Capital Gains Tax on Pre-1989 Property Sale:...

Process: 793/2014-T

Date: July 20, 2015

Tax Type: IRS

Summary

This Portuguese tax arbitration case (Process 793/2014-T) concerns the unlawful taxation of capital gains (mais-valias) on a property sale. An 80-year-old Canadian emigrant and her husband sold a Lisbon apartment in 2009 that they had acquired in June 1988. The Portuguese Tax Authority (Autoridade Tributária) issued an IRS assessment in 2013, calculating capital gains tax without considering the property's 1988 acquisition date. This constituted a critical error because Portugal's IRS Code, which introduced capital gains taxation on real estate, included transitional provisions exempting properties acquired before the code's entry into force from such taxation. The applicant filed a request for official review (revisão oficiosa) under Article 78 of the General Tax Law in June 2014, arguing the assessment was illegal due to an error attributable to the tax services. When no response was received, she initiated tax arbitration proceedings at CAAD in November 2014. The case also involved a bank account seizure by the Tax Authority to collect the allegedly owed tax, causing significant hardship to the elderly emigrant. The applicant sought annulment of the unlawful assessment, immediate lifting of the bank account lien, and payment of interest from the seizure date until release, arguing the Tax Authority's actions constituted grave injustice and unjust enrichment. The case demonstrates important taxpayer rights regarding non-resident challenges to Portuguese tax assessments, the protection of pre-1989 property acquisitions from capital gains taxation, and remedies available when tax authorities commit errors in assessments.

Full Decision

ARBITRAL DECISION

APPLICANT: A..., NIF.:..., resident in …, Montreal, Quebec, … Montreal, Canada

RESPONDENT: Tax and Customs Authority (hereinafter referred to as TA) represented by Dr. ... and Dr. ..., as per appointment order from the General Director of TA, dated 30-12-2014.

I – REPORT

THE APPLICANT submitted a request for arbitral pronouncement stating that it requests the constitution of an arbitral tribunal on the grounds that, together with her husband, they sold in the year 2009 a property acquired on 27 June 1988 and had knowledge on 7 May 2013 that the tax service had issued a tax assessment note (assessment no. 2013 ...), where, in the context of capital gains, it had taxed the proceeds of the sale without considering the acquisition date of the property – 1988;
The request falls within the provisions of Article 2, No. 1, paragraph a) of the Legal Regime for Tax Arbitration (hereinafter referred to as LRTA) and of Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, whereby the APPLICANT petitions this Arbitral Tribunal to rule as follows:

For the annulment of the assessment made, as it is tainted by illegality and, consequently, no tax exists to be paid, as the sale of the property acquired in 1988 is not subject to taxation;

For the lifting of the lien made on the bank deposit at Banco Santander Totta and the interest due from the date of the lien until its actual lifting, given that this resulted in grave and notorious injustice, as well as unjust enrichment on the part of the Tax Administration.

THE APPLICANT submitted a Request for constitution of the Arbitral Tribunal on 27-11-2014, which was accepted by the Illustrious President of CAAD on 01-12-2014, leading to notification of the TA, in compliance with No. 3 of Article 10 of the Legal Regime for Arbitration in Tax Matters (hereinafter LRTA).
Having the APPLICANT chosen not to designate an arbitrator, pursuant to the provisions of No. 1 of Article 6 of the LRTA, the signatory was designated sole arbitrator by the Deontological Council of the Centre for Administrative Arbitration, on 28-01-2015, an appointment that was timely accepted and notified to the parties who did not oppose said designation.
The Respondent, notified for the purposes of No. 1 of Article 13 of the LRTA, ruled for the maintenance of the contested act.
The Sole Arbitral Tribunal was constituted on 12-02-2015, combining the provisions of paragraph c), of No. 1, with No. 8 of Article 11 of the LRTA, whereby on 13-02-2015 the TA was notified to, in accordance with and for the purposes of the provisions of Nos. 1 and 2 of Article 17 of the LRTA, present its Response and the corresponding administrative case file;
In Response, the TA, on 16-03-2015, presented a defense by way of challenge and argued for the maintenance of the official tax assessment act.
The meeting provided for in Article 18 of the LRTA did not take place as it was waived pursuant to an order dated 20/05/2015, which fixed 10-08-2015 as the date for issuance of the arbitral decision.

II – PRELIMINARY MATTERS

The tribunal is materially competent and is regularly constituted, in accordance with Articles 2, No. 1, paragraph a), 5, No. 2 and 6, No. 1 of the LRTA.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LRTA and Article 1 of Ordinance No. 112-A/2011, of 22 March.
The case does not suffer from any defects that would invalidate it.

III - POSITION OF THE PARTIES

III. A - POSITION OF THE APPLICANT

THE APPLICANT opposes the assessment alleging, in summary, in the REQUEST for constitution of the arbitral tribunal, as well as in the FINAL SUBMISSIONS, with relevance for consideration, the following:

THE APPLICANT, currently 80 years of age, has been married since 30 January 1958, in a regime of universal community of property with B..., who is over 90 years old, both being emigrants in Canada where they have resided for between 40 and 50 years, a period during which they never had problems with the Tax Administration, neither there nor here;
The matrimonial relationship of the APPLICANT with B... is abundantly proven by the annotation to the birth certificate, deed, purchase and sale agreement, property registration certificate and property register, all attached to the case file;
On 27 June 1988 they purchased in Portugal the property corresponding to the autonomous fraction designated by the letter "I", third floor front, of the urban property located at Avenue ... in Lisbon, described in the ... Land Registry Office of Lisbon under number ... and in the matrix under article ....
In the year 2009 the APPLICANT and her husband sold that property;
Upon learning on 7 May 2013 that the TA had issued the assessment note No. 2013 ..., for capital gains tax on the sale of the property, disregarding the acquisition date in 1988, the husband of the APPLICANT filed an administrative complaint against it (IRS 2009);
In the decision to assess IRS on the sale of the property and in the subsequent moments, there was omission of the hearing of the interested parties (Article 121 of the CPA), which by itself generates nullity as it constitutes an essential phase for the defense of the taxpayer and corollary of the principle of participation (Article 12 of the CPA) and of collaboration with private individuals (Article 11 of the CPA);
The distance explains why the husband and wife have different tax residences, as they spend only a few days in Portugal, whereby when the husband filed a complaint he changed his address to Rua .., ... – where a friend who aided him in the complaint lives, and as they are married in universal community of property, the husband assumed that by changing his tax address he would change the APPLICANT's and that by filing the complaint he was doing so on behalf of both;
As the Complaint received no response, the APPLICANT and her husband became convinced that the matter was resolved;
Later the APPLICANT learned from the Portuguese banking institution where she holds an account that it had been levied by order of the Tax Service of Lisbon ...;
As a result of the lien made by the Tax Service, the APPLICANT became unable to move the account she holds in Portugal and was deprived of the amounts held there, whereby she seeks the immediate lifting of the lien on the bank account;
THE APPLICANT appointed attorneys and requested access to her case file, which did not fully occur due to physical unavailability of the same at the Department;
It should have been known ex officio that the property was acquired in 1988, before the entry into force of the IRS Code, which, by extending taxation to gains generated in the onerous transfer of immovable property, in a transitional regime safeguarded non-taxation in the context of capital gains of the proceeds from the disposal of properties acquired before its entry into force;
By reason of there being no possibility of capital gains taxation on the sale of that property, with manifest error, the APPLICANT filed a request for review of a tax act by initiative of the Administration, with entry at the Tax Service on 26/06/2014, but did not obtain up to the date [of the request for constitution of the tribunal] any response;
The GTA provides for an impugning procedure for review of tax acts that can be initiated by the taxpayer or by the TA after assessment, or at any time if the tax has not yet been paid, on the grounds of error attributable to the services (No. 1 of Article 78), and the "review of the tax act by 'initiative of the tax administration' can be carried out 'at the request of the taxpayer'" within the period of four years from the date of assessment due to error attributable to the services, which implements any illegality, not attributable to the taxpayer but to the TA, encompassing material error or error of fact and error of law, and can be authorized when there is grave or notorious injustice which, in this case is verified being the injustice manifestly ostensible and grave;
Pursuant to No. 1 of Article 57 of the GTA, the TA has a period of 4 months to respond to the request submitted, and after the expiration of that period the taxpayer's claim is presumed rejected (No. 5 of 57 of the GTA), which, although a faculty granted to the TA, cannot fail to be seen as a power-duty, especially if we consider that the Administration is obliged to comply with the principle of collaboration with private individuals and the principle of justice and good administration.
By the TA not considering the acquisition date of the property – 1988 - it violated the principle of legality, because under the transitional regime – Article 5 of Decree-Law No. 442-A/88 – gains are not taxed under IRS for the onerous transfer of urban real property acquired (…) before the entry into force of the IRS Code which excludes from taxation capital gains realized that were not subject to the capital gains tax that existed prior to the 1988 Tax Reform, when such assets were acquired before the entry into force of the IRS Code, therefore 1/1/1989, the purpose of the regime being the safeguard of the expectations of taxpayers; cites case law: STA Decision in Case No. 0179/07, of 06/06/2007, 2nd Section, TCA South Decision in Case No. 06248/12, of 26/06/2014, TCA South Decision in Case No. 06726/13, of 12/06/2014 of CT – 2nd Court. TCA North Decision in Case No. 00984/04VISEU, of 13/03/2008, of CT – 2nd Section, TCA North Decision in Case No. 00136/00 Porto, of 25/03/2010, of CT – 2nd Section, TCA South Decision in Case No. 6380/02, of 15/10/2002, of CT;
The IRS assessment (…) suffers from the defect of violation of law, which constitutes grounds for its annulment, to which is added the failure to respond to the Complaint filed by the husband of the APPLICANT, who on behalf of the couple filed an administrative complaint against the IRS assessment relating to the year 2009;
Because married to the APPLICANT, in a regime of universal community of property, by having sold the property belonging to both and because the lien affects the common property of the couple, the husband had, just as the APPLICANT, legitimacy to complain against the tax assessment;
There being a violation of the duty to decide and inform citizens, as the Tax Service "has the legal duty to decide on requests"[1]; also constituting a violation of the principle of collaboration, set out in Article 59 of the GTA and Article 7 of the CPA and of the principle of respect for the guarantees of tax obligors, Article 55 GTA;
There is a duty of pronouncement "that exists in the face of any petition" and of decision, as the claim aims at the "defense of own interests", and the duty of giving reasons for administrative acts that decide on complaints or appeals is also violated, Article 124, No. 1, paragraph a) of the CPA;
By Article 15 of the IRS Code non-resident citizens are only taxed on income obtained in national territory, whereby as emigrants and having acquired the property in 1988 with the capital gain not being taxable, as the TA recognizes for the husband (cf. point 5.8 of the TA's response) it is also not for the wife, the couple thought there would be no tax to pay on that, therefore the Applicant was not obliged to declare the proceeds of the sale, nor to submit an IRS return for 2009;
There was an error of the Services in not confirming the acquisition date of the property, the sale date did not go unnoticed, and error as to the marital status of the APPLICANT, as such fact is public knowledge;
The Services claim that they did not previously have knowledge of the property's purchase date, but when the Applicant's husband filed a complaint and attached proof of the acquisition date, the TA then became informed, as well as through proof attached when the APPLICANT filed the request for review of the tax act;
Although the proof attached to the request for official review of the tax act was presented after the official assessment, pursuant to Article 59 of the CPPT the assessment procedure is, a priori, declarative, that is, the Services must consider all data and information provided by taxpayers, as well as those which the Administration cannot or should not be unaware of, among which appears, first and foremost, the marital status of the APPLICANT, appearing in official documents such as the purchase and sale deed, registrations, property register;
The Applicant never denied or withheld any cooperation with the TA, within her limitations, as an elderly non-resident person, therefore, even though the proof was presented after the official assessment – and note that it is the same assessment note that is the basis of the Complaint allowed to the husband and the lien on the wife -, which had to be valued by the Services, but does not appear to have been considered in the defense of the Applicant, whereby there was grave and notorious injustice in the disregard of the proof presented and failure to consult the relevant data appearing in the documentation;
If the TA acknowledges in the Response that the Complaint of the Applicant's husband was allowed on 13-05-2013 by the Tax Service of ..., having the official assessment been annulled, then there was no communication between the Services, as the same assessment cannot be annulled by one Service and serve as the basis for an enforcement process by another, as it would be glaring that the same assessment annulled for the husband be valid for the wife, that is, that by application of law the husband be exempt from payment of tax on the sale of property acquired in universal community of property, leaving the wife, in violation of law, subject to that payment, whereby the Tax Service of Lisbon... could never have proceeded with the enforcement process against the Applicant;
If the Administrative Complaint was allowed and there being no partial allowance, then, it must be considered that the Tax Service of ... also allowed it with respect to the APPLICANT with whom the Claimant was and is married since 1958.
Thus seeking:

