Process: 89/2018-T

Date: October 25, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 89/2018-T) addresses IRC (Corporate Income Tax) assessment when real estate sale prices differ from tax patrimonial values (VPT). The taxpayer, a construction company, sold properties in 2013 for €7,148,090.47, but the VPT totaled €9,251,481.40—creating a €1,823,719.44 difference. The Portuguese Tax Authority (AT) demanded inclusion of this difference in taxable income via a substitute Model 22 declaration, resulting in an additional IRC assessment of €552,136.53. The company claimed it had proven the actual sale price under Article 139(3) of the IRC Code, which allows taxpayers to demonstrate effective prices lower than VPT through a formal procedure before the Finance Director. However, the AT's Support Services for Review Procedure (SAPR) confirmed no such request was filed. The company argued it attempted to submit documentation and requested authorization to prove the manager had filed the request. The AT raised preliminary exceptions, including the arbitral tribunal's material incompetence and violation of Article 139(7) filing deadlines. The tribunal rejected the incompetence claim, clarifying its role was to assess the assessment act's legality, not to evaluate price proof directly. The case illustrates critical procedural requirements: taxpayers must formally initiate Article 139(3) procedures and cannot retroactively prove effective prices without proper documentation. The decision underscores that when deed values fall below VPT, the difference becomes taxable unless the taxpayer follows strict evidentiary procedures, and failure to comply results in automatic taxation based on VPT.

Full Decision

ADMINISTRATIVE TAX ARBITRATION COURT (CAAD) DECISION

The arbitrators Dr. José Pedro Carvalho (arbitrator-president), Dr. Magda Feliciano and Professor Dr. Manuel Pires, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 23 May 2018, agree as follows:

REPORT

A..., LDA, Tax Identification Number (NIPC)..., with registered office at Rua ..., ..., ..., ...-..., in ..., hereinafter the Claimant, presented, pursuant to article 2, no. 1, letter a), article 10, no. 1, letter a) and no. 2, of Decree-Law no. 10/2011, of 20 January, and articles 96 et seq. of the Code of Tax Procedure and Process (CPPT), a request for constitution of an arbitral tribunal and for an arbitral pronouncement, with a view to obtaining a declaration of illegality of the act dismissing the gracious appeal no. ...2017... and the consequent annulment of the additional IRC assessment act no. 2017..., in the amount of €552,136.53.

The Tax and Customs Authority, hereinafter AT, responded in its defence by exception and by counter-claims.

By order of 12.09.2018, it was decided that the present proceedings should not be suspended, with the Parties being given a deadline for submissions and dispensing with the holding of the meeting provided for in article 18 of the Legal Regime for Tax Arbitration (RJAT).

The Arbitral Tribunal was duly constituted and is competent.

The parties have legal personality and capacity, are legitimate (articles 4 and 10, no. 2, of the same instrument and article 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.

The proceedings do not suffer from any nullities.

STATEMENT OF FACTS

1. Proven Facts

The following facts are considered proven:

