Process: 194/2013-T

Date: January 24, 2014

Tax Type: IRS

Source: Original CAAD Decision

Summary

Case 194/2013-T addresses the taxation of capital gains realized by a Portuguese taxpayer who changed fiscal residence to Macau, China before disposing of securities. The claimant changed residence on March 25, 2011, and subsequently sold subscription rights to shares for €480,688.92 on May 30, 2011. Initially filing as a non-resident without declaring the capital gains, the taxpayer later submitted a substitute declaration after notification of inconsistencies, resulting in an IRS assessment of €96,630.83 including compensatory interest. The central dispute concerns whether the claimant qualified for the capital gains exemption under Article 27(1) of the Statute of Tax Benefits (EBF), which exempts non-residents from taxation on gains from securities traded on regulated Portuguese markets. The Tax Administration rejected the exemption claim under Article 27(3)(a) EBF, arguing that the claimant was domiciled in a territory with a clearly more favorable tax regime on the ministerial blacklist, specifically referencing Hong Kong. The claimant contested this determination before the CAAD arbitral court, presenting documentary evidence of genuine tax residence in Macau, including a permanent resident identity card, tax certificates from Macau's Financial Services Direction, professional tax collection notices, and income determination documents showing active taxation in Macau. The case highlights critical issues regarding the timing and authenticity of fiscal residence changes, the application of tax exemptions for non-residents on capital gains, the blacklist exclusion for favorable tax regimes, and the burden of proof required to demonstrate genuine residence abroad rather than tax-motivated domicile changes.

Full Decision

Case no. 194/2013-T

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Prof. Doctor Manuel Pires and Dr. Nuno Azevedo Neves, designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 1-10-2013, agree as follows:

1. Report

A, fiscally represented in Portugal by B, with residence at ..., with Tax Number (NIF) ... (hereinafter also referred to as "Claimant") came, under the provisions of Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters) and of Article 1 and 2 of Order no. 112-A/2011, of 22 March, to request the constitution of a Collective Arbitral Court to rule on the illegality of the tax act no. 2012 ..., with the Compensation number 2012 ..., relating to the income tax (IRS) assessment no. 2012 ... ([1]), concerning the fiscal year 2011, in the total global value of € 96,630.83 (which includes compensatory interest).

The Claimant further requests the restitution of IRS paid in excess as well as compensatory interest.

Pursuant to the provisions of subsection a) of no. 2 of Article 6 and subsection b) of no. 1 of Article 11 of RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated the arbitrators of the collective arbitral court, who communicated their acceptance of the charge within the applicable deadline.

The parties were notified of this designation and did not manifest any willingness to refuse the designation of arbitrators, in accordance with Article 11, no. 1, subsections a) and b), of RJAT and Articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provision of subsection c) of no. 1 of Article 11 of RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral court was constituted on 1-10-2013.

The parties agreed that no meeting as provided for in Article 18 of RJAT should take place and it was decided that the proceedings would continue with simultaneous written submissions.

The parties submitted written arguments.

The arbitral court was regularly constituted and is competent.

The parties have legal capacity and standing and are legitimate (Articles 4 and 10, no. 2, of the same statute and Article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

2. Facts

2.1. Facts considered to be proven

a) On 25-3-2011, the Claimant submitted to the Tax Administration a declaration of change of data in which he changed his residence, which was in Portugal, to the People's Republic of China;

b) On 30-5-2011, the Claimant disposed of, through stock exchange sale, subscription rights to shares of C, for the gross value of € 480,688.92 (page 12 of the document attached to the request for constitution of the arbitral court, the content of which is reproduced herein);

c) The Claimant, through his tax representative in Portugal, submitted on 30-4-2012 a Model 3 IRS declaration, with reference to income subject to taxation in Portugal, relating to 2011, claiming non-resident status, and making no reference to the capital gains obtained from the said disposal of subscription rights;

d) Based on the declaration referred to in the preceding subsection, the IRS assessment no. 2012 ... was carried out, relating to 2011, dated 18-7-2012, in the amount of 7.77, with no payment being required, by application of the provisions of Article 95 of the IRS Code;

e) On 26-7-2012, the Claimant was notified that the income declaration he had submitted relating to the year 2011 had inconsistencies, it having been detected that "the declared capital gains are less than those known, or the shares disposed of do not belong to micro and small enterprises; Other";

f) In consequence, the Claimant submitted a substitute declaration relating to the period in question, claiming non-resident status and including therein, in annex G, the realization value of € 480,688.82, with no acquisition value and with expenses of € 1,251.48;

g) Based on this new declaration, the IRS assessment no. 2012 ... was carried out, dated 10-8-2012 and the Compensation 2012 ..., relating to the fiscal year 2011, from which resulted the amount payable of € 96,630.83 (which includes compensatory interest);

