CAAD 475/2018-T: IRS Tax Residency Dispute Under Article 16 CIRS and Portugal-UK Double Tax Treaty

ARBITRAL DECISION

I. REPORT

1. On 24 September 2018, A..., NIF..., of British nationality, resident in ..., ... United Kingdom (hereinafter, Claimant), filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2(1)(a) and 10(1)(a) and (2) of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012 of 31 December (hereinafter, abbreviated as RJAT), with a view to this Tribunal's ruling on:

• Declaration of illegality of the implicit rejection of the official review request No. ...2018... and of the income tax assessments (IRS) No. 2011 ... and No. 2014..., both relating to the year 2010, with their consequent annulment;

• Reimbursement of the amounts of tax unduly paid, increased by compensatory interest.

The Claimant attached 28 (twenty-eight) documents (the majority of them originally drafted in English language, the Claimant being notified to this effect, having presented the respective translation) and listed one witness (which was subsequently dispensed with), not having requested the production of any other evidence.

The Respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).

As results from the request for arbitral ruling (hereinafter, PPA), the Claimant bases the challenge of the disputed tax acts, summarily, on the following:

The Claimant has British nationality, having lived in Portugal between May 2007 and October 2009, and at the end of 2009, received a job offer in the United Kingdom to work as an internal nanny, having started the provision of activity in that country in March 2010; given the nature of the activity provided, the Claimant came to reside with her employers in London from 8 March 2010 until 31 May 2011. During the year 2010, the Claimant came to Lisbon occasionally, having been in Portugal for a total of 18 days and, during the year 2011, remained in Portugal for a period of 26 days.

All of the employment income earned by the Claimant during the year 2010 derived exclusively from the said professional activity exercised in London, with the respective employer proceeding to the withholding of income taxes ("Income Tax"), with the British tax authority ("HMRC") considering the Claimant resident in the United Kingdom for tax purposes.

In May 2011, the tax advisor to whom the Claimant had entrusted the management of her tax affairs in Portugal proceeded to file the respective income statement (Model 3 IRS Form), relating to the year 2010, in which she marked the option "resident on the continent", having also filed Schedule J, in which the income obtained and the tax paid in the United Kingdom were recorded.

The Claimant filed a gracious appeal against the income tax assessment for the year 2010, resulting from the submission of the said income statement – which resulted in an amount of tax to be paid of €6,733.00, given the erroneous indication of her residence in Portugal, which was rejected.

Subsequently, the AT made another income tax assessment, relating to the year 2010, having eliminated from the respective Schedule J the amount of income tax that the Claimant had declared there as having been paid in the United Kingdom, resulting in an amount of tax to be paid of €15,043.47; the Claimant was not notified of this tax act, having become aware of it incidentally and informally, during contacts she established with the AT.

The Claimant filed a request for official review having as its object the two aforementioned income tax assessments, relating to the year 2010, regarding which, until the date of the submission of the request for arbitral ruling, no decision had been rendered.

With regard to the first of the referenced income tax assessments, the Claimant contends that it violated the provisions of Article 16(1) of the IRS Code and Articles 2(1)(a) and (b), 4, 15(1) and (2), 22, 24 and 25, all of the Convention concluded between the Portuguese Republic and the United Kingdom of Great Britain and Northern Ireland to avoid double taxation and prevent tax evasion in the matter of taxes on income, signed in Lisbon on 27 March 1968.

With respect to the second of the aforementioned income tax assessments, the Claimant, in addition to reiterating the allegation of the vitiating defects levelled against the first assessment, states that this assessment made by the AT incurs a further violation of Articles 78(1)(j) and 81(1) and (2), both of the IRS Code, in addition to suffering from formal defects, rooted in the violation of the right to prior hearing, the lack of reasoning and the lack of notification.

The Claimant concludes by deducing the following requests:

"a) The annulment of the rejection of the request for official review of the assessment acts of 2011 and 2014, with both assessment notices being annulled as better identified in the present case;

b) The return of all amounts already paid on account of any of the said assessments and respective enforcement actions;

c) The payment of compensatory interest, provided that the requirements laid down in Article 43(3)(c) of the General Tax Law are met;

Failing this and alternatively, it is requested:

a) The annulment of the rejection of the request for official review of the assessment acts of 2011 and 2014, with the official assessment of 2014 being annulled and the assessment made in 2011 being restored;

b) The return of all amounts already paid on account of any of the said assessments and respective enforcement actions, to the extent that such amounts exceed the amount provided for in the 2011 assessment;

c) The payment of compensatory interest, provided that the requirements laid down in Article 43(3)(c) of the General Tax Law are met."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 1 October 2018.

The Claimant did not proceed to nominate an arbitrator, therefore, pursuant to the provisions of Article 6(1) and Article 11(1)(a) of the RJAT, the Chairman of the CAAD Deontological Council appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

On 15 November 2018, the Parties were duly notified of this appointment, having not expressed any intention to challenge the appointment of the arbitrator, in accordance with the combined provisions of Article 11(1)(b) and (c) of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

Thus, in accordance with the provisions of Article 11(1)(c) of the RJAT, the singular Arbitral Tribunal was constituted on 5 December 2018.

1. On 21 January 2019, the Respondent, duly notified to that effect, filed its Response in which it invoked the exceptions of procedural error, caducity of the right of action and material incompetence of the arbitral tribunal and specifically contested the arguments put forward by the Claimant.

In essence and also briefly, it is important to gather the most relevant arguments on which the Respondent based its Response:

The Respondent began by invoking the mentioned exceptions, in the terms that are hereby given as entirely reproduced and which will be analysed below.

By way of objection, the Respondent alleged that the assertion of the Claimant that she should be considered as fiscally resident in the United Kingdom in the year 2010 cannot be considered true, because the factual circumstances concerning the Claimant's fiscal residence are defined and established in the legal system due to lack of timely challenge of such status and, further, because the document that would prove such fact would be a certificate of tax residence issued by the competent authorities of the United Kingdom, which the Claimant failed to present.

Furthermore, since the Claimant declared in the Model 3 IRS Form relating to the year 2010 that she was fiscally resident in Portugal in that year, it is incumbent on her to prove this now declared fact, which she failed to do, namely by presenting a certificate of tax residence issued by the tax authority of the United Kingdom. Since nothing prevents a Portuguese tax resident from moving to another country and earning income there and being subject to withholding at source, without having to change his or her fiscal residence.

On the other hand, the Respondent argues that, Portugal being the State of which the Claimant must be considered fiscally resident in the year 2010, the right to tax employment income, regardless of the source State, and non-public pensions belongs exclusively to Portugal, as the State of residence, in accordance with the provisions of Articles 15 and 17 of the DTC concluded between the Portuguese Republic and the United Kingdom.

