Process: 250/2018-T

Date: January 21, 2019

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether a surviving de facto partner qualifies for Stamp Tax exemption on inheritance under Article 6(e) of the Portuguese Stamp Tax Code. The claimant inherited assets from her deceased partner and claimed exemption based on their de facto union status, supported by a certificate from the Parish Board and recognition by the General Pensions Fund for survivor's pension purposes. The Portuguese Tax Authority (AT) rejected the exemption, arguing that the couple never shared the same tax domicile and filed separate IRS returns declaring themselves as single rather than in a de facto union. The AT contended that Article 14(2) of the Personal Income Tax Code (CIRS) requires identity of tax domicile for two years and that this prerequisite takes precedence over the proof requirements in Law 7/2001 on Protection of De Facto Unions. The tribunal examined whether tax-specific requirements override general civil law provisions for proving de facto unions, and whether administrative recognition by other public entities (pension authority, parish board) suffices for tax exemption purposes. The case illustrates the conflict between substantive proof of a de facto relationship and formal tax compliance requirements, raising questions about whether the AT can deny exemptions despite evidence accepted by other state authorities for similar purposes.

Full Decision

ARBITRAL DECISION

The Arbitrators Carlos Cadilha (Presiding Arbitrator), João Taborda da Gama and Raquel Franco (Auxiliary Arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to constitute an Arbitral Tribunal, hereby decide as follows:

I – REPORT

In the present request for arbitral pronouncement, the following acts of assessment of Stamp Tax no. ..., of 17.07.2017 and no. ..., of 20.11.2017, in the total amount of €123,122.22, are impugned. These were issued following the presentation by the Claimant of Stamp Tax declaration form model 1, following the death of A..., NIF....

The application for constitution of the arbitral tribunal was filed on 18.05.2018, having been accepted and automatically notified to the Tax and Customs Authority (AT).

The Claimant did not proceed to appoint an arbitrator, whereby, in accordance with the provisions of subparagraph a) of no. 2 of article 6 and subparagraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable time-frame.

On 05.07.2018 the parties were notified of these appointments and expressed no intention to refuse any of them.

In accordance with the provisions of subparagraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 25.07.2018.

On 16.10.2018, the Respondent, duly notified for that purpose, submitted its response, defending itself solely by way of contestation.

The hearing referred to in article 18 of the RJAT took place on 20.11.2018, at 11:30. At it, the testimonial evidence indicated by the Claimant was produced, and witness B... was heard.

Following the granting of a period for the presentation of written submissions, these were presented by both the Claimant and the Respondent.

The parties were further notified that the final decision would be delivered by 24.01.2019.

From the Application

The Claimant, sole beneficiary and head of household of the estate of Mr. A..., alleges that she demonstrated the existence of a de facto union between the two, in compliance with the requirements provided for in no. 4 of article 2-A of Law no. 7/2001 of 11 May, as amended by Law no. 23/2010 of 30 August and by Law no. 2/2016 of 29 February, as well as those contained in Circular Memorandum no. 20183/2016 of 3 March from the Tax and Customs Authority itself.

For that reason, she understands that the requirements are met to benefit from the subjective exemption from stamp tax in transmission by death resulting from the death of Mr. A..., in accordance with subparagraph e) of article 6 of the Stamp Tax Code, in the wording on the date of death.

Following the presentation of stamp tax declaration form model 1, following the death of Mr. A..., the Claimant was notified of the additional assessment of that tax no. ..., dated 07.07.2017, which exempted her from payment of that tax in the transmission by death of the deceased's assets. However, on 28.07.2017, the Claimant was notified of the additional assessment no. ..., made on the same stamp tax declaration form model 1, in the amount of €119,634.97. Later, on 20.11.2017, this additional assessment was corrected and replaced by another, numbered ..., in the amount of €123,122.22, which already included the value of tax applied to items 18 to 22, which had meanwhile been added to the initial declaration.

The Claimant filed a petition for administrative review regarding both assessments, disagreeing with the change of the de facto union status declared by her in the stamp tax notification to the status of "other", unilaterally altered by the Tax Authority. She understands that she is entitled to the exemption provided for in subparagraph e) of article 6 of the CIS and accordingly considers that the impugned assessments should be annulled.

