IRS Tax Residency Dispute: Non-Resident Status Under...

Process: 267/2015-T

Date: October 30, 2015

Tax Type: IRS

Summary

This CAAD arbitral case (Process 267/2015-T) addresses whether a taxpayer who relocated to Brazil in 2010 qualified as a Portuguese tax resident for 2011 income tax purposes under Article 16(1)(a) of the IRS Code (CIRS). The claimant moved permanently to Brazil on July 16, 2010, obtained Brazilian residency documentation, rented an apartment in São Paulo, and filed Brazilian tax returns for 2011. He notified Portuguese tax authorities in April 2012 of his non-resident status and did not file a 2011 Portuguese tax return, believing he was exempt under Article 58 CIRS. Despite submitting evidence of Brazilian residency three times, the Tax Authority (AT) issued an official IRS assessment of €21,685.32 for 2011, treating him as a Portuguese resident. The claimant challenged the assessment on three grounds: (1) lack of substantiation, as AT never responded to his non-residence claims; (2) violation of participation rights, since AT failed to consider submitted documentation before assessment; and (3) substantive violation of Article 16(1)(a) residency criteria. The case raises critical questions about when Portuguese tax residency ceases, particularly when a spouse remains in Portugal (triggering presumptions under Article 16(2) CIRS). The arbitral tribunal must determine whether the claimant successfully rebutted the residency presumption through documentary evidence of permanent Brazilian residence, whether AT's failure to engage with the taxpayer's submissions violated procedural rights, and whether the official assessment lacked proper legal foundation. The outcome affects the validity of the €21,685.32 tax assessment and interest charges, with potential remedies including refund of amounts paid and compensation for improperly provided guarantees.

Full Decision

ARBITRAL DECISION

PARTIES

Claimant – A…, NF …, residing at Rua …, nº …, São Paulo, Brazil.

Respondent – TAX AND CUSTOMS AUTHORITY (AT).

I. REPORT

a) On 20-04-2015, the Claimant filed with CAAD a request seeking, under the Legal Regime of Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

b) The request is signed by a lawyer representing the Claimant.

THE REQUEST

c) The Claimant seeks the annulment of an official income tax (IRS) assessment for the year 2011, no. 2013 …, as well as the statement of compensatory interest assessment no. 2013 …, since the AT denied his Hierarchical Appeal no. …2014…, decision rendered by the Director of Services of DSIRS, on 19.12.2014, an appeal which had been filed against the denial of the administrative complaint no. …2013…, this assessment which generated an IRS collection of 21,685.22 euros and a statement of interest assessment no. 2013 …, in the amount of 609.74 euros.

d) He further petitions for "the consequent refund of the amounts unduly paid, plus compensation for indemnity improperly provided".

e) He argues the non-conformity of the assessments with the law, invoking: 1 - lack of substantiation of the assessment (on the ground that the AT did not respond to 3 requests in which he invoked his non-residence in Portugal); 2 - lack of substantiation by violation of the right to participate (on the ground that before the assessment he was not heard, since the AT did not pronounce itself on the new elements and documents submitted with the 3 requests he presented on the subject of his non-residence in Portugal); 3 – Violation of law because the criteria of item a) of no. 1 of article 16 of the IRS Code regarding income earned in the year 2011 were not met.

SINGULAR ARBITRAL TRIBUNAL (TAS)

f) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 22-04-2015.

g) By the CAAD Deontological Council, the signatory of this decision was appointed arbitrator, with the parties being notified thereof on 5-06-2015. The parties did not manifest an intent to refuse the appointment, in accordance with the combined provisions of article 11, no. 1, items a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

h) Therefore, the Singular Arbitral Tribunal (TAS) has been, since 30-06-2015, regularly constituted to consider and decide the subject matter of this dispute (articles 2, no. 1, item a) and 30, no. 1, of the RJAT).

i) All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 30-06-2015, which is hereby reproduced.

j) Immediately on 30-06-2015 the AT was notified in accordance with the terms and for the purposes of article 17-1 of the RJAT. It responded on 11.09.2015 without submitting a Response, since its content would certainly be properly documented in the 41 documents attached to the request for pronouncement.

k) Both parties waived the holding of the parties' meeting referred to in article 18 of the RJAT. However, the TAS, in light of the AT's response, set 14.09.2015 as the deadline of 10 days for the submission of successive written arguments.

l) The Claimant presented arguments on 01.10.2015 and the Respondent on 12.10.2015.

PROCEDURAL REQUIREMENTS

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

n) Contradiction - The AT was notified in accordance with item i) above. All procedural documents and all documents attached to the process were made available to the respective counterparty in CAAD's Case Management System.

o) Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the period prescribed in item a) of no. 1 of article 10 of the RJAT. In effect,

The Claimant alleges that he received on 20.01.2015 (this is a fact that can be verified in "object search" on the CTT website, given the postal record of the notification dispatch) the notification of the decision that denied him his hierarchical appeal. The AT did not challenge this date. The present request was filed with CAAD on 20.04.2015. There being no other element in the proceedings that allows concluding that the filing of the request for pronouncement with CAAD on 20-04-2015 was untimely, the TAS considers this procedural requirement verified.

SUMMARY OF THE CLAIMANT'S POSITION

p) The Claimant invokes that he has always been fiscally resident in Portugal but that since 16.07.2010 he has permanently moved to Brazil, as evidenced by "Foreign Identity Card" valid until 11.05.2011 and issued on 16.07.2010 and as evidenced by a certificate of fiscal residence in Brazil issued by the Special Delegation of Brazil's Federal Revenue Department for Individuals in São Paulo, on 02.07.2014 and regarding the tax period between 01.01.2011 and 31.12.2011;

q) That he even moved into a property of which he is a tenant of B… S/A, located at Rua … nº …, in São Paulo, as his permanent residence;

r) In 2011 and regarding income earned in Portugal in 2010, he filed in March 2011 an IRS declaration as a resident in Portugal;

s) On 20 April 2012 he submitted a document addressed to the Tax Services of Cascais-… called "declaration of non-residence" whose original was received on that date and where he appointed as his fiscal representative in Portugal C…, SGPS, SA, declaring that "... he ceased to reside in Portugal, for all legal purposes ...";

t) He argues that, because his spouse continued to reside in Portugal, the aforementioned document "rebutted the presumption of residence contained in no. 2 of article 16 of the IRS Code" through the proofs submitted with the same (Brazilian identification card, rental contract in Brazil – São Paulo and declaration of the lessor);

u) He notes that the AT never pronounced itself on the document submitted on 20.04.2012 and that in 2012 he filed in Brazil the annual adjustment declaration – income tax – individual, regarding income for the year 2011;

v) But in Portugal he did not file any income declaration given his status as a non-resident, in accordance with the provision regarding the exemption from filing this declaration for non-residents, in accordance with article 58 of the IRS Code.

w) On 30.07.2012 his fiscal representative was notified by the Finance Directorate of Lisbon (DFL) to submit or file his 2011 income declaration within 30 days;

x) He responded on 14.08.2012 citing his non-residence in Portugal since 01.01.2011 and attaching the documents he had already submitted for that purpose;

y) By letter dated 31.10.2012 his fiscal representative received another notification from the AT indicating that he should proceed to file the income declaration;

z) In response, he sent the AT a communication on 07.11.2012 reiterating that he was not fiscally resident in Portugal, and therefore this obligation was not required of him.

aa) He states that he received no response to the three aforementioned communications, but in February 2013 he was notified of the Statement of IRS Assessment no. 2013 … for 2011 pursuant to which a tax amount of € 21,685.32 is identified as payable. This Statement of Assessment imputes to the Claimant global taxable income of € 262,174.02.

bb) He filed in May 2013 an Administrative Complaint against the assessment citing in summary that he was not fiscally resident in Portugal during 2011, and therefore was exempt from filing the income declaration, in accordance with article 58 of the IRS Code, arguing the "total lack of substantiation" (article 26 of the request for pronouncement) of the contested assessment.

cc) By Letter no. … of 16.09.2013 from the Finance Directorate of Lisbon, the Claimant was notified of the Draft Denial of the Administrative Complaint, inviting the Claimant to "provide evidence to the contrary, in order to alter the proposed decision".

dd) By registered letter on 07.10.2013, the Claimant exercised his right to participate in the decision and submitted additional evidence.

ee) By letter no. … of 13.01.2014, the Finance Directorate of Lisbon notified him of the denial of the Administrative Complaint, on the ground that "no conclusive evidence was presented in the administrative complaint proceedings".

