Summary
Full Decision
ARBITRAL AWARD[1]
REPORT
1.1. The Claimant presented on 20.10.2014 a request for constitution of the collective arbitral tribunal in tax matters (CAT), in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters), hereinafter referred to only as RJAT.
1.2. The request was presented by a lawyer whose power of attorney was attached.
A – THE REQUEST
1.3. The Claimant petitions: (i) a declaration of illegality of the additional assessment act for Municipal Tax on Onerous Property Transfers (hereinafter "IMT") for 2009 (collection document No. ....) in the amount of €54,873.66 (fifty-four thousand eight hundred and seventy-three euros and sixty-six cents) and of the additional assessment act for Stamp Tax (hereinafter "IS"), also for 2009 (collection document No. ...), in the amount of €7,316.49 (seven thousand three hundred and sixteen euros and forty-nine cents), relating to the onerous acquisition of the right of full property ownership of the property then identified as "U-...-H – Municipality of ... – Parish of ... – Location: Street 1 No. .../.... 5th and 6th floors, intended for Housing" and (ii) recognition of the right to compensatory interest for the improper payment of tax obligations.
1.4. The cumulation of requests effected in the present arbitration request, in honour of the principle of procedural efficiency, is justified since the contested assessment acts are based on the same factual basis and insofar as Article 3 of RJAT, by expressly admitting the possibility of "cumulation of requests even if relating to different acts", accommodates, without hermeneutical abuse, the examination of a request that stems, necessarily, from the judgment that the collective arbitral tribunal sustains regarding the validity of the assessments put in question.
B – THE COLLECTIVE ARBITRAL TRIBUNAL (CAT)
1.5. The request for arbitral pronouncement was accepted by the President of CAAD and immediately notified to AT on 21.10.2014.
1.6. By the Deontological Council of CAAD, the signatories of this decision were appointed as arbitrators, and the parties were notified thereof on 05.12.2014.
1.7. The Collective Arbitral Tribunal (CAT) was duly constituted on 23-12-2014.
1.8. All these acts are documented in the communication of constitution of the CAT dated 23.12.2014, which is hereby reproduced.
1.9. On 26.12.2014, the highest director of the Respondent's service was notified to, within a period of 30 days, attach to the case file the administrative file and, if so wished, submit a reply and request additional evidence.
1.10. On 02.02.2015, the Respondent submitted its reply.
1.11. On 06.03.2015, the meeting of parties referred to in Article 18 of RJAT was held, preceded by the examination of the witnesses listed by the Claimant in the final part of the request for pronouncement and by the Respondent in the final part of the reply. Witness A... gave evidence; the Claimant dispensed with the examination of witness B... and the Respondent dispensed with the examination of witnesses C... and D.... The parties made oral submissions maintaining the positions assumed in the request and in the reply, respectively.
1.12. The acts referred to in the preceding section are recorded in the respective minutes, which are hereby reproduced.
C – PROCEDURAL REQUIREMENTS
1.13. Legitimacy, capacity and representation – the parties have legal personality and capacity, are legitimate and are represented.
1.14. Contradiction – AT was notified in accordance with section 1.8. All orders issued in the proceedings, as well as the content of all documents attached were notified to the respective counterparty.
1.15. Dilatory exceptions – the proceedings do not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the period prescribed in paragraph a) of Article 10(1) of RJAT.
D – SUMMARY OF THE CLAIMANT'S POSITION
1.16. The Claimant alleges that it acquired the autonomous fraction designated by the letter ..., on the ...th and ....th floors of the building located on Street 1 of the neighbourhood ..., No. ... and ..., in the ..., registered under the matrix article ...-H of the parish of ... (hereinafter the "Property"), for €1,225,000.00 (one million two hundred and twenty-five thousand euros), corresponding to the price of the sale and purchase effected by judicial transaction homologated by sentence handed down within the framework of precautionary procedure No. .../... TVPRT-A, which took place in the 3rd Division of the Civil Court of Porto – 3rd Section, and became final on 19.08.2009.
1.17. It happens that the Claimant decided to undertake various improvements to the Property totalling the amount of €914,561.00 (nine hundred and fourteen thousand five hundred and sixty-one euros), concerning "extra works", and the Respondent understood that this amount, added to the declared acquisition value, represents "the financial effort borne" by the Claimant, thus making it "part of the acquisition price of the property".
1.18. In accordance with this understanding, the Respondent carried out the contested additional assessments of IMT and IS.
