Process: 514/2015-T

Date: January 4, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses a dispute concerning Portugal's Non-Habitual Resident (RNH) regime for IRS purposes for the 2010 tax year. The taxpayer challenged the tacit dismissal of a review request after being denied RNH status registration, which resulted in an IRS assessment of €31,443.47. The core issue involved whether a deadline existed for submitting RNH status applications before Law 20/2012 introduced explicit time limits. The claimant argued that their February 2011 application for 2010 tax year RNH status was valid since no legal deadline existed under the regime established by Decree-Law 249/2009. The Tax Authority dismissed the application as untimely and questioned CAAD's jurisdiction, arguing the matter constituted an administrative act challenge rather than a tax assessment review. The taxpayer contended they met all RNH requirements: Portuguese tax residency from 2010, non-residency in the preceding five years, and receipt of high-value-added income as a senior executive. This decision was reformed following Constitutional Court Decision 718/2017, which became final in January 2018, highlighting the intersection between administrative procedure, tax assessment review, and the temporal application of RNH regime requirements during a transitional legislative period when the regime lacked explicit procedural deadlines.

Full Decision

ARBITRAL DECISION

Following Constitutional Court Decision No. 718/2017, which became final on 18 January 2018, a new arbitral decision is hereby rendered.

I – REPORT

On 29 July 2015, the taxpayer A..., holder of tax identification number ... (hereinafter referred to as the "Claimant"), submitted to the Administrative Arbitration Centre (CAAD) a request for the constitution of an arbitral tribunal for the purpose of obtaining an arbitral ruling, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as "RJAT"), following the tacit dismissal of the request for review of the tax assessment act for Personal Income Tax (IRS) for the year 2010, bearing number 2011....

In the request for arbitral ruling, the Claimant opted not to designate an arbitrator.

Pursuant to no. 1 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the position within the legally prescribed period.

The arbitral tribunal was constituted on 28 October 2015.

On 2 December 2015, the Respondent, duly notified for this purpose, submitted its Response.

The meeting provided for in article 18 of the RJAT, as well as the hearing of witnesses called by the Claimant, took place on 14 April 2016, at 3 p.m.

Duly notified for this purpose, the Claimant and Respondent submitted written submissions on 28 April 2016 and 15 May 2016, respectively.

The position of the Claimant, expressed in the request for arbitral ruling and in the written submissions, is, in summary, as follows:

The tacit dismissal of the request for review of the tax assessment act for Personal Income Tax (IRS) for the year 2010, bearing number 2011..., which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41, which is the subject of the present arbitral ruling, is illegal due to the non-application of the non-habitual resident regime, and therefore requests that the Arbitral Tribunal annul it.

The Claimant submits that the requests for recognition of its status as a non-habitual fiscal resident, effective for the years 2010 and 2011, submitted on 24.02.2011 and 08.08.2011, respectively, and dismissed – the first on grounds of untimeliness and the second for failure to meet the legally established requirements – complied with all the requirements established in article 16, nos. 6 and 7 of the Personal Income Tax Code, in accordance with the amendments introduced by Decree-Law No. 249/2009, of 23 September.

The law imposed no time limit for the submission of the request for recognition of non-habitual resident status, and only with the amendments introduced by Law No. 20/2012, of 14 May, did the legislator establish the deadline for registration in the said regime, namely that it should be submitted by 31 March of the year following the year in which the person becomes resident in Portuguese territory, in accordance with no. 8 of article 16 of the Personal Income Tax Code.

Furthermore, article 5, no. 2 of Law No. 20/2012, of 14 May, provides that the new deadline does not apply to taxpayers who submitted the request for non-habitual resident status before 1 January 2012, since the law did not provide for any time limit for its submission, and such request should be considered valid regardless of the period in which it was submitted.

Thus, the request for registration as a non-habitual resident, submitted by the Claimant, effective for the year 2010 (24.02.2011), must be considered valid, because at that time the law did not determine any deadline for requesting such registration. Therefore, the Directorate of Taxpayer Registration Services, in dismissing the Claimant's request on grounds of untimeliness, as well as the tacit dismissal of the request for official review in question, did not respect the applicable legal provisions, making an erroneous interpretation thereof.

Furthermore, the AT is bound by its own generic guidance, in accordance with article 68-A, no. 1 of the General Tax Law. However, it can never undermine, in the exercise of its functions, the principle of legality enshrined in articles 8 and 55, both of the General Tax Law, and article 3 of the Administrative Procedure Code.

Now, since the Claimant was considered resident in Portuguese territory, was not considered resident in Portugal in the five years preceding 2010, and is a senior executive of B..., S.A. (receiving income from an activity of high added value, in accordance with Regulation 12/2010, of 7 January), all conditions (objective and subjective) are met for the application of the non-habitual resident regime, namely, for income earned to be taxed in accordance with the taxation rules applicable to taxpayers with non-habitual resident status.

Therefore, under the principle of legality, the Claimant submits that the Services should have corrected the act that dismissed the request for registration as a non-habitual resident, effective for 2010, and the consequent review of the IRS assessment No. 2011..., declaring its illegality.

Furthermore, due to the contacts the Claimant maintained with the AT, it was convinced that it would be more advantageous to submit a new request for the fiscal year 2011, in view of the AT's dismissal of the request for registration as a non-habitual resident for the year 2010, on grounds of untimeliness, rather than to contest the dismissal decision through gracious or judicial challenge.

Indeed, the option not to contest through gracious or judicial means was a discretion and not an obligation, since the attribution of the special regime in question is relevant only for IRS purposes, and it is in that tax that the illegality of non-attribution of the non-habitual resident regime materializes, in accordance with the jurisprudence established in Constitutional Court Decision 410/2015, of 19 November.

Therefore, the IRS assessment for the year 2010 should be annulled on grounds of violation of law, due to error in the assumptions of law and fact, resulting from the non-application of the non-habitual resident regime, and the tax paid should be refunded, plus indemnification interest.

The position of the Respondent expressed in its response and written submissions is, in summary, briefly, as follows:

From an analysis of the content and the request ultimately raised in the application submitted on 30 December 2014, which the Claimant classified as a "request for official review of the assessment," it is clear that this is a request for recognition of non-habitual resident status for the year 2010, on grounds of the illegality of the administrative decision that had previously dismissed it.

Therefore, the application whose tacit dismissal the Claimant relies upon for the request for arbitral ruling actually embodies a request for annulment of the administrative act in a tax matter that dismissed the request for registration as a non-habitual resident effective for the year 2010, and not a request for review of the assessment act made following the submission of the income statement.

In accordance with no. 1 of article 2 of the RJAT, the act dismissing the Claimant's request for registration in the taxpayer register as a non-habitual resident, submitted on 24.02.2011, is an administrative act in a tax matter that does not involve examination of the legality of the assessment act.

Now, judicial review of the administrative act that dismissed the claim to be taxed as a non-habitual resident would have to be conducted through a special administrative action, in accordance with no. 2 of article 97 of the Tax Code of Civil Procedure.

Notwithstanding the Claimant's assertion in the request for arbitral ruling that it merely seeks review of the IRS assessment act for the year 2010, it is evident that its claim is its registration in the taxpayer register as a non-habitual resident in Portuguese territory, and thus to be taxed as such.

