Capital Gains Tax (IRS) on Non-Resident: Illegal Additional Assessment Overturned by Arbitral Tribunal

ARBITRAL DECISION

I – THE CLAIM

A…, with tax identification number …, with tax domicile at Rua …, no. …, …, …, Lisbon, in the capacity of legal representative of B…, tax resident in Denmark, with Portuguese tax identification number …, hereinafter referred to as "Claimant", notified of the decision of partial (dismissal/deferment) of the Gracious Complaint presented by him against the assessment of Personal Income Tax (IRS) for 2012, issued by the Services under 2013 …, to which corresponds the collection document no. 2013 …, from which results an amount owed of € 11,588.04, and also, additionally, of the corrective assessment act relating to the same tax and year of 2012 and of which he was already notified in the course of this claim, identified with no. 2014 …, carried out on 02/12/2014, as well as the corresponding settlement of accounts, now in the amount of € 11,283.30, by not agreeing with the same, hereby, under article 10, no. 2 of Decree-Law no. 10/2011 of 20 January and articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, requests the constitution of an Arbitral Court, with the following grounds:

A. On the legitimacy of the request for constitution of an Arbitral Court

1. The Claimant recognizes the competence of arbitral courts to, under the terms of articles 2, no. 1, subparagraph a) and 10, no. 1, subparagraph a), both of Decree-Law no. 10/2011 of 20 January, appreciate the illegality of tax assessment acts and, likewise, the (partial dismissal/deferment) of gracious complaints of tax acts.

2. Moreover, it emphasizes that the Tax and Customs Administration is bound by the jurisdiction of arbitral courts, under the terms of articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March.

3. It further alleges that through this claim, the Claimant intends that the Court appreciate the legality of the additional IRS assessment for 2012, issued by the Services of the Tax Administration under no. 2013 …, to which corresponds the collection document no. 2013 …, from which results an amount owed of € 11,588.04 and, likewise, of the decision of (partial dismissal/deferment) of the Gracious Complaint presented by the Claimant against the aforementioned tax acts, whereby, under the terms already referred to, the Claimant has procedural standing to bring this request for constitution of an Arbitral Court.

B. Identification of the acts subject to the arbitral ruling request

1. The Claimant intends that the Arbitral Court pronounce itself on an IRS assessment and a decision of partial deferment of gracious complaint presented against the aforementioned tax acts, in which in both cases the same circumstances of fact and the same interpretation and application of the same legal principles or rules are at issue.

2. To that effect, the Claimant reaffirms that the object of the request for pronouncement of the Arbitral Court are the following tax acts:

a. Act of additional IRS assessment no. 2013 …, carried out on 21/11/2013 by His Excellency the Director-General of Taxes, by reference to the year 2012, from which resulted an amount to pay of € 11,588.04 (cf. Doc. No. 2);

b. Decision of (partial dismissal/deferment) of the Gracious Complaint presented by the Claimant, rendered by the Administrative Justice Division of the Finance Directorate of Lisbon and notified to the Claimant by Official Letter no. …, of 23/7/2014 (cf. Doc. No. 1).

C. Identification of the arbitral ruling request and respective grounds and exposition of the questions of fact and law subject to the claim

Identification of the arbitral ruling request

1. The Claimant requests that the illegality of the decision of (partial dismissal/deferment) of the Gracious Complaint and, likewise, of the corrective and additional IRS assessment acts – cited Documents nos. 1 to 3 and 19 – be declared and, consequently, the same be annulled, under the terms of article 2, no. 1, subparagraph a) and 10, no. 1, subparagraph a), both of Decree-Law no. 10/2011 of 20 January.

2. And the Claimant comes to do so by understanding that they suffer from defect of violation of law, which it invokes under the terms of article 99, subparagraph a) of the Code of Procedure and Tax Process, with the following grounds:

Grounds and exposition of the questions of fact and law subject to the arbitral ruling request

i. Elements of Fact

1. The Claimant states that following the death of her brother, C…, the Claimant became the tax representative of her nephew B…, of Danish nationality, given that at the date of death of her father he resided (and still resides) in Denmark, where he has remained for more than 183 days, under the terms and for purposes of article 16, no. 1 of the IRS Code.

2. And that, by deed of 7/7/2008, executed at page 89 of book 236-A, at the Notarial Office of …, at Av. …, … in Lisbon, the heirship qualification was made following the death of C…, deceased on 31/10/2003, without a will or any other testamentary disposition and by virtue of which his three children, D…, E… and B… – represented by the Claimant – were declared heirs.

3. And further that the assets left by C… to his aforementioned children were the following:

a. A mixed property, denominated "…", registered in the urban land register of the Parish … of the municipality of Vila Franca de Xira under article … and in the rustic land register under article …, section …;

b. An urban property located at Rua …, nos. …, registered in the urban land register of the parish of … of the municipality of Lisbon under article … (cf. Doc. No. 3).

1. The Claimant affirms that at the date of opening of the estate, the mixed property denominated "…", registered in the then register of the parish of … of the municipality of Vila Franca de Xira under articles …-Section … (rustic part) and …, presented a tax value of € 94.53 (in the rustic part) and € 61.61 (in the urban part), totaling € 156.06, and the urban property located at Rua …, nos. …, of the parish of … of Lisbon, registered in the register under article …, a tax value of € 55,429.62,[1] values that served as the basis for the assessment of Stamp Tax (cf. Doc. No. 3).

2. Moreover, the Claimant further states that owing to the residence abroad of the son of the "de cujus" B… and the poor state of conservation of the two urban properties, which constitute the real estate assets of the estate, it was the option of the 3 heirs to sell them with the utmost haste, at the best price they could achieve.

3. It was for this reason that by notarial deed of 25/7/2012, the aforementioned heirs sold to F…, holder of NIF …, born in Germany, for the declared price of € 100,000.00, the urban property located at street …, nos. … of the parish of … of the municipality of Lisbon, registered in the respective register under article …, with the patrimonial value of fifty-nine thousand, two hundred and thirty-three euros and forty-eight cents (€ 59,233.48)[2] (cf. Doc. No. 5).

4. And that also by notarial deed of 26/12/2012, the aforementioned heirs sold to G…, holder of NIF …, for the price of € 70,000.00 (being € 60,000.00 by reference to the urban part and € 10,000.00 to the rustic part) the mixed property denominated "…", registered in the respective urban and rustic land registers of the parish of …, under the articles, respectively, …, with the VP of 84,270.00 and …, Section …, with the value of € 94.53,[3] (cf. Doc. No. 4).

5. The Claimant emphasizes that the heirs received only the values declared in the deeds, as consideration for the price of sale, and no other amount "under the counter" was paid, as it seeks to demonstrate by copy of the bank statement of the account opened with BPI, in the name of the heiress D…, given her function as head of household, who acted as faithful depositary of the amounts received (cf. Doc. No. 6).

6. Moreover, the Claimant further states that only much later after the sale of the assets, as far as her knowledge goes in April 2013, the urban property located at street … (article …) came to be re-evaluated, following the subdivision of the property, promoted by the new owner, from which resulted the assignment of the following tax patrimonial values to the various fractions of the property:

a. Fraction LJ 72 – the TPV of € 23,160.00

b. 1st floor – the TPV of € 23,160.00

c. 2nd floor E – the TPV of € 11,580.00

d. 2nd floor AD – the TPV of € 11,580.00

e. 2nd floor BD – the TPV of € 11,580.00

f. 2nd floor F – the TPV of € 8,690.00

g. 3rd floor D – the TPV of € 17,370.00

h. 3rd floor FT – the TPV of € 23,160.00

i. 4th floor D – the TPV of € 17,370.00

j. 4th floor F – the TPV of € 23,160.00

In TPV total of …….. € 170,810.00

1. The Claimant also states that at the date of sale of the properties, the heirs incurred the following expenses and charges that they itemize (cf. Doc. No. 7 and 8), alleging that all are deductible in light of article 51, subparagraph a) of the IRS Code:

a. Property of Rua …

• Real estate mediation services in the purchase and sale, i.e., in the drafting of the purchase and sale contract – on 13/7/2012 – in the amount paid of € 1,537.50;

