Process: 688/2018-T

Date: July 16, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses the application of Article 64(2) of the IRC Code when property is sold below its patrimonial tax value (VPT). The applicant, A... SA, sold a property for €3,900,000, significantly below the VPT of €5,146,680. The Tax Authority issued an additional IRC assessment based on the VPT, invoking the legal presumption that when sale prices are lower than VPT, the taxable value equals the VPT. The taxpayer argued it had initiated the procedure to prove the effective sale price under Article 139 of the IRC Code by sending a letter to the Finance Services with supporting documentation, including an independent valuation of €4,012,700 and evidence of financial distress necessitating the sale. The Tax Authority raised procedural exceptions, arguing the arbitral tribunal lacked material competence and that the challenge was inadmissible because the formal request required by Article 139(3) was not properly submitted to the Director of Finance. The case centers on whether the taxpayer complied with the specific procedural requirements to rebut the VPT presumption, particularly the obligation to formally request constitution of a review committee. The tribunal must determine if proof by ordinary mail suffices or if registered delivery to the competent authority is mandatory, and whether the evidence presented—including independent valuations and circumstances of financial necessity—adequately demonstrates the effective transaction price under the material truth principle.

Full Decision

ARBITRAL DECISION

They agree in arbitral tribunal

I – Report

1. A... SA, with taxpayer number..., with registered office at Av. ..., no...., ..., ...-... Lisbon, hereby requests the constitution of an arbitral tribunal, under the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax act of additional corporate income tax (IRC) assessment, in the amount of €299,039.24, relating to the year 2016, as well as the assessment of compensatory interest.

The request is substantiated as follows.

The Applicant is a commercial company, constituted in the form of a public limited company, which carries out its activity in the field of higher education through an institute of university nature denominated B... and is part of the C... Group.

From the academic year 2008/2009 onwards, due to a serious economic crisis accompanied by a substantial decrease in students at various levels of education, and particularly in private education, it experienced a substantial reduction in the revenue from its activities and, consequently, accumulated debts sustained through successive bank loans until it lost the capacity to discharge its obligations, particularly towards the Tax Authority and Social Security.

In 2014 it was decided to sell the property of which it was the owner in the parish of ... in Lisbon, having proceeded, to facilitate the sale, to a subdivision by partition, with the property becoming composed of two urban plots, one registered in the urban property matrix under article no...., intended for housing, and the other registered in the urban property matrix under article no...., intended exclusively for service activity.

Following this subdivision, and as a result of the alteration of the areas of the plots, the Tax Authority initiated ex officio an assessment process, which culminated in the attribution of the patrimonial value of €700,260.00 to the urban plot registered in the property matrix under article no...., designated as "...", and the patrimonial value of €5,146,680.00 to the urban plot registered under article no...., designated as "...".

Meanwhile, in the context of a financial restructuring process with banking institutions, the Applicant proceeded to the assessment of the plots through the company D..., LDA., company which attributed to the plot designated ... the market value of €4,012,700.00.

Acknowledging the difficulty of finding a buyer and pressured by the need for liquidity, the Applicant ended up selling the plot on 2 June 2016 to Bank E... S.A., for the value of €3,900,000, which it delivered, under a financial leasing regime, to F....

Article 64, no. 2, of the IRC Code, in onerous transfers of real rights over real property, establishes a presumption for cases where the values contained in the contracts are lower than the final taxable patrimonial value, fixing this as the value to be considered for determining taxable profit.

This presumption admits proof to the contrary through the proper procedure provided for in nos. 3 to 6 of article 139 of the IRC Code.

With a view to initiating this procedure, the Applicant, on 24 January 2017, sent a letter by ordinary mail, addressed to the Head of the Finance Services of Lisbon..., to ... no.... in Lisbon, in which it informed, in accordance with the terms and for the purposes of article 139 of the IRC Code, that it had sold the property for the value of €3,900,000.00, and that the property had been sold to meet financial difficulties, in particular to discharge debts to banking entities, Social Security and the Tax Authority, and that the assessment carried out by D..., LDA. had attributed to the property the market value of €4,012,700.00.

Asserting that it had not been notified by the taxpayer for the constitution of the review committee, in accordance with article 139 of the IRC Code, the Tax Authority used the legal presumption of article 64, no. 2, and fixed as the value of the transfer the taxable patrimonial value, proceeding to the corresponding additional IRC assessment.

However, even though it had sent the communication by ordinary mail, the Applicant always showed itself available to present sufficient proof through all other means of proof admissible in tax proceedings.

