Summary
Full Decision
ARBITRAL DECISION
I. REPORT
- Subject Matter of the Claim
A…, NIF…, resident at Av…, …– apt…, Building…, …-…São Paulo, Federative Republic of Brazil, pursuant to articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) and no. 2 of the Legal Framework for Tax Arbitration (RJAT), established by Decree-Law no. 10/2011, of 20 January, on 06-08-2015 submitted to the consideration of the arbitral tribunal the legality of i) the decision dismissing a gracious complaint filed by the Tax Office of … and ii) the Personal Income Tax (IRS) assessment no. 2014…, dated 5 December 2014, relating to the year 2013.
- Composition and Functioning of the Arbitral Tribunal
Pursuant to the provisions of no. 1 of article 6 of the RJAT, the Honorable President of the Deontological Council of CAAD appointed as sole arbitrator the undersigned, Joaquim Silvério Dias Mateus, who accepted the assignment within the legally prescribed period without any party having manifested refusal of his appointment.
The sole arbitral tribunal was constituted on 04-11-2015.
On 7 April 2016 the meeting provided for in article 18 of the RJAT took place, in accordance with the minutes attached to the file, and the parties were notified to present, if they so wished, successive submissions within 15 days.
Pursuant to article 21, no. 2, of the same RJAT, the tribunal determined the extension of the period referred to in no. 1 of the same article up to a maximum of 2 months, with 20 May 2016 being fixed as the date for the rendering of the arbitral decision.
- Grounds for the Claim
The claimant based his claim on arguments which, in summary, are presented as follows:
3.1. The petition begins by alleging that the claim is timely as it is submitted within 90 days following notification of the decision dismissing the gracious complaint filed against the legality of the 2013 Personal Income Tax assessment which was duly notified to him.
3.2. Adding that in 2012 the claimant resided and worked in Portugal in a Portuguese company belonging to a multinational group, in which year he was invited to occupy a work position in a company of the same group in Brazilian territory.
3.3. Thus, following successive trips to Brazil at the end of 2012 and beginning of 2013, on 24 April 2013 the claimant states that he signed an employment contract with B…, with headquarters at Av. … …, São Paulo.
3.4. That in the said city of São Paulo he contracted a lease on the avenue…, …, apt…, Building…, …-… São Paulo, from 15 July 2013, for his family residence, and that from August following his children started school at an educational establishment in the same city.
3.5. That his previous residential property in Portugal was leased on 26 June 2013, with the tenants occupying the leased property from 1 July following.
3.6. That as results from the entry and exit stamps on Brazilian territory affixed to his passport by the Brazilian Federal Police, the movements of entries and exits of the claimant from that territory in the year 2013 were as follows:
- Entry into Brazil on 13 January 2013. Exit on 1 February 2013;
- Entry into Brazil on 17 February 2013. Exit on 1 March 2013;
- Entry into Brazil on 13 March 2013. Exit on 28 March 2013;
- Entry into Brazil on 24 April 2013. Exit on 9 May 2013;
- Entry into Brazil on 23 May 2013. Exit on 7 June 2013;
- Entry into Brazil on 12 June 2013. Exit on 20 June 2013;
- Entry into Brazil on 14 July 2013. Exit on 19 July 2013;
- Entry into Brazil on 22 July 2013. Exit on 14 December 2013.
3.7. That upon cessation of his employment relationship with the Portuguese employer – in April 2013 – payment of compensation was agreed, so that, adding the salaries received with said compensation, the claimant earned in 2013 Category A income under the Personal Income Tax in the total amount of € 234,770.15, which were subject to the withholding tax rate (including extraordinary surtax) applicable to residents.
3.8. That on 29 November 2014, the Claimant submitted his annual income declaration Form 3 relating to 2013, in the capacity of non-resident in Portugal, in which he declared having earned € 234,770.15 of Category A income, on which was withheld the amount of € 100,255 and € 4,323.45 of extraordinary surtax.
