IRS Capital Gains on Property Sale via Irrevocable Power of Attorney – No Taxable Event (CAAD 802/2014-T)

ARBITRAL DECISION

CLAIMANT: A…, NIF …, resident at Rua …, …, …-… ….

RESPONDENT: Tax and Customs Authority (hereinafter designated AT) represented by Dr. B… and Dr. C…, pursuant to the appointment order of the General Director of AT, dated 30/12/2015.

I – REPORT

1. The CLAIMANT, under article 2, paragraph 1, letter a) of RJAT, filed a request for arbitral ruling for the assessment of the legality of the additional Personal Income Tax (IRS) assessment order for the 2010 tax period, in the amount of € 35,885.06, eventually petitioning that this Arbitral Tribunal rule to the effect that:

(i) The annulment of the Personal Income Tax assessment order and compensatory interest additionally assessed for the 2010 tax period;

(ii) The condemnation of AT to payment of the sum of € 35,885.06, already paid by the CLAIMANT, plus compensatory interest counted from the payment date [28/10/2014].

1. The CLAIMANT filed a Request for constitution of the Arbitral Tribunal on 04-12-2014, which was accepted by His Excellency the President of CAAD on 09-12-2014, leading to notification of AT, in compliance with paragraph 3 of article 10 of the Legal Regime for Arbitration in Tax Matters (hereinafter RJAT).

2. Having the CLAIMANT opted not to appoint an arbitrator, pursuant to the provisions of paragraph 1 of article 6 of RJAT, the undersigned was appointed sole arbitrator by the Deontological Council of the Centre for Administrative Arbitration, an appointment timely accepted, it was notified to the parties on 28-01-2015 that they did not object to said appointment.

3. Having been notified, the RESPONDENT did not proceed in accordance with the terms provided in paragraph 1 of article 13 of RJAT to revoke the assessment subject to dispute, thus maintaining the contested act.

4. The Singular Arbitral Tribunal was constituted on 13-02-2015, combining the provisions of letter c), of paragraph 1, with paragraph 8 of article 11 of RJAT, whereby on 16-02-2015 AT was notified to, in accordance with and for the purposes of the provisions of paragraphs 1 and 2 of article 17 of RJAT, submit its Response and the corresponding administrative file;

5. In Response the RESPONDENT, on 19-03-2015, presents its defense by way of contestation;

6. As on 20-05-2015 the meeting provided for in article 18 of RJAT was dispensed with;

7. The witness indicated by the CLAIMANT was heard on 28-05-2015 – Dr. D… - at the seat of CAAD, as recorded in the respective hearing record and audio recording;

8. The RESPONDENT having failed to produce the witness indicated by it – E… - on the day of the respective hearing, the date of 15-06-2015, at 2:30 p.m., was set for the purposes of conducting the hearing to be presented by the RESPONDENT, of which the parties were then notified, without prejudice to by order rendering said hearing act without effect;

9. Having regard to the joining of various documents to the file by the parties, and to its content, an order was issued on 09/06/2015, to the effect of the need to assess the utility of the hearing of the witness indicated by the Respondent (cf. 130 [1] CPC and 99, paragraph 1 of LGT), rendering without effect the hearing on 15-06-2015, at 2:30 p.m.; to be rescheduled, after the parties' ruling, if it proves necessary in the meantime.

10. Having regard to the content of the documents that both parties joined to the file, and on which both were called to rule, it is relevant to note:

11.1. An arbitral decision, which, although not final, to be joined by the RESPONDENT it is inferred agreement with its content, of which it stands out that the legal fact that gave rise to the capital gain occurred in the year 2000, but not in the CLAIMANT's sphere, as shall be set forth;

11.2. By the CLAIMANT, that her father had acquired the real property being subjected to taxation before the entry into force of CIRS, thus asserting they are excluded from taxation as regards capital gains, as shall also be set forth;

11.3. The futility of the hearing of the witness indicated by the RESPONDENT is proven (cf. 130 CPC and 99, paragraph 1 of LGT), whereby, pursuant to letter e) of article 16 of RJAT, it is dispensed with.

II – PRELIMINARY EXAMINATION

1. The tribunal is materially competent and is regularly constituted, in accordance with articles 2, paragraph 1, letter a), 5, paragraph 2 and 6, paragraph 1 of RJAT.

2. The parties have standing and capacity to sue, are legitimate and are duly represented, in accordance with articles 4 and 10 of RJAT and article 1 of Regulation no. 112-A/2011, of 22 March.

3. The proceedings are not affected by any defects that would invalidate it.

III - POSITION OF THE PARTIES

III.A – POSITION OF THE CLAIMANT

The CLAIMANT came to request the constitution of the arbitral tribunal for assessment of the legality of the additional Personal Income Tax assessment order for 2010, in the amount of € 35,885.06, which arises from capital gains ascertained by virtue of the alienation on 31 March 2010, of two rural properties - parish … - articles … and …, in the total value of € 299,278.74, by attorney F… (hereinafter F…) in representation of G… (hereinafter G…) to the commercial company H…, LDA., arguing that:

1. AT directed to the taxpayer the letter …/…, of 06/02/2014, where it appears from AT's database, in Declaration Form 11 the alienation of the rural properties (…) in the name of the taxpayers I… (…) and G... (…), having these died on 2003.01.05 and 2006.03.12 respectively.

2. AT declared that said income was not declared, whereby the CLAIMANT was notified to present within 15 days a substitute model 3 declaration to include her pro-rata share of said income in annex G, and communicate to other heirs to proceed in the same manner'.

3. In compliance with article 60 of LGT, AT notified the CLAIMANT that, within 15 days, she could exercise the right to be heard, but nothing further was communicated or notified to the CLAIMANT.