  • The Claimant was subject to an internal inspection action filed under number OI2016... .
  • At the time of the facts, the Claimant engaged in the activity of "Building Construction".
  • In the year 2013, the Claimant proceeded with the paid transfer of real property rights over the real estate mentioned in the inspection report, with a total value of €9,251,481.40.
  • At the time of the alienation, there was a positive difference between the value stated in the deeds and the tax property value – TPV – of the real estate, which was higher by €1,823,719.44 compared to that amount.
  • The Claimant was notified on 02-06-2016 to proceed with the delivery of a replacement declaration of the IRC model 22 declaration, including that amount in field 765 of table 07.
  • In response to that notification, the Claimant stated that it had executed a deed of sale and purchase through which it sold the aforementioned real estate for a total amount of €7,148,090.47, and that it had proceeded to present to the AT proof of the price actually charged for the said transfers of real estate, pursuant to no. 3 of article 139 of the IRC Code.
  • The Claimant did not present any documentation proving the presentation to the AT of a request for the procedure provided for in that article.
  • By the Tax Inspection, information was requested from the Support Services for the Review Procedure (SAPR) on whether a procedure had been initiated to prove the effective price actually charged in the transfer of the real estate in the name of the Claimant.
  • Those Services informed that no procedure had been filed in the name of the Claimant pursuant to no. 3 of article 139 of the IRC Code.
  • In the context of the right to prior hearing, A. presented documents proving that the real estate was delivered to B... to extinguish a mortgage existing on the same.
  • The Claimant requested from B... information on the price of transactions in the operations of transfer/acquisition of the real estate in question.
  • Declarations were submitted to the AT for the lifting of bank secrecy, both in relation to the Claimant Company and its managers.
  • In the right to prior hearing, the Claimant insisted with the request to be authorized to demonstrate that the manager at the time of the facts submitted to the Tax Service of ... a request to open the procedure provided for in article 139 of the IRC Code.
  • By official letter no. ..., dated 22.05.2017, from the Tax Inspection Services of the Finance Directorate of Lisbon, the Claimant was notified of corrections to the taxable matter as regards corporate income tax (IRC), for the year 2013, in the amount of €1,823,719.44 (Document no. 1).
  • The said amount of €1,823,719.44 constitutes the difference between the total declared price of €7,449,845.47 and the total tax property value of €9,251,481.40 of a set of autonomous units alienated by the Claimant in the year 2013 (Document no. 1).
  • On 7 June 2017, the Claimant was notified of the additional IRC assessment act no. 2017..., in the amount of €552,136.53, with the payment deadline set for 02.08.2017.
  • The Claimant proceeded to pay the aforementioned additional assessment act within the legal deadline (Document no. 2).
  • On 28 July 2017, the Claimant filed a gracious appeal against the aforementioned additional IRC assessment act.
  • On 26 December 2017, the Claimant was notified of the decision dismissing the gracious appeal submitted (Document no. 3).
  • The object of the present arbitral request is the aforementioned additional IRC assessment act.

2. Rationale for the Determination of Facts

The facts were proven on the basis of the documents attached with the request for arbitral pronouncement and with the administrative file.

It was not proven that the Claimant presented a request for the opening of the procedure to prove the effective price in the transfers of real estate, as provided for in article 139 of the IRC Code.

STATEMENT OF LAW

Preliminary Matter

Material Incompetence of the Arbitral Tribunal

After raising, as a preliminary issue, the necessity for suspension of the proceedings, a matter already decided by order, the Respondent challenges the material competence of the arbitral tribunal constituted in this proceeding to consider the arbitral request, because "on the one hand, the law expressly establishes that this is an administrative procedure – and not an object of appraisal in the context of a tax process – and, on the other, the competence is exclusive of the finance director," from which it follows, from the Respondent's viewpoint, that "the Arbitral Tribunal constituted is materially incompetent to consider and decide the request formulated by the Claimant concerning the demonstration of the effective price, given that it may only be considered in the context of the procedure and by the Finance Director, which constitutes a dilatory exception preventing the consideration of the merits of the case, in accordance with the provisions of no. 1 and 2 of article 576 of the CPC by virtue of letter e) of article 2 of the CPPT and letters a) and e) of no. 1 of article 29 of the RJAT."

With all due respect, and as will be seen below, it is believed that the Respondent is in error in framing the object of the present arbitral action.

Indeed, what is at issue here is not, contrary to what the Respondent seems to assume, the assessment of the demonstration of the effective price, but rather the assessment of the legality of the assessment act, in light of the invalidity points raised against it by the Claimant, particularly, in light of whether the right to such demonstration was denied to the Claimant, and what the consequences are, in terms of the legality of that act, arising therefrom.

Consequently, since it is beyond dispute that this Arbitral Tribunal is competent to scrutinize the legality of the assessment act against which the Claimant complains, this exception should be dismissed.

Violation of the Provision of Article 139, no. 7 of the IRC Code

The Respondent also raises, as a preliminary matter before consideration of the merits of the case, the issue that "since the Claimant did not present, in a timely manner, the request referred to in article 139 of the IRC Code, the possibility of considering proof of the effective price is now precluded, under penalty of fraud against the law by violation of the provision of no. 7 of article 139, no. 7 of the IRC Code."

