Process: 703/2015-T

Date: May 18, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision (Process 703/2015-T) addresses the taxation of real estate investment funds under Article 22(6)(a) of the Portuguese Tax Benefits Statute (EBF). The claimant, B…, S.A., acting as management entity for real estate investment fund A…, challenged an IRC (Corporate Income Tax) self-assessment for the 2012 tax year, claiming it overpaid €43,745.83 by failing to deduct Municipal Property Tax (IMI) expenses as permitted under the EBF regime. The arbitral tribunal was constituted under CAAD (Administrative Arbitration Centre) pursuant to Decree-Law 10/2011. The Tax Authority raised multiple procedural exceptions: (1) lack of standing, arguing that only the Fund itself, not its management entity, could bring the claim since investment funds possess tax legal capacity; (2) characterization of the filing as a payment declaration rather than a self-assessment act, affecting the applicable time limits; (3) time-barring of the administrative complaint, contending the 120-day deadline applied rather than two years under Article 131(1) CPPT; (4) limitation of deductible IMI to the 2011 tax year only, excluding prior years even if paid in 2012; and (5) denial of compensatory interest on grounds that any error was attributable to the claimant. The claimant countered that B…, S.A. was acting in its representative capacity to supplement the Fund's legal incapacity, that the filing constituted a proper self-assessment subject to the two-year Article 131 CPPT deadline, and that it was entitled to reimbursement plus legal interest. The decision analyzes standing requirements under Article 9 CPPT and Article 30 CPC, examining whether the management entity has procedural capacity to represent the fund in tax arbitration proceedings.

Full Decision

ARBITRAL DECISION

The Arbitrator Dr. André Festas da Silva, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the single Arbitral Tribunal, constituted on 05 February 2016, decides as follows:

I. REPORT

I.1

On 26 November 2015, the A…, NIF…, with registered office at Rua…, n.º…, Dtº, …-… Lisbon, requested, under the terms and for the purposes of Article 2.º and Article 10.º, both of Decree-Law n.º 10/2011, of 20 January, the constitution of an Arbitral Tribunal with the appointment of a single arbitrator by the Deontological Council of the Administrative Arbitration Centre, under the terms of n.º 1 of Article 6.º of the aforementioned legislation.

2. The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD and was notified to the Tax and Customs Authority (hereinafter referred to as AT or "Respondent") on 04 December 2015.

3. The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to Article 5.º, n.º 2, subparagraph b) and Article 6.º, n.º 1, of the RJAT, the undersigned was appointed by the President of the Deontological Council of CAAD to serve in this single Arbitral Tribunal, having accepted in the terms legally provided.

4. The AT submitted its response on 04 March 2016.

5. By order dated 04.03.2016, the Claimant was notified to make submissions on the exceptions raised by the Respondent, if it so wished.

6. The Claimant made submissions on 14.03.2016 regarding the exceptions raised by the Respondent.

7. By order of 15.03.2016, the holding of the hearing provided for in Article 18.º of the RJAT was waived, the request for production of testimonial evidence was rejected, as there was no controversy regarding the essential facts for the proper decision of the case and the issue to be resolved was one of law, and it was decided that the proceedings would continue with written submissions.

8. On 13.04.2016, the Claimant submitted its legal submissions.

9. On 26.04.2016, the Respondent submitted its legal submissions.

10. The Claimant seeks that the Arbitral Tribunal declare the illegality of the self-assessment act of Corporate Income Tax (IRC) effected through the withholding tax declaration IRS/IRC and IS n.º…, that the substitution of the IRC withholding tax declaration with another in the amount of €402,487.24 be ordered, that reimbursement of the excess IRC in the amount of €43,745.83 be ordered, plus legal interest accrued from 30 August 2015 until full reimbursement of this amount.

I.A. The Claimant supports its request, in summary, on the following grounds:

  • The Claimant proceeded to self-assess Corporate Income Tax on income earned in 2012.
  • The claimant paid the amount determined.
  • In determining the tax, the claimant did not take into account the expenses for Municipal Property Tax (IMI), contrary to what is set out in Article 22.º, n.º 6, subparagraph a) of the EBF.
  • Consequently, the claimant calculated and paid Corporate Income Tax in excess of that legally due.

