Inheritance Tax on Social Quota Valuation: CAAD Arbitration Decision 641/2015-T

ARBITRAL AWARD

The arbitrators Dr. José Pedro Carvalho (arbitrator-president), Dr. Ana Pedrosa Augusto and Dr. Rui Ferreira Rodrigues, adjunct arbitrators, designated by the Deontological Council of the Centre for Administrative Arbitration to constitute the Arbitral Tribunal, constituted on 4 January 2016, agree as follows:

I. Report

A..., resident at Avenida..., no.... ...º left, in Lisbon, taxpayer number..., in the capacity of head of household and heir of B... (hereinafter, the "Claimant"), requested from the Centre for Administrative Arbitration (CAAD), on 20 October 2015, the constitution of an arbitral tribunal in tax matters, pursuant to articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as "LFTA"), in which the Tax and Customs Authority (TCA) is respondent, with a view to the declaration of illegality and consequent annulment of the tax assessment for Inheritance Tax assessed in case no...., initiated on 16.10.2003 by reason of the death of B..., in the amount of 64,003.44 € (sixty-four thousand and three euros and forty-four cents).

The Claimant opted not to designate an arbitrator.

The request to constitute an arbitral tribunal was accepted by the President of CAAD on 21 October 2015 and automatically communicated to the TCA on the same date.

The arbitrators were designated by the President of the Deontological Council of CAAD as arbitrators of a collective arbitral tribunal, pursuant to article 6 of the LFTA, having communicated acceptance of the assignment within the legal period, pursuant to article 4 of the CAAD Deontological Code.

The parties were notified of the designation of the arbitrators on 16 December 2015, pursuant to article 11, no. 1, paragraphs a) and b) of the LFTA, and did not object thereto.

The collective arbitral tribunal was thus regularly constituted on 4 January 2016, in accordance with paragraph c) of no. 1 of article 11 of the LFTA.

By order of the President of the Deontological Council of CAAD of 7 January 2016, the resignation of the arbitrator who had been appointed as President Arbitrator was communicated, who was consequently replaced.

The TCA was notified of the arbitral order of 21 January 2016 to submit a response within 30 (thirty) days, to attach a copy of the administrative file within the same period and, if it so wished, to request the production of additional evidence.

The TCA submitted its response on 22 February 2016.

By arbitral order of 23 February 2016, the Arbitral Tribunal determined the notification of the respondent to comment, within 10 (ten) days, on the matter of exception and on the value incident contained in the TCA's response.

The respondent submitted its comments on 3 March 2016.

By arbitral order of 7 March 2016, the Arbitral Tribunal, pursuant to paragraphs c) and e) of article 16, and no. 2 of article 29 of the LFTA, dispensed with the meeting referred to in article 18 of the LFTA and afforded the parties the possibility of, if they wished, submitting written pleadings. It further determined that the final award would be issued within 30 (thirty) days after the submission of written pleadings by the respondent, or the expiration of the period granted for that purpose.

The Claimant submitted written pleadings on 17 March 2016, and the respondent did not submit pleadings.

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

The case does not suffer from defects that invalidate it.

II. Claimant's Claim

The Claimant presented a request for an arbitral award with a view to the declaration of illegality and consequent annulment of the tax assessment for Inheritance Tax assessed in case no...., initiated on 16.10.2003 by reason of the death of B..., in the amount of 64,003.44 € (sixty-four thousand and three euros and forty-four cents), the refund of the amount of tax paid pursuant to such tax assessment and the payment of compensatory interest.

The Claimant substantiates its claim in the terms set out below:

i. On 16.10.2003 B..., the Claimant's mother, died in the state of widowhood, without a will and with two heirs, namely, the Claimant and C...;

ii. A case for the assessment of Inheritance and Gift Tax no.... was initiated at the Tax Office of Lisbon...;

iii. In the statement of assets presented was a shareholding with the nominal value of 31,409.84 € (thirty-one thousand four hundred and nine euros and eighty-four cents) in Company D..., Ltd., with registered office at Rua..., lot..., shop..., ..., Odivelas;

iv. The Inspection Services of the Finance Department of Lisbon fixed the value of that shareholding at 598,468.76 € (five hundred and ninety-eight thousand four hundred and sixty-eight euros and seventy-six cents), pursuant to article 77 of the Code of Tax on Succession and Gift (hereinafter "CTSG");