3.9. Notified of the Personal Income Tax assessment no. …, dated 5 December 2014, and not conforming to it, the Claimant filed a gracious complaint of the same to the Tax Office of … in March 2015, a complaint which was dismissed with the invocation that, pursuant to articles 58 and 71, no. 10, of the Personal Income Tax Code (CIRS), the refund should not have been requested through the submission of the declaration but rather with the central services of the DGCI (Directorate General for Tax Administration).
3.10. The claimant disagrees with the dismissal alleging that, in view of article 16 of the CIRS, wording at the date of the facts, he should be considered as non-resident in Portugal, given that in 2013 he did not spend more than 183 days here and that, on the contrary, he spent 226 days in Brazilian territory, and that on 31 December of that same year he did not have in Portugal a residential property under conditions that would suggest the intention to maintain and occupy it as residential property.
3.11. Thus, continues the claimant, the article 71, no. 4, paragraph a), of the CIRS providing that income from dependent work obtained in Portuguese territory by non-residents are subject to withholding at a final rate of 25%, the gracious complaint could not have resulted in any decision other than dismissal, with the consequent return of € 45,885.91, the difference between the tax that was effectively withheld of € 104,578.45 and the tax of € 58,692.54 which resulted from the application of the said rate to the € 234,770.15 of Category A income that he earned in Portugal as a non-resident.
3.12. Subsequently, the claimant states that the decision here contested suffers from a defect of violation of law due to errors in the factual and legal assumptions by having supported the dismissal with the assertion that the request for refund of the tax withheld in excess should have been requested at the Directorate of International Relations Services, since, as he alleges, articles 58 and 71, nos. 4 and 10, all of the CIRS, are not applicable here, which only apply, as results from their wording, to cases of income taxed at the rates provided in article 71 and to tax withheld from non-residents, but only if they are residents of other Member States of the European Union or the European Economic Area, which is not the case with Brazil.
3.13. The claimant concludes by requesting compensation interest since, in his understanding, it results from the combined reading (direct or by analogy) of articles 77, 96, 97, no. 1, of the Personal Income Tax Code, in the wording given by Law no. 82-E/2014, of 31 December, applicable in the case sub judice by virtue of the provisions of no. 1 of article 17 of the said Law, that the general deadline for official restitution of overpaid Personal Income Tax is 1 month.
Now, continues further the claimant, as the assessment sub judice is dated 5 December 2014, and had it been correctly effected by the AT (Tax Administration), this entity should have refunded the overpaid tax within a period of 1 month, so that, from, at worst, 5 January 2015 inclusive, compensation interest is due as provided by article 43, no. 3, paragraph a), of the General Tax Law (LGT), which, as results from article 61 of the Code of Tax Procedure and Process (CPPT), must be paid within 90 days, counted from the beginning of the period of voluntary execution of the arbitral decision here petitioned, and must be counted until the date on which the credit note is issued.
3.14. In final terms the claimant presents the petition that the decision dismissing the gracious complaint and, as well as, the tax assessment sub judice, must be entirely annulled, and consequently the amount of € 45,885.91 withheld in excess as against what is legally due must be refunded, plus compensation interest, with the other legal consequences.
3.15. In the submissions, the Claimant maintains the same position and the same petitions, renewing the arguments and invocation of the facts already presented in the initial petition.
- Position of the Respondent Authority
The Respondent Authority presented its response alleging that the claimant, claiming for himself the fiscal status of non-resident, refrained from making the due proof, not attaching to the file supportive documents of what he alleges and what was required to be proven pursuant to article 16 of the CIRS, thus arguing for the dismissal of the petition for arbitral pronouncement.
It maintained the same position in the submissions.
- Examination of Pleadings
The arbitral tribunal is materially competent and was regularly constituted, the parties have legal personality and capacity, have standing and were legally represented.
Since the case does not suffer from nullities and no questions were raised that prevent the consideration of the merits of the case, it is considered that the conditions are met for the arbitral decision to be rendered.
