Process: 484/2018-T

Date: February 26, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitration case 484/2018-T addressed a dispute concerning IRS tax deductions (deduções à coleta) and the application of autonomous taxation rates under Articles 73 and 78 of the Portuguese Personal Income Tax Code (CIRS). The taxpayers, filing jointly in a de facto union with two dependents, challenged an IRS assessment of €7,449.97 for the 2017 tax year. The core issue centered on the calculation limits for tax deductions when certain income categories are taxed autonomously rather than grouped. The claimants declared Category B income (self-employment), Category F income (rental income), and Category E income obtained abroad (Annex J). They opted for non-grouping of Category F rental income, subjecting it to autonomous taxation. The dispute arose because the Tax Authority applied tax deduction limits based only on the grouped income tax (€1,795.30), while taxpayers argued the limit should apply to total tax liability (€14,136.03). The claimants contended that Article 78(7) of CIRS establishes only one overall limit for deductions, calculated based on total taxable income of €12,381.41, yielding a maximum deduction of €2,390.09 rather than €1,795.30. The Tax Authority maintained that under Article 78(3) CIRS, deductions apply only up to the extent of tax resulting from grouped income, as autonomous taxation operates separately. This case illustrates the complexity of Portuguese IRS rules when taxpayers exercise options for separate taxation of different income categories, and highlights procedural aspects of tax arbitration under Decree-Law 10/2011, including tribunal constitution, notification procedures, and the substantive interpretation of deduction limitations in mixed taxation scenarios.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

I - REPORT

A - Identification of the Parties

Claimant: A..., taxpayer number ... and B..., taxpayer number ..., both resident at Street ..., ..., ..., hereinafter referred to as Claimant or Taxpayer.

Respondent: Tax and Customs Authority, hereinafter referred to as Respondent or AT.

The Claimant filed a petition for constitution of an Arbitral Tribunal in tax matters and petition for arbitral award, pursuant to the provisions of paragraph a) of section 1 of article 2 and paragraph a) of section 1 of article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as RJAT).

The petition for constitution of the Arbitral Tribunal was accepted by the President of CAAD, and in accordance with the provisions of paragraph c) of section 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Tax Authority was notified on 2018-12-11.

The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of section 1 of article 6 and paragraph b) of section 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed Rita Guerra Alves as Arbitrator, the appointment having been accepted by her in accordance with legal provisions.

On 2018-11-21, the parties were duly notified of such appointment, and did not manifest any intention to challenge it, in accordance with article 11, section 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Code of Ethics.

The Singular Arbitral Tribunal was regularly constituted on 2018-12-11, to examine and decide the subject matter of the present dispute, and the Tax and Customs Authority was automatically notified on 2018-12-11 to render its position, as recorded in the respective minutes.

By order of 2018-01-28, the meeting provided for in article 18 of the RJAT was waived, and the proceedings continued with optional written submissions, simultaneous, of 20 days.

The Claimant and the Respondent submitted written submissions.

The Arbitral Tribunal was regularly constituted, in accordance with the provisions of articles 2, section 1, paragraph a), and 10, section 1, of Decree-Law No. 10/2011, of 20 January.

The parties are duly represented, possess legal personality and capacity, and are legitimate (articles 4 and 10, section 2, of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities.

B - PETITION

The Claimant hereby filed a petition for arbitral award declaring the illegality of the tax assessment act under Personal Income Tax, No. 2018..., relating to the year 2017, which established an amount of tax payable of €7,449.97 (seven thousand four hundred and forty-nine euros and ninety-seven cents).

