Process: 699/2016-T

Date: July 7, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 699/2016-T) addresses the procedural issue of supervening liquidation in Portuguese IRS capital gains taxation. The applicants, a couple in a de facto union, challenged an IRS assessment for fiscal year 2015 (€143,198.21) issued on 24 July 2016. They claimed the assessment suffered from illegality due to lack of substantiation and violation of Article 10(5)(b) of the IRS Code, which governs capital gains tax exemptions for reinvestment in permanent residence. The couple had sold their primary residence and declared their intention to reinvest €1,185,000 in acquiring and improving another property for the same purpose, claiming exemption from capital gains taxation. During the arbitration proceedings, the Tax Administration issued a corrective statement and subsequently a new assessment (no. 2017) on 20 April 2017 for €103,393.67, which cancelled the original contested assessment. The Tax Administration requested dismissal of the proceedings due to supervening futility of the dispute, arguing that the original assessment no longer existed. The applicants requested objective modification of the proceedings under Article 20 of RJAT to challenge the new assessment. This case illustrates the critical procedural issue of liquidação superveniente (supervening liquidation) in Portuguese tax arbitration, where the tax authority issues a new assessment during pending proceedings that replaces the contested one. The arbitral tribunal had to determine whether the original dispute became moot and whether the proceedings could continue against the replacement assessment, addressing the balance between taxpayer rights to judicial review and administrative efficiency in tax dispute resolution.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), António Pragal Colaço and Sérgio Santos Pereira, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree:

I – REPORT

On 25 November 2016, A…, holder of Tax Identification Number…, and B…, holder of Tax Identification Number…, residents at Rua …, no.…, …-… Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the Personal Income Tax (IRS) and extraordinary surtax assessment acts for the fiscal year 2015, with number 2016…, of 24-07-2016, with the amount payable of €143,198.21, and with payment deadline of 31 August 2016.

To substantiate their request, the Applicants allege, in summary, that the aforementioned act is vitiated by illegality due to defect of form, arising from lack of substantiation, and by defect of violation of law, arising from violation of the provisions of subparagraph b) of Article 10, paragraph 5 of the Personal Income Tax Code.

On 28-11-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Administration (AT).

The Applicants did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of Article 6, paragraph 2 and subparagraph a) of Article 11, paragraph 1 of the RJAT, the President of the Deontological Council of the CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable time limit.

On 25-01-2017, the parties were notified of these appointments and did not manifest any wish to refuse any of them.

In conformity with the provisions of subparagraph c) of Article 11, paragraph 1 of the RJAT, the Collective Arbitral Tribunal was constituted on 10-02-2017.

On 08-03-2017, the Respondent, duly notified for this purpose, filed its reply, requesting the dismissal of the proceedings due to supervening futility of the dispute.

On 19-05-2017, following documentation subsequently submitted, the Applicants requested, in addition to the rejection of the request for dismissal due to supervening futility of the dispute, the objective modification of the proceedings, and the continuation of the dispute in accordance with Article 20 of the RJAT, against assessment no. 2017…, of 20-04-2017, notified on 21-04-2017.

Pursuant to the provisions of subparagraphs c) and e) of Article 16, and paragraph 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

Having been granted a time period for the submission of written submissions, the same were submitted by the Applicants, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions, and the Respondent renewed its request for dismissal of the proceedings due to supervening futility of the dispute.

A period of 30 days was fixed for the rendering of final decision, after the submission of the Respondent's submissions.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1 of the RJAT.

The parties have legal standing and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings are not vitiated by nullities.

Thus, there is no obstacle to the appraisal of the case.

All being considered, it falls to render

II. DECISION

A. MATTERS OF FACT

A.1. Facts found to be proved

  1. The Applicants were living, at the date of the taxable event, in a de facto union and fulfilled the tax requirements for its recognition in accordance with the Law establishing the corresponding legal regime.

  2. The Applicants submitted together, on 30-05-2016, within the legal time limit, the annual income statement Form 3 of the Personal Income Tax (IRS) for the fiscal year 2015, including therein income from dependent employment (Category A), in the amount of €221,153.14, property income (Category F) and acts of gratuitous transfer of real rights over real estate capable of generating capital gains (Category G), contained, respectively, in Annexes A, F and G thereof.

