Process: 413/2016-T

Date: January 10, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitration decision 413/2016-T addresses whether common-law partners (união de facto) can file joint IRS returns when registered fiscal domiciles differ. The claimant filed a 2014 IRS return electing união de facto status with their partner, but the Tax Authority rejected it and issued a substitute assessment for €4,894.07, canceling a previous €1,893.15 refund. The central legal issue concerns Article 14 of the IRS Code, which requires 'identical fiscal domicile' for joint taxation of unmarried couples. The claimant argued they proved shared residence through a co-tenancy lease agreement active since September 2011, along with utility bills, employment documents, and notarial deeds showing the same address. The Tax Authority countered that the claimant never formally communicated a fiscal address change under Article 19(3) of the General Tax Law (LGT), meaning different registered tax domiciles persisted in official records. This case highlights the critical distinction between actual residence and officially registered fiscal domicile (domicílio fiscal) in Portuguese tax law. It clarifies whether documentary evidence of cohabitation suffices for união de facto tax treatment, or whether formal administrative notification of address changes is mandatory. The decision has significant implications for unmarried couples seeking joint taxation benefits, establishing evidentiary standards for proving shared fiscal domicile and clarifying taxpayer obligations regarding fiscal address registration.

Full Decision

ARBITRAL DECISION

PARTIES

Claimant: A…, Tax Number…, resident at Street … no. … …– … Lisbon.

Respondent: Tax and Customs Authority (AT)

I. REPORT

a) On 20 July 2016, the Claimant filed with CAAD a request seeking, under the Legal Framework for Tax Arbitration (RJAT), the establishment of a single arbitral tribunal (TAS).

THE REQUEST

b) The Claimant seeks (in immediate terms) the annulment of the dismissal decision on hierarchical appeal no. … 2016 … by which it intended to annul the personal income tax (IRS) assessment for the year 2014 no. 2015…, in the amount of 4,894.07 euros (mediate subject matter of the request).

c) An assessment which the AT carried out in substitution of the initially made one following the submission of IRS Form 3, on 31.05.2015 by the Claimant and partner, for the year 2014, marking the option "de facto union" with B… Tax Number …, effecting the annulment of the initial assessment with the refund of the amount previously settled, in the amount of 1,893.15 euros.

THE GROUNDS

d) The Claimant invokes the illegality of the disputed assessment act, attributing to it the defect of violation of law due to legal error by the AT (non-conformity with the provisions of article 14 of the IRS Code in the wording in force at the time of the facts).

e) Since it considers that the IRS declaration should be accepted with the option for the taxation regime of de facto union status, namely because it is a co-tenant with its partner, in the lease agreement of the property located at Street… no. … – …. in Lisbon, since September 2011, agreement reported to the Finance Authority by the lessor for purposes of stamp tax assessment, a location which is the partner's tax domicile since 2011.

OF THE SINGLE ARBITRAL TRIBUNAL (TAS)

f) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 17-08-2016.

g) By the CAAD Deontological Council, the signatory of this decision was appointed as arbitrator, with the parties being notified thereof on 29-09-2016. The parties did not express a wish to refuse the appointment, in accordance with article 11 no. 1 paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

h) The Single Arbitral Tribunal (TAS) has been, since 17-10-2016, duly constituted to examine and decide the subject matter of this dispute (articles 2 no. 1 paragraph a) and 30 no. 1 of the RJAT).

i) All these acts are documented in the communication of constitution of the Single Arbitral Tribunal dated 17-10-2016, which is hereby reproduced.

j) On 18-10-2016 the AT was notified in accordance with and for the purposes of article 17-1 of the RJAT. It responded on 23.11.2016, protesting to attach the case file, which it did on 06.12.2016. Two computerized files were attached, one relating to the administrative review with 48 pages and another relating to the hierarchical appeal with 28 pages.

k) By orders of 23.11.2016 and 05.12.2016 the TAS questioned the parties as to whether they waived the hearing provided for in article 18 of the RJAT and likewise oral or written arguments.

l) On 04.12.2016 the Claimant submitted a request which it called clarification of presentation and procedural elements and attached 2 documents. As to this attachment the AT was invited to pronounce itself, if it wished, in exercise of the principle of adversarial procedure, in accordance with the first part of the order of 05.12.2016. The AT did not exercise the right to pronounce itself on the request and documents.

m) The hearing of the parties provided for in article 18 of the RJAT did not take place, as described above, nor did the parties produce oral or written arguments, acts which the parties understood to be unnecessary.

