Summary
Full Decision
ARBITRAL DECISION
I. Report
A…, married, with taxpayer number …, resident in …, no. …, …, …-… Lisbon (hereinafter referred to only as the Claimant), submitted, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters - RJAT), a request for the establishment of an arbitral tribunal in order to declare the illegality of the tax assessment acts for Personal Income Tax ("IRS") relating to the years 2011, 2012 and 2013, as well as the declaration of illegality of the act denying the request for official review that the Claimant submitted in order to declare the illegality and annulment of the said tax assessments:
- IRS Assessment Statement no. 2012…, of 27 May 2012, (fiscal year 2011);
- IRS Assessment Statement no. 2013…, of 15 June 2013, (fiscal year 2012);
- IRS Assessment Statement no. 2014…, of 27 May 2014, (fiscal year 2013).
Being the defendant the Tax and Customs Authority ("Respondent" or "AT").
A) Constitution of the Arbitral Tribunal
Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, the Deontological Council of this Administrative Arbitration Centre ("CAAD") appointed the undersigned as sole arbitrator, who communicated acceptance of the office within the applicable time period.
Thus, in accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, and through the communication of the President of the Deontological Council of CAAD, the Sole Arbitral Tribunal was constituted on 20 December 2017.
B) Procedural History
In the request for arbitral pronouncement, the Claimant petitioned for the declaration of illegality of the IRS assessments mentioned above, relating to the fiscal years 2011, 2012 and 2013, as well as the illegality of the act denying the request for official review that she submitted in order to declare the illegality and annulment of the said tax assessments.
By order of 10 April 2018, the Sole Arbitral Tribunal, pursuant to subparagraph c) of Article 16 of the RJAT, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in Article 18 of the RJAT as it considered that it had at its disposal all the necessary elements to make a clear and impartial decision and likewise granted a successive period of 15 days for the Claimant to specify the value of the case.
It also decided, in accordance with paragraph 2 of Article 18 of the RJAT, that oral submissions were not necessary, as the positions of the parties were perfectly defined in their respective pleadings, and fixed, by order of 28 May 2018, 8 June 2018 as the deadline for the arbitral decision.
The Tribunal was properly constituted and is competent to hear the questions indicated (Article 2, paragraph 1, subparagraph a) of the RJAT), the parties have legal personality and capacity and have full standing (Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March). No nullities occur and nothing prevents the judgment on the merits.
The present proceedings are thus in a position for a final decision to be rendered.
II. Statement of Facts
Having examined the documentary evidence produced, the tribunal finds proven, with relevance to the decision of the case, the following facts:
The Claimant submitted IRS form 3 for the years 2011, 2012 and 2013 without mention of any disability, from which the said assessments resulted.
The Claimant requested a medical board on 8 July 2015.
On 12 August 2015, a multi-purpose disability medical certificate was issued to the Claimant, with the attribution of permanent disability of 72%, noting that this disability has been present since 2008.
The Claimant's disability status was communicated to the AT on 27 August 2015.
The Claimant submitted within the time limit the replacement declaration for IRS form 3 for 2014, and the assessment of this tax was replaced.
The Claimant requested on 4 November 2015, pursuant to Article 78 of the General Tax Law ("LGT"), the official review of the IRS assessments for the years 2011, 2012 and 2013, so as to reflect the 72% disability.
The said request was denied in its entirety, on the ground that the AT considered that from the Claimant's allegations it could not be concluded that it was impossible to have obtained the disability medical certificate at an earlier moment than when she obtained it (this being proof that is the burden of the taxpayer).
The Tribunal's conviction regarding the facts is based on the documents contained in the file, as well as on the pleadings submitted and the positions of the parties expressed therein.
It is not proven the reasons why the request for a medical board and the issuance of the respective medical certificate occurred only in 2015 (July and August, respectively), specifically that this was due exclusively to reasons beyond the Claimant's control.
