Process: 150/2019-T

Date: October 31, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitration case 150/2019-T addressed the controversial IRS classification of income earned by a judicial administrator (administrador judicial) in Portugal for tax years 2016-2017. The taxpayers challenged IRS assessments totaling €25,175.37, arguing that the Portuguese Tax Authority (AT) incorrectly classified their judicial administrator activity under CAE code 1310 (Property Administrators) listed in Article 151 of the CIRS table, which mandated a 0.75 coefficient for calculating taxable income. The claimants contended their activity should fall under 'Other Service Providers' subject to the lower 0.35 coefficient per Article 31(2)(c) of the CIRS, as judicial administration doesn't specifically correspond to property administration activities. The AT defended its reclassification, asserting that judicial administrators manage debtor/insolvent assets and ensure creditor payments, precisely matching the Article 151 table's property administrator category requiring the 0.75 coefficient under Article 31(2)(b). The taxpayers also invoked principles of good faith and legitimate expectations. This case illustrates the importance of proper activity classification under Portuguese IRS law, where coefficient application directly impacts tax liability. The dispute centered on whether specialized insolvency functions constitute property administration for tax purposes, highlighting interpretative challenges in applying the CIRS Article 151 activity table to modern professional services not explicitly enumerated in tax legislation.

Full Decision

Tax Arbitration Jurisprudence

Case No. 150/2019-T

Decision Date: 2019-10-31

Tax: IRS

Amount of Request: € 25,175.37

Subject Matter: IRS - Table provided for in Article 151 of CIRS. Judicial Administrator.

ARBITRAL DECISION

1. REPORT

1.1

A..., tax identification number ... and B..., tax identification number..., married, residents at Rua ..., s/n, ... ... (hereinafter referred to as "Claimants") submitted on 04-03-2019, a request for arbitral pronouncement, under Article 2, No. 1, letter a) and Article 10, Nos. 1 and 2 of the Legal Regime of Tax Arbitration, provided for in Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as "RJAT") and Articles 1 and 2 of Administrative Order No. 112-A/2011, of 22 March.

1.2

The Claimants seek the pronouncement of the Arbitral Court with a view to declaring the illegality and annulment of the Personal Income Tax ("IRS") assessments relating to the years 2016 and 2017, respectively with Nos. 2018... and 2019..., as well as the respective compensatory interest, in the total amount of € 25,175.37 (twenty-five thousand one hundred seventy-five euros and thirty-seven cents).

1.3

The Tax and Customs Authority (hereinafter referred to as "Respondent") is the respondent.

1.4

The request for constitution of the arbitral court was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 06-03-2019.

1.5

Pursuant to letter a) of No. 2 of Article 6 and letter b) of No. 1 of Article 11 of RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council of CAAD appointed as arbitrator of the single arbitral court His Excellency Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the assignment.

1.6

The parties were notified on 26-04-2019 of the appointment of the arbitrator and did not manifest a wish to challenge the appointment, in accordance with the combined provisions of Article 11, No. 1, letters a) and b) of RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

1.7

In accordance with the provisions of Article 11, No. 1, letter c) of RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Court was constituted on 16-05-2019.

1.8

The Respondent, duly notified through the arbitral order of 16-05-2019, submitted its Reply on 12-06-2019 and, on the same date, attached the Administrative Process.

1.9

The Arbitral Court, by order of 15-06-2019, notified the Claimants to indicate the facts on which they requested the examination of the witness indicated in the request for arbitral pronouncement.

1.10

On 26-06-2019, the Claimants indicated the facts on which they intended to examine the witness.

1.11

By order of 27-06-2019, the Arbitral Court designated 8 July at 15:00 for examination of the witness indicated by the Claimants.

1.12

The Respondent, on 01-07-2019, informed the Arbitral Court that it was unable to attend on the date indicated for the witness examination.

1.13

By order of 02-07-2019, the Arbitral Court designated 10 September at 15:00 as the new date for examination of the witness indicated by the Claimants.