As has already been noted, what is at issue in the present arbitral action is not the carrying out and consideration of proof of the effective price of the operations that form the basis of the assessment against which the Claimant complains, but rather the question of whether the Claimant should have been afforded, in the terms it configured, the opportunity to provide proof of that price, whether or not it was afforded, and what the consequences are.

Viewed in this manner, it is believed that there will be no doubt that the assessment of the legality of the assessment which is the object of the present arbitral action, in light of such grounds, does not contain any violation, even apparent, of the provisions cited by the Respondent.

Accordingly, and for the reasons stated, this exception should likewise be dismissed as it does not prevent consideration of the merits of the case.

Merits

The main issue that arises in the present case concerns whether or not the additional IRC assessment act, which is the object of this petition, is legal, considering the violation, or non-violation, of the right to prove the effective price in the transfers of real estate.

A - The Claimant's Position

In this regard, the Claimant alleges in its request for constitution of the Arbitral Tribunal, in summary, as follows:

  • No. 3 of article 139 of the IRC Code provides that "the proof referred to in no. 1 must be carried out in a procedure initiated by means of a request addressed to the competent finance director and presented in January of the year following that in which the transfers occurred, provided that the tax property value has already been definitively determined, or within 30 days after the date on which the assessment became definitive, in other cases," and no. 4 of the same article provides that the presentation of the request suspends the assessment, and no. 5 provides that illegalities committed in the procedure must be invoked in the challenge of the tax act of that same assessment.

  • In line with the stated rule, no. 7 of article 139 provides that "The judicial challenge of the assessment of tax resulting from corrections made by application of the provisions of no. 2 of article 64, or, if there is no assessment, of corrections to taxable income under the same provision, depends on prior presentation of the request provided for in no. 3, with no gracious appeal being available."

  • In light of the rules cited, case law has held that it is not legally possible to resort to the judicial route, whether to argue the illegalities committed in the procedure provided for in the cited no. 3 of article 139, or to argue the illegalities of the assessment connected with such procedure, without that same procedure having been initiated and processed (in this sense see, among others, judgment of the STA of 09.03.2016, case 820/15, and judgment of the TCAN of 27.10.2016, case 735/12.5BEPRT).

  • The Claimant requested several times that it be given the opportunity to prove that it fulfilled the burden connected with the need to initiate the proper procedure to rebut the presumption of the predominance of the TPV over the declared price, which was denied by the AT.

  • The gracious appeal itself aimed at that objective, with documentary and oral testimony having been requested there to demonstrate that the request was presented.

  • If, absurdly, it were considered that the gracious appeal which the Claimant used was not the proper means to fulfill the requirement provided for in the cited no. 3 of article 139, nothing prevented acceptance of the request made there, even if it was necessary to convert the petition, so that such double proof could be produced and, depending on the result, to maintain or annul the assessment.

  • The AT's interest was not, in the end, to establish the material truth of the situation as ordered by article 58 of the General Tax Law (LGT), the AT disregarded the principles by which article 55 of the LGT requires its activity to be governed, its only interest, its only objective, was to attempt by all means to legitimize the collection of this assessment.

  • As to the object of the present arbitral request, which is limited to consideration of the illegality of the assessment, it is assumed that this restriction is related to the material competence of the arbitral tribunal and, on the other hand, to the competence of other judicial or administrative bodies, given that the matter of the procedure provided for in no. 3 of article 139 of the IRC Code is assigned to the Tax Authority (finance director).

  • Thus, the object of the present arbitral request is limited to the assessment of the legality of the assessment, not aiming to produce the proof that should have been the subject of a proper, prior and preceding procedural means to the assessment, nor does it aim to obtain any decision requiring the AT to carry out the due act, for which this tribunal has no competence and for which the arbitral request is not the proper means.

  • What the present request aims at is thus to obtain recognition that the assessment was issued without the Claimant having been given the opportunity to prove that the burden of requesting the initiation of the procedure in question was fulfilled in a timely manner and that, in this manner, rules and principles of the tax system connected with the delimitation of tax incidence were violated, which no tribunal could accept.

  • Since the IRC assessment now challenged was issued without the Claimant having been given the opportunity to prove that it fulfilled its burden of requesting the procedure to demonstrate that the taxable matter of that assessment could not be the tax property value of the transferred real estate but rather its price, the AT objectively considered that the presumption provided for in no. 2 of article 164 is absolute and inviolable, and this is the defect from which the contested additional assessment suffers.