1.19. The Claimant argues that the Respondent's decision "is based on a set of misunderstandings, mere suppositions and lack of apprehension of the effective reality", basing its request on the erroneous qualification of the taxable fact.
1.20. Article 12(1) of the Municipal Tax Code on Onerous Property Transfers (hereinafter "CIMT") provides that the municipal tax on onerous property transactions "(…) shall be levied on the value stated in the act or contract or on the property tax value of the real estate, whichever is greater."
1.21. For its part, Article 1(1) of the Stamp Tax Code (hereinafter "CIS"), in force at the time to which the facts relate, provided that stamp tax shall be levied "(…) on all acts, contracts, documents, titles, papers and other facts provided for in the General Table, including gratuitous transfers of goods" and in Article 9(4) of CIS it is stated that "to the taxation of legal transactions concerning real estate, provided for in the general table, the rules for determination of the taxable matter of the Municipal Tax Code on Onerous Property Transfers apply".
1.22. Now, Article 12(5) of CIMT clarifies what should be understood by "value stated in the act or contract": it is "the amount in money paid as the price by the acquirer".
1.23. Consequently, the tax base for purposes of IMT and IS is constituted by the greater of the following values: that stated in the act or contract or the property tax value.
1.24. In the year 2009, the Claimant concluded with the Real Estate Investment Company E... S.A. (hereinafter "E..., S.A.") the purchase and sale contract by which it acquired the Property at the price of €1,225,000.00, an amount which it paid to the said selling company, and it was further agreed that the fractions which are the subject of the contract would be unified, to constitute a single fraction, "without any charge arising for the acquirer" (see clause 6 of the contract promise to buy and sell).
1.25. Concurrently, the Claimant entered into a contract of empreitada (works contract) with the company F... – Constructions, Ltd. (hereinafter "F...") for the execution of works on the Property (summarily described in the table in Article 49 of the request for arbitral pronouncement), for a global amount of €914,561.00, and this issued the corresponding invoices and the Claimant proceeded to pay them, contrary to what the Respondent concludes, who states that the Claimant paid these works to the "selling company".
1.26. Thus, the Claimant understands that there are two distinct contractual relationships, autonomous and different, one with E..., S.A., that of the purchase and sale of the Property, and another with F..., that of the works contract concerning the improvements made to it at the Claimant's request.
1.27. Moreover, the distinction, autonomy and diversity of both contractual relationships are reflected, at the tax level, in the fact that the Claimant bore, with respect to the property sale price, IMT (at the rate of 6%) and, with regard to the works contract for the improvements, VAT (at the rate of 20%), being therefore, from a financial point of view, much more advantageous for the Claimant to see the value that it paid for the improvements taxed at a rate of 6%, which would occur if the consideration for the works contract were considered as an integral part of the acquisition price of the Property.
1.28. Furthermore, for the Claimant, it makes no sense to consider the susceptibility of the amount it bore with the VAT relating to the works contract for the improvements to be integrated into the sale price of the Property, since that amount – the VAT – does not enter into the seller's/service provider's patrimony.
1.29. The Claimant further understands that IMT aims to tax the financial capacity revealed by the onerous acquisition of real estate at the moment when that acquisition takes place, and is therefore irrelevant for these purposes any subsequent expenditures relating to the use or enjoyment of real estate, namely those resulting from the execution of works contracts for the carrying out of improvements, especially those contracted with entities other than the respective alienators. Thus, the Respondent's conclusion that the amount paid by the Claimant to F... for the improvements made to the Property forms part of the price at which it acquired the Property, apart from constituting a clear violation of the principle of financial capacity, is based on an inadmissible "concurrence of rules", since the same taxable fact (the sale and purchase of a property) cannot simultaneously fall within the scope of two tax rules, both in IMT and in VAT, in view of what is provided for in Article 9(30) of CIVA.
1.30. The Claimant further contends that the Respondent violated Article 58 of the General Tax Law, insofar as it was required to perform all necessary diligences for the discovery of the material truth, and it is certain that the Respondent undertook no diligences in order to ascertain whether the Claimant had contracted for the execution of works on the Property, what the nature of those works was and what type of materials were used in them, conduct which, being unlawful, vitiates the validity of the contested tax acts.
