Process: 221/2016-T

Date: November 14, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

In Process 221/2016-T, the CAAD arbitral tribunal examined whether a taxpayer could challenge an IRS assessment of €5,786.46 for 2014 after their official review request (pedido de revisão oficiosa) was denied. The case involved complex circumstances where the claimant was compulsorily retired in 2009, received pension income (Category H) until 2012, then won a court case revoking the retirement and was reinstated retroactively. In 2014, the taxpayer received back pay from their employer (€27,714.95) for the retirement period and simultaneously repaid the pension to the General Pension Fund (CGA) totaling €22,382.20. The claimant argued that the pension repayment should be deductible from the Category A employment income when calculating the 2014 IRS liability. The Tax Authority opposed this, citing Article 22(1) of the Personal Income Tax Code (CIRS) and asserting no legal basis existed for such deduction. The AT raised three preliminary exceptions: (i) lapse of the right of action due to statutory deadlines, (ii) impropriety of the arbitral remedy for decisions dismissing official review requests, and (iii) material incompetence of the arbitral tribunal to hear such cases. The tribunal noted the review dismissal was issued January 15, 2016, received January 25, 2016, with the arbitration request filed April 11, 2016. This case addresses critical questions about arbitrability of tax acts following denied official reviews, the tax treatment of income restitution (reposição de rendimentos), and whether pension repayments constitute deductible expenses when the underlying retirement is judicially annulled.

Full Decision

ARBITRAL DECISION

Claimant: A…

Respondent: TAX AND CUSTOMS AUTHORITY

I - REPORT

  1. A…, (hereinafter referred to as Claimant) taxpayer no. …, resident at …, presented on 11 April 2016, a request for constitution of an arbitral tribunal under the terms of paragraph a) of no. 1 of Article 2 and Article 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (hereinafter referred to as AT or Respondent) is requested with a view to the declaration of illegality and annulment of the decision dismissing the request for official review, and consequent annulment of the Personal Income Tax (IRS) assessment no. 2015…, in the amount of 5.768,46 €, with reference to the year 2014.

  2. The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 28 April 2016 and immediately notified to the Respondent in accordance with legal terms.

  3. Under the terms and for the purposes of paragraph a) of no. 2 of Article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the appointment within the timeframe stipulated in Article 4 of the Deontological Code of the Centre for Administrative or Tax Arbitration.

  4. The Singular Arbitral Tribunal was constituted on 1 July 2016, in accordance with the requirement of paragraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December.

  5. By arbitral order of 9 September 2016, the Claimant was invited to comment on the exceptions raised by the AT, which it did on 13 September following.

  6. An arbitral order was issued on 19 September following, duly notified to the parties, which justified the dispensing with the holding of the meeting referred to in Article 18 of the RJAT, the examination of witnesses listed by the Claimant, and granted to the parties the faculty of presenting written submissions.

  7. The parties did not proceed to present written submissions.

  8. To support its claim, the Claimant alleged, in summary, and with relevance to what matters here the following:

  • In the year 2009, it was compulsorily retired, starting to receive the pension from the General Pension Fund (CGA) (cf. Article 1 of the request for arbitral decision);

  • It challenged such decision in court against the Ministry of Education, having obtained a favorable decision revoking the previous retirement decision, which led to its reinstatement in active service (cf. Article 2 of the request for arbitral decision);

  • During the period in which it was compulsorily retired, it received a pension from 01-09-2009 to 30-04-2012 (Category H Income), declared annually to the AT with the presentation of the corresponding IRS Form 3 (cf. Article 3 of the request for arbitral decision);

  • It was reinstated as a dependent worker, starting to receive Category A income, with retroactive effect to 01-09-2009 (cf. Article 4 of the request for arbitral decision);

  • In March 2014, it received from the Municipal Chamber of … the income relating to the years 2009, 2010, 2011 and part of 2012, in the total net amount of 27.714,95 € (cf. Article 5 of the request for arbitral decision and document no. 1 attached hereto);

  • In the year 2014, it repaid to the CGA the amount received as Category H Income, in the amount of 22.382,20 € (cf. Article 6 of the request for arbitral decision and document no. 2 attached hereto);

  • It submitted to the AT the IRS Form 3 for the year 2014 - replacement, with the income of the year 2014 and the values paid to it by the Municipal Chamber of … (cf. Article 7 of the request for arbitral decision);

  • The AT assessed the IRS for the year 2014 in the amount of 5.786,46 € (cf. Article 10 of the request for arbitral decision and document no. 3 attached hereto);

  • During the period in which it received the CGA pension, the legal deductions were made and the corresponding IRS was declared (cf. Article 13 of the request for arbitral decision);

  • With the payment of the salaries owed in an amount exceeding the value of the aforesaid pension, the Municipal Chamber also proceeded with the respective legal deductions, and the corresponding IRS was declared (cf. Article 14 of the request for arbitral decision);

  • [The claimant filed a request for official review with the AT covered by Article 78 of the General Tax Law], which was dismissed by the AT (cf. as results from the alleged in Article 23 of the request for arbitral decision and document no. 4 attached hereto);

  • Culminating its claim to the effect that the illegality of the IRS assessment for the year 2014 be declared, seeking that to the income from dependent work relating to the years 2009, 2010, 2011 and 2012, which was paid to it in 2014 by the Municipal Chamber of …, the repayment made to the General Pension Fund be deducted, also during the year 2014.

