CAAD 256/2015-T: IRS Tax Residency Dispute for Non-Resident in Brazil with Compensatory Interest

ARBITRAL DECISION[1]

1.      Report

 

A - General

 

1.1.            A …, resident at …, no. …, tax identification number …, (hereinafter referred to as "Claimant"), filed, on 17.04.2015, a request for constitution of a single arbitral tribunal in tax matters, which was accepted, seeking declaration of illegality of the decision denying the Hierarchical Appeal no. …2014…, issued by the Director of Services of DSIRS and consequent annulment of the tax act for assessment of Income Tax on Natural Persons (hereinafter "IRS") no. 2013…, which constitutes document no. 11 attached to the case file with the request for arbitral pronouncement, as well as of the statement of calculation of compensatory interest no. 2013…, relating to the year 2011, attached to the case file with the request for arbitral pronouncement as document no. 12.

 

1.2.            Pursuant to the provisions of paragraph a) of no. 2 of article 6th and paragraph b) of no. 1 of article 11th of Decree-Law no. 10/2011, of 20 January, as amended by article 228th of Law no. 66-B/2012, of 31 December, the Ethics Council of the Centre for Administrative Arbitration (CAAD) appointed as arbitrator Nuno Pombo, and the parties, after being duly notified, did not raise any objection to this appointment.

 

1.3.            By order of 04.05.2015, the Tax and Customs Administration (hereinafter referred to as "Respondent") appointed Messrs. Dr. … and Dr. … to intervene in the present arbitral proceedings, on behalf and in representation of the Respondent.

 

1.4.            In accordance with the provisions of paragraph c) of no. 1 of article 11th of Decree-Law no. 10/2011, of 20 January, as amended by article 228th of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 30.06.2015.

 

1.5.            On the same day 30.06.2015, the senior official of the Respondent's service was notified to, if so desired, within 30 days, present a response and request additional evidence production.

 

1.6.            On 11.09.2015 the Respondent presented its response.

 

 

B – Position of the Claimant

 

1.7.            The Claimant is a non-resident, for tax purposes, within Portuguese territory, having had its tax residence, since 17.08.2010, in Brazil.

 

1.8.            The Claimant presented in March 2011, in Portugal, the competent income statement for IRS purposes for the year 2010, since in that year, having remained more than 183 days within Portuguese territory, should be considered resident in Portugal.

 

1.9.            On 14.03.2012, the Claimant submitted a request to its Tax Service, declaring that it had ceased to reside in Portugal, for all legal purposes, from 01.01.2011, demonstrating that it had come to reside in Brazil from 17.08.2010.

 

1.10.        By the same request the Claimant appointed a tax representative in Portugal.

 

1.11.        The Claimant is married and its spouse continued to reside in Portugal during the year 2011, whereby the Claimant, pursuant to the terms and for the purposes of the provisions in no. 2 and no. 3 of article 16th of the Code of Income Tax on Natural Persons (CIRS) and of no. 1 of article 64th of the Code of Tax Procedure and Process (CPPT), by the request mentioned in 1.9., rebutted the respective presumption of residence, and the Respondent did not rule on it within the 6-month period referred to in no. 3 of article 64th of CPPT.

 

1.12.        The Claimant did not present in Portugal any income statement for the year 2011, since, being a non-resident for tax purposes in that year, it was exempt from presenting it pursuant to the provisions of article 58th of CIRS.

 

1.13.        Its income for the year 2011 was declared in Brazil, the country where it had its tax residence in that year.

 

1.14.        The Claimant's tax representative, on 30.07.2012, was notified of the need for the Claimant to present or electronically submit the income statement form 3 relating to IRS for the year 2011, and the Claimant, within the period set by the Respondent, replied to the effect that it was not a tax resident in Portugal from 01.01.2011, attaching the request mentioned in 1.9., a response which also did not elicit any reaction from the Respondent.

 

1.15.        On 31.10.2012 a new letter was sent to the address of the Claimant's tax representative whereby the Respondent urged the Claimant to present its income statement for 2011, making no reference to the previous letter nor to the response and requests of the Claimant, completely ignoring the issue of the Claimant's tax residence in the year 2011.

 

1.16.        The Claimant replied to said letter on 07.11.2012, reaffirming what it had already brought to the attention of the Respondent, which again chose not to react.

 

1.17.        In February 2013 the Claimant was notified of the Statement of Calculation of IRS no. 2013…, which imputed to it a total taxable income of € 215,316.02, requiring payment of € 16,724.47 as tax.

 

1.18.        The Statement of Calculation of IRS referred to in the preceding number indicates neither the reason that justifies it nor the legal basis that authorizes it.

 

1.19.        Also the Statement of Calculation of Compensatory Interest no. 2013… only refers to values and document numbers, being silent as to the legal basis framework that supports such calculation.

 

1.20.        The Claimant, not accepting the assessments now challenged, presented a Gracious Complaint against them in May 2013, by which it argued the lack of basis of said assessments, repeating everything it had already stated to the Respondent regarding its tax residence in Portugal in the year 2011.

 

1.21.        By letter of 16.09.2013 the Finance Directorate of Lisbon notified the Claimant of the Draft Dismissal of the Gracious Complaint, sustaining, in summary: (i) that the Claimant had been manager of various companies, having in that capacity earned employee income as a resident in Portugal in the year 2011; (ii) that the Claimant only communicated the change of its domicile on 14.03.2012; and (iii) that the Claimant on 31.12.2011 had a dwelling in Belas, in the municipality of Sintra.

 

1.22.        The Claimant, in exercise of its prior hearing right, offered sufficient evidence to contradict the statements of the Respondent, yet it nonetheless dismissed its Gracious Complaint.

 

1.23.        From the dismissal of the Gracious Complaint the Claimant appealed hierarchically, and the appeal was likewise dismissed with the sole ground that the Claimant had not proven that it remained in Portugal, during the year 2011, for fewer than 183 days.

 

1.24.        To avoid levy proceedings, the Claimant first presented a bank guarantee and then, on 13.03.2014, proceeded to pay the amount allegedly outstanding, plus interest.

