Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A) The Parties and the Constitution of the Arbitral Tribunal
A…, taxpayer no.…, presently with tax domicile in, …, … – ... Brussels, Belgium (hereinafter designated as "Claimant"), presented a request for the constitution of an Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, paragraph a) and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, hereinafter designated as "RJAT" and of Order no. 112 – A/2011, of 22 March, for impugnation of the decision denying the administrative claim presented by the Claimant and consequent impugnation and declaration of illegality of the Personal Income Tax (IRS) assessment, with document no. 2015…, referring to the year 2011, in the amount of €1,830.72, seeking its annulment. The amount of tax assessed was paid in full by the Claimant.
The request for constitution of the Arbitral Tribunal was presented by the Claimant on 12-09-2016, was accepted on 13-09-2016 by the Honorable President of CAAD and notified to the Tax and Customs Authority on 26-09-2016. The Claimant chose not to appoint an arbitrator, whereupon, pursuant to the provisions of no. 1, of article 6 of RJAT, the Ethics Council of the Administrative Arbitration Centre appointed on 10-11-2016 the undersigned as arbitrator to constitute the singular Arbitral Tribunal. Thus, in accordance with the provisions of paragraph c), of no. 1, of article 11, of RJAT, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 29-11-2016. On 02-12-2016 an arbitral order was issued for the Tax and Customs Authority (AT) to present a response within the legal deadline, in the terms and for the purposes of the provisions in nos. 1 and 2 of article 17 of RJAT.
On 16-01-2017 the respondent AT attached to the case its response and the respective Administrative Process (PA), which are considered to be fully reproduced. Considering that the question under discussion in the case appears to be exclusively one of law, an arbitral order was issued on 28-01-2017 for the parties to pronounce themselves on the possibility of dispensing with the meeting referred to in article 18 of RJAT. Notified for this purpose, both expressed themselves favorably, whereupon on 15-02-2016, an arbitral order was issued dispensing with the meeting and setting a deadline of 10 days, equal and successive, for arguments. A probable date was indicated for issuing the decision, which was subsequently extended until 15-04-2017, and the Claimant was notified to make the payment of the subsequent arbitration fee.
The Claimant and Respondent attached their arguments, respectively, on 27-02-2017 and 01-03-2017.
B) THE REQUEST FORMULATED BY THE CLAIMANT:
The Claimant formulates the present request for arbitral pronouncement arguing for the illegality of the Personal Income Tax (IRS) assessment, with reference to the year 2011, determined ex officio, after disregarding the tax credit for elimination of international double taxation, resulting from the amount of tax paid by withholding at source operated in the country of origin (Belgium). The additional assessment issued was paid by the Claimant.
The Claimant presented an Administrative Claim with the arguments contained in the PA, in all very similar to those which it now invokes in the present impugnation before the Arbitral Tribunal, which was denied. It was following this decision of denial that the Claimant presented the present arbitral request.
In summary, to substantiate its request the Claimant alleges that the denial of the administrative claim and the tax assessment issued are illegal, for violating the provisions of the Double Taxation Agreement (DTA) concluded between Portugal and Belgium, namely its article 22, no. 2, which imposes that the State of residence (Portugal) deduct from its tax an amount equal to the tax paid in the country of origin (Belgium), as well as the violation of the provisions of article 81 of the Portuguese Personal Income Tax Code (CIRS), which establishes a tax credit for the elimination of international double taxation. It further alleges that the documents attached for this purpose are the appropriate ones and the only ones it was possible to attach since the Belgian Authority does not issue a declaration in the manner required by the Portuguese AT, being certain that when accepting the value of income earned for purposes of aggregation, it must also accept the value to be deducted. It finally alleges that it cannot be prejudiced by the fact that the respective Tax Authorities have different procedures and different ways of documenting the elements relevant for tax purposes. It concludes by petitioning for the annulment of the additional Personal Income Tax (IRS) assessment, which it impugns following the administrative claim that was denied and which it attached to the case, with all legal consequences, namely, the processing of the reimbursement of the amount paid plus compensatory interest, in accordance with article 43 of the General Tax Law (LGT).