  • Further requesting payment of accrued interest and respective costs, expenses of constitution of adequate guarantee for suspension of tax enforcement, indemnification and accrued interest, charges, costs and other legal remedies, as appears from the final part of its request.

  1. [paragraph numbering follows original]

  2. The AT, duly notified for that purpose, presented its response in a timely manner, by exception and impugnation.

10.1. It excepted the claimant's request on three different grounds: (i) Lapse of the right of action, (ii) Impropriety of the remedy, and (iii) Material incompetence, absolute incompetence of the Arbitral Tribunal to appreciate decisions dismissing requests for official review and the exception of paragraph a) of Article 2 of Ordinance 112-A/2011, of 22 March.

10.2. By impugnation, it sustains a view contrary to that presented by the Claimant, and disagreeing therewith, in accordance with the position already taken by it in the context of the dismissal of the review request, and which comes down, fundamentally and in brief summary, to the fact that the Claimant's claim is contrary to law, namely in view of the provision in no. 1 of Article 22 of the Personal Income Tax Code (CIRS), and that the deduction intended to be made to the income earned (Category A) of the value of the repayment to the General Pension Fund has no legal support whatsoever.

  1. The Tribunal was regularly constituted,

  2. The parties have legal personality and capacity, are legitimate and are legally represented (Article 3, 6 and 15 of the Code of Administrative and Tax Procedure, ex vi of Article 29, no. 1 paragraph a) of the RJAT.

  3. The proceedings do not suffer from nullities, with the exceptions noted in 10.1 having been invoked.

Having the AT raised the exceptions of "lapse of the right of action," "impropriety of the procedural remedy," and "material incompetence of the arbitral tribunal," constituting preliminary issues that may preclude the examination of the merits, these shall be appreciated as a priority.

Lapse of the Right of Action

For decision of the exception raised by the AT, it is important to take into account the following factual circumstances:

(i) The notification note of the dismissal of the review request, under office no. … issued by the Finance Directorate of … (Division for Assessment of Taxes on Income and Expenditure) bears the date of 2016.01.15, (cf. administrative file)

(ii) It was sent to the Claimant under registered mail with proof of delivery,

(iii) Having been received by the latter on 2016-01-25 (cf. administrative file)

(iv) The request for constitution of the arbitral tribunal was presented by the Claimant on 11 April 2016 (cf. registration in the CAAD computer system and communication of the constitution of the singular arbitral tribunal)

The AT in its response raised the question of the untimeliness of the request for constitution of the arbitral tribunal, basing itself on the fact that the notification of dismissal of the official review request occurred on 25/11/2015, as appears from Article 2 of its pleading, for which reason, and as it states (Article 3 of the response) on 11 April 2016 "the period provided for in paragraph a) of no. 1 of Article 10 of the RJAT had long since elapsed."[1]

The provision in question, and to the extent relevant here, determines that "the request for constitution of an arbitral tribunal is presented: a) within 90 days, counted from the dates provided in nos. 1 and 2 of Article 102 of the Code of Administrative and Tax Procedure, as to acts susceptible of autonomous impugnation, and, likewise, from the notification of the decision or the end of the legal period for decision of the hierarchical appeal."

On the other hand, nos. 1 and 2 of Article 3-A) of the RJAT, added by Article 229 of Law no. 66-B/2012, of 31 December, provide as follows:

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

  1. The periods for the performance of acts in arbitral proceedings shall be counted in accordance with the Code of Civil Procedure"

The period relating to the request for constitution of an arbitral tribunal has a substantive nature, is a period of lapse, which shall be counted in observance of the rules contained both in Article 279 of the Civil Code and in no. 1 of Article 20 of the Code of Administrative and Tax Procedure applicable by virtue of paragraphs a) and e) of the RJAT.

As already stated in the context of the arbitral decision handed down on 20 June 2014, in the context of case no. 17/2014-T, with which we concur, "the request for arbitral decision, once accepted, constitutes the first and indispensable document to initiate the opening of the proceedings. Only after this indispensable act does the question arise of how to count the judicial or procedural periods."