4. In face of the notification the CLAIMANT did not communicate to other heirs to proceed in the same manner understanding that she had no responsibility for notifying third parties which is exclusively the responsibility of AT, but exercised the right to be heard on 12-02-2014 by electronic mail which she sent to the address: …, where she stated that:

4.1. Who sold the properties in question was the CLAIMANT's father;

4.2. The sale had been preceded by the execution of a promise of sale contract, which she joined as attachment;

4.3. A power of attorney had been executed, which she also attached;

4.4. The real property in question had been inherited by the seller G…, and she joined a document;

1. To the joining of the documents and new elements AT did not rule, and constituting a draft decision [given that the taxpayer was given the opportunity to rule on it in accordance with article 60 of LGT], AT did not issue a final decision, or if it did, did not communicate it to the CLAIMANT;

2. This means that AT not only did not notify the taxpayer of the final decision, but also did not rule on the elements and documents that were brought to the proceedings in the course of the right to be heard.

3. Since Feb/2014 the CLAIMANT has not received any communication or notification, being surprised on 22.10.2014 with the compensation note, which identifies the Personal Income Tax assessment for 2010, without explanation of the facts and documents brought to the procedure, which reveals that the "contested" act is affected by illegality due to omission of essential formality, by:

7.1. Absence of notification of the final decision, and

7.2. Defect of reasoning, given that AT, in violation of article 60, paragraph 7 of LGT did not rule on the new elements.

1. The principle of hearing prescribed in articles 100 et seq. of CPA, assumes itself as a dimension of the principle of participation of article 8 of the same Code, in compliance with paragraph 4 of article 267 of CRP, and which obliges the competent administrative body to associate the taxpayer with the preparation of the final decision.

2. LGT, adapting the tax procedure to CPA and CRP, enshrines in article 60: The participation of taxpayers in the formation of decisions which concern them may be effected, whenever the law does not prescribe otherwise, by any of the following forms: a) Right to be heard before assessment, whereby AT must send the taxpayer the proposed final decision (60, paragraph 5), and its reasoning, considering the new elements brought by the taxpayer.

3. Citing doctrine (Joaquim Freitas da Rocha, in Lessons of Procedure and Tax Procedure, page 574) states that the exercise of the right to be heard gives rise in the legal sphere of the administration the duty to consider all new elements whether of fact or law brought to the procedure, whereby if this is not done, it can be considered that the final decision, besides being deficiently reasoned incorporates an omission of formalities and will, as such, be susceptible to annulment (cf. article 99, letter d) of CPPT) and jurisprudence of STA (Judgment of 7-12-2005, Proc. 01245/03) supports that article 60, paragraph 6 of LGT must be interpreted to the effect that AT is obliged to rule on new elements, whether of fact, or of Law, brought to the procedure by the taxpayer in the exercise of the right to be heard, under penalty of annulment of that administrative decision, due to defect of form by deficiency of reasoning, for we are faced with a manifestation of the principle of contradictory procedure which, as a General Principle of Law, does not require express consecration in the law, being an essential moment of administrative procedure, a principle of "legal ethics" and a norm of "administrative natural law", also being one of the manifestations of the principle of transparency of the procedure,

4. AT notified the taxpayer to rule within 15 days on the content of the draft decision, a right exercised by the CLAIMANT, with joining of documents, but which was not subject to any appreciation, weighing or decision, whereby the assessment act is illegal due to gross violation of article 60, paragraph 7 of LGT, procedural defect reflected in the circumstance of the principle of participation not having been followed through, and thus an illegality of defect of reasoning, given that AT in reasoning the decision did not incorporate the new elements brought to the proceedings.

5. In any of the circumstances stated - non-compliance with the duty of Hearing [complete] or violation of the duty of reasoning, we are in the presence of a typical illegality, provided for in article 99, letters c) and d) of CPPT, whereby the act subject to arbitral ruling is illegal.

6. It follows from article 62 of RCPIT, that AT has the obligation to communicate to the taxpayer the direction of the final decision of the tax procedure, regarding the intention to assess, before assessment, which was required in the face of the presentation in the right to be heard of documents by the taxpayer, who thus remained in expectation as to the outcome of the procedure that was underway, whereby AT violated a norm which by having a special relationship with the guarantees of the taxpayer assumes itself as an essential formality, whereby, also for this [third] reason, the act which constitutes the subject of this ruling is illegal, as follows from article 99, letter d) of CPPT.

7. The CLAIMANT also pronounces itself on the NON-EXISTENCE OF TAX FACT, for there is no fact generating the obligation to tax and as such the typical element is lacking that triggers subjection to the rules of incidence and the birth of the tax relationship, to which it explains that,

8. From what can be inferred from the letter …, the Personal Income Tax assessment is based on the alienation of the rural properties at the value of € 299,278.74, which according to AT should determine the payment of Personal Income Tax, in the form of capital gains, arising from the onerous alienation of real rights over real property, but the CLAIMANT did not alienate any real property, did not execute any notarial deed nor incorporated into her patrimonial sphere the economic benefit of the alienation of any real property, that is, did not establish with third parties any legal link capable of giving rise to the tax obligation as regards Personal Income Tax, in the terms that follow from AT's framing.

