Summary
Full Decision
ARBITRAL DECISION
The arbitrator Nuno Cunha Rodrigues, appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the present Arbitral Tribunal, constituted on 16.04.2019, decides as follows:
I. REPORT
1. A..., taxpayer number..., resident in...–..., ..., Great Britain, (hereinafter referred to as the "Claimant"), submitted, on 05/02/2019, a request for constitution of a singular arbitral tribunal, in accordance with articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with paragraph a) of article 99 of the CPPT, in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as Respondent TA).
2. The Claimant requests a declaration of illegality of the assessment act no. 2018... relating to Personal Income Tax (IRS) for the fiscal year 2016, in the amount of € 3,322.69 (three thousand three hundred and twenty-two euros and sixty-nine cents).
3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 06-02-2019 and notified to the Tax and Customs Authority on that same date.
4. In accordance with the provisions of paragraph a) of article 6, paragraph 2 and paragraph b) of article 11, paragraph 1 of the RJAT, the Ethics Council appointed the present signatory as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline.
5. On 27-03-2019 the Parties were duly notified of this appointment, and neither manifested any intention to refuse the appointment of the arbitrator, in accordance with article 11, paragraph 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Ethics Code.
6. In accordance with the provisions of paragraph c) of article 11, paragraph 1 of the RJAT, the singular arbitral tribunal was constituted on 16-04-2019.
7. Given that there was no need for production of additional evidence beyond the documentary evidence already incorporated in the proceedings, nor any matter of exception upon which the parties needed to pronounce themselves, and that the principles of procedural economy and prohibition of useless acts apply in the arbitral proceeding under the provisions of paragraphs c) and e) of article 16 of the RJAT, the meeting referred to in article 18 of the RJAT was dispensed with, as well as the submission of written pleadings by the parties.
8. The date of 31 May 2019 was set for issuance of the final decision.
9. The Arbitral Tribunal was regularly constituted and is competent.
10. The parties have legal personality and capacity and are legitimated (articles 4 and 10, paragraph 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).
11. The proceedings do not suffer from nullities and no obstacle arises to the consideration of the merits of the case.
II. OF THE CLAIMANT'S REQUEST:
The Claimant requests a declaration of illegality of the assessment act relating to Personal Income Tax (IRS) for the fiscal year 2016 on the grounds that the Respondent TA, when applying in the IRS assessment the totality of the capital gain realised by the Claimant, applied the provisions of article 43, paragraph 2 of the IRS Code which, in turn, violates articles 18 and 63 of the Treaty on the Functioning of the European Union (hereinafter TFEU).
III. OF THE RESPONDENT TA'S RESPONSE:
In response, the Respondent TA considers that, for purposes of incidence (with regard to the matter of capital gains), articles 9 and 10 of the IRS Code are relevant, so that the provisions of paragraph 2 of article 43 of the IRS Code cannot be applicable to the case sub judice.
It further considers that, following the decision delivered in Judgment C-443/06 of the Court of Justice of the European Communities of 2007 October 11 (Hollmann), the national legislature proceeded to adapt national legislation to the decision upheld therein, adding to article 72 of the IRS Code, by Law no. 67-A/2007, of 31/12, paragraph 7 (current paragraph 9) and paragraph 8 (current paragraph 10).
The Respondent TA further considers that the Claimant could have opted for taxation of such income (capital gains) at the rate that, in accordance with the table provided in paragraph 1 of article 68 of the IRS Code, would be applicable in the case of income earned by residents in Portuguese territory, such rate determination taking into account all income including that obtained outside this territory, under the same conditions applicable to residents, which it did not do.
It further adds that the Claimant could have opted, as it did, for the autonomous rate of 28%, as provided in article 72, paragraph 1, paragraph a) of the IRS Code.
The Respondent TA concludes that the change made by way of the introduction of the current paragraphs 9 and 10 of article 72 of the IRS Code, has made it possible for both residents and non-residents to benefit from the regime provided in article 43, paragraph 2 (consideration of the balance of capital gains at only 50% of its value), of the same Code, provided they opt for grouping of income obtained both in Portugal and outside this territory.