  • The contested additional assessment must therefore be annulled, so that everything reverts to the beginning giving the opportunity for the AT, if it so wishes, to restart the process aimed at a new assessment complying with the legal requirements that enable it to proceed with its issuance.

B - The AT's Position

The AT defends, in summary, as follows:

  • The Claimant filed a special administrative action in the Administrative and Tax Court of ... distributed under case number .../18......, where the (il)legality of the decision dismissing the gracious appeal presented and the request for effective price is discussed.

  • This action constitutes a logical-legal antecedent to the assessment allegedly disputed in the present arbitral proceedings, that is, the discussion of the legality of the IRC assessment constitutes an issue that depends on the understanding that, upstream, will be established and is being considered in the context of an administrative action in the Administrative and Tax Court of ... distributed under case number .../18......

  • As such, it is incumbent on the Arbitral Tribunal to suspend the present proceedings until the question of the discussion of the legality of the dismissal of the gracious appeal here under analysis is resolved in the administrative action distributed under number .../18...... and consolidated in the legal system, since, in light of the substantive issue, as structured by the Claimant in the present proceedings, there is a serious risk that consistency between judgments is not guaranteed, or rather, the principle of homogeneity of decisions.

  • Therefore, a request is made for suspension of the present arbitral proceedings, with all legal effects, staying the decision until the administrative action distributed under number .../18...... is decided and consolidated in the legal system.

  • Now, as prescribed by letter a) of no. 1 of article 2 of the RJAT, it is incumbent on arbitral tribunals to declare the illegality of acts of assessment of taxes, self-assessment, withholding at source and payments on account.

  • Therefore, the Arbitral Tribunal is materially incompetent to assess within the scope of the process of proving the effective price, given that it may only be considered in the context of the procedure and by the Finance Director, which constitutes a dilatory exception preventing consideration of the merits of the case, in accordance with the provisions of no. 1 and 2 of article 576 of the CPC by virtue of letter e) of article 2 of the CPPT and letters a) and e) of no. 1 of article 29 of the RJAT.

  • No. 7 of article 139 of the IRC Code prescribes that judicial challenge of the assessment of tax resulting from corrections made by application of the provision of no. 2 of article 64, or, if there is no assessment, of corrections to taxable income under the same provision, depends on prior presentation of the request provided for in no. 3, with no gracious appeal being available.

  • Thus, the legislator established a mechanism for the evasion of the presumption through the presentation of a request to the finance director, with such procedure being governed in accordance with articles 91 and 92 of the General Tax Law, with the necessary adaptations, with the provision of no. 4 of article 86 of the same law being equally applicable.

  • The legislator established that the lodging of judicial challenge – with a view to the discussion of proof of the effective price – depends previously on the assessment, discussion and demonstration, in a proper procedure, that the value of the transfer corresponds to the value of the contract.

  • In light of what is established in no. 3 of Article 86 of the LGT, the demonstration of proof of the effective price is not susceptible to autonomous contentious challenge, without there being an exhaustion of all the gracious means expressly provided for in the law.

  • That is, the legislator conceived as a condition for judicial challenge the prior discussion and demonstration, in the context of a proper procedure, that the value of the contract corresponds to the effective price, that is, such procedure constitutes a condition of procedurability when it is intended to discuss the effective price actually charged in the transfers of real property rights over real estate.

  • Therefore, since the Claimant did not present in a timely manner the procedure established by the provision of article 139 of the IRC Code, it is irremediably foreclosed from producing the demonstration (now) in the context of judicial challenge.

  • Without conceding further, it will be said that the A. alleges - without ever glimpsing to prove, indeed, without ever even attempting to prove – that it delivered the request provided for in no. 7 of article 139 of the IRC Code in a timely manner.

CONSIDERATIONS

Considering the right to prove the effective price in the transfers of real estate enshrined in article 139 of the IRC Code, it is important in the specific case under analysis to clarify the following:

  • If, the procedure not having been initiated to rebut the presumption of the predominance of the tax property value, the Claimant was precluded from appealing and from bringing the present arbitral petition?