By not accepting the evidence produced in the inspection procedure that substantiated the additional IRC assessment, the Tax Authority unlawfully disregarded the procedure for proving the sale price of the property, whereby the acts of additional IRC assessment and compensatory interest suffer from violation of the provisions of article 139 of the IRC Code and disregard of the principle of discovery of material truth (article 58 of the General Tax Law and article 6 of the Tax Inspection Procedure Code).

The Tax Authority, in its response, raises the exception of material incompetence of the arbitral tribunal, considering that proof of the effective price in the transfer of real property can only be carried out through the procedure specially provided for in article 139 of the IRC Code for which the Director of Finance is competent. It also invokes the peremptory exception of unsusceptibility of the appreciation of the arbitral request, inasmuch as in light of the provisions of no. 7 of article 139 of the IRC Code, the judicial challenge of the tax assessment resulting from corrections made under the provisions of no. 2 of article 64 depends on prior submission of the request intended to carry out proof of the effective price of the transfer referred to in that provision, whereby, as the request was not submitted, the judicial challenge is not admissible.

In the grounds of challenge, the Tax Authority alleges that, in order to prove the effective price practiced, the taxpayer would have to initiate the procedure provided for in no. 3 of article 139 of the IRC Code by means of a request addressed to the competent Director of Finance. This request did not reach the Finance Services of Lisbon, with the Applicant limiting itself to presenting a letter unaccompanied by any evidence demonstrating its delivery to the service, it being certain that proof of the submission of the request referred to in article 139 of the IRC Code must be carried out by means of a written document, since that is the form that such request must take.

It concludes towards the substantiation of the exceptions and the lack of substantiation of the arbitral request.

2. Following the proceedings, there took place the meeting referred to in article 18 of the Arbitral Tribunal Regulations and the production of testimonial evidence indicated by the Applicant.

In successive pleadings, the parties sought to establish the factual matter to be considered as settled and, moreover, maintained their previous positions.

3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority in accordance with regulatory provisions.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the Arbitral Tribunal Regulations, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period.

The parties were timely and duly notified of this appointment and did not express any intention to refuse it, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b), of the Arbitral Tribunal Regulations and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision in paragraph c) of no. 1 of article 11 of the Arbitral Tribunal Regulations, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 7 March 2019.

The arbitral tribunal was regularly constituted and is materially competent in the face of the provision in articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legally entitled and are represented (articles 4 and 10, no. 2, of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities and no exceptions were raised.

It is incumbent to appreciate and decide.

II – Grounds

Factual Matters

4. The facts relevant to the decision of the case which may be considered as settled are the following:

A) The Applicant is a commercial company, constituted in the form of a public limited company, which carries out its activity in the field of higher education through an institute of university nature denominated B... and which is part of the C... Group.

B) The Applicant was subject to an internal inspection action, entitled by service order no. I2018..., concerning the fiscal year 2016, intended to validate the difference between the value of the property registered in the urban property matrix of the parish of..., in Lisbon, under no...., and the corresponding taxable patrimonial value;

C) The plot was sold on 2 June 2016 for the value of €3,900,000.00 and had been subject to a tax assessment on 29 November 2015, which fixed the taxable patrimonial value at €5,146,680.00;

D) On 30 January 2015, at the request of the Applicant, the company D..., Lda. proceeded to assess the plot, attributing to it the market value of €4,012,700.00;

E) Following a meeting between representatives of the Tax Authority and the Applicant, which took place on 25 August 2018, still during the inspection procedure, the Applicant sent a copy of a communication addressed to the head of the Finance Services of Lisbon..., for the purposes of article 139 of the IRC Code, dated 24 January 2017, in which it was reported that the plot registered in the urban property matrix under no... was sold for the value of €3,900,000.00;

F) By email message sent on 21 June 2018, the inspector who subscribed the Tax Inspection Report requested the financial director of the Applicant to inform whether the communication mentioned in the preceding paragraph E) had been delivered at the Finance Services Lisbon... or sent by mail, and, if the latter was the case, to send the postal registry and the receipt notice;

G) The financial director informed, by the same means, that it was not possible for her to indicate the method of sending of the request and she did not have in her files the evidence of receipt of the correspondence by the recipient;

H) The Applicant exercised the right to a hearing in the context of the inspection procedure, alleging, among other things, that it had sent to the head of the Finance Services of Lisbon..., on 24 January 2017, for the purposes of the provisions of article 139 of the IRC Code, the communication of the alienation of the property for a value lower than the taxable patrimonial value;

I) In the context of the inspection procedure, the Tax Authority verified the existence of two tax enforcement proceedings instituted against the Applicant for tax debts in the total value of €13,978.00;

J) From the academic year 2008/2009 onwards, due to a serious economic crisis and the decrease in students at various levels of education, and especially in private education, the Applicant suffered a substantial decrease in the revenue earned in the context of its activities;

K) As a consequence, the Applicant resorted to bank loans and accumulated debts, particularly before the Tax Authority and Social Security.

