Process: 140/2018-T

Date: July 30, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 140/2018-T) addresses whether a taxpayer can correct marital status through a substitute IRS declaration under Article 59 CPPT. The claimant initially filed a 2014 IRS Model 3 declaration indicating 'de facto separated' status, resulting in a €566.43 refund. The next day, he submitted a substitute declaration correcting his status to 'de facto united', which would have yielded a €3,569.72 refund. The Tax Authority (AT) refused to process the substitute declaration, citing Circular Notice 20162/2012, which limits corrections only to situations where taxpayers had previously opted out of their default tax regime. The AT maintained that since the claimant's default regime was taxation as single/separated, he could not subsequently claim de facto union status through substitution. The claimant argued this constituted an unlawful restriction on taxpayer guarantees, asserting the AT should have accepted the correction or initiated an official revision under Articles 78(4) and (5) LGT upon learning the true facts. The dispute centers on the scope of Article 59 CPPT regarding substitute declarations, whether marital status corrections fall within permissible amendments, and whether administrative circulars can validly restrict statutory rights to self-correction. The case highlights tensions between administrative efficiency, the principle of taxation according to real economic capacity, and taxpayer rights to rectify material errors in self-assessment declarations affecting family taxation regimes.

Full Decision

ARBITRATION DECISION

REPORT

A - PARTIES

A... with NIF ... resident at ..., no.... ..., ...-... ..., hereinafter referred to as Claimant or taxpayer.

THE TAX AND CUSTOMS AUTHORITY (which succeeded the General Tax Directorate, through Decree-Law no. 118/2011, of 15 December) hereinafter referred to as Respondent or TA.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 26-03-2018, and the Arbitral Tribunal was regularly constituted on 05-06-2018, to hear and decide the subject matter of the present case, and was automatically notified to the Tax and Customs Authority on 05-06-2018, as appears in the respective minutes.

The Claimant did not proceed to appoint an arbitrator, wherefore, pursuant to the provisions of article 6, paragraph 1 and article 11, paragraph 1, paragraph b) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed Arbitrator Paulo Ferreira Alves, the appointment having been accepted as legally provided for.

On 15-05-2018 the parties were duly notified of this appointment, and neither manifested any intention to challenge the appointment of the arbitrators, in accordance with article 11, paragraph 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with what is provided in article 11, paragraph 1, paragraph c) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal is regularly constituted on 05-06-2018.

Both parties agree to dispense with the holding of the meeting provided for in article 18 of the RJAT.

The arbitral tribunal is regularly constituted. It has material competence, pursuant to articles 2, paragraph 1, paragraph a), and 30, paragraph 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimately constituted and are legally represented (articles 4 and 10, paragraph 2, of the same act and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by any defects that would invalidate them.

B - CLAIM

The Claimant now seeks the declaration of illegality of the tax assessment acts for Personal Income Tax (IRS) for 2014, resulting from official self-assessment no. 2015..., of 01-06-2015 in the amount of €566.43.

C - BASIS OF THE CLAIM

To substantiate its request for arbitral pronouncement, the Claimant alleged, with a view to the declaration of illegality of the tax assessment act for Personal Income Tax (IRS), already described at point 1 of this Award, in summary, the following:

  • On 06-05-2015, the Claimant submitted the IRS Form 3 declaration, for the year 2014, (no. 2014...), having for this purpose incorrectly indicated the status of "de facto separated", without dependents, and declared as earned income derived from dependent work.

  • That declaration resulted in the official assessment no. 2015..., of 01-06-2015, from which resulted a refund of €566.43.

  • On 07-05-2015, the Claimant submitted a substitute declaration (no. 2014...), on this occasion correcting the indication regarding his personal status to the status of "de facto united", with B..., NIF..., without dependents.

  • The substitute declaration identified in the preceding article of this petition was not subject to assessment by the TA.

  • It being true that, had it been, the refund to be granted by the TA would be in the order of €3,569.72 (three thousand five hundred and sixty-nine euros and seventy-two cents).

  • That is, the Claimant is harmed by the lesser amount refunded, in the amount of €3,003.29 (three thousand and three euros and twenty-nine cents).

  • On 27-11-2015, he submitted the administrative review already identified, pursuant to Article 140 of the CIRS, the claim of which consists, in summary, of the following:

  • Annulment of the IRS assessment note for the year 2014 no. 2015..., of 09-06-2015, corresponding to the IRS Form 3 declaration, for the year 2014, submitted on 06-05-2015, on the grounds that he was not considered as de facto united with Ms. B..., NIF 223 278 289, as set out in the IRS Form 3 declaration submitted on 07-05-2015, for substitution thereof.