Accordingly, the scope of arbitral jurisdiction does not encompass examination of the legality of the said tacit dismissal, and therefore this absolute lack of jurisdiction ratione materiae constitutes a dilatory exception that precludes the continuation of the proceedings, dismissing the Respondent from the case with respect to the respective claim, in accordance with articles 576, no. 2, 577, paragraph a), and 278, no. 1, paragraph a), all of the Civil Procedure Code, applicable pursuant to article 29, paragraph e) of the RJAT.

Notwithstanding, the AT's position is that the Claimant seeks to have corrected or reviewed the administrative act that dismissed the request for recognition of non-habitual resident status effective for the year 2010, namely the decision of the Directorate of Taxpayer Registration Services of 19.04.2011, notified to the Claimant on 26.06.2011 – which does not involve examination of the legality of an assessment act.

As the deadline for challenging voidable acts (the act dismissing the request for registration as a non-habitual resident), not pursued by the Public Prosecutor, is three months, in accordance with article 58, no. 2, paragraph b), of the Administrative Court Procedure Code, applicable pursuant to no. 2 of article 97 of the Tax Code of Civil Procedure, the deadline for its judicial challenge expired on 26.09.2011, in accordance with articles 58, no. 3 and 59, no. 1 of the Administrative Court Procedure Code.

Therefore, having failed to challenge, either administratively or judicially, the decision dismissing the request for registration as a non-habitual resident, and having acquiesced to it, allowing its consolidation in the legal order, when the request for the constitution of an arbitral tribunal was submitted on 29.07.2015, the legally granted deadline for the Claimant had long expired for such purposes.

Thus resulting in the expiration of the Claimant's right of action, since it was no longer permitted on that date to judicially contest the decision dismissing the request for registration as a non-habitual resident effective for the year 2010, constituting a dilatory exception that precludes the continuation of the proceedings, tending toward the dismissal from the case, in accordance with article 576, no. 2 and paragraph e), of no. 1 of article 278 of the Civil Procedure Code, applicable pursuant to article 29, paragraph e) of the RJAT.

Furthermore, the Claimant has no need to obtain judicial protection regarding the right it invokes. First, because it did not judicially challenge the IRS assessment act for the year 2010. Second, because it did not bring a special administrative action against the administrative act in a tax matter that dismissed its request for registration as a non-habitual resident for the year 2010. Finally, because there is currently pending before the Tax and Administrative Court of Sintra – case No. .../14...BESNT – a petition for mandamus seeking to order the AT to issue a decision on the request for registration in the non-habitual resident regime for the year 2010, which was submitted on 11.07.2012, and which, if successful, will compel the AT to decide such request with effect from 1 January 2010, and from such decision, the Claimant may react through gracious or judicial means, as it sees fit, thus making this arbitral proceeding moot.

Until a decision is rendered in the said mandamus proceeding, if otherwise deemed appropriate, the present proceedings should be suspended.

The Respondent should therefore be dismissed from the case, in accordance with article 89, no. 2 of the Administrative Court Procedure Code, applicable pursuant to article 29, no. 1, paragraph c) of the RJAT, since lack of standing assumes the nature of a dilatory exception, in accordance with article 89, no. 1 of the Administrative Court Procedure Code.

Furthermore, the arguments presented by the Claimant are manifestly without merit.

In accordance with article 78 of the General Tax Law, review of tax acts is carried out on tax assessment acts or acts determining the taxable base, and the act dismissing the request for registration as a non-habitual resident effective for the year 2010 does not constitute any of those acts, and therefore is not susceptible to being reviewed or corrected under the procedural mechanism provided in article 78 of the General Tax Law.

Nevertheless, even if the application entitled "request for review of tax acts," submitted on 30.12.2014, were to be considered as a new request by the Claimant for registration as a non-habitual resident in Portuguese territory, effective for the year 2010, it would not be timely, since the deadline for submission of the request would have had to be made by 31.03.2011, in accordance with article 16, no. 8, as amended by Law No. 20/2012, of 14 May, and article 5, no. 2 of the same law would not be applicable to it.

Finally, as the Claimant has been registered as a resident in Portuguese territory since 08.04.2010, the assessment reflected that fiscal status, taking into account the elements declared in the respective income statement for the fiscal year 2010.

The Respondent concludes that the request for arbitral ruling is entirely without merit, including also the claim for payment of indemnification interest, considering it clear that the act which is the subject of the present proceedings is legally compliant.

By arbitral decision of 17.08.2016, the request for arbitral ruling was adjudged well-founded, the tribunal forming the view that, considering the rule imposed by article 54 of the Tax Code of Civil Procedure, according to which the failure to judicially challenge the administrative act dismissing the request for recognition of non-habitual resident status prevents judicial challenge of the final decision on tax assessment on the grounds of defects in that act, the same is incompatible with the principles of effective judicial protection and justice, respectively enshrined in articles 20 and 268, no. 4 of the Portuguese Constitution.

Having the Respondent filed an appeal with the Constitutional Court, the latter decided:

Not to declare unconstitutional the normative interpretation drawn from article 54 of the Tax Code of Civil Procedure, to the effect that the failure to judicially challenge acts dismissing requests for recognition of non-habitual resident status prevents judicial challenge of final decisions on tax assessment on the grounds of defects in those acts;

and, consequently,

To uphold the appeal filed by the Tax and Customs Authority.

Indeed, it follows from no. 2 of article 80 of the Law on the Organization, Operation and Procedure of the Constitutional Court (Law No. 28/982, of 15 November) that "if the Constitutional Court upholds the appeal, even if only in part, the case shall be remanded to the court from which it came so that the latter, as appropriate, shall reform the decision or order it reformed in accordance with the ruling on the question of unconstitutionality or illegality."

Although the Constitutional Court decision makes no reference to the need to reform the arbitral decision, such reform is being made, taking into account the normative interpretation derived from article 54 of the Tax Code of Civil Procedure to the effect that the failure to independently challenge the act dismissing the request for recognition of non-habitual resident status in Portugal prevents judicial challenge of the final decision on tax assessment on the grounds of defects inherent in that act, and, therefore, compatible with the principles of effective judicial protection and justice enshrined in articles 20 and 268, no. 4 of the Portuguese Constitution.

II – DETERMINATION OF ISSUES

The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1, of the RJAT.

The parties have standing and legal capacity, are legitimate and are legally represented, in accordance with articles 4 and 10, no. 2, of the RJAT and article 1 of Regulation No. 112-A/2011, of 22 March.

Other matters concerning procedural requirements, insofar as they relate to the exceptions raised by the Respondent, shall be considered hereinafter in a specific and separate manner. However, the conclusion reached on a particular matter may logically affect consideration of the remaining issues raised by the parties, as provided in article 608, no. 2 of the Civil Procedure Code.

Having considered all the foregoing, a decision must be rendered.

