Process: 304/2015-T

Date: January 14, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

In Process 304/2015-T, two taxpayers in a de facto union since 2009 challenged the Tax Authority's refusal to allow them to file joint IRS returns for the 2012 tax year under the married taxpayer regime. The core dispute centered on fiscal domicile registration requirements. The petitioners argued they had been living together at the same address since 2009, sharing table, dwelling, and bed. However, when one petitioner requested a citizen card in 2011 declaring their shared residence, the Tax Authority failed to update her fiscal domicile accordingly. She only discovered this error in January 2013 and requested rectification in July 2013. The Tax Authority contended that Article 14 of the Personal Income Tax Code requires identity of fiscal domicile for two preceding years and the taxation period, and this requirement was not met when the 2012 return was filed. The Authority argued that the petitioner violated Article 19(3) of the General Tax Law by not properly communicating the domicile change, and that legal requirements cannot be met retroactively. The petitioners maintained they submitted sufficient proof of their de facto union and that the domicile discrepancy resulted from administrative error by the services themselves. They sought annulment of the tax assessment and reimbursement with compensatory interest. The CAAD arbitral tribunal found jurisdiction under Article 2(1)(a) of the Legal Regime of Arbitration in Tax Matters, as the case involved challenging the legality of a tax assessment act rather than merely determining fiscal domicile. The tribunal constituted on July 27, 2015, dispensed with the hearing after determining parties had submitted sufficient evidence for decision. The case highlights the strict formal requirements for de facto unions to access joint taxation benefits and the consequences of fiscal domicile registration errors.

Full Decision

ARBITRAL DECISION

  1. Report

A - General

1.1. A..., taxpayer no. ... and B..., taxpayer no. ..., residents in Porto, at Rua..., no. ..., 1st Floor Front (hereinafter referred to as "Petitioners"), presented, on 13.05.2015, a petition for the establishment of a singular arbitral tribunal in tax matters, which was accepted, seeking the declaration of illegality of the decision dismissing the Voluntary Review Request no. ... 14/... and the consequent annulment of the tax act imposing Personal Income Tax (hereinafter "PIT") no. 2014..., of 01.03.2014, relating to the year 2012, notified to Petitioner A... by document no. 2014..., which constitutes document no. 2 attached to the case file with the petition for arbitral decision.

1.2. Pursuant to the provisions of paragraph a) of section 2 of Article 6 and paragraph b) of section 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Center for Administrative Arbitration (CAAD) appointed Nuno Pombo as arbitrator, and the parties, after being duly notified, raised no objection to such appointment.

1.3. By order dated 29.05.2015, the Tax and Customs Authority (hereinafter referred to as "Respondent") appointed Ms. ... and Ms. ... 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 section 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 27.07.2015.

1.5. On 28.07.2015, the highest official of the Respondent's service was notified to, if it wished, present a response within 30 days and request the production of additional evidence.

1.6. On 30.09.2015, the Respondent submitted its response.

B - Position of the Petitioners

1.7. The Petitioners have been living in a situation analogous to that of married couples since 2009, sharing since then the same table, dwelling and bed, at the residence located at Rua..., no. ..., 1st Floor Front, Porto.

1.8. The Petitioners, regarding their 2012 income, sought to be taxed under the provisions of Article 14 of the Personal Income Tax Code, with the regime applicable to married taxpayers not separated or divorced from persons and assets, which was not permitted by the Head of Finance of the Finance Service of Porto.

1.9. The Petitioner requested in 2011 the issuance of a citizen card, indicating as her habitual residence address Rua ..., no. ..., 1st Floor Front, Porto.

1.10. For reasons unknown to the Petitioners, the declared habitual residence address of the Petitioner was not assumed by the tax and customs authority services.

1.11. Having become aware only in January 2013 that the Respondent's services had not assumed, as her habitual residence, the address declared when requesting the issuance of the citizen card, the Petitioner, on 26.07.2013, requested from the Civil Identification Department of the Institute of Registries and Notaries the rectification of the address with the Tax and Customs Authority, which was done on 31.07.2013.

1.12. The Petitioners, within the appropriate timeframe, submitted to the Respondent sufficient means of proof to demonstrate the situation of de facto union existing between them since 2009, which were always disregarded.