I.B In its Response, the AT invoked the following:

  • The owner of the properties, source of income subject to Corporate Income Tax, is the A… and not the company B…, S.A.
  • The claimant B…, S.A. is the managing entity of the A….
  • The A…, although not possessing legal personality, possesses legal capacity in tax matters.
  • Therefore, it is the A… which has standing and not the Claimant.
  • In view of the foregoing, the exception (Article 576.º, n.º 1 and n.º 2 of the CPC) should be upheld and the respondent absolved of the claim (Article 89.º, n.º 1, subparagraph d) of the CPTA and Article 278.º, n.º 1, subparagraph d) of the CPC).
  • The Respondent further argues that the application of Article 131.º, n.º 1 of the CPPT presupposes the presentation of an income declaration that incorporates the self-assessment of a tax.
  • The document identified with the n.º … presented by the Claimant does not correspond to a self-assessment act, but rather, a mere declaration of payment.
  • Therefore, the object of the administrative complaint and the present petition does not fall within Article 131.º, n.º 1 of the CPPT.
  • The time limit for the claimant to lodge an administrative complaint was 120 days and not two years.
  • Thus, the administrative complaint is time-barred.
  • Furthermore, the amount of IMI to be deducted is only that relating to the year 2011, and should not include other IMI payments relating to prior years, even if payment was made in 2012.
  • Finally, the Respondent alleges that the error in the submission of the declaration is attributable to the claimant.
  • Consequently, no compensatory interest is due.

I.C The Claimant responded to the exception as follows:

  • In view of the arguments presented, B…, S.A. is not acting on its own behalf but rather in the capacity of managing entity of the A….
  • The Fund has tax legal capacity, but does not possess legal standing.
  • The supplementation of this legal incapacity is effected through representation by B…, S.A.
  • The impugned act is a self-assessment, even if it was effected by a third party.
  • Therefore, the request for constitution of the arbitral tribunal was presented in a timely manner.

II. PRELIMINARY MATTERS

The Tribunal is competent and is regularly constituted, in accordance with Articles 2.º, n.º 1, subparagraph a), 5.º and 6.º, all of the RJAT.

The proceedings are properly before the Tribunal.

An exception of lack of standing of the Claimant is raised, which must be considered preliminarily.

The Respondent argues that, given that the request for constitution of the arbitral tribunal was filed by the company B…, S.A., it does not possess procedural standing. Given that the Investment Fund (A…) possesses legal capacity in tax matters, it should be this entity that intervenes in the proceedings.

Quid Juris?

The relevant moment for assessing whether procedural requirements are met is the moment the action is filed. It is therefore relevant to apply the legislation in force at the date of presentation of the request for constitution of the arbitral tribunal.

As regards the exception of lack of standing, pursuant to Article 30.º, n.º 1 of the CPC (as amended by Article 29.º, n.º 1, subparagraph e) of the RJAT), a claimant has standing when it has a direct interest in bringing the action.

Standing is determined by the benefit (or detriment) that may accrue to the parties from the success (or failure) of the action (Article 30.º, n.º 2 of the CPC), taking into account the terms in which the claimant frames the right invoked and the position that the parties, in relation to the claim and the cause of action, have in the disputed relationship, as presented by the claimant.

Article 9.º of the CPPT provides the following regarding standing:

1 - Standing in tax proceedings is possessed, in addition to the tax administration, by taxpayers, including legal substitutes and persons liable for tax, other tax-obliged persons, parties to tax contracts and any other persons who prove legally protected interest.

2 - (…).

3 - (…).

4 - Standing in tax litigation is possessed, in addition to the entities referred to in the preceding paragraphs, by the Public Prosecutor and the representative of the State Treasury.

In tax litigation, any taxpayer who bears the burden or financial sacrifice of the tax has standing.