E – SUMMARY OF THE RESPONDENT'S POSITION
1.31. The Respondent understands that the real financial effort borne by the Claimant in the acquisition of the Property was €2,139,561.00 (two million one hundred and thirty-nine thousand five hundred and sixty-one euros), corresponding to the sum, on one hand, of the declared acquisition value of the Property, €1,225,000.00 (one million two hundred and twenty-five thousand euros), and, on the other, of the cost borne with the extra works, €914,561.00 (nine hundred and fourteen thousand five hundred and sixty-one euros).
1.32. The amount of €914,561.00 (nine hundred and fourteen thousand five hundred and sixty-one euros) is the total of the expenses, validated by the court, set out in the "Final Statement of Extra Works", which is signed by the Claimant, by E..., S.A. and by F..., which integrates the real financial effort borne by the Claimant in the acquisition of the Property, "being part thereof of the acquisition value of the property, in accordance with Article 12(1) and (5) of CIMT".
1.33. In Article 9 of the Contract Promise to Buy and Sell executed between the Claimant and E..., S.A. having as its object the property (hereinafter the "Contract Promise"), provision was made for the possibility of the Claimant requesting E..., S.A. to apply materials and equipment different from those contained in the specifications document, with the latter to present a budget, and the Claimant, if it did not accept the amounts presented, being able to take responsibility for the direct supply of such equipment and materials, the works relating to their application being subsequently agreed at market prices.
1.34. In Article 10 of the Contract Promise, the Parties agreed a scheme of "account settlement", taking into account the balance between the value of the materials and equipment deducted and added.
1.35. Thus, while it is true that the works of unification of the two fractions which gave rise to fraction H (which corresponds to the property), in accordance with Article 6 of the Contract Promise, would incur no cost for the Claimant, any other works carried out on the property would have to be borne by the Claimant, the Claimant accepting for the rest E..., S.A. to undertake them, the parties subsequently ascertaining the balance necessary for the "account settlement".
1.36. Furthermore, the judicial transaction involved both E..., S.A. and F..., both being obliged to comply with its terms, and it expressly refers to the fact that "all sums up to the present date (19-8-2009) delivered by the Claimant/Plaintiff [now the Claimant] to the Respondent/Defendant [E..., S.A.] shall be taken as payments for extra works and shall be divided between the Respondent/Defendant [E..., S.A.] and G... [...] Constructions, Ltd. [F...], in such manner as they shall agree, neither of those companies having anything further to demand from the Claimant/Plaintiff [now the Claimant] on this or any other account (...)".
1.37. Moreover, in the Respondent's view, one cannot ignore the existence of a "relationship/dependence between the two companies, evidenced by the fact that Mr. Engineer H... is simultaneously Administrator/Manager of the Selling Company of the property (...) and of company F... – Constructions, Ltd., as well as by the fact that the works for the construction of the property were awarded to the second company by the selling company".
1.38. The relationship between E..., S.A. and F... is all the more obvious since it is certain that Mr. Engineer H... intervened in the judicial transaction as representative of both entities.
1.39. Even if E..., S.A. and F... are distinct entities, as they are, albeit with a common administrator/manager, the fact remains that the works invoiced by the latter to the Claimant and paid by it "form part of the complete work which the Claimant acquired, and are the same identified in the contract promise to buy and sell, in the judicial transaction and in the Final Reception Reports", thus being an integral part of the purchase and sale transaction".
1.40. The Respondent also rejects the matter raised by the Claimant, that, because VAT relating to the "extra" works was paid, those works do not form part of the overall price of the property, since when one acquires a fully built house, on which VAT was also paid, that value is not deducted from the overall value of the property.
1.41. Article 12(1) of CIMT prescribes that "IMT shall be levied on the value stated in the act or contract or on the property tax value of the real estate, whichever is greater", with Article 12(5) of the same provision clarifying that the following are considered, "in particular, value stated in the act or contract, singly or cumulatively", "the amount in money paid as the price by the acquirer" [paragraph a)] and, "in general, any charges to which the buyer is legally or contractually obliged" [paragraph h)]. Now, the Claimant paid, through the judicial transaction, the amount of €2,139,561.00 (two million one hundred and thirty-nine thousand five hundred and sixty-one euros), an amount which, for this reason, constitutes the total price of the property which is the object of the judicial transaction.
1.42. The Respondent also rejects the suggestion that the principle of material truth has been violated, since the case file makes clear the contrary conclusion, being evident that the tax and customs administration services always acted in close collaboration with the Claimant, sometimes requesting elements from it, sometimes inviting it to exercise the right of prior hearing.