L) On 20 January 2016, between the banking institutions as creditors and the debtor entities of the C... Group, among which was included the Applicant, a memorandum of understanding was signed regarding the restructuring of financial debt which provided for the restructuring of credits and mandatory early repayment through the alienation of real estate assets;

M) In 2014, the Applicant, due to the need for liquidity to discharge debts, decided to sell a property of which it was the owner in the parish of ... in Lisbon, having proceeded, to facilitate the sale, to a subdivision by partition, with the property becoming composed of two urban plots, one registered in the urban property matrix under article no...., intended for housing, and the other registered in the urban property matrix under article no...., intended exclusively for service activity.

Facts not proven: it was not proven that the communication mentioned in the preceding paragraph E) had been received by the Finance Services.

The facts contained in paragraphs A) to I) of the factual matter are proven based on the documents attached to the petition and in the administrative file attached by the Tax Authority with its response. The facts contained in paragraphs J) to K), although alleged in the initial petition, were not questioned by the Respondent and are proven through testimonial evidence.

Legal Matters

Material Incompetence of the Arbitral Tribunal

5. The Tax Authority raised the dilatory exception of material incompetence of the arbitral tribunal, alleging that proof of the effective price in the transfer of real property can only be carried out through the procedure specially provided for in article 139 of the IRC Code for which the Director of Finance is competent, whereby the object of the proceedings does not fall within the provision of article 2, no. 1, paragraph a), of the Arbitral Tribunal Regulations.

The contention is manifestly without merit.

The competence of arbitral tribunals in tax matters comprises, in accordance with the aforementioned provision of paragraph a) of no. 1 of article 2 of the Arbitral Tribunal Regulations, the "declaration of illegality of acts of tax assessments", and the present arbitral request has as its object the declaration of illegality of the IRC assessment, following the arithmetic correction made to the taxable matter in the context of an inspection action.

Article 139 of the IRC Code refers to the procedure intended to prove the effective price of the transfer of real property, with a view to disregarding the application of the taxable patrimonial value when it is higher. But that is merely an administrative procedure that takes place before the Tax Administration and which does not interfere with the jurisdictional competence of the courts.

Furthermore, in pronouncing itself on the legality of the assessment, the tribunal is not substituting itself for the Administration in determining the price that was effectively practiced in the transfer of real property, but solely in assessing the defects of illegality that have been raised as grounds for the arbitral request.

There is no reason, therefore, to declare the tribunal incompetent.

Unsusceptibility of Appreciation of the Arbitral Request

6. The Tax Authority also invokes the peremptory exception of unsusceptibility of appreciation of the arbitral request based on the understanding that the judicial challenge of the tax assessment resulting from corrections made under the provisions of no. 2 of article 64 of the IRC Code is dependent on the prior submission of the request intended to carry out proof of the effective price of the transfer, in accordance with article 139 of that Code.

In fact, according to article 139, no. 7, of the IRC Code, in the part most relevant, the judicial challenge of the tax assessment resulting from corrections made by application of the provisions of no. 2 of article 64 depends on the prior submission of the request provided for in no. 3. The request referred to in that latter provision is the one intended to initiate the procedure for proving the effective price of onerous transfer, which should be presented before the Director of Finance.

The indicated procedure corresponds, therefore, to a form of necessary administrative challenge without which recourse to the courts does not become viable. The legal requirement for prior administrative challenge is aimed at obtaining, through a second-instance procedure, the reassessment of the legality of the challenged act, allowing the Administration to still take a definitive position on the matter before the interested party can bring a court action. In the hypothesis considered in article 139, no. 7, it is intended, in similar terms, that, prior to the judicial challenge of the assessment act, the interested party requests the institution of a specific procedure, to take place before the Administration, which is aimed at proving that the price practiced in the transfer is lower than the patrimonial value, as a means of preventing the assessment from being based on that value.