28.1. The annulment of the assessment made due to illegality and non-existence of any tax to be paid as the sale of the property acquired in 1988 is not subject to taxation;

28.2. The lifting of the lien made on the bank deposit at Banco Santander Totta;

28.3. Condemnation to payment of interest, due from the date of the lien until its actual lifting, as the disputed situation resulted in grave and notorious injustice and unjust enrichment on the part of the Tax Administration.

III. B - POSITION OF THE RESPONDENT

Although the RESPONDENT had not presented a defense by way of exception, it did so in its FINAL SUBMISSIONS.

III. B.1 - BY WAY OF EXCEPTION

Although the RESPONDENT had not presented a defense by way of exception, it did so in its FINAL SUBMISSIONS, stating that it deduces the exception of material incompetence of the Arbitral Tribunal, and subsidiarily, the exception of expiration of the right of arbitral action, with respect to the part of the claim seeking annulment of the tax act on the grounds of grave and notorious injustice, alleging, in summary, and with relevance for consideration, the following:

Of the material incompetence of the Arbitral Tribunal with respect to part of the claim

Insofar as the claim and the cause of action seek annulment of the act not on the basis of appreciation of the legality of a tax assessment act, but rather on the basis of the prerequisites for official review of tax acts, when, as is the case in this matter, they relate to the existence of grave and notorious injustice, provided for in Nos. 4 and 5 of Article 78 of the GTA, in that part the request for arbitral pronouncement is not covered by the competence of arbitral tribunals expressly provided for in Article 2 of the LRTA.
That in this respect, Jorge Lopes de Sousa pronounced himself, Annotated and Commented Code of Tax Procedure and Process, Areas Publisher, 6th edition, volume II, 2011, p. 54: "as far as acts issued in official review proceedings [...] judicial challenge will only be the adequate procedural means when the act to be challenged actually contains appreciation of the legality of the assessment act", whereby
This Arbitral Tribunal should, with respect to that part of the claim, find the dilatory exception of material incompetence to be well-founded, dismissing the RESPONDENT from the instance, having regard to the provisions of Articles 576, No. 1 and 577, paragraph a) of the CPC, applicable ex vi Article 29, No. 1, paragraph e) of the LRTA, with the consequent reduction of the instance to the remainder of the request for arbitral pronouncement.

Of the expiration of the right of action with respect to part of the claim

That there is untimeliness of the claim and consequent expiration of the right of arbitral action, as the period of 90 days to submit a request for arbitral pronouncement begins to run from the facts provided for in Nos. 1 and 2 of Article 102 of the CPPT, as provided in paragraph a) of No. 1 of Article 10 of the LRTA.
Being that in the case at hand the contested assessment had 26/11/2013 as its payment deadline, whereby on the date of 27/11/2014 the period for reacting against it through the present arbitral means had expired.
This Arbitral Tribunal should find the exception of untimeliness of the request for arbitral pronouncement to be well-founded, dismissing the Respondent Authority from the instance.

III. B.2 - BY WAY OF CHALLENGE

The request for arbitral pronouncement is made against the tacit dismissal of the request for official review of the assessment act No. 2013..., of 20/04/2013, relating to IRS for 2009, with as cause of action the alleged error attributable to the services, for the purposes of the provisions of No. 1 of Article 78 of the GTA, and also grave and notorious injustice for the purposes of Nos. 4 and 5 of the same legal provision, arguing for the maintenance of the order of the acts in question.
THE RESPONDENT presents its understanding of the material facts with interest for proper decision of the case, having regard to the parties' pleadings and the documentary evidence attached to the case, and considers as settled fact for purposes of evidence:

8.1. On 06/07/2009 the Applicant sold the autonomous fraction designated by the letter I of the property registered under article ... in the urban land matrix of the parish of …, municipality of Lisbon, which she had acquired by deed dated 27/06/1988;

8.2. THE APPLICANT has a tax domicile at Av. …, Lisbon, of the Tax Service of Lisbon..., the husband at Rua …, in ..., Tax Service of ... ...;

8.3. The Applicant did not submit an income return form 3 relating to IRS for 2009;

8.4. The Tax Service of Lisbon..., based on information obtained through form 11, in compliance with the provisions of No. 3 and paragraph b) of No. 1 of Article 76 of the IRS Code, and Article 70, paragraph a) of No. 1 of Article 79 and No. 3 of Article 97 of the IRS Code, officially assessed the disputed tax based on available elements:

8.4.1. Said domicile of the APPLICANT, at the time;

8.4.2. The personal and family situation of taxpayers on 31/12/2009 (Article 13, No. 7 of the IRS Code) with no elements in the services proving the composition of the Applicant's family unit and the quality which the Applicants invoke and do not prove, of spouses not judicially separated in persons and property, in accordance with No. 2 and paragraph a) of No. 3 of Article 13 of the IRS Code;

8.4.3. Because the Services did not know and had no obligation to know the date and value of acquisition of the property, the earliest date of 01/01/1989 and the property value in force were considered;

8.4.4. The official tax assessment was made in the name of the Applicant, in the capacity of unmarried taxpayer, considering 50% of the acquisition value and the alienation value for purposes of calculating the capital gain obtained under IRS;

