Harmonisation Judgment Case Law no. 8/2015 Diário da República, 1st series, no. 106, 2 June 2015

Crime  of  tax  embezzlement  –  Failure to make total or partial payment of amounts derived from Value Added Tax

Harmonises case law insofar as “The failure to make total or partial payment to the tax authorities of a tax debt of more than €7,500 in respect of amounts derived from Value Added Tax regarding which there is an obligation to assess and which has been assessed, shall only be included under the definition of the crime of tax embezzlement, provided for in Article 105(1) and (2) of the General Regime of Tax Offences, if the agent has effectively received such amounts.”

Supreme Administrative Court

Case Law no. 1957/13, of 22 April, 2015, made available on 4 June 2015 University fee – Limitation period – Commencement of the limitation period

In this decision, the Supreme Administrative Court (SAC) addressed the question of knowing which legal regime was applicable to the statute of limitation period of the university fees’, namely by reference to the duration and to the commencement of the statute of limitation period.

The SAC began by defining the concept of university fee, as the legally imposed pecuniary compensation, owed by the student, for the public service provided by a high education public institution.

The Court hold that the university fee is a fee whose taxable event consists of the reimbursement of a defined, effective and individualized public service, representing a long-lasting time event, that only completes itself on the last day of the academic year.

At the same time, the Court qualified the university fee as a fee of single obligation, given that it does not have a periodic and renewable nature and that there is no presumption of permanent continuity of the services it relates to.

Thus, undertaking a broad interpretation of the law, the Court concluded that the arti cles 48.º and 49.º, of the Portuguese Tax General Law (LGT), are applicable to the university fee. Therefore, the Court determined that this fee had a statute of limitation period of eight years, commencing on the last day of the academic year.

South Central Administrative Court

Case Law n.º 03437/09, of 21 May, 2015, made available on 1 July 2015 Manifestations of fortune | Burden of proof

In this decision, the South Central Administrative Court (SCAC) dealt with the ambit of the taxpayer’s burden of proof, in case of an unjustified divergence between its declared income and its expenses, by a value – at the time – higher than a third of its total income.

In casu, there was an unjustified divergence between the taxpayer’s evidenced expenses (54,188.21 €) and its declared income (29,021.09 €), on the same taxation period, by a value higher than a third of its total income (that is to say, the tax payer undertook expenses in a value higher than 9.673,70 €), legitimating the indirect valuation of its taxable income for purposes of Personal Income Tax, pursuant to paragraph f), of the article 87, of the LGT.

The SCAC pointed out that, in this case, the taxpayer needed to prove that the evidenced expenses had a different source than the declared income, under the penalty of legitimating the AT’s indirect valuation of the relevant tax period income.

For that purpose, the taxpayer alleged its income derived from capital gains made with the sale of real estate, which allowed him to achieve enough savings to undertake the evidenced expenses. Furthermore, the taxpayer added copies of the relevant public deeds.

However, the SCAC sustained that, in order to preclude the AT’s decision to perform an indirect valuation, the taxpayer not only needed to demonstrate that, in that specific year, he had financial resources to undertake the expenses, but also that those financial resources had been spent on those specific expenses, therefore demonstrating a causal link of allocation between those financial resources and those expenses.

Center for Administrative Arbitration

Case Law no. 284/2014-T, 5 December, 2014, made available on 4 June 2015 Income Tax – General Anti-Avoidance Rule

In this decision, the Arbitration Court of the CAAD addressed the question of knowing if the transformation of a private limited company into a public company, and the subsequent disposal of the shares obtained by virtue of that transformation, constitute legal transactions that, envisaging the achievement of exempt capital gains, meet the requirements of the General Anti-Avoidance Rule (GAAR) and are therefore ineffective on the field of tax law.

During the administrative procedure, the AT had assumed that the legal transactions performed by the taxpayer did not achieve any economical or commercial advantage and had the purpose of excluding the taxation of capital gains, substituting a taxable transaction (onerous disposal of equity interests – quotas) by a non-taxable transaction (disposal of shares).

Thus, the AT had concluded that the abovementioned transformation performed a contrived transaction, essentially determined by tax avoidance purposes, and had decided to apply the GAAR, taxing the capital gains obtained by virtue of the disposal of the shares.

However, within the arbitration process, the Court started by pointing out that the GAAR relies on the prevalence of the economic substance over the legal form of the juridical acts and transactions, and finds its rationale on the prevention and repression of tax conducts that, not being expressly forbidden, are still disapproved by the Law – licit, yet anti-juridical behaviors.

In this case, the Arbitration Court stated that the necessary requirements for the application of the GAAR were not met. In effect, the application of this clause requires the gathering of four elements (the element mean, the element result, the intellectual element and the normative element). On that basis, the Court concluded that, in this case, notwithstanding the occurrence of the element result, the element mean, the normative element and the intellectual element were not met.

Consequently, the Court supported the legitimacy of the taxpayer’s option of organizing its legal transactions so as to derive exempt capital gains (vg. by transforming a private limited company into a public company, disposing of the shares obtained by virtue of that transformation), even when the single motivation for the company’s transformation had been (exclusively or mainly) of a tax nature.

Only if, in addition to the said result, the implemented legal transaction had sham nature triggering the disapproval of the Law, and originating a merely formal modification of the previous status quo, would it be possible to reach a different conclusion.

Concluding, the Court annulled the Personal Income Tax additional assessment on the taxation of the capital gains obtained by virtue of the company’s transformation, and as well as the compensatory interest.