The standing of the A… (hereinafter referred to as A…) is not questioned. The AT argues that according to the petition, the party identified as claimant is B…, S.A., whereas the disputed substantive tax relationship concerns the A…. Thus, in the AT's understanding, only the latter possesses active standing to bring proceedings against the AT.

It is first necessary to analyse the form completed by the Claimant when filing its request for constitution of the arbitral tribunal. This is an electronic form available on the CAAD website. The computerization of this request allows us to identify without question the elements required in Article 10.º, n.º 2 of the RJAT. One of these elements is the identification of the taxpayer, including its tax identification number. In this form, the fields for identification of the claimant and its legal representative were completed respectively with the identification of the A…, NIF … and of the company B… SA., NIF… .

There is no question that the Claimant identified in the request for constitution of the arbitral tribunal is the A…. Nevertheless, the request for constitution of the tribunal is not to be confused with the petition for arbitral pronouncement, which must be submitted as an attachment in a separate document to the request for constitution of the arbitral tribunal (Article 10.º, n.º 2, subparagraph c) of the RJAT).

In the petition for pronouncement, it is indicated that the company B…, S.A. is the managing entity of the A…. It is true that in current practice, the fund is usually identified first, followed by the identification of the managing company.

However, taking into account the arguments presented, it appears to us to be excessive formalism to conclude that the Claimant in this case is not the fund but rather the managing entity. Throughout the entire petition, the Claimant identified and the disputed substantive tax relationship concern the Fund. See by way of example Articles 5.º, 11.º and 13.º of the petition.

The right to effective judicial protection is a fundamental right, which should lead us to reject merely ritualistic and formal interpretations (Article 20.º, n.º 1 of the CRP). The reform of administrative justice expressly condemned excessive formalism (Article 7.º of the CPTA). Procedural norms should be interpreted in a manner that promotes substantive rulings on the merits of claims presented.

The same philosophy is followed by the CPC: "(…) which seeks, whenever possible, the prevalence of substance over form, as well as the remedy of procedural irregularities and obstacles to the normal progress of proceedings, with a view to maximum utilization of procedural acts". In Decision of the Court of Appeal of Covilhã of 24.02.2015, case n.º 1530/12.7 TBPBL.C1

The fund is an autonomous patrimony without legal personality (Article 2.º, n.º 2, subparagraph u) of Law n.º 16/2015 of 24.02). Nevertheless, the fund may be a subject of tax legal relationships (Article 15.º of the LGT), that is, it is a holder of rights and tax obligations, possesses tax legal capacity (Article 3.º of the CPPT) and is thus capable of being a party in tax litigation. In this manner, the A… may intervene in judicial proceedings.

Given that the A… possesses tax personality, it also possesses tax capacity, under Article 16.º, n.º 2 of the LGT. In this manner, the A… can personally and freely perform acts that produce consequences in the tax legal relationship. However, the administration and representation of the A… is effected by the managing company (Article 66.º, n.º 1, subparagraph b) of Law n.º 16/2015 of 24.02). For this reason, the latter is usually also identified in the petition for pronouncement, which occurred in this case.

Furthermore, in response to this exception, the A… was identified, without question, as the requesting entity.

Therefore, it appears to us that the claimant identified in the proceedings is the A…, which possesses standing, tax legal capacity and is duly represented by the company B…, S.A.

In view of the foregoing, pursuant to Article 9.º, n.º 1 and n.º 4 of the CPPT and Article 20.º, n.º 1 of the CRP, the Tribunal concludes that the A… is the Claimant entity and possesses standing, and therefore the raised exception is rejected.

An exception of preclusion due to lapse of right is also raised, in that the administrative complaint prior to the request for constitution of the arbitral tribunal was presented outside the time limit. For this purpose, the AT argues that the impugned act is not a self-assessment, but rather, a mere declaration of payment subject to the time limit provided in Article 70.º, n.º 1 of the CPPT and not the time limit provided in Article 131.º, n.º 1 of the CPPT.

Quid Juris?

We must first analyse the impugned act to determine its nature (declaration of payment, self-assessment or withholding tax). The act in question has as the title of its form "withholding tax declaration IRS/IRC and IS" and has the number….