II. DECISION
II.A. ON THE FACTS
II.A.1. Presentation of the Facts Relevant to the Arbitral Decision
With relevance to the arbitral decision the following factual matter is selected:
a) In 2012 and until April 2013, the claimant resided in Portugal and here earned dependent work income paid by his employer entity "C…, S.A", NIPC….
b) Meanwhile, on 29 November 2014, already beyond the legal deadline, the claimant submitted an annual income declaration Form 3, relating to the year 2013, in which he marked that he was a "non-resident" (field 5B), indicated the NIF of the tax representative, marked the field of "de facto separated" (field 6), and in Annex A declared Category A income of € 234,770.15, on which was withheld the amount of € 100,255 and € 4,323.45 of extraordinary surtax.
c) The claimant attached a Declaration, dated 20 January 2014, issued by his employer entity in Portugal, in which, pursuant to article 119 of the CIRS, it was declared that during the year 2013 dependent work income of € 234,770.15 was paid to A…, taxpayer no. …, on which income tax was withheld of € 100,255 and extraordinary surtax of € 4,323.45.
d) The claimant, through his tax representative, was the recipient of assessment number …, dated 5 December 2014, relating to the year 2013, in which appears as total income and collectible income the amount of € 234,770.00, as total tax due the amount of € 58,692.00, as payment on account the amount of € 58,692.00, with no payment indicated to be made or any refund to be paid to the taxpayer.
e) The claimant, through his tax representative appointed pursuant to article 19 of the LGT, filed a gracious complaint to the Tax Office of …, dated 9 March 2015, through which he protested against the fact that it was mentioned in the assessment complained of that the withholding was € 58,692.00 when, in fact, this withholding was € 104,578.40, requesting the issuance of a new assessment that would consider the tax effectively withheld and that, consequently, the excess be refunded to him in the amount of € 45,885.90, in accordance with the provisions of article 96 of the CIRS.
f) On 7 May 2015, again through his tax representative, the Claimant was notified of the dismissal of said complaint according to which the refund request should not be made through the submission of a Form 3 declaration, but through a request directed "to the competent services of the Directorate-General for Taxes, that is, to the Directorate of International Relations Services", given that, according to such dispatch, the provisions of no. 10 of article 71, and nos. 2 and 3 of article 78, all of the CIRS, are applicable here.
g) It results from the administrative file, attached to the present case on 2 January 2016 by the representative of the respondent authority, that the claimant, through his tax representative, submitted on 26 May 2015 a request for refund of the Personal Income Tax in question, in the amount of € 45,885.90, directed to the Director of International Relations Services.
h) On 14 October 2015, said request was returned by the said Directorate of International Relations Services to the Tax Office of … with the indication that the instructions of the tax administration in force (circulated office no. 20103/2005, of 14 March) determined that the proper means to obtain the refund of Personal Income Tax withheld from non-resident dependent workers, by application of a rate higher than provided in article 71 of the CIRS, is the gracious complaint procedure, as provided in no. 4 of article 132 of the CPPT.
i) Meanwhile, as also results from the administrative file, by dispatch of 15/10/2015 of the Director of the Tax Office of …, by delegation, the dispatch dismissing the gracious complaint issued on 21/04/2015 was revoked, maintaining the dismissal of the request for return of Personal Income Tax now on the ground of lack of proof that the claimant had the status of non-resident in Portugal (see information no. …/2015, of 2015-10-15, on which was issued the dispatch of the same date).
j) Meanwhile, the dispatch of revocation and dismissal just cited accepted the proposal contained at the end of the information that served as its basis so that the claimant would be notified to, if he so wished, present additional proof, within the period for the exercise of the right to be heard, the Tax Office of … having, through office …, dated 2015-10-16, notified the claimant's representative.
m) Following said notification, the claimant submitted, through his representative in the present case, a request on 27 October 2015, to the Tax Office of …, with which he attached to the administrative file of the gracious complaint a lease contract dated 28 June 2013, signed by the parties, intended to replace the previous version which had not been signed, a contract which had as its object the right portion of the first floor of no. … of Avenue …, in Lisbon, registered under article …, of the parish of …, which was leased to tenants D…, NIF…, and wife, in which it was stipulated that the tenants would occupy the leased property from 1 July 2013.