IV. MATTER OF FACT:
A. Proven Facts
The following facts are considered proven:
The Claimant resides in...–..., ..., Great Britain, having never been resident in Portugal;
The Claimant's mother died on 11-09-2014 and was the owner of 50% of the value of the autonomous unit, intended for habitation, designated by the letter "I", corresponding to the third floor of the building located at Street..., no. ..., ... and ..., ..., parish of ..., municipality of Cascais, registered in the urban property register under article..., with a patrimonial value of € 70,840.00;
By way of succession from her mother, the Claimant received 33.33% of that half in the amount of € 11,806.66 (33.33% x ½ € 70,840.00), which was mentioned as acquisition value relating to the year 2014 in Annex J of the Form 3 Declaration – IRS for 2016.
The Claimant's father died on 05-06-2015 and was the owner of 66.66% of the value of the above-mentioned autonomous unit;
By way of succession from her father, the Claimant received 50% of that fraction of 66.66% in the amount of € 23,613.34 (50.00% x 66.66% of € 70,840.00), which was mentioned as acquisition value relating to the year 2015 in Annex J of the Form 3 Declaration – IRS for 2016.
In this way, in overall calculation, the acquisition value mentioned in Annex J of the Form 3 Declaration – IRS for 2016 amounted to € 35,420.00.
On 10-05-2016, the Claimant disposed of her share corresponding to 50% of the aforementioned property for € 49,750.00;
On 9 October 2018 the Claimant submitted, in the capacity of a non-resident taxpayer, the Form 3 declaration of IRS for 2016, mentioning in Annex G the disposal of 50% of the urban property registered in the property register of the parish of ... (...) under article...
The realization values, acquisition values and expenses and charges declared were, respectively, € 49,750.00, € 35,420.00 and € 3,075.00, which corresponds to a capital gain of € 11,255.00.
In section 8 of the 2016 IRS declaration, the Claimant opted for the General Regime, marking field 07.
The Respondent TA carried out the corresponding IRS assessment, showing in the respective statement global income of € 11,255.00 and the amount to be paid of € 3,322.69, being € 3,151.40 of tax and € 171.29 of compensatory interest; the respective collection note was issued on 25-10-2018 and the payment deadline ended on 26 November 2018.
B. Unproven Facts
No other facts with relevance to the arbitral decision were proven.
C. Basis for the Matter of Fact
The matter of fact given as proven is based on the documentary evidence presented.
V. ON THE LAW:
A. On the Request for Preliminary Ruling submitted by the Respondent TA:
In its response, the Respondent TA suggested that the questions discussed in the present proceedings be subject to a preliminary ruling referral for resolution by the CJEU (cf. article 44 of the response).
In this regard, the following can always be reaffirmed.
The institute of preliminary ruling, provided for in article 267 of the TFEU, may be used by this Arbitral Tribunal as, moreover, has already been recognised by the CJEU in process C-377/13, of 12 June 2014.
In these terms, and in accordance with article 267, whenever a question on the interpretation of the Treaties or on the validity and interpretation of acts adopted by the institutions, bodies or agencies of the Union is raised before any judicial authority of one of the Member States, that authority may, if it considers that a decision on that question is necessary for the judgment of the case, request the Court to rule on it.
In other words, national courts – where this Tribunal is naturally included – must proceed to the referral of preliminary ruling questions, as provided for in article 267 of the TFEU - as a consequence of questions or doubts relating to the validity or interpretation of rules of European Union law.
This means that, provided that no doubts are raised with respect to the rules in question or the same have already been clarified by the CJEU – taking into account, in particular, the so-called "acte clair" theory (cf. judgment of the CJEU CILFIT, of 6 October 1982, process C-283/81) –, national courts should not proceed with the preliminary ruling referral.
Thus, if there already exists (i) jurisprudence on the matter (and when the possibly new framework does not raise any real doubt as to the possibility of applying that jurisprudence to the concrete case); or (ii) when the correct manner of interpreting the legal rule in question is unequivocal, a national judicial authority may "itself decide on the correct interpretation of European Union law and its application to the factual situation of which it is aware".[1]
In the case sub judice, it is considered not necessary to proceed with a referral to the CJEU of supposed doubts on the interpretation of rules of European Union Law for this Tribunal to deliver its decision.