h) On 14-12-2012, a petition for review (reclamação graciosa) was submitted, alleging by the now Claimant, then petitioner, in summary, that the taxation was improper in view of the circumstance that the necessary requirements for the application of the benefit contemplated in Article 27, no. 1, of the Statute of Tax Benefits (EBF) were verified, namely that the capital gains obtained resulted from the disposal of securities issued by an entity resident in Portuguese territory which were traded on a regulated stock market and that the Claimant was not resident in Portugal, but rather had tax residence in the People's Republic of China;

i) The Claimant attached to the petition for review, a copy of an identity card as a permanent resident of the Special Administrative Region of Macau (no. ..., containing the dates of "20-09-1995" and "04-08-2005" and a certified copy of a Declaration issued on 5-11-2012 by the Financial Services Direction of the Special Administrative Region of Macau of the People's Republic of China, subscribed by the Head of the Finance Department of Macau, which constitutes document no. 8 attached to the petition for review, the content of which is reproduced herein, in which the following is stated:

"I certify that A, holder of the Macau Resident Identity Card no. ..., owes nothing to the Special Administrative Region of Macau with respect to contributions and taxes";

j) The declaration referred to in the preceding subsection was issued at the request of the Claimant, the content of which is reproduced herein, in which he requested that it be certified that he was a "taxpayer in individual capacity duly registered with the Government of the Special Administrative Region of Macau of the People's Republic of China and that he is not a debtor of the Public Treasury of the Special Administrative Region of Macau for contributions and taxes, penalties or increases of any contribution or tax in relation to RAEM";

k) A draft decision on the petition for review was prepared, with the Tax Administration services projecting the intention to dismiss the petition presented, on the grounds that the exemption which the now Claimant claimed to enjoy was excluded by virtue of the provisions of subsection a) of no. 3 of Article 27 of the EBF, as the Tax Administration understood that the factual elements that made up the procedure allowed the conclusion that the now Claimant, for the purposes of applying the regime established in Article 27 of the EBF, was a natural person without domicile in Portuguese territory and that he was domiciled in territory subject to "a clearly more favorable tax regime contained in the list approved by order of the Ministry of Finance", specifically Hong Kong (part 2 of the administrative file);

l) In exercise of the right to participate, the now Claimant disagreed with the projected decision, notably by the fact that the Administration had disregarded the proof documents presented and in reinforcement of the documents that had previously been presented, and attached to the petition for review a copy of a "Tax Collection Notice" for Professional Tax, issued on 14-9-2012, and a "Income Determination Notice", dated 15-8-2012, with reference to the year 2011, which appear on pages 64, 65 and 66 of the petition for review, the contents of which are reproduced herein, in which, among other things, the Claimant's address is indicated as "..., Macau";

m) In exercise of the right to be heard, the Claimant protested his intention to attach a new certificate issued by the Government of the Special Administrative Region of Macau – Financial Services Direction, attesting/confirming the tax residence of the now Petitioner in that region;

n) On 24-4-2013, the Claimant attached to the petition for review proceedings a certificate, dated 9-4-2013, a copy of which appears on page 71 of those proceedings, in which the following is stated: "I certify that A, holder of the Macau Resident Identity Card no. ..., owes nothing to the Special Administrative Region of Macau with respect to contributions and taxes";

o) In the request on the basis of which this certificate was issued, the Claimant requested of the Head of the Finance Departments that he "be pleased to order the issuance of a certificate proving that the applicant (...) has his professional domicile duly registered with this department of services, being thereby a FISCAL RESIDENT OF THE SPECIAL ADMINISTRATIVE REGION OF MACAU, where he has been paying his taxes and contributions regularly, in accordance with the law";

p) Subsequently, by decision of 30-4-2013, of the Head of the Administrative Justice Division of the Finance Direction of Lisbon, the petition for review was dismissed, with the grounds proposed in the Final Report no. REC ..., which appears on pages 73 to 75 of the administrative file, the content of which is reproduced herein, and which contains, among other things, the following:

"3.1 The request concerns, as has been seen, the taxation in IRS of capital gains obtained from the stock market sale, on 30/5/2011, of a set of subscription rights to shares of C, in accordance with the substitute declaration no. 1503-J3501-57, of 9/8/2012, submitted by the taxpayer after being notified for that purpose by the Tax and Customs Authority (pages 10, 19, 25 and 53 verso).

3.2 He now claims that in 2011 he benefited from the IRS exemption provided for in Article 27, no. 1, of the EBF regarding the capital gains in question, as he was not resident in Portugal, nor was the situation provided for in no. 3, subsection a), of the same article, verified, given that he resided in the People's Republic of China.

He states that Macau is not included in the list approved by Order no. 292/2011, of 8/11, of countries, territories and regions with clearly more favorable privileged tax regimes (petition, Articles 20 and 21)

He attaches to his petition, by photocopy, among other elements:

  • Declaration issued on 12/1/2012 by C for purposes of Article 125 of the IRS Code, where the said operation of disposal of subscription rights to shares is included (pages 25 and 26);

  • Print of the tax authority portal regarding the taxpayer's data (pages 27 and 28);

  • Identity card as a permanent resident of the Special Administrative Region of Macau no. ..., with the dates of 20/9/1995 and 4/8/2005 (page 29);

  • Document issued on 5/11/2012 by the Financial Services Direction of the Special Administrative Region of Macau certifying that the taxpayer owes nothing to that Region "with respect to contributions and taxes" (page 32);

(...)