  3. In Annex O of the aforementioned Form 3 declaration, the following facts were declared:

a) Reinvestment, or intention of reinvestment, of the value of realization of property intended for the declarants' own and permanent residence and that of their family unit in the acquisition of ownership of another property and its expansion and improvement exclusively with the same purpose (Table 5, field 5002, of Annex G), in the amount of €1,185,000.00;

b) Within the scope of the intention to reinvest:

i. Declaration of the outstanding balance of the loan at the date of disposal, in the amount of €95,824.38 (Table 5, field 5005, of Annex G);

ii. Value of realization reinvested in the 24 months prior to disposal without recourse to credit, in the amount of €533,836.79 (Table 5, field 5007, of Annex C);

iii. Value of realization reinvested in the year of declaration after the date of disposal without recourse to credit, in the amount of €531,816.47;

iv. Identification of the property that was the object of reinvestment (end of field 5).

  1. With respect to property income, the Applicants opted for the special taxation provided for in Article 72 of the Code (Field 7, Table 07, of Annex F).

  2. The statement of account of the assessment showed a total income calculated at €510,524.60, in its line 1, corresponding to a net collection of €224,912.35, and a surtax of €17,028.23, for a total payable of €143,198.21.

  3. The statement of account of the assessment has the following content:

[Table included in original]

  1. On 22-09-2016, tax enforcement proceedings no. …2016… were instituted against the Applicants for compulsory collection of the assessed amount.

  2. On 13-12-2016, the said enforcement proceedings were suspended, as a result of the provision of a guarantee by the Applicants.

  3. On 16-03-2017, the Lisbon Finance Service … drew up the Official Correction Statement (…-…), and the Applicants were notified thereof by letter no. …-… of the same date.

  4. On 21-04-2017, the Applicants were notified of assessment no. 2017…, of 20-04-2017, in the amount of €103,393.67, which cancelled assessment no. 2016….

A.2. Facts found not to be proved

With relevance to the decision, there are no facts that should be considered as not proved.

A.3. Substantiation of proved and not proved matters of fact

Regarding matters of fact, the Tribunal need not pronounce on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that are important to the decision and to distinguish the proved from the not proved matters (cf. Article 123, paragraph 2, of the CPPT and Article 607, paragraph 3 of the CPC, applicable pursuant to Article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (cf. former Article 511, paragraph 1, of the CPC, corresponding to the current Article 596, applicable pursuant to Article 29, paragraph 1, subparagraph e), of the RJAT).

Therefore, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the case, the facts enumerated above were considered proved, with relevance to the decision.

B. ON LAW

The first issue that arises for resolution in the present case concerns ascertaining the repercussion thereon of assessment no. 2017…, of 20-04-2017, in the amount of €103,393.67, which cancelled assessment no. 2016…, the object of this arbitral proceedings.

In this regard, Article 13, paragraph 1 of the Legal Regime for Arbitration in Tax Matters (RJAT) provides:

"In requests for arbitral pronouncement having as their object the appraisal of the legality of the tax acts provided for in Article 2, the highest-ranking official of the tax administration service may, within a period of 30 days from knowledge of the request for constitution of the arbitral tribunal, proceed with the revocation, ratification, reform or conversion of the tax act whose illegality has been raised, practicing, when necessary, a substitute tax act, and must notify the President of the Administrative Arbitration Centre (CAAD) of its decision, whereupon the counting of the period referred to in subparagraph c) of Article 11, paragraph 1 begins."

Paragraph 3 of the same article further provides:

"Upon expiry of the period provided for in paragraph 1, the tax administration becomes unable to practice a new tax act with respect to the same taxpayer or tax obligor, tax and taxation period, unless on the basis of new facts."

The legal regime appears sufficiently clear in the sense that, upon expiry of the time period stipulated in Article 13, paragraph 1 of the RJAT, the Tax Administration is precluded from the power to dispose of the disputed substantive (legal-tax) relationship.