  • If it is possible to overcome the formalism provided for in no. 3 of article 139 of the IRC Code, that is, if it is possible to prove the truth of the declared price in judicial proceedings, particularly within the scope of the arbitral process?

  • If, in the event of an affirmative answer to the two preceding questions, in the case, and in the words of the Claimant "the Respondent prevented the Claimant from proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, and objectively considered absolute and inviolable the presumption provided for in no. 2 of article 64 of the same Code."

Let us examine.

In Chapter VIII of the IRC Code, regarding guarantees of taxpayers, article 137 establishes, regarding the right of appeal and judicial challenge, as follows:

"1 - IRC taxpayers, their representatives and persons jointly or severally liable for payment of the tax may appeal or challenge the respective assessment, made by the fiscal administration services, on the grounds and in the terms established in the Code of Tax Procedure and Process.

2 - The power referred to in the preceding number is equally conferred in relation to self-assessment, withholding at source and payments on account, in the terms and deadlines provided for in articles 131 to 133 of the Code of Tax Procedure and Process, without prejudice to the provisions of the following numbers.

3 - The appeal, by the holder of income or its representative, of withholding at source of amounts wholly or partly unduly retained shall only take place when such withholding has a definitive character and shall be presented within two years of the expiry of the deadline for submission, by the substitute, of tax withheld at source or of the date of payment or placing at the disposal of income, whichever is later.

4 - Challenging the acts mentioned in no. 2 is necessarily preceded by appeal to the competent finance director, in the cases provided for in the Code of Tax Procedure and Process.

5 - The entities referred to in no. 1 may also appeal and challenge the taxable matter that is determined and that does not give rise to an IRC assessment, on the grounds and in the terms established in the Code of Tax Procedure and Process for the appeal and challenge of tax acts.

6 - Whenever, the tax being paid, it is determined, in a gracious or judicial process, that there was an error in the assessment attributable to the services, indemnification interest is assessed in accordance with article 43 of the General Tax Law.

7 - The power referred to in no. 1 is equally applicable to the special payment on account provided for in article 106, in the terms and with the grounds established in article 133 of the Code of Tax Procedure and Process."

It follows, therefore, from the above-cited provision that, as a general rule, taxpayers may appeal or challenge any IRC assessment made by the AT. Nevertheless, article 139 of the IRC Code provides, under the heading "Proof of effective price in the transfer of real estate," as follows:

"Proof of effective price in the transfer of real estate

1 - The provision of no. 2 of article 64 is not applicable if the taxpayer proves that the effective price actually charged in the transfers of real property rights over real estate was less than the tax property value that served as the basis for the assessment of tax on paid transfers of real estate.

2 - For purposes of the provision of the preceding number, the taxpayer may, in particular, demonstrate that the construction costs were lower than those set in the ordinance referred to in no. 3 of article 62 of the Code of Tax on Immovable Property, in which case the amount of construction costs shall be increased by the other objective indicators provided for in that Code for determining the tax property value.

3 - The proof referred to in no. 1 must be carried out in a procedure initiated by means of a request addressed to the competent finance director and presented in January of the year following that in which the transfers occurred, provided that the tax property value has already been definitively determined, or within 30 days after the date on which the assessment became definitive, in other cases.

4 - The request referred to in the preceding number has suspensive effect on the assessment, in the part corresponding to the value of the positive difference provided for in no. 2 of article 64, which, in the case of total or partial dismissal of the request, is within the competence of the General Directorate of Taxes.

5 - The procedure provided for in no. 3 is governed by the provisions of articles 91 and 92 of the General Tax Law, with the necessary adaptations, with the provision of no. 4 of article 86 of the same law being equally applicable.

6 - In the case of presentation of the request for demonstration provided for in this article, the fiscal administration may access the bank information of the requesting party and of the respective administrators or managers relating to the tax period in which the transfer occurred and the preceding tax period, and for such purpose the corresponding authorization documents must be attached.

7 - Judicial challenge of the assessment of tax resulting from corrections made by application of the provision of no. 2 of article 64, or, if there is no assessment, of corrections to taxable income under the same provision, depends on prior presentation of the request provided for in no. 3, with no gracious appeal being available.