ff) He filed a Hierarchical Appeal of that decision on 13.02.2014.

gg) The hierarchical appeal was also denied to him by order of the Finance Directorate of Lisbon, notified to the Claimant by Letter no. … of 16.01.2015, because the AT considered "… he did not provide sufficient proof of having remained in Portugal fewer than 183 days during the year 2011".

hh) It is from this denial of the HA that he appealed to the TAS.

ii) He invokes the defects of lack of substantiation of the assessment and that there occurs a violation of the right to participate because he did not receive a response to the three documents he submitted to the AT referred to in s), x) and z) above, before the notification of the IRS assessment referred to in aa);

jj) And that the contested act suffers from the defect of violation of law (article 16, no. 1, item a) of the IRS Code) because regarding the year 2011 the fulfillment of this legal requirement is not verified in his case;

kk) He observes that there is no specific deadline in the law for resident taxpayers to declare non-residence in Portugal and therefore he waited until the end of 2011 to, on 20.04.2012, make that communication, aiming to count the days he remained in national territory.

ll) Which explains the reason he received dependent work income, which was taxed by withholding at source, as if he were resident, carried out by D… and by E… SGPS, SA.

mm) Since the Claimant's spouse, at the time of the facts, maintained residence in Portugal, the Claimant believes that he provided proof to rebut the presumption of no. 3 of article 16 of the IRS Code, through the request of 20.04.2012, which made reference to no. 1 of article 64 of the CPPT, the proper means to rebut fiscal presumptions;

nn) A request that should be considered tacitly approved by the failure to provide any response within the 6-month period, which was the case.

oo) Even if this were not the case, he believes there is no "connection between most of his economic activities and Portuguese territory", as provided in no. 3 of article 16 of the IRS Code".

pp) By counting the days of presence in Portugal, following the criterion currently contained in no. 2 of article 16 of the IRS Code, he considers that he remained in Portugal no more than 174 days.

qq) He submitted a table of days of presence in Portugal (below in item sss) which for more efficient comparison was placed alongside an identical table presented by the Respondent) which, in conjunction with the airplane ticket receipts and passport stamps, is intended to prove non-presence in Portugal for no more than 174 days.

rr) To avoid foreclosure proceedings, the Claimant presented a bank guarantee on 24.05.2013, guaranteeing an amount up to € 27,877.74.

ss) He concludes by requesting the annulment of the decision adopted on the HA and consequently of the IRS and interest assessments, with refund of the amounts paid and adding compensation for improper provision of guarantee.

SUMMARY OF THE RESPONDENT'S POSITION

tt) It notes that what was at the origin, both of the denial of the administrative complaint and of the hierarchical appeal was the fact that the Claimant – according to the cadastral information – was a Portuguese citizen with his domicile at Avenida … …, …, Lot no. … in Lisbon";

uu) And that on "20.04.2012 … altered his status from resident in Portugal to resident abroad, appointing the company C…, SGPS, SA as his representative, effective 20.04.2012, and his fiscal domicile becoming Rua …, no. … in Lisbon";

vv) Adding that according to the "taxpayer's view" resulting from the cadastral records at the AT, he is a member of the Board of Directors of 15 companies and manager of 5 other companies, all with headquarters in Portugal, and there is no record that these functions have ceased;

ww) In 2011 the AT further verifies that there is an Annex J to Model 10 where it is possible to verify that the Claimant earned Category A income from 1997 to 2011, whose withholdings were made in the capacity of resident, with mandatory deductions and surtax that applies to income earned by taxable persons resident in Portuguese territory, paid by companies D… Lda. and E… SGPS;

xx) And in the AT's computer system there are no Model 30 declarations – income paid or made available to non-resident taxable persons – for the year 2011;

yy) As for the request for pronouncement, it objects to what it considers to be an expansion of the scope of the dispute by the Claimant, relative to the specific requests he made, both in the administrative complaint proceedings (RG) and in the hierarchical appeal proceedings (HA), since there "he made no allusion to alleged formal defects that the assessment act may suffer" contrary to what now occurs regarding the alleged defects of "lack of substantiation and violation of the right to participate".

zz) A matter on which there is no agreement with the respondent, nor confession, in accordance with article 264 of the CPC and article 265 of the CPC.

aaa) Concluding that the scope of the request for pronouncement should be limited exclusively to the consideration of the merits of the issues discussed in the administrative complaint and hierarchical appeal proceedings.

bbb) Even if this were not the case, the AT assesses the three requests submitted on 14.03.2012 and others subsequently on 14.08.2012 and 07.11.2012 as follows: the first submitted on 20.04.2012 addressed to the Tax Services of Cascais … (instead of having been addressed to the Tax Registration Records Services Directorate) constitutes a mere communication in which the Claimant declares that from 01.01.2011 he ceased to exercise any economic activity in Portugal; the second was submitted on 16.08.2012 to explain the reasons why, in the Claimant's view, there was no basis for filing the Model 3 income declaration for the year 2011; the third that the Claimant sent on 07.11.2012 was to explain the reasons why the declaration was not filed.

ccc) From this deriving that it is evident "clearly that the assessment act was preceded by a set of acts and procedures properly substantiated and that clearly informed the Claimant of the logical sequence of reasoning that culminated in the assessment".

ddd) Regarding the alleged defect of lack of substantiation due to violation of the duty to participate, it argues that the Claimant "was notified twice to present the Model 3 IRS Income Declaration for the year 2011, under threat of assessment being carried out on the basis of the determination of the net income available in the services, as provided in no. 3 of Art. 76 of the IRS Code" and the law dispenses with prior hearing before the assessment in this case;

eee) Since the law clearly establishes (2 of Art. 60 of the LGT) that, in the event that the assessment is carried out officially on the basis of values provided for in the law and provided that the taxpayer has been notified to present the missing declaration without having done so, prior hearing is dispensed with.

fff) As for what was alleged by the Claimant that "he could not in the year 2011 have communicated the change of residence, having waited – and rightly, in the Claimant's understanding – to in 2012 count the days of presence in Portugal during the year 2011, to then proceed to its communication", the AT contends that the document dated 20.04.2012, intended to have retroactive effect to the year 2011, was filed with the Tax Services and because the request aimed at the retroactivity of the effects to 01.01.2011 it had to be filed with the Tax Registration Services Directorate, where "a procedure is conducted to determine whether, according to the elements presented by a particular taxable person, he became a non-resident in Portuguese territory from a particular date".

ggg) Concluding that the circumstance of the Claimant having addressed the declaration of non-residence to the Tax Services resulted in his being considered a non-resident only from the date of the communication, namely with effect to the year 2012 and not to the year 2011, more specifically from 20.04.2012.

hhh) And this occurred, in addition to the Tax Registration Services Directorate being the competent entity for the consideration of changes in fiscal residence with retroactive effect, because the Claimant, when presenting the communication, did not present the certificate of fiscal residence issued by the fiscal authorities, containing the date on which he is considered resident in that country.

iii) The AT acknowledges that "the determination of the condition of fiscal resident in the domain of the IRS Code is essentially based on the rule that taxable persons who remain in Portuguese territory more than 183 consecutive or interpolated days are considered residents, notwithstanding other supplementary rules for determining residence, namely based on the ownership of a dwelling in conditions that suggest the intention to keep it occupied as habitual residence".

jjj) As for what was alleged by the Claimant regarding the non-existence of a legal deadline to communicate to the AT the change in condition from resident to non-resident, in accordance with article 1 of the IRS Code and article 8, no. 9, of the CIRC, it argues that "all elements of the IRS tax legal relationship, such as, for example, marital status or residence itself, are crystallized on December 31, therefore, the Claimant should have until 31.12.2011 to communicate to the respondent entity that in the year 2011 he ceased to be resident in national territory, for that purpose attaching the corresponding residence certificate.

kkk) It disagrees with what was stated by the Claimant – regarding the non-existence of a deadline to communicate that he ceased to be non-resident – because it collides with the rule that communication of fiscal domicile constitutes an obligation of the taxable person, with "change of domicile being ineffective as long as it is not communicated to the tax authority" (nos. 3 and 4 of article 19 of the LGT) and with the rule that "residents in national territory who absent themselves therefrom for a period exceeding six months must, for tax purposes, designate a representative with residence in national territory".

lll) And concludes that: "The Claimant only communicated to the respondent entity the change of residence on 20.04.2012, regarding tax facts relating to the year 2011, and for this reason it is completely ineffective with respect to the respondent entity".