III – ISSUES TO BE DECIDED

In light of the foregoing, the principal issues to be decided are as follows:

The absolute lack of jurisdiction of the Arbitral Tribunal to examine the request for application to the Claimant of the non-habitual resident tax regime, arising from the tacit dismissal of the request for recognition of such status for the year 2010, since such claim would have to be brought through a special administrative action, in accordance with no. 2 of article 97 of the Tax Code of Civil Procedure, and the scope of arbitral jurisdiction does not encompass examination of the legality of that tacit dismissal;

The expiration of the right of action, inasmuch as what the Claimant seeks to have corrected or reviewed is the administrative act that dismissed, notified to the Claimant on 26.06.2011, the request for recognition of non-habitual resident status effective for the year 2010 – which does not involve examination of the legality of an assessment act – and the deadline for challenging voidable acts is three months, in accordance with article 58, no. 2, paragraph b) of the Administrative Court Procedure Code, applicable pursuant to no. 2 of article 97 of the Tax Code of Civil Procedure, such deadline having expired on 26.09.2011, in accordance with articles 58, no. 3 and 59, no. 1, both of the Administrative Court Procedure Code;

Lack of standing, inasmuch as there is currently pending before the Tax and Administrative Court of Sintra – case No. .../14...BESNT – a petition for mandamus to order the AT to issue a decision on the request for registration in the non-habitual resident regime for the year 2010;

The tacit dismissal of the request for review of the IRS assessment act for the year 2010, which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41, issued by the Tax and Customs Authority, contains an error regarding the assumptions of law and fact and also a defect consisting of violation of law, in the sense of untimeliness of the Claimant's request for registration as a non-habitual resident in Portuguese territory.

IV – FINDINGS OF FACT

Taking into account the administrative record, the documentary evidence filed with the case, and the oral testimony, the material facts relevant to understanding the decision are hereby established as follows:

On 8 April 2010, the Claimant requested registration in the taxpayer register as a fiscal resident in Portugal with the Tax Service of Cascais – ... (see document filed with the present proceedings as doc. no. 3 attached to the Arbitral Petition).

On 24 February 2011, the Claimant submitted to the Tax Service of Cascais – ..., a request for registration as a non-habitual resident in Portuguese territory, effective for 2010 (see document filed with the present proceedings as doc. no. 4 attached to the Arbitral Petition).

Together with the request for registration as a non-habitual resident in Portuguese territory, effective for 2010, submitted by the Claimant on 24 February 2011, proof of the Claimant's residence in Spain and taxation abroad was attached, as well as documentation evidencing the Claimant's position as a senior executive at B..., S.A..

From consultation of the Permanent Certificate of B..., S.A., the Claimant was designated a member of the Board of Directors with authority to bind the company, effective from 01.05.2010 to 31.08.2013.

On 19 April 2011, the Chief of the Taxpayer Identification Division of the Directorate of Taxpayer Registration Services dismissed the request for registration as a non-habitual resident for the year 2010 on grounds of untimeliness (see Administrative Record pages 2-7).

On 20 April 2011, the Claimant submitted its income statement for the fiscal year 2010 (see Administrative Record, pages 34-37).

On 8 August 2011, the Claimant submitted a new request for registration as a non-habitual resident in Portugal for the year 2011 (see document filed with the present proceedings as doc. no. 5 attached to the Arbitral Petition).

On 22 November 2011, the Chief of the Taxpayer Identification Division of the Directorate of Taxpayer Registration Services dismissed the request for registration as a non-habitual resident for the year 2011 for failure to meet the requirements of such regime (see Administrative Record, pages 18-21).

Following this, the Claimant was notified of the IRS assessment No. 2011..., relating to the year 2010, which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41 (see document filed with the present proceedings as doc. no. 1 attached to the Arbitral Petition).

On 11 July 2012, the Claimant submitted an application to the Directorate of Taxpayer Registration Services requesting reconsideration of the dismissed requests for registration in the non-habitual resident regime, submitted on 24 February and 8 August, both in the year 2011, invoking Law No. 20/2012, of 14 May (see document filed with the present proceedings as doc. no. 1 attached to the Response and article 41 of the Arbitral Petition).

The Claimant filed a petition for mandamus with the Tax and Administrative Court of Sintra, resulting in case No. .../14...BESNT, in which it requests that the AT be ordered to issue a decision on the request for registration in the non-habitual resident regime for 2010 submitted on 11 July 2012 (see document filed with the present proceedings as doc. no. 1 attached to the Response).

On 30 December 2014, the Claimant submitted a request for official review of the IRS assessment No. ..., relating to IRS for the year 2010, the dismissal of which was presumed (see document filed with the present proceedings as doc. no. 2 attached to the Arbitral Petition).

The facts stated in the preceding paragraph constitute undisputed matter, demonstrated both documentally and through testimony in the case.

There are no facts determined not to be proven, as all facts relevant to examination of the request were determined to be proven.

V – LEGAL GROUNDS

We shall now determine the applicable law to the facts at issue, in accordance with the issues already stated (see supra no. III).

We shall begin by examining the first issue stated (see supra item a), no. III), namely, whether the tacit dismissal of the request for review of the IRS assessment act for the year 2010, which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41, issued by the Tax and Customs Authority, contains an error regarding the assumptions of law and fact and also a defect consisting of violation of law, in the sense of untimeliness of the Claimant's request for registration as a non-habitual resident in Portuguese territory, and, consequently, non-taxation under that special regime.

The AT submits that judicial review of the administrative act that dismissed the Claimant's registration as a non-habitual resident in Portugal, effective for the year 2010, would have to be conducted through a special administrative action, in accordance with article 97, no. 2 of the Tax Code of Civil Procedure. Not having challenged the dismissal decision, this Tribunal cannot examine the legality of the IRS assessment in question on the basis of defects that are not inherent to it, but that result from a prior AT decision.

For this reason, in addition to raising the exception of (i) absolute lack of jurisdiction of the Arbitral Tax Tribunal to examine the request for application to the Claimant of the non-habitual resident tax regime, arising from the tacit dismissal of the request for official review relating to the 2010 IRS assessment (an issue already resolved in the preliminary phase), it also raises the exceptions of (ii) expiration of the right of action and (iii) lack of standing of the Claimant.

As is well known, the principle of unified challenge applies in tax disputes, whereby, as a general rule, only the final act of the procedure may be judicially challenged, as this act is the one that directly affects the taxpayer's legal and economic position and where the tax administration's final position toward the taxpayer is established, defining its rights and obligations (see article 54 of the Tax Code of Civil Procedure and 66 of the General Tax Law).

On the other hand, according to Jorge Lopes de Sousa, as article 54 of the Tax Code of Civil Procedure is "included among the general provisions applicable to the generality of procedures," the principle of unified challenge is directed inclusively at "administrative acts on tax matters that do not involve examination of the legality of the assessment act, with respect to which it is provided that judicial challenge shall follow the procedures of a special administrative action." (See Código de Procedimento e de Processo Tributário, Anotado e Comentado, 6th Edition of 2011, Áreas Editora, page 467).

This understanding is corroborated by the Respondent.

The same author further writes that "In tax procedures that result in an assessment act of a tax, the legal sphere of interested parties is only affected by such act and, therefore, as a general rule, it will be this act and only this act that is injurious and may be judicially challenged. However, as stated, article 54 of the Tax Code of Civil Procedure establishes exceptions where there is 'express provision to the contrary.' And indeed, sometimes the law provides for immediate judicial challenge of acts prior to the final decision, which have special relevance for conditioning the final decision. These preparatory acts of the final decision, which are directly and immediately challengeable by judicial means, assume the nature of severable acts. Severable acts are acts which, although inserted in the tax procedure and prior to the final decision, irremediably condition it, justifying that they be challenged independently, particularly in cases where they are taken by entities distinct from that which must render the final decision. However, their independent judicial challenge shall only occur when expressly provided for by law, as required in this article, with immediate challengeability of procedural acts occurring independently of express provision only when such procedural acts are directly injurious." (See op. cit., page 468).

