Process: 518/2018-T

Date: August 28, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (518/2018-T) concerns the timeliness and procedural requirements for challenging a 2006 IRS (Personal Income Tax) assessment related to capital gains from the sale of a primary residence. The taxpayer, a Netherlands resident, filed an official revision request (revisão oficiosa) under Article 78 of the General Tax Law in May 2018 regarding IRS assessment No. 2010. When no decision was issued, the taxpayer initiated CAAD arbitration in October 2018, challenging the calculation of capital gains, specifically the acquisition value determination, deductible expenses including Stamp Duty Tax (SISA), and the partial reinvestment exclusion under Article 10(5) of the IRS Code. During proceedings, the Portuguese Tax Authority (AT) partially revoked the assessment, agreeing to correct the rural property acquisition value to €37,294.85 and recognize proportional Stamp Duty expenses of €2,992.52. The AT argued that after the administrative complaint deadline expires, it is no longer obligated to revise assessments for taxpayer errors, requesting dismissal of the remaining claims. The case highlights critical procedural aspects: the relationship between official revision requests and arbitration deadlines, the Tax Authority's discretionary power to partially revoke assessments, and the proper methodology for calculating capital gains on property sales, including determining updated acquisition values under Article 46(3) of the IRS Code and deductible acquisition costs under Article 51. The decision addresses whether CAAD arbitration remains timely when filed after an official revision request receives no response, establishing important precedents for taxpayers seeking to challenge historical IRS assessments involving real estate transactions.

Full Decision

ARBITRAL TRIBUNAL DECISION

Arbitration Case No. 518/2018-T

Date of Decision: 28 August 2019

Personal Income Tax (IRS)

Value of Claim: €86,013.08

Subject Matter: IRS - Timeliness of Action

ARBITRAL DECISION

The Arbitrators, Dr. José Pedro Carvalho (in the capacity of presiding arbitrator), Dr. António Pragal Colaço (in the capacity of arbitrator member) and Dr. Alexandre Andrade (in the capacity of arbitrator member), were appointed by the Deontological Council of the Centre for Administrative Arbitration (hereinafter referred to only as CAAD) to form the Collective Arbitral Tribunal, which Tribunal was constituted on 2 January 2019, hereby agree as follows:

A. REPORT

A..., holder of Passport No. ..., Tax Identification Number (NIF) ..., resident in ..., ..., Netherlands, filed on 19 October 2018 a request for constitution of an Arbitral Tribunal, pursuant to Decree-Law No. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the TAX AND CUSTOMS AUTHORITY is the Respondent (hereinafter referred to only as Respondent).

As indicated in the Response, it was the understanding of the Tax Authority services, by dispatch of the Deputy Director-General of Personal Income Tax and International Relations, to partially revoke the Personal Income Tax assessment act of 2006, to the effect that the respective declaration should reflect, as the acquisition value for the rural property, the amount of €37,294.85, as well as, as expenses and charges, the amount corresponding to the payment of Stamp Duty Tax, in the proportion relating to the Claimant (1,200,000$00 / 2 = €2,992.52).

The Claimant filed a Request for Arbitral Pronouncement against the Personal Income Tax assessment act No. 2010..., concerning the capital gain arising from the onerous sale of property intended for permanent personal residence in 2006.

As indicated in the Request for Arbitral Pronouncement, the Claimant filed, on 15 May 2018, with the Personal Income Tax Services Direction (IRS), a Request for Official Revision of the Personal Income Tax assessment No. 2010... concerning the capital gain arising from the onerous sale of property intended for permanent personal residence in 2006, pursuant to Article 78 of the General Tax Law, and up to the date of constitution of this Collective Arbitral Tribunal, no decision has been made by the Respondent.

The Claimant identifies the object of the Request for Arbitration as follows: The present Request for Arbitral Pronouncement has as its object the challenge and assessment of the legality of the Personal Income Tax (IRS) assessment No. 2010... concerning the capital gain arising from the onerous sale of property intended for the permanent personal residence of the Claimant in 2006.

The Claimant argues in the Request for Arbitral Pronouncement that the assessment is vitiated by various illegalities, [...] and should therefore be annulled and replaced by another reflecting the necessary corrections.

In the very words of the Respondent in its Response: The request for arbitral pronouncement was made against the "act of taxation and Personal Income Tax assessment No. 2010 ... concerning the capital gain arising from the onerous sale of property intended for permanent personal residence in 2006...". Ultimately, the Claimant requested that "the present request for arbitral pronouncement should be judged to be well-founded and proven, and, with the illegality of the Personal Income Tax assessment act No. 2010... of the year 2016 being declared, the Tax Authority should issue a new assessment reflecting:

  • The correction of the capital gain calculated to €124,898.96, the following being considered for the calculation: (i) as the updated acquisition value of the property, the value of €171,735.21 corresponding to the Claimant's share of the value of the land plus construction costs, pursuant to Article 46, No. 3 of the Personal Income Tax Code; and (ii) Expenses inherent to the purchase of the property valued at €3,466.87, corresponding to the Claimant's share in the value of Stamp Duty Tax and notarial costs incurred with the acquisition of the land, pursuant to Article 51, paragraph a) of the Personal Income Tax Code; - The partial reinvestment, pursuant to Article 10, No. 5, paragraph a) and No. 7 of the Personal Income Tax Code and the consequent exclusion from taxation of 74.7877% of the capital gain".

