Process: 143/2017-T

Date: October 20, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitration case 143/2017-T addresses the critical requirement of identical fiscal domicile for common-law partners (união de facto) seeking joint IRS taxation under Article 14 of the IRS Code. The claimant, living in de facto union since 1991 with two children and filing joint returns since 2003, challenged a €36,916.54 IRS reassessment for 2010. The dispute centered on whether formal fiscal domicile identity requirements were met when the claimant registered their fiscal domicile at a commercial establishment in Odivelas while their partner maintained fiscal domicile at the family residence in Lisbon until July 2010. The Tax Authority argued that Article 14(2) requires identical fiscal domicile for more than two years during the taxation period, officially correcting the return and disallowing de facto union status. The case illustrates how Portuguese tax law prioritizes formal fiscal domicile registration over actual cohabitation facts, and demonstrates that taxpayers can challenge such determinations through CAAD arbitration under RJAT. The ruling clarifies that compliance with Article 19 of the LGT regarding timely fiscal domicile registration is essential for accessing de facto union tax benefits, regardless of the substantive reality of the relationship.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. A… (hereinafter referred to as Claimant) taxpayer number …, resident at …Street, number …, …-… … (with former names …, … and …, number …) filed on 24/02/2017 a petition for constitution of a singular arbitral tribunal, under the terms of article 2(1)(a) and article 10, paragraphs 1 and 2, both of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), in which the Tax and Customs Authority is requested (hereinafter referred to as Respondent or TA), with a view to the declaration of nullity of the income tax assessment act no. 2015… and corresponding compensatory interest, relating to the year 2010, which amount to the total value of 36,916.54 €, being the amount of 33,395.80 €, corresponding to the contested assessment and 3,520.74 € relating to compensatory interest.[1]

  2. The petition for constitution of the Singular Arbitral Tribunal was accepted by His Excellency the President of CAAD and notified to the Respondent on 27/02/2017.

  3. Under the terms and for the purposes of article 6(2)(a) of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned was appointed as arbitrator and communicated acceptance of the appointment to that Council within the period provided for in article 4 of the Deontological Code of the Administrative Arbitration Centre.

  4. On 14/04/2017 the parties were notified of this appointment and did not express any intention to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11(1)(a) and (b) of RJAT and articles 6 and 7 of the Deontological Code.

  5. The Singular Arbitral Tribunal was constituted on 09/05/2017, in accordance with the requirement of article 11(1)(c) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

  6. Duly notified to do so, on 2017-06-12 the Respondent filed its response and submitted the administrative file.

  7. The tribunal requested, by orders issued on 2017-06-12 and 2017-07-05, additional information from the Claimant in order to clarify and better identify which income tax assessment underlying its petition for arbitral pronouncement was in question and its value, as a result of divergences raised by the TA in the context of its response.

  8. On 2017-07-11 the Claimant provided the clarifications regarding the assessment in question and its value, as raised in the orders aforementioned.

  9. By arbitral order dated 2017-07-11, the TA was notified, in exercise of the right to be heard regarding the clarifications provided by the Claimant. The holding of the meeting referred to in article 18 of RJAT was dispensed with, inviting the parties to submit their arguments in writing. The time limit for the issuance of the arbitral decision and its notification to the parties was indicated.

  10. The parties did not submit written arguments.

  11. To support its petition, the Claimant invoked, in summary, and with relevance to what matters here the following (which is mentioned mostly by transcription);

12.1. (…) has lived in a de facto union with B…, tax ID…, since 1991 (see article 6 of the petition for arbitral pronouncement),

12.2. the family home has been since that date – and continues to be - at Avenue …, …, …, … in Lisbon (see article 7 of the petition for arbitral pronouncement),

12.3. from that de facto union were born two children, the first C…, tax ID…, born on 1993.07.05 and on 1997.05.12 D… was born, tax ID… (see article 8 of the petition for arbitral pronouncement),

12.4. all resident at the mentioned family home (see article 9 of the petition for arbitral pronouncement),

12.5. (…) since the 2003 tax year the (Claimant) has been filing the annual income tax return of the couple under the tax regime of de facto union, (see article 10, final part, of the petition for arbitral pronouncement),

12.6. [The Claimant] has associated with his tax ID number the address of a commercial establishment where he carries out his professional activity, located at …Street, number …, in …, municipality of Odivelas, whilst, for his part, the taxpayer B had his tax domicile declared at the common family address at Av. …, in Lisbon, (see article 12 of the petition for arbitral pronouncement),