From this it appears that the interpretation the Respondent proposes follows, namely that the dismissal of the Claimant's request for registration as a non-habitual resident in Portugal for the year 2010 is an injurious act susceptible of independent challenge, constituting an exception to the principle of unified challenge provided in article 54 of the Tax Code of Civil Procedure. Therefore, such decision should have been necessarily challenged so that the assessment which is the subject of the present arbitral ruling could be examined by this Tribunal. Thus, as no such necessary challenge was undertaken, it would not be within the scope of competence of this Tribunal to examine the legality of the decision dismissing the Claimant's inclusion in the non-habitual resident regime, which was materialized in the 2010 IRS assessment which is the subject of the present request for arbitral ruling.

However, we acknowledge that in accepting this interpretation of the Respondent, the constitutional principles of effective judicial protection and justice, embodied in articles 20 and 268, no. 4 of the Portuguese Constitution, would be harmed. That is, the preclusive effect of non-challenge of the act resulting in cessation of the benefit with respect to challenging the tax assessment act (2010 IRS assessment) on the grounds of defects in that other act makes it impossible to invoke such defects in this proceeding, and is incompatible with the rights assured by articles 20 and 268, no. 4 of the Portuguese Constitution.

The position sustained by the AT has the consequence that a taxpayer who did not independently challenge the act dismissing registration as a non-habitual resident in Portugal for the year 2010 is thereafter barred from challenging the 2010 IRS assessment on the basis of defects in that act.

Indeed, as the Constitutional Court has already had occasion to rule, in Decision 410/2015, of 19 November, "It cannot be denied that this is a very onerous consequence for the taxpayer, allowing consolidation in the legal order of acts that prejudice it gravely (…) with the impossibility of challenging the act terminating the tax benefit within the context of the proceeding to challenge the tax assessment. This prejudice suffered by the taxpayer occurred in a legal context in which the principle of unified challenge unquestionably applies and in which the independent challenge of injurious or interlocutory acts taken within tax administrative procedure is configured by law as a discretion of the taxpayer, justified only in the context of strengthening its guarantees.

The taxpayer could have independently challenged the termination of the tax benefit. Its choice not to do so, however, was, in that legal context, perfectly legitimate: not only is there any legal provision that has transformed the discretion to challenge into an obligation to challenge, as, being, as it was, an injurious act, the existence of such a provision would not even be permissible."

Concluding that, "by preventing the challenge of the tax assessment from being founded on defects inherent in the act terminating the tax benefit, the interpretation made of article 54 of the Tax Code of Civil Procedure in the appealed decision gravely undermines the taxpayer's rights, thus violating the principle of effective judicial protection and the principle of justice, enshrined in articles 20 and 268, no. 4, of the Portuguese Constitution," declaring unconstitutional such interpretation of article 54 of the Tax Code of Civil Procedure.

In this vein, we cannot accompany, with all due respect, the Respondent's position that the Claimant, by failing to independently challenge the act that resulted in its non-registration in the non-habitual resident tax regime, is thereafter barred from challenging the consequent 2010 IRS assessment on the basis of defects in that act.

Indeed, the Claimant could have independently challenged the act of non-registration as a non-habitual resident for tax purposes, considering the indisputable principle of unified challenge, and it cannot be denied that the Respondent's position is very onerous for the taxpayer, allowing consolidation in the legal order of acts that prejudice it gravely.

However, its choice not to do so is a discretion to challenge and not an obligation.

Accordingly, mindful of the principles of effective judicial protection and justice, enshrined in articles 20 and 268, no. 4 of the Portuguese Constitution, the Claimant cannot be prevented from challenging the 2010 IRS assessment on the basis of defects inherent in the act resulting in its non-registration as a non-habitual resident for tax purposes.

In light of the foregoing, we also cannot accept the Respondent's exception regarding expiration of the right of action insofar as it takes the view that, when the request for constitution of an arbitral tribunal was submitted on 29.07.2015, the legally granted deadline for the Claimant to judicially contest the decision dismissing the request for registration as a non-habitual resident effective for the year 2010 – a voidable act – had long since expired, as the deadline under paragraph b), no. 2 of article 58 of the Administrative Court Procedure Code, applicable pursuant to no. 2 of article 97 of the Tax Code of Civil Procedure, for challenging voidable acts is three months.

Given the rule of unified challenge in tax disputes and its exception as a discretion and not an obligation of the taxpayer, out of respect for the constitutional principles of effective judicial protection and justice (see articles 20 and 268, no. 4, both of the Portuguese Constitution), the Claimant cannot be prevented from challenging the 2010 IRS assessment, and therefore, in doing so through this present request for arbitral ruling, being timely, there is no expiration of the right of action, and the exception raised by the Respondent cannot be accepted.

We must now analyze the exception raised by the Respondent regarding lack of standing on the part of the Claimant.

The Respondent takes the view that the Claimant, in failing to judicially challenge the assessment act in question, in failing to bring a special administrative action against the administrative act in a tax matter that dismissed its request for registration as a non-habitual resident for the year 2010, in treating the request for review of the assessment act at issue as a new and genuine request for registration as a non-habitual resident effective from 1 January 2010, and in view of the mandamus proceeding currently pending before the Tax and Administrative Court of Sintra – case No. .../14...BESNT – lacks any need to obtain judicial protection of the right it invokes.

Once more, with all due respect, we cannot follow the Respondent's position because it is contrary to what we have already stated, and to which we refer back, concerning the understanding that the Claimant may challenge the 2010 IRS assessment on the basis of defects in the act that resulted in its non-registration in the non-habitual resident tax regime, in order to respect the constitutional principles of effective judicial protection and justice, enshrined in articles 20 and 268, no. 4, of the Portuguese Constitution.

Even the existence of a mandamus petition pending before the Tax and Administrative Court of Sintra, case No. .../14...BESNT, in which the Claimant petitions that the AT issue a decision within the framework of the application submitted by the Claimant on 11 July 2012 (see proven fact J.), in which a reconsideration of the decision on the request for registration as a non-habitual resident for 2010 in light of the amendments introduced by Law No. 20/2012, of 14 May, was requested, cannot be understood as lack of standing on the part of the Claimant, as the Respondent alleges.

This is because the mandamus proceeding will compel or not the AT to rule on the application submitted in 2012, resulting in the recognition or non-recognition of non-habitual resident status to the Claimant for the year 2010 and onwards. In contrast with the present request for arbitral ruling which has as its object the annulment or non-annulment of the IRS assessment act No. 2011..., relating to the year 2010.

Accordingly, the exception of lack of standing on the part of the Claimant should not be upheld.

We now analyze the question of whether the Claimant's request for registration as a non-habitual resident is untimely, with the result that it is not recognized as having the right to be taxed in accordance with the non-habitual resident tax regime (see item b), no. III).

The taxation regime for non-habitual residents' income for IRS purposes was introduced by articles 23 to 25 of Decree-Law No. 249/2009, of 23 September, exercising the legislative authorization conferred by articles 106 and 126 of Law No. 64-A/2008, of 31 December, which approved the State Budget for 2009, and was provided for, as of the date of the facts, in articles 16, nos. 6 to 9, 72 and 81 of the Personal Income Tax Code, supplemented by Regulation No. 12/2010, of 7 January.

