Process: 243/2017-T

Date: November 8, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 243/2017-T addresses a critical case of alleged double taxation (duplicação de colecta) involving Portuguese residents with capital income from Luxembourg. The taxpayers held a bank account at Banque C… in Luxembourg that generated capital income in 2012. Following notification under EU Savings Directive 2003/48/EC, they filed a replacement IRS return in July 2013 and paid the first assessment of €10,021.13 in October 2013. A second reconciliation assessment of €10,770.18 followed in July 2015. However, in November 2016, the Portuguese Tax Authority (AT) issued a third additional assessment of €21,480.85 (including €1,311.27 compensatory interest) for the same 2012 income, demanding an additional €10,710.67. The taxpayers challenged this through CAAD arbitration, arguing violation of article 205 CPPT and article 62 CRP prohibiting duplicate collection, as the same taxpayer was being taxed multiple times on identical income for the same tax period. They also claimed procedural violations under articles 45 CPPT, 60(e) LGT, and 60 RCPIT, asserting the AT failed to consider evidence presented during the mandatory prior hearing (audição prévia), violating the constitutional duty to provide reasoned decisions under article 267(5) CRP. The case highlights critical issues in cross-border taxation under the EU Savings Directive, taxpayer procedural rights in tax inspection procedures, and the prohibition against double taxation. The taxpayers sought annulment of the illegal assessments and reimbursement of €10,710.67 plus indemnity interest (juros indemnizatórios) to compensate for unlawful retention of funds by the State.

Full Decision

ARBITRAL DECISION

Parties

Applicants: A…, NF … and B…, NF …, resident in …, no.…, …, Lisbon;

Respondent: TAX AND CUSTOMS AUTHORITY (AT)

I – REPORT

On 05 April 2017, the Applicants filed a request for constitution of a Single Arbitral Tribunal (TAS), in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the Respondent.

THE CLAIM

The Applicants challenge the additional Personal Income Tax assessment no. 2016…, of 25.11.2016, in the amount of euros 21,480.85 (twenty-one thousand four hundred and eighty euros and eighty-five cents), including compensatory interest, in the amount of euros 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), all relating to the year 2012, which resulted in an additional amount payable of 10,710.67 euros.

They conclude by requesting that these assessments be declared illegal and that they be reimbursed the amount overpaid, of 10,710.67 euros, plus indemnity interest.

THE CAUSE OF ACTION

The Applicants contend that "the income from capital generated in 2012 by the assets held ... at Banque C… were declared in their respective Periodic Income Statement, having been subject to taxation through the Personal Income Tax assessments issued in 2013 and 2015". And that "said assessments were paid ...".

But that "... in 2016, by reference to the same 2012 income, already taxed and paid in 2013 and 2015, the Respondent issues a new Personal Income Tax assessment to the same taxpayers", concluding that "... the initial tax had already been paid, that the tax is demanded from the same taxpayers, and that the tax concerns the same taxable facts occurring in the same time period", thereby resulting in a duplication of collection.

On the other hand, they contend that in the assessment procedure followed by the AT, the evidence elements they presented at the prior hearing stage were not considered in the final decision, with only reference made to the proposed reallocation of the values contained in the income declaration, should it be understood that they had been entered in a different field, as follows: "however, it is not clear in what value the 'reallocation of income' should be made given that the other fields of the annex, which were completed in 2 annexes J (fields 420, 408, 423 and 414) relate to other types of income than those enumerated in article 4 of the aforementioned Decree-Law 62/2005, and which gave rise to this process".

They assert that the challenged assessments contain the defects of (1) "violation of article 45 of the CPPT, of paragraph e) of article 60 of the General Tax Law (hereinafter LGT) and article 60 of the Supplementary Regime for Tax and Customs Inspection Procedure (hereinafter RCPIT) and violation of no. 5 of article 267 of the Constitution of the Portuguese Republic (hereinafter CRP) – failure to consider the facts alleged at the stage of the Right of Hearing" and of (2) "violation of article 205 of the CPPT and 62 of the CRP - duplication of collection".