1.13. Such incomprehensible disregard prevented the Petitioners from having recognized, for tax purposes, the situation of de facto union.

1.14. Living the Petitioners in conditions analogous to those of married couples since 2009, in the same habitual residence, there is observed the identity of tax domicile provided for in section 2 of Article 14 of the Personal Income Tax Code.

1.15. The Petitioner, on 30.04.2014, proceeded to pay the tax whose assessment he considers illegal, and thus believes he is entitled to be reimbursed the amount unduly paid, plus indemnity interest, calculated at the legal rate.

C - Position of the Respondent

1.16. The Respondent, in its response, begins by stating that the arbitral tribunal has no jurisdiction to determine the residence of the Petitioners, neither at the date of the facts nor at the present date, and therefore considers the indicated testimonial evidence and the assessment of what specifically refers to the residence of the Petitioners to be prejudiced.

1.17. The Respondent contends that at the date of the facts, the Petitioner had her tax domicile at Rua ... no. ..., ... and the Petitioner at Rua ..., no. ..., 1st Floor Front, Porto.

1.18. The Petitioner, in violation of the provisions of section 3 of Article 19 of the General Tax Law, did not communicate the change of her tax domicile to the Respondent, and therefore such change cannot be held against her.

1.19. The Respondent contends that the Petitioners do not have the possibility, by force of law, to benefit from the taxation regime provided for in Law no. 7/2001 applicable to de facto unions, because one of the legal requirements is not met: the identity of tax domicile of the taxpayers during the required period.

1.20. The fulfillment and respective proof of the requirements of de facto union is not sufficient, and it is necessary to have identity of tax domicile during the two preceding years and in the taxation period.

1.21. Moreover, the legal requirements must be met prior to the filing of the income tax return, and it is not reasonable to admit that they can be met a posteriori and, furthermore, at the charge of the Tax and Customs Authority itself.

1.22. It is true that the Petitioner requested a new citizen card on 18.10.2011 and only on 26.07.2013 filed the request for rectification of address.

1.23. Therefore, at the date of the facts, the Petitioners did not have identity of tax domicile, and the Respondent could not have acted differently, lacking the hypothesis of being in a situation caused by error of the services, as provided for in Article 43 of the General Tax Law.

D - Conclusion of the Report

1.24. By order dated 19.12.2015, the arbitral tribunal dispensed with the hearing provided for in Article 18 of the Legal Regime of Arbitration in Tax Matters, as it was its understanding that the parties had submitted to the proceedings all the necessary and sufficient factual elements for the rendering of the decision, a decision to which the Parties raised no objection.

1.25. The arbitral tribunal is materially competent, pursuant to the provisions of Articles 2, section 1, paragraph a) of the Legal Regime of Arbitration in Tax Matters, since what is being assessed is the potential illegality of a tax assessment act and not, in the strict sense, the determination of the tax domicile of the Petitioners.

1.26. The parties have legal capacity and standing in accordance with Article 4 and section 2 of Article 10 of the Legal Regime of Arbitration in Tax Matters, and Article 1 of Ordinance no. 112-A/2011, of 22 March.

1.27. The joinder of claimants and the cumulation of claims effected in the present petition for arbitral decision, in honor of the principle of procedural economy, are justified insofar as Article 3 of the Legal Regime of Arbitration in Tax Matters, by expressly admitting the possibility of joinder of claimants and of "cumulation of claims even if relating to different acts", accommodates, without hermeneutical abuse, the assessment of a petition that stems, in necessary terms, from the judgment that the arbitral tribunal reaches regarding the validity of the assessment under challenge.

1.28. The proceedings do not suffer from any nullity and the parties have not raised any exceptions that would prevent the assessment of the merits of the case, and therefore the conditions for the rendering of the arbitral decision are met.

  1. Factual Matters

2.1. Proven Facts

The following facts relevant to the present case are hereby found to be proven:

2.1.1. The Petitioner has resided at Rua..., no. ..., 1st Floor Front, Porto since at least 2007 (Annex 3 to doc. no. 3, submitted with the petition for arbitral decision).

2.1.2. The Petitioner has resided at Rua..., no. ..., 1st Floor Front, Porto since at least 2010 (Annexes 5 and 6 to doc. no. 3, submitted with the petition for arbitral decision).