1.43. Finally, the Respondent refuses the alleged violation of the principle of financial capacity, in that its understanding implies the incidence of the tax on the value which the Claimant actually incurred with the acquisition of the Property, in accordance with the judicial transaction.
2. GROUNDS OF DECISION: MATTERS OF FACT
2.1. PROVEN FACTS
In each section, the documents or elements that support the CAT's decision are indicated as grounds.
2.1.1. By a judgment homologating a judicial transaction, which became final on 19 August 2009, the claimant acquired by purchase from G... Constructions, Ltd., the autonomous fraction designated by the letter "H" (housing unit of type T5 duplex, on the 5th and 6th floors, with entrance at No. 26 and 8 parking spaces and 2 storage areas) of the property called "I...", located on Street ... of ..., Nos. ... and ..., parish of ..., municipality of ..., then provisionally registered in the cadastre under article ...-P (although it was recorded in the respective Property Registry as registered under article ...-P);
2.1.2. The agreed price was 1,225,000 euros which the claimant undertook to pay in the following manner: 1,000,000 euros within 60 days (counted from the date of the transaction) against the delivery of proof of discharge of mortgages affecting the said fraction and waiver of the seller's retention of title until payment of the mentioned amount of 1,000,000 euros; the remaining 225,000 euros would be paid within a maximum of 180 days (125,000 euros) and 360 days (100,000 euros) from 29-8-2009;
2.1.3. The claimant, the seller and the commercial company G... Constructions, Ltd. further agreed that all sums up to the present date (19-8-2009) delivered by the claimant/plaintiff to the seller "(...) shall be taken as payments for extra works and shall be divided between the respondent/defendant (Real Estate Investment Company E..., S.A.) and G... Constructions, Ltd. in such manner as they shall agree, neither of those companies having anything further to demand from the claimant/plaintiff on this or any other account (...)" [See Judicial transaction homologated by judgment handed down in Precautionary Procedure No. .../08....TVPRT-A, which took place in the 3rd Division of the Civil Court of Porto – 3rd Section, which became final on 19 August 2009 - documents of pages 9 et seq. and page 27 – numbered in manuscript as 32 – of the administrative file attached to the case with the Respondent's Reply].
2.1.4. The property tax value of the said fraction was, on the date of the said judicial transaction (2009), less than €1,225,000.00 (one million two hundred and twenty-five thousand euros) – joint position of the parties.
2.1.5. On 31.08.2009, the Claimant paid IMT in the amount of €73,500.00 (seventy-three thousand five hundred euros) for the acquisition of the fraction, declaring for this purpose the "total value of the act or contract" of €1,225,000.00 (one million two hundred and twenty-five thousand euros) - Document of page 53 – numbered in manuscript as 58 – of the administrative file - PA1 - attached to the case with the Respondent's Reply.
2.1.6. Also on 31.08.2009, the Claimant paid IS (Stamp Tax) in the amount of €9,800.00 (nine thousand eight hundred euros) for the acquisition of the said fraction, declaring for this purpose the "total value of the act or contract" of €1,225,000.00 (one million two hundred and twenty-five thousand euros) – Document of page 54 – numbered in manuscript as 59 – of the administrative file attached to the case with the Respondent's Reply.
2.1.7. H... is administrator of E..., S.A. and manager of F... - Document of pages 9 et seq. of the administrative file – PA1 - attached to the case with the Respondent's Reply.
2.1.8. In the judicial transaction mentioned in 2.1.1., H... intervenes as representative of E..., S.A. and as representative of F... - Document of pages 9 et seq. of the administrative file attached to the case with the Respondent's Reply.
2.1.9. The Claimant was subject to an internal inspection action accredited by OI ..., aimed at IMT and IS for the year 2009 – Pages 1 and 2 of the PA section submitted by AT attached to the Reply with the designation of ... with 45 pages.
2.1.10. As a result of the inspection action referred to in 2.1.10., the Claimant by means of a statement of 13.12.2013 proceeded to the additional assessment of IMT (collection document No. ...) in the amount of €54,873.66 (fifty-four thousand eight hundred and seventy-three euros and sixty-six cents) and IS (collection document No. ...), in the amount of €7,316.49 (seven thousand three hundred and sixteen euros and forty-nine cents) – Documents Nos. 1 and 2 attached to the request for pronouncement.
2.1.11. The Claimant, on the same day 13.12.2013, proceeded to pay the assessments referred to above - Documents Nos. 1 and 2 attached to the request for pronouncement.