12.7. The Claimant further makes various legal considerations in his petition for arbitral pronouncement regarding tax domicile and the income tax regime applicable to taxpayers in a de facto union,

12.8. concluding, as drawn from his petition, by "the illegality of the assessment, determining its complete annulment with the other legal consequences" further requesting "the condemnation of the TA to pay the costs of a bank guarantee provided to suspend the fiscal execution of the said assessment (…)"

  1. The TA, duly notified for this purpose, timely filed its response, arguing for the non-existence of any illegality relating to the assessment here in question, concluding, consequently, for the inadmissibility of the petition formulated by the Claimant, in accordance, moreover, with the position already expressed by it in the context of a gracious complaint (as far as this segment is concerned)

13.1. it thus alleges, in very brief summary, in defence of its position, and for what is relevant here that:

13.2. at the origin of the contested assessment, relating to the 2010 tax year, is the divergence of tax domicile of the Claimant and B…, (article 5 of the response).

13.3. since the Claimant had (and still has) his tax domicile at …Street, number…, in … (article 6 of the response),

13.4. whereas, as regards B…, his tax domicile appeared on 31.12.2010, at Avenue …, number…, …, ..., in Lisbon (article 7 of the response),

13.5. the identity of tax domicile of both only occurred on 01/07/2010, when B… changed his tax domicile to the facilities of the said pharmacy, located at …Street, number…, in …(article 8 of the response),

13.6. the TA understands, in compliance with the legislation in force, that the application of the tax regime provided for in article 14(2) of the CIRS depends on the identity of tax domicile for more than two years and during the taxation period, effected in a timely manner under the terms of article 19 of the LGT (article 31 of the response),

13.7. the TA further makes various considerations regarding the subject and the normative framework underlying, to conclude for the inadmissibility of the petition for arbitral pronouncement.

  1. The parties have legal personality and capacity, are legitimate and are legally represented (articles 3, 6 and 15 of the Code of Tax Procedure and Process, under article 29(1)(a) of RJAT.

  2. The proceedings do not suffer from any nullities, no exceptions have been raised, and there is no obstacle to the consideration of the matter.

II - GROUNDS

A. SUBSTANTIVE FACTS

A.1. Facts found as proven

  • on 30/09/2011 an income tax return, model 3, was filed in the name of the Claimant together with B… tax ID… relating to the year 2010, in which the marital status of de facto union was indicated;

  • within the context of divergence D31 (Need to prove the requirements of de facto union) that declaration was officially corrected on 20/01/2014, disregarding the marital status contained therein, as the requirements provided for in article 14 of the CIRS were not met,

  • the family unit of the Claimant includes B…, and two dependent children of both, C… tax ID no. … (born on 15/07/1993) and D…, tax ID no. … (born on 12/05/1997),

  • on 25/07/2014 the Claimant filed a gracious complaint, requesting that the de facto union be considered, his two dependents and expenses with deductions to the collection and property-related deductions,

  • by order of 31/12/2014, an order for partial acceptance of the gracious complaint was issued, however, disregarding the de facto union of the Claimant with the mentioned B…,

  • since the 2003 tax year the (Claimant) has been filing the annual income tax return of the couple under the tax regime of de facto union,

  • the Claimant has associated with his tax ID number the address of a commercial establishment of a pharmacy where he carries out his professional activity, located at …Street, number…, in …, municipality of Odivelas, whilst, for his part, the taxpayer B had his tax domicile declared at the common family address at Av. …, in Lisbon,

  • the identity of the tax domicile of the Claimant and B… only occurred on 01/07/2010, when the latter changed his tax domicile to the facilities of the said pharmacy,

  • on 24/02/2017, the Claimant filed a petition with CAAD for the constitution of an arbitral tribunal and arbitral pronouncement, which gave rise to the present proceedings.

A.2. Facts found as not proven

It is not found to be proven that the Claimant provided a guarantee to suspend execution relating to the subsequent assessment, and there being no other facts of relevance to the decision that should be considered as not proven.

A.3. Grounds for the substantive facts found as proven and not proven

Regarding substantive facts, the Tribunal does not have to rule on everything that was alleged by the parties; it is incumbent upon it, rather, to select the facts that are relevant to the decision, to distinguish the proven facts from the unproven [(see article 123(2) of CPPT, and article 607(3) of the Code of Civil Procedure, applicable under article 29(1)(a) and (e) of RJAT)].

