IRS Tax Exemption for Income Under Portugal-Luxembourg Education Cooperation Agreement – CAAD 17/2014-T

ARBITRAL PROCEEDING No. 17/2014-T

ARBITRAL DECISION

A – REPORT

1. A, taxpayer no. ... resident in ..., hereby, pursuant to the provisions of Article 2, No. 1, letter a) of Decree-Law No. 10/2011, of 20 January (hereinafter abbreviated as RJAT) and Articles 1, letter a) and 2 of Ordinance No. 112/2011, of 22 March, requests the establishment of an Arbitral Court, to contest the Personal Income Tax (IRS) assessment No. 2013 ..., for the fiscal year 2012, which resulted in a refund of € 1,240.06, instead of which he allegedly was entitled to € 11,299.11

1. The Claimant sustains, in summary, his claim, as follows:

A – ON THE TIMELINESS OF THE REQUEST FOR ARBITRAL CONSTITUTION

a) The Claimant alleges that he was notified on 3/10/2013 of the Personal Income Tax assessment act No. 2013 ..., referring to fiscal year 2012, as per doc. no. 1.

b) And that in accordance with the provisions of Article 10, No. 1, letter a) of the RJAT, combined with No. 2 of Article 102 of the Tax Procedure and Process Code (CPPT), the request for establishment of an arbitral court must be submitted within a period of 90 days counted from the notification of the assessment act.

c) He further states that according to the provisions of No. 1 of Article 3-A of the RJAT "in arbitral proceedings, periods are counted in accordance with the Code of Administrative Procedure, with the necessary adaptations".

d) And that, in turn, No. 1 of Article 72 of the Code of Administrative Procedure (CPA), under the heading "Counting of Periods" establishes that "The following rules apply to the counting of periods:

a. The day on which the event occurs from which the period begins to run is not included in the count;

b. The period begins to run regardless of any formalities and is suspended on Saturdays, Sundays and public holidays;

c. The end of a period that falls on a day when the service before which the act must be performed is not open to the public, or does not function during normal hours, is transferred to the next working day".

e) And he further states that now "having the Claimant been notified on 3/10/2013, the aforementioned period of 90 days, which by virtue of the provisions of Article 72, No. 1 of the CPA applicable ex vi Article 3-A of the RJAT was suspended on Saturdays, Sundays and public holidays, ends on 10/02/2014, whereby this request is timely".

B – ON THE SUBJECT MATTER OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT

The subject matter of this request for establishment of an arbitral court is the Personal Income Tax assessment act No. 2013 ..., concerning fiscal year 2012, see doc. no. 1.

C – ON THE REQUEST FOR ARBITRAL PRONOUNCEMENT

C.1 ON FACTUAL GROUNDS

a) The Claimant argues that "on 12/7/1982, an agreement of cooperation between Portugal and Luxembourg was signed in the fields of education, science, culture, the arts and sports, as well as in other fields of common interest", see doc. 2.

b) That "this cooperation agreement has the objective of promoting exchange at various levels between Portugal and Luxembourg, namely in the fields of education".

c) He further highlights that Article 9 of the aforementioned cooperation agreement provides that "The Contracting Parties shall proceed with regular exchange of teachers, lecturers, researchers and students. They further commit themselves to favour contacts and cooperation between institutions and educational, cultural and research bodies in the two countries", as per doc. no. 2.

d) And the Claimant clarifies that "following this cooperation agreement, the Ministry of Education of Luxembourg created, in primary education (1st to 6th year of schooling), integrated courses in Portuguese language that are part of the Luxembourg school timetable", see doc. no. 3.

e) And that "all students in Luxembourg primary schools follow the same school programmes, as defined in the Luxembourg Primary Education Study Plan, with such programmes being able to be taught in different languages", see doc. no. 4.

f) And he further clarifies that "for students enrolled in integrated courses in Portuguese language, for two hours per week, the programme for introduction to science (2nd and 3rd cycles), natural sciences, history or geography (4th cycle) is taught in Portuguese language", see doc. no. 4.

g) And he further states that "the coordination of integrated courses is assigned to the 'steering group' which is constituted by representatives of the Ministry of Education of Luxembourg, by responsible officials from the education services of embassies and by teachers", see doc. no. 4.

h) And that "the basic principles governing the integrated courses in Portuguese language are contained in the cooperation agreement concluded between Portugal and Luxembourg (see doc. no. 4), which means that the integrated courses arise from the cooperation agreement concluded between these two countries".

i) And he reinforces his conclusion by stating that "indeed, the cooperation programmes concluded between the Portuguese government and the Luxembourg government, to implement the cooperation agreement, provide for the undertaking of this type of courses", see doc. no. 5.

j) And he clarifies that "in fact, in Article 2 of the cooperation programme for the period 2008/2011 (which still remained in force in the year 2012, by virtue of the provisions of Article 26 of the aforementioned programme), it is stated that '1. The parties agree on the need to explore new avenues for integrated courses, on the one hand, and for learning of Portuguese as a Foreign Language, on the other, creating, for that purpose, a Working Group that presents proposals on the offering of teaching in Portuguese Language in basic education, and in Portuguese Language in secondary education in Luxembourg (…)", see doc. no. 5.

k) And he further states that "following the aforementioned cooperation agreement between Portugal and Luxembourg, as well as the creation of integrated courses in Portuguese language, an administrative service contract for teaching was concluded between the Ministry of Education/Office for European Affairs and International Relations and the present claimant, to perform teaching duties in the Consular Area of Luxembourg during the school year 2006/7", see docs. nos. 2 and 6.

l) He further clarifies that "the period of validity of this contract, which had initially been set from 01/09/2006 to 31/8/2007, was subsequently renewed successively until 31/8/2009", see docs. nos. 7 and 8.

m) And the Claimant further states that "subsequently, the aforementioned administrative service teaching contract was automatically converted into a service assignment valid for one year, by virtue of the provisions of Article 3, No. 5 of Decree-Law No. 165-C/2009 of 28 July", see doc. no. 9.

n) And that "through Dispatch (extract) No. 15612/2011, of 17 November, issued by the President of B, the service assignment of the Claimant was renewed for a further one year", see docs. nos. 10 and 11.

o) On the other hand, he states that "by Decree-Law No. 234/2012, of 30 October, the service assignment of the Claimant was again renewed". See doc. no. 12.

p) And he concludes by stating that "thus, in fiscal year 2012, the present claimant exercised, under the aforementioned cooperation agreement, teaching duties, in integrated regime, in the Consular Area of Luxembourg", see docs. nos. 13 and 14.

q) And that "with reference to fiscal year 2012, the Claimant received income, in his capacity as a teacher, under the aforementioned cooperation agreement, the total amount of € 41,789.52, paid by two entities, namely, (see doc. no. 15):

a. B– NIF ...;

b. C – NIF ...".

r) In light of what he has stated, the requesting claimant submitted his IRS declaration, form 3, for the year 2012 on 15/4/2013, in which he indicated the income received as exempt under the cooperation agreement, see doc. no. 16.

s) Having been notified by the Tax Authority to provide evidence of the income declared as exempt, he proceeded to deliver various documents on 15/5/2013, see doc. no. 17.

t) Subsequently, on 14/6/2013, he was again notified of the Dispatch issued by the Head of the Financial Services of ..., to submit proof of the exempt income declared in the IRS declaration for the year 2012, see doc. 18.

u) In response, he attached various documents which, in his understanding, prove that the declared income is exempt from taxation, see doc. no. 19.

v) However, on 7/8/2013, he was notified to exercise his right to prior hearing on the draft correction to his income declaration for the year 2012, see doc. no. 20.

w) And he clarifies that in the aforementioned notification the Tax Authority states that "from the analysis of the documents/elements presented regarding the IRS declaration, Form 3, for the year 2012, with the identification .../65, it was verified that there was no document issued by the paying entity certifying that the income received was exempt", see doc. 20.

x) And the notification further states that "(…) given that B, NIPC – … has not declared, in the Form 10 declaration, the income as paid under any cooperation, the following error(s) were found, regarding the income received (see doc. no. 20):

y) And the Claimant highlights that the Tax Authority concludes by stating that "you must submit a Replacement Declaration to correct Annexes A and H, in accordance with the values presented in the column "VALUE TO BE DECLARED", see doc. no. 20.

z) The Claimant highlights that he did not exercise the right to prior hearing for which he was notified, thus making the proposed correction final, which gave rise to the Personal Income Tax assessment No. 2013 ..., for the year 2012, which he now contests, see doc. no. 1.

C.2 ON LEGAL GROUNDS

The Claimant states that the disputed issue consists in knowing whether the income received in the exercise of his profession as a teacher in Luxembourg, during the year 2012, meets the conditions to be able to enjoy the exemption contemplated in No. 1 of Article 39 of the Tax Benefits Statute (EBF).

And, to that end, he proceeds to present his legal grounds, namely:

a) That "Article 39 of the EBF, under the heading 'Cooperation agreements, establishes that:

1 – Persons transferred abroad under cooperation agreements are exempt from Personal Income Tax, with respect to income received within the scope of the respective agreement.

2 – Likewise exempt from Personal Income Tax are military personnel (…)

3 – The Minister of Finance may, at the request of the interested entities, grant exemption from Personal Income Tax with respect to income received by persons transferred abroad in the service of such entities, under contracts concluded with foreign entities, provided that the advantages of such contracts for the national interest are demonstrated.

4 – The provisions of the preceding paragraphs do not prejudice the aggregation of exempt income, for the purposes of the provisions of No. 4 of Article 22 of the Personal Income Tax Code, and determination of the applicable rate to the remaining taxable income.