2.1.3. The Petitioners have been living in conditions analogous to those of married couples since at least 2010 (the conviction of the tribunal based on what was transmitted by the Parties within the scope of the administrative proceedings submitted by the Respondent with its response).

2.1.4. On 18.10.2011, the Petitioner requested the issuance of her citizen card, having indicated as her address Rua ..., no. ..., 1st Floor Front, Porto (Annex 7 to doc. no. 3, submitted with the petition for arbitral decision).

2.1.5. In the services of the Respondent, despite the information presented by the Petitioner when requesting the issuance of her citizen card on 18.10.2011, her address was not updated (consensus of the Parties).

2.1.6. On 26.07.2013, the Petitioner requested from the citizen card services the rectification of the address that appeared as hers in the records of the Respondent (Annex 8 to doc. no. 3, submitted with the petition for arbitral decision).

2.1.7. The Respondent, on 31.07.2013, communicated that it had proceeded with the rectification of the address that appeared in its records as that of the Petitioner (Annex 9 to doc. no. 3, submitted with the petition for arbitral decision).

2.1.8. The Respondent refused to accept the income tax return, in Personal Income Tax relating to the year 2012, submitted by the Petitioners under the taxation regime applicable to de facto unions (consensus of the Parties).

2.1.9. As a result of the non-acceptance of the income tax return referred to in 2.1.8., the Respondent notified the Petitioner of the assessment act no. 2014..., dated 01.03.2014 (doc. no. 2, submitted with the petition for arbitral decision).

2.1.10. On 28.03.2014, the Petitioners filed a voluntary review request of the assessment act referred to in the previous number, and their claim was dismissed on 17.12.2014 (doc. of pages 38 and 42 of the administrative proceedings that the Respondent submitted with its response).

2.1.11. The Petitioner, on 30.04.2014, proceeded to pay the tax assessed (doc. no. 5, submitted with the petition for arbitral decision).

2.2. Facts Not Proven

With relevance to the decision, there are no facts to be considered as not proven.

  1. Legal Matters

3.1. Questions to be Decided

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

a) Whether the Petitioners, in 2012, can be taxed in Personal Income Tax under the taxation regime applicable to married taxpayers not separated or divorced from persons and assets;

b) Whether, if the petition for declaration of illegality and consequent annulment of the contested assessment is found to be well-founded, the Petitioner, within the scope of the present arbitral proceedings, will be able to obtain a judgment condemning the Respondent to pay indemnity interest regarding the sum he paid for satisfaction of the tax illegally demanded.

3.2. The De Facto Union Regime in the Personal Income Tax Code

At the time to which the facts relate, under the heading "De Facto Unions", Article 14 of the Personal Income Tax Code provided as follows:

1 - Persons living in de facto union who meet the requirements set forth in the respective law may opt for the taxation regime of married taxpayers not separated or divorced from persons and assets.

2 - The application of the regime referred to in the preceding section depends on the identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the taxation period, as well as the signature, by both, of the respective income tax return.

3 - In case of exercise of the option provided for in section 1, the provisions of section 2 of Article 13 shall apply, and both de facto union partners are responsible for compliance with tax obligations.

The exercise of the right enshrined in this provision depended fundamentally on the fulfillment of three requirements:

a) The taxpayers living in de facto union, in the exact terms provided in the respective law, that is, in sum, living in a situation analogous to that of married couples for more than two years;

b) The taxpayers having the same tax domicile during the period required by law for verification of the requirements of de facto union and during the taxation period in question;

c) The taxpayers opting for the taxation regime of married taxpayers not separated or divorced from persons and assets, by signing the respective income tax return.

It should be noted that Law no. 7/2001, of 11 May, as amended by Law no. 23/2010, of 30 August, establishes that the existence of a de facto union between two persons can be proven by any legally admissible means (Article 2-A), and further provides that persons living in de facto union under the conditions provided in said law have the right to the application of the personal income tax regime under the same conditions applicable to married taxpayers not separated or divorced from persons and assets (Article 3).