C – THE RESPONSE OF THE RESPONDENT
The respondent AT, duly notified for this purpose, timely presented its response in which it alleged, in summary, that the assessments impugned do not suffer from any illegality, as they complied with the legal provisions in force, including those established in the DTA. It alleges that the burden of proof of the amounts paid in the country of origin of the income rests with the Claimant, which for this purpose attached documents that do not comply with what is legally required, as they are not issued by the Belgian Tax Authority itself nor are they properly authenticated by it. It invokes various guidelines issued by the AT services, which are clear in requiring a document issued by the competent authority of the country of origin of the income. Accordingly, the AT alleges that the assessment merely complied with the application of internal rules and for this reason is not illegal. It concludes by arguing for the dismissal of the arbitral request and maintenance of the impugned assessment.
II - PROCEDURAL REQUIREMENTS
The Arbitral Tribunal is regularly constituted. It is materially competent, pursuant to article 2, no. 1, paragraph a) of RJAT. The Parties enjoy legal personality and capacity, are legitimate and are legally represented (cfr. articles 4 and 10 no. 2 of RJAT and art. 1 of Order no. 112/2011, of 22 March).
The process does not suffer from vices that invalidate it.
Taking into account the administrative tax process, the documentary evidence attached to the case, it is necessary to establish the factual matter relevant to understanding the decision, which is established as follows.
III – Factual Matter
A) Established Facts
As relevant factual matter, this tribunal considers the following facts to be established:
Within the scope of the monitoring of income in the form of interest covered by Directive 2003/48/EC of the Council, of 3 June, the International Relations Services Directorate (CSRI) of the AT remitted to the Finance Directorate of …, a list of taxpayers which, in the year 2011, obtained that type of income.
In that list was the name of the Claimant, with income of €13,574.00, originating from Belgium.
The Claimant did not present, in Portugal, a Personal Income Tax (IRS) declaration for the year in question, although at the time of the facts it had its tax residence in Portugal.
By means of notices no.…, of 3-3-2015, and …, of 20-3-2015, the Finance Directorate of …, Taxation and Collection Division, notified the Claimant to present the income declaration relating to 2011, because, as of the date of the facts, she was tax resident in Portugal, by virtue of her status as a holder official in …, although she was actually resident in Belgium.
The Claimant presented Personal Income Tax (IRS) form 3 declaration referring to 2011, via electronic means (Finance Portal) on 25-3-2015, and this declaration includes Annex J, referring to capital income obtained abroad, in this specific case, in Belgium.
On 1 April 2015 the Claimant delivered to the Finance Service of Almada – …, the documents evidencing the income of 2011 indicated in annex J to form 3 of the Personal Income Tax (IRS) and in which the amount of the respective tax paid in Belgium in 2011 is also indicated.
In the form 3 Personal Income Tax (IRS) in question, in its Annex J, the Claimant declared in field 422 (Savings Directive Income, no. 2003/48/EC) the amount of capital income obtained in Belgium in 2011, in the value of €14,065.32 Euros, as well as the amount of €1,613.89 of tax paid in Belgium relating to that income.
The Personal Income Tax (IRS) assessment statement issued determined the amount of €1,029.26 to be paid, which the Claimant paid.
By means of notice no.…, dated 22-4-2015, the Tax Authority, Finance Directorate of …, Taxation and Collection Division, notifies the Claimant to remit the original documents evidencing the income and the corresponding tax paid abroad issued by the Tax Authority of the State from which the income originates.
In this context and following this request, on 18-5-2015, the Claimant exercised in writing the right to a hearing provided for by article 60 of the General Tax Law.
On 3-6-2015 and in complement of the prior hearing exercised, the Claimant presented as documents to be attached to the case, the request which she addressed to the Belgian Federal Ministry of Finance, requesting the issuance of a document evidencing the amounts of tax withheld on interest, and the respective email response, sent to the Claimant on 29 May 2015, through which she was informed that the Belgian services did not issue that type of declaration and that it is the banking entities which provide proof of the declaration of tax withheld in Belgium – (Document attached to the present case).