PROCEDURAL REQUIREMENTS

n) Legitimacy, capacity and representation – The parties have legal personality and procedural capacity, are legitimate parties and the AT is represented (articles 4 and 10 no. 2 of the RJAT and article 1 of Order no. 112-A/2011 of 22 March). Given the value of the economic interest at issue here of 4,894.07 euros, less than twice the jurisdiction of the first instance tax court: 10,000.00 euros, the Claimant may, as it indeed has done, in accordance with article 6-1 of the Code of Tax Procedure, intervene in the process without being represented by a lawyer.

o) Principle of adversarial procedure - The AT was notified in accordance with the provision in paragraph j) of this Report. All procedural documents and all documents attached to the case were made available to the respective other party in CAAD's Case Management System. Both parties were always notified of their attachment. Likewise, as regards subsequent procedural matters, the TAS followed what results from the express or tacit position of the parties as written in paragraphs k) to m) above.

p) Dilatory exceptions - The arbitral procedure is not subject to nullities and the request for arbitral decision is timely since it was submitted within the prescribed period in paragraph a) of no. 1 of article 10 of the RJAT, as results from the fact that the Claimant submitted the request for arbitral decision on 20.07.2016 and notification of the dismissal decision on the hierarchical appeal was carried out by letter … of 16.05.2016, postal service record of 19.05.2016.

SUMMARY OF THE CLAIMANT'S POSITION

q) The Claimant disagrees with the personal income tax assessment for the year 2014 which the AT carried out in substitution of the initially made one following the submission of IRS Form 3, on 31.05.2015 by the Claimant and partner, marking the option "de facto union" with B… Tax Number ….

r) It understands that in the administrative review and hierarchical appeal proceedings it proved, by the date of 31.12.2014, its identity of tax domicile with its partner, for the period required by law for verification of the requirements of de facto union (no. 2 of article 1 of Law 7/2001 of 11 May and article 14 of the IRS Code);

s) Since it presented to the AT a lease agreement evidencing that it is a co-tenant, with its partner, since 16 September 2011, of the first floor right of the building located at Street…, no.…, in Lisbon, reported to the Finance Authority by the lessor on 13.10.2011, it understands this to be sufficient proof that both live in conditions analogous to those of spouses;

t) And it also presented in July 2014, in addition to the lease agreement mentioned above, a copy of the rent receipt for the month of January 2014 (in its name as tenant), the content of a deed executed on 06.08.2010 at the Notary Office of … where the Claimant and partner are listed as having the same residence (that of the lease agreement), an invoice from … of 02.12.2011, the content of a gas supply contract and a letter of termination of employment contract from company C…, Ltd. of 16.03.2012, all these documents indicating the Claimant's address which corresponds with the toponymy of the building subject to the lease.

u) The Claimant understands, given the documents presented, that it has proved the requirements provided for in no. 2 of article 14 of the IRS Code and no. 2 of article 14 of the IRS Code, given the identity of toponymy and building number which they evidence.

SUMMARY OF THE RESPONDENT'S POSITION

v) The Respondent's position has two points of disagreement with the legal interpretation defended by the Claimant.

w) In a first line of disagreement it states: "The taxpayers in question did not have the same tax domicile in the tax period in question, and it is therefore necessary to conclude that the requirements set out in the aforementioned legal provision are not met in order for the option for the 'de facto union' regime to be possible". "The Claimant, in violation of the provisions of no. 3 of article 19 of the General Tax Law (GTA), did not communicate the change of its tax residence to the Respondent, and such change cannot therefore be enforced against it". "It was only on 03-06-2015 that the present Claimant communicated to the Tax Authority the tax domicile of Street…, no. …-… right, in accordance with the provisions of article 19 no. 3 and 4 of the General Tax Law (GTA)".

x) And it adds: "… the tax status of de facto union incorporates among its acquisitive requirements the formal requirement of timely compliance with the declarative obligation of registration or updating of the domicile in the Taxpayer Registry, a requirement which in addition to the identity of habitual residence, is not satisfied by this alone".

y) And concludes: "Thus, when there is no timely communication or has not been any communication whatsoever, by both or one of the members of the de facto union, of the change of domicile for purposes of registration in the taxpayer number, the formal acquisitive requirement of the tax status of de facto unions provided for in article 14 of the IRS Code ceases to be met".

z) In a second line of disagreement with the Claimant the AT states: "… the documentation submitted in the case: - Lease agreement; - An invoice from … for the period of 20-09-2011 15-11-2011; - A notification of termination of employment contract, dated 16-03-2012 43, fails to prove and does not permit creating the firm conviction that the Claimant and Ms. B… lived, in the years 2012, 2013 and 2014, in conditions analogous to those of spouses …".

aa) And it adds: "It should be noted that Law no. 7/2001 of 11 May does not define de facto union, as was likewise the case under Law no. 135/99 of 28 August. In any case, the same is characterized as the situation in which persons live in community of bed, board and lodging (tori, mensae et habitationes) as if they were married, only with the difference that they are not. They lack, therefore, the formal bond of marriage."

bb) It states: "Nevertheless, should the … Tribunal come to understand that the proof of de facto union is considered to have been completed, it will always be said, as set out above, that the completion and respective proof of the requirements of de facto union is not sufficient, it being necessary to have identity of tax domicile during the two years preceding and in the tax period".