8.5. The contested official assessment was notified by registered mail at CTT RY...PT, dated 29/04/2013, received on 08/05/2013 and because it was not paid, an enforcement proceeding No. ...2013... was instituted for coercive collection of the total assessed, which has been partially settled;

8.6. The official assessment made in the name of the Respondent husband was annulled following the administrative complaint submitted on 07/05/2013, at the Tax Service of ......, filed under No. ...2013... and allowed by order dated 13/05/2013;

8.7. On 27/06/2014, by registered mail RD...PT, the Applicant submitted at the Tax Service of Lisbon ... a request for official review, filed under No. .../2014-..., referred to the Lisbon Finance Directorate on 04/07/2014 and subsequently to the IRS Services Directorate on 25/11/2014, with no decision having been issued to date;

IMPUGNS the remaining facts alleged by the APPLICANT in the PI, in particular:

In article 1 for not corresponding to the tax domicile communicated by the Applicants to the TA;
In article 6 for not corresponding to reality, as the official assessment made in the name of the Respondent husband was annulled;
In articles 9 and 16 for the APPLICANT, personally or through attorneys appointed for such purpose, never having been prevented from consulting her administrative case file.
For not being proven and for not being a matter which the TA knows or has the duty to know, that on 31/12/2009 the Applicants were married and not judicially separated in persons and property.
It understands that only relevant as disputed fact is to know whether the legal prerequisites for admissibility of the request for official review of the tax act submitted after the deadline for administrative complaint has expired are met, specifically, having regard to the cause of action, whether there was error attributable to the services, for the purposes of the provisions of No. 1 of Article 78 of the GTA, or whether there was grave and notorious error, which contradicts explicitly as to:

To error attributable to the Services

That the thesis of the Applicants lacks legal support, as the official assessment results from non-compliance with Article 57 of the IRS Code within the deadline of Article 60, whereby in the absence of submission of the income return, the TA proceeded to issuance of the official tax assessment, considering the elements available in the Services.
The error made in the tax act in question, embodied in the taxation of the capital gain obtained from the alienation of a property acquired before the entry into force of the IRS Code, excluded from subjection to IRS by the transitional regime of No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30/1, to which is added the alleged taxation of the Applicant in the capacity of unmarried, divorced or de facto separated taxpayer, cannot, therefore, be considered attributable to the Services, supporting this conclusion further in No. 2 of that Article 5, according to which "it is incumbent upon the taxpayer to prove that the goods or values were acquired at a date prior to the entry into force of this Code".
The personal and family situation of the taxpayer on 31/12/2009 is not known to the Services, constituting a fact constitutive of a right to joint taxation of income whose burden of proof rests upon whoever invokes it (Article 74 of the GTA).
For purposes of the final part of No. 1 of Article 78 of the GTA, the question is whether the error made in the tax act is attributable to the taxpayer or to the services, and not, as the Applicants seem to intend, whether the submission of the request for official review after the deadline for administrative complaint is or is not attributable to the services; thus, for No. 1 of Article 78 of the GTA it is not relevant that the Applicant husband presented an administrative complaint on 07/05/2013 to his Tax Service, as the evidence produced regarding the facts invoked there is posterior to the issuance of the official assessment made in the name of the Applicant wife, dated 20/04/2013.

To Grave or notorious injustice

On official review in the three years following the year of the tax act, on the grounds of grave or notorious injustice in ascertaining the taxable amount, provided that the error is not attributable to negligent behavior of the taxpayer, also here the claim of the Applicants lacks legal support, as:

As to negligent behavior of the taxpayer

Although the capital gain obtained was not subject to IRS, having regard to the year of acquisition of the property, it is unequivocal the negligent behavior of the Applicants as to their tax obligations, whose non-compliance resulted in the request for official review after expiration of the deadline for administrative complaint: non-compliance with the obligation to submit form 3 of IRS return and annex G1 (non-taxable capital gains), pursuant to Article 57 of the IRS Code, an obligation not waived by Article 58 of the IRS Code; non-compliance with updating of tax domicile (Article 19 of the GTA) an update being ineffective until communicated to the tax administration (No. 4 of Article 19 of the GTA).
In light of Article 6 of the CC "ignorance or misinterpretation of the law does not justify non-compliance with it nor exempts persons from the sanctions established therein", whereby the alleged errors of the tax act whose official review was requested under Article 78 of the GTA, result from lack of the duties of care incumbent upon them, which, had it occurred, would have resulted in compliance with their declarative obligation and, consequently, non-existence of the official assessment, or, at the limit, timely receipt of the assessment note for purposes of administrative complaint, on the grounds of any illegality.
From non-compliance resulted the treatment of the legal-tax situation of the Applicants by distinct Tax Services and the sending of assessment notes to the addresses appearing in the taxpayers' register, even though not coinciding with the place of their actual habitual residence, a circumstance attributable only to the taxpayers.
Even if not understood in this manner, the prerequisites of grave or notorious injustice of No. 4 of Article 78 of the GTA are not met, as this "provides for the possibility of exceptional review of the tax act beyond normal deadlines for complaint or judicial challenge, even when there has been no error attributable to the services in the assessment. It aims to resolve only the most scandalous and blatant cases of tax injustice, and should not constitute a systematic means for the taxpayer to obtain review of tax acts beyond normal deadlines for complaint or challenge, which would undermine the effectiveness and rationality of the current system of taxpayer guarantees", and "it is the taxpayer who must prove the gravity or notoriety of the injustice, under penalty of summary dismissal of the request for review of the taxable amount".
The RESPONDENT seeks to set forth by articles its appreciation as to:

d) Grave injustice, saying that,

By No. 5 of Article 78 of the GTA only is considered grave the injustice "resulting from manifestly excessive and disproportionate taxation with reality", i.e., "in terms of creating serious disturbances in the life of the taxpayer or his business", it being that the Applicants did not allege or prove that the injustice they invoke gravely harmed their interests.

e) Notorious injustice, saying that,

By No. 5 of Article 78 of the GTA only is considered notorious the injustice that is simultaneously ostensible and unequivocal, which does not appear to be at all the case, as although such provision "does not necessarily mean known or known to many people", still, the alleged injustice in this case constitutes a disputed issue.
On the notion of error attributable to the services, inherent in the final part of No. 1 of Article 78 of the GTA, the doctrine referred to by the Applicants includes in error attributable to the services also error of law, but does not argue that all error of law is attributable to the services, which, in any case, for what matters to this case does not appear relevant as the error made in the return is an error of fact as to the acquisition date of the property, and not an error of law.
On what is alleged in article 33 of the PI, the Administrative Complaint of the Applicant husband obtained an express decision of allowance, not resulting from the request that it was made "on behalf of the couple", as it does not identify the APPLICANT wife nor refers to the quality of being married, not being without significance the fact that there is no declaration or IRS assessment in the TA database in the names of both regarding this year of 2009 or any other.
Although the Applicants do not set forth an explicit request for indemnificatory interest on the amounts paid under the lien of bank accounts in the respective enforcement process, should the Applicants' claim be found well-founded, the right to indemnificatory interest due has its legal framework in paragraph c) of No. 3 of Article 43 of the GTA.
Argues for dismissal of the request for arbitral pronouncement maintaining in the order of the law:

29.1. The dismissal of the request for official review, for not being met the legal prerequisites of Article 78 of the GTA,

29.2. And the tax assessment act.

In the FINAL SUBMISSIONS the RESPONDENT presents the defense by way of exception set out above and by way of challenge, with emphasis, as to:

To the request for review of the tax act under Nos. 4 and 5 of Article 78 of the GTA

In summary, the non-existence of information which the TA should have knowledge of, as well as non-compliance by the Applicants with the obligation to update tax domicile and appointment of a tax representative, with the consequent lack of clarifications of their tax situation, amounting to a situation of negligence that prevents the annulment sought on the grounds of grave and notorious injustice.