 

1.25.        The Claimant understands that the assessments challenged suffer from the defects of lack of grounds and violation of the right to participate, since the Respondent never reacted to the requests presented by the Claimant at a time prior to the assessments, which constitutes a violation of the provisions in no. 7 of article 60 of the General Tax Law (LGT).

 

1.26.        The Claimant further understands that the assessment likewise suffers from the defect of violation of law, since it considers it as a tax resident in Portugal in 2011, which is not the case.

 

1.27.        The Claimant only communicated in 2012 that it was not a tax resident in Portugal for the purposes of the year 2011, since only after the year was completed could it properly determine the number of days it remained within Portuguese territory, which also explains why the Claimant was taxed as if it had been resident when it earned employee income in 2011, and it is moreover absurd the Respondent's intention to consider the Claimant as resident in Portugal in 2011 merely by the fact that it suffered withholdings as such.

 

1.28.        It is equally unsupported the conclusion that the Claimant had, on 31 December 2011, a dwelling under conditions that would suggest the intention to maintain and occupy it as habitual residence, since the Claimant's intention was precisely the contrary, which the Respondent does not contest regarding the following years, the Claimant's intention in 2011 and in the years that followed being no different.

 

1.29.        It is certain that the Respondent dismissed the Gracious Complaint presented by the Claimant for two reasons: (i) that the Claimant had remained in Portuguese territory for more than 183 days in 2011; and (ii) that the Claimant had not proven that it was taxed in Brazil as a tax resident in the year 2011, with this latter argument being clarified with the delivery, in the Hierarchical Appeal, of proof of the income statement presented in Brazil and of a certificate of tax residence also in Brazil, whereby the point at issue became limited to the first, the Claimant having demonstrated that it is not possible to conclude that it remained in Portugal for more than 181 days.

 

1.30.        For not being able to be considered resident in Portuguese territory in 2011, not only does the Claimant have no tax to pay but will have to be reimbursed for tax paid in excess, to which is added the right to compensation for wrongful provision of guarantee and to compensatory interest counted from the moment the debt was paid until its effective reimbursement.

 

 

C – Position of the Respondent

 

1.31.        The Respondent, in its response, begins by raising a preliminary question: that of the irregularity of the mandate of the illustrious representatives of the Claimant, for the competent power of attorney does not appear on the case file.

 

1.32.        The Claimant, both in the Gracious Complaint and in the Hierarchical Appeal it presented, confined itself to the merits of the assessment now at issue, which is why the Respondent understands that the Claimant cannot now invoke formal and procedural defects that it never argued in the administrative phase, with such invocation constituting an improper broadening of the cause of action.

 

1.33.        In any case, the Respondent contends that the assessment does not suffer from the defect of lack of grounds, since it was preceded by a set of acts and procedures duly grounded that clearly conveyed to the Claimant the logical and cognitive process that enabled it, containing the acts and procedures prior to the assessment all the elements necessary for its complete understanding.

 

1.34.        The Respondent equally rejects the idea that the assessment suffers from the defect of lack of grounds due to violation of the Claimant's right to participate, since the Claimant was duly notified to present the missing income statement, a circumstance which, pursuant to no. 2 of article 60th of the LGT, dispenses with said hearing.

 

1.35.        The Respondent further understands that the Claimant delivered a declaration of non-tax-residence dated 14.03.2012 with a view to producing retroactive effects to the year 2011 at the Tax Service, when the competent entity to assess it was the Directorate of Services for Registration of Taxpayers, which is why the intention to see retroactive effects associated with said declaration could not be taken into consideration.

 

1.36.        Furthermore, the Claimant did not present, at the time of delivery of the non-residence declaration referred to in the preceding number, the certificate of tax residence in Brazil, issued by the Brazilian tax authorities, containing the date from which it is considered a tax resident in that country, which is why the Respondent could not take for granted any date other than that of the presentation of the aforementioned declaration itself.

 

1.37.        The Respondent argues that the Claimant should have had until 31.12.2011 to communicate that in the year 2011 it had ceased to be resident within Portuguese territory, since the tax legal relationship stabilizes on 31 December of each year, with all elements of the tax legal relationship of IRS crystallizing on that date, including residence.

 

1.38.        Moreover, the Claimant's understanding collides with the provisions of article 19th of the LGT, namely with the rule of its number 3, which states that "the change of domicile is ineffective unless communicated to the tax administration".

 

1.39.        Notwithstanding other considerations, the fact is that the Claimant, in 2011, remained in Portuguese territory for 205 days, which is sufficient to consider it as resident for tax purposes in Portugal in the year 2011.

 

1.40.        So much so that the Claimant, throughout the year 2011, earned category A employee income, the withholdings on which were effected as if the Claimant were a tax resident in Portugal, "with mandatory deductions and surtax applying to income paid to residents", and "declared in Annex J of Form 10".

 

1.41.        Furthermore, the Claimant, when requesting the certificate of tax residence, did not indicate as the address of its residence Rua…, no. …, in São Paulo, but the professional address of the company …, with there being no even coincidence of addresses between the property indicated in the lease contract attached to the case file and that referred to by the Claimant, since in the contract it is stated that the property is located at R…, no. …, yet the Claimant conveys that it is located on the same street, but at no. ….

 

1.42.        The Respondent also alleges that the Claimant, with the declaration of non-residence presented on 14.03.2012, does not petition for the waiver [sic] of the presumption established in no. 2 of article 16th of CIRS.

 

1.43.        The Respondent also disagrees with the conclusion that the Claimant, in 2011, remained in Portugal for only 181 days, which can only be understood by the use of a subjective and fallacious criterion, as it privileges the criterion of overnight stay rather than the number of hours spent in Portugal.    

 

1.44.        Furthermore, the mere exhibition of electronic tickets cannot have the evidential effects intended by the Claimant.

 

 

D – Conclusion of the Report

 

1.45.        By order of 26.10.2015, the arbitral tribunal scheduled the meeting provided for in article 18th of the Legal Framework for Tax Arbitration (RJAT) for 14:00 on 10.11.2015, which took place, and a successive 10-day period was granted for written submissions to be presented, with 14.12.2015 being designated for the pronouncement of the decision.