9. All acts, contracts and documents were executed by the CLAIMANT's Father, G…, who received in the year 2000 the entirety of the price inherent to the sale, as he explains:

16.1. On 28 March 2000, there was executed by G… and F… a promise of sale and purchase contract of said real property, whereby, in the capacity of promising seller, G… declared to promise to alienate said real property in the amount of 60,000,000$00 [equivalent in Euros 299,278.07] and the promising purchaser, F…, declared that he promised to pay 15,000$00, as earnest money by means of check, as well as the remainder, 45,000,000.$00, would be paid at the moment of execution of the irrevocable power of attorney of the alienor in favor of the purchaser whereby, he, irrevocably, granted to this the necessary powers to in his name give effect to the promise contract.

16.2. On 14 June 2000, the CLAIMANT's parents, G… and wife I…, constituted as their sufficient attorney F…, to whom they conferred the powers above referred to, regarding said real property.

16.3. The power of attorney being executed in the common interest of the granters is irrevocable, in accordance with article 265 and paragraph 2 of article 1170 of the Civil Code, and the powers conferred do not lapse upon death.

16.4. On 12 March 2006 the death of G… occurred, and it is certain that on that date the transfer of ownership had not yet occurred [which the CLAIMANT is unaware of].

16.5. On 31 March 2010 the holder of the irrevocable power of attorney and promising purchaser of the real property executed with the company H…, LDA., of which he was partner and manager, the deed of purchase of the identified rural properties, which are still registered in favor of their owners G… and I….

16.6. In the exercise of the irrevocable power of attorney, the promising purchaser F… promoted the transfer of ownership whose payment had occurred entirely with the execution of the power of attorney and promise contract executed in 2000, an act in which the CLAIMANT had no participation whatsoever.

1. She did not execute it, the real property were not registered in her favor, she did not receive the price or any other benefit, whereby the legal effect of the purchase and sale was produced without her participation, being the result of a legal relationship between F… and the CLAIMANT's father, G…, as an effect arising from the execution of the irrevocable power of attorney which doctrine and jurisprudence recognize as valid after the death of the principal for having been granted in the interest of the agent.

2. The CLAIMANT makes considerations regarding the execution of the irrevocable power of attorney, citing jurisprudential excerpts (Judgment of STJ, of 13 February 1996) and doctrinal (Pedro Pais de Vasconcelos, in "General Theory of Law", 2005, 3rd Edition, page 189) to support that being recognized the legal relevance of irrevocable powers of attorney, the death of G…, occurred on 12/03/2006, had no influence on the validity of the respective mandate, whereby the legal effect of the sale repercussed in the legal sphere of the principal and not of the here CLAIMANT.

3. With the execution of the promise contract in 2000, G… transmitted to F… the possession and material holding of the real property and received the entirety of the price inherent to the transmission, whereby the legal relationship was born, developed and ended within the framework of the patrimonial sphere of F… and G…, to which the CLAIMANT is alien, not being an integral part of the legal relationship of the transmission of real property, is not a subject of the tax relationship, whereby the tax incidence rule that follows from article 13, paragraph 1 of CIRS does not apply to her;

4. Not repercussing in the legal sphere of the CLAIMANT the effects of the sale, the conditions for triggering the normativity of that same incident are not created, for there not having been - as regards the CLAIMANT - the occurrence of the tax-generating fact, whereby there is no payment obligation.

5. Solution in line with the regime itself of category G, in the form of capital gain, in accordance with article 9, paragraph 1 a) of CIRS; and with paragraph 3 of article 10 which establishes that gains are considered obtained at the moment of the practice of the acts provided for in paragraph 1, being that in cases of promise of sale and purchase contract (…) it is presumed that the gain is obtained as soon as the tradition or possession of goods or rights subject of the contract is verified (letter a).

6. From the cited articles it follows that having occurred the tradition in 2000 and having the identified G… received the entirety of the price despite the ownership being registered in favor of the seller, the tax-generating fact of the obligation to tax occurred in 2000 and not in 2010, whereby the gains would have been received in 2000 and not in 2010, reinforcing the conclusion that the CLAIMANT is foreign to the tax legal relationship and, as regards her, the tax-generating fact of the tax obligation did not occur.

7. It being proven the existence of a certain promise contract followed by tradition or possession, it will be the date in which this is verified that is relevant for purposes of ascertaining capital gains, independently of whether or not the civil transmission has operated with the execution of the public deed, for purposes of Personal Income Tax, the legislator fictively established the existence of tax transmission as soon as the existence of a promise contract followed by tradition or possession is proven, independently of the nature or destination of the real property.

8. This circumstance is also relevant for purposes of assessing the quality of the subject of the tax relationship, whose definition follows from article 18, paragraph 3 of LGT: The subject of the tax relationship is the natural or legal person, the patrimony or the organization of fact or law that, in accordance with the law, is bound to the fulfillment of the tax obligation, whether as direct taxpayer, substitute or responsible.

9. The CLAIMANT not being party to the execution of the promise contract, of the power of attorney, and having the legal relationship been consummated in 2000 with the execution of the promise contract and received the price, it should be concluded that the CLAIMANT is not a subject of the tax relationship, given that it is outside the perimeter of the personal incidence provided for in article 13, paragraph 1 of CIRS, whereby it does not integrate the notion of taxpayer as the entity with respect to which the factual presuppositions of taxation are verified, being thus outside the scope of application of article 18, paragraph 3 of LGT, the act thus being illegal due to absence of tax fact and violation of the provisions of article 13, paragraph 1 of CIRS and article 18, paragraph 3 of LGT.

10. The CLAIMANT also pronounces itself regarding EXPIRATION, to the effect that article 45 of LGT provides that the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years when the law does not set another period, the requirements being that the tax act is valid, that it is practiced within the legal period and that knowledge is given (or should be considered to have been given) to the recipient within the same period.