C - BASIS OF THE CLAIM

To support its petition for arbitral award, the Claimant alleged, with a view to declaring the illegality of the tax assessment act under Personal Income Tax, the following:

  • The AT's reasoning does not indicate any article on which it bases its assertion;

  • In accordance with the CIRS, it is perfectly clear that there is no division of tax deductions for grouped or non-grouped income;

  • The question of grouping or non-grouping of income operates at the level of applying the corresponding rate in order to determine a global tax;

  • Moreover, it argues that after determination of the global tax, taxpayers have the right to deduct the tax deductions provided by law;

  • In the IRS tax calculation statement, the Claimant has a tax of €14,136.03 and not €1,795.30, thus the limit of €1,795.30 is arbitrary and has no legal basis and should therefore be disregarded;

  • Moreover, it maintains that in the law there is only one overall limit to tax deductions provided for in section 7 of article 78;

  • It argues that they presented taxable income of €12,381.41, so in accordance with the formula contained in paragraph b) of section 7 of article 78 of the CIRS, the maximum limit for tax deductions is €2,390.09 and not €1,795.30 as considered in the assessment;

  • And concludes by alleging that the taxpayers presented a total of tax deductions of €2,977.48, limited to €2,390.09.

D - RESPONSE OF THE RESPONDENT

The Respondent, duly notified for this purpose, timely presented its response in which, in brief summary, alleged the following:

  • The Claimant (taxpayer A) filed jointly with B... (taxpayer B), in a de facto union, the IRS income return - form 3, containing two dependents, identified by tax numbers ... and ... .

  • Completed said form 3 with annex B (category B income), annex F (rental income), annex J (income obtained abroad) and annex H (tax benefits and deductions), which was identified with No. ... .

  • Annex F is intended to declare rental income, as defined in article 8 of the CIRS, and must be filed when the taxpayer, or anyone in the family unit, has earned rental income and has not opted for its taxation under category B.

  • Not using the option to tax such income under category B, then such income is classified under category F and taxed autonomously, but may, however, be grouped at the option of their respective holders residing in Portuguese territory and taxed with other income.

  • If the option for grouping is not made, autonomous taxation is applied to net income, that is, after properly documented deductions have been made.

  • In the situation under analysis, the Claimant exercised the option of non-grouping.

  • The option for grouping obligates the taxpayer to group all income of the same category of income, which was not the case with the Claimant who intended for category F income to be taxed autonomously.

  • As the Claimant opted for non-grouping, category F income was taxed autonomously.

  • As for annex J, it is intended to declare income obtained outside Portuguese territory, by residents in Portugal, while income obtained within Portuguese territory is declared in the respective annexes.

  • Moreover, it states that the right to deduction can only be exercised by presenting a document issued and authenticated by the tax authorities of the country where the income was earned, identifying the nature of such income and the corresponding tax paid.

  • The option for grouping implies that all category E income is grouped, in accordance with the provisions of article 22 of the CIRS.

  • It argues that, taking into account all elements contained in the administrative file, assessment No. 2018... is correct and in accordance with applicable legislation. The amounts to be considered regarding tax deductions had to comply with the provisions of article 78, section 3 of the CIRS, under which tax deductions are made in the order indicated in such legal provision and up to the extent of the tax.

  • As the total tax determined, resulting from grouped income, amounts to €1,795.30, the values of deductions are deducted up to the extent of the tax and within the limits established in articles 78-A, a, 78-F.

  • In the concrete situation, and as evidenced by the "Tax Deductions" table in the IRS tax calculation statement contained in the administrative file, the amount of accepted deductions, always taking into account the provisions of articles 78, section 3 and 78-A to F, were as follows: Deduction for dependents: €1,200.00; Deduction for general family expenses: €500.00; Deduction for health expenses: €95.30.

  • Specifically and given the foregoing, the amount determined at €897.65 was multiplied by the two taxpayers, because they filed the income return jointly, resulting in the amount of €1,795.30 and not the amount that the Claimant indicates.

  • Thus, from the total tax of €14,136.03, the net tax of €12,340.73 is deducted, corresponding to the above-mentioned amount of €1,795.30.

  • As the total tax determined results from grouped income (excluded here are the income contained in annexes F and J, because there was no grouping), only the amount of deductions was deducted up to the extent of the tax.