OF THE SINGLE ARBITRAL TRIBUNAL (TAS)

The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 19-04-2017.

By the Deontological Council of CAAD, the signatory of this decision was designated as arbitrator, with the parties being notified thereof on 05.06.2017. The parties did not manifest an intention to challenge the designation, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

The Single Arbitral Tribunal has been regularly constituted, since 27.06.2017, to consider and decide the subject matter of this dispute (articles 2, no. 1, paragraph a) and 30, no. 1, of the RJAT).

All of these acts are documented in the communication of constitution of the Single Arbitral Tribunal dated 27.06.2017, which is hereby reproduced.

On 27-06-2017, the AT was notified in accordance with and for the purposes of article 17-1 of the RJAT. It responded on 28.09.2017, enclosing the Administrative File (PA), consisting of two computerized files, containing 145 sheets and setting forth the merits of the AT's position, contained in the PA.

The parties' meeting was not held, in accordance with and for the purposes of article 18 of the RJAT, taking into account the concordant position of the Applicants and the Respondent, which results from their silence after notification to comment, in accordance with the dispatch of 11.09.2017.

A deadline was granted to the parties, by dispatch of 29.09.2017, for the presentation of written and successive submissions, neither party having made use of this facility.

PROCEDURAL REQUIREMENTS

Legitimacy, capacity and representation – The parties are legitimate, possess legal personality, procedural capacity and are represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

Principle of contradiction – The AT was notified in accordance with paragraph l) of this Report. All procedural documents and all documents attached to the process were made available to the respective counterparty in the CAAD Procedural Management System. Both parties were always notified of their attachment.

Dilatory exceptions – The arbitral procedure is not affected by any nullities and the request for arbitral pronouncement is timely, since it was presented within the prescribed period in paragraph a) of no. 1 of article 10 of the RJAT. Moreover, the AT did not challenge the timeliness of presentation of this request for arbitral pronouncement.

SUMMARY OF THE APPLICANTS' POSITION

The Applicants state that "they are holders of bank account no.…, IBAN …, at Banque C…, located in …" and that "during the year 2012, said bank account generated various income and gains" ... as per the bank statement they attach.

They state that the manner in which they are "described in said statement is not susceptible to immediate transposition to the Periodic Income Statement of the Applicants due to the fact that they were not determined in accordance with the rules for classification and quantification of the Personal Income Tax Code".

Since "in March 2013, ... they were informed by Banque C… that the income earned through it would also be communicated to the Tax Authority of Luxembourg, under Directive 2003/48/EC", on 30.07.2013 they filed a Replacement Income Statement of Personal Income Tax Model 3, relating to the year 2012, indicating in the same the bank account number referred to above, in section 5 of annex J of the declaration.

Previously, "in order to allow the correct quantification and classification of income generated by the bank account held at Banque C… in accordance with the rules of the Personal Income Tax Code in force at the date of the facts, support tables were prepared" which they subsequently presented to the AT when exercising the right of hearing, before the assessments (Personal Income Tax and interest) challenged here were made.

And they continue to state that "in October 2013, on the basis of the Replacement Income Statement, the Respondent issued the Personal Income Tax assessment statement no. 2013 … and assessment number 2013…, in the amount of 10,021.13 EUR" which they attach. On 08.11.2013 they proceeded to pay the assessed amount.

Still relating to the year 2012, a second Personal Income Tax assessment occurred, with the Applicants receiving in July 2015 "...a new Personal Income Tax assessment statement, with assessment number 2015…, of 04.07.2015, in the amount of 10,770.18 EUR", resulting in a "... reconciliation statement, through which payment of 749.05 EUR was claimed, the amount corresponding to the difference between the amount assessed in 2015 and the amount assessed and paid in 2013", which amount they also paid, on 27.08.2015.

As for the tax period of the year 2012, on 11.10.2016, the AT sent the Applicants a draft decision on alterations, at the prior hearing stage, indicating a corrected Personal Income Tax, in the amount of 18,798.80 euros, for each one.