To the request for review of the tax act under No. 1 of Article 78 of the GTA on the grounds of error attributable to the services

In the name of each of the Applicants an assessment was made on their share in the disposed property in 2009, there existing, therefore, two different and independent assessments, whereby the assessment No. 2013..., in the name of the husband, was annulled following the Administrative Complaint submitted and the assessment No. 2013..., in the name of the Applicant, is the assessment subject to this proceeding, which was notified by registered mail at CTT RY...PT, dated 29/04/2013, received on 08/05/2013 and because it was not paid, an enforcement proceeding No. ...2013... was instituted for coercive collection of the total assessed, which has been partially settled;
On 27/06/2014, through registered mail RD...PT, the APPLICANT submitted at the Tax Service of Lisbon ... a request for official review, filed under No. .../2014-..., which was referred to the Lisbon Finance Directorate on 04/07/2014 and subsequently to the IRS Services Directorate on 25/11/2014, with no decision having been issued to date;
The IRS assessment in the name of the Applicant considered the information from form 11 submitted by the notaries where appears the identification of the contracted properties and names of the contractors, therein referring to the purchase and sale deed dated 06/07/2009, of the fraction in question, identifying the now Applicants as alienators, with NIF ... and ..., and the share of ½ of each of them.
The property registration certificate refers to the marital status and regime of community of property of the Applicants at the date of acquisition of the property as relevant information for purposes of co-ownership of the same and responsibility of the property for debts of the spouses, but no longer refers to their marital status at the date of alienation, nor refers to the acquisition date of the property but rather to the date of its presentation for registration, being this date 27/06/1989.
The marital status of the alienators, even if it appeared in the property register, would not appear to be decisive, as for purposes of taxation under IRS what is relevant is the personal and family situation on 31/12/2009, whereby for purposes of taxation of the capital gain obtained from the alienation of said property, what matters is attention to the marital status of the alienators on 31/12/2009 and not at the date of the deed.
The fact that the husband, notified of the assessment in his name, presented an administrative complaint at the Tax Service of ... ... without mentioning his marital status or identifying the now Applicant, contributed to the lack of information of the Services and to the fact that said Tax Service did not contact the Tax Service of Lisbon ... for clarifications regarding marital status and the acquisition date of the property, proven by the Applicant husband through the deed.
Notified of those declarations, it is incumbent upon taxpayers to clarify their legal-tax situation, presenting the elements they have at their disposal and which the TA does not know nor has the obligation to know, a conclusion reinforced by No. 2 of Article 5 of Decree-Law No. 442-A/88, of 30/11, which approved the IRS Code, according to which "it is incumbent upon the taxpayer to prove that the goods or values were acquired at a date prior to the entry into force of this Code".
It being proven that the Applicants are non-residents in Portugal, their marital status does not matter for purposes of the taxation they seek to set aside, as it does not matter for purposes of taxation under IRS their civil or family situation;
Although the acquisition of the property is prior to the entry into force of the IRS Code, not having the APPLICANT appointed a tax representative in Portugal (Articles 19 of the GTA and 130 of the IRS Code), she cannot oppose to the TA the notification validly made to her tax domicile.

Concludes that:

There is no error attributable to the Services but to the taxpayers who, having omitted the change of tax domicile, appear as residents in Portuguese territory, with the consequent obligation to declare in Portugal all income obtained, including outside national territory.
The marital status is not public knowledge, as the APPLICANT intends, the Applicant husband not having reported his personal and family situation when he presented his Administrative Complaint against the IRS assessment made only and in his name.
The information reported by form 11 refers to the share of ½ by title of property of each of the Applicants, omitting the marital status, which could not have been inferred from income declarations of the Applicants of prior years, which are non-existent.
Having the contested assessment proceeded to coercive collection, the APPLICANT had the faculty to react, which she did not do for the reason that she did not file an administrative complaint: she did not comply with her duty to update her tax domicile, an omission attributable to the Applicant, not to the TA.
Even if it were concluded that errors were made in the assessment, the same do not result attributable to the TA, and the request for annulment of the act on the grounds of error attributable to the services, under the 2nd part of No. 1 of Article 78 of the GTA, should be found without merit.
It refers, if the Applicants' claim is found well-founded, that the prerequisites for the right to indemnificatory interest are not met, either under No. 1 of Article 43 of the GTA, as no error made in the assessment in question appears to be susceptible of attribution to the TA; or under paragraph c) of No. 3 of Article 43 of the GTA, as indemnificatory interest intended to compensate for delay in deciding the request are due only after one year on the request, which has not yet occurred.
Considers, in the event the request for arbitral pronouncement is found well-founded, that the RESPONDENT should not be condemned in costs, as considering the lack of clarifications provided by the APPLICANT and non-compliance with her obligation to update tax domicile and appoint a tax representative, the TA could not have decided otherwise.

IV - MATTERS OF FACT

The relevant facts of the case, taken as proven for purposes of appreciation and subsequent decision, are as follows:

THE APPLICANT is an emigrant in Canada where she resides for between 40 and 50 years;
THE APPLICANT, aged 80 years, has been married since 30 January 1958, in a regime of universal community of property, with B..., aged 90 years;
On 27 June 1988 the APPLICANT and her husband purchased the property consisting of the autonomous fraction designated by the letter "I", third floor front, of the urban property located at Avenue ... in Lisbon, described in the ... Land Registry Office of Lisbon under number ... and registered in the matrix under article ... (hereinafter referred to as the PROPERTY);
On 06/07/2009 the APPLICANT and B... sold the PROPERTY;
THE APPLICANT has a tax domicile at Av. ..., …, in Lisbon, in the area of the Tax Service of Lisbon ..., not having proceeded to its update in accordance with Article 19 of the GTA;
The husband of the APPLICANT has a tax domicile at Rua …, in ..., in the area of the Tax Service of ... ..., as per address change made at the time of the Administrative Complaint, to address of a friendly person;
Neither the APPLICANT nor the husband proceeded to submit form 3 of IRS return for 2009, accompanied by the respective annex G1; nor to the appointment of a tax representative, although residing outside Portugal;
On 31/12/2009 the RESPONDENT did not have elements proving the quality, between the APPLICANT and B..., of spouses not judicially separated in persons and property;
The facts described (§§ 5 to 8) sustained the treatment of the legal-tax situation of the APPLICANTS by distinct Tax Services and the sending of assessment notes to the addresses on the taxpayers' register, not coinciding with the effective habitual residence;
There was a tax act embodied in the taxation of the capital gain obtained from the alienation of the PROPERTY acquired before the entry into force of the IRS Code, excluded from subjection to IRS by the transitional regime of No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30/1;
It does not result from the case file that the RESPONDENT has complied with Article 60 of the GTA;
The Administrative Complaint submitted by the husband and allowed does not state that it was made "on behalf of the couple", as it does not identify the APPLICANT nor refers to the quality of being married;
The IRS assessment of the APPLICANT considered the information from the Modelo 11 declaration, submitted by the notaries, in compliance with the provisions of the CIMT and the Notarial Code, from which appears the purchase and sale of the PROPERTY on 06/07/2009, identifying the now APPLICANTS in the capacity of alienators, with NIF ... and ..., as well as the share of ½ of each of them.
The property registration certificate refers to the marital status and regime of community of property of the APPLICANT at the date of acquisition of the property, and not the marital status at the date of alienation, however refers to her as alienator, in 2009, jointly with the person with whom she had acquired the same property.
The property registration certificate does not refer to the acquisition date of the property but rather to the date of its presentation for registration: 27/06/1989.
The Services did not know the acquisition date and value of the property, whereby they considered the date of 01/01/1989 and the property value in force;
From the appreciation of the Administrative Complaint of B... it appears that he is divorced (…). (cf. page 37 of PA and §§ 5.3 of the information supporting the decision);
In the official declarations of A... (cf. page 15 of PA) and of B... (cf. page 33 of PA), they appear as "single, widowed, divorced or judicially separated";
On 7 May 2013, after learning of the assessment note No. 2013 ..., in which the TA, in the context of capital gains, taxed the proceeds of the sale of the PROPERTY without considering the acquisition date, B... filed an administrative complaint against the 2009 IRS assessment;
The official assessment made in the name of the husband was annulled following the Administrative Complaint submitted by him on 07/05/2013, at the Tax Service of ... ..., filed under No. ...2013... and allowed by order dated 13/05/2013, but the assessment for enforcement of the APPLICANT was maintained;
B... did not have knowledge of the allowance of the Administrative Complaint;
The APPLICANT learned from the Portuguese banking institution where she holds an account that it had been levied by order of the TA;
As a result of the lien made by the TA, the APPLICANT became unable to move the account she holds in Portugal and was deprived of the amounts held there;
The official assessment in the name of the APPLICANT, as unmarried taxpayer, considered 50% of the acquisition value and the alienation value for purposes of calculating the capital gain obtained under IRS;
The contested official assessment, No. 2013..., dated 20/04/2013, was notified by registered mail at CTT RY...PT, dated 29/04/2013 and received on 08/05/2013;
The contested official assessment, No. 2013 ..., dated 20/04/2013 was not paid;
An enforcement proceeding No. ...2013... was instituted for coercive collection of the total assessed, which has been partially settled;
On 27/06/2014 the APPLICANT filed a request for official review of a tax act by initiative of the Administration (cf. registered mail RD ...PT), request filed under No. .../2014-...;
The request for official review of the tax act was referred to the Lisbon Finance Directorate on 04/07/2014, subsequently to the IRS Services Directorate through office dated 25/11/2014, with no decision having been issued to date;
There is no declaration or IRS assessment in the TA database in the names of the APPLICANT and her husband relating to the year 2009 or any other.
Before the decision to assess tax on the capital gain obtained from the sale of the PROPERTY, there was no hearing of the interested parties, in accordance with Article 121 of the CPA, nor at any subsequent moment;
The proof of the acquisition date of the PROPERTY presented by the APPLICANT occurred after the official assessment of the tax in her name;
In the name of each of the members of the couple an assessment was made on their share in the property disposed in 2009, there existing two different and independent assessments, being that:

33.1. The assessment No. 2013 ..., in the name of the husband, was annulled following the Administrative Complaint timely submitted at the Tax Service of ... ...;

33.2. The assessment No. 2013 ..., in the name of the APPLICANT, is the subject of the present case.

Having the contested assessment proceeded to coercive collection, the APPLICANT did not react nor previously filed an administrative complaint against the IRS assessment;
THE APPLICANT, personally or through attorneys appointed for such purpose, was never prevented from consulting her administrative case file, however,
To the APPLICANT represented by an attorney appointed for such purpose, not the entire administrative case file was made known; it should be noted that the RESPONDENT does not expressly impugn what the APPLICANT states, but rather says that she was not prevented from consulting her administrative case file; it is thus understood, from both statements, that one does not contradict the other, whereby it is accepted that the APPLICANT was not prevented from consulting the administrative case file but not the entire file was made available to her, which is also understandable, given the possibility of dispersion through distinct services; however this factual situation has no decisive influence on the decision.