cc) But since the Claimant "… did not communicate the change of residence to the AT" such "… constitutes a violation of no. 3 of article 19 of the GTA" since "no. 3 of Article 19 of the GTA establishes 'Communication of the taxpayer's domicile to the tax administration is mandatory, in accordance with the law'" "and no. 4 provides that 'Change of domicile is ineffective unless communicated to the tax administration.'", it concludes that "the tax domicile relevant for purposes of determining the applicable taxation regime is that which appears in the tax information"

dd) It further adds: "In the case at issue, in order to be able to benefit from the tax regime of de facto unions the Claimant should have proceeded with the communication of the change of its tax domicile within the legally established period". "Not having done so, the legal sanction is applied, which is that it cannot benefit from the taxation regime of de facto unions". "This is the understanding that results from the applicable law, with the Authority limiting itself to its compliance in accordance with and in compliance with the principle of legality to which it is bound", "… understanding … endorsed in the Judgment of 22 January 2015 in case 6655/13 (Judge Bárbara Tavares Teles)".

ee) It concludes arguing for the dismissal of the request for arbitral decision, maintaining in the legal order the assessment and the decisions adopted in the administrative review and gracious review proceedings.

II - QUESTIONS WHICH THE TRIBUNAL MUST RESOLVE

The substantive issue under examination in this case concerns the verification of the requirements of de facto union, in this specific case, in light of the concrete evidence produced.

At issue, before the facts that are to be considered proved and especially before the assessment that should be made of the documentary evidence presented by the Claimant, is to verify whether the requirements of article 14 of the IRS Code are met as of 31.12.2014 (as regards the Claimant, since as regards its partner this question does not arise), namely:

- Whether, given the regime of Law no. 7/2001 of 11 May and before the evidence produced by the Claimant to the AT, it should be understood that A… (Claimant) and B… (its partner) lived in conditions analogous to those of spouses, for more than 2 years, counted before 31.12.2014.

- Should the answer to the preceding question be in the affirmative, it is then necessary to determine whether, given the regime of no. 2 of article 14 of the IRS Code (wording then in force), there exists, before the evidence produced by the Claimant to the AT "… 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 tax period, as well as the signature, by both, of the respective tax return"

That is to say, the issue concerns the verification of the legality of the personal income tax assessment (conformity with the legal provisions mentioned above), in the condition of not being de facto unions (as the AT considered), of the Claimant and its partner, with respect to the income obtained in the year 2014.

It should be noted that the facts alleged by the AT in its learned reply – to which reference is made in z) of the Report above – in articles 42 to 44 were not taken into account in the grounds of the decisions dismissing the administrative review and hierarchical appeal, and therefore the Tribunal cannot examine this factuality, understood as "subsequent grounds" for the dismissal decision on the hierarchical appeal (the act directly challenged by the Claimant), that is, the subsequent grounding will be irrelevant, and the acts whose legality is questioned must be examined as they were performed, and the tribunal cannot, upon finding that an illegal ground was invoked as support for the administrative decision, examine whether its action could be based on other grounds (see judgments of the STA of 10-11-98, Plenary, handed down in appeal no. 32702, published in Appendix to the Official Journal of 12-4-2001, page 1207, of 19/06/2002, case no. 47787, published in Appendix to the Official Journal of 10-2-2004, page 4289, of 09/10/2002, case no. 600/02, of 12/03/2003, case no. 1661/02).

It should also be observed that the TAS can only decide in accordance with "constituted law" as per no. 2 of article 2 of the RJAT.

In this connection, account must be taken of the existence of judicial decisions of the Central Administrative Court of the South on the same substantive issue, at the risk of this decision being subject to appeal under no. 2 of article 25 of the RJAT (Judgment of the Central Administrative Court of the South of 05-03-2015, case 05655/12 – Reporting Judge Desembargadora Cristina Flora; Judgment of the Central Administrative Court of the South of 19.02.2015, case 08313/14 – Reporting Judge Desembargadora Anabela Russo).

It should be noted that the learned judgment of the Central Administrative Court of the South of 22.01.2015, case 6655/15 – Reporting Judge Desembargadora Bárbara Tavares Teles, cited by the AT, goes fundamentally in the same direction as the aforementioned judgments, with only the difference regarding the specific case mentioned therein:

"Given the legal framework of the legal regime which the Appellees seek to enforce, it is now important to verify whether, through the evidentiary elements brought before this Court, the requirements listed above are proved, as required by law".

"During those periods - the 2 years - they failed to prove de facto union for two consecutive years";

"Therefore, it is understood that given the obligation to communicate change of domicile, under penalty of ineffectiveness of such change, as long as such is not communicated – in accordance with nos. 1, 3 and 4 of article 19, no. 1, of the General Tax Law, the provisions of article 1, no. 2, of Law 7/2001 of 11 May are not applicable - 'persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years.'"

That is to say, it seems that it can be concluded from the grounds of the decision that what led the Central Administrative Court of the South to decide as it did was the fact that the taxpayers failed to prove the "requirements listed above and required by law".