11. The CLAIMANT comes to conclude that as the tax-generating fact of the obligation to tax, in light of the provisions of article 10, paragraph 3 a) of CIRS, occurred in 2000, in light of article 45, AT had 4 years to promote the assessment of the Personal Income Tax due by the transmission - always and only in the legal sphere of G… - which ended on 31/12/2004, whereby the assessment occurring in 2010 is untimely, being, furthermore the contested act illegal due to expiration of the right to assess.

12. After the assessment of Personal Income Tax the CLAIMANT proceeded on 28 October 2014 to payment of the tax debited to her, the reason for the assessment of the paid tax arising from the erroneous application of article 10, paragraphs 1 and 3 of CIRS, whereby error attributable to the services occurred, in which case article 43 of LGT determines that compensatory interest is owed to the taxpayer, and it is certain that, as follows from article 100 of LGT, AT is obliged, in case of total or partial success of (…) of judicial proceedings in favor of the subject of the tax relationship, to the immediate and full reconstitution of the situation that would have existed if the illegality had not been committed, comprising the payment of compensatory interest, in accordance with and the conditions provided for in the law.

13. It concludes that the tax act subject to arbitral ruling is affected by illegality due to a legal error emerging from the erroneous application of article 10, paragraphs 1 and 3 of CIRS, due to non-existence of tax fact, due to expiration, due to omission of essential formalities which, in accordance with article 99 of CPPT generates its voidability, which it petitions, as well as the compensatory interest additionally assessed for the 2010 tax period, requesting that the RESPONDENT be condemned to payment of the sum of € 35,885.06 already paid by the CLAIMANT, plus compensatory interest counted from the payment date [28/10/2014], in accordance with article 43 of LGT.

14. By means of a motion dated 09-06-2015, the CLAIMANT requested the joining of documents which seek to show that when AT invokes article 29, paragraph 2 of LGT to the effect that being the tax obligation in the legal sphere of G…, such obligation would have been transmitted to the heirs, in this case the CLAIMANT, this cannot occur for G… was owner of full right of the real property constituting the …, from 1976, thus benefiting from the exclusion from taxation regime provided for in the transitional regime of article 5, paragraph 1 of decree-law no. 442-A/88, of 30 November.

III.B – POSITION OF THE RESPONDENT

The RESPONDENT in its RESPONSE presents its defense by way of contestation, sustaining in substance and with interest for the assessment of the case:

As to the FACTS, that:

1. On 5 January 2003 and 12 March 2006 died I… – NIF … and G… – NIF ….

2. On 31 March 2010, two rural properties were alienated – parish … – article … and …, in the total value of € 299,278.74, by attorney F… in representation of G… to the company H…, LDA.

3. In the CLAIMANT's Model 3 declaration for the year 2010, the income resulting from the capital gain generated was not included in annex G.

4. It was requested by the Finance Office of Porto – Income Tax Assessment Division, from attorney F… through letter no. …/… dated 30 July 2014, to present a substitute declaration of model 3 with the respective annex G.

5. E…, son of F…, informed that his father died on 12 August 2011 and that according to the deed of sale and purchase the price was received in the name of the principal G…, having bought or sold nothing.

6. Taking into account what was stated in the deed, joined by the son of the attorney and in that the price was received in the name of the principal, in the face of the absence of declaration, the inspection services proceeded to the assessment of tax in accordance with article 65 of CIRS, in the sphere of the heirs of G….

7. On 6 February 2014 through letter no. …/… the right to be heard was given to the heirs of the subject of the tax procedure above referenced.

8. Being the subject of the tax relationship head of household and heir of G… – NIF …, deceased on 2006-03-12, should have been declared in annex G of the model 3 declaration of Personal Income Tax/2010 the value of € 149,639.36, corresponding to the pro-rata share of 50% by the alienation of two rural properties – parish … – articles … and … in the total value of € 299,278.74, being of each one € 128,282.27 and € 170,995.47 respectively, presented in model declaration 11.

9. Tax was then assessed in accordance with notification sent to the CLAIMANT dated 10-10-2014 with the fixing act and respective reasoning in accordance with information no. …/2014 of the Income Tax and Expenditure Assessment Division of the Finance Office of Porto.

On the subject of LAW

1. It seeks to contest the alleged by the CLAIMANT regarding:

10.1. AT having not ruled on the exercise of the right to be heard by the subject of the tax relationship and the supposed new elements brought to the proceedings, nor having notified the subject of the tax relationship of the final decision;

10.2. Non-existence of tax fact; and

10.3. Expiration.

As to the right to be heard and duty to reason, it sustains:

1. In accordance with letter no. …/…, of 06 February 2014, opportunity was given to the CLAIMANT to rule and exercise the right to be heard, having exercised such faculty.

2. It is the jurisprudential understanding that the requirements of reasoning vary in function of the legal type of act, with a view to responding to the needs of clarification of its recipient so that he may apprehend the cognitive and evaluative itinerary which underlies it, allowing him to know the factual and legal reasons which led to the assessment, as a means of documenting the decision-making path in order to make it possible to verify if the Administration respected the presuppositions defined in the law to justify its manner of action and if it acted for the realization of the ends which justified that it be granted certain powers, thus giving it means to impugn the decision in case of considering that it violates an interest legally protected.

3. The reasoning is sufficient when it allows a normal recipient to perceive the cognitive and evaluative itinerary followed by the author of the act to issue the decision, that is, may know the reasons why the author of the act decided as it decided and not differently, in order to trigger administrative or contentious mechanisms for challenging (cites Judgment of the Plenary no. 1126/02 of 6/12/05).