Accordingly, the facts relevant for the judgment of the case are chosen and delineated according to their legal relevance, which is established in view of the various solutions to the question(s) of law. (see article 596 of CPC, applicable under article 29(1)(e) of RJAT).

Therefore, taking into account the positions assumed by the parties, in light of article 110(7) of CPPT, the documentary evidence attached to the proceedings, and the administrative file annexed, the facts listed above are considered proven, with relevance to the decision.

It should be emphasized that the conviction of this Tribunal is that the divergences between the parties are limited to essentially interpretative questions regarding the normative framework that informs the underlying issue, as is moreover evident from the Respondent's statement: "At issue, therefore, is the joint or separate taxation of income earned by taxpayers who allegedly live in de facto union for more than two years, when there has not been timely communication by one of the members of the de facto union, or both, of the change of domicile for the purposes of article 19 of the LGT".

B. ON THE LAW

The central issue that is the subject of the proceedings to which it falls to respond, in view of the position and arguments presented by the parties, comes down to determining the relevance of the identity of tax domicile of taxpayers in a de facto union, during the legally required period, for purposes of application of the tax regime in income tax under the same conditions as taxpayers who are married and not judicially separated in terms of persons and property.

The normative framework, at the date of the underlying facts, which the issue raises, is delineated as follows, and insofar as relevant here:

Article 19 of the General Tax Law

"1. The tax domicile of the taxpayer is, unless otherwise provided:

a) For natural persons, the place of habitual residence:

(…)

  1. It is mandatory, under the terms of law, to communicate the domicile of the taxpayer to the tax administration.

  2. The change of domicile is ineffective as long as it is not communicated to the tax administration (…)"

On the other hand, article 14 of the CIRS provided (in the version at that date):

"1. Persons living in de facto union who meet the requirements set out in the respective law may opt for the taxation regime of taxpayers who are married and not judicially separated in terms of persons and property.

  1. 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 taxation period, as well as on the signature by both of the respective income tax return.

  2. In the event of exercise of the option provided for in no. 1, the provisions of article 13(2) apply, both being responsible for the fulfilment of the tax obligations".

In turn, account must be taken of the provisions of the law protecting de facto unions – Law no. 7/2001, of 11 May, in particular in its articles 1 and 3:

Article 1

"2. De facto union is the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years"

Article 3

"Persons living in de facto union under the conditions provided for in this law have the right to […]

d) Application of the income tax regime for natural persons under the same conditions as taxpayers who are married and not judicially separated in terms of persons and property"

The issue under analysis has already been the subject of various decisions within the scope of tax arbitration, namely, among others, in cases 11/2017-T of 2017-08-24, 547/2016-T of 2017-04-03, 413/2016-T of 2017-01-10, 773/2015 of 2016-05-03, 564/2015-T of 2016-05-17, 304/2015-T of 2016-01-14, 497/2014-T of 2015-03-06.

The last of the cited cases – 497/2014-T, had as Claimant the same as the present proceedings and as subject matter the assessment relating to the year 2008, in similar circumstances to those aimed at here.

Finding no reason to dissent from what was decided there, the undersigned subscribes with great respect to what is stated therein, equally for reasons relating to the harmonization of decisions, while not failing to signal that it is the conviction of this Singular Arbitral Tribunal that the Claimant and B…, lived in 2010, for at least more than two years in conditions analogous to those of spouses, together with the two children of both, in the family home located at Avenue …, number…, …, … in Lisbon.

That conviction is anchored in the documents attached with the petition for arbitral pronouncement and the annexed administrative file, and fundamentally by the fact that it appears that the TA did not call into question the indicated location, identification of the family home where the Claimant, de facto union partner and children of both reside, with the core of its argumentation being based on the lack of identity of tax domicile between the Claimant and the de facto union partner.

This intention seems clear from the terms of the response:

"The issue under analysis concerns the interpretation of the segment of the norm contained in article 14(2) of the CIRS insofar as it determines that the application of the regime referred to in no. 1 thereof 'depends on the identity of tax domicile of the taxpayers' during the period of time mentioned therein" (article 29 of the response)

"At issue, therefore, is the joint or separate taxation of income earned by taxpayers who allegedly live in de facto union for more than two years, when there has not been timely communication by one of the members of de facto union, or both, of the change of domicile for purposes of article 19 of the LGT (article 30 of the response)

"The TA understands, in compliance with the legislation in force, that the application of the taxation regime provided for in article 14(2) of the CIRS depends on the identity of tax domicile for more than two years and during the taxation period, effected in a timely manner under the terms of article 19 of the LGT" (article 31 of the response)

The Respondent further maintains (article 43 of the response) that: "the tax status of de facto union incorporates among its acquisition requirements the formal requirement of timely compliance with the obligation to declare registration or updating of domicile in the Register of Taxpayers, a requirement that is added to the identity of habitual residence, but is not satisfied merely with this".