Indeed, this Regulation came to establish the catalogue of activities of high added value with a scientific, artistic or technical character covered by this taxation regime, concretizing the provisions of article 72, no. 6 and article 81, no. 4 of the Personal Income Tax Code.

As a way of making the AT's understanding regarding the non-habitual resident tax regime transparent, Circular No. 2/2010, of 6 May (applicable as of the date of the facts) was published.

In essence, the tax regime for non-habitual residents in IRS was created by the Portuguese legislator to attract to our country activities of high added value, with a scientific, artistic or technical character, through a fiscal incentive.

In accordance with article 16, nos. 6 to 9 of the Personal Income Tax Code, as of the date of the facts, recognition by the Portuguese tax authorities of the status of non-habitual fiscal resident was dependent upon verification of two essential conditions:

The interested party had not been taxed as a fiscal resident in Portugal in any of the five years preceding the year for which the status is requested;

The interested party met the conditions necessary to be considered a fiscal resident in Portugal. Fiscal residency in Portuguese territory may be acquired in any given year, among other situations, when the taxpayer: – has remained in Portuguese territory for more than 183 days, consecutive or not; – having remained for a shorter period, has available in Portuguese territory, on 31 December of that year, a dwelling under conditions suggesting the intention to maintain and occupy it as habitual residence.

In the facts of the present arbitral proceedings, it was proven that the Claimant became a fiscal resident in Portugal and was resident and taxed in Spain in the year 2009 (see points A., B. and C. of no. IV).

It was also proven that the Claimant engaged in an activity of high added value, serving as Director of Finance and Control and belonging to the statutory bodies of B... with authority to bind the company (see points C. and D. of no. IV).

Accordingly, the Claimant, when making the request for recognition of its fiscal status as a non-habitual fiscal resident, effective for the year 2010, submitted on 24 February 2011, met all the conditions for the Directorate of Taxpayer Registration Services to register it as a non-habitual resident for tax purposes.

However, the AT considered the request untimely, invoking article 143 of the Personal Income Tax Code, according to which "the fiscal year coincides with the calendar year," and no. 7 of article 13 of the Personal Income Tax Code, which provides that "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," thus not recognizing the right to be taxed in accordance with that regime. That is, the AT understood that the Claimant, since it sought to benefit from the non-habitual resident tax regime in the year 2010, would have had to submit the request by 31.12.2010.

It happens that, as of the date of the facts, the law was silent on the deadline for a taxpayer to request registration as a non-habitual resident, with no temporal limit existing for the submission of the request.

Indeed, due to the onerous administrative procedures and the bureaucracy imposed by the AT that was difficult to meet, Law No. 20/2012, of 14 May (first amendment to the State Budget Law for 2012), came to regulate some aspects of the non-habitual resident regime that had been omitted, in particular, the deadline for registration in the regime.

Thus, it was determined that the taxpayer should 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 the year in which the person becomes resident in that territory (see no. 8 of article 16 of the Personal Income Tax Code).

It should be noted that the deadline referred to does not apply to taxpayers who have become residents in Portuguese territory by 31 December 2011 and have requested, by the date of entry into force of the Corrective State Budget Law – 15 May 2012 – registration as non-habitual residents in accordance with the prior regime, which did not provide for any temporal limit for the submission of this request.

As such, all requests for registration as non-habitual residents submitted prior to that date are considered timely. Including the one submitted by the Claimant on 24.02.2011.

In this regard, we cannot accompany, with all due respect, the Respondent's position because it is not acceptable that the Claimant meets all the requirements to be considered a non-habitual resident and was not registered in that regime on grounds of untimeliness, when, at the date of the facts, no deadline existed for requesting registration in the non-habitual resident tax regime.

In light of the foregoing, the Claimant's allegations are well-founded, from which it follows that the act of presumed dismissal of the request for official review should be annulled, and consequently, the IRS assessment act for the year 2010 should be annulled.

Finally, the Claimant also requests payment of indemnification interest.

The Claimant submits that the prerequisites provided in article 43, no. 2 of the General Tax Law are met for payment of indemnification interest, since "the IRS assessment (…) results from error attributable to the Service, error which even now persists even though generic guidance has been issued for the AT to resolve pending cases on the question of non-habitual residents (…)."

Pursuant to article 43, no. 2 of the General Tax Law, indemnification interest is due whenever it is determined that there was error attributable to the services when the taxpayer in completing its income statement followed the AT's duly published generic guidance.

When the request for registration as a non-habitual resident for the year 2010 was dismissed, there was no published generic guidance from the AT that would have led the Claimant to complete its income statement differently, that is, to induce the taxpayer into error.

For this reason, the prerequisites of no. 2 of article 43 of the General Tax Law for payment of indemnification interest to the Claimant would not be met.

However, paragraph c) of no. 3 of article 43 of the General Tax Law provides that indemnification interest is also due when the review of the tax act at the initiative of the taxpayer is made more than one year after the taxpayer's request, and except for error not attributable to the AT.

Accordingly, indemnification interest is due after the expiration of one year following the review of the tax act at the Claimant's initiative.

VI – DECISION

For these reasons, this Arbitral Tribunal decides:

a) To uphold the Claimant's request on the grounds that the act of presumed dismissal of the request for official review is illegal, and consequently, the IRS assessment in question is illegal, on the basis of error regarding the assumptions of law and fact and violation of the norms of the non-habitual resident regime in Portugal, such acts being hereby annulled, taking into account the fact that, by preventing the challenge of the tax assessment from being founded on defects inherent in the act resulting in cessation of the tax benefit, in accordance with article 54 of the Tax Code of Civil Procedure, the Claimant's rights are gravely undermined, violating the principle of effective judicial protection and the principle of justice, enshrined in articles 20 and 268, no. 4, of the Portuguese Constitution, and the Claimant met all the requirements to be considered a non-habitual resident for tax purposes, all as was demonstrated in the present proceedings.

b) To condemn the Respondent to payment of indemnification interest, in the terms and conditions provided for by law (see articles 43 and 100 of the General Tax Law and article 61 of the Tax Code of Civil Procedure).

The value of the case is fixed at €31,443.47, in accordance with article 97-A, no. 1, a) of the Tax Code of Civil Procedure, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

Court costs are fixed at €1,836.00, in accordance with Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, as the request was entirely well-founded, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforesaid Regulation.

Let notice be given.

Lisbon, 17 August 2016.

The Arbitrator,

(Jorge Carita)

ARBITRAL DECISION

Following Constitutional Court Decision No. 718/2017, which became final on 18 January 2018, this Arbitral Tribunal renders a new arbitral decision.

I – REPORT

On 29 July 2015, the taxpayer A..., holder of tax identification number ... (hereinafter referred to as the "Claimant"), submitted to the Administrative Arbitration Centre (CAAD) a request for the constitution of an arbitral tribunal for the purpose of obtaining an arbitral ruling, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as "RJAT"), following the tacit dismissal of the request for review of the tax assessment act for Personal Income Tax (IRS) for the year 2010, bearing number 2011....

In the request for arbitral ruling, the Claimant opted not to designate an arbitrator.

Pursuant to no. 1 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the position within the legally prescribed period.

The arbitral tribunal was constituted on 28 October 2015.

