Constitutional Court

Judgment No. 275/2016, of 4 May 2016, published in 28 July 2016

Case No. 815/15

In the Judgment in question, delivered in a context of an appeal against a decision of the Tax Arbitration Court, the Constitutional Court does not held unconstitutional Article 10, paragraph 2, of the IRS Code - as amended by Law No. 39-A/2005 of 29 July-, according which the exclusion of taxation of capital gains arising from the onerous transfer of shares (held by their holder for more than 12 months) does not include capital gains arising from the sale of shares of companies whose assets consist – throughout the holding period - directly or indirectly, of more than 50% of real estate located in Portugal.

In short, the Constitutional Court concluded that the choices made by the legislator regarding the provisions that define rules and exceptions of tax incidence for purposes of determining taxable events can only be censored, on grounds of infringement of the principle of equality, if the differences in treatment are not justified on reasonable grounds, taking into account the constitutional purposes that are pursued.

In this case, the legislator considered that the threshold of 50% of real estate assets is a strong indication that its activity essentially consists in the management and creation of value of the real estate owned, so an eventual valuation increase of the real estate will always reflect a valuation increase of the underlying shares (regardless of any real estate transaction), which generates potential taxable capital gains.

Thus, given that the anti-abuse purpose of this provision is exactly to prevent that taxpayers (in order to avoid the taxation as real estate capital gains) opt to sale the shares, (which will not be subject to tax), instead of to sale the real estate, the Constitutional Court decided not to judge as unconstitutional the [former] Article 10, paragraph 2, of the IRS Code.

South Central Administrative Court

Judgment of 29 June 2016, published in July 2016

Case No. 07877/14

In the Judgment in question, the South Central Administrative Court concluded that nonmarital partners who submit a joint IRS Return may benefit from the regime of exemption of capital gains arising from the sale of real estate used for their personal and permanent residence, in accordance with Article 10, paragraph 5, of the IRS Code, if they intend to reinvest the gains in another real estate for the same purpose. 

However, if the real estate sold belongs to just one of the members of the couple and the other real estate is being purchased in co-ownership by both, for purposes of calculation of the capital gains excluded from taxation, only the proportion of the part of the real estate acquired by the member whose gains are being reinvested is considered, since that gains are income (category G) earned solely by one of the members of the couple. 

South Central Administrative Court

Judgement of 13 July 2016

Case no. 09540/16

In the Judgment in question, the South Central Administrative Court decided, for purposes of determining the taxable income of a company through indirect methods, that it is not enough to the Tax Authorities to demonstrate the impossibility of determining the taxable income through direct methods, being also necessary to justify the criteria of quantification of the taxable income, under penalty of the illegality of the Corporate Income Tax assessment, for lack of reasoning.

South Central Administrative Court

Judgement of 13 July 2016

Case no. 09556/16

In the Judgement in question, the South Central Administrative Court concluded, for purposes of determining the taxable profit of a company which is dedicated to clothing manufacture, that the discounts and financial charges charged to the clients due to non-compliance with deadlines is covered by the concept of «credits resulting from the normal activity of the company» foreseen in Article 34, paragraph 1, of the Corporate Income Tax Code, thus the respective establishment of provisions for doubtful debtors are deductible for tax purposes.

Administrative Arbitration Centre

Tax Arbitration Court

Arbitration Decision of 30 May 2016, published in July 2016

Case no. 693/2015-T

In the Arbitration Decision in question, the Tax Arbitration Court concluded – in compliance with the Arbitration Decision, of 10 February 2016, rendered in Case No. 599/2015-T – that the Property Transfer Tax exemption foreseen in Article 270, paragraph 2, of Insolvency and Recovery Code, applies not only when the companies are being transmitted as a «transfer of a business as a going concern» but also in case of sales or exchanges of real estate assets individually considered, as long as these operations are framed within an insolvency or payment plan, or within a liquidation of the insolvency estate. 

Thus, the Tax Arbitration Court decided to annul the assessment issued by the Tax Authorities that applied the Property Transfer Tax exemption regarding real estate acquired for resale (secondary petition for tax assessment), because this concrete situation falls under the exemption foreseen in Article 270, paragraph 2, of CIRE (main petition for tax assessment).