It should be recalled that a Personal Income Tax assessment act is at issue, whose tax event is complex and of successive formation, relating to 2012, with relevance for this purpose being the last day of the year. Thus, this arbitral tribunal understands that both in the taxation period in question (2012) as well as in the two preceding years (2010 and 2011), the Petitioners lived in conditions analogous to those of married couples. Thus, the problem appears to be limited to the identity of their respective tax domicile during the period required by law for verification of the requirements of de facto union and during the taxation period in question.

3.2.1. Tax Domicile and the Obligation of its Communication

Section a) of section 1 of Article 19 of the General Tax Law clarifies that, unless otherwise provided, the tax domicile of individuals corresponds to the place of their habitual residence.

The legislator does not define the concept of "habitual residence". Lexicographers teach that "residence" is the place where someone establishes their dwelling for a certain period. It is a concept that, more than mere presence, suggests on the part of the inhabitant a certain intentional permanence. It is therefore not surprising that the adjective chosen by the legislator to qualify such residence is "habitual", meaning routine, customary. However, as it also appears with crystal clarity, the determinative period for this assessment will not coincide with eternity. Thus, "habitual residence" will not be synonymous with "lifetime residence".

Now, precisely because the concept of habitual residence is volatile, susceptible to change, the legislator imposed, in section 3 of Article 19 of the General Tax Law, the obligation of taxpayers to communicate their respective domicile to the tax authority. As is evident, no one is in a better position to declare someone's domicile than the person themselves. It is indeed a natural consequence of the principle of good faith by which the relations between the tax authority and taxpayers should be governed to impose on the latter the duty to communicate their domicile and on the former that of adhering to what is communicated to it.

But the provision we have just cited is even more specific. It is not enough for the taxpayer to communicate the domicile. This communication must be made "in accordance with the law". This care is also understood. The legal order itself chooses the means by which the declarations of taxpayers before the tax authority are to produce their effects. Legal certainty requires that rigor be used in communications of this nature, given their consequences. Because in truth, from them depends the normal development of the legal relationship established between the taxpayer and the State as tax creditor.

3.2.2. The Consequences of Non-Communication of Change of Tax Domicile – Ineffectiveness and Unenforceability

The consequence, for the taxpayer, of non-communication, in accordance with the law, of the change of their domicile, is the unenforceability of such change against the tax authority. It would not be reasonable to consider effective, for tax purposes, before the administration, a change of domicile of which it is unaware or has no obligation to know. Therefore, section 4 of Article 19 of the General Tax Law declares ineffective the change of domicile as long as it is not communicated (in accordance with the law, it is understood) to the tax authority.

What is stated above, in the view of this arbitral tribunal, does not correspond to saying that tax domicile is the tax domicile declared by the taxpayers or that which appears in the records of the tax and customs authority services. If it were, if the only relevance were conferred, in substantive terms, on the declaration of taxpayers, the provisions of section 9 of Article 19 of the General Tax Law would make no sense, which allows the tax authority to rectify ex officio the tax domicile of taxpayers. This ex officio rectification, it should be noted, precisely allows removing from taxpayers the possibility of disposing of the concept of tax domicile and even of habitual residence.

To say, as it was said, that it is not reasonable to expect the tax and customs authority to be aware of the change of domicile of a taxpayer that was not communicated to it in accordance with the law, is not equivalent to contending that the tax and customs authority, as demonstrated, is prevented from knowing of such change when it is brought to its knowledge by the means allowed in law.

There is no doubt as to the obligation to communicate to the tax and customs authority any change in tax domicile by a taxpayer. However, the consequences of such non-compliance are, it is repeated, the ineffectiveness and unenforceability of such change against the tax services.

As the Ombudsman rightly refers in his Recommendation no. 1/A/2013, of 11 January, tax domicile is a concept "from which there result merely formal legal-tax effects", concluding that "it is settled in doctrine and jurisprudence that the communication of any change in tax domicile is limited exclusively to the formal scope of the legal-tax relationship, one must conclude that the lack of such communication cannot have material effects on the situation of taxpayers, such as preventing the application of a certain legal taxation regime".

The Respondent contends that "the ineffectiveness of the change [of domicile] for tax purposes" means that "it does not have, by force of law, the possibility of benefiting from the taxation regimes provided for in Law no. 7/2001 of de facto unions". The Respondent bases this understanding on the obligation that the Petitioners had "to change their tax domicile so that it would be enforceable against the TA".