What occurs in the present case is that precisely the Applicant comes to dispute the legality of the assessment, alleging that the Tax Administration unlawfully disregarded the procedure for proving the effective price of sale and violated not only the provision of article 139 referred to, but also the principle of discovery of material truth. That is, what is at issue in the present arbitral request is the very absence of the prerequisite upon which the jurisdictional challenge depended.

And being thus it becomes clear that the procedural condition arising from the cited article 139, no. 7, does not apply, since what is being discussed is the factuality relating to the very verification of the procedural condition.

The exception thus proves to be without merit.

Question on the Merits

7. In the context of an inspection procedure intended to confirm the income declaration of the taxpayer regarding the sale of a real property, the Tax Authority determined the arithmetic correction of the value of the transfer in the amount of €1,246,680.00, corresponding to the difference between the declared value of the sale (€3,900,000.00) and the fixed taxable patrimonial value (€5,146,680.00), thus correcting the taxable profit for the period from 1 January to 31 August 2016, which went from €148,000.00 to €1,395,603.67.

The Tax Inspection Report bases the correction on the provisions of article 64, no. 2, of the IRC Code, which, for the purpose of determining taxable profit, mandates the application of the final patrimonial value when the value contained in the contract is lower, having also taken into account that the taxpayer did not present proof of having requested the procedure referred to in article 139 of the same Code to prove the effective price practiced.

According to the factual matter ascertained, it was not proven that the communication which the Applicant alleges to have sent to the Finance Department to initiate the procedure was received by the Services. But this matter would have been addressed at a meeting held between representatives of the Tax Authority and the Applicant, still during the inspection procedure, following which the Applicant sent a copy of the communication to the inspection services. In addition, in exercising the right to a hearing, the Applicant again referred to having sent a request to the head of the Finance Services of Lisbon on 24 January 2017, for the purposes of the provisions of article 139 of the IRC Code.

The only step that was taken in the context of the inspection procedure regarding this matter is that contained in paragraph F) of the factual matter, consisting of an email message in which the financial director of the Applicant is requested to inform whether the communication was delivered at the Finance Services or sent by mail and requests, in this case, the sending of the postal registry and the receipt notice.

The financial director informed that it was not possible for her to indicate the method of sending of the request and she did not have in her files the evidence of receipt of the correspondence by the recipient (paragraph G of the factual matter) and that was enough for it to be deemed unproven that the procedure for proof of the effective price had been requested.

Meanwhile, the tax inspection disregarded other relevant elements including the circumstance, mentioned in the report, that there were pending against the Applicant tax enforcement proceedings.

The testimonial evidence produced at trial is also conclusive regarding the conditionality that surrounded the real estate transaction.

From the academic year 2008/2009 onwards there was a marked contraction in the demand for the courses offered by the Applicant, as a consequence of the economic crisis, which resulted in a substantial decrease in revenues. The Applicant had to resort to bank financing and entered into default before the Tax Authority and Social Security. A memorandum of understanding was concluded with the creditor banking institutions with a view to restructuring the financial debt which provided for early repayment through the alienation of real estate assets. The Applicant decided to sell the property due to the need for liquidity to discharge the debts and proceeded to subdivide by partition the plot, initially composed of a single property article, to facilitate the sale.

It is also important to note that the sale was completed for a value close to the assessment carried out by company D..., Lda.

8. The Tax Administration, in the context of the tax procedure, is subordinated to the principles of proportionality and justice, principles that have constitutional recognition as material directives shaping administrative activity.

The principle of proportionality reveals that the Administration must pursue legal objectives and public interests according to the principle of fair measure, adopting, from among the measures necessary and adequate to achieve those objectives and pursue those interests, those that imply the least burden and charges for the legal position of those administered.

The principle of justice points to the need for the Administration to conduct its activity in accordance with certain material criteria or values and which invoke the central ideas of rationality, proportion, equality, impartiality and good faith. Significantly, article 8 of the Administrative Procedure Code associates the principles of justice and reasonableness, declaring that "the Public Administration must treat fairly all those who enter into relations with it, and reject solutions manifestly unreasonable or incompatible with the idea of Law, namely in matters of interpretation of legal norms and valuations inherent to the exercise of administrative function".

These principles are not only enshrined in the Administrative Procedure Code, but also in the General Tax Law and in the Tax Procedure Code.

Article 55 of the General Tax Law, under the heading "Principles of Tax Procedure", provides that "the tax administration exercises its functions in pursuit of the public interest, in accordance with the principles of legality, equality, proportionality, justice, impartiality and expedition, with respect for the guarantees of taxpayers and other tax-obliged persons".