• Real estate mediation services (Deed) – on 27/7/2012 – in the amount of € 1,537.50;

• Preparation of a survey of a residential building – on 18/3/2008 – in the amount of € 1,600.00;

• Other (not itemized and without date), in the amount of € 141.70;

• ½ of the fees relating to the preparation of two valuation reports – on 7/7/2008 – in the amount of € 360.00;

• Energy certification – on 19/7/2012 – in the amount of € 694.95

All in the total amount of € 5,871.65

b. Property …

• Real estate mediation services (Deed) – on 26/12/2012 – in the amount of € 3,075.00;

• Services for legalization of dwelling – on 10/7/2009 – in the amount of € 2,064.00;

• Improvements – on 28/2/2010 – in the amount of € 22.00;

• Improvements – on 21/2/2010 – in the amount of € 176.15;

• Plumbing works on the property – on 3/2/2010 – in the amount of € 360.00;

• Improvements – Construction (roof recovery works) – on 4/4/2008 – in the amount of € 17,847.50;

• Obtaining Permit for works (use and change of use) – on 27/4/2010 – in the amount of € 51.40;

• Obtaining Permit for works (assessment, petitions and urban operations) – on 5/8/2010 – in the amount of € 51.40;

• Obtaining Permit for works (use and change of use) – on 26/5/2011 – in the amount of € 266.44;

• Fees – Technical sheet of dwelling – on 26/12/2012 – in the amount of € 20.56;

• Obtaining Permit for construction works and extension of deadlines – on 4/11/2009 – in the amount of € 625.63;

• Obtaining permanent certificate of property via Online Land Service – on 27/4/2010 – in the amount of € 15.00;

• Assessment of petitions for urban operations and authentication of documents – on 23/7/2008 – in the amount of € 62.00;

• Repair in the gas pipeline system of the property – on 1/9/2010 – in the amount of € 1,452.00;

• Project of thermal behavior and energy certification in the dwelling – on 12/4/2010 – in the amount of € 357.50;

• Architecture Project – on 16/7/2008 – in the amount of € 4,128.00;

• Architecture Project – on 18/6/2008 – in the amount of € 2,081.20;

• Real estate mediation services in the purchase and sale of a property (drafting of the Purchase and Sale Contract) – on 28/7/2012 – in the amount of € 3,075.00.

All in the total amount of € 35,715.78.

1. The Claimant presented the IRS declaration form 3 for the year 2012, in April 2013, having declared (cf. Doc. No. 9), 1/3 of the portion of the capital gain obtained by the represented nephew B…, relating to the sale of the assets of the estate, as well as 1/3 of the portion of the expenses incurred, as follows:

1. The Claimant clarifies that in order to determine the actual capital gain, it resorted, with respect to the realization value, to the price by which the properties were sold and with respect to acquisition, to the value that served as the basis for the assessment of stamp tax due by the transmission of the assets of the estate, as provided in article 42 of the IRS Code.

2. Moreover, the Claimant states that as a consequence of the IRS assessment based on the declaration presented, the Claimant was notified on 13/8/2013, in the capacity of Legal Representative, of the IRS assessment act no. 2013 …, of 31/7/2013, from which resulted the amount to pay of € 5,278.75, which the Claimant paid within the voluntary collection period (cf. Doc. No. 10).

3. However, the Claimant emphasizes that on 5/12/2013 she came to be notified of an additional IRS assessment, relating to the same year, issued under no. 2013 …, to which corresponds the collection document no. 2013 …, from which resulted an amount owed of € 11,588.04 (cf. Doc. No. 2).

4. The Claimant states that according to information from the Finance Service of Lisbon-…, this additional assessment would be based on the fact that at the date of sale of the assets of the estate, the TPV – Tax Patrimonial Value be higher than the sale price contained in the respective deed – which would have motivated the correction of the realization value, under the terms and for purposes of article 44, no. 2 of the IRS Code.

5. By not agreeing with the correction promoted by the Tax Administration, the Claimant presented on 17/1/2014 Gracious Complaint against the official IRS assessment act of 2012, issued by the Services under no. 2013 …, to which corresponds the collection document no. 2013 …, from which resulted an amount owed in the already mentioned value of € 11,588.04 (cf. Doc. No. 2).

6. The Claimant, given the absence of concrete elements of the additional assessment and substantiation of fact and law underlying the assessment of compensatory interest integrated in the same notification, chose to present on 21/2/2014, a request to the Finance Service of Lisbon-…, under the terms and for purposes of articles 36, nos. 1 and 2, and 37, nos. 1 and 2 of the Tax Procedure and Process Code.

7. In response, the Finance Service of Lisbon-… issued a certificate containing the indication of the corrections made to the values contained in the IRS form 3 declaration opportunely presented, which are demonstrated and highlighted in the table below (cf. Doc. No. 12):

1. The Claimant concluded, then, that the corrections promoted by the Finance Service of Lisbon-… have to do with the replacement of the sale value of the assets of the estate corresponding to 1/3, by the value corresponding also to 1/3 of the T.P.V, fixed[10] at the date of sale € (84,270.00/3 = 28,090.00) for … (urban part) and 1/3 of the T.P.V. fixed in April of the year following the sale € (170,810.00/3 = 56,936.67), in the case of the urban property of ….

2. The Claimant states that with respect to the corrections to the acquisition value relating to the property of … and to the corrections to the expenses and charges (recorded in the IRS declaration, based on the values referred to in article 15 of the Stamp Tax Code, all documentarily supported), she was unable to find the basis of the same.

3. Hence, as the Claimant has already stated, not agreeing with the corrections made by the Services of the Tax Administration, nor even after the certificate that she requested from the Finance Service of Lisbon-…, she came to present a supplementary request to the aforementioned Gracious Complaint previously filed (cf. Doc. No. 13).

4. In this Supplementary Request the Claimant invokes the following:

a. Being the declared sale price the one truly practiced inferior to the T.P.V. of the property at the date of sale, the Claimant understands that it is this one and not this one, to be considered as realization value for purposes of taxation of capital gains in IRS and, concomitantly, for purposes of its inclusion in the IRS declaration, without prejudice to it being incumbent on the taxpayer the burden of that allegation and proof, in order to rebut, as the Claimant understands, the legal presumption provided in article 44, no. 2 of the IRS Code;

b. And that being demonstrated in the proceedings that heirs B… and his sisters only received the value of sale declared in the respective deeds of sale and not any other amount equivalent to or greater than the T.P.V. of the sold properties, alleges that it is imperative to reverse the correction promoted by the Services to the realization value inherent to the sale, in the case of the urban property of … and, likewise, of the urban part of …, for purposes of determining the capital gain obtained in the year 2012, which is at the basis of the additional assessment claimed;

c. That even not being considered, by mere hypothesis, which the Claimant does not admit, the abolition of the legal presumption provided in article 44, no. 2 of the IRS Code, always will it be illegal the retroactive application of 1/3 part of the T.P.V. attributed to the property of … in April 2013, four months after its sale, by violation of the principle of non-retroactivity of tax law, embodied in article 103, no. 3 of the Constitutional Republic;

d. And that, on the other hand, the Claimant also considers to be duly demonstrated the basis of which she served to determine the acquisition value of the property of … (1/3 part of the amount that served as the basis for the assessment of Stamp Tax at the time of distribution of the assets of the estate of C…), as well as to determine the expenses and charges associated with each property.

