Summary
Full Decision
ARBITRAL DECISION
The Arbitrator Suzana Fernandes da Costa, designated by the Deontological Council of the Centre for Administrative Arbitration to constitute an Arbitral Tribunal, hereby decides as follows:
1. Report
On 10-10-2018, A..., taxpayer no. ..., resident in ... -..., ..., ..., ...-... ..., filed a request for constitution of an arbitral tribunal, seeking, immediately, a declaration of illegality of the act denying the administrative complaint filed, and mediately, a declaration of illegality of the act of assessment of Personal Income Tax (IRS) no. 2016... and the statement and settlement of accounts no. 2016..., for the year 2014, in the amount of €23,984.02.
The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 11-10-2018 and notified to the Respondent on the same date.
The Claimant did not proceed with the appointment of an arbitrator, so, pursuant to article 6, no. 2, letter a) of RJAT, Dr. Suzana Fernandes da Costa was designated as arbitrator by the President of the Deontological Council of CAAD on 30-11-2018, with the appointment being accepted within the legally prescribed period and terms.
On the same date, the parties were duly notified of this designation and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with article 11, no. 1, letters a) and b) of RJAT, read together with articles 6 and 7 of the Deontological Code.
Thus, in compliance with the provision in letter c), no. 1, article 11 of RJAT, the Arbitral Tribunal was constituted on 20-12-2018.
On 20-12-2018, an order was issued instructing the Respondent to be notified to submit its response within 30 days and, if it wished, to request the production of additional evidence and to send the arbitral tribunal a copy of the administrative file within the period for submitting the response.
On 04-02-2019, the Respondent submitted its response and attached the administrative file to the record.
On the same date, the Respondent attached to the record the arbitral decision from case no. 514/2015-T.
On 06-02-2019, an order was issued instructing the Claimant to be notified to comment, within 15 days, on the matter of exception contained in the Respondent's response.
On 18-02-2019, the Claimant submitted its position on the matter of exception.
An order was issued on 15-03-2019, pursuant to the principles of autonomy of the Arbitral Tribunal in conducting proceedings, expedience, simplification and informality of procedure, dispensing with the meeting provided for in article 18 of RJAT, and granting a period of 20 days for the parties to submit arguments. In the same order, the parties were invited to send the documents produced in Word format within 30 days, and 05-06-2019 was set as the date for rendering the arbitral decision. The Claimant was also warned to pay the subsequent arbitration fee by that date.
Neither party chose to submit arguments.
The Claimant attached, on 27-05-2019, proof of payment of the subsequent arbitration fee to the present arbitration proceedings.
On 05-03-2019, an order was issued extending the deadline for the decision to 18-06-2019, pursuant to article 21, no. 2 of RJAT, as the decision in the case had not been completed.
The parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 1 and 2 of RJAT and article 1 of Regulation no. 112-A/2011 of 22 March).
The arbitration request is timely, pursuant to article 10, no. 1, letter a) of Decree-Law no. 10/2011 of 20 January and article 102, no. 1, letter a) of the Tax Procedure and Process Code.
The case is not vitiated by nullities and no preliminary questions were raised.
2. Position of the Parties
The Claimant begins by stating that he is a British national, residing for tax purposes in Portugal since 2014, and registered in the Taxpayers' Register as a non-habitual resident from 27-03-2014 until 2023.
The Claimant alleges that he has exercised, since 1977, the functions of executive director of B..., a company based in the United Kingdom, belonging to the senior management of that company, and being responsible for prospecting the Portuguese market, exploring business opportunities with respect to the expansion of operations of that company. The Claimant states that, since he moved his residence to Portugal, this high value-added activity has been exercised in Portugal.
In the Claimant's view, he is entitled to be taxed on his income obtained in Portugal from dependent work within a high value-added activity, through the application of a 20% rate, pursuant to article 72, no. 6 of the IRS Code. For the Claimant, the activity he carries out falls within code 802 – Senior managers of companies.
The Respondent, the Tax and Customs Authority (AT), in its response, presented a defense by exception, alleging the impropriety of the means, the impossibility of cumulation of claims because they belong to distinct and incompatible procedural means, and the material incompetence of the Arbitral Tribunal to rule on the request to apply to the Claimant the tax legal regime requested by him, that is, a tax benefit.