On 2 December 2015, the Respondent, duly notified for this purpose, submitted its Response.

The meeting provided for in article 18 of the RJAT, as well as the hearing of witnesses called by the Claimant, took place on 14 April 2016, at 3 p.m.

Duly notified for this purpose, the Claimant and Respondent submitted written submissions on 28 April 2016 and 15 May 2016, respectively.

The position of the Claimant, expressed in the request for arbitral ruling and in the written submissions, is, in summary, as follows:

The tacit dismissal of the request for review of the tax assessment act for Personal Income Tax (IRS) for the year 2010, bearing number 2011..., which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41, which is the subject of the present arbitral ruling, is illegal due to the non-application of the non-habitual resident regime, and therefore requests that the Arbitral Tribunal annul it.

The Claimant submits that the requests for recognition of its status as a non-habitual fiscal resident, effective for the years 2010 and 2011, submitted on 24.02.2011 and 08.08.2011, respectively, and dismissed – the first on grounds of untimeliness and the second for failure to meet the legally established requirements – complied with all the requirements established in article 16, nos. 6 and 7 of the Personal Income Tax Code, in accordance with the amendments introduced by Decree-Law No. 249/2009, of 23 September.

The law imposed no time limit for the submission of the request for recognition of non-habitual resident status, and only with the amendments introduced by Law No. 20/2012, of 14 May, did the legislator establish the deadline for registration in the said regime, namely that it should be submitted by 31 March of the year following the year in which the person becomes resident in Portuguese territory, in accordance with no. 8 of article 16 of the Personal Income Tax Code.

Furthermore, article 5, no. 2 of Law No. 20/2012, of 14 May, provides that the new deadline does not apply to taxpayers who submitted the request for non-habitual resident status before 1 January 2012, since the law did not provide for any time limit for its submission, and such request should be considered valid regardless of the period in which it was submitted.

Thus, the request for registration as a non-habitual resident, submitted by the Claimant, effective for the year 2010 (24.02.2011), must be considered valid, because at that time the law did not determine any deadline for requesting such registration. Therefore, the Directorate of Taxpayer Registration Services, in dismissing the Claimant's request on grounds of untimeliness, as well as the tacit dismissal of the request for official review in question, did not respect the applicable legal provisions, making an erroneous interpretation thereof.

Furthermore, the AT is bound by its own generic guidance, in accordance with article 68-A, no. 1 of the General Tax Law. However, it can never undermine, in the exercise of its functions, the principle of legality enshrined in articles 8 and 55, both of the General Tax Law, and article 3 of the Administrative Procedure Code.

Now, since the Claimant was considered resident in Portuguese territory, was not considered resident in Portugal in the five years preceding 2010, and is a senior executive of B..., S.A. (receiving income from an activity of high added value, in accordance with Regulation 12/2010, of 7 January), all conditions (objective and subjective) are met for the application of the non-habitual resident regime, namely, for income earned to be taxed in accordance with the taxation rules applicable to taxpayers with non-habitual resident status.

Therefore, under the principle of legality, the Claimant submits that the Services should have corrected the act that dismissed the request for registration as a non-habitual resident, effective for 2010, and the consequent review of the IRS assessment No. 2011..., declaring its illegality.

Furthermore, due to the contacts the Claimant maintained with the AT, it was convinced that it would be more advantageous to submit a new request for the fiscal year 2011, in view of the AT's dismissal of the request for registration as a non-habitual resident for the year 2010, on grounds of untimeliness, rather than to contest the dismissal decision through gracious or judicial challenge.

Indeed, the option not to contest through gracious or judicial means was a discretion and not an obligation, since the attribution of the special regime in question is relevant only for IRS purposes, and it is in that tax that the illegality of non-attribution of the non-habitual resident regime materializes, in accordance with the jurisprudence established in Constitutional Court Decision 410/2015, of 19 November.

Therefore, the IRS assessment for the year 2010 should be annulled on grounds of violation of law, due to error in the assumptions of law and fact, resulting from the non-application of the non-habitual resident regime, and the tax paid should be refunded, plus indemnification interest.

The position of the Respondent expressed in its response and written submissions is, in summary, briefly, as follows:

From an analysis of the content and the request ultimately raised in the application submitted on 30 December 2014, which the Claimant classified as a "request for official review of the assessment," it is clear that this is a request for recognition of non-habitual resident status for the year 2010, on grounds of the illegality of the administrative decision that had previously dismissed it.

Therefore, the application whose tacit dismissal the Claimant relies upon for the request for arbitral ruling actually embodies a request for annulment of the administrative act in a tax matter that dismissed the request for registration as a non-habitual resident effective for the year 2010, and not a request for review of the assessment act made following the submission of the income statement.

In accordance with no. 1 of article 2 of the RJAT, the act dismissing the Claimant's request for registration in the taxpayer register as a non-habitual resident, submitted on 24.02.2011, is an administrative act in a tax matter that does not involve examination of the legality of the assessment act.

Now, judicial review of the administrative act that dismissed the claim to be taxed as a non-habitual resident would have to be conducted through a special administrative action, in accordance with no. 2 of article 97 of the Tax Code of Civil Procedure.

Notwithstanding the Claimant's assertion in the request for arbitral ruling that it merely seeks review of the IRS assessment act for the year 2010, it is evident that its claim is its registration in the taxpayer register as a non-habitual resident in Portuguese territory, and thus to be taxed as such.

Accordingly, the scope of arbitral jurisdiction does not encompass examination of the legality of the said tacit dismissal, and therefore this absolute lack of jurisdiction ratione materiae constitutes a dilatory exception that precludes the continuation of the proceedings, dismissing the Respondent from the case with respect to the respective claim, in accordance with articles 576, no. 2, 577, paragraph a), and 278, no. 1, paragraph a), all of the Civil Procedure Code, applicable pursuant to article 29, paragraph e) of the RJAT.

Notwithstanding, the AT's position is that the Claimant seeks to have corrected or reviewed the administrative act that dismissed the request for recognition of non-habitual resident status effective for the year 2010, namely the decision of the Directorate of Taxpayer Registration Services of 19.04.2011, notified to the Claimant on 26.06.2011 – which does not involve examination of the legality of an assessment act.

As the deadline for challenging voidable acts (the act dismissing the request for registration as a non-habitual resident), not pursued by the Public Prosecutor, is three months, in accordance with article 58, no. 2, paragraph b) of the Administrative Court Procedure Code, applicable pursuant to no. 2 of article 97 of the Tax Code of Civil Procedure, the deadline for its judicial challenge expired on 26.09.2011, in accordance with articles 58, no. 3 and 59, no. 1 of the Administrative Court Procedure Code.

Therefore, having failed to challenge, either administratively or judicially, the decision dismissing the request for registration as a non-habitual resident, and having acquiesced to it, allowing its consolidation in the legal order, when the request for the constitution of an arbitral tribunal was submitted on 29.07.2015, the legally granted deadline for the Claimant had long expired for such purposes.

Thus resulting in the expiration of the Claimant's right of action, since it was no longer permitted on that date to judicially contest the decision dismissing the request for registration as a non-habitual resident effective for the year 2010, constituting a dilatory exception that precludes the continuation of the proceedings, tending toward the dismissal from the case, in accordance with article 576, no. 2 and paragraph e), of no. 1 of article 278 of the Civil Procedure Code, applicable pursuant to article 29, paragraph e) of the RJAT.