1. The Claimant emphasizes that the Chief of the Administrative Justice Division of the Finance Directorate of Lisbon, in appreciation of the argumentation of the Claimant and the evidence produced in the course of the Gracious Complaint, decided only to partially defer the petitioned (cf. Doc. No. 1), invoking the following:

a. That the realization value of the property of … considered in the additional assessment, of (€ 56,936.67) is the correct one, insofar as under the terms of subparagraph b) of no. 4 of article 15-D of the Tax Benefits Code[11], with the heading patrimonial value it is established that "the tax patrimonial values of urban properties that have been subject to general assessment enter into force at the moment of occurrence of the respective tax events, for purposes of the other taxes".

b. That is, the TPV determined by the general assessment of properties applies at the date of the tax event, so it is not a case of retroactive application, but rather a simple application of article 44, no. 2 of the IRS Code, which establishes that the value to be considered as realization value "(…) prevails when superior, to the values by which the assets had been considered for purposes of municipal tax on onerous transmission of real property or, where there is no place for assessment, the ones that should be, in case it was due", that is, the rule gives prevalence to the TPV to the detriment of the price contained in the contract;

c. And that the confrontation of the public deeds of purchase and sale of the properties, as well as the statement included in the proceedings do not conclusively prove the value of receipt, since there are other possible means for the receipt of values superior to the T.P.V. of the sold properties, hence the clear and unequivocal legal provision;

d. That the acquisition value of the property located at Rua … considered in the additional assessment (€ 11,295.81) is the correct one, insofar as it corresponds to 1/3 part of the TPV of the property at the date of death. The value by which the Claimant was guided - € 55,429.62 (amounting to 1/3 part to € 18,476.54) – constitutes the TPV of the property at the date of 31/12/2003, by force of the periodic updating to which properties were subject, according to article 138 of the Municipal Tax on Real Property Transfer Code;

e. And that analyzing the entire procedure, the Chief of Division defined that the realization and acquisition values contained in the additional assessment are correct, with only the need to add to the expenses of line 401 the amount of € 231.65 and of line 403 the amount of € 8,603.17, whereby partial deferment is determined.

1. The Claimant clarifies that in addition to the censure that the decision rendered by the Chief of Division deserves, from the legal point of view, cannot fail to note the actual state of conservation of the assets of the estate – the urban property of … and the urban part of … – which forced the nephew of the Claimant and his sisters to establish with the purchasers a price that the Tax Administration considers insufficient by being lower than the TPV, but which – to the misfortune of the sellers themselves who would certainly have preferred to negotiate a higher price – that is the price that corresponds to the reality of the facts.

2. And moreover clarifies that between June and July 2008 they requested an evaluation of the market value of … and of the property located at Rua … from independent entities – H…, …, Ltd. (NIF …) and Architect I… (NIF …) respectively, having been attributed to … a market value of € 94,500.00 and to the property located at Rua … a value of € 131,094.22 (cf. Docs. 14 and 15).

3. Moreover, the Claimant states that also J… carried out in June 2012, on a date closer to the deed of purchase and sale of the properties, an independent evaluation in which is attributed to the property located at Rua … a value between € 100,000.00 and € 115,000.00 (with recommendation to descend to the minimum in case of low demand) and to … a value between € 95,000.00 and € 80,000.00 (with recommendation to descend to € 75,000.00 in case of low demand) – cf. Doc. No. 16.

4. Moreover, the Claimant emphasizes that those were roughly the values agreed in the deeds of sale executed on 25/7/2012 and 26/12/2012 by the nephew of the Claimant B…, together with his sisters, since … was sold for the total price of € 70,000.00 (cf. Doc. No. 4) and the urban property located at Rua … for the price of € 100,000.00 (cf. Doc. No. 5).

5. And the Claimant emphasizes that it is not significant the negative deviation between the price agreed as to the property of … and the market price of the 1st independent evaluation, nor is it a reason to question the veracity of the declared values, all the more so that it is a matter of public knowledge that between 2008 and 2012 real estate value suffered an abrupt fall, in addition to the fact that the report produced by Architect I… (cf. Doc. No. 15), alerts to the poor state of conservation of the building and to the need to carry out interior works of conservation and improvement, which naturally worsened in the 4 years elapsed since the evaluation.

6. And that that worsening of the state of conservation was of such an order that the Lisbon City Council found itself forced to summon the head of household to proceed with the execution of conservation works (cf. Doc. No. 17), the realization of which was postponed on the grounds that one of the heirs was of minor age, requiring the appointment of a guardian.

7. Regarding the sale of …, similar market circumstances dictated its sale price slightly below the market value determined by the company H… and by J…, the Claimant dispensing herself from effecting proof of factuality that is notorious and of general knowledge (cf. Art. 412 of the Civil Procedure Code applicable ex vi article 2 of the Tax Procedure and Process Code), without prejudice to being at liberty to disclose the proposals received.

8. On the other hand, the heirs did attempt to sell at a better price, but the fact that the nephew of the Claimant lives in Denmark, there was understandable urgency in the sale, which led them to accept the best price bid, even though the amounts were below the respective T.P.V.s, being illustrative of this rationale the emails exchanged at the time between the head of household of the estate of C… and the sister of the Claimant in view of the proposals received, the reading of which allows reconstruction of the entire history of the sale (cf. Doc. No. 18).

9. The Claimant emphasizes that it is clear that although the agreed price of the sale of the assets of the estate was lower than the TPV, the fact is that it corresponds demonstrably to the price actually received by the heirs, it not being legitimate to require the represented party of the Claimant to pay a tax calculated on a fictitious capital gain (!).

10. Not conforming, therefore, with the decision of (partial dismissal/deferment) of the Gracious Complaint presented against the aforementioned IRS assessment act – except as to the expenses and charges associated with each property, the appreciation of which is in conformity with the law, whereby the tax assessed by reference to the said correction is accepted – comes the Claimant to present this Request for Constitution of the Arbitral Court, which it does on the basis of the following arguments of Law:

ii. Elements of Law

D. On the error of law in the determination of IRS collection

1. From the analysis performed on the additional IRS assessment, object of this action, the Claimant ascertained that by force of the corrections of Finance Service of Lisbon-…, the realization value recorded in the IRS form 3 declaration of B… came to have as reference not the portion of 1/3 of the price actually practiced, but 1/3 of the tax patrimonial value of the property at the date of sale (84,270.00/3 = 28,090.00), in the case of the urban part of "…", and 1/3 of the tax patrimonial value of the property in April of the following year (170,810.00/3 = 56,936.67), in the case of the property of ….

2. The Claimant states that it is not unaware that in light of article 44, no. 2 of the IRS Code, being at issue the transmission of real property rights over real property, for purposes of determining capital gains, there prevail, when superior, the values by which the assets had been considered for purposes of the assessment of Municipal Tax on Real Property Transfer or, where there is no place for this assessment, the ones that should be, in case it was due.

3. However, the Claimant emphasizes that the truth, however, is that the IRS Code adopts the conception of income-increment, according to which its tax base encompasses every increase in the taxpayer's purchasing power, including capital gains and, in general, receipts and gains (even if irregular or fortuitous), to the narrow extent that they may be considered manifestations of taxpaying capacity (cf. Decision of the Regional Tax Court of the South of 25/6/2013, rendered in the course of Proceeding 06167/12).

4. And, the Claimant continues, from this perspective, only actual gains should be included in the tax base, even if fortuitous, to the extent that only these translate unequivocally into an increase in the taxpayer's "purchasing power", it not being permitted (except when given the possibility of contradiction) to establish a taxation based on presumed or hypothetical gains, in light of modern tax principles and in particular the principle of taxpaying capacity, embodied in article 4, no. 1 of the General Tax Law.

5. The Claimant also recognizes that this does not prevent the existence of rules such as that of article 44, no. 2 of the IRS Code, "which has as its ratio legis the combating of tax evasion and avoidance, establishing a true legal presumption of income – in the case that the taxpayer obtained more than the amount that it declared in IRS – whenever it is ascertained that the property was actually sold at a price lower than the tax patrimonial value of the property at the date of alienation".

6. And recognizes that, "indeed, in those cases, the legislator considered that there is a strong indication that the taxpayer may have received money 'under the counter' and, as such, may have abusively withheld tax revenue from the State".

7. However, the Claimant emphasizes that "being the aforementioned rule inserted in the domain of tax law, it is imperative to conclude that it is a rebuttable legal presumption, that is, capable of proof to the contrary, by force of the provision of article 73 of the General Tax Law which determines that the presumptions enshrined in the norms of tax incidence always admit proof to the contrary".