5 – The exemption referred to in No. 3 is extended, under the same conditions, to income received by persons transferred abroad, provided they conduct their activity within the scope of professions listed in Article 151 of the Personal Income Tax Code, net of deductible expenses in accordance with the same Code."

b) And the Claimant clarifies that for the case under analysis, only the exemption arising from cooperation agreements contained in No. 1 of the aforementioned Article 39 of the EBF is relevant to us.

c) And he highlights that "according to the aforementioned legal norm, income received by taxpayers transferred abroad under cooperation agreements, in the performance of their duties, are exempt from Personal Income Tax".

d) And he argues that this exemption, contrary to what the Tax Authority wishes to suggest, does not depend on any certification from the paying entity of the income.

e) And the Claimant clarifies that "in fact, this benefit, as the Tax Authority itself recognizes in its Circular Letter No. 20,107, of 30/08/2005, is an automatic benefit, in that it results directly and immediately from the law, not depending on a subsequent recognition act".

f) And to reinforce his arguments, he cites Nuno Sá Gomes when he states that "(…) tax benefits are automatic when the right operates 'ope lege', by the simple verification of their respective conditions. In these cases, once the legal conditions of the tax benefit in question are verified, these emerge automatically, 'ope lege' without need for any initiative by the benefited entity or intervention by the Tax Administration. Therefore, in these situations, benefits are not granted by the tax administration, but established directly by law, giving rise to the subjective right to the corresponding benefit, from the simple historical verification of their respective conditions" (Nuno Sá Gomes, in General Theory of Tax Benefits, Caderno de Ciência e Técnica Fiscal (165), Lisbon, 1991, pages 132 and 133).

g) And the Claimant concludes that, "as the tax benefit in question is, as we have seen, an automatic benefit, its application will depend only on the verification of its respective conditions".

h) And the Claimant clarifies that the only conditions upon which the application of the tax benefit in question in No. 1 of Article 39 of the EBF depends are "that the taxpayer is transferred abroad under a cooperation agreement".

i) And he further states that in the case at hand, "as demonstrated above, the Claimant is transferred to Luxembourg, exercising the activity of a teacher in the Consular Area of Luxembourg, under the cooperation agreement concluded between Portugal and Luxembourg, which aims to promote exchange at various levels, namely at the level of education through the teaching of courses in integrated regime", see docs. nos. 2 to 14.

j) Accordingly, he concludes again that "it is all too evident that the income received by the claimant, in his capacity as a teacher under the aforementioned cooperation agreement, are exempt from taxation, in accordance with No. 1 of Article 39 of the EBF".

k) And therefore, the Claimant highlights, "having the Tax Authority, in the assessment act now contested, taxed the income covered by the aforementioned exemption, it violates not only the provisions of No. 1 of Article 39 of the EBF, but also one of the most elementary principles of tax law, the Principle of Legality enshrined constitutionally in Article 103 of the Constitution of the Portuguese Republic (CRP)".

l) And he cites the aforementioned No. 2 of Article 103 of the CRP which establishes that "Taxes are created by law, which determines the incidence, rate, benefits and taxpayer guarantees".

m) And he also cites what GOMES CANOTILHO and VITAL MOREIRA state in their Annotated Constitution of the Portuguese Republic, in the part where they describe the principle of tax legality, both regarding the reserve of law that must cover the creation, incidence and rate, but also tax benefits.

n) And the Claimant, once again states that, in the case under analysis, "the tax law does not make the exemption from tax dependent on any requirements other than those contained in Article 39, No. 1 of the EBF and that the principle of tax legality prevents the Tax Authority from establishing additional requirements to the operation of a tax benefit, the illegality of the assessment act now in question is undeniable".

o) For which reason, in light of the foregoing, the annulment of the assessment act contested should be ordered, which he already requests.

D – EVIDENCE OF THE FACTS STATED AND INDICATION OF THE MEANS OF PROOF TO BE PRODUCED

The Claimant highlights that the means of proof of the facts alleged consist of the 20 documents attached to this request.

E – INDICATION OF THE VALUE OF THE ECONOMIC UTILITY OF THE REQUEST

The value of the economic utility of this request – says the Claimant – "is the value corresponding to the difference between the total amount of the refund that the Claimant should have received [€ 11,299.11) and that which was effectively received (€ 1,240.06), whereby it amounts to € 10,059.05 (ten thousand fifty-nine euros and five cents)".

And he ends by requesting that "the assessment act No. 2012..., referring to the year 2012, be annulled, on the grounds of the reasons presented above, ordering the refund of the amount of € 10,059.05, with the other legal consequences".

1. The TAX AND CUSTOMS AUTHORITY responds, in summary, in the following terms:

3.1 ON THE FACTS

a) The Claimant submitted via the internet his IRS declaration, form 3, for the year 2012, on 15.04.2013.

b) In the aforementioned declaration, the Claimant indicated in Section 4 of Annex H (Tax Benefits and Deductions), having received the following exempt income:

Notes: The 1st Payer NIF refers to B

The 2nd Payer NIF refers to C

c) In light of what was declared by the Claimant, the Respondent states that by the IRS Management Department, it was sent a notification informing him that his declaration "was selected for analysis", having 15 days to provide clarifications regarding the "proof of the exempt income declared".

d) The Respondent states that in response to the Tax Authority's notification, the Claimant made the following documents:

1. "Decree-Law No. 234/2012, of 30 October;

2. Declaration from D, of 18-01-2013, relating to expenses incurred by the Claimant at that establishment;

3. Declaration from the Portuguese Education Coordination in Luxembourg, of 18.03.2013, in which it is attested that the Claimant is "teacher of the 1st cycle of Basic Education, code 110, exercising duties in the Consular Area of Luxembourg" and that "he is currently on a service assignment";

4. Declaration from B of 22.11.2012, issued for the purpose of counting the Claimant's period of service;

5. 2 (two) Declarations of Tax Withholding made by B;

6. Dispatch (extract) No. 15612/2011, of 17 November;

7. Decree-Law No. 192/82, of 16 November; and

8. Notice No. 410/2006, of 1 March".

e) The Respondent states that in light of the analysis of the aforementioned documents, a notification was issued to the Claimant by the Financial Services of …, in which it was stated that:

"From the analysis of the elements delivered to this Service (…) we note that there is no document evidencing the exempt income declared. We also note that the paying entity, B, NIPC – …, did not classify the income as paid under any cooperation".

f) And the Respondent states that, for that reason, the Claimant was again notified to provide proof of the exempt income declared, having the Respondent sent by letter of 2.7.2013 to the Financial Services, a request subscribed by a representative, through which the following documents were additionally sent:

"1. Decree-Law No. 192/82, of 16 November;

1. Cultural Cooperation Programme concluded between the Government of the Portuguese Republic and the Government of the Grand Duchy of Luxembourg for the period 2008-2011;

2. Declaration from B of 22.11.2012, issued for the purpose of counting the Claimant's period of service;

3. Dispatch (extract) No. 15612/2011, of 17 November:

4. Letter of Assignment from B".

g) He further states that in light of the analysis of the aforementioned documents by the Tax Authority Services, the Financial Services of … sent to the Claimant on 6.08.2013, a Notification Note for prior hearing in which it states that:

"From the analysis carried out of the documents/elements presented (…) it was verified that there is no document issued by the paying entity certifying that the income received was exempt. Thus, and given that B, NIP – ... has not declared, in form 10 declaration, the income as paid under any cooperation agreement, the following error(s) were found, regarding the income received:

h) The Respondent highlights that from this notification sent to the Claimant and his representative, the right to hearing was not exercised, whereby the Tax Authority Services issued the appropriate Correction Document and respective assessment, whose legality is now being called into question.

i) The Respondent maintains its position that the income in question does not benefit from the exemption provided for in Article 39 of the EBF, for the legal grounds which it proceeds to present.

3.2 ON THE LAW

a) The Respondent begins by citing Article 39 of the EBF, as indeed did the Claimant, in letter a) of his legal grounds, whereby we dispense ourselves from repeating the content of this provision.

b) The Respondent also cites Article 19 of the Model Convention on Income and Capital, issued by the OECD Committee on Fiscal Affairs, which provides that:

"1. a) Salaries, wages and other similar remuneration paid by a Contracting State or by a political subdivision or local authority to a natural person, in consequence of services rendered to that State, subdivision or authority, are only taxable in that State (Model Convention on Income and Capital)".

c) The Respondent invokes Law No. 13/2004, of 14 April, as being the diploma containing the legal framework for the Portuguese cooperation agent and which defines its respective legal status.

d) And it cites what Article 8 of the aforementioned Law provides:

"1 – Cooperation contracts as well as their renewals are subject to registration with IPAD.

2 – The registration of cooperation contracts is the responsibility of the promoting or implementing entity, directly or through an entity mandated for that purpose, and constitutes a condition for the applicability of the regime provided for in this Law, in particular for the purposes provided for in Article 2"

e) And the Respondent further states that it is in that same Article 2 that the figure of Cooperation Agent is defined.

3.3 BY WAY OF EXCEPTION

3.3.1 ON THE LACK OF TIMELINESS/LAPSE OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT

a) On this issue of lack of timeliness/lapse of the request for arbitral pronouncement, the Respondent comes to refute the arguments of the Claimant regarding the counting of the period for submission of the request for arbitral pronouncement.

b) The Respondent states that in the present situation, the request for arbitral pronouncement should be submitted within a period of 90 days counted from the date of notification of the assessment act, as results from the combined provisions of Articles 10, No. 1, letter a) of the RJAT and 102, No. 2, letter e) of the Tax Procedure and Process Code (CPPT), the provisions of which it transcribes.

c) And the Respondent further states that the provisions of Article 140, No. 4, letter a) of the Personal Income Tax Code are not applicable in this case, which provides for an initial period of 30 days for the purpose of counting the period for judicial challenge, by virtue of the fact that this is not expressly contemplated in the RJAT.

d) And the Respondent cites JORGE LOPES DE SOUSA and his Commentary on the Legal Regime of Arbitration, p.163 and 164, in Guide to Tax Arbitration.

e) And it also highlights that the Claimant itself understands this in the same way, as expressed in Point 2 of the Request for Arbitral Pronouncement.

f) Thus, the Respondent comes to counter what is alleged by the Claimant in its Points 3 to 5 of the PI with what it understands to be the correct way of counting the period.

g) And to that end, the Respondent cites what was decided in Arbitral Proceeding No. 35/2012-T, which states that:

"(…) The counting of the period for bringing the action must observe the rules of Article 279 of the Civil Code, as indeed is expressly provided in No. 1 of Article 20 of the CPPT, as far as judicial challenge is concerned. For that reason, the counting of such period is continuous and is not suspended during court vacations, and the provisions of Article 144 of the Code of Civil Procedure are inapplicable, whose scope is restricted to judicial or procedural periods.