The Claimant presented documents issued by the banking entity (B… ...), evidencing the withholding effected, certificate of employment (holder official) in … and Protocol (no. 7) relating to the privileges and immunities of the European Union.
From the certificate issued by the General Directorate of Human Resources and Security of …, it appears that the Claimant has been performing duties as a holder official of …, since 01/09/1987, subject to community tax, establishing the exemption from national taxes by virtue of the provisions of art. 12 (former 13) of the protocol (no. 7 relating to the privileges and immunities of the European Union, signed in Lisbon on 13/12/2007, applicable in the Portuguese domestic legal order in accordance with the provisions of no. 4, of art. 8 of the Constitution of the Portuguese Republic (CRP), under which officials and other agents of the Union are exempt from national taxes that apply to salaries, wages and emoluments paid by the Union.
The Claimant, at the date of the tax facts, had tax residence in Portugal, and obtained capital income (interest) from a Belgian financial entity.
By means of notice … of 30-10-2015, the AT informed the Claimant that it had proceeded to the ex officio correction of the 2011 Personal Income Tax (IRS) declaration, disregarding the tax credit for tax withheld at source (in the country of origin – Belgium), for not having presented documents issued by the Belgian tax entity.
The Personal Income Tax (IRS) assessment statement attached to the case determines that the total amount of tax due (to which compensatory interest was added) is €2,859.98, which, after deduction of the amount of €1,029.26 previously paid by the claimant, results in the payment of additional tax in the amount of €1,830.72, to be paid by 02-02-2015.
The claimant proceeded to payment of this amount on 15-11-2015.
On 1 March 2016, she presented an administrative claim against the assessment made, with the exercise of the right to a hearing being exercised on 30 May 2016.
The denial of the administrative claim, dated 30-06-2016, was notified on 12-07-2016.
Following this denial the Claimant presented the request for arbitral constitution, with entry registration on 12/09/2016.
B) FACTS NOT ESTABLISHED
With relevance to the decision, there are no facts that should be considered as unestablished.
C) SUBSTANTIATION OF ESTABLISHED FACTS
The facts given as established are based on the documentary evidence which the parties attached to the present process. The Tribunal does not have to pronounce itself on everything which was alleged by the parties, and should select the facts which matter for the decision and discriminate the proven matter from the unproven matter [cfr. art. 123, no. 2, of the Code of Administrative Tax Procedure (CPPT) and art. 607, no. 3 of the Code of Civil Procedure (CPC), applicable by virtue of art. 29, no. 1, paragraphs a) and e), of RJAT]. In this manner, the facts pertinent to the judgment of the case are chosen and selected according to their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) [cfr. former article 511, no. 1, of CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, paragraph e), of RJAT]. Taking into account the positions assumed by the parties, the documentary evidence and the PA attached to the case, it was considered as proven, with relevance to the decision, the facts listed above, which are anyway consensually recognized and accepted by the parties.
IV – THE LAW
Having established, as aforesaid, the factual matter, it is important to address the legal question raised by the Claimant, which consists of assessing the (il)legality of the denial of the administrative claim and deciding whether the additional Personal Income Tax (IRS) assessment, of the year 2011, which disregarded the tax credit for international double taxation, in the terms provided for in articles 22 and 23, no. 1 of the Convention for the Elimination of Double Taxation (CDT) Portugal-Belgium, and the provisions of art. 81, no. 2 of CIRS, is illegal. Related to this question arises, consequently, the question of whether the documents presented to evidence the tax withheld and paid in Belgium are sufficient to make the deduction of the credit for international double taxation operate, and whether it was incumbent upon the AT to activate the mechanism of information exchange, through its DSRI, to eventually confirm (if it had doubts) the veracity of the elements declared by the banking institutions and the information transmitted by the Belgian Ministry of Finance.