From the Response

The Respondent contends by alleging facts which, in its understanding, demonstrate that the de facto union alleged by the Claimant should not be taken into account for the purposes of the application of stamp tax in the transmission by death in question.

In summary, it alleges that the Claimant and the deceased never had the same tax domicile and that they filed income tax returns for IRS purposes in successive years, in which they did not declare themselves as in a de facto union, but rather as "Single, divorced or judicially separated".

Furthermore, the AT argues that, for tax purposes, the existence of a de facto union must be invoked by the taxable persons and there must be identity of tax domicile during the period required by law, namely for two years. It relies on the provisions of article 14, no. 2 of the CIRS, in accordance with which "The existence of identity of tax domicile of the taxable persons during the period required by law for verification of the prerequisites of de facto union, and during the taxation period, creates a presumption of the existence of de facto union when this is invoked by the taxable persons" – a provision which the AT understands as precluding the application of the rules relating to proof of de facto union contained in the Law for Protection of De Facto Unions.[1]

As regards the verification of the existence of a de facto union through the certificate issued by the Parish Board of ... on 16/02/2017, the AT considers that it does not allow it to fill the gap arising from non-compliance with the prerequisites of de facto union for tax purposes and notes that it declares as the Claimant's residence another address located in Vendas Novas, different from all known addresses and not coinciding with that of Mr. A..., nor with his tax domicile.

II. PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, subparagraph a), 5 and 6, no. 1 of the RJAT.

The parties have legal personality and capacity, are entitled to participate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March.

The proceedings do not suffer from any nullities.

Accordingly, there is no obstacle to the examination of the case.

III. DECISION

FACTUAL MATTERS

A.1. Facts Established as Proven

  • On 24 September 2016, Mr. A... died.

  • Mr. A... left as his sole testamentary heir Ms. Engineer Ms. C... (cf. the certification of heirs and the will attached to the file as document 1 of the initial pleading).

  • The Claimant receives a survivor's pension from the General Pensions Fund (Caixa Geral de Aposentações) in the capacity of de facto union partner of the deceased (cf. document 3 of the initial pleading).

  • On 09.03.2017, the Claimant filed the Stamp Tax Notification Relating to Gratuitous Transfers, no. ..., with the Tax Office of Lisbon –..., having declared the relationship with the transferor as "De Facto Union" (cf. document 4 of the initial pleading).

  • The Claimant was notified of the additional assessment no. ..., dated 07.07.2017, which exempted her from payment of that tax in the transmission by death of the deceased's assets (cf. document 5 attached to the initial pleading).

  • On 17.07.2017, the AT unilaterally altered the degree of kinship between the Claimant and the deceased to "Other" (cf. pp. 4 to 6 of the administrative file – PA).

  • On 28.07.2017 the Claimant was notified of the additional assessment no. ..., made on the same stamp tax declaration form model 1, in the amount of €119,634.97 (cf. document 6 attached to the initial pleading).

  • On 24.10.2017, the Claimant filed a petition for administrative review regarding the additional assessment no....

  • On 20.11.2017, the additional assessment no. ... was corrected and replaced by another, numbered ..., in the amount of €123,122.22, which already included the value of tax applied to items 18 to 22, which had meanwhile been added to the initial declaration (cf. document 8 attached to the initial pleading).

  • The deadline for voluntary payment of the additional assessment no. ... was 28.02.2018 (cf. document 9 attached to the initial pleading).

  • On 10.10.2017, enforcement proceedings no. ...2017... were initiated (cf. p. 20 of the PA).

  • On 06.03.2018 a petition for administrative review was filed regarding the additional assessment no. ... (cf. p. 26 of the PA).

  • By order dated 12.06.2018 of the Head of Tax Office, a decision to archive was issued in the administrative review proceedings no. ...2017..., taking into account the replacement of the contested assessment.

  • The aforesaid decision was notified, to the person of the appointed representative, by registered mail, on 27.06.2018.

  • The Claimant declared as tax domicile Rua ..., in Lisbon, with effective date of 30.01.2017 (cf. document 1 attached to the Response of the AT).