4. It was made known to the Claimant, in a clear, congruent and sufficient manner, the factual and legal reasons that sustain the corrections made, of whose content she was notified, and on the other hand, if the notification in question did not contain the reasoning that the Claimant understood should have been sufficient she should have used the faculty of article 37 of CPPT, citing Judgment of STA, of 30/11/2011, in proceeding no. 0881/11.

5. When the reasoning allows its recipient to consciously choose between the acceptance of the act or the triggering of the legal mechanisms that allow reaction against it, the reasoning in question fully fulfilled its purpose, being the case as the CLAIMANT impugns the assessment both on fact and law; sustains that the alleged by the CLAIMANT should not proceed.

As to the non-existence of the tax fact.

1. Having regard to the Stamp Tax declaration made by the CLAIMANT, the two rural properties alienated in the parish … – articles … and … in the total value of € 299,278.74, being of each one € 128,283.27 and € 170,995.47 presented in model declaration 11, were declared as belonging to the estate of G…, and should, in accordance with article 75, paragraph 1 of LGT presume to be true and in good faith the declarations of taxpayers presented in accordance with the provisions provided for in the law;

2. It was the CLAIMANT who declared to be the legitimate owner and acquirer of the real property above referenced, already after the supposed transmission which she attributes to the execution of the irrevocable power of attorney, dated 14 June 2000, whereby it would be her responsibility to present a substitute declaration where annex G would state the referred value of her pro-rata share by the alienation of the two rural properties.

3. In the deed of sale and purchase, joined to the file the attorney F… affirms and declares to have received the respective sum by account and in the name of the CLAIMANT's father;

4. Which is in itself demonstrative through an authentic document that the effective price by the supposed transmission of the real property sub judice, had not yet occurred, there not existing any final contract demonstrative of the transmission, as determined by article 408, paragraph 1 and 874 of the Civil Code, applicable ex vi article 2, letter d) of the Civil Code, to the sphere of the attorney F….

5. On the other hand, the CLAIMANT does not prove, as determined by article 74, paragraph 1 of LGT, nor even joins to the file any probatory document that corroborates the fact of having existed the supposed transmission to the sphere of the attorney.

6. Just as the CLAIMANT affirms in point 71 of her position statement the transmission of the real property did not occur with the supposed execution of the irrevocable power of attorney, nor is it proven in the file the payment of the price of the real property with the execution of said irrevocable power of attorney, whereby the supposed transmission sought by the CLAIMANT did not occur.

7. As to the irrevocability of the power of attorney, such is not relevant for purposes of capital gains, in accordance with article 10, paragraph 1 letter a) of CIRS, for the tax act has at its base a concrete factual situation, provided abstractly and typically in the law as generating the right to tax, which is defined as a tax fact, which only exists from the moment all the legally provided presuppositions are met.

8. Citing doctrine (Alberto Xavier, Concept and Nature of the Tax Act, page 324; Nuno de Sá Gomes, Manual of Tax Law, II, Notebooks of Science and Tax Technique, 1996, page 57; A. José de Sousa and J. da Silva Paixão, Code of Tax Procedure annotated and commented, 3rd edition, 1997, page 269) sustains that the tax norms which contemplate the tax fact are those relating to real incidence, which define its objective elements, whereby only with the practice of the tax fact is the tax obligation born, condition sine qua non" of the fixing of the taxable matter and of the assessment effected.

9. It happens that, in the present case, the RESPONDENT argues that the factuality recorded in these proceedings must be framed as capital gain in accordance with article 10, paragraph 1, letter d), of C.I.R.S., for purposes of incidence and taxation as regards I.R.S, the same occurs regarding other taxes, namely for purposes of I.M.I. not involving the execution of an irrevocable power of attorney the change of subject of the tax relationship.

10. There was no tax assessment at the execution of the power of attorney nor with the payment of the price.

11. It also cites the Circular Letter no. 3505, of 22-11-95, of DSISTP as clarifying its thesis, as well as doctrine regarding the provisions of paragraph 5 of the preamble of CIRS (Paulo de Pitta e Cunha, The Tax System of the 90s, The New Income Tax System, Almedina, 1996, page 20; José Guilherme Xavier Basto, Personal Income Tax: Real Incidence and Determination of Net Income, Coimbra Publisher, 2007, page 379) to support taxation in capital gains based on the concept of taxable income of CIRS, which adopts the conception of income-increase, to conclude that the tax fact only occurred with the execution of the deed, that is, on 31 March 2010.

The RESPONDENT further adds AS A PRECAUTION AND WITHOUT CONCEDING that,

1. The CLAIMANT does not demonstrate the receipt of the price on the date of the execution of the promise contract and of the execution of the irrevocable power of attorney, the latter not making any mention of any receipt.

2. If the transmission occurred after the death of the CLAIMANT's father, it will invariably be that the tax payment will fall on the heirs, in accordance with article 10, paragraph 1 letter a) and article 13, paragraph 1 both of CIRS, for the respective real property were received by death of the father.

3. The CLAIMANT does not demonstrate through probatory elements the alleged, that in 2000 the transmission of possession and material holding of the real property occurred and that the promise contract demonstrates that the same could not have occurred because there was a rural lease contract in the name of J…, executed on 22 September 1993, thus the presumption regarding transmission by the occurrence of tradition or possession/material holding which the CLAIMANT alludes to does not proceed, not proceeding the expiration invoked for the tax fact occurred on 31-03-2010.

4. Coming to petition that the present request for arbitral ruling be judged not to proceed, absolving the RESPONDENT of the request, maintaining the assessments in the terms in which they were made.

5. On 08-06-2015 the RESPONDENT came to request the joining of another arbitral decision, favorable to AT, issued in Proc. 850/2014-T in which was claimant the brother of the now CLAIMANT in whose request it sustains: "and whose decision segment is similar whether on fact or on law to the present proceedings".

