Process: 327/2017-T

Date: January 11, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 327/2017-T addresses a fundamental dispute regarding autonomous taxation of Category G income (capital gains) in jointly filed IRS returns. A married couple challenged an IRS assessment where the Tax Authority (AT) applied autonomous taxation individually to each spouse's capital gains, rather than offsetting one spouse's capital losses against the other's capital gains. The taxpayers argued that Article 43 of the Portuguese Income Tax Code (CIRS) requires determining the taxable base by calculating the balance between all capital gains and losses obtained by both income earners in a joint return. The AT contended that net income determination is legally performed per taxpayer individually, with no income sharing between spouses, even within the same income category. The AT argued that joint filing only affects family quotient calculations and certain tax deductions, not the fundamental taxation methodology for each category. The original arbitral decision from November 2017 was annulled by the Central Administrative Court of the South in December 2018 due to omission of pronouncement, requiring the tribunal to issue a new decision addressing all arguments raised. This case highlights critical interpretation issues regarding how Portuguese tax law balances the joint filing regime with individual income attribution principles, particularly for autonomous taxation on capital gains where spouses experience opposing results in the same tax year.

Full Decision

ARBITRAL DECISION

Arbitral Decision – as a result of the annulment decreed by the Central Administrative Court of the South, pursuant to judgment of 06/12/2018, of the arbitral decision rendered on 30/11/2017.

I – REPORT

A… TF[1] … and B…, TF…, both with tax domicile at Rua … nº … –…-… Matosinhos, in the area of … the Matosinhos tax authority office, filed a request for arbitral pronouncement, under the provisions of subparagraph a) of no. 1 of Article 2, no. 1 of Article 3, and subparagraph a) of no. 1 of Article 10, all of the LATA[2], requesting the ATA[3] for the purpose of reviewing the legality of the dismissal decision that fell upon the administrative appeal …2016… presented by them against the Personal Income Tax (PIT)[4] assessment for the year 2015 with no. 2015…, seeking the annulment of excessive Personal Income Tax assessment in the amount of € 5,463.08 and, since they effected its payment, they request its refund accompanied by payment of the corresponding compensatory interest.

The request was made without exercising the option of appointing an arbitrator and was accepted by His Excellency the President of CAAD[5] on 16/05/2017 and notified to the ATA on the same date.

Pursuant to the provisions of no. 2 of Article 6 of the LATA, by decision of His Excellency the President of the Ethics Council, duly communicated to the parties within the legally applicable time limits, on 01/06/2017, arbitrator Arlindo José Francisco was appointed to the tribunal, who communicated acceptance of the appointment within the legally stipulated time period.

The tribunal was constituted on 21/07/2017 in accordance with the provisions contained in subparagraph c) of no. 1 of Article 11 of the LATA, as amended by Article 228 of Law no. 66-B/2012, of 31 December.

With their request, the claimants seek the annulment of the decision dismissing the aforementioned administrative appeal, duly submitted, against the assessment in question, with the consequent annulment of the excessive Personal Income Tax assessment and its refund in the amount of € 5,463.08, plus compensatory interest.

They support their position, in summary, on the understanding that the matter concerns autonomous taxation on income from category G carried out by the ATA on each of the income earners in 2015, when the taxable basis should have been determined on the joint income of the earners.

That is, the ATA should have taken into account the capital gains obtained by one of the income earners and the capital losses obtained by the other, and the value resulting from the respective arithmetic sum would be subject to autonomous taxation.

They consider that the ATA's position, to carry out individual taxation, when the taxpayers submitted a joint return, does not result from the law; on the contrary, what must be taxed is the balance determined between capital gains and capital losses obtained from the overall income of the earners, when positive.

Article 43 of CITPS[6] establishes that the value of income classified as capital gains is that corresponding to the balance determined between capital gains and capital losses realized in the same year.

In its response, the respondent, also in summary, maintained the positions already set forth in the administrative appeal proceedings, considering that the claimants are not correct since the assessment in question does not suffer from any defect and consequently the administrative appeal could only be dismissed.

The determination of net income is legally determined by taxpayer, with no sharing of income between taxpayers, even if it is income of the same category.

To illustrate its position, the ATA refers to the impossibility of sharing income of the same TP[7], between different income categories, and that Article 55 of the CITPS only permits deduction of losses relative to each income earner, and even in this case, it is necessary that the option of aggregation has been made.