  • Until 30.01.2017, the tax domicile declared by the Claimant was located on rua ... and ..., ...–..., in the locality of ..., municipality of Palmela (cf. document 2 attached to the Response of the AT).

  • From 10.05.2013 until 30.01.2017 the tax address declared by the Claimant for VAT purposes was Rua ... no. ..., in Lisbon (cf. document 2 attached to the Response of the AT).

  • The Claimant declared, in the income tax returns for IRS for the years 2013 to 2016, in the section relating to the civil status of the taxable person, the number corresponding to "Single, divorced or judicially separated" (cf. documents 3 to 6 attached to the Response of the AT).

  • In the income tax returns for IRS relating to the years 2013 to 2016, Mr. A... declared as civil status "Single, divorced or judicially separated" (cf. documents 7 to 10 attached to the Response of the AT).

  • The Claimant and A..., at the date of his death, lived in conditions analogous to those of spouses for more than two years.

A.2. Facts Established as Not Proven

There are no facts relevant to the decision that have not been considered proven.

A.3. Reasoning of the Proven and Unproven Factual Matters

With regard to factual matters, the Tribunal is not required to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish proven facts from unproven facts (cf. article 123, no. 2 of the CPPT and article 607, no. 3 of the CPC, applicable by virtue of article 29, no. 1, subparagraphs a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are selected and delimited according to their legal relevance, which is established with regard to the various plausible solutions to the legal question(s) (cf. article 596 of the CPC, applicable by virtue of article 29, no. 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110, no. 7 of the CPPT, the documentary and testimonial evidence and the PA attached to the file, the facts listed above were considered proven with relevance to the decision.

Allegations made by the parties and presented as facts consisting of strictly conclusive statements, incapable of proof and whose truthfulness had to be assessed in relation to the concrete factual matter consolidated above, were not considered proven or not proven.

B. AS TO THE LAW

The issue to be decided in the present proceedings is relatively straightforward: it is a matter of determining whether the Claimant should or should not be considered, for stamp tax purposes, as a de facto union partner of the deceased. If it is determined that she has such status, then she will be exempted from stamp tax on the acquisition of assets by inheritance from the deceased under the provisions of subparagraph e) of article 6 of the Stamp Tax Code (CIS). Otherwise, that exemption will not apply.

Let us examine this.

In accordance with subparagraph e) of article 6 of the CIS, the following are exempt from this tax: "the spouse or de facto union partner, descendants and ascendants, in gratuitous transfers subject to item 1.2 of the general table of which they are beneficiaries".[2]

The Claimant declared the status of de facto union partner of the deceased in the stamp tax notification which she filed following his death. Both in the context of the administrative review proceedings which she filed and in this same tribunal, she sought to sustain, through various documents and the testimonial evidence produced at the hearing, that she lived in a de facto union with the deceased at the time of his death.

The AT, however, understands differently and for that reason unilaterally altered the stamp tax notification filed by the Claimant, replacing the status of "de facto union partner" with the status of "other", contending that the documents which the AT itself has attached prove that in the AT's database the tax domiciles of both the Claimant and Mr. A... never coincided at the same address and that they never declared themselves as de facto union partners, in particular in the IRS returns which they filed.

This tribunal considers, in view of the documents presented – see in particular the certificate from the parish board certifying the status of de facto union partners and the statement from the General Pensions Fund attesting that the Claimant receives a survivor's pension from the deceased as she was his de facto union partner – and the testimonial evidence produced at the hearing, that elements are present which allow for sustaining the de facto union between the Claimant and the deceased. The issue that remains is, therefore, whether the facts that (i) in the AT's registration system, the Claimant and the deceased never had tax domicile at the same address and (ii) never filed IRS returns as de facto union partners, are sufficient to preclude the status of de facto union partner of the Claimant resulting from the other elements adduced in these proceedings.

Before the AT, indeed, the deceased and the Claimant were never considered, nor did they seek to be until the time of his death, de facto union partners. But are these formal elements – declaration of tax domicile and declaration of civil status before the AT – sufficient to disregard a situation which, from a substantive standpoint, presents no doubts to this tribunal? We believe the answer should be in the negative.