3.4 It follows from the elements attached to the file that the now petitioner presented the first Model 3 IRS declaration relating to 2011 (no. ..., of 30/4/2012), as well as the substitute declaration (no. ..., of 9/8/2012), indicating the status of "non-resident" (pages 20 and 43).

It also appears that on 25/3/2011 he submitted a declaration of change of data (no. ...), where the residence (which until then was in Portugal) was changed to abroad, indicating as country of residence the People's Republic of China (pages 44 and 45).

This means that on 30/5/2011, the date of the stock market disposal of the securities and in accordance with the elements mentioned, the taxpayer was fiscally resident abroad in the People's Republic of China.

However, the document of change of data did not indicate whether the place of residence was in any of the special administrative regions of the People's Republic of China — in Macau, or in Hong Kong, being the latter the territory of his birth -- or, possibly, in more than one region of that country (page 44).

3.5 The declaration of C, where the sale of the said securities appears, issued for purposes of Article 125 of the IRS Code, is addressed to the now petitioner to an address in Hong Kong (...), which allows one to suppose that he had domicile there (page 25).

Now, just as Macau, Hong Kong, also with the status of special administrative region, is part of the People's Republic of China, which the taxpayer identifies as his country of residence.

Unlike Macau, however, Hong Kong is included in the list of countries, territories and regions with clearly more favorable privileged tax regimes approved by Order no. 292/2011.

Furthermore, in 2011 the Agreement between the Portuguese Republic and the Special Administrative Region of Hong Kong to Avoid Double Taxation and Prevent Tax Evasion in Matters of Income Taxes was not yet in force, which would only happen on 3/6/2012, in accordance with the respective Article 28, no. 1 (see Notice 53/2012, of 1/6/2012, of the Ministry of Foreign Affairs, and Resolution of the National Assembly no. 49/2012, of 16/4)

3.6 The possession of the identity card as a permanent resident of the Special Administrative Region of Macau, as well as the declaration that he is not a tax debtor of this Region, are not incompatible with domicile in Hong Kong.

It seems, in sum, to be excluded, by virtue of the provisions of Article 27, no. 3, subsection a), of the EBF, the right to the exemption established in no. 1 of the same article, and therefore the assessed taxation should be considered legal.

Because the tax assessment was "delayed" by "fact attributable to the taxpayer", the assessment of compensatory interest must also be considered legal, in accordance with Article 35, no. 1, of the General Tax Law (LGT).

  1. Prior Hearing. Conclusion

4.1 Notified to pronounce himself prior to the decision on the proceedings, the petitioner responded by sending the document on pages 59 to 63, where he expresses his disagreement regarding the projected decision.

He expresses his conviction that there are no "disagreements regarding the applicable legislation and its interpretation" and that "it is only a matter of proof of the residence of the now Petitioner in the People's Republic of China — Special Administrative Region of Macau" (response, Article 5).

To prove this fact, he now attaches the documents issued in his name by the tax administration of the Special Administrative Region of Macau regarding the "notice of income determination" and the "notice of receipt" of professional tax of 2011.

And he protests his intention to attach a "new certificate" issued also by the Special Administrative Region of Macau "attesting/confirming the tax residence of the now Petitioner in that region" (page 61).

It so happens that, pursuant to the norm of the EBF cited above, the projected dismissal is based on the fact that the petitioner has domicile in Hong Kong, in accordance with the evidence in the file. He is domiciled there: this is the expression used in the EBF, without any qualification.

For this reason, as is clear from the projected decision and contrary to what the petitioner claims, it is not a matter at issue in the file of his status as a permanent resident in the Special Administrative Region of Macau or his taxation in this Region. Neither is it a matter at issue his birth in Hong Kong (points 3.5 and 3.6).

In the projected decision it was not excluded that the petitioner was a permanent resident in Macau. What was said was that the possession of the identity card as a permanent resident of the Special Administrative Region of Macau, as well as the declaration that he is not a tax debtor of this Region, are not incompatible with domicile in Hong Kong" (see above point 3.6).

In fact, the law admits that a person may have more than one domicile. It also admits the existence of more than one place of residence (see Civil Code, Articles 82 to 84).

It is not seen, therefore, to be of interest for the decision on the proceedings the documents attached to the file with which one seeks to prove that the petitioner is resident in the Special Administrative Region of Macau, that he is taxed there, and that he is not a debtor of that Region "with respect to contributions or taxes" (pages 29, 32, 64 to 66 and 71).