IV - MATTER OF FACT

The relevant matter of fact, given as proven for the subsequent assessment and decision, is the following:

1. On 28 March 2000, there was executed, between G…, in the capacity of promising seller and F…, in the capacity of promising purchaser, a promise of sale and purchase contract of a rural property designated "…" located in the place of … or …, parish of …, municipality of Paços de Ferreira, described in the Land Registry Office of Paços de Ferreira under the number …, pages … of book …-… and there registered, on the date, in favor of the promising seller by the entry …, pages …, reverse and … of Book …-…, entered in the respective assessment under articles … and … (which correspond to the former rural articles …, … and … of the same parish);

2. In the capacity of promising seller, G… declared to promise to alienate the referred Property in the amount of [then 60,000,000$00, to which corresponds the current value of] €299,278.74;

3. F… delivered to the promising seller, at the time of execution of the promise contract, the amount of [then 15,000.000$00, to which corresponds the current value of] €74,819.68, as earnest money by means of check; fact also proven by witness testimony (cf. audio recording, at minutes 09:00-30: it was the witness who deposited the check into G…'s account);

4. The remainder of the price, in the amount of [then 45,000.000$000, to which corresponds the current value of] €224,460.00 remained agreed in said contract that would be paid at the moment of execution of the irrevocable power of attorney of G… in favor of the purchaser F…;

5. On 14 June 2000, G…, by notarial instrument, constituted as his Attorney F…, to whom he conferred the necessary powers to sell and execute the deed of sale and purchase concerning the rural property …, stating therein that the referred instrument (…) aimed to give effect to the promise contract between them executed on 28 March 2000, executing the respective deed of sale, receiving the price and giving a receipt as well as proceeding to the corresponding provisional or final registrations in the respective registry office.

6. From the power of attorney it further appears that the same by being granted in the interest of the agents and third parties, is irrevocable, (…) and the powers conferred therein shall not lapse upon death, incapacity, disqualification or bankruptcy of the granters, being able to be exercised in the execution of transactions with themselves (…) and is not subject to rendering of accounts for they have already been rendered.

7. It follows, from the combined terms of the promise contract of sale and purchase executed, of the notarial instrument with the execution of the power of attorney, and from witness testimony, that:

7.1. The remainder of the price, of €224,460.00 which would be paid at the moment of execution of the irrevocable power of attorney of the alienor in favor of the purchaser was delivered on 14-06-2000, for the one who was to receive it, G…, declared so: not subject to rendering of accounts for they have already been rendered, it further results this fact proven by witness testimony (cf. audio recording at minutes: 10:15; 11:32-36 referring that F… delivered the check of "45,000 thousands"; 11:48 referring that he accompanied G… and his wife to the Banco Espírito Santo, for deposit of this check; questioned by the Tribunal at minutes 20:05 the witness referred that the expression inserted in the irrevocable power of attorney [which earlier she had stated had been drafted by her] not subject to rendering of accounts for they have already been rendered, meant that on that date there was payment of the remainder price and that the attorney had nothing further to pay to the principal);

7.2. The property was delivered in 2000, being of the responsibility of F… all charges upon it; it is to be noted that this fact is also taken as established by the RESPONDENT, in that it requested in its last intervention in these proceedings, on 08-06-2015, with the basis that "whose decision segment is similar whether on fact or on law to the present proceedings" -, the joining of the Arbitral Decision in Proc. no. 850/2015-T, which has as established the same fact (cf. p.12):

§2. Verification of Tax Fact

(…)

Although AT contested that the tradition of the property occurred with the execution of the Irrevocable Power of Attorney, having regard to the documents no. 2 and 3 joined by the Claimant, the Tribunal is convinced that the tradition or possession of the property occurred on 14 June 2000 with the execution of the Power of Attorney.

Consequently, it is considered in light of the provisions of letter a) of paragraph 2 of article 10 of the Personal Income Tax Code that the capital gain arising from the alienation of the property in question was obtained in the year 2000 by the Claimant's father, being thus attributable to him in the capacity of heir.

1. Now, not being able to this Arbitral Tribunal draw any other inference than the complete adherence of the RESPONDENT to the document joined by itself, although agreeing, almost in its entirety, with the paragraphs transcribed from that arbitral decision, as to the final part already the same does not follow for it was also made known to this Arbitral Tribunal that said capital gain was excluded from taxation, given that the father of now CLAIMANT had acquired the real property in question before the entry into force of CIRS.

2. On 05-01-2003 died I… and on 12 March 2006 died G…;

3. On 31 March 2010, F…, holder of the irrevocable power of attorney and promising purchaser of the property … executed with the company H…, LDA., of which he was partner and manager, the deed of sale and purchase of the properties already identified;

4. On 31 March 2010 the property was still registered in favor of G… and I…; and by the Attorney F… in the respective deed of sale and purchase it was stated that for his principal G…, he declares to have already received, in the name of this, the value above described of €299,278.74;

5. F… died on 12-08-2011;

6. On 30-07-2014 AT notified F…, to present a substitute declaration, his son – E… - coming to declare that as regards the deed the price was received in the name of the principal G…;

7. No capital gain resulting from the sale of the rural property was declared in Model 3 declaration/Personal Income Tax (Annex G), regarding the year 2010, by the CLAIMANT or any heir;

8. On 06-02-2014, by letter no. …, the CLAIMANT was notified as head of household by the inheritance of G…, that she should present model 3 of substitution to state therein, in annex G, the value of her pro-rata share, by the alienation of the two rural properties and that she should communicate to other heirs to proceed in the same manner;