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 19 October 2018 and automatically notified to the Respondent.

The Respondent did not proceed with the appointment of an arbitrator, whereby, pursuant to Article 6, No. 2, paragraph a) of the RJAT (Decree-Law No. 10/2011, of 20 January), the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the Collective Arbitral Tribunal, all of whom communicated acceptance of the appointment within the applicable period.

On 10 December 2018, the Parties were duly notified of this appointment, and neither expressed a desire to refuse the appointment of the arbitrators, pursuant to the combined provisions of paragraphs a) and b) of No. 1 of Article 11 of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

In accordance with the provision in paragraph c) of No. 1 of Article 11 of the RJAT, the Collective Arbitral Tribunal was constituted on 2 January 2019.

On 2 January 2019, the Arbitral Tribunal issued the following Arbitral Order: Pursuant to Nos. 1 and 2 of Article 17 of the RJAT, notify the senior official of the tax administration service to, within 30 days, submit a response and, should it wish, request additional evidence, adding that a copy of the administrative file should be sent to the arbitral tribunal within the deadline for submission of the response, with the following applying in the absence of submission: the provision of No. 5 of Article 110 of the Code of Tax Procedure and Process.

On 6 February 2019, the Respondent submitted a response in which it argued: In summary, in the case of error attributable to the Claimant, the tax administration should promote revision of the assessment, if the Claimant takes the initiative within the administrative complaint deadline, whereby, after that deadline has passed, the Tax Authority is relieved of the obligation to effect the aforesaid revision. Nevertheless, as set forth above, it was the understanding of the Deputy Director-General of Personal Income Tax and International Relations to partially revoke the Personal Income Tax assessment act of 2006, to the effect that the respective declaration should reflect, as the acquisition value for the rural property, the amount of €37,294.85, as well as, as expenses and charges, the amount corresponding to the payment of Stamp Duty Tax, in the proportion relating to the Claimant (1,200,000$00 / 2 = €2,992.52). It remains, therefore, to conclude, in light of all the foregoing, that the arbitration request should be dismissed, as to the matter that was not subject to partial revocation. In these terms and in all respects as a matter of law, which your Excellencies will most learnedly supplement, a decision should be rendered that judges the present request for arbitral pronouncement to be unfounded and unproven, and, consequently, absolvishes the Respondent in the terms set forth above, all with the appropriate and legal consequences.

Also on 6 February 2019, the Respondent submitted the Administrative File (identified as PA1 to PA18).

On 8 February 2019, the Collective Arbitral Tribunal issued the following Arbitral Order:

Given that:

  • no additional evidence beyond the documentary evidence already incorporated in the case file is requested;
  • there is no matter of exception upon which the parties lack the opportunity to pronounce;
  • the general procedural principles of procedural economy and prohibition of performance of useless acts apply in arbitral proceedings;

after consulting the other arbitrators, who expressed their agreement with the present order, pursuant to paragraphs c) and e) of Article 16 and No. 2 of Article 29, both of the RJAT:

  • The meeting referred to in Article 18 of the RJAT is dispensed with;

  • The Parties are afforded the possibility of, if they so wish, presenting written pleadings, with the Claimant able to do so, and therein pronounce itself on the preliminary issue raised by the Respondent, within 10 days, counted from notification of the present order, and the Tax Authority within the same period, counted from notification of the Claimant's pleadings, or from the lack of presentation thereof.

The final decision shall be rendered by the expiration of the deadline set in Article 21, No. 1 of the RJAT, with the Claimant required to, within 10 days before the expiration of such deadline, make the deposit of the subsequent arbitration fee.

Only the Claimant presented pleadings.

By order of 28 June 2019 the Parties were notified to, if they so wished, pronounce themselves on the possibility of verification of a matter of exception related to the timeliness of the action, and the deadline referred to in Article 21, No. 1 of the RJAT was extended.

By submission of 4 July 2019, the Claimant exercised its right to reply.

The Arbitral Tribunal was properly constituted and is materially competent to know and decide on the request, in accordance with the provisions in paragraph a) of No. 1 of Article 2 and No. 1 of Article 10 of the RJAT.

The Parties are properly represented, possess legal personality and capacity and have standing (Article 4 and No. 2 of Article 10 of the RJAT and Article 1 of Administrative Order No. 112-A/2011, of 22 March).

The case is not vitiated by any nullities, the request was timely presented and no exceptions other than the aforementioned lapse of the right of action were invoked.

There are no other circumstances preventing knowledge of the merits of the case.