  • The administrative review in question was decided upon with a refusal decision, wherefore he submitted, in due course, a hierarchical appeal.

  • And the refusal in question is based solely on the position of the TA conveyed by Circular Notice no. 20162, of 2012-09-29.

  • Given the foregoing allegations, it appears to us manifest, with due respect, that, in the face of the knowledge of the facts provided by the submission of the substitute declaration, the TA could no longer allege ignorance of the personal situation of the aforementioned Claimant A..., and could even have availed itself immediately of the possibility of official revision, in accordance with Articles 78, paragraphs 4 and 5 of the LGT.

  • All the more so that the refusal of the substitute declaration submitted by the aforementioned Claimant A... constitutes a genuine limitation on the possibility for taxpayers to correct their declarations in cases related to their family status, which constitutes the restriction of a taxpayer guarantee.

  • The Claimant concludes by arguing for: a) annulment of Form 3 IRS declaration for the year 2014 no. 2014... and the official assessment no. 2015..., of 01-06-2015, from which resulted a refund of €566.43 (five hundred and sixty-six euros and forty-three cents); b) That the aforementioned declaration be considered substituted by no. 2014...; c) That IRS assessment for 2014 be made based on the substitute declaration identified in the preceding paragraph; d) That the respective taxpayer be reimbursed by the outstanding difference of €3,003.29 (three thousand and three euros and twenty-nine cents), plus corresponding compensatory interest.

D - RESPONSE OF THE RESPONDENT

The Respondent, duly notified for this purpose, submitted its response in due course in which, in abbreviated summary, it alleged the following:

  • The assessments now under consideration concern IRS income declarations, Form 3, for the year 2014, submitted by the Claimant, which indicated in its civil status "de facto separated", changing in the substitute declaration the civil status to "de facto united".

  • The substitute declaration resulted in the divergence of "NIF A or B in different aggregates for the same period", of which the Claimant was notified and of which it submitted an administrative review, sustaining the request on the existence of an error attributable to the services, and petitioning for the application of the tax regime of taxpayers who are married and not judicially separated as to persons and property, basing this claim on the fact that he was in the situation of "de facto union".

  • In accordance with article 57, paragraph 1 of the Personal Income Tax Code (CIRS), taxpayers must submit annually Form 3 declaration, relating to income earned in the previous year and other elements, and, in the said circumstances, the assessment is made on the basis of the elements contained in the declaration submitted by them (article 76, paragraph 1 of the CIRS and article 59, paragraph 1 of the CPPT).

  • The Claimant now seeks to alter the default tax regime of "single, widowed, divorced or judicially separated", opting for the tax regime of "de facto united".

  • However, in accordance with Circular Notice no. 20162 of 2012-10-29 of the Personal Income Tax Service Directorate:

  • Thus, it appears that only in situations where taxpayers had opted for a tax regime different from the applicable general regime, could they request the alteration of the choice previously made, and it appears that the default regime of the Claimant is taxation with the personal consideration of single, widowed, divorced or judicially separated.

  • However, given that the IRS assessments for the year 2014 were made in full accordance with the applicable legal regulations and with the understandings that expressly bind the Tax Authority, it is concluded that no situation of grave or notorious injustice is configured.

  • In fact, and maintaining the Tax Authority all the grounds contained in the administrative file, the assessments were made in accordance with the elements voluntarily submitted by the Claimant.

  • Again it is noted that Circular Notice no. 20162 of 2012-10-29 of the DSIRS, concerning the admissibility of subsequent alteration of options, in terms of taxation permitted under IRS, and the dispatch of the General Director of the TA, of 2012-09-27, clarified that "Where options inherent in family status resulting from the provisions of articles 13, paragraph 5, 14 and 59 of the same Code are concerned, the possibility of subsequent alteration extends only to situations where the intention is to move from the optional regime to the default regime".

  • The Respondent concludes by arguing for the complete dismissal of the claim, maintaining the IRS assessment acts impugned and absolving the Tax Authority of the claim, with the proper legal consequences.

E - FACTUAL FINDINGS

Before entering into the consideration of these issues, it is necessary to present the factual matter relevant to their understanding and decision, which was done on the basis of documentary evidence and taking into account the facts alleged.

As for relevant factual matters, this tribunal establishes the following facts as proven:

On 06-05-2015, the Claimant A... submitted the IRS Form 3 declaration, for the year 2014, (no. 2014...), indicating the status of "de facto separated", without dependents, and declared as earned income derived from dependent work.

That declaration resulted in the official assessment no. 2015..., of 01-06-2015, from which resulted a refund of €566.43, and the TA proceeded to the refund.