1.14

The Claimants, on 10-07-2019, waived the examination of the witness.

1.15

The Arbitral Court, by order of 10-09-2019, determined: (i) to dispense with the holding of the meeting provided for in Article 18 of RJAT, considering that no exception matter was raised nor is there evidence to be produced; (ii) should the parties wish to make written submissions, these must be produced within 10 days, in succession, from notification of this order; (iii) to set 18 October 2019 as the deadline for issuance of the arbitral decision. The deadline for issuance of the arbitral decision was subsequently postponed, through the order of the Arbitral Court of 18-10-2019, to 31 October 2019.

1.16

The Claimants and the Respondent did not submit submissions.

1.17

The position of the Claimants, in accordance with the provisions of the request for constitution of the Arbitral Court, is, in summary, as follows:

1.17.1

The TA bases the assessments presented on the fact that the claimant exercises the activity of "Insolvency Administrator," which corresponds to an activity with CAE 1310 - "Property Administrators" and not CAE 1519 referring to "Other Service Providers." Consequently, the TA believes that the claimant improperly recorded, in field 404 Income from service provisions not provided for in previous fields, of Table 4-A, of the respective Annex B, to the IRS Form 3 declaration, the income obtained in 2016 and 2017, when he should have recorded it in field 403, referring to Income from professional activities specifically provided for in the Table under Article 151 of the IRS Code.

1.17.2

The TA incurs an incorrect qualification of the activity actually exercised by the claimant, which, not falling within any of the activities specifically provided for in the Table Attached to the IRS Code, does not permit the application of the coefficient of 0.75, provided for in Article 31, No. 2, letter b) of the IRS Code.

1.17.3

And from this also follows an error in quantification of the taxable matter resulting from the application of such coefficient. Because there are no doubts that the income earned by the claimant in the period from 01-01-2016 to 31-12-2016 and 01-01-2017 to 31-01-2017 should be subject to the coefficient of 0.35 applicable to Category B income, as provided for in Article 31, No. 2, letter c) of the IRS Code.

1.17.4

It being clear that the assessments in question are illegal by violation of the provisions of Articles 31 and 151 of the IRS Code.

1.17.5

Furthermore, they constitute a blatant and intolerable violation of the principle of good faith and the protection of the trust created for the claimants.

1.17.6

Consequently, the claimants should have the right to obtain reimbursement of the amounts improperly paid and also have the right to receive compensatory interest, under the provisions of Article 43, No. 1 of the LGT and Article 61 of CPPT, calculated from the date of payment until reimbursement of the amounts improperly paid.

1.18

The position of the Respondent, expressed in its reply, can be summarized as follows:

1.18.1

In substantive terms, due to the autonomous manner in which it is exercised, the functions of judicial administrator fall within, in terms of the actual scope of IRS, Article 3, No. 1, letter b) of the IRS Code, falling within the list of activities referred to in Article 151 of the IRS Code, in the activity of property administrators, code 1310.

1.18.2

Thus, what is verified is that, contrary to what is advocated by the Claimant, the activity that it exercises is concretely and specifically that of administration of property of the debtor or the insolvent, singular or collective and ensuring payment to creditors, such that the activity it exercises as judicial administrator has an unequivocal and clear correspondence in the table attached to Article 151 of the IRS Code, in the CIRS code - Property Administrator – Code 1310.

1.18.3

Consequently, the coefficient 0.75 should be applied to the income of professional activities specifically provided for in the table referred to in Article 151, under letter b) of Article 31 of the IRS Code.

1.18.4

The TA's action was based on strict compliance with the tax and constitutional principles legally enshrined, having, in the course of the inspection procedure, complied with the provision of Article 60, No. 1, letter e) of the LGT, notifying the Claimant to comment, which it did not do. Furthermore, the provisions of the principle of participation, limitation period and the entire scope of the inspection procedure were strictly complied with.

1.18.5

Whence it is concluded that there is no violation of trust and good faith by the TA.