B. MATTERS OF FACT

B.1 Established Facts

With relevance to the assessment and decision of the issues raised, following analysis of the documentary evidence produced in the course of this Arbitration, the Collective Arbitral Tribunal considers proven, with relevance for this Arbitral Decision, accepting as established the following facts:

a) On 18 October 1999, the Claimant acquired for himself and for his wife B..., for the price of €74,819.68 (15,000 Portuguese escudos), the rural property, called "...", located in the Municipality of ..., municipality of Grândola, Doc. 2 of the Request for Arbitral Pronouncement (hereinafter referred to only as PPA) and Doc. attached to Administrative File 1 (hereinafter referred to only as PA + number).

b) With the acquisition referred to in a) of the Established Facts, the Claimant and his wife incurred Stamp Duty Tax in the amount of €5,985.57 (1,200,000 escudos) and notarial costs relating to the execution of the public deed of €948.16 (190,090 escudos), totalling acquisition-related costs in the amount of €6,933.73 - Doc. 3 and Doc. 4 of the PPA and Doc. attached to PA1 and PA2.

c) On 15 November 1999, the Claimant entered into a construction contract with C..., D..., E..., for the construction of a residential dwelling on the property "...", Doc. 5 and Doc. 6 of the PPA and Doc. attached to PA2 and PA3.

d) The Claimant also contracted additional construction services and purchased various materials for completion of the work, having incurred costs of €53,082.99, Doc. 7a, Doc. 7b and Doc. 7c, all of the PPA and Docs. attached to PA4, PA5, PA6, PA7, PA8, PA9 and PA10.

e) To partially finance the construction of the house, the Claimant and his wife obtained a loan in the amount of €134,675.34 (27,000,000 escudos) from Bank F..., currently integrated into G..., having pledged the property "..." as security, Doc. 8 of the PPA and Doc. attached to PA11.

f) Construction of the house was completed in 2002, Doc. 9 of the PPA and Doc. attached to PA11.

g) The Municipal Council of ... issued, in 2002, a certificate of occupancy for residential and agricultural dependencies issued by the Municipal Council of ..., Doc. 9 of the PPA and Doc. attached to PA11.

h) Completion of the construction resulted in a mixed-use property, which is registered in the rural property registry matrix, under article ...., section M, with a tax patrimonial value of €193.35 and in the urban property registry matrix, under article ...., with a tax patrimonial value (in 2006) of €46,800, Doc. 10 and Doc. 11 of the PPA and Doc. attached to PA11.

i) Following completion of the construction, the Claimant took up residence in the house constructed.

j) In 2004, the Claimant returned to the Netherlands, his country of origin, where he has resided since.

k) On 3 November 2006 the Claimant and his wife sold the mixed-use property situated in Portugal for the price of €850,000.00, Doc. 11 of the PPA and Doc. attached to PA12.

l) On 9 October 2006, the Claimant and his wife repaid the loan they had contracted for the construction of the house to G..., which had incorporated Bank F..., at that date in the remaining amount of €89,510.42, Doc. 12 of the PPA and Doc. attached to PA12.

m) On 30 March 2007, the Claimant and his wife purchased, each with an undivided half share, the residence with garage, garden, underlying and adjacent land and other dependencies, situated in ... in ..., described in the Land Registry under Municipality of ..., Section D, number ..., for the price of €482,500.00, Doc. 13 of the PPA and Doc. attached to PA13.

n) The Claimant and his wife carried out various improvement works on the residence with garage, garden, underlying and adjacent land and other dependencies, situated in ... in ..., described in the Land Registry under Municipality of ..., Section D, number ..., such as installation of a kitchen, replacement of tiles, sanitary ware and bathroom cabinets, replacement of doors, among others, having incurred costs of €86,252.71, Doc. 14 of the PPA and Docs. attached to PA14 and PA15.

o) From 30 March 2007 onwards, the residence referred to in m) and n) of the Established Facts has been the Claimant's permanent residence and tax domicile, Doc. 15 of the PPA.

p) The Claimant did not file the appropriate Personal Income Tax return in Portugal for the year 2006.

q) The Claimant made no declaration to the Portuguese Tax Authorities regarding the sale of the property in Portugal and the subsequent acquisition of his current property in the Netherlands.

r) Faced with the failure to file the Personal Income Tax return, the Respondent proceeded with the ex officio assessment of Personal Income Tax for the tax period of the year 2006.

s) The ex officio Personal Income Tax assessment under analysis resulted from the application of the rule in paragraph b) of No. 1 of Article 76 of the Personal Income Tax Code (CIRS).

t) The ex officio Personal Income Tax declaration, numbered ..., was based on the values itemized in deed No. ... (1), executed on 3 November 2006.

u) The ex officio Personal Income Tax declaration considered the acquisition and realization values at 50% for the Claimant and 50% for his wife, demonstration of Personal Income Tax assessment attached with PA and PA17.

v) The ex officio Personal Income Tax declaration, numbered ..., contained the following values:

  • Realization values: €366,942.15 (in 2006) + €58,057.85 (in 2006).