2.1.12. E... S.A., in accordance with clause 6 of the Contract Promise to buy and sell executed with the claimant having as its object the said fraction, had undertaken towards the Claimant the obligation to "proceed with alterations to the architecture project tending towards the joining of the two fractions which are the subject of the sale", without any cost arising for the Claimant from those alterations – See contract of pages 79 to 85 of the PA1 submitted by AT with the Reply.
2.1.13. The "Final Statement of Extra Works", dated 19.10.2009, reveals that the value of the works with VAT is €914,561.00 (nine hundred and fourteen thousand five hundred and sixty-one euros), being signed by the Claimant under the expression "I accept" and by the Management of F..., with the Administration of E... intervening under the following expression: "I acknowledge" – See Document of page 42 – numbered in manuscript as 47 – of the PA1 submitted by AT with the Reply and 17th sheet of section of the PA submitted by AT with the Reply under the heading ... with 45 pages.
2.1.14. Also on 19.10.2009 a Final Reception Report of the extra works executed by the latter on the property was signed by the Claimant and F... – See Document of page numbered in manuscript as 52 of the administrative file attached to the case with the Respondent's Reply – PA1 and 18th sheet of section of the PA submitted by AT with the Reply under the heading ... with 45 pages.
2.1.15. On 19.10.2009 a Final Reception Report of the works executed on the property was signed by the Claimant and G..., S.A. - Document of page numbered in manuscript as 53 of the administrative file – PA 1 - attached to the case with the Respondent's Reply.
2.1.16. The Claimant and F... Constructions Ltd. executed a works contract, on a date not specifically determined, of whose content only the execution of the works referred to in 2.1.14 is known, works which were executed by this company in a period of time not specifically ascertained – agreement of the parties as per Articles 46 to 50 of the request for pronouncement and E.2 of Article 6 of the Respondent's Reply.
2.1.17. G..., S.A. is a real estate development company (and not a construction company) – joint and concordant position of the parties.
2.1.18. F... was the construction company of the building in which the property is integrated - joint and concordant position of the parties.
2.1.19. The works executed by F... on the Property are documented by invoices No. 39/2009, of 15/12/2009, No. 40/2009, of 21/12/2009 and No. 5/2010, of 17/02/2010, for a total of €914,561.00, including VAT at 20% – According to documents Nos. 3 to 5 attached to the request for arbitral pronouncement and also by invoice No. 13/2010, of 02/07/2010 – According to document of page 51 – numbered in manuscript as 56 – of the administrative file attached to the case with the Respondent's Reply - PA1, all issued in the name of the Claimant.
2.1.20. All invoices issued by F... in the name of the Claimant are dated after the date of the judicial transaction referred to in 2.1.1. – See documents of pages 9 et seq. and page 27 – numbered in manuscript as 32 – of the administrative file attached to the case with the Respondent's Reply; as per documents Nos. 3 to 5 attached to the request for arbitral pronouncement and as per document of page 51 – numbered in manuscript as 56 – of the administrative file attached to the case with the Respondent's Reply - PA1.
2.1.21. The Claimant paid F... the invoices referred to in 2.1.20.
2.2. Unproven Facts
It was not proven:
- that the amount of €914,561.00 paid by the claimant to F... was part of the cost or sale price of the fraction identified in 2.1.1., based on the proven facts mentioned above.
2.3 GROUNDS FOR THE FACTS
Beyond what has already been mentioned, the Court found that there were no probative elements demonstrating that the real and effective price of the fraction acquired had been greater than what was declared by the parties in the said judicial transaction and homologated by judgment, namely €1,225,000.
It is true that there is reference to other payments by the claimant.
However, such payments had as their stated and uncontested cause by AT, "extra works" carried out on the fraction in question (improvements) at the claimant's expense, invoiced and paid to a third party entity (contractor), the commercial company F... – Constructions, Ltd., at a date subsequent to the transfer of ownership of that fraction to the claimant.
Furthermore, it would not be understandable to incorporate into the purchase and sale price an amount paid to another entity arising from a works contract, and for this purpose it is irrelevant that both entities had the same person as part of their Management body.