Furthermore, the Claimant has no need to obtain judicial protection regarding the right it invokes. First, because it did not judicially challenge the IRS assessment act for the year 2010. Second, because it did not bring a special administrative action against the administrative act in a tax matter that dismissed its request for registration as a non-habitual resident for the year 2010. Finally, because there is currently pending before the Tax and Administrative Court of Sintra – case No. .../14...BESNT – a petition for mandamus seeking to order the AT to issue a decision on the request for registration in the non-habitual resident regime for the year 2010, which was submitted on 11.07.2012, and which, if successful, will compel the AT to decide such request with effect from 1 January 2010, and from such decision, the Claimant may react through gracious or judicial means, as it sees fit, thus making this arbitral proceeding moot.

Until a decision is rendered in the said mandamus proceeding, if otherwise deemed appropriate, the present proceedings should be suspended.

The Respondent should therefore be dismissed from the case, in accordance with article 89, no. 2 of the Administrative Court Procedure Code, applicable pursuant to article 29, no. 1, paragraph c) of the RJAT, since lack of standing assumes the nature of a dilatory exception, in accordance with article 89, no. 1 of the Administrative Court Procedure Code.

Furthermore, the arguments presented by the Claimant are manifestly without merit.

In accordance with article 78 of the General Tax Law, review of tax acts is carried out on tax assessment acts or acts determining the taxable base, and the act dismissing the request for registration as a non-habitual resident effective for the year 2010 does not constitute any of those acts, and therefore is not susceptible to being reviewed or corrected under the procedural mechanism provided in article 78 of the General Tax Law.

Nevertheless, even if the application entitled "request for review of tax acts," submitted on 30.12.2014, were to be considered as a new request by the Claimant for registration as a non-habitual resident in Portuguese territory, effective for the year 2010, it would not be timely, since the deadline for submission of the request would have had to be made by 31.03.2011, in accordance with article 16, no. 8, as amended by Law No. 20/2012, of 14 May, and article 5, no. 2 of the same law would not be applicable to it.

Finally, as the Claimant has been registered as a resident in Portuguese territory since 08.04.2010, the assessment reflected that fiscal status, taking into account the elements declared in the respective income statement for the fiscal year 2010.

The Respondent concludes that the request for arbitral ruling is entirely without merit, including also the claim for payment of indemnification interest, considering it clear that the act which is the subject of the present proceedings is legally compliant.

By arbitral decision of 17.08.2016, the request for arbitral ruling was adjudged well-founded, the tribunal forming the view that, considering the rule imposed by article 54 of the Tax Code of Civil Procedure, according to which the failure to judicially challenge the administrative act dismissing the request for recognition of non-habitual resident status prevents judicial challenge of the final decision on tax assessment on the grounds of defects in that act, the same is incompatible with the principles of effective judicial protection and justice, respectively enshrined in articles 20 and 268, no. 4 of the Portuguese Constitution.

Having the Respondent filed an appeal with the Constitutional Court, the latter decided:

Not to declare unconstitutional the normative interpretation drawn from article 54 of the Tax Code of Civil Procedure, to the effect that the failure to judicially challenge acts dismissing requests for recognition of non-habitual resident status prevents judicial challenge of final decisions on tax assessment on the grounds of defects in those acts;

and, consequently,

To uphold the appeal filed by the Tax and Customs Authority.

Indeed, it follows from no. 2 of article 80 of the Law on the Organization, Operation and Procedure of the Constitutional Court (Law No. 28/982, of 15 November) that "if the Constitutional Court upholds the appeal, even if only in part, the case shall be remanded to the court from which it came so that the latter, as appropriate, shall reform the decision or order it reformed in accordance with the ruling on the question of unconstitutionality or illegality."

Although the Constitutional Court decision makes no reference to the need to reform the arbitral decision, such reform is being made, taking into account the normative interpretation derived from article 54 of the Tax Code of Civil Procedure to the effect that the failure to independently challenge the act dismissing the request for recognition of non-habitual resident status in Portugal prevents judicial challenge of the final decision on tax assessment on the grounds of defects inherent in that act, and, therefore, compatible with the principles of effective judicial protection and justice enshrined in articles 20 and 268, no. 4 of the Portuguese Constitution.

II – DETERMINATION OF ISSUES

The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1, of the RJAT.

In the response submitted by the Respondent, in accordance with article 17, no. 1 of the RJAT, three exceptions were raised, namely (i) absolute lack of jurisdiction of the Arbitral Tribunal to examine the request for application to the Claimant of the non-habitual resident tax regime, arising from the tacit dismissal of the request for official review relating to the 2010 IRS assessment; (ii) expiration of the right of action; (iii) lack of standing.

In accordance with the request for arbitral ruling, the constitution of the present tribunal has as its object the tacit dismissal of the request for official review of the IRS assessment No. 2011... submitted on 30 December 2014.

Pursuant to no. 5 of article 57 of the General Tax Law, the tax procedure must be concluded within four months. Otherwise, "(…) counted from the entry of the taxpayer's petition in the competent office of the tax administration, its dismissal is presumed for purposes of administrative appeal, judicial appeal or judicial challenge." (Emphasis added).

Accordingly, on 30 April 2015, the presumed dismissal of the request for official review submitted by the Claimant on 30 December 2014 took place.

Pursuant to article 10, no. 1, paragraph a) of the RJAT, the deadline for the request for constitution of an arbitral tribunal is 90 days counted after the formation of the presumed tacit dismissal (see fact provided in no. 1, paragraph d) of article 102 of the Tax Code of Civil Procedure).

Therefore, the request for arbitral ruling is timely, as it was submitted on 29 July 2015, that is, within 90 days counted from 30 April 2015.

The parties have standing and legal capacity, are legitimate and are legally represented, in accordance with articles 4 and 10, no. 2, of the RJAT and article 1 of Regulation No. 112-A/2011, of 22 March.

The case does not suffer from defects that would render it invalid.

Having considered all the foregoing, a decision must be rendered.

IV – FINDINGS OF FACT

Taking into account the administrative record, the documentary evidence filed with the case, and the oral testimony, the material facts relevant to understanding the decision are hereby established as follows:

On 8 April 2010, the Claimant requested registration in the taxpayer register as a fiscal resident in Portugal with the Tax Service of Cascais (see document filed with the present proceedings as doc. no. 3 attached to the Arbitral Petition).

On 24 February 2011, the Claimant submitted to the Tax Service of Cascais – ..., a request for registration as a non-habitual resident in Portuguese territory, effective for 2010 (see document filed with the present proceedings as doc. no. 4 attached to the Arbitral Petition).

Together with the request for registration as a non-habitual resident in Portuguese territory, effective for 2010, submitted by the Claimant on 24 February 2011, proof of the Claimant's residence in Spain and taxation abroad was attached, as well as documentation evidencing the Claimant's position as a senior executive at B..., S.A..

From consultation of the Permanent Certificate of B..., S.A., the Claimant was designated a member of the Board of Directors with authority to bind the company, effective from 01.05.2010 to 31.08.2013.

On 19 April 2011, the Chief of the Taxpayer Identification Division of the Directorate of Taxpayer Registration Services dismissed the request for registration as a non-habitual resident for the year 2010 on grounds of untimeliness (see Administrative Record pages 2-7).