(…) And, if there were any doubts, Article 29 of the RJAT provides for the subsidiary application of procedural or procedural tax norms, rules on organization and process in administrative and tax courts, the Code of Administrative Procedure and the Code of Civil Procedure".

h) And the Respondent also cites what was decided on this matter in Arbitral Proceeding No. 83/2012-T:

"Before the action is filed, there is no proceeding. Therefore, there are no judicial or procedural periods before there is a proceeding…"

i) Accordingly, the Respondent concludes that having the Claimant been notified of the Personal Income Tax assessment act No. 2013…. on 03.10.2013, the period he had to submit the Request for Arbitral Pronouncement was 90 days, ending on 01.01.2014 and not on 10.02.2014 as stated in Point 5 of the PI.

j) For which reason, says the Respondent, "this request for arbitral pronouncement is manifestly untimely, with the Claimant's right of action having already lapsed on 7.01.2014 (date of entry of the Request into the CAAD)".

k) And because the lapse of the right of action, the Respondent highlights, "is a dilatory exception which prevents the continuation of the proceeding, in accordance with the provisions of Article 89, No. 1, letter h) of the CPTA, applicable ex-vi letter c) of Article 29 of the RJAT".

l) Consequently, "such dilatory exception is insurmountable, since the assessment act whose legality is required by the A. is incapable of being challenged again, by virtue of the aforementioned lapse of the right of action".

m) In such terms, it concludes, the Respondent should be absolved of the present proceeding, in accordance with Article 89, No. 1 of the CPTA and 576, No. 2 of the Code of Civil Procedure, applicable ex-vi Article 29, letters c) and e) of the RJAT, respectively.

3.4 – BY WAY OF CHALLENGE

However, should this not be accepted – which only by way of mere academic hypothesis it admits – it comes to refute the arguments made by the Claimant in the following terms:

a) The Claimant submitted on 15.04.2013 his Personal Income Tax declaration for the year 2012, having declared in Annex H income with code 406, relating to dependent work income received under cooperation agreements exempt from Personal Income Tax, in accordance with Article 39, No. 1 of the EBF.

b) This exemption which the Claimant invoked does not depend on prior recognition, in accordance with Article 5, No. 1 of the EBF. And as indeed results from the instructions themselves for completing the Income Declaration form no. 3.

c) And the Respondent states that the Claimant, despite being notified "to prove the exemption of the declared income, failed to do so at that time, and has also failed to do so in the present claim, precisely because the income received does not meet the requirements of Article 39 of the EBF".

d) And the Respondent cites the following passages from the content of Circular Letter No. .../2005, of 30 August:

"This automatic benefit covers income received by Portuguese citizens or with tax residence in Portuguese territory who, under a written contract, participate in the execution of a cooperation action that meets one of the following requirements:

• It is financed by the Portuguese State, promoted or executed by a Portuguese entity of public law or by a private entity with non-profit purposes in beneficiary countries;

• It is financed by a State of the European Union, by an international organization or by a specialized agency or by another promoting or implementing entity that supports the action with its own funds, provided there is an express recognition of the status of cooperation agent by dispatch of the Minister of Foreign Affairs, preceded by the opinion of the Portuguese Institute for Development Support (IPAD);

• In other situations in which to a Portuguese citizen the status of cooperation agent is granted, by dispatch of the Minister of Foreign Affairs, preceded by the opinion of IPAD".

e) And the Respondent also cites an extract from the Binding Information regarding Process No. 2270/05, of the following tenor:

"For a given action to fall within the automatic benefit provided for in No. 1 of Article 39 of the Tax Benefits Statute (EBF), in addition to having to verify at least one of the substantive conditions described in point 1 of Circular Letter No. ..., of 2005.08.30, which is transcribed in annex and consequently in Law No. 13/2004, of 14 April, it is also necessary that the effective conditions defined in Articles 8 and 9 of that Law be met, in particular the fact that the contracts are registered with the Portuguese Institute for Development Support (IPAD) and contain the contractual clauses provided for in the last of these articles".

f) The Respondent also highlights that "as stated in the Binding Information cited, Law No. 13/2004, of 14 April, which establishes the legal framework for the Portuguese cooperation agent and defines its respective legal status, provides, in its Article 8 (Contract Registration), that cooperation contracts as well as their renewals are subject to registration with IPAD, with such registration being the responsibility of the promoting or implementing entity, directly or through an entity mandated for that purpose, which constitutes a condition for the applicability of the regime provided for in that Law".

g) And the Respondent also cites what is provided for in Article 9 of the same diploma, "regarding the clauses that must be obligatorily included in the cooperation contract, namely: a) Subject matter of the contract; b) Duration and renewal of the contract; c) Remuneration and allowances; d) Method and place of payment; e) Social protection; f) Holidays; g) Accommodation; h) Transportation; i) Insurance; j) Conditions for termination of the contract; l) Exclusivity regime or non-exclusivity; m) Applicable legislation; n) Agreed arbitration forum".

h) And the Respondent further states that, "from the start, it was the very entities that paid income to the Claimant that failed to recognize that such income fell within the scope of a cooperation agreement, in conducting the tax withholding on the income".

i) And it is the "very B, at the request of the Representative of the Public Treasury designated for other proceedings of challenge that the Claimant brought, with identical cause of action in relation to the present arbitral proceeding, that comes to clarify and frame the contractual situation of the Claimant, in accordance with Document no. 1, which is attached and which is given as wholly reproduced for all legal purposes".

j) On the other hand, the Respondent highlights that in the Service Information which constitutes Doc. no. 1, it is stated that "according to our records, Dr. A concluded with the Minister of Education an administrative service contract for teaching, under the combined provisions of Article 33 of the Teaching Career Statute and Article 21 of Decree-Law No. 165/2006, of 11 August, effective as of 1 September 2006, for a period of one year, being successively renewed".

k) And the Respondent further argues that "under that contract, Dr. A exercised duties of teacher of the 1st cycle of Education in the Consular Area of Luxembourg, within the scope of C, as a special modality of school education. As of 1 September 2009, the contract concluded with the aforementioned teacher was automatically converted into a service assignment, for a period of one year, in accordance with No. 5 of Article 3 of Decree-Law No. 165-C/2009, of 28 July".

l) Whereby, the Respondent states that "the contract maintained with Dr. A cannot be subsumed under the concept of cooperation contract to which we have alluded".

m) And the Respondent also highlights what is stated by B when it states that "the Agreement concluded between the Government of the Portuguese Republic and the Government of the Grand Duchy of Luxembourg…was not concluded within the scope of cooperation since there is no question of executing a cooperation action in favor of a recipient country for development assistance, it being merely a cultural agreement".

n) And the Respondent stresses that "as is manifest, the scope of action of Dr. Manuel Neves Rodrigues does not fall within the scope of a cooperation agreement established with Portugal, in as much as Luxembourg has not established development cooperation relations with Portugal, with this country not being found on the CAD list – which it attaches as doc. no. 2".

o) On the other hand, the Respondent states that, according to the same B, the contract concluded with the Claimant does not meet the requirements set out in the aforementioned Articles 8 and 9 of Law No. 13/2004, of 14 April, not being registered in accordance with Article 8, nor containing the obligatory clauses of Article 9 of the same diploma.

p) And even that "the fact that the figure of the service assignment which the Claimant has exercised since 01.09.2009, is not provided for in Law No. 13/2004, of 14 April, whereby, also by this route, the Claimant's claims would be lacking".

q) And the Respondent further adds that "to all of this is added the fact that, in accordance with the aforementioned Article 19 of the Model Convention on Income and Capital, 'salaries, wages and other similar remuneration paid by a Contracting State… to a natural person, in consequence of services rendered to that State, subdivision or authority, are only taxable in that State'".

r) And also that "in accordance with the provisions of Article 2, No. 1 of the EBF, tax benefits are 'measures of exceptional character instituted for the protection of public interests of extra-fiscal relevance that are superior to those of taxation itself that prevent them'".

s) Whereby, the Respondent states that "not finding the conditions for application of Article 39 of the EBF met, as here has been demonstrated, the tax benefit in question cannot be applied to him".

t) And, consequently, the Respondent reinforces that "in this measure, there is no illegality in the assessment act of Personal Income Tax No. 2013 4005 431 777, the present arbitral request should therefore be judged as not substantiated, with the due legal consequences".

u) And it further highlights that "as far as the documents attached by the Claimant are concerned, it is important to note that none of them result in any consistent proof that contradicts the thesis now presented, in particular that attests to the existence of a Cooperation Agreement concluded between Portugal and Luxembourg, that this country is registered on the CAD list, and that the contract(s) concluded by the Claimant meet the requirements of Articles 8 and 9 of Law No. 13/2004, of 14 April".

v) And the Respondent argues that "indeed, doc. 2 attached to the PI, on which we have already pronounced ourselves in point 48, does not constitute a Cooperation Agreement, but merely a Cultural Agreement"…

w) … And that "docs. 3 and 4 attached to the PI clarify nothing regarding the facts at issue in the present proceeding…".

x) And also regarding doc. 5 attached to the PI, this consists of a Cultural Cooperation Programme for the period 2008-2011, concluded between the Portuguese Republic and the Grand Duchy of Luxembourg and, corroborating, moreover, what has already been mentioned here in points 49 and 58, states the same in its preamble that the parties "in application of the Cultural Agreement signed in Lisbon on 12 July 1982', whereby the Respondent's understanding is reinforced in the sense of the non-existence of any Cooperation Agreement between the two countries, in the terms and for the purposes of Law No. 13/2004".

y) And also as to "docs. nos. 6 to 8 attached to the PI, we can immediately conclude that the same do not meet the requirements of Article 9 of Law No. 13/2004…".

z) And, finally, the Respondent states, "that doc. no. 9 attached to the PI consists of a Decree-Law, to which we have moreover referred in Article 47 above, which does nothing more than, in accordance with the preamble itself 'develop and update' Decree-Law No. 165/2006, of 11 August, with nothing resulting from the same that permits concluding in the sense of the Claimant's claim".

aa) And the Respondent highlights that "the same occurs in relation to the other documents attached by the Claimant, which equally fail in the task of demonstrating the existence of a Cooperation Agreement between Portugal and Luxembourg that would permit subsuming the Claimant's contract(s), and applying the tax benefit provided for in Article 39 of the EBF, precisely because such foundation does not exist".