  • It concludes by maintaining that the tax determined regarding autonomous taxation, generated by the non-grouping of income declared in annexes F and J, applies to certain income without taking into account the personal situation of the taxpayers, and that, therefore, they are a parallel calculation within the assessment itself, reason for which tax deductions are not extensible to autonomous taxation.

E - FACTUAL FOUNDATION

For the analysis of the question submitted to the examination of the Tribunal, it is necessary to set forth the relevant factual matter, based on the documentary evidence on file and the facts that were not challenged.

Thus, the present Tribunal establishes as proven the following facts:

  • The Claimant (taxpayer A) filed jointly with B... (taxpayer B), in a de facto union, the IRS income return - form 3, containing two dependents, identified by tax numbers respectively ... and ... .

  • The Claimant completed said form 3 with annex B (category B income), annex F (rental income), annex J (income obtained abroad) and annex H (tax benefits and deductions), identified with No. ... .

  • The Claimant exercised the option of non-grouping regarding category B income, being classified under category F and taxed autonomously.

  • The Claimant, in annex J, referring to income obtained outside Portuguese territory, declared as category A income, the amount of €2,500.00 and category E income, the amount of €28,833.46.

  • The Claimant opted for non-grouping of rental income, being subject to special rates, in accordance with the provisions of article 72, section 1, paragraph e), taxed at the autonomous rate of 28%.

  • Regarding category E income, obtained outside Portuguese territory, in the amount of €28,833.46, the Claimant opted for non-grouping, subject to special rates in accordance with the provisions of article 72, section 1, paragraph d), taxed at the autonomous rate of 28%.

  • Regarding category A income, obtained outside Portuguese territory, in the amount of €2,500.00, the Claimant opted for non-grouping, subject to special rates in accordance with the provisions of article 72, section 1, paragraph e), taxed at the autonomous rate of 28%.

  • From the IRS Tax Calculation Statement No. 2018..., the assessment at issue, the following resulted:

[calculation table]

  • From the tax deductions listed in the IRS Tax Calculation Statement No. 2018..., the following resulted:

[deductions table]

  • The calculation of total tax, in the IRS Tax Calculation Demonstration No. 2018..., is performed as follows:

"11 AMOUNT DETERMINED (9: COEF x RATE)

12 Amount to Deduct

13 Tax corresponding to prior year income

14 Tax corresponding to exempt income

15 Tax relating to autonomous taxation

16 Surtax (0.00 x 0.0% + 0.00 x 0%) x 2.00

17 Excess in relation to family quotient limit

18 Tax relating to autonomous taxation

19 TOTAL TAX [(11-12)x(2.00)+13-14+15+16+17]"

  • The total tax in the IRS Tax Calculation Statement No. 2018..., includes the tax relating to autonomous taxation, in the amount of €12,340.75.

  • The Claimant had a total tax of €14,136.03.

  • The calculation of net tax, in the IRS Tax Calculation Statement No. 2018..., is calculated as follows:

"18 -TOTAL TAX [(11-12)x(2.00)+13-14+15+16+17]

19 -Tax deductions

20 -Municipal Benefit (2.50% of tax)

21 -Tax increases

22 - NET TAX (18-19-20(>=0)+21)"

  • The Claimant filed a gracious complaint No. ...2018..., which was dismissed by order of 2018-08-21.

F - UNPROVEN FACTS

Among the facts with interest for the decision of the case, all objects of concrete analysis, those not contained in the factuality described above were not proven.

G - ISSUES TO BE DECIDED

Given the position of the parties, adopted in the arguments presented by each, the central issue to be addressed is the following, which must therefore be examined and decided:

  • Regarding the declaration of illegality of the tax assessment act under Personal Income Tax, No. 2018..., relating to the year 2017, which established an amount of tax payable of €7,449.97 (seven thousand four hundred and forty-nine euros and ninety-seven cents).

  • Payment of compensatory interest.