On 07-05-2015, the Claimant submitted a substitute declaration (no....), on this occasion correcting the indication regarding his personal status to the status of "de facto united", with B..., NIF..., without dependents.

This declaration results in a refund of €3,569.72 (three thousand five hundred and sixty-nine euros and seventy-two cents), and the TA did not proceed to the refund.

On 27-11-2015, he submitted the administrative review, no. ...2015..., pursuant to Article 140 of the CIRS, which was dismissed.

The Claimant submitted a hierarchical appeal no. ...2017... and on 27-12-2017, was notified of the dispatch dismissing the hierarchical appeal.

In the tax period for the year 2014, the Claimant and B..., met the legally established requirements of "De Facto Union".

F - UNPROVEN FACTS

Of the facts with interest for the decision of the case, contained in the claim, all the subjects of concrete analysis, those not contained in the factuality described above were not proven.

G - QUESTIONS TO BE DECIDED

Given the positions of the parties assumed in the arguments presented, the following constitute the central questions to be decided, which it is necessary to consider and decide:

Those alleged by the Claimant:

  • Declaration of illegality of the tax assessment acts for Personal Income Tax (IRS) for 2014, formalized by the self-assessment notes no. 2015..., of 01-06-2015.

  • Condemnation to pay compensatory interest.

Those alleged by the Respondent:

  • The value of the Arbitral Claim.

H - VALUE OF THE ARBITRAL CLAIM

It is raised by the TA that the Claimant seeks the annulment of the IRS assessments no. 2015..., for the year 2014, with a total value of €566.43, and this value should be the one indicated for the present proceedings and not the value of €3,003.39.

Regarding the value of the case, article 97-A, paragraph 1, paragraph a) of the Tax Procedure and Process Code (CPPT) establishes, applicable by reference from article 29, paragraph 1, paragraph a) of the Legal Regime of Tax Arbitration (RJAT), which establishes, "1 - The values to be considered, for purposes of costs or others provided for by law, for actions that proceed in tax courts, are as follows: a) When the assessment is impugned, the amount whose annulment is sought".

Given the factuality and the claim of the Claimant, the annulment of the assessment notes no. 2014... and the official assessment no. 2015..., of 01-06-2015, in the amount of €566.43, being this the tax assessment act impugned, the value of the case should be.

Accordingly, the value of the case is rectified to €566.43.

J - LEGAL MATTERS

Given the positions of the parties assumed in the arguments submitted, the central question to be decided by the present arbitral tribunal consists in assessing the legality of the Personal Income Tax (IRS) assessment acts for 2014, formalized by no. 2014... and the official assessment no. 2015..., of 01-06-2015, for breach of law, in order that they be substituted by declaration no. 2014... and that the Claimant be reimbursed by the outstanding difference of €3,003.29 (three thousand three euros and twenty-nine cents).

The substantive question in the present arbitral proceedings concerns the following question, which results from article 59, paragraph 3, paragraph a) of the CPPT, and consists in determining whether the taxpayer can alter on various occasions his tax regime under IRS up to the deadline for filing the income declaration.

With the legislative amendment carried out by Law no. 7/2001, of 11 May, as amended by Law no. 23/2010, of 30 August, it was established that the existence of a de facto union between two persons may be proven by any legally admissible means (article 2-A), and it further provides that persons living in de facto union under the conditions provided in said law have the right to the application of the personal income tax regime under the same conditions applicable to taxpayers who are married and not judicially separated as to persons and property (article 3).

As stated in article 14:

"1 - Persons living in de facto union who fulfil the requirements of the respective law may opt for the tax regime of taxpayers who are married and not judicially separated as to persons and property.

2 - The application of the regime referred to in the preceding number depends on the identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the tax period, as well as on the signature, by both, of the respective income declaration.

3 - In the event of exercise of the option provided for in paragraph 1, article 13, paragraph 2 is applicable, with both de facto united partners responsible for compliance with tax obligations."

By meeting the requirements provided for in article 14 of the IRS Code, that is, by having the same tax domicile for more than two years, the Claimants can opt for the tax regime of taxpayers who are married and not judicially separated.

In accordance with the factual matter proven and the position of the TA in the present proceedings, it accepts that the Claimants meet the requirements provided for in article 14 of the CIRS as of the deadline for filing the declaration, and as such they live in a regime of De Facto Union, being able to benefit from the respective regime.

In accordance with the factuality proven, the Claimant filed his first declaration on 06-05-2015, and proceeded to submit the substitute declaration one day later on 07-05-2015.

On 07-05-2015, the Claimant submitted a substitute declaration (no. 2014...), on this occasion correcting the indication regarding his personal status to the status of "de facto united", with B..., NIF..., without dependents.