9. By the same letter the RESPONDENT notified the CLAIMANT in accordance with article 60 of LGT to exercise the right to be heard within 15 days;

10. The CLAIMANT did not communicate to other heirs to proceed in the same manner;

11. On 12-02-2014 the CLAIMANT exercised the right to be heard by electronic mail;

12. When exercising the right to be heard she communicated new facts and joined probatory documents that:

19.1. Who sold the properties in question was the CLAIMANT's father;

19.2. The sale had been preceded by the execution of a promise contract;

19.3. An irrevocable power of attorney had been executed in favor of F…;

19.4. The real property in question had been inherited by the seller G…;

1. To the joining of the documents and new elements brought to the proceedings AT did not rule;

2. The RESPONDENT did not communicate to the CLAIMANT the final decision of that proceeding;

3. On 10-10-2014, the RESPONDENT sent to the CLAIMANT, based on Information …/2014, the fixing act of the additional Personal Income Tax assessment for the year 2010;

4. On 22-10-2014 the CLAIMANT received the compensation note, which identifies the assessment, referring to Personal Income Tax of 2010, with the amount to be paid of 35,885.06€;

5. AT only became aware of the transmission of the real property with the execution of the public deed of sale and purchase, in the year 2010.

6. Having regard to the Stamp Tax declaration made by the CLAIMANT, the two rural properties alienated in the parish … – articles … and … in the total value of € 299,278.74, presented in model declaration 11, in the Finance Service Porto 3, were declared as belonging to the estate of G…,

7. However this declaration resulted from error of the Attorney of G…, witness heard in these proceedings (cf. audio recording at minutes: 13:15; 17:30-37 here referring the witness that, at the request of the CLAIMANT participated the real property for purposes of Stamp Tax, by the death of G…, as is proven by the number of who made the participation, which is his, having participated the real property here at issue by error, given that there were nine properties and by their numbers he could not know that of these as well it was about);

8. On 28-10-2014 the CLAIMANT proceeded to payment of the tax additionally assessed;

9. G… was owner of full right of the real property from 1976, thus benefiting from the exclusion from taxation regime provided for in the transitional regime of article 5, paragraph 1 of decree-law no. 442-A/88, of 30 November.

The matter of fact given as proven follows from the documents joined to the file, both from the Position Statement and from the Response and respective administrative file and not disputed by the parties, as well as from the other motions and documents brought by the parties, to which the latter were called to rule, as well as from witness testimony - Dr. D…, Attorney of the CLAIMANT's father at the time of the facts and with participation therein.

There are no facts with relevance for the assessment of the merits of the case that have not been proven.

V – ASSESSMENT OF THE MATTER

V.A – ON THE MERITS OF THE REQUEST

1. It is proven, ex. vi, article 74 of LGT, unequivocally, from the combined terms of the promise contract of sale and purchase and of the notarial instrument of execution of the power of attorney, corroborated by witness testimony, that the remainder of €224,460.00 which would be paid at the moment of execution of the irrevocable power of attorney of the alienor in favor of the purchaser was delivered on 14-06-2000, for the one who was to receive it, G…, declared not subject to rendering of accounts for they have already been rendered; nor would it be understood that he declared this without having received said sum, whereby the RESPONDENT fails to prove the contrary, as was his burden by virtue of the same provision;

2. Obviously that when the attorney comes to state that he received by account of the principal, he does not come to state that he received and delivered to the heirs of the principal, or to the estate, under penalty of impoverishing himself, for at the date of execution of the irrevocable power of attorney G… had already received from F… the entirety of the value (60,000 thousands, € 299.278,74), whereby only can this Arbitral Tribunal understand that F… when he comes to state that he received by account of the principal, he did so, by account of the same value that G… had already received on 28-03-2000 (€74,819.68, as earnest money, with the execution of the promise contract) and on 14-06-2000 (€224,460.00, with the execution of the power of attorney);

3. The property was delivered in 2000, as follows from the established matter;

4. Having the RESPONDENT as settled that the value described of €299,278.74, in the deed of 31 March 2010 was received in the name of the principal G…, and being settled that he had already declared to have received from F… the remainder sum of €224,460.00, at the moment of execution of the irrevocable power of attorney, and that with the execution of the promise contract between G… and F… this delivered to him, then, 15,000,000$00, or, in the current value, €74,819.68;

5. It is in the legal sphere of G… that the capital gain is generated;

6. It appearing from the file that G… was owner of full right of the real property from 1976, benefiting from the exclusion from taxation regime of the transitional regime of article 5, paragraph 1 of decree-law no. 442-A/88, of 30 November, it immediately follows that the transaction occurring in the legal sphere of G…, was outside the scope of taxation as regards Personal Income Tax in accordance with the terms invoked by the RESPONDENT, and consequently the assessment made by it should be annulled.

7. When exercising the right to be heard the CLAIMANT communicated new facts and joined documents, the RESPONDENT made known that the sale a) had not been carried out by it; b) had been preceded by the execution of the promise contract that is in the file; c) an irrevocable power of attorney had been executed in favor of F…; d) the real property in question had been inherited by the seller G…, being documents sufficient to prove that the CLAIMANT did not alienate the real property, did not execute any notarial deed nor incorporated into her patrimonial sphere the economic benefit of the alienation, for it appears from said documents that her father had received the entirety of the price, then, 60,000,000$00;

8. Thus, knowing that G… had received the entirety of the value in 2000, and the RESPONDENT knowing that G… was owner of full right of the real property from 1976, benefiting thus from the exclusion from taxation regime provided for in the transitional regime of article 5, paragraph 1 of Decree-law no. 442-A/88, of 30 November, could have altered the direction of its proposed decision, for there had not yet been a tax act, being that if this had occurred it could always have promoted its revision in accordance with article 78 of LGT, as it could have done up to the present date.