v. The heirs were notified of the Inheritance Tax assessment made by the Tax Office of Lisbon... on 24.02.2005, on 04.03.2005;

vi. In her capacity as head of household, the Claimant contested the value attributed to the aforementioned shareholding pursuant to article 87 of the CTSG;

vii. At the Tax Office of... (territorially competent considering the registered office of the company) the shareholding was valued, and this valuation was sent to the Tax Office of Lisbon... on 22.06.2009;

viii. Following the valuation of the shareholding made by the Tax Office of..., the Tax Office of Lisbon... proceeded to reform the Inheritance Tax assessment on 10.07.2009, determining the overall amount of tax to be paid of 64,003.44 € (sixty-four thousand and three euros and forty-four cents);

ix. The Claimant and her sister paid the tax, having benefited from a discount of 4,800.26 € (four thousand and eight hundred euros and twenty-six cents), thus paying the amount of 54,402.92 € (fifty-four thousand four hundred and two euros and ninety-two cents);

x. However, the Claimant did not come to know the result of the valuation of the shareholding made by the Tax Office of..., and therefore requested the Tax Office of Lisbon... on 13.08.2009 to proceed with the notification of that valuation;

xi. The Tax Office of Lisbon... requested the Claimant, by letter of 24.09.2009, to replace that request with a claim for administrative review or judicial challenge;

xii. The Claimant thus submitted a claim for administrative review on 28.12.2009, invoking the invalidity of the tax assessment due to failure to observe legal formalities, given the lack of notification of the valuation and the impossibility for the Claimant, if she so wished, to request a second valuation;

xiii. The Claimant was notified of the draft decision rejecting the claim for administrative review by letter of 14.04.2010, which, the Claimant understands, did not rule on the matter in question, thus lacking substantiation;

xiv. Regarding this draft decision, the Claimant exercised the right to prior hearing, reiterating her arguments. By letter of 14.11.2011, the claim for administrative review was rejected;

xv. On 14.12.2011, the Claimant filed a hierarchical appeal of that decision, having been notified by letter of 06.03.2014 of the draft decision rejecting it;

xvi. The Claimant exercised her right to prior hearing, contesting the arguments contained in the draft, which, moreover, recognizes that there should have been notification of the valuation but ultimately concludes that the value resulting from a second valuation could never be different (accordingly, such a second possible valuation would not be capable of altering the result of the first and therefore would be useless);

xvii. The Claimant was notified on 23.07.2015 of the order rejecting the hierarchical appeal;

xviii. The Claimant considers there to be confusion in the TCA's services regarding this question, which she intends to be definitively clarified;

xix. In fact, the value of the shareholding was fixed on the basis of the last balance sheet, pursuant to no. 2 of §3 of article 20 and article 77 of the CTSG. There is not a valuation, but rather a fixing of value, as follows from the clarifying instructions of Circular Letter no. D-5/64 of 12 August;

xx. Not agreeing with such fixing, the Claimant contested it, requesting a valuation under article 87 of the CTSG, insofar as the situation in question did not fall within any of the cases that prevent the request for valuation;

xxi. Pursuant to article 95 of the CTSG, the valuation must be drawn up in the file, and this must be signed by all those who participated in it, and shall then be notified to the taxpayer;

xxii. In the event that the taxpayer or the finance chief does not agree with the result of the valuation, a second valuation may be requested or initiated, within 8 (eight) days of notification;

xxiii. Only after the second valuation has been carried out may the value determined be judicially challenged, as provided in article 134, no. 7 of the Code of Tax Procedure and Process ("CTPP");

xxiv. Administrative acts are subject to notification to the interested parties and require express and accessible substantiation when they affect legally protected rights or interests, as provided in no. 3 of article 268 of the Constitution of the Portuguese Republic and article 36 of the CTPP;

xxv. The omission of notification of the valuation implies the lack of substantiation of the tax assessment, constituting a defect that determines the inefficacy of the act, as the result obtained never came to be externalized;

xxvi. Therefore, the claim should be considered well-founded, determining the annulment of the tax assessment determined and compensatory interest on the amount paid of 54,402.92 € (fifty-four thousand four hundred and two euros and ninety-two cents), pursuant to articles 43 of the General Tax Law and 61, no. 2 of the CTPP.