On the one hand, as is stated in the Decision rendered by the arbitral tribunal constituted with the CAAD in case 144/2016-T, "the concept of tax domicile is a formal concept, which may or may not coincide with the actual and permanent residence of the taxable person, since the predominant interest of the rule is to ensure that the taxable person, whatever his or her particular personal or professional circumstances, in the country or abroad, is quickly and effectively reachable and notified of all acts and for all tax-relevant purposes. For this reason, the concept also includes the concept of electronic mailbox and, in the case of non-residents, requires the indication of a tax representative. It is clear that this concept will not, in many cases, coincide with that of actual permanent residence. By way of example only, professional reasons may require a taxable person to be absent on working days from the area of his or her residence, as frequently happens with teachers, judges, doctors, nurses, engineers and many other professionals, who may for that reason prefer to indicate their tax domicile at the seat of their place of work to make it easier for them to be contacted, notified and receive their correspondence, in particular registered correspondence, which they would otherwise be deprived of receiving or even be able to pick up at the post office by notice, since this can only occur on working days and during the business hours of the respective services."

It is therefore possible for a person to declare a tax domicile to the AT while having their actual residence, that is to say residing, in another location. Taking into account the purpose served by the concept of tax domicile, persons may simply assign to it the importance of an address for the purposes of receiving notifications from the AT, which need not coincide with the place where they live.

On the other hand, contrary to what the AT contends, the provision in no. 2 of article 14 of the CIRS ("The existence of identity of tax domicile of the taxable persons during the period required by law for verification of the prerequisites of de facto union, and during the taxation period, creates a presumption of the existence of de facto union when this is invoked by the taxable persons") is a provision intended to facilitate proof of de facto unions and not to render it impossible when the fact to which the provision refers – identity of tax domicile – does not occur. In other words, if that identity is established, proof of the union is made; if it is not established, it is still possible to prove it by resorting to the elements provided for in civil law.

Thirdly, the fact is that the Stamp Tax Code grants the exemption to the spouse and to the de facto union partner without defining either status, the content of which, by virtue of the provision in article 11, no. 2 of the General Tax Law, must be sought in the Civil Code and in separate legislation regarding de facto union. If the legislator refers to the de facto union partner expressly, as occurs in subparagraph e) of article 6 of the CIS, as a holder of the right to tax exemption, any interpretation that denies that status to someone who, under civil law, has it, is an interpretation that violates the rules provided for in article 9 of the Civil Code by not finding expression in the letter of the law.

The comparison of the present situation with that of two married persons is inevitable. It should be stressed that, in light of the law in force,[3] "a de facto union is the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years." Now, if, by any chance, two married persons declare different tax domiciles to the AT and submit IRS returns in which they do not mention their status as married,[4] do they cease to be considered married, including for the purposes of the application of stamp tax in the case of transmission by death? Certainly not, because it is not within the power of the AT to strip effects from such a legal situation recognized by civil law.

The same should apply to de facto unions: if someone proves, in accordance with civil law, that he or she lived in a de facto union with another person, it is not the tax domicile or the civil status declared for IRS purposes that annuls that same situation. In accordance with the Law for Protection of De Facto Unions, specifically its article 2-A, numbers 1 and 2, "In the absence of legal or regulatory provision requiring specific documentary proof, de facto union is proved by any legally admissible means" and "In the event that de facto union is proved by a declaration issued by the competent parish board, the document must be accompanied by a declaration by both members of the de facto union, under oath, that they have lived in de facto union for more than two years, and by certified copies of the full birth registration of each of them." In the present case, these elements were presented, from which proof of the de facto union results.

Thus, we conclude that the exemption referred to in article 6, subparagraph e) of the CIS applies, from which the Claimant benefits, and that the impugned assessments are unlawful owing to a violation of law.

C. DECISION

For these reasons, this Arbitral Tribunal finds the arbitral application to be well-founded and, accordingly:

  1. Annuls the Stamp Tax assessment acts no. ..., of 17.07.2017 and no. ..., of 20.11.2017, in the total amount of €123,122.22;

  2. Condemns the Respondent to pay the costs of the proceedings, in the amount set out below.

D. Value of the Proceedings

The value of the proceedings is fixed at €123,122.22, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €3,060.00 in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the application was well-founded, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulation.