  • Acquisition values: €23,400.00 (in 2002) + €3,702.37 (in 1999).

w) The ex officio Personal Income Tax declaration, numbered ..., calculated a global income (in this case, a capital gain) for the Claimant in the amount of €197,741.06, demonstration of Personal Income Tax assessment attached with the PPA and PA17.

x) It was the understanding of the Tax Authority services, by dispatch of the Deputy Director-General of Personal Income Tax and International Relations, to partially revoke, pursuant to Article 13, No. 1 of the RJAT, the Personal Income Tax assessment act of 2006, to the effect that the respective declaration should reflect, as the acquisition value for the rural property, the amount of €37,294.85, as well as, as expenses and charges, the amount corresponding to the payment of Stamp Duty Tax, in the proportion relating to the Claimant (1,200,000$00 / 2 = €2,992.52), PA16.

y) In 2012, the Claimant was cited, at his residence in the Netherlands, in the enforcement proceedings brought against him through the mechanism of administrative cooperation between the tax authorities of the Member States of the EU, Doc. 16 of the PPA and Doc. attached to PA17.

z) Only at that moment – in 2012, did the Claimant become aware of the existence of a Personal Income Tax assessment relating to a capital gain, in the value of €86,013.08, including interest, arising from the sale of a property in Portugal, which occurred in 2006, Doc. 16 of the PPA.

aa) The Claimant filed, on 15 May 2018, with the Personal Income Tax Services Direction (IRS), a Request for Official Revision of the Personal Income Tax assessment No. 2010... concerning the capital gain arising from the onerous sale of property intended for permanent personal residence in 2006, pursuant to Article 78 of the General Tax Law, and up to the date of constitution of this Collective Arbitral Tribunal, no decision has been made by the Respondent, Doc. 1 of the PPA and PA1.

B.2 Facts Found Not Proven

  1. The cost incurred with the work carried out under the construction contract granted with C..., D..., E..., for the construction of a residential dwelling on the property "...", was €183,308.23 (36,750,000 escudos).

  2. The Claimant intended to make the residential dwelling constructed on the property "..." his permanent residence for many years.

  3. The Claimant returned to the Netherlands due to health problems.

  4. The Claimant and his wife used part of the proceeds from the sale of their house in Portugal in the purchase of a house in the Netherlands.

  5. The Claimant was unaware that tax proceedings were running against him in Portugal.

B.3 Rationale for Established and Unproven Facts

With respect to matters of fact, the Tribunal does not have the duty to pronounce on all alleged matters, but rather has the duty to select those of interest to the decision, taking into account the cause (or causes) of action that supports the claim made by the plaintiff [(see Articles 596, No. 1 and 607, Nos. 2 to 4 of the Code of Civil Procedure, applicable pursuant to Article 29, No. 1, paragraphs a) and e) of the RJAT)] and set forth whether it considers such matters proven or not proven (see Article 123, No. 2 of the Code of Tax Procedure and Process).

In accordance with the principle of free assessment of evidence, the Tribunal bases its decision, with respect to evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the evidence presented to the case and in accordance with its experience of life and knowledge of persons (see Article 607, No. 5 of the Code of Civil Procedure). Only when the probative force of certain means is pre-established by law (e.g., full probative force of authentic documents, see Article 371 of the Civil Code) does the principle of free assessment of evidence not govern the assessment of evidence produced.

Thus, having regard to the positions taken by the Parties, in light of Article 110, No. 7 of the Code of Tax Procedure and Process, and the documentary evidence attached to the case file, the facts set forth above were considered proven and relevant to the decision.

The facts found not proven are based on insufficient evidence regarding them.

Thus, with respect to the fact found not proven under point 1, a contract and budget were presented, but no evidence of payment, invoices, or any other element was provided to allow the conclusion, beyond any reasonable doubt, that the value of the work carried out was as indicated, and not otherwise.

The facts found not proven in points 2, 3 and 5 are due to the complete lack of evidence regarding them.

With respect to the fact found not proven under point 4, no evidence was likewise provided that would allow the conclusion, with the necessary degree of certainty, of its existence. Indeed, it is unknown whether any type of mortgage was or was not constituted on the property acquired in the Netherlands, as well as whether the same was or was not acquired through credit, which does not allow the conclusion that all or part of the capital gain obtained from the sale of the property in Portugal was used in the acquisition of the property in the Netherlands.

C. LAW

Pursuant to an order of 28 June 2019, the possibility was raised of framing the Respondent's allegation relating to the absence of error attributable to the services as a matter of exception, insofar as it conflicts with the timeliness of the action, from which the lapse of the right of action may follow, a matter which must be examined ex officio, prior to all else.