It further reinforces that: "the requirement of identity of tax domicile of the taxpayers, during the legally required period, as a formal requirement of the tax status of de facto union, being based on the duty to update taxpayer data, appears adequate to the control functions of the Tax Administration, without violating the limits imposed by the tax constitution, including the principle of proportionality".

This said,

As correctly signalled in the arbitral decision of 24/08/2017, issued in case no. 11/2017-T, this has not been the understanding of the case law of the common courts and of various arbitral decisions (among which those above mentioned).

  • Decision of the Supreme Administrative Court, of 16-11-2016, reported by His Excellency Counsellor Aragão Seia, in case no. 0761/15:

"The non-compliance with article 14(2) of the CIRS, in the version in force at the date of the facts, did not prevent the interested parties from opting for the taxation regime specific to taxpayers united by marriage"

  • Decision of the Central Administrative Court of the South, of 08-10-2015, reported by Her Excellency Judge Cristina Flora, in case no. 06685/13:

"In cases where the taxpayer did not comply with his obligation to communicate the change of tax domicile provided for in article 19 of the LGT, his domicile in a certain place can be demonstrated through 'justifying facts', and consequently, the non-communication of tax domicile does not prevent the fulfilment of the requirement of 'permanent residence' under article 10(5) of the CIRS"

  • Decision of the Central Administrative Court of the South, of 07-04-2011, reported by His Excellency Judge José Correia, in case no. 04550/11:

"I. The concept of tax domicile established in article 19 of the LGT, in particular in its no. 1, is a special domicile that refers to a determined place for the exercise of rights and compliance with the duties provided for in the norms of tax law which, being special, is independent of what is stipulated in article 82 of the Civil Code, although ideologically and in its essence what is stated in that first legal provision connects with the necessity for the taxpayer and the Tax Authority to be in contact whenever necessary for the exercise of their respective rights and duties, in observance of the principle of collaboration embedded in article 59 of the LGT"

II- The domicile of the taxpayers can and should be rectified officially on the basis of elements available to the tax administration in observance of what is provided for in no. 6 of the said normative provision because it is exactly that: a power-duty, intended first and foremost to protect tax truth in implementation also of the said principle of collaboration enshrined in article 59 of the LGT"

Following the arbitral decisions signalled (among others) of similar understanding to what is stated in the courts, finding no need for any other additional considerations, and in the same manner as what is stated in the arbitral case 11/2017-T and as in the present case, "finding no reason to dissent from the said case law, one must conclude that the Respondent does not have reason in the understanding it maintains, in view of the substantive facts found as proven, and the conviction formed regarding the fact that in 2010, the de facto union partners lived, for at least more than two years, in conditions analogous to those of spouses.

By way of final note and it not being controversial the fact that in tax years prior to that which is the subject matter here (2010), the Claimant filed his income tax returns mentioning as his tax domicile the said …Street, number…, while indicating, however, his de facto union with B…, returns that were accepted by the Tax Administration, notwithstanding the failure to verify by the de facto union partners of identity of tax domicile, once the divergence was detected and signalled, there is no valid reason found for the TA not to have proceeded with the official rectification of the tax domicile of the de facto union partners, in view of what is provided for in the then no. 8 (now no. 9 following the renumbering brought about by Law no. 82-E/2014, of 31 December) of article 19 of the General Tax Law;

"The tax administration may officially rectify the tax domicile of taxpayers if this results from the elements available to it".

It should also be noted that such official rectification also results from what is provided for in article 24(3)(a) of Decree Law no. 14/2013, of 28 January.

III - DECISION

In accordance with the above, this Singular Arbitral Tribunal decides as follows:

(i). to find the petition for arbitral pronouncement well-founded, declaring the illegality of the income tax assessment act (tax and compensatory interest), relating to the year 2010, with the number 2015…, with the other legal effects, in particular the annulment of the order dismissing the gracious complaint,

(ii) to condemn the Respondent to pay the costs of the proceedings.