H - MATTER OF LAW

Given the position assumed by the parties in their pleadings, the issue to be resolved by this Arbitral Tribunal concerns the interpretation and application of the regime provided for in article 78 of the CIRS, regarding the maximum limit of tax deductions and its extension to autonomous taxation rates (when not grouped), and the consequent determination of the correct classification under IRS of assessment No. 2018..., relating to the year 2017.

Given the factual matter established, we will then determine applicable law, prioritizing, in compliance with the provisions of paragraph a) of section 2 of article 124 of the CPPT, the analysis of defects in the assessment act, whose merit determines a more stable and effective protection of the Claimants' interests.

The Claimant essentially argues that the limit of tax deductions includes non-grouped income taxed autonomously, and not only grouped income, wherefore the limit of tax deductions is higher than that resulting in the assessment in question.

He believes that the following should be considered in his tax deductions: the amount of €2,977.48, by applying the limits provided for in section 7 of article 78, up to the limit of €2,390.09, to be effected as follows:

Deduction for dependents €1,200.00

Deduction for general and family expenses €500.00

Deduction for health expenses €215.50

Deduction for education expenses €800.00

Deduction for real estate charges €195.48

Deduction for invoice requirement €66.50

The Respondent, in counter-argument, essentially argued, explaining that the tax determined regarding autonomous taxation, generated by the non-grouping of income declared in annexes F and J, as the very terminology indicates, applies to certain income without taking into account the personal situation of the taxpayers and that therefore they are a parallel calculation within the assessment itself, reason for which tax deductions are not extensible to autonomous taxation.

Let us analyze each of the disputed points:

  • The Claimant expressly opted for non-grouping of rental income, under article 8, section 1, and opted for non-grouping of category A income obtained outside Portuguese territory, both being taxed autonomously.

  • The Claimant presented income, before tax deductions, of €14,136.03, regarding grouped and non-grouped income, of which €12,381.41 concerns non-grouped income and €1,795.30 concerns grouped income.

  • In the assessment at issue, only tax deductions in the total amount of €1,795.30 were accepted, as follows:

Deduction for dependents: €1,200.00

Deduction for general family expenses: €500.00

Deduction for health expenses: €95.30

Given the foregoing, let us examine whether it is legally permitted, in light of applicable legislation, to make tax deductions on non-grouped income taxed autonomously.

As for grouping, its fundamental objective is the taxation of the global income of taxpayers resident in national territory, by the application of progressive rates, with a view to realizing the principle of contributory capacity in the taxation of personal income. In the same sense, see the decision in case 96/2015-T.

Let us examine applicable legislation, which for the 2017 tax period establishes sections 3 and 7 of article 78 of the CIRS, as follows:

"3 - The deductions mentioned in this article are made in the order indicated therein and only those provided for in the preceding section, when greater than the tax due, confer the right to reimbursement of the difference.

7 - The sum of the tax deductions provided for in paragraphs c) to h) and k) of section 1 cannot exceed, per family unit, and in the case of joint taxation, after application of the divisor provided for in article 69, the limits contained in the following paragraphs:

For taxpayers with taxable income equal to or less than the value of the 1st bracket of section 1 of article 68, without limit;

For taxpayers with taxable income greater than the value of the 1st bracket and equal to or less than the value of the last bracket of section 1 of article 68, the limit resulting from application of the following formula:

€1,000 + [€2,500 - €1,000) x [value of the last bracket - Taxable Income]]
value of the last bracket - value of the first bracket;

For taxpayers with taxable income greater than the value of the last bracket of section 1 of article 68, the amount of €1,000."

  • And article 68, section 1 of the CIRS establishes the value of the 1st bracket, namely €7,091.00.

From the foregoing, it is evident that tax deductions are permitted up to the limit of the tax payable, or up to the limit provided for in section 3 of article 78 of the CIRS.

It is now necessary to determine what is meant by tax, that is, whether it covers only the gross result of applying the rate to grouped income for purposes of the rates provided for in articles 68 and 68-A, or whether it covers the result of all rates provided for in articles 68 and following.

In fact, it seems there is no doubt that gross tax covers the result of applying the general rates provided for in article 68 and the additional solidarity rate provided for in article 68-A, both of the CIRS.