The act was presented by the managing company of the claimant by virtue of the requirement of Article 22.º, n.º 6, subparagraph a) of the EBF in force at the time of the facts (2012). According to the cited provision:

"a) Where property income is concerned, not relating to social housing subject to legally established cost control schemes, taxation shall apply, independently, at the rate of 20%, which applies to net income after deducting maintenance and upkeep charges effectively borne, duly documented, as well as municipal property tax, the delivery of the tax being effected by the respective managing entity by the end of the month of April of the year following that to which it relates, and any tax withheld being considered as payment on account of this tax;"

Are we dealing with a situation of withholding tax as the name of the document presented suggests?

Pursuant to Article 20.º, n.º 1 of the LGT, substitution occurs when, by operation of law, the tax obligation is required from a person other than the taxpayer. In the case in question, payment is not made by the taxpayer, but rather by the managing entity of the fund.

However, pursuant to Article 20.º, n.º 2 of the LGT, substitution is effected through the mechanism of withholding tax. This is a technique used essentially in income taxes, as in the case in question. Thus the mechanism of withholding tax effects the tax substitution.

However, for us to qualify this situation as withholding tax, there must be a deduction from the income subject to taxation of the taxpayer. "Withholding tax is the phenomenon that occurs when the law, taking advantage of the circumstance of the existence of a payment from one subject to another and whose constitution is connected with the existence of tax facts, attributes the obligation to withhold a certain amount as tax and to deliver it to the State Treasury to a person other than (the substitute) the one in relation to whom these tax facts occur (the substituted taxpayer)". In General Tax Law Annotated and Commented, Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, Encontro da Escrita Editora, 4th edition, annotation 7 to Article 95.º, page 826.

In the case in question, the deduction does not occur because the entity that proceeded to deliver the tax owes nothing to the taxpayer. Therefore, we are not dealing with a situation of withholding tax.

Is it a self-assessment?

Assessment is "(…) an administrative act, applying a tax incidence rule and its respective rate of quotation, to the taxable base previously or supposedly determined; the arithmetic expression of the pecuniary value of the tax obligation corresponding thereto, and its imputation to the taxpayer; and the substantive and formal declaration of such operation and its notification to the taxpayer (…)". In The Status of the Taxpayer, Victor Faveiro, Coimbra Editora, 2002, page 683.

According to Casalta Nabais, the assessment procedure comprises the following operations: i) subjective assessment, which aims at determining or identifying the taxpayer or the tax-obliged person; ii) objective assessment, which consists in determining the taxable or collectible base and the applicable rate; iii) assessment in the strict sense, which consists in determining the amount of tax, by applying the rate to the taxable or collectible base; iv) deductions from the tax, if any exist. Cf. Tax Law, 5th Ed., Coimbra Editora, 2009, page 321.

Self-assessment is "the act of applying the tax material rules to facts by the taxpayer itself to which such facts relate and the consequent verification-declaration of its tax obligation". In General Tax Law Annotated and Commented, op. cit., page 826.

In the case of self-assessments "(…) the qualification and quantification of the taxable base is in the hands of the person who generates it – or of someone who maintains relevant relationships with it -, with the amount of the tax to be paid or received resulting from what that person itself evaluates and estimates." In Lessons on Tax Procedure and Process, Joaquim Freitas da Rocha, Coimbra Editora, 3rd Edition, page 185.

In the case in question, the impugned act was not presented by the taxpayer, but rather by the managing entity. Self-assessment is that which is done by a private party and not by the Tax Authority. Therefore, the fact that it was not presented by the taxpayer does not preclude the possible qualification as self-assessment.

In this regard, see the Decision of the Supreme Administrative Court of 15.02.2006, case n.º 026622:

"I - Self-assessment is the assessment of a tax that is not done by the Tax Administration, but by the taxpayer, whether it be the direct taxpayer, the legal substitute or the legally liable person (Articles 82.º, n.º 1, 84.º, n.º 2, and 18.º, n.º 3, of the General Tax Law);"

Given that the act was delivered by the legally liable party of the A…, it may be qualified as self-assessment.