If one accepts the premise that "de facto union can be proved by any legally admissible means of proof, namely by declaration issued by the competent civil parish council, and such declaration should be accompanied by a declaration of both members of the de facto union, under solemn affirmation, that they live in these circumstances for more than two years, and certified copies of the full registration of birth of each of them,

it does not seem proper that one should then conclude the opposite, that is, that de facto union is only relevant, in tax terms, after the tax domicile has been communicated in identity with the respective partner in the manner of nos. 1, 3 and 4 of article 19, no. 1, of the General Tax Law, and it seems to be intended to mean that without this communication, de facto union cannot be proved "by any legally admissible means of proof", which does not seem to be sustainable.

The question of ineffectiveness before the AT of the failure to communicate the tax domicile in identity of the partners in de facto union may lead to the assessment being made as non-de facto unions and will oblige the taxpayers, if they wish to reverse that situation, to challenge the assessment and prove in the subsequent administrative review or contentious procedure the elements of the said personal status.

The regime established in article 14 of the IRS Code may be applied in the case of prior communication of the tax domicile (which will give rise to a presumption of identity of domiciles with the person who has also done so) and also in the case of taxpayers proving the required elements of de facto union by any legally admissible means of proof (requirements of civil law and tax law), if they have not complied with the obligation to change domicile.

III. FACTS PROVED AND NOT PROVED.
GROUNDS

With respect to the facts, the Tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish between proved and unproved facts (in accordance with article 123 no. 2 of the Code of Tax Procedure and article 607 no. 3 of the Code of Civil Procedure, applicable by reference from article 29 no. 1 paragraphs a) and e) of the RJAT).

Thus, the facts relevant to the adjudication of the case are chosen and delimited based on their legal relevance, which is established with a view to the various plausible solutions of the legal question(s) (in accordance with the previous article 511 no. 1 of the Code of Civil Procedure, corresponding to the current article 596, applicable by reference from article 29 no. 1 paragraph e) of the RJAT).

Thus, taking into account the positions taken by the parties and the documentary evidence attached, the following facts were considered proved, as relevant to the decision, and not contested by the parties, with the respective documents being indicated (evidence by documents) as grounds.

Facts Proved

1) Since 2011 B…, Tax Number…, has had an address at Street … no. … –.... in Lisbon - in accordance with the end of point 5 of the third page of Annex I attached with the request for arbitral decision and point 5 of page 37 of the case file on the administrative review.

2) On 03.07.2014 the Claimant and B… sent a letter addressed to the Chief of the Finance Office of Lisbon –…, under the heading "response to your letter GI-… – IRS 2013: identification J…/… – proof of de facto union", where they invoke having a common tax domicile, attaching a copy of the lease agreement of the apartment mentioned in 1); a copy of the latest rent receipt from 2013 of the apartment at Street… no.…–... in Lisbon; a copy of a public deed of 06.08.2010, executed at the Notary Office of … where it appears that the Claimant and B… have the address mentioned in 1); an electricity bill issued in the name of the Claimant with the address mentioned in 1); a gas supply contract executed by the Claimant with respect to the apartment at Street… no. … –... in Lisbon; and a copy of a letter dated 16.03.2012 addressed by company C… Ltd. to the Claimant at the address indicated in 1) – in accordance with annex IV attached by the Claimant along with the request for arbitral decision and given the absence of challenge (as to the sending by the Claimant and receipt of this letter and documentation by the Finance Service) by the AT.

3) The Claimant delivered on 31-05-2015 the IRS Form 3 declaration for the 2014 tax year, marking the option of "de facto union" together with B…, Tax Number…, authenticated by both taxpayers, a declaration which resulted in a personal income tax assessment payable of 1,893.15 euros which was settled in installments – in accordance with point 1 and the end of point 2 of the third page of Annex I attached with the request for arbitral decision and point 1 and the end of point 2 of page 37 of the case file on the administrative review.

4) On 03-06-2015 the Claimant communicated to the Tax Authority that it had the tax domicile at Street… no. …-… in Lisbon - in accordance with point 8 of the fourth page of Annex I attached with the request for arbitral decision and point 8 of page 38 of the case file on the administrative review.

5) On 04.07.2015 the Respondent, with reference to the declaration mentioned in 3), considered that there were "discrepancies regarding the de facto union regime" and notified the Claimant to present the "respective documents proving the declared elements", since "from the printout extracted from the Discrepancies Management Computer System" the domiciles of the Claimant and B… did not coincide - in accordance with point 2 of the third page of Annex I attached with the request for arbitral decision and point 2 of page 37 of the case file on the administrative review.

6) On 07.09.2015 the AT proceeded with the official elimination of the declaration mentioned in 3) and issued a "declaration of official elimination" – in accordance with pages 7 to 19 of the case file on the administrative review and point 3 of the third page of Annex I attached with the request for arbitral decision and point 3 of page 37 of the case file on the administrative review.

7) On 11-09-2015 the AT annulled the initial assessment, with the refund of the amount previously settled, in the amount of 1,893.15 euros, and the disputed assessment was issued with tax payable in the amount of 4,894.07 euros – in accordance with the end of point 4 of the third page of Annex I attached with the request for arbitral decision and the end of point 4 of page 37 of the case file on the administrative review.