With regard to the grant of a tax credit for international double taxation, relating to the tax allegedly paid in the United Kingdom, the Respondent alleges that the Claimant presented a document issued by the tax authorities of the United Kingdom certifying the amounts of income and tax withheld at source for the fiscal years 2009/2010, 2010/2011 and 2011/2012. Now, says the Respondent, since the burden of proof of the right to the credit rests on the Claimant and sufficient proof not having been produced in the context of the control of the conventional benefit, another income tax assessment was made that disregarded the deduction due to lack of sufficient proof of the tax allegedly paid abroad.

For this reason, the Respondent considers that this other income tax assessment challenged does not suffer from error attributable to the services, in addition to the situation already being consolidated, therefore not being subject to official review.

Consequently, the request for recognition of the right to compensatory interest should also be rejected, as the legally required requirements are not met.

The Respondent concludes by arguing that a decision should be rendered finding the invoked exceptions to be well-founded or, should that not be the case, that the request for arbitral ruling should be judged unfounded.

1. Subsequently, the Respondent attached to the case its respective administrative file (hereinafter, PA).

2. On 7 February 2019, the Claimant, duly notified to that effect, made a statement regarding the exception matter alleged by the Respondent, in the terms that are hereby given as entirely reproduced and of which we will give an account below.

3. On 27 February 2019, an order was issued dispensing with the holding of the meeting referred to in Article 18 of the RJAT, fixing a deadline for the presentation of submissions and determining, as the deadline for the arbitral decision, 3 June 2019.

4. The Parties submitted statements, in which they reiterated the positions taken in their respective pleadings.

II. CLARIFICATION

1. The Arbitral Tribunal was regularly constituted (cf. Article 5 of the RJAT).

The request for arbitral ruling is timely, because filed within the period provided for in Article 10(1)(a) of the RJAT.

The parties enjoy legal personality and capacity, have standing and are regularly represented (cf. Articles 4 and 10(2) of the RJAT and Article 1 of Regulation No. 112-A/2011 of 22 March).

The proceedings are not affected by any nullities.

The Respondent invokes the exceptions of procedural error, caducity of the right of action and material incompetence of the Arbitral Tribunal, for which knowledge and ruling it becomes, however, necessary to first establish the factual matter proved and not proved, after which a ruling will be rendered.

There are no other exceptions or preliminary questions that prevent knowledge of the merits and which should be addressed.

III. REASONING

III.1. FACTUAL BASIS

§1. FACTS PROVED

1. With relevance to the decision of the case, the following facts are considered proved:

a) The Claimant has British nationality, having lived in Portugal during the period between May 2007 and October 2009.

b) The Claimant travelled to London, United Kingdom, on 27 October 2009. [cf. document No. 6 attached to the PPA]

c) The Claimant was hired by B... to work as an internal nanny, functions which she performed during the period between 8 March 2010 and 31 May 2011. [cf. document No. 2 attached to the PPA]

d) During the period mentioned in the preceding proved fact, given the nature of the activity provided, the Claimant resided with her employer in ..., London, United Kingdom. [cf. document No. 2 attached to the PPA]

e) As consideration for that employment relationship, the Claimant received the monthly remuneration shown in the payslips attached as documents Nos. 8 to 17 to the PPA and which are hereby entirely reproduced, which were paid to her until 31 August 2011. [cf. documents Nos. 2, 8 to 17 and 21 attached to the PPA]

f) By virtue of the payment of the said monthly salaries to the Claimant, the respective employer proceeded to withhold at source income tax ("Income Tax"), in the total amount of £9,507.60, of which £7,131.00 corresponds to the amount of tax withheld during the civil year 2010. [cf. documents Nos. 8 to 20 attached to the PPA]

g) The so-called "P60 certificates" attached as documents Nos. 18 and 19 to the PPA, relating to the fiscal years 2009/2010 and 2010/2011 (the fiscal year in the United Kingdom does not correspond to the civil year, beginning on 6 April and ending on 5 April) are issued by the tax authority of the United Kingdom – HM Revenue & Customs – as proof both of the amounts of remuneration paid and of the amounts of income tax withheld at source by employers.

h) The personal address of the Claimant shown on those same documents is as follows: ..., London... [cf. documents Nos. 18 and 19 attached to the PPA]

i) On 27 May 2011, via the Internet, the Claimant's Model 3 IRS income statement, relating to the year 2010, was filed, forming an integral part thereof Schedules B (Category B Income – Simplified Scheme/Isolated Act), H (Tax Benefits and Deductions) and J (Income obtained abroad), from which it is important to highlight the following elements [cf. document No. 22 attached to the PPA]:

• the option resident in Portugal, in the continental territory, was marked/declared;

• in Schedule B it was declared that the Claimant did not exercise any activity nor obtain income from Category B;

• in Schedule J the following income obtained abroad was declared (the exchange rate applied was that in effect on the date of filing of the IRS statement):

• the amount of €44,549.91, corresponding to gross income of £38,227.14 that the Claimant earned between March and December 2010 in the United Kingdom;

• the amount of €3,969.48, corresponding to the value of £3,406.11 that the Claimant received from the Social Security in the United Kingdom;

• the amount of €16,924.54, corresponding to the value of £14,522.52 that the Claimant received as a pension for the years she worked in the postal services of the United Kingdom.

• in Schedule J the amount of €8,310.47, corresponding to £7,131.00, of tax paid by the Claimant abroad (United Kingdom) was declared.

j) The Claimant did not declare any other income earned in the year 2010, beyond those mentioned in the preceding proved fact. [cf. document No. 22 attached to the PPA]

k) Following that income statement, on 04.06.2011 the income tax assessment No. 2011... was made and notified to the Claimant, from which resulted the amount of tax to be paid of €6,733.00. [cf. document No. 23 attached to the PPA]

l) The Claimant filed a gracious appeal against that income tax assessment, in the terms contained in the respective initial request attached as document No. 24 to the PPA and which is hereby entirely reproduced, having there petitioned the following: "…this gracious appeal should be accepted and granted, and since the appellant is not resident in Portugal for tax purposes, she owes nothing in terms of taxes in Portugal and consequently the income tax assessment No. 2011... of 4 June 2011 should be annulled." [cf. document No. 24 attached to the PPA and PA]

m) The aforesaid gracious appeal was registered under No. ...2012... and proceeded in the Administrative Justice Division of the Finance Directorate of Lisbon, having been rejected by order dated 26.06.2012, made on the information No. REC289/2012 of 21.06.2012, which contains, among other things, the following [cf. document No. 24 attached to the PPA and PA]:

"The appellant alleges that in the year 2010 she was not resident in national territory. However, in the consultation of the SGRC - Taxpayer Management and Registration System, it is verified that during the year 2010 she had as her tax address Street ... ...-... ... - pages 67 and 70 of the case files. It is also verified in the analysis of the tax situation of the taxpayer that there are no elements that indicate that during the year 2010 she did not reside in Portugal and as stated in Article 15 of the IRS Code, with respect to persons resident in Portuguese territory, the IRS is levied on all their income, including that obtained outside that territory.