In the case in question, to determine the amount to be paid, it is required that previously:

a) The income be determined;

b) Maintenance and upkeep charges be deducted;

c) The IMI paid be deducted;

d) A rate of 20% be applied.

In this manner, given the definitions of assessment and self-assessment set out above, we are of the opinion that we are dealing with an act of self-assessment. It is self-assessment because it is not done by the Tax Authority and because the determination of the tax to be paid required the prior determination of the taxable base, with income previously calculated and maintenance and upkeep charges deducted. Subsequently, the private party determined the rate, applied it and consequently determined the tax to be paid. Thus, we are dealing with self-assessment.

The impugned act is not merely a payment document because it required that the aforementioned tasks previously be performed, which allow the act to be qualified as self-assessment.

The self-assessment was delivered on 20.05.2013. Under Article 131.º, n.º 1 of the CPPT, the Claimant had a two-year period to lodge an administrative complaint. The time limit was observed because the administrative complaint was presented on 30.04.2015, that is, before two years had elapsed.

In view of the foregoing, pursuant to Article 131.º, n.º 1 of the CPPT, the Tribunal concludes that the administrative complaint prior to the request for constitution of the arbitral tribunal was presented in a timely manner, and therefore the raised exception of preclusion is rejected.

In view of what has been decided above, the parties have legal capacity and standing.

The parties have legal personality and standing and are duly represented, in accordance with Articles 4.º and 10.º of the RJAT and Article 1.º of Ordinance n.º 112-A/2011, of 22 March.

There are no other preliminary issues to consider nor defects that would invalidate the proceedings.

It is now necessary to consider the merits of the claim.

III. ISSUE TO BE DECIDED

May the Claimant deduct the amount of Municipal Property Tax (IMI) paid from the property income obtained?

IV. FACTUAL MATTERS

IV.1. Proven Facts

Before entering into the consideration of the main question, it is necessary to present the factual matters relevant to its understanding and decision, which, having examined the documentary evidence, the tax administrative proceedings attached and taking into account the facts alleged, are established as follows:

  • The Claimant is a closed real estate investment fund with private subscription.
  • On 20/05/2013, the managing entity of the Fund proceeded to self-assess Corporate Income Tax on income earned in the year 2012, by the Fund, having declared net income after deduction of maintenance charges of €2,236,434.23.
  • The self-assessment delivered did not take into account the IMI expenses.
  • As a result of the self-assessment, the Claimant paid the sum of €446,233.07.
  • In the year 2012, the claimant paid IMI, relating to the properties that had generated the taxable income, in the amount of €218,729.12.
  • On 30.04.2015, the Claimant presented an administrative complaint against the self-assessment previously presented.
  • The respondent did not make a final determination on the administrative complaint presented.

IV.2. Facts Found Not Proven

There are no facts found not proven, given that all facts relevant to the consideration of the claim have been found proven.

IV.3. Motivation for the Factual Matters

The facts found proven comprise uncontested matters and matters demonstrated by documentary evidence in the case file.

The facts set out in items 1 to 8 are accepted as established by examination of the administrative proceedings, by the documents presented by the Claimant (documents 1 to 10 of the request for constitution of the Arbitral Tribunal) and by the position assumed by the parties.

V. APPLICATION OF LAW TO FACTS

1. May the Claimant deduct the amount of Municipal Property Tax (IMI) paid from the property income obtained?

The matter in question concerns Article 22.º, n.º 6, subparagraph a) of the EBF, in force in 2012:

"a) Where property income is concerned, not relating to social housing subject to legally established cost control schemes, taxation shall apply, independently, at the rate of 20%, which applies to net income after deducting maintenance and upkeep charges effectively borne, duly documented, as well as municipal property tax, the delivery of the tax being effected by the respective managing entity by the end of the month of April of the year following that to which it relates, and any tax withheld being considered as payment on account of this tax;"

Tax laws are to be interpreted as any other laws, with their true meaning being determined in accordance with interpretation techniques and elements generally accepted by legal scholarship (Article 9.º of the CC and Article 11.º of the LGT). Article 20.º, n.º 6, subparagraph a) of the EBF is extremely clear, leaving no room for interpretive doubt (in claris cessat interpretatio).