It was then that the Applicants, at the prior hearing stage, presented to the AT the table referred to in paragraph u) above.

They state that the AT disregarded the table and in "... December 2016, through office no.…, of 29.11.2016, the Respondent notified the Applicants directly that it would correct the income declaration submitted ex officio", which it did not do.

Therefore, on 05.12.2016, the Applicants were notified of the additional Personal Income Tax assessments and interest, challenged here, which resulted in an amount payable of EUR 10,710.67, which amount they paid on 05.01.2017.

Based on these facts, the Applicants contend for the occurrence of the non-conformities with law referred to in paragraph g) of this report, concluding as referred to in paragraphs b) and c) of this report.

SUMMARY OF THE RESPONDENT'S POSITION

The Respondent put forward the merits of the AT's position contained in the PA and which appears in the draft decision on alterations and also in the opinion issued, after prior hearing of the Applicants.

It concludes by stating that "... the present request for arbitral pronouncement should be judged without merit, maintaining in the legal order the tax assessment act challenged and, accordingly, absolving the Respondent of the claim".

II - ISSUES FOR THE TRIBUNAL TO RESOLVE

In accordance with articles 123 and 124 of the Tax Procedure and Process Code (CPPT), the TAS shall consider the defects pointed out in paragraph g) of the Report, addressing, first, the alleged duplication of collection and then the remaining defects alleged, if this invocation is not upheld.

III. ESTABLISHED AND UNESTABLISHED MATTERS OF FACT. REASONING

Regarding the matters of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish the established facts from those not established (in accordance with article 123, no. 2, of the CPPT and article 607, no. 3 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).

In this way, the relevant facts for the judgment of the case are chosen and delineated according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of law (in accordance with former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Thus, having regard to the positions taken by the parties and the documentary evidence attached, the following facts were considered proved, with relevance for the decision, listed below, with the respective documents indicated (proof by documents), as reasoning.

Established Facts

  1. The Applicants, resident in Portugal, in the year 2012, were holders of a bank account with no.…, IBAN …, at Banque C…, located in …, where various income and gains were credited, set out in a "rapport fiscal générique", namely those resulting from the sale of Greek Republic bonds, income that was automatically communicated to the AT by the Luxembourg Tax Administration, under the Savings Directive (Directive 2003/48/EC) transposed into Portuguese law by Decree-Law no. 62/2005, of 11 March – in accordance with articles 6, 7, 15 and 16 of the request for arbitral pronouncement (ppa), pages 1 and 82 of the PA attached by the AT with the response and document no. 3 attached with the ppa.

  2. On a date not established in March 2013, the Applicants were informed by Banque C… of the automatic exchange of information between Tax Administrations, referred to in the preceding number – in accordance with article 14 of the ppa and document no. 8 attached with the ppa.

  3. On 30.07.2013 the Applicants filed an Income Statement, relating to the year 2012, as a replacement, indicating the number of the bank account referred to in 1., in section 5 of annex J of the Personal Income Tax Model 3 declaration, and in which they reflected the income and gains referred to in the communication from Banque C…, having prepared a supporting document in order to quantify and classify the income earned in Luxembourg, in light of Portuguese tax law – in accordance with articles 9 and 10 of the ppa, documents nos. 2, 4 and 5 attached with the ppa and overall position of the AT adopted in the PA.

  4. On 05.10.2013, on the basis of the replacement income statement referred to above, the AT issued Personal Income Tax assessment notes no. 2013 … and no. 2013 …, resulting in Personal Income Tax payable in the amount of 10,021.13 euros, which amount the Applicants paid on 08.11.2013 – in accordance with articles 12 and 13 of the ppa and documents nos. 6 and 7 attached with the ppa.

  5. On 04.07.2015 the AT issued an additional Personal Income Tax assessment for the year 2012, with number 2015 …, of 04.07.2015, in the amount of 10,770.18 EUR, resulting in an amount payable of 749.05 EUR, the amount corresponding to the difference between the amount assessed in 2015 and the amount assessed and paid in 2013, which amount the Applicants paid on 27.08.2015 – in accordance with articles 17, 18 and 21 of the ppa and documents nos. 9, 10 and 11 attached with the ppa.