GROUNDS OF DECISION: MATTERS OF LAW – QUESTIONS FOR THE CAT TO RESOLVE
3.1.1. QUESTIONS TO BE DECIDED
It follows from what has been stated above that the questions to be decided are, fundamentally, the following:
a) Whether the amount of €914,561.00 (nine hundred and fourteen thousand five hundred and sixty-one euros) paid by the Claimant to F... for the extra works carried out by the latter on the Property should be considered as an integral part of the "value stated in the act or contract" for purposes of taxation in respect of onerous property transfers; and
b) Whether, if the request for declaration of illegality is upheld and the consequent annulment of the contested assessments, the Claimant, within the framework of the present arbitration proceedings, may obtain a judgment condemning the Respondent to pay compensatory interest relating to the amounts by it delivered to satisfy the tax obligations demanded by the latter.
Let us then proceed.
Article 12(1) of CIMT provides that the municipal tax on onerous property transfers "(…) shall be levied on the value stated in the act or contract or on the property tax value of the real estate, whichever is greater."
For its part, Article 1(1) of CIS, in force at the time to which the facts relate, provided that stamp tax shall be levied "(…) on all acts, contracts, documents, titles, papers and other facts provided for in the General Table, including gratuitous transfers of goods" and in Article 9(4) of CIS it is stated that "to the taxation of legal transactions concerning real estate, provided for in the general table, the rules for determination of the taxable matter of the Municipal Tax Code on Onerous Property Transfers apply".
With regard to what should be understood by "value stated in the act or contract", Article 12(5) of CIMT clarifies: it is "the amount in money paid as the price by the acquirer".
On the other hand, the tax base for purposes of IMT and IS is constituted by the greater of the following values: the one stated in the act or contract or the property tax value (See also cited Article 12(1) of CIMT).
A transaction is the contract by which the parties (...) end a dispute by means of reciprocal concessions which may involve the constitution, modification or extinction of rights other than the disputed right (See Article 1248 of the Civil Code).
The transaction set out in the proceedings which puts an end to the dispute between the parties constitutes a procedural contract, embodying a legal transaction actually executed between the litigants in the action (and may even include third parties not parties to the proceedings) corresponding to that which the intervening parties wished and in accordance with the content of the statement made (See Article 290 of CPC).
Once the transaction is executed and judicially homologated, the effects of any previous contracts of the parties regarding the subject matter of the dispute and of the transaction are exhausted ipso facto, in particular those set out in a contract promise.
In truth, the object of the contract promise, understood as such the "quid" upon which the contractual regulation is to fall, that is, its content, is the definitive contract, reason for which, once this is executed (or, in case of dispute, the transaction is executed and/or a judgment is pronounced), it has exhausted its object.[2]
In other words: the contract promise has its validity and relevant effects until the execution of the promised contract or the execution of a contract (transaction) which renders it irrelevant or useless.
Just as would occur if the promised contract had been executed, the terms of the contract promise ceased to be relevant when the promisees, buyer and seller, ended, by transaction homologated by judgment, the judicial dispute arising from alleged breach of the contract promise, from which the transfer of ownership of the subject matter of the contract results at a specific and declared price, with the fixing of the conditions of that payment by the acquirer.
That price was, in the case sub judice, literally and objectively declared: €1,225,000.
And it is proven that the PTV of the fraction which is the subject of sale and of taxation is lower than the value of sale declared by the parties in the transaction.
Although it has sought to demonstrate that to that value, so to speak, allegedly "formal" price should be added the value of the improvements or contractual modifications of the fraction, the truth is that what is proven is the sale at the aforesaid value fixed in the judicial transaction (€1,225,000.00) ["(…) the price of the purchase and sale effected here and admitted is definitively fixed at 1,225,000€ (…)" – See proven facts 2.1.1, 2.1.2 and 2.1.3].
It is true that in the aforesaid transaction there are references to payments made by the claimant to the seller of the fraction ["(…) all sums up to the present date delivered by the Claimant/Plaintiff to the Respondent/Defendant shall be taken as payments for extra works and shall be divided between Respondent/Defendant and F... (apparently referring to "G...") Constructions, Ltd., in such manner as they shall agree, neither of those companies having anything further to demand from the Claimant/Plaintiff on this or any other account (...)"].
The expression "extra works" necessarily implies the existence of a works contract.
The nature of a works contract lies in the obligation assumed by the contractor to undertake – the provision of work – the execution of a work, in accordance with a plan and with characteristics previously defined in the content of the contract agreed with the owner of the work, in which the latter assumes the obligation to pay the respective price (Article 1207 of the Civil Code).
Without prejudice to the possibility of variation of the manner of calculation of the price – global or lump-sum, by measure, by article or even by time – the works contract is distinguished from other exchange contracts by the nature of the non-monetary provision to which one of the parties, the contractor, is bound: the execution of a work.
