Process: 383/2014-T

Date: January 26, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

Process 383/2014-T concerns the international double taxation credit under Portuguese IRS law. The taxpayers, a married couple residing in Portugal but holding Spanish nationality, filed their 2010 IRS return claiming foreign tax credits totaling €43,100.87 for taxes allegedly paid in Spain (€76.59) and Peru (€43,024.28). The husband had earned employment income in Peru between January and April 2010 while working for Group D, and the couple obtained capital income in Spain. The Portuguese Tax Authority conducted an inspection and requested proof pursuant to Article 81º of the IRS Code, specifically requiring either a declaration issued by the foreign tax authorities showing income breakdown and final tax paid, or the final tax assessment with proof of payment. The taxpayers submitted private documents from Bank C (for Spanish capital income) and from the employer Group D (for Peruvian employment income), arguing that Spanish authorities did not issue final assessments for non-residents and that Peruvian authorities do not issue the requested declarations. The Tax Authority's International Relations Services Division rejected these documents as insufficient, noting they were not issued by foreign tax authorities and no proof was provided that final tax assessments did not exist in those jurisdictions. Following the prior hearing procedure without response from the taxpayers, an additional assessment was issued (no. 2014…) eliminating the foreign tax credit, resulting in tax payable of €78,887.68 plus compensatory interest of €3,933.23. The taxpayers challenged this decision through CAAD arbitration, arguing the illegality of the additional assessment while the Tax Authority defended its position that proper documentation requirements were not met.

Full Decision

ARBITRAL DECISION

I – REPORT

A, taxpayer no. … and B, taxpayer no. …, married to each other, resident in …, in Lisbon (…), presented a request for the establishment of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of Articles 2º no. 1/a) and 10º no. 1/a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as LRAT), petitioning the declaration of illegality of the additional assessment of Personal Income Tax (IRS) no. 2014 …, of 04.01.2014, in the interest calculation statement no. 2014 … and in the account settlement statement no. 2014 …, both of 08.01.2014, relating to the year 2010.

The request for establishment of the arbitral tribunal was presented on 19-05-2014 and accepted by the President of CAAD, and automatically notified to the Tax and Customs Authority on 29-04-2014.

Pursuant to the provisions of subsection a) of no. 2 of Article 6º and subsection b) of no. 1 of Article 11º of the LRAT, in the wording introduced by Article 228º of Law no. 66-B/2012, of 31 December, the Deontological Council designated the herein signatory as arbitrator of the sole arbitral tribunal, who communicated acceptance of the charge within the applicable timeframe.

On 08-07-2014, both parties were duly notified of this designation, and did not express any intention to reject the arbitrator's designation, in accordance with the combined provisions of Article 11º no. 1 subsections a) and b) of the LRAT and Articles 6º and 7º of the Deontological Code.

Thus, in accordance with the provisions of subsection c) of no. 1 of Article 11º of the LRAT, in the wording introduced by Article 228º of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 23-07-2014.

Notified for this purpose, the Tax and Customs Authority responded by objection, arguing that the request should be judged unfounded.

The Requesters, following notification for this purpose, waived the production of evidence by party statement, listed in their initial Request.

Following what was requested by the Tax Authority, the latter was afforded access, in the CAAD facilities, to consult the original document submitted by the Requesters to the case on 22/09/2014.

In view of the fact that, in the case, none of the purposes legally entrusted to it are verified, the meeting provided for in Article 18º of the LRAT was dispensed with.

Both parties being notified for this purpose, they presented arguments, reiterating and developing the content of the positions previously assumed.

The arbitral tribunal was regularly constituted and is materially competent, in the light of the provisions of Articles 2º, no. 1, subsection a), and 30º, no. 1, of Decree-Law no. 10/2011, of 20 January.

Thus, since the parties have legal personality and capacity, are legitimate and are represented (Articles 4º and 10º, no. 2, of the same law and Article 1º of Order no. 112-A/2011, of 22 March), and the case does not suffer from vices of nullity, it is incumbent to render

III. DECISION

A. FACTUAL MATTERS

A.1. Facts adjudged as proven

1 – The Requesters filed their income statement form 3, for IRS purposes for 2010, in the capacity of resident taxpayers, with their tax domicile on the mainland and marital status of married, on 31/05/2011 (statement …).