4.2 In light of the above, and in conclusion, the present petition for review should be dismissed.";

q) In the Portuguese Passport of which the Claimant is the holder, issued on 25-8-2005, his residence is indicated as "Macau (China)" (annex 4 to the request for arbitral pronouncement, the content of which is reproduced herein);

r) In a deed executed on 10-3-2006, the attorney who intervened in representation of the Claimant declared that he resided at ..., in Macau (annex 2 to the Report of the Inspection contained in "Document no. 2 1st part.pdf", attached with the response of the Tax and Customs Authority, the content of which is reproduced herein);

s) In a deed executed on 12-12-2008, the attorney who intervened in representation of the Claimant indicated that he resided in "Hong Kong, at ..., People's Republic of China" (annex 3 to the Report of the Inspection contained in "Document no. 2 1st part.pdf", attached with the response of the Tax and Customs Authority, the content of which is reproduced herein);

t) C, the entity holding the securities, sent to the Claimant the declaration of "Registration or Deposit of Securities" relating to the year 2011, to the address "..., Hong Kong" (page 25 of the administrative file);

u) The Claimant paid the amount assessed, through a check whose copy appears in annex 5 to the request for arbitral pronouncement, the content of which is reproduced herein.

2.2. Facts not proven

It was not proven that the Claimant had habitual residence in Macau on 30-5-2011 or subsequently until the end of that year.

2.3. Grounds for the decision on the facts

The establishment of facts was based on the administrative file, on the documents attached to the initial petition, on statements of the Claimant which are not contested by the Tax and Customs Authority.

3. Determination of the Merits

3.1. The issue to be determined

At issue in the present proceedings is the question of whether the Claimant may enjoy the benefit provided for in Article 27, no. 1, of the Statute of Tax Benefits (EBF), with regard to capital gains resulting from the disposal of securities obtained in the year 2011.

Article 27 of the Statute of Tax Benefits, in the wording in force in 2011, established the following:

Article 27

Capital gains realized by non-residents

1 – Capital gains realized through the paid transfer of shares, other securities, autonomous warrants issued by entities resident in Portuguese territory and traded on regulated stock markets and derivative financial instruments traded on regulated stock markets are exempt from IRS and IRC, by entities or natural persons that do not have domicile in Portuguese territory and there do not possess a permanent establishment to which the same are attributable.

2 – The provision in the preceding number is not applicable:

a) To non-resident entities without a permanent establishment in Portuguese territory which are held, directly or indirectly, more than 25%, by resident entities;

b) To non-resident entities without a permanent establishment in Portuguese territory which are domiciled in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by order of the Minister of Finance or with which an agreement to avoid international double taxation or an agreement on exchange of information in tax matters is not in force; (Wording of Law no. 55-A/2010, of 31 December)

c) To capital gains realized by non-resident entities through the paid transfer of shares in resident companies in Portuguese territory whose assets consist, more than 50%, of real property situated there or which, being management companies or holders of shareholdings, are in a relationship of control, as defined in Article 13 of the General Regime of Credit Institutions and Financial Institutions, approved by Decree-Law no. 298/92, of 31 December, as dominant, with dominated companies, equally resident in Portuguese territory, whose assets consist, more than 50%, of real property situated there.

3 – The provision in no. 1 is further not applicable:

a) To non-resident natural persons without a permanent establishment in Portuguese territory which are domiciled in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by order of the Minister of Finance or with which an agreement to avoid international double taxation or an agreement on exchange of information in tax matters is not in force; (Wording of Law no. 55-A/2010, of 31 December)

b) To capital gains realized by natural persons through the paid transfer of shares in resident companies in Portuguese territory whose assets consist, more than 50%, of real property situated there or which, being management companies or holders of shareholdings, are in a relationship of control, as defined in Article 13 of the General Regime of Credit Institutions and Financial Institutions, approved by Decree-Law no. 298/92, of 31 December, as dominant, with dominated companies, equally resident in Portuguese territory, whose assets consist, more than 50%, of real property situated there.

In the case in question, it is not disputed that the requirements for the exemption required by no. 1 of this Article 27 are met:

– the capital gains were realized through the paid transfer of securities;

– these securities were issued by an entity resident in Portuguese territory;

– these securities were traded on a regulated stock market;

– the Claimant did not have domicile in Portuguese territory nor did he possess a permanent establishment to which the capital gains were attributable.

The controversy is based solely on disagreement between the Claimant and the Tax Administration regarding the verification of the negative requirement provided for in subsection a) of no. 3 of this Article 27, which is that the taxpayer, a natural person, is not domiciled "in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by order of the Minister of Finance".

In the case in question, the Tax Administration understands that, in the year 2011, the Claimant was domiciled in Hong Kong, which was part of the "list of countries, territories and regions with clearly more favorable privileged tax regimes", which appears in Order no. 292/2011, of 8 November (the same applies to the previous list, published by Order no. 150/2004, of 13 February). For this reason, the Tax Administration understood that the Claimant does not benefit from the referred exemption.

The Claimant argues that, in the year 2011 he was domiciled in the Special Administrative Region of Macau, which is part of the People's Republic of China, and is not included in the referred list. For this reason, the Claimant understands that he benefits from the exemption.