As results from the factual matter established in the present case, the taxation of capital income, interest, is discussed under the Savings Directive, which are not covered by Protocol no. 7 relating to the privileges and immunities of the European Union. The Claimant, by so being, pressed by the AT came to present the Personal Income Tax (IRS) declaration relating to the year 2011, declaring in Form 3 – Annex J, acknowledged the need to declare in Portugal the capital income earned in 2011 in Belgium. The divergence in the case is thus reduced to the disregarding of the tax credit for the elimination of international double taxation.
On this question it is necessary to attend to the provisions of article 11 of the CDT (Portugal-Belgium)[1] in which is provided the possibility of interest being taxed in the state of residence (Portugal) and can equally be taxed in the State of source (Belgium), provided that the competent tax credit is recognized, as results from art. 23, no. 1, paragraph a) of the aforementioned CDT. This latter provides as follows:
"CHAPTER IV
Provisions to Prevent Double Taxation
ARTICLE 23
1. With respect to residents of Portugal, double taxation shall be avoided in the following manner:
a) When a resident of Portugal obtains income which, in accordance with the provisions of this Convention, may be taxed in Belgium, Portugal shall deduct from the tax on such income of that resident an amount equal to the Belgian tax on the same income. (…)
By Additional Convention concluded on 06-03-1995, approved by Resolution of the Assembly of the Republic no. 82/2000, published in the Official Gazette (DRE) of 14-12-2000, article 22 of the Convention was repealed and article 23 of the Convention was replaced by a new article 22, with the following wording:
"Article 22
1 — With respect to Belgium, double taxation shall be avoided in the following manner:
(…)
2 — With respect to Portugal, double taxation shall be avoided, in accordance with the provisions of Portuguese legislation (insofar as such provisions do not derogate from the general principles contained in this number), in the following manner:
1st When a resident of Portugal obtains income which, in accordance with the provisions of the Convention, may be taxed in Belgium, Portugal shall deduct from the tax on such income of that resident an amount equal to the tax paid in Belgium. However, the amount deducted may not exceed the fraction of the income tax, calculated before deduction, corresponding to the income which may be taxed in Belgium; (…)" (our underlining)
Furthermore, article 24 of the Convention, under the heading "Non-discrimination", became article 23, by virtue of the Additional Convention, with its no. 1 maintaining the previous wording without any alteration, namely:
"ARTICLE 23
Non-discrimination
1. Nationals of one Contracting State shall not be subjected in the other Contracting State to any taxation or connected obligation that is different or more burdensome than that to which nationals of that other State are or may be subjected who are in the same situation.
2. (…)
To the scheme resulting from the Convention above described, is added the provision in applicable Portuguese legislation, that is, in art. 81, no. 1 and 2 of the Personal Income Tax Code, in the version in force for the year 2011, which contains the rules intended for the elimination of international double taxation. In accordance with this legal provision, the taxpayer resident in Portugal is conferred the right to deduct from the tax collected the amount of tax paid abroad.
In that sense, article 81, nos. 1 and 2 of CIRS provided, with the heading "Elimination of International Double Taxation", in the version in force as of the date of the facts, that:
"1. Holders of income of the different categories, obtained abroad, have the right to a tax credit for international double taxation, deductible up to the extent of the part of the tax collected proportional to that net income, considered in accordance with paragraph a) of no. 6 of art. 22, which shall correspond to the lesser of the following amounts:
a) Income tax paid abroad;
b) (…)
2. When there is a convention to eliminate double taxation concluded by Portugal, the deduction to be made under the previous number may not exceed the tax paid abroad in the terms provided for by the convention."
Returning to the case in question, the Claimant, in the year 2011, had her tax residence in Portugal although she was actually resident in Brussels where she performed duties as an official of …, and obtained capital income, as results from the factual matter established in the case. Such capital income (interest) was not covered by the protocol which grants tax exemption to officials of …, whereby two conclusions appear without further, on which, moreover, there is no controversy between the parties, namely:
The Claimant should declare such income in her Personal Income Tax (IRS) declaration to be presented in Portugal, which she did, after notification by the AT for this purpose, regularizing the situation.