And the Respondent concludes, thus, that the present arbitral request should be judged as not substantiated and that, therefore, in the express terms and other provisions of Law:

"a) The dilatory exception be judged as substantiated by proof; and

b) The present request for arbitral pronouncement be judged as not substantiated and, consequently, the Respondent be absolved of all requests, all with the due legal consequences".

1. REQUEST BY THE CLAIMANT FOR INCLUSION IN THE PROCEEDING OF A PETITION ON THE ALLEGED LACK OF TIMELINESS OF THE ARBITRAL REQUEST

The Claimant, surprised by the Respondent's position regarding the untimeliness of his PI, came to request the Court to include in the files a petition by the Claimant, which the Court accepted, and in which he proceeds to present his response to the exception raised by the Tax Authority, doing so in the following terms and with the following grounds:

4.1 On the alleged lack of timeliness/lapse of the request for arbitral pronouncement

a) He begins by citing the Response given by the Respondent, when it states that the 90-day period which the Claimant had to submit the request for arbitral pronouncement ended on 01.01.2014 and not on 10.02.2014, as the Claimant refers in point 5 of the request.

b) He also cites the conclusion of the Respondent when it states that the present request for arbitral pronouncement is manifestly untimely, with the Claimant's right of action having already lapsed on 07.01.2014 – date of entry of the request into the CAAD.

c) He further states that the Respondent sustains its position, for the purposes of counting the period for submission of the request for arbitral pronouncement, in accordance with the provisions of Article 279 of the Civil Code applicable ex vi Article 20, No. 1 of the CPPT and 29, No. 1, letter a) of the RJAT.

d) But the Claimant states that, however, in light of the tenor of Article 3-A of the RJAT, added by Article 229 of Law No. 66-B/2012, of 31 December, which came into force on 01/01/2013, which came to fill a gap regarding the method of counting periods in arbitral proceedings, he understands that the Tax Authority has no right.

e) And he highlights that this is so because No. 1 of the aforementioned legal provision came to provide that "in arbitral proceedings, periods are counted in accordance with the Code of Administrative Procedure, with the necessary adaptations".

f) And he concludes by stating that "thus, since 01.01.2013, the counting of periods in arbitral proceedings is carried out in accordance with the Code of Administrative Procedure, in accordance with the provisions of No. 1 of Article 3-A of the RJAT".

g) And he further states that "as the request for establishment of an arbitral court is included in Chapter II of the TRJAT, referring to arbitral proceedings, naturally the rule provided for in Article 3-A of the RJAT applies to the counting of periods for submission of the request for establishment of an arbitral court".

h) Thus, the Claimant concludes that "contrary to what the Tax Authority wishes to suggest in its response, Article 279 of the Civil Code (applicable ex-vi Article 20, No. 1 of the CPPT and 29, No. 1, letter a) of the RJAT) does not apply in arbitral proceedings, specifically in the counting of the period for submission of the request for establishment of an Arbitral Court".

i) And the Claimant states this, arguing that "as there exists a special norm in the RJAT regarding the method of counting periods in arbitral proceedings, there is no gap and, for that reason, it makes no sense to resort to the subsidiary law provided for in Article 29 of the RJAT, which as we have seen, only applies to filling gaps in arbitral proceedings".

j) And the Claimant clarifies that the decisions contained in proceedings 35/2012-T and 83/2012-T, cited by the Tax Authority to support its thesis, cannot be relied upon in the present proceeding, as they concern requests submitted before the entry into force of Article 3-A of the RJAT.

k) And the Claimant holds that the fact that this is an arbitral court, such fact does not entail "any modification regarding the nature, modality and method of counting periods, as is extracted from the reading of the RJAT".

l) And the Claimant concludes that since the entry into force of the provision of Article 3-A of the RJAT, there has existed a special provision for counting periods in arbitral proceedings and, therefore, he alleges that it is applicable to the Claimant's request for arbitral establishment.

m) And that, accordingly, the Claimant's request is subject to the provisions of Article 72-A, No. 1 of the Code of Administrative Procedure which he transcribes.

n) And, thus, in accordance with the provisions of Article 10, No. 1, letter a) of the RJAT, combined with No. 2 of Article 102 of the CPPT, the request for arbitral establishment must be submitted within a period of 90 days counted from the act of notification of the assessment.

o) And given that the Claimant was notified on 3/10/2013, the 90-day period, suspended on Saturdays, Sundays and public holidays, by virtue of the provisions of Article 72, No. 1 of the CPA applicable ex vi Article 3-A of the RJAT, ended on 10/02/2014.

p) Whereby the Claimant's request for establishment of the arbitral court, in the case at hand, submitted on 7/01/2014, entered the CAAD within the legal period.

q) And he concludes by affirming that, therefore, the request for establishment of an arbitral court submitted on 07/01/2014 should be considered timely and, consequently, the dilatory exception raised by the Tax Authority should be judged as not substantiated.

1. REQUEST FOR INCLUSION OF THE RESPONDENT'S RESPONSE TO THE CLAIMANT'S REQUEST

5.1 – On the need for Clarification of the Arbitral Dispatch of 23.04.2014

a) The Respondent puts in doubt the meaning of the dispatch issued by the Court when it granted the Claimant's request for inclusion of the same in the files.

b) The Court clarified from the start the meaning of its decision, when it issued the same dispatch, ordering the inclusion in the files of the Respondent's Response Statement, therein highlighting, moreover, that a dispatch such as that which was issued could never refer to the substance of the Claimant's request, even due to the absence of reasoning.

5.2 – On the inadmissibility of the Request

a) The Respondent also raises doubts regarding the granting of inclusion in the files of the Claimant's additional request, considering it inopportune and requesting its removal, for lack of legal provision in the RJAT for its inclusion in the files.

b) The Court did not understand it that way, within the autonomy granted to the Court in accordance with the provisions of letter c) of Article 16 of the RJAT, in the conduct of the proceeding, whereby it maintained the decision, determining notification to the Respondent, to respond, if it wished, to the Claimant's additional request.

5.3 – On the Respondent's Response in the Concrete Case

a) The Respondent comes from the start to respond that the Claimant did not advance any arguments that prevent the dismissal of the aforementioned exception, nor does it introduce any new elements into the files.

b) The Respondent comes to consider devoid of any sense the Claimant's understanding regarding the foundations and purposes of the introduction of Article 3-A into the RJAT by Law No. 66-B/2012, of 31 December, particularly regarding the filling of a gap existing in the RJAT regarding the counting of periods in arbitral proceedings.

c) The Respondent equally contests what is alleged by the Claimant, regarding the fact that its request falls within the chapter of the RJAT denominated "Arbitral Proceedings", which according to the Claimant would be sufficient to conclude that the period for submission of the request for establishment of an arbitral court should be counted in accordance with the provisions of Article 72-A of the CPA.

d) And the Respondent clarifies that the objection to the Claimant's understanding has to do with the fact that, "from the start, Arbitral Proceedings only begin with the request for Establishment of the Arbitral Court, whereby, before the formulation of such request, no arbitral proceedings are underway to which the provisions of Article 3-A, No. 1 of the RJAT could be applied".

e) And the Respondent cites the Commentary of the Illustrious Counselor Jorge Lopes de Sousa on the RJAT:

"Law No. 66-B/2013, of 31 December, came to add Article 3-A, determining the application of the CPA to the periods of arbitral proceedings and the Code of Civil Procedure to arbitral proceedings, and Article 17-A, establishing the suspension of procedural periods in court vacations. With regard to the period for submission of the request for establishment of the arbitral court, provided for in Article 10, being prior to the proceeding, Article 3-A will not apply, but rather the regime of Article 279 of the Civil Code, by referral from Article 29, No. 1, letter a) of the RJAT and Article 20, No. 1 of the CPPT - in Guide to Tax Arbitration, Almedina, 2013, page 174".

f) On the other hand, the Respondent states that this understanding is moreover accompanied by case law, both regarding administrative contentious proceedings regulated by the CPTA, and regarding judicial challenges:

"With the administrative contentious reform introduced by Law No. 15/2002, of 22 February, Article 58 of the CPTA, under the heading 'Periods', establishes, in its No. 3, that 'the counting of the periods referred to in the preceding number follows the regime applicable to periods for bringing actions provided for in the Code of Civil Procedure – in http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/3334do7701ced25380257b1800506e43?OpenDocumentExpandSection=1".

"The period for judicial challenge is a period of substantive nature, of lapse, peremptory, and of official notice at any stage of the proceeding.

In the understanding of the Administrative Supreme Court, the aforementioned rule provided for in the Code of Civil Procedure does not apply to the period for judicial challenge, since this does not have procedural or judicial nature but rather substantive nature, since there is no proceeding yet before the submission of the initial petition for challenge.

Thus, the end of the period for judicial challenge is the loss of the right to challenge judicially – http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/3334do7701ced25380257b1800506e43?OpenDocument&ExpandSection=1&Hoghlight=0,0951%2F12#_Section1".

"II – The period for judicial challenge is of substantive nature, and therefore the provisions of No. 5 of Article 15 of the Code of Civil Procedure are not applicable, of lapse and peremptory.