8 - The challenge of the act fixing the tax property value, provided for in article 77 of the Code of Tax on Immovable Property and in article 134 of the Code of Tax Procedure and Process, has no suspensive effect on the IRC assessment nor suspends the deadline for submission of the request for demonstration provided for in this article."

Thus, it follows from no. 1 and 5 of article 139 of the IRC Code that, for purposes of rebutting the presumption established in article 64, no. 2 of the IRC Code[1], the procedure for proving the effective price must be initiated, which is governed by articles 91 and 92 of the LGT.

In this manner, notwithstanding the recognized right to appeal and judicial challenge of any assessment act, the rebuttal of the presumption of the effective price of transferred real estate and, therefore, the proof of the real value of the transfer of real estate may only be carried out through the identified procedure. The presentation of that procedure for proof being mandatory[2], the presentation of a gracious appeal is dispensed with.

Given the foregoing, it is understood that, since the conformity issue pointed to the IRC assessment act sub judice relates to the price of the transferred real estate, the Claimant's burden of proof can only be fulfilled within the scope of the demonstration procedure for price provided for in article 139 of the IRC Code, especially conceived for the assessment of the price of real estate. Given the specificity of the matter – real estate price – and the need to resort to experts or other technical professionals in the field, it was established that recourse to this procedure constitutes a condition of the right to its subsequent judicial challenge.

It is concluded, therefore, that, since it has not been proven that the Claimant requested the initiation of the procedure to rebut the presumption of the tax property value, the Claimant was not precluded from appealing and from bringing the present arbitral petition, but the legality of the assessment act at issue on the ground of error in the determination of the sale price of the real estate is not subject to scrutiny, since the procedure for proving the price already identified was not previously initiated.

Having reached this point, it is now necessary to assess whether, as the Claimant states, "the Respondent prevented the Claimant from proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, and objectively considered absolute and inviolable the presumption provided for in no. 2 of article 64 of the same Code."

As has already been seen, the initiation of the procedure provided for in article 139 of the CPC is the legal manner of rebutting the presumption established in article 64, no. 2 of the same Code.

Such procedure is a guarantee of the conformity of this presumption with the provision of article 73 of the LGT, insofar as it provides interested parties with an appropriate and sufficient means to, feeling themselves prejudiced by the presumption in question, demonstrate, without its own procedure, the lack of adherence to reality of the fact presumed by it.

The said procedure, provided for in article 139 of the CPC, is a potestative right of the taxpayer who, within the deadline provided for that purpose, may present their request for it to be carried out, with the carrying out of the same, in the terms of the law, being incumbent on the AT.

From this finding, it is immediately apparent that, contrary to what the Claimant seems to understand, the AT is not obligated to provide the taxpayer with the possibility of presenting proof of the effective price. Rather, the AT is the passive party subject to the corresponding potestative right of the taxpayer, being obligated to carry out, in the terms of the law, the said procedure, as soon as requested to do so, in a timely manner, by the taxpayer.

In this manner, within the applicable legal framework, no notification or interpellation of the AT is legally necessary or required in order for the taxpayer to carry out the proof of the effective price. Rather, it is the taxpayer who, in light of the presumption of article 64, no. 2 of the IRC Code – which it must know (cf. Article 6 of the Civil Code) – that bears the burden of interpellating the AT for the carrying out of the said procedure, by means of the presentation of the corresponding request.

Given the foregoing, the possibilities of the AT preventing taxpayers from proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, are restricted to situations in which that authority unjustifiably rejects the initiation of the procedure provided for that purpose, which presupposes from the outset the timely presentation of the corresponding request by the taxpayer, or in which, having initiated it, it fails to comply with the legal provisions governing it.

Now, in the case at hand, neither one nor the other of the said situations is demonstrated.

Thus, with respect to the non-compliance by the AT with the provisions regulating the procedure in question, and setting aside the question of the competence of the Arbitral Tribunal to know of the corresponding illegalities, it is an issue that does not arise, since, admittedly, the said procedure was not initiated.