As for the AT's defense by objection, it states that the activity exercised by the Claimant does not meet the requirements for him to be assigned code 802 and is also not susceptible to assignment of code 801 for high value-added activities, and therefore the 20% rate cannot be applied to him for purposes of IRS taxation.
3. Factual Matters
3.1. Proven Facts:
Following analysis of the documentary evidence produced and the position of the parties contained in the procedural documents, the following facts are considered proven and relevant for the decision of the case:
1. The Claimant has been resident for tax purposes in Portugal since 2014, registered as a non-habitual resident from 27-03-2014 until 2023.
2. When requesting registration as a non-habitual resident, the Claimant did not request the association of the activity he was carrying out.
3. The Claimant has exercised in Portugal, since 2014, the functions of executive director of B..., a company based in the United Kingdom, being responsible for prospecting the Portuguese market and expanding business opportunities.
4. As a director, the Claimant has power to bind the company in its relations with third parties, including in the signature of contracts and administrative acts, and public and private documents necessary for the exercise of the mandate and within his functions as a director (document 2 attached to the arbitration request).
5. The dependent work income declared in the 2014 form 3 income statement were not subject to taxation in the United Kingdom.
6. The Claimant submitted on 23-12-2016 a request asking that he be assigned the activity code for high value-added 802 – senior managers of companies.
7. The Tax Office of ... notified the Claimant, through letter no. ... of 11-10-2017, to provide evidence of the high value-added activity he was exercising.
8. The Claimant sent to the Tax Office of ... the documents evidencing the activity he was exercising.
9. The Tax Office of ... denied the Claimant's request for assignment of the high value-added activity code 802 – senior managers of companies.
10. The Claimant was notified of the additional IRS assessment no. 2016... and the statement and settlement of accounts no. 2016..., for the year 2014, with a payment amount of €23,984.02.
11. The Claimant filed an administrative complaint regarding the aforementioned additional IRS assessment no. 2016... and statement and settlement of accounts no. 2016..., for the year 2014.
12. The Claimant was notified on 15-07-2018 of the decision denying the administrative complaint filed.
13. The Claimant filed the present arbitration request on 10-10-2018.
No other facts relevant to the decision of the case were proven.
3.2. Unproven Facts
No facts failed to be proven.
3.3. Reasoning for the Proven Factual Matters:
The arbitrator's conviction was based on the documents attached to the record by the Respondent and the position of the parties as demonstrated in the procedural documents produced.
4. Legal Matters:
4.1. Object and Scope of the Present Case
The essential legal question that arises in this case is whether the Claimant is entitled to be taxed, in IRS for the year 2014, as a non-habitual resident, at the 20% rate, taking into account the activity carried out under code 802 – senior managers of companies.
However, previously it is necessary to consider the matters of exception alleged by the Respondent in its response, the consideration of which is ex officio and takes precedence over any other question, as provided in articles 13 of the Code of Procedure for Administrative Courts (CPTA) and 278, no. 1, letter a) of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, letters d) and e) of RJAT.
4.2. Preliminary Questions
4.2.1. Of the alleged impropriety of the means
The Respondent alleges that the Claimant, in its initial petition, intends to challenge the denial of a tax benefit. According to the AT, the act denying recognition of a tax benefit is an act that can be challenged autonomously, and when the taxpayer does not challenge this act at the appropriate time, he cannot later, in proceedings to challenge it, point out defects and illegalities that he should have challenged through the proper means at the appropriate time. On this issue, the AT makes reference to the decision of the Constitutional Court no. 718/2017, issued in case no. 723/2016.
In the Respondent's view, the proper means for the Claimant to have challenged the AT's interpretation regarding the classification for tax purposes of the tax benefit under the table of high value-added activities approved by Regulation no. 12/2010, was the special administrative action provided for in article 97, no. 1, letter p) of CPPT and articles 37 et seq. of CPTA.
The AT also makes reference to the doctrine of Counsel Jorge Lopes de Sousa.
However, contrary to what the AT alleges, the Claimant states that "he was not notified by the AT of any administrative decision in tax matters, much less with express mention that from it he could react through special administrative action," but rather "was notified of an administrative decision that concerned a specific assessment act, with express mention that such assessment and decision were subject to judicial challenge."