8) On 28.03.2016 the Claimant filed an administrative review against the assessment mentioned in the preceding paragraph, which was assigned no.…, and at the prior hearing it invoked the existence of the lease agreement mentioned in 2), an administrative review which was dismissed by order of the Chief of the Finance Office of Lisbon –… of 18.04.2016 – In accordance with pages 1 to 3 and 36 to 44 of the case file on the administrative review.

9) On 13.05.2016 the Claimant filed a hierarchical appeal with the AT against the decision mentioned in the preceding paragraph, which was assigned no. … 2016 …, again attaching the lease agreement mentioned in 2), which was dismissed by order of the Deputy Director of Finance of the Finance Directorate of Lisbon of 09.06.2016 – in accordance with the case file on the hierarchical appeal.

10) On 20-07-2016 the Claimant filed this request for arbitral decision with CAAD – registration of the request for arbitral decision entry in the Case Management System.

11) By at least December 2016 there was contained in the Taxpayer Management and Registry System an indication of "inter-taxpayer relations"-"active relations"-"list of relations it maintains with other taxpayers" the following: Type of relation: "is taxpayer A""Tax Number…""Name B…""Start date 2012-01-01" – in accordance with page 4 of the document registered by the Claimant on 04.12.2016 in the CAAD Case Management System.

Facts Not Proved

There is no other factual matter alleged that has not been considered proved and that is relevant to the composition of the proceedings.

IV. EXAMINATION OF THE QUESTIONS WHICH THE SINGLE ARBITRAL TRIBUNAL (TAS) MUST RESOLVE

As results from the facts proved, which are accepted by both parties according to the positions taken expressly or implicitly in this case, the disagreement between the Claimant and the AT dates back to the 2013 IRS. That is, already in 2014, regarding the 2013 IRS assessment, the parties were not in agreement regarding the substantive issue being discussed in this case: whether or not de facto union existed between the Claimant and B…, Tax Number …, which as was proved has its tax domicile, duly registered in the taxpayer registry, since 2011, at Street… no.…–... in Lisbon.

And in fact, the Claimant and its partner submitted a set of documents, in 2014, intended to convince the AT of their status of living together, as if they were married, as results from what was proved in 2) of the facts proved.

From the outset, it must be said that it appears that it is in the absence of critical examination, critical assessment, by the AT of this body of documentary evidence that lies the core of the disagreement between the parties. That is, the AT never pronounced itself (at least this does not appear in the case file) on this body of documentary evidence and also on other facts within its official knowledge capable of instructing, of substantiating, a carefully reasoned decision (principle of active investigation), such as, for example, the bank account indicated in the IRS Form 3 declaration for the purposes of IRS refunds (to determine only whether it is in the name of both alleged de facto union members, which address appears there and when it was opened).

For, as is learned stated in the Response of the AT, what matters is to determine the material truth regarding the "situation in which persons live in community of bed, board and lodging (tori, mensae et habitationes) as if they were married, only with the difference that they are not".

In articles 14 and 15 of the learned response, the AT fundamentally defends that the proof of "identity of tax domicile for more than 2 years and during the tax period" can only be made through prior compliance with the accessory obligation referred to in numbers 3 and 4 of article 19 of the GTA.

The compliance with this accessory obligation would thus be like a sine qua non condition, an irrebuttable presumption or a formality "ad substantiam".

But it does not seem to be the best reading of the law given what was decided in the Judgment of the Central Administrative Court of the South of 05-03-2015, case 05655/12 – Reporting Judge Desembargadora Cristina Flora and in the Judgment of the Central Administrative Court of the South of 19.02.2015, case 08313/14 – Reporting Judge Desembargadora Anabela Russo.

In this line of reading of the law it appears that the declarative obligation referred to in numbers 3 and 4 of article 19 of the GTA constitutes a formality "ad probationem", that is, the failure of its timely compliance can be supplanted by other more difficult means of proof, with the allegation that this declarative tax obligation has some qualified value not holding (as is stated in article 31 of the learned response of the AT).

Nor is the allegation that the norm of article 14 of the IRS Code is a norm of "personal incidence" or "tax incidence", to conclude that no legal presumption can be found therein, accepted.

As to the substantive question

For reasons of consistency of decisions, we cite what was written in the arbitral decision adopted in Case CAAD 713/2015-T with respect to an identical situation:

"Article 1, no. 2, of Law no. 7/2001 of 11 May, as amended by Law no. 23/2010 of 30 August, defines de facto union as 'the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years', whose proof, in the absence of legal or regulatory provision requiring specific documentary proof, is made 'by any legally admissible means', in accordance with the provisions of article 2-A, no. 1, of the same statute, with no. 2 of the mentioned article providing that, 'In the case of proving de facto union by declaration issued by the competent civil parish council, the document should be accompanied by declaration of both members of the de facto union, under solemn affirmation, that they live in de facto union for more than two years, and certified copies of the full registration of birth of each of them'.