 

1.46.        The Claimant presented its submissions (and with them the respective power of attorney) on 19.11.2015, which reiterate what it had already set out in the request for arbitral pronouncement.

 

1.47.        On the alleged broadening of the cause of action, it expresses the understanding that the challenge is not, for that reason, limited by the grounds invoked in the gracious complaint, and can be based on any illegality of the tax act, which is supported by numerous case law and the best doctrine, since in the arbitral challenge the true act challenged is the tax assessment and not the decision on the gracious complaint or the subsequent hierarchical appeal.

 

1.48.        The Claimant understands that it is clear that the assessment act suffers from the defect of form due to lack of grounds in a twofold sense: (i) it was not drawn up by means of a brief exposition of the reasons of fact and law that motivated it, as required by no. 1 of article 77th and no. 9 of article 35th both of the LGT, and (ii) it failed to minimally account for the new elements presented by the Claimant within the scope of its prior hearing right, in violation of the provisions in no. 7 of article 60th of the same statute.

 

1.49.        It equally rejects that from the circumstance that it indicated, when requesting the certificate of tax residence in Brazil, the address of its office in São Paulo, one can extract the conclusion that, after all, it did not reside from the indicated date in Brazil, having provided the professional address to ensure timely receipt of any correspondence sent to it, since it must be absent on various occasions for professional reasons.

 

1.50.        The criterion used by the Claimant to count the days that should be counted as days of remaining in Portuguese territory for the purposes of the application of paragraph a) of no. 1 of article 16th of CIRS is not subjective, rather it corresponds to the legal criterion, today clearly set forth in no. 2 of the same article, and this criterion was accepted by the Respondent in the Hierarchical Appeal.

 

1.51.        The Claimant also does not understand the Respondent's perplexity when it concludes that by the Claimant's criterion there will be days when it did not remain in Portuguese territory nor in Brazilian territory, because the law, in fact, is only concerned with the counting of days relevant for the purposes of remaining in Portugal, dispensing with the calculation of the number of days someone may have remained in another country.

 

1.52.        On 23.11.2015 the Respondent presented its submissions, which repeat the arguments used in its response to the request for arbitral pronouncement.

 

1.53.        For the Respondent, the criterion used by the Claimant to compute the days it should be deemed to have remained in Portuguese territory contains a manifest error, since it intends to apply retroactively to the tax facts occurring in 2011, criteria that were only enshrined in law with the entry into force of the new [sic] CIRS, approved by Law 82-E/2014, of 31 December. The Respondent concludes therefore that prior to this legislative amendment the legislator's criterion was different: that of remaining in national territory and not the criterion of overnight stay.

 

1.54.        Since, for the Respondent, it is clear that the legislative amendment referred to in the preceding number only entered into force on 01.01.2015, it cannot be applied retroactively.

 

1.55.        The arbitral tribunal is materially competent, pursuant to the provisions in articles 2nd, no. 1, al. a) of RJAT.

 

1.56.        The parties enjoy legal personality and capacity and have standing pursuant to article 4th and no. 2 of article 10th of RJAT, and article 1st of Ordinance no. 112-A/2011, of 22 March.

 

1.57.        The cumulation of claims made in the present request for arbitral pronouncement, in homage to the principle of procedural economy, is justified in that article 3rd of RJAT expressly admits the possibility of "cumulation of claims even if relating to different acts", accommodates, without hermeneutical abuse, the consideration of a claim that flows, in necessary terms, from the judgment the arbitral tribunal reaches as to the validity of the assessment at issue.

 

1.58.        The proceedings do not suffer from any nullity, with the Respondent having raised the question of the broadening of the cause of action, since both in the Gracious Complaint and in the Hierarchical Appeal presented by the Claimant confined itself to the merits of the assessment now at issue, having not alleged on those occasions any formal or procedural defects. The arbitral tribunal begins by considering this question.

 

 

2.      On the alleged broadening of the cause of action

 

The Respondent intends that the arbitral tribunal cannot know of the formal and procedural defects that the assessment act may suffer from since those defects were not invoked by it in the gracious complaint or in the hierarchical appeal.

 

Without prejudice to better judgment, the arbitral tribunal does not follow this understanding. In truth, the arbitral jurisdiction, in cases where the law grants it competence, has true jurisdictional nature, being able to know of all situations that fall within the sphere of cognoscibility of the courts, with the challenge not being limited by the grounds invoked in the gracious complaint or in the hierarchical appeal.

 

Thus, the arbitral tribunal can know of the defects of lack of grounds and violation of the right to participate, should their consideration prove necessary.

 

 

3.      Matters of fact

 

3.1. Proven facts

 

       The following facts are taken as proven:

 

3.1.1.      In October 2010 a foreigner identity card was issued by the Federative Republic of Brazil in the name of the Claimant, with the classification of permanent resident, giving as the date of entry into Brazil 17.08.2010 (doc. no. 1, attached with the request for arbitral pronouncement).

 

3.1.2.      The Claimant is considered by the Ministry of Finance of Brazil as a tax resident in Brazil from 17.08.2010 (doc. no. 2, attached with the request for arbitral pronouncement).

 

3.1.3.      The company …, S.A., a company under Brazilian law, celebrated on 15 June 2010, as lessee, a private lease contract for residential property (doc. no. 3, attached with the request for arbitral pronouncement).

 

3.1.4.      The company …, S.A., declared, on a date unknown, that the leased property located at Rua…, no. …, in São Paulo, serves as the Claimant's permanent dwelling since its entry as a permanent resident in Brazil, in 2010 (doc. no. 4, attached with the request for arbitral pronouncement).

 

3.1.5.      On 14.03.2012 the Claimant submitted to the Tax Service of Sintra …, which received it, a "declaration of non-residence", in which it declares that it "ceased to reside in Portugal, for all legal purposes, from 1 January 2011, by virtue of having come to reside and to carry out its professional activity in Brazil from 17.08.2010" (doc. no. 5, attached with the request for arbitral pronouncement).