It thus appears of central importance to know the period applicable to the request formulated by the Claimant with CAAD for the constitution of the arbitral tribunal, and we subscribe anew to the cited decision no. 17/2014-T, "to the request for arbitral decision the provision of paragraph a) of no. 1 of Article 10 of the RJAT applies, which establishes the period of 90 days, counted [....] in accordance with paragraph e) of no. 1 of Article 102 of the CPPT, by application ex vi of the said Article 10"

Continuing: "For its part, the application of the provision in Article 3-A) of the RJAT appears only subsequently to the opening of arbitral proceedings, with the acceptance of the request",

Now,

Having the notification of the act of dismissal which is the object of the present request for constitution of an arbitral tribunal occurred on 25 January 2016, and having this been presented on 11 April following, there is no untimeliness whatsoever in the same, as it is within the period granted by paragraph a) of no. 1 of Article 10 of the RJAT, with no reason thus assisting the Respondent entity in this regard.

Deciding in consequence to the effect of the timeliness of the request for constitution of the present arbitral tribunal.

Impropriety of the Procedural Remedy

Material Incompetence, Absolute Incompetence of the Arbitral Tribunal to Appreciate Decisions on Requests for Official Review and the Exception of Paragraph a) of Article 2 of Ordinance 112-A/2011, of 22 March.

Question of Material Incompetence

Position of the Tax and Customs Authority

As a preliminary note, it is recorded that the arguments set forth in two of the articles of the AT's response (11 and 12) are clearly consumed by the following argument as to the matter of material incompetence of the arbitral tribunal, thus revealing no need for autonomous appreciation.

In this manner:

The Tax and Customs Authority raises the exception of material incompetence of this Arbitral Tribunal for the following reasons in summary:

i. "no. 1 of Article 2 of the RJAT defines the types of claims that may be appreciated by arbitral tribunals in tax matters, and they do not include the examination of decisions falling on requests for official review" (cf. Article 13 of the response),

ii. "whereby the existence of the exception (dilatory) which, embodied in the material incompetence of the arbitral tribunal, precludes examination of the claim, and therefore must determine the absolution of the Respondent entity from the proceedings, having regard to the provisions of Articles 576, no. 1, and 577, paragraph a) of the Code of Civil Procedure, applicable, ex vi Article 29, no. 1 paragraph e) of the RJAT" (cf. Article 15 of the response),

iii. "under the terms of the provision in Article 2, paragraph a) of Ordinance no. 112-A/2011, of 22 March, the Tax Administration bound itself to the jurisdiction of arbitral tribunals that have as their object the appreciation of claims relating to taxes whose administration is entrusted to them, with the exception of claims relating to the declaration of illegality of acts of self-assessment, which have not been preceded by recourse to the administrative remedy, in accordance with the provision in Article 131 of the CPPT" (cf. Article 17 of the response),

iv. "as appears from the administrative file, the claimant failed to present the administrative remedy provided for in Article 131 of the CPPT - administrative complaint" (cf. Article 18 of the response);

v. "under the terms of paragraph a) of no. 1 of Article 2 of the RJAT it is determined that the competence of arbitral tribunals comprises the appreciation of the declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account" (cf. Article 24 of the response);

vi. "it is provided in Article 2, paragraph a) of the said Ordinance no. 112-A/2011 that the binding of the AT to the said jurisdiction has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of Article 2 of the RJAT. "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Code of Administrative and Tax Procedure" (cf. Article 26 of the response);

vii. "from what has just been stated results that, in the situation sub judice, the mandatory prior filing of an administrative complaint was always required in accordance with the provision in no. 1 of Article 131 of the CPPT, in order for the Claimant to resort to arbitral jurisdiction" (cf. Article 27 of the response);

viii. "jurisprudence has upheld the understanding, which is not questioned, that, given the administrative nature of the official review procedure, it is capable of being equated with the provision in Article 131, no. 1 of the CPPT for purposes of subsequent impugnation of its decision of dismissal" (cf. Article 28 of the response);

ix. "however, such equation is legally barred in arbitral proceedings, and the appreciation of claims relating to the declaration of illegality of acts of self-assessment that have not been preceded by recourse to the administrative remedy, in accordance with Article 131 of the CPPT, is excluded from the material competence of arbitral tribunals, but only of official review, in accordance with Article 78 of the General Tax Law" (cf. Article 29 of the response);

x. "Resuming, and indeed, Article 2 paragraph a) of Ordinance no. 112-A/2011, expressly excludes from the scope of the AT's binding to arbitral tribunal jurisdiction, "(…) claims relating to the declaration of illegality of acts of self-assessment (…) that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the CPPT", therein not referring to official review provided for in Article 78 of the General Tax Law" (cf. Article 30 of the response);