The Tax Procedure Code makes concrete what is meant by the principle of proportionality, referring that "the acts to be adopted in the procedure shall be those adequate to the objectives to be achieved, in accordance with the principles of proportionality, efficiency, practicability and simplicity". Article 7 of the Administrative Procedure Code, in enshrining the principle of proportionality, formulates in its no. 1 this same central idea ("In pursuit of the public interest, the Public Administration must adopt behaviours adequate to the objectives pursued"), but adds in no. 2 that "decisions of the Administration which collide with subjective rights or legally protected interests of individuals can only affect such positions to the extent necessary and in terms proportional to the objectives to be achieved". The principle of proportionality is equally mentioned in the Tax Inspection Procedure Code as one of the principles of the tax inspection procedure (article 7).

The Tax Administration is equally bound, at the procedural level, to the principle of material truth, by which it is incumbent upon it the power-duty to carry out all measures it deems useful for the discovery of truth.

An instance of this principle appears in article 58 of the General Tax Law, where it is stated that "the tax administration must, in the procedure, carry out all measures necessary for the satisfaction of the public interest and for the discovery of material truth, not being subordinated to the initiative of the request author". But it is also contained in article 6 of the Tax Inspection Procedure Code where it is said that "the inspection procedure aims at the discovery of material truth, and the tax administration must adopt ex officio the appropriate initiatives for that purpose".

We can therefore argue that "in the context of the tax procedure is enshrined the principle of material truth, which some refer to as the mention of 'justice', from which it results that the fundamental objective of all action in the tax procedure is the pursuit of the public interest, in accordance with the principle of legality, only achievable with a non-merely formal evaluation of the facts. The action of the Tax Administration in the context of the tax procedure is not, as has been seen, free, and cannot seek merely greater collection of public revenues. On the contrary, the Administration must pursue the public interest in its aspect of justice and material truth, being bound in its action both to the Constitution as to the law" (SERENA CABRITA NETO/ CARLA CASTELO TRINDADE, Tax Litigation, vol. I, Coimbra, 2017, pages 144-145).

In that same sense, SALDANHA SANCHES already argued when he stated that "the handling of the tax process in its broadest conception, which necessarily encompasses the administrative procedure for the formation of the tax act and the tax litigation where the conformity with the law of the first is to be judged, shall therefore be arranged with a view to the discovery of material truth" (Principles of Tax Litigation, Lisbon, 1987, page 31).

It is also important to note that the bodies of the Public Administration are subject to a principle of cooperation, and as such, "must act in close cooperation with individuals, it being incumbent upon them, in particular, to provide individuals with the information and clarifications they may need, to support and encourage their initiatives and to receive their suggestions and information (article 11, no. 1, of the Administrative Procedure Code). A principle equally enshrined in articles 59 of the General Tax Law and 48 of the Tax Procedure Code.

9. In the present case, the inspection services, taking refuge in mere formalism – the non-existence of the postal registry of the sending of the communication – completely disregarded the economic and tax situation of the taxpayer and disproportionately aggravated their legal position by imposing a correction of taxable profit in the amount of €1,246,680.00 in correspondence with the fixed taxable patrimonial value.

It is true that the taxpayer lacked presenting a request for the institution of the procedure intended to prove the effective price of the transfer of the property and failed to demonstrate that it complied with this formality. But having been alleged by the taxpayer, in the course of the inspection procedure, both at a meeting held with representatives of the Tax Authority and in the exercise of the right to a hearing, that the request was sent, even if by ordinary mail, it was of the most elementary caution that the Administration, faced with any doubt that might subsist, should give the interested party the opportunity to provide proof of the effective price practiced so that the decision to be adopted would be consistent with reality.

This was required, in any case, in light not only of the principle of cooperation, but above all of the principle of material truth, which – as has been shown – implies that the Tax Administration carries out all useful measures, regardless of the initiative of the taxpayer, in order to ascertain the material truth.

Such an option would also be the only justifiable one in light of the principles of justice and proportionality, which, as has been said, presume that administrative bodies disregard solutions lacking in reasonableness and adopt, in pursuit of the public interest, the behaviours adequate to the objectives pursued.

The Applicant, as was proven, was forced to alienate the property under unfavourable conditions by pressure from banking institutions, which sought the repayment of credits through the sale of real estate assets, and to discharge debts before the Tax Authority and Social Security.