Thus, taxation should apply to net income after deduction of the amount of IMI borne, that is, the IMI paid should be deducted from the income and only then should the 20% rate be applied.

Therefore, in this respect, the claimant's claims should be upheld.

However, the AT argues that part of the expenses indicated by the Claimant relate to prior years and should therefore not be deducted from the income.

The matter in question concerns the principle of specialization of periods provided for in Article 18.º of the CIRC:

"1 — Income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are earned or borne, independently of their receipt or payment, in accordance with the economic periodization regime."

Revenues and costs must be attributed to the period to which they relate, independently of their receipt or payment, which means that in a given year, the revenues realized in that year must be accounted for, and also the costs realized therein. In this regard Cf. Decision of the Supreme Administrative Court of 09.05.2012, case n.º 0269/12. "Credits and debits are accounted for and not receipts and payments." In Notes on Corporate Income Tax, Rui Morais, Almedina, 2007, page 64.

However, the amount of IMI paid in 2012 relating to prior years (2010) should always have been deducted from the claimant's income. The Tax Authority suffered no prejudice from the taxpayer's error, because that expense should always have been deducted in prior years.

The person primarily prejudiced was the claimant itself, which could have deducted the amount of IMI in prior years and ended up only doing so in 2012. Thus, the principle of justice requires that such expenses now be taken into account. The principle of justice derived from Article 266.º, n.º 2 of the CRP and Article 55.º of the LGT applies even in cases where the Tax Authority acts under binding powers. In this regard Cf. Decision of the Supreme Administrative Court of 19.11.2008, case n.º 325/08:

"In weighing the values at stake (on the one hand the principle of specialization of periods, which is an arbitrarily legislated rule of temporal separation, for tax purposes, of a tax fact of prolonged duration and, on the other hand, the principle of justice, which reflects one of the core concerns of a State based on the rule of law), it is manifest that, in a situation of incompatibility, the latter principle should prevail."

The principle of specialization of periods should be tempered by reference to the principle of justice, which constitutes established jurisprudence of the Supreme Administrative Court. Cf.:

Decision of the Supreme Administrative Court of 25.06.2009, case n.º 291/08

"I - In matters of costs, the principle of specialization of periods – Article 18.º of the CIRC – is reflected in the consideration, as a cost of a particular period, of charges that are economically attributable to it.

II - This principle is not questioned by the attribution, to a period, of costs relating to prior periods, provided that it does not result from voluntary and intentional omissions, aimed at effecting a transfer of results between periods.

III - This postulate is required by the principle of justice, enshrined in Articles 266.º, n.º 2, of the CRP, and 50.º of the LGT."

Decision of the Supreme Administrative Court of 02.04.2008, case n.º 807/07

"I - The principle of specialization of periods seeks to tax the wealth generated in each period and therefore its respective revenues and costs are accounted for as they are earned and borne, and not as their receipt or payment occurs.

II - However, this principle should tend to be conformed to and interpreted in accordance with the principle of justice, with constitutional and legal foundation (Articles 266.º, n.º 2 of the CRP and 55.º of the LGT), so as to permit the attribution to a period of costs relating to prior periods, provided that it does not result from voluntary and intentional omissions, aimed at effecting a transfer of results between periods."

Quoting Dr. António Moura Portugal: "Thus, the principle of specialization of periods cannot be seen as something absolute, and should not, in particular, prevail over the fundamental principle of taxation of real income." In The Deductibility of Costs in Portuguese Tax Jurisprudence, Coimbra Editora, 2004, page 187.

Furthermore, the Tax Authority does not allege that the late deduction of IMI has as its purpose the manipulation of results, and therefore it does not appear to us to be inadmissible to deduct the IMI relating to prior periods from the income to be taxed. In this regard Cf. Decision of the Supreme Administrative Court of 09/05/2012, case n.º 269/12:

"VI - There is also no violation of the principle of specialization of periods, given that in none of the situations was there imputation of revenues or charges that did not occur in their respective periods, and it does not appear from the evidence, nor from the inspection report, nor is it alleged by the State Treasury, that the operations performed had as their aim the manipulation of results, so as to permit the deferment in time of profits, the fractionalization of profits or the concentration of profit in a period so as to be able to effect larger deductions (e.g., by means of loss carryforwards or by means of tax incentives)."