Thus, the essential issue to be decided is whether, in light of the evidence produced, the Claimant should be considered to be domiciled or not in Hong Kong.

3.2. Concept of domicile

The Civil Code, in its Articles 82 to 86, defines various concepts of domicile: general voluntary domicile; professional domicile; elective domicile; legal domicile of minors and interdicted persons; legal domicile of public employees; legal domicile of Portuguese diplomatic agents.

However, the General Tax Law (LGT) also contains concepts of "tax domicile" in its Article 19.

By virtue of the provision in Article 11, no. 2, of the LGT, "whenever, in tax provisions, terms specific to other branches of law are used, they must be interpreted in the same sense as they have there, unless otherwise directly follows from the law".

By providing the tax law with its own concepts of domicile, it must be understood that it directly follows from the law that the concepts provided for in the Civil Code are not applicable, to the extent that they are provided for in that law.

In truth, the scope of the LGT establishing its own concepts of domicile for tax purposes cannot fail to be the exclusion of the application of the concepts provided for in the Civil Code, to the extent that they are contradicted by the tax concepts.

Article 19, no. 1, subsection a), of the General Tax Law establishes, unless otherwise provided, that the tax domicile of the taxpayer is, for natural persons, the place of habitual residence, which means that there is coincidence between this tax concept and the basic concept of general voluntary domicile, which appears in the first part of no. 1 of Article 82 of the Civil Code, which establishes that "a person has domicile in the place of his habitual residence".

There was no legal provision in force in 2011 that could be applicable to the situation in question which provided otherwise than what is established in that norm of the LGT, whereby, in light of the equation of habitual residence to tax domicile, it must be concluded that the expression "which are domiciled in a country, territory or region subject to a clearly more favorable tax regime" must be interpreted as meaning "which habitually reside in a country, territory or region subject to a clearly more favorable tax regime".

On the other hand, the will of the taxpayer is not relevant to exclude the location of tax domicile in the place of habitual residence, as follows from the fact that it is established that "the tax administration may officially correct the tax domicile of taxpayers if this follows from the elements at its disposal" (no. 8 of Article 19 of the LGT, in the wording of Law no. 64-B/2011, of 30 December, which was previously no. 6).

As habitual residence is considered "the place where the person lives", the "place or location where he has established the center of his life and with which he is in connection" ([2]), a concept which is distinguished from professional domicile, which is the place where the profession is exercised (Article 83, no. 1, of the Civil Code) and from elective domicile, which is that stipulated for certain transactions (Article 84 of the Civil Code).

Thus, for purposes of the case in question, the domicile of the Claimant must be considered to be his habitual residence, by virtue of the provision in Article 19, no. 1, subsection a), of the LGT.

3.3. The burden of proof of the requirements of the tax benefit

Article 74, no. 1, of the LGT establishes that "the burden of proof of facts constitutive of the rights of the tax administration or of taxpayers falls upon whoever invokes them".

In the specific case of tax benefits, Article 14, no. 2, of the LGT establishes that "holders of tax benefits of any nature are always obliged to disclose or authorize the disclosure to the tax administration of the requirements for their grant, or to comply with other obligations provided for in the law or in the instrument granting the benefit, namely those relating to taxes on income, expenditure or wealth, or to the rules of the social security system, under penalty of the said benefits becoming void".

From this norm it follows that the burden of proof of the requirements of tax benefits falls upon taxpayers and is materialized through the disclosure of those requirements or authorization for them to be disclosed to the Tax Administration.

In the absence of compliance with that burden, the tax benefits become void, as stated in the final part of that no. 2 of Article 14.

Article 65 of the Code of Tax Procedure and Process (CPPT) confirms this conclusion by establishing, in its no. 1, that "unless otherwise provided and without prejudice to the rights resulting from the binding information referred to in no. 1 of Article 57, the recognition of tax benefits depends on the initiative of the interested parties, through a request addressed specifically for that purpose, the calculation, when mandatory, of the benefit requested and proof of the verification of the requirements for recognition in accordance with the law" and, in its no. 5, that "the maintenance of the effects of recognition of the benefit depend on the taxpayer providing the tax administration with all elements necessary to control its requirements which it does not have".

It follows, thus, from these norms that, in cases where the Tax Administration does not have elements of proof of tax benefits, it is the taxpayer who must provide them, "under penalty of the said benefits becoming void", as determined by the final part of no. 2 of Article 14 of the LGT.

Although these rules are provided for in tax procedures, their content must be transposed to the judicial proceedings which follow them, so that whoever had the burden of proof of certain facts in the tax procedure has the respective burden in the judicial proceedings. ([3])

On the other hand, although Article 100, no. 1, of the CPPT establishes the rule that "whenever the evidence produced results in well-founded doubt about the existence and quantification of the tax fact, the challenged act should be annulled", in the cases of the requirements of tax benefits one is not facing a situation directly encompassed here, as it relates only to proof of the existence of the tax fact and its quantification and not to exemptions.