 

3.1.6.      Following its declaration of non-residence in Portugal, the Claimant appointed its tax representative in Portugal the company …, S.A. (doc. no. 5, attached with the request for arbitral pronouncement).

 

3.1.7.      The Claimant is married and its spouse continued to reside in Portugal during the year 2011 (article 8th of the request for arbitral pronouncement).

 

3.1.8.      The Claimant, by the request submitted on 14.03.2012 to the Tax Service of Sintra … declares expressly that "for the purposes of the provisions in no. 3 of article 16th of the Code of IRS and no. 1 of article 64th of CPPT, it is hereby demonstrated that the declarant ceased to carry out any economic activity in Portugal from the beginning of 2011" (doc. no. 5, attached with the request for arbitral pronouncement).

 

3.1.9.      The Respondent did not present within the six-month period any response to the request submitted by the Claimant to the Tax Service of Sintra… (consensual position of the Parties).

 

3.1.10.  On 24.04.2012, the Claimant presented in Brazil its income statement for the year 2011, as a tax resident in that country (doc. no. 6, attached with the request for arbitral pronouncement).

 

3.1.11.  In 2012, the Claimant did not present in Portugal any income statement for the year 2011 (article 11th of the request for arbitral pronouncement and consensual position of the Parties).

 

3.1.12.  On 30.07.2012, by letter no. …, of 24.07.2012, the Respondent informed …, S.A., in its capacity as representative of the Claimant, that the Income Statement IRS – Form 3 for 2011 had not been delivered or electronically submitted, having notified it to, within 30 (thirty) days, deliver or electronically submit said Income Statement (doc. no. 7, attached with the request for arbitral pronouncement).

 

3.1.13.  The Respondent received on 16.08.2012 the Claimant's response to the letter referred to in the preceding number, in which it reiterated the declaration of non-residence in Portugal in the year 2011, resending its request of 14.03.2012 and respective means of proof (doc. no. 8, attached with the request for arbitral pronouncement).

 

3.1.14.  The Respondent did not rule on the Claimant's response received on 16.08.2012 (articles 14th and 16th of the request for arbitral pronouncement and consensual position of the Parties).

 

3.1.15.  On 31.10.2012, the Respondent urged the Claimant to present the income statement for the year 2011 (doc. no. 9, attached with the request for arbitral pronouncement).

 

3.1.16.  The Claimant replied to the Respondent's correspondence of 31.10.2012, the Respondent having received the reply on 08.11.2012, insisting on the fact that it was not a resident in Portugal in the year 2011 and that, for that reason, did not have the obligation to deliver the requested income statement (doc. no. 10, attached with the request for arbitral pronouncement).

 

3.1.17.  The Respondent did not rule on the Claimant's response received on 08.11.2012 (article 18th of the request for arbitral pronouncement and consensual position of the Parties).

 

3.1.18.  In February 2013, the Claimant was notified of the Statement of Calculation of IRS no. 2013 … relating to 2011, imputing to the Claimant a total income of € 215,316.02, from which tax to be paid in the amount of € 16,724.47 resulted (doc. no. 11, attached with the request for arbitral pronouncement).

 

3.1.19.  Also in February 2013 the Claimant received notification of the Statement of Calculation of Interest no. 2013 …, in the total amount of € 470.25 (doc. no. 12, attached with the request for arbitral pronouncement).

 

3.1.20.  In May 2013 the Claimant presented a gracious complaint against the IRS and interest assessments (doc. no. 13, attached with the request for arbitral pronouncement).

 

3.1.21.   By letter no. … of 16.09.2013 from the Finance Directorate of Lisbon, the Claimant was notified of the respective draft dismissal (doc. no. 14, attached with the request for arbitral pronouncement).

 

3.1.22.  By registered letters of 07.10.2013 and 24.10.2013, in exercise of its prior hearing right, the Claimant presented documents which in its understanding contradicted the conclusions presented by the Respondent in the draft dismissal (docs. no.s 15 and 16, attached with the request for arbitral pronouncement).

 

3.1.23.  The Finance Directorate of Lisbon dismissed the gracious complaint (doc. no. 17, attached with the request for arbitral pronouncement).

 

3.1.24.  The Claimant presented a hierarchical appeal of that dismissal (doc. no. 18, attached with the request for arbitral pronouncement), which was likewise dismissed (doc. no. 19, attached with the request for arbitral pronouncement).

 

3.1.25.  On 31.12.2011 the Claimant was owner of the property located at … (consensual position of the Parties).

 

3.1.26.  During the year 2011 the Claimant earned category A income, the withholdings on which were effected as if the beneficiary thereof, the Claimant, were a tax resident in Portugal (article 7th of the Response and consensual position of the Parties). 

 

3.1.27.  The Claimant presented a bank guarantee to avoid levy proceedings (article 36th of the request for arbitral pronouncement, which was not disputed by the Respondent).

 

3.1.28.  On 13.03.2014 the Claimant proceeded to pay the amounts required of it, in the amount of € 17,570.00 (doc. no. 20, attached with the request for arbitral pronouncement).

 

3.1.29.  The Claimant remained in Portuguese territory, without margin for doubt, the following periods, totaling 177 days (docs. no.s 22 to 41, attached with the request for arbitral pronouncement and consensus of the Parties).

 



 

3.1.30.  On 18.02.2011 an electronic ticket was issued in the name of the Claimant by which the latter acquired valid transportation title to board in Lisbon, on 24.02.2011 at …, flight … destined for Madrid, bound for New York, returning to Lisbon, also via Madrid, on 26.02.2011 (doc. no. 25, attached with the request for arbitral pronouncement).

 

3.1.31.  On 21.02.2011 an electronic ticket was issued in the name of the Claimant by which it is evident that the Claimant had valid transportation title for flight … departing from São Paulo, Brazil, at … on 04.03.2011, destined for Madrid, where it would land at … the following day, the Claimant arriving that same day in Lisbon, at 11:50, on flight … (doc. no. 26, attached with the request for arbitral pronouncement).