The facts of the case taken as proven result from the documents attached to the case, both from the PI and from the Response and respective administrative case file and not contested by the parties.

V - APPRECIATION AND DECISION OF THE EXCEPTIONS INVOKED BY THE RESPONDENT

It is important to appreciate the exceptions invoked by the RESPONDENT regarding material incompetence of this Arbitral Tribunal, and expiration, prior to the claim, as if any is found well-founded, it will determine the impossibility of knowing the claim, cfr. Article 608, No. 2 of the CPC, ex vi, Article 29, No. 1, paragraph e) of the LRTA.

The second exception contradicts the first, as set forth by the RESPONDENT; in the first:

Insofar as the claim and the cause of action seek annulment of the act on the grounds of grave and notorious injustice, specifically provided for in Nos. 5 and 4 of Article 78 of the GTA, because it is not a matter of appreciation of the legality of a tax assessment act, it is understood that in that part the request for arbitral pronouncement is not covered by the competence of arbitral tribunals expressly provided for in Article 2 of the LRTA.

It has invoked the second exception in the following terms:

(…) it will be necessary to conclude that it is untimely and consequently there is expiration of the right of arbitral action, as the period of 90 days to submit a request for arbitral pronouncement begins to run from the facts provided for in Nos. 1 and 2 of Article 102 of the CPPT, as provided in paragraph a) of No. 1 of Article 10 of the LRTA, being that in the case at hand the contested assessment had 26/11/2013 as its payment deadline, from which it results that on the date of 27/11/2014 the period for reacting against it through the present arbitral means had expired.

To which is added that in its RESPONSE the RESPONDENT sustains the following:

The present request for arbitral pronouncement is made against the tacit dismissal of the request for official review of the assessment act No. 2013 ..., dated 20/04/2013, relating to IRS for 2009, with tax to be paid in the amount of € 5,802.05, plus compensatory interest in the amount of € 687.34, for a total of € 6,489.39.

And in the FINAL SUBMISSIONS the following:

(…) as results from the request for arbitral pronouncement, it is made against the tacit dismissal of the request for official review, having as cause of action the alleged error attributable to the services, for the purposes of the provisions of No. 1 of Article 78 of the GTA, and also grave and notorious injustice for the purposes of Nos. 4 and 5 of the same legal provision.

That is, in the first exception the RESPONDENT invokes the incompetence of this Arbitral Tribunal to appreciate the claim because it is not a matter of appreciation of the legality of a tax assessment act – which is consistent with what it sustained in the RESPONSE, that the request for arbitral pronouncement is made against the tacit dismissal of the request for official review of the assessment act; and invokes in the second exception the expiration of the right of arbitral action, because in the case at hand the contested assessment had 26/11/2013 as its payment deadline, from which it results that on the date of 27/11/2014 the period [of 90 days] for reacting against it through the present arbitral means had expired.

Appreciating the first exception, it must be dismissed as follows:

As correctly stated by the RESPONDENT in its RESPONSE, the request for arbitral pronouncement is made against the tacit dismissal of the request for official review of the assessment act No. 2013 ..., dated 20/04/2013, relating to IRS for 2009. But,
Reason would be given to the RESPONDENT[2] that "as far as acts issued in official review proceedings [...] judicial challenge will only be the adequate procedural means when the act to be challenged actually contains appreciation of the legality of the assessment act", if the TA had pronounced itself negatively regarding the request for official review because it was understood that there was some obstacle to this (such as untimeliness, or lack of standing or incompetence[3]), that is, for a reason that configured a negative decision for the APPLICANT, however without appreciating the merits of the claim, as in that case the decision, express and negative, would not involve appreciation of the legality of the assessment act.
It is important to note what the same author cited by the RESPONDENT states, in annotation to the LRTA regarding appreciation of the scope of competence of tax arbitral tribunals[4]:

Tax assessment acts are acts of the tax administration that appreciate and conform the tax legal relationship.

(…)

Tax laws provide for the possibility of the taxpayer administratively challenging acts of assessment (in a broad sense, including self-assessment, withholding at source and payment on account), through administrative complaint (…) and challenging decisions dismissing administrative complaints through hierarchical appeal (…). Acts that decide administrative complaints and hierarchical appeals of decisions on administrative complaints will, in this context, be acts of second and third degree, respectively, in which the legality of tax assessment acts, which are acts of first degree, can be appreciated. The same can be said regarding acts that proceed with review of tax assessment acts, within the scope of Article 78 of the GTA.

(…)

As far as acts dismissing requests for review of tax acts, it does not result from the express wording of the LRTA the possibility of them being appreciated by arbitral tribunals functioning in CAAD. (…) However, the formula "declaration of illegality of tax assessment acts, of self-assessment, of withholding at source and of payment on account", used in paragraph a) of No. 1 of Article 2 of the LRTA, in a mere declarative interpretation, does not restrict the scope of arbitral jurisdiction to cases in which an act of those types is directly challenged, as the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second degree act, which confirms an assessment act, incorporating, with that confirmation, its illegality.

(…)

Having obtained the conclusion that the formula used in paragraph a) of No. 1 of Article 2 of the LRTA does not exclude cases in which the declaration of illegality results from the illegality of a second degree act, it will also cover cases in which the second degree act is the dismissal of the request for review of the tax act (…).

It is worth noting that in this annotation, no differentiation is made between express and tacit dismissal, as is understandable, as having the TA had the opportunity to pronounce itself, dismissing the request expressly without appreciating the assessment act because it possibly understood there was some obstacle to this (if it were the case, e.g., untimeliness, or lack of standing or incompetence), if it said nothing, it cannot be considered that there is a dismissal that does not involve appreciation of the legality of the assessment act, whereby, if it embodied, with this silence, an act of dismissal, whose effect is equivalent to express dismissal of the request that involves appreciation of the legality of the assessment act, given that the citizen is granted the right to presume its dismissal for purposes of (…) judicial challenge (ex. vi, No. 4 of Article 57 of the GTA).
It is clear that this tribunal understands that the tacit negative act is by nature un-reasoned[5], whereby, when there is a presumption of dismissal, this is equivalent to a pronouncement of substance, as set forth in the Supreme Administrative Court Decisions issued in cases Nos. 306/09, of 8-7; 1950/13, of 2-7[6] and in identical decision in Case No. 01458/13, of 14/5 of 2014[7].
Now, in the case at hand, what the APPLICANT seeks to have appreciated is the defect of the assessment act, whose appreciation she raised through a request for review that was tacitly dismissed, in accordance with No. 5 of Article 57 of the GTA.
There being a right of challenge or appeal of dismissal, express or tacit and total or partial, of complaints, appeals or requests for review or amendment of assessment, in accordance with Article 95, No. 2, paragraph d) of the GTA, thus the appreciation sought, by the terms set forth, falls within the request for constitution of the tribunal arbitral in accordance with paragraph a) of No. 1 of Article 10 of the LRTA which is competent to appreciate it, provided that there is a presumption of tacit dismissal, in accordance with paragraph d) of No. 1 of Article 102 of the CPPT, as is the case.
Terms in which the exception of material incompetence of this Arbitral Tribunal, raised by the Respondent in its FINAL SUBMISSIONS, is without merit.

Appreciating the second exception, it is important to state:

Article 57 of the GTA provides, regarding deadlines:

1 - The tax procedure must be concluded within the period of four months (…);

3 - In tax procedure, deadlines are continuous and counted in accordance with the Civil Code.

5 – (…) failure to comply with the deadline referred to in No. 1, counted from the entry of the taxpayer's petition at the competent service of the tax administration, presumes its dismissal for purposes of hierarchical appeal, judicial challenge or judicial impugn.