The joint submission of the return does not conflict with nor preclude the form of taxation of income from various categories, which is carried out by income earner and is only determinative for the calculation of the family quotient and for the calculation of certain deductions from tax liability, concluding by the dismissal of the request.

II – DISMISSAL OF PRELIMINARY ISSUES

The tribunal was duly constituted.

The parties have legal personality and capacity, are shown to be legitimate and are regularly represented in accordance with Articles 4 and 10, no. 2 of the LATA and Article 1 of Ordinance no. 112-A/2011, of 22 March.

Following the respondent's reply, the tribunal issued, on 13/10/2017, an order dispensing with the meeting provided for in Article 18 of the LATA, as well as the submission of oral or written arguments, and having no witnesses been called or exceptions raised, it considered conditions assembled to render a decision.

The tribunal rendered a decision on 30 November 2017, in which it declared the request for arbitral pronouncement without merit, maintaining in the legal order the act dismissing the administrative appeal …2016…, as well as the assessment to which the same was directed.

This decision was annulled, pursuant to the learned judgment of 06/12/2018 of the Central Administrative Court of the South, which considered verified the grounds for nullity provided for in Article 615, no. 1, subparagraph d), of the Civil Procedure Code[8], and Article 28, no. 1, subparagraph c) of the LATA (omission of pronouncement), considering prejudiced the understanding of the contradiction between the grounds and the decision also alleged by the appellants.

The CAAD on 10/12/2018 proceeded to the reopening of the proceedings, notifying the Tribunal of this fact on the same date.

Despite Article 29 of the LATA considering the Tribunal dissolved with the notification to the parties of the filing of the records, after notification of the decision, the fact is that, once the decision is annulled and the reopening of proceedings is notified, we understand there to be a new constitution ex novo of the Tribunal, taking into account that the position of the parties is perfectly defined and supported by the evidence already contained in the records. The Tribunal issued an order on 12/12/2018 fixing the date for the rendering of the decision.

Accordingly, the proceedings not being affected by nullities, it is necessary to decide.

III – GROUNDS

– The issues to be resolved, with relevance for the proceedings, are the following:

The claimants wish to have reviewed the legality of the ATA's procedure which, in light of Annex G, considered the capital gains determined in the onerous alienation of real estate values in the name of taxpayer B and disregarded the capital losses determined in the onerous alienation of real estate values in the name of taxpayer A, a procedure which in the claimants' understanding conflicts with no. 1 of Article 43 of the CITPS, declaring whether or not there is grounds for annulment of the decision dismissing the administrative appeal, with the consequent annulment of the tax in the amount of € 5,463.08, or whether on the contrary they should be maintained in the legal order.

In the case of annulment, whether or not there are grounds for payment of compensatory interest.

– Matter of Fact

The claimants submitted, on 11 May 2016, a joint income return, Personal Income Tax Form 3, for 2015, which shows marital status of married.

The said return was submitted with Annex A relating to dependent employment, Annex G relating to capital gains and other capital increments, and Annex H relating to tax benefits and deductions.

In each of the annexes are individualized the values relating to each of the taxpayers.

On 16 November 2016 they were notified to present the supporting documents for completing the return, which they did on the 25th of the same month.

Subsequently they were notified of the Personal Income Tax assessment for the year in question, with no. 2015… in the amount of €11,342.25, and they proceeded to its payment.

Not agreeing with the said assessment, having verified that, in their understanding, they would have borne additional tax of € 5,463.08 unduly, they filed an administrative appeal.

Such appeal, with no. …2016…, was processed in the tax authority office of Porto and came to be expressly dismissed pursuant to decision of 15/02/2017, notified on the same date.

The taxpayers are joint holders of a securities account at Bank C….

The facts described are proven by documents attached to the proceedings or the administrative file, were not contested by the parties, and are those considered relevant for the decision of the case.

3 – Matter of Law

The judgment of the Central Administrative Court of the South, already referred to, declared null the decision rendered by this Tribunal on 30/11/2017, for considering verified the omission of pronouncement raised by the claimants, considering prejudiced the understanding of the issue of the possible defect of contradiction between grounds and decision, also raised by the appellants.

We shall maintain the structure of the decision and in the appropriate place, shall endeavor to remedy the deficiencies that led to the annulment of the decision by the Venerable Tribunal.