mmm) As for the residence specifically in Brazil of the Claimant, it notes that the residence indicated "... at Rua …, no. …, in São Paulo - Brazil, making reference that he came to reside at that address from 2010" "...does not correspond to the certificate of fiscal residence, in which it attests that in the context of the request made by the Claimant he has the address at Avenida …, no. …, … floor in São Paulo", adding that "when requesting the certificate of fiscal residence – on 03.06.2014 – he did not indicate as residence the one at Rua …, no. …, in São Paulo, but the professional address of company B… at Avenida …, no. …, … floor in São Paulo".

nnn) From this deriving the following contradiction: "...when requesting the certificate of fiscal residence, long ago the property had been made available to the Claimant from the day 15.06.2010, in accordance with the statement presented by B…".

ooo) Starting from the premise that the Claimant has permanent residence in both Portugal and Brazil, it argues for the application of the rule of article 4 of the Tax Treaty between Portugal and Brazil to determine that he should be "considered as resident in the State with which he has closer personal and economic connections", in addition to having remained "... approximately 199 days in national territory in the year 2011"

ppp) It further argues that the Claimant did not rebut the presumption of nos. 3 and 4 of article 16 of the IRS Code because his spouse continued to reside in Portugal in the family home, contrary to what was alleged regarding the tacit approval of the request made on 20.04.2012, by the lapse of the 6-month period.

qqq) In addition to what is referred to in bbb), it pronounces on the declaration of non-residence presented by the Claimant on 20.04.2012, intended to have effect from 1 January 2011 as follows: "The Claimant merely declares that he ceased to exercise economic activity in Portugal, therefore it did not give rise to any administrative procedure by the respondent entity, as mentioned in art. 64 of the CPPT, with a view to rebutting the presumption established in no. 3 of Art. 16 of the IRS Code".

rrr) And that nowhere does the Claimant invoke the rebuttal of the presumption, including because at "the date of presentation of the declaration no act had yet been practiced by the respondent entity" of assessment and "...the application of presumptions as to norms of objective or subjective tax incidence is made when tax acts are practiced" in the alternative to the administrative complaint and hierarchical appeal.

sss) Regarding the criterion adopted in counting the days that the Claimant uses to determine his presence in Portugal in 2011, it points out the following map that was prepared in the context of the HA (as opposed to that presented by the Claimant):

[TABLE OF DAYS - Respondent's Map vs. Claimant's Map showing dates and day counts - see original for details]

ttt) Disagreeing with the method of counting the days of presence in national territory used by the Claimant – which counted any complete or partial day that included overnight in national territory – it argues for another – which it considers to be "an objective criterion of presence in national territory" whereby the day of departure and the day of arrival both count as presence in Portugal.

uuu) As an example of the discrepancy in the method of counting days, it cites the period 01.01.2011 to 04.01.2011 in which 4 days are considered in the HA and the Claimant considers 3 days, which it disagrees with, since the Claimant departed from Lisbon on 04.01.2011 at 23:35 hours and only arrived in São Paulo – Brazil on 05.01.2011, noting that "the objective criterion of the number of hours or of the greater presence in national territory" should be adopted and not the criterion of "overnight stay" argued by the Claimant. Same for the periods marked with (a) in the table above, where there is disagreement in the counting of days.

vvv) As for the period from 24.02 to 27.02, the Respondent considers that the Claimant resided in Portugal because "it is not possible to reconstruct the itinerary followed", from the day 23.02 – when he arrived in the USA – until day 27.02 – when he departed the USA for São Paulo Brazil (see the 3 pages of Document 24 attached with the request).

www) It disagrees with the fact that the Claimant demonstrates the trips with the mere presentation of electronic ticket receipts, which by itself it considers does not demonstrate the effective realization of the flight, reason for which it challenges them.

xxx) The AT defends, in response and reiterates in the arguments, case by case and as regards the periods contained in the table above, what was already stated in the substantiation of the decision rendered on the hierarchical appeal.

yyy) It concludes always arguing that the "expansion of the scope of the dispute" should be considered illegal (non-conformities with law not alleged against the assessment act in the administrative complaint and hierarchical appeal proceedings versus those made in the request for pronouncement) and that the request for pronouncement should be judged unfounded as to the invoked non-conformity of the assessment act with the norm contained in item a) of no. 1 of article 16 of the IRS Code.

II - ISSUES FOR THE TRIBUNAL TO RESOLVE

• Expansion of the scope of the dispute versus unfoundedness of the invocation of the defects of "lack of substantiation and violation of the right to participate" in the request for pronouncement.

At the procedural level, the first issue to be considered will be that alleged by the Respondent and contained in xx) and zz) of the Report, since it constitutes a prejudicial cause to the consideration of the substantive issue, regarding the two alleged defects asserted against the assessment acts.

• The norm contained in item a) of no. 1 of article 16 of the IRS Code.

What is at issue in this proceeding is to determine whether the taxpayer should be taxed for IRS in 2011 as a resident in Portugal or as a non-resident. That is, we are not facing a dispute regarding whether or not there is taxation in IRS. The dispute concerns only what type of taxation should occur: resident versus non-resident.

In other words, as the parties refer and the AT does so clearly, it is to determine whether the taxpayer – in light of the command of the norm contained in item a) of no. 1 of article 16 of the IRS Code – remained in Portuguese territory more than 183 consecutive or interpolated days.

Or in another way: what is to be determined is whether from the facts brought to this proceeding and which should be considered proven (according to the rules of evidence evaluation) it results or not that the taxpayer remained in Portugal 183 days or less.

And this will be sufficient, as results from the position assumed by the AT in the response (see above item iii) of the Report) and the position of the Claimant, to consider that the evaluation of the facts in the decision that denied the Hierarchical Appeal (HA) may not have been the most adequate, especially because in that procedure the Claimant could be invited to complete, clarify or supplement the evidence elements, in addition to the fact that the AT, in the exercise of its inquisitorial power (article 58 of the LGT) could attempt to obtain other elements that would refute or confirm what was alleged by the taxpayer.

• The criterion for counting the days of presence in Portugal. The current regime of no. 2 of article 16 of the IRS Code.

The main disagreement between the parties lies in the method adopted to count the days of presence in Portugal, particularly whether the day of departure, always by airplane from Lisbon Airport's International Zone, should be counted as a day of presence in Portugal or not.

The Claimant states that it should not be counted by application of the currently applicable regime contained in the norm of no. 2 of article 16 of the IRS Code, in the version applicable as of 01.01.2015. The Respondent objects to this understanding, arguing for the counting of the day of departure as a day of presence in Portugal, which it considers to be "an objective criterion of presence in national territory".

This is, in essence, the essential issue of this proceeding, which determines, in practice, the success or failure of the request for pronouncement. And it will determine, immediately, the TAS's conviction regarding the establishment of the factual matter regarding the days the Claimant is considered to have remained in Portugal.

In the 30 trips made by the Claimant in 2011 detailed in Part III below, in which in the vast majority the Claimant did not count the day of departure from the International Zone of Lisbon Airport (that is, excluding trips to/from Schengen Area countries and the United Kingdom) as having remained in Portugal, it will suffice to add those days to the 175 that result from his allegation to understand that this is the core of the issue presented to the TAS.

The TAS was not presented by the parties with settled jurisprudence on this specific matter, preventing some decision against "established law". It remains for the TAS to decide with the rules of law in the interpretation deemed most assertive.

The TAS understands that if from the consideration of the above-indicated issues it results that the Claimant, in 2011, did not remain more than 183 days in Portugal, the other issues raised are prejudiced, making their consideration unnecessary.

That is, what is at issue here is the review of the AT's decision reproduced in o) of Part III below.

In cases of administrative challenge (namely administrative complaints and hierarchical appeals of assessment acts), if the respective decision upholds the challenged act with different substantiation, it should be understood that a revocation by substitution of that act occurs, with a new act subsisting in the legal order that, despite maintaining the same decision content, will have the new substantiation.

Since the substantiation of the decision on the administrative complaint differs somewhat from that adopted in the hierarchical appeal, it is the decision of the latter that is now under review. And there what is discussed, in essence, is the counting of the days of absence versus presence in Portugal of the taxpayer.

Questions, such as:

• The scope of the "declaration" made on 20.04.2012 by the taxpayer before the Tax Services;

• The date from which it should or could be made;

• How to understand the AT's failure to respond to the questions raised by the taxpayer in the communications;

• The rebuttal of presumptions regarding the spouse and the existence of a jointly-owned dwelling, maintenance of the essential center of social and economic life in Portugal;

will cease to have determinant relevance for the success or failure of the request for pronouncement, as the parties place it in their procedural documents.