Thus, with the income declared in Portugal and not exempt from tax, there is no doubt that it is the right of the Claimant, resident in Portugal, and in the conditions provided for in articles 22 and 23 of the CDT (Portugal-Belgium), as well as in art. 81, nos. 1 and 2, of CIRS, to deduct the income tax paid abroad by withholding at source, effected by the banking entities as provided for in Belgian legislation.
There is no doubt, therefore, that the Claimant has the right to deduct the tax withheld in the country of origin, a matter which is not, moreover, controversial in the present case. However, the AT disregarded such deduction and carried out the ex officio assessment impugned in the case only and solely because the supporting document presented by the Claimant is not issued by the Belgian tax authority, nor is it authenticated by it.
Thus, the question which truly opposes the intervening parties in this process is a question of formal requirement for issuance and consideration of the supporting document and, in the end, a procedural question of probative relevance of the same. It remains to ascertain whether the documentary evidence brought to the case is sufficient for the exercise of that right of deduction.
This is the controversial question that must be addressed, since the Respondent (AT) does not question the right to deduction of the tax withheld, but considered that the documents attached to evidence the amounts withheld in the Source State (Belgium) are not sufficient as a means of proof, because they do not have the form which, according to the generic guidelines of the Portuguese AT services, is required for this purpose.
Now, as regards this question, it should be noted, first of all, that generic guidelines are not law but mere internal instructions directed at the services. On the other hand, the decision on this question must always have regard primarily to the principles established in the Convention (an instrument of international law which prevails over domestic law in case of conflict) and in internal law, that is in CIRS and in LGT.
But there is no doubt whatsoever about the withholding effected in the country of origin and attested by the banking entities, nor could there be, on pain of calling into question the very income earned. For if the AT had access to information about the amount of interest earned by the Claimant in Belgium, that information only reached it because of the system of information exchange which, in turn, is based on information disclosed by the banking entities. Now, this information cannot and should not be reliable for purposes of taxation of income earned (by the claimant itself declared to the competent entities) and not be reliable for the recognition of the right to deduction of tax paid in the State of origin.
It is difficult to understand how the AT had no doubt whatsoever regarding the amount and origin of the income to be taxed but comes to question the truthfulness of what was declared regarding tax withheld, when that declaration is made by the same banking entities which provide the information for the system, and only for this purpose to deny the right to deduction of tax withheld at source by the country of origin, thereby calling into question the very international law established in the CDT. But, even granting, hypothetically, that some serious doubt would subsist, then it would have to be the AT itself to use the mechanisms of information exchange and the obligations established between the Contracting States and, by the same route through which it obtained information about the amount to be taxed, confirm (or request official confirmation) the amount to be deducted. It is hard to accept that a system of information, with evident objectives of monitoring and inspection, would not proceed to complete information, which would contain, as would be expected, the amounts withheld at source on the income reported. If this is not the case, there is a clear failure in the information system which is not the sole responsibility of the Contracting States and which therefore cannot prejudice taxpayers.
It should be said that the information exchanged is not fully documented in the present case, since from the PA attached by the AT it is only possible to consult a list of names from the Finance Directorate of …, where the name of the Claimant appears, so the Tribunal cannot truly ascertain whether the AT was or was not in possession of that information, for if it were, it would have no legitimacy to require the Claimant to provide proof of those amounts.
Having said that, the question is that the Claimant presented documents evidencing the amounts withheld and the effort made with the Belgian Ministry of Finance to obtain such document authenticated by the authority of the country of origin. Would she have been obliged to do something more? The answer is obviously in the negative. It did not depend nor does it depend on the Claimant's will the issuance of such document. To which may be added that it is the very CDT that clearly states that Portugal shall deduct from the tax on such income of that resident an amount equal to the tax paid in Belgium, in accordance with the rules in force in its country but which do not call into question the principles established in the Convention. (see art. 22 transcribed above)
The respondent AT alleges that the proof of the amounts withheld and paid in the source country is the responsibility of the taxpayer, since it is the latter who seeks to exercise the right to deduction, clearly sheltering itself behind the general rule of burden of proof. It further alleges that pursuant to Order 1303/2010, of 22/12, as regards the information contained in annex J, "the taxpayer must present a document proving the amount of income, its nature and the payment of tax abroad, issued or authenticated by the Tax Authority of the country of origin of the income" (Belgium).
