Summary
Full Decision
ARBITRAL DECISION
The Arbitrator, Professor Doctor Jónatas Machado, appointed by the Ethics Council of the Centre for Administrative Arbitration to form part of the present Arbitral Tribunal, hereby renders the following decision:
1 REPORT
1. A..., taxpayer no. ... (hereinafter "Claimant"), with tax domicile at Street ... no.º..., ..., ...-... LISBON, has petitioned for the constitution of an arbitral tribunal with a view to obtaining an arbitral decision on the additional IRS assessment no. 2017..., dated 18.04.2017, relating to the fiscal year 2013, with the amount to be paid, after compensation, of € 7,271.44, which includes € 752.31 in compensatory interest, with payment deadline on 19.06.2017.
2. The petition for constitution of the arbitral tribunal was accepted by the President of CAAD on 05.02.2019.
3. In accordance with articles 5, no. 2, paragraph a), 6, no. 1 and 11, no. 1 of the RJAT, the Ethics Council of this Centre for Administrative Arbitration (CAAD) appointed as sole arbitrator Professor Doctor Jónatas Machado on 27.03.2019.
4. The parties were duly notified of this appointment, to which they offered no objection, in accordance with the combined provisions of articles 11, no. 1, paragraphs b) and c) and 8 of the RJAT and 6 and 7 of the Ethics Code of CAAD.
5. By virtue of the provision in paragraph c) of no. 1 and no. 8 of article 11 of the RJAT, as communicated by the President of the Ethics Council of CAAD, the Arbitral Tribunal was constituted on 16.04.2019.
6. The Claimant seeks to obtain an arbitral decision on the legality of the additional IRS assessment made with reference to the fiscal year 2013, by reason of alleged erroneous quantification and qualification of the taxable matter or, subsidiarily, by reason of a defect of form, lack of substantiation and violation of the principle of taxpaying capacity, in any case with the corresponding legal consequences, including the payment of indemnatory interest calculated from the date of payment until the date on which the respective refund is processed.
7. The AT (or "Respondent"), having been notified pursuant to article 17 of the RJAT to submit its reply, came forward with a defence on 16.05.2019, contesting the admissibility of the present petition for arbitral decision, maintaining the tax assessment act challenged in the legal system and seeking its dismissal of the claim.
8. As it was not requested by the parties and was deemed unnecessary, the tribunal dispensed with the meeting provided for in article 18 of the RJAT, by means of a ruling issued on 17.05.2019.
1.1 Description of the Facts
9. The Claimant, resident in Portuguese territory and subject to IRS therein for the universality of his income, timely filed his annual IRS declaration form 3, relating to the fiscal year 2013, which included Annex J, relating to income obtained outside Portuguese territory, having declared only, in the said annex I, transactions involving the purchase and sale of securities, generating capital gains or losses.
10. The Claimant was notified, by means of letter no. ..., dated 05.04.2017, by the Division of Income and Expense Tax Assessment of the Financial Directorate of Lisbon, of a draft correction of his declaration, in the amount of € 24,984.52, for income obtained outside Portuguese territory and transmitted to the Portuguese tax authorities by the Swiss tax authorities under the Savings Directive (Directive 2003/48/EC).
11. Specifically, such income was broken down as follows:
Country Paying Entity Account Number Amount
Switzerland B..., SA ... € 24,984.52
12. On 07.04.2017, he submitted a replacement declaration declaring in annex J, in the field and boxes indicated to him, that amount of € 24,984.52, self-qualified as "Income derived from Savings Directive no. 2003/48/EC - Other income not covered by the transition period" (designation contained in the said field).
13. On 18.04.2017 the AT made the IRS assessment no. 2017..., from which, after compensation was made with the result of the previous assessment, resulted, already with the amount of € 752.31 in compensatory interest, the amount to be paid of € 7,271.44, paid on 19.05.2017.
14. On 24.05.2017, the Claimant filed an administrative complaint against the said assessment act, attaching, among others, the "Statement of interest subject to European Union savings tax, from 1 January 2013 to 31 December 2013", produced by B..., known by the acronym ESD;
15. Notified by the AT of the draft decision to dismiss, the Claimant submitted to the administrative complaint proceedings, on 14.12.2017, a request containing a letter issued by B... and a declaration with the composition of the securities portfolio held in the same Bank, as of 31.12.2013, which demonstrates the claimant's ownership of that same securities portfolio. On 31.10.2018, the Claimant was notified of the decision dismissing his administrative complaint.
16. At the time of the facts, the Claimant had contracted with C... (Suisse), a financial management company governed by Swiss law, for the management of his securities portfolio, conducting all contacts with the "account manager" at C... (Suisse) and receiving from him data relating to the management of his investments in the portfolio.
17. C... (Suisse) is responsible for the choice of B... as depository of the said portfolio, the Claimant having no contacts with the latter, nor receiving from it any type of information directly about his investments in securities.
1.2 Arguments of the Parties
18. The arguments brought before the tribunal focus on the requirements concerning the content of information transmitted by the Swiss tax authorities to the AT for purposes of legal-tax qualification of the income actually paid to the Claimant.