 

3.1.32.  On 21.02.2011 an electronic ticket was issued in the name of the Claimant, valid transportation title for flight …Lisbon – Rio de Janeiro, at … on 12.03.2011 (doc. no. 27, attached with the request for arbitral pronouncement).

 

3.1.33.   On 31.03.2011 an electronic ticket was issued in the name of the Claimant, constituting valid transportation title for flight … Lisbon – São Paulo, at … on 03.04.2011 (doc. no. 28, attached with the request for arbitral pronouncement).

 

3.1.34.  On 13.04.2011 an electronic ticket was issued in the name of the Claimant, valid transportation title for flight … Lisbon – São Paulo, at … on 01.05.2011 (doc. no. 29, attached with the request for arbitral pronouncement).

 

3.1.35.  On 03.05.2011 an electronic ticket was issued in the name of the Claimant, constituting valid transportation title for flight … Lisbon – São Paulo, at … on 22.05.2011 (doc. no. 30, attached with the request for arbitral pronouncement).

 

3.1.36.  On 03.06.2011 an electronic ticket was issued in the name of the Claimant, which is valid transportation title for flight … Lisbon – Newark, at … on 07.06.2011, with return to Lisbon on 09.06.2011, on flight … (doc. no. 31, attached with the request for arbitral pronouncement).

 

3.1.37.  On 13.06.2011, at 12:25, the Claimant boarded at Francisco Sá Carneiro Airport, in Porto, flight … destined for Newark, in the United States of America, having returned to Portugal on 17.06.2011, at … (doc. no. 33, attached with the request for arbitral pronouncement).

 

3.1.38.  On 02.09.2011 an electronic ticket was issued in the name of the Claimant, valid transportation title for flight … arriving in Lisbon on 04.09.2011, at …, coming from São Paulo (doc. no. 37, attached with the request for arbitral pronouncement).

 

3.1.39.  In addition to those listed in 3.1.28, the days 04.09.2011, 05.09.2011, 01.10.2011 and 27.10.2011 the Claimant also spent them in Portuguese territory (article 105th of the request for arbitral pronouncement).

 

3.1.40.  On 27.09.2011 an electronic ticket was issued in the name of the Claimant, valid transportation title for flight … departing from Lisbon on 10.10.2011, at …bound for São Paulo (doc. no. 39, attached with the request for arbitral pronouncement).

 

3.1.41.  On 21.10.2011 an electronic ticket was issued in the name of the Claimant, valid transportation title for flights with the following itinerary: London – Dubai – Malé – Dubai – London, departing London on 17.12.2011 and returning on 01.01.2012, the date on which the Claimant arrived in Lisbon [article 110th al. s) of the request for arbitral pronouncement and docs. no.s 32 and 42, attached with the request for arbitral pronouncement).

 

It is noted that the arbitral tribunal founded its conviction on the documents brought to the case file by the Claimant, namely, copies of the passport, with the stamps affixed thereto, of the electronic tickets and boarding passes.

 

Evidence aims at the demonstration of the reality of the facts (article 341st of the Civil Code), with the principle of free appreciation of evidence prevailing among us, with the exceptions that result from law, which prove irrelevant for the case to be considered. The judge must form his conviction on the basis of a judgment of sufficient probability or plausibility.

 

It is evident that electronic tickets or even boarding passes do not offer absolute certainty that the trips to which they refer were actually undertaken. However, it is credible for these purposes that the electronic tickets issued on the date to which the facts relate (valid transportation titles) correspond to trips that were actually undertaken, which is why the tribunal deems them verified, especially since no facts or circumstances were alleged that would suggest a different reading of these elements of proof.

 

3.2. Facts not proven

 

       The following facts are taken as not proven:

 

3.2.1.         That the Claimant, on 31.12.2011, had a dwelling under conditions that would suggest the intention to maintain and occupy it as habitual residence.

 

3.2.2. That in the year 2011 the Claimant had its center of interests in Portugal.

 

 

4.      Matters of law

 

4.1. Questions to be decided

 

It results from what has been stated above that the questions to be considered are, fundamentally:

 

a)      Whether the Claimant, in 2011, should be deemed a resident for tax purposes within Portuguese territory;

 

b)      Whether, should the claim for declaration of illegality and consequent annulment of the contested assessments be judged well-founded, the Claimant, within the scope of the present arbitral proceedings, may obtain the conviction of the Respondent as to the compensation of damages suffered by it with the wrongful provision of a bank guarantee and in the payment of compensatory interest counted from the moment the debt was paid until its effective reimbursement.

 

4.2. Tax residence

 

4.2.1. The effects of tax residence – the scope of taxation

    

It is read in no. 1 of article 13th of CIRS that "Natural persons residing in Portuguese territory and those not residing there who here obtain income are subject to IRS". Therefore, both residents in Portuguese territory and non-residents therein may be subject to IRS. However, they will not be so on identical terms. In truth, it is important to note the scope of taxation of the tax. Article 15th of CIRS offers us that distinction:

 

1 - In the case of persons resident in Portuguese territory, IRS applies to the entirety of their income, including income obtained outside that territory.

2 - In the case of non-residents, IRS applies solely to income obtained in Portuguese territory.

 

The scope of taxation of a resident and a non-resident under IRS is so different that it would be strange for the legislator to leave to the whim of each that important determination. It is not so, as is known. The concept of tax residence is not, nor could it be, at the free disposal of taxpayers, nor is it, as it equally could not be, at the discretion of the tax and customs administration. That determination must be made in the exact terms of the law.

           

4.2.2. The criteria for determining tax residence within Portuguese territory

 

Article 16th of CIRS provides, in the version applicable at the date of the facts, and insofar as relevant to the case, as follows:

 

1 - Persons resident in Portuguese territory are those who, in the year to which the income relates:

a) Have remained there for more than 183 days, consecutive or interspersed;

b) Having remained for a shorter time, there have, on 31 December of that year, a dwelling under conditions that would suggest the intention to maintain and occupy it as habitual residence;

(…)

2 - Persons constituting the family unit are always considered as resident in Portuguese territory, provided that there resides therein any of the persons to whom the direction thereof is incumbent.