2 – In the said statement, the Requesters recorded, in Annex J, income obtained abroad, which were subject to aggregation, with the tax stated therein being considered for purposes of Article 81º of the IRS Code, resulting in assessment no. 2011…., with tax payable in the amount of € 35,801.40.

3 – This amount resulted from the entry, by the Requesters, in Annex J of form 3 statement, of the amount of € 43,100.87, as being the tax borne in Spain (€76.59) and in Peru (€43,024.28), resulting therefrom the corresponding tax credit.

4 – Within the scope of inspection of income earned and tax paid abroad, for purposes of Article 81º of the IRS Code, the Requesters were notified, by offices no. …, of 13/09/2013, and no. …, of 25/09/2013, from the Income Tax Assessment Division of the Directorate of Finance in Lisbon, to present original documents or authenticated copies regarding:

a. Declaration issued or authenticated by the tax authority of the respective State, containing the breakdown of the nature and gross amounts obtained therein, as well as the amount of total and final tax paid for the year in question, or, alternatively;

b. Final tax assessment as well as, if applicable, proof of refund received/tax paid relating to such final assessment:

5 – In response to that notification, the Requesters filed, by petition of 13/05/2013, private documents issued by the entities paying the income.

6 – With respect to capital income obtained in Spain, the Requesters, on one hand, presented the statements issued by Bank C, which set forth the total of capital income obtained and tax withheld in Spain, and, on the other hand, stated that they had not filed any tax return in Spain, since they were not resident there, and therefore did not have any final tax assessment issued.

7 – With respect to employment income obtained in Peru, the herein Requesters stated that the Peruvian tax administration does not issue the requested declaration, and therefore they proceeded to file the declaration issued by the company Group D.

8 – The documents filed were forwarded to the Administrative Division of the Directorate of International Relations Services, which concluded the following:

a. The documents presented were not issued by the tax authorities of the countries where the income was earned;

b. These are statements issued by Spanish banking entity (Bank C) concerning capital income and declaration of employer entity (Group D) of the Requester husband in Peru for employment income;

c. No proof was presented that there does not exist or should not exist a final tax assessment in those States.

9 – Notified to exercise the competent right of prior hearing, by offices no. … of 13/09/2013 and no. …, of 25/09/2013, the Requesters said nothing.

10 – The Requesters were notified of the final decision, by office no. …, of 19/11/2013.

11 – An additional tax assessment was issued, correcting the international double taxation credit improperly granted, resulting in assessment no. 2014…, with tax payable in the amount of €78,887.68, plus compensatory interest in the amount of € 3,933.23, all for a total of €82,820.91.

12 – On 18-08-2014, the Requesters had already proceeded to voluntary payment of the total tax calculated, referred to in the previous point.

13 – The Requesters are citizens of Spanish nationality.

14 – In the year 2010, the Requesters were considered resident, for tax purposes, in Portugal.

15 – In that same year, between January and April, the Requester performed functions with the company Group D (D) [currently designated as Group E (E)], in Peru.

16 – From the performance of such functions, the Requester obtained employment income, in the total amount €152,570.29 (571,886.38 PEN).

17 – With reference to remuneration paid between January and April 2010, the company Group D. withheld and delivered to the Peruvian tax administration the total amount of €43,024.28 (161,269.92 PEN).

18 – Also in the year 2010, the Requesters obtained capital income in Spain [interest (€ 10.03), dividends (€ 364.95) and pension plan income (€ 33.41)].

19 – With respect to tax withheld in Spain with reference to such income, it amounted to €76.59.

20 – On 14/05/2013, through a petition presented by the herein Requesters, the National Superintendence of Customs and Tax Administration (SUNAT), Peruvian tax administration, certified a copy of the withholding tax declarations made by company D and the withholding tax statement.