19. The Claimant alleges that the assessment act in question is illegal with arguments summarized as follows:
a) Council Directive 2003/48/EC of 3 June 2003, transposed into the Portuguese legal system by Decree-Law no. 62/2005 of 11 March, aimed to ensure the effective taxation of "interest" in the country of residence of its holder, having established, in coexistence, the system of information to the country of residence and the system of withholding tax on the tax due in the country of residence;
b) Articles 8 and 9 of this Directive subject the information to be transmitted between Member States to the principle of fragmentation, by nature of the subcategory of income and the operation generating it, with synthetic communication being exceptional, but even then having to segregate the total amount of interest from the total amount of the proceeds of the assignment, redemption or repayment, applying to the communication from the competent authority of the Member State of the paying agent to the competent authority of the Member State of the residence of the beneficial owner;
c) In article 2 of the Agreement between the European Community and the Swiss Confederation, which provides for measures equivalent to those provided in the said Directive, it is stipulated, with regard to the communication of interest (within the meaning of the Directive) paid, that Switzerland must establish a procedure allowing the beneficial owner to avoid the withholding tax specified, expressly authorizing its paying agent in Switzerland to notify the competent authority of that State of interest payments, this authorization covering all interest payments made to the beneficial owner by that paying agent;
d) The minimum content of the information to be communicated by the paying agent to the Swiss State includes, pursuant to article 2, no. 2 of the Agreement, at least, the identity and residence of the beneficial owner, determined in accordance with article 5, the name or denomination and address of the paying agent, the account number of the beneficial owner or, in its absence, the identification of the credit generating the payment of interest and the amount of interest paid calculated in accordance with article 3, such information being communicated to the competent authority of the Member State of residence of the beneficial owner automatically and at least once per year, within six months following the end of the fiscal year in Switzerland, in relation to all interest payments made during that year;
e) Whenever the beneficial owner opts for this voluntary information disclosure procedure or declares the interest income obtained from the Swiss paying agent to the tax authorities of his Member State of residence, the interest income in question shall be subject to taxation in that Member State at the same rates as those applied to similar income generated in that State;
f) By combining the provision in article 2 of the Agreement with the rules to which it refers, it can be concluded that the information to be transmitted to the Swiss tax authorities follows the principle of fragmentation, by nature of the subcategory of income and the operation generating it and, pursuant to no. 3 of article 9, the immediate subject of the communication from the competent authority of the Member State of the paying agent to the competent authority of the Member State of the residence of the beneficial owner consisted of the "information referred to in no. 2";
g) The reference made in no. 2 of article 2 of the Agreement to the calculation "in accordance with article 3", that is, operation by operation capable of generating covered interest, and the mere fact that it does not speak of "the total amount of interest paid", but only of "the Amount of interest paid", seem sufficient to interpret the said rule in the sense of imposing a disaggregated communication of interest payments and of the operations capable of generating them and not a communication of "accumulated values" or "totals", which the Swiss tax authorities did not do;
h) Article 8 of Decree-Law no. 62/2005 of 11 March, which regulated the obligation to communicate income subject to the Savings Directive regime, considering its implementation in form 35 approved by Regulation no. 563-A/2005 of 28 June, adopted the maximalist position provided for in no. 2 of article 8 thereof, and not the minimalist one of its final paragraph, since it follows from the completion instructions that income must be communicated application by application that generated it, and must thus be transmitted to the State of residence – except when form 36 is used, intended to communicate income that is not paid to beneficial owners (article 9 of the statute);
i) The Portuguese tax authorities, whenever they communicate interest to the Swiss Confederation within the meaning and pursuant to the Savings Directive, communication of disaggregated information and not by total, should the Swiss tax authorities do likewise in light of the rule of reciprocity;
j) The assessment in question suffers from erroneous quantification and qualification of the amount of "interest" added in field 422 of table 4 of the replacement declaration by "indication" of the AT, violating the legal allocation of the burden of proof of no. 1 of article 74 of the LGT;
k) Throughout the procedure, the AT limited itself to invoking communication received from a foreign country, under an Agreement that the European Community, of which Portugal was an integral part, concluded with it, but which does not meet the requirements provided therein;
l) The Opinion issued by the Directorate of Services for International Relations of the AT attached to the substantiation supporting the decision to dismiss issued in the administrative complaint is a "party opinion", being biased and revealing willful ignorance of the succession of facts that led to the completion of annex I as regards "interest";
m) The Claimant provided to the AT, together with his IRS Declaration, the ESD, that is, the document designated "A Statement of interest subject to European Union savings tax from 1 january 2013 to 31 december 2013" (Statement of interest subject to European Union savings taxation from 1 January 2013 to 31 December 2013), relating to account ..., issued by B..., which confirmed the claimant as the account holder;
n) From the analysis of the ESD and taking into account the principle of the prevalence of substance over form, it follows the possibility of qualifying the income differently for purposes of internal taxation than that which results from the qualification that may have to be made for purposes of the Agreement, because these are distinct legal realities;
o) In the ESD there were itemized 6 (six) dividend receipt transactions (Cash dividends), totaling € 1,839.24; 6 (six) interest receipt transactions (Interest), totaling € 6,660.01 and 2 (two) redemption transactions (Redemption), totaling € 16,357.52;