III. Question to be Decided
The central question to be considered and decided regarding the merits of the case, as emerges from the procedural documents of the parties, is whether the conditions necessary for the review of the IRS assessment act for the years 2011, 2012 and 2013 are met, pursuant to Article 78 of the LGT.
Given its importance in the context of this decision, paragraph 4 of that article is transcribed here: "4 - The head of the service may authorise, exceptionally, within three years after the tax act, the review of the taxable matter ascertained on the ground of gross or manifest injustice, provided that the error is not attributable to negligent conduct by the taxpayer."
IV. Legal Issues
IV.1. Positions of the Parties
The Claimant, in her request, justifies that in recent years she has been treating various digestive complaints, colic and similar symptoms, having undergone various treatments without any definitive diagnosis.
Only in the year 2015, through various complementary examinations, was it possible to associate the Claimant's complaints with Crohn's disease and also systemic Lupus.
As soon as the diagnosis was made, the Claimant immediately requested a medical board to determine the disability, and in the Claimant's understanding, there was no negligent conduct on her part in obtaining the medical certificate proving her disability.
In the Claimant's view, the medical certificate is sufficient evidence, in itself, to satisfy the normative provision in the final part of Article 78, paragraph 4 of the LGT.
It is the Claimant's understanding that the AT itself clearly breached the provision of Article 13, paragraph 7 (at the time of the facts: "The personal and family situation of taxpayers relevant for taxation purposes is that which exists on the last day of the year to which the tax relates.") of the IRS Code when it accepted the replacement of the IRS declaration for the year 2014, based on a medical certificate issued in 2015, making the respective deduction of the disability to the taxpayer.
In this way, the Claimant understands that pursuant to the provisions of Article 78, paragraph 4 of the LGT it is permitted to the taxpayer the review of the taxable matter to be authorised within three years after the tax act on the ground of gross or manifest injustice and provided that the error does not result from negligent conduct by the taxpayer, integrating in that concept, in her view, the case at hand, as there is no other way in the law to review an act already performed on the basis of a subsequent document.
In conclusion, the Claimant therefore petitioned that the previously mentioned assessments be (partially) annulled, as they are manifestly illegal, with all other consequences.
For its part, the Respondent considers, first and foremost, that contrary to the Claimant's allegation, the AT did not breach the provision of Article 13, paragraph 7 of the IRS Code when it accepted the replacement of the IRS declaration for the year 2014, inasmuch as pursuant to the IRS Code this declaration was replaced within the legal time limit.
The Respondent understands that, in the case at hand, the review of the IRS assessments for 2011, 2012 and 2013 could not operate within the period for administrative review, pursuant to paragraph 1 of Article 78 of the LGT, since the time limit had long been exceeded and there is no illegality in the assessments.
Similarly, the review could not operate at the initiative of the AT, since there was no error in the assessments attributable to the services.
Furthermore, the AT alleges that paragraph 6 of Article 78 of the LGT ("the review of the tax act on the ground of double collection may be effected, whatever the ground, within four years"), in its understanding, is not applicable to the situation under review, since there is no double collection.
Finally, paragraph 4 of Article 78 of the LGT provides that "the head of the service may authorise, exceptionally, within three years after the tax act, the review of the taxable matter ascertained on the ground of gross or manifest injustice, provided that the error is not attributable to negligent conduct by the taxpayer".
In this context, the Respondent understands that in light of the three-year period after the assessments, the Claimant's request was timely, it being appropriate to then analyse the fulfilment of the remaining requirements, namely the attribution of the error to negligent conduct by the taxpayer.
In fact, the Respondent does not dispute that the Claimant suffers from illness and that disability results therefrom, however, for the retroactive effect of the declaration of disability to assume tax relevance, it becomes necessary for the taxpayer to demonstrate the supervening nature of the document, that is, to allege and prove that she could not obtain it or had it available at an earlier date than that recorded as the date of issuance of the document, despite having made efforts and diligent steps in that direction.