8. Furthermore, the Claimant states, in this regard, "that although in article 64 of the Corporate Income Tax Code there is established for legal persons (and for individual entrepreneurs via the remission of article 32 of the IRS Code) a correction to the realization value very similar to that provided in article 44, no. 2 of the IRS Code, the truth is that in article 139 of the Corporate Income Tax Code it is permitted to the taxpayer to prove, in onerous transmission of real property, that the value contained in the contract (i.e. the price actually practiced) was admittedly inferior to the final tax patrimonial value of the property, in which case the realization value used for purposes of determining the capital gain comes to have as reference that value and not this one".

9. And concludes therefrom that "being such a regime provided for under Corporate Income Tax, there is no valid reason not to extend such an exception to individual taxpayers who are in an identical situation, under pain of frontal violation of the principle of tax equality, with seat in article 13 of the Constitution of the Portuguese Republic and, likewise, in article 4 of the General Tax Law, which is hereby invoked for all legal purposes".

10. Wherefore, the Claimant emphasizes, that "it is imperative to conclude that the declared sale price (i.e. the sale price actually practiced) inferior to the patrimonial value of the property at the date, is that one and not this one the amount to be considered as realization value for purposes of taxation of capital gains in IRS and, consequently, for purposes of its inclusion in the competent field of the income declaration Model 3 of IRS, without prejudice to it being incumbent on the taxpayer the burden of that allegation and proof, in order to rebut the legal presumption provided in article 44, no. 2 of the IRS Code".

11. And in reinforcement of its thesis, it cites the Decision of the Regional Tax Court South, which pronounced itself "in an absolutely categorical manner" in this sense on 9/4/2013, in the course of Proceeding no. 06052/12, a copy of which it attaches for the knowledge and file of the Chief of the Finance Service of Lisbon-… (available at www.dgsi.pt).

12. And moreover states that in the (then) Draft of Reform of the IRS it is "…proposed that a no. 5 be added to which comes to appear the possibility for the taxpayer to make proof that the realization value was actually inferior to the TPV of the property for purposes of determining the taxable capital gain in Category G of IRS".

13. Thus, states the Claimant, that being demonstrated that B… and his sisters only received the declared sale value in the respective deeds of sale (cf. Doc. No. 9) and not any other amount, it is imperative, according to the Claimant, to reverse the correction promoted by the Finance Service of Lisbon-… to the realization value inherent to the sale of the urban property of … and of the urban part of …, for purposes of determining the capital gain obtained in the year 2012, which is at the basis of the additional assessment claimed.

14. Thus, without prejudice to the documentary evidence attached to the proceedings and the testimonial evidence requested and which it considers sufficient to demonstrate the accuracy of the value indicated in the deeds of sale, the Claimant places itself at the disposition of the court for full demonstration of the value actually received from the sale of the properties in question.

15. But even admitting, reinforces the Claimant, although without conceding, that there is no way to displace the legal presumption provided in article 44, no. 2 of the IRS Code, always will it be that it is illegal the retroactive application of 1/3 of the TPV attributed to the property of … in April 2013, four months after its sale.

16. And the Claimant understands that from article 44, no. 2 of the IRS Code only results the replacement of the sale price by the TPV of the property at the date of execution of the deed and not any other future TPV, unknown to the seller and, as such, with which he could not reasonably count, under pain of violation of the principle of non-retroactivity of tax law embodied in article 103, no. 3 of the Constitutional Republic.

17. And without calling into question the principle previously referred to, the Claimant, contrary to the Chief of the Administrative Justice Division, who understands that subparagraph b) of no. 4 of article 15-D of Decree-Law no. 287/2003 of 12/11 (in the wording given by Law no. 60-A/2011 of 30/11) came to establish that the TPVs of urban properties subject to assessment enter into force at the moment of occurrence of the tax events for purposes of the other taxes.

18. And the Claimant does not understand it that way, for "it will suffice a second reading of the rule to understand that the rule comes to establish precisely that – contrary to what occurs under Municipal Tax on Real Property, in which the new TPV retroacts to 31/12/2012 – in the other taxes, the new TPV only applies to new tax events (i.e. those that occur on a date subsequent to the assessment)".

19. And the Claimant emphasizes that, if it were possible to apply the new TPV to sales that occurred previously, what would prevent the Tax Administration from applying it, based on subparagraph b) of no. 4 of article 15-D of Decree-Law no. 287/2003 of 12/11, in the calculation of capital gains generated up to four years before, mindful of the statute of limitations?

20. Moreover, the Claimant emphasizes that accepting, even without accepting it, the interpretation of the Chief of Administrative Justice Division, what is relevant, in his understanding, in view of the ratio of article 44, no. 2 of the IRS Code – recall: the existence of a strong indication that the taxpayer may have received money "under the counter" – is naturally the TPV that was contained in the register at the date on which the sale was carried out, since the taxpayer could only have been guided by this in the negotiation of the price (!)

21. Wherefore, states the Claimant, in light of the aforementioned, it is always imperative the reversal of the correction promoted by the Chief of Finance of Lisbon-… to the realization value inherent to the sale of the urban property located at Rua …, insofar as the same rests (erroneously) on a TPV only determined in April of the year following its sale.

22. Hence, and finally, the Claimant cannot fail to express her opposition to the correction promoted as to the acquisition value of the property of … (1/3 part of the TPV of the property at the opening of the estate of C…), since, contrary to what is defended by the Chief of Administrative Justice Division, the TPV that is relevant is not the one in force at the date of death, but rather the one in force at the date of presentation of the list of assets, since it is on this and not on that which the Stamp Tax is assessed (cf. Articles 26 and 28 of the Stamp Tax Code).

23. Thus, in light of article 45 of the IRS Code, it will make no sense to account in the determination of the acquisition value of the urban property of Rua … the TPV that was in force at the date of death of the author of the estate C… of (33,887.43/3 = € 11,295.81), to the detriment of the value used by the nephew of the Claimant in the IRS model 3 declaration presented by reference to the year 2012 (cf. Doc. No. 9), where it appears as title of acquisition value 1/3 of the TPV that was in force at the time of delivery of the List of Assets to the Finance Service in January 2004 (cf. Doc. No. 3), that is, € 18,476.54 (€ 55,429.62/3 = € 18,476.54).

24. Wherefore, the Claimant considers that it is imperative to annul the additional IRS assessment act issued by the Tax Administration with reference to the year 2012, under no. 2013 …, to which corresponds the collection document no. 2013 …, from which results an amount owed in the value of € 11,588.04 (cf. Doc. No. 2), insofar as it does not take into account the applicable norms and principles, nor the reality of the facts underlying them.

E. On the illegality of the assessment of compensatory interest

1. The Claimant states that being to be annulled, for illegality, the acts of assessment of the tax impugned, will evidently be to be annulled, in their entirety, also the corresponding acts of assessment of compensatory interest, following the disappearance of one of its essential grounds or presupposites, which is the delay in the assessment of tax due.

2. And the Claimant cites art. 35, no. 1, of the General Tax Law, which stipulates that "compensatory interest is integrated in the very debt of the tax, with which it is jointly assessed" and in the wake of what already provided the former article 83 of the Tax Procedure Code, which stipulated that "only (…) are compensatory interest due when, by fact attributable to the passive subject, the assessment of part or all of the tax due is delayed or the delivery of tax to be paid in advance, or withheld or to be withheld in the scope of tax substitution".

3. In view of the aforementioned, concludes the Claimant that the assessment of compensatory interest in analysis is illegal by the lack of one of its essential presupposites – delay in the assessment of tax due -, violating the provision of article 35 of the General Tax Law, whereby, under the terms and for purposes of the provision of article 135 of the Administrative Procedure Code, it should be annulled.

F. Elements of proof of the facts indicated and indication of the means of proof to produce

1. The Claimant refers to documents nos. 1 to 13 as proof of the facts, given that it is essentially questions of law, other means of proof.

2. Regarding the matter of fact, she lists 5 witnesses, which she understands to be useful to hear, to obtain additional information.