Now, the arbitral tribunal does not concur with this judgment, for the reasons already pointed out, and does not adopt the thesis that "in order to benefit from the tax regime of de facto unions, the Petitioner should have proceeded to communicate the change of her tax domicile within the legally established period".

The ineffectiveness and unenforceability associated with the non-submission of a declaration of change of domicile cannot affect the substantive core of access to a taxation regime that the legislator intended, rightly or wrongly, it matters little, to place at the disposal of taxpayers who find themselves in the situation described, in general and abstract terms, in the normative provision.

It seems clear that the legislator intended to grant to persons living in conditions analogous to those of married couples access to the taxation regime of these. And living in conditions analogous to those of married couples is sharing their habitual residence and not both communicating to the tax services the same address as their own. Because the identity of tax domicile communicated to the tax authority is intended solely to prevent abusive and fraudulent conduct given the informality of the de facto union situation itself. Therefore, the new wording of section 2 of Article 14 of the Personal Income Tax Code is suggestively as follows:

2 - The existence of identity of tax domicile of the taxpayers during the period required by law to verify the requirements of de facto union, and during the taxation period, creates a presumption of the existence of de facto union when invoked by the taxpayers.

3.3. Conclusion

Based on the above, the arbitral tribunal understands that the decision dismissing the voluntary review request duly presented by the Petitioners is illegal, by which they demonstrated the fulfillment of the requirements on which access to the taxation regime of married taxpayers not separated or divorced from persons and assets depends.

3.4. Indemnity Interest

Paragraph b) of section 1 of Article 24 of the Legal Regime of Arbitration in Tax Matters provides that "the arbitral decision on the merits of the claim from which no appeal or challenge lies shall bind the tax authority from the end of the period provided for appeal or challenge, and this authority must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of judgments of the judicial tax tribunals, restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the necessary acts and operations for this purpose".

It is not ignored that the legislative authorization granted to the Government by Article 124 of Law no. 3-B/2010, of 28 April, on the basis of which the Legal Regime of Arbitration in Tax Matters was approved, determines that the tax arbitration procedure constitutes an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters. Although paragraphs a) and b) of section 1 of Article 2 of the Legal Regime of Arbitration in Tax Matters base the jurisdiction of arbitral tribunals on "declarations of illegality", it seems reasonable to understand that the powers attributed in judicial challenge proceedings to the tax courts are included in their jurisdiction, and it is certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for indemnification can be assessed, notably relating to indemnity interest.

Indeed, the principle of justiciability of claims for indemnification, in voluntary review request or in judicial proceedings, is justified whenever the damage that is sought to be redressed results from a fact imputable to the tax and customs authority. Manifestations of this principle are found in section 1 of Article 43 of the General Tax Law and in Article 61 of the Civil Procedure Code for Tax Matters.

The Petitioner's right to receive indemnity interest depends on the verification of the following requirements: a) error imputable to the services; b) that from such error results the payment of tax in an amount greater than legally due; c) that the error of the services be analyzed in the context of a voluntary review request or of judicial challenge.

Feeling themselves harmed by the decision that they could not be taxed according to the regime applicable to married taxpayers not separated or divorced from persons and assets, as was their intention, since the cadastral information available in the tax services suggested a diversity of tax domiciles, the Petitioners resolved to avail themselves of the mechanisms that the law places at their disposal to ensure their rights. One such mechanism is, precisely, the voluntary review request.

In the present case, the error imputable to the services exists and resides in the Respondent's refusal to remedy what clearly needed remedy. From the analysis of the administrative proceedings, it is verified that the Respondent, in the voluntary review request phase, could and should have granted the Petitioners' petition, as they had conveyed to it the necessary and sufficient elements for the indispensable remedy of the situation. The Respondent erred when it decided not to heed the Petitioners' claim, an error that deserves to be censured in accordance with the law, notably in light of what Articles 43 and 100 of the General Tax Law provide. Consequently, the arbitral tribunal understands that, in principle, the Petitioner has the right to indemnity interest.