n) It is confirmed that the first version of the same lease contract, presented with the petition for constitution of the arbitral tribunal, showing the date of 26 June 2013 as the date of its execution but presenting the same clauses as the version referred to in the previous number, was not signed, this lack of signature being one of the grounds invoked in the dispatch already cited above of 15.10.2015 which maintained the dismissal of the gracious complaint with the invocation that the claimant had not made proof of his status as a non-resident in Portugal.
o) Through the same request of 27 October 2015, the claimant's representative also attached to the administrative file of the complaint a copy of the Form 3 declaration relating to 2013, submitted by his spouse E…, marking the status of de facto separated (field 3 of table 6) and the respective Annex F in which was declared the receipt of rent relating to fraction G of the urban property registered under article …, parish code …, in the amount of € 7,200.00, paid by the tenant with NIF no. …, who is also indicated in the lease contract as being that of the tenant D….
p) The documents just referred to are part of a set of evidence presented by the claimant, either in the complaint process or in the context of the present case, aimed at demonstrating his status as a non-resident in Portugal in the year 2013, proof which was supplemented with other documents which are now referred to below.
q) Thus, also with the petition for arbitral pronouncement the claimant attached a copy of a lease contract in which he intervenes as lessee and which has as its object real property located at avenue …, …, Apt…, Building…, … …-… São Paulo, in which it is stipulated that the said property was intended "exclusively for the residence of the lessee and his family" and which would take effect from 15 July 2013.
r) With the petition for arbitral pronouncement the claimant also attached a copy of a "Work and Social Security Booklet", of the Ministry of Labor and Employment, in which it is noted that the present claimant arrived in Brazil on 24/04/2013 and entered into an "employment contract" with the entity "B…", with headquarters at Av. … …, São Paulo, in which is indicated 24 April 2013 as the date of admission, and a final note stating that a "fixed-term trial employment contract was executed to take effect from 24/04/2013 and to end on 23/06/2013".
s) It results from the documents attached with the petition for arbitral pronouncement that the claimant in 2013 spent 226 days in Brazilian territory, as results from the entry and exit stamps affixed to his passport by the Brazilian Federal Police, referenced to the following dates:
Entry into Brazil on 13 January 2013 and Exit on 1 February 2013;
Entry into Brazil on 17 February 2013 and Exit on 1 March 2013;
Entry into Brazil on 13 March 2013 and Exit on 28 March 2013;
Entry into Brazil on 24 April 2013 and Exit on 9 May 2013;
Entry into Brazil on 23 May 2013 and Exit on 7 June 2013;
Entry into Brazil on 12 June 2013 and Exit on 20 June 2013;
Entry into Brazil on 14 July 2013 and Exit on 19 July 2013;
Entry into Brazil on 22 July 2013 and Exit on 14 December 2013.
t) The clarification regarding proof that the stamps affixed to the claimant's passport signified entry into and exit from Brazil, for the purpose of determining the time of stay in that country, was given by the claimant through a request submitted following the meeting provided for in article 18, no. 1, of the RJAT, which took place on 7 April 2016, in which claimant and respondent were invited to pronounce themselves, with a view to clarification, on the meaning of the numbers 1 and 2 affixed to the passport stamps, given that until that date neither party had pronounced itself on this issue, it being established with the documents presented with the said request that the affixing of the number 1 meant that the passport holder had entry into Brazilian territory and that the number 2 was affixed to the passport at the exit from that same territory.
II.A.2. Facts Established and Not Established as Proven
Regarding evidence, it is noted from the outset that the claimant, declaring and claiming his status as non-resident in Portugal in the year 2013, respectively, in the Form 3 declaration that he submitted on 29 November 2014 and in the gracious complaint submitted by his tax representative dated 9 March 2015, did not produce there adequate proof to demonstrate the situation that he declared and claimed, which only occurred at a later stage with the petition for constitution of the arbitral tribunal, submitted on 06-08-2015, which gave rise to the present case, and already after this petition with the request of 27 October 2015 filed with the administrative file of the complaint, with which he submitted the signed version of the lease contract that had as its object his residential property in Portugal and made proof of receipt of the rents.