IV - VALUE OF THE CASE

In accordance with what is stipulated in articles 296(1) and (2) of the Code of Civil Procedure, approved by Law no. 47/2013, of 26 June, article 97-A(1)(a) of the Code of Tax Procedure and Process, and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at 36,916.54 €.

V - COSTS

Under the terms of articles 12(2) and 22(4) of RJAT, and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached hereto, the amount of costs is set at 1,836.00 €.

NOTIFY

Text prepared by computer, under the terms of article 131 of the Code of Civil Procedure, applicable by reference from article 29(1)(e) of the Legal Regime of Tax Arbitration, with blank verses, and reviewed by the arbitrator.

The drafting of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Twentieth of October of two thousand and seventeen

The arbitrator

(José Coutinho Pires)

[1] The values of the assessment and interest, as well as the identification thereof, different from those referred to in the petition for arbitral pronouncement, result from a rectification made by the Claimant, as a result of clarification requested by the tribunal.

Frequently Asked Questions

Automatically Created

What are the requirements for common-law couples to file joint IRS tax returns in Portugal under Article 14 of the IRS Code?
Under Article 14 of the IRS Code, common-law couples (união de facto) must meet strict requirements for joint taxation: (1) existence of a de facto union recognized under Portuguese law, (2) identical fiscal domicile maintained for more than two years, (3) identical fiscal domicile during the entire taxation period, and (4) formal election of joint taxation in the IRS return (Model 3). The identity of fiscal domicile must be verified through official registration with the Tax Authority under Article 19 of the LGT, not merely actual cohabitation. Both partners must have the same address registered as their fiscal domicile with the tax authorities for the required period.
How does the Portuguese tax authority verify identical fiscal domicile for common-law union tax purposes?
The Portuguese Tax Authority verifies identical fiscal domicile by examining the official fiscal domicile records maintained in the tax database for each taxpayer. The verification checks: (1) the fiscal domicile registered by each partner as of December 31 of the taxation year, (2) the historical record showing how long identical domicile has been maintained, and (3) whether both addresses match throughout the taxation period. Formal registration under Article 19 of the LGT is determinative—actual residence or family home location is insufficient if not properly registered. In case 143/2017-T, divergent fiscal domiciles (commercial establishment vs. family residence) led to disallowance of de facto union status despite 19 years of actual cohabitation.
Can a taxpayer challenge an IRS tax reassessment related to common-law union status through CAAD arbitration?
Yes, taxpayers can challenge IRS reassessments related to common-law union status through CAAD (Centro de Arbitragem Administrativa) arbitration under the RJAT (Legal Regime of Tax Arbitration). Process 143/2017-T demonstrates this pathway, filed under Article 2(1)(a) and Article 10 of RJAT (Decree-Law 10/2011 of 20 January). Taxpayers can contest both the assessment act and compensatory interest, seeking declarations of nullity or illegality. CAAD provides an alternative to judicial courts for tax disputes, with faster resolution timelines. The arbitral tribunal has full jurisdiction to review the Tax Authority's interpretation of Article 14 IRS Code requirements and factual determinations regarding fiscal domicile identity.
What are the legal consequences of failing to meet the fiscal domicile identity requirement for common-law partners in Portugal?
Failing to meet the fiscal domicile identity requirement under Article 14 of the IRS Code results in: (1) official correction of the IRS return disallowing de facto union status, (2) mandatory separate taxation of each partner's income instead of joint filing, (3) loss of potential tax benefits from income splitting or dependent deductions optimization, (4) issuance of additional tax assessments for underpaid amounts, (5) imposition of compensatory interest calculated from the original payment deadline until settlement, and (6) potential cascading effects on multiple tax years if the non-compliance is systematic. In case 143/2017-T, the reassessment totaled €36,916.54 including €3,520.74 in compensatory interest, demonstrating significant financial impact.
How are compensatory interest charges calculated on IRS tax reassessments involving common-law union disputes?
Compensatory interest (juros compensatórios) on IRS reassessments is calculated pursuant to Article 35 of the LGT (General Tax Law). The interest accrues on the additional tax due from the legal deadline for voluntary payment until actual payment or provision of guarantee. The rate is set annually by ministerial order, typically linked to Euribor rates plus a margin. In união de facto disputes like case 143/2017-T, interest of €3,520.74 was charged on the €33,395.80 principal assessment (approximately 10.5% effective rate over the collection period). Interest calculation can be suspended if the taxpayer provides a bank guarantee during administrative or arbitral appeal proceedings, though the guarantee itself incurs costs that may be recoverable if the taxpayer prevails.