III – This period is counted in accordance with Article 279 of the Civil Code, 'ex vi' of Article 20 of the CPPT, that is, continuously, without suspensions, in particular in the periods of court vacations, only happening that if the period ends during that period, its end is transferred to the first working day after the vacations – http://www.dgsi.pt/jsta.nsf/0/a7e2a79f60aa0585802574f70038cbff?OpenDocument&ExpandSection=1".

"The period for bringing a judicial challenge is a period of lapse and has substantive nature and as is established in Article 20 of the CPPT, it is counted in accordance with the provisions of Article 279 of the Civil Code and if it ends in a period of court vacations, its end is transferred to the first working day following these vacations – http:/www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/4335ffdd63884b498025791100398edf?OpenDocument&ExpandSection=1"

g) For the foregoing, the Respondent states that, "once more it has been demonstrated that the exception raised by the Tax Authority in its Response must be upheld".

1. WRITTEN ARGUMENTS

6.1 – BY THE CLAIMANT

The Claimant presents his written arguments, which in a systematic manner come to reinforce his arguments in the Arbitral Petition and the Additional Request, of which the following stands out:

6.1.1 – ON THE WRITTEN ARGUMENTS

That the Claimant, throughout the present files, alleges that "he has, through documentary evidence, proven all the facts alleged in the initial petition, as well as demonstrated the legal thesis he sustains, in the sense of demonstrating the illegality of the assessment act now contested".

6.1.2 ON THE EXCEPTION OF LAPSE OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT

a) The Claimant alleges that at the time of the Meeting of Article 18 of the RJAT, held on 8/5/2014, he had not yet been notified of the request submitted on 7/5/2014 by the Tax Authority on the matter of exception.

c) And that notification only occurred on 8/5/2014, after the first Meeting at the CAAD was held.

d) The Claimant highlights that the Tax Authority, "despite admitting that the period for submission of the request for establishment of the Arbitral Court is fixed in Article 10 of the RJAT, in the specific chapter of Arbitral Proceedings and also recognizing the existence of Article 3-A of the RJAT, insists on considering that the counting of the period for submission of the request for arbitral pronouncement is carried out in accordance with the provisions of Article 279 of the Civil Code, applicable ex vi Article 20, No. … of the CPPT and 29, No. 1, letter a) of the RJAT, ignoring in this matter the will of the legislator expressed in the aforementioned Article 3-A of the RJAT".

e) And the Claimant highlights that the Tax Authority considers that "No. 1 of Article 3-A of the RJAT…only applies after the submission of the request for establishment of the Arbitral Court".

f) The Claimant states that he does not agree with the Tax Authority's understanding, since "from the reading of No. 1 of Article 3-A of the RJAT, which establishes the method of counting periods in arbitral proceedings, no justification is drawn for the understanding that this legal provision does not apply to the request for establishment of the Arbitral Court".

g) Especially because, the Claimant highlights, "the legislator at no time, in the Legal Regime of Arbitration, excludes the application of the aforementioned No. 1 of Article 3-A of the RJAT to the request for establishment of the Arbitral Court".

h) Accordingly, the Claimant states that "if the legislator does not exclude that application, it is because he intended for the provisions of Article 3-A, No. 1 of the RJAT to apply to the request for establishment of the Arbitral Court contained in the specific chapter of Arbitral Proceedings".

i) And he concludes, thus, that "the acts to be performed, included in Chapter II of the RJAT – Arbitral Proceedings, including, obviously, the request for establishment of the Arbitral Court, follow the rules of period counting provided for arbitral proceedings contained in Article 3-A, No. 1 of the RJAT".

j) The Claimant further cites Article 9, No. 1 of the Civil Code to reinforce his understanding and the correct interpretation of the law, also citing JOSÉ DE OLIVEIRA ASCENSÃO, in The Law – Introduction and General Theory, 13th Revised Edition, Almedina, p. 396, in reinforcement of his thesis.

k) And he highlights, in contradiction to the understanding defended by the Tax Authority, that "in the RJAT, the legislator clearly distinguishes between arbitral proceedings and arbitral process, when in Chapter II it indicates which acts are included in the proceeding and in Chapter II it fixes the beginning of arbitral process".

l) And, thus, the Claimant concludes that, "as these are distinct realities, we cannot treat them as if they were only one".

m) In reinforcement, the Claimant states that "in Article 29 of the RJAT, the legislator only designates the subsidiary law applicable to gaps/omissions verified in arbitral proceedings".

n) And he disagrees with the Tax Authority regarding the method of counting the period for submission of the request for establishment of the Arbitral Court, when it resorts to the subsidiary law provided for in Article 29 of the RJAT without the existence of any gap that permits it.

o) Also, the Claimant refutes the Tax Authority's reasoning regarding the Supreme Administrative Court rulings which it cites in its Response, as they are not applicable, in his understanding, to the disputed issue.

p) And he concludes that "it is all too evident that the provisions of Article 3-A, No. 1 of the RJAT is applicable to the request for arbitral establishment".

q) And, consequently, given that in accordance with the provisions of Article 10, No. 1, letter a) of the RJAT, combined with Article 102 of the CPPT, the request for arbitral establishment was submitted within 90 days counted from the notification of the assessment act, on 3/10/2013, and

r) Considering the application of the provisions of Article 72, No. 1 of the CPA, applicable ex-vi Article 3-A of the RJAT, [the period] was suspended on Saturdays, Sundays and public holidays, the period thus ended on 10/2/2014, having the PI been submitted within the legal period, whereby it must be considered timely and

s) Consequently, the dilatory exception of lapse of the request for arbitral pronouncement raised by the Tax Authority should be judged as not substantiated.

6.1.3 ON THE VERIFICATION OF THE REQUIREMENTS PROVIDED FOR IN ARTICLE 39 OF THE EBF

Regarding the question of whether the work income received by the Respondent, in the year 2012, in the total amount of € 41,789.52, in his capacity as a teacher in Luxembourg, is applicable the benefit of the exemption under cooperation agreements, provided for in Article 36, No. 1 of the EBF, the Claimant has referred to the documentary evidence and reinforces all the arguments already made in his request for arbitral pronouncement.

a) In fact, the Claimant draws the attention of the Arbitral Court to the cultural cooperation agreement existing between Portugal and Luxembourg and to the teaching programmes in which his area of activity is situated.

b) On the other hand, it also refers to the Declaration issued on 18/3/2013 by the Ministry of Foreign Affairs, B, which states that "the present Claimant "(…) is teacher of the 1st cycle of basic education, code 110, exercising duties in the Consular Area of Luxembourg, since 1 September 2006 to the present date", see doc. no. 13, attached to the PI.

c) In the aforementioned document, "it is further declared that he is currently on a service assignment, in accordance with Decree-Law No. 234/2012, of 30 October".

d) The Claimant does not agree with the Tax Authority's position, when it states that the exemption depends on meeting the requirements contained in Circular Letter No. 2010/2005, of 30 August and Articles nos. 8 and 9 of Law No. 13/2004, of 14 April and the proof of the existence of a cooperation agreement provided for in the aforementioned Law No. 13/2004.

e) And he highlights the fact that the Tax Authority understands that the Claimant has not proven the existence of a cooperation agreement and that the conditions provided for in Articles 8 and 9 of Law No. 13/2004, of 24/4, which the Respondent alleges clarify and concretize the concepts of cooperation agent and cooperation agreement provided for in Article 39, No. 1 of the EBF, are not met.

f) On the other hand, the Claimant states that the Tax Authority is based on the opinion of B, which it attaches, "which goes in the direction that the Claimant cannot benefit from the exemption provided for in Article 39, No. 1 of the EBF, due to the fact that the conditions defined in Articles 8 and 9 of Law No. 13/2004, of 14 April, are not met, particularly due to the fact that Luxembourg is not on the list of public development assistance recipient countries".

g) The Claimant counters, alleging that the application of the exemption provided for in Article 39 of the EBF does not depend on meeting the requirements provided for in Law No. 13/2001, of 14 April, as per the opinion of B.

h) The Claimant highlights that the aforementioned opinion of B was given by a former Tax Authority official, even requesting the inclusion of pages 1 and 2, which are missing from Annex 1 of the aforementioned Opinion.

i) As for the application of the benefit of Article 39 of the EBF, the Claimant again reinforces his arguments in the sense that, such as the Tax Authority "recognized in its Circular Letter No. 20 107 of 30/08/2005, this results directly and immediately from the law, operates by verification of its requirements and does not depend on any recognition act".

j) And the Claimant cites Nuno Sá Gomes and transcribes his understanding on the matter, "in General Theory of Tax Benefits, Caderno de Ciência e Técnica Fiscal, (165, Lisbon, 1191, pages 132 and 133), in which he states that once the legal requirements are verified, these operate automatically "ope lege".

k) And the Claimant highlights that, accordingly, the verification of the requirements listed in No. 1 of Article 39 of the EBF, namely that the taxpayer is transferred abroad under a cooperation agreement, are the only ones on which the application of the tax benefit in question depends.

l) And, therefore, the Claimant alleges that the application of the aforementioned benefit does not depend on meeting the requirements contemplated in Law No. 13/2004, of 14 April, as the Tax Authority argues.

m) And he further alleges that the aforementioned Law 13/2004 "does not clarify and concretize the concepts of cooperation agent and cooperation agreements provided for in Article 39, No. 1 of the EBF".

n) On the other hand, the Claimant argues that "whilst Article 39 of the EBF establishes a benefit for all persons who are transferred under cooperation agreements, regardless of the country in which that action is developed, Law No. 13/2004, Law No. 13/2004, of 14 April, only applies to cooperation agents, being considered as such persons who develop their activity in the countries listed on the CAD list – see Annex 2 of the opinion of B".

o) And the Claimant further highlights that "if the legislator intended that the tax benefit in question applied only to cooperation agents, he would have referred to it expressly".

p) And the Claimant reinforces his understanding in the fact that "the legislator, in Article 39 of the EBF, unlike what occurs in other legal provisions of the EBF, for example in Articles 23, 24, 27, 44 and 52, does not refer to any separate legislation for the purpose of application/delimitation of the tax benefit in question".

