Judgment No. 281/2014, published on 25 March 2014 Case No. 204/14
In this Judgment, the Director General of the Tax and Customs Authority, pursuant to Article 76(4), of the Lei da Organização, Funcionamento e Processo do Constitutional court (“LTC”), objected to the ruling issued by the Administrative Arbitration Centre, which did not admit the appeal it had lodged to the Constitutional Court .
The question settled by the Arbitration Tribunal was which is the taxable value to be taken into account to establish whether properties not divided into horizontal property but consisting of several floors and rooms used independently are subject to item 28 of the General Stamp Duty Scale: the sum of the taxable value of the asset attributed to the various parts or floors of the property (global taxable value of the asset) or, rather, the taxable value attributed to each part or floor capable of being used independently .
The Arbitration Tribunal considered that the criterion sought by the Tax authority, to consider the value of the sum of the taxable values attributed to the parts, floor or rooms used independently, on the grounds that the property is not divided into horizontal property, has no legal support and is contrary to the criterion applicable in the scope of Municipal Tax on Real Property and, by reference, in connection with Stamp Duty.
The Arbitration Tribunal further considered that the adoption of the second criterion sustained by the Tax Authority violated the principles of tax legality and equality , as well as the principle of prevalence of material truth over the formal legal reality .
It should be noted that, in the case of this process, the property in question is divided into vertical property and has 10 floors and rooms used independently, a large part of which are for residential purposes, and none of the floors has an asset value of €1,000,000.00 or more, whereupon the Arbitration Tribunal concluded that the legal requirement for the application of the stamp duty set out in Item 28 of the Stamp Duty Scale was not met.
In the appeal in question, the Constitutional court eventually considered that the requirements for a review of the constitutionality in the concrete case were not met. Thus, the Constitutional court did not issued a material ruling on the matter.
On the one hand, the subject of the appeal lodged by the Tax Administration did not have a legislative nature, and the review of the constitutionality must necess arily focus on legal provisions and is not an appeal against decisions .
On the other hand, the appeal in question did not comply with the specific pre -conditions set out in Article 70(1)(a) of the LTC, pursuant to which it had been brought.
Therefore, since the decision appealed against had not refused to apply any provision on the grounds of its unconstitutionality, the appeal could also not be upheld for that reason.
North Central Administrative Court Judgment of 27 March 2014
Case No. 00493/13.6BEVIS
The North Central Administrative Court (“TCAN”) was requested to rule, among other matters, on the specific reasons that could justify the decision of the Tax Administration to gain access to bank information or documents, regardless of the co nsent of the taxpayer, in accordance with the provisions of Article 63-B(4) of the General Tax Law (“LGT”).
In the case under consideration, the court considered that it was a sign that the income declared by the taxpayer was not real, and, consequently, that it was a reason for the Tax Administration gain access to the bank information and documents of the taxpayer, a variation of the income from interest earned from deposits that could not be justified with the income declared for the year in question, with the investment income in the previous year and with the variation of the remuneration conditions of those deposits .
Accordingly, the North Central Administrative Court concluded that the fact that the value of the income from capital could not be justified through the facts referred above is a sufficient sign of the untruthfulness of the income declared and, accordingly, it justifies gaining access to the bank information or documents regardless of the consent of the taxpayer.
North Central Administrative Court Judgment of 27 March 2014
Case No. 00798/09.0BEBRG
The court analysed whether it is possible to deduct from the Personal Income Tax, alimony paid to children of age, where the ratifying sentence provided for alimony while the child was still a minor.
Despite the fact that Article 1880 of the Civil Code provides that the obligation to pay alimony to the child of age should be maintained until the latter has finished his or her vocational training, the court considered that the interested party should have to prove the pre-conditions on which recognition of the alimony depends, that is, prove that he or she had not finished his or her vocational training, substantiating his or her need and the means of the parents.
The court considered that alimony paid to children above the age of 18 is only deductible for tax purposes where there is a ratifying sentence or agreement that so declares expressly, since the pre-conditions on which the compliance with the alimony obligations depends are different in the case of minors or children who are of age .