p) The AT made no analysis of the ESD, having only been concerned to ascertain whether it related to an account of the Claimant, whom it censured for not having made the "itemization" as if, having done so, the Financial Directorate of Lisbon would not subsequently say that the replacement declaration was not properly completed because it had "only" declared interest in the amount of € 6,660.01 when what it had to declare as income so qualified was € 24,858.07;
q) The "Income Report" declaration (...), was sent to the Claimant to complete the IRS declaration regarding portfolio income in accordance with the rules of incidence under national law and not with those of the Savings Directive or the Agreement concluded by the EU with the Swiss Confederation, and these did not modify, for purposes of internal taxation, the concept of "interest" in article 5 of the CIRS;
r) The joint analysis of the ESD and ... declarations makes it possible to detect three "discrepancies" which are justified as follows:
a. The transaction dated 18.12.2013 in the ESD, located in Ireland and relating to ISHARES3 EUR.COVERED BOND EUR – ISIN ..., identified as "cash dividend" (dividend payment), at the value of "interest" of € 695.50, is not shown registered in the ... because C... (Suisse) had no information about it during the year 2013. The information only reached it in 2014, appearing in the Income Report of 2014, dated 08.01.2014, being relevant for the year 2014;
b. The transaction dated 30.07.2013 in the ESD, located in Luxembourg and relating to 1,229.709 units of participation in the investment fund D...EUR H1-CAP – ISIN..., identified as "redemption" (redemption) and with the value of "interest" of € 4,832.02, is registered as in the ... as REALIZED GAINS & LOSSES (realized gains and losses), in Mutual Fund Bonds (EUR), with "open" date (acquisition date) 12.02.2013 and "close" date (realization date) 30.07.2013, and as "cost basis" (acquisition value) € 25,491.87 and as "proceeds" (redemption value) € 24,839.16, which results in a capital loss of € 652.71;
i. The Claimant does not know, nor is obliged to know, the reason why in the ESD an "interest" of € 4,832.02 is registered in this transaction, which he manifestly did not receive; he admits that the value may have been determined on the basis of some of the rules provided in article 7 of the Agreement, but in light of Portuguese internal law on qualification, they are not opposable to him nor do they prevail over internal qualification;
c. The transaction dated 08.08.2013 in the ESD, located in Luxembourg and relating to 623 units of participation in the investment fund E..., ISIN LU..., identified as "redemption" (redemption) and with the value of "interest" of € 11,525.50, is registered as in the ... as REALIZED GAINS & LOSSES (realized gains and losses), in Mutual Fund Bonds (EUR), with "open" date (acquisition date) 13.02.2013 and "close" date (realization date) 08.08.2013, and as "cost basis" (acquisition value) € 64,387.50 and as "proceeds" (redemption value) € 63,683.78, which results in a capital loss of € 703.27.
i. The Claimant does not know, nor is obliged to know, the reason why in the ESD an "interest" of € 11,525.50 is registered in this transaction, which he manifestly never received; he admits, without conceding, that the value may have been determined on the basis of some of the rules provided in article 7 of the Agreement, but in light of Portuguese internal law on qualification, they are not opposable to him nor do they prevail over internal qualification;
d. Additionally, in the Activity Report declaration relating to the same account and to the period 01.01.2013 to 31.12.2013, which is now attached (Doc. 12), it is possible to identify the records of:
i. On 12.02.2013, purchase of 5,062.00 units of participation or part of the fund D...- Global Total Return EUR Hedged, for the total value of 104,935.26, which converts to an average acquisition cost per unit of € 20.73. Thus, the acquisition value of the 1,229.71 units or parts subsequently sold is 1,229.71 x 20.73 = € 25,491.87; On 30.07.2013, sale of 1,229.71 units of participation or parts of the fund D...- Global Total Return EUR Hedged for the value of € 24,893.16;
ii. On 13.02.2013, purchase of 623 units of participation or parts of the fund E...- Total Return Fund, for the value of € 64,387.05; On 08-08-2013, sale of 623 units of participation or parts of the fund E...- Total Return Fund, for the value of € 63,683.78.
e. In the operations mentioned above the Claimant realized losses because he redeemed the units of participation at a value lower than the price at which he had acquired them. Even in the version prior to the 2015 reform, the majority of doctrine considered that the redemption of units of participation in investment funds was an operation equivalent to a sale for consideration and that, consequently, generated capital gains or losses, pursuant to the general rules. It could not be otherwise, because Category E never admitted "negative income" in light of the principle, which the market subsequently called into question, that there are no "negative interest rates".
s) In conclusion and with the grounds invoked and the evidence produced, the Claimant considers that he does not have to declare, for purposes of taxation according to the rules of national incidence, the amount corresponding to the "interest" (which, as he said, he ignores how it was calculated, but which he never received) attributed in the "redemption" transactions of units of participation or parts of investment funds and which, per ESD, total the amount of € 16,357.52;
t) There is not, even, for purposes of internal taxation, any rule that presumes the existence of interest in this type of transaction and which, in any way, would justify the taxation of presumed income;
u) He does not have to declare the amount of € 695.50, relating to "dividends", since this amount was only registered in 2014 in the company with which he had contracted the management of his securities portfolio and is recorded in the Income Report of that year, and therefore is taxed therein, in accordance with the temporal aspect of the objective element of incidence;
v) He considers he should be taxed, for the year 2013, for capital income obtained abroad, taking into account the values declared in the BPIS, by the amount of € 8,006.35 of income, requalified as € 1,684.72 of dividends and € 6,321.63 of interest;
w) Even if this were not the case, the assessment in question cannot be maintained in this case entirely, due to manifest insufficiency of substantiation, which is equivalent to lack of substantiation;
x) The documents attached were drafted in English and these, as indeed in the information itself is acknowledged, do not need to be translated, pursuant to the circular letter no. 20124 mentioned therein.