III. Response of the Respondent

The respondent submitted its response alleging, as briefly set out below:

i. The respondent begins by contesting the value of the action, which should not be 64,003.44 € insofar as it does not follow the general rule of article 297, no. 1 of the Code of Civil Procedure, applicable to the tax process by virtue of article 2, paragraph e) of the CTPP, nor article 97-A, no. 1 of the CTPP;

ii. The value of the action should thus correspond to the amount of tax paid, regarding which annulment is sought;

iii. Defending itself by exception, the respondent alleges that:

a. The petition for an arbitral award is improper, insofar as the claim relates to the Inheritance Tax assessment, seeking its annulment, but given the cause of action, this is situated at the level of the lack of notification of the result of the valuation of a specific asset - the shareholding in the commercial company - with the Claimant seeking to be notified of the result of the valuation she requested on 28 March 2005, under article 87 of the CTSG, so that she could request a second valuation and, having exhausted administrative remedies, if she so chose, judicially challenge the value;

In no moment of the petition is the illegality of the Inheritance Tax assessment alleged, solely the fact that she was never notified of the valuation of an asset that entered into the tax assessment is contested.

There being a contradiction between the claim and the cause of action, as is illustrated by the entire petition for arbitral award, the impropriety of the petition is established - article 186, no. 2, paragraph b) of the Code of Civil Procedure, applicable to the tax process by virtue of article 2, paragraph e) of the CTPP.

Consequently, the entire case shall be void, pursuant to no. 1 of article 186 of the Code of Civil Procedure, constituting such a dilatory exception - paragraph b) of article 577 of the Code of Civil Procedure, subject to ex officio knowledge - article 578 of the Code of Civil Procedure.

From such knowledge results that the tribunal is prevented from knowing the merits of the case, imposing the dismissal of the instance - no. 2 of article 576 of the Code of Civil Procedure.

b. The request to challenge the tax assessment is time-barred, since this was assessed and paid in 2009, and therefore, pursuant to article 102 of the CTPP, the challenge shall be presented within three months from the expiration of the period for voluntary payment of tax instalments legally notified to the taxpayer. Thus, the present petition for an arbitral award is manifestly time-barred as a challenge to the act of assessment of Inheritance Tax.

iv. Entering into the merits of the case, the respondent indicates that we would be faced with a challenge to the Inheritance Tax assessment, having as its sole basis the failure to observe a legal formality occurring in the valuation procedure that underlay it, specifically the lack of notification of the valuation act;

v. However, as established doctrine indicates, namely the judgment of the Superior Administrative Court of 24/1/2002, in case no. 26637, among others, the act of notification of an administrative or tax act is an external act posterior to it and the defects affecting notification, being capable of determining the inefficacy of the notified act, are incapable of producing its invalidity as they do not concern the act itself nor its prerequisites;

vi. The valuation act was a distinct act, for purposes of judicial challenge, as results from article 97, sole paragraph, of the CTSG. As such, the lack of notification generates directly only its inefficacy, and not the invalidity of subsequent acts - only the invalidity of the distinct act would generate the invalidity of the subsequent assessment;

vii. Thus, the valuation should be notified in compliance with legal formalities and, if there is a challenge to the valuation and it is judged well-founded, the assessment will then fall; otherwise, or in the absence of a challenge, the assessment will become effective;

viii. In the case, although there is no formal notification of the act of the first valuation carried out by the TCA, however, the omissions of the Claimant led to this situation;

ix. It is verified from the evidence and the arguments made by the Claimant that on 19 January 2011, the Tax Office of Lisbon... sent to the Claimant the letter no...., through which it notified her to exercise the right to prior hearing, pursuant to article 60 of the General Tax Law, regarding the value of the shareholding determined pursuant to article 87 of the CTSG, and if she did not exercise that right, the value indicated for the shareholding - 4/6 of 598,468.76 = 398,979.17, in accordance with the substantiation sent by reference to article 77 of the CTSG, would be considered final;

x. This notification is formally a notification of the first valuation, but as to its content it is verified that the act intended to be notified - the result of the valuation requested pursuant to article 87 of the CTSG - is not contained in the annex;