  6. On 11.10.2016 the AT notified the Applicants, by office no.…, of 04.10.2016, from the Finance Directorate of Lisbon, of the "draft decision on the alterations to be made to their Personal Income Tax Model 3 declaration for the year 2012", and to exercise the Right of Hearing, with the following reasoning:

"Draft Decision on Alterations

Reasoning:

In view of the provision in no. 1 of article 15 of the Personal Income Tax Code, income in the form of interest, covered by the Savings Directive (Directive no. 2003/48/EC), transposed into the internal legal order by Decree-Law no. 62/2005, of 11 March, must be declared in the Personal Income Tax Model 3 income declaration, in the respective annex J (income obtained abroad), field 422.

According to the information transmitted to us under that Directive by the State/Country/territory of Luxembourg, in the year 2012 the taxpayer A earned interest income in the amount of € 18,798.80, and the taxpayer B earned interest income in the amount of € 18,798.80, which were not indicated in the Personal Income Tax Model 3 declaration, and accordingly we shall proceed to the inclusion of the same in section 4 of the annexes J of said income declaration.

In view of the foregoing, we hereby inform you that, should you not deliver a replacement declaration by the deadline indicated in the notification (15 days), an assessment correcting the existing irregularities shall be made" – in accordance with article 22 of the ppa and page 1 of the PA attached by the AT with the response.

  1. On 24.10.2016 the Applicants exercised the right of hearing, in writing, and attached the support document referred to in 3. above, with the following content:

and which also contained the following indications: "a) In column A, we find the values listed in the letter sent by the Bank to the Luxembourg Tax Authority (see doc. no. 4 attached); b) In column B, we find the equivalent of these amounts converted to Euros, which total € 37,639.47; c) In column C, we find the values relating to each of the assets identified in the letter sent by the bank to the Tax Authority, reported in the Personal Income Tax declaration, and which appear in the auxiliary table for the preparation of declaration (see doc. no. 2 attached to the file – column 'Interest Income from Savings Directive'); d) In column D, we verify the difference between the amounts actually reported and the values in the letter sent by the bank, where it appears that the amounts initially declared in the Periodic Statement are greater than the amounts communicated to the Tax Authority – a discrepancy that the Applicants cannot explain, despite being prejudiced by it" – in accordance with articles 25 and 26 of the ppa and page 40 of the PA attached by the AT with the response.

  1. On a date not established in December 2016, by office no.…, of 29.11.2016, the AT notified the Applicants that it would correct the income declaration submitted ex officio, attaching the reasoning for the decision – information no. 23/5/2016 - with the following content:
  • in accordance with pages 82 and 85 of the PA attached by the AT with the response and articles 31 to 33 of the ppa.

  1. On 05.12.2016 the Applicants were notified of the additional Personal Income Tax assessment no. 2016…, of 25.11.2016, in the amount of euros 21,480.85 (twenty-one thousand four hundred and eighty euros and eighty-five cents), including compensatory interest, in the amount of euros 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), all relating to the year 2012, which resulted in an additional amount payable of 10,710.67 euros, with payment deadline of 09.01.2017, which amount they paid on 05.01.2017 – in accordance with articles 35 to 38 of the ppa and documents nos. 1, 2, 12 and 13 attached with the ppa.

  2. On 05 April 2017 the Applicants delivered the present request for arbitral pronouncement (ppa) to CAAD – entry registration in the Procedural Management System (SGP) of CAAD of the request for arbitral pronouncement.

Unestablished Facts

There is no other factual matter alleged that was not considered proved and that is relevant to the resolution of the procedural dispute.

IV. CONSIDERATION OF THE ISSUES FOR THE SINGLE ARBITRAL TRIBUNAL (TAS) TO RESOLVE

The Applicants proved, in accordance with no. 3 of the established matter of fact, combined with the indications attached to the document reproduced in no. 7 of the established matter of fact, that they reflected in their income declaration the amount of 37,639.47 euros, relating to income obtained abroad.