q) And the Claimant highlights that it is "these differences that we cannot and should not, according to the rules of good exegesis, ignore".

r) And that is because the meaning and scope of the norm, to which No. 11, No. 1 of the General Tax Law refers, the interpreter must not ignore nor fail to observe the rules and general principles of the Civil Code, in particular Article 9, No. 3, which prescribes "that the legislator established the most correct solutions and that the legislator knew how to express his thinking in adequate terms".

s) And the Claimant argues that B cannot, in its opinion, state "that the scope of action of the Claimant does not fall within the scope of a cooperation agreement established with Portugal, because Luxembourg has not established development cooperation relations with Portugal, (…) by virtue of the elevated levels of development that it has demonstrated".

t) And he further alleges that "if this is so, how is it justified that Portugal maintains a cooperation agreement for development with Sweden (?), see doc. no. 3, which is attached and whose content is given as wholly reproduced for all legal purposes".

u) For all the foregoing, the Claimant argues that "it has been proven, in particular through Documents nos. 2 to 15, that the present Claimant was in the year 2012 transferred to Luxembourg, exercising the activity of a teacher of the Consular area of Luxembourg, under the cooperation agreement concluded between Portugal and Luxembourg, which aims to promote exchange at various levels, in particular at the level of education through the teaching, among others, of courses in integrated regime".

v) And he further highlights that "it has also been proven that the contract concluded between the Respondent and the Ministry of Education, was a contract concluded following the cooperation agreement between the Portuguese State and the Luxembourg State"

w) Whereby it results, the Claimant alleges, that "there remain no doubts regarding the fact that the Claimant is transferred abroad, under an effective cooperation agreement concluded between those States, as required by Article 39, No. 1 of the EBF".

x) Whereby, the Claimant highlights, by attempting to impose, through administrative doctrine, in particular that of Circular Letter No. ..., of 30/8/2005, additional requirements that do not arise from what is established in Article 39, No. 1 of the EBF, this is a violation of the constitutional principle of separation of powers contained in Article 111 of the CRP, as well as the principle of tax legality enshrined in No. 2 of Article 103 of the CRP and the reservation of parliamentary law provided for in its Article 165, No. 1, letter i).

y) And he ends with the conclusion that the assessment act now contested, relating to the Personal Income Tax assessment for the year 2012, should be annulled.

6.2 ARGUMENTS OF THE RESPONDENT

6.2.1 ON THE EXCEPTION OF LAPSE (ARTICLES 10 TO 40 OF THE CLAIMANT'S ARGUMENTS)

a) The Tax Authority alleges that the Claimant has again responded to the exception raised by the Respondent in its Response, despite the fact that at the Meeting held under Article 18 of the RJAT on 8/5/2014, it was said that having the Claimant already responded to the exception in its request of 21/4/2014, its written arguments would cover only the substantive issue at hand in the files.

b) The Respondent alleges that given the position then taken, there is no counterargument to the counterargument!

c) Setting this matter aside, which in the Court's understanding only enriches the files, despite the position taken on this matter, the Respondent reiterates and underscores "that the lapse of the right of action is a dilatory exception which prevents both the continuation of the proceeding and the examination of the request, in accordance with the provisions of Article 89, No. 1, letter h) of the CPTA and Article 278 of the Code of Civil Procedure – CPC, applicable ex vi letters c) and e), respectively, both of Article 29 of the RJAT".

d) It further highlights that "such dilatory exception is insurmountable, since the assessment act whose legality is required by the A. is incapable of being challenged again, by virtue of the aforementioned lapse of the right of action".

e) And it concludes that the Respondent should "in consequence, be absolved of the present proceeding – Article 89, No. 1 of the CPTA and 576, No. 2 of the Code of Civil Procedure, applicable ex vi Article 29, letters c) and e) of the RJAT respectively".

6.2.2 ON THE INADMISSIBILITY OF THE REQUEST FOR ADDITIONAL PROOF AND INCLUSION OF DOCUMENTS (ARTICLES 71 AND DOCUMENTS ATTACHED TO THE CLAIMANT'S ARGUMENTS)

a) The Respondent invokes that the Claimant came to request, in his arguments, "that notification be ordered to B, to proceed with the inclusion of pages 1 and 2, which are missing from the Annex of the aforementioned Opinion".

b) The Respondent alerts to what has already been decided in various proceedings that have run in the CADD, regarding the deduction of facts and inclusion of documents, which can only occur up to the stage of arguments, citing the Arbitral Dispatch of 25/10/2012, in Proc. 75/2012-T, presided over by the Illustrious Counselor Jorge Lopes de Sousa.

6.2.3 ON THE RESPONDENT'S ARGUMENTS REGARDING THE SUBSTANTIVE ISSUE

On this matter, the Respondent again assumes the position of absence of legal foundation of the request regarding the substantive issue.

There are, however, other issues highlighted by the Respondent which it is important to briefly emphasize.

Thus:

a) Contrary to what the Claimant alleges, "the facts which he intended to prove with the inclusion of the documents have been duly contested by the Respondent, whereby the documents in question only prove their content, and not the facts alleged by the Claimant, which form the disputed matter in the proceeding".

b) On the other hand, the Respondent wants to highlight that "it is undeniable that in the present files it is proven that the requirements for the Claimant to be granted 'ope lege' that tax benefit are not met".

c) And that, accordingly, "not being met the predicates for attribution of the tax benefit, cannot, accordingly, arise '…the subjective right to the corresponding benefit' ".

d) What, as the Claimant refers to in Article 71, "…as the benefit in question is, as we have seen, an automatic benefit, its application will depend only on the verification of the requirements therein contained".

e) Now, says the Respondent, that "forcedly and simplistically it will be concluded that not being met the requirements/conditions, as they are not, a matter proven to satiety in the present files, the benefit will not operate nor, consequently, be granted to the Claimant".

And there being no further reasoning which has not already been advanced by the Respondent, any other analysis regarding the substantive issue is unnecessary.

6.2.4 ON THE INFAMOUS INSINUATIONS OF THE CLAIMANT

The Respondent did not wish to refrain from repudiating the content of the Claimant's arguments in its Articles 67 and following, in which "it is insinuated, unusually, the existence of some vicious relationship between a Representative of the Public Treasury (as an official of the Tax Authority who requested the opinion), the legal expert of B (as the author of the opinion) and the Head of the Legal Support and Litigation Division of B (as the signatory of the aforementioned opinion, giving a favorable opinion thereto) and which instructs the present files".

The Respondent states that this unbridled manner of arguing has the manifest intention of diverting the attention of the judge, constituting "a distracting and slanderous maneuver", with use of "injurious and defamatory insinuations" against those "who requested, prepared and put their signature on the documents sub judice", to which, "in light of its seriousness", the Tax Authority alleges that it "reserves the right to bring the same to the attention of the parties involved".

And the Respondent concludes, in the part which the Court considers relevant, that:

i. The dilatory exception raised be judged as substantiated by proof, absolving the Respondent of the Proceeding;

ii. The present request for arbitral pronouncement be judged as not substantiated, absolving the Respondent of the request.

1. ON SANEAMENTO (PROCEDURAL CLARIFICATION)

The Claimant and Respondent chose not to designate an arbitrator, whereby the Ethical Committee of the CAAD proceeded with the designation of arbitrator José Rodrigo de Castro, who was accepted by the parties – Claimant and Tax and Customs Authority.

The Arbitral Court was duly constituted at the CAAD, on 07-03-2014, to examine and decide on the subject matter of the present proceeding, as shown in the respective minutes.

The request is legitimate and was submitted on 7 January 2014, having the Claimant been notified on 03-10-2013 of the Personal Income Tax assessment act 2013 ..., for fiscal year 2012.

By the Respondent, however, the issue of timeliness of the same was raised, which constitutes a dilatory exception to be decided previously, as it may condition, eventually, the judgment of the merits of the case.

There being, therefore, this exception to be decided, it will be examined presently, as a preliminary issue.

1. SUBSTANTIVE LAW ON THE DILATORY EXCEPTION

The essential issue raised by the Respondent in the present files consists in the alleged lack of timeliness of the request for arbitral pronouncement by the Tax and Customs Authority.

The Claimant was notified by the Tax Authority on 3/10/2013 of the assessment act for Personal Income Tax No. 2013 ..., for fiscal year 2012, see doc. no. 1.

The Claimant's request was submitted to the CAAD on 07-10-2014 and accepted on 8/10/2014.

In accordance with the provisions of Article 10, No. 1, letter a) of the RJAT, combined with No. 2 of Article 102 of the Tax Procedure and Process Code (CPPT), the request for establishment of a court must be submitted within a period of 90 days counted from the notification of notification of the assessment act.

The issue that arises, from the start, is the method of counting the period for submission of the request for arbitral pronouncement, (which hereinafter we shall designate as PI), to determine the timeliness or lack of timeliness of the same.

It is therefore necessary to analyze the applicable norms, whether those relating to the Legal Regime of Arbitration (hereinafter designated as RJAT), or those of the Tax Procedure and Process Code (hereinafter designated as CPPT), of the Personal Income Tax Code (hereinafter CIRS), of the Code of Administrative Procedure (hereinafter CPA), of the Civil Code (hereinafter CC) and of the Code of Administrative Court Procedure (hereinafter CPTA) and the established case law and respective doctrine.

Regarding the RJAT, Nos. 1 and 2 of Article 3-A of the RJAT, added by Article 229 of Law No. 66-B/2012, of 31 December, in force since 1 January 2013, provide as follows:

"1 - In arbitral proceedings, periods are counted in accordance with the Code of Administrative Procedure, with the necessary adaptations.

2 – Periods for the performance of acts in arbitral proceedings are counted in accordance with the Code of Civil Procedure".

Further on the RJAT, it provides in its Article 10, No. 1, letter a) the following:

"Article 10 - Request for establishment of arbitral court

1. The request for establishment of the arbitral court is submitted:

a) Within a period of 90 days, counted from the facts provided for in Nos. 1 and 2 of Article 102 of the Tax Procedure and Process Code, regarding acts capable of autonomous challenge and, as well, from the notification of the decision or the legal deadline of the hierarchical appeal decision"

b) (…)".