xi. Therefore, on the basis of the duties of care and diligence and cooperation that may also be attributed to the Claimant, the latter should have requested, under article 37 of the CTPP, the complete notification of the act;

xii. More than a possibility available to the taxpayer, this would be a duty for the taxpayer, given that the claim previously submitted had the purpose of imposing on the TCA the notification of the result of the valuation;

xiii. Having not made use of this possibility conferred by law, the tax value of the shareholding became consolidated in the legal order, as a case decided, similar to res judicata, which the subsequent assessment must reflect, and whose judicial challenge of it, if timely, does not cover the errors or defects that may have occurred in that valuation;

xiv. In conclusion, if the judicial challenge to the Inheritance Tax assessment is considered but only with grounds limited to the assessment itself and without being able to consider the defect regarding the fixing of the value, which in the meantime became consolidated in the legal order, because the missing elements were not requested, the present claim is unfounded, since the cause of action is exactly the formal defect of lack of notification;

xv. In support of the lack of diligence of the Claimant, as appears from the evidence, the latter came to know the value attributed to the shareholding in the first valuation in which she participated, namely through the signature of the appraiser;

xvi. As to the question of the consideration of the decision on the hierarchical appeal, which allowed the submission of the present petition for arbitral award, it is noted, giving reason to the Claimant, the existence of various errant positions, resulting from the "stickiness" of the matter, which lends itself to different understandings and which the highest jurisprudence reflects, as demonstrated by the judgment in case no. 02766/08-28.04.2009-CT- 2º Tribunal, which is cited;

xvii. There is no place for notification for a second valuation, since the valuation of the shareholding was made in accordance with rule 4 of §3 of article 20 of the CTSG, in accordance with the last balance sheet of the company, there being no basis for its alteration, except through a review of the accounts, putting in question the balance sheet made by the company itself;

xviii. Thus, in terms of merits, it must be concluded in the sense, well-sustained, in the information that considered the hierarchical appeal, or that is, in which it is argued that if there was an error in the procedure it consists in the fact that the services admitted the request for contestation made by the Claimant pursuant to article 87 of the CTSG, because the shareholding was valued pursuant to article 77 of the CTSG, therefore there would be no place for the sought notification.

IV. Claimant's Response to the Exceptions

The Claimant responded to the matter of exception raised by the respondent in the following terms:

i. It is manifest that the lack of notification of the result of the valuation of the social shareholding is intrinsically associated with the tax assessment, because this was based on a taxable matter that did not pass through the test of the principle of publicity of acts;

ii. Knowledge was not given to the normal addressee of the valuation procedure, and while it is not brought to his knowledge through the act of notification, it is not apt to produce all its legal effects - that is, there was no integration of efficacy. It is non-existent;

iii. The TCA itself, in its response, acknowledges that only after eight days have passed without a second valuation having been requested, does this valuation become final, as provided in article 96 of the CTSG;

iv. Therefore, the Claimant could never challenge the value of something that was not notified to her;

v. To argue that the Claimant could not fail to know the value attributed because she participated through her appraiser in the valuation carried out is not sufficient and demonstrates, rather, the "stickiness" of the procedure thus qualified by the TCA;

vi. The taxpayer does not have the burden of asking to be notified, they can only request the notification of the requirements that were omitted in the notification, under article 37 of the CTPP;

vii. But that in the case at hand, it does not apply since the notification never existed, it was not even "produced" by the TCA, much less reach its addressee;

viii. Therefore, the Claimant was left only to first claim administratively regarding the assessment, precisely because it was based on a non-existent value, and if the act was maintained, as happened, then resort to the judicial route;

ix. It does not make sense to challenge an act of which formally one has no knowledge, but it does make sense to challenge an act resulting from it, as is the case of the assessment;

x. Nor can the argument hold that at no point of the petition is it contested the fact that she was never notified of the valuation of an asset that entered into the tax assessment, to defend the impropriety of the petition for arbitral award, since the entire cognitive course of the case is well explained and detailed;

xi. In this vein, the taxable value of the shareholding never became consolidated in the legal order, since it was not subject to notification to the taxpayer, the passive subject of the disputed material relationship;