The claimants consider that both the assessment and the decision dismissing the administrative appeal process are illegal, invoking as support for their conviction the violation of the principle of participation, having not been notified to exercise the right of prior hearing before the issuance of the assessment here in question, they also consider violated the principle of taxpayers' contributive capacity by taking into account only positive income components, disregarding negative components and, finally, the existence of error in matters of fact and violation of law, by incorrect interpretation and application of Articles 22 no. 1 and 3 b) and 43 no. 2 to 6 of the CITPS, facts that require its annulment. Let us see:

3.1 – Violation of the Principle of Participation

From the perspective of the claimants, the assessment in question suffers from a defect of form by omission of essential legal formality, which violates the provisions contained in Articles 60 no. 1 a) and no. 5 of the TGL[9] and 267 of the PRC[10], insofar as it could not have been issued without their prior hearing, given the difference of understanding between the ATA and the taxpayers, and the phrase "based on the taxpayer's return" contained in subparagraph a) of no. 2 of Article 60 of the TGL should be understood to mean that the dispensing of prior hearing should only occur when the assessment is made in harmony with the position that results from the taxpayer's return, in the factual and legal aspects.

Observing the content of no. 2 subparagraph a) of Article 60 of the TGL, we find that the dispensing of prior hearing occurs in the case where the assessment is made based on the taxpayer's return, without any technical correction or other alteration.

In the concrete case, the claimants were called upon to present the supporting documents for completing the return, which they did, and the declared values were maintained, upon which the determined tax was calculated and duly notified.

It would be different if the ATA corrected some of the declared values, then yes, it would have to conduct prior hearing, inviting the taxpayers to pronounce themselves on the corrections it intended to make. Now, as already mentioned, the ATA accepted the declared values both for the acquisition and for the realization of the real estate values, and also the expenses and charges borne.

It was with those values that the ATA determined the tax to be paid by the claimants, and therefore there was no need for prior hearing, since the assessment took into account, exclusively, the values declared by the claimants and the legal rules it considered applicable.

In a moment subsequent to the assessment, after its notification, the claimants disagreed with the method of calculating the tax and against which they reacted through the administrative appeal already mentioned and which was processed.

In light of these circumstances, the ATA did not have to conduct prior hearing before carrying out the assessment, since this was supported entirely on the values declared by the taxpayers, as provided for in no. 2 subparagraph a) of Article 60 of the TGL, and therefore the assessment does not suffer from the defect invoked by the claimants.

3.2 – Violation of the Principle of Contributive Capacity

Notified of the tax determined based on values declared by them, the claimants, as already seen, filed an appeal against the method of its calculation, as they consider that by submitting a joint income return, they intended that the family household income be subject to taxation, and that for this purpose, account should be taken of the family household's contributive capacity, considering both positive and negative components, and that in their case, the negative component was disregarded, the capital loss declared by taxpayer A within category G, while the capital gain declared in the same category by taxpayer B was taxed.

The administrative appeal filed came to be expressly dismissed, and the taxpayers were notified of the hearing provided for in Article 60 of the TGL, with the ATA transforming the intention to dismiss into express dismissal, pursuant to decision of 15/02/2017 and notified on the same date to the claimants.

Not agreeing with the ATA's decision, as they understand it to be unsupported, it merely reproduces excerpts from provisions of the CITPS and invokes taxation of income at special rates, and furthermore that the law does not require the individual determination of income from category G in respect of married taxpayers; on the contrary, Article 43 no. 1 of the CITPS states that taxation is imposed on the balance determined between capital gains and capital losses, with the ATA only considering positive capital increments for assessing contributive capacity, disregarding negative ones, both reflected in the bank account of C… of which both are joint holders, without any substantiation or evidence for which the burden falls on it.

Just as in the administrative appeal process, the ATA understands that the claimants are not correct, insofar as the determination of net income is always made by taxpayer, with no sharing of income between taxpayers, even in income of the same category. And further, in the case of income of the same taxpayer, it is not possible to share income between categories, exemplifying with the situation of a taxpayer with income from categories A and B who cannot shift losses from category B to the tax payable on income from category A.

In fact, the language given to no. 1 of Article 55 of the CITPS, by Law 82-E/2014 of 31 December, states: "Relative to each income earner, the net negative result determined in any category is only deductible from its net positive results of the same category, as follows." …

This provision establishes that the determination is made by taxpayer and, in the case of negative net results, they will only be deductible from the net positive results of the same category and of the same taxpayer.