And further, as relevant, what is provided for in Article 29, No. 1, letter c) of the RJAT:

"Article 29 - Subsidiary law

1 – The following are of subsidiary application to tax arbitral proceedings, in accordance with the nature of omitted cases:

(…)

c) Rules on organization and process in administrative and tax courts;

(…)"

The aforementioned Article 102, No. 1, letter e) of the CPPT states, on the other hand, the following:

"102 - Judicial challenge – Submission period

1. The challenge shall be submitted within a period of three months from the following facts:

(…)

f). Notification of the remaining acts that may be subject of autonomous challenge in accordance with this Code".

As relevant, the following is also transcribed regarding what is provided for in Article 20, Nos. 1 and 2 of the CPPT:

"Article 20 - Counting of periods

1. The periods of tax proceedings and judicial challenge are counted in accordance with Article 279 of the Civil Code.

2. Periods for the performance of acts in judicial proceedings are counted in accordance with the Code of Civil Procedure".

As for what is provided for in the CIRS in its Article 140, No. 4, letter a), this deserves no relevance in terms of transcription, since what is provided therein is not applicable to the case under analysis, as it is not expressly contemplated in the RAJT the method of counting the period for challenge provided for in the CIRS.

Regarding the CPA, let us see what is provided for in No. 1 of Article 72 of the CPA, under the heading "Counting of periods":

"The following rules apply to the counting of periods:

a) The day on which the event occurs from which the period begins to run is not included in the count:

b) The period begins to run regardless of any formalities and is suspended on Saturdays, Sundays and public holidays;

c) The end of a period that falls on a day when the service before which the act must be performed is not open to the public, or does not function during normal hours, is transferred to the next working day".

With regard to Article 9, No. 1 of the CC cited by the Claimant on the method of interpretation of norms, its content is as follows:

"Article 9 - Interpretation of law

1. Interpretation must not be limited to the letter of the law, but must reconstruct the legislative thought from the texts, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied".

With respect to what Article 279 of the CC provides, it provides:

"Article 279 - Calculation of the deadline

For the fixing of the deadline the following rules apply, in case of doubt:

a) If the deadline refers to the beginning, middle or end of the month, it is understood as such, respectively, the first day, the 15th day and the last day of the month; if set at the beginning, middle or end of the year, it is understood, respectively, the first day of the year, the 30th of June and the 31st of December;

b) In counting any period the day is not included, nor the hour, if the period is of hours, in which the event occurs from which the period begins to run;

c) The period set in weeks, months or years, to be counted from a certain date, ends at 24 hours of the day that corresponds, within the last week, month or year, to that date; but, if in the last month there is no corresponding day, the period ends on the last day of that month;

d) It is considered, respectively, as a period of one or two weeks the designated by eight or fifteen days, being considered as a period of one or two days the designated by 24 or 48 hours;

e) The period ending on a Sunday or public holiday is transferred to the first working day; Sundays and public holidays are equated to court vacations, if the act subject to a deadline must be performed in court".

Finally, Article 89, No. 1, letter h) of the CPTA provides as follows:

"89 - Grounds that prevent continuation of the proceeding

1 - For the purposes of the preceding articles, there prevent, in particular, the continuation of the proceeding:

(…)

h). Lapse of the right of action";

(…)

Known as they are the various norms to be considered for the decision of the dilatory exception issue invoked by the Respondent, it is important to analyze their correct application to the case and to render the respective arbitral decision.

The Claimant alleges that his request for arbitral pronouncement is timely, invoking the provisions of Article 72, No. 1 of the CPA applicable ex vi Article 3-A of the RJAT, which leads to the suspension of the submission period on Saturdays, Sundays and public holidays, and invokes the following arguments:

a) That the Tax Authority admits that the period for submission of the request for arbitral pronouncement is fixed in Article 10 of the RJAT.

b) However, despite this and recognizing the existence of Article 3-A of the RJAT, the Tax Authority insists on considering that the counting of the period for submission of the request for arbitral pronouncement is carried out in accordance with Article 279 of the CC, applicable ex vi Article 20 of the CPPT and 29, No. 1, letter a) of the RJAT, ignoring in this matter the will of the legislator expressed in Article 3-A.

c) And it highlights that "the legislator at no time, in the RJAT, excludes the application of the aforementioned No. 1 of Article 3-A to the request for establishment of the arbitral Court".

d) And it further states that "if the legislator did not exclude that application, it is because he understood that the provisions of Article 3-A, No. 1 of the RJAT apply to the request for establishment of the Arbitral Court contained in the specific chapter of 'Arbitral Proceedings'".

e) And it concludes that "thus, the acts to be performed, included in Chapter II of the RJAT – Arbitral Proceedings, including, obviously, the request for establishment of the Arbitral Court, follow the rules of period counting provided for arbitral proceedings contained in Article 3-A, No. 1 of the RJAT".

f) And finally, the Claimant states that "the thesis defended by the Tax Authority has no minimum support in the letter of the law", which from the start, he highlights, "violates all the fundamental rules of good legal interpretation".

For its part, the Respondent presented, in summary, the following arguments which lead it to conclude as to the lack of timeliness of the request for arbitral pronouncement:

a) It begins by confirming that the request for arbitral pronouncement should be submitted within a period of 90 (ninety) days, counted from the date of notification of the assessment act, as results from the combined provisions of Articles 10, No. 1, letter a) of the RJAT and 102, No. 2, letter e) of the Tax Procedure and Process Code (CPPT).

b) And it further states that the provisions of Article 140 of the Personal Income Tax Code (CIRS) are not applicable here, which provides for an initial period of 30 days for the purpose of counting the period for judicial challenge, by virtue of the fact that this is not expressly contemplated in the RJAT.

c) And in reinforcement of its thesis, the Respondent refers to what on the matter states JORGE LOPES DE SOUSA:

"(…) there are norms that provide for special initial deadlines for judicial challenge which are not excepted by Article 10 of the RJAT, which leads to the fact that there is no gap and, for that reason, there is no sense to resort to the subsidiary law provided for in Article 29 of the RJAT, without the existence of any gap that permits it.

(…)"

This Court finds that on the issue of timeliness of the request for establishment of the arbitral court, we are facing a question that has already been the object of decision in tax arbitration, namely in Arbitral Proceeding 35/2012-T, which is dated prior to the entry into force of Article 3-A of the RJAT, i.e., prior to 1 January 2013.

In the cited Proceeding 35/2012-T, the Arbitral Court concluded that the period for bringing the action should be observed according to the rules of Article 279 of the Civil Code, as expressly provided for in No. 1 of Article 20 of the CPPT, as far as judicial challenge is concerned. For that reason, the counting of such period was continuous and was not suspended during court vacations, and the provisions of Article 144 of the Code of Civil Procedure (CPC) were inapplicable.

However, now we face a substantially different situation, which is that after 1 January 2013, the legislator introduced into the RJAT the provision of Article 3-A, which explicitly and categorically states:

"1 - In arbitral proceedings, periods are counted in accordance with the Code of Administrative Procedure, with the necessary adaptations.

2 – Periods for the performance of acts in arbitral proceedings are counted in accordance with the Code of Civil Procedure".

By virtue of the wording of Article 3-A, No. 1 of the RJAT, which clearly and unequivocally states "in arbitral proceedings, periods are counted in accordance with the Code of Administrative Procedure, with the necessary adaptations", the legislator intended, indubitably, to fill a gap regarding the method of period counting in tax arbitration, which, prior to the aforementioned norm, was not explicitly and categorically regulated.

The wording of the norm is explicit and admits no doubts, when it states that "in arbitral proceedings" the periods are to be counted "in accordance with the Code of Administrative Procedure". There is no exclusion of the request for establishment of the arbitral court from the ambit of "arbitral proceedings", for purposes of determining how the period is to be counted.

The legislator had the opportunity to specify and exclude the request for establishment of the arbitral court from the scope of Article 3-A, No. 1, just as it did with the definition of when "arbitral proceedings" begin, in Article 19 of the RJAT, which states:

"Article 19 – Beginning of arbitral proceedings

1 - Arbitral proceedings begin with the request for establishment of the arbitral court, under the terms of Article 10, the presentation of which must be made within the period provided for therein".

However, the legislator did not do so regarding the application of Article 3-A, No. 1 to the request for establishment of the arbitral court, and this omission is indicative of an intention that the norm applies to the entire arbitral proceeding, including the phase prior to the formal beginning of the proceeding, that is, the period in which the request for establishment of the arbitral court is submitted.

Therefore, and interpreting Article 3-A, No. 1 of the RJAT according to the rules of interpretation of law set out in Article 9 of the Civil Code, specifically the provision that "The interpretation must not be limited to the letter of the law, but must reconstruct the legislative thought from the texts, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied", the Court concludes that:

1. The request for establishment of the arbitral court is an integral part of the administrative proceedings and procedural relationships which characterize arbitral proceedings in tax matters;

2. The legislator, by introducing Article 3-A, No. 1 into the RJAT, intended to apply to "arbitral proceedings" the rules of period counting contained in the Code of Administrative Procedure;

3. The request for establishment of the arbitral court is, therefore, an act performed within arbitral proceedings, even though it is the act that initiates the formal procedure;

4. Consequently, the period for submission of the request for establishment of the arbitral court must be counted in accordance with the Code of Administrative Procedure, specifically in accordance with Article 72, No. 1 of the CPA.

Let us see what Article 72, No. 1 of the CPA provides for:

"À contagem dos prazos são aplicáveis as seguintes regras:

a) Não se inclui na contagem o dia em que ocorrer o evento a partir do qual o prazo começa a correr;

b) O prazo começa a correr independentemente de quaisquer formalidades e suspende-se nos sábados, domingos e feriados;

c) O termo do prazo que caia em dia em que o serviço perante o qual deva ser praticado o acto não esteja aberto ao público, ou não funcione durante o período normal, transfere-se para o primeiro dia útil seguinte".