Pursuant to no. 1 of article 97 of CPPT:
"1. Tax judicial proceedings comprise: a) the challenge of tax assessments, including parafiscal taxes and acts of self-assessment, withholding at source and payment on account;
b) the challenge of the determination of taxable matter, when it does not result in the assessment of any tax;
c) the challenge of total or partial denial of administrative complaints regarding tax acts;
d) the challenge of administrative acts in tax matters that involve assessing the legality of an assessment act; (...);
q) other procedural means provided for in law."
In the case under analysis, what is to be examined is, immediately, the (il)legality of the act denying the administrative complaint filed, and mediately, the (il)legality of the act of assessment of IRS no. 2016... and the statement and settlement of accounts no. 2016..., for the year 2014, in the amount of €23,984.02.
As for the decision denying the administrative complaint, it states at the beginning that "the claimant, previously identified, comes pursuant to article 68 of C.P.P.T., to file an administrative complaint against the IRS assessment no. 2016... in the amount of €23,984.02, relating to the year 2014, whose payment deadline is 01/02/2017 (...)."
The AT, regarding the administrative complaint presented, ruled on the request, issuing a denial decision. The AT did not issue any archival or summary rejection decision and notified the Claimant of the possibility to file an objection.
Thus, it must be concluded that the decision denying the administrative complaint ruled on the legality of the IRS assessment in question, contrary to what the AT alleges.
The Claimant alleged in the administrative complaint filed that the tax rate for his income obtained in 2014 as executive director of the company B... Limited should be 20%, given that it is a high value-added activity that can be classified under code 802 – senior manager of companies, which is why the IRS assessment notified to the Claimant would be vitiated by illegality.
And in the view of the AT, reflected in the decision on the administrative complaint, the IRS assessment is not illegal since the Claimant does not meet the requirements for him to be assigned that code 802.
We conclude that the decision on the administrative complaint ruled on the merits of the assessment act that was the subject of the administrative complaint.
Thus, we are not dealing with any decision denying a request for assignment of a tax benefit relating to the assignment of a code provided for in Regulation no. 12/2010, as the AT seeks to argue.
We therefore understand that we are not dealing with impropriety of the procedural means used by the Claimant, and the Respondent's position on this point is unfounded.
4.2.2. Of the impossibility of cumulation of claims because they belong to distinct and incompatible procedural means
On this question, the AT alleges that the request for annulment of the administrative decision is not cumulable with the request for annulment of the tax assessment.
According to the AT, given that there is a proper means to challenge the denial of a tax benefit, the Claimant cannot cumulate the challenge of the denial of the tax benefit with the challenge of the assessment, the latter being subject to challenge in the Arbitral Tribunal and the former not. For this reason, the Respondent believes that the Arbitral Tribunal cannot rule on the request.
As a consequence of the decision above regarding impropriety of the means, which concludes that the Respondent's claim is unfounded, we cannot reach the conclusion sought by the Respondent.
What is at issue in these proceedings, and which is contained in the Claimant's arbitration request, is, immediately, the declaration of illegality of the act denying the administrative complaint filed, and mediately, the declaration of illegality of the IRS assessment for the year 2014. Both requests can be the subject of judicial challenge and arbitration request pursuant to RJAT.
Thus, the Respondent's position on this point must also be found unfounded.
4.2.3. Of the material incompetence of the Arbitral Tribunal
The AT alleges that there is material incompetence of the Arbitral Tribunal to rule on the request for application to the Claimant of the tax legal regime requested by him, that is, a tax benefit.
For the Respondent, the act denying the Claimant's request to be classified in the activity with code 802 of Regulation no. 12/2010 are administrative acts in tax matters that do not involve assessing the legality of the assessment act.
The AT states that we are dealing with a request for classification of the activity within that Regulation (code 802), and it is clear that this is a request for a tax benefit. Thus, the proper means is the special administrative action.
The AT alleges that the Claimant's claim concerns the cadastral classification for purposes of IRS as not having entitlement to the tax benefit provided for in that Regulation.
As to this exception, alleged by the Respondent and intimately related to the two preceding ones, it must immediately be stated that it should be found unfounded.
The competence of Arbitral Tribunals is limited to the matters indicated in article 2, no. 1, of RJAT. Secondly, the competence of Arbitral Tribunals is also limited by the terms to which the AT committed itself to that jurisdiction, pursuant to article 4 of RJAT, which establishes that "the Tax Authority's commitment to the jurisdiction of tribunals constituted under the terms of this law depends on a regulation of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered." This commitment was concretized in Regulation no. 112-A/2011 of 22 March.