To this end, Article 10, No. 1 of the RJAT provides:

"The request for constitution of an arbitral tribunal is presented:

a) Within 90 days, counted from the facts provided for in Nos. 1 and 2 of Article 102 of the Code of Tax Procedure and Process, as to acts susceptible of autonomous challenge and, as well, from notification of the decision or the expiration of the legal period for decision of hierarchical appeal;"

Article 102 of the Code of Tax Procedure and Process, in turn, provides:

"1 - Challenge shall be presented within three months counted from the following facts:

a) Expiration of the period for voluntary payment of tax obligations legally notified to the taxpayer;

b) Notification of other tax acts, even when they do not give rise to any assessment;

c) Service of summons on secondary liable parties in tax enforcement proceedings;

d) Formation of the presumption of tacit dismissal;

e) Notification of other acts that may be subject to autonomous challenge pursuant to this Code;

f) Knowledge of acts injuring legally protected interests not covered in the preceding paragraphs."

In the present case, the timeliness of this arbitral action is reported to the tacit dismissal, invoked by the Claimant, of the request for official revision of the Personal Income Tax assessment No. 2010..., concerning the capital gain arising from the onerous sale of property intended for permanent personal residence in 2006.

Thus, pursuant to the combined provisions of paragraph a) of Article 10 of the RJAT and paragraph d) of No. 1 of Article 102 of the Code of Tax Procedure and Process, this action will be timely if presented within 90 days, counted from the "Formation of the presumption of tacit dismissal" of that request for official revision.

Accordingly, to assess the timeliness of this action, it is necessary to determine whether, and if so, when, the formation of the presumption of tacit dismissal of the request for official revision presented by the Claimant occurred.

Let us proceed, therefore.

As explained by His Excellency Counselor Jorge Lopes de Sousa, "Tacit dismissal is a legal fiction designed to enable the interested party to gain access to the courts, to obtain protection for its rights or legitimate interests, in cases of inertia of the tax administration regarding claims presented to it."

There is no doubt, therefore, that the presumption of tacit dismissal is a consequence of the "inertia of the tax administration regarding claims presented to it," inertia assessed by the failure to render a decision on such claims within the period legally conferred for such purpose.

That is, in sum, the presumption of tacit dismissal flows from the violation of the legal duty to decide that rests with the Tax Authority.

As written by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, "The creation of a legal duty to decide is intended to enable the formation of a tacit act of dismissal, which depends on the existence of such duty, and the provision for the formation of such an act has as its sole possible justification to enable its contentious challenge."

The same understanding is held by António Lima Guerreiro, noting that "When there is no duty of decision, a presumption of tacit dismissal cannot be formed for purposes of contentious challenge or appeal, since no legal effects can be derived from the Administration's silence on the matter discussed. The question thus arises of defining, once the means of contentious challenge or appeal based on a presumption of tacit dismissal is set aside, what effects result from the failure to comply with the duty of response, when this is not associated with a procedural duty of decision. Failure to comply with the duty of response provided for in No. 1 can only give rise to disciplinary liability of officials and, possibly, non-contractual civil liability of the Tax Administration, provided the respective legal requirements are proven (...)."

It is considered, therefore, that "A tacit act of dismissal is formed only when the entity to whom the claim was directed has competence to know of it and all objective and subjective procedural prerequisites are met."

Among these prerequisites, obviously, is the verification, in the concrete case, of the legal duty to decide, whereby "The formation of tacit dismissal presupposes that the Administration body to which the claim was directed has the legal duty to decide," and "The lack of legal duty to decide leads to the administrated party not having the faculty to presume the claim dismissed after the expiration of the period for pronouncement."

Given what has been set forth above, it is concluded that in order to determine whether, in the case, the formation of the presumption of tacit dismissal of the request for official revision presented by the Claimant occurred, it becomes necessary to investigate whether, in the concrete case, the Tax Authority had, or did not have, the duty to decide it.

In the present case, it is verified that the Claimant filed, on 15 May 2018, with the Personal Income Tax Services Direction (IRS), a Request for Official Revision of the Personal Income Tax assessment No. 2010..., and on 19 October 2018 the present arbitral action was filed, based on the tacit dismissal of said request for official revision.

Now, Article 78, No. 1 of the General Tax Law provides that "Revision of tax acts by the entity that executed them may be effected at the initiative of the taxpayer, within the period for administrative complaint and on the ground of any illegality, or, at the initiative of the tax administration, within four years after the assessment or at any time if the tax has not yet been paid, on the ground of error attributable to the services."

In accordance with the holdings set forth in the Decision rendered in CAAD arbitration case 414/2017-T:

"The institute of revision constitutes a concretization of the duty to revoke illegal acts and, as such, the Tax Authority must proceed in such manner in cases where errors occur in assessments that result in the collection of taxes in an amount greater than that legally provided for. The principles of justice, equality and legality that inform the activity of the Tax Authority impose such ex officio correction.

Thus, if on the one hand revision of the act at the initiative of the taxpayer within the period for administrative challenge is admissible, on the other hand, the Tax Authority, at the initiative of the taxpayer, may also promote the so-called 'official revision'.