A.2. Facts adjudged as not proven

1 – The only entity with the requisite standing to declare what tax was received by the Spanish State with reference to the income obtained there by the Requester is the tax authority of that country.

2 – As an entity owing employment income, the company Group D was obligated to withhold tax at source from the remuneration paid to the Requester.

3 – The Requesters made efforts with the tax administration in order to file documents certified by the Peruvian tax authority, referred to above in point 20 of the facts adjudged as proven.

4 – However, following the efforts made, the Requesters were informed that such documents, despite being duly stamped by the Peruvian tax administration, did not constitute sufficient proof of tax payment in Peru.

5 – For this reason, the Requesters did not proceed to file them with the tax administration.

With relevance for the decision, there are no other facts that should be considered as not proven.

A.3. Substantiation of proven and not proven factual matters

Regarding factual matters, the Tribunal does not need to rule on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to discriminate between the facts adjudged as proven and those adjudged as not proven (cf. Article 123º, no. 2, of the TCPT Code and Article 607º, no. 3 of the CPC Code, applicable ex vi Article 29º, no. 1, subsections a) and e), of the LRAT).

Thus, the facts pertinent to the trial of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. previous Article 511º, no. 1, of the CPC Code, corresponding to current Article 596º, applicable ex vi Article 29º, no. 1, subsection e), of the LRAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence joined to the case, the facts listed above were considered proven, with relevance for the decision, moreover being consensually recognized and accepted by the parties.

The facts adjudged as not proven in points 1 and 2, relating, respectively, to Spanish and Peruvian legal systems (since, with respect to the Portuguese legal system they constitute a matter of law, analyzed below), result from the absence of proof of foreign law, pursuant to Article 348º/1 of the Civil Code[1], and the Tribunal was unable to obtain it.

The remaining facts adjudged as not proven are due to the absence of proof regarding them.

The fact contained in point I.k) of the Requesters' arguments was not adjudged as proven or not proven, since it had not been alleged in the initial Request.

B. LAW

At issue in the present case is, exclusively, to answer the question of whether the additional IRS assessment for the year 2010 of the Requesters, which disregarded the international double taxation credit provided for in Article 81º of the IRS Code in effect at the time, is, or is not, lawful.

Let us see then.

Article 81º/1 provides as follows:

"1 – Holders of income from different categories obtained abroad have the right to a credit for international double taxation, deductible up to the amount of the proportional part of the collection relating to such net income, considered pursuant to subsection b) of no. 6 of Article 22º, which shall correspond to the lesser of the following amounts:

a) Tax on income paid abroad;

b) Portion of the IRS collection, calculated before deduction, corresponding to income that in the country in question may be taxed, net of specific deductions provided for in this Code.

2 – When there is a convention to eliminate double taxation concluded by Portugal, the deduction to be made pursuant to the foregoing number may not exceed the tax paid abroad as provided for in the convention."

As the Requesters expressly acknowledge, "pursuant to the provisions of Article 74º, no. 1, of the General Tax Code (GTC), the burden of proof in the case sub judice falls on the Requesters, that is, it is the Requesters who bear the burden of proving the right to deduct from the collection the amount of tax paid abroad."[2]

The proof to be produced by the requesters, in the absence of – and not even being invoked – any rule imposing legal proof, may be made by any means of proof admitted in law.

Now, and firstly, among such means, as was already written in the Judgment of the Supreme Court of Justice of 31-03-1987, rendered in case 074462[3], "proof by presumption figures."

Pursuant to Article 75º/1 of the GTC:

"The declarations of taxpayers presented in accordance with the terms provided for by law are presumed to be true and in good faith, as well as the data and calculations entered in their bookkeeping or records, when these are organized in accordance with commercial and tax legislation."

It results from the facts adjudged as proven that in their income statement for IRS purposes, timely presented, the Requesters recorded, properly and in the appropriate place, the tax credit now in dispute.

Thus, presuming such declaration to be true, from the same (known fact), by presumption, in compliance with Article 78º/1 of the GTC, the fact (unknown) relating to payment of tax abroad should be considered as proven.