Indifferent to this situation, the inspection services acted as if the non-compliance with a formal procedure could override material truth and therefore prevent taxation in accordance with real income.

As must be concluded, the assessment act is illegal by violation of the principles of cooperation, justice, proportionality and material truth, and cannot be maintained in the legal order.

III – Decision

For these reasons, we decide to uphold the arbitral request and annul assessment act no. 2018..., statement of account verification no. 2018... and compensation 2018....

Value of the Claim

The Applicant indicated as value of the claim the amount of €299,039.24, which was not contested by the Respondent and corresponds to the value of the assessment which it was intended to oppose, whereby the value of the claim is fixed in that amount.

Costs

Pursuant to the provisions of articles 12, no. 2, and 24, no. 4, of the Arbitral Tribunal Regulations, and article 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at €5,202.00, which is borne by the Respondent.

Notify.

Lisbon, 16 July 2019

The President of the Arbitral Tribunal
Carlos Fernandes Cadilha

The Arbitrator Member
Carla Castelo Trindade

The Arbitrator Member
Álvaro Caneira

Frequently Asked Questions

Automatically Created

How does Article 64(2) of the IRC Code apply when a property is sold below its patrimonial tax value (VPT)?
Article 64(2) of the IRC Code establishes a legal presumption that when property is transferred for a price below its patrimonial tax value (VPT), the taxable value for IRC purposes is deemed to be the VPT. This presumption applies automatically to onerous transfers of real rights over real property, requiring the Tax Authority to assess additional IRC on the difference between the declared sale price and the higher VPT. The provision aims to prevent undervaluation of property transfers that could reduce taxable corporate income.
Can a taxpayer rebut the presumption that the taxable value equals the VPT in real estate transactions for IRC purposes?
Yes, the presumption is rebuttable. Article 64(2) explicitly states the presumption admits proof to the contrary through the specific procedure outlined in Articles 139(3) to (6) of the IRC Code. To rebut the presumption, the taxpayer must submit a formal request to the competent Director of Finance, accompanied by evidence demonstrating the effective sale price. This initiates a procedure that may include constitution of a review committee comprising Tax Authority representatives and experts. The key issue in disputes often concerns whether the taxpayer has properly initiated this procedure and provided sufficient supporting evidence.
What evidence is required to prove the effective sale price of a property differs from its patrimonial tax value?
To prove the effective sale price differs from the VPT, taxpayers must provide comprehensive documentation including: (1) the sale contract showing the actual transaction price; (2) independent property valuations from certified appraisers demonstrating market value; (3) evidence of market conditions affecting the sale; (4) documentation of circumstances necessitating the sale (such as financial distress, creditor pressure, or urgent liquidity needs); and (5) proof that the price was negotiated at arm's length. Critically, this evidence must be submitted through the formal procedure in Article 139(3), initiated by a proper request to the Director of Finance. The procedural formality of submission—including proof of delivery—is as important as the substantive evidence itself.
How does the CAAD arbitral tribunal assess additional IRC assessments based on differences between sale price and VPT?
CAAD arbitral tribunals assess these cases by first examining procedural compliance with Article 139 requirements, particularly whether the taxpayer properly initiated the proof procedure before challenging the assessment. The tribunal analyzes whether formal prerequisites were met, including timely submission of the request to the competent authority with proper evidence. Substantively, tribunals evaluate the quality and credibility of evidence supporting the claimed effective price, weighing independent valuations, market conditions, and transaction circumstances. They apply the principle of material truth (Article 58 of the LGT), balancing the Tax Authority's duty to prevent tax evasion against taxpayers' rights to prove actual transaction values. Tribunals also consider whether procedural defects should prevent substantive review or whether the evidence demonstrates the effective price regardless of procedural irregularities.
What role do independent property valuations play in challenging IRC tax adjustments on real estate transfers?
Independent property valuations are crucial but not automatically conclusive in challenging IRC adjustments. While professional appraisals from certified experts provide objective market value assessments that can support claims that sale prices reflect true value rather than undervaluation, they must be contextualized with other evidence. Tribunals consider: the valuation methodology used, the appraiser's qualifications and independence, the date of valuation relative to the sale, and consistency with actual market transactions. A valuation showing market value near the sale price (as in this case, where the valuation of €4,012,700 approximated the €3,900,000 sale price) strengthens the taxpayer's position that the VPT was inflated. However, the valuation must be part of a complete evidentiary package submitted through proper procedural channels to effectively rebut the Article 64(2) presumption.