1.18.6

The right to compensatory interest provided for in No. 1 of Article 43 of the LGT, arising from judicial annulment of a tax assessment act, depends on it having been demonstrated in the process that this fact is affected by an error regarding the assumptions of fact or law attributable to the Tax Administration. The error that supports the right to compensatory interest is not any defect or illegality but that which materializes in defective appreciation of relevant factuality or in incorrect application of legal norms. Since, at the date of the facts, the Tax Administration applied the law in the terms in which as an executive body it is constitutionally bound, one cannot speak of error by the services as provided for in Article 43 of the LGT.

1.19

The Arbitral Court is materially competent and is regularly constituted in accordance with Articles 2, Nos. 1, letter a), 5 and 6, No. 1 of RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented, in accordance with the provisions of Articles 4 and 10, No. 2 of RJAT and Article 1 of Administrative Order No. 112-A/2011, of 22 March.

The process does not suffer from any nullities.

There are no other circumstances that prevent consideration of the merits of the case.

In these terms, the Arbitral Court is regularly constituted to examine and decide the object of the process.

2. FACTUAL MATTER

2.1

Facts established as proven

The following facts are established and proven as relevant to the examination and decision of the issues raised:

A) The Claimant, since 29-09-2003, was registered for IRS purposes in Category B (Simplified Regime) - Main CAE 6010 – Lawyers, and, since 01-02-2008, for VAT purposes in the normal quarterly regime (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 4, in Part 1 of the Administrative Process and page 17 of Part 2 of the Administrative Process);

B) The Claimant submitted on 02-03-2017, a Declaration of Change of Activity, to the Finance Service ... (code 0094), to exercise as principal activity Judicial Administrator and registered itself in CAE 1519 (see Table 8 of the Declaration of Change of Activity contained in Document No. 5 attached to the Request for Arbitral Pronouncement);

C) In the Declaration of Change of Activity, identified in the previous letter, the Claimant wrote in Table 40 (Observations) the following: "This Change should have retroactive effects as of 04/06/2015, given that from then on it is the only profession (activity) developed." (see Document No. 5 attached to the Request for Arbitral Pronouncement);

D) On 02-03-2017, the Claimant paid a fine in the amount of € 75.00 for late submission of the Declaration of Change of Activity, identified in letter B), within the scope of proceeding No. ...2017... (see Document No. 6 attached to the Request for Arbitral Pronouncement);

E) The Claimant, on 24-05-2017, submitted the IRS Form 3 income declaration (No. ...) for the year 2016 having declared as earned in Annex B, Category B income in the amount of 63,135.59€, of which 7,001.59€ recorded in field 403 of Table 4A and 56,134.00€ recorded in field 404 of Table 4A. For the determination of taxable income, the coefficient 0.35 was applied to the 56,134.00€ (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 4, in Part 1 of the Administrative Process and Document No. 7 attached to the Request for Arbitral Pronouncement);

F) Regarding the Income Declaration, identified in the previous letter, assessment No. 2017..., of 26-05-2017, resulted with a tax value to be refunded of 11,942.26€ (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 5, in Part 1 of the Administrative Process);

G) The Finance Directorate of ..., on 26-02-2018, based on Service Orders Nos. OI2018..., OI2018..., OI2018... conducted an external inspection action, with the purpose of verification and confirmation, aimed at confirming compliance with the obligations of the taxpayer and other taxable entities regarding the tax years 2014, 2015 and 2016 (see Part 4 of the Administrative Process);

H) The Inspection Report regarding the year 2016 states the following: "(…) the income earned by Dr. A... in the context of his activity as insolvency administrator should have been declared in field 403 of Annex B of the IRS Form 3 declaration field to be used for service provisions provided for in letter b) of No. 1 of Article 31 of CIRS to which the coefficient 0.75 applies. Thus, regarding the year 2016, a correction to the taxable income of Dr. A... in the amount of € 22,453.60 is determined, determined under the terms of letter b) of No. 1 of Article 31 of CIRS relating to service provisions in the context of the activity of insolvency administrator, declared in field 404 of Annex B which should have been declared in field 403 of Annex B." (see Final Tax Inspection Report, pp. 14, in Part 4 of the Administrative Process);