The purpose of this provision is to permit a stabilization of the dispute, such that, upon its submission to arbitral jurisdiction, it is withdrawn from the instability that a continuing availability of its content by the Tax Administration could generate.

One could question, in light of the specific case, whether, being faced with an act partially favorable to the taxpayer, in that it reduced the amount of tax required, the same should not be accepted, at least to that extent.

However, considering the matter properly, one must first weigh that, given the indisposable character of the legal-tax relationship (Article 30, paragraph 2 of the General Tax Law), which justifies, among other things, the obligation of conformity of tax arbitration with constituted law, the Tax Administration will be precluded from the power to confess or settle.

Moreover, even if the revocatory act were to be considered, the continuation of the dispute would always have a useful effect, consisting in the coverage of the decision by the effect of res judicata, which would not occur in the event of acceptance of the revocatory act, which would permit that, subsequently, the Tax Administration could practice new acts in the matter, without the same being vitiated by nullity, pursuant to Article 166, paragraph 2, subparagraph i) of the New Administrative Procedure Code.

It is concluded, therefore, that the revocatory act practiced after the expiry of the period fixed in Article 13, paragraph 3 of the RJAT will be illegal, by violation thereof, and, as such, voidable.

Should the interested party have raised nothing regarding it, or have conformed to it, the said illegality could have been remedied.

Not having done so, and considering that:

i. The Tribunal always has competence to appraise questions both incidental and preliminary that are relevant to the decision of the case (Article 91 of the CPC), and as to the latter, may suspend the case only if the competence to decide falls to another jurisdiction (Article 92 of the CPC and Article 15, paragraph 1 of the New Administrative Procedure and Process Code);

ii. What is at issue is the appraisal of the question of the utility of continuing the dispute; and

iii. The Applicants have raised the illegality of the revocatory act; and

iv. Voidability may be raised either by action or by exception,

with effects restricted to the present case and to the decision of the question sub judice, one must recognize the noted illegality and draw the corresponding effects therefrom, namely not recognizing the act vitiated thereby the possibility of affecting the utility of the present dispute.

Thus, understanding that the utility of the present dispute is maintained, one proceeds to the appraisal of the merits of the case.

Also with respect to the act in question, the Applicants requested the continuation of the present arbitral action against the same, by means of objective modification of the proceedings, in accordance with Article 20 of the RJAT.

The said article provides that:

"The substitution during the pendency of the proceedings of the acts that are the object of a request for arbitral decision on the basis of new facts implies the objective modification of the proceedings."

As results from the mere reading of the transcribed norm, the same presupposes/requires that the substitution of the act that is the object of the request for arbitral decision be based on new facts.

Now, nothing in this regard is proved with respect to the new act practiced, and the Respondent itself alleged nothing, even regarding this, and the Applicants themselves acknowledge this (cf. point 4 of their submissions).

Thus, as the prerequisites of the said norm of Article 20 of the RJAT are not shown to be demonstrated, objective modification of the proceedings cannot be made in accordance therewith.

Passing to the merits of the case, the Applicants begin by raising the lack of substantiation of the contested assessment.

As is well known, substantiation is a requirement of tax acts in general, being a constitutional obligation (Article 268 of the Portuguese Constitution) and a legal one (Article 77 of the General Tax Law).

In summary, it can be said that it is now settled in national doctrine and case law that the substantiation required must have the following characteristics:

  1. Official initiative: it must always proceed from the initiative of the administration, not admitting substantiations upon request;

  2. Contemporaneity: it must be contemporaneous with the practice of the act, not permitting deferred or a posteriori substantiations;

  3. Clarity: it must be comprehensible by an average addressee, avoiding polysemic or profoundly technical concepts.

  4. Completeness: it must contain all essential elements that were determinative of the decision taken. This characteristic unfolds into two requirements, namely: the duty of justification (legal norms and factuality – domain of legality) and motivation (domain of discretion or opportunity, when a valuation is needed).