The Respondent understands that nothing in the present proceedings, nor in any document attached, can prove the impossibility of obtaining the disability medical certificate at an earlier moment than when it was obtained, and that the burden of this proof lies with the Claimant, and therefore the supervening nature of the said disability medical certificate cannot be considered.
The Respondent thus understands that there is no merit to the Claimant's case, and requests, accordingly, that the claim made by the Claimant be judged as unfounded and that it be absolved of the request.
IV.2 Consideration of the Question
By way of introduction, it is necessary to set out the fundamental legal framework to be taken into account for the decision of the case, namely Article 78 of the LGT at the time of the submission of the official review request (November 2015), which provides as follows.
Article 78 - Review of Tax Acts
1 - The review of tax acts by the entity that performed them may be effected at the initiative of the taxpayer, within the administrative review period and on the ground of any illegality, or, at the initiative of the tax authority, within four years after assessment or at any time if the tax has not yet been paid, on the ground of error attributable to the services.
2 - Without prejudice to the legal burdens of administrative review or dispute by the taxpayer, error in self-assessment is considered attributable to the services for the purposes of the preceding paragraph.
3 - The review of tax acts pursuant to paragraph 1, whether involving material or legal error, entails the respective recognition duly substantiated in accordance with paragraph 1 of the preceding article.
4 - The head of the service may authorise, exceptionally, within three years after the tax act, the review of the taxable matter ascertained on the ground of gross or manifest injustice, provided that the error is not attributable to negligent conduct by the taxpayer.
5 - For the purposes of the preceding paragraph, only manifest injustice that is obvious and unequivocal is deemed to be so, and grave injustice is that resulting from taxation that is manifestly excessive and disproportionate with reality or from which significant harm has resulted to the National Treasury.
6 - The review of the tax act on the ground of double collection may be effected, whatever the ground, within four years.
7 - The time limit for official review of the tax act or the taxable matter is interrupted by the taxpayer's request directed to the competent body of the tax authority for its performance.
In fact, the Claimant subsumed her official review request to the provision established in Article 78, paragraph 4 of the LGT, while noting that both the Respondent and the present Tribunal could frame that request in another provision that they considered more pertinent.
In this regard, it shall not be for the Tribunal to consider such a question, though it does not fail to confirm its agreement with the arguments put forward by the Respondent to the effect of subsuming the question at hand to the norm provided for in paragraph 4 of that article.
In fact, this framing brings us back to the question of assessing whether the error underlying the review of the tax act (that is, the obtaining of the medical certificate in August 2015, with tax effects retroactive to 2011) is attributable (or not) to negligent conduct by the Claimant.
In fact, the matter at hand has been the subject of arbitral decisions which, to date, have been aligned in the terms in which they consider this matter, namely, the arbitral decisions rendered in cases no. 82/2015-T, no. 590/2015-T, no. 592/2015-T and no. 197/2017-T.
Specifically, see the understanding advocated in case no. 197/2017-T (a case also referred to by the Respondent in its reply):
"However, for the retroactive effect of the declaration of disability to assume tax relevance, it becomes necessary for the taxpayer to demonstrate the 'supervening nature of the document', that is, to allege and prove that she could not obtain it or had it available at an earlier date than that recorded as the date of issuance of the document, despite having made efforts and diligent steps in that direction. (…)
Thus, nothing in the present proceedings, nor in any document attached, can prove the impossibility of obtaining the multi-purpose disability medical certificate at an earlier moment than when it was obtained, and the burden of this same proof lies with the Claimant, and therefore the supervening nature of the said multi-purpose disability medical certificate cannot be considered".