I) The Finance Directorate of ..., through letter No. ..., of 16-07-2018, notified the Claimant of the draft Tax Inspection Report, in accordance with and for the purposes provided for in Article 60 of the LGT and Article 60 of the Supplementary Regime of Tax and Customs Inspection Procedures (RCPITA) to exercise the right to prior hearing within 15 days (see Part 3 of the Administrative Process, page 87);

J) The Claimant did not exercise his right to prior hearing regarding the draft Inspection Report notified under the terms of the previous letter, with the TA maintaining the position set out in the Final Inspection Report (see Final Inspection Report, pp. 17, in Part 4 of the Administrative Process);

K) Following the Final Inspection Report, notified to the Claimant through Letter No. ..., of 08-10-2018, the TA prepared: (i) official amendment notice of activity with the Claimant being registered as Secondary CAE, under activity code 1310 – Property Administrator with retroactive effects to 04-06-2015; (ii) official IRS Form 3 declaration No. ... for the year 2016, recording in Annex B field 403 of Table 4A the total value of 72,560.41€ (63,135.59€ + 9,424.82); (iii) assessment No. 2018... of 07-09-2018, with a value to be refunded of 1,221.17€; (iv) account settlement from which resulted collection notice No. 2018... in the amount of 10,721.09€, which includes compensatory interest for undue receipt in the amount of 491.04€ (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 6 and Documents Nos. 1 and 7 attached to the Request for Arbitral Pronouncement);

L) The claimant settled on 01-12-2018 the amount of 10,721.09€ contained in item (iv) of the previous letter (see Document No. 3 attached to the Request for Arbitral Pronouncement);

M) The Claimant, on 31-05-2018, submitted the IRS Form 3 income declaration (No. ...) for the year 2017 having declared as earned in Annex B, Category B income in the amount of 96,501.18€, of which 204.00€ recorded in field 403 of Table 4A and 96,297.18€ recorded in field 404 of Table 4A. For the determination of taxable income, the coefficient 0.75 was applied to the 204.00€ and the coefficient 0.35 was applied to the 96,297.18€ (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 7, in Part 1 of the Administrative Process);

N) Regarding the Income Declaration, identified in the previous letter, assessment No. 2018..., of 02-06-2018, resulted with a tax value to be refunded of 8,711.27€ (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 7, in Part 1 of the Administrative Process);

O) The Claimant was notified on 08-06-2018 by the TA that his income declaration for the year 2017 was selected for analysis due to: "Need to verify mandatory contributions of business/professional income or insurance of fast wear-out professions associated" (see Documents Nos. 9 and 10 attached to the Request for Arbitral Pronouncement).

P) The Finance Directorate of ..., on 29-08-2018, based on Service Order No. OI2018... conducted an internal inspection action, with the purpose of verification and confirmation, aimed at confirming compliance with the obligations of the taxpayer and other taxable entities regarding the tax year 2017, (see Information No. 431/19, of 04-04-2019, from the IRS Services Directorate, pp. 7 and Part 2 of the Administrative Process);

Q) The Inspection Report regarding the year 2017 states the following: "(…) the income earned by Dr. A... in the context of his activity as insolvency administrator should have been declared in field 403 of Annex B of the IRS Form 3 declaration field to be used for service provisions provided for in letter b) of No. 1 of Article 31 of CIRS to which the coefficient 0.75 applies. Thus, regarding the year 2017, a correction to the taxable income of Dr. A... in the amount of € 38,518.87 is determined, determined under the terms of letter b) of No. 1 of Article 31 of CIRS relating to service provisions in the context of the activity of insolvency administrator, declared in field 404 of Annex B which should have been declared in field 403 of Annex B." (see Final Tax Inspection Report, pp. 14, in Part 2 of the Administrative Process);