G. Indication of the economic value of the claim

1. The Claimant indicates as the economic value of the claim the value corresponding to the tax improperly assessed, initially in the value of € 11,588.04, given the 1st additional IRS assessment no. 2013 …, and ends with the request for declaration of illegality of the Decision of (partial dismissal/deferment) of the Gracious Complaint presented by the Claimant, rendered by the Administrative Justice Division and notified to the Claimant by Official Letter no. …, of 23/7/2014, and, likewise, of the IRS assessment act no. 2013 …, to which corresponds the collection document no. 2013 …, in the value of € 11,588.04, issued by the Director-General of Taxes, because carried out with offense of the applicable legal norms and principles, with its consequent annulment, all with the legal consequences.

H. ADDITIONAL PETITION OF THE CLAIMANT

1. The Claimant comes to request the extension of the object of the request for arbitral ruling, on the grounds that, after the presentation of the Initial Petition, she was notified of the corrective IRS assessment act relating to the year 2012, identified with no. 2014 …, carried out on 2/10/2014, issued in the sequence and in substitution of the previous assessment act object of the request for arbitral ruling, now with the value of € 11,283.30.

2. This replacement assessment act arises as a consequence of the (partial dismissal/deferment) of the gracious complaint, whose decision already integrated the request for arbitral ruling, by the Claimant not agreeing with it.

3. Having, therefore, occurred objective modification of the instance, the provision of article 20, no. 1 of Decree-Law no. 10/2011 of 20/1 applies and, consequently, the requested extension of the object of the request for pronouncement of the Arbitral Court, which includes the new corrective IRS assessment and settlement of accounts, replacements of the previous ones, makes full sense that the object of the claim be extended, as is requested.

4. Hence, the Court accepts the inclusion in the object of the arbitral pronouncement the new corrective IRS assessment act no. 2014 …, as well as the settlement of accounts and that it equally accepts the amendment to the value of the action to € 11,283.30.

II – RESPONSE OF THE RESPONDENT

1. The Respondent situates the object of the request for arbitral ruling of the Claimant, deduced against the partial deferment of the gracious complaint no. …, filed in the Finance Service of Lisbon …, in the part in which it refused relief to the annulment of the additional IRS assessment of 2012, assessment no. 2013 …, with additional tax to pay in the value of € 11,374.88, accrued compensatory interest in the amount of € 213.16, all in the total of € 11,588.04.

2. And requesting, therefore, that said decision be annulled and the consequent annulment of the additional assessment controlled, in which it alleges defect of violation of law for error by the Tax Administration as to the law and its consequent application to the facts.

3. The Respondent reminds that at issue is the calculation of the capital gain obtained with the alienation of two properties which the Claimant acquired by inheritance and corresponding corrections made to his declaration of income model 3 of IRS of 2012 following divergences verified by the Services.

4. The Respondent emphasizes what is adduced in art. 40 of the Initial Petition, relating to the expenses and charges associated with each property, conforming to the decision rendered in the course of the gracious complaint, when the Claimant states "whose appreciation is in conformity with the law, whereby the tax assessed by reference to the said correction is accepted".

5. Which means, the Respondent clarifies, that although the Claimant, in the articulation of its Initial Petition, comes to request the annulment of the partial dismissal/deferment of the gracious complaint and the consequent additional IRS assessment, certain it is that it comes deduced against that decision and consequent additional assessment in the part in which the same disregard the declared acquisition and realization values by the Claimant, which served as the basis for the calculation of the disputed capital gain.

6. And the Respondent also emphasizes that the additional assessment claimed was, in the meantime, replaced by assessment no. 2014…, of 14/8/2014, with tax determined in the amount of € 16,562.05, following the decision rendered in the gracious complaint in question.

A – BY CHALLENGE

A.1 Of the facts

1. Regarding the matter of fact with interest for the proceedings, the Respondent states that it results from the articulation by the parties and the documentary evidence attached, especially the administrative proceeding now attached, and that is relevant for the probatoire the following:

7.1. B…, now Claimant, is registered as a taxpayer as having a tax residence abroad;

7.2. On 25/11/2003 the process of Succession Tax was instituted in the Finance Service of Lisbon …, with no. …;

7.3. On 7/7/2008, by public deed executed at the Notarial Office of …, the heirship qualification of C…, whose death occurred on 31/10/2003, from which results as his only three heirs and in equal parts, the now Claimant, D… and E…;

7.4. On 25/7/2012 and 26/12/2012 the aforementioned heirs executed public deeds of purchase and sale of two properties acquired through the said inheritance:

7.4.1 The urban property located at Rua … (parish of …, municipality of Lisbon, article …) for the price of € 100,000.00;

7.4.2 The mixed property denominated "…" (parish of …, municipality of Vila Franca de Xira, rustic article no. …, section … and urban article no. …) for the price of € 70,000.00 (€ 10,000.00 the rustic part and € 60,000.00 the urban part);

7.5 The tax representative of the now Claimant delivered on 23/4/2013 income declaration form 3 for IRS of 2012, in the name of the now Claimant, declaring 1/3 of the capital gain obtained with the alienation of those properties, considering, for that purpose:

7.5.1. As acquisition values, the values that served as the basis for the assessment of Stamp Tax at the time of distribution of estate assets;

7.5.2. As realization values, the amounts declared as price received by the onerous alienations;

7.6 With origin in that income declaration there was issued assessment no. 2011…, of 31/7/2013, with tax to pay in the amount of € 5,278.75, value that was effectively paid on 2013/08/08;

7.7 Moreover, the Respondent states that having detected divergences between the declared values and the data contained in the Services, the corresponding analysis was performed (as per documentation no. …, of 12/8/2013, registered with no. RY …PT), the Claimant being notified to exercise the right of prior hearing through official letter no. …, sent under registration no. RM …PT, of 23/10/2013.

7.8 Moreover, it states that having concluded the analysis of divergences, the Tax Administration Services proceeded to the following corrections:

7.8.1. Correction of the declared acquisition values with reference to the property of … replacing the value that served as the basis for assessment of the tax on successions and gifts (current Stamp Tax) by the TPV of the property at the date of death;

7.8.2. Correction of the declared realization values with reference to the two urban properties, replacing the declared price by the TPV – tax patrimonial values of the same, considering the TPV at the date of sale regarding the "…" and the TPV of € 170,810.00 set in April 2013 regarding the property of …;

7.8.3. Correction of the amounts declared as expenses and charges, disregarding the totality of the expenses presented with reference to the property of … and diminishing them to € 8,468.51 as to "…".

7.9 The corrections made resulted in additional assessment no. 2013…, of 25/11/2013, with tax determined in the amount of € 16,653.63;

7.10 The Claimant reacted through gracious complaint filed on 16/01/2014, filed in the Finance Service of Lisbon …, with no. …2014…:

7.10.1. By official letter no. …, of 9/6/2014, registered mail RD … PT and official letter no. …, of 9/6/2014, registered mail RD … PT, he was notified to exercise his right of prior hearing.

7.10.2. Having the Claimant not exercised the right of prior hearing, the draft of partial deferment was converted to final by ruling of 18/7/2014, of the Chief of the Administrative Justice Division of the Finance Directorate of Lisbon, rendered in the information no. …/14,

7.10.3. Having been notified to the Claimant through Official Letters nos. …, of 23/7/2014, with postal registration RD … PT, received on 24/7/2014 and official letter no. …, of 23/7/2014, with postal registration RD … PT.

7.10.4 The Respondent concludes that as a consequence of the decision of partial deferment of the gracious complaint, assessment no. 2014…, of 14/8/2014, was issued, with tax determined in the amount of € 16,562.05.

A.2 Of the Law

1. The Respondent emphasizes that at issue is the interpretation of the provision of articles 44 and 45 of the IRS Code regarding the realization and acquisition values to be considered for purposes of calculating the capital gain obtained with the alienation of the aforementioned properties.

A.2.1 Acquisition Value

1. The Respondent states that regarding the acquisition value to be considered in the case of assets acquired free of charge, subparagraph a) of no. 1 of article 45 provides that it will be "the value that has been considered for purposes of the assessment of stamp tax".