3 - The condition of resident resulting from the application of the provisions in the preceding number may be waived by the spouse who does not meet the criterion provided for in paragraph a) of no. 1, provided that it proves the non-existence of a connection between the majority of its economic activities and Portuguese territory, in which case it is subject to taxation as a non-resident with respect to income of which it is the holder and which is considered obtained in Portuguese territory under the terms of article 18th.

(…)

 

The legislator chose as the first criterion for determining tax residence within Portuguese territory the temporal connection with it, in such terms as to consider as a tax resident in Portuguese territory one who has remained there for more than 183 days, consecutive or interspersed. A contrario it would be said (if there were no other criteria, and there are) that one who has remained in Portuguese territory for fewer than 183 days would be considered non-resident. This criterion, because apparently objective, and quantitatively significant, in principle does not raise special difficulties in its application, operating through the demonstration of what should be understood as physical permanence of someone in Portuguese territory.

 

In the case under review we have that the Claimant remained in Portuguese territory, during 2011, for at least 181 days, with the Respondent understanding that the temporal threshold to which the legislator appeals was largely surpassed, which must be assessed by the tribunal.

 

4.2.3. The determination of permanence in Portuguese territory

 

As stated, paragraph a) of no. 1 of article 16th of CIRS appeals to the concept of permanence, by providing that residents in Portuguese territory are those who "have remained there for more than 183 days, consecutive or interspersed".

 

There is no legal definition of "permanence", so the interpreter applying the norm should seek to apprehend the meaning and scope of this provision. Permanence is the "act or effect of remaining". Already to remain means "to continue to be in a place; not to leave a place"[2]. Being so, it seems that to remain in Portuguese territory on a given day means not to leave that same territory on that day, which, as is known, begins at 00.00 and ends at 24:00. That is, to use an example extracted from the case file: the Claimant would have remained in Portuguese territory on 12.03.2011 if, by 24:00 of that same day, the Claimant had not left Portugal. Having the Claimant boarded a flight to abroad at 23:30 of that day, it is necessary to conclude that, on that day, the Claimant did not remain in Portuguese territory for the purposes of the provisions in paragraph a) of no. 1 of article 16th of CIRS.

 

Moreover, today, these provisions have a different wording. In truth, since 01.01.2015, the wording of article 16th of CIRS is as follows:

 

1 - Persons resident in Portuguese territory are those who, in the year to which the income relates:

a) Have remained there for more than 183 days, consecutive or interspersed, in any 12-month period beginning or ending in the year in question;

(…)

2 -  For the purposes of the preceding number, any day, complete or partial, that includes an overnight stay therein is considered as a day of presence in Portuguese territory.

 

(…)

 

The legislator intended to clarify what, perhaps, was not of automatic adherence. Today there is a clear reference to "overnight stay", with the concept of permanence depending on this. It is certain that this normative amendment only applies prospectively, only in force from its respective entry into force, 01.01.2015. However, it may be premature to see in this modification a genuine will to innovate.

 

The truth is that article 16th of CIRS did not offer, in itself, the solution to this interpretive problem. However, we do not believe that this change in wording imposes the discipline that came to be expressly enshrined. In other words, it will not be strange to intuit that the legislator understood by the new wording to establish the more adequate criterion for assessing someone's permanence in Portuguese territory, for the purposes of application of paragraph a) of no. 1 of article 16th of CIRS. Now, if this is the more adequate criterion in view of the new wording, it will not be unreasonable to use it before it, when it is known that the old formulation, by not contemplating a different rule, did not impose necessarily antagonistic discipline. Because from the hermeneutical point of view, one cannot see in the new wording proof that, despite being silent on this particular aspect, the former imposed an opposite solution.

 

Thus, the arbitral tribunal understands that, in view of the evidence produced, it was not proven that the Claimant remained in Portuguese territory, in 2011, for more than 183 days, consecutive or interspersed.

 

4.2.4. Paragraph b) of no. 1 of article 16th of CIRS

 

Let it not be thought, however, that the criterion of permanence in Portuguese territory is final and conclusive. It is not. In truth, pursuant to paragraph b) of no. 1 of article 16th of CIRS, one who, having remained in a given calendar year for fewer than 183 days, there has, on 31 December of that year, a dwelling under conditions that would suggest the intention to maintain and occupy it as habitual residence, would also be deemed resident in Portuguese territory.

 

To be able to consider a given taxpayer as resident in Portuguese territory based on this paragraph of no. 1 of article 16th, it is not sufficient to demonstrate that it has, on 31 December of a given year, a dwelling located in Portuguese territory. The Respondent seems to do that. That is, it seeks to draw tax consequences from the mere holding by the Claimant of real property assets in Portugal on 31.12.2011. Now, with all due respect, the legislator imposes more exacting demonstration upon us. It is necessary to prove the Claimant's intention to maintain and occupy that residence as its habitual residence, which the Respondent failed to accomplish, with the burden of proof falling upon it.

 

Thus, the arbitral tribunal understands that, neither by paragraph a) nor by paragraph b) of no. 1 of article 16th of CIRS should the Claimant be considered a tax resident in Portugal in the year 2011.

  

4.2.5. No. 2 of article 16th of CIRS

 

No. 2 of article 16th of CIRS provides that "Persons constituting the family unit are always considered resident in Portuguese territory, provided that there resides therein any of the persons to whom the direction thereof is incumbent". It was proven that the Claimant's spouse, in 2011, continued to reside in Portugal, it being certain that spouses are responsible for the direction of the family unit.

 

This provision establishes a true presumption, an inference that the law draws from a known fact – in this case, residence in Portugal, in 2011, of the Claimant's spouse – to establish an unknown fact (article 349th of the Civil Code). No. 3 of the same article provides for the possibility of this presumption being waived, in the following terms:

 

3 - The condition of resident resulting from the application of the provisions in the preceding number may be waived by the spouse who does not meet the criterion provided for in paragraph a) of no. 1, provided that it proves the non-existence of a connection between the majority of its economic activities and Portuguese territory, in which case it is subject to taxation as a non-resident with respect to income of which it is the holder and which is considered obtained in Portuguese territory under the terms of article 18th.