Now, if substantiation is, in the terms referred to, necessary and obligatory, this cannot and should not be understood in an abstract and/or absolute manner, that is, the substantiation required of a concrete tax act must be that which is functionally necessary so that it does not present itself to the taxpayer as a pure demonstration of arbitrariness.

In the present case, it is verified that the notification of the contested tax act consists of a statement of assessment, contained in point 6 of the facts found to be proved.

From that statement can be drawn the amount of tax that the Tax Administration seeks to collect, the time period for payment granted, the identification of the entity that carried out the assessment, and the means of defense and time period to respond against the assessment act.

In addition to what has been referred to, in the statement of assessment, there is a table indicating the values entered by the Applicants in their tax return, on which the assessment was based, the various items used for the calculation and the indication as the amount payable.

Taking into account the circumstance that this is an assessment made on the basis of the taxpayer's declaration, referring to values entered by the taxpayer therein, and issued in the context of what are called "mass acts," as the Applicants themselves acknowledge, it is considered that the assessment act in question fulfills, in concreto, the minimum requirements of substantiation, as decided in an analogous case by the Decision of the Administrative Court of the South, of 25-01-2011, rendered in case 04410/10, allowing the Applicants, as will be seen below, to contest it in a substantiated manner.

The Applicants further allege that the assessment against which they are challenging is vitiated by violation of law, by non-conformity with the provisions of subparagraph b) of Article 10, paragraph 5 of the applicable Personal Income Tax Code.

That norm provides that:

"Excluded from taxation are gains from the gratuitous transfer of real estate intended for the own and permanent residence of the taxpayer or its family unit, provided that the following conditions are cumulatively verified: (...)

b) The reinvestment provided for in the preceding subparagraph be effected between the 24 months prior to and the 36 months subsequent to the date of realization;"

As results from the assessment act in question, and from the facts found to be proved, the value of the total income considered therein was €510,524.60.

Now, considering the income declared by the Applicants, as found to be proved, on which the contested assessment was made, it quickly becomes apparent that that value was wrongly considered, and that this error arises from the incorrect application of the provisions of Article 10, paragraph 5 of the applicable Personal Income Tax Code, that is, in the non-exclusion from taxation of the amount corresponding to gains from the gratuitous transfer of real estate intended for the own and permanent residence of the taxpayer or its family unit, with respect to which reinvestment is effected in the acquisition of ownership of another property, land for construction of real estate and or its construction, or in the expansion or improvement of another property exclusively with the same purpose, between the 24 months prior to and the 36 months subsequent to the date of realization, in accordance with the intention manifested by the Applicants in the income statement with respect to the year of disposal.

Considering the alleged and noted violation of law, the arbitral request should proceed and the assessment that is the object of the present arbitral action should be entirely annulled.

In effect, as the Supreme Administrative Court has understood, the exclusion from taxation of gains from the gratuitous transfer of real estate intended for the own and permanent residence of the taxpayer or its family unit not only alters the quantification of taxable income but is also capable of influencing the tax rate applicable, whereby the reduction of taxable income requires the practice of a new assessment act, being impracticable the mere partial annulment because the tribunal cannot substitute itself for the tax administration in the application of the tax rate to the taxable income that subsists.

Within the time period provided for the voluntary execution of judgments of tax courts, the Tax Administration should proceed with the practice of a new assessment act, purged of the noted vice, assessing the tax obligation due by the Applicants, in accordance with subparagraphs a) and d) of Article 24, paragraph 1 of the RJAT.

The Applicants also petition for recognition of the right to compensation for costs incurred with the guarantee provided.

The arbitral decision on the merits of the claim regarding which no recourse or challenge is available binds the tax administration from the end of the period provided for recourse or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of judgments of tax courts, restore the situation that would have existed had the tax act that is the object of the arbitral decision not been practiced, adopting the necessary acts and operations for such purpose, as expressly results from subparagraph b) of Article 24 of the RJAT.

In the same provision "the legislator made clear that the effects provided therein are 'without prejudice to other effects provided for in the Tax Procedure and Process Code.' It is considered in this regard that the legislator is here referring to all effects that result from the CPPT, for the taxpayer, and that are applicable after the consolidation in the legal order of a certain legal-tax situation, arising from a final decision whether gracious or judicial."