There are no other facts established and/or not established relevant to the decision in light of the various perspectives of analysis of the legal questions.
The Tribunal's conviction in establishing the factual framework described was based on the documentary elements included in the case by the claimant and the respondent, the latter, instead of having analyzed or questioned the documents attached by the former, in the response and in the submissions limited itself to asserting that the claimant had not produced proof of the alleged situation of non-resident.
Nevertheless, it is noted that the tribunal does not have to pronounce itself on everything that was alleged by the parties, the duty falling to it to select the facts relevant to the decision and to distinguish the proven matter from the unproven (cfr. article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).
II.B. ON THE LAW
What is at issue in the present case is to determine whether the claimant met or did not meet the requirements to be considered as a non-resident in Portugal in the year 2013 and, if so, to decide whether he paid Personal Income Tax higher than due on the Category A income earned here, with the inherent right to its refund, and, moreover, if that refund should be made in full or increased with compensation interest as requested in the final part of his petition for arbitral pronouncement.
Before proceeding to the final analysis of the questions outlined, it is necessary to bring to the fore the procedures deduced by the claimant with the respondent tax authority, before and even simultaneously with the petition for constitution of the arbitral tribunal, in some cases through his tax representative and in other cases through his agent, also constituted as such in the present case, and determine to what extent some acts performed within the administrative sphere and the documents that were attached there already during the pendency of the petition for arbitral pronouncement may or should be considered in the present case.
In fact, as developed above in the matter of facts established as proven, in addition to the gracious complaint filed with the Tax Office of …, which was dismissed by dispatch of 7 May 2015, the claimant submitted further petitions which we will now refer to.
Thus, notified of the grounds that led to the dismissal of the complaint, the claimant, through his tax representative, submitted on 26 May 2015 a request for refund of the Personal Income Tax in question directed to the Director of International Relations Services.
On 14 October 2015, already during the pendency of the present arbitral proceeding, said request was returned to the Tax Office of … with the indication that the instructions of the tax administration in force determined that the proper means to obtain the refund of Personal Income Tax withheld in excess from non-resident dependent workers, by application of a rate higher than provided in article 71 of the CIRS, is the gracious complaint procedure, as provided in no. 4 of article 132 of the CPPT.
Meanwhile, as also results from the administrative file, by new dispatch of the Director of the Tax Office of …, issued on 15/10/2015, the first dispatch dismissing the gracious complaint was revoked, maintaining however the dismissal of the request for refund of Personal Income Tax but now on the ground of lack of proof that the claimant had the status of non-resident in Portugal, this second dispatch dismissing having given the claimant the opportunity to present proof that he indeed met the requirements to be considered as a non-resident.
Following said notification, as also established above, the claimant submitted two pieces of evidence, namely, a lease contract for his property in Lisbon which had already been submitted but without signatures and a document proving that the rents received from such lease were legally declared to the tax authority.
These documents were not formally reviewed by the Tax Office of … having been attached to the present case, inserted in the administrative file, on 2 January 2016, through email directed to CAAD by the Honorable Representative of the respondent authority.
How should the administrative procedures summarily described be articulated with the present arbitral proceeding?
Let us see.
Article 111 of the Code of Tax Procedure and Process (CPPT) determines in its no. 3 that "If a gracious complaint has been filed previously to the receipt of the petition of challenge, it must be attached to the challenge, in the state it is in, being considered, for all purposes, within the scope of the challenge proceedings".
On the other hand no. 4 of the same article determines that "if, after the receipt of the petition of challenge, a gracious complaint is filed relating to the same act and based on a different ground, it must be attached to the challenge proceedings, being equally considered, for all purposes, within the scope of the challenge proceedings".
The provisions transcribed, applicable subsidiarily to the arbitral proceeding by virtue of the provisions of article 29 of the RJAT, determine, in summary, that the gracious complaints pending with the tax services, whether filed before or after the submission of the challenge, in this case based on a different ground, must be attached to the latter proceeding to be reviewed and decided there.
We will thus review the administrative proceeding here and decide the petition for arbitral pronouncement considering what should be considered.