In this manner, as it constitutes a flagrant injustice, the provisions of Articles 266.º, n.º 2 and 55.º of the LGT (principle of justice) must prevail over the provisions of Article 18.º of the CIRC (specialization of periods)[1].

In view of the foregoing, the impugned self-assessment must be annulled and from the value of the income for 2012 should be deducted the IMI paid, in the total amount of €218,729.12.

Compensatory Interest

Pursuant to n.º 1 of Article 43.º of the LGT, "Compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services from which resulted payment of the tax debt in an amount exceeding that legally due."

The self-assessment was not made by the Tax Authority, and therefore that error cannot be attributed to it, by it from the date of its delivery.

However, it is unquestionable that, following the presentation of the administrative complaint, the Tax Authority possessed all the factual and legal elements to restore the legality of the taxation. The Tax Authority did nothing, and the complaint was rejected by operation of law on 30.08.2015 (Article 57.º, n.º 5 of the LGT).

It is the responsibility of the Tax Authority to restore legality (Article 55.º of the LGT), and it cannot be indifferent to the maintenance of an illegal act. Moreover, the Tax Authority has the duty to review tax acts if it detects a situation of illegal collection of taxes (Article 266.º, n.º 2 of the C.R.P. and 55.º of the LGT), within the temporal limits of Article 78.º of the LGT.

Following rejection of the complaint, the error becomes attributable to the Tax Authority. In this regard Cf. Decision of the Administrative Court of Appeal of Lisbon of 16.01.2014, case n.º 05306/12:

"3) Where there is excess in the delimitation of the tax base, from the moment at which the Tax Authority, being in possession of all necessary elements, could have corrected the error, and still did not proceed to do so, that is, from the date of the exhaustion of the obligation to decide the administrative complaint, the error determining illegal collection of the tax in question is attributable to the services."

In the same vein, the Venerable Justice Counsellor Jorge Lopes de Sousa asserts the following: "(…) the error will become attributable to the Tax Administration after any rejection of the claim presented by the taxpayer, that is, from the moment when, for the first time, the Tax Administration takes a position on the taxpayer's situation, having at its disposal the elements necessary to issue a decision with correct assumptions." In CPPT Annotated, Vol. I, Áreas Editora, 2011, page 537.

Therefore, the claim for compensatory interest is upheld, and should be calculated, at the rate determined in accordance with Article 43.º, n.º 4 of the LGT, from 30.08.2015 until restitution of the tax paid in excess.

VI. DECISION

In view of all the foregoing, it is decided:

a) To reject the raised exceptions of incompetence of the Arbitral Tribunal and lack of passive standing of the Respondent;

b) To uphold, on grounds of violation of law, the partial challenge to the legality of the self-assessment of Corporate Income Tax effected through the withholding tax declaration IRS/IRC and IS n.º…, relating to the tax year 2012, allowing the deduction from income of the sum of €218,729.12, annulling, in this respect, the self-assessment;

c) To uphold the claim for payment of compensatory interest, at the legal rate, accruing from 30.08.2015 until the moment of restitution of the amounts improperly assessed and paid.

The value of the proceedings is fixed at €43,745.83 in accordance with Article 97.º-A, n.º 1, subparagraph a), of the CPPT, applicable by virtue of subparagraph a) of n.º 1 of Article 29.º of the RJAT and n.º 2 of Article 3.º of the Regulation of Costs in Tax Arbitration Proceedings.

The arbitration fee is fixed at €2,142.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid entirely by the Respondent, given that the claim was upheld in full, in accordance with Articles 12.º, n.º 2, and 22.º, n.º 4, both of the RJAT, and Article 4.º, n.º 4, of the said Regulation.