It is verified that rule b) of Article 72, No. 1 of the CPA prescribes that "The period begins to run regardless of any formalities and is suspended on Saturdays, Sundays and public holidays".

Accordingly, in the present case:

1. The Claimant was notified of the assessment act on 3/10/2013;

2. The 90-day period started on 4/10/2013 (the day after notification, as per rule a) of Article 72, No. 1 of the CPA);

3. The period is suspended on Saturdays, Sundays and public holidays;

4. Counting the period according to Article 72, No. 1 of the CPA, with the suspension of the period on Saturdays, Sundays and public holidays, the period ends on 10/02/2014.

5. The Claimant submitted his request for arbitral pronouncement on 7/01/2014.

The request for establishment of the arbitral court was therefore submitted timely, as it was presented before the deadline of 10/02/2014.

Therefore, this Court rejects the dilatory exception of lapse of the right of action raised by the Respondent and judges it as not substantiated.

As a consequence, and since the exception does not prevent the continuation of the proceeding, the Court must proceed to examine the merits of the case.

1. SUBSTANTIVE LAW ON THE MERITS OF THE CASE

On the substantive issue at hand, the Claimant alleges that the income he received in fiscal year 2012, totaling € 41,789.52, as a teacher in the Consular Area of Luxembourg, should benefit from the tax exemption for persons transferred abroad under cooperation agreements, as provided for in Article 39, No. 1 of the Tax Benefits Statute (EBF).

The question to be decided is, therefore, whether the Claimant meets the requirements for benefiting from the exemption provided for in Article 39, No. 1 of the EBF.

The Respondent, for its part, argues that the Claimant does not meet the requirements for the application of the exemption, and that, specifically, it did not prove the existence of a cooperation agreement in the sense required by law, and that the contract entered into between the Claimant and the Portuguese State did not comply with the formal and substantive requirements established in Law No. 13/2004, of 14 April.

Let us examine, therefore, what the law provides for regarding tax benefits for persons transferred abroad under cooperation agreements.

Article 39, No. 1 of the EBF provides:

"1 – Persons transferred abroad under cooperation agreements are exempt from Personal Income Tax, with respect to income received within the scope of the respective agreement."

As can be seen from the reading of this provision, the legislator establishes a simple and objective exemption:

• The exemption applies to "persons transferred abroad";

• "under cooperation agreements";

• with respect to "income received within the scope of the respective agreement".

The norm does not establish any additional requirements, such as, for example, prior recognition by any authority, prior registration with any body, or compliance with formal requirements, which should be verified for the exemption to operate.

The Respondent, however, argues that for the exemption to be granted, it is necessary to verify the requirements of Law No. 13/2004, of 14 April, and specifically Articles 8 and 9 of that Law, which establish formal and substantive requirements for cooperation contracts.

The Respondent invokes, for this purpose, the Circular Letter No. 20,107, of 30 August 2005, issued by the Tax Authority, which states that the exemption applies to cooperation contracts that meet certain requirements, namely:

• Contracts financed by the Portuguese State, promoted or executed by a Portuguese entity of public law or by a private entity with non-profit purposes in beneficiary countries;

• Contracts financed by a State of the European Union, by an international organization or by a specialized agency, provided there is an express recognition of the status of cooperation agent;

• Contracts in which a Portuguese citizen is granted the status of cooperation agent by dispatch of the Minister of Foreign Affairs.

However, the question that must be addressed is: Does the obligation to meet the requirements of Law No. 13/2004 derive from Article 39, No. 1 of the EBF?

The answer, in the judgment of this Court, must be in the negative. Article 39 of the EBF does not refer to Law No. 13/2004, nor does it condition the application of the exemption to compliance with the requirements set out in that Law.

Unlike other provisions of the EBF, such as Articles 23, 24, 27, 44 and 52, which expressly refer to other legislation or which condition the application of the benefit to certain procedural requirements or recognition acts, Article 39, No. 1 does not contain any such reference or condition.

This is an important distinction. When the legislator intends to make the application of a tax benefit conditional on external requirements, it does so expressly, by referring to those requirements in the legal provision establishing the benefit.

In the present case, the legislator did not do so. The legislator simply stated that "Persons transferred abroad under cooperation agreements are exempt from Personal Income Tax", without any additional requirement.

The Respondent's argument, that the exemption is conditional on meeting the requirements of Law No. 13/2004, represents an attempt to impose additional conditions to the operation of a tax benefit that the legislator did not establish.

This is contrary to the principle of tax legality, which is enshrined constitutionally in Article 103, No. 2 of the Constitution of the Portuguese Republic, which states:

"Taxes are created by law, which determines the incidence, rate, benefits and taxpayer guarantees."

It is also contrary to Article 5, No. 1 of the EBF itself, which provides:

"Benefits of an automatic nature, provided they are defined in such a way as to provide certainty regarding their application, do not require prior recognition or act of authorization by the Tax Authority."

The Claimant, therefore, was correct to argue that, as stated in the Tax Authority's own Circular Letter No. 20,107 of 30/08/2005, this benefit is an automatic benefit that "results directly and immediately from the law".

As Nuno Sá Gomes states, quoted by the Claimant:

"Tax benefits are automatic when the right operates 'ope lege', by the simple verification of their respective conditions. In these cases, once the legal conditions of the tax benefit in question are verified, these emerge automatically, 'ope lege' without need for any initiative by the benefited entity or intervention by the Tax Administration."

Accordingly, the application of the exemption provided for in Article 39, No. 1 of the EBF depends solely on the verification of the conditions set out in that provision, namely:

1. That the person is transferred abroad;

2. Under a cooperation agreement;

3. And that the income is received within the scope of that agreement.

Now, has the Claimant proven these three conditions?

As to the first condition – that the Claimant is transferred abroad – this is undisputed and proven by the documents in the files, particularly by the Declaration issued on 18/3/2013 by the Portuguese Ministry of Foreign Affairs, which attests that the Claimant "is teacher of the 1st cycle of basic education, code 110, exercising duties in the Consular Area of Luxembourg, since 1 September 2006 to the present date".

As to the second condition – that the Claimant is transferred under a cooperation agreement – the documents in the files show:

a) The 1982 Cooperation Agreement between Portugal and Luxembourg in the fields of education, science, culture, the arts and sports;

b) The Cultural Cooperation Programme for the period 2008-2011 between Portugal and Luxembourg, which explicitly states, in its preamble, that it is "in application of the Cultural Agreement signed in Lisbon on 12 July 1982";

c) The fact that the Claimant's professional activity in Luxembourg consists of teaching Portuguese language integrated courses, as part of the Luxembourg primary education system, which forms the subject matter of the aforementioned cooperation agreements;

d) Various documents from the Ministry of Foreign Affairs confirming that the Claimant is on a service assignment in the Consular Area of Luxembourg pursuant to the cooperation agreement between Portugal and Luxembourg.

As to the third condition – that the income is received within the scope of the cooperation agreement – the documents in the files show that the Claimant's income derives from his teaching duties as a teacher in the integrated Portuguese language courses in Luxembourg, which are explicitly part of the cooperation programme between the two countries.

Therefore, and in the judgment of this Court, all three conditions of Article 39, No. 1 of the EBF have been met.

The Claimant has proven that he is a person transferred abroad under a cooperation agreement between Portugal and Luxembourg, and that the income he received in fiscal year 2012 was received within the scope of that agreement.

Accordingly, the income in question is exempt from Personal Income Tax, in accordance with Article 39, No. 1 of the EBF.

The argument raised by the Respondent regarding the existence of a cooperation agreement only for development purposes, and that Luxembourg, being a developed country, cannot be a beneficiary of such agreements, is not relevant to the legal analysis.

The Respondent cites the OECD's CAD list (Committee for Development Assistance), on which Luxembourg does not appear, to argue that Luxembourg is not a beneficiary of development cooperation. However, Article 39, No. 1 of the EBF does not restrict the exemption to development cooperation agreements; it applies to any "cooperation agreements" between the Portuguese State and foreign states.

The cooperation agreement between Portugal and Luxembourg is an agreement in the field of education and culture, not a development cooperation agreement in the technical sense. This does not, however, mean that it is not a "cooperation agreement" within the meaning of Article 39 of the EBF.

The norm is generic and applies to any cooperation agreement, without distinction as to its purpose or the development status of the partner country.

Therefore, the Respondent's argument on this point must be rejected.

Furthermore, the argument that the contract between the Claimant and the Portuguese State does not meet the formal and substantive requirements of Law No. 13/2004 is, as we have already established, irrelevant to the application of Article 39, No. 1 of the EBF.

Article 39 does not condition the exemption on compliance with Law No. 13/2004, and therefore the failure to comply with the formal requirements of that Law does not prevent the application of the exemption.

The Respondent's position, that the exemption requires registration with IPAD (Portuguese Institute for Development Support) or compliance with other formal requirements of Law No. 13/2004, represents an attempt to impose administrative requirements that are not established in the law that creates the tax benefit.

This violates the principle of tax legality and the constitutional principle of the separation of powers, as correctly argued by the Claimant.

Therefore, in conclusion:

1. The Claimant is entitled to the exemption provided for in Article 39, No. 1 of the EBF;

2. The income received in fiscal year 2012, totaling € 41,789.52, is exempt from Personal Income Tax;

3. The assessment act that taxed this income is therefore illegal and must be annulled;

4. The Respondent must refund the amount of € 10,059.05 to the Claimant, which corresponds to the difference between the refund he should have received (€ 11,299.11) and the refund he actually received (€ 1,240.06).

DECISION

For all the foregoing reasons, the Arbitral Court decides as follows:

1. To reject the dilatory exception of lapse of the right of action raised by the Respondent, judging it as not substantiated;

2. To annul the Personal Income Tax assessment act No. 2013 ..., for fiscal year 2012;

3. To order the Tax and Customs Authority to refund to the Claimant the amount of € 10,059.05, plus legal interest as provided for in the applicable legislation.

Lisbon, [date]

José Rodrigo de Castro
Arbitrator