20. The AT countered based on the following grounds:
a) Based on the Savings Directive and Decree-Law no. 62/2005 of 11/03, it is verified that information was transmitted by the Swiss tax authorities to the effect that income in the form of interest was paid in the amount of € 24,984.52, reported to the Claimant.
b) Decree-Law no. 62/2005 of 11/03 establishes the system for obtaining and providing information by paying agents regarding savings income in the form of interest of which natural persons residing in another Member State of the European Union are beneficial owners;
c) Based on the information provided by the Swiss tax authorities, resulting from the automatic exchange mechanism provided for in the Savings Directive, the process relating to the correction of the Claimant's form 3 IRS declaration for the year 2013 was initiated;
d) The Claimant, not having declared the amounts received in his model 3 declaration for the year 2013, agreed with the need to replace the declaration, but not with the values transmitted by the Swiss tax authorities;
e) On the Claimant's declaration there is a presumption of veracity and good faith, pursuant to article 75 of the LGT, the rebuttal of which occurs pursuant to its respective no. 2 paragraphs a) and b), with the responsibility for proof falling on him and the duty to clarify his tax situation, given the omission in his declaration, in light of the information received from the Swiss tax authorities;
f) It is for the Claimant to prove and document, pursuant to article 74, no. 1 of the LGT, the transactions in question, being able to resort to documentary or testimonial evidence, being obliged to proceed with the submission of the respective income declaration, which must contain all income obtained, both in national territory and abroad, by virtue of the provision in article 15 of the CIRS, and must provide proof, in the event that tax has been borne abroad regarding income obtained there, of the respective payment;
g) The income in question in the present case was not earned in national territory, as results from the interpretation a contrario of the provision in paragraph g) of no. 1 of article 18 of the CIRS, since it was paid in the context of a Swiss account, by a Swiss entity, and should therefore be considered as obtained in Switzerland;
h) The income whose taxation is contested by the Claimant was communicated by the Swiss tax authority, because it falls within the scope of application of the Savings Directive and the Agreement concluded between the European Community and the Swiss Confederation that provides for measures equivalent to those established in the Directive;
i) This aims at the ultimate objective of allowing savings income in the form of interest paid in a Member State to beneficial owners who are natural persons resident in another Member State to be subject to effective taxation in accordance with the legislation of the latter Member State;
j) Whenever the beneficial owner of interest is resident in a Member State different from that in which the paying agent is established, the minimum content of the information to be communicated by the paying agent to the competent authority of his Member State of establishment must contain the elements contained in the various paragraphs of no. 1 of article 8 of the said Directive, such authority being required to communicate such information, automatically, to the competent authority of the Member State of residence of the beneficial owner;
k) The Directive establishes that, for these purposes, "interest payment" should be understood as, namely and in accordance with the provision in paragraph d) of no. 1 of article 6 of the Directive, "income realized at the time of assignment, redemption or repayment of shares or units of participation in the following bodies and entities, where they have invested, directly or indirectly, through other collective investment bodies or authorities referred to below, more than 40% of their assets in credits referred to in paragraph a)". An identical provision is contained in paragraph d) of no. 1 of article 7 of the Agreement concluded with the Swiss Confederation;
l) In no. 3 of the said article it is provided that "as regards paragraph d) of no. 1, where a paying agent has no information concerning the percentage of assets invested in credits or in shares or units of participation as defined in that paragraph, that percentage is to be regarded as exceeding 40%. Where the paying agent cannot determine the amount of income realized by the beneficial owner, the income is deemed to be the proceeds of the assignment, redemption or repayment of the shares or units of participation";
m) It results that, pursuant to the Directive as well as the Agreement concluded with the Swiss Confederation, the transaction which the Claimant refers to as underlying the income in question is qualified as "interest payments";
n) Consequently, in light of the primacy of directives in the internal legal order and the elements that were communicated by the Swiss tax authorities, the income in question here can only be considered as income relating to interest payments, subject to taxation pursuant to the provisions of the IRS Code, in the wording applicable at the time of the facts, the IRS assessment in question not suffering from any illegality;
o) The "Statement of interest subject to European Union savings tax, From 1 January 2013 to 31 December 2013" attached to the proceedings constitutes a simple copy and has no identification of the holder of the income, the Claimant or a third party, containing the total amount of € 24,858.07, a value that coincides with that communicated by the Swiss tax entities to the Portuguese tax authorities;
p) No financial statement or declaration from the bank in question appears on the record, confirming that the Claimant did not earn the sum of € 24,858.07 for purposes of income in Category E of IRS for the year 2013;
q) It follows from the documentation submitted by the Claimant that the value of capital income (Category E of IRS) is globally consistent with the value that was communicated by the Swiss tax entity, not allowing the qualification of income as interest under the Savings Directive to be set aside;
r) The AT limited itself to taxing in Portugal, in strict compliance with the law, the income subject to tax, in accordance with information provided by the Swiss authorities and which the Claimant failed to contradict, and therefore the IRS assessment now challenged must be maintained in the legal system;
s) The reasons of the AT were fully understood and subsequently referenced and attacked by the Claimant in his petition for arbitral decision, which he would otherwise not have submitted, and therefore the defect of lack of substantiation is found not to exist, and in any case it falls to the Claimant, if it were otherwise, to make use of the mechanism provided for in article 37 of the CPPT and request the respective notification or issuance of the certificate in conformity, which did not occur.