B. Question to be Decided:
The question to be decided essentially concerns the compatibility with European Union Law (in particular, the freedom of movement of capital, established in article 63 of the TFEU) of the non-application of the regime of exclusion from taxation of real property capital gains by 50%, as provided for in article 43, paragraph 2 of the IRS Code, to taxpayers resident in another Member State of the European Union.
A potential conflict of internal rule – article 43, paragraph 2 of the IRS Code – with European Union Law is at issue, and that rule should be disapplied by the Respondent TA if contrary to it, in accordance with the Principle of primacy of European Union Law (cf., for example, judgment Fratelli Constanzo, proc. 103/88 of the CJEU).
Let us proceed.
In the context of IRS, paragraph a) of article 10, paragraph 1 of the IRS Code provides that, "Capital gains are constituted by gains obtained which, not being considered business and professional income, income from capital or real property income, result from: a) Onerous transfer of real rights over immovable property (...), the gain being constituted by the difference between the realisation value and the acquisition value, net of parts qualified as capital income (...)" (cf. paragraph 4 of article 10 of the Code of Personal Income Tax, hereinafter IRS Code).
With respect to the taxation of non-residents in Portuguese territory, article 13, paragraph 1 of the IRS Code provides that "Individuals resident in Portuguese territory and those not residing there who obtain income here are subject to IRS", while article 15, paragraph 2 of the same legal instrument adds that, regarding non-residents, such tax "is levied only on income obtained in Portuguese territory".
Therefore, in accordance with article 18, paragraph 1, paragraph h) of the IRS Code, capital gains resulting from the transfer of immovable property situated there constitute income obtained in Portuguese territory.
In harmony with the Claimant's declaration of income, the Respondent TA assessed the tax at the rate of 28%, provided in paragraph a), paragraph 1, of article 72 of the IRS Code.
This provision determines the following: "Special rates" "1 - The following are taxed at the autonomous rate of 28%: a) Capital gains provided for in paragraphs a) and d) of paragraph 1 of article 10 earned by non-residents in Portuguese territory which are not attributable to a permanent establishment situated there;".
The rate of 28% was applied to the entire global income which resulted in a tax to be paid in the amount of € 3,322.69 (three thousand three hundred and twenty-two euros and sixty-nine cents).
C. On the Compatibility of the National Regime for the Taxation of Real Property Capital Gains with European Union Law:
Article 63, paragraph 1 of the TFEU presents the free movement of capital as a structuring element of the European integration process, determining that "all restrictions on the movement of capital between Member States and between Member States and third countries are prohibited".
On the other hand, article 65 of the TFEU establishes the following:
"1 – The provisions of article 63 are without prejudice to the right of Member States to:
Apply the relevant provisions of their tax law that establish a distinction between taxpayers who are not in an identical situation with respect to their place of residence or the place where their capital is invested.
Take all necessary measures to prevent breaches of their laws and regulations, in particular in tax matters and in the prudential supervision of financial institutions, to provide for procedures for declaring movements of capital for the purposes of administrative or statistical information or to take measures justified on grounds of public policy or public security.
2 – The provisions of this Chapter are without prejudice to the possibility of applying restrictions to the right of establishment that are compatible with this Treaty.
3 – The measures and procedures referred to in paragraphs 1 and 2 must not constitute a means of arbitrary discrimination, nor a disguised restriction on the free movement of capital and payments, as defined in article 63." (our emphasis).
It should also be noted that, in accordance with article 18 of the TFEU, "Within the scope of application of the Treaties, and without prejudice to its special provisions, any discrimination is prohibited."
It is under the provisions of these articles of the TFEU that the Claimant invokes the non-conformity of Portuguese tax legislation with European Union law.
The Claimant considers that the treatment given by Portuguese law to residents and non-residents in the taxation of real property capital gains constitutes indirect discrimination on grounds of nationality contrary to the provisions of articles 63 et seq. of the TFEU.
In light of the consideration of capital gains by their totality, the taxation only has differentiated regimes according to whether the beneficiary is resident or non-resident, with no apparent justification, material or formal, for the differentiation of the tax regimes.