Notwithstanding the fact that the judicial challenge process is essentially a process of mere annulment, a condemnation of the Tax Administration to pay compensation for undue guarantee can be rendered therein, as results from Article 171 of the CPPT.

As stated in the decision rendered in Arbitral Proceeding no. 28/2013-T:

"it is unequivocal that the judicial challenge process encompasses the possibility of condemnation to pay undue guarantee and is even, in principle, the appropriate procedural means to formulate such request, which is justified by obvious reasons of procedural economy, since the right to compensation for undue guarantee depends on what is decided regarding the legality or illegality of the assessment act. The request for constitution of the arbitral tribunal has as its corollary that it is in the arbitral proceedings that the 'legality of the executable debt' will be discussed, whereby, as results from the express tenor of that paragraph 1 of the said Article 171 of the CPPT, the arbitral proceedings are also appropriate for appraising the request for compensation for undue guarantee."

It is concluded, therefore, that this tribunal is competent to appraise the request for compensation for undue guarantee provided.

The regime for the right to compensation for undue guarantee is contained in Article 53 of the General Tax Law, which establishes the following:

"1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified in whole or in part for the damages resulting from its provision, should it have maintained it for a period exceeding three years in proportion to the success in administrative appeal, judicial challenge or opposition to execution having as their object the guaranteed debt.

  1. The period referred to in the preceding number does not apply when it is verified, in gracious petition or judicial challenge, that there was an error attributable to the services in the assessment of the tax.

  2. The indemnification referred to in paragraph 1 has as its maximum limit the amount resulting from the application to the value guaranteed of the rate of indemnificatory interest provided for in this law and may be requested in the very process of gracious petition or judicial challenge, or autonomously.

  3. Indemnification for provision of undue guarantee shall be paid by deduction from the tax revenue of the year in which payment is made."

In the case at hand, it is manifest that the error that affects the assessment acts is attributable to the respondent entity because the assessments were of its initiative and the Applicants in no way contributed to that error being practiced.

They thus have the right to compensation for the guarantee provided.

As the costs incurred by the Applicants with the provision of the guarantee intended to suspend the tax enforcement process have not been proved, the corresponding value, if necessary, should be determined in execution of judgment.

C. DECISION

In such terms, this Arbitral Tribunal decides to judge the arbitral request filed as well-founded and, in consequence,

a) To annul the Personal Income Tax (IRS) and extraordinary surtax assessment acts for the fiscal year 2015, with number 2016…, of 24-07-2016, with the amount payable of €143,198.21, and with payment deadline of 31 August 2016;

b) To condemn the Respondent to pay compensation for undue guarantee, in the amount that may still be proved to have been incurred, if necessary in execution of judgment;

c) To condemn the Respondent to pay the costs of the proceedings, in the amount of €3,060.00.

D. Value of the Proceedings

The value of the proceedings is fixed at €143,198.21, in accordance with Article 97-A, paragraph 1, subparagraph a), of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of Article 29, paragraph 1 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the request was entirely well-founded, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the cited Regulation.

Notify the parties.

Lisbon, 7 July 2017

The Arbitrator President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(António Pragal Colaço)

The Arbitrator Member

(Sérgio Santos Pereira)

(Text prepared by computer, in accordance with paragraph 5 of Article 131 of the Code of Civil Procedure (CPC), applicable by reference of subparagraph e) of Article 29, paragraph 1 of the Legal Regime for Arbitration in Tax Matters, with blank lines and reviewed by us)

[1] Cf. Article 27 of the Initial Request.

[2] Available at www.dgsi.pt.

[3] Cf., in this sense, the Decisions of 09-07-2014 and 23-11-2016, rendered respectively in cases 01146/13 and 039/16, both available at www.dgsi.pt.

[4] Note that, as results from p. 28 of the procedural file submitted by the Respondent, the rate applied in the statement submitted by the Applicants was 45% and that applied in the annulled assessment was 48%.