Now, in the case in question, the documents presented by the Claimant to assert its right to deduction for the elimination of international double taxation were the following:
- documents issued by the banking institutions which paid the interest (B… ...), settled and withheld the respective amount of tax in Belgium;
- an email from the Belgian Ministry of Finance, in response to the request presented by the Claimant, in which she set forth the matter and requested the issuance of a supporting document for purposes of tax credit, from which it appears as a response that they do not issue such document because it is the responsibility of the banking entities to issue the same. That is, the Claimant presented to the Portuguese AT the documents that she had and only those which she could present, since it did not depend on the claimant to present any other. It is proven that the Belgian Ministry of Finance responded negatively to the document requested. What could the Claimant do? And what could the AT, now respondent, do?
It is clear that the Claimant could do nothing more. She had no power or authority to compel a State (Belgium) to issue a document in the form requested by another State (Portugal). But both Contracting States have an information exchange system, by way of which the Claimant was advised and "obliged" to fulfill her tax obligation in Portugal. Therefore, the now respondent AT, through its DSRI, surely could have requested some additional information, for clarification of any doubt about the truthfulness of the declaration contained in the documents presented by the Claimant for purposes of deduction of the tax credit for elimination of international double taxation. What it cannot do is simply deny her that right, violating the provisions of art. 22 of the CDT and art. 81 of CIRS.
Furthermore, in the matter of proof of tax paid abroad, the law does not require a specific type of proof, beyond which the declarations of the taxpayer are presumed to be true, in accordance with the provisions of article 75 of LGT. The proof also results, therefore, from presumption. And, despite what is expressed in Order 1303/2010 of 22/12, it cannot be concluded from this that there exists a specific type of proof or that this requirement can even subsist in the face of the impossibility of obtaining the document in the form therein provided, because this is not the practice of the State of origin of the income (Belgium). The CDT is clear on this understanding, as explained above, whereby a regulation cannot override the application of the provisions of the CDT (an instrument of international law which prevails over domestic law) or the Personal Income Tax Code itself and LGT (statutes of superior hierarchy).
Now, article 22 of the CDT provides that double taxation shall be avoided, in accordance with the provisions of Portuguese legislation insofar as such provisions do not derogate from the general principles contained in this number, and its art. 23 clearly stipulates a principle of non-discrimination in treatment, by stipulating that nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or connected obligation that is different or more burdensome than that to which nationals of that other State are or may be subjected who are in the same situation. From this principle it is also drawn that Contracting States should not require of nationals of the other State proof requirements different from those which they require of their own national citizens. Whereby, if the Belgian tax authority does not issue such document and is satisfied with the documents issued by the banking institutions, one cannot require the taxpayer to provide impossible-to-obtain proof documents. But, more still, knowing that in Portugal, for citizens here resident and who obtain their income here, it is also the banking institutions which issue the documents on the basis of which the deductions contemplated in tax law are exercised, the AT cannot require, in the case in question, a proof document more demanding (and impossible to obtain) than that which it requires of its nationals, by virtue of the same principle of non-discrimination. Indeed, this principle of non-discrimination is, further, an imperative that results from the application of the guarantees resulting from the TFUE.
In sum, for the proof or demonstration of the amounts to be deducted in the context of tax credit for the elimination of international double taxation, in light of the CDT and CIRS, there applies a principle of free evaluation of evidence, which must be evaluated by the judge and, necessarily, in function of the concrete case. Art. 128 of CIRS provides that "it is incumbent on persons subject to Personal Income Tax the duty to present the documents evidencing the income earned, the deductions and other facts or situations mentioned in their respective declaration, when the Tax and Customs Authority requires them."