In this manner, only a potential censure of the AT could be at issue in the present proceedings for, confronted with a request to initiate the procedure for proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, presented by the taxpayer in the terms of the law and in a timely manner, not having initiated such procedure, and consequently, and only then, preventing the taxpayer from carrying out said proof and overcoming the presumption established in article 64, no. 2 of the IRC Code, on which the tax act that is the object of the present arbitral action is based.

Now, in the present case, the Claimant does not demonstrate the presentation, in the terms referred to, of a request to initiate the procedure for proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code.

It is certain that, since the right to prior hearing in the inspection proceedings, the Claimant alleges to have proof of the presentation of such a request. Nevertheless, it is less certain that, to the present date, the Claimant does not present any proof of such occurrence, and by force of article 364, no. 1 of the Civil Code, proof of the presentation of the request to initiate the procedure for proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, must be made by means of a written document, since that is the form that must be assumed by the said request (cf. Article 54, no. 3 of the LGT and 26 of the CPPT).

In this manner, the demonstration that the Claimant presented a request to initiate the procedure for proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, would have to be made by document, which, as stated, has not been done to date.

Having failed to do so, and this Tribunal cannot conclude, as the Claimant intends, that "the Respondent prevented the Claimant from proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, and objectively considered absolute and inviolable the presumption provided for in no. 2 of article 64 of the same Code."

This conclusion is not impeded by the circumstance that, in the procedures prior to the assessment, the Claimant made mention that it possessed such proof, and that it intended to present it, and that it reiterated such a statement in the context of the gracious appeal.

Indeed, the tax procedure is governed by principles of practicability and speed (cf. articles 46 of the CPPT and 55 of the LGT), which are not compatible with the acceptance of taxpayer positions that can be reduced to the statement that they possess means of proof, but that await notification to do so, without this being justified by any obstacle or impediment to the immediate presentation of the said means of proof.

In this manner, and given the foregoing, it is not judged to be demonstrated that "the Respondent prevented the Claimant from proving the truth of the declared price, provided for in no. 1 of article 139 of the IRC Code, and objectively considered absolute and inviolable the presumption provided for in no. 2 of article 64 of the same Code," with such a judgment not being contrary to, on the contrary, any legal or constitutional provision.

Thus, and in light of all the foregoing, the arbitral request should be dismissed, with the Respondent being absolved thereof.

IV. DECISION

In view of the foregoing, the arbitrators on this Arbitral Tribunal agree to dismiss as lacking merit the request for a declaration of illegality of the IRC assessment act identified in the proceedings, in the amount of €552,136.53, absolving the Respondent thereof, and condemning the Claimant for costs, taking into account the amount already paid.

V. VALUE OF THE CASE

In accordance with the provision of article 315, no. 2, of the CPC and 97-A, no. 1, letter a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €552,136.53.

VI. COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at €8,568.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 25 October 2018

The Arbitrators

(José Pedro Carvalho)

(Magda Feliciano)

(Manuel Pires)

(The text of this decision was prepared by computer, in accordance with article 131, no. 5, of the Code of Civil Procedure, applicable by reference from article 29, no. 1, letter e) of Decree-Law no. 10/2011, of 20 January (RJAT), with its writing governed by the spelling prior to the Orthographic Agreement of 1990.)

[1] "Whenever, in the paid transfers provided for in the preceding number, the value stated in the contract is less than the definitive tax property value of the property, this is the value to be considered by the alienator and acquirer, for determination of taxable profit."

[2] Cf. Judgment of the STA, case 820/15, of 9.03.2016, Judgment of the STA, case no. 881/12, of 3.12.2014.