A different problem consists in determining the period from which such interest should be calculated. On this matter the Petitioners remain silent. They merely request, in terms deemed adequate, the indemnity interest to which they may be entitled. It is therefore incumbent on the arbitral tribunal, whenever possible, to clarify this issue.

As stated, the error imputable to the services, as expressed, consists, in the view of this arbitral tribunal, in the decision dismissing the voluntary review request duly presented by the Petitioners, this being the procedurally appropriate means for the remedy they sought.

It is important not to lose sight of the fact that the right to receive indemnity interest corresponds, fundamentally, to the concretization of a generic right to indemnification.

In the case submitted to the assessment of this arbitral tribunal, it is necessary to recognize that through the reaction of the taxpayers, as occurred with the voluntary review request duly presented, the Respondent could have become aware of the illegality of the assessment under challenge. Therefore, relevance cannot, for these purposes, be granted to the period prior to the filing of the voluntary review request. However, with a wrongful, illegal and harmful decision to the assets of the Petitioners, the Respondent places itself under the obligation to repair the harm caused by it in the patrimonial sphere of another.

The problem now is whether the date of the voluntary review request decision or some other moment not dependent on the action of the Respondent is to be considered. It is indeed striking to admit the possibility of the Respondent being prejudiced as a function of its diligence. When someone files a voluntary review request of a tax act, they expect the tax and customs authority to assess their claim with the greatest possible promptness, with the legislator offering mechanisms aimed at safeguarding the rights and expectations of the claimant in cases where they, instead of desired diligence, are confronted with the inaction of the decision maker. Now, in the generality of cases, this inaction does not prejudice the claimant. Or rather, in the generality of cases, the law provides for the removal of the damage that the claimant suffers from the inaction of the administration. We say in the generality of cases, because the rule is precisely that indemnity interest begins to be calculated from the date on which the taxpayer finds themselves dispossessed of the sums that are to be considered theirs.

As we have seen, the present case assumes different characteristics. Could the temporally relevant moment be that of the administration's decision? If it were, it could always be said that, regardless of the outcome of the voluntary review, the administration would have no interest in dispatching it before the end of the period available to it for that purpose. It will make no sense, in the view of this arbitral tribunal, to punish the administration for deciding, albeit erroneously, before the end of the period it would have had available to do so. Therefore, the moment to be chosen for purposes of beginning the calculation of interest cannot be linked to the conduct of the administration. It must be a moment independent of such conduct.

As demonstrated, the Respondent, once alerted, through procedurally appropriate means, such as the voluntary review request, to the existence of an illegality, must proceed "to the immediate and full restoration of the situation that would exist if the illegality had not been committed" (Article 100 of the General Tax Law). However, in cases where the illegality is not imputable to the administration, it is of the most elementary reasonableness to admit an adequate period for the administration, after becoming aware of the illegality, to proceed to the full restoration of the situation that would exist if it had not existed.

The legislator understood that one year is an adequate period for the administration to return to the taxpayer what was paid in excess. This was the time period adopted by paragraph c) of section 3 of Article 43 of the General Tax Law. The legislator understood that from the moment of knowledge of the taxpayer's claim, it is reasonable for the administration to take a year to assess their petition, dispatch it and, in case the taxpayer is right, return to them what was received in excess. Therefore, the arbitral tribunal understands that indemnity interest only begins to accrue one year after the date of the voluntary review request.

  1. Decision

Based on the terms and grounds set forth above, the arbitral tribunal decides:

a) To find the petition for arbitral decision well-founded, declaring the illegality of the decision dismissing the Voluntary Review Request no. ... 14/...;

b) Consequently, to annul the Personal Income Tax assessment act no. 2014..., dated 01.03.2014, in the amount of € 3,606.47 (three thousand six hundred and six euros and forty-seven cents).

c) To find well-founded the petition for recognition of the right to indemnity interest, condemning the Respondent to pay it to the Petitioner, with such interest to be calculated from one year after the filing of the voluntary review request.

  1. Value of the Case

In accordance with the provisions of section 2 of Article 306 of the Civil Procedure Code, paragraph a) of section 1 of Article 97-A of the Civil Procedure Code for Tax Matters, and also section 2 of Article 3 of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the case is set at € 3,606.47 (three thousand six hundred and six euros and forty-seven cents).