As is known, the competence of the tribunal is determined by the plaintiff's claim and the cause of action on which it is based, expressed in the initial petition, since it does not depend either on the legitimacy of the parties or on the success of the action, as is the uniform understanding in doctrine and jurisprudence (see, among others, Manuel de Andrade, Noções Elementares de Processo Civil, 1979, p. 91; Miguel Teixeira de Sousa, Competência Declarativa dos Tribunais Comuns, p. 36; and Judgments of the STJ of 12/1/94, 2/7/96 and 3/2/97, in BMJ, respectively, nos. 433, p. 554, 459/444 and 364/591, of 5/2/2002, in CJ – STJ -, year X, vol. I, p. 68, of 18/3/2004, in case no. 04B873, of 13/5/2004, in case no. 04A1213 and of 10/4/2008, in case no. 08B845, the last three available at www.dgsi.pt; of the Court of Conflicts, of 20/10/2011, issued in case no. 13/11, available on the same website, and from this Court of Appeals of 07/11/2000, CJ, year XXV, vol. V, p. 184).
Regarding the competence of Arbitral Tribunals, Counsel Lopes de Sousa tells us: "Although letter a) of no. 1 of article 2 of RJAT only makes explicit reference to the competence of Arbitral Tribunals to declare the illegality of assessment acts, which are acts determining the amount payable by the taxpayer, this competence also extends to acts of second and third instance that assess the legality of those primary acts, in particular acts denying administrative complaints and acts denying hierarchical appeals filed against decisions on such complaints. This conclusion is drawn from letter a) of no. 1 of article 10 of RJAT, which makes express reference to no. 2 of article 102 of CPPT (which deals with denial of administrative complaint) and 'hierarchical appeal decision'," as stated by Jorge Lopes de Sousa, in Comentário ao regime Jurídico da Arbitragem Tributária, Guia da Arbitragem Tributária, Almedina, 2013, p. 121.
The same author also states that: "limiting the competence of Arbitral Tribunals operating in CAAD, with respect to assessment acts, self-assessment, withholding at source and payment on account, to the declaration of their illegality and its consequences, only acts denying administrative complaints or hierarchical appeals or appeal requests of tax acts will be included in this competence in cases where these acts of second or third instance effectively ruled on the legality of assessment acts, self-assessment, withholding at source and payment and not also when those acts abstained from that ruling, because it was understood that there was some obstacle to this (such as, for example, lack of timeliness or legitimacy, or incompetence." (ibidem, p. 123).
As Counsel Lopes de Sousa observes, the possibility of assessing the legality of primary acts through assessing the legality of second-instance acts is confirmed in the provision of article 2 of RJAT for assessing claims relating to acts of self-assessment, withholding at source and payment on account (with respect to which administrative complaint is required, in articles 131 to 133 of CPPT), and it is certain that in these cases the immediate object of the challenge proceeding is, as a rule, the second-instance act that assesses the legality of the assessment act, and that, if it confirms this, must be annulled in order to obtain the declaration of illegality of the assessment act.
According to the same author, "in the case where the second or third-instance act ruled on the legality of the assessment act, the denial of the administrative complaint that confirms the act incorporates its respective illegalities, which means that from the assessment of the illegality of the second or third-instance act results the illegality of the assessment act. This effect does not occur in cases where the second or third-instance act only assessed a preliminary question whose resolution prevented the assessment of the legality of the primary act, for, in this case, the possible illegality of the second or third-instance act only has as corollary that the legality of the primary act should be assessed, not implying its illegality."
The rule is that the challenge of administrative acts in tax matters should be made in tax judicial proceedings, through judicial challenge or special administrative action (letters d) and p) of no. 1 and no. 2 of article 97 of CPPT), as these acts do or do not involve assessing the legality of administrative assessment acts.
There are exceptions to this division of the fields of application of the judicial challenge proceeding and the special administrative action, such as the challenge of acts denying administrative complaints (special rule no. 2 of article 102 of CPPT).
