IRS Common-Law Union & Tax Domicile: CAAD Ruling on Joint Taxation for Unmarried Couples (564/2015-T)

ARBITRAL DECISION

Claimant – A...

Respondent: Tax and Customs Authority

I – REPORT

1. On 31 August 2015, A..., with TIN..., resident at Street..., No...., ..., Porto, came, in accordance with the terms of paragraph (a) of section 1 of article 2, paragraph (a) of section 2 of article 5, section 1 of article 6 and paragraph (a) of section 1 and section 2 of article 10, all of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters – hereinafter, "LRM"), in conjunction with paragraph (a) of article 99 and article 102 of the Code of Tax Procedure and Process ("CTPP"), to request the establishment of an Arbitral Court with the intervention of a Single Judge, with a view to declaring the illegality of the act of dismissal of the gracious complaint No. ...2014...- IRS 2010 and of the levy of Personal Income Tax ("IRS") with No. 2014..., of 17.06.2014, and of the corresponding statements of interest calculation and settlement of accounts, in the amount of € 16,246.23 (sixteen thousand, two hundred and forty-six euros and twenty-three cents).

2. In the Request for Arbitral Pronouncement, the Claimant chose not to appoint an arbitrator, and by decision of the President of the Deontological Council, in accordance with section 1 of article 6 of the LRM, the undersigned was appointed as sole arbitrator, who accepted the post within the legally established time limit.

3. The arbitral court was established on 17 November 2015.

4. The Tax and Customs Administration (TA or Respondent) sent, on 16 December 2015, its Reply and the administrative case file (CF).

5. Having issued an arbitral order for pronouncement on the dispensability of the meeting of article 18 of the LRM, the Claimant pronounced on 15 February 2016 that the examination of his witnesses was indispensable.

6. On 30 March, witness examination took place and the court set the time limit for submission of arguments, written successive arguments (which were presented on 14 and 26 April 2016, respectively), and set the date of the decision for 17 May 2016.

7. THE REQUEST FOR PRONOUNCEMENT

The Claimant contends, in summary:

• In 2010, the Claimant lived in a de facto union with his current wife, B..., and in 2011 submitted IRS Form 3 indicating as marital status the situation of de facto union.

• Notified by the TA of the existence of an error and to submit a replacement statement indicating single status, he responded explaining his situation and relationship with B....

• He informed that he had belonged since 2000 to the Board of Directors of C..., S.A., headquartered at that time in the municipality of..., in Viseu, and that he had residence in Viseu, living, since 2006, in sharing of table, bed and dwelling with B....

• In 2008, he had acquired a property located at Street... in Porto, having changed his tax domicile to that address but maintaining in Viseu his "relationship analogous to that of spouses" with B..., continuing to cohabit the property located at..., Plot..., ..., according to rental receipts (document No. 10) and B... maintaining her tax domicile in Viseu.

• In 2009, the Claimant went to live in Marseille, France, for professional reasons, accompanied by B... – registered with the same address in a document issued by the General Consulate of Portugal in Marseille – and a "Pacte Civil de Solidarité" was celebrated between them on 28 July 2009 at the Tribunal d'Instance de Marseille.

• In 2010 they returned to Portugal and continued to live together, both going to live in the property located in Porto and, on 19 November 2011, the Claimant and B... married (having later been born to them two children, on 12 April 2012 and 09 July 2013).

• The arguments put forward, to the effect of the existence of a de facto union, were rejected by the TA, whereby on 5 June 2012, the Claimant submitted another IRS declaration indicating single marital status which resulted in a levy on 4.7.2012, of which he presented a request for review on 28.11.2013, of whose draft dismissal he was notified on 2 October 2014, but from which he desisted because in the meantime, on 16 May 2014, he had submitted a new statement with Annex J - income obtained abroad - which gave rise to the levy which is the object of the present Request.

• He considers it unequivocal that he met the requirements in 2010 for the application of the tax regime for de facto union, by meeting the requirements set out in the provisions of Law No. 7/2001, of 11 May (section 2 of article 1 and paragraph (d) of article 3).

• Article 14 of the IRS Code, in the wording then in force, made the application of the de facto union regime dependent on "(…) the identity of tax domicile of the taxpayers during the period required by law for the verification of the assumptions of de facto union and during the taxation period", adding a formal requirement to the provisions of Law No. 7/2011, of 11 May, and section 1 of article 19 of the LGT considered that the tax domicile of the taxpayer is, "(…) except as otherwise provided, for individuals, the place of habitual residence (…)", but section 9 of the same article provided that "The tax administration may officially correct the tax domicile of taxpayers if this results from the elements at its disposal", allowing to set aside the presumption arising from tax domicile and which cannot be considered absolute and unsusceptible to proof to the contrary (Judgment No. 348/97 of the Constitutional Court; Judgment of the TCAS of 07.04.2011, proc. No. 04550/11)

• Also the Ombudsman advocates "(…) the possibility of proof being made that a de facto union exists, even if the subjects comprising it (or only one of them) have not, in a timely manner, communicated to the Tax and Customs Authority (TA) the change in their tax domicile (…)" ("Recommendation No. 13/A/2013).

• In this case, the TA should take into account the factuality demonstrated by which, once proof is made and the aforementioned presumption arising from tax domicile is refuted (in accordance with article 74 of the LGT), it must be concluded that the Claimant has successfully demonstrated the fulfillment of the requirements relating to de facto union.

• The independence between tax domicile and actual habitation has been a position adopted by arbitral jurisprudence (Proceedings No. 67/2012-T, of 28.11.2012, denying presumption juris et de jure Proceedings No. 103/2013-T), and see also Judgment of the STA of 23.11.2011, proceedings No. 0590/11.

• It was up to the TA to carry out inquiries to ascertain the reality, under penalty of violating the principle of inquisitorial procedure and material truth (articles 4, 56 and 87 of the CPA, 55 and 58 of the LGT and 266, section 1, of the CRP).

• Account should also be taken of the jurisprudence that allows acceptance of the thesis that "for the purposes of section 2 of art. 14 of the CIRS, the identity of tax domicile of the taxpayers is verified when they have the same habitual residence [proven], regardless of compliance with the communication provided for in section 3 of art. 19 of the LGT" (cf. Judgments of the TCAS of 03.05.2015, in proc. No. 05655/12, and of 19.02.2015, in proc. No. 08313/14, as well as CAAD Decision 103/2013-T, of 25.11.2013).

• Once the meeting of requirements relating to the verification of de facto union is demonstrated, the legality of the IRS levy