Position of the Claimant

The Claimant invited to comment on the exceptions raised by the AT, came to state, in summary, and with relevance the following:

i. With regard to the alleged lapse of the right of action, that the Respondent incurs in error, in that the notification of the dismissal of the request for official review occurred on 25/01/2016,

ii. that it is not correct as to the raised "impropriety of the procedural remedy",

iii. and, with regard to the "material incompetence, absolute incompetence of the Arbitral Tribunal to appreciate decisions on requests for official review," argues that the Respondent is not correct, as it is not true that the arbitral tribunal is barred from pronouncing on the illegality of acts of assessment of taxes, which can be impugned in the Jurisdictional Courts (equation of the official review procedure, at the initiative of the taxpayer, with the administrative complaint procedure, for purposes of judicial impugnation) and also in the Arbitral Tribunal, possibly with the exceptions provided for in paragraphs a) to d) of Article 2 of Ordinance no. 112-A/2011;

iv. further sustaining the restrictive and exhaustive character of Article 2 of Ordinance no. 112-A/2011,

v. that in the present proceedings "what is at issue is not the declaration of the illegality of acts of self-assessment",

vi. and, as such does not apply Article 2, paragraph a) of Ordinance no. 112-A/2011,

Decision on the Question of Material Competence

Arbitral tribunals are constitutionally recognized as true courts (Article 209, no. 2 of the Portuguese Constitution), and voluntary arbitration in general finds its legal basis in Law no. 63/2011, of 14 December, in force and which revoked Law no. 31/86, of 29 August, which provides that "the State and other legal persons under public law may enter into arbitration agreements, if duly authorized by special law or if these have as their object disputes concerning relations of private law" (Article 1, no. 5)

The legislative authorization contained in Article 124 of Law no. 3-B/2010, of 28 April, relating to arbitration in tax matters, configures tax arbitration as an alternative means to judicial impugnation proceedings and to actions for recognition of a right or legitimate interest enshrined in the Code of Administrative and Tax Procedure.

In exercise of this authorization, Decree-Law no. 10/2011, of 20 January was approved, which regulates arbitration in tax matters.

In accordance with its preamble, the competence of arbitral tribunals operating under the aegis of CAAD was set out in the following terms: they are covered by the "competence of arbitral tribunals, the appreciation of the declaration of illegality of assessment of taxes, of self-assessment, of withholding at source and those of payment on account, the declaration of illegality of acts of determination of taxable matter, of acts of determination of taxable base and of acts of fixing of patrimonial values, whenever the law does not ensure the faculty of raising the aforesaid claim."

The material scope of tax arbitration is defined in paragraphs a) and b) of Article 2 of the RJAT:

Article 2

Competence of Arbitral Tribunals and Applicable Law

  1. The competence of arbitral tribunals comprises the appreciation of the following claims:

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payments on account;

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to assessment of any taxes, of acts of determination of taxable base and of acts of fixing of patrimonial values".

This competence of arbitral tribunals is, however, limited by the terms in which the AT expressed its will to bind itself to this jurisdiction, embodied in Ordinance no. 112-A/2011, of 22 March, an ordinance of binding that already resulted from the provision in Article 4 of the RJAT:

Article 4

Binding and Operation

"1. The binding of the tax administration to the jurisdiction of tribunals constituted under the terms of the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered".

Accordingly, and in addition to others contained in paragraphs b), c) and d), paragraph a) of the article of Ordinance of Binding lists the claims that are expressly excluded from the scope of the AT's binding to the jurisdiction of tax arbitral tribunals: "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Code of Administrative and Tax Procedure".

That is, the regulation that instituted arbitration in tax matters, containing a provision of broad arbitrability in tax matters, does not, however, as has already been written [2], have immediate operability as it is conditional upon the binding of the AT, in the precise terms provided for in Article 2 of Ordinance no. 112-A/2011, of 22 March.

Recalling further the cited decision that: "The binding of the AT to the jurisdiction of arbitral tribunals is subject to a concrete limitation: claims arising from alleged illegality of acts of self-assessment, withholding at source or payment on account, are expressly excepted from arbitration, except if their illegality has previously been raised, in accordance with arts. 131 et seq. of the CPPT"

The question of the mandatory nature of "recourse" to the administrative remedy, namely through administrative complaint in acts of self-assessment, withholding at source and payment on account, and the "equation" of the request for official review provided for in Article 78 of the General Tax Law with the administrative complaint, has been the subject of arbitral decisions in non-coincident directions.

Acknowledging that this is not the proper place for analysis and appreciation of the various positions that this subject has raised, it shall still be appropriate to recall, in a very brief note, that in this as in other arbitral proceedings where the AT has raised the material incompetence of tax arbitral tribunals the arguments have been generically; (i) the procedural remedy to react against the order dismissing the request for official review is the administrative action provided for and regulated in the Code of Administrative Procedure and not judicial impugnation, resulting from this the unsusceptibility of appreciation in the arbitral domain, (ii) the reference contained in paragraph a) of Article 2 of the Ordinance of Binding, to the "administrative remedy in accordance with Articles 131 to 133 of the Code of Administrative and Tax Procedure", is circumscribed to the means provided therein and not to any other procedure, namely that of official review provided for in Article 78 of the General Tax Law.