It should also be noted that under Article 19(4) of the General Tax Law, taxpayers resident abroad, as well as those who, although residents in the National Territory, are absent from it for a period exceeding six months should, for tax purposes, designate a representative with residence in National Territory. The same article, in paragraph 5, states that regardless of the applicable sanctions, the exercise of the rights of the taxpayers referred to in the previous paragraph before the Tax Administration, including those of appeal, recourse or impugnation, depends on the designation of a representative, in the terms of the previous number.

Although in the consultation of the SGRC - Taxpayer Management and Registration System - pages 71 to 74 of the case files it is verified that on 31 December 2011 the appellant had as her tax address the United Kingdom of Great Britain and Northern Ireland, the appointment of a "tax representative" to which she was obliged does not appear, as provided in Article 130 of the IRS Code, combined with Article 19 of the General Tax Law, with the Tax and Customs Authority system itself alerting to the irregular situation of the taxpayer "situations of possible anomalies detected by the system to be clarified and regularized" - page 71 of the case files.

Thus, from what has been stated, I am of the view that the assessment subject to this gracious appeal is legal and should not be annulled."

n) In the context of a procedure for control of the tax credit for international double taxation, for the years 2010 and 2011, carried out by the Directorate for International Relations of the AT, a notification was sent to the Claimant – by registered international mail (CTT registration ... PT), sent on 10.02.2014 to ... London..., United Kingdom and delivered on 13.02.2014 in C..–, "under Article 128(1) of the IRS Code (obligation to prove the elements of the statements), to send to this Finance Service [Finance Service of ...], within 15 days, the following original documents or authenticated copies (…): a) Declaration issued or authenticated by the tax authority of the respective State, containing the breakdown of the nature and gross amounts of income obtained in that State, as well as the amount of total and final tax paid, for the year in question. b) Final tax assessment obtained there, as well as, where applicable, proof of the refund received/tax paid relating to that final assessment. The sending of the documents listed in this paragraph cancels the sending of those referred to in paragraph a), provided that containing all the elements mentioned there." [cf. PA]

o) Not having presented the documents mentioned in the aforesaid notification, the AT made an official correction to the Claimant's income statement relating to the year 2010, the amount of tax paid abroad (€8,310.47), declared in the respective Schedule J, having been eliminated. [cf. PA and document No. 26 attached to the PPA]

p) Following that, the AT made another income tax assessment – assessment No. 2014... of 25.07.2014 – from which resulted the total amount to be paid of €16,078.97, of which €15,043.47 of tax and €1,035.50 of compensatory interest. [cf. document No. 27 attached to the PPA]

q) Due to failure to make voluntary payment of the amount resulting from the income tax assessment referred to in proved fact p), an enforcement action was instituted against the Claimant, filed under No. ...2014..., aimed at its compulsory collection.

r) The Claimant made a partial payment – the amount(s) paid and the date(s) of payment were not concretely ascertained – of the amount assessed by the AT.

s) On 26 February 2018, a request for official review was filed with the Lisbon Finance Service-... presented by the Claimant and having as its object the income tax assessments referenced in proved facts k) and p), in the terms and with the grounds contained in the respective initial request attached as document No. 28 to the PPA and which is hereby entirely reproduced, having there been petitioned the following: "A) The granting of this request for review and, consequently: a. The following assessment acts being successively annulled: i. Official assessment of the IRS relating to the year 2010, carried out on 25-07-14; ii. Assessment of the IRS relating to the year 2010, carried out on 04-06-11; b. The above-identified assessment acts being replaced by an assessment act that is in accordance with the applicable legislation and case law; c. The partial amounts paid by the Claimant being reimbursed in the context of the enforcement action number ...2014... B) However, if this is not understood to be the case, (…), it is alternatively requested, as an alternative and as a subsidiary request, the granting of this request for review and, in consequence: a. The official income tax assessment act relating to the year 2010, carried out on 25-07-14, being annulled, with the income tax assessment relating to the year 2010, made on 04-06-11, remaining as valid in the legal system; The partial amounts paid by the Claimant being reimbursed in the context of the enforcement action number ...2014... that exceed the value of the tax assessed on 04-06-11." [cf. documents Nos. 1 and 28 attached to the PPA and PA]

t) Until the date of filing the request for constitution of an arbitral tribunal (nor subsequently), no decision was rendered regarding that request for official review.

u) In the year 2010, the Claimant was registered in the SGRC - Taxpayer Management and Registration System of the AT as resident in Portugal, with tax address at the following address: Street ..., ...-... ... . [cf. document No. 24 attached to the PPA and PA]

v) In the year 2011, the Claimant was registered in the SGRC - Taxpayer Management and Registration System of the AT as resident in the United Kingdom of Great Britain and Northern Ireland, with tax address at the following address: ... London... . [cf. PA]

w) The Claimant was in Portugal between 23 September 2010 and 10 October 2010. [cf. documents Nos. 3 and 7 attached to the PPA]

x) In the year 2010, the Claimant remained in Portugal less than 183 days, consecutive or interpolated.

y) In the year 2010, the Claimant remained more than 183 days, consecutive or interpolated, in the United Kingdom.

z) On 24 September 2018, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceedings. [cf. case management system of the CAAD]

§2. FACTS NOT PROVED

1. With relevance to the assessment and decision of the case, the following facts were not proved:

a) The Claimant did not reside in Portugal between 27 October 2009 and 7 March 2010.

b) The tax advisor D..., holder of Professional Certificate No. ... – to whom the Claimant had entrusted her tax affairs – proceeded to file the IRS statement relating to the year 2010 in the name and interest of the Claimant.

c) The Claimant provided that tax advisor with all the documentary elements necessary for the preparation of that statement.

d) It was in the full knowledge of that tax advisor that the Claimant had moved to the United Kingdom to reside and work there.

e) The notification referred to in proved fact n) was received by the Claimant.

f) The income tax assessment referred to in proved fact p) was notified to the Claimant.

§3. REASONING ON FACTUAL MATTERS

1. The facts relevant to the decision of the case were chosen and defined in function of their legal relevance, in the light of the plausible solutions to questions of law, in accordance with the combined application of Articles 123(2) of the Tax Code of Procedure, 596(1) and 607(3) of the Civil Procedure Code, applicable by virtue of Article 29(1)(a) and (e) of the RJAT.