R) The Finance Directorate of ..., through letter No. ..., of 09-10-2018, notified the Claimant of the draft Tax Inspection Report, in accordance with and for the purposes provided for in Article 60 of the LGT and Article 60 of the Supplementary Regime of Tax and Customs Inspection Procedures (RCPITA) to exercise the right to prior hearing within 15 days (see Part 2 of the Administrative Process page 25);

S) The Claimant did not exercise his right to prior hearing regarding the draft Inspection Report notified under the terms of the previous letter, with the TA maintaining the position set out in the Final Inspection Report (see Final Inspection Report, pp. 7, in Part 2 of the Administrative Process);

T) Following the Final Inspection Report, notified to the Claimant through Letter No. ..., of 13-11-2018, the TA prepared: (i) official IRS Form 3 declaration No. ... for the year 2017 recording in Annex B field 403 of Table 4A the total value of 96,501.18€; (ii) assessment No. 2019..., of 18-01-2019, with a value to pay of 5,521.84€; (iii) account settlement with the previous assessment from which resulted collection notice No. ... in the amount of 14,233.11€ which includes compensatory interest for undue receipt in the amount of 212.78€ (see Documents Nos. 2 and 8 attached to the Request for Arbitral Pronouncement);

U) The claimant settled on 04-03-2019 the amount of 14,233.11€, contained in item (iv) of the previous letter (see Document No. 4 attached to the Request for Arbitral Pronouncement);

2.2

Facts established as not proven

There are no other facts with relevance for examination of the merits of the case that have not been proven.

2.3

Reasoning of the factual matter proven and not proven

With regard to factual matter, in accordance with the provisions of Article 123, No. 2 of CPPT and Article 607, No. 3 of the Civil Procedure Code (CPC), applicable ex vi Article 29, No. 1, letters a) and e) of RJAT, the Court need not pronounce on everything that was alleged by the parties, it being its duty to select the facts that matter for the decision and discriminate the matter proven from the matter not proven.

Thus, in accordance with the provisions of Article 596 of the Civil Procedure Code (CPC), applicable ex vi Article 29, No. 1, letter e) of RJAT, the facts pertinent for judgment of the case were chosen and selected based on their legal relevance, which was established taking into account the legal issues raised.

As for the factual matter established as proven, the conviction of the Arbitral Court was based on free assessment of the documentary evidence attached to the record, the authenticity of which was not questioned.

Having regard to the positions assumed by the parties, in light of Article 110, No. 7 of CPPT, and the documentary evidence attached to the record, the facts listed above were considered proven, with relevance for the decision.

3. LEGAL MATTER

3.1

The main issue to be decided in the present arbitral proceedings consists of determining whether, in accordance with the table provided for in Article 151 of the IRS Code, the activity of judicial administrator exercised by the Claimant in the years 2016 and 2017 should be classified under Code 1310 - Property Administrator or under Code 1519 - Other Service Providers.

This must be examined.

3.2

The judicial administrator is the person entrusted with the supervision and guidance of acts forming part of the special process of restructuring and the special process for payment agreement, as well as the management or liquidation of the insolvency estate in the course of the insolvency process, in accordance with Article 2, No. 1 of Law No. 22/2013, of 26 February (Judicial Administrator Statute). In accordance with No. 2 of the same article, the judicial administrator is designated as provisional judicial administrator, insolvency administrator or fiduciary, depending on the functions it performs in the process.

The competences of the provisional judicial administrator are defined in Article 33 of the Insolvency and Business Recovery Code (Decree-Law No. 53/2004, of 18 March), as follows:

"1 - The provisional judicial administrator to whom exclusive powers of administration of the debtor's assets are conferred must provide for the maintenance and preservation of that assets, and for the continuity of business exploitation, unless he considers that the suspension of activity is more advantageous for the interests of creditors and such measure is authorized by the judge.