Subparagraph d) of the same provision provides for the possibility of carrying forward losses in the five following years: "the negative balance determined in a given year, relating to operations provided for in subparagraphs b), c), e), f), g), and h) of no. 1 of Article 10, may be carried forward to the five following years when the taxpayer opts for aggregation."

But this carry-forward is also made by taxpayer and category and requires aggregation of income.

As is well known, Personal Income Tax is a tax on natural persons and the entire mechanics of the CITPS is the individual determination by category without sharing between them, and when no. 1 of Article 43 of the CITPS refers to the balance, it is evident that it must be understood in this perspective of individual determination and not of the "conjugal partnership."

The choice for joint taxation does not remove from it the characteristic of a tax on natural persons; it is a technique legally provided for the calculation of the family quotient and determination of certain deductions from tax liability, but net income is always determined by category and by taxpayer.

Contributive capacity derives from the principle of equality and consists in knowing, broadly speaking, what each citizen can pay without violating the minimum necessary for the subsistence of the family household; in the case at hand, the tribunal understands that the ATA acted in accordance with what is legally provided, with the violation of the principle of contributive capacity invoked by the claimants not being shown to be proven.

3.3 – Existence of Error in Matters of Fact and Violation of Law

Among the matters of fact proven is the joint ownership of a securities account at C… in the names of the claimants, who consider that the ATA intends to individually determine income from category G, when this is referred to nowhere in the law, while also making an incorrect interpretation and application of Articles 22 no. 1 and 3 b) and 43 no. 2 to 6, both of the CITPS, which led to the decision dismissing the administrative appeal and the assessment in question being tainted by error in matters of fact and violation of law, and such provisions, if interpreted as they are by the ATA, would be materially unconstitutional, this in addition to the analogical application of Article 55 no. 1 subparagraph d), in establishing a criterion of capital gains and losses for each income earner, a procedure which it considers violatory of Article 11 no. 4 of the TGL; for all this it considers violated Articles 67 no. 2 subparagraph f), 103 no. 2, 104 no. 1, and 165 no. 1 i) all of the PRC.

The ATA's arguments pass through asserting the correct procedure of the services given that the law requires the determination of net income by taxpayer and by category, with no sharing of income between taxpayers.

The Tribunal considered proven that the claimants are joint holders of a securities account at Bank C…, but this does not imply that the determination of net results (positive or negative) is made jointly. In fact, we are in the presence of a tax on the income of natural persons, which, in accordance with the PRC, Article 104 no. 1, shall be single and progressive and shall take into account the needs and income of the family household. In order to satisfy this constitutional provision, the tax legislator created the mechanism of classification of income into categories, taking into account the diversity of sources of income and taxation regimes, without prejudice to unitary treatment. In the case of conjugal partnerships, by making the tax calculation based on the sum of each spouse's income, a fact which could lead to some discrimination relative to individual determination, the legislator introduced provisions seeking to neutralize this effect, such as tables specific to the conjugal partnership, conjugal and family quotient, and expanded deductions. In this way, it sought to correspond to the conception of taxation of income according to its sources and holders. The situation of joint accounts in conjugal partnerships is normal that it exists, but this is not what will lead to treating property income of one spouse in the same way as business income of the other, this to say that the determination of income is made by income category and taxpayers in accordance with the CITPS, regardless of the joint accounts they use in and for the exercise of their individual activities or acquisitions. The sharing of losses is excluded for the categories of self-employment income, business, industrial and agricultural income, and also for capital gain income, without prejudice to carrying forward losses in future years for the different income categories as provided for in Article 55 of the CITPS.

Spouses or de facto partners may exercise in the annual return itself the option of joint or separate taxation; in the concrete case the option was for a joint return, which had relevance for the calculation of the family quotient and deductions from tax liability, thereby observing the situation of the family household, but this does not imply a different form of determination by income categories for each spouse, and let it not be said that this does not result from the law, note the content of no. 1 of Article 55 of the CITPS: "Relative to each income earner, the net negative result determined in any category is only deductible from its net positive results of the same category, as follows:"…

d) The negative balance determined in a given year, relating to operations provided for in subparagraphs b), c), e), f), g), and h) of Article 10 no. 1, may be carried forward to the five following years when the taxpayer opts for aggregation.