The Tribunal's conviction was based on the facts alleged by the Parties, whose correspondence with reality was not put in question and on a critical analysis, in light of common experience and according to judgments of normality and reasonableness, of the evidentiary material of a (merely) documentary nature brought to the case, including the administrative file.

In this context and specifically with regard to proved facts x) and y), it is important to note that, without any doubt, it was the Claimant's burden to prove that factuality; in fact, as stated in the judgment of the Supreme Administrative Court rendered on 18.01.2006, in case No. 01102/05, "once it is proved that the taxpayer has a tax number in Portugal and resides here, it is his burden of proof that he resided in Portugal for less than 183 days", since "we are dealing with a preventing fact, therefore the proof of such fact, in accordance with Article 342(2) of the Civil Code, is the burden of the one against whom it is invoked".

That is precisely the case in the present proceedings; the Claimant has a tax number in Portugal and resided here.

The fact that she did not communicate the change of her tax domicile – in the year 2010, the Claimant was registered in the SGRC - Taxpayer Management and Registration System of the AT as resident in Portugal (cf. proved fact u)) – cannot, as is evident, found any taxation, nor can it substitute for the rules that define tax residence. The "ineffectiveness" of the change of domicile – note that "domicile" and not "residence" is said – referred to in Article 19(4) of the General Tax Law does not, by itself, have the scope of converting the taxpayer into a resident for tax purposes, if he makes proof to the contrary; and in the concrete case, the Claimant succeeded in making that same proof.

Since the Claimant, by presenting documents Nos. 2 to 21 attached to the PPA – which are also attached to the aforementioned request for official review of the assessment acts –, sought to demonstrate that she did not remain (for more than 183 days) in Portugal, she assumed – and rightly so – that it was her burden to prove such factuality; now, the analysis (isolated and combined, between them) of those documents allows us to conclude that they constitute proof of what the Claimant invokes, that is, that she, in the year 2010, remained in Portugal for less than 183 days, consecutive or interpolated, having remained more than 183 days, consecutive or interpolated, in the United Kingdom.

The Respondent is thus wrong when it states that the "proof of such fact would be a certificate of tax residence issued by the competent authorities", this being an absolutely formalistic argument and lacking legal support, as there is no legal rule that conditions/limits the means of proof which the taxpayer can use to prove his tax residence.

1. The unproved factuality was thus considered due to the lack of any evidentiary elements proving it.

III.2. LEGAL BASIS

§1. ON EXCEPTIONS

1. As was stated, the AT invoked the following exceptions:

a) procedural error;

b) caducity of the right of action, resulting from the untimeliness of the official review procedure; and

c) material incompetence of the arbitral tribunal to rule on the legal claim formulated by the Claimant or, should this not be the case, to rule on the legal claim formulated by the Claimant regarding income tax assessment No. 2011....

1. Given that the scope of the tribunal's material competence is of public order and its knowledge precedes any other matter (Article 13 of the Administrative Procedure Code applicable by virtue of Article 29(1)(c) of the RJAT) and that infraction of the rules of competence in reason of the matter determines the absolute incompetence of the tribunal, which is of official knowledge (Article 16 of the Tax Code of Procedure applicable by virtue of Article 29(1)(a) of the RJAT), it is important to assess, primarily, this question.

As stated by Mário Aroso de Almeida and Carlos Alberto Fernandes Cadilha (Commentary to the Code of Procedure in Administrative Courts, 4th edition, Coimbra, Almedina, 2017, p. 147), "[t]he attribution of absolute priority to the knowledge of the competence question is justified by the consideration that the only question for which an incompetent tribunal is competent is to assess its incompetence. Once that incompetence is verified, it is naturally prevented from entering into the assessment, either of the remaining procedural requirements, or, obviously, of the merits of the case."

§1.1. ON THE EXCEPTION OF MATERIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL

1. The Respondent sustains the exception of material incompetence of the Arbitral Tribunal, in a first instance, alleging that "in the situation sub judice, in order for the present Arbitral Tribunal to be able to rule, the mandatory precedence of a gracious appeal was always required, in accordance with the provisions of Article 131(1) of the Tax Code of Procedure", since "excluded from the material competence of arbitral tribunals is the assessment of claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative avenue in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process, but only of official review in accordance with Article 78 of the General Tax Law."

The Respondent further states that "Article 2(a) of Regulation No. 112-A/2011 excludes, literally, from the scope of the AT's binding to arbitral jurisdiction, '(…) claims relating to the declaration of illegality of self-assessment acts (…) that have not been preceded by recourse to the administrative avenue in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process", not mentioning the official review provided for in Article 78 of the General Tax Law"; thus, if one were to "seek to include in the authorization granted the administrative procedure of official review, such formulation appears manifestly illegal", because "such interpretation follows from the literal element implicit in the legal norm in question" and because "the declaration of illegality of self-assessment acts, as happens in the situation sub judice, are excluded from the material competence of arbitral tribunals, unless they are preceded by a gracious appeal in accordance with Article 131 of the Code of Procedure and Tax Process, is imposed by force of the constitutional principles of the rule of law and separation of powers (cf. Articles 2 and 111, both of the Constitutional Law), as well as the right of access to justice (Article 20 of the Constitutional Law) and legality (cf. Articles 3(2), 202 and 203 of the Constitutional Law and also Article 266(2) of the Constitutional Law, in its corollary of the principle of inalienability of tax credits inherent in Article 30(2) of the General Tax Law) that bind the legislator and all activity of the AT."

The Respondent concludes by arguing that "it should be concluded that it is impossible for the present Arbitral Tribunal to decide the present dispute, insofar as the dilatory exception of material incompetence is verified, from which results the dismissal of the instance of the Respondent, in accordance with the combined provisions of Articles 278(1)(a) and 576(1) and (2) of the Civil Procedure Code, applicable by virtue of Article 29(1)(e) of the RJAT."

1. Should this not be understood, the Respondent invokes the material incompetence of the arbitral tribunal to rule on the legal claim formulated by the Claimant regarding assessment No. 2011..., since "it was annulled, having been replaced by the additional assessment No. 2014... of 25-07-2014", therefore the claim regarding it is unfounded, "for lack of object" or "for impossibility or supervening uselessness of the dispute in accordance with paragraph e) of Article 277 of the Civil Procedure Code, by a fact occurring during the pendency (in fact long before) of the instance, the resolution of the dispute becomes impossible or ceases to have interest and utility, leading, therefore, to the extinction of the instance, since the claim of the plaintiff cannot then be maintained, by virtue of the disappearance of the object of the proceedings, (…), whereby the solution of the dispute no longer interests – due to impossibility of achieving the result sought.".