We will next analyze the question of the tax resulting from autonomous rates, the central theme of the present petition.

We will begin by recalling, regarding the interpretation of Tax Norms, the provisions of article 11 of the General Tax Law (LGT):

"Article 11

Interpretation

In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

Whenever tax norms employ terms specific to other branches of law, such terms must be interpreted in the same sense they have therein, unless otherwise directly provided by law.

When doubt persists about the meaning of the applicable tax norms, the economic substance of the tax facts must be considered.

Gaps resulting from tax norms covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

By referral of section 1 of article 11 of the LGT, it also becomes necessary to resort to the general principles of interpretation of laws, as provided by article 9 of the Civil Code, which we now transcribe:

"Article 9

Interpretation of Law

Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative thought, especially taking into account the unity of the legal system, the circumstances in which the law was elaborated, and the specific conditions of the time when it is applied.

However, the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most appropriate solutions and knew how to express its thought in appropriate terms."

Now, given the rules transcribed above regarding the interpretation of Tax Norms, it falls to the present Tribunal to analyze whether the tax resulting from autonomous rates is an element that is included in the sum of Total or Gross Tax, and whether it is subject to tax deductions.

There is in our legal order a distinction between general rates, additional solidarity rate, autonomous rates, and liberatory rates.

However, only regarding liberatory rates is there expressly established a withholding at source as final.

Regarding liberatory rates, making a comparison to what is expressly established in article 71, sections 1 and 4 of the CIRS, which provides for withholding at source as final, and the regime of autonomous rates where no such final withholding is provided, being only stated that they are taxed at the autonomous rate, it can be concluded that the legislator intended to make such a distinction.

Furthermore, with liberatory rates, the taxpayer is relieved of filing a tax return in situations where they have only earned income subject to that rate, that is, the tax would be final and not subject to tax deductions, as provided by article 58, section 1, paragraph a) of the CIRS:

"1 - Taxpayers are relieved of filing the return referred to in the preceding article those taxpayers who, in the year to which the tax relates, have only earned, singly or jointly:

a) Income taxed by the rates provided for in article 71 and do not opt, when legally permitted, for its grouping;"

The said exemption referred to in article 58, section 1, paragraph a), is not extended to the taxpayer who only earns income taxed under article 72, regarding autonomous rates, in which case they are obligated to file their tax return.

Rui Duarte Morais argues, regarding the distinction between liberatory rates and autonomous rates, the following: "Note that, in the case of a special rate (and not a liberatory rate), this applies to income determined in general terms, that is to say, to net income, which means that the taxpayer continues to be permitted to make the specific deductions that the law provides."

Given the foregoing, contrary to what is expressly established for liberatory rates, there is no such establishment for autonomous rates and general rates of withholding as final, it being understood that these contribute to the sum of total or gross tax and are subject to tax deductions.

Given the foregoing, tax relating to autonomous taxation contributes to the calculation of total tax and, as such, is subject to the respective tax deductions within the limits legally established.

Conducting a more detailed analysis of the Tax Calculation Statement issued by the Tax Authority, we verify that the Total Tax calculated therein includes the tax relating to autonomous taxation, if we note:

"11 AMOUNT DETERMINED (9: COEF x RATE)

12 Amount to Deduct

13 Tax corresponding to prior year income

14 Tax corresponding to exempt income

15 Tax relating to autonomous taxation

16 Surtax (0.00 x 0.0% + 0.00 x 0%) x 2.00

17 Excess in relation to family quotient limit

18 Tax relating to autonomous taxation

19 TOTAL TAX [(11-12)x(2.00)+13-14+15+16+17]

20 Tax deductions"

From the sum and the respective equation that led to the result of Total Tax, it expressly includes point 18 - Tax relating to autonomous taxation.

In other words, in the document issued by the Tax Authority, total tax was calculated by adding the Tax relating to autonomous taxation, considering autonomous taxation as an integral part of Total or Gross Tax.