That is, in Annex J of the Personal Income Tax Model 3, filed on 30.07.2013, this amount was declared, including reference to the bank account where the income had been deposited, at Bank C….

In turn, what the AT comes to demand in the third Personal Income Tax assessment for the year 2012 (which is at issue here), as is verified in no. 6 of the established matter of fact, is 37,597.60 euros (18,798.80 euros for each of the Applicants).

The amounts are very close, with the Applicants having even declared slightly more than the AT indicates.

Although it can be argued that the declared amount did not appear in field 422 of section 4 of Annex J of the Personal Income Tax Model 3 Declaration, as the Applicants acknowledge in article 29 of the request for arbitral pronouncement, the fact is that this TAS is convinced that there is duplication of collection, that is, the assessment challenged here makes no sense, since the amounts in question had already been declared and subject to Personal Income Tax assessment as was proved in 4 and 5 of the established matter of fact.

In this regard, reference is made to the judgment of the Tax Court (TCAS), Court of First Instance – 2nd Court, Case 06195/12 of 26-12-2013, which states as follows: "in accordance with the law (... article 205 of the C.P.P.T), the legal-tax figure of duplication of collection is characterized by the following vectors:

a) Uniqueness of the taxable fact;

b) Identity of nature between the contribution or tax already fully paid and that which is newly sought to be collected;

c) Temporal coincidence between the incidence of the tax paid and that newly demanded.

The duplication of collection can be configured as the equivalent, in the field of tax law, of the criminal principle of the prohibition of "non bis in idem", being a cause of illegality of the tax act".

In view of the evidence elements that the Applicants presented before the AT in the administrative process of divergence that took place before the assessment here in discussion (no. 9 of the established matter of fact), nothing would justify the reference in the reasoning of the decision that gave rise to the additional 2016 assessment that "... it is not clear in what value the 'reallocation of income' should be made given that the other fields of the annex, which were completed in 2 annexes J (fields 420, 408, 423 and 414) relate to other types of income than those enumerated in article 4 of the aforementioned Decree-Law 62/2005, and which gave rise to this process".

The Applicants had presented, at the prior hearing stage, the document reproduced in 7. of the established matter of fact, which makes it possible to understand, under Portuguese tax law, what type of income is at issue.

Accordingly, the request for arbitral pronouncement can only be upheld on the basis of the finding that duplication of collection occurred, a non-conformity with law that leads to the annulment of the acts challenged here, as will be proceeded with.

Therefore, in this case, there is always a legal non-conformity, subsumable to the provision of the rule contained in paragraph a) of article 99 of the CPPT.

In view of the viability of one of the defects invoked by the Applicants, charged against the assessments at issue here, it would be futile for the TAS to pronounce on the remaining defects invoked and referred to in paragraph g) of the Report of this decision.

Request for condemnation of the AT to pay indemnity interest and reimbursement of amounts overpaid

It was proved in 9 of the established matter of fact that "on 05.12.2016 the Applicants were notified of the additional Personal Income Tax assessment no. 2016…, of 25.11.2016, in the amount of euros 21,480.85 (twenty-one thousand four hundred and eighty euros and eighty-five cents), including compensatory interest, in the amount of euros 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), all relating to the year 2012, which resulted in an additional amount payable of 10,710.67 euros, with payment deadline of 09.01.2017, which amount they paid on 05.01.2017 – in accordance with articles 35 to 38 of the ppa and documents nos. 1, 2, 12 and 13 attached with the ppa".

And previously, the Applicants had already paid the Personal Income Tax amounts that were assessed to them in 2013 and 2015 for the year 2012.

By annulling, as shall be annulled, the additional Personal Income Tax and interest assessments challenged here (of 2016), for being in non-conformity with law, it follows that the Applicants are entitled to reimbursement of the amount overpaid.

They further request condemnation of the AT to pay indemnity interest.