Also assuming a secondary position are other issues raised, without decisive influence on the substantive issue, such as those relating to withholding tax rates, declaration obligations, and the fact that in the taxpayer's registry there are various records of management or administration of companies in Portugal, taking into account that what matters, in terms of subsidiary tax liability of members of statutory bodies, is the actual management or administration and not so much its registration in formal/legal terms, which only presumes the actual.

III. ESTABLISHED AND UNPROVEN FACTUAL MATTER AND SUBSTANTIATION

With relevance for the decision to be adopted, these are the facts considered proven, indicating the respective documents (proof by documents) as substantiation.

Proven Facts

a) On 16.07.2010, a foreign identity card was issued in the name of the Claimant, by the Federative Republic of Brazil (FRB), with the classification of "permanent" and valid until 11.05.2011 – as per document no. 1 attached with the request for pronouncement.

b) On 02.07.2014 a "certificate of fiscal residence in Brazil" was issued by the FRB, with reference to the Claimant, with address at Avenida … … … floor … … São Paulo Brazil, reference period of 1.01.2011 to 31.12.2011, with the following declaration from the tax authority: "The Brazilian Tax Authority, in the exercise of its functions, certifies that the taxpayer is fiscally resident in Brazil" - as per document no. 2 attached with the request for pronouncement.

c) The Claimant established his residential dwelling as of 5 June 2010 at Rua … nº …, in São Paulo, FRB – as per documents no. 3 and 4 attached with the request for pronouncement.

d) The Claimant submitted to the Tax Services of Cascais-… a document entitled "declaration of non-residence" whose original was received on 20.04.2012 by an unidentified employee, with the following content:

"Declaration of Non-Residence

"To the Esteemed Chief of the Tax Services of Cascais …

A…, taxpayer no. …, hereby declares before this Tax Services that he has ceased to reside in Portugal, for all legal purposes, as of 1 January 2011, by virtue of having come to reside and exercise his professional activity in Brazil since 11.05.2010, as evidenced by the permanent resident identification card which is attached as document no. 1.

More specifically, the declarant came to reside from the date indicated at Rua … nº …, in São Paulo, registration no. … of the … Real Estate Registry of São Paulo, as evidenced by the rental contract which is attached as document no. 2 and the declaration issued by B… SA., company with headquarters in the Capital of the State of São Paulo, at Avenida …, …, … floor, …, which is attached as document no. 3.

Although he came to reside in Brazil in the middle of 2010, that was a transition year, reason for which he maintained fiscal residence in Portugal. The same does not apply to 2011, since he resided in Brazil uninterruptedly throughout that year.

He further declares that, by the present, he appoints C…, SGPS, SA., legal entity no. …, with headquarters at Rua …, …, in Lisbon as his fiscal representative in Portugal, conferring upon her all powers to represent him before the Portuguese Tax Services.

He further declares that, by the present, he does not appoint C… SGPS, SA. as manager of property or rights he may possess, nor does he grant powers to manage any property, including obligations, real estate or other rights that he has or may have in Portugal.

For purposes of the provision in no. 3 of article 16 of the IRS Code in no. 1 of article 64 of the CPPT, it is demonstrated hereby that the declarant ceased to exercise any economic activity in Portugal from the beginning of 2011, and also ceased to obtain any income in Portugal in the course of the aforementioned year 2011 (see document no. 4, which is now attached), with the exception of the remuneration as non-executive administrator of the company E…, SGPS, SA., legal entity no. ….

4 documents are attached.

The Declarant,

(signature)"

as per document no. 5 attached with the request for pronouncement.

e) In 2012 the Claimant submitted in Brazil his income declaration for the year 2011, as a taxpayer fiscally resident in that country – as per document no. 6 attached with the request for pronouncement.

f) In 2012, the Claimant did not submit in Portugal any income declaration for the year 2011 – article 11 of the request for pronouncement and global position of the AT in the response.

g) On 30.07.2012 C… SGPS, S.A. was notified by the AT, in its capacity as fiscal representative of the Claimant, by letter no. …, of 24.07.2012, from the Finance Directorate of Lisbon, in which it was stated that "based on elements available in the AT's computer systems, it was verified that (…) the IRS Income Declaration – Model 3 (…) was not filed, nor submitted electronically, regarding the year(s) of 2011" and that the Claimant was "Notified to, within 30 (thirty) days, file or submit electronically, the Income Declaration(s) referred to above" – article 12 of the request for pronouncement and as per document no. 7 attached with the request for pronouncement.

h) By letter of 14.08.2012, the Claimant responded to the Finance Directorate of Lisbon attaching the document transcribed in d), arguing for the validity of its content – article 13 of the request for pronouncement and as per document no. 8 attached with the request for pronouncement.

i) On 31.10.2012, the AT sent directly to the Claimant, to the headquarters of his fiscal representative, a new letter urging him to present the income declaration for the year 2011 – article 15 of the request for pronouncement and as per document no. 9 attached with the request for pronouncement.

j) The Claimant responded to the AT on 07.11.2012, reiterating that he had not been fiscally resident in Portugal during 2011 – article 17 of the request for pronouncement and as per document no. 10 attached with the request for pronouncement.

k) In February 2013 the Claimant received the notification of the Statement of IRS Assessment no. 2013 … for 2011, indicating an amount of tax payable of € 21,685.32, corresponding to global taxable income of € 262,174.02 – articles 19 and 20 of the request for pronouncement and as per document no. 11 attached with the request for pronouncement.

l) Also in February 2013 he received the notification of the Statement of Interest Assessment no. 2013 …, in the total amount of € 609.74 - article 23 of the request for pronouncement and as per document no. 11 attached with the request for pronouncement.

m) In May 2013 the Claimant filed an administrative complaint (RG) against the IRS and interest assessments; by letter no. … of 16.09.2013 from the Finance Directorate of Lisbon, he was notified of the draft denial; he exercised his right to participate by registered letter of 07.10.2013, submitted evidence suggested by the AT and attached documents; by letter no. … of 13.01.2014, the Finance Directorate of Lisbon notified him of the denial of the Administrative Complaint – articles 24, 26, 29 and 30 of the request for pronouncement and as per documents no. 13, 14, 15 and 16 attached with the request for pronouncement.

n) On 13.02.2014, disagreeing with the decision rendered on the RG, he filed a Hierarchical Appeal (HA) which was also denied and notified to the Claimant by Letter no. … of 16.01.2015, received on 20.01.2015 – articles 31 and 32 of the request for pronouncement and as per documents no. 17 and 18 attached with the request for pronouncement.

o) The Claimant appeals the present request for pronouncement (with consequent request for annulment of the IRS and interest assessments, should the request be upheld) of the AT's decision which has the following content:

"By letter no. …, of 2014-05-16, from the Deputy Finance Director of the Finance Directorate of Lisbon, a hierarchical appeal petition was submitted to this Directorate Services, filed on 13-02-2014 by A…, NIF …, from the order dated 31-12-2013, issued by the Head of Division of the Administrative Justice Division of the Finance Directorate of Lisbon – notified on 14-01-2014 (see letter no. …, of 13-01-2014, registered with AR – RD…pt, signed on 14-01-2014 which denied the administrative complaint no. …-2013-…, filed against the IRS assessment no. 2013 …, in the amount of 21,685.32 euros (with this amount including Interest, in the amount of 609.74 euros, for IRS of 2011.

I – On the hierarchical appeal request – The appellant seeks, properly represented by counsel, full approval of the administrative complaint filed, with the consequent annulment of the corresponding assessment, since in the said fiscal year he was residing and exercising his professional activity in Brazil.

He bases his appeal on the following factual-legal argument (summary of the undersigned's responsibility).

The administrative complaint was denied on the ground that the appellant remained in Portugal for more than 183 days and because the appellant did not demonstrate that he was taxed in Brazil as a fiscal resident in that country during 2011.

Now, tax law establishes no specific deadline for emigrants to declare their non-residence in Portugal. And in the 1st quarter of 2012 the appellant filed his non-resident declaration, giving it retroactive effect to 2011.

The appellant, in the year 2011, remained in Portugal for a period of less than 183 consecutive or interpolated days.