The tax fact is the legal fact constitutive of the tax obligation and "exemption has the legal nature of an autonomous and original imperative fact and not a negative delimitation of the constitutive fact". ([4])

Furthermore, that rule of Article 100, no. 1, of the CPPT has the nature of a general norm on the burden of proof in proceedings of a judicial nature, whereby it must yield before special norms on that matter, as is the case with the norms referred to on the burden of proof in tax benefits matters. In cases where there are special norms on the burden of proof which place it on the taxpayer in the tax procedure, it must be understood that it is also imposed on him in the judicial proceedings, as the weighing of interests, based on rules of normalcy, which justifies the distribution of the burden of proof in the tax procedure is the same that must be done in judicial proceedings, and, for this reason, "the criterion of distribution should be the same, as imposed by the coherence of values and axiological content imposed by the principle of unity of the legal system, which is the primary element of legal interpretation (Article 9, no. 1, of the Civil Code). In fact, it would not be understood that, on the basis of a certain criterion on the burden of proof, the tax administration would be led to practice a tax assessment act (which, in light of this criterion, would be legal), only to afterwards, in the judicial proceedings, reverse the burden of proof on the same facts, leading the court to decree the annulment of that act, for illegality embodied in error about the factual requirements, without any change in the factual matter occurring". ([5])

For this reason, in the case in question, the burden of proof of the Claimant being domiciled in a country, territory or region not subject to a clearly more favorable tax regime being a requirement of the tax benefit, it is on him that the burden of proof of that residence falls.

3.4. The proof of the Claimant's residence

The Claimant, following a notification from the Tax Administration, which communicated that there was a discrepancy between the income declared by the Claimant relating to the year 2011 and that known to it, presented a substitute declaration in which he included the capital gains referred to, resulting from the disposal of securities.

Based on that declaration the assessment and compensation whose illegality is discussed in the present proceedings was carried out.

The Claimant contested administratively that assessment and compensation, through a petition for review, defending that the requirements for the exemption provided for in Article 27, no. 1, of the EBF were met, namely because he was resident in the Special Administrative Region of Macau, of the People's Republic of China.

The Claimant presented in the petition for review, as proof elements of this residence, the following documents:

– copy of an identity card as a permanent resident in the Special Administrative Region of Macau (no. ..., containing the dates of "20-09-1995" and "04-08-2005";

– certified copy of a Declaration issued on 5-11-2012 by the Financial Services Direction of the Special Administrative Region of Macau of the People's Republic of China, subscribed by the Head of the Finance Department of Macau, in which the following is stated: "I certify that A, holder of the Macau Resident Identity Card no. ..., owes nothing to the Special Administrative Region of Macau with respect to contributions and taxes"; this certificate was issued at the request of the Claimant, in which he requested that it be certified that he was a "taxpayer in individual capacity duly registered with the Government of the Special Administrative Region of Macau of the People's Republic of China and that he is not a debtor of the Public Treasury of the Special Administrative Region of Macau for contributions and taxes, penalties or increases of any contribution or tax in relation to RAEM";

– a certificate, dated 9-4-2013, issued following a request submitted by the Claimant to the Head of the Finance Departments in which he requested that the same "be pleased to order the issuance of a certificate proving that the applicant (...) has his professional domicile duly registered with this department of services, being thereby a FISCAL RESIDENT OF THE SPECIAL ADMINISTRATIVE REGION OF MACAU, where he has been paying his taxes and contributions regularly, in accordance with the law", a certificate in which the following is stated: "I certify that A, holder of the Macau Resident Identity Card no. ..., owes nothing to the Special Administrative Region of Macau with respect to contributions and taxes";

– copy of a "Tax Collection Notice" for Professional Tax, issued on 14-9-2012, and a "Notice of Income Determination", dated 15-8-2012, with reference to the year 2011, in which, among other things, the Claimant's address is indicated as "... , Macau".

A copy of a page of the Claimant's passport, issued in 2005, in which residence in Macau is mentioned, was also attached to the present proceedings.

None of these documents allow one to consider it proven that the Claimant habitually resided in the Special Administrative Region of Macau in the year 2011.

In truth, the Identity Card as a permanent resident in Macau was renewed in 2005, the same year in which the passport was also issued, and it is demonstrated that, after that date, the Claimant resided in Portugal. ([6]) For this reason, what can be inferred from the said Identity Card and the passport is that, in the year 2005, the Claimant would have had permanent residence in Macau. The fact that they are official documents, with the inherent presumption of truthfulness, only ensures that what is stated in them is true at the moment they were issued or updated, but not indefinitely.

With regard to the certificates issued by the Head of the Finance Departments of Macau, in addition to relating to the years 2012 and 2013 and not 2011, it is found that in none of them is it certified that the Claimant resided in Macau, as only that he had no tax debts is certified. With regard to the first certificate, the Claimant did not even request to be certified that he had the status of resident in Macau, having instead requested, in the request that gave rise to the issuance of the certificate, that it be certified that he was an "individual taxpayer duly registered with the Government of the Special Administrative Region of Macau of the People's Republic of China".