To this end jurisprudence states: 'It follows from the law and constitutes settled jurisprudence of this Supreme Court that the official revision of tax acts referred to in the latter part of No. 1 of Article 78 of the General Tax Law "at the initiative of the tax administration" may be carried out at the request of the taxpayer (Article 78, No. 7 of the General Tax Law), and dismissal, express or tacit, of such request for revision is subject to contentious challenge, pursuant to Article 95, No. 1 and 2, paragraph d) of the General Tax Law and Article 97, No. 1, paragraph d) of the Code of Tax Procedure and Process, when the assessment of the legality of the assessment act is at issue and such possibility is not prejudiced by the circumstance that the request for official revision was presented long after the periods for administrative challenge had been exhausted, but within the period of 4 years for revision of the assessment act "at the initiative of the tax administration"'.

The request for revision must also be grounded in 'error attributable to the services' and be presented within four years. Now, such error encompasses lapse, material or factual error, as well as legal error.

In support of the latter conclusion, jurisprudence also states: '…this Supreme Court has long understood in a settled manner that when there is a legal error in an assessment effected by the services of the tax administration, and such erroneous application of the law does not derive from any information or declaration of the taxpayer, such error is attributable to the services, since both No. 2 of Article 266 of the Constitution and Article 55 of the General Tax Law establish the general obligation for the tax administration to act in full compliance with the law,…'

'Official revision' requires that, cumulatively, the following requirements are met: i) the request is formulated within four years counted from the act for which revision is requested or at any time when the tax has not been paid; ii) it originates in 'error attributable to the services' and iii) it proceeds from the initiative of the taxpayer or is carried out ex officio by the Tax Authority."

Thus, and as follows from the provision of Article 78, No. 1 of the General Tax Law, transcribed above, a prerequisite for admissibility of the request for official revision is the occurrence of error attributable to the services, from which it follows that, absent such error, the Tax Authority will not have the duty to pronounce on any request made to it, as the necessary prerequisites for the formation of such duty are not fulfilled.

Naturally, from the perspective of verification of the procedural prerequisites necessary for knowledge (and the duty to know) the request, it will not be a question of assessing the substantive existence of error attributable to the services, but solely verifying whether, as configured by the taxpayer, the situation presented to the Tax Authority in order to trigger official revision is capable of constituting the existence of such error.

The concept of "error attributable to the services," for purposes of a request for official revision pursuant to Article 78, No. 1 of the General Tax Law, has been understood as encompassing "error in the factual and legal presuppositions."

Continuing with the cited CAAD arbitral decision rendered in case:

"Thus, after the period for judicial challenge or gracious complaint has expired, Article 78, Nos. 1, 3 and 4 of the General Tax Law establishes as an essential requirement of 'official revision' that the error be attributable to the services.

'Error attributable to the services' admits of factual and legal pathology, however, illegality cannot be attributable to the taxpayer through negligent conduct, but to the Tax Authority.

This is the position of the Supreme Administrative Court when it states that: '… any illegality not resulting from an action of the taxpayer will be attributable to the Administration itself, and such attribution to the services is independent of the demonstration of culpability of any of the officials involved in the issuance of the act affected by the error …'. And in the same sense: '…it is to the tax administration that such error is attributable, whenever the erroneous application of the law is not based on any information from the taxpayer'."

Descending to the concrete case, it is verified that the assessment now in question was made in accordance with Article 76, No. 1, paragraph c) of the Personal Income Tax Code-2006, corresponding to Article 76, No. 1, paragraph b) in the versions subsequent to Law No. 53-A/2006 of 29/12, which provided:

"1 - Personal Income Tax assessment is carried out as follows: (...)

c) In other cases, the assessment is based on the elements available to the Directorate-General of Taxes, and, whenever possible, consideration should be given to the elements contained in declarations, even if filed outside the legal period."

As can be seen, the material prerequisites of the tax assessment based on the rule in question are:

a) The non-occurrence of any of the situations described in paragraphs a) and b) of the same number;

b) That the assessment is based on "the elements available to the Directorate-General of Taxes," taking into account, where applicable, the declarations filed, even if outside the legal period.

In the present case, what is verified, and which the Claimant does not contest, is that none of the situations provided for in paragraphs a) and b) of Article 76 of the Personal Income Tax Code-2006 occurred, and that the Tax Authority proceeded with the assessment based on the elements at its disposal, with no tax return having been presented, either in a timely manner or otherwise, by the Claimant.

Within this framework, it must be concluded that, as configured by the plaintiff, the request for revision of the tax act does not evidence the occurrence of any factual or legal error, insofar as such request does not challenge the verification of the factual prerequisites of the applicable rule, nor that this was the rule (and not any other) that should have been applied to the case.

It should be noted, furthermore, that from 2007 onwards, the application of the rule in question came to presuppose notification of the taxpayer "by registered mail to comply with the obligation in default within 30 days," as a requirement for the issuance of an assessment pursuant to the new paragraph b) of No. 1 of Article 76 of the Personal Income Tax Code. However, with respect to tax assessments under the Personal Income Tax Code in force in 2006, no notification was provided for in the manner that subsequently came to be established.

With regard to the arguments presented to this effect by the Claimant, they are not susceptible to acceptance.