xii. As to the time-bar allegation, the Claimant did everything to have the services correct the failure to observe legal formalities they committed: initial exposure to the Chief of the Tax Office of Lisbon..., Claim for administrative review, Hierarchical appeal and finally, judicial challenge;

xiii. The period for judicial challenge is three months from the notification of the decision of the Hierarchical appeal, as the Claimant defends in paragraph a) of no. 1 of article 10 of the Legal Framework for Tax Arbitration, and therefore the petition is timely;

xiv. Regarding the value of the action, the Claimant seeks the annulment of the assessment made in case no...., the value of which is 64,003.44 €, this being immutable. However, by virtue of the CTSG, she paid less because she chose to pay it in cash - this does not alter the value of the assessment.

V. Issues to be Decided

Considering the facts and the matter of law contained in the petition for arbitral award submitted by the Claimant, the response of the respondent, the response of the Claimant to the matter of exception and the respective written pleadings, the issues to be decided by the Arbitral Tribunal are:

1. To determine whether, for purposes of Inheritance Tax assessment, the act performed by the TCA of fixing the value of the shareholding, pursuant to article 77 of the CTSG, which served as the basis for the assessment, is susceptible to valuation, under article 87 of the CTSG;

2. Without prejudice to issue 1, to determine what the consequence is for the lack of notification of the act of valuation of the social shareholding carried out under article 87 of the CTSG;

Additionally, the Arbitral Tribunal will also fix the value of the action, contested by the respondent, pursuant to article 29, no. 1, paragraphs a) and e) of the LFTA, article 13 of the Code of Process in Administrative Courts and article 306 of the Code of Civil Procedure.

Beyond the foregoing, the respondent alleges that there are exceptions which, if thus considered, determine the dismissal of the instance and/or the dismissal of the claim. Thus, consideration will first be given, pursuant to article 29, no. 1, paragraphs a) and e) of the LFTA, article 13 of the Code of Process in Administrative Courts and article 608, no. 1, of the Code of Civil Procedure:

1. The impropriety of the claim presented by the Claimant which, if thus considered, determines the nullity of the case, constituting a dilatory exception that determines the dismissal of the instance, pursuant to articles 186 and 577 of the Code of Civil Procedure;

2. The time-bar of the claim presented by the Claimant which, if thus considered, constitutes a peremptory exception, determining the dismissal of the claim, pursuant to article 576, no. 3 of the Code of Civil Procedure.

VI. Facts

With relevance to the consideration of the Claimant's claim, the following facts are taken as proven, based on the documents attached to the case, and not contested by the respondent:

1. On 16.10.2003 B..., the Claimant's mother, died in the state of widowhood, without a will and with two heirs, namely, the Claimant and C...;

2. A case for the assessment of Inheritance and Gift Tax no.... was initiated at the Tax Office of Lisbon...;

3. In the statement of assets presented was a shareholding with the nominal value of 31,409.84 € (thirty-one thousand four hundred and nine euros and eighty-four cents) in Company D..., Ltd., with registered office at Rua..., lot..., shop..., ..., Odivelas;

4. The Inspection Services of the Finance Department of Lisbon fixed the value of that shareholding at 598,468.76 € (five hundred and ninety-eight thousand four hundred and sixty-eight euros and seventy-six cents), pursuant to article 77 of the CTSG;

5. The heirs were notified of the Inheritance Tax assessment made by the Tax Office of Lisbon... on 24.02.2005, on 04.03.2005;

6. The Claimant contested the value attributed to the aforementioned shareholding pursuant to article 87 of the CTSG, requesting its valuation;

7. At the Tax Office of... a valuation of the shareholding was made on 01.09.2005, with the attendance of the TCA's appraisers and the Claimant's appraiser. This valuation was sent to the Tax Office of Lisbon... on 22.06.2009;

8. The Claimant was not notified of the result of the valuation of the shareholding made by the Tax Office of...;

9. The Tax Office of Lisbon... proceeded to reform the Inheritance Tax assessment on 10.07.2009, determining the overall amount of tax to be paid of 64,003.44 € (sixty-four thousand and three euros and forty-four cents);

10. The Claimant and her sister paid the tax, having benefited from a discount of 4,800.26 € (four thousand and eight hundred euros and twenty-six cents), thus paying the amount of 54,402.92 € (fifty-four thousand four hundred and two euros and ninety-two cents);