2 - The judge fixes the duties and competences of the provisional judicial administrator charged only with assisting the debtor in the administration of his assets, and must:

a) Specify the acts that cannot be carried out by the debtor without the approval of the provisional judicial administrator; or

b) Indicate them to be generically all those involving the alienation or encumbrance of any assets or the assumption of new responsibilities that are not essential to the ordinary management of the business." (emphasis added)

To the insolvency administrator, in accordance with Article 55 of the Insolvency and Business Recovery Code, it is incumbent:

"1 - In addition to the other tasks entrusted to him, it falls to the insolvency administrator, with the cooperation and under the supervision of the creditors' committee, if it exists:

a) To prepare payment of the debtor's debts at the expense of the sums of money existing in the insolvency estate, in particular those constituting the proceeds of alienation, which it is incumbent upon to promote, of the assets that comprise it;

b) To provide, in the meantime, for the conservation and fructification of the debtor's rights and the continuation of business exploitation, if applicable, avoiding insofar as possible the aggravation of its economic situation." (emphasis added)

In the insolvency of singular persons, the functions of the fiduciary, defined in Article 241 of the Insolvency and Business Recovery Code, have the following content:

"1 - The fiduciary notifies the cession of the debtor's income to those from whom he has the right to obtain it, and allocates the amounts received, at the end of each year in which the cession lasts:

a) To payment of insolvency process costs still outstanding;

b) To reimbursement to the body responsible for financial and patrimonial management of the Ministry of Justice of the remunerations and expenses of the insolvency administrator and of the fiduciary itself which have been borne by it;

c) To payment of his own remuneration already due and expenses incurred;

d) To distribution of the remainder to the creditors of the insolvency, in accordance with the terms prescribed for payment to creditors in the insolvency process." (emphasis added)

It is important to add that, in accordance with Article 46, No. 1 of the Insolvency and Business Recovery Code, the insolvency estate is intended for the satisfaction of the creditors of the insolvency, after payment of its own debts, and, unless otherwise provided, includes all the property of the debtor at the date of declaration of insolvency, as well as the assets and rights that he acquires during the course of the process. Thus, the insolvency estate is the set of present and future assets of the debtor which, from the declaration of insolvency, form a separate estate, subject to satisfaction of the interests of creditors (See Maria do Rosário Epifânio, Manual de Direito da Insolvência, 6th ed., 2014, Almedina, pp. 256).

Article 81 of the Insolvency and Business Recovery Code has the heading "Transfer of powers of administration and disposition" and No. 1 states "(…) the declaration of insolvency immediately deprives the insolvent, by himself or through his administrators, of the powers of administration and disposition of assets forming part of the insolvency estate, which pass to the insolvency administrator." (emphasis added). Thus, by mere effect of the declaration of insolvency, the debtor is deprived of his powers of administration of the assets forming part of the insolvency estate and the powers of administration of the insolvency estate pass to the insolvency administrator with the cooperation of the creditors' committee.

In summary, the insolvency administrator assumes control of the insolvency estate, proceeds with its administration and liquidation, and finally distributes the respective final product to creditors. Where there is a declaration of insolvency, it generally falls to the insolvency administrator to have the power to administer the assets forming part of the insolvency estate.

3.3

Under letter b) of No. 1 of Article 31 of the IRS Code, the determination of taxable income, under the simplified regime, is obtained through the application of the coefficient of 0.75 to the income of professional activities specifically provided for in the table referred to in Article 151 of the IRS Code.

In accordance with the provisions of the aforementioned Article 151, the activities exercised by IRS taxpayers are classified, for purposes of this tax, in accordance with the Classification of Portuguese Economic Activities by Line of Activity (CAE), of the National Institute of Statistics, or in accordance with the codes mentioned in a table of activities approved by administrative order of the Minister of Finance.

3.4

The table of activities provided for in Article 151 of the IRS Code was approved by Administrative Order No. 1011/2001, of 2 August.

The various paragraphs of the table systematically group the codes corresponding to the activities exercised by IRS taxpayers. Considering the scope of actual application of IRS, there is a multiplicity of activities exercised by taxpayers of this tax, consequently in a table of this type the legislator opted for the definition of activities in a broad sense.