The Respondent concludes by reiterating the understanding that it is necessary to "conclude that it is impossible for the present Arbitral Tribunal to decide the present dispute, insofar as the dilatory exception of material incompetence is verified, from which results the dismissal of the instance of the Respondent, in accordance with the combined provisions of Articles 278(1)(a) and 576(1) and (2) of the Civil Procedure Code, applicable by virtue of Article 29(1)(e) of the RJAT."

1. The Claimant made a statement regarding this exception, arguing for its lack of merit, stating that "the interpretation of the law defended by the Respondent culminates in the creation of a new case in which prior gracious appeal is required, which has no legal support" and emphasizing that, moreover, "she graciously appealed from the first assessment act in dispute in the present proceedings".

With respect to the invoked material incompetence of the arbitral tribunal to rule on the legal claim formulated regarding assessment No. 2011..., the Claimant states that "the immediate object of the present proceedings is the implicit rejection of the request for official review submitted", therefore "any annulments of assessment acts that may occur will take place as a consequence of the annulment of said implicit rejection"; in that manner, "the extension of the effects of a possible annulment of the implicit rejection does not exceed the competence of this arbitral tribunal, being a question that will fall within the scope of the merits decision."

Assessing and ruling.

1. Self-assessment is the assessment of a tax that is not made by the Tax Administration, but by the taxpayer. In effect, the self-assessment act is distinguished from the assessment act (administrative act through which the calculation operation of the tax owed is executed by the Tax Administration) by virtue of the fact that it is the taxpayer himself who calculates, on the basis of a statement, the value of the tax owed, without any intervention by the Tax Administration.

Having said that, Article 75 of the IRS Code states that it is the responsibility of the Tax Administration to assess the IRS; thus, in the case of IRS, the assessment of the tax owed is administrative, since the competence for its calculation belongs to the central services of the Tax Administration.

In the concrete case, two acts of income tax assessment by the AT are at issue: (i) assessment No. 2011..., made following the filing of the income statement by the Claimant; and (ii) assessment No. 2014..., made following the official correction to the Claimant's income statement.

Thus, since none of those tax acts constitutes a self-assessment, the situation in the proceedings has no relevance to the provisions of Article 131 of the Tax Code of Procedure and, therefore, we are not dealing with a claim relating to the declaration of illegality of a tax act that should be preceded by recourse to the administrative avenue in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process (cf. Article 2(a) of Regulation No. 112-A/2011 of 22 March).

Consequently, on this basis, the exception of material incompetence of the Arbitral Tribunal is unfounded.

1. Let us now consider the invoked material incompetence of the Arbitral Tribunal to rule on the claim formulated regarding income tax assessment No. 2011....

As was said, the acts of income tax assessment challenged constitute administrative assessments; analyzing the content of each of the acts (cf. documents Nos. 23 and 26 attached to the PPA), we note that in assessment No. 2014 ... the tax was not calculated and assessed and then the amount of tax resulting from the prior assessment No. 2011... was deducted, with these two amounts contributing to the value of the tax legally owed.

We cannot thus assert that the second assessment constitutes a true additional assessment, that is, that it "adds to" the first with both contributing to the definition of the legal tax obligation.

In effect, assessment No. 2011 ... was entirely revoked and replaced by a new assessment act – assessment No. 2014 ... – that reassessed directly the Claimant's tax situation regarding 2010 IRS and, consequently, the effects produced by the first of the mentioned assessments were not maintained.

In fact, whenever we are dealing with a revocatory substitution or substitutive revocation, that is, in cases of revocation in which the act is replaced by another, the underlying situation is newly regulated.

On this point, Serena Cabrito Neto and Carla Castelo Trindade (Tax Litigation, Volume I, Coimbra, Almedina, 2017, p. 459) inform us that "there has been a trend on the part of the Tax Administration, when it intends to alter an assessment act (…), to issue a substitutive assessment of the previous one, with the purpose of eliminating from the legal system the effects of the first, by revocation."

In conclusion, we have that income tax assessment No. 2011 ... was replaced by a new assessment act, with the inherent destruction of its effects and, therefore, ceased to exist in the legal system, having been entirely replaced by income tax assessment No. 2014 ... which newly regulated the concrete tax situation of the Claimant, relating to the 2010 IRS.

In this conformity, regarding income tax assessment No. 2011..., we are not faced with a question of (in)competence of the arbitral tribunal, but rather with the lack of necessity of the continuation of this arbitral action, which has existed since a moment prior to its filing, which is reduced to the lack of a procedural requirement, which is the lack of interest in acting, which constitutes an unnamed dilatory exception of official knowledge, leading to the dismissal of the instance (cf. Articles 576(1) and (2), 577 and 578 of the Civil Procedure Code ex vi Article 29(1)(e) of the RJAT).

In fact, regarding income tax assessment No. 2011..., the continuation of this action does not lead to any useful effect, at least regarding the Claimant, therefore there is no justified, reasonable or founded need for the maintenance of the instance regarding that tax act, thus lacking the interest in acting on the part of the Claimant.

As a consequence, the Respondent is dismissed from the instance due to lack of that unnamed procedural requirement, regarding income tax assessment No. 2011....

§1.2. ON THE EXCEPTION OF PROCEDURAL ERROR

1. The Respondent alleges that "as regards the first part of the final request of the PPA – 'annulment of the rejection of the request for official review' – the same could only be subject to assessment in an administrative action", since "the AT did not analyze the substance of the Claimant's request, nor even the requirements of the application of Article 78 of the General Tax Law, and the Claimant in the request for official review did not invoke any defect of the AT that would justify the application of Article 78 of the General Tax Law"; it concludes, thus, that "in the case in question the implicit rejection of the request for official review does not involve the assessment of the legality of an assessment act", therefore "by contesting the implicit rejection judicially and not via administrative action, the Claimant did not use the appropriate procedural means."

2. The Claimant made a statement regarding this exception, arguing for its lack of merit, saying that "it is not true that no defects of the AT were invoked in the request for official review that would justify the application of Article 78 of the General Tax Law"; the Claimant further asserts that "we are not dealing with a rejection based on untimeliness or lack of procedural requirements, which would be determinative of the need to resort to special administrative action", but rather "dealing with an implicit rejection, which (…) should be qualified as an act that assesses, albeit mediately, the legality of the assessment act that was the object of the request for review".

Assessing and ruling.

1. Implicit rejection is not an act, but a fiction designed to enable the use of administrative and contentious means of impugnation, as results from the provision of Article 57(5) of the General Tax Law.

