Supreme Administrative Court

Judgment of 3 April 2013

Case No. 05/13

In this judgment, the Supreme Administrative Court was requested to rule on the possible application of a special reduction of the fine or penalty of admonition to tax misdemeanours.

Observing that the Regime Geral das Contra-Ordenações ("RGCO") (General Framework of Misdemeanours) is subsidiarily applicable to tax misdemeanours, the court advocates that whenever the legal requirements are fulfilled, the rules of the RGCO on the special reduction of the fine or penalty of admonition, should be applied to this type of misdemeanours.

Supreme Administrative Court

Judgment of 3 April 2013

Case No. 0395/13

In this judgment, the Supreme Administrative Court was requested to rule on the possibility of the Tax Administration rejecting the application for the exemption from the requirement to provide a guarantee exclusively based on the non-production of evidence of the pre-condition for the application to be granted.

The court decided that the Tax Administration is obliged to analyse the evidence in its possession regarding the facts alleged by the judgment debtor to meet the requirements for the exemption from the obligation to provide a guarantee and that the Administration is to make a critical appreciation of the same, prior to make a decision.

Constitutional Court

Judgment No. 187/2013, of 5 April 2013

The Constitutional Court examined four requests of abstract constitutional reviews of provisions contained in Law No. 66-B/2012, of 31 December 2012 – 2013 State Budget Law.

With regard to transitional provisions, the Constitutional Court decided not to declare the part of article 186 of that law, amending articles 68, 68-A and 85 of the Personal Income Tax Code on the reduction of taxable income brackets, additional solidarity surcharge and limitation of tax credits, unconstitutional, as it considered them not to be in disagreement with the Constitution.

The court also decided not to declare article 187, which created a personal income tax surcharge, unconstitutional, as such creation, which is exceptional and transitional, aimed to meet extraordinary public finance needs, is not in conflict with the rules of progressiveness and unity of the personal income tax, set out in article 104(1) of the Portuguese Constitution.

South Central Administrative Court

Judgment of 9 April 2013

Case No. 06052/12

In this judgment, the South Central Administrative Court ruled on the criterion of assessment of the value of an urban property for the purpose of personal income tax of capital gains, where the tax asset value is higher than the value declared as being the transfer price.

The court stated that the sale proceeds, for the purpose of calculating the income subject to personal income tax, with regard to capital gains, must be, in accordance with the provisions of article 44(2) of the personal income tax code in force in 2004, the property rateable value arising from the assessment for "IMI" purposes rather than the value of the price declared in the purchase and sale executed by public deed, where the former is higher.

In line with this understanding, the court concluded that, if the taxable person, during an inspection, is notified of the sale proceeds calculated in the manner referred to above – lower than the previously presented value – and submits replacement return, and the inspection action is filed, the subsequent assessment is based on the value shown in the replacement return filed by the taxable person, according to the rules of share of the burden of proof, the value shall be the value of the price declared if it is higher than the tax asset value.

Constitutional Court

Judgment No. 197/2013, of 9 April 2013

In the judgment in question, the Constitutional Court was requested to rule, in the scope of an appeal, on the constitutionality of the part of the rule set out in article 14(1) of Law No. 2/2007 of 15 January (Local Finance Law), setting out that, considering that the taxation base of additional local tax is the taxable profit, the tax loss cannot be carried forward, due to the breach of the principle of tax equality, of the ability to pay tax and of the taxation of undertakings based on their real profit.

The court argued that by associating the additional local tax to the taxable profit, the lawmaker has sought to prevent situations in which undertakings could, by carrying forward losses, avoid having to pay these taxes, thereby reducing municipalities’ own profits and harming local autonomy.

The Constitutional Court further considered despite the fact that tax losses carry forward is, in terms of taxation, more adequate to the economic life of undertakings, its absence does not imply a breach of principles of tax equality and of the taxation of undertakings based on their real profit.

In this sense, the Constitutional Court concluded that the rule referred to above was not unconstitutional, admitting that the carry forward of tax losses is not constitutionally imposed by the principles of the ability to pay tax, of tax equality and of the taxation of undertakings based on their real profit, and that there exists a margin of free determination of the ordinary legislator in the tax field.

Supreme Administrative Court

Judgment of 10 April 2013

Case No. 01430/13

In this judgment the Supreme Administrative Court was requested to rule on the requirements for the applicability of the tax benefits given to off-shore financial centers under the article 33 of the Statute of Tax Benefits on Madeira’s Free Zone.

The court ruled that the scope of the legislation that created the free zone of Madeira was the economic development of that region. As the said laws make a clear reference to the "economic activity pursued there" and "premises", we must conclude that even the off-shore financial centers referred in the Decree-law no. 163/86 of 26 June, must have in the region of the free zone a physical infrastructure sufficient to develop its activity, in particular, facilities, equipment and personnel.

The court concluded that the application of this tax benefits regime implies that the off-shore financial centers are installed with the minimum logistical capacity on the territory. If those requisites are not verified the Corporate Income Tax exemption applicable under the article 33 of the Statute of Tax Benefits should be denied.

Supreme Administrative Court

Judgment of 17 April 2013

Case No. 0166/13

In this case, the Supreme Administrative Court clarified that the autonomous taxations are indirect taxes. This taxes tax a certain type of expenditure incurred by the taxpayer from taxation.

Since these expenditures are chargeable events, each one of them are autonomous taxable events for which the taxpayer is liable having or not taxable income for Corporate Income Tax Purposes. It is, thus, irrelevant that such taxes may be paid in conjunction with the IRC.

The Court concluded that the rate of autonomous taxations cannot be raised and applicable to expenses already incurred at the time when the law that raises that tax rates enters into force. The rule of the Article 5., no. 1, of the Law no. 64/2008, of 5 December, that determines the retroactive effect to 1 January, 2008 the amendment of the Article 81., no. 3, of the Corporate Income Tax Code, is violates the Portuguese constitutional rule of the prohibition of tax law retroactivity.

South Central Administrative Court

Judgment of 30 April 2013

Case No. 05943/12

In the judgment in question the Supreme Administrative Court was requested to rule on the applicability of the tax benefits given to off-shore financial centers under the article 33 of the Statute of Tax Benefits on Madeira’s Free Zone.

The court declared that an entity that engages in transactions both taxable and exempt of Corporate Income Tax must manage its accounts in order to determine the amount of taxable transactions. By the same reason, the court ruled that the profits of a transaction must be allocated to a taxable transaction when its costs were allocated to it.

The Court also declared that the income of a off-shore financial centers installed in the Madeira Free Zone is exempt from Corporate Income Tax if, as general rule, do not carry transactions with Portuguese resident or permanent establishment of a non-resident located in Portugal.

Bearing that in mind the court concluded saying that a general rule of prohibition of conducting transactions between branches of a company resident in Portugal, with financial companies installed in the Madeira Free Zone, is applicable and because of that the Corporate Income Tax exemption will be not applicable.