Let notice be given.

Lisbon, 21 January 2019

The Presiding Arbitrator

(Carlos Cadilha)

The Auxiliary Arbitrator

(João Taborda da Gama)

The Auxiliary Arbitrator

(Raquel Franco)

[1] Approved by Law no. 7/2001 of 11 May, and amended by Law no. 2/2016 of 29/02 and by Law no. 23/2010 of 30/08.

[2] Wording of Law no. 64-A/2008 of 31 December.

[3] We refer to the Law for Protection of De Facto Unions, approved by Law no. 7/2001 of 11 May, and amended by Law no. 2/2016 of 29/02 and by Law no. 23/2010 of 30/08, specifically the provision in no. 2 of article 1.

[4] Or even in which they declare themselves as de facto separated, since the status of spouse is compatible with and remains even after judicial separation of persons and property.

Frequently Asked Questions

Automatically Created

Is a de facto (common-law) partner exempt from Stamp Tax on inheritance in Portugal?
Yes, a de facto partner can be exempt from Stamp Tax on inheritance in Portugal under Article 6(e) of the Stamp Tax Code, provided the requirements for recognizing a de facto union are met. The exemption places de facto partners in the same position as spouses for inheritance tax purposes. However, the Tax Authority may require specific tax compliance prerequisites beyond those in Law 7/2001.
What are the legal requirements to prove a de facto union for Stamp Tax exemption purposes under Portuguese law?
The legal requirements for proving a de facto union for Stamp Tax exemption purposes include compliance with Law 7/2001 as amended, which generally requires two years of cohabitation in conditions similar to marriage. However, Article 14(2) of the Personal Income Tax Code (CIRS) establishes that identity of tax domicile during the required period creates a presumption of de facto union when invoked by taxpayers. The Tax Authority interprets this to require: (1) shared tax domicile for at least two years, (2) declaration of de facto union status in IRS returns during that period, and (3) formal invocation by both parties during the taxation period. Documentary evidence from parish boards or pension authorities may be insufficient if these tax-specific requirements are not met.
How does Article 6(e) of the Portuguese Stamp Tax Code apply to unmarried partners in succession cases?
Article 6(e) of the Portuguese Stamp Tax Code provides a subjective exemption from Stamp Tax for transmissions by death to spouses or de facto partners, along with descendants and ascendants. This provision aims to treat de facto unions equally with marriages for inheritance tax purposes. The application requires proof that a de facto union existed at the time of death according to applicable law. However, the Tax Authority interprets this exemption in conjunction with Article 14(2) CIRS, requiring not only substantive proof of the relationship but also compliance with formal tax domicile and declaration requirements that demonstrate continuous recognition of the union for tax purposes.
What documentation must be submitted to the Portuguese Tax Authority to claim a de facto union exemption from Stamp Tax?
To claim a de facto union exemption from Stamp Tax on inheritance, taxpayers must submit: (1) Stamp Tax declaration form Model 1 declaring the relationship as 'de facto union'; (2) evidence of shared tax domicile for at least two years prior to death; (3) previous IRS returns where both parties declared themselves as being in a de facto union; and (4) supporting documentation such as certificates from parish boards under Law 7/2001. According to the Tax Authority's interpretation, certificates from other public entities (pension funds, parish boards) recognizing the union may be insufficient if the couple did not maintain identical tax domiciles and did not declare the union in their tax returns during the required period.
Can the Portuguese Tax Authority deny Stamp Tax exemption to a de facto partner despite compliance with Law 7/2001 requirements?
Yes, the Portuguese Tax Authority can deny Stamp Tax exemption to a de facto partner despite apparent compliance with Law 7/2001 requirements if the couple failed to meet tax-specific prerequisites. The AT interprets Article 14(2) of the Personal Income Tax Code as establishing additional requirements for tax purposes: identity of tax domicile during the statutory period and formal declaration of the union in IRS returns. The AT considers these tax-specific requirements as precluding reliance solely on the proof mechanisms in Law 7/2001. This interpretation means that administrative recognition by other public entities (such as pension authorities or parish boards) does not automatically bind the Tax Authority, and the substantive existence of a de facto union under civil law may be insufficient without compliance with tax formalities.