Indeed, no demonstration having been made – or even alleged – of any of the circumstances described in the various subsections of no. 2 of Article 78º, the presumption in question shall have full application, it being certain, moreover, that regarding the amount of income earned, the Tax Authority does not doubt the truthfulness of the statement in question[4].

Even if this were understood to be the case, the fact remains that the documentation presented by the Requesters must always be considered sufficient.

Indeed, these, in compliance with their duty of cooperation (the failure of which, moreover, could justify the waiver of the presumption mentioned above, pursuant to subsection b) of no. 2 of Article 78º of the GTC), presented declarations from two multinational companies – one, European and of the financial sector, subject, as such, to strict supervision, and another of the petroleum sector – notoriously operating, moreover, under strict accounting standards, setting forth both the income earned and the tax withheld from the Requesters.

Note that the Tax Authority does not call into question either the authenticity or the truthfulness of those documents, accepting them as valid with respect to the amount of income paid to the Requester, and not reasonably doubting that the declared withholding was, indeed, made.

Essentially, what the Tax Authority questions, and therein lies the basis of the contested tax act, is whether the withholdings in question operated as final, or, rather, whether they were mere withholdings on account, subject to any adjustment, with refund in favor of the taxpayers.

Now, what occurs immediately, in short and fundamentally, is that the Tax Authority does not reasonably doubt that the income earned and declared by the Requesters was subject to tax abroad. Rather, it understood to doubt (justified or not, as shall be seen below) solely whether the amount of tax borne was that declared by the Requesters, or, rather, another, smaller amount.

Now, in case 91-2012-T of the CAAD[5], it was written:

"In the case at hand, having the tax administration concluded that it could not ascertain what services were provided and their quantification, it adopted an understanding which amounts to the fact that none of the services provided, which it did not know, was necessary for the realization of income or maintenance of the income-producing source.

This understanding has no correspondence with reality, since some services were provided, as results from the factual matters established, and therefore the assessment acts relating to the years 2007 and 2008, in the part where they were based on corrections relating to 'Management fees', suffer from error in the factual presuppositions."

The situations in the present case and that case not being directly transposable, it is understood that the normative criterion underlying that decision is, indeed, now applicable, considering that in cases where the Tax Authority does not have reasoned doubts about the occurrence of a negative component (understood broadly) of taxable income, but solely about its quantification, it may not, by force of principles such as that of contributive capacity, at the substantive level, and of the inquisitorial principle, at the procedural level, simply disregard entirely that same negative component.

In any case, and even if it were not so, it is verified that the doubts in which the Tax Authority labored, are based, as results from both the administrative process and the respective procedural documents in the present case, on the following understandings:

– The proof of tax paid, to be considered in the scope of the tax credit in question, would necessarily have to be issued by the tax authorities of the countries where the income was earned; and

– Proof should have been presented that there did not exist, or should not have existed, a final tax assessment in those States.

Now, with all due respect, it is considered that neither of those understandings has any legal basis.

Indeed, and firstly, there is no rule that legitimizes what the Tax Authority sustains, with respect to the limitation of the means of proof of tax paid abroad, as, moreover, was recognized in the Judgment of the Court of Appeals of the North of 14-04-2005, rendered in case no. 00107/03[6], cited by the Requesters. That understanding of the Tax Authority, moreover, has underlying a worldview that presupposes that all foreign states are organized in bureaucratic and legal frameworks analogous to the national/Western European one, which, notoriously, and above all, but not exclusively, in less developed countries is not the case. On the other hand, it also assumes that foreign tax administrations, at the global level, are at the disposal of all those who earn income there, to issue the declarations and certificates that the Portuguese Tax Authority deems necessary.

On the other hand, and already with respect to the possibility of an eventual final assessment, this too assumes a legal framework – not demonstrated, however – analogous to the national one, where there are liberatory withholdings and withholdings on account. Thus, and so that, at the minimum, some basis could be granted to the doubt in question raised by the Tax Authority, it would always be necessary that the latter demonstrate that in the source countries of the income, the legal framework provided for the possibility of withholdings on account/liberatory, and what the concrete circumstances were that conditioned the qualification of the withholdings as one or another type.