The price represents the remuneration due to the contractor for the execution of the work and must be fixed in money (Article 883, ex vi Article 1211 of the Civil Code), no relationship of proportionality between the remuneration of the contractor and the quality or quantity of his provision being required.
The works contract is characterized by being bilateral and synallagmatic, in that it gives rise to reciprocal obligations, the parties being simultaneously in the situation of debtors and creditors and coexisting provisions and counter-provisions. In one pan of the syallagma is the execution and delivery of the work and in the other the respective counter-provision, namely the payment of the agreed price.
A works contract agreed at a "global price" only tends to assume a rigid and fixed nature as regards this element of the works contract.
Even if the parties subject the execution of a work to a certain payment regime, it is lawful that they do not wish to forgo proceeding with necessary and justified adjustments, which the continued execution almost always involves – these are or may be what are called extra works (emphasis added).
A work starts from a design-conception which, in its concretization, requires, as a rule, a budget proposal, in which certain quantities of work and materials are specified and individualized respectively; however, the development of the execution may trigger proposals for alteration to the initial design, which were not included in the budget. It would not be conducive to commutative justice and contractual good faith that the parties, because they accepted a form or manner of payment of the price, were deprived of the judicious adaptation and conforming of the content of the provision to the reality created by the alterations and modifications which the contractual execution dictated.
Descending, with more detail, to the case sub judice and bearing in mind the aforesaid factual framework:
Beyond the payment of the declared price - €1,225,000.00 – the Claimant, at the date of the transaction and transfer of ownership of the fraction, would have delivered other amounts (not specified in the contract/transaction) to the seller (Real Estate Investment Company G..., S.A.) for payment of extra works and to be divided between that seller and the contractor company, F... Constructions, Ltd. (also a party to the transaction) in such manner as the latter and the seller understood (see clause 4 of the aforesaid transaction).
Subsequently, on 15-12-2009 (after the aforesaid transaction), the contractor F... issued in favour of the buyer and now claimant and which the latter paid, various invoices, for a total, with VAT included, of €914,561.00 (€264,561.00, €425,000.00, €125,000.00 and €100,000.00 [See proven facts (2.1.20 and 2.1.21) and docs. 3 to 5 with the request for arbitral pronouncement and not contested].
It would be incumbent upon AT to demonstrate – and this was not achieved – that these payments which the parties declared in the contract/transaction relating to extra works were nothing more than supplements to the declared price value and to be included for purposes of taxation in IMT and IS.
On the other hand, it cannot be disregarded that the judicial transaction always arises from dispute and that, in this case, this would be based on the obligations assumed in the contract promise to buy and sell executed by the claimant with the then promising seller, Real Estate Investment Company G..., S.A., in which the latter undertook towards the Claimant the obligation to "proceed with alterations to the architecture project tending towards the joining of the two fractions which are the subject of the sale", without any cost arising for the Claimant from those alterations – See list of proven facts and contract of pages 79 to 85 of the PA1 submitted by AT with the Reply.
It seems clear that the Claimant will have taken advantage of the mentioned contractual works for joining the two fractions with costs already included in the price, to contract with the contractor the execution of other works or improvements to the acquired property (hence, probably, the designation in the transaction of "extra works").
Thus, not being demonstrated a different reality, that is, that the price paid was greater than that declared, and the PTV of the property acquired being lower than that value, the additional assessments of IMT and IS now under review are revealed to be illegal.
Compensatory Interest
The Claimant seeks reimbursement of the IMT (€54,873.66) and IS (€7,316.49) improperly paid, for a total amount of €62,190.15, plus compensatory interest, at the legal rate, in accordance with Article 43 of the General Tax Law and Article 61 of CPPT. The Claimant paid the amounts assessed, as is stated in 2.11 of the proven facts ("The Claimant, on the same day 13.12.2013, proceeded to pay the assessments referred to above - Documents Nos. 1 and 2 attached to the request for arbitral pronouncement").
In accordance with the provisions of paragraph b) of Article 24 of RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the merits of the arbitral decision in favour of the taxpayer and until the end of the period provided for the voluntary execution of judgments of the judicial courts, "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been undertaken, adopting the acts and operations necessary for this purpose", which is in harmony with the provision of Article 100 of the General Tax Law [applicable by virtue of the provision of paragraph a) of Article 29(1) of RJAT] which establishes that "the tax administration is obliged, in case of full or partial success of a complaint, judicial challenge or appeal in favour of the taxpayer, to the immediate and complete restoration of the legality of the act or situation which is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".