11. The Claimant requested the Tax Office of Lisbon... on 13.08.2009 to proceed with the notification of that valuation;

12. The Tax Office of Lisbon... requested the Claimant, by letter of 24.09.2009, to replace that request with a claim for administrative review or judicial challenge;

13. The Claimant submitted a claim for administrative review on 28.12.2009, requesting the annulment of the tax assessment on the basis of failure to observe legal formalities and the notification of the valuation;

14. The Claimant was notified of the draft decision rejecting the claim for administrative review by letter of 14.04.2010;

15. The Claimant exercised the right to prior hearing. By letter of 14.11.2011, the claim for administrative review was rejected;

16. On 14.12.2011, the Claimant filed a hierarchical appeal of that decision, having been notified by letter of 06.03.2014 of the draft decision rejecting it;

17. The Claimant exercised her right to prior hearing;

18. The Claimant was notified on 23.07.2015 of the order rejecting the hierarchical appeal.

The conviction regarding the facts taken as proven was based on the documentary evidence submitted by the parties, whose authenticity and correspondence to reality were not questioned.

There are no other facts with relevance to the case that are not considered proven.

VII. Legal Issues

A. Matter of Exception

1. The respondent begins by alleging that the petition for arbitral award is improper, insofar as the claim relates to the Inheritance Tax assessment, seeking its annulment, but given the cause of action, this is situated at the level of the lack of notification of the result of the valuation of a specific asset - the shareholding in the commercial company - with the Claimant seeking to be notified of the result of the valuation she requested on 28 March 2005, under article 87 of the CTSG, so that she could request a second valuation and, having exhausted administrative remedies, if she so chose, judicially challenge the value, and that at no point of the petition is the illegality of the Inheritance Tax assessment alleged, solely the fact that she was never notified of the valuation of an asset that entered into the tax assessment is contested.

Thus, from the respondent's perspective, there being a contradiction between the claim and the cause of action, as illustrated throughout the petition for arbitral award, the impropriety of the petition is established - article 186, no. 2, paragraph b) of the Code of Civil Procedure, applicable to the tax process by virtue of article 2, paragraph e) of the CTPP, and consequently, the entire case shall be void, pursuant to no. 1 of article 186 of the Code of Civil Procedure, constituting a dilatory exception - paragraph b) of article 577 of the Code of Civil Procedure, subject to ex officio knowledge - article 578 of the Code of Civil Procedure, and therefore the tribunal shall be prevented from knowing the merits of the case, imposing the dismissal of the instance - no. 2 of article 576 of the Code of Civil Procedure.

With due respect, it is understood that the respondent's argument has no merit.

Indeed, there is no contradiction between the allegation of inefficacy resulting from the lack of notification of the valuation, and the illegality of the assessment that follows. In fact, and as will be seen below, the inefficacy resulting from the lack of notification of the valuation can have an impact on the legality of the subsequent assessment, insofar as the absence of production of effects of the valuation will result in everything having to be treated as if the valuation had not occurred, with the consequent repercussions on the legality test to be applied.

Thus, and for the foregoing reasons, the alleged exception does not hold.

1. The respondent further alleges that the request to challenge the tax assessment is time-barred, since this was assessed and paid in 2009, and therefore, pursuant to article 102 of the CTPP, the challenge shall be presented within three months from the expiration of the period for voluntary payment of the tax instalments legally notified to the taxpayer.

Once again, it is understood that the Claimant has no merit here.

Indeed, and as stated by the Claimant, the period for judicial challenge is three months from the notification of the decision of the Hierarchical appeal, as follows from paragraph a) of no. 1 of article 10 of the Legal Framework for Tax Arbitration, and therefore the petition is timely, and this exception should also be dismissed.

B. The (Il)legality of the Assessment Challenged

1. The first issue to be decided in the case is whether, for purposes of Inheritance Tax assessment, the act performed by the TCA of fixing the value of the shareholding, pursuant to article 77 of the CTSG, which served as the basis for the assessment, is susceptible to valuation, under article 87 of the CTSG.