Among the rights recognized to persons living in de facto union is that provided for in paragraph d) of no. 1 of Law no. 7/2001 of 11 May, in the wording in force, to benefit from 'd) Application of the personal income tax regime under the same conditions applicable to taxpayers who are married and not judicially separated as to persons and property'.

The option for the application of the income taxation regime, under the mentioned conditions, depended, in accordance with no. 2 of article 14 of the IRS Code, in the wording in force at the time of the facts, on two requirements: (i) '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 tax period' and 'the signature, by both, of the respective tax return'.

With respect to the identity of tax domicile of the taxpayers for the period of two years and during the tax period (the year of submission of the tax return, on the basis of which the assessment of the tax is usually made with respect to the tax event produced in the preceding calendar year), jurisprudence has, for the most part, understood that 'The concept of tax domicile is defined in paragraph a) of no. 1 of article 19 no. 1 of the GTA, and thus, except where otherwise provided, the tax domicile of a taxpayer, in the case of individuals, is the place of habitual residence'; 'The failure to communicate the taxpayer's domicile to the tax administration is a matter of effectiveness of the change, of its production of effects before the AT, which does not affect the substance, and nor does it even form part of the legal concept of tax domicile provided for in no. 1 of art. 19 of the GTA'; 'For purposes of the provisions of no. 2 of art. 14 of the IRS Code, there is identity of tax domicile of the taxpayers when they have the same habitual residence [proved], regardless of compliance with the prescribed communication of no. 3 of art. 19 of the GTA'; 'The absence of that communication will be relevant for purposes of proof of tax domicile, which shall be incumbent on the taxpayers, given the ineffectiveness of the change of domicile that results from the provisions of no. 4 of art. 19 of the GTA' and that 'Where two persons, regardless of sex, live in conditions analogous to those of spouses for more than two years, at the same habitual residence [proof incumbent on the taxpayers, in case of breach of the obligation to communicate provided for in no. 3 of art. 19 of the GTA], there is identity of tax domicile provided for in the provisions of no. 2 of art. 14 of the IRS Code' – see the Judgment handed down by the Central Administrative Court of the South, of 5/03/2015, case no. 05655/12.

Also the Ombudsman, in Recommendation no. 1/A//2013, addressed to the Director-General of the Tax and Customs Authority, in the context of case R- 1266/10 (A2), understood that if 'the communication of any change of tax domicile is solely within the formal scope of the tax legal relationship, it must be concluded that the failure to make such communication cannot have material effects on the situation of the taxpayers, such as preventing the application of a given legal taxation regime', that 'Article 14 of the IRS Code, as a norm of personal incidence, contains in its no. 2 the presumption that, where the taxpayers do not have common tax domicile for the period mentioned therein, they cannot be considered as being in de facto union, for purposes of application of a taxation regime that may be more advantageous to them and which they may opt for in the tax return. Being a presumption contained in a norm of incidence, it may (should be able to) be rebutted' and that 'the implementation of the principle of legality by the tax administration determines a principalist interpretation of the norms, that is, an interpretation of the norms, especially the norms of incidence, in accordance with the basic principles of the Tax Constitution, which implies, regarding the situation being dealt with, the harmonization of the legal provisions contained in articles 14, no. 2, of the IRS Code, 19 of the GTA, 43 of the Code of Tax Procedure and 117, no. 4, of the Tax Procedure Regulations, which will necessarily have to pass through the acceptance of proof of cohabitation of the de facto union members for more than two years, by other means, than solely by identity of tax domicile. Although the common tax domicile may constitute a qualified means of proof, this, however, cannot be the exclusive one, for the reasons already mentioned'".

And because this TAS adheres to this reading of the law, as was adhered to in the arbitral decision adopted in Case CAAD 713/2015-T, also here, citing this decision "… it is necessary to determine whether, in the specific case, the Claimant produced sufficient proof of the verification of the requirements of de facto union, in order to be able to benefit from the income taxation regime, under the conditions applicable to taxpayers who are married and not judicially separated as to persons and property".

In accordance with no. 1 of article 74 of the GTA, "1 - The burden of proof of the facts that are constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them", and therefore it is incumbent, in this specific case, on the Claimant to prove that, despite not having had a common tax domicile during the fiscally relevant period, in terms of the Taxpayer Management and Registry System, that during the years 2012 to 2014 and until 03-06-2015 – the date on which the Claimant communicated to the Tax Authority that it had the tax domicile at Street … no. …-... in Lisbon - it lived in de facto union with B….