In fact, and from a material perspective, residents and non-residents find themselves, in the case of taxation of real property capital gains, in a clearly identical situation.
Furthermore, it is commonly accepted that an operation of realization of an immovable property investment is covered by the freedom of movement of capital.
Now, in the case of sale of immovable property situated in Portugal, with the realization of capital gains, non-residents are subject to a higher tax burden than that applied to residents, and are therefore in a less favourable situation than the latter.
In fact, while a non-resident is applied a rate of 28% on the totality of capital gains realized, the consideration of only half of the taxable base corresponding to capital gains realized by a resident allows this person to systematically benefit, on this account, from a lower tax burden, whatever the tax rate applicable to the totality of their income, since the taxation of the income of residents is subject to a table of progressive rates whose highest bracket is 48%.
This regime makes the transfer of capital less attractive for non-residents constituting a restriction on movements of capital prohibited by article 63 of the TFEU.
This difference in treatment cannot be justified by reference to any of the exceptions provided for in article 65 of the TFEU, and the discrimination arising from the national rule cannot be justified by the objective of avoiding penalizing residents (who are subject to a table of progressive rates which may be much higher and are taxed on a world-wide basis, unlike non-residents, who are taxed at the proportional rate of 28%, with no grouping occurring), because, with the highest bracket at 48%, it always leads, under the same conditions, to more burdensome taxation of the non-resident, taking into account the reduction to 50% of the taxable income of the resident, with objectively no difference to justify this inequality of tax treatment with respect to the taxation of capital gains between the two categories of taxpayers.
It should be noted that the safeguard clause contained in paragraph a) of paragraph 1 of article 65 of the TFEU must be interpreted strictly to permit differentiated treatment only between taxpayers who are not in the same position, referring to residence and non-residence as a distinctive criterion.
Resulting from the reading of article 65 of the TFEU that discrimination between residents and non-residents may, in fact, occur, provided that it is not arbitrary and does not constitute a disguised restriction on the movement of capital, the scope of application must be interpreted in conjunction with the provisions of paragraph 3 of article 65 of the TFEU, in that the measures and procedures adopted under the safeguard clause may not, themselves, constitute arbitrary discrimination or a disguised restriction on the free movement of capital.
D. Case Law of the CJEU on the Taxation of Real Property Capital Gains:
Specifically with respect to the matter sub judice, the CJEU has already had the opportunity to pronounce on the compatibility of the rule contained in paragraph 2 of article 43 of the IRS Code with the principle of free movement of capital.
In the Hollmann judgment, of 11.10.2007 - Process C-443/06, delivered by the CJEU, it was concluded that the national rule, contained in paragraph 2 of article 43 of the IRS Code, violates article 63 of the TFEU (former article 56 of the TEU), by having a discriminatory character (less favourable) for non-residents and being, in consequence, restrictive of the freedom of movement of capital between Member States.
This conclusion is based on the following main arguments, entirely applicable to the case being examined in this arbitral tribunal.
A liquidation operation of an immovable property investment constitutes a movement of capital, with the Treaty providing a specific rule prohibiting all restrictions on movements of capital;
In the case of sale of immovable property situated in Portugal, with the realization of capital gains, non-residents are subject to a higher tax burden than that applied to residents, and are therefore in a less favourable situation than the latter;
While a non-resident is applied a rate of 25% [in 2016 – 28%] on the totality of capital gains realized, the consideration of only half of the taxable base corresponding to capital gains realized by a resident allows this person to systematically benefit, on this account, from a lower tax burden, whatever the tax rate applicable to the totality of their income, since the taxation of the income of residents is subject to a table of progressive rates whose highest bracket is 42% [in 2016 – 48%];
This regime makes the transfer of capital less attractive for non-residents and constitutes a restriction on movements of capital prohibited by the Treaty;
The discrimination of the national rule is not justifiable by the objective of avoiding the burden on residents (who are subject to a table of progressive rates which may be much higher and are taxed on a world-wide basis, unlike non-residents, who are taxed at the proportional rate of 25% [in 2016 – 28%], with no grouping occurring), because, as noted above, with the highest bracket being 42% [in 2016 – 48%] it always leads, under the same conditions, to more burdensome taxation of the non-resident, taking into account the reduction to 50% of the taxable income of the resident, with objectively no difference to justify this inequality of tax treatment with respect to the taxation of capital gains between the two categories of taxpayers.