• For purposes of the Inheritance and Gift Tax, the value of shareholdings or interests in companies that are not in the form of shares is determined by the last balance sheet, or by the value attributed in the partition or liquidation of those companies, or in the statement of assets, pursuant to rule 2, §3 of article 20, unless, if the companies do not continue with the heir, legatee or donee of the deceased partner or donor, the value of the shareholdings or interests was fixed in the articles of association (see rule 3, § 3 of the same provision).

• The finance chief shall transmit, through the finance department of the district, to the competent services of the TCA a copy of the extract from the balance sheet, if it exists, and any other elements presented or available to him (see article 77).

• Once made or reformed, the assessment, taxpayers, their legal representatives or mandatories shall be notified thereof, and shall be notified personally or in the manner provided in article 114 if they are on the mainland or in the autonomous regions of the Azores and Madeira and the place where they are located is known (see article 86).

• Within eight days of notification, taxpayers who do not agree with the values on which the tax was assessed may challenge them, by themselves, their legal representatives or mandatories, requesting valuation of assets not yet valued in the proceeding, except in the case of certain assets which do not include the partnerships referred to in this proceeding (see article 87).

• With respect to assets that are the subject of a request for valuation, all further proceedings to the assessment shall be suspended, and it shall be reformed in accordance with the values that will be attributed to them, and the interested parties shall be notified again pursuant to article 86 (see § 1 of article 87).

• When assets are to be valued, and these are not real property omitted from the register, entered in it without patrimonial value or land considered for construction, the finance chief shall notify the taxpayer to appear before him within eight days to nominate an appraiser, under penalty of this being appointed in default (see article 93).

• The valuation shall be drawn up in the proceeding, and the record signed by all those who participated in it, and shall then be notified to the taxpayer (see article 95).

• If the taxpayer or the finance chief does not agree with the result of the valuation, a second valuation may be requested or initiated within eight days from the date of notification, to be carried out by different appraisers, three in number, two being appointed by the TCA, one of whom shall only have a casting vote, and the third by the taxpayer, and the rest shall be in accordance with what is established for the first valuation (see article 96).

• Thus, since the value of the social shareholdings is determined by the last balance sheet, it cannot be said that they have been valued, and therefore, treating assets not excepted in article 87 of the CTSG, the act performed by the TCA of fixing the value of the shareholding, pursuant to article 77 of the CTSG, which served as the basis for the assessment, is susceptible to valuation under article 87, to be carried out pursuant to article 93 of the CTSG.

This is the understanding of the case law of the Superior Administrative Court, as evidenced, among others, by the judgment of 13-04-2011 (Case no. 0926/10), in the summary of which it may be read:

"I – For purposes of Inheritance Tax assessment, the acts performed by the Tax Administration of fixing the values that served as the basis for the assessment are susceptible to valuation, with the exception of the cases expressly indicated in no.s 1 to 3 of article 87 of the CTSG.

II – The cases in which Inheritance Tax is assessed on the basis of the value of shareholdings in companies fixed by the Tax Administration, pursuant to article 77 of the CTSG, are covered by the regime of the body of that article 87, provided that valuation has not yet occurred in the administrative assessment proceeding.

III – Thus, taxpayers who disagree with the act of fixing the value of the shareholdings, underlying the act of Inheritance Tax assessment notified to them, must challenge it within eight days, and the consequence of failure to do so is the lapsing of the right to challenge that fixing."

1. As to the second issue, namely determining what the consequence is for the lack of notification of the act of valuation of the social shareholding carried out under article 87 of the CTSG:

• As mentioned above, if the taxpayer or the finance chief does not agree with the result of the valuation, a second valuation may be requested or initiated within eight days from the date of notification, to be carried out pursuant to article 96 of the CTSG, and the rest shall be in accordance with what is established for the first valuation.

• The lack of notification of the result of the valuation, carried out under article 87, is preventive of its horizontal finality by not having been externalized, being determinative of its inefficacy.

• Indeed, the efficacy of the decision depends on its notification, see no. 6 of article 77 of the General Tax Law, and therefore it should be understood that, regarding any procedural decision, only upon notification will the effects of the act be produced.

• In the same sense, no. 1 of article 36 of the CTPP: "Tax acts that affect the rights and legitimate interests of taxpayers only produce effects in relation to them when they are validly notified to them."