2. The Respondent emphasizes, however, that in the case of the present proceedings, the Claimant understands "that the TPV to be considered for purposes of the acquisition value of the property of … is not the one that was in force at the date of death, but rather the TPV in force at the time of delivery of the List of Assets in January 2004".

3. Moreover, the Respondent states that the thesis propounded by the Claimant has no legal support whatsoever, for, as provides subparagraph p) of art. 5 of the Stamp Tax Code, the tax obligation is considered to be constituted, in successions by death, at the date of opening of the succession, which coincides with the date of death.

4. And that, on the other hand, provides no. 3 of art. 26 of the Stamp Tax Code that the "respective report should be presented in the competent finance service to promote assessment by the end of the 3rd month following that in which the obligation is born".

5. What leads the Respondent to conclude that "Naturally that the TPV to be considered for purposes of Stamp Tax assessment is the TPV at the date of the birth of the tax obligation, with no legal basis whatsoever supporting the thesis defended by the Claimant".

A.2.2 Realization Value

1. In this regard, the Respondent states, as to the realization value, that there being a consideration, provides no. 2 of art. 44 of the IRS Code that "will prevail, when superior, the values by which the assets had been considered for purposes of the municipal tax on onerous transmission of real property or, where there is no place for this assessment, the ones that should be, in case it was due".

2. And the Respondent emphasizes that the Claimant understands, however, that such provision constitutes a presumption capable of being rebutted by proof to the contrary, alleging, for purposes of the thesis it propounds, that the declared price corresponds to the price actually practiced, which would have been received by the head of household of the estate, attaching for proof of the alleged, a copy of the respective bank statement.

3. The Respondent affirms in this regard that "likewise, the thesis of the Claimant fails in law".

4. And further states that, in truth, "the rule contained in no. 2 of art. 44 of the IRS Code is a rule that defines the objective presupposites of incidence and not a rebuttable legal presumption under art. 73 of the General Tax Law".

5. Moreover, the Respondent states that it does not seem plausible to it the parallelism that the Claimant advocates between the provision of art. 64 of the Corporate Income Tax Code and no. 2 of art. 44 of the IRS Code, as these are legal provisions inserted in different income taxes, where the determination of taxable income rests on the application of rules and principles without parallelism.

A.2.3 Prevalence of Patrimonial Value to the Detriment of Consideration

1. Thus, the Respondent emphasizes that, as appears in the information that served as the basis for the decision now in question, the rule gives clear prevalence to the TPV when it is superior to the price of the purchase and sale contract.

2. And further states that this is not a rebuttable presumption, but rather a clear and unequivocal provision that mandates attention to, in any circumstance, the value that is superior.

3. What is at issue, says the Respondent, is an option of the legislator, which does not admit proof to the contrary.

4. And that, in turn, as to the TPV to be considered, as appears in the information that served as the basis for the deferment of the gracious complaint now in question, there is to be had regard to the provision of subparagraph b) of no. 4 of article 15-D of the Tax Benefits Code, within the context of the patrimonial updating of properties and the transitional rules implemented until the general assessment of urban properties.

5. And that thus being, the Respondent emphasizes, in accordance with these transitional rules, no. 1 of art. 15 of Decree-Law no. 287/2003 of 12/11, imposed a reporting obligation on the taxpayer, namely that of delivery of declaration form 1, at the time of the first transmission and until the general assessment of urban properties was carried out, with the necessary consequences in the scope not only of the corresponding Municipal Tax on Real Property where there might be place, but also as to the Municipal Tax on Real Property Transfers and to the capital gains to be considered for purposes of IRS.

6. And the Respondent concludes that, after all, any TPV that was not updated would correspond to a more favorable discriminatory treatment for those taxpayers whose properties did not yet have an updated TPV, as came to occur in the case of the present proceedings.

7. The Respondent clarifies, however, that no. 1 of that article 15 would be revoked by Law no. 60-A/2011 of 30/11, as it was envisioned that the general assessment would have its term in the year 2013, reason by which the taxpayer was dispensed from the delivery of the said declaration form 1, which would result in an assessment and consequent updating of the TPV.

8. And it continues, stating that, hence the provision of subparagraph d) of no. 4 of art. 15 of that legal document, according to which "the tax patrimonial values of urban properties that have been subject to general assessment enter into force at the moment of occurrence of the respective tax events, for purposes of the other taxes".

9. And that, therefore, and contrary to what is alleged by the Claimant, there was not in the case of the present proceedings any retroactive application of law, but rather the updating of a patrimonial value that, in any case, would result in being evidenced.

10. And further states the Respondent that, precisely, as provided by no. 2 of art. 44 of the IRS Code "the values by which the assets had been considered for purposes of municipal tax on onerous transmission of real property", are the values that resulted before Law no. 60-A/2011 of 30/11, from the delivery of declaration form 1 and after the same Law, from the general assessment promoted by the Tax Administration.

11. That is, and in sum, the Respondent emphasizes, that there is not at issue any retroactive application of law and, consequent violation of the provision of art. 103, no. 3 of the Constitutional Republic, because the alteration introduced by Law no. 60-A/2011 is prior to the facts at issue, more specifically to the alienation whose realization value is important to ascertain for purposes of capital gains to be taxed in the scope of IRS.

12. And that neither is there at issue a future TPV with which the Claimant could not at all or reasonably count.

A.2.4 Proof of the Price Actually Practiced

1. Moreover, the Respondent states that, in any event, should it not be understood in that way, adds, cautiously, that the Claimant did not manage minimally to effect proof of the price actually practiced.

2. And it did not succeed, the Respondent reinforces, because as results from the provision of art. 371 of the Civil Code, as to the probative force of authentic documents, the deeds of purchase and sale of the properties in question do not make proof that what was declared by the respective parties corresponds to the truth.

3. Wherefore results, concludes, that the attachment of the said deeds in no way contributes to achieve the intended probative burden.

4. And that, on the other hand, the bank statements presented, in the name of the head-of-household of the estate, attest nothing as to the values actually received as consideration for the alienation of the referred properties, since that receipt can also be effected by other means.

A.2.5 Merely Partial Annulment

1. Without dispensing, affirms the Respondent, and anticipating the hypothesis that the pretension of the Claimant be judged partially successful, relatively to some of the disputed values, will be to maintain the impugned decision in the remaining part.

2. And that in the wake of what has been understood by the Superior Administrative Court, the assessment act is naturally divisible, being it also legally, by the law providing for the possibility of partial annulment of those acts, by providing for the partial success of impugnatory procedural means.

3. And the Respondent points out that after divergent responses of the Case Law, cfr. Decision of 28-01-2009 by the Plenary of the Tax Law Section of the Superior Administrative Court in proceeding 0761/08 and decision of 19-05-2010 by the Plenary of Tax Law of the Superior Administrative Court in proceeding no. 0734/09, this last position came to be reiterated, now in a unanimous manner, by the Judges Counselors of the same section, in the Decision of the Plenary rendered on 05-07-2012, in proceeding no. 0358/12.

A.2.6 Testimonial Proof

1. The Respondent states, finally, that as to testimonial proof, mindful of the matter of fact that the Claimant intends to corroborate in the proceedings, it does not appear to it minimally suitable to the obtaining of the proof intended, which can and should be made with recourse to documentary proof, the only one capable of corroborating what the Claimant alleges.

2. Thus, concludes the Respondent, that, in truth, it appears to it that the interrogation of witnesses can only result in the corroboration of documentary proof already contained in the proceedings or in vague and generic statements that in no way contribute to a good decision of the case.

Wherefore the Respondent concludes by affirming that given the position assumed in this Response and in the other applicable Law provisions, this request should be judged as not having merit.

III – TESTIMONIAL PROOF AND ORAL ARGUMENTS

A. Testimonial Proof

1. The Court scheduled the hearing of the arrayed witnesses and agreed to reschedule them, at the request of the Claimant and in the interest of justice, and on the date finally established requested the Claimant's Mandatary to specify the articles on which he intends each witness to pronounce – which was done.