In accordance with the provision in paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the Tax Administration from the end of the period prescribed for the appeal or challenge, with this Administration, in the exact terms of the viability of the arbitral decision in favor of the taxpayer and until the end of the period prescribed for the spontaneous execution of sentences of tax courts, "to restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed, adopting the necessary acts and operations for such effect", which is in line with the provision in article 100 of the LGT (applicable by force of the provision in paragraph a) of no. 1 of article 29 of the RJAT), which establishes that "the tax administration is obliged, in the event of total or partial viability of a claim, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject to the dispute, including the payment of indemnity interest, if applicable, from the end of the period for execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals functioning at CAAD, making no reference to condemnatory decisions, it should be understood that the powers which, in a process of judicial challenge, are attributed to the tax courts are included in their jurisdiction, this being the interpretation that is in line with the meaning of the legislative authorization on which the Government based itself in approving the RJAT, in which it proclaims, as the first guideline, that "the tax arbitral process should constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge process, although essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of indemnity interest, as is apparent from article 43, no. 1, of the LGT, which establishes that "indemnity interest is due when it is determined, in a gracious claim or judicial challenge, that there was an error attributable to the services which results in payment of the tax debt in an amount greater than that legally due" and from article 61, no. 4 of the CPPT (as amended by Law no. 55-A/2010, of 31 December, corresponding to no. 2 in the original wording), which states that "if the decision that recognized the right to indemnity interest is judicial, the payment deadline runs from the beginning of the deadline for its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT, in stating that "payment of interest, regardless of its nature, is due, in the terms provided for in the general tax law and in the Code of Procedure and Tax Process", must be understood as permitting the recognition of the right to indemnity interest in the arbitral process.

In the case at hand, it is manifest that, following the partial annulment of the assessments (Personal Income Tax and interest) which shall be proceeded with, there is cause for reimbursement of the tax and interest paid in excess, by force of the aforementioned articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as such is essential to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed".

The substantive regime of the right to indemnity interest is regulated in article 43 of the LGT, which establishes, in what is relevant here, the following:

Article 43

Undue payment of tax obligation

1 – Indemnity interest is due when it is determined, in a gracious claim or judicial challenge, that there was an error attributable to the services which results in payment of the tax debt in an amount greater than that legally due.

2 – It is also considered that there is an error attributable to the services in cases in which, although the assessment is made on the basis of the taxpayer's declaration, the taxpayer has followed, in its completion, the generic guidelines of the tax administration, duly published.

3 - Indemnity interest is also due in the following circumstances:

a) When the legal deadline for official restitution of taxes is not met;

b) In case of annulment of the tax act by initiative of the tax administration, from the 30th day after the decision, without a credit note having been processed;

c) When the revision of the tax act by the taxpayer's initiative takes place more than one year after the taxpayer's request, unless the delay is not attributable to the tax administration.

4 - The rate of indemnity interest is equal to the rate of compensatory interest.

5 - In the period between the date of the end of the deadline for spontaneous execution of a final court judgment and the date of issuance of the credit note, regarding the tax that should have been restituted by final court judgment, interest on arrears is due at a rate equivalent to double the rate of interest on arrears defined in general law for debts to the State and other public entities. (Added by Law no. 64-B/2011, of 30 December).

The illegality of the additional assessments is attributable to the Tax Administration, which issued them based on presumptions of fact that did not obtain: non-inclusion, by the Applicants, of income in the 2012 income declaration.

In the present case the regime of no. 1 of article 43 of the LGT is to be applied.

Consequently, the Applicants are entitled to indemnity interest, in accordance with articles 43, no. 1, of the LGT and 61 of the CPPT, from 05.01.2017, regarding the amount overpaid of 10,710.67 euros.

Indemnity interest is due on said amount, at the statutory default rate, in accordance with articles 43, nos. 1, and 35, no. 10 of the LGT, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April, from the date indicated above and until the issuance of the respective credit note.