The aforementioned table in paragraph 13 - Other persons exercising liberal professions, technicians and the like - includes code 1310 Property Administrators.

The last paragraph with a residual character, 15 - Other activities exclusively involving provision of services, includes code 1519 Other service providers.

To the income from code 1310 Property Administrators, the coefficient 0.75 referred to in letter b) of No. 1 of Article 31 of the IRS Code is applied.

With respect to income from code 1519 Other service providers, the TA applies the coefficient 0.35 referred to in letter c) of No. 1 of Article 31 of the IRS Code, in accordance with the understanding contained in point No. 5 of Circular No. 2/2016, of 2016/05/06.

3.5

In light of the foregoing in the previous No., the designation of Property Administrator, contained in the table above identified, must be understood in a broad sense, that is, it refers to the person entrusted with managing an estate, thus practicing the acts necessary for its conservation and development. Thus, the Property Administrator practices the acts necessary for the normal management of an estate, preserving its value and causing it to bear fruit.

3.6

Indeed, in the table of activities provided for in Article 151 of the IRS Code, there is no code that explicitly refers to the Judicial Administrator, but this does not necessarily mean that it cannot be included under code 1310 Property Administrators, because the literal element is not the only one to be considered within the scope of the interpretive task.

Without prejudice to the specificity of its statute, the Judicial Administrator, in having as its essential function the administration of the assets of the insolvent and ensuring payments to creditors (see No. 3.2 above) fits within the designation of Property Administrator contained in code 1310 of the table of activities provided for in Article 151 of the IRS Code to which the coefficient 0.75 applies, under letter b) of No. 1 of Article 31 of the IRS Code.

In light of the foregoing, the allegation by the Claimant regarding the TA's incorrect qualification of his activity as Judicial Administrator for purposes of Category B of the IRS Code is without merit.

3.7

The Claimant also alleges a violation of the principle of trust and good faith, because the TA accepted the change of the Claimant's activity (see letters B) and D) of No. 2.1 above) and validated the IRS declarations for 2016 and 2017 (see letters E) and M) of No. 2.1 above), but subsequently the TA made the official corrections that gave rise to the assessments now contested (see letters K) and T) of No. 2.1 above).

It is verified that the assessments in question in the present arbitral proceedings resulted from inspection procedures carried out in accordance with the provisions of law, in particular the norms contained in the Supplementary Regime of Tax and Customs Inspection Procedures, having been ensured to the Claimant the right to prior hearing, provided for in Article 60 of the LGT (see letters I) and R) of No. 2.1 above).

Thus, and in light of the foregoing, it is considered that the allegation by the Claimant on this point should not be upheld.

3.8

The Claimant also requests that he be recognized the right to compensatory interest, under Article 43 of the LGT and Article 61 of CPPT.

Under No. 1 of Article 43 of the LGT, compensatory interest is due "when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due." As follows from Article 24, No. 5 of RJAT, the right to the aforementioned interest may also be recognized in the arbitral process.

The necessary condition for the award of compensatory interest consists of demonstrating the existence of error regarding the assumptions of fact or law attributable to the services of the Tax Administration.

Having this Court concluded that the contested tax acts do not suffer from any defect, consequently, under the provisions of Article 43 of the LGT, the Claimant has no right to compensatory interest.

4. DECISION

In these terms, it is decided in this Arbitral Court to judge the request for arbitral pronouncement as without merit and, in consequence, to absolve the Respondent of the request, with the corresponding legal consequences.

5. VALUE OF THE PROCESS

The value of the process is fixed at € 25,173.37 (twenty-five thousand one hundred seventy-three euros and thirty-seven cents), in accordance with Article 97-A, No. 1, letter a) of the Code of Procedure and Tax Procedure, applicable by virtue of letters a) and b) of No. 1 of Article 29 of RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

6. COSTS

The arbitration fee is fixed at € 1,530.00 (one thousand five hundred thirty euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the request was entirely without merit, in accordance with the provisions of Articles 12, No. 2, and 22, No. 4, both of RJAT, and Article 4, No. 4 of the aforementioned Regulation.