2 RULING ON ADMISSIBILITY
21. The petition for arbitral decision is timely, pursuant to no. 1 of article 10 of the RJAT.
22. The Arbitral Tribunal is regularly constituted (articles 5, no. 2, 6, no. 1, and 11 of the RJAT) and is materially competent (articles 2, no. 1, paragraph a) of the RJAT).
23. The parties have legal personality and capacity and are duly represented.
24. The proceedings do not suffer from nullities nor have exceptions been raised, and the case may proceed to determination of the merits.
3 SUBSTANTIATION
3.1 Facts Established
25. Based on the documents brought before the tribunal, the following facts relevant to the decision of the case sub judice are established:
a) The Claimant submitted his annual IRS declaration form 3 for the fiscal year 2013, with Annex J, relating to income obtained outside Portuguese territory, having declared in the said annex I transactions involving the purchase and sale of securities, generating capital gains or losses. (cf. Document 1)
b) The Claimant was notified, by letter no. ... dated 05.04.2017, by the Division of Income and Expense Tax Assessment of the Financial Directorate of Lisbon, of a draft correction of his declaration in the amount of € 24,984.52 for income obtained outside Portuguese territory and transmitted to the Portuguese tax authorities by the Swiss tax authorities under the Savings Directive (Directive 2003/48/EC). (cf. Document 2)
c) The Claimant submitted a replacement declaration, entering in field 422, table 4, Annex J, the amount of € 24,984.52, relating to savings income in the form of interest earned in Switzerland, which gave rise to additional assessment no. 2017..., dated 18.04.2017, which gave rise to the administrative complaint filed on 24.05.2017 and the respective dismissal on 30.10.2018 (Cf. Documents 3, 4, 5, 6 and 8)
d) In this administrative complaint, the Claimant provided to the AT the ESD, designated as "Statement of interest subject to European Union savings tax from 1 january 2013 to 31 december 2013" (Statement of interest subject to European Union savings taxation from 1 January 2013 to 31 December 2013), corresponding to account no. ..., document issued by B..., it being verified that only on 06.12.2017 did the Claimant appear identified by B... as the holder of the said account ... (cf. Documents 5, 6 and 7)
e) In the ESD there were itemized 6 (six) dividend receipt transactions (Cash dividends), totaling € 1,839.24, 6 (six) interest receipt transactions (Interest), totaling € 6,660.01 and 2 (two) redemption transactions (Redemption), totaling € 16,357.52. (cf. Document 7)
f) The transaction dated 18.12.2013 in the ESD, located in Ireland and relating to ISHARES3 EUR.COVERED BOND EUR - ISIN ... identified as "cash dividend" (dividend payment), at the value of "interest" of € 695.50, is not shown registered in the ..., appearing in the Income Report of 2014, dated 08.01.2014; (cf. Documents 7 and 11)
g) The transaction dated 30.07.2013 in the ESD, located in Luxembourg and relating to 1,229.709 units of participation in the investment fund D... – ISIN LUO...., identified as "redemption" (redemption) and with the value of "interest" of € 4,832.02, is registered as in the BPIS as REALIZED GAINS & LOSSES (realized gains and losses), in Mutual Fund Bonds (EUR), with "open" date (acquisition date) 12.02.2013 and "close" date (realization date) 30.07.2013 and "cost basis" (acquisition value) € 25,491.87 and "proceeds" (redemption value) € 24,839.16, which results in a capital loss of € 652.71; (cf. Documents 7, 9 and 10)
h) The transaction dated 08.08.2013 in the ESD, located in Luxembourg and relating to 623 units of participation in the investment fund E... -TOT.RET.BOND C CAP, ISIN LU..., identified as "redemption" (redemption) and with the value of "interest" of € 11,525.50, is registered as in the BPIS as REALIZED GAINS & LOSSES (realized gains and losses), in Mutual Fund Bonds (EUR), with "open" date (acquisition date) 13.02.2013 and "close" date (realization date) 08.08.2013 and "cost basis" (acquisition value) € 64,387.50 and "proceeds" (redemption value) € 63,683.78, which results in a capital loss of € 703.27 (cf. Documents 7, 9 and 10);
i) In the Activity Report declaration relating to the same account and to the period 01.01.2013 to 31.12.2013, it appears that on 12.02.2013, there was a purchase of 5,062.00 units of participation or part of the fund D...- Global Total Return EUR Hedged, for the total value of 104,935.26, which converts to an average acquisition cost per unit of € 20.73. Thus, the acquisition value of the 1,229.71 units or parts subsequently sold is 1,229.71 x 20.73 = € 25,491.87. On 30.07.2013, sale of 1,229.71 units of participation or parts of the fund D...- Global Total Return EUR Hedged for the value of € 24,839.16. On 13.02.13, purchase of 623 units of participation or parts of the fund E...- Total Return Fund for the value of € 64,387.05. On 08.08.2013, sale of 623 units of participation or parts of the fund E...- Total Return Fund for the value of € 63,683.78. (Document 12)
3.2 Facts Not Established
26. With regard to the decision on the merits, there are no facts alleged that should be considered as not established.
3.3 Reasoning
27. With regard to matters of fact, the Tribunal does not have to pronounce on everything alleged by the parties, it being incumbent upon it to select the facts that matter for the decision and distinguish the established facts from those not established (cf. art. 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).