As for the second certificate, issued following a request in which it was requested that it be certified that "he has his professional domicile duly registered with this department of services, being thereby a FISCAL RESIDENT OF THE SPECIAL ADMINISTRATIVE REGION OF MACAU, where he has been paying his taxes and contributions regularly, in accordance with the law", only that "he owes nothing to the Special Administrative Region of Macau with respect to contributions and taxes" was certified.

It is to be noted that the Claimant, in none of these requests for certificates invoked the status of habitual resident in Macau, only asserting that he was a "taxpayer in individual capacity duly registered" there and had "his professional domicile duly registered", which, obviously, is different from having habitual residence there.

On the other hand, in the context in which the said requests for certificates were presented, which is that of the Claimant having need to demonstrate before the Portuguese Tax Administration that he resided in Macau (the second request was presented following the notification for prior hearing in which the Tax Administration put in question that the Claimant resided in Macau), the fact that in none of them he asserted that he resided there, but only that he was registered as a taxpayer there and had professional domicile there, clearly point to the conclusion that the Claimant did not reside in Macau, as, if he resided there it was natural that he would invoke that status, which was what he needed to demonstrate, in light of the concept of domicile adopted in subsection a) of no. 1 of Article 19 of the LGT.

As for the receipt of collection and notice of income determination in Macau relating to the year 2011, neither do they prove that the Claimant had residence in Macau in that year, as they are compatible with what the Claimant stated when requesting the certificates, which was being a taxpayer there and having professional domicile there.

On the other hand, common experience allows one to conclude that it is extremely easy for a person with the high economic situation of the Claimant (which is inferred from the level of income earned in 2011) to prove habitual residence, namely through non-professional correspondence normally associated with the maintenance of a residence, such as, for example, contracts and invoices or receipts relating to the supply of water and electricity or provision of services or purchase of goods. That ease of proof of residence through documents of those types justifies concluding that its absence is due to the fact that the Claimant did not have residence in Macau in the year 2011, as, if he had, it would be normal that he presented proof of that type. In truth, if it is true that the place where one receives personal correspondence is not necessarily that of residence, it is also true that normally it is so, whereby on the basis of the rules of life and common experience one can infer the existence of habitual residence on the basis of proof of the receipt of correspondence of that type, if there are no other evidentiary elements pointing in the contrary sense.

On the other hand, it also corroborates the conclusion that the Claimant did not have residence in Macau the fact that he failed to obtain any statement from public authorities to that effect, despite having sought to obtain one, as the Claimant himself stated when pronouncing himself in exercise of the right to be heard [subsection m) of the facts fixed].

In addition to there being no elements proving the Claimant's thesis that, in the year 2011, he resided in Macau, the fact that it was to an address located in Hong Kong that the banking declaration relating to the registration and deposit of securities, referring to the year 2011, was sent, points to the Claimant, in that year, residing in Hong Kong.

On the other hand, the facts that the residence of the Claimant was indicated in this banking declaration also point to the Claimant's residence being as indicated, the facts that in the deed executed in 2006, referred to in subsection r) of the facts fixed, it was indicated that the now Claimant resided in Macau, but in the deed executed in 2008, referred to in subsection s) of the facts fixed, his residence was indicated as Hong Kong, which is the one indicated in the said banking declaration.

The conclusion to which such facts objectively lead is that the Claimant had residence in Macau in 2005 (as appears in the Identity Card and the passport) and at least until 2006 [as is referred to in the deed referred to in subsection r) of the facts fixed], but, afterwards, he ceased to reside there, coming to have residence in Hong Kong, at least already on 12-12-2008, in the place where he maintained residence in 2011.

For this reason, in light of the evidence produced, it is to be concluded that the Claimant, in the year 2011, had residence in Hong Kong and did not have it in Macau.

In any case, even if it were not considered proven that the Claimant resided in Hong Kong, it is unequivocal that the Claimant did not prove that, in 2011, he did not reside in Hong Kong nor in any other foreign territory indicated in Order no. 292/2011, of 8 November (or in the preceding Order no. 150/2004, of 13 February), whereby, the burden of proof of the negative requirement of the tax benefit provided for in subsection b) of no. 3 of Article 27 of the EBF falling on the Claimant, the doubt that could exist regarding the Claimant's residence would always have to be procedurally assessed against him and not to his favor.

Thus, the illegality of the assessment and compensation act which is the subject of the request for arbitral pronouncement is not demonstrated, whereby this must be judged to be without merit, as must also the requests for restitution of the amount paid and payment of compensatory interest, which depend on the illegality of that act.

4. Decision

In light of the foregoing, this Arbitral Court agrees to:

a) Judge without merit the request for declaration of illegality of the tax act no. 2012 ..., with the Compensation number 2012 ..., relating to the IRS assessment no. 2012 ..., concerning the fiscal year 2011, in the total global value of € 96,630.83;

b) Judge without merit the request for restitution of the amount assessed, paid by the Claimant;

c) Judge without merit the request for payment of compensatory interest.