Let notice be given.

Lisbon, Center for Administrative Arbitration, 31 October 2019.

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

How are judicial administrator (administrador judicial) income earnings classified for IRS purposes in Portugal?
Judicial administrator income in Portugal is classified as Category B professional income under Article 3(1)(b) of the CIRS. The Portuguese Tax Authority (AT) considers this activity to fall within CAE code 1310 (Property Administrators) listed in Article 151 of the CIRS, subjecting it to a 0.75 coefficient for calculating taxable income under Article 31(2)(b). However, taxpayers have challenged this classification, arguing judicial administration constitutes specialized insolvency services that should be taxed under the general 0.35 coefficient applicable to other professional services not specifically enumerated in the Article 151 table.
What does Article 151 of the Portuguese IRS Code (CIRS) establish regarding the activity table for tax categorization?
Article 151 of the Portuguese IRS Code (CIRS) establishes a specific table listing professional activities subject to particular tax treatment. This table assigns CAE codes to various professions and determines which coefficient applies when calculating taxable income from Category B professional activities. Activities listed in this table, such as property administrators (code 1310), are subject to a 0.75 coefficient under Article 31(2)(b) of the CIRS, while unlisted professional services generally fall under Article 31(2)(c) with a lower 0.35 coefficient. The table's interpretation significantly impacts tax liability, as demonstrated in CAAD case 150/2019-T regarding judicial administrators.
Can a judicial administrator's income be reclassified by the Portuguese Tax Authority (AT) under a different IRS category?
Yes, the Portuguese Tax Authority (AT) can reclassify a judicial administrator's income under a different IRS category through inspection procedures. In CAAD case 150/2019-T, the AT reclassified income initially declared under field 404 (services not specifically provided for) to field 403 (professional activities in the Article 151 table), changing the applicable coefficient from 0.35 to 0.75. The AT must comply with procedural guarantees under Article 60(1)(e) of the LGT, including notifying taxpayers to comment on proposed reclassifications. Taxpayers can challenge such reclassifications through administrative appeals or CAAD tax arbitration, arguing for alternative activity classifications based on the actual nature of services provided.
What was the outcome of CAAD arbitration process 150/2019-T regarding IRS liquidations for 2016 and 2017?
CAAD arbitration process 150/2019-T was formally constituted on May 16, 2019, to review IRS assessments for 2016-2017 totaling €25,175.37 against taxpayers who worked as judicial administrators. The taxpayers argued the AT incorrectly applied the 0.75 coefficient by classifying their activity as property administration under Article 151 of the CIRS, when the 0.35 coefficient should apply. The AT defended its position that judicial administrators manage debtor assets and ensure creditor payments, matching the property administrator category. The arbitral tribunal dispensed with hearings after taxpayers waived witness examination, set a deadline for written submissions (which neither party filed), and extended the decision deadline to October 31, 2019. The complete outcome and legal reasoning would be contained in the final arbitral decision issued on that date.
How can taxpayers challenge IRS tax assessments through CAAD tax arbitration in Portugal?
Taxpayers can challenge IRS assessments through CAAD tax arbitration by submitting a request for arbitral pronouncement under Article 2(1)(a) and Article 10 of the RJAT (Regime Jurídico da Arbitragem Tributária - Decree-Law 10/2011). The process involves: (1) filing a written request identifying the contested tax assessments and legal grounds; (2) automatic notification to the Tax Authority; (3) appointment of an arbitrator by CAAD's Ethics Council; (4) opportunity for parties to challenge the arbitrator; (5) formal constitution of the arbitral tribunal; (6) submission of the Tax Authority's reply and administrative file; (7) evidence production including witness examination if requested; (8) optional written submissions; and (9) issuance of a binding arbitral decision within statutory deadlines. This alternative dispute resolution mechanism provides taxpayers with a faster, specialized forum for resolving complex tax classification disputes like those involving Article 151 of the CIRS.