28. The facts relevant to the judgment of the case are selected and defined according to their legal significance, which is established having regard to the various plausible solutions of the issues at issue in the dispute (v. 596, no. 1, of the CPC, by virtue of article 29, no. 1, paragraph e), of the RJAT).
29. Thus, the facts listed above were established as having significance for the decision.
3.4 Question for Decision
30. The question for decision concerns the qualification, for purposes of legal-tax, of the income allegedly obtained by the Claimant outside Portuguese territory and as such transmitted to the Portuguese tax authorities by the Swiss tax authorities under the Savings Directive (Directive 2003/48/EC) and the Agreement between the European Community and the Swiss Confederation.
31. Article 15, no. 1, of the CIRS, adopting the worldwide income principle, establishes that, for persons resident in Portuguese territory, IRS applies to the totality of their income, including that obtained outside that territory. Seeking to reduce the risks of double taxation and double non-taxation (i.e., tax evasion and tax avoidance), the Savings Directive sought to ensure effective taxation of "interest" in the country of residence of the beneficial owner, having established, in coexistence, the system of information to the country of residence – building on the regime of Directive 77/799/EEC of the Council – and the system of withholding tax on the tax due in the country of residence in accordance with the respective legislation.
32. The concept of "interest payment" adopted by the Savings Directive is considerably broad, encompassing, pursuant to article 4, no. 1 paragraphs a) and d), among others, income realized at the time of assignment, redemption or repayment of shares or units of participation in the following bodies and entities, where they have invested, directly or indirectly, through other collective investment bodies or entities referred to below, more than 40% of their assets in credits of any nature, with or without mortgage guarantee and with or without the right to participate in the debtor's profits, namely income from public debt and loan bonds, including premiums relating to those securities. Regarding such income, no. 3 of the same article 4 provides that, where a paying agent has no information concerning the percentage of assets invested in credits or in shares or units of participation as defined in that paragraph, that percentage is to be regarded as exceeding 40%, and also that, where the paying agent cannot determine the amount of income realized by the beneficial owner, the income is deemed to be the proceeds of the assignment, redemption or repayment of the shares or units of participation.
33. However, the broad concept of "interest payment" used by the Savings Directive and the Agreement does not intend to establish a single definition of interest, of European scope, corresponding to the concept of interest that Member States use internally in their own legal norms of tax incidence. That concept serves, above all, to delineate and positively conform the system of obtaining and providing information by paying agents in the context of the exchange of information that must exist between the State of residence of the paying agent and the State of residence of the beneficial owner.
34. Pursuant to article 8, no. 1, of the Savings Directive, the minimum content of the information to be communicated by the paying agent to the competent authority of its Member State of establishment must include, mandatorily, the identity and residence of the beneficial owner, the name or denomination and address of the paying agent, the account number of the beneficial owner or, in the absence thereof, identification of the credit generating the interest, information relating to the payment of interest and information specifying, in a disaggregated manner, the different types and amounts of interest paid or credited and income from other transactions (e.g. assignment, redemption, repayment, distribution), having as reference the definition of interest in article 6.
35. Article 8 permits Member States to 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 proceeds of the assignment, redemption or repayment. In any case, it still requires differentiation between interest, income and proceeds of the assignment, redemption and repayment. Article 9 subjects such information to a system of automatic exchange between the Member States of the paying agent and the beneficial owner, to be carried out at least once per year within six months following the end of the fiscal year of the paying agent's Member State, in relation to all interest payments made during that year. Decree-Law no. 62/2005 of 11.03, which transposes the Savings Directive into the national legal system, establishes the system for obtaining and providing information by paying agents regarding savings income in the form of interest of which natural persons resident in another Member State of the European Union are beneficial owners.
36. The Agreement between the European Community and the Swiss Confederation provides for measures equivalent to those of Directive 2003/48/EC, having the concepts used by it (e.g. beneficial owner, interest payment) as its semantic point of reference. The Agreement establishes, in its article 1, no. 1, that where the paying agent is established in Switzerland, interest paid to a beneficial owner resident in a Member State of the European Union shall be subject to withholding at a rate varying over time, requiring, in article 2, no. 1, Switzerland to establish a procedure allowing the beneficial owner to avoid the aforementioned withholding, expressly authorizing its paying agent in Switzerland to notify the competent authority of that State of interest payments, this authorization covering all interest payments made to the beneficial owner by that paying agent.