The deadline for filing the annual declaration for income for 2014 began on 1 March 2015 and ended on 31 May 2015.

The TA, having in its possession the substitute declaration at the time of the refund, opted not to consider it and refunded based on the first declaration.

The position of the TA is limited to the fact that the Claimant filed separately in the year 2015 a declaration in which he indicated regarding his civil status, "single, widowed, divorced or judicially separated", consequently resulting in the application of the general regime.

Consequently, having made this choice in 2014, the position of the TA in Circular Notice no. 20162 of 2012-10-29 of the DSIRS is that the Claimant could not in that same year of 2014 submit a substitute declaration in order to alter his regime, from the default regime (single, widowed, divorced or judicially separated) to the optional regime (de facto union), notwithstanding that Circular Notice tells us that the opposite alteration is possible (optional regime (de facto union) to that of the default regime (single, widowed, divorced or judicially separated)).

It is established understanding by the courts that Circular Notices and administrative circulars emanating from the TA are binding only on the respective services, as, in the face of the law, the procedures defined, especially the TA's "circulated law" cannot derogate from the principle of tax legality (Award of the Central Administrative Court South, case no. 02312/08 of 04/23/2008).

Regarding the alterations or substitute declarations that the taxpayer may make to his income declaration, these may be made within the deadline for filing the respective declaration, that is, until the date that clearly results from article 59, paragraph 3: "3 - In case of error of fact or law in the declarations of taxpayers, these may be substituted: a) Regardless of the situation of the declaration to be substituted, if the legal deadline for its filing still applies."

It clearly results from article 59, paragraph 3, paragraph a) that the Claimants can alter their respective regime and submit a substitute declaration to do so.

Given that the Claimants are in a situation of de facto union pursuant to article 14 of the CIRS, and given that they are within the deadline of article 59, paragraph 3, paragraph a) of the CPPT for submission of the substitute declaration, there is no legally established impediment for the Claimants not to be able to proceed to alter their tax regime.

Accordingly, it is illegal by breach of law, the tax assessment acts for Personal Income Tax (IRS) for 2014, formalized by assessment notes no. 2015... for the year 2014, regarding the incorrect application of article 14 of the CIRS and article 59, paragraph 3, paragraph a) of the CPPT.

I - QUESTIONS REGARDING WHICH KNOWLEDGE IS BARRED

In the judgment, the court must rule on all questions that it should consider, refraining from ruling on questions as to which it should not have knowledge (end of paragraph 1 of article 125 of the CPPT), and the questions on which the powers of cognition of the tribunal rest are, in accordance with paragraph 2 of article 608 of the CPC, applicable subsidiarily to tax arbitration proceedings, by reference from article 29, paragraph 1, paragraph e) of the RJAT, "the questions that the parties have submitted to its consideration, except those whose decision is barred by the solution given to others".

In view of the solution given to the question relating to the requirements for taxation of the income of the Claimants under the regime applicable to taxpayers who are married and not judicially separated as to persons and property, knowledge of the remaining questions included in the request for arbitral pronouncement is barred.

L - COMPENSATORY INTEREST

The Claimant further petitions for payment of compensatory interest.

Given the foregoing, the IRS assessment, in the part covered by the annulment to be decreed, results from errors of fact and law attributable exclusively to the tax administration, in that the Claimant fulfilled its duty of declaration and errors were committed by that administration and it could not be unknown to it that there were different understandings.

Article 43 of the General Tax Law, under the heading 'payment of undue tax obligation', has as its purpose to compensate the taxpayer for the deprivation of the amount paid unduly.

Article 43 of the General Tax Law, paragraph 2 - "It is also considered that there is error attributable to the services in cases where, although the assessment is made based on the declaration of the taxpayer, the latter has followed, in its completion, the generic guidance of the tax administration, duly published."

In truth, given that it is shown that the Claimant paid the impugned tax in an amount higher than that which is due, by force of the provisions of articles 61 of the CPPT and 43 of the LGT, the Claimant has the right to the compensatory interest owed, such interest to be counted from the date of payment of the undue tax (annulled) until the date of issuance of the respective credit note, counting the deadline for such payment from the beginning of the deadline for voluntary execution of the present judgment (article 61, paragraphs 2 to 5, of the CPPTRIB), all at the rate determined in accordance with the provisions of paragraph 4 of article 43 of the LGT.

The claim of the Claimant is allowed.