The need to ensure the coherence of the national tax regime does not present itself as reasonable for permitting the restriction propounded by article 43, paragraph 2 of the IRS Code.
Concluding, the CJEU stated that article 56 EC (current article 63 of the TFEU) must be interpreted to the effect that it precludes national legislation which subjects capital gains resulting from the disposal of immovable property situated in a Member State, in the case in point in Portugal, when that disposal is made by a resident of another Member State, to a higher tax burden than that which would apply, in relation to this type of operation, to capital gains realized by a resident of the Member State in which that immovable property is situated.
Therefore, the provisions of paragraph 2 of article 43 of the IRS Code, by limiting taxation to 50% of the balance calculated between capital gains and capital losses realized only for residents in Portugal and not for non-residents, for purposes of determining the taxable base in IRS, "constitutes a restriction on movements of capital, prohibited by article 56 EC" (current article 63 of the TFEU).
In that sequence, the Supreme Administrative Court (in process no. 439/06) also came to decide on the incompatibility of this rule in these terms: "paragraph 2 of article 43 of the IRS Code, (...) which limits the incidence of tax to 50% of capital gains realized only for residents in Portugal, violates the provisions of article 56 of the Treaty establishing the European Community, by excluding from this limitation capital gains which have been realized by a resident of another Member State of the European Union."
More recently, the SAC again pronounced on the question of the divergence of tax regimes depending on whether taxpayers reside or not in national territory, with the Court concluding in the same sense (cf. Judgment of the SAC, of 3/02/2016 (Process no. 1172/14)).
It is read in the summary of the judgment (which fully accompanies the reasoning of process no. 439/06):
"I- The provisions of the EC Treaty, which governs the European Union, prevail over the norms of ordinary national law, in the terms defined by the bodies of European Union law, provided they respect the fundamental principles of the democratic rule of law.
II- It is incompatible with European Union law, in so far as it limits the movements of capital which article 56 of the EC Treaty enshrines, the provisions of paragraph 2 of article 43 of the IRS Code, by non-application to residents outside national territory of the limitation of taxation to 50% of capital gains realized which it establishes for residents in national territory."
E. Application of the Case Law to the Case Sub Judice:
The Claimant has the right to have annulled the part of the assessment which is vitiated (cf. Judgment of the SAC, of 30/04/2013 (Process no. 1374/12) and Judgment of the SAC, of 2/12/2015 (Process no. 754/15).
The question of law which arises here has already, moreover, been the subject of decision by the arbitral tribunals functioning with the CAAD, with the uniform jurisprudence going in the direction of considering the taxation of capital gains obtained by non-residents illegal due to incompatibility of paragraph 2 of article 43 of the IRS Code with article 63 of the TFEU, given that it restricts the taxation of 50% of capital gains to resident taxpayers (cf. Processes no. 45/2012-T (5/07/2012), 127/2012-T (14/05/2013), 748/2015-T (27/07/2016), 89/2017-T (5/07/2017), 520/2017 (4/06/2018), 617/2017.T (22/06/2018) and 644/2017-T (30/05/2018).
Finally, the Respondent TA observes that, following the delivery of the Hollmann Judgment, an option of equalization was introduced into the Portuguese tax system with which it was intended to avert the judgment of discrimination of the CJEU with respect to the restrictive provision of paragraph 2 of article 43 of the IRS Code applicable to resident taxpayers.
Thus, Law no. 67-A/2007, of 31 December (State Budget Law for 2008), introduced paragraphs 7 and 8 of article 72 of the IRS Code establishing an optional regime of equalization of non-residents (these having to be residents of another Member State of the European Union or of the European Economic Area) to residents.