Paragraph a) of No. 1 of Article 10 of the LRTA provides regarding the request for constitution of an arbitral tribunal that it be presented within a period of 90 days, counted from the facts provided for in Nos. 1 and 2 of Article 102 of the CPPT, as to acts susceptible to autonomous challenge (…), coming paragraph d) of No. 1 of Article 102 of the CPPT to provide that challenge be presented within a deadline counted from the formation of the presumption of tacit dismissal;
Terms in which, being the request for constitution of the Arbitral Tribunal made on 27/11/2014, having as basis the presumption of tacit dismissal of the Request for Official Review of the assessment act No. 2013..., which was submitted on 26/06/2014, the presumption of dismissal is considered verified after four months, from the entry of the taxpayer's petition at the competent service of the tax administration, whereby the present claim is timely, as the period of 90 days that paragraph a) of No. 1 of Article 10 of the LRTA confers has not been exhausted.
Terms in which the second exception invoked is without merit.

Not proceeding with the exceptions, it is now important to know about the request for constitution of the arbitral tribunal.-

VI - APPRECIATION OF THE ISSUE

In order to analyze the APPLICANT's request regarding the constitution of the arbitral tribunal, the following must be appreciated:

Whether the prerequisites of Article 78 of the GTA are met for the request for official review of the assessment act No. 2013..., dated 20/04/2013, relating to IRS for 2009, the deadline for administrative complaint having expired; Indeed, if such prerequisites are not met, there could be no such request for review nor judicial challenge of its dismissal.
Accepting the request for official review, and considering its tacit dismissal equivalent to a pronouncement of substance denying the request for declaration of the illegality of the taxation raised - the illegality of the tax act in question, embodied in the taxation of the capital gain obtained from the alienation of a property acquired before the entry into force of the IRS Code, excluded from subjection to IRS by the transitional regime of No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30 November, it is important to appreciate whether reason is with the APPLICANT, that is, whether the official assessment is or is not illegal;

Prerequisites of the request for official review of the tax act – error attributable to the RESPONDENT:

The appreciation of the issue subject to decision implies that account be taken, in the first place, of the fact that the GTA adopted in its construction the tax legal relationship. And eliminating doubts that might still exist regarding the need for production of a tax act for the existence of a tax obligation, it determined, in No. 1 of its Article 36, that "the tax legal relationship is constituted with the tax fact"[8].
Now, for there to be a tax fact, it is necessary that the legal fact find provision in the legal rules of tax incidence (rules with affirmative content) and that such provision not be set aside by another rule that is negative or restrictive, the so-called rule of exemption. This will thus have "the nature of a mere exception to a particular rule (…)"[9]. However, in the case subjudice, in light of the letter and spirit of the law – No. 1 of Article 5 of Decree-Law 442-A/88, of 30 November – we are not facing a rule of exemption, but rather a "space before which the provision operated by the rule stopped – a legally empty space – thus making impossible the formulation of the exception"[10]:

4.1. In light of the letter, as it states that gains (…) are only subject to IRS if the acquisition of the goods or rights to which they relate was made after the entry into force of this Code; which means, a contrario, that if the acquisition of the goods or rights to which the gains relate was made before the entry into force of the IRS Code, the same are not subject. This is the case.

4.2. In light of the spirit – with minimal support in the letter of the law (No. 2 of Article 9 of the CC) by stating that gains that were not subject (…) are only subject to IRS if the acquisition of the goods or rights to which they relate was made after the entry into force of this Code, as this minimal textual support emanates teleological elements, of not taxing what previously was not taxed; only taxing for the future. Hence it is not a matter of exemption, but of non-taxation, of the aforementioned legally empty space of taxation.

It is thus, in the case in question, a matter of capital gains not subject to taxation, whereby the legal fact does not constitute a tax fact, for purposes of Article 36 of the GTA. The same is to say that in the case in question there is no tax legal obligation. If not, let us see:
According to Giannini, the tax debt has its source in the law, more precisely, in the situation of fact that is apt, according to law, to give rise to it. (…) Therefore, Giannini understands that the tax debt arises with the realization of the legal fact. The act or assessment procedure will have merely declarative efficacy and not constitutive, as it is not what gives rise to the obligation. It serves only to make it certain and, consequently, enforceable.[11]
This sense, inherent to the tax legal relationship, present in Article 36 of the GTA, does not permit sustaining the thesis of the RESPONDENT that, due to the failure of the APPLICANT to declare (§ 5.4, 10 to 14 and by all, 23 of the RESPONSE) the TA did not know the PROPERTY was acquired before 1989 and therefore the official assessment now in question results from negligence attributable to the now Applicants, as if they had acted with the duties of care incumbent upon them, they would have timely complied with their declarative obligation and, consequently, avoided the official assessment now in question.
Indeed, the tax obligation does not emerge from the assessment, which has merely declarative efficacy and not constitutive, as it is not what gives rise to the obligation.
The TA took as premise, given the failure to declare by the taxpayers, that the capital gain was generated in a PROPERTY acquired on 01/01/1989[12], however,
The TA does not sustain the basis for that presumption, being that even presumptions enshrined in rules of tax incidence always admit proof to the contrary – Article 73 of the GTA, nor does it make proof of the fact constitutive of the right in accordance with No. 1 of Article 74 of the GTA; nor is the argument that there would be an inversion of the burden of proof due to failure to declare by the taxpayer applicable (ex. vi, No. 3 of the same article and Article 87 of the GTA), for two reasons:

10.1. Due to non-fulfillment of the legal prerequisites of Article 87 of the GTA;

10.2. But also, the TA did not state nor make proof that it notified the APPLICANT so that in accordance with No. 2 of Article 5 of the decree-law that approved the IRS Code she prove the PROPERTY was acquired before 01/01/1989; nor is it valid the argument that if it had notified her, she, due to absence of the known tax domicile of the TA, would not have had knowledge and would not have come to the procedure to make the necessary proof, as what is ascertained is whether the TA performed what was due to it and not whether the steps would achieve its goal, that of contributing to material truth, especially since it could happen that the APPLICANT for some reason traveled to Portugal and became aware; reasoning which however is not relevant as it is not concerned with ascertaining judgments of prognosis, but facts, revelatory, or not, of strict compliance with law, which, is not found to be complied with, as results from the case file.

On the other hand, there is no record, or mere mention, that, given the failure to declare by the APPLICANT, the TA proceeded, as it states (§11 of the RESPONSE), to issuance of the competent official tax assessment, however through prior hearing of the APPLICANT, as was imposed upon it, ex vi, Article 60 of the GTA. Indeed, the same reason that, in the cases provided for in (…) No. 2 (of Article 60 of the GTA), leads to dispensing with the hearing, requires it when the taxpayer has not made its declaration[13], as emanates from paragraph b) of No. 2 of Article 60:

2 - The hearing is dispensed with:

b) In the case of assessment being made officially, based on objective values provided for in the law, provided that the taxpayer has been notified to present the missing declaration, without having done so.

And it is not the fact that the taxpayer fails in a duty towards the administration that legitimizes this to, in turn, disrespect a right of his[14] as the sanctioning route for non-compliance with the obligations referred to by the APPLICANT, declarative and appointment of tax representative, has the appropriate framework in the TGAU (Articles 116 and 124).
It is further added that the RESPONDENT should seek to bring evidence of facts to the procedure, even if they did not benefit its position, as on this matter, it maintains its duty, derived from the inquisitorial principle, to carry out all steps necessary for the discovery of truth, even those aiming to prove facts invoked by interested parties (Article 58 of the GTA)[15].
It is verified that the RESPONDENT has not made proof of having done all it could and should[16] to bring to the case the necessary elements for proof of the facts constitutive of the right to tax the said capital gain, and that were within its reach, in accordance with paragraph d) of No. 1 of Article 63 of the GTA, so as to determine with rigor the date of acquisition of the PROPERTY by the APPLICANT, e.g.:

14.1. To request from the Notary where the deed of purchase and sale of the PROPERTY that generated the capital gain was executed the elements which such notary had at its disposal - and which indisputably had: the deed by which the property which the APPLICANT alienated in 2009 was titled;

14.2. Or from the competent Land Registry Office, a copy of which, now attached to the case by the APPLICANT, shows that she had acquired the property in co-ownership with her husband and Claimant of another official assessment that obtained a favorable decision from the RESPONDENT, and further proves that the then acquirers were also the now alienators, facts which, moreover, are acknowledged by the RESPONDENT in its FINAL SUBMISSIONS (§ 21 to 23).

This lack of performance by the tax administration of steps which it is possible for it to carry out or the failure to request from interested parties the evidence necessary for instruction of the procedure, constitutes a defect of this, susceptible of implying the annulment of the decision made in it[17], thus embodying an error attributable to the services.