5. Value of the case

In accordance with the provision in Article 315, no. 2, of the CPC and 97-A, no. 1, subsection a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 96,630.83.

6. Costs

In accordance with Article 22, no. 4, of RJAT, the amount of costs is fixed at € 2,754.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 24 January 2014

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Manuel Pires)

(Nuno Azevedo Neves)

([1]) This is the number of the assessment, as seen from page 2 of the document attached by the Claimant.

([2]) CASTRO MENDES, General Theory of Civil Law, volume I, 1978, page 195.

In the same sense, LUÍS CARVALHO FERNANDES, General Theory of Civil Law, volume I, part I, 1983, page 360.

([3]) In this sense, see the decisions of the Supreme Administrative Court of 24-10-2007, case no. 479/07; of 20-10-2010, case no. 495/10; and of 28-9-2011, case no. 494/11.

([4]) In this sense, ALBERTO XAVIER, Manual of Tax Law, I, 1981, pages 247 and 282.

([5]) Decision of the Supreme Administrative Court of 24-10-2007, case no. 479/07.

([6]) And also in Hong Kong, as will be mentioned below.

Frequently Asked Questions

Automatically Created

How are capital gains from the sale of shares taxed for non-residents in Portugal under IRS?
Capital gains from the sale of shares by non-residents in Portugal are generally subject to IRS taxation. However, Article 27(1) of the Statute of Tax Benefits (EBF) provides an exemption for non-residents on capital gains derived from the disposal of securities issued by entities resident in Portugal and traded on regulated markets. This exemption does not apply under Article 27(3)(a) EBF if the non-resident is domiciled in a territory subject to a clearly more favorable tax regime included in the ministerial blacklist. Non-residents must prove their tax residence status in the foreign jurisdiction and demonstrate they do not fall within the blacklist exclusion to benefit from the exemption.
What is the relevance of fiscal domicile change when determining IRS liability on capital gains?
Fiscal domicile change is critical in determining IRS liability on capital gains because it establishes whether the taxpayer qualifies as a resident or non-resident at the time of the capital gain realization. The timing of the residence change relative to the disposal of assets determines the applicable tax regime and potential exemptions. Taxpayers must formally notify the Tax Administration of residence changes and provide substantive evidence of genuine establishment of tax residence abroad, including proof of registration with foreign tax authorities, payment of taxes in the new jurisdiction, and actual physical presence. Portuguese authorities scrutinize residence changes to distinguish genuine relocations from tax-motivated arrangements, particularly when the new residence is in a favorable tax regime jurisdiction.
Can a taxpayer who moved residence abroad during the tax year be taxed as a resident on capital gains in Portugal?
Yes, a taxpayer who moved residence abroad during the tax year can potentially be taxed as a non-resident on capital gains realized after the residence change, provided they can prove genuine establishment of tax domicile in the foreign country. The key factors include the effective date of the residence change, formal notification to Portuguese tax authorities, and substantive evidence of ties to the new jurisdiction. However, if the new residence is in a blacklisted favorable tax regime territory under Article 27(3)(a) EBF, the capital gains exemption for non-residents will not apply, and taxation may still occur. Tax authorities examine whether the residence change was legitimate or primarily tax-motivated, requiring documentation such as foreign tax registration, tax payment proof, and evidence of economic and personal ties to the new country.
What is the CAAD arbitration procedure for challenging an IRS tax assessment on capital gains?
The CAAD (Centre for Administrative Arbitration) arbitration procedure for challenging an IRS tax assessment on capital gains is initiated under Decree-Law 10/2011 and Order 112-A/2011. The taxpayer submits a request for constitution of an arbitral court, specifying the contested tax act and assessment. The CAAD Ethics Council designates arbitrators to form a collective or singular arbitral court depending on the claim amount. Parties are notified of arbitrator designations and may refuse within legal deadlines. Once constituted, proceedings typically involve written submissions from both parties, though oral hearings may occur. The procedure allows challenges to the legality of tax assessments, with taxpayers able to request restitution of excess taxes paid plus compensatory interest. The arbitral decision is binding and enforceable, subject to limited grounds for annulment before administrative courts.
Are compensatory interest and indemnity interest applicable in IRS capital gains disputes before the CAAD?
Yes, both compensatory interest and indemnity interest are applicable in IRS capital gains disputes before the CAAD. Compensatory interest is charged by the Tax Administration on late tax payments and is included in the tax assessment amount, as seen in this case where €96,630.83 included compensatory interest under Article 95 of the IRS Code. Conversely, if the taxpayer prevails in arbitration and the tax assessment is deemed illegal, the taxpayer is entitled to restitution of taxes paid in excess plus compensatory interest calculated from the payment date until restitution. The CAAD has jurisdiction to order payment of compensatory interest to taxpayers when tax assessments are annulled. Indemnity interest may also apply in cases of significant delays or manifest illegality in tax administration procedures, though compensatory interest is more commonly awarded in capital gains disputes.