In the understanding of Jorge Lopes de Sousa (Guide to Tax Arbitration, Nuno de Villa-Lobos and Tânia Carvalhais Pereira (Coordination), 2nd Edition, Coimbra, Almedina, 2017, pp. 130 and 135), "[a]lthough Article 2(1) of the RJAT makes reference only to declaration of illegality of acts, it is unequivocal that it encompasses the declaration of illegality of implicit rejections, since Article 10(1) of the RJAT makes reference to the 'facts provided for in paragraphs 1 and 2 of Article 102 of the Code of Procedure and Tax Process' and the 'formation of the presumption of implicit rejection' comes stated in paragraph d) of Article 102(1) of this article (…)

The implicit rejection is presumed to be based on reasons of merit and not on procedural obstacles."

In the same sense, Carla Castelo Trindade (Legal Regime of Tax Arbitration, Annotated, Coimbra, Almedina, 2016, p. 72) states that "insofar as implicit rejection consists only in a fiction of an act, that assessment of the (i)legality of the first degree act does not exist – in fact – in these cases. Strictly speaking, it is presumed."; being that, as regards "the question of whether or not to include within the material scope of tax arbitration the assessment of implicit rejection act", she is peremptory in stating that "[t]he answer is yes". This author further clarifies that "the implicit rejection act, as a presumption of an act/fiction of an act, is not, in itself, the object of the arbitral action. However, there is no doubt that the arbitrability of first degree acts – those included within the material scope of arbitration because subsumed in Article 2 – cannot be denied merely because there was a request for administrative assessment without express decision, which is, moreover, confirmed by Article 10, when it allows the submission of a request for arbitral ruling up to 90 days counted, e.g., from 'the end of the legal period for the hierarchical appeal decision'."

Returning to the concrete case and having in mind the understandings explained (see, also and among others, the judgments of the Supreme Administrative Court rendered on 23.09.2009 and 02.07.2014, respectively, in cases Nos. 0420/09 and 01950/13), it is incumbent on us to conclude toward the lack of merit of the alleged exception of procedural error.

§1.3. ON THE EXCEPTION OF CADUCITY OF THE RIGHT OF ACTION, RESULTING FROM THE UNTIMELINESS OF THE OFFICIAL REVIEW PROCEDURE

1. In this context, the Respondent alleges that "the request for official review was filed by the Claimant outside the 'administrative appeal period', being prohibited to her, consequently, that it be submitted with 'grounds in any illegality', as set out in the first part of Article 78(1) [of the General Tax Law]", and that "the second part [of Article 78(1) of the General Tax Law] restricts the grounds for the request for official review exclusively to situations in which there was error attributable to the services".

In that conformity, the Respondent maintains that once the Claimant has allowed "the period for filing the request for official review to lapse, in accordance with the terms established in the first part of Article 78(1) [of the General Tax Law], within which, it is admitted, she could invoke any illegality, it is considered that there was no legal basis for hearing the request for official review, in accordance with the second part of Article 78(1) [of the General Tax Law], since the Claimant failed to demonstrate the 'error' that affects the AT."

The Respondent concludes that "the present action must be judged untimely, since the request for official review underlying it was not filed within the administrative appeal period, which dictates the caducity of the right to bring the present action"; consequently, the Claimant invokes the "present peremptory exception, in accordance with Article 493(3) of the Civil Procedure Code, ex vi Article 2(e) of the Tax Code of Procedure."

1. The Claimant made a statement regarding this exception, arguing for its rejection, stating that it is "uncontroversial among national doctrine and jurisprudence that the 'error attributable to the services' provided for in Article 78(1) of the General Tax Law does not include only errors of fact, but also errors of Law."

In that measure, the Claimant argues that "the said divergence (…) [between the Parties] 'regarding the subsumption of facts to law' should be assessed by the arbitral tribunal, under Article 78(1) of the General Tax Law", for which purpose "she was and is in time."

Assessing and ruling.

1. As emphasizes Carla Castelo Trindade (op. cit., pp. 72, 75, 255 and 256), "because it is an implicit rejection act, in order for the arbitral tribunal to be able to assess whether the request for constitution of an arbitral tribunal was made within the caducity period of the right of action, the arbitral tribunal itself will have to assess whether the (…) request for official review meets the legally required requirements of admissibility for knowledge of the merits of the claim – first and foremost, whether it was itself presented in a timely manner."; therefore, "the arbitral tribunal will necessarily have to evaluate whether at least the procedural requirements required by those paragraphs 1 (…) of Article 78 of the General Tax Law were met for the Tax Administration to have knowledge of the merits of the matter.

(…)

In sum, the conclusion reached is that, faced with an implicit rejection of (…) a request for review of a tax act, the taxpayer wishing to resort to the arbitral avenue, should not only allege, in his request for arbitral ruling, the (i)legality of the first degree tax act, but also, as a precaution, and especially with respect to the request for review of a tax act, should be careful to prove the verification of the procedural requirements that allowed knowledge of the merits of the claim by the Tax Administration.

(…)

This does not mean (…) that the cause of action of the arbitral action has to include the cause of action of the prior gracious means, in this case, official review.

However, (…) to justify the timeliness of the arbitral action the taxpayer should, as a precaution, allege and prove:

(1) the legal grounds for the use of the gracious means previously attempted and regarding which the Tax Administration has not ruled;

(2) the existence of an implicit rejection due to the fact that the Tax Administration, despite being in a position to decide, has not decided;

(3) the fact that it is still within the 90-day period counted from the formation of that silent act."

1. Returning to the concrete case, we have that the legal basis for the request for official review of the tax act that was filed by the Claimant is rooted in Article 78(1), second part, and (7) of the General Tax Law, norms from which it appears that the taxpayer may request official review of tax acts based on error attributable to the services within four years after assessment or at any time if the tax has not been paid.

With respect to error attributable to the services, it is a widely predominant doctrinal and jurisprudential understanding that this encompasses any illegality and comprises not only lapse, material error or factual error, but also legal error, without requiring the demonstration of the culpability of the officials involved in issuing the assessment affected by the error (in this sense, Casalta Nabais, "The Review of Tax Acts", in For a Supportable Fiscal State: Studies in Tax Law, Volume III, Coimbra, Almedina, 2010, p. 236; Rui Duarte Morais, Manual of Procedure and Tax Process, Coimbra, Almedina, 2012, p. 204; Paulo Marques, The Review of the Tax Act: From mea culpa to the restoration of legality, Coimbra, Almedina, IDEFF Notebooks (No. 19), 2015, pp. 233 and 236; and, among others, the judgments of the Supreme Administrative Court rendered on 22.03.2011, 14.03.2012, 19.11.2014 and 08.03.2017, respectively, in cases Nos. 01009/10, 01007/11, 0886/14 and 01019/14).