9. The RESPONDENT alleges in its favor:

9.1. That it only became aware of the transmission of the real property with the execution of the public deed of sale and purchase, in the year 2010; however, it is not by that fact that if the capital gain was excluded from taxation it ceases to be;

9.2. The properties alienated were declared in model declaration 11, of Stamp Tax made in the Finance Service Porto 3, as belonging to the estate of G…; strictly speaking, from this fact does not result any act constitutive of the right of property of the CLAIMANT over the real property in question, for it was proven that it was transmitted, independently of her will, from G… to the company H…, LDA, by deed in which F… executed, holder of the irrevocable power of attorney and promising purchaser of the property…, and furthermore partner and manager of the purchaser; furthermore, it is proven by witness testimony that said declaration was made by error;

9.3. That the value being received in the name and by account of the principal, G…, its heirs, by way of article 29/2 of LGT will be the debtors of the tax; however we would have to, to analyze its reasoning, previously assess if we are faced with a tax fact, which we have already seen does not exist.

1. It is a capital gain excluded from the scope of taxation by the transitional regime of CIRS, of article 5, paragraph 1 of Decree-law no. 442-A/88, of 30 November, whereby the legal fact does not constitute a tax fact, for purposes of article 36 of LGT there being consequently no legal tax obligation;

2. Thus, because on 22-10-2014 the CLAIMANT received the compensation note, which identifies the additional assessment, referring to Personal Income Tax of 2010, with the amount to be paid of 35,885.06€, and on 28-10-2014 proceeded to its payment, it is incumbent to annul the additional assessment and full return of that value; equally it is incumbent that the compensatory interest, additionally assessed, be annulled, as petitioned by the CLAIMANT and determine that, because by error attributable to the services, are owed by AT compensatory interest in accordance with article 43 of LGT, as also petitioned, counted from 28-10-2014.

V.B - DEFECTS OF IMPAIRED DETERMINATION

For what has been said, the contested act is affected by defect of error regarding the factual and legal presuppositions that justify its annulment (163 of CPA), whereby the request should be judged to proceed due to lack of tax fact and consequently lack of right to assess. Thus, having annulment as its basis a defect that attributes to the CLAIMANT stable and effective protection of her interests, for from it follows the impossibility of renewal of the acts whose declaration of illegality she requested, in face of the provisions of article 124, paragraph 2, of CPPT, here applicable by article 29, paragraph 1, letter c), of RJAT, the determination of the other defects imputed to the acts which are subject of the present proceedings is prejudiced[2].

V.C. – DEFECT OF COMPENSATORY INTEREST ASSESSMENT

In the force of the prior CPA, annulled the assessment of Personal Income Tax, the assessment of compensatory interest became subsequently affected by nullity, in accordance with article 133, paragraph 2, letter i), applicable by virtue of the provisions of article 2, letter c), of LGT. The application of the New CPA to administrative procedures in course on the date of its entry into force, and having regard to the regime of nullity of administrative acts (article 161) not containing the same norm, nevertheless does not cease to remove force from the duty of AT to proceed, together with the return of the sum unduly received, to the return of the compensatory interest additionally assessed, based on the principles of justice and legality, which the tax administration must observe in the totality of its activity, by virtue of articles 266, paragraph 2, of CRP and 55 of LGT, whereby, also by virtue of article 100 of LGT, the annulment of said interest is determined, as petitioned.

V.D. – COMPENSATORY INTEREST

The CLAIMANT further asks that it be determined the payment of compensatory interest, in accordance with article 43 of LGT, regarding the sum of € 35,885.06. Determining that said provision that compensatory interest is owed when determined, in gracious reclamation or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due, compensatory interest is owed, in accordance with article 43, paragraph 1, of LGT and article 61 of CPPT, calculated on the sum which paid unduly, at the rate of legal interest, which are counted from the date of undue payment of the tax until the date of processing of the respective credit note, in which they are included (paragraph 5 of article 61 of CPPT).

VI - DECISION

In light of the foregoing, it is decided:

1. To judge the request for arbitral ruling to proceed and declare the illegality of the additional assessment in question, proceeding to its annulment, as well as to the annulment of the compensatory interest additionally assessed;

2. To determine the condemnation of the RESPONDENT to payment to the CLAIMANT, of the sum paid by her, of 35,885.06, as well as the compensatory interest petitioned, counted from the date of payment effected by the CLAIMANT.

VII - VALUE OF THE PROCEEDINGS

€ 35,885.06 (Thirty-five thousand eight hundred and eighty-five euros and six cents).

VIII – COSTS

In accordance with the provisions of the Regulation of Costs in Proceedings of Tax Arbitration, the costs are fixed at € 1,836.00, to be borne by the Tax and Customs Authority.

Lisbon, 05 August 2015

The Arbitrator[3]

Henrique Curado

[1] Then referred to, by mistake, article 137 of CPC., by its previous partial correspondence to that article.

[2] For the establishment of an order of determination of defects is only justified by the legislative understanding that, proceeding the challenge with basis in a defect that provides effective and stable protection of the interests of the challenger, it ceases to determine the remainder. In truth, if it were always necessary to determine all the defects imputed to the contested act, would be indifferent the order of their determination. It adheres in full to the same decision, in Proc. no.: 379/2014-T.

[3] Text prepared by computer, in accordance with article 131, paragraph 5 of CPC, ex vi, article 29, paragraph 1 letter e) of RJAT, with blank verso of each page, spelling being prior to the last orthographic agreement.