In fact, and agreeing with the substance of the conclusion set out there, see also the decision rendered in case no. 590/2017-T:
"The legal institute of review enshrined in Article 78 of the LGT is nothing more than the duty of the administration to effect the review of tax acts in favour of the taxpayer, since the principles of justice, equality and legality that the tax administration must observe in its overall activity require that errors made in assessments be officially corrected whenever taxes have been or are being collected in excess of those due. There is thus a recognition within tax law of the duty to revoke illegal acts.
However, this duty suffers limitations, justified by the need for legal certainty, and therefore, beyond the framework of presuppositions and requirements fixed by law, there was a need to introduce temporal limits.
In the field of presuppositions, the Claimant alleges that we are faced with a case of gross or manifest injustice in the ascertainment of taxable matter and that she only obtained the confirming certificate in 2012 considering her disabled since 2010, and therefore, only after that date could she file the replacement declaration that would give her the right to benefit from the tax status of taxpayers with disabilities in IRS.
For its part, the tax administration, not questioning the documented verification of disability at a degree falling within Article 87 of the IRS Code, to the extent that it registered her in the information system, and also not questioning the possibility of obtaining a review of the assessment by virtue of Article 93 of the IRS Code and Article 78 of the LGT, nevertheless requests the dismissal of the request due to lack of proof produced regarding the negligence referred to in paragraph 4, final part, of the mentioned Article 78. In its view, the presuppositions established in the law are not met.
Yet still, and broadening the scope, the Claimant came to protest that the request has a framework not only in paragraph 1 of Article 78 of the LGT, but also, and originally, in paragraph 4 of the same provision, because there is error and it was timely presented. This possibility is not questioned, only that, in both, the law makes it dependent either on the timeliness of the request or on its merits on the proof of the cumulative verification of the imputability of the error to the tax administration, or that, in cases of gross or manifest injustice, the error is not due to negligent conduct by the taxpayer. (…)
However, there is no knowledge in the proceedings of the reasons that motivated the obtaining of the medical certificate only in 2012 - referring to the existence of disability eligible for purposes of Article 87 of the IRS Code since 2010 -, and that justified that it could not have been obtained before, at least, by the date of filing the form in Form 3 (…)
Notwithstanding the provision, at the date of assessment, the AT was not obliged to know that the Claimant had a degree of disability/incapacity of 60%, which would have given her the right to benefit from a deduction from the tax liability;
The proof requirements to which the Claimant was obliged are therefore not met and, consequently, the AT is not obliged to review the IRS assessment act for 2010 identified above.
For all this, it is not proven that, in neither case, the verification of the error is attributable to the AT nor that 'the error is not attributable to negligent conduct by the taxpayer'."
Additionally, see decision no. 592/2015-T, in which the request made by the Claimant in that case is judged as well-founded (in which it seeks to correct the IRS Form 3 declaration for the year 2011, with disability being recognised only in 2013), and it is provided that:
"In fact, the error regarding the factual presuppositions that justify the illegality of the assessment is also possible to be recognised through recourse to Article 78, paragraph 4 of the LGT and because three years had not elapsed counted from the act whose review is sought. However, this article establishes an additional presupposition, that the error is not attributable to negligent conduct by the taxpayer, it being up to the taxpayer to provide such proof.
In the concrete case, the Claimant alleged and managed to prove that throughout the year 2012 she underwent radiotherapy, from which resulted as secondary effects diarrhoea, abdominal pain, fever and dehydration. During that year, in addition to undergoing various clinical examinations, consultations, emergency hospital admissions, she was also, on several occasions, catheterised. Moreover, two episodes of haematuria with clots were clinically reported, accompanied by gastric and lumbar pain. In summary, the worsening in 2012 of her clinical and physical health status justifies that it be impossible to attribute to her any responsibility for its non-obtaining in the said year, it thus being impossible to form a judgment of legal censure. Or, put another way, there is no negligence on the part of the Claimant.
In this way, given that the requirements on which the review provided for in Article 78, paragraph 4 of the LGT depends are met, the disability of the Claimant must be considered in the above-identified IRS assessment and, as such, Article 87 of the IRS Code in the wording in force at the date of the tax fact must be applied."