Having examined the initial request of the request for review of the tax acts that was filed by the Claimant (cf. document No. 28 attached to the PPA), we note that it is very similar to the request for arbitral ruling both as to the cause of action and as to the claims.

Furthermore, we verify that in that request for official review – just as in the request for arbitral ruling – various vitiating defects are attributed to the assessment acts that are its object, whether they are defects of violation of law, by alleged errors in the factual and legal prerequisites, whether they are formal defects, by alleged preterition of essential formality and by lack of reasoning.

In another order of considerations, with reference to income tax assessment No. 2014 ... – the only one that now matters to consider, as results from the above –, we have, on the one hand, that it was made on 25.07.2014 (cf. proved fact p)) and, on the other hand, that the request for official review was filed on 23.02.2018 (cf. proved fact s)), therefore this was filed within four years after that assessment (cf. Article 78(1), second part, of the General Tax Law).

In this conformity, it is incumbent on us to conclude that the Claimant effectively based that request for review of the tax acts on errors attributable to the services and that it was timely filed, therefore the procedural requirements that would allow knowledge of the merits of the claim by the Tax Administration are verified.

1. In case the Tax Administration does not rule on the request for review of the tax acts, in accordance with the provisions of Article 57(1) and (5) of the General Tax Law, after four months have elapsed, the presumption of implicit rejection is formed.

In the case sub judice, as results from the evidence, the request for official review of the tax acts was filed with the Lisbon Finance Service-... on 26.02.2018 (cf. proved fact s)) and the Claimant filed on 24.09.2018 the request for constitution of an arbitral tribunal that gave rise to the present proceedings (cf. proved fact z)), and until this latter date (nor subsequently), no decision was rendered regarding that request for official review (cf. proved fact t)).

Thus, there is no doubt as to the formation of the presumption of implicit rejection of that request for official review, which occurred on 26.06.2018.

Furthermore, given the date on which the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceedings – 24.09.2018 – it is verified that this was filed within 90 days after the formation of the presumption of implicit rejection (cf. Article 10(1)(a) of the RJAT and Article 102(1)(d) of the Tax Code of Procedure), therefore it is timely.

1. In these terms, it is incumbent on us to conclude toward the lack of merit of the alleged exception of caducity of the right of action resulting from the untimeliness of the official review procedure.

§2. ON THE MERITS

1. The Claimant argues the existence of various vitiating defects of the challenged income tax assessment act, whether they are defects of violation of law, by alleged errors in the factual and legal prerequisites, whether they are formal defects, by alleged preterition of essential formality and by lack of reasoning, without establishing a relationship of subsidiarity among them.

2. Article 124 of the Tax Code of Procedure provides as follows:

Article 124

Order of knowledge of defects in the judgment

1. In the judgment, the court shall assess primarily the defects that lead to the declaration of non-existence or nullity of the impugned act and, then, the alleged defects that lead to its annulment.

2. In the referred groups the assessment of defects is made in the following order:

a) In the first group, that of defects whose merit determines, according to the prudent discretion of the judge, more stable or effective protection of the offended interests;

b) In the second group, the one indicated by the impugner, whenever he establishes among them a relationship of subsidiarity and no other defects are alleged by the Public Prosecutor or, in the other cases, the one fixed in the preceding paragraph.

This norm establishes a priority for the knowledge of defects whose merit determines, according to the prudent discretion of the judge, more stable or effective protection of the offended interests.

Reverting to the case at hand, we have that none of the defects invoked by the Claimant can be considered as resulting from situations that may determine the nullity of the challenged tax act in light of the legal criteria that characterize it; on the other hand, as was said, the Claimant did not establish any order of priority for this knowledge.

Therefore, maximum efficacy in the protection of the Claimant's interests dictates that we begin with the assessment of defects of violation of law, after which, should it prove necessary, we will assess the formal defects.

1. The crux of the disagreement between the Parties lies, primarily, in the question relating to the Claimant's tax residence in the year 2010, specifically whether or not she should be considered resident in Portugal, in accordance with and for the purposes of the provisions of Article 16 of the IRS Code.

2. Before proceeding with the assessment of this crucial question, it is important to address the allegation of the Respondent to the effect that the aforementioned question is already "perfectly defined and established in the legal system, by lack of timely challenge of such status", wanting with this to allude to the fact that the Claimant did not react against the act of rejection of the gracious appeal she filed against income tax assessment No. 2011 ... (cf. proved facts l) and m)), in which this question was assessed by the AT.

If we understand correctly this argument of the Respondent, we believe that it seeks with it to signify that we are dealing with a case decided or resolved as a consequence of the aforementioned gracious appeal, whose rejection decision was not the subject of either hierarchical appeal or contentious impugnation by the Claimant.

We advance, from now on, that the Respondent is not correct.

With the reference to case decided or resolved, it is sought to designate situations in which a tax act is not timely impugned, acquiring a relative stability; in effect, such stability is only relative since the so-called case decided or resolved, instead of constituting a guarantee of definitive stability of the tax act, is reduced, at most, to the mere impossibility of impugning the act based on defects generating annulability.

In the concrete case, we cannot overlook that the tax act that was the subject of the aforementioned gracious appeal was income tax assessment No. 2011... and, therefore, the force of the case decided or resolved is limited to this assessment, due to failure to use the means of reaction that the law places at the disposal of the interested party in the face of the rejection of a gracious appeal.

However, as was said, assessment No. 2011... was entirely revoked and replaced by assessment No. 2014... and, therefore, ceased to exist in the legal system, with the concrete tax situation of the Claimant, relating to the 2010 IRS, being regulated by this latter assessment, which is subject to administrative and/or contentious impugnation, with the procedure for review of tax acts being "an alternative means to administrative and contentious means of impugnation (when used at a time when those can still be used) or complementary to them (when the periods for using the means of impugnation of the assessment act have already been exhausted)".

§2.1. ON THE CLAIMANT'S TAX RESIDENCE

§2.1.1. ON ARTICLE 16(1), PARAGRAPHS A) AND B), OF THE IRS CODE

1. For better understanding of the question sub judice, it is important to highlight the importance that the concept of residence assumes in Tax Law and, in particular, in income taxation.

Limiting ourselves to the IRS Code, we note that residence is the criterion used to determine the scope of application of the tax (cf. Article 15), with residents being subject to a principle of worldwide taxation as opposed to non-residents, who are only subject to taxation with respect to income obtained in Portugal.

In fact, residence, presupposing a strong and stable connection to a specific territory, is the most frequent criterion for determination of universal income taxation.

Article 16(1) of the IRS Code, in the wording in force at the date of the facts, and with relevance to the case in question, used more than one criterion of residence, determining that "[p]ersons are resident in Portuguese territory who, in the year to which the income relates: a) Have remained there for more than 183 days, consecutive or interpolated; b) Having remained for less time, have there available, on 31 December of that year, housing in conditions that make it supposed that the intention to maintain and occupy as usual residence."