And one of the questions that must be defined immediately is whether the ground for the initial dismissal of the gracious complaint, which indeed constituted a significant part of the petition for arbitral pronouncement, should constitute the subject of the present proceeding?
The initial dispatch dismissing the gracious complaint, notified on 7 May 2015, was as follows:
"Article 71 of the Personal Income Tax Code (CIRS) provides that "(…) 4 – Income from dependent work obtained in Portuguese territory by non-residents are subject to withholding at a final rate of 25%, including all business and professional income, even if arising from isolated acts: (…) 10 – The refund of withheld and paid tax must be requested from the competent services of the Directorate-General for Taxes, within a period of two years counted from the end of the following civil year in which the taxable event occurred (…)".
For its part, pursuant to the provisions of article 58 of the same code, "Persons who, in the year to which the tax relates, have obtained, alone or cumulatively, only income taxed at the rates provided in article 71 and do not opt, where legally permitted, for its aggregation, are exempt from filing the declaration referred to in the previous article; (…)".
In these terms, when non-resident entities obtain, in Portuguese territory, income from dependent work, the same are subject to withholding at a final rate of 25%, and should, in the event of excessive tax withholding, request its refund "from the competent services of the Directorate-General for Taxes", that is, from the Directorate of International Relations Services.
In fact, the filing of the Personal Income Tax Form 3 declaration, in these situations, is not the suitable means to obtain the desired refund, not only because, in accordance with the provisions of nos. 2 and 3 of article 78 of the CIRS, only withholding at source that has the nature of payment on account of the tax due finally (and not the nature of withholding at a final rate), confer the right to refund, but also because there is provided a specific mechanism, with specific competence, for obtaining the desired refund.
And this conclusion is not prevented by the fact that the complainant, at the time of payment, was considered as resident, and taxed as such in the context of Personal Income Tax withholding at source, pursuant to articles 98, no. 1, and 99 and 99-A, since, concluding subsequently that the person subject to tax is considered as non-resident, one must concomitantly follow the legal regime established for non-residents.
Analyzing the assessment effected it is verified that this, taking into account the fact that the complainant indicated being non-resident, calculated a tax due of €58,692.54, resulting from the application of the final rate to the amount that the complainant declared having earned [€ 234,770.15 x 25% = 58,629.54], not issuing, however, the refund of the amount withheld in excess, due to legal impossibility, given the provisions of no. 10 of article 71, and nos. 2 and 3 of article 78, all of the CIRS.
And thus being, it is verified that the assessment does not suffer from any illegality or incorrectness."
In the case at hand, as is demonstrated, the first dismissal of the gracious complaint filed with the Tax Office of … had grounds which the central services of the tax authority itself considered inconsistent, having communicated to said Tax Office that the legal provisions it invoked for the dismissal did not apply to the case and that the dispatch of dismissal did not comply with the administrative instructions in force.
Following said intervention by the central services of the respondent tax authority, the Tax Office of … revoked the previous dispatch, maintaining however the dismissal now on a different ground, namely, that the claimant did not make proof that he met the requirements to be considered non-resident and thus have the right to have the 25% rate provided in article 71 of the CIRS applied, with the consequent refund of what was withheld in excess on the Category A income earned in Portugal.
In these terms, weighing the provisions transcribed on the attachment of the administrative file to the judicial challenge proceedings and the revocation of the initial dispatch dismissing the complaint, it is determined in the first place that the said initial dispatch will not be reviewed here, given that the respondent authority itself revoked it, although it was the subject of analysis and challenge in the petition for arbitral pronouncement, and that the present arbitral decision will be based on the question of whether or not it is proved that the claimant should be considered as a non-resident in Portugal in the year 2013 and, consequently, whether or not he has the right to be refunded part of the Personal Income Tax that was withheld from him at source on the Category A income earned here in said year.
It is to this analysis that we now turn.
Article 16 of the CIRS, in the wording in force in 2013, was as follows:
1 - Persons who, in the year to which the income relates, are resident in Portuguese territory are:
a) Those who have spent more than 183 days therein, whether consecutively or intermittently;
b) Those who, having spent less time, have there, on 31 December of that year, a residential property under conditions that suggest the intention to maintain and occupy it as their habitual residence;
……………………..