 

Not meeting the criterion provided for in said paragraph a) of no. 1 of article 16th of CIRS, it was incumbent upon the Claimant to prove the non-existence of a connection between the majority of its economic activities and Portuguese territory.

 

It is clear to see that the fulfillment of the criterion provided for in said paragraph a) can, at the limit, only be verified on 31 December of the year in question. In the case at hand, in truth, only at the end of the year could it be safely affirmed that the Claimant had not remained in Portuguese territory, in 2011, for more than 183 days, consecutive or interspersed. Therefore, the proof that the Claimant is called upon to provide, should it wish to benefit from the regime that no. 3 of article 16th of CIRS grants it, could only take place in 2012.

 

By the request of 14.03.2012, referred to in 3.1.8, the Claimant declares that "for the purposes of the provisions in no. 3 of article 16th of the Code of IRS and no. 1 of article 64th of CPPT, it is hereby demonstrated that the declarant ceased to carry out any economic activity in Portugal from the beginning of 2011". It is evident that the Claimant intended, by said request, to waive the presumption of no. 2 of article 16th of CIRS, otherwise it would make no sense the express invocation of the two provisions that govern the special procedure for its waiver: no. 3 of article 16th of CIRS and no. 1 of article 64th of CPPT.

 

The Respondent, however, understands that the Claimant, in the aforementioned request, petitions for nothing, merely leaving an express declaration. It is not without being an assertion that surprises by its formalism. Even if the Claimant did not expressly request ipsis verbis the opening of proceedings tending to waive the identified presumption, what would have been the Claimant's intention in the view of the Respondent with such a declaration? What would have been the objective of the Claimant, given that it is supposed to have had some objective, for it to not be plausible that taxpayers seek only to engage in useless acts. Moreover, it is important to note that no. 1 of article 64th of CPPT does not establish specific procedures for the opening of this procedure nor does it set rules for its conduct. It places only at the taxpayer's disposal the right to make use of it, in the alternative to gracious complaint or judicial challenge. The Respondent acted wrongly when it chose to ignore the request presented. It would have been possible for it, if it disagreed with the waiver of the presumption, to dismiss the claim. The law ordained that the silence of the decision maker implies the approval of the taxpayer's claim, which appears to the arbitral tribunal to be the case in the case file.

 

The Respondent further understands that on the date of said request no tax act had yet been engaged in by the Respondent. This postulate is true. As is another statement of the Respondent: "the application of presumptions regarding norms of objective or subjective tax incidence is made when tax acts are engaged in". Now, none of this is challenged. It is known that the Respondent had not engaged in any tax act at the time of the presentation of the request of 14.03.2012. However, the Claimant understood, with that request, to make known to the Respondent, at once, that it was not a tax resident in Portugal from 01.01.2011 and that the presumption of no. 2 of article 16th of CIRS was not applicable, since the Claimant had ceased to carry out economic activity in Portugal.

 

Even if it were understood that it was necessary to engage in the tax act to be able to waive the presumption on which it is based, it cannot be deemed that the administrative process that preceded the request for arbitral pronouncement overwhelmingly raises the problem and resolves it. Thus, whether by way of tacit approval of the waiver of the presumption of no. 2 of article 16th of CIRS or by way of the administrative process, which culminated in the dismissals of the gracious complaint and the hierarchical appeal, the Claimant cannot be deemed not to have waived said presumption (before or after the engagement in the tax act).

 

4.2.6. The withholdings at source effected by debtors of income of the category earned by the Claimant

 

The Respondent alleges that the Claimant, during the year 2011, earned category A income, with the respective debtors effecting withholdings at source as if the Claimant were a tax resident in Portugal, "with mandatory deductions and surtax applying to income paid to residents", and "declared in Annex J of Form 10".

 

However, from this indisputable reality no conclusion can be drawn, not even inferentially, about the quality of resident of the beneficiary of such income. This is because residence is a tax concept that derives, exclusively, from compliance with the legal criteria. Thus, withholdings must be made in accordance with the status of resident or non-resident of the respective beneficiary, it being certain that residence does not depend on these same withholdings. It is therefore an argument that does not hold.

 

Moreover, the Claimant acknowledges that it did not make known during the year 2011 to the debtors of income of which it was the beneficiary the change of status that it only managed to confirm at the end of the year. Therefore, strictly speaking, the withholdings effected by those who had the legal duty to effect them were done in the exact terms of the law, whereby the Claimant, in case of "excess withholding" would not be entitled to be compensated for that fact, having only the right to the simple reimbursement of what was withheld in excess.

 

       4.3. Conclusion

 

By the foregoing, the arbitral tribunal understands that the decision dismissing the hierarchical appeal duly presented by the Claimant is illegal, and the tax assessment acts should not be maintained in the legal order.

 

       4.4. Compensation for wrongful provision of guarantee and compensatory interest

 

4.4.1. Compensation for wrongful provision of guarantee

 

The Claimant also presents a claim for compensation for wrongful provision of guarantee.

 

Claims of this kind are not a novelty at CAAD, with several decisions in the sense of admitting their cognoscibility by arbitral tribunals[3]. This arbitral tribunal also understands that it can know of this claim.

 

Paragraph b) of no. 1 of RJAT provides that "the arbitral decision on the merits of the claim which does not admit appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and this must, in the exact terms of the well-foundedness of the arbitral decision in favor of the taxable person and until the end of the period provided for spontaneous execution of sentences of tax courts, restore the situation that would exist if the tax act that is the object of the arbitral decision had not been engaged in, adopting the acts and operations necessary for that purpose".

 

It is not ignored that the legislative authorization granted to the Government by article 124th of Law no. 3-B/2010, of 28 April, on the basis of which RJAT was approved, determines that the tax arbitral process constitutes an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters. Even though paragraphs a) and b) of no. 1 of article 2nd of RJAT found the competence of the arbitral tribunals in "declarations of illegality", it seems reasonable the understanding according to which their competencies include the powers attributed to tax courts in judicial challenge proceedings, it being certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for compensation may be considered, whether they relate to compensatory interest, as will be seen, or to wrongful provision of guarantees.