Underlying the request for constitution of the present arbitral tribunal is an assessment of personal income tax (IRS), with reference to the year 2014, which, in our view, does not fall within the exception of arbitrability provided for in paragraph a) of Article 2 of Ordinance no. 112-A/2011, of 22 March.

Indeed, and as already noted, therein the arbitrability is "conditioned" to claims for declaration of illegality "of acts of self-assessment, withholding at source and payments on account, that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Code of Administrative and Tax Procedure".

It appears to us therefore, subject to opinion in a different sense, that the restriction expressed therein (and independently of the position taken as to its scope and extent) does not encompass cases in which the claim for declaration of (il)legality arose from acts of assessment of taxes, that is, from administrative acts in tax matters on the initiative of the administration, and on which the Tribunal may have already ruled, as appears to be the case in the present proceedings, specifically through the dismissal of the request for official review filed in accordance with the provision in Article 78 of the General Tax Law.

Personal Income Tax is "a non-self-assessed tax, as its assessment is always the responsibility of the AT, contrasting with self-assessed taxes, in which the assessment is the responsibility of taxpayers"[3]

A consequence enshrined since Article 75 of the Personal Income Tax Code: "the assessment of Personal Income Tax is the responsibility of the Tax and Customs Authority".

The circumstance of the duty to file a return as referred to in Article 57 of the Personal Income Tax Code, under the conditions of time and manner provided for in Articles 60 et seq. of the same regulation, does not deprive personal income tax of its nature as a non-self-assessed tax, nor does the filing of a replacement return constitute an act of self-assessment, as the Claimant refers.

In the case sub judice, there will be no doubts as to the fact that the assessment in question was (obviously) carried out by the AT, which assumes relevance for purposes of arbitrability regarding the dismissal of the request for official review subsequently sponsored by the Claimant, whose appreciation and decision is the object of the present request for arbitral decision.

In light of all that has been said, we subscribe to the position that points to the non-existence of any limitations or exceptions imposed by paragraph a) of Article 2 of the Ordinance of Binding that would preclude examination, in arbitral proceedings, of the declaration of illegality of acts arising from assessment, regardless of the nature thereof (administrative, official or additional).

As appears from arbitral decision no. 148/2014-T of 19/09/2014, "the formula 'declaration of illegality of acts of assessment, of self-assessment, of withholding at source and of payment on account', used in paragraph a) of no. 1 of Article 2 of the RJAT, does not restrict, in a mere declarative interpretation and as was seen, the scope of arbitral jurisdiction in cases in which a direct impugnation is made of an act of one of those types. Indeed, the illegality of acts of assessment may be declared jurisdictionally as a corollary of the illegality of a second-level act (administrative complaint) or third-level act (hierarchical appeal), which confirms an act of assessment, incorporating its illegality".

The tax assessment act in question in the present proceedings was subject to appreciation and confirmation (second-level tax act) not through administrative complaint, but in the context of a request for official review, covered by Article 78 of the General Tax Law, filed on 30 April 2015 by the Claimant.

The AT produced upon the Claimant's request for review an express act of dismissal, having consequently appreciated the legality of the same, which, in our opinion, does not preclude its arbitrability in this precise context, in light of the provision in paragraph a) of Article 2 of the RJAT and paragraph b) of Article 2 of Ordinance no. 112-A/2011, of 22 March.

In light of what has been said, the exceptions raised by the AT in its response are unfounded: impropriety of the procedural remedy and absolute material incompetence of the Arbitral Tribunal.

II - REASONING

A. FACTUAL MATTER

A.1. Facts Established as Proven

a. The Claimant in the year 2009 was compulsorily retired, starting to receive the pension from the General Pension Fund,

b. During the period in which it was compulsorily retired, the Claimant received a pension during the period from 01-09-2009 to 30-04-2012,

c. The Claimant was integrated as a dependent worker at the Municipal Chamber of …, having started to receive Category A income, with retroactive effect to 01-09-2009,

d. In March 2014, the Claimant received from the Municipal Chamber of …, the income relating to the years 2009, 2010, 2011 and part of 2012, in the total net amount of 27.714,95 €,

e. In 2014 the Claimant repaid to the General Pension Fund the amount of 22.382,20 € received as Category H income,

f. The Claimant filed on 30 April 2015, a replacement declaration of IRS Form 3, relating to the income of the year 2014,

g. On the same date, the Claimant filed with the Finance Office of …, a request for official review of the Personal Income Tax assessment,

h. The request for official review was dismissed on 22/12/2015, where by the responsible party at the AT concordance was manifested with the proposal presented in Information no. …/15 which is part of the administrative file, the contents of which are given as reproduced, and where it states, among other things the following:

"5. Thus, as to the possibility of deduction of the pension income subject to repayment to the CGApension fund during the said year of 2014, it is to be noted that there is no legal basis that allows us to reflect, in the taxation of 2014, the repayments made by the taxpayer",

Indeed, in the case of a repayment situation, it is necessary to observe what is determined in this regard by Circular no. 3/08 of the Personal Income Tax Service Management, namely the rule contained in no. 2 of the said Circular: "repayments made in a fiscal year different from that to which the income relates (repayments not deducted from payments) shall be processed at the net tax value"

"It is also determined, through point 6 of the same Circular, that "the income earner must, within thirty days immediately following the date of full repayment of the amount paid unduly, file a replacement declaration (form 3), relating to the year or years in which the unduly payment(s) occurred(s) (no. 2 of Article 60 of the Personal Income Tax Code"

"6. Thus, taking into account the combination of the rules contained in Articles 2 and 74 of the Personal Income Tax Code and Circular no. 3/08, we can then conclude, first, that the inclusion of all the income earned by the taxpayer from the income of 2014 is correct and requires no correction whatsoever.

Secondly, we can conclude that the repayment by the taxpayer of the income paid to her by the General Pension Fund in the years 2009, 2010, 2011 and 2012, should have been reflected not in the Personal Income Tax assessment on the income of 2014 but rather in the Personal Income Tax assessments on the income of those same years, through the filing, by the taxpayer, of replacement declarations for each of the years in question, within the period of 30 days counted from the date of full repayment of the unduly received income.

"7. Now, having the taxpayer not proceeded with such filing and being already exhausted the period of administrative complaint regarding the Personal Income Tax assessments in force on the income of 2009, 2010 and 2011 (that is, of the assessments that applied to pension income paid by the General Pension Fund) it is, however, possible for us to assess, officially, the possibility of review of these same assessments, in accordance with Article 78 of the General Tax Law.

"In this context, it is possible for us, already, to rule out the possibility of review of tax acts on the basis of error by the Services (cf. Article 78, no. 1, final part, of the General Tax Law), to the extent that the assessments in question are based on the information contained in the declarations filed by the taxpayer herself.

"Considering that the request now under analysis was presented on 2015-04-30, it is impossible to appreciate a request for review of the taxable matter, in accordance with no. 4 of Article 78 of the General Tax Law, with respect to the assessments issued in 2010 and 2011 (that is, the assessments that have as their object the income of 2009 and 2010), because the three-year period provided for in the said rule has already [elapsed]. However, since the taxpayer did not actually bear any tax with respect to the income from pensions received in 2011 (and taxed in 2012), it will also not be possible to recognize the existence of any exceptionally grave or notorious injustice in the taxation that may or should be corrected under the mentioned no. 4 of Article 78 of the General Tax Law.

"Finally, having analyzed the possibility of review of the tax assessments in force on the income of 2009, 2010 and 2011 on the basis of double collection, it must also be noted that the period for that purpose is four years (cf. Article 78, no. 6 of the General Tax Law), whereby only the review of the assessments relating to the years 2010 and 2011 (issued, respectively, in 2011 and 2012) will be possible, which, as it has not assessed any amount of tax to be paid or reimbursed, also does not contain any situation of double collection capable of review in accordance with no. 6 of Article 78 of the General Tax Law."

i. The dismissal was notified to the Claimant on 25/01/2016 (document no. 4 attached to the request for arbitral decision and administrative file)

j. On 11/04/2016 the Claimant presented the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

A.2. Facts Established as Not Proven

With relevance for the decision there are no facts that should be considered as not proven.

A.3. Reasoning of the Factual Matter Established as Proven and Not Proven.

With regard to factual matter the tribunal need not pronounce on everything that was alleged by the parties, it being incumbent upon it, rather, the duty to select the facts that matter for the decision, to discriminate the proven factual matter from the unproven [( cf. Article 123, no. 2 of the CPPT, and Article 607 of the Code of Civil Procedure, applicable ex vi of Article 29, no. 1 paragraphs a) and e) of the RJAT)].

Accordingly, the pertinent facts for adjudication of the case are chosen and selected according to their legal relevance, which is established having regard to the various plausible solutions of the question(s) of law. (cf. Article 596 of the Code of Civil Procedure, applicable, ex vi of Article 29 no. 1, paragraph e) of the RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence submitted to the proceedings, and the administrative file attached, the facts enumerated above are considered proven with relevance for the decision.