M - DECISION

Therefore, in view of all the foregoing, the present Arbitral Tribunal decides as follows:

To find the claim for declaration of illegality of the tax assessment acts for Personal Income Tax (IRS) no. 2015..., in the amount of €566.43 (four hundred and forty-seven euros and eighty cents), well-founded, for breach of law, for error as to the legal requirements, which justifies the declaration of its illegality and annulment.

Condemns the Respondent to refund to the Claimant the amount of €3,003.29, corresponding to the value of the IRS declaration of €3,569.72 minus the amount of refund already in the Claimant's possession of €566.43.

Condemns the Respondent to refund to the Claimant that amount unduly assessed and paid in the amount of €3,003.29, plus payment of compensatory interest already accrued for the period, counting from the payment of the tax in accordance with paragraphs 2 to 5 of article 61 of the CPPT at the rate determined in accordance with the provisions of paragraph 4 of article 43 of the LGT until full and effective reimbursement.

The value of the proceedings is fixed at €566.43 of the value of the assessment taking into account the economic value of the proceedings assessed by the value of the tax assessments impugned, and in accordance costs are fixed at €306.00 (three hundred and six euros), to be borne by the Respondent in accordance with article 12, paragraph 2 of the Legal Regime of Tax Arbitration, article 4 of the RCPAT and Table I attached thereto - paragraph 10 of article 35, and paragraphs 1, 4 and 5 of article 43 of the LGT, articles 5, paragraph, paragraph a) of the RCPT, 97-A, paragraph 1, paragraph a) of the CPPT and 559 of the CPC).

Notify.

Lisbon, 30 July 2018

The Arbitrator

Dr. Paulo Ferreira Alves

Frequently Asked Questions

Automatically Created

Can a taxpayer file a substitute IRS declaration to correct errors in the original self-assessment under Article 59 CPPT?
Yes, under Article 59 CPPT taxpayers can file substitute declarations to correct errors in original IRS self-assessments. However, the Tax Authority's position per Circular 20162/2012 restricts this right for marital status changes, allowing corrections only when taxpayers previously opted out of their default tax regime. This creates controversy as it may unlawfully limit the general right to substitute declarations and contradicts the principle that taxation should reflect the taxpayer's actual situation.
What happens when a taxpayer incorrectly declares their marital status as 'separated de facto' on the IRS Model 3 declaration?
When a taxpayer incorrectly declares 'separated de facto' status on the IRS Model 3 declaration, they are taxed under the default regime for single/separated individuals. If they attempt to correct this to 'de facto united' status through a substitute declaration, the Tax Authority may refuse processing based on Circular 20162/2012, arguing the correction changes the tax regime rather than corrects a declarative error. This can result in significant financial prejudice, as de facto union status typically yields more favorable tax treatment and higher refunds.
How does CAAD arbitral tribunal handle disputes over IRS self-assessment corrections for the 2014 tax year?
The CAAD arbitral tribunal handles IRS self-assessment correction disputes by examining whether the Tax Authority lawfully refused to process substitute declarations. The tribunal evaluates whether administrative circulars validly restrict Article 59 CPPT rights, whether the AT should have initiated official revision under Article 78 LGT upon discovering factual errors, and whether refusal constitutes unlawful limitation of taxpayer guarantees. The tribunal has jurisdiction under Article 2(1)(a) of Decree-Law 10/2011 to declare assessment acts illegal when procedural or substantive rights are violated.
What are the legal grounds for declaring the illegality of an IRS tax assessment resulting from an erroneous self-assessment?
Legal grounds for declaring IRS assessment illegality include: violation of Article 59 CPPT rights to submit substitute declarations; unlawful application of administrative circulars that restrict statutory rights; failure to apply official revision procedures under Article 78 LGT when facts warrant correction; violation of taxpayer guarantees; and breach of the principle that taxation must reflect actual economic capacity. The taxpayer must demonstrate that the original assessment was based on factual errors and that the AT improperly refused correction mechanisms, resulting in excessive taxation contrary to constitutional and legal principles.
What is the procedure for challenging an official IRS self-assessment (autoliquidação oficiosa) before the CAAD arbitral tribunal?
To challenge an official IRS self-assessment (autoliquidação oficiosa) before CAAD, taxpayers must: first exhaust administrative remedies by filing administrative review under Article 140 CIRS and potentially hierarchical appeal; submit the arbitration request within the statutory deadline after administrative refusal; identify the challenged assessment act with precision (including reference numbers and dates); demonstrate legal standing and interest; allege specific illegality grounds (procedural or substantive violations); and quantify the financial prejudice. The CAAD tribunal is constituted under Decree-Law 10/2011, with jurisdiction limited to matters specified in Article 2, and proceedings follow the RJAT procedural framework including party notification, evidence submission, and dispensation of hearings by agreement.