The AT considered 199 days as days of presence in Portugal. However, it considered days when, in reality, he was absent from that Country, namely:

From 23 February to 27 February, that is, 04 days, he was in the USA, as he arrived in the USA on 23-02 and departed for Brazil on 27-02, where he arrived on 28-02, according to Doc 1 attached and in Doc 2 the entry and exit stamps are marked as A1 A2 and A3;

Between 7-04 to 11-05 he was in Brazil, as per Doc. 3 and entry and exit stamps identified in doc. 4 as B1 and B2;

Between 14-06 to 16-06 he was in the USA, according to doc. 5 and stamp marked in doc. 4 as C1.

On day 07-10 he was already in Brazil, as he departed Portugal on 06-10 and arrived in Brazil on 06-10, according to doc. 6 and stamp marked as D1 in doc. 4;

On day 19-10 he was already in the USA, as he departed Portugal on 18-10 and on that day 18 arrived in the USA, so on day 19 should be considered as outside of Portugal according to doc. 7 and stamp marked in doc. 4 as E2.

Therefore, from the 199 days considered by the AT, 33 days should be subtracted, and consequently, only 166 days can be considered as days of presence in Portugal.

The appellant was, in the year 2011, fiscally resident in Brazil, according to the income declaration statement filed in Brazil, requesting attachment of a fiscal residence certificate in Brazil.

II – On the facts - 1 – The partial denial of the administrative complaint proceedings was based on the following factual-legal substantiation:

By consultation of the Taxpayer Registration Management System, it is verified that the now appellant was listed as resident in national territory until 20-04-2012 with residence at Avª. … … … Lot …, …;

On 20-04-2012, he altered his status from resident in Portugal to resident abroad, appointing as his representative C… SGPS, SA., effective date 20-04-2012, and his fiscal domicile becoming no. … of R. …, in Lisbon;

He has been, since 09-06-2010, a member of the Board of Directors of the company nif …, a member of the board of directors of the company nif …, since 22-01-2010; He is President of the company nif …, since 23-10-2009; He is President of the company nif …, since 23-10-2009; He is President of the company nif …, since 12-10-2009; He is Member of the company nif …, since 17-07-2009; He is President of the company nif …, since 01-07-2009; He is President of the company nif …, since 31-12-2008; He is President of the company nif …, since 16-02-2008; He is President of the company nif …, since 16-12-2008; He is President of the company nif …, since 25-11-2008; He is President of the company nif …, since 10-08-2008; He is President of the company nif …, since 01-08-2008; The aforementioned companies all have their headquarters or effective management in Portugal and it does not appear from the system that these functions have been terminated with respect to the listed ones;

Through the Taxpayer's view it is also verified the current status of manager of various companies (five);

Through consultation of Annex J of Model 10 it is verified that he earned Category A income from 1997 to 2011, whose withholdings were made in the capacity of resident, with mandatory deductions and surtax applicable to income earned by taxable persons resident in Portuguese territory. In 2011 this income was paid to him by D…, SA., nif … and by E… SGPS, SA., nif …, whose withholdings were made in the capacity of resident, with mandatory deductions and surtax applicable to income earned by residents;

No Model 30 declarations appear in the system – income paid or made available to non-resident taxable persons – for the year 2011 for this taxpayer;

On 24-07-2012, notification was sent, in accordance with articles 57 and 76, no. 3, of the IRS Code, to proceed with the filing of model 3 declaration for the year 2011 and on 29-10-2012, an internal inspection procedure was opened, which was closed by having verified the issuance by the central services of the AT – DSIRS, in accordance with article 76, no. 1, item b) of the IRS Code, of assessment no. 2013 …, based on the official declaration …-2011-…-…, which includes the income determined by the inspection service and which appears in the computer system;

In 2011 he was resident in Portugal and therefore subject, like all taxpayers, to filing the declaration provided for in article 57 of the IRS Code, not falling within any of the exemption situations provided for in article 58 of the IRS Code, with no lack of substantiation demonstrated in the statement of IRS assessment;

Regarding the days of presence in Portuguese territory, having analyzed all pertinent documents and conducted the cross-reference between the passport stamps and the travel proof documents, the taxpayer's count is not followed, concluding that he remained in Portuguese territory 199 days, in accordance with the following map:

[DAYS MAP - showing dates 01-01 to 04-01, 4 days; 15-01 to 30-01, 16 days, etc., totaling 199 days]

2- By consultation of the documents presented by the now appellant in the hierarchical appeal proceedings, regarding the days of presence/absence in Portuguese territory, the following documents were attached:

Docs. 1 and 2 – Copy of e-ticket receipt for flight departing 20-02-2011 from Lisbon and arriving in Newark on 23-02-2011; Copy of e-ticket receipt for flight departing 27-02-2011 from New York and arriving in São Paulo on 28-02-2011; Brazilian Federal Police visas dated 29-02-2011 and 01-03-2011; illegible visa dated 23-02-2011, identified as A1;

Docs. 3 and 4 – Copy of e-ticket receipt for flight departing 16 April (at 23h20m) from Lisbon and arriving in Rio de Janeiro on 17-04-2011; Departure on 09-05-2011 from São Paulo arriving in Lisbon on 10-05-2011; Brazilian Federal Police visas dated 07-04-2011 and 12-06-2011;

Docs. 5 and 6 – E-ticket receipt in the name of the appellant with flight information between Lisbon – Newark, departing 13-06 and arriving in Newark on 13-06, with departure from Newark on 16 June and arrival in Lisbon on 17-06; The stamp marked as C1 concerns a visa entry stamp in an imperceptible location and the same contains two distinct dates.

Docs 6 and 4 – E-ticket receipt in the name of the appellant with flight information between Lisbon – São Paulo, departing 06-10, arriving in São Paulo on 06-10, with departure from São Paulo on 14 October and arriving in Lisbon on 15-10; The stamp marked as D1 from the Brazilian Federal Police concerns a Brazilian Federal Police visa stamp in which only 10-11 is perceptible;

Docs. 7 and 4 – E-ticket receipt in the name of the appellant with flight information between Lisbon – Newark, departing 18-10, arriving in Newark on 18-10, with departure from New York on 18-10 and arrival in Rio de Janeiro on 20-10; E-ticket receipt in the name of the appellant with flight information between São Paulo – Lisbon, departing São Paulo on 24-10 and arriving in Lisbon on 25-10, the stamp marked as E1 concerns a US Department of Homeland Security US Customs and Border Protection entry visa with the date of 18-11-2011;

3 – On 31-07-2014, the appellant requested the attachment to the hierarchical appeal proceeding of a certified copy of Certificate of Fiscal Residence in Brazil.

From analysis of said document, it is verified from Annex 1 thereof that, for reference to the period 01-01-2011 to 31-12-2011, income of 832,727.36 reais was earned in Brazil by the appellant, with source withholding of 223,943.75 reais performed, being the paying entity E…, SGPS, SA., nif … with headquarters in Lisbon; It was declared that this income corresponds to remuneration for holding office on the Board of Directors of Company – article 16 of the Convention between Portugal and Brazil to avoid double taxation; In table 4 of said annex it states that: The Brazilian Tax Authority, in the exercise of its functions, certifies that the taxpayer is fiscally resident in Brazil.

4 – It appears from the proceedings, by attachment to the hierarchical appeal petition, the income declaration submitted by the appellant in Brazil in the year 2011 – Annual Adjustment Declaration; Income Tax – Year 2012, calendar year 2011.

From its reading it results that the now appellant declared income from F…, Sa., with withholding tax in the amount of reais 100,861.22

Regarding foreign source income, income was declared in the amount of reais 632,727.36, with tax paid abroad in the amount of reais 223,943.75.

III – On the consideration of the appeal

1 – The appellant is a legitimate party, as a taxable person in the tax legal relationship, as declared under article 65 of the LGT and 9 of the CPPT;

The appeal was timely filed taking into account the date of signature of the notification record of the contested order – 14-01-2014 (see Letter no. … of 13-01-2014, registered with AR – RD … pt, signed on 14-01-2014) and the date of postal registration of the hierarchical appeal petition of 13-02-2014 – and the period set in no. 2 of article 66 of the CPPT (30 days from notification of the act, counted in accordance with article 279 of the CC, via the provision of art. 20, no. 1 of the CPPT);

Given the purely optional nature of the appeal filed and not knowing whether judicial challenge with the same subject matter has already been filed (in case of denial of an administrative complaint, the law establishes an appeal period of 15 days after notification of the act), being it frequent the verification of situations of cumulative use of these two procedural means of defense, it is noted that, if the aforementioned cumulation of requests is verified, the consequence will be that provided in no. 2 of article 76 of the CPPT – non-appealability of the decision to be rendered in the hierarchical appeal process – as well as that provided in nos. 5 of article 111 of the CPPT, which translates into the principle of judicial consideration with mandatory consolidation of the hierarchical appeal with the judicial challenge proceedings.