Thus, and first of all, it would not be correct to assert, as the Claimant does, that "Having nothing been declared by the Claimant, no incorrection can be attributed to him." Indeed, the Claimant, pursuant to Articles 60 et seq. of the applicable Personal Income Tax Code, had the legal duty to, in a timely manner, file an income declaration, beyond the duties to declare his intention to reinvest, and to timely declare the reinvestment, duties which he did not fulfill, and it is certain that, as Article 6 of the Civil Code provides, "Ignorance or misinterpretation of the law does not justify failure to comply with it or exempt persons from the sanctions established therein."

Whence, having nothing been declared by the Claimant, he is personally imputable for the failure to comply with the obligation to file the tax return, a situation that is the prerequisite and cause of the issuance of the assessment he now contests, but which results from the omission of compliance with tax-legal duties that were his, with no action or subsequent omission by the Tax Authority breaking the causal nexus between the Claimant's omission and the errors he invokes being attributed to it.

And, if the Claimant is correct when he asserts that "the absence of a declaration is something logically different from an incorrect declaration," it will be no less true that, from the perspective of conformity with the relevant legal duties, the former, which amounts to a pure and simple failure to comply with them, will be more serious than the latter, which amounts only to a defective performance of such duties.

As to the jurisprudence cited by the Claimant, the same is not transposable to the case sub iudice, insofar as it does not deal with analogous cases, that is, ex officio assessment due to failure to file a return required of taxpayers, but rather refers to situations in which the Tax Authority, in the context of inspection, corrects assessments or declarations of those parties.

Having arrived at this point, it must be concluded that, in the case, the Tax Authority did not have the legal duty to decide the request for official revision at issue in this arbitral proceeding, given the non-occurrence, in the request for revision formulated, of error attributable to the services.

As was already written in the decision of the Supreme Administrative Court of 27-04-1995, regarding hierarchical appeal, but in terms directly transposable to the present case, "the filing of a hierarchical appeal necessary after its legal deadline (...) does not impose on the superior the legal duty to decide such appeal, which from the outset precludes the formation of any tacit dismissal."

Thus, absent formation of tacit dismissal of the request for official revision at issue in this arbitral proceeding, due to the absence of the legal duty to decide it, the Claimant cannot avail himself of the provisions of the aforementioned Article 102, No. 1, paragraph d) of the Code of Tax Procedure and Process, applicable by reference of Article 10, No. 1, paragraph a) of the RJAT, in the segment that provides as the dies a quo of the period for presentation of the arbitral action the "Formation of the presumption of tacit dismissal."

Thus, the aforementioned dies a quo of the period provided in Article 10, No. 1, paragraph a) of the RJAT may only be reported, having regard to the established facts, to the "Expiration of the period for voluntary payment of tax obligations legally notified to the taxpayer," pursuant to Article 102, No. 1, paragraph a) of the Code of Tax Procedure and Process.

Having regard to that reference point, it must necessarily be concluded that presentation of the request for arbitral pronouncement occurred already beyond the 90-day period provided in Article 10, No. 1, paragraph a) of the RJAT, whereby the Claimant's right of action has lapsed, and the presentation of the arbitration request is time-barred, which determines the absolution of the Respondent from the claim.

Indeed, as was written in the Decision of the Supreme Administrative Court of 27-05-2009, rendered in case 076/09, "With the time-barred nature of the petition verified, at a non-initial phase of the proceedings, it is incumbent on the judge to absolve the defendant from the claim (equivalent to dismissal of the action)."

Thus, here, as in the cited CAAD arbitration case 414/2017-T, it must be concluded that "insofar as the possibility of revision within the period and manner of Article 78, No. 1 of the General Tax Law presupposes the existence of error attributable to the services, which does not occur in the case at hand (...) the period for recourse to the arbitral route in relation to the assessments in question had already expired [...on] the date of presentation of this request, generating the peremptory exception of time-barred claim and the consequent absolution of the claim, pursuant to Article 576 of the Code of Civil Procedure applicable pursuant to Article 29 of the RJAT."

Given what has been decided, which prevents knowledge of the merits of the case, knowledge of the remaining issues raised by the Parties is precluded.

D. DECISION

On these grounds, it is decided in this Arbitral Tribunal that the present action be judged time-barred (as to the tax assessment act which is its object), by lapse of the right of action, absolvishing the Respondent from the claim, and consequently condemning the Claimant to bear the costs of the arbitral proceedings, fixed below, as he has occasioned them.

E. VALUE OF THE CASE

The value of the case is fixed at €86,013.08, pursuant to Article 97-A, No. 1, paragraph a), of the Code of Tax Procedure and Process, 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 of Costs in Tax Arbitration Proceedings.

F. COSTS

The value of the arbitration fee is fixed at €2,754.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was entirely unfounded, pursuant to Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the cited Regulation.

Let it be notified.