Determination of the value of the case

In the request for pronouncement, the Applicants indicate as the value of the economic benefit 10,710.67 euros, that is, the amount they overpaid, resulting from the additional assessment at issue here (including the interest).

However, in the preamble of the request for pronouncement they state that they seek the: "CONSTITUTION OF A SINGLE ARBITRAL TRIBUNAL with a view to the declaration of illegality of the Personal Income Tax assessment no. 2016…, of 25.11.2016, in the amount of EUR 21,480.85 (twenty-one thousand four hundred and eighty euros and eighty-five cents), including compensatory interest, in the amount EUR 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), all relating to the year 2012".

And in the final prayer they state: "should the Request be judged upheld as proved by the Arbitral Tribunal, the annulment of the assessments should be ordered, the reimbursement of the amounts paid, plus indemnity interest", concluding as follows: "in these terms, and in the application of the applicable law, you should order the constitution of an Arbitral Tribunal which shall examine the legality of: a) Personal Income Tax assessment no. 2016 …, of 25.11.2016, in the amount of EUR 21,480.85, (twenty-one thousand four hundred and eighty euros and eighty-five cents), relating to 2012; and, consequently, b) Compensatory interest assessment no. 2016 …, in the amount of EUR 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), amount already included in the Personal Income Tax assessment cited above".

Article 97A of the CPPT, under the heading "value of the case" states that: "1 - The allowable values, for the purpose of costs or other provisions in the law, for actions that take place in the tax courts, are the following: a) When an assessment is challenged, that of the amount whose annulment is sought."

In an annotation to article 97A in the CPPT, Volume II, 6th Edition, 2011, by Jorge Lopes de Sousa, it is stated: "In view of the rule of paragraph a) of no. 1 of this article 97-A, it must be concluded that, when a tax assessment act is challenged, the value of the process is only that of the amount whose annulment is sought, which will be that of the assessment itself, if total annulment is requested, or the value of the part challenged, if only partial annulment is sought".

The Applicants challenge the assessments (Personal Income Tax and interest) in their entirety, not having stated that they were doing so partially, despite having been invited to clarify this inconsistency.

In view of the foregoing, the value of the economic benefit is set at 21,480.85 euros, the amount corresponding to the Personal Income Tax collection contained in the assessment note, placed globally in question by the Applicants.

V - OPERATIVE PART

On the grounds and basis set out above, it is decided:

  1. To judge the request for annulment of the additional Personal Income Tax assessment no. 2016…, of 25.11.2016, in the amount of euros 21,480.85 (twenty-one thousand four hundred and eighty euros and eighty-five cents), including the compensatory interest assessment, in the amount of euros 1,311.27 (one thousand three hundred and eleven euros and twenty-seven cents), all relating to the year 2012, in the part in which it resulted in an additional Personal Income Tax amount payable of 10,710.67 euros, partially annulling in the proportion of the amount to be reimbursed.

  2. To judge the request for reimbursement of 10,710.67 euros and for condemnation of the AT to the payment of indemnity interest, calculated on this amount, from 05.01.2017, until issuance of the respective credit note.

  3. To judge the request without merit in the remaining part of the challenged assessment, beyond the part of the amount to be reimbursed.

Value of the case: In accordance with the provision in article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and paragraph a) of no. 1 of article 97A of the CPPT), the value of the case is set at 21,480.85 euros.

Costs: In accordance with the provision in article 22, no. 4, of the RJAT, the amount of costs is set at € 1,224.00 according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, of which 296.00 euros (24.18%) are charged to the Applicants and 928.00 euros (75.82%) are charged to the Respondent, in view of the defaults.

Notify.

Lisbon, 08 November 2017

Single Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared by computer in accordance with the provision in article 131, no. 5, of the Code of Civil Procedure (CPC), applicable by reference from article 29 of the RJAT.