2 – On the elements of personal and real territorial connection in IRS matters

The determination of the condition of fiscal resident in the domain of the IRS Code is essentially sustained by the general rule that taxable persons who remain in Portuguese territory more than 183 consecutive or interpolated days are considered residents there – article 16, no. 1, item a) of the IRS Code – alongside other supplementary rules that have various underlying intentions, such as that determining residence based on ownership of a dwelling in conditions that suggest the intention to keep it occupied as habitual residence as a way to prevent the taxable person's intention to escape the application of the general rule.

The origin or source of income only operates when the residency element is not relevant, meaning that taxation should be made in the State from which the income derives. When this element is considered, the subjection is called real or limited.

For IRS purposes, article 18 of the IRS Code, regarding dependent work income, takes into account the performance in national territory of the activities that give rise to it or the location in that territory of the entity owing such income or the permanent establishment to which the payment should be attributed.

Regardless of the considerations that may be made regarding possible measures to prevent international double taxation – note that there is a Double Taxation Treaty concluded between the intervening States – it is certain that previously, even in accordance with the OECD Model, taxation generally falls to the State of residence.

3 – Resulting from the factual matter proven in the proceedings the non-communication by the now appellant of the change of domicile during the year 2011 – only on 24-04-2012 did the appellant proceed to alter his domicile – and also on that date designated a representative with residence in national territory, his failure is legally sanctioned with ineffectiveness for tax purposes, with everything occurring as if no change in fiscal domicile had occurred (cf. No. 4 of article 19 of the LGT) while the same had not been legally communicated to the AT.

As a consequence of the legal threat of this ineffectiveness in no. 2 of article 43 of the CPPT, the non-enforceability is established for tax purposes of the failure to receive any notice or communication sent to a non-updated domicile, without prejudice to what the law provides regarding the requirement of notification and the manner in which it should be carried out.

4 – Also, since the burden falls upon the now appellant to initiate the mechanism for acquiring evidence of facts relating to his non-residence in Portuguese territory, he did not bring any relevant evidence element to the proceedings that would refute the data contained in the AT's computer system.

Indeed, to the contrary, it is proven that the appellant's presence in that year of 2011 in Portuguese territory was for 198 days and the documentation brought to the proceedings in the hierarchical appeal does not refute this fact. As can be seen:

Docs. 1 and 2 – Copy of e-ticket receipt for flight departing 20-02-2011 from Lisbon and arriving in Newark on 23-02-2011; Copy of e-ticket receipt for flight departing 27-02-2011 from New York and arriving in São Paulo on 28-02-2011; Brazilian Federal Police visas dated 28-02-2011 and 01-03-2011; illegible visa dated 23-02-2011 identified as A1;

From the analysis of these documents it does not result in his non-presence in Portuguese territory between 23-02 to 27-02-2011 (4 days) since, through the same, it is not possible to reconstruct the itinerary followed by lack of elements relating to the effective realization of the trips, and the decision rendered in the administrative complaint proceedings regarding the period 24-02 to 27-02 should be maintained;

From the analysis and cross-reference of these documents it is not proven the alleged non-presence in the period between 07-04-2011 to 11-05-2011, as is easily seen from the date discrepancy.

Docs. 5 and 4 – E-ticket receipt in the name of the appellant with flight information between Lisbon – Newark with departure on 13-06 and arrival in Newark on 13-06, with departure from Newark on 16 June and arrival in Lisbon on 17-06; The stamp marked as C1 concerns a visa entry stamp in an imperceptible location and the same contains two distinct dates.

The mere presentation of e-ticket receipts is considered insufficient for the intended purposes, which by themselves do not prove the effective realization of the flight.

Docs. 6 and 4 – E-ticket receipt in the name of the appellant with flight information between Lisbon – São Paulo with departure on 06-10, arriving in São Paulo on 06-10, with departure from São Paulo on 14 October and arriving in Lisbon on 15-10; The stamp marked as D1 from the Brazilian Federal Police concerns a Brazilian Federal Police visa stamp in which only 10-11 is perceptible;

The mere presentation of e-ticket receipts is considered insufficient for the intended purposes, which by themselves do not prove the effective realization of the flight.

Docs. 7 and 4 – E-ticket receipts in the name of the appellant with flight information between Lisbon – Newark, departing 16-10, arriving in Newark on 18-10, with departure from New York on 16-10 and arrival in Rio Janeiro on 20-10; E-ticket receipt in the name of the appellant with flight information between São Paulo – Lisbon, departing São Paulo on 24-10 and arriving in Lisbon on 25-10; The stamp marked as E1 concerns a visa entry stamp from the Department of Homeland Security US Customs and Border Protection and has the date of 18-11-2011;

What was alleged by the appellant is confirmed that day 19-10 should be considered as outside of Portugal;

It is concluded in light of the documentation attached in the hierarchical appeal proceedings that in determining the period of presence in Portugal, only day 19-10 should be removed as a day of presence in Portugal, with all the rest being maintained.

From the above, it is considered that the appellant, in the year 2011, remained in Portuguese territory 198 days.

5 – It is considered that the now appellant proves his status as a fiscal resident in Brazil in the year 2011, although the fiscal residence certificate now attached only states that the appellant is resident in Brazil without reference to any specific period.

However, from the analysis of said document, it is verified from Annex I thereof that, regarding the period 01-01-2011 to 31-12-2011, income of 632,727.36 reais was earned in Brazil by the appellant, with source withholding of 223,943.75 reais performed, being the paying entity E… SGPS, SA., nif … with headquarters in Lisbon, and it was declared that this income corresponds to remuneration for holding office on the Board of Directors of the Company – article 16 of the Convention between Portugal and Brazil to avoid double taxation.

6 – However, it also appears in the AT's computer system that the now appellant earned income in that year of 2011, Category A income paid by D… and by E… SGPS, SA. whose withholdings were made in the capacity of resident with mandatory deductions and surtax applicable to income earned by resident taxable persons.

On the other hand, no Model 30 declarations – income paid or made available to non-resident taxable persons – appear in the system for the year 2011 for this taxable person.

7 – Thus, being and because it is not proven that the resident lived in Portuguese territory for a period of less than 183 days (consecutive or interpolated), the appellant must be concluded to have no obligation on the part of the Tax Administration to officially promote the alteration of this taxpayer's fiscal domicile, with the fiscal domicile appearing in the Taxpayer Registration Management System (SGRC) at the date of the tax facts being that which defines the concept of resident/non-resident.

8 – It is added that the fact that the appellant is considered fiscally resident in Brazil in the tax period in question does not mean that he could not have been resident in Portugal during the same period. This would only not be the case if the rules on the qualification of residence were the same in Portugal and Brazil and if the same entities were interpreting and applying them.

9 – Finally, note that article 4, no. 1 of the Convention between Portugal and Brazil to avoid double taxation and prevent tax evasion in matters of income taxes, provides for the possibility of a taxpayer being considered resident in both States and if there is a conflict of residences it would fall to the now appellant to resolve it in accordance with the Convention, namely under article 15, which he did not do.

CONCLUSION - The present hierarchical appeal request should be completely denied, maintaining the contested decision.