But, as to Arbitral Tribunals operating in CAAD, this exception would be irrelevant, for it results from letter a) of no. 1 of article 2 of RJAT that, with respect to assessment acts, self-assessment, withholding at source and payment on account, only the declaration of their illegality is included in their competence and not the assessment of the legality of acts that do not involve this assessment.
In truth, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-instance act, which confirms an assessment act, incorporating its illegality.
The formula used in letter a) of no. 1 of article 2 of RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-instance act, it will also cover cases in which the second-instance act is the act denying a request for revision of the tax act, for no reason appears to restrict it.
In cases where the second or third-instance act ruled on the legality of the assessment act, the denial of the administrative complaint or hierarchical appeal that confirms that act incorporates its respective illegalities, so that from the assessment of the illegality of the second or third-instance act results the illegality of the assessment act.
As stated in CAAD's decision in case no. 17/2012-T, assessment in the strict sense is the final stage of the tax assessment administrative procedure, regulated in articles 59 to 64 of CPPT, consisting of a series of acts intended to achieve a final legal result, the amount of tax to be paid to the State treasury.
Therefore, assessment is the stage that translates into the application of the tax rate to the already determined taxable matter, the preparatory acts not being autonomously challengeable, but being able to be put in issue when challenging the final, definitive act, in compliance with the principle of unified challenge expressed in article 54 of CPPT.
Thus, and pursuant to article 2, no. 1, letter a) of RJAT, Arbitral Tribunals have competence to declare the "(…) illegality of tax assessment acts, self-assessment acts, withholding at source acts and payment on account acts," which is why the Tribunal has competence to assess the legality of the assessment act being examined, as stated, among others, in CAAD's decision in case no. 530/2017-T.
The Claimant did not file the arbitration request seeking to establish the illegality of the act denying classification in the activity with code 802, nor did the administrative complaint he filed have that basis.
In the case under examination, the Claimant challenged the assessment act, which was based, among other assumptions, on the classification of the Claimant as a non-habitual resident but without any classification of his activity as being high value-added.
And the decision denying the administrative complaint ruled in the sense of the legality of the assessment act in question, thus ruling on the merits of the matter.
Thus, the exception of incompetence of the arbitral tribunal alleged by the Respondent must be found unfounded, declaring this tribunal materially competent, being regularly constituted, pursuant to articles 2, no. 1, letter a), 5, and 6, no. 1, of RJAT.
4.3. Of the Illegality of the Assessment
Having reached this point, it is necessary to decide whether the IRS assessment act for the year 2014 notified to the Claimant is vitiated by illegality, and consequently, whether the Claimant is or is not entitled to be taxed, in IRS for the year 2014, at the 20% rate, taking into account the activity he carried out as a non-habitual resident.
The Claimant has been registered as a non-habitual resident from 27-03-2014 until 2023, exercising in Portugal the functions of executive director of B..., a company based in the United Kingdom. The Claimant alleges that he belongs to the senior management of that company, and is responsible for prospecting the Portuguese market, exploring business opportunities with respect to the expansion of operations of that company.
In his view, the Claimant is entitled to be taxed on his income obtained in Portugal from dependent work within a high value-added activity, through the application of a 20% rate, pursuant to article 72, no. 6 of the IRS Code, taking into account that the activity he carries out falls within code 802 – Senior managers of companies.
The Respondent, AT, believes that the question to be posed is whether these offices and functions exercised by the Claimant correspond to code 801 or 802 of the table of high value-added activities approved by Regulation no. 12/2010 of 07-01.
For the AT, the Claimant does not fit within a company assigned to eligible projects and with contracts granting tax benefits executed under the Tax Investment Code, in order to be able to fit within code 801 of that table, the case in which the 20% rate applies to the income earned. The AT also states, in its response, that code 802 of the table contained in Regulation no. 12/2010 is not applicable to the Claimant.
Let us analyze the legal provisions relating to this matter.
The tax regime for non-habitual residents, under IRS, was introduced into the Portuguese legal system by articles 23 to 25 of Decree-Law no. 249/2009 of 23-09.
In 2014, article 16 of the IRS Code established the following:
"6 - Non-habitual residents in Portuguese territory are considered to be those passive subjects who, becoming fiscally resident under nos. 1 or 2, have not been residents in Portuguese territory in any of the five preceding years.