Subsequently, in view of the amendment carried out by Law no. 66-B/2012, of 31 December, these provisions became paragraphs 9 and 10, providing at the date 2017, the following:
"9 - Non-residents of another Member State of the European Union or of the European Economic Area, provided that, in the latter case, there is an exchange of information in tax matters, may opt, with respect to the income referred to in paragraphs a) and b) of paragraph 1 and in paragraph 2, for taxation of such income at the rate which, in accordance with the table provided in paragraph 1 of article 68, would be applicable in the case of income earned by residents in Portuguese territory.
10 - For the purposes of determining the rate referred to in the preceding paragraph, all income is taken into account, including that obtained outside this territory, under the same conditions as are applicable to residents."
What happens is that the existence of this regime does not eliminate the invalidity of the discriminatory regime still in effect and which was applied to the IRS assessment in question.
In fact, currently, in the matter of taxation of income resulting from capital gains arising from the transfer of real rights over immovable property situated in Portugal, by non-residents in this territory, but residents of another Member State of the European Union or European Economic Area, it results from the provisions of paragraphs 1 and 8 of article 72 of the IRS Code that two tax regimes coexist:
The regime that subjects income to a special rate of 28% and
The regime equalized to that which is in effect for taxpayers resident in Portuguese territory, according to which the same income is subject to the rate which, in accordance with the table provided in paragraph 1 of article 68, would be applicable in the case of income earned by residents in Portuguese territory, taking into account, in this regime, all income, including that earned outside Portugal, with the provision contained in paragraph 2 of article 43 of the IRS Code remaining in effect.
However, the provision of this optional regime imposes an additional burden on non-resident taxpayers, compared to residents, and the option of equalization is not capable of excluding the discrimination in question.
In reality, the regime of equalization currently provided for in article 72 of the IRS Code does not eliminate the discriminatory character of article 43, paragraph 2 of the IRS Code, and the taxpayer cannot find itself in the circumstance of having to opt between two regimes, one legal and the other illegal.
In this sense, the CJEU considered, in the Gielen Judgment, of 18/03/2010 (Process C-440/08), in a case of evident parallelism (although in that judgment the violation of article 49 was at issue), the following:
"the option of equalization permits a non-resident taxpayer, (...) to choose between a discriminatory tax regime and another supposedly non-discriminatory regime", stressing that this choice is not capable of excluding the discriminatory effects of the first of these two tax regimes."
"the recognition of such an effect on the said choice would have as a consequence (...) to validate a tax regime which would continue, in itself, to violate article 49 TFEU by virtue of its discriminatory character".
The Treaty "is opposed to national regulation which discriminates against non-resident taxpayers in the granting of a tax benefit (...) even though such taxpayers may opt, with respect to that benefit, for the regime applicable to resident taxpayers".
This approach has been taken up within the CAAD, notably, in Processes no. 45/2012-T, 127/2012-T, 748/2015-T, and 89/2017-T.
In particular, in Process 127/2012-T it was considered that "(...) the option given to a taxpayer resident in the European Union or European economic area between a regime which continues to be discriminatory, by violation of the provisions of article 63 of the TFEU and another allegedly non-discriminatory, equaling them with residents in Portuguese territory, beyond having the obligation to opt and declare income earned outside that territory, does not exclude or neutralize the discriminatory effects of the first of those two regimes."
Concluding that judgment that "by recognizing that the said effects are not eliminated, one will be admitting that the said option validates a tax regime which continues in itself to violate article 63 of the TFEU, for the reasons stated above, which is not in keeping with European Union law."
Observe that it was the TA itself which, before the Claimant's declaration of income, assessed the tax at the rate of 28%, provided in paragraph a), paragraph 1, of article 72 of the IRS Code, considering the totality of the capital gain realized by that person and not just 50% thereof, as required by paragraph 2 of article 43 of the same legal instrument, in an interpretation and application of this legal provision which is not in conformity, either with European Union Law, which includes European Union case law, or with Portuguese judicial and arbitral case law.