[5] Carla Castelo Trindade – Legal Regime for Arbitration in Tax Matters – Annotated, Coimbra, 2016, p. 122.

[6] Available at www.caad.org.pt.

Frequently Asked Questions

Automatically Created

What is a supervening liquidation (liquidação superveniente) in Portuguese IRS capital gains tax?
A supervening liquidation (liquidação superveniente) in Portuguese IRS capital gains tax refers to a new tax assessment issued by the Tax Administration during pending arbitration or judicial proceedings that replaces or cancels the originally contested assessment. In this case, while the applicants challenged the 2015 IRS assessment (no. 2016) for €143,198.21 related to capital gains from real estate sale, the tax authority issued a corrective statement and subsequently a new assessment (no. 2017) for €103,393.67 that cancelled the original. This creates a procedural question of whether the original dispute becomes moot and whether proceedings can continue under Article 20 of RJAT through objective modification to challenge the replacement assessment.
Can a taxpayer challenge an IRS capital gains tax assessment through CAAD arbitration?
Yes, taxpayers can challenge IRS capital gains tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration pursuant to Article 2(1)(a) of the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). In this case, the applicants successfully invoked CAAD jurisdiction to contest their 2015 IRS assessment involving capital gains from real estate transactions. The arbitral tribunal confirmed its material competence under Articles 2, 5, and 6 of RJAT. CAAD arbitration provides an alternative dispute resolution mechanism for tax disputes, allowing taxpayers to avoid lengthy court proceedings while obtaining binding decisions on the legality of tax assessments, including those involving complex capital gains calculations and exemptions.
What are the legal grounds for contesting an IRS liquidation for lack of substantiation (falta de fundamentação)?
The legal grounds for contesting an IRS liquidation for lack of substantiation (falta de fundamentação) constitute a formal defect (vício de forma) under Portuguese tax law. Article 77 of the Tax Procedure and Process Code (CPPT) requires tax assessments to contain adequate substantiation explaining the factual and legal basis for the tax calculation. In this case, the applicants alleged the assessment suffered from lack of substantiation as one ground for illegality. Insufficient substantiation violates taxpayers' constitutional rights to effective judicial protection and contradictory procedure, as taxpayers cannot properly exercise their defense rights without understanding the basis for taxation. This defect can lead to annulment of the assessment even if the substantive tax calculation is correct, as procedural guarantees are fundamental to tax legality.
How does Article 10(5)(b) of the Portuguese IRS Code apply to capital gains tax exemptions?
Article 10(5)(b) of the Portuguese IRS Code provides a capital gains tax exemption for taxpayers who sell their permanent residence and reinvest the proceeds in acquiring, constructing, or improving another property for the same purpose within specified timeframes. The applicants in this case declared reinvestment of €1,185,000 from their residence sale, including amounts reinvested in the 24 months prior to disposal (€533,836.79) and after disposal (€531,816.47), claiming exemption under this provision. The exemption requires: (1) the sold property was the taxpayer's permanent residence; (2) reinvestment in another permanent residence; (3) compliance with temporal requirements; and (4) proper declaration in Annex G of the IRS return. The Tax Administration's assessment apparently disputed the applicants' entitlement to this exemption, constituting the substantive violation alleged.
What happens when the tax authority issues a new liquidation during pending CAAD arbitration proceedings?
When the Tax Administration issues a new liquidation during pending CAAD arbitration proceedings, Portuguese law provides for objective modification of the proceedings under Article 20 of RJAT. The original proceedings may become moot if the contested assessment is cancelled, leading the Tax Administration to request dismissal for supervening futility (inutilidade superveniente da lide). However, taxpayers can request continuation of arbitration against the replacement assessment to avoid requiring a new arbitration filing, preserving procedural economy and avoiding loss of rights. In this case, the applicants requested such modification after the new assessment (no. 2017) cancelled the original (no. 2016). The arbitral tribunal must decide whether to accept the modification or dismiss the proceedings, considering whether the new assessment addresses the same substantive tax obligation and whether allowing modification serves judicial efficiency without prejudicing either party's procedural rights.