B. ON THE LAW

Appreciation of the Merits of the Case

In light of the factual circumstances evidenced, the position of the parties, the corpus of documentary evidence submitted to the proceedings, and the administrative file attached, we have, for what matters here, that the Claimant's income from dependent work relating to the years 2009, 2010, 2011 and 2012 were paid to it by the Municipal Chamber of … in 2014, year in which the Claimant repaid to the General Pension Fund the amount of 22.382,20 €, derived from Category H income, the question to be resolved coming down to analyzing the possibility of the Claimant seeing deducted from the income earned in the year 2014, derived from Category A, (Municipal Chamber of …) in the amount of 27.714,95 €, the repayment of funds that it made to the General Pension Fund, in that same year.

In 2014 were paid to the Claimant by way of dependent work income of the years 2009, 2010, 2011 and part of 2012 in the amount of 27.714.95 €, of which 635,81 were repaid to the employing entity (Municipal Chamber of …), and also in that year of 2014 the Claimant proceeded with the repayment to the General Pension Fund of the amount of 22.382.20 €, as already referred.

Now, it is this repayment value to the General Pension Fund that the Claimant seeks to have deducted from the taxable matter relating to the year 2014.

It is clear that this is the Claimant's claim which is drawn not only from the claim formulated, from its pleading; "The Claimant seeks that, as a result of the declaration of illegality of the act of Personal Income Tax assessment for 2014 (where it seeks that to the dependent work income relating to the years 2009, 2010, 2011 and 2012 which were paid in 2014 by the Municipal Chamber of …), the repayment to the General Pension Fund be deducted, also during the year 2014"

(cf. Article 25 of the request for constitution of the arbitral tribunal)

It is anticipated already, that in our view, the Claimant has no reason, for the reasons that appear clear, and which are adduced below;

Let us see then:

Article 60 of the Personal Income Tax Code indicates the periods for filing the income declarations referred to in Article 57, providing in its no. 2 that; "the declaration referred to in the previous number is also presented within 30 days immediately following the occurrence of any fact that determines a change in income already declared or implies, with respect to previous years the obligation to declare them, unless another period is provided for in this Code", and the Form 3 declarations presented, in timely manner by the Claimant, with respect to the years 2009, 2010, 2011 and 2012, gave rise to the respective assessments, assessments that, as noted by the AT, could have been "annulled or replaced by others if the Claimant had, in the time that the law provides for it, brought to the attention of the AT the occurrence of the fact that determines the change of income" - no. 2 of Article 60 of the Personal Income Tax Code", which, manifestly did not occur.

Resulting also from no. 2 of Circular no. 3/08, of 6 February 2008, of the Personal Income Tax Service Management that; "repayments made in a fiscal year different from that to which the income relates (repayments not deducted from payments) shall be processed at the net tax value", adding that: "6. the income earner must, within thirty days immediately following the date of full repayment of the amount paid unduly, file a replacement declaration (form 3), relating to the year or years in which the unduly payment(s) occurred(s) (no. 2 of Article 60 of the Personal Income Tax Code."

On the other hand, as the taxable income in Personal Income Tax assessment, in accordance with no. 1 of Article 22 of the respective code, is that "which results from the combining of income of the various categories earned in each year, after the deductions and allowances provided for in the following sections", it is not apparent that the repayment carried out with the General Pension Fund, can be accommodated within the legally provided deductions for dependent work income, in accordance with Article 25 of the Personal Income Tax Code, nor does Article 74 of the same regulation point in a different direction.

As advanced by the AT, and we cannot subscribe to a different position, as we agree with it, the "deduction" sought by the Respondent to the effect that the repayment of income made to the General Pension Fund be taken into account, conflicts with the provision in Article 25 of the Personal Income Tax Code since, indeed, repayments of income do not form part of the list of deductions provided therein.

As to double collection, no. 1 of Article 205 of the Code of Administrative and Tax Procedure provides as follows: "there shall be double collection for the purposes of the previous article when, having a tax been paid in full, another equal in nature is demanded from the same or a different person, relating to the same tax event and to the same period of time", constituting a ground for official review in light of the provision in no. 6 of Article 78 of the General Tax Law, when raised within the timeframe provided therein.

Now, for the reasons which appear from the dismissal of the review request, to which we refer, under risk of redundancy, there is no double collection, to justify recourse to the request for official review with respect to the fiscal years even if contained within the indicated four-year period, as no amount of tax to be paid or reimbursed was verified.

In light of the foregoing, and without need for any other considerations, the Claimant's claim is unfounded.

III - DECISION

In accordance with the foregoing, this Singular Arbitral Tribunal decides:

a) To judge unfounded the exceptions of lapse of the right of action, impropriety of the procedural remedy and material incompetence of the arbitral tribunal raised by the Tax and Customs Authority;

b) To judge unfounded the claims for declaration of illegality and annulment of the decision dismissing the request for official review, and consequently annulment of the Personal Income Tax assessment act no. 2015…, relating to the year 2014;

c) To condemn the Claimant in the payment of costs, without prejudice to the legal aid requested by it.

