrative proceeding 3312/2017 of 22-09-2017, which is transcribed: "In accordance with information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by State/Country/Territory - SWITZERLAND, it was found that, in the year 2013, the taxpayer A received from paying agents B... S.A. (B...) and C... AG (C...), interest income in the amount of €93,309.71 and €5,171.07, respectively, which totals interest income of €98,480.78.".
Following the analysis of the Administrative Case, there does not appear the document alleged by the AT regarding the: "information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by State/Country/Territory - SWITZERLAND", whereby the Tribunal notified the Tax Authority, in accordance with Article 16, subparagraph e) of RJAT, to provide information or attach to the case file the document supporting the fact set out in point 9 of its response: "information transmitted to the Tax and Customs Authority, pursuant to the Savings Directive (Directive No. 2003/48/EC), by Switzerland, for the year 2013".
It happens that the AT, at no point, attached said documentation.
In that manner, it impeded, through its conduct, the Tribunal's access and review of said information alleged by the AT.
Consequently, and in light of what was set forth above regarding the burden of proof of the income allegedly omitted by the Respondent, in the value of €51,471.74, in accordance with Articles 74, para. 1 of LGT and 342, para. 1 of CC, it was incumbent upon the AT to prove the omission of said income.
As a result, this Tribunal grants the Claimant's request and deems it procedent the request for declaration of illegality of the tax act for an assessment of Personal Income Tax (IRS) 2017..., relating to the year 2013, for a defect of law.
The Arbitral Tribunal, in accordance with Articles 608, para. 2, 663, para. 2, and 679 of the Code of Civil Procedure through application of Article 29 of RJAMT, is not obliged to address all arguments alleged by the Claimant or by the Respondent, when the decision is rendered moot by the solution already issued, which is the case in the present proceedings, reason why the remaining issues submitted for arbitral pronouncement are rendered prejudiced.
I - DECISION
Therefore, in light of all the foregoing, this Arbitral Tribunal decides:
To grant the request for declaration of illegality of the tax act for an additional assessment of Personal Income Tax (IRS) 2017..., relating to the year 2013, in the total amount of €16,066.64 (sixteen thousand, sixty-six euros and sixty-four cents).
The value of the case is fixed at €16,066.64, corresponding to the value of the assessment, in light of the economic value of the case, determined by the value of the contested tax assessment, and accordingly the costs are fixed at the respective amount of €1,224.00 (one thousand, two hundred and twenty-four euros), to be borne by the Respondent, in accordance with Article 12, paragraph 2 of the Tax Arbitration Framework, Article 4 of RCPAT, and Table I annexed to the latter. – paragraph 10 of Art. 35, and paragraphs 1, 4, and 5 of Art. 43 of LGT, Articles 5, paragraph 1, subparagraph a) of RCPT, 97-A, paragraph 1, subparagraph a) of CPPT, and 559 of CPC).
Notify.
Lisbon, 22 August 2018
The Arbitrator
Rita Guerra Alves
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