This provision only excludes the carry-forward of losses in the case of non-aggregation and not the form of determination by taxpayer, and note that the terminology "taxpayer" and not "taxpayers" is used. And it is understood that this is so, with a view to encouraging aggregation and, consequently, providing for taxation at a higher rate than that provided for in Article 72 of the CITPS. For there is only benefit for taxpayers in the case they fall into the 1st bracket of the table of Article 68 of the CITPS which has a rate lower than 28% applied to autonomous taxation. In the case where there is no aggregation there is no carry-forward of losses, with the balance determined by taxpayer, as determined by the body of the aforementioned Article 55, and in this sense, the body of Article 124 of the same statute also points: "Credit institutions and financial companies must communicate to the Tax and Customs Authority, by the end of March of each year, relative to each taxpayer, through an official form."

As already stated, we are in the presence of a tax on the income of natural persons and not a tax on conjugal partnerships, from which it results that the balance to which no. 1 of Article 43 of the CITPS alludes: "The value of income classified as capital gains is that corresponding to the balance determined between capital gains and capital losses realized in the same year, determined in accordance with the following articles," respects the balance determined for each taxpayer. Note that in the concrete case the claimants completed the entire mechanics of Personal Income Tax, filling in question 9 of Annex G with the values relating to each of them, without any technical correction being made by the ATA, with the assessment here at issue being supported by all the elements declared by the claimants and the calculation made in each income category and for each spouse being respected.

As for the analogical application of Article 55 no. 1 subparagraph d) by the ATA in order to establish a criterion of allocation for each income earner, thereby violating no. 4 of Article 11 of the TGL, it would be necessary, for there to be analogy, that there be a gap, that is, the concrete facts are not regulated in the law, but as already seen, the law provides for the determination of collectible Personal Income Tax income through the determination of income earned in each category, by each taxpayer, after deductions and reductions inherent to each category and to each taxpayer, as determined by the nature of the tax and the non-sharing of negative results between categories and taxpayers, as already seen.

Regarding the alleged material unconstitutionality of the ATA's interpretation, with violation of constitutional principles such as those of contributive capacity, family protection, typicality, and legality, set forth in Article 67 no. 2 subparagraph f), 104 no. 1, 103 no. 2, and 165 no. 1 subparagraph i) of the PRC, the Tribunal considers that all rights and constitutional principles must be valued equally, that is, none is more important than the others, and both the ordinary legislator and the applier of norms must, at each moment, weigh what should prevail and the way of satisfying the remaining ones, let us then see:

In family protection, as already seen, the Personal Income Tax legislator created mechanisms for satisfying this principle, notably with the creation of tables specific to the conjugal partnership, conjugal and family quotient, and expanded deductions.

In contributive capacity, the legislator takes into account positive and negative increments by taxpayer, excluding sharing, as already seen, which is accepted by the nature of the tax and also by the reduction in revenue that sharing would entail, with the individual nature of the tax and the need for revenue prevailing in these circumstances.

As for the principles of typicality and legality, it is evident that they were not violated, given that the Personal Income Tax norms in this matter do not suffer from any gap, and therefore there was no resort to analogy, as already clearly stated.

Thus, given the foregoing, the Tribunal considers that both the decision dismissing the administrative appeal and the assessment do not suffer from the defects pointed out by the claimants, nor is the ATA's procedure violatory of the constitutional norms invoked, and they are in harmony with the elements declared by the claimants, and therefore should be maintained in the legal order.

3.4 – Right to Compensatory Interest

Given the conclusion reached above, it becomes unnecessary to examine this matter.

IV – DECISION

Thus the tribunal decides:

  1. To declare the request for arbitral pronouncement wholly without merit and consequently to maintain in the legal order the decision dismissing the administrative appeal …2016… submitted by the claimants, as well as the assessment 2015… to which the same was directed.

  2. To fix the value of the Case at € 5,463.08, considering the provisions contained in Articles 299 no. 1 of the CPC[11], 97-A of the CPPT[12], and 3 no. 2 of the RCPAT[13].

  3. Costs to be borne by the claimants, under no. 4 of Article 22 of the LATA, in the amount of € 612.00 in accordance with the provisions of Table I referred to in Article 4 of the RCPAT.

Notify.

Lisbon, 11 January 2019

Text prepared by computer, in accordance with Article 131, no. 5 of the CPC, applicable by reference to Article 29, no. 1, subparagraph e) of the LATA, with blank spaces and revised by the tribunal.

