Portugal vs “Publicações Real Estate Lda”, May 2021, Administrative Court of Appeal, Case No 959/13.8BESNT

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In 2007 real estate had been transferred from “G gestão imobiliária S.A.” to “Publicações Real Estate Lda”.

The Portuguese tax authority issued an assessment, where the pricing of real estate had been adjusted in accordance with the arm’s length principle, based on the prices paid for real estate in the same area.

“Publicações Real Estate Lda” filed an appeal with the Administrative Court, where the assessment was later set aside.

An appeal was then filed by the tax authorities with the Administrative Court of Appeal.

Judgement of the Court

The Court of Appeal upheld the assessment notice issued by the tax authorities and set aside the decision of the Administrative Court.

“The defendant and the judgment in crisis consider that the transaction chosen by the Tax Authorities is not comparable to the one subject to arithmetic correction and that the burden of proving the factual assumptions that determined such correction was not observed.
However, this is not correct. The AT has collected information that allows the questioned transaction and the reference transaction to be compared, such as the date of both (2007), the location of both properties (A……….-M……..-M……..), the fact that both are industrial properties as defined by the applicable Municipal Development Plan, the fact that both are industrial warehouses, the fact that there is a study by the Real Estate Association on the price per square metre of warehouses in the area, which is set at between 500.00 euros and 550.00 euros per square metre.
To the referred elements, the reasons justifying the corrective action of the AT should be added, to wit (10): i) the lack of presentation by the taxpayer of the transfer pricing documentation, in spite of having been notified to that effect; ii) the Chartered Accountant was not provided with information and documentation which would allow him to assess the reasonability of the price practised in the sale of real estate to a company with which special relations exist; iii) the appellant ascertained in the financial year in question a tax loss of €1. 034,476.33, most of which arose from the tax loss of €868,309.55, inherent to the transaction at issue in the proceedings.
The comparability of transactions requires reference to objective factors that arise from the circumstances of the transactions being compared. Objective elements were collected on the calculation of the sale price of the category of property in question in the area under analysis (industrial warehouses). These elements justify the correction to the taxable income imposed by the AT. In turn, there is no evidence in the case-file that allows the comparability assessment made by the AT to be mischaracterised. In view of the evidence gathered of the existence of a similar transaction, carried out between independent entities, with a price different from that of the contested disposal, it was up to the taxpayer to allege and prove, through concrete facts, that the transactions in question are different. This allegation and proof was not made in this case. Therefore, the correction of the value of the transaction and the consequent correction to the taxable income are grounded.
By judging in a discrepant sense, the sentence under appeal has committed an error of judgement, for which reason it should be replaced by a decision that rejects the opposition.
Accordingly, the present conclusions of appeal are upheld.”

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