7 - The passive subject who is considered a non-habitual resident acquires the right to be taxed as such for a period of 10 consecutive years from the year, inclusive, of his registration as a resident in Portuguese territory.
8 - The passive subject must request registration as a non-habitual resident at the time of registration as a resident in Portuguese territory or, subsequently, by 31 March, inclusive, of the year following that in which he becomes resident in that territory.
9 - The enjoyment of the right to be taxed as a non-habitual resident in each year of the period referred to in no. 7 depends on the passive subject being, in that year, considered resident in Portuguese territory.
10 - The passive subject who has not enjoyed the right referred to in the preceding number in one or more years of the period referred to in no. 7 may resume the enjoyment thereof in any of the remaining years of that period, from the year, inclusive, in which he becomes resident again in Portuguese territory."
And no. 6 of article 72 of the IRS Code provided, at the time of the facts, as follows:
"6 - The net income from categories A and B obtained in high value-added activities, with scientific, artistic or technical character, to be defined in a regulation of the Government member responsible for the area of finance, by non-habitual residents in Portuguese territory, is taxed at the rate of 20%."
Thus, it was provided that income obtained from high value-added activities, to be defined by regulation, would be taxed at the special rate of 20%.
The high value-added activities were defined in Regulation no. 12/2010 of 07-01, and the following activities were defined:
"8 – Investors, administrators and managers:
801 – Investors, administrators and managers of companies promoting productive investment, provided they are assigned to eligible projects and with contracts granting tax benefits executed under the Tax Investment Code, approved by Decree-Law no. 249/2009 of 23-09;
802 – Senior managers of companies."
The AT makes reference to Circular no. 2/2010, which regarding the activities in question, states the following:
"7 – Activities under code 8 of Regulation no. 12/2010
801 – Investors, administrators and managers
802 – Senior managers of companies
For purposes of this table of activities, it is considered that:
a) Investors can only benefit from the regime applicable to non-habitual income if the income is obtained in the capacity of administrator or manager
b) Those qualified as managers are:
b.1) those covered by Decree-Law no. 71/2007 of 27 March (Statute of the Public Manager);
b.2) those responsible for permanent establishments of non-resident entities;
c) senior managers of companies (Code 802) are persons holding positions of management and with power to bind the legal entity.
8 – The remuneration of statutory officers of legal entities which, under letter a) of no. 3 of article 2 of the IRS Code, are qualified as dependent work income (category A), can only benefit from taxation at the special 20% rate in cases where the exercise of those functions can be classified under code 801 of the regulation mentioned above."
From the analysis of the documents attached, it is considered proven that the Claimant exercises the functions of executive director of B....
In the AT's view, the Claimant's activity cannot be classified under code 801 or code 802 and, for the Claimant to be taxed at the special 20% rate, he would have to be classified under code 801, as provided in the Circular mentioned.
Not ignoring this Tribunal the function, scope, level of binding force and recipients of administrative guidance, particularly circulars in tax matters, it must be said that, prior to the guidance for the AT that results from them, particularly with respect to Circular no. 2/2010, it will be necessary to qualify the income obtained by the Claimant within the strict factual framework in which it is perceived, taking into account its nature, as was understood in CAAD's decision in case no. 239/2017-T.
The circulars consist of general administrative guidance through which public administration services interpret tax norms, and it is necessary to refer to them for application to each specific situation.
Furthermore, as set forth in no. 1 of article 55 of CPPT, general guidance aims at standardizing the interpretation and application of tax norms by the services. And when issued by the head of the service or by the official to whom he has delegated this competence, they bind the AT (no. 2), although no. 3 of the provision limits their application exclusively to the AT that issued them, no rule being known that establishes that the said circulars apply to the AT's relations with those subject to its jurisdiction.
According to Casalta Nabais (in Direito Fiscal, p. 201), these are "internal regulations that, having only the tax authority as their addressee, only this is bound to obey them, being therefore binding only for organs situated hierarchically below the issuing organ. For this reason they are not binding on either private persons or courts. And this whether they are organizational regulations (...), or interpretive regulations, which interpret legal (or regulatory) provisions. It is true that they densify, clarify or develop the legal provisions, previously defining the content of acts to be performed by the tax authority in their application. But this does not convert them into standards of validity of the acts they support. In truth, the assessment of the legality of acts of the tax authority should be made through direct confrontation with the corresponding legal norm and not with the internal regulation, which came between the norm and the act."