2 - Persons constituting the family unit are always considered resident in Portuguese territory, provided that any of the persons charged with its direction is resident there.
3 - The status of resident resulting from the application of the provisions of the previous number may be set aside by the spouse who does not meet the criterion provided in paragraph a) of no. 1, provided that he makes proof of the absence of a link between the greater part of his economic activities and Portuguese territory, in which case he is subject to taxation as a non-resident regarding income of which he is the holder and which is considered to be obtained in Portuguese territory pursuant to article 18. (Wording of Law no. 60-A/2005 of 31 December).
4 - Once proof as referred to in the previous number is made, the spouse resident in Portuguese territory submits a single declaration of his own income, his share of joint income and the income of his dependents according to the regime applicable to persons in the situation of de facto separated pursuant to no. 2 of article 59. (Wording of Law no. 60-A/2005 of 31 December).
………………………
It results from the provision transcribed, immediately "a contrario" from paragraphs a) and b) of no. 1, that in 2013 a taxpayer who had spent 183 days or fewer therein, whether consecutively or intermittently, and who simultaneously did not have there, on 31 December of that year, a residential property under conditions that would suggest the intention to maintain and occupy it as his habitual residence, was considered non-resident in Portugal.
Now, already during the course of the present proceedings, the claimant succeeded in demonstrating with significant degree of certainty and credibility that in the year 2013 he met the requirements to be considered a non-resident in Portugal and, in this way, have the right to be refunded the Personal Income Tax that was withheld from him at source, at the general rates, regarding Category A income earned here.
In fact, it is immediately considered proved that, among the entries and exits recorded in his passport, the claimant spent in Brazil approximately 226 days and that, consequently, in view of the number of days in the year, he could not have spent 183 days or more in Portugal (see above II.A.1.s) and t)).
The stay in Brazil likewise results from the fact that he entered into an employment contract with a Brazilian employer with headquarters in the city of São Paulo, effective from 24 April 2013, which lasted at least until 24 June of that same year (see above II.A.1.r)) and that, although proof of the extension of that contract was not presented, the other proofs produced indicate that the stay in that country continued beyond the time limit set in the contract.
The stay in Brazilian territory likewise results from the fact that the claimant presented a copy of a lease contract, in which he intervenes as lessee, having as its object real property located in the city of São Paulo, in which it is stipulated that the said property was intended "exclusively for the residence of the lessee and his family" and which would take effect from 15 July 2013 (see above II.A.1. q)).
It is noted, on the other hand, that the spouse of the claimant E…, whose stay in Portugal would have been greater than the limit provided in paragraph a) of no. 1 of article 16 of the CIRS, set aside the legal presumption provided in no. 2 of the cited article 16 by having submitted a Form 3 declaration relating to 2013, marking the status of de facto separated (field 3 of table 6) (see above II.A.1.o)).
On the other hand, it being undeniable that the claimant spent in Portugal still some months at the beginning of 2013, although less than 183 days, it is established that he also set aside the requirement relating to the ownership of a residential property on 31 December 2013 by having attached, with the request of 27 October 2015, a copy of a lease contract, dated 28 June 2013 and effective from 1 July following, concerning the autonomous fraction that was used for the residential property of the claimant and his family unit in Portugal until the said date (see above II.A.1, m), n) and o)).
Regarding the question of compensation interest the claimant alleges that he has the right to it with the invocation that as the Personal Income Tax assessment directed to him is dated 5 December 2014, had it been correctly effected by the AT this should have refunded the overpaid tax within a period of 1 month, so that, from, at worst, 5 January 2015 inclusive, compensation interest is due as provided by article 43, no. 3, paragraph a), of the LGT, which, as results from article 61 of the CPPT, must be paid within 90 days, counted from the beginning of the period of voluntary execution of the arbitral decision here petitioned, and must be counted until the date on which the credit note is issued.
This part of the claimant's argument is not accepted.