37. The minimum content of the information to be communicated and the procedure to be followed correspond largely to those of the Directive, it being stated in article 2, no. 4, that whenever the beneficial owner opts for this voluntary information disclosure procedure or declares the interest income obtained from the Swiss paying agent to the tax authorities of its Member State of residence, the interest income in question shall be subject to taxation in that Member State at the same rates as those applied to similar income generated in that State. Parallels between the Agreement and the Directive are also detected in areas such as the broad concept of interest payment and the aforementioned "40% rule", which determines the inclusion in that concept of income realized at the time of assignment, redemption or repayment of shares or units of participation in the following bodies and entities, where they have invested, directly or indirectly, through other collective investment bodies or entities referred to below, more than 40%.
38. Based on these normative instruments, the Swiss tax authorities communicated to the AT the information that income in the form of interest was paid in the amount of € 24,984.52, reported to the Claimant. They did so, first of all, because the same falls within the broad concept of "interest payment" relevant for purposes of the obligation to communicate information. However, the communication was made synthetically, as a total, without disaggregating the information regarding the various subcategories of income.
39. This aspect is of great practical importance, insofar as, although it is certain that, pursuant to and for purposes of the information communication regime of the Directive and the Agreement, the transactions underlying the income in question must be qualified as "interest payments", it does not necessarily follow that, once disaggregated, the same should always be considered as "interest" for purposes of taxation under Category E.
40. Direct taxation continues to be a competence reserved to the States, having not been the subject of harmonization by European Union law as regards subjective and objective incidence – without prejudice to its subordination to the respective structuring principles (e.g. non-discrimination on grounds of nationality and residence, safeguarding of undistorted competition in the internal market). Moreover, both the Savings Directive and the Agreement point to the objective that the effective taxation of income earned by the beneficial owner shall be carried out in accordance with the legislation of the State of his residence. In this being the case, it continues to be the CIRS that is responsible for qualifying the different types of income, including that obtained abroad, for purposes of subsumption to the different categories of taxation.
41. In the concrete case, it was based on the information transmitted, resulting from the automatic exchange mechanism, that the process relating to the correction of the model 3 IRS declaration for the year 2013 was initiated. The aim was thereby to apply to the interest paid the provision of article 5 of the CIRS, regarding Category E, of capital income, which includes, namely, interest and other forms of remuneration of participation securities. The Claimant, not having declared the amounts received in his model 3 declaration for the year 2013, agreed with the need to replace the declaration but not with the values transmitted by the Swiss tax authorities.
42. On the Claimant's declaration there is a presumption of veracity and good faith, pursuant to article 75 of the LGT, the rebuttal of which occurs pursuant to its respective no. 2 paragraphs a) and b), with the responsibility for proof falling on him and the duty to clarify his tax situation, given the omission in his declaration, in light of the information received from the Swiss tax authorities. It is his responsibility to prove and document, pursuant to article 74, no. 1, of the LGT, the transactions in question, being able to resort to documentary or testimonial evidence, being obliged to proceed with the submission of the respective income declaration, which must contain all income obtained, both in national territory and abroad, by virtue of the provision in article 15 of the CIRS, and must provide proof, in the event that tax has been borne abroad regarding income obtained there, of the respective payment.
43. The good faith of the Claimant can be confirmed by the submission, following notification by the AT on 06.04.2017, of a replacement declaration, in which he entered in field 422, table 4, Annex J, the amount of € 24,984.52, relating to savings income in the form of interest earned in Switzerland, which gave rise to the assessment, subject of the present challenge. However, in the administrative complaint proceedings, the Claimant attached bank documents that allow sustaining that some transactions mentioned in the ESD cannot legitimately be considered interest, subject to taxation as income of Category E under the CIRS. Copies authenticated thereof were presented and attached to the proceedings on 12.06.2019.
44. From the analysis of the documentation on the record, it is effectively deduced that when, on 14.12.2017, the AT presented to the Claimant the draft decision to dismiss the administrative complaint, it already had the letter from Banque B... confirming that the Claimant was the holder and beneficial owner of account no. ...
45. For its part, analysis of the ESD allows concluding that account no. ... realized losses because it redeemed the units of participation at a value lower than the price at which it had acquired them. Thus, from the transactions of acquisition and sale relating to 1,229.709 units of participation in the investment fund D... EUR H1-CAP – ISIN LU..., a capital loss of € 652.71 results, whereas in those relating to 623 units of participation in the investment fund E...-TOT.RET.BOND C CAP, ISIN LU... a capital loss of € 703.27 is recorded.
46. It is also verified that the transaction dated 18.12.2013 in the ESD, located in Ireland and relating to ISHARES3 EUR.COVERED BOND EUR - ISIN IE..., identified as "cash dividend" (dividend payment), at the value of "interest" of € 695.50, is not shown registered in the BPIS, appearing in the Income Report of 2014, dated 08.01.2014.
47. The documented transactions show that we are dealing with the redemption of units of participation in investment funds, transactions equivalent to a sale for consideration, consequently generating capital gains or losses, pursuant to the general rules, a fact that refers its taxation to Category G, in accordance with the corresponding legal norms in force at the time. Within the scope of this category, capital gains are considered income from the redemption of units of participation in investment funds (art. 10 CIRS). This aspect is of utmost importance, insofar as, as has been said, in light of the Savings Directive and the Agreement, taxation must be carried out in accordance with the legislation of the State of the beneficial owner.