2. The 2nd witness, L…, Architect and Consultant, in responding to the questions posed, emphasized that she intervened in the capacity of consultant and that, in that capacity, produced, at the request of the sellers, the evaluation of the properties, recalling that the property of … had very peculiar characteristics, as being of quite significant area, it found itself in poor state of conservation, in addition to the location of the same and its configuration, in particular of difficult reconstruction by sitting on the hillside and without rear space, situations that hindered the carrying out of works and that depreciated its market value.

3. F…, who was the buyer of the urban property located at Rua …, questioned by the Claimant's mandatary, responded, under oath, as to the price paid for the purchase of the aforementioned property, having been € 100,000.00, having paid € 20,000.00 as signal and the remaining € 80,000.00 at the date of the deed, both paid by check. Moreover, the purchaser was questioned about the poor state of conservation, to which he responded that he was already a tenant of the same and that he knew there were great risks in the construction, whence having influenced the price the need for works and the difficulty of carrying them out – which has already been done by the purchaser.

Questioned by the Court as to the reasons that led him to purchase the property, when he knew the precarious conditions of the property where he had lived for three years, he responded that it was precisely that which determined the purchase, because it was of price accessible to his economic situation, despite the works he had to carry out.

1. M…, Architect, declared that he was also a consultant for the heirs of the author of the estate.

Questioned by the Claimant's Mandatary about a specific assessment shown to him, regarding the property of …, he responded that he recognized it. As to the state of the property, he responded that it was in poor state of conservation and that only by releasing the tenant could it be sold for the carrying out of works, as only one of the apartments was in better conditions. As to the particularities of the property, he stated that it is not easy to carry out works, given its configuration and street inclination.

As to the different valuation values, one in 2008, attributed by a Colleague of J… and another attributed in 2012 by Colleague L…, he stated that there were several, with values between € 115,000.00 and € 100,000.00, responded that it is not surprising, because the properties were degrading and depreciating and also because the sale was made at a time of crisis, having the real estate market suffered a drop of about 10% between the said years. As to whether he knows if on the part of the City Council there would have been some problem with the property, he responded that he thinks yes, that works would have been required.

Inquired as to the reasons that would have led the heirs to the sale of the house, he knows that they would have been the requirements of works from the City Council and the residence abroad of the Claimant.

Inquired as to the sale price of the asset in 2012 for € 100,000.00, it does not "shock" him that it was that value, as the estimates he makes about the price of the property deduced from the price of the works to be carried out, would constitute a normal price.

1. N…, secretary of a company not related to real estate activity, current owner of …, placed at the disposition of the mandatary, was questioned whether she confirms if the price of € 70,000.00 was the true one and has consciousness that the lack of truth constitutes crime, responded that she has consciousness of this, but confirms the price paid, being given as signal the value of € 25,000.00, paid by check and the remaining part, although she no longer recalls if it was also by check or by bank transfer, but totaled the € 70,000.00.

Inquired by the Court of the reasons why she acquired the house, stated that she did so for her son.

1. The 1st arrayed witness, O…, could not attend.

Having nothing more to refer to about the depositions of the witnesses, oral arguments were initiated.

B. Oral Arguments of the Claimant's Mandatary

1. The Claimant's Mandatary was given the floor, who made a historical review of the assessments, initial and additional, that were made by the Services of the Tax Administration, due to the use of TPVs for being superior to the price, under the terms of no. 2 of article 44 of the IRS Code – which, in his understanding, constitutes a legal presumption, given the ratio of the rule and, therefore, rebuttable given the General Tax Law, under pain of being to tax not actual income-increments, but presumed income – which are constitutionally prohibited.

Moreover, he stated in this regard that given the amendment to the IRS Code, which permits the demonstration that the price practiced was the one contained in the deed, which was indeed done, either by the documentary evidence attached, or by the testimonial proof by persons specialized in the real estate sector, or by the buyers themselves, who confirmed the purchase prices as true.

As to the TPV used, he clarifies that it cannot be applied retroactively and even if it were to be used, it only has validity for purposes of Municipal Tax on Real Property, according to art. 15-D, added by Law no. 60-A/2011 of 30/11.

As to the relevant date for purposes of the value resulting from the assessment, it can never be retroactive, but always from the respective notification.

Oral Arguments of the Tax Administration Representative

1. The Tax Administration Representative emphasized the following:

As to the realization value, it is what results from the provision of no. 2 of art. 44 of the IRS Code.

As to the acquisition value, it will be what is in force at the date of death.

Regarding the value of the assessment, the fact that the assessment is from 2013 and the transmission is from 2012, has to do with the fact that there was the revocation of no. 1 of art. 15-D of Decree-Law no. 287/2003 of 12/11, and for that reason, the assessment ended up being delayed, but the seller could have anticipated the assessment.

As to the interpretation of no. 2 of art. 44 of the IRS Code, it is known from Case Law that it is not a presumption, as nothing is inferred, but it is merely an option of the legislator, with which one may not agree.

As to the amendment contained in the IRS reform, about the possibility of proof that the value of the agreed price is what appears in the deeds and not the TPV, when superior, it has no retroactive effects.

However, if the Court does not understand it that way and consider that it is a presumption, then it constitutes the burden of proof of the Claimant the effective price of the transmission, which was not done, much in particular by the non-attachment of the promise contracts as fundamental elements – which was not done.

Regarding the question of the deeds, it states that these do not constitute any proof, but only that those were the values of the transaction that the declarants mentioned before the notaries.

Reply of the Claimant's Mandatary

1. In terms of Reply, the Claimant's Mandatary invoked the following grounds:

That there is Case Law in the opposite sense and that if the rule does not constitute a presumption, then it constitutes an anti-abuse rule, but, if it is so, then it requires a proper procedure – which was not done.

On the other hand, taxation in IRS rests on income-increment and not on presumed income, which only happens in the Simplified Taxation Regime.

Finally, the Claimant's Mandatary understands that, given what was stated by the Tax Administration Representative as to the non-attachment of the purchase and sale contracts and the lack of proof of the non-existence of money under the counter, what is at issue is a "diabolic proof", proof that is impossible to carry out, as it is a matter of a negative proof.

Tréplica of the Tax Administration Representative

1. In terms of Tréplica, the Tax Administration Representative clarified the following:

That it never spoke of an anti-abuse rule, but only of an option of the legislator. As to the rebuttal of the presumption, the Tax Administration understands that by it not being a presumption, it would not be the Tax Administration speaking of documents to rebut it.

As to the alleged diabolic proof, she stressed that at least the attachment of purchase and sale contracts would be relevant documents.

IV – ADDITIONAL CLARIFICATIONS PROVIDED BY THE RESPONDENT TO THE COURT AT THE REQUEST THEREOF

1. Because the Court detected some divergence in the indications of tax patrimonial values and assessment basis values, it rendered a ruling on 29.04.2015, requesting clarification elements.

2. Thus, regarding the TPV of the real property assets of the estate of C…, at the date of death, which occurred on 31/10/2003, the Tax Administration sent the following clarifications:

a. The TPV relating to the urban property registered in the register of the parish of …, municipality of Lisbon, under article …, was € 33,887.43 (Point 1 of R.)

b. As to the TPV of the mixed property denominated …, located in the municipality of Vila Franca de Xira, registered in the register under articles … – Section … (rustic part) – the TPV of € 94.53 and … (urban part) – the TPV of € 61.61[12] (Point 3 of R.).