• As Diogo Leite Campos and others state[1], "(…) in view of the provision of no. 6 of article 77 of the General Tax Law, being a decision of a tax procedure (…), it would appear that it should be concluded that the subsequent act of tax assessment cannot be carried out without prior notification, as, before such notification, that decision will be ineffective."

• Also in case 694/2014-T of CAAD[2], it was written:

"It is understood that the lack of (or the invalidating illegality of) the notification of a tax act, does not contend with the validity of that act, but, solely, with its efficacy.

This does not mean, however, that the lack of (or the invalidating illegality of) the notification of an act cannot have repercussions on the legality of a subsequent act that presupposes it. Thus, for example and in this case, it is admitted that the lack of (or the invalidating illegality of) the notification of a distinct act of fixing the taxable matter generates, by procedural defect, the invalidity of the subsequent assessment act.

Continuing with the Esteemed Counselor Jorge Lopes de Sousa, "the interested party may attack the assessment act on the basis of the inefficacy of the valuation act in which it is based, which prevents it from being able to produce, even indirectly, effects in relation to the addressee."[5]

In conclusion, and applying what has just been said to the specific case, it is considered that the lack of (or the invalidating illegality of) the notification of the indirect valuation act that occurred upstream of the assessment act object of the present arbitral action, generating the inefficacy of that act in relation to the Claimant, will be capable of invalidating the said assessment, since this legally presupposes the existence of a prior, valid and effective valuation act

[5] "CTPP – Annotated and Commented", Áreas Publishing, 2006, Vol. I, p. 426."

• Furthermore, it will always be said that, in accordance with the provision in §1 of no. 3 of article 87, the proceedings subsequent to the assessment of 24-02-2005 should have been suspended until the lapsing of the right to request a second valuation, pursuant to article 96, and therefore the reform of the assessment, carried out on 10-07-2009, is illegal due to a defect of violation of law.

VIII – Refund of Sums Paid and Compensatory Interest

The Claimant requests refund of the sums paid and compensatory interest, it having been proven that she paid the assessed amount of 54,402.92 €.

Article 43, no. 1, of the General Tax Law establishes that "compensatory interest is due when it is determined, in a claim for administrative review or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

In the case at hand, the error affecting the assessment is attributable to the Tax and Customs Authority that performed the act of assessment (reform), despite the same being illegal.

Therefore, the Claimant is entitled to be reimbursed for the sum she paid (articles 100 of the General Tax Law and 24, no. 1, of the LFTA) and to compensatory interest from the date of payment of the sum, 31-08-2009, until reimbursement, at the legal default rate, pursuant to articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

IX - Award

In these terms, the members of this Arbitral Tribunal agree to:

a) Dismiss the exceptions raised by the respondent (impropriety of the petition for arbitral award due to contradiction between the claim and the cause of action and time-bar of the claim);

b) Uphold the petition for arbitral award;

c) Annul the assessment (reform) made in the Inheritance Tax case no...., on 10-07-2009, in the amount of 64,003.44 €;

d) Uphold the claim for condemnation of the Tax and Customs Authority to refund the amount paid by the Claimant, in the amount of 54,402.92 €, plus interest, at the legal rate, from the date of payment until reimbursement of the sum paid.

Value of the Case

In accordance with article 306, no. 2, of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the LFTA and article 13 of the Code of Process in Administrative Courts, the value of the case is fixed at 64,003.44 €, as this is the value of the assessment whose annulment is sought. Although the respondent contends that the value of the action should correspond to the amount of tax actually paid, the fact is that the position sustained lacks legal foundation which, moreover, is not even suggested.

Costs

Pursuant to article 22, no. 4, of the LFTA, the amount of costs is fixed at 2,448.00 €, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 26-04-2016.

The President Arbitrator,

(José Pedro Carvalho)

The Adjunct Arbitrator

(Ana Pedrosa Augusto)

The Adjunct Arbitrator

(Rui Ferreira Rodrigues - Rapporteur)

Document prepared by computer, pursuant to article 131, no. 5, of the Code of Civil Procedure, applicable by reference from article 29, no. 1, paragraph e), of the LFTA.

[1] "General Tax Law", Annotated and Commented, 4th Edition, 2012, Encontro da Escrita Publisher, page 68"

[2] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=694%2F2014&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=882.