 

Indeed, the principle of cognoscibility of compensation claims, in gracious complaint or in judicial process, is justified whenever the damage that is sought to be compensated results from a fact attributable to the tax and customs administration. Manifestations of this principle can be found in no. 1 of article 43rd of LGT and in no. 4 of article 61st of CPPT.

 

Specifically on compensation in case of wrongful guarantee, article 171st of CPPT refers, resulting clearly from that provision that the claim for compensation can be known in the process in which the legality of the debt subject to execution is disputed, which is required by reasons of procedural economy, since the right to compensation for wrongfully provided guarantee depends on what is decided about the legality or illegality of the assessment act. Thus, it is necessary to conclude that the arbitral process must also be deemed adequate to consider the claim for compensation for wrongfully provided guarantee.

 

The regime for the right to compensation for wrongfully provided guarantee consists of article 53rd of LGT, which establishes the following:

 

Article 53rd

Guarantee in case of wrongful provision

 

1. The debtor who, to suspend execution, offers bank guarantee or equivalent, shall be compensated in whole or in part for damages resulting from its provision, should it have maintained it for a period exceeding three years in proportion to the judgment in administrative appeal, challenge or opposition to execution that have as their object the debt guaranteed.

 

2. The period referred to in the preceding number does not apply when it is verified, in gracious complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax.

 

3. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of compensatory interest provided for in this law and may be claimed in the gracious complaint or judicial challenge process itself, or autonomously.

 

 (…)

 

In the case under review, as has been stated, the contested assessment acts are illegal, since the norms on which they are based do not prove applicable to the factuality of the case file, an error that cannot fail to be attributable to the Respondent since said assessments (the IRS and the interest) are of its exclusive initiative and responsibility.

 

However, the arbitral tribunal cannot condemn the Respondent to pay the Claimant compensation that aims to compensate it for damages that it does not quantify nor even, in the proper sense, allege.

 

From what precedes it is obvious the recognition that the Claimant has, pursuant to article 53rd of LGT, the right to have the damages suffered by it with the wrongful provision of bank guarantee compensated. However, the arbitral tribunal understands that it cannot substitute itself for the Claimant in the allegation of these eventual damages, which is why it understands that it cannot, in this arbitral decision, condemn the Respondent to pay the Claimant compensation that aims to compensate it for damages that were not alleged in the request for arbitral pronouncement. This does not mean, however, that the Respondent, following the declaration of illegality of the assessment acts put at issue, should not, pursuant to article 53rd of LGT and within the limits set forth therein, compensate the Claimant for damages that it comes to demonstrate to the Respondent to have effectively suffered with the wrongful provision of said bank guarantee, in execution of what is hereby decided.

 

4.4.2. Compensatory interest

 

The right to perception of compensatory interest by the Claimant depends on the verification of the following requirements: a) error attributable to the services; b) that from said error results the payment of tax in an amount superior to that legally due; c) that the error of the services be analyzed in gracious complaint or judicial challenge proceedings.

 

Now, there is no doubt that all the mentioned requirements are met, whereby compensatory interest is owed to the Claimant. Thus, the Respondent must give execution to the present arbitral decision, pursuant to no. 1 of article 24th of RJAT, calculating the respective compensatory interest, at the legal rate supplementary of civil debts, pursuant to articles 35th, no. 10 and 43rd, nos. 1 and 5, of LGT, 61st of CPPT, 559th of the Civil Code and Ordinance no. 291/2003, of 8 April, with compensatory interest owed from the date of payment made until that of processing of the credit note, in which they are included (article 61st, no. 5 of CPPT).

 

       4.5. Questions rendered moot

 

The Claimant alleged the defects of lack of grounds and violation of the right to participate that would taint the validity of the contested assessment acts. Once the arbitral tribunal understood, albeit by another route, that said tax acts could not be maintained in the legal order, the consideration of that question becomes moot and procedurally useless, as does that of any other defects that the contested assessments may suffer from.

 

5.      Decision

 

On the bases and with the grounds set forth above, the arbitral tribunal decides:

 

a)      To judge the claim for arbitral pronouncement well-founded, declaring the illegality of the decision dismissing the Hierarchical Appeal no. …2014…, issued by the Director of Services of DSIRS;

b)      Consequently, to annul the assessment of IRS no. 2013 … and the assessment of compensatory interest no. 2013 …, relating to the year 2011;

c)      To judge the claim for compensation for wrongfully provided guarantee unfounded, in the exact terms referred to above;

d)     To judge the claim for conviction of the Respondent in the payment of compensatory interest, at the legal rate, counted from the date of payment of the wrongful tax provision until that of processing of the respective credit note, as well-founded.

 

 

6.      Value of the case

 

In accordance with the provisions in no. 2 of article 306th of CPC, in paragraph a) of no. 1 of article 97-A of CPPT, applicable by force of paragraphs a) and b) of no. 1 of article 29th of RJAT and also of no. 2 of article 3rd of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 17,194.72 (seventeen thousand one hundred ninety-four euros and seventy-two cents).

 

 

7.      Costs

 

For the purposes of the provisions in no. 2 of article 12 and in no. 4 of article 22nd of RJAT and in no. 4 of article 4th of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00 (one thousand two hundred twenty-four euros), pursuant to Table I appended to said Regulation, to be borne entirely by the Respondent.

 

 

Lisbon, 9 December 2015

 

 

 

The Arbitrator

 

(Nuno Pombo)




	
		[1]                      Text prepared by computer pursuant to the provisions in article 131st, no. 5, of CPC, applicable by reference of article 29th of RJAT. The drafting of the present arbitral decision follows the spelling prior to said Orthographic Agreement of 1990.


	
		[2]                      See Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Verbo, 2001.


	
		[3]                      See, by way of example, the decisions handed down under proceedings numbered 233/2013-T, 112/2013-T and 36/2013-T.