Although Article 2(1), paragraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating in CAAD, making no reference to condemnatory decisions, it should be understood that the powers which in judicial challenge proceedings are attributed to the tax courts are included in its jurisdiction, and this is the interpretation which is in harmony with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it is proclaimed, as a first guideline, that "the tax arbitration proceedings must constitute an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".
Judicial challenge proceedings, although essentially being a process for annulment of tax acts, admits the condemnation of the Tax Administration to pay compensatory interest, as is apparent from Article 43(1) of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount greater than legally due" and from Article 61(4) of CPPT (in the version given by Law No. 55-A/2010, of 31 December, which corresponds to Article 2 in the original version), that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the voluntary execution period of the decision".
Thus, Article 24(5) of RJAT in saying that "payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Tax Procedure and Process Code" should be understood as permitting recognition of the right to compensatory interest in arbitration proceedings.
In the case at hand, it is manifest that, as a result of the partial illegality of the assessment act, there is ground for reimbursement of the tax, by virtue of the said Articles 24(1), paragraph b), of RJAT and 100 of the General Tax Law, since this is essential to "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been undertaken", in the part corresponding to the correction that was found to be illegal.
With regard to compensatory interest, it is also clear that the illegality of the act is imputable to the Tax and Customs Administration, which, on its own initiative, undertook it without legal support.
This involves a vice of violation of substantive law, embodied in error in the legal assumptions, imputable to the Tax and Customs Administration.
Consequently, the Claimant has the right to compensatory interest, in accordance with Article 43(1) of the General Tax Law and Article 61 of CPPT, calculated on the amount improperly paid by it.
Thus, the Tax and Customs Authority should execute the present award, in accordance with Article 24(1) of RJAT, determining the amount to be reimbursed to the Claimant and calculating the respective compensatory interest, at the legal rate applicable to civil debts, in accordance with Articles 35(10) and 43(1) and (5) of the General Tax Law, Article 61 of CPPT, Article 559 of the Civil Code and Decree-Law No. 291/2003, of 8 April (or the decree-law or decree-laws that succeed it).
Compensatory interest is due from the date of payment (13-12-2013), until that of processing of the credit note, in which it is included (Article 61(5) of CPPT).
Value of the Proceedings
In accordance with the provisions of Article 306(2) of CPC and 97-A(1), paragraph a), of CPPT and Article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €62,190.15.
Costs
In accordance with Article 22(4) of RJAT, the amount of costs is fixed at €2,448.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the respondent Tax and Customs Authority.
DECISION
In accordance with the foregoing, the members of this Arbitral Tribunal agree to:
a) Judge as upheld the requests for declaration of illegality of the additional IMT assessment No. ..., in the amount of €54,873.66 and the additional Stamp Tax assessment No. ..., in the amount of €7,316.49;
b) Annul the said assessments;
c) Judge as upheld the request for reimbursement of those amounts paid corresponding to the said assessments for a total of €62,190.15 and condemn the Tax and Customs Authority to return it;
d) Judge as upheld the request for payment of compensatory interest and condemn the Tax and Customs Authority to pay it to the Claimant, calculated on the amount to be returned, from the date of payment (13-12-2013), until that of processing of the credit note, in which it should be included (Article 61(5) of CPPT), at the legal rates in force until payment, in accordance with Article 559 of the Civil Code and Decree-Law No. 291/2003, of 8 April (or the decree-law or decree-laws that succeed it).
e) Condemn the Tax and Customs Authority to pay the costs of the present proceedings.
Lisbon, 27-4-2015
The Arbitral Tribunal
José Poças Falcão
(President)
Augusto Vieira
Nuno Pombo
[1] Text prepared by computer in accordance with the provisions of Article 131(5) of the Code of Civil Procedure, applicable by reference under Article 29 of RJAT. The composition of the present decision is governed by the spelling prior to the 1990 Orthographic Agreement.
[2] Antunes Varela, Of Obligations in General, I, 1st edition, 211; Almeida Costa, Law of Obligations, 10th edition, re-elaborated, 2006, 379 to 383; Galvão Telles, Law of Obligations, 7th edition, revised and updated, 101, 102 and 124; Meneses Cordeiro, Law of Obligations, AAFDL, 1986, reprint, I, 453 to 456, 464, 480 and 481.
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