The legal norm in question (article 72, no. 6 of the IRS Code) clearly provides that "net income from categories A and B obtained in high value-added activities, with scientific, artistic or technical character, to be defined in a regulation of the Government member responsible for the area of finance, by non-habitual residents in Portuguese territory, is taxed at the rate of 20%."
According to the Judgment of the South Central Administrative Court of 09-11-2010, case no. 04292/10:
"(...) VII) – The Courts, as independent organs of sovereignty, are not subordinate to decisions taken in tax matters by the administration, even if binding for this administration, to the extent that to those courts is reserved the power to interpret and apply tax law without any dependence on the criteria adopted by the administration and hence, if a judicial decision is issued in a sense different from that followed in the binding information, the administration must respect it and execute it.
VIII) – For, if it is true that courts are only subject to law, so that no administrative guidance by which a certain interpretation of the law results binds them, administrative circulars (as well as prior information) do not bind taxpayers, but only the respective services and, in the face of law, the procedures defined, "maxime" the "circulated law" of the Finance Authority cannot derogate from the principle of tax legality, so that in this light it will be possible to affirm the non-conformity of the content of the challenged act with the legal norms referred to and, in this way, that the actually existing assumptions imposed the administrative decision of contrary sense, it being certain that the Judge, even if aware of the binding prior information, was not bound by that administrative decision."
4.4. On the Concept of Senior Manager
With respect to the activity carried out by the Claimant, the concept of senior manager is not to be confused with the concept of manager or administrator. And it cannot be interpreted in the way stated in the AT Circular.
A senior manager of a company is a concept typical of Labor Law.
Pursuant to article 11, no. 2 of LGT "whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense as they have there, unless something different results directly from the law."
Thus, it is in Labor Law that we should look for what a senior manager might be.
According to the judgment of the Supreme Court of Justice in case no. 0851540 of 24-09-2008, what is relevant for someone to be qualified as a senior manager is not only the exercise of functions of greater technical complexity, but also that which presupposes high confidence, a higher degree of responsibility or more special qualification.
In the same sense, see NETO, Abílio, in «Código do Trabalho e Legislação Complementar Anotados», Ediforum, 3rd Edition, p. 246, who considers it part of the functional core of a senior manager, that worker who exercises functions that presuppose high confidence, high degree of responsibility or more special qualification, it not being necessary, however, for the fulfillment of the concept of senior manager, that this worker necessarily directs or supervises other workers or is inserted within an organization in which he holds, in hierarchical terms, a superior position in relation to other elements thereof.
Since the Claimant is executive director, responsible for prospecting the Portuguese market and expanding business opportunities, and has powers to bind the company in its relations with third parties, including in the signature of contracts and administrative acts, and public and private documents necessary for the exercise of the mandate and within his functions as a director, he should be considered, in our view, a senior manager of a company.
We thus consider that the Claimant obtained income from a high value-added activity that is capable of being classified under code 802 – senior managers of companies, to which the special IRS rate of 20% should be applied, as provided in article 7, no. 6 of the IRS Code.
Thus, we conclude that the assessment acts in question in these proceedings are vitiated by illegality due to violation of law, and must be annulled.
5. Decision
In light of the foregoing, it is determined:
a) To find the exception of impropriety of procedural means unfounded;
b) To find the exception of impossibility of cumulation of claims unfounded;
c) To find the exception of incompetence of the Arbitral Tribunal to rule on the present request unfounded;
d) To find the claim filed by the Claimant in the present arbitration proceedings well-founded, regarding the Personal Income Tax (IRS) assessment no. 2016... and the statement and settlement of accounts no. 2016..., for the year 2014, in the amount of €23,984.02;
e) To order the Respondent to pay the costs of the present proceedings.
6. Value of the Case:
Pursuant to article 306, no. 2 of CPC and 97-A, no. 1, letter a) of CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at €23,984.02.
7. Costs:
Pursuant to article 22, no. 4 of RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00, borne by the Respondent, in accordance with article 22, no. 4 of RJAT.
Notify.
Lisbon, 18 June 2019.
Text prepared by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, letter e) of the Tax Arbitration Regime, revised by me.
The Arbitrator
(Suzana Fernandes da Costa)
Frequently Asked Questions
Automatically Created