Frequently Asked Questions

Automatically Created

What happens if a company fails to prove the effective sale price of real estate for IRC purposes under Article 139 of the CIRC?
If a company fails to prove the effective sale price under Article 139 of the CIRC, the Portuguese Tax Authority automatically includes the difference between the tax patrimonial value (VPT) and the declared sale price in taxable income. This difference is added to field 765 of table 07 in the IRC Model 22 declaration. The taxpayer must submit a substitute declaration including this amount, and failure to properly invoke Article 139(3) procedures—which require formal initiation of a review procedure before the Finance Director—results in additional IRC assessments. The burden of proof lies entirely with the taxpayer, who must provide comprehensive documentation including deeds, payment receipts, and potentially bank records proving the actual transaction price. Without following the prescribed administrative procedure, taxpayers cannot challenge the AT's valuation based on VPT.
How does the difference between the deed value and the tax patrimonial value (VPT) affect IRC taxation on property sales?
The difference between deed value and tax patrimonial value (VPT) directly impacts IRC taxation on property sales by creating a presumption of higher taxable gains when the deed price is lower. Under Portuguese tax law, when real estate is sold for less than its VPT, the AT treats this difference as taxable income unless the taxpayer proves the effective price through Article 139(3) procedures. In this case, the €1,823,719.44 difference (€9,251,481.40 VPT minus €7,427,761.96 declared value) was added to taxable income, generating a €552,136.53 additional IRC assessment. This mechanism prevents undervaluation of property transactions for tax purposes. The VPT serves as a minimum taxable base, and any declared sale price below this triggers automatic corrections unless the taxpayer successfully demonstrates through documentary evidence and formal procedures that the actual transaction price was genuinely lower, often due to factors like mortgage assumptions, property conditions, or distressed sales.
What is the procedure for submitting proof of effective price to the Portuguese Tax Authority under Article 139(3) of the CIRC?
The procedure for submitting proof of effective price under Article 139(3) of the CIRC requires taxpayers to formally initiate an administrative review procedure with the competent Finance Director. This is not merely submitting documents to general tax services but specifically requesting the Support Services for Review Procedure (SAPR) to open a formal file. The taxpayer must provide comprehensive documentation including: sale and purchase deeds, payment receipts, bank transfer records, mortgage documentation if applicable, and declarations explaining price differences. The request must be filed timely, and Article 139(7) establishes strict deadlines that cannot be circumvented retroactively. The procedure is administrative, not part of regular tax assessment processes. In this case, the company's failure was not providing insufficient documentation, but failing to formally initiate the Article 139(3) procedure itself—SAPR confirmed no such procedure was ever opened in the company's name, making all subsequent documentation submissions procedurally ineffective.
Can a taxpayer challenge an additional IRC assessment through arbitration at CAAD when the sale price is lower than the property's tax patrimonial value?
Yes, taxpayers can challenge additional IRC assessments through CAAD arbitration when sale prices are lower than VPT, but the arbitral tribunal's competence is limited to assessing the legality of the assessment act, not evaluating price proof directly. In this decision, the AT argued the arbitral tribunal lacked material competence because Article 139 establishes an exclusive administrative procedure under the Finance Director's jurisdiction. However, the tribunal rejected this exception, clarifying that while it cannot substitute for the Finance Director in evaluating effective price evidence, it can determine whether the AT illegally denied the taxpayer's right to prove effective prices or violated procedural guarantees. The tribunal examines whether proper procedures were followed, whether the taxpayer was given opportunity to present evidence, and whether the assessment act complies with legal requirements—not the substantive merits of price valuation. Taxpayers must exhaust administrative remedies (gracioso appeal) before accessing arbitration, and CAAD reviews assessment act legality, including procedural violations, constitutional rights infringements, and incorrect legal interpretation.
What are the consequences of not filing a substitute Model 22 IRC declaration when required by the Portuguese Tax Authority after a property transaction?
Failing to file a substitute Model 22 IRC declaration when required by the Portuguese Tax Authority after a property transaction results in the AT issuing official corrections and additional assessment acts. In this case, the taxpayer was notified on June 2, 2016, to submit a substitute declaration including the €1,823,719.44 difference in field 765 of table 07. Instead of complying, the company attempted to prove the effective price was lower. Without proper Article 139(3) procedures, the AT proceeded with official corrections via letter no. ... dated May 22, 2017, and issued additional IRC assessment act no. 2017... for €552,136.53. Consequences include: immediate tax liability with specified payment deadlines (in this case, August 2, 2017), interest charges from the original tax deadline, potential penalties for non-compliance, and the burden of paying before challenging through gracioso appeals or arbitration. The taxpayer paid within the legal deadline to avoid enforcement proceedings, then filed administrative and arbitral challenges. This demonstrates that non-compliance with substitute declaration requirements does not prevent AT from unilaterally correcting taxable income and issuing enforceable assessments.