In this sense, see also the judgment delivered by the SAC, of 22/03/2011 (Process no. 1013/10), "it was the Tax Administration which, before the declaration of taxpayers, assessed the tax which it considered due (as indeed always occurs in IRS): at the rate provided for non-residents (25%, in accordance with article 72, paragraph 1 of the IRS Code) and on the total amount of the capital gain realized and not just 50% of that value (article 43, paragraph 2 of the IRS Code), thus ignoring the European Union case law and that of this Supreme Court which took it up (cf. the Judgment of 16 January 2008, rec. no. 439/06) as to the incompatibility of that legal provision, thus applied, with the (then) article 56 of the TJCE (current article 63 of the Treaty on the Functioning of the European Union), thus subjecting it in this way, as came to happen, to see annulled in that part the assessment challenged, given the primacy of European Union law".
Consequently, the existence of this regime, merely optional, beyond creating an additional burden on non-resident taxpayers compared to residents – which consists of the necessity of exercising this option – does not eliminate the invalidity of the discriminatory regime still in effect and which was applied to the IRS assessment now challenged.
Additionally, it should always be said that the Respondent TA is not entirely dependent on what is presented to it by the taxpayer, with several examples existing where the administration is given the possibility to correct what is submitted for its consideration (cf. articles 19, paragraph 9; 36, paragraph 4 and 79, paragraph 2 all of the General Tax Code and article 48, paragraph 1 of the CPPT).
In these terms, the act of IRS assessment no. 2018... relating to Personal Income Tax (IRS) for the fiscal year 2016, in the amount of € 3,322.69 (three thousand three hundred and twenty-two euros and sixty-nine cents) is illegal, the defect of breach of law invoked by the Claimant being upheld, due to manifest incompatibility of paragraph 2 of article 43 of the IRS Code with articles 18 and 63 of the TFEU, in the part where it restricts the reduction of capital gains subject to IRS to 50% only to taxpayers resident in Portugal, and in consequence, the assessment should be annulled.
F. On Compensatory Interest:
The Claimant proceeded to payment of the tax calculated in the amount of € 3,322.69 (three thousand three hundred and twenty-two euros and sixty-nine cents).
What happens is, as we have seen above, the assessment is tainted by a defect of breach of law, and the amount in question was paid unduly.
In accordance with the provisions of article 100 of the General Tax Code, the tax administration is obliged, in the case of complete or partial success of complaints or administrative remedies, or of court proceedings in the taxpayer's favour, to the immediate and complete restitution of the situation that would have existed had the illegality not been committed, including the payment of compensatory interest, as provided for in the law's terms and conditions.
The assessment is the entire responsibility of the Respondent TA and has resulted in payment of tax in an amount higher than legally due, and is therefore tainted by a defect of breach of law, having been committed by error attributable to the services, so that the Claimant is entitled to the payment of compensatory interest.
Indeed, in accordance with article 43 of the General Tax Code, compensatory interest is due when there is error attributable to the services resulting in payment of a tax debt in an amount higher than legally due.
Compensatory interest is due, from the date of payment, being calculated based on its value, until full reimbursement to the Claimant, at the legal rate, in accordance with the articles, articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the General Tax Code, 61 of the CPPT and 559 of the Civil Code, at the legal rate in effect.
VI. DECISION
In these terms, the Arbitral Tribunal decides:
a. To partially annul the assessment in question, in the part corresponding to the increase in taxation resulting from the consideration of the total real property capital gain.
b. To condemn the Respondent TA to the restitution of the amount of tax unduly paid.
c. To condemn the Respondent TA to the payment of compensatory interest, from the date when the Claimant made payment of the assessment until the full payment of the amount to be reimbursed.
d. To condemn the Respondent TA to the payment of the costs of the proceedings.
VII. Value of the Proceedings:
In accordance with the provisions of article 306, paragraph 2, of the CPC and 97-A, paragraph 1, paragraph a), of the CPPT and 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 3,322.69 (three thousand three hundred and twenty-two euros and sixty-nine cents).
VIII. Costs:
In accordance with paragraph 4 of article 22 of the RJAT, the amount of costs is set at € 612, in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Respondent TA.
Let it be noted and notified.
Lisbon, 22 May 2019
The Single Arbitrator
Nuno Cunha Rodrigues
[1] Cf. points 12 and 13 of the recommendations to national judicial authorities, regarding the submission of preliminary ruling proceedings (2012/C 338/01), of the CJEU, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:338:0001:0006:PT:PDF.
Frequently Asked Questions
Automatically Created