Finally, and without prejudice to everything stated herein, it is always understood that, in light of the documentary elements presented by the Requesters, also through a natural presumption, one would always arrive at the result of demonstrating the tax borne by the Requesters abroad, in accordance with what was declared.

As was written in the Judgment of the Court of Appeals of Lisbon of 22-04-2009, rendered in case 259/07.2PBSCR.L1 3ª Section[7]:

"I. The presumption allows that, in the presence of known facts (or a specific fact), the reality of an undemonstrated fact is acquired or admitted, in the conviction, determined by the rules of experience, that normally and typically (id quod plerumque accidit) certain facts are the consequence of others. In the value of the credibility of the id quod, and in the strength of the causal connection between two events, lies the rational foundation of the presumption, and in the measure of that value lies the rigor of the presumption.

II. In the passage from the known fact to the acquisition (or proof) of the unknown fact, judgments of evaluation must intervene through logical and intellectual procedures, which allow it to be reasonably affirmed, according to the rules of experience, that a certain fact, not previously known nor directly proven, is the natural consequence, or results with all probability close to certainty, or beyond all reasonable doubt, of a known fact."

Indeed, the Requesters, taxpayers resident in Portuguese territory, timely declared the amounts contained in the statements issued by legal entities notoriously known, both with respect to gross income and to tax withheld and delivered to foreign states.

There is no indication whatsoever of fraud or evasion.

The Tax Authority accepts the amounts declared as gross income and does not question the truthfulness of the withholdings.

The only doubt that the Tax Authority raises relates to the possibility that the Requesters obtained some refund and, consequently, are concealing income (in the part corresponding to that alleged refund).

Now, if this were the case, that is, if the purpose of the Requesters were to subtract/conceal part of the income effectively earned from the Portuguese Tax Authority, the natural course would be to conceal the entirety of the income earned abroad, and not to declare the greater part and conceal a small portion, since the Tax Authority would, precisely, have the same facility or difficulty in detecting one or the other situation.

On the other hand, and in the concrete case, it will also be perfectly natural that, even if it were possible for them to obtain some refund of the tax borne abroad, the Requesters have waived such a right, choosing not to exercise it, because it would not be advantageous to them, whether because of the values in question (with respect to income sourced from Spain), or because of distance and possible difficulties in accessibility/relationship with local tax authorities (with respect to income sourced from Peru), it being certain that the granting of the tax credit in question in the present case does not require or presuppose that the beneficiaries exhaust, or activate in any way, the possible refund means of the tax, or part thereof, borne abroad.

Thus, appreciated globally the situation and having regard to the rules of experience, there will remain no reasonable doubts that the tax borne by the Requesters in the foreign States, relating to income earned there and declared by them, were, indeed, those contained in their income statement, timely presented.

The conclusions reached shall not be hindered by the circumstance, pointed out by the Tax Authority in the case, relating to the fact that "Articles 10º and 11º of the Tax Treaty Spain provide for a maximum rate of 15% both for dividends and for interest, however, from the analysis of the statement issued by Bank C, the withholdings made reached rates of 30% and 40%, and therefore their amounts are much higher than those permitted by the Tax Treaty, and cannot be valid for purposes of the provision in no. 2 of Article 81º of the IRS Code"[8].

Indeed, as the requesters point out in their arguments, in which they were not contradicted in the subsequent arguments of the Tax Authority, "such circumstance would only be relevant for purposes of limiting the tax credit to be granted to the taxpayer, pursuant to Article 81º, no. 2 of the IRS Code, and not for purposes of not granting the tax credit."

Thus, and in light of all that has been expounded, the assessment to which the present case relates erred in its factual presuppositions, and therefore should be annulled.

The Requesters join to the request for annulment of the tax act subject of the present case, the request for the condemnation of the Tax Authority to pay compensatory interest on the amount paid by it following notification of the assessments now annulled.

It is a condition for the award of compensatory interest that the error which the Tax Authority committed be imputable to it[9].

In the case of the present proceedings, it is manifest that, following the illegality of the assessment act, for the reasons pointed out previously, there is cause for refund of the tax paid by the Requester, by force of the provisions of Articles 24º, no. 1, subsection b), of the LRAT and 100º of the GTC, since such is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed."

With respect to compensatory interest, it is also clear in the case that the illegality of the contested tax assessment act is directly imputable to the Respondent, which, on its own initiative, performed it without legal support, suffering from an erroneous appraisal of the legally relevant facts and consequent application of the legal rules to the concrete case.

Thus, the Requesters have the right to receive compensatory interest, pursuant to the provisions of Articles 43º, no. 1, of the GTC and 61º of the TCPT Code.

Compensatory interest is owed to the Requesters from the date on which they made payment of the tax obligation in question in the case, until full refund of the amount paid, at the legal rate.

The Tax Authority alleges that it should not be held responsible for the costs of the present arbitral proceedings, as it was the Requester who gave cause to the action.

However, it appears that it is not correct.

Indeed, in the arbitral tax process, the Tax Authority is notified of the arbitral request and may, pursuant to Article 13º/1 of the LRAT, proceed to revoke the contested tax act. At least there, the Tax Authority had knowledge of the grounds alleged by the Requesters, which, as per the substantiation above, led to the present arbitral decision, and chose to proceed with the litigation.

Therefore, it must be held responsible for the costs.

C. DECISION

It is hereby decided in this Arbitral Tribunal:

a) To render judgment in favor of the arbitral request filed and, in consequence, to annul the tax act subject of the present case and to condemn the Tax Authority to refund to the Requesters the tax paid, plus compensatory interest;

b) To condemn the Tax Authority to pay the costs of the proceedings, in the amount of €2,142.00.

D. Value of the Proceedings

The value of the proceedings is fixed at €47,019.51, pursuant to Article 97º-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of no. 1 of Article 29º of the LRAT and no. 2 of Article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €2,142.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely upheld, pursuant to Articles 12º, no. 2, and 22º, no. 4, both of the LRAT, and Article 4º, no. 4, of the cited Regulation.

Notify accordingly.

Lisbon

26 January 2015

The Arbitrator

(José Pedro Carvalho)

[1] "He who invokes foreign law has the burden of proof of its existence and content."

[2] Article 43º of the initial Request.

[3] Available at www.dgsi.pt.

[4] Note that, as referred to in the Judgment of the Supreme Court of Justice of 24-03-2004, rendered in case 04A3101 (available at www.dgsi.pt), citing Professor Antunes Varela, "The presumption does not eliminate the burden of proof, nor does it modify the result of its distribution between the parties. It only alters the fact that the party burdened must prove: instead of proving the presumed fact, the burdened party will have to demonstrate the reality of the fact that serves as the basis for the presumption."

[5] Available for consultation at www.caad.org.pt.

[6] Available at www.dgsi.pt.

[7] Summary available at http://www.pgdlisboa.pt/jurel/jur_mostra_doc.php?nid=4669&codarea=57.

[8] Cf. point 14 of the response.

[9] Cf. Article 43º of the GTC.

Frequently Asked Questions

Automatically Created

What is the international double taxation credit under Portuguese IRS law?
The international double taxation credit under Portuguese IRS law, regulated by Article 81º of the IRS Code (Código do IRS), is a mechanism that allows Portuguese resident taxpayers to credit foreign taxes paid on income earned abroad against their Portuguese IRS liability. This prevents the same income from being taxed twice - once in the source country where it was earned and again in Portugal as the country of residence. The credit applies to foreign income that is subject to aggregation in the Portuguese tax base, and the amount of the credit corresponds to the lower of either the foreign tax actually paid or the Portuguese tax attributable to that foreign income. To benefit from this credit, taxpayers must declare the foreign income in Annex J of their IRS return (Model 3) and comply with strict documentation requirements to prove both the income earned abroad and the foreign tax effectively paid.
What proof is required to claim a foreign tax credit for IRS purposes in Portugal?
To claim a foreign tax credit for IRS purposes in Portugal, taxpayers must provide specific official documentation as required by Article 81º of the IRS Code and applicable regulations. The Tax Authority accepts two types of proof: (a) a declaration issued or authenticated by the tax authority of the foreign country, containing the breakdown of the nature and gross amounts of income obtained, as well as the total and final tax paid for the relevant year; or alternatively, (b) the final tax assessment issued by the foreign tax authority together with proof of any refund received or tax payment made. Private documents such as bank statements, employer declarations, or withholding certificates are generally not accepted as sufficient proof, even if they show tax withheld at source. The requirement for official tax authority documentation ensures verification of the actual final tax liability in the foreign jurisdiction, as withholdings may be provisional and subject to adjustment through final assessments or tax returns filed in the source country.
How did the CAAD arbitral tribunal rule on the double taxation credit in Process 383/2014-T?
While the complete decision text is not fully presented in the excerpt, Process 383/2014-T at the CAAD (Centro de Arbitragem Administrativa) involved taxpayers challenging an additional IRS assessment that eliminated their claimed international double taxation credit of €43,100.87 for taxes allegedly paid in Spain and Peru during 2010. The Tax Authority had rejected the taxpayers' documentation - consisting of bank statements from Bank C (Spain) and an employer declaration from Group D (Peru) - as insufficient proof under Article 81º of the IRS Code. The Authority argued that the law requires official declarations from foreign tax authorities or final tax assessments, not private documents. The taxpayers contended that Spanish authorities do not issue final assessments for non-residents and that Peruvian authorities do not issue the requested type of declaration. The arbitral tribunal was constituted on July 23, 2014, with both parties presenting arguments. The key legal issue was whether the documentation provided by the taxpayers met the legal standard for proving foreign taxes paid, and whether the additional assessment eliminating the foreign tax credit was legally valid.
Can taxpayers challenge IRS additional tax assessments through tax arbitration at CAAD?
Yes, taxpayers can challenge IRS additional tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa - Administrative Arbitration Center). Process 383/2014-T demonstrates this right, filed under Articles 2º(1)(a) and 10º(1)(a) of Decree-Law 10/2011 of January 20 (RJAT - Legal Regime of Arbitration in Tax Matters). Tax arbitration provides an alternative to judicial courts for resolving disputes with the Tax Authority, offering a faster and more specialized resolution mechanism. Taxpayers can request arbitration to contest the legality of tax assessments, including additional assessments resulting from tax inspections. The request must be filed within the legally established timeframe, and once accepted, a sole arbitrator or arbitral panel is designated to decide the case. Both parties - the taxpayer and the Tax Authority - have the opportunity to present evidence, submit written arguments, and defend their positions. The arbitral decision has the same force as a court judgment and is binding on both parties, subject only to limited grounds for appeal.
What are the legal grounds for contesting the denial of an international double taxation credit in Portugal?
The legal grounds for contesting the denial of an international double taxation credit in Portugal include: (1) Violation of Article 81º of the IRS Code - arguing that the taxpayer has complied with the legal requirements for proving foreign income and foreign tax paid, or that the Tax Authority's interpretation of documentation requirements is excessively formalistic or contrary to law; (2) Violation of international tax treaties - if a Double Taxation Agreement exists between Portugal and the source country, taxpayers can invoke treaty provisions that may establish different or additional rules for granting tax credits; (3) Violation of fundamental principles of tax law - including the principle of prohibition of double taxation, principles of proportionality and reasonableness in requiring proof, and the right to a fair hearing; (4) Errors in the assessment procedure - such as failure to properly notify the taxpayer, not allowing adequate opportunity for prior hearing, or misapplication of facts; (5) Violation of EU law principles - for EU-sourced income, arguments based on freedom of movement, non-discrimination, and proportionality of administrative requirements. Taxpayers must demonstrate that they actually paid foreign tax and that the documentation provided, even if not in the exact format requested, substantively proves the foreign tax liability.