Also in the Tax Calculation Statement, regarding tax deductions, mentioned in points 20 to 22, the following calculations were made:

"20 -Tax deductions

21 -Municipal Benefit (2.50% of tax)

22 -Tax increases

23 - NET TAX (19-20-21(>=0)+22)"

Thus, Net Tax results from the subtraction from Total Tax of tax deductions (mentioned in point 20 of the Calculation).

That is, in the Tax Calculation Statement, it was considered as net tax the result of total tax minus tax deductions, in which total tax unequivocally included the Tax relating to autonomous taxation.

Although the Tax Calculation Statement analyzed does not exclude or replace the application of applicable legislation already mentioned, it constitutes a relevant element of evidence for this decision.

In this way, the tax resulting from application of this rate should be accepted for the calculation of maximum limits of tax deductions.

As already emphasized, we are dealing with autonomous rates provided for in article 72, wherefore they contribute for purposes of calculating tax deductions.

As for the remaining arguments presented by the parties, the present Arbitral Tribunal is not obligated to examine, under articles 608, section 2, 663, section 2, and 679 of the Code of Civil Procedure, as applied by article 29 of the RJAMT, all arguments alleged, when the decision is prejudiced by the solution already given, which in the present case is translated into the decision of illegality of the assessment.

In conclusion, the present Tribunal decides by declaring the illegality of the assessment sub judice, for suffering from a defect due to violation of article 78 of the CIRS, due to error regarding the legal presuppositions, which justifies the declaration of its illegality and annulment.

I - DETERMINATION OF VALUE OF THE MATTER

In the petition for arbitral award, the Claimant came to: "request the tribunal to issue a decision annulling this decision," referring to the IRS assessment with the number 2018....

However, it did not clearly assign the value of the matter. It stated that a tax deduction of €1,795.30 was incorrectly considered, that the taxpayers are creditors of an IRS refund of €594.79, corresponding to the difference between the amount that the Claimant considers correct for purposes of Tax of €2,390.09 and the tax resulting from the IRS tax calculation statement of €1,795.30 (€2,390.09-€1,795.30=€594.79).

And it assigned it the economic value of €594.79, and consequently liquidated the value of the arbitral fee in accordance with Table I Article 4 of the Regulations for Costs in Tax Arbitration Proceedings, for that amount.

The AT in its response stated that "The Claimant assigns the value of €594.79 to the arbitral petition, value that it declares corresponds to the difference between the amount of tax to be considered and the amount considered by the AT. Now, in accordance with article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by referral of article 29, section 1, paragraph a) of the Legal Regime of Tax Arbitration (RJAT), when an assessment is challenged, the value of the case is that of the amount whose annulment is sought. It is verified that the Claimant seeks the annulment of the IRS assessment No. 2018..., of the year 2017, with the overall value of €7,445.97, value which should be that indicated for the present proceedings, and should therefore be corrected from that previously indicated."

It is necessary to examine this.

Article 97-A of the CPPT, under the heading "value of the matter," provides that: "1 - The values worthy of consideration, for purposes of costs or others provided by law, for actions conducted in tax courts, are the following: a) When an assessment is challenged, that of the amount whose annulment is sought."

In annotation to article 97-A in the CPPT, Volume II, 6th Edition, 2011, Jorge Lopes de Sousa states: "Given the rule of paragraph a) of section 1 of article 97-A, it must be concluded that when a tax assessment act is challenged, the value of the case is only that of the amount whose annulment is sought, which will be that of the assessment itself, if total annulment is requested, or the value of the part challenged, if only partial annulment is sought."

Now, the amounts to be refunded or to be paid in an IRS assessment are amounts that do not reflect the value of the assessment, understood as the product of the application of a rate to taxable matter, possibly increased by compensatory interest.