The tax administration and taxpayers are, moreover, subject to a mutual duty of collaboration (59/1), presuming good faith in the actions of both (59/2), with the duty of collaboration of the TA towards taxpayers including notification of the taxpayer or other interested parties for clarification of doubts regarding their declarations or documents, a fact which the TA does not demonstrate having carried out.
The presumption of good faith of the taxpayer – which is the case as sustained by the APPLICANT and not impugned by the RESPONDENT – as she is found to be living outside Portugal with residence in Canada for many years, should here be valued in her favor as the failure to submit a declaration does not result from conduct concealing information, or lack of collaboration with the TA, but rather from not being taxed in Portugal, as in this country she has no income, as the RESPONDENT moreover recognizes (§§ 20 of the RESPONSE), to which is added that being the PROPERTY excluded from the scope of taxation on capital gains, there would be no tax to pay. Terms in which this presumption of good faith has as effect that doubts regarding the existence and quantification of the tax fact (which are the essential points with regard to which there is usually divergence between the taxpayer and the tax administration) be procedurally valued in favor of the taxpayer, leading to annulment of the impugned act[18].
Not having thus proceeded in accordance with the law, particularly by relying on the provisions of the articles cited above, there is a manifest error attributable to the TA, for purposes of Article 78 of the GTA, in subsuming the situation of the capital gain generated with the alienation of the PROPERTY acquired in 1988 by the APPLICANT (and husband) to the rules of incidence of the IRS Code, when it was excluded from these by virtue of No. 1 of Article 5 of decree-law No. 442-A/88, of 30 November, as, not having the TA determined the material reality, as it could and should, it incurred in error regarding the prerequisites of fact, by treating as existing a tax fact that did not exist[19],
An error which moreover configures unconstitutional collection, in accordance with No. 3 of Article 103 of the Constitution as no one can be obliged to pay taxes (…) whose assessment and collection are not made in accordance with law, which determines incidence (No. 2), which in the case was not verified.
The error regarding the prerequisites of fact constitutes a defect of violation of law, as, being the legal powers exercised in the administrative act attributed to be exercised in determined conditions, their use in factual situations that do not correspond to those which were the basis for the attribution of such powers is in discord with law[20].

On the relevance of the Administrative Complaint of the other co-owner

The assessment in question had as premise that the PROPERTY was acquired in 1989, and not in 1988, as stated in the RESPONSE of the RESPONDENT, because the Services did not know and had no obligation to know the date and value of acquisition of the property, the earliest date of 01/01/1989 and the property value in force were considered (cf. in § 5 the 3rd § numbered as 5.5.4), an argument supported on non-compliance with the obligation to submit form 3 of IRS return for 2009 accompanied by the respective annex G1 (§ 19 of the RESPONSE);
It is certain that, it was the result of this error of fact – that the PROPERTY was acquired in 1989, and not in 1988 -, recognized by the RESPONDENT, that it pronounced itself favorably to the request made by the husband of the now APPLICANT as far as the Administrative Complaint submitted is concerned;
It should further be noted, that it did so independently of appreciation of the matrimonial relationship between the then Claimant and the now APPLICANT, but by considering the request well-founded, because the capital gain obtained with the alienation of the property in 2009, was excluded from subjection to IRS by the transitional regime of No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30 November, given the fact that it had been acquired on 27 June 1988, that is, before the entry into force of the IRS Code.
When questioned by the RESPONDENT by this Arbitral Tribunal regarding the manner of determination of the percentage of each of the taxpayers, it came to state that it was determined by the notarial act which recorded in Form 11 the share of ½ by title of property of each of the Applicants, thus confirming the conviction of this Tribunal of the non-existence of any other documents which would permit its determination and, simultaneously, sustain the non-matrimonial relationship (e.g., a divorce partition that would permit determining the share). Thus,
There is no documentary basis which permits the RESPONDENT to sustain, the status of "unmarried" or "divorced", either at the date of alienation, at the date when the personal and family situation of the taxpayers is determined – 31/12/2009 –, or at the date of submission or of the decision that fell on the Administrative Complaint; and, it must be reiterated, that co-ownership is more relevant than the matrimonial relationship, although from the latter could derive a particular evidence of co-ownership, but also the useful effect for both (husband and wife) of the allowance of the Administrative Complaint then submitted.
It is important to state that the admitted error is embodied in taxing a capital gain that was not subject to taxation, a fact determining for appreciation and decision, having regard to the powers, and duties, of the TA in regard to determining material truth, which was not foreign to it when allowing the request for appreciation of a co-owner of the same property in administrative complaint context, as it states that the official tax assessment was made in the name of the Applicant, as unmarried taxpayer, considering 50% of the acquisition value and the alienation value for purposes of calculating the capital gain obtained under IRS, coming in the appreciation of the Administrative Complaint of B...to state that on the date of alienation the claimant was with the marital status of divorced, whereby for purposes of declarative purposes it corresponds to 50% of the alienation (…).
Thus, what is relevant for appreciation of the issue is the objective situation is the fact that the property acquired by the taxpayer is excluded from subjection to IRS, having regard to the year of acquisition by this taxpayer, but also by any co-owner who held the remaining 50%, provided that such co-ownership was contemporaneous with that acquisition.
The reason why it would be relevant to know the marital status of the alienators at the date of alienation, as although they would divorce the day after, a fact with effects on 31/12/2009, as provided by Article 13, No. 7 of the IRS Code, that knowledge - of co-ownership in matrimonial community from the date of acquisition until the date when the legal fact of alienation occurred -, was a relevant indication that the APPLICANT could not be taxed, because co-owner ab initio of the remaining 50%.
However, although the matrimonial relationship was a not inconsiderable indication, what is more relevant is the fact that having been allowed the request appreciated in administrative complaint context of a co-owner, in like manner it was incumbent to appreciate any other co-owner who had acquired his share on the same date to also see the exclusion from subjection to IRS of the capital gain obtained with the alienation of his fraction.
It is certain that the RESPONDENT argues that (§§ 5.5.4.) because the Services did not know and had no obligation to know the date and value of acquisition of the property, the earliest date of 01/01/1989 and the property value in force were considered; and based on No. 2 of Article 5 of decree-law No. 442-A/88, of 30 January, it is incumbent upon the taxpayer to prove that the goods or values were acquired at a date prior to the entry into force of the IRS Code, whereby it is important to analyze whether this argument is sufficient to disregard, in the context of appreciation of the Administrative Complaint, and overlooking the matrimonial relationship, whether the other property owner - as he appears in the purchase and sale deed submitted by the Claimant -, should not obtain the same tax treatment, proceeding by operation of law to annulment of the official assessment, once the TA had knowledge that the PROPERTY was acquired in 1988.
Even if the RESPONDENT, at the moment of appreciation of the Administrative Complaint of the husband, had not availed itself of the provisions of Article 63 of the GTA, once the right of the then Claimant to obtaining the allowance of what was requested was recognized, at that moment it became aware of the non-existence of a tax fact, in the legal sphere of the other co-owner, in this case, wife of that one, but equally if it were not, whereby it was incumbent upon it the duty to review the unjust acts (…) corollary of the duty to act in accordance with the principle of justice, constitutionally enshrined (Article 266, No. 2, of the Constitution)[21], in accordance with Article 78 of the GTA.
By so failing to proceed, the TA maintained in the order of law an unjust act, which at the very least, contradicts the Constitution, having, for this reason to be annulled, as the principles of justice, equality and legality, which the tax administration must observe in the entirety of its activity (Article 266, No. 2 of the Constitution and 5 of the GTA), impose that all errors in assessments that have led to collection of tax in an amount greater than what would be due under law be officially corrected[22].

Appreciation of the alleged non-existence of grave and notorious injustice:

The RESPONDENT sustains that there is no grave injustice as the Applicants did not allege nor prove that the injustice they invoke gravely harmed their interests.
An argument that is not accepted, as grave injustice is understood to be that which results from manifestly excessive and disproportionate taxation with reality[23], thus if the capital gain generated by the alienation of the PROPERTY is excluded from taxation, the assessed tax is unjust, excessive and disproportionate and, once the account of the APPLICANT has been levied, it is not seen how the patrimonial interests of the same are not gravely harmed.
The RESPONDENT intends to sustain that injustice is not notorious as No. 5 of Article 78 of the GTA determines that only is considered notorious the injustice that is simultaneously ostensible and unequivocal, which does not appear to be at all the case, as although such provision "does not necessarily mean known or known to many people", still, the alleged injustice in this case constitutes a disputed matter.
An argument that is also not accepted, as having been allowed the Administrative Complaint of a co-owner of the same PROPERTY, acquired in co-ownership on the same date – 1988 -, the question is always raised whether there is not an ostensible and unequivocal injustice, especially as the APPLICANT finds herself involved in a lien on a bank account in an unfavorable socio-economic context of loss of confidence of the banking sector in timely compliance with obligations (well evident from pages 29 of PA), a fact which, given the possible knowledge of the entire sector could, if necessary, inhibit the now APPLICANT from presenting herself as surety for a family member or friend; reason for which, even though injustice "does not necessarily mean known or known to many people", being known to the banking sector it is necessarily an ostensible and unequivocal injustice;

Terms in which

In the case subjudice, because the principles of justice, equality and legality, which the tax administration must observe in the entirety of its activity (Article 266, No. 2, of the Constitution and 55 of the GTA), impose that all errors in assessments that have led to collection of tax in an amount greater than what would be due under law be officially corrected[24], the prerequisites for official review of the tax act in accordance with Article 78 of the GTA are met, which, not having occurred will result in positive appreciation of the request for constitution of the tribunal arbitral by the APPLICANT.
Moreover, having the RESPONDENT recognized to a co-owner of the same property of the now APPLICANT the exclusion from taxation on capital gains, because acquired before the entry into force of the IRS Code, the prerequisites for official review of the assessment act by initiative of the TA were met, as the duty to review unjust acts is a corollary of the duty to act in accordance with the principle of justice, constitutionally enshrined (Article 266, No. 2, of the Constitution)[25], especially as there being violation of law, such error cannot be attributed to the taxpayer by way of negligence.
Thus, having the request for official review of the tax act of the assessment No. 2013 ... been dismissed by the RESPONDENT, with the expiration of the period of four months (Nos. 1 and 5 of Article 57 of the GTA) having said nothing, and being petitioned before this Arbitral Tribunal the appreciation of the legality of said assessment, maintained in the order of law by that dismissal, by the terms already set forth – exclusion of the capital gain from the scope of taxation -, the same must be annulled, with the legal consequences, particularly the lifting of the lien and return of the amounts collected.