It is thus verified that the criterion provided for in that paragraph a) is limited to physical presence (corpus), in Portugal, considering as residents, automatically, individuals who remain 183 days in national territory. On the other hand, paragraph b), requiring a less qualified physical connection, imposes a case-by-case analysis that still ensures that there is an effective connection with the territory. This connection is deemed to be verified through a mediate subjective element, the intention to be resident (animus), which must be analyzed from an objective perspective, that is, through immediate elements that allow the reconstruction of the individual's will from the indices revealed by him. Note that the existence of purely artificial residence criteria, without being based on an effective connection with the territory, find restrictions on their application either through International Public Law (cf. Rui Duarte Morais, Attribution of Profits of Non-Resident Entities Subject to Privileged Tax Regime, Porto, Catholic University Publications, 2005, p. 35), or at a later stage through the application of DTCs (cf. Klaus Vogel, On Double Taxation Conventions, Third Edition, Deventer, Kluwer Law International, 1997, pp. 232 and 233).

Thus, paragraph b) of Article 16(1) of the IRS Code serves two essential functions: first, to consider resident in Portugal an individual who only changes his residence to national territory in the second semester of the year, so that it is no longer possible to comply with the 183-day criterion; and, second, to consider resident individuals who, despite their connection to the territory, verified through a place where they habitually reside, may intentionally circumvent the residence rule (cf. André Salgado de Matos, Annotated Code of Income Tax for Individuals (IRS), Lisbon: Superior Management Institute, 1999, pp. 206 and 207).

1. Returning to the concrete case, it was proved that in the year 2010, the Claimant remained in Portugal for less than 183 days, consecutive or interpolated (proved fact x)) and that she remained more than 183 days, consecutive or interpolated, in the United Kingdom (proved fact y)).

Thus, the first element of possible connection is not verified, provided for in paragraph a) of Article 16(1) of the IRS Code: the Claimant's permanence in Portuguese territory for more than 183 days, consecutive or interpolated, in the year to which the income relates, that is, in the year 2010.

Focusing now on paragraph b) of Article 16(1) of the IRS Code, it is settled that this norm imposes three requirements, from whose cumulative verification depends the qualification as resident: (i) permanence in Portugal; (ii) availability of housing; and (iii) verification of conditions that make it supposed that the housing will be maintained and occupied as usual residence; obviously, based on the body of Article 16(1) of the IRS Code, the verification of said requirements must have as reference the "year to which the income relates", being this the temporal spectrum during which residence should be verified.

With regard to this second element of possible connection, in addition to the AT having not alleged that (i) the Claimant had housing available in Portugal (ii) in conditions that would make it supposed the intention to maintain and occupy as usual residence, nothing results from the case that, even indicatively, points in that direction. In fact, it was not alleged, nor was it ascertained that the Claimant had any title (namely, ownership, lease, usufruct, use and habitation or commodatum) that would legitimize the use of a house in Portugal and, much less, that there were conditions that would make it supposed that such (hypothetical) housing would be maintained and occupied as usual residence.

§2.1.2. ON THE CONVENTION ON DOUBLE TAXATION BETWEEN PORTUGAL AND THE UNITED KINGDOM

1. Having arrived here and once it is verified that the Claimant cannot be considered resident in Portugal in the year 2010, it is not necessary to inquire into her qualification as resident under the Convention between the Portuguese Republic and the United Kingdom of Great Britain and Northern Ireland to Avoid Double Taxation and Prevent Tax Evasion in the Matter of Taxes on Income, signed in Lisbon on 27 March 1968 (Decree-Law No. 48497 of 24 July 1968).

Since Article 4 of the DTC refers to the internal laws of each of the States (Portugal and United Kingdom) to assess whether a given citizen is or is not considered resident in that State. Thus, the assessment of the DTC only appears to be relevant if it proves necessary to find a tie-breaking criterion that permits qualifying a taxpayer as resident in only one of the contracting States when both consider him as such.

At stake are the so-called tie-break rules contained in DTCs and determine the attribution of income of a taxpayer to a State, in case of divergence between two (or more) tax legal systems.

For this purpose, Article 4 of the DTC between Portugal and the United Kingdom seeks, precisely, to resolve situations of dual residence, in which someone has "prolonged contacts with more than one legal system" (cf. J. L. Saldanha Sanches, Manual of Tax Law, Coimbra, 2007, pp. 339 and 340), through various special (tie-breaking) rules whose application will determine residence in only one of the States that claim the tax residence of a given taxpayer. Since, although the definition of resident is made using the criteria established by the domestic law of each State, as Rui Duarte Morais states "[i]nternational conventions on double taxation accept such competence (…) limiting themselves to establishing 'tie-breaking' rules that permit qualifying a taxpayer as resident in (only) one of the contracting States when both (by force of the divergences between their respective laws) consider him as such." (cf. Rui Duarte Morais, On IRS, 3rd Edition, Coimbra, Almedina, 2016, p. 12).

In the concrete case, the question is settled, since, in light of the criteria set out in paragraphs a) and b) of Article 16(1) of the IRS Code, the Claimant cannot be considered fiscally resident in Portugal in the year 2010, which prevents Portugal from taxing the income earned by the Claimant in that same year.

1. Given the foregoing, we conclude that the challenged income tax assessment No. 2014..., relating to the year 2010, suffers from a defect of violation of law, by error in the factual and legal prerequisites, consisting of the wrong interpretation and application of Article 16(1), paragraphs a) and b), of the IRS Code, which implies the declaration of its illegality and consequent annulment; the implicit rejection of the request for official review No. ...2018... suffers from the same vitiating defect.

2. Since the totality of income tax assessment No. 2014... is to be annulled, based on the aforementioned defect of violation of law, knowledge of the remaining defects alleged by the Claimant becomes prejudiced as unnecessary (cf. Article 130 of the Civil Procedure Code ex vi Article 29(1)(e) of the RJAT).

§2.2. REIMBURSEMENT OF THE AMOUNTS OF TAX PAID INCREASED BY COMPENSATORY INTEREST

1. The Claimant further petitions for the AT's condemnation to reimburse the amounts unduly paid, and it has been proved that the Claimant made a partial payment of the amounts of tax and compensatory interest assessed by the AT, without the amount(s) paid and the date(s) of payment being concretely ascertained (cf. proved fact r)).

2. Article 24(1)(b) of the RJAT provides that the arbitral decision on the merits of the claim from which there is no appeal or impugnation shall bind the tax administration from the end of the period provided for appeal or impugnation, with this, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the