For its part, on the burden of proof, article 342 of the Civil Code, as well as article 74 of LGT, provide that it is incumbent upon whoever invokes a right to provide proof of the constituent facts of the alleged right, with the other party bearing the burden of proof of the facts that impede, modify or extinguish it. For its part, art. 58 of LGT imposes on the AT a duty of ex officio investigation, in particular, when there is reasonable doubt about the reality of the facts declared (which is not the case) or when the taxpayer alleges the existence of proven difficulties in obtaining the document for production of proof, as occurs in the case in question.
In the case in question, given the proof provided by the Claimant, by delivering the documents issued by the respective banking entities (Doc 5. Attached to the PI), as well as the proof of having requested the document required by the AT from the Belgian tax authority, without success, obtaining the response contained in document no. 10 attached with the arbitral request, there remains no other conclusion than that the Claimant fulfilled the burden of proof in the terms legally required. If the AT had any serious doubt then it was incumbent upon it to proceed with the exchange of information with the foreign tax authority, in order to clarify or confirm any amount in question. But the fact is that the information provided by the system on the basis of information provided by the banking entities was accepted as truthful and the AT cannot, without more, come to call into question its truthfulness regarding (only) the tax withheld. Indeed, it had the duty, in light of the principles resulting from the very CDT to clarify any doubt that might subsist, in order to avoid international double taxation, using the same vehicle that permitted it to arrive at the income earned.[2] Under pain of manifest violation of international law and domestic law.
To this end, full adherence is given to the jurisprudence expressed in the arbitral decision rendered in case no. 383/2014 -T, of 26-01-2015, on the identical question of evaluation of evidence, in which it was decided as follows:
"As expressly admitted by the Claimants, 'in accordance with the provisions of article 74, no. 1, of the General Tax Law (LGT), the burden of proof in the case sub judice rests on the Claimants, that is, it is the Claimants who bear the burden of demonstrating the right to deduct from the tax collected the amount of tax paid abroad. The proof to be provided by the claimants, in the absence of – and not even being invoked – any rule that imposes a legal proof, may be made by any means of proof admitted by law. Now, and first of all, among such means, as was already written in the Court of Justice decision of 31-03-1987, rendered in case 074462, 'appears proof by presumption'. (…)
Full adherence is given to this jurisprudence, without necessity for further considerations, as it is clear, concise and adequate to the controversial question in the case of the present case.
Thus, in accordance with article 75, no. 1 of LGT: "The declarations of taxpayers presented in accordance with the terms provided for by law are presumed to be true and made in good faith, as are the data and calculations entered in their accounting records or books, when these are organized in accordance with commercial and tax legislation." It results from the facts established that in her declaration for Personal Income Tax (IRS) purposes – Annex J – the Claimant properly recorded, in the appropriate place, the tax credit now in dispute.
Such declaration must be presumed to be true, and from the same (known fact), by presumption, in accordance with the aforementioned article 78, no. 1 of LGT, the fact (unknown) relating to payment of tax abroad should be considered as proven, giving rise to the respective tax credit.
Still citing the same arbitral decision, "having not been demonstrated – or even alleged – any of the circumstances described in the various paragraphs of no. 2 of that article 78, the presumption in question will have full application, and it is certain, moreover, that as to the amount of income earned, the AT does not doubt the truthfulness of the declaration in question. (…) Even if it were otherwise understood, the fact is that the documentation presented by the Claimants should always be considered as sufficient. In effect, these, in fulfillment of their duty of collaboration (whose non-fulfillment, moreover, could justify the removal of the presumption above referred to, in accordance with paragraph b) of no. 2 of article 78 of LGT), presented declarations from two multinational companies – one, European and of the financial sector, subject, as such, to tight supervision, and another of the petroleum sector – clearly framed, moreover, in strict accounting standards, to discriminate both the income earned and the tax withheld from the Claimants. Note, that the AT does not question either the authenticity or the truthfulness of those documents, accepting them as valid as to the amount of income paid to the Claimant, and not reasonably doubting that the withholding declared has been, actually, carried out." (…)
In the case in question, the Claimant collaborated and presented the possible documents, issued by credible banking entities, the same ones which declared the income earned by the Claimant without this having raised doubts with the AT or its DSRI. The declaration presented by the Claimant is presumed to be true, and there is no doubt or suspicion whatsoever about the truthfulness of the declarations issued by the banking institutions and the credibility of the information emanating from the Belgian Ministry of Finance. Whereby, even if the matter relating to proof were understood differently, it would always have to be decided in favor of the Claimant, since she fulfilled the burden of proof regarding the amounts of withholding at source in the state of origin and the impossibility of obtaining the document that was required of her by the AT. Lastly, recall that this requirement appears to be abusive, because it questions the validity of the declaration of the banking entities regarding tax withheld when it considered them valid for the acceptance of the income earned, subject to taxation.