Returning to the case, the Claimant challenged the assessment without expressly stating that it did so partially, indicating the economic value of €594.79 (difference of the refund value), however such indication is not in accordance with the provisions of article 97-A of the CPPT, since refunds or amounts payable are not challenged (for the reason that they are subtracted, e.g., from withholding at source), but rather assessments (totally or partially, and in the latter case it must be specified and quantified the values, the specific amount whose annulment is sought, with the arithmetic operations leading to such result, given the assessment notice).

The competencies of the Arbitral Tribunal are limited, in accordance with article 2 of the RJAT, to the examination of the following claims: a) The declaration of illegality of tax assessment acts, self-assessment acts, withholding at source acts, and payment on account acts; b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to assessment of any tax, acts of determination of taxable income and acts of fixing patrimonial values;

Thus, the present Tribunal possesses competencies to declare illegality as described above; it does not possess competencies to decide on the substitution of assessment or refund acts without examining the legality of the acts.

In the present case, not only was it not requested, but it was not demonstrated that the difference in refunds (between what occurred and what could occur if the assessment were made in accordance with the statement filed by the taxpayer) corresponds to a request for partial annulment of the overall assessment.

Thus, the Tribunal, by means of an arbitral order dated 28-01-2019, corrected the value of the arbitral action to the value of the impugned assessment, respectively in the amount of €7,445.97 and invited the Claimant to liquidate the remaining arbitral fee.

The Claimant proceeded with the correction and liquidation of the initial remaining justice fee.

Given the foregoing, the value of the economic benefit is fixed at €7,445.97, corresponding to the value of the IRS assessment whose annulment is petitioned.

J - COMPENSATORY INTEREST

The Claimant additionally petitions for the payment of compensatory interest.

Given the foregoing, the assessment in the part covered by the annulment results from error of fact and law attributable exclusively to the tax administration, to the extent that the Claimant fulfilled its duty to file a return.

In fact, it was demonstrated that the Claimant paid the impugned tax in an amount greater than what is due. In this way and by force of articles 61 of the CPPT and 43 of the LGT, the Claimant has the right to the compensatory interest due, such interest being to be computed from the date of payment of the undue tax (annulled) until the date of issuance of the respective credit note, the deadline for payment of which is calculated from the date of commencement of the deadline for voluntary execution of this decision (article 61, sections 2 to 5, of the CPPT), all at the rate determined in accordance with the provisions of section 4 of article 43 of the LGT.

Given all the foregoing and the invoked legal norms, it is decided in favor of the Claimant's request.

H - DECISION

Given all the foregoing, the present Arbitral Tribunal decides:

To uphold the petition for declaration of illegality of the tax assessment act under IRS No. 2018..., relating to the year 2017, which established an amount of tax payable of €7,449.97 (seven thousand four hundred and forty-nine euros and ninety-seven cents).

To order the Respondent to refund to the Claimant that amount wrongly assessed and paid, plus the payment of compensatory interest already accrued, relating to the period between the date of payment of the tax and its return, as well as payment of accruing compensatory interest from the date of notification of this decision until effective and full payment, all in accordance with sections 2 to 5 of article 61 of the CPPT, at the legal rate determined in accordance with the provisions of section 4 of article 43 of the LGT until full reimbursement.

The value of the case is fixed at €7,449.97 (seven thousand four hundred and forty-nine euros and ninety-seven cents), corresponding to the value of the assessment, given the economic value of the case as measured by the value of the tax assessments challenged, and in accordance therewith costs are fixed in the respective amount of €612.00 (six hundred and twelve euros), at the charge of the Respondent, in accordance with article 12, section 2 of the Tax Arbitration Regime, article 4 of the RCPAT and Table I annexed thereto. – section 10 of article 35, and sections 1, 4, and 5 of article 43 of the LGT, articles 5, section 1, paragraph a) of the RCPT, 97-A, section 1, paragraph a) of the CPPT, and 559 of the CPC).

Notify.

Lisbon, 26 February 2019.