  1. Court Costs

For purposes of the provisions of section 2 of Article 12 and section 4 of Article 22 of the Legal Regime of Arbitration in Tax Matters and section 4 of Article 4 of the Regulation of Court Costs in Tax Arbitration Proceedings, the amount of court costs is set at € 612.00 (six hundred and twelve euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Lisbon, 14 January 2016

The Arbitrator

(Nuno Pombo)

[1] Text prepared by computer in accordance with the provisions of Article 131, section 5 of the Civil Procedure Code, applicable by reference of Article 29 of the Legal Regime of Arbitration in Tax Matters. The drafting of this arbitral decision follows the spelling used prior to the 1990 Orthographic Agreement.

[2] The judgment no. 4550/11, of 7 April, of the Central Administrative Court South qualifies it as a "power-duty, intended primarily to protect tax truth in implementation also of the principle of collaboration enshrined in Article 59 of the General Tax Law".

[3] An understanding that was reiterated by the Ombudsman in his Recommendation no. 13/A/2013, of 4 July.

Frequently Asked Questions

Automatically Created

Can unmarried couples (união de facto) file joint IRS tax returns in Portugal?
Yes, unmarried couples in a de facto union can file joint IRS tax returns in Portugal under Law 7/2001 and Article 14 of the Personal Income Tax Code, provided they meet specific requirements: they must live in conditions analogous to married couples and maintain identical fiscal domiciles (domicílio fiscal) for the two years preceding the tax year and during the taxation period itself. The couple must prove their de facto union status and ensure both partners have their tax residence registered at the same address with the Tax Authority before filing.
What role does fiscal domicile registration play in IRS taxation for unmarried partners?
Fiscal domicile registration plays a critical role in IRS taxation for unmarried partners seeking joint taxation. Under Article 14(2) of the IRS Code, identity of fiscal domicile is a mandatory legal requirement for de facto union tax treatment. The Tax Authority strictly enforces this: both partners must have their tax domicile officially registered at the same address for two consecutive years before and during the tax year in question. According to Article 19(3) of the General Tax Law, taxpayers must formally communicate any domicile changes to the Tax Authority; failure to do so means the change cannot be recognized for tax purposes. Even administrative errors in updating domicile records can prevent couples from accessing joint taxation benefits.
What happens when the Tax Authority refuses joint taxation to couples in a de facto union?
When the Tax Authority refuses joint taxation to couples in a de facto union, taxpayers receive a tax assessment as individual filers rather than joint filers, typically resulting in higher tax liability. The taxpayers can challenge this decision through a voluntary review request (pedido de revisão oficiosa) to the Tax Authority. If this administrative remedy is unsuccessful, they can escalate to CAAD (Centro de Arbitragem Administrativa) arbitration to contest the assessment's illegality. During the arbitration process, the tribunal examines whether legal requirements for de facto union taxation were met, particularly the identity of fiscal domicile requirement, and whether any administrative errors by tax services contributed to the denial.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when an IRS assessment is annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when an IRS assessment is annulled, calculated at the legal rate from the date of payment. Article 43 of the General Tax Law establishes the right to compensatory interest when taxpayers pay taxes later determined to be illegal or when the Tax Authority's services commit errors. In this case, since the petitioner paid the contested tax on April 30, 2014, believing it to be illegal, he claimed entitlement to reimbursement of the unduly paid amount plus compensatory interest. The interest compensates taxpayers for the financial loss suffered by having their money withheld due to an unlawful tax assessment.
How can unmarried couples challenge an IRS tax assessment through CAAD arbitration?
Unmarried couples can challenge an IRS tax assessment through CAAD arbitration by filing a petition for arbitral decision under Decree-Law 10/2011 (Legal Regime of Arbitration in Tax Matters). The process involves: (1) submitting a petition requesting declaration of illegality of the assessment or dismissal decision; (2) the CAAD Deontological Council appointing an arbitrator; (3) parties having the opportunity to object to the appointment; (4) the tribunal being formally constituted; (5) the Tax Authority submitting a response; and (6) the tribunal evaluating material competence under Article 2(1)(a). In de facto union cases, tribunals examine whether fiscal domicile requirements and proof of union status were properly met, and whether administrative errors by tax services justify annulment of the assessment.