Tax Law Newsletter I June 2016: national case law

Supreme Administrative Court

Judgment of 15 June 2016

Case no. 0642/16

In this Judgment, the Supreme Administrative Court analysed the question of whether, in a request for the provision of a guarantee for the suspension of a tax foreclosure procedure by means of a personal guarantee, to be provided by the company holding the entirety of the share capital of the debtor, the Tax Authorities can set up as criterion for evaluation of the guarantor’s assets or financial robustness the method provided for in Article 15 of the Stamp Duty Code (intended to calculate the value of shares gratuitously transferred), and deduct from the value thus found both the amount of the contingent liabilities and the value of the share held by the guarantor in the share capital of the debtor.

The Court began by noting that the Tax Authorities shall ascertain the suitability of the guarantee offered for the suspension of the tax foreclosure procedure and that such suitability is to be ascertained through the likelihood of ensuring the payment of the debt and any accumulated interest, in case the guarantee is executed.

Nevertheless, the Court highlighted the fact that, in the case of a guarantee, what is intended with the assessment is to determine, as closely as possible, the value of the property or rights offered, the liquidity that they are likely to generate if it is necessary to execute the guarantee; in this specific case, the sufficiency of the guarantor assets to cover the debt and any accumulated interest, which do not correspond to the purpose of Article 15 of the Stamp Duty Code (i.e., determination of the tax basis for levying that tax in the event of a gratuitous transfer of shares).

Thus, the purposes of the assessment being different when ascertaining the suitability of the guarantee offered by the debtor for the suspension of the tax foreclosure procedure and when determining the tax basis as a quantitative expression of a taxable event, the assessment made by the Tax Authorities, using a formula taken from the tax provision aimed at determining the tax basis for Stamp Duty, is not appropriate for assessment of the corporate assets of the guarantor with regard to ascertaining the suitability of the personal guarantee.

The Court further added that, to conclude that the guarantor ’s assets are insufficient and the guarantee offered is not suitable, the Tax Authorities must assess the guarantor ’s assets, which involved an integrated analysis of various aspects, e.g. the composition of the assets, their recoverability, the existence of overestimation or not, the capacity to release funds, the generated earnings level, the value of liabilities, their composition and relationship with equity.

Administrative Arbitration Centre Tax Arbitration Court

Judgment of 28 April 2016, published on June 2016

Case no. 662/2015-T

In the Judgment in question, the Tax Arbitration Court examined the question concerning the means of proof of tax residence for an individual taxpayer for the purposes of levying PIT in the Portuguese territory.

In this case, the taxpayer had declared himself, by error, as tax resident in Portugal in the year 2013, being as such subject to PIT, when he was effectively a tax resident in the United States of America (USA), where he had declared and subjected to tax the entirety of his income earned in that year 2013, leading to the payment of tax on the same income in two different jurisdictions.

The Tax Authorities refused to concede the non-residence in Portugal of such taxpayer based on the fact that he had not presented a Certificate of Tax Residence in the USA, tha t he maintained a declared tax domicile in Portugal and that he also declared his income for 2013 in that capacity.

The Tax Arbitration Court started by noting that these last facts shall not be deemed as an obstacle that cannot be overcame by the actual situation, under penalty of being considered an irrefutable presumption of tax residence. Even if this were the case, the Tax Arbitration Court highlighted the fact that the presumptions establis hed in rules concerning tax basis always admit evidence to the contrary.

Moreover, the Tax Arbitration Court noted that not only does the PIT Code not require proof of non-residence by means of a specific type of document (e.g. certificate of residence), but also, in practice, a certificate of tax residence in the USA only certifies residence in the USA, without this necessarily implying non-residence in Portugal.

Thus, the Tax Arbitration Court concluded that, irrespective of the presentation or not of the aforementioned certificate of tax residence in the USA, what excludes residence in Portugal is the non-occurrence of the requirements and assumptions provided for in Article 16 of the PIT Code, to which the Convention entered into by Portugal and the USA for the avoidance of double taxation refers, that can naturally be proven by any means of proof available to the taxpayer, which was made, in this case, by testimonial and documentary evidence.