1. As to the values that served as the basis for the assessment of Stamp Tax (former Tax on Successions and Gifts), the following were indicated:

a. As to article …, of the parish of … – Lisbon, the TPV of € 33,887.43 served as the basis for assessment (Point 2 of R);

b. As to the mixed property …, located in Vila Franca de Xira, the TPVs that served as the basis for the assessment of Stamp Tax were:

i. Rustic article … – section … – TPV € 94.53 (Point 4 of R.)

ii. Urban article … – TPV € 61.61 (Point 4 of R).[13]

1. Regarding the TPVs resulting from the assessment of the properties of the estate, as a consequence of the onerous alienation of the same, by deeds of 25/7/2012 and 26-12-2012, and that served as the basis for the assessment of the Real Property Transfer Tax to be paid by the acquirers, the Tax Administration informs that:

a. As to article …, of the parish of … – Lisbon, the TPV resulting from the assessment carried out in 2013, with effect as of 31-12-2012, in the scope of the general assessment was € 170,810.00;

b. As to article …, urban part, of …, the TPV was € 84,270.00 and as to article …-Section …, the TPV of € 3,228.21 and that, with the exception of this last, which resulted from an official updating, served as the basis for the assessment of Real Property Transfer Tax, in substitution of the value declared in the contract of € 70,000.00, having been paid the Real Property Transfer Tax of € 1,342.70. (Point 5 of R).

V – SANATION

The arbitral court was regularly constituted and is materially competent.

The parties enjoy juridical personality and capacity and are legitimate.

The claim is timely and the proceeding does not suffer from nullities, nor were any previous exceptions invoked by the parties.

VI – FIXING OF RELEVANT FACTS

1. On 31/10/2003 occurred the death of the author of the estate that came to be the object of alienation by the part of its 3 heirs, children of the "de cujus", according to the respective deed of heirship qualification of 7/7/2008, and whose names are:

1.1- D…

1.2- E… and

1.3- B…, resident abroad and represented by A…, claimant in the scope of the gracious complaint and Appealing party in the scope of the Arbitral Petition.

1. The death of the author of the estate was notified on 25/11/2003 and the then process of Tax on Successions and Gifts was instituted, to which was attributed by the Finance Service of Lisbon-…, the no. … and the respective list of the mentioned assets was presented.

2. The real properties contained in the list of assets and, therefore, object of the estate are the following:

3.1 – (Item no. 6) - An urban property located at Rua …, no. …, registered in the urban land register of the parish of … of the municipality of Lisbon under article …, with the tax value of € 55,429.62[14];

3.2 – (Item no. 7) – Rustic property located at …, parish of …, municipality of Vila do Bispo, registered in the rustic cadastral register under article … of section …, with the tax value of € 174.30.[15]

3.3 – (Item no. 8) - A mixed property, denominated "…", parish of …, municipality of Vila Franca de Xira, registered in the rustic land register under article …, section …, with the tax value of € 94.53 and in the urban land register under article … with the patrimonial value of € 156.14;

1. In the assessment map of the tax on successions and gifts due by the gratuitous transmission (today stamp tax), the following values appear, relating to the real property assets of the estate:

a. Rustic properties € ……..268.83 (€ 174.30 + € 94.53);

b. Urban properties € 33,949.04 (€ 33,887.43 + € 61.61);

c. In the total of € 34,217.87 (as appears in the said map of assessment of tax).

1. It should be noted that from the list of historical record of the urban property registered in the register of the parish of …, of the municipality of Lisbon, under article …, appears the patrimonial value of € 55,429.62, but referring to the date of 31-12-2003, later, therefore, than the date of death of the author of the estate, and that the patrimonial value in force at the date of death is € 33,887.43.

2. It should also be noted that subsequent to the elaboration of the present map of assessment of tax on successions and gifts (current stamp tax), no further reference appears to item no. 7 of the List of Assets, relating to the rustic property located at …, parish of …, municipality of Vila do Bispo, registered in the rustic cadastral register under article …, section "…", nor does it appear in the deeds of sale.

3. Indeed so much so that the Appealing party A…, in the capacity of legal representative of B…, presented the IRS declaration form 3 of the year 2012 on 23/4/2013, (without indication of the said rustic property) in the Finance Service of Lisbon-…, which gave rise to the IRS assessment no. 2103 …, effected on 31/7/2013, having been determined IRS to pay of € 5,278.75.

4. From the said IRS declaration form 3 appeared the following elements in Table 4 of Annex G, relating to the properties alienated in 2012:

1. The stated acquisition value of € 18,476.54 relating to 1/3 part of the urban property registered in the register under article …, contained in the list of assets, is due to the fact that the value recorded (manually) and in the assessment map for purposes of assessment of the former tax on successions and gifts (current stamp tax), being € 55,429.62, for the reasons already referred to in the previous point 5.

2. The Tax Administration Services, after confirmation of the elements contained in the said declaration, promoted, based on divergences detected, the following corrections:

i. To the acquisition value, with reference to the property of …, registered in the register of the parish of …, of the municipality of Lisbon, under article …, mentioned in Field 401 of Table 4 of Annex G;

ii. To the realization value, with reference to the two urban properties alienated, above identified with article …, located in … and with article …, urban part of a mixed property, denominated by "…"; and

iii. To the amounts to the title of article 51 of the IRS Code, relating to the appreciation of the assets and necessary expenses and actually practiced, inherent to acquisition and alienation.

1. The corrections promoted by the Tax Administration Services and that were notified to the taxpayer by official letter no. …, sent under registration of 23/10/2013, were the following and that appear in the 1st corrective declaration filled by the Tax Administration:

Note of the Court: The values in italics were those that underwent correction in relation to those mentioned in the IRS declaration form 3 presented by the Claimant.

1. It should again be noted that the alteration to the value corresponding to 1/3 part of the patrimonial value of acquisition relating to the urban property registered in the register under article … of the parish of … of the municipality of Lisbon, is due to the fact that the TPV at the date of opening of the estate is € 33,887.43 and not € 55,429.62, as erroneously appears in the List of Assets, affixed manually, as already mentioned previously in point 5.

2. Already as to the corrections to the realization values, whether relating to the urban properties before identified, under articles … and …, respectively, they are due to the fact that the Tax Administration considers relevant the values resulting from the assessment and not those of sale contained in the respective deeds.

3. The corrections marked in the previous Table resulted in additional assessment no. 2013…, of 25/11/2014, from which resulted the value of IRS determined in the assessment of € 16,653.63, of which the Representative was notified, and that the IRS to be paid additionally is of the value of € 11,374.88 (€ 16,653.63 - € 5,278.75) + € 213.16 of Compensatory Interest, in the total of € 11,588.04.

4. Against the said corrections and IRS additionally required and respective compensatory interest, reacted the Representative of the taxpayer, with the presentation of gracious complaint filed in the same finance service on 16/01/2014, under the terms of articles 36, nos. 1 and 2 and 37, nos. 1 and 2 of the Tax Procedure and Process Code – requesting the annulment of the tax assessment acts and demanding the payment of indemnification for the guarantee improperly provided.

5. The disagreement of the Complaining party has to do with the correction to the acquisition and alienation values made by the Tax Administration Services, as well as the values of the expenses of improvement and expenses of acquisition and alienation and that determined the additional assessment referred to.

6. In fact, the Claimant requested the substantiation of fact and law of the corrections made and of the compensatory interest assessed, as it was not clear from the tenor of the assessment, the concrete elements that were taken into consideration.

7. In response, the Finance Service of Lisbon-… provided the requested information, indicating the corrected values contained in the Table of point 9 and whose elements appear in the information that served as legal support to the ruling of partial deferment.

8. Having appreciated the said gracious complaint, a draft of partial deferment was rendered, notified by Official Letters no. … and …, of 9/6/2014, under registration, for purposes of exercise of prior hearing – which was not done, whereby the proposal of decision of partial deferment became final.

9. Of this decision of partial deferment of the gracious complaint, the Mandatary and the tax representative of heir B… were notified, by official letter no. …, of 23/7/2014, sent under registration, moreover having been clarified that they may appeal hierarchically in the same within the period of 30 days or impugn judicially within the period of 15 days counted from the notification, under the terms, respectively, of art. 66, no. 2 and 102, no. 2 of the Tax Procedure and Process Code.

10. The partial deferment resulted from the fact that the Finance Service of Lisbon … accepted the following expenses:

a. € 231.65 corresponding to 1/3 of the eligible expenses relating to the urban property of …, registered in the register under article … and that from the corrections initially made had not been considered any values.

b. € 8,603.17 corresponding to 1/3 of the eligible expenses relating to the urban property of …, registered in the register under article … and that from the corrections initially made had been [text truncated]