IV. VALUE OF THE PROCESS

In accordance with the provisions in Articles 296 nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 47/2013, of 26 June, 97-A) no. 1, paragraph a) of the Code of Administrative and Tax Procedure, and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is fixed at 5.768,46 €.

V - COSTS

Under the terms of the provision in Articles 12, no. 2, 22, no. 4 of the RJAT, and Articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached thereto, the amount of costs is fixed at 612,00 € to be borne by the Claimant, without prejudice to the legal aid requested by it.

NOTIFY

Text prepared by computer, in accordance with the provision in Article 131 of the Code of Civil Procedure, applicable by reference of Article 29, no. 1, paragraph e) of the Regulation of Tax Arbitration, with blank spaces, and reviewed by the arbitrator.

The drafting of the present decision is governed by the spelling prior to the Portuguese Orthographic Agreement of 1990.

Lisbon, fourteen November two thousand and sixteen

The Arbitrator

(José Coutinho Pires)

[1] In the response, we believe by oversight, Article 2 of the RJAT was referred to, when Article 10 was intended to be invoked as results from Article 4 of the response.

[2] Cf. arbitral decision no. 236/2013-T, of 22/04/2014, available at www.caad.org.pt

[3] Manuel Faustino, Lectures on Tax Law, volume I, coordination by João Ricardo Catarino and Vasco Branco Guimarães, 2014, 3rd edition, page 205.

Frequently Asked Questions

Automatically Created

Can a taxpayer challenge an IRS tax assessment through arbitration after an official review request is denied?
Yes, taxpayers can challenge IRS assessments through CAAD arbitration after an official review (pedido de revisão oficiosa) is denied, though this jurisdictional issue may be contested by the Tax Authority. The CAAD arbitral tribunal has competence under Article 2(a) of the RJAT (Decree-Law 10/2011) to hear challenges to tax liquidation acts. However, the Tax Authority may raise exceptions regarding the tribunal's material competence to review decisions dismissing official review requests, as occurred in Process 221/2016-T where the AT argued absolute incompetence under Article 2(a) of Ordinance 112-A/2011.
What happens to pension income received during a compulsory retirement that is later revoked by court order?
When pension income received during compulsory retirement is later revoked by court order, the pensioner must repay all amounts received to the pension fund (CGA) and receives retroactive employment income (Category A) from their employer for the same period. This creates a complex tax situation where the taxpayer has declared and paid IRS on the pension income (Category H) in prior years, then receives back pay and must repay the pension in a subsequent year. The tax treatment depends on whether the repayment can be deducted from the employment income received, which Portuguese tax authorities typically contest under Article 22(1) of the Personal Income Tax Code.
How does the restitution of income (reposição de rendimentos) apply to IRS taxation in Portugal?
Reposição de rendimentos (income restitution) in Portuguese IRS taxation refers to situations where previously received and taxed income must be returned, typically due to judicial decisions or administrative corrections. The core dispute involves whether amounts repaid can be deducted from current year income or require retroactive correction of prior year returns. The Tax Authority generally maintains that Article 22(1) of the CIRS does not provide legal basis for deducting repaid amounts from unrelated income categories. Taxpayers argue equity principles should allow such deductions to avoid double taxation when income must be returned through no fault of their own.
What is the role of the CAAD tax arbitration tribunal in disputes over IRS liquidation acts?
The CAAD (Centro de Arbitragem Administrativa) tax arbitration tribunal serves as an alternative dispute resolution mechanism for tax conflicts in Portugal, with competence to review the legality of IRS liquidation acts under the RJAT regime (Decree-Law 10/2011). CAAD can declare tax assessments illegal and order their annulment when procedural or substantive violations are proven. The tribunal examines whether the Tax Authority correctly applied tax law provisions, respecting taxpayer rights and legal procedures. CAAD decisions are binding and have the same effect as court judgments, providing faster resolution than traditional judicial courts for tax disputes.
Is an IRS tax assessment eligible for arbitration when it originates from a denied pedido de revisão oficiosa?
IRS assessments following denied pedidos de revisão oficiosa are generally eligible for arbitration, though the Tax Authority frequently challenges this through preliminary exceptions. The jurisdictional issue centers on whether CAAD has material competence to review acts dismissing official review requests or only original liquidation acts. Article 2(a) of the RJAT grants competence over tax liquidation acts, but Ordinance 112-A/2011 contains potential exceptions. Taxpayers must observe strict deadlines: in Process 221/2016-T, the review dismissal was received January 25, 2016, and arbitration filed April 11, 2016, raising questions about whether the 90-day limitation period under Article 10 RJAT was respected.