Lisbon, 28 August 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(António Pragal Colaço)

The Arbitrator Member

(Alexandre Andrade)

Frequently Asked Questions

Automatically Created

What is the timeliness requirement for filing an IRS tax dispute at CAAD in Portugal?
In Portugal, taxpayers may file IRS disputes at CAAD (Centre for Administrative Arbitration) within specific timeliness requirements. According to the RJAT (Legal Regime of Arbitration in Tax Matters, Decree-Law 10/2011), arbitration requests can be filed after exhausting administrative remedies or when the Tax Authority fails to decide on official revision requests (revisão oficiosa) within statutory deadlines. In this case, the taxpayer filed an Article 78 General Tax Law revision request in May 2018 and, receiving no response, initiated CAAD arbitration in October 2018. The timeliness of arbitration depends on whether administrative complaint deadlines have expired and whether the taxpayer properly invoked available administrative remedies. Generally, the standard complaint deadline (prazo de reclamação graciosa) is two years from notification of the assessment, though special rules apply for official revisions of final assessments.
How are capital gains from the sale of a primary residence taxed under Portuguese IRS?
Capital gains from the sale of a primary residence (permanent personal residence) in Portugal are taxed under IRS but benefit from significant exclusions. Under Article 10(5) of the IRS Code, taxpayers can exclude gains from taxation through reinvestment in another primary residence within specific timeframes. The capital gain is calculated by subtracting the updated acquisition value (determined under Article 46 of the IRS Code, including original purchase price plus construction costs and inflation adjustments) from the sale price, minus deductible expenses under Article 51 (including Stamp Duty Tax/SISA, notarial costs, and real estate agent fees). In this case, the taxpayer claimed a 74.7877% exclusion based on partial reinvestment. The acquisition value for rural property that was subsequently built upon includes both land cost and documented construction expenses. Only 50% of the net gain (after exclusions) is subject to taxation at progressive IRS rates when aggregated with other income.
Can a taxpayer request an official review (revisão oficiosa) of an IRS assessment under Article 78 of the General Tax Law?
Yes, under Article 78 of the General Tax Law (Lei Geral Tributária), taxpayers can request an official review (revisão oficiosa) of tax assessments, even after they become final. However, important limitations apply. The Tax Authority is obligated to review assessments when errors are attributable to the administration itself. When errors are attributable to the taxpayer, the AT should promote revision only if the taxpayer requests it within the administrative complaint deadline (prazo de reclamação graciosa). After this deadline expires, as the AT argued in this case, the authority is not obligated to effect such revision, though it retains discretionary power to do so. In this proceeding, the Deputy Director-General of Personal Income Tax exercised discretion to partially revoke the 2006 IRS assessment, correcting the rural property acquisition value to €37,294.85 and recognizing proportional Stamp Duty expenses of €2,992.52, despite the expired complaint deadline. This demonstrates that while Article 78 requests can be made, their success depends on the nature of the error and timing.
What happens when the Portuguese Tax Authority (AT) partially revokes an IRS assessment during arbitration proceedings?
When the Portuguese Tax Authority (AT) partially revokes an IRS assessment during CAAD arbitration proceedings, the arbitration continues only regarding the remaining disputed issues. In this case, the AT's partial revocation through the Deputy Director-General of Personal Income Tax acknowledged certain taxpayer claims (the rural property acquisition value of €37,294.85 and proportional Stamp Duty expenses of €2,992.52) while maintaining its position on other contested matters. The AT then requested that the arbitral tribunal dismiss the remaining claims not subject to partial revocation. Partial revocation represents an administrative acknowledgment of specific errors or illegalities without conceding the entire case. The arbitral tribunal must then determine: (1) whether the partial revocation adequately addresses the taxpayer's claims, (2) whether remaining disputed issues have merit, and (3) whether procedural requirements (particularly timeliness) are satisfied for the continuing claims. The partial revocation does not automatically terminate arbitration proceedings but narrows the scope of controversy, potentially affecting the claimed amount and the allocation of arbitration costs between parties.
How is the acquisition value and SISA expenses calculated for capital gains tax purposes on Portuguese property sales?
For Portuguese capital gains tax purposes on property sales, the acquisition value calculation follows Article 46 of the IRS Code. For rural property (land) subsequently developed, the acquisition value includes: (1) the original land purchase price, updated for inflation using official coefficients published annually; (2) documented construction costs, also inflation-adjusted; and (3) improvement expenses with proper documentation. In this case, the taxpayer claimed an updated acquisition value of €171,735.21 representing their proportional share of land value plus construction costs. Regarding SISA (Stamp Duty Tax) expenses, Article 51(a) of the IRS Code permits deduction of expenses inherent to acquisition, including Stamp Duty paid on property transfer and notarial costs. Since the property was co-owned, the taxpayer claimed their proportional share: €3,466.87 in SISA and notarial costs. The AT partially accepted the SISA deduction at €2,992.52 (representing 1,200,000 escudos / 2). Proper documentation is essential: property registry records, construction invoices, bank transfers, and official tax payment receipts. The updated values use official monetary correction coefficients published by the Tax Authority, applying from the acquisition/expense year to the sale year. Disputes often arise over: what qualifies as construction versus maintenance costs, proper documentation standards, and allocation of expenses among co-owners.