Accordingly, the TCAN clarified that the above mentioned alimony agreement is not enough, nor does it have any automatic effect, as the same comes to an end when the child becomes of age, unless the child applies for the same to be maintained and provides evidence of the corresponding pre-conditions.
The court also highlighted that this interpretation does not in any way violate the constitutional principles of the legal security and the protection of trust, both embodied in Article 2 of the Constitution of the Portuguese Republic, since the agreement in question had come to an end once the child had become of age, and for that reason, it could not produce any legal effects.
South Central Administrative Court Judgment of 27 March 2014
Case No. 06447/13
The South Central Administrative Court (“TCAS”) ruled on the calculation of the additional pay, consisting in the acquisition by the employee or by a member of the corporate body, for a price lower than the market price, of any vehicle that originated costs for the employer.
On the date of the facts of this specific case (year 2001) the income arising to the employee or the member of the corporate body from the acquisition of vehicles that had originated costs for the employer corresponded, in accordance with the provisions of Article 24(6) of the Personal Income Tax Code, to the positive difference between the average market price of the vehicle considered by the associations of the motor vehicle sector and the sum of the annual incomes subject to tax as income arising from the granting of the use plus the amount paid by the employee as purchase price .
The court thus considered that the legislator made a clear choice for an economic equivalence criterion and, therefore, if, when determining the income arising from such specific pay in kind it is not possible to use the criterion for that purpose, since, in this case, the associations of the motor vehicle sector had no data on the market value of the vehicle, the Tax Authority had to accept such impossibility and refrain from imposing the tax.
The court clarified that the Tax Authority cannot resort to criteria that the legislator clearly did not choose and could have chosen. Thus, since the correction underlying the assessment challenged was based on a criterion devoid of any legal support – the Tax Authority had compared the devaluation of the car taken into account by the party that had brought the challenge, of 89%, with the one established in the devaluation table of Decree-Law No. 214/97 of 16/08, in conjunction with the provision of the Insurance Institute of Portugal No. 14/97-R, of 50% - the court concluded that the Tax Authority had breached the provisions of article 24(6) of the Personal Income Tax Code (with the then applicable wording).
It should be noted that, at present, the criterion for the calculation of this income , provided for in Article 24(6) of the Personal Income Tax Code, no longer requires that the average market value be the one taken into account by the associations of the motor vehicle sector, and the tax legislator has clarified that the market value to be taken into account must be the one that corresponds to the difference between the purchase value and the product of that value by the devaluation coefficient set out in the Ordinance of the Ministry of Finance.
Administrative and Tax Arbitration Centre
Decision of 19 December 2013, published on 11 April 2014 Case No. 83/2013
The Tax Arbitration Tribunal ruled on whether the tax neutrality regime of a division- merger operation can include the transfer of a tax benefit relating to the net creation of jobs.
In the case under consideration, the Tax Authority had considered that, in a division- merger operation, the acquiring company could not be entitled to the increase of the costs borne with the employees resulting from the net creation of jobs in the split company and who had been transferred to the acquiring company.
The Arbitration Tribunal argued that a company that receives from another company, either by hiring out or through the transfer of the establishment , employees in respect of whom increased employment costs were being deduced, on account of their having been hired in accordance with the requirements provided for in Article 19 of the Tax Benefit Code (“EBF”), cannot continue to deduct employment costs relating to the employees in question by applying the same increase scheme that was being applied and for the period of validity of the benefit to which the split company was entitled .
The court considered that the fact that the transfer of employees had taken place in the context of a division-merger operation, carried out under the tax neutrality regime, has no influence whatsoever on the solution, because the legal framework provided for in Article 19 of the Tax Benefit Code does not accompany the employee, regardless of whether he or she continues in the same post and in the same establishment . The Arbitration Tribunal clarified that this is a benefit that aims to create new jobs, and its purposes is not to benefit the transfer of employees between companies .
Accordingly, the court concluded that the employee does not carry the benefit with him or her, and that any other company to which he or she is transferred must, in turn, comply the preconditions established by the Tax Benefit Code concerning the net creation of jobs, if it wants to be entitled to the same benefit .