The appellant should be dispensed with a hearing since he has already been heard previously in the administrative complaint proceedings and no new facts are alleged regarding which he has not yet pronounced, as provided in no. 3 of article 60 of the LGT (see also Point II, 3, item c) of Circular 13/99, of 8 July)."

as per document no. 18 attached with the request for pronouncement.

p) On 24.05.2013 the Claimant presented a simple bank guarantee to the Tax Services of Lisbon-…, of which the AT is beneficiary, with the limit of € 27,877.74 intended to ensure payments derived from the assessment under discussion in this proceeding, in the execution phase with no. …2013…, aiming at its suspension – article 35 of the request for pronouncement and as per document no. 19 attached with the request for pronouncement.

q) The present request for pronouncement was filed with CAAD on 20.04.2015 – Entry record in the SPG of the request for pronouncement.

r) During the year 2011 the Claimant made the following trips to countries that do not belong to the "Schengen Area" or United Kingdom:

Departure from Portugal to Brazil – São Paulo on 04.01.2011. Return to Portugal arriving on 15.01.2011, coming from Brazil – São Paulo – article 102 of the RP, travel proof attached with the RP as Document no. 21, and entry and exit stamps in Brazil marked as A1 and A2 in the passport attached with the RP as Document no. 22;
Departure from Portugal to Brazil – São Paulo on 30.01.2011. Return to Portugal arriving on 11.02.2011, coming from Brazil - São Paulo – article 102 of the RP, travel proof attached with the RP as Document no. 23, entry and exit stamps in Brazil marked as B2 and B2 in the passport attached as Document no. 22;
Departure from Portugal on 20.02.2011, with a stopover in Milan and arrival in Singapore on 21.02.2011. Departure from Singapore on 22.02.2011 and arrival in Beijing on 22.02.2011. Departure from Beijing on 23.02.2011 and arrival in Newark on 23.02.2011. Departure from New York on 27.02.2011 and arrival in São Paulo – Brazil on 28.02.2011. Return to Portugal, coming from São Paulo - Brazil on 01.03.2011 – article 102 of the RP, travel proofs attached as Document no. 24 in the annex to the RP, entry and exit stamps in Singapore marked as C1 and C2 and entry and exit stamps of Brazil, indicated as C6 and C7, all from the passport attached as Document no. 22, in the annex to the RP;
Departure from Portugal to Brazil on 13.03.2011. Return to Portugal returning on 26.03.2011 coming from Brazil – São Paulo - article 102 of the RP, e-ticket receipt/itinerary attached as Document no. 25 with the RP, and entry and exit stamps of Brazil marked as D1 and D2 in the passport attached as Document no. 22 in annex to the RP;
Departure from Portugal to Brazil – São Paulo on 04.04.2011. Return to Portugal on 13.04.2011, coming from Brazil - Rio de Janeiro – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 26 with the RP and entry and exit stamps of Brazil marked as E1 and E2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – Rio de Janeiro on 16.04.2011. Return to Portugal on 13.05.2011, coming from Rio de Janeiro - Brazil – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 28 in annex to the RP and entry and exit stamps of Brazil marked as F1 and F2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – São Paulo on 22.05.2011. Return to Portugal on 02.06.2011, coming from São Paulo - Brazil - article 102 of the RP; e-ticket receipt/itinerary attached as document no. 29 and entry and exit stamps in Brazil marked as G1 and G2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to USA Newark on 07.06.2011. Return to Portugal on 09.06.2011, coming from USA Newark – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 30 in annex to the RP and entry stamp in the USA marked as H1 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to USA Newark on 13.06.2011. Return to Portugal on 17.06.2011, coming from USA Newark – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 31 and entry stamp in the USA marked as I1 in the passport attached as Document no. 27 annex to the RP;
Departure from Portugal on an undetermined day to Brazil (city undetermined) arriving in Brazil on 26.06.2011. Return to Portugal on an undetermined day but with departure from Brazil (city undetermined) on 07.07.2011 – article 102 of the RP and stamps marked as J1 and J2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – São Paulo on 09.08.2011. Return to Portugal on 30.08.2011 coming from Brazil - Brasília – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 32 in annex to the RP and entry and exit stamps of Brazil marked as K1 and K2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal on 05.09.2011, via London to Hong Kong (06.09) – Xiamen (06.09) – Hong Kong (08.09) – arriving in New York on 08.09.2011. Return to Portugal on 09.09.2011, coming from the USA – article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 33 and annex to the RP, entry and exit stamps in Hong Kong marked as L1 and L2, and entry stamp in the USA marked as L3 in the passport attached as Document no. 27 in annex to the RP;
Trip arriving in the USA on 14.09.2011. Departure from USA – New York on 16.09.2011 to Brazil – Rio de Janeiro arriving on 16.09.2011. Return to Portugal on 19.09.2011, coming from São Paulo - Brazil – article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 34 in annex to the RP and stamps of: entry in the USA marked as M1; entry and exit in Brazil marked as M2 and M3, all affixed to the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – São Paulo on 06.10.2011. Return to Portugal on 15.10.2011, coming from São Paulo - Brazil – article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 35 in annex to the RP and entry and exit stamps in Brazil marked as N1 and N2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to USA – Newark on 18.10.2011. Arrival in Brazil – Rio de Janeiro on 20.10.2011, coming from USA. Return to Portugal on 25.10.2011 coming from Brazil – São Paulo – article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 36 in annex to the RP, and stamps: entry in the USA marked as O1; entry and exit in Brazil marked as O2 and O3 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – Rio de Janeiro on 29.10.2011. Return to Portugal on 10.11.2011, coming from São Paulo – Brazil - article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 37 in annex to the RP and entry and exit stamps in Brazil marked as P1 and P2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to USA - Newark on 15.11.2011. Return to Portugal on 18.11.2011, coming from USA - Newark - article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 38 in annex to the RP, and entry stamp in the USA marked as Q1 affixed to the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – Rio de Janeiro on 22.11.2011. Return to Portugal on 27.11.2011 – article 102 of the RP; e-ticket receipts/itinerary attached as Document no. 39 in annex to the RP, and entry and exit stamps in Brazil marked as R1 and R2 in the passport attached as Document no. 27 in annex to the RP;
Departure from Portugal to Brazil – Brasília on 28.11.2011. Return to Portugal on 06.12.2012 coming from Brazil, undetermined city – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 40 in annex to the RP, and entry and exit stamps in Brazil marked as S1 and S2 in the passport attached as Document no. 27 in annex to the RP; and
Departure from Portugal to Brazil – Rio de Janeiro on 25.12.2011. Return to Portugal, coming from Brazil – Rio de Janeiro on 03.01.2012 – article 102 of the RP; e-ticket receipt/itinerary attached as Document no. 41, and entry and exit stamps in Brazil marked as T1 and T2 in the passport attached as Document no. 27 in annex to the RP.

s) In light of the trips made in the year 2011, as per the 20 items of the above item, the Claimant spent 175 interpolated days in Portugal in the year 2011 – article 97 of the RP, except for the period 30/08/2011 to 03/09/2011, as results from r) – 12 above.

Unproven Facts

There is no other factual matter alleged that has not been considered proven and that is relevant to the composition of the legal dispute.

In establishing the factual matter considered settled, account was taken essentially of the stamps placed in the passports, in most cases, combined with the e-ticket receipts/itinerary.

The Tribunal sees no reason not to value these elements in this case, which are essential, since, according to the rules of common experience and knowledge, they evidence the occurrence of the facts they seek to demonstrate (entries into foreign countries and departures from a foreign country), taking into account that the USA does not have passport control on departure and in Brazil the entry and exit stamps are identical, differing only in the dates affixed.

The "proofs" have the function of demonstrating the reality of the facts (article 341 of the Civil Code) so in their evaluation, account must be taken of the type of fact to be demonstrated, taking into account the vicissitudes and difficulties of the real and concrete situation to be evaluated.

Trip in r) – 3 – The e-ticket receipt (second page of Document 24 in annex to the RP) indicates the expected day of arrival in Portugal, coming from São Paulo, of 05.03.2011. However, the passport stamps C6 and C7 show that he departed São Paulo – Brazil on 01.03.2011.

Trip in r) – 10 – The passport stamp J1 (26.06.2011) was considered as entry into Brazil and J2 (07.07.2011) as the corresponding exit.

Trip in r) – 13 – The day of entry of the Claimant into the USA was determined by the stamp affixed to the passport marked as M1), being a sufficient element to demonstrate that on that day he was not in Portugal.

IV. CONSIDERATION OF THE ISSUES FOR THE TRIBUNAL TO RESOLVE

Regarding the first issue, concerning the expansion of the scope of the dispute and unfoundedness of the invocation of the defects of "lack of substantiation and violation of the right to participate" in the request for pronouncement, it appears to us that in the administrative complaint proceedings (RG) and in the hierarchical appeal proceedings (HA), the Claimant indeed did not specifically assert these defects against the assessment acts now being challenged for IRS and interest.

In that measure and in that regard, the request for pronouncement is unfounded because what is now at issue, primarily, is the review of the decision rendered on the HA, based on the defects alleged there against the assessment acts in the context of the administrative proceedings.

In both administrative proceedings what the Claimant specifically asserts against the assessments is the defect of non-conformity with the norm contained in item a) of no. 1 of article 16 of the IRS Code, always invoking his status as a non-resident in substantive terms.

On the other hand, in cases of official assessment, as is the case here, in which the AT notifies the taxpayer to file the IRS declaration, no. 2 of article 60 of the LGT dispenses with prior hearing before notification of the assessment.