In the second place the fundamental reason for the total failure of the petition for compensation interest has to do with the non-occurrence of the assumptions provided in the cited no. 1 of article 43 of the LGT.
In fact, it is provided in no. 1 of article 43 of the LGT that compensation interest is due when it is determined "that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due".
Now, in the case at hand, it cannot be concluded that it was due to error attributable to the services that the claimant paid tax higher than due since, as he rightly observes in the initial petition, at the moment when the income from work was being paid to him and tax was being withheld at the rates applicable to residents, it was not even possible to determine whether at the end of the tax period he would or would not meet the assumptions to be classified as a non-resident taxpayer in Portugal.
Pursuant to no. 3 of the same article 43 of the LGT compensation interest is also due in the following circumstances:
a) When the legal deadline for official restitution of taxes is not met;
b) In case of annulment of the tax act on the initiative of the tax administration, from the 30th day following the decision, without the credit note having been processed;
c) When the revision of the tax act on the initiative of the taxpayer takes place more than one year after his request, except if the delay is not attributable to the tax administration.
Let us see.
The situation provided for in the transcribed paragraph a) does not occur in the case at hand given that there is no legal deadline provided for the official restitution of tax assessed in the circumstances underlying the tax situation subject of the present case.
In fact, although the Personal Income Tax assessment that was sent to the interested party, by indicating that the total tax due was € 58,692.00, may convey the idea that the Form 3 declaration which underlay it, in which it was marked that the taxpayer was non-resident, was automatically validated and that the status of non-resident was definitively verified and assumed by the tax information management system, the truth is that such a situation is not one of the elements that should have been known to the AT or that resided in its cadastral system, nor has proof been made of any of these circumstances.
On the other hand, it makes perfect sense that the AT has instructed its services – apparently it did not do so for the Directorate of … – that the proper means to obtain the refund of Personal Income Tax withheld in excess from non-resident workers is the gracious complaint as provided in no. 4 of article 132 of the CPPT, given that what is at issue is the need to establish a procedure to, namely, make proof of the assumptions of that status.
Now, the truth is that although the claimant even used this means, only came to produce complete and consistent proof of his status as a non-resident, as clearly results from the analysis above, already during the course of the present arbitral proceeding.
Thus, notwithstanding the erroneous decision of the Tax Office of … to invoke inapplicable provisions and to refer the interested party to other services of the AT, the truth is that the dismissal based on the lack of proof of the status of non-resident, which constituted a burden of the interested party, offers no contestation.
Also the situation provided for in the transcribed paragraph b) did not occur, given that there could not be an official or tax administration initiated annulment, in view of the reason, equally already adduced, that only with the intervention of the interested party himself demonstrating his status as non-resident, which he only did in the arbitral proceeding, would it be possible to sustain and decide such an annulment.
Finally, also there is no question of awarding interest under paragraph c) of the provision under analysis, given that it is not demonstrated that it was solely due to delay attributable to the tax administration, given the burden of proof regarding the status of non-resident charged to the interested party and which he did not satisfy, that the petition for refund of tax was not previously decided favorably to the claimant.
C. DECISION
In these terms,
The arbitral petition is partially upheld and, consequently, it is determined that the amount of € 45,885.91 be refunded to the claimant, the difference between the tax that was effectively withheld of € 104,578.45 and the tax of € 58,692.54 which would result from the application of the rate of 25% provided in article 71, no. 4, paragraph a), of the CIRS, to the amount of € 234,770.15 that the claimant earned in Category A income, coming at the end of the taxation period of the year 2013 to meet the requirements provided in article 16 of the CIRS to be classified as non-resident in Portugal.
The petition is partially dismissed in the part relating to the assessment of compensation interest in favor of the claimant.
D. Value of the Case
The value of the case is fixed at € 45,885.91, pursuant to article 97-A, no. 1, paragraph a), of the CPPT, 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.
E. Costs
The arbitration fee is fixed at € 2,142.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent, pursuant to articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulation.
Lisbon, 20 May 2016
Let it be notified.
The Arbitrator,
Joaquim Silvério Mateus
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