The Arbitrator

Rita Guerra Alves

Frequently Asked Questions

Automatically Created

What are the IRS tax deductions (deduções à coleta) under Article 78 of the Portuguese IRS Code?
IRS tax deductions (deduções à coleta) under Article 78 of the CIRS are amounts that taxpayers can subtract directly from their calculated tax liability. These include deductions for dependents (Article 78-A), general family expenses (Article 78-B), health expenses (Article 78-C), education expenses (Article 78-D), housing expenses (Article 78-E), and retirement home expenses (Article 78-F). Article 78(3) establishes that deductions must be applied in the order specified by law and are limited to the amount of tax due. Article 78(7) sets an overall ceiling based on taxable income, calculated as €1,000 for incomes up to €7,112, decreasing progressively for higher incomes. The application of these deductions becomes complex when taxpayers opt for non-grouping of certain income categories subject to autonomous taxation.
How do autonomous tax rates (taxas de tributação autónoma) apply under Article 73 of the CIRS?
Autonomous tax rates (taxas de tributação autónoma) under Article 73 of the CIRS apply to specific categories of income that can be taxed separately from other income. Article 73 addresses taxation of rental income (Category F) and certain foreign-source income. Taxpayers may choose whether to group such income with other taxable income or subject it to autonomous taxation at specified rates. When autonomous taxation is chosen, the income is taxed separately, and the question arises whether tax deductions apply to the autonomously taxed amount or only to grouped income. The autonomous rate applies to net income after deductions of documented expenses. This option affects both the applicable tax rate and the calculation base for determining allowable tax deductions under Article 78.
Can taxpayers challenge IRS tax assessments through CAAD arbitration proceedings in Portugal?
Yes, taxpayers can challenge IRS tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings in Portugal. This process is governed by Decree-Law 10/2011 (RJAT - Legal Regime of Arbitration in Tax Matters). Taxpayers file a petition for constitution of an arbitral tribunal (pedido de constituição do tribunal arbitral) together with their arbitration claim. The proceedings are an alternative to judicial courts for resolving tax disputes. In case 484/2018-T, the tribunal was constituted as a singular panel after the claimant did not appoint an arbitrator, leading to appointment by the Deontological Council. The process includes notification of the Tax Authority, opportunity for response, optional written submissions, and culminates in a binding arbitral decision. CAAD arbitration offers a faster, specialized forum for tax dispute resolution.
What was the outcome of CAAD arbitration process 484/2018-T regarding IRS tax liability?
The full outcome of CAAD arbitration process 484/2018-T is not provided in the excerpt, which contains only the report section (Relatório) and does not include the decision (Decisão) portion. The case record shows that the singular arbitral tribunal was properly constituted with arbitrator Rita Guerra Alves, both parties submitted their positions and written submissions, and the procedural requirements were satisfied. The taxpayers sought annulment of an IRS assessment establishing €7,449.97 in tax liability, arguing that tax deduction limits were incorrectly calculated. The Tax Authority defended the assessment as legally correct. The arbitral decision would determine whether the €1,795.30 or €2,390.09 deduction limit applies, but this ruling is not included in the provided excerpt.
What is the procedure for filing an arbitral tax claim (pedido de pronúncia arbitral) under Decree-Law 10/2011?
The procedure for filing an arbitral tax claim under Decree-Law 10/2011 involves several steps: (1) The taxpayer submits a petition for constitution of the arbitral tribunal (pedido de constituição do tribunal arbitral) together with the petition for arbitral decision (pedido de pronúncia arbitral), pursuant to Article 2(1)(a) and Article 10(1)(a) of the RJAT. (2) The CAAD President accepts the petition and notifies the Tax Authority under Article 11(1)(c). (3) The claimant may appoint an arbitrator; if not, the Deontological Council appoints one per Article 6(1) and Article 11(1)(b). (4) Parties are notified of the appointment and may challenge it under Article 11(1) and the Code of Ethics. (5) The tribunal is constituted and the Tax Authority is notified to present its response. (6) The arbitrator may order a hearing under Article 18 or proceed with written submissions. (7) Both parties submit their arguments, and the tribunal issues a binding decision.