Regarding the criterion for counting the days of presence in Portugal and determining whether the current regime of no. 2 of article 16 of the IRS Code should be followed, although it is contained in a legal provision in which it is expressly stated to be applicable as of 01.01.2015, it appears to us that the following:

• All departures from Portugal by the Claimant considered in the established factual matter were from the International Zone of Lisbon Airport, that is, from the moment he passed airport controls he entered an area considered to be international, whereby the specific time of airplane departure would not seem to be determinative here.

• At that date – year 2011 – there was no provision identical to the one that today allows, in our reading, greater transparency and uniformity (horizontal and vertical equality) and generality (a rule that does not permit or mitigate discriminations), in short, that is viewed as more adequate to the practical application of the principle of equality (material equality) – no. 2 of article 16 of the IRS Code.

• No. 2 of article 16 of the IRS Code refers to the expression "overnight stay" to consider that a complete or partial day is considered a presence in a particular location or territory, and it is necessary to integrate the meaning of this expression in accordance with the command of no. 2 of article 11 of the General Tax Law.

• In http://www.turismodeportugal.pt/Português/ProTurismo/estatísticas/conceitosenomenclaturas/Documents/Conceitos Estatisticos para Turismo.pdf because it is a term used in the tourism industry, a way of integrating the concept is found: Name: OVERNIGHT STAY. Content: "Presence of an individual in an establishment providing accommodation, for a period between 12 hours of one day and 12 hours of the following day", whereby what seems relevant to consider that there is an overnight stay is the date of entry into the hotel establishment with reference to 12 hours of one day and not the date of departure/departure from a particular location. In this line of thinking, when 15 days of vacation are purchased in a location, this equates to only 14 overnight stays, since the day of departure does not correspond to an "overnight stay" in the sense referred to above.

Therefore, if the legislature saw fit to improve the fiscal legal order with the provision of no. 2 of article 16 of the IRS Code, implicitly considering that this new rule entails better application of the principle of material equality (in the sense referred to above), even though inserted in an article that has had various amendments to apply only as of 01.01.2015, it appears to us prudent to apply this rule in particular to cases whose pendency in Court occurs after its entry into force, since these are situations that have not yet been consolidated in the legal order.

This would be, it is perceived, a rule with effects on the better or at least clearer and more uniform application of substantive law with respect to the determination of fiscal residence based on the criterion of the number of days of presence in Portuguese territory.

DECISION

The TAS rules as follows:

1 – The expanded claim regarding the alleged defects of "lack of substantiation and violation of the right to participate" is REJECTED, in that these defects were not alleged in the administrative complaint and hierarchical appeal proceedings.

2 – The Claimant DID NOT REMAIN in Portuguese territory in the year 2011 for more than 183 consecutive or interpolated days, having remained 175 days, taking into account the rule contained in no. 2 of article 16 of the IRS Code applicable as of 01.01.2015, in that only a complete or partial day that includes overnight stay in Portuguese territory should be counted.

3 – As a consequence, and given that the Claimant remained in Portuguese territory for less than 183 days, the condition is fulfilled for the determination of his non-residence in Portugal in the year 2011, in accordance with the provision of item a) of no. 1 of article 16 of the IRS Code.

4 – In view of the facts and circumstances, the assessment decisions being challenged should be ANNULLED, and the principle of taxation should be recognized according to the status of non-resident.

5 – As a consequence of the annulment of the assessment decisions, the Tax and Customs Authority shall proceed to:

a) The refund of the amount of € 21,685.32 relating to the IRS assessment;

b) The refund of the amount of € 609.74 relating to interest;

c) The refund of the bank guarantee amount of € 27,877.74 provided by the Claimant;

d) The calculation and refund of any accrued interest from the date the amounts were indebted to the date of their refund, in accordance with the applicable law;

e) The assessment of compensation claimed by the Claimant for the bank guarantee improperly provided, to be determined in accordance with applicable law, with particular regard to the conditions and rules governing bank guarantee costs;

f) The proper filing and tax assessment, if applicable, of any income earned by the Claimant in Portugal in 2011, in accordance with the rules applicable to non-resident taxpayers.

6 – The Claimant's other requests are DENIED.

7 – The costs of this arbitration, in the amount to be determined in accordance with the applicable regulations, shall be borne by the Tax and Customs Authority.

Lisbon, [Date]

The Arbitrator

[Signature]

Frequently Asked Questions

Automatically Created

What are the criteria for tax residency under Article 16(1)(a) of the Portuguese IRS Code (CIRS)?

Article 16(1)(a) of the Portuguese IRS Code establishes that individuals are considered tax residents in Portugal if they spend more than 183 days in Portuguese territory, whether consecutively or interpolated, during any 12-month period beginning or ending in the relevant tax year. Additionally, Article 16(1)(b) creates residency for those who maintain a habitual residence in Portugal on December 31 of the tax year, indicating an intention to maintain and occupy it as their permanent residence. Article 16(2) creates a presumption that individuals are Portuguese tax residents if their spouse and minor dependents reside in Portugal, though this presumption can be rebutted with documentary evidence proving permanent residence and tax obligations in another jurisdiction.

Can a taxpayer living abroad challenge an official IRS tax assessment based on non-resident status in Portugal?

Yes, a taxpayer living abroad can challenge an official IRS assessment based on non-resident status in Portugal. As demonstrated in this case, the taxpayer may file an administrative complaint (reclamação graciosa) against the assessment, followed by a hierarchical appeal if denied, and ultimately seek arbitration through CAAD (Centro de Arbitragem Administrativa) under the Legal Regime of Arbitration in Tax Matters (RJAT). The challenge must present evidence proving non-residence, such as foreign residency permits, rental contracts abroad, tax residence certificates from the foreign jurisdiction, and proof of filing tax returns in that country. Non-residents are exempt from filing Portuguese tax returns under Article 58 CIRS, making residency status determinative of filing obligations and tax liability on worldwide income.

What procedural rights does a taxpayer have before the Portuguese Tax Authority issues an official tax assessment?

Before the Portuguese Tax Authority issues an official tax assessment, taxpayers have the right to participate in the procedure under general administrative law principles, including the right to be heard (direito de audição prévia). When a taxpayer submits documentation challenging their residency status or other factual matters, the Tax Authority must analyze these submissions and provide a reasoned response before proceeding with assessment. The AT must substantiate its decisions, explaining why submitted evidence was insufficient to establish non-residence. Failure to respond to taxpayer submissions or to consider evidence before issuing an official assessment may constitute a violation of participation rights and lack of substantiation (falta de fundamentação), both grounds for annulment of the assessment. Taxpayers should document all communications and maintain proof of submission dates.

How does the CAAD arbitral tribunal handle disputes over tax residency and lack of proper justification by the Tax Authority?

The CAAD arbitral tribunal examines whether the Tax Authority properly applied Article 16 CIRS residency criteria and whether procedural requirements were met. The tribunal assesses whether the taxpayer presented sufficient documentary evidence to rebut residency presumptions, particularly under Article 16(2) when a spouse remains in Portugal. The tribunal evaluates whether the AT's failure to respond to multiple taxpayer submissions before issuing the official assessment constitutes lack of substantiation (falta de fundamentação) and violation of participation rights. If the tribunal finds the assessment lacks proper legal foundation or procedural safeguards were violated, it may annul the assessment. The tribunal examines all evidence independently, including foreign tax residence certificates, rental contracts, residency permits, and tax filing history in both jurisdictions to determine the taxpayer's genuine tax residence during the contested year.

What remedies are available to taxpayers who paid taxes based on an incorrect residency classification in Portugal?

Taxpayers who paid taxes based on incorrect residency classification in Portugal may seek several remedies. First, they can request annulment of the assessment and interest charges through administrative complaint, hierarchical appeal, and ultimately CAAD arbitration. Upon successful challenge, taxpayers are entitled to a refund of amounts unduly paid, plus compensatory interest calculated from the payment date. If the taxpayer provided bank guarantees or other security to suspend collection during the appeal process, they may claim compensation for costs improperly incurred in providing such guarantees. Additionally, if the Tax Authority acted with gross negligence or willful misconduct, taxpayers may potentially claim broader damages. The arbitral tribunal can order the AT to refund all improperly collected amounts with statutory interest, release guarantees, and rectify the taxpayer's tax records to reflect correct non-resident status.

IRS Tax Residency Dispute: Non-Resident Status Under Article 16(1)(a) CIRS – CAAD Decision 267/2015-T

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IRS Tax Residency Dispute: Non-Resident Status Under Article 16(1)(a) CIRS – CAAD Decision 267/2015-T

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