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

Frequently Asked Questions

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What constitutes double taxation (duplicação de colecta) under Portuguese tax law?
Under Portuguese tax law, double taxation (duplicação de colecta) occurs when the same taxpayer is assessed tax multiple times on identical income for the same tax period. Article 205 of the Tax Procedure Code (CPPT) and article 62 of the Portuguese Constitution (CRP) expressly prohibit duplicate collection. To constitute duplicação de colecta, four elements must be present: (1) the same taxpayer, (2) the same taxable income or facts, (3) the same tax period, and (4) multiple tax assessments. This prohibition protects taxpayers from being taxed twice on income already subject to definitive taxation and prevents the State from collecting more tax than legally due. When proven, duplicate assessments must be annulled and overpaid amounts refunded with indemnity interest.
How are capital income earnings from Luxembourg taxed under the EU Savings Directive in Portugal?
Capital income from Luxembourg is taxed in Portugal under the EU Savings Directive 2003/48/EC framework, which established automatic exchange of information between EU member states regarding interest payments. Luxembourg financial institutions must report interest and capital income paid to Portuguese residents directly to Portuguese tax authorities. Portuguese taxpayers must declare this income in their annual IRS return (Model 3, Annex J), specifying the foreign bank account details. The income must be properly classified and quantified according to Portuguese IRS Code (CIRS) rules, as Luxembourg reporting may not follow Portuguese tax classification standards. Taxpayers may need to prepare conversion tables to correctly transpose foreign bank statements into Portuguese tax categories. The income is subject to Portuguese IRS taxation at applicable rates, with potential tax credit for any withholding tax paid in Luxembourg to avoid international double taxation.
Can taxpayers challenge additional IRS tax assessments through CAAD tax arbitration?
Yes, taxpayers can challenge additional IRS assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration under Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Tax Matters). Articles 2 and 10 RJAT grant taxpayers the right to request constitution of a Single Arbitral Tribunal (Tribunal Arbitral Singular - TAS) as an alternative to judicial courts. The request must be filed within the statutory deadline specified in article 10(1)(a) RJAT. CAAD arbitration offers advantages including faster resolution, specialized arbitrators with tax expertise, lower costs than judicial proceedings, and binding decisions equivalent to court judgments. Taxpayers can challenge assessments on grounds of illegality, including substantive errors, procedural violations, or constitutional breaches. The Tax Authority must respond and provide the administrative file, and both parties have full procedural rights including hearings and written submissions.
What are the taxpayer's rights during the prior hearing (audição prévia) in a tax inspection procedure?
During the prior hearing (audição prévia) in tax inspection procedures, taxpayers have fundamental procedural rights under article 60 of the General Tax Law (LGT), article 60 of the Supplementary Tax Inspection Regime (RCPIT), and article 45 of the Tax Procedure Code (CPPT). These include: (1) the right to be notified of proposed tax adjustments before final assessment; (2) the right to submit written arguments, evidence, and documentation within the deadline granted; (3) the right to have all evidence presented duly considered by the tax authority; (4) the right to receive a reasoned decision addressing the arguments and evidence submitted, as required by article 267(5) of the Portuguese Constitution (CRP). Failure by the Tax Authority to consider evidence presented or to provide adequate reasoning constitutes a serious procedural defect that can invalidate the assessment. These rights ensure taxpayers can effectively defend themselves before definitive taxation occurs.
Are compensatory interest and indemnity interest applicable when an illegal IRS assessment is annulled?
Yes, both compensatory interest and indemnity interest are applicable when illegal IRS assessments are annulled. Compensatory interest (juros compensatórios) is charged by the Tax Authority on late or unpaid taxes; when an assessment is annulled as illegal, any compensatory interest charged must be refunded as it was improperly collected. More importantly, indemnity interest (juros indemnizatórios) becomes due to the taxpayer under article 43 of the General Tax Law (LGT) on all amounts overpaid due to illegal assessments. Indemnity interest runs from the date of payment until actual reimbursement, compensating taxpayers for the State's unlawful retention of their funds. The rate is legally defined and aims to restore taxpayers to the financial position they would have occupied had the illegal assessment never occurred. This constitutes a fundamental guarantee protecting taxpayers against illegal State exaction and ensuring full restitution when taxpayer rights are violated.