In this manner, and given all that has been set out, the act of denial of the administrative claim and the additional assessment that comes impugned incurred illegality, by virtue of violation of law due to error in the factual and legal grounds, and must, as such, be annulled.
V - Compensatory Interest
The Claimant combines with the request for annulment which is the object of the present case, the request for condemnation of the AT to payment of compensatory interest on the amount unduly paid by her.
A prerequisite for the attribution of compensatory interest is that the error in which the AT labored be imputable to it. In the case in question, the error is manifest, to which may be added that, following the illegality of the assessment act, for the reasons which were pointed out previously, there is ground for reimbursement of the tax paid by the Claimant, by virtue of the provisions of the aforementioned articles 24, no. 1, paragraph b), of RJAT and 100 of LGT, since this is essential to "restore the situation that would have existed if the tax act which is the object of the arbitral decision had not been carried out".
With regard to compensatory interest, it is also clear in the case that the illegality of the tax assessment impugned is directly imputable to the Respondent, which, on its own initiative, carried it out without legal support, suffering from an erroneous evaluation of the legally relevant facts and consequent application of legal rules to the concrete case. Thus, the Claimant is entitled to receipt of compensatory interest, in accordance with the provisions of articles 43, no. 1, of LGT and 61 of CPPT.
The compensatory interest is owed to the Claimant from the date on which she made the payment of the tax obligation in question in the case, until the full reimbursement of the amount paid, at the legal rate.
VI - DECISION
Therefore, this Arbitral Tribunal decides:
a) To deem the arbitral request fully admitted and, in consequence, annuls the decision of denial of the Administrative Claim and the tax assessment which is the object of the present case;
b) To condemn the AT to return to the Claimant the amount of tax unduly paid by having been disregarded the tax credit for elimination of international double taxation, plus compensatory interest, counting from the date on which the payment was made until full reimbursement;
c) To condemn the AT to pay the costs of the process, in the amount of €306.00.
VALUE OF THE CASE
The value of the case is established at €1,830.72, in accordance with article 97-A, no. 1, a), of CPPT, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and of no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.
COSTS
The value of the arbitration fee is established at €306.00, in accordance with Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the unsuccessful party, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.
Notify.
Lisbon, 13 April 2017
The Arbitral Tribunal,
________________________
(Maria do Rosário Anjos)
[1] Convention for the Elimination of Double Taxation between Portugal and Belgium, signed in Brussels on 16 July 1969, published by Decree-Law no. 619/70: "Convention between Portugal and Belgium to Avoid Double Taxation and Regulate Some Other Matters Concerning Taxes on Income." The original text was amended in accordance with the Additional Convention of 6 March 1995, as per Resolution of the Assembly of the Republic no. 82/2000, published in the Official Gazette – I Series – A, of 14-12-2000.
[2] In this sense, see, among others, the decisions of the Court of Administrative Law of the North of 14/04/2005 and 20/04/2005, available at www.dgsi.pt. To this effect, the decision of 14-04-2005 states that "that understanding of the AT has, moreover, an underlying worldview that presupposes that all foreign states are organized in bureaucratic and legal frameworks analogous to the national/western European one, which, notoriously, and above all, but not exclusively, in less developed countries is not the case. Moreover, it also assumes that foreign tax administrations, at a global level, are at the disposal of all those who obtain income there, to issue the declarations and certificates which the Portuguese AT considers necessary."
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