48. The taxation of income of the different categories depends on the verification of the corresponding tax fact, constitutive of the legal-tax relationship (art. 36, no. 1, of the LGT). The principles of justice and material truth require that appropriate and necessary evidentiary elements be taken into account for their verification. It is the responsibility of the AT, in the procedure, to carry out all diligences necessary for the discovery of material truth, not being subordinated to the initiative of the petitioner. Pursuant to article 100, no. 1, of the CPPT, "[w]henever from the evidence produced there results a well-founded doubt as to the existence and quantification of the tax fact, the impugned act should be annulled."
49. In the concrete case, and in light of the documents made available by the Claimant to the AT in the administrative complaint proceedings, a careful and detailed analysis of the information contained therein would allow concluding that from the transactions itemized in the ESD, he does not have to declare, for purposes of taxation according to the rules of national incidence, the amount corresponding to the "interest" attributed in the "redemption" transactions of units of participation or parts of investment funds and which, per ESD, total the amount of € 16,357.52, nor the amount of € 695.50 relating to "dividends", since this amount was only registered in 2014 in the company with which he had contracted the management of his securities portfolio and is recorded in the Income Report of that year. In this way, the Claimant's petition should succeed, to the effect of declaring the illegality of the additional IRS assessment no. 2017..., dated 18.04.2017, relating to the fiscal year 2013, with the amount to be paid, after compensation, of € 7,271.44 which includes € 752.31 in compensatory interest.
3.5. Request for Reimbursement and Indemnatory Interest
50. The Claimant makes a request for reimbursement of the amounts collected by the AT, as well as payment of indemnatory interest. Pursuant to the provision in paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge lies binds the AT as of the expiration of the deadline provided for appeal or challenge, and the AT must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the expiration of the deadline provided for the spontaneous execution of rulings of judicial tax courts, "restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", in accordance with the provision in article 100 of the LGT [applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in the event of total or partial success of an administrative complaint, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject of the dispute, including the payment of indemnatory interest, if applicable, as of the expiration of the deadline for execution of the decision".
51. Notwithstanding article 2, no. 1, paragraphs a) and b), of the RJAT using the expression "declaration of illegality" to define the competence of the arbitral tribunals operating within CAAD, making no reference to condemnatory decisions, it has long been understood that included in their competences are the powers that in judicial review proceedings are attributed to tax tribunals, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first directive, that "the tax arbitral process must constitute an alternative procedural means to the judicial review process and to the action for recognition of a right or legitimate interest in tax matters".
52. Although it is essentially a process of annulment of tax acts, the judicial review process does admit condemnation of the AT to the payment of indemnatory interest, as can be inferred from article 43, no. 1, of the LGT, which establishes that "indemnatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there has been error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally owed" and from article 61, no. 4 of the CPPT (in the wording given by Law no. 55-A/2010 of 31 December, which corresponds to no. 2 in the original wording), which provides that "if the decision that recognized the right to indemnatory interest is judicial, the period for payment is counted from the beginning of the period of its spontaneous execution".
53. Thus, no. 5 of article 24 of the RJAT, in stating that "payment of interest, regardless of its nature, is due pursuant to the provisions of the general tax law and the Code of Tax Procedure and Process", should be understood as allowing recognition of the right to indemnatory interest in the arbitral process. This understanding results from the principle of effective judicial protection and the corresponding expansion of the formative powers of administrative and tax jurisdiction. Therefore, the Claimant has the right to be reimbursed the tax paid and indemnatory interest by virtue of the aforementioned articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed".
54. In the case at hand, the AT erred insofar as it was incumbent upon it, responding to the indication of the Claimant, to analyze the documentary elements brought to the procedure and the specification of the transactions contained in the ESD, in such a way as to ensure the taxation of income actually earned by the taxpayer in accordance with the IRS regime in force as of the year 2013. In this connection, it should be taken into account that the concept of "interest payment" relevant for purposes of the information communication system contained in the Savings Directive and the Agreement between the European Union and Switzerland does not necessarily correspond to the analogous concept for purposes of incidence under article 5 of the CIRS.
4 DECISION
For these reasons, this Arbitral Tribunal decides:
1) To declare the illegality of the additional IRS assessment no. 2017..., dated 18.04.2017, relating to the fiscal year 2013, with the amount to be paid, after compensation, of € 7,271.44 which includes € 752.31 in compensatory interest, with payment deadline on 19.06.2017;
2) To render judgment in favor of the Claimant regarding the request for reimbursement to the Claimant of the tax assessed in the amount of € 7,271.44, which includes € 752.31 in compensatory interest, corresponding to assessment no. 2017..., as well as the request for indemnatory interest thereon calculated, at the legal rate, from the date of payment until issuance of the respective credit note.
5 VALUE OF THE CASE
The value of the case is fixed at € 7,271.44, pursuant to article 306, no. 1 of the CPC and article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
6 COSTS
The arbitration fee is fixed at € 612.00 to be borne by the Respondent pursuant to articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed thereto.
Notice of this decision shall be given.
Lisbon, 2 July 2019
The Arbitrator
Jónatas Machado
Frequently Asked Questions
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