It is further important to appreciate two other issues petitioned by the APPLICANT:

The lifting of the lien made on the bank deposit at Banco Santander Totta;
And the respective interest due from the date of the lien until its actual lifting.

Appreciating:

It is not necessary to determine in the arbitral decision the lifting of the lien, as results from No. 1 of Article 24 of the LRTA that the TA must reestablish the situation that would exist if the tax act subject of this arbitral decision had not been carried out, adopting the acts and operations necessary for this effect. However, as sustained in the annotation of the LRTA[26], being the determination of these effects in the arbitral decision the most accurate solution, it is understood to determine the obligation of lifting the lien, in the terms petitioned, to be carried out by the RESPONDENT.
The RESPONDENT, particularly in the FINAL SUBMISSIONS, pronounced itself on the legal framework of indemnificatory interest, sustaining (§§ 37 to 39) that if the Applicants' claim is found well-founded, still the prerequisites for those are not met, whereby the following must be considered, in support of what is sustained by the RESPONDENT:
The request for constitution of tribunal arbitral was sustained on the prior request, dismissed, for official review of tax act, whereby, to consider the right to indemnificatory interest in accordance with No. 1 of Article 43 of the GTA, the sense of its No. 3 would be precluded; indeed, if the decision on the request for official review were favorable, there would be right to interest in accordance with No. 3 of Article 43, however, if the decision were unfavorable, it would suffice to challenge the decision on the request for review to obtain the right to indemnificatory interest not due to him by virtue of No. 3, which lacks any logic, in light of the sense of law, which determines: indemnificatory interest is also due in the following circumstances:

c) When the review of the tax act by initiative of the taxpayer is made more than one year after the request of this, unless the delay is not attributable to the tax administration.

Thus, we must understand that it is not a matter of indifference to the taxpayer whether or not to challenge acts of assessment within the respective deadlines, as in case of annulment in impeachment procedure, judicial or administrative, (…) there is right to indemnificatory interest from the date of undue payment until issuance of a credit note (Articles 43, No. 1 of the GTA and 61, No. 5 of the CPPT), while in cases of official review of assessment (when not made at the request of the taxpayer, within the deadline of administrative procedure, a situation that is comparable to administrative complaint) there is only right to indemnificatory interest in accordance with Article 43, No. 3, of the GTA (…)[27].
Terms in which, sustaining this request on appreciation of legality based on the dismissal of a request for official review, permitting the APPLICANT to obtain interest from the date of undue payment until issuance of a credit note, would be to contradict the sense and scope of Article 43 of the GTA, whereby it must be understood, with the RESPONDENT, that indemnificatory interest would be due only in accordance with paragraph c) of No. 3 of Article 43 of the GTA.

VII - DECISION

Terms in which it is decided:

To find the request for arbitral pronouncement well-founded and declare the illegality of the assessment in question, proceeding with its annulment;
To determine the lifting of the lien at the banking institution.

VIII - VALUE OF THE CASE

The case value is fixed at €6,489.39 (Six thousand four hundred eighty-nine euros and thirty-nine cents).

IX – COSTS

In accordance with the provisions of the Costs Regulation in Tax Arbitration Proceedings, costs are fixed at €612.00, to be borne by the Tax Authority.

Lisbon, 20 July 2015

Text prepared by computer, in accordance with Article 131, No. 5 of the CPC, ex vi, Article 29, No. 1...

Frequently Asked Questions

Automatically Created

Are capital gains from the sale of properties acquired before 1989 subject to IRS taxation in Portugal?

No, capital gains from properties acquired before 1989 are not subject to IRS taxation in Portugal. When the IRS Code was introduced, it included transitional provisions that specifically protected properties acquired before the code's entry into force from capital gains taxation. This means that even if such a property is sold many years later (as in this case, where a 1988 property was sold in 2009), the sale remains exempt from capital gains tax. The Tax Authority is required to verify the original acquisition date and apply this exemption automatically.

What is the procedure for official review (revisão oficiosa) of an unlawful tax assessment by the Portuguese Tax Authority?

The procedure for official review (revisão oficiosa) is governed by Article 78 of Portugal's General Tax Law (LGT). It can be initiated either by the Tax Authority on its own motion or at the taxpayer's request. When initiated by taxpayer request, it must be filed within four years from the date of the tax assessment. The review is appropriate when there is an error attributable to the tax services (not the taxpayer), which encompasses any illegality in the assessment. The taxpayer submits a written request to the relevant tax office, explaining the error and providing supporting documentation. The Tax Authority must then examine the case and issue a decision correcting or maintaining the assessment.

Can a non-resident taxpayer challenge a Portuguese capital gains tax assessment through tax arbitration at CAAD?

Yes, non-resident taxpayers can challenge Portuguese capital gains tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). This case demonstrates that emigrant taxpayers residing abroad maintain full access to Portugal's tax arbitration system under Article 2(1)(a) of the Legal Regime for Tax Arbitration (RJAT). The process involves filing a request for constitution of an arbitral tribunal, which can be done even while residing outside Portugal. Legal representation is advisable but the taxpayer can choose not to designate an arbitrator, in which case a sole arbitrator is appointed by CAAD's Deontological Council. The arbitration provides an alternative to judicial courts for resolving tax disputes.

What are the legal consequences when the Tax Authority fails to consider the original acquisition date of a property for capital gains calculation?

When the Tax Authority fails to consider the original acquisition date of a property for capital gains calculation, the resulting assessment is illegal and voidable. This constitutes an error attributable to the tax services, making the entire assessment subject to annulment. The taxpayer is entitled to challenge the assessment through official review (revisão oficiosa), hierarchical appeal, judicial impugnation, or tax arbitration. If the property was acquired before the IRS Code's entry into force (pre-1989), the error is particularly egregious because transitional provisions explicitly exempt such properties from capital gains taxation, meaning no tax should be due at all.

Is the Tax Authority liable for unjust enrichment and interest when a bank account is seized based on an illegal tax assessment?

Yes, the Tax Authority can be held liable when a bank account is seized based on an illegal tax assessment. The taxpayer is entitled to immediate lifting of the seizure/lien once the underlying assessment is annulled. Furthermore, the taxpayer can claim interest (juros indemnizatórios) from the date of the seizure until the actual lifting of the lien, as compensation for being deprived of access to their funds. The legal basis includes arguments of grave and notorious injustice and unjust enrichment by the Tax Administration. Portuguese law recognizes that taxpayers must be compensated for damages resulting from unlawful tax collection measures, particularly when elderly or vulnerable taxpayers are deprived of necessary financial resources due to administrative errors.

Capital Gains Tax on Pre-1989 Property Sale: Non-Taxation and Official Review (CAAD 793/2014-T)

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II – PRELIMINARY MATTERS

III - POSITION OF THE PARTIES

III. A - POSITION OF THE APPLICANT

III. B - POSITION OF THE RESPONDENT

III. B.1 - BY WAY OF EXCEPTION

III. B.2 - BY WAY OF CHALLENGE

IV - MATTERS OF FACT

V - APPRECIATION AND DECISION OF THE EXCEPTIONS INVOKED BY THE RESPONDENT

VI - APPRECIATION OF THE ISSUE

VII - DECISION

VIII - VALUE OF THE CASE

IX – COSTS

Frequently Asked Questions

Tags

FRESH Legal Group

Table of Contents

Capital Gains Tax on Pre-1989 Property Sale: Non-Taxation and Official Review (CAAD 793/2014-T)

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II – PRELIMINARY MATTERS

III - POSITION OF THE PARTIES

III. A - POSITION OF THE APPLICANT

III. B - POSITION OF THE RESPONDENT

III. B.1 - BY WAY OF EXCEPTION

III. B.2 - BY WAY OF CHALLENGE

IV - MATTERS OF FACT

V - APPRECIATION AND DECISION OF THE EXCEPTIONS INVOKED BY THE RESPONDENT

VI - APPRECIATION OF THE ISSUE

VII - DECISION

VIII - VALUE OF THE CASE

IX – COSTS

Frequently Asked Questions

Tags

FRESH Legal Group

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Table of Contents