In fact, the present Tribunal agrees with the decision rendered in this judgment, given that the Claimant was able to prove unequivocally, in the view of that Tribunal and as cited above, the reasons that justified the obtaining of the respective medical certificate at a moment after that of the submission of Form 3 of the IRS.
However, in the present proceedings, the Claimant was not able to produce the necessary unequivocal proof, as previously stated.
Furthermore, see also the decision rendered in case no. 82/2015-T, which also recoves some points from judgments of the Supreme Administrative Court, as follows:
"Thus, the subsequent issuance of the medical certificate in question could, in theory, constitute a supervening fact relevant as referred to in the Judgment of the STA cited in the proceedings (Judgment of the Supreme Administrative Court rendered in case no. 0329/11, of 11.02.2011):
'I - The administrative review submitted within the time limit then provided for in paragraph 2 of Article 70 of the CPPT, counted from the date on which the disability certificate was obtained, is not untimely, because without the certification of disability it would not have been possible to recognise either the right to the tax benefit or the possibility of challenging, administratively or judicially, the singled-out assessments'.
This, presupposing that proof is made that the document could only be obtained at a later moment than the elapse of the initial time limit, for reasons beyond the taxpayer's control. I.e., if the absence of fault of the taxpayer in the late obtaining of the document is demonstrated, which must be demonstrated. (…)
Now, what happens is that as the Respondent alleges, this proof was not minimally made, nor in administrative proceedings, even though the Claimant was notified by the Services to present proof capable of demonstrating the date of the request for the proof of disability, which she also failed to do in the arbitral proceedings.
Now, such an absence of demonstration cannot fail to decisively affect her procedural position, because it corresponds to a matter of fact that the Claimant cannot fail to know, (…), and it was incumbent on her to produce this proof in order to be able to avail herself of the new time limit, pursuant to the said distribution of the burden of proof. (…)
Which brings us back to the already discussed question of the (lack of) proof of the absence of responsibility of the Claimant in obtaining the medical certificate at the time she did."
In light of the foregoing, the proof requirements to which the Claimant would be obliged in order to justify the absence of responsibility in obtaining, only in 2015, the medical certificate proving her physical disability are therefore not met, as previously stated.
V. Decision
For the foregoing reasons, this Arbitral Tribunal decides to judge the requests made by the Claimant as unfounded, deciding to maintain in the legal order the IRS assessment acts for 2011, 2012 and 2013, as they do not suffer from any illegality.
As the tax acts are maintained in the legal order, the request for recognition of indemnitory interest in favour of the Claimant is consequently moot.
VI. Value of the Case
Based on the amendment to the assessment of the IRS form 3 declaration for 2014 (on the basis of the same disability), the Claimant anticipated that from the partial annulment of the assessments in question would result a refund not exceeding €8,000 (the value she assigned to the case).
The Respondent understands that the value of the case is that of the importance whose annulment is sought, which was not specified by the Claimant.
In fact, by order issued on 10 April 2018, the Parties were called upon to pronounce on this question, and neither Party made a pronouncement.
In light of the foregoing, and there being no risk of relative incompetence of the arbitral tribunal, the value of the case is fixed at €8,000.00 pursuant to Article 97-A, paragraph 1, subparagraph a) of the CPPT, applicable by virtue of subparagraphs a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulations on Costs in Tax Arbitration Proceedings ("RCPAT"), corresponding to the economic benefit presented by the Claimant.
VII. Costs
In accordance with the provisions of Article 22, paragraph 4, of the RJAT, the amount of the arbitration fee is fixed at €612, in accordance with Table I of the aforementioned Regulation, to be borne by the Claimant, given the complete unfoundedness of the request.
Let notification be made.
Lisbon, CAAD, 8 June 2018
The Arbitrator
(Sérgio Santos Pereira)
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