Let notice be given.

Lisbon, 18 May 2016

André Festas da Silva

[1] In this regard Cf. Leite de Campos, Benjamim Rodrigues and Jorge Lopes de Sousa, LGT Annotated, 4th Ed., 2012, Encontro da Escrita, page 453

Frequently Asked Questions

Automatically Created

How are real estate investment funds taxed under Article 22(6)(a) of the Portuguese Tax Benefits Statute (EBF)?
Under Article 22(6)(a) of the Portuguese Tax Benefits Statute (EBF), real estate investment funds are subject to IRC (Corporate Income Tax) on their income, but are entitled to deduct certain expenses including Municipal Property Tax (IMI) charges when calculating their taxable income. The EBF establishes a special tax regime for these funds that allows the deduction of IMI expenses from the tax base, thereby reducing the IRC liability. This treatment reflects the recognition that IMI represents a cost directly associated with holding real estate assets that generate the fund's taxable income.
Can IMI (municipal property tax) charges be deducted when calculating IRC self-assessment for real estate investment funds?
Yes, IMI (Municipal Property Tax) charges can be deducted when calculating IRC self-assessment for real estate investment funds under Article 22(6)(a) of the EBF. The failure to deduct these allowable IMI expenses results in an overpayment of IRC. However, the Tax Authority in this case contested which IMI payments qualify, arguing that only IMI relating to the relevant tax year (2011 for the 2012 assessment) should be deducted, excluding IMI payments for prior years even if those payments were made during 2012. The proper application of this deduction is essential to ensuring the fund pays only the legally required amount of IRC.
What is the procedure for challenging an IRC self-assessment through CAAD tax arbitration in Portugal?
To challenge an IRC self-assessment through CAAD tax arbitration in Portugal, a claimant must file a request for constitution of an arbitral tribunal under Decree-Law 10/2011. The request can be submitted electronically through CAAD's platform. Key procedural aspects include: (1) the claimant may appoint an arbitrator or have one appointed by CAAD's Deontological Council; (2) the Tax Authority is notified and files a response; (3) preliminary exceptions (such as standing, timeliness, or competence) are addressed first; (4) if the case proceeds, parties submit legal arguments; (5) a hearing may be held unless waived. Critical timing issues include whether the filing qualifies as challenging a self-assessment act (two-year deadline under Article 131 CPPT) or another type of act (120-day deadline), as disputed in this case.
What are the conditions for obtaining a refund of excess IRC paid by real estate investment funds under the EBF regime?
To obtain a refund of excess IRC paid by real estate investment funds under the EBF regime, several conditions must be met: (1) demonstrate that IRC was self-assessed and paid in excess of the legally due amount; (2) identify the specific legal basis for the overpayment, such as failure to apply allowable deductions under Article 22(6)(a) EBF; (3) file a timely administrative complaint or arbitration request within applicable deadlines (two years under Article 131(1) CPPT for self-assessment acts); (4) have proper standing to bring the claim, which may be exercised by the fund's management entity acting as legal representative; and (5) overcome any procedural defenses raised by the Tax Authority. The refund claim should specify the exact amount overpaid and request legal interest from the date the excess payment should have been refunded.
Are compensatory interest (juros indemnizatórios) available when an IRC self-assessment is declared unlawful by a CAAD arbitral tribunal?
Compensatory interest (juros indemnizatórios) may be available when an IRC self-assessment is declared unlawful by a CAAD arbitral tribunal, but this is subject to important limitations. Under Portuguese tax law, compensatory interest compensates taxpayers for the State's unlawful retention of amounts overpaid. However, the Tax Authority in this case argued that no compensatory interest is due when the error in the tax declaration is attributable to the taxpayer itself rather than to the Tax Authority. This defense raises the question of whether a taxpayer who makes a mistake in calculating its own self-assessment (even regarding complex legal provisions like Article 22(6)(a) EBF) can recover interest on the overpayment, or whether such interest is limited to cases where the Tax Authority caused the overpayment. The resolution of this issue determines whether the claimant receives only principal reimbursement or also interest from the payment date until full refund.