On 20 April 2011, the Claimant submitted its income statement for the fiscal year 2010 (see Administrative Record, pages 34-37).

On 8 August 2011, the Claimant submitted a new request for registration as a non-habitual resident in Portugal for the year 2011 (see document filed with the present proceedings as doc. no. 5 attached to the Arbitral Petition).

On 22 November 2011, the Chief of the Taxpayer Identification Division of the Directorate of Taxpayer Registration Services dismissed the request for registration as a non-habitual resident for the year 2011 for failure to meet the requirements of such regime (see Administrative Record, pages 18-21).

Following this, the Claimant was notified of the IRS assessment No. 2011..., relating to the year 2010, which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41 (see document filed with the present proceedings as doc. no. 1 attached to the Arbitral Petition).

On 11 July 2012, the Claimant submitted an application to the Directorate of Taxpayer Registration Services requesting reconsideration of the dismissed requests for registration in the non-habitual resident regime, submitted on 24 February and 8 August, both in the year 2011, invoking Law No. 20/2012, of 14 May (see document filed with the present proceedings as doc. no. 1 attached to the Response and article 41 of the Arbitral Petition).

The Claimant filed a petition for mandamus with the Tax and Administrative Court of Sintra, resulting in case No. .../14...BESNT, in which it requests that the AT be ordered to issue a decision on the request for registration in the non-habitual resident regime for 2010 submitted on 11 July 2012 (see document filed with the present proceedings as doc. no. 1 attached to the Response).

On 30 December 2014, the Claimant submitted a request for official review of the IRS assessment No. ..., relating to IRS for the year 2010, the dismissal of which was presumed (see document filed with the present proceedings as doc. no. 2 attached to the Arbitral Petition).

The facts stated in the preceding paragraph constitute undisputed matter, demonstrated both documentally and through testimony in the case.

There are no facts determined not to be proven, as all facts relevant to examination of the request were determined to be proven.

V – LEGAL GROUNDS

We shall now determine the applicable law to the facts at issue, in accordance with the issues already stated (see supra no. II).

We shall begin by examining the first issue stated (see supra item a), no. II), namely, whether the tacit dismissal of the request for review of the IRS assessment act for the year 2010, which resulted in IRS assessed at €31,443.47 and an amount to be reimbursed of €2,221.41, issued by the Tax and Customs Authority, contains an error regarding the assumptions of law and fact and also a defect consisting of violation of law, in the sense of untimeliness of the Claimant's request for registration as a non-habitual resident in Portuguese territory, and, consequently, non-taxation under that special regime.

According to article 608, no. 1 of the Civil Procedure Code, procedural issues that

Frequently Asked Questions

Automatically Created

What is the non-habitual tax resident regime (RNH) in Portugal and how does it apply to IRS personal income tax?
The Non-Habitual Resident (RNH) regime is a special Portuguese tax regime established under Article 16 of the IRS Code (CIRS) that provides favorable tax treatment for individuals who become tax resident in Portugal after not having been resident in the previous five years. Under the RNH regime, certain types of income—particularly from high-value-added activities listed in technical regulations, foreign-source pensions, and specific investment income—may be exempt from Portuguese taxation or taxed at a flat rate of 20%. To qualify, taxpayers must register their residence in Portugal and not have been considered tax resident in Portugal during any of the five preceding years. The regime applies to both Portuguese and foreign nationals and remains valid for ten consecutive years, provided the individual maintains Portuguese tax residency status throughout this period.
Was there a legal deadline for submitting the non-habitual resident status application before the changes introduced by Law 20/2012?
Before the amendments introduced by Law 20/2012 of May 14, 2012, there was no explicit legal deadline for submitting applications for non-habitual resident status under the IRS Code. The original regime established by Decree-Law 249/2009 of September 23, 2009, did not specify a time limit in Article 16(6) and (7) of the CIRS for requesting RNH registration. Law 20/2012 introduced Article 16(8) of the CIRS, establishing that applications must be submitted by March 31 of the year following the year in which the person becomes tax resident in Portugal. Crucially, Article 5(2) of Law 20/2012 provided transitional provisions stating that this new deadline did not apply retroactively to taxpayers who had submitted RNH status requests before January 1, 2012, meaning such earlier applications should be considered valid regardless of submission timing. This created significant interpretive challenges for applications submitted during the 2010-2011 period.
Can a taxpayer challenge the tacit rejection of a tax review request through CAAD arbitration proceedings?
Yes, taxpayers can challenge the tacit rejection of tax review requests through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings, but jurisdictional questions may arise depending on the nature of the underlying dispute. Under Article 2(1)(a) of the RJAT (Regime Jurídico da Arbitragem Tributária - Legal Framework for Tax Arbitration), CAAD has jurisdiction over challenges to tax assessment acts and decisions on tax review requests. However, the Tax Authority in this case argued that the challenge was fundamentally about an administrative registration decision (the denial of RNH status) rather than a tax assessment review, which would fall outside CAAD's jurisdiction and require challenge through special administrative proceedings under Article 97(2) of the CPPT (Tax Procedure Code). The distinction is critical: if the substance of the claim is registering as an RNH (an administrative status matter), it differs from challenging the tax calculation itself. This jurisdictional tension reflects broader questions about CAAD's scope when administrative decisions directly impact tax assessments.
What was the impact of Constitutional Court Ruling 718/2017 on the reform of this CAAD arbitral decision?
Constitutional Court Ruling 718/2017, which became final on January 18, 2018, had a significant impact requiring this CAAD arbitral decision to be reformed and reissued. While the specific grounds of the Constitutional Court decision are not detailed in this excerpt, the fact that it necessitated reforming the original arbitral decision from August 17, 2016, indicates that constitutional issues were identified in either the legal framework being applied, the interpretive approach taken, or procedural aspects of the original decision. Constitutional Court interventions in tax cases often address issues such as violations of the principle of legality, equality of taxation, legal certainty, protection of legitimate expectations, or retroactive application of tax laws. The reform requirement demonstrates the hierarchical nature of Portuguese legal review, where constitutional questions can override administrative arbitration outcomes, and reflects the constitutional dimensions inherent in transitional tax regime applications, particularly regarding procedural requirements that affect substantive tax rights under the RNH regime.
What are the requirements under Article 16(6) and (7) of the Portuguese IRS Code for obtaining non-habitual resident status as amended by Decree-Law 249/2009?
Article 16(6) and (7) of the Portuguese IRS Code (CIRS), as amended by Decree-Law 249/2009 of September 23, 2009, established the foundational requirements for obtaining non-habitual resident status. Article 16(6) defined non-habitual residents as individuals who, having become tax resident in Portugal under Article 16(1), were not considered tax residents in Portuguese territory in any of the five years preceding the year in which they seek to be taxed as non-habitual residents. Article 16(7) provided that individuals meeting this temporal requirement who receive income from high-value-added activities of a scientific, artistic, or technical nature—specifically those listed in technical regulations (such as Ordinance 12/2010 of January 7, 2010)—would benefit from special taxation rules. These activities include professions like senior executives, architects, engineers, artists, physicians, and other specialized occupations. The regime required both subjective elements (the five-year non-residency period) and objective elements (qualifying income sources), but notably did not specify procedural aspects such as application deadlines, creating the ambiguity at the heart of this dispute.