Supreme Administrative Court

Judgment to Establish Case Law no. 2/2015, of 17 September 2014

Diário da República (Portuguese Official Gazette), 1st series – No. 95 – 18 May 2015

Case no. 1626/2013

Harmonizes the jurisprudence to the extent that the exemption from the Property Municipal Tax on the Transfer of Real Estate applicable to the acquisition of real estate assets with the aim of resale expires if substantial changes are made to the property purchased.

Specifically, the Court sets out the following:

For purposes of forfeiture of the exemption from property municipal tax on the transfer of real estate, pursuant to Article 7 and Article 11, no 5 of the Property Municipal Tax on the Transfer of Real Estate Code (exemption in case of acquisition with the aim of resale), it is not relevant whether the acquired property is resold or not in the exact same conditions as it was at the time of acquisition; what is relevant is that there is not a metamorphosis or substantial change of the property acquired for resale. Therefore, if the acquired property consists of land with a residential building already under construction or refurbishment under an approved plan (whether unfinished or at an advanced state of construction/refurbishment), the expression “of resale” does not require the property to be sold as it was at the time of the  acquisition, being possible carrying out all  the work necessary to complete said construction, in order to finish it, license it for the abovementioned purpose, register it as horizontal property and sell the corresponding building units”.

Supreme Administrative Court

Judgment of 22 April 2015

Case no. 0879/14

In the Judgment in question, the Supreme Administrative Court decided that the taxable event that authorises the VAT assessment does not exist if the taxpayer has not provided any services and has not received any consideration, not being therefore required to deliver the VAT mentioned in an invoice issued within a transaction that was never actually carried out.

South Central Administrative Court

Judgment of 23 April 2015

Case no. 08149/15

In the Judgment in question, the South Central Administrative Court addressed different questions, having ruled that the regime for the elimination of economic double taxation on profits, set forth by Article 46 as it read by reference to 2005, does not apply where the profits have not been subject to taxation at the level of the distributing company, triggering the presumption according to which an abuse of legal forms with the view of eliminating, reducing or deferring the taxation took place, being therefore applicable the special anti-abuse provision.

South Central Administrative Court

Judgment of 7 May 2015

Case no. 08534/15

In the Judgment in question, the South Central Administrative Court classifies as representation expenses the costs intended to represent a corporate income tax taxpayer, such as those incurred with respect to receptions, meals, travels, tours and entertainment offered in Portugal or abroad to third parties, regardless of whether they are clients or suppliers, that are duly documented and recorded in the accounts, thus fulfilling the requirement of indispensability set forth in Article 23 of the Corporate Income Tax Code.

By contrast, the same costs, when relating to the regular development of its corporate purpose, within the economic cycle in which they would naturally express  and  not relating to the representation of the taxpayer, cannot be classified as representation expenses but instead as costs associated with regular development of the main business activity of the corporate income tax taxpayer.

South Central Administrative Court Judgment of 21 May 2015

Case no. 08445/15

In the Judgment in question, the South Central Administrative Court clarifies that, in the context of an opposition made by a manager of a company to tax enforcement proceedings relating to tax debts whose deadline for payment has expired during his corporate mandate, a presumption of guilt of the said manager applies, determining the reversal of the burden of proof. As a consequence, the manager must provide evidence that he is not responsible for the non-payment of the due taxes.

The Court further decided that, during the corporate mandate, the manager did not acted with the diligence of a bonus pater familiae by allowing the company’s (almost) full dependency of a single client – in a situation of default – as well as by not submitting the declaration of insolvency of the company in due time. Therefore, the Court ruled that all the legal requirements set forth for the reversal of the tax enforcement proceedings were verified.

Administrative Arbitration Centre

Tax Arbitration Court

Decision of 19 December 2014, published on 13 May 2015

Case no. 200/2014-T

In the Arbitration Decision in question, the Arbitration Court gave its opinion on the legality of personal income tax assessments issued to a company in its capacity of tax substitute based on the requalification as dividends, under the general anti-abuse provision, of amounts paid by the company to its shareholders as repayments of supplementary capital contributions and shareholders’ loans.

In this context, the Arbitration Court annulled the contested assessments claiming that the application of the general anti-abuse provision cannot determine the withholding tax obligation upon the fiscal substitute.

The Arbitration Court further sustained its position by claiming, on the one hand, that the fiscal substitute does not obtain any fiscal advantages from the alleged abuse and, on the other hand, that it cannot, by its own initiative, change the qualification for tax purposes of amounts paid to its shareholders as per the Tax Authorities position, since this would result in the application of the general anti -abuse provision without the prior consent of the head of the competent department.

Administrative Arbitration Centre

Tax Arbitration Court

Decision of 9 December 2014, published on 14 May 2015

Case no. 87/2014-T

In the Arbitration Decision in question, the Arbitration Court claims that, following a merger by incorporation, the financial costs that had been deducted for corporate income tax purposes by the incorporated company cannot continue to be qualified as tax deductible costs at the level of the incorporating company if the corresponding assets have not been legally transferred to it, insofar as it does not exist a link of economic causality between the assumption of these costs, the financing out of which they are being paid and the development of the economic activity of the acquiring company.

Thus, it is vital to verify, in the context of the incorporating company, the effective and concrete allocation of the financing, in respect of which the interest are being paid, in order to qualify these costs as deductible for corporate income tax purposes.