The documentary evidence presented by the Claimant consists of paragraph 2) of the facts proved, namely:

- Copy of the lease agreement of the apartment located at Street … no. … –... in Lisbon, where the Claimant appears as co-tenant together with B…, an agreement executed on 16.09.2011;

- Copy of the rent receipt from 2013 (due in December 2013 and as to January 2014) of the apartment located at Street… no.…–... in Lisbon;

- Copy of a public deed of 06.08.2010, executed at the Notary Office of … where it appears that the Claimant and B… have the address at Street… no. … –.... in Lisbon;

- Copy of an electricity bill issued in the name of the Claimant with the address at Street… no. … –… in Lisbon and due date of 2011.12.02;

- The content of a gas supply contract executed by the Claimant with respect to the apartment at Street… no. … –... in Lisbon, undated;

- A copy of a letter dated 16.03.2012 addressed by company C… Ltd. to the Claimant at the address corresponding to the apartment at Street… no. … –... in Lisbon.

It appears to us that this set of documents, presented to the AT – Finance Office of Lisbon-… in July 2014, regarding the 2013 IRS, would have already permitted in 2015, at least, justifying an instruction of the case in the IRS 2014 discrepancies procedure referred to in 5) of the facts proved.

This was not done, either in the context of that procedure, or in the administrative review proceedings, or in the hierarchical appeal proceedings. In fact, the AT understood that de facto union cannot be considered for one who does not have, during 2 years and during the tax period, given the registry records in the Taxpayer Management and Registry System, the same identity of tax domicile. That is, it did not even consider the possibility that this objective could be the subject of proof through other means than the change of tax domicile provided for in nos. 3 and 4 of article 19 of the GTA.

By way of example it appears to us that the following could have been the subject of instruction, had it been understood that this set of documents was not sufficient to prove the requirements of no. 2 of article 1 of Law 7/2001 of 11 May and those of no. 2 of article 14 of the IRS Code:

1. Given the date appearing in the deed of 06.08.2010 compared with the date the lease agreement was executed (on 16.09.2011), it is even plausible that before this lease agreement there was another prior one, which may mean that the Claimant already lived at Street … no. … – ... in Lisbon before the execution of this agreement. If doubt existed as to whether the Claimant does not live at the rented location (and from when) it would be proper for the AT to raise with the lessor and/or the Claimant cooperation in clarifying these facts (principle of active investigation and cooperation).

2. Knowing that tax domicile is one of the elements that employers paying dependent employment income possess for purposes of compliance with the obligations provided for in no. 2 of article 99 of the IRS Code and paragraph b) of no. 1 of article 119 of the IRS Code, it would be appropriate to raise, should doubts arise regarding the address appearing in the letter dated 16.03.2012 addressed by company C… Ltd. to the Claimant at the address corresponding to the apartment at Street … no. … –... in Lisbon, that confirmation be made against the company's files and from what date.

3. In the tax return the Claimant and the partner indicate a bank account for the refund of IRS. Now, if doubt existed regarding proof of the documents submitted that they would not be sufficient to demonstrate that the Claimant and the partner, in addition to sharing the same dwelling, did not live in community of bed, board and lodging, it would be appropriate to raise with the interested party proof only of the joint-holding of the account, the date of its opening and the address appearing in the bank deposit agreement.

This is to say that, dealing with private documents (especially the lease agreement which was reported to the Finance Authority, the rent receipt and the employment termination letter from a company) which were presented to the AT in July 2014 – which in this case did not dispute having received – long before the submission by the Claimant and partner, invoking their de facto union, of the 2014 IRS Form 3 in 2015 and long before the IRS assessment was carried out and before the opening of the discrepancies procedure; they have the probative force conferred on them in accordance with no. 1 of article 376 of the Civil Code, since the signature of the same was not challenged, nor was the genuine reproduction of the originals disputed.

What better documentary evidence could be presented to prove a life in common between two persons (community of bed, board and lodging) than a lease agreement which is intended "exclusively for the housing of the tenants" or a deed of purchase of housing owned by the acquirers in co-ownership of the de facto union members, seconded by the contracts relating to the provision of services in the dwelling?

In this case, the lease agreement was reported to the Finance Authority on 13.10.2011 for purposes of payment of stamp tax and a copy was certainly delivered.

Now, before this factual picture, it must be concluded that the Claimant has provided sufficient proof that it lives with its partner B… at Street… no. … ... …-… in Lisbon since, at least, the execution of the lease agreement on 16.09.2011, since this document presented to the AT, either by the lessor or by the Claimant, was not called into question in the dimension of its probative force (article 376-1 of the Civil Code). The purpose of the agreement is, it should be noted, "exclusive housing of the tenants".

The requirement of the signature of a single IRS Form 3 by the Claimant and B… was not questioned, and therefore this requirement is considered to be met by the joint submission of the IRS Form 3 declaration.

That is, the Claimant proved, before the AT, by the documents it sent by letter dated 03 July 2014 (especially through the lease agreement which it also attached in the gracious review and in this case) that since 16.09.2011 it has, in fact, identity of tax domicile with B… and also proved that between them there exists a legal situation analogous to that of spouses for more than two years, which is necessarily derived from the documents presented.

In other words, it has been proved that the Claimant and B… between 2012 and 2014 and until 03-06-2015 – the date on which the Claimant communicated to the Tax Authority that it had the tax domicile at Street … no. …-... in Lisbon - lived in de facto union.