The Arbitrator

Arlindo José Francisco

FOOTNOTES

[1] Acronym for tax identification number
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Personal Income Tax
[5] Acronym for Administrative Arbitration Center
[6] Acronym for Code of Personal Income Tax
[7] Acronym for Taxpayer
[8] Acronym for Central Administrative Court
[9] Acronym for General Tax Law
[10] Acronym for Portuguese Constitution
[11] Acronym for Civil Procedure Code
[12] Acronym for Code of Tax Procedure and Process
[13] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

How should capital gains and losses be calculated for jointly filed IRS returns under autonomous taxation?
Under Portuguese tax law, capital gains and losses in jointly filed IRS returns are calculated individually per taxpayer for purposes of autonomous taxation, according to the Tax Authority's interpretation. Each spouse's capital gains or losses from Category G income are determined separately based on their individual transactions. The Tax Authority maintains that joint filing does not permit offsetting one spouse's capital losses against the other's capital gains for autonomous taxation purposes, even though Article 43 of CIRS establishes that Category G income equals the balance between capital gains and losses realized in the same year. This interpretation was challenged in CAAD case 327/2017-T, where taxpayers argued for aggregated calculation.
Can capital losses from one spouse offset capital gains from the other spouse in a joint IRS declaration?
According to the Tax Authority's position in this case, capital losses from one spouse cannot offset capital gains from the other spouse in a joint IRS declaration for autonomous taxation purposes. The AT argues that income determination is legally performed by individual taxpayer, with no sharing of income between spouses even within the same income category. The AT asserts that joint filing only affects the calculation of the family quotient and certain deductions from tax liability, not the fundamental method of taxing income from various categories. However, the taxpayers disputed this interpretation, arguing that Article 43 of CIRS requires calculating the balance of all capital gains and losses from both spouses when filing jointly, with only positive net results subject to autonomous taxation.
What does Article 43 of the CIRS establish regarding the balance between capital gains and capital losses?
Article 43 of the Portuguese Income Tax Code (CIRS) establishes that the value of income classified as capital gains (incrementos patrimoniais) corresponds to the balance determined between capital gains (mais-valias) and capital losses (menos-valias) realized in the same tax year. This provision creates the foundational principle that only net positive results from capital transactions should constitute taxable income in Category G. The dispute in CAAD case 327/2017-T centered on whether this balance calculation should be performed individually for each taxpayer or aggregated for married couples filing jointly. Taxpayers argued that Article 43 supports offsetting one spouse's losses against the other's gains when filing jointly, while the Tax Authority maintained that the balance calculation applies separately to each income earner's transactions, regardless of joint filing status.
What was the outcome of the CAAD arbitral decision 327/2017-T on autonomous taxation of Category G income?
The original CAAD arbitral decision 327/2017-T from November 30, 2017, ruled against the taxpayers, maintaining the dismissal of their administrative appeal and upholding the IRS assessment that applied autonomous taxation individually to each spouse's Category G income without offsetting losses. However, this decision was subsequently annulled by the Central Administrative Court of the South in a judgment dated December 6, 2018. The court found the arbitral decision suffered from a procedural defect under Article 615(1)(d) of the Civil Procedure Code and Article 28(1)(c) of LATA, specifically omission of pronouncement on essential arguments raised by the parties. Following the annulment, CAAD reopened proceedings in December 2018 for the tribunal to issue a new decision addressing all arguments. The case amount in dispute was €5,463.08 in allegedly excessive IRS assessment plus compensatory interest.
What is the procedure for challenging an IRS assessment through gracious complaint and subsequent arbitral proceedings at CAAD?
Challenging an IRS assessment through administrative appeal (reclamação graciosa) and subsequent CAAD arbitral proceedings follows a specific procedure under Portuguese tax law. First, taxpayers must file an administrative appeal with the Tax Authority against the contested assessment within the legal deadline. If this appeal is dismissed or partially accepted, taxpayers can then request arbitral pronouncement at CAAD (Centro de Arbitragem Administrativa) under Article 2(1)(a) and Article 10(1)(a) of LATA. The arbitration request must specify the legal grounds and desired relief, including refund amounts and compensatory interest if applicable. The CAAD President appoints an arbitrator (or the parties may choose one), the tribunal is constituted, and the Tax Authority submits its response. The arbitrator may dispense with hearings if unnecessary under Article 18 of LATA. Following the decision, parties may appeal to administrative courts on legal grounds. This two-tier process provides taxpayers an alternative dispute resolution mechanism before judicial review.