The other documents presented, in addition to the lease agreement, confer on this agreement increased credibility, since anyone who is a tenant then has to execute electricity and gas supply contracts.

Given that the AT did not call these documents into question in the discrepancies procedure, administrative review and hierarchical appeal, having not proceeded with acts of instruction, had it had doubts, that would confirm or contradict the elements contained therein and their probative dimension in common terms, we do not see how its effect can now be challenged (articles 42 and 43 of the learned response) bearing in mind that in the act immediately challenged: the decision that dismissed the hierarchical appeal, this matter was not examined, and this subsequent grounding should not now be considered.

In this line of thinking and evaluation of the evidence, the request for arbitral decision is well-founded.

V. OPERATIVE PART

Based on and in accordance with the grounds set out above:

- The request for annulment of the dismissal decision on the hierarchical appeal no. … 2016 … by which it was sought to annul the personal income tax assessment for the year 2014 no. 2015 …, in the amount of 4,894.07 euros, is granted;

- The decision is annulled and consequently the assessment is annulled, as it is in non-conformity with the provisions contained in no. 2 of article 1 of Law 7/2001 of 11 May and nos. 1 and 2 of article 14 of the IRS Code, in the version then in force, in the reading of the law advocated above.

Value of the case: in accordance with the provisions of article 3 no. 2 of the Regulations on Costs in Tax Arbitration Proceedings (and paragraph a) of no. 1 of article 97-A of the Code of Tax Procedure), the case is assigned a value of 4,894.07 euros.

Costs: in accordance with the provisions of article 22 no. 4 of the RJAT, the costs are fixed at the amount of 612.00 € according to Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let it be notified.

Lisbon, 10 January 2017

Single Arbitral Tribunal (TAS),

(Augusto Vieira)

Text prepared by computer in accordance with the provisions of article 131 no. 5 of the Code of Civil Procedure, applicable by reference from article 29 of the RJAT.

The drafting of this decision is governed by the spelling rules prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What are the requirements for common-law partners to file joint IRS tax returns in Portugal under Article 14 of the IRS Code?
Under Article 14 of the IRS Code, common-law partners may file joint tax returns if they meet união de facto requirements: living in conditions analogous to spouses for at least two years (per Law 7/2001 of 11 May) and maintaining identical fiscal domicile. Both partners must demonstrate the same registered tax address for the minimum statutory period. The Tax Authority verifies these conditions through fiscal domicile records and may require supporting documentation proving cohabitation.
How does the Portuguese Tax Authority verify identical fiscal domicile for unmarried couples claiming união de facto status?
The Portuguese Tax Authority verifies identical fiscal domicile for união de facto claims by checking official tax registration records maintained under Article 19 of the General Tax Law (LGT). Taxpayers must formally communicate any fiscal address changes to the AT; failure to do so means the change cannot be enforced against the tax administration. Beyond registered addresses, the AT may examine lease agreements, utility contracts, employment documents, and other proof of actual cohabitation, but official domicile registration remains the primary verification method.
Can a co-tenancy lease agreement serve as proof of shared fiscal domicile for IRS joint taxation purposes?
A co-tenancy lease agreement can serve as supporting evidence of shared residence for união de facto status, but its sufficiency depends on whether both partners have formally registered the address as their fiscal domicile with the Tax Authority. In Process 413/2016-T, the claimant presented a lease showing co-tenancy since 2011, but the AT argued this was insufficient without formal communication of fiscal address change under Article 19(3) LGT. Documentary proof of actual cohabitation must align with officially registered fiscal domiciles to satisfy Article 14 IRS Code requirements.
What is the CAAD arbitration procedure for challenging an IRS tax reassessment related to common-law union filing?
The CAAD arbitration procedure for challenging IRS reassessments begins with filing a request for a Single Arbitral Tribunal (TAS) under the Legal Framework for Tax Arbitration (RJAT). The taxpayer must file within the statutory deadline after notification of the hierarchical appeal dismissal decision. For disputes under €10,000, legal representation is not mandatory per Article 6-1 of the Tax Procedure Code. The process includes tribunal constitution, notification to the Tax Authority under Article 17-1 RJAT, opportunity for written submissions and hearings (Article 18 RJAT), and issuance of a binding arbitral decision. The AT submits the administrative file for tribunal review.
What happens when the Tax Authority rejects a joint IRS return filed by common-law partners due to differing registered fiscal addresses?
When the Tax Authority rejects a joint IRS return filed by common-law partners due to differing registered fiscal addresses, it issues a substitute assessment (liquidação de substituição) treating each partner separately. This typically results in cancellation of any joint tax benefits or refunds, as occurred in Process 413/2016-T where a €1,893.15 refund was reversed and replaced with a €4,894.07 assessment. Taxpayers may challenge this through hierarchical appeal to the AT and subsequently through CAAD tax arbitration. The burden of proof falls on taxpayers to demonstrate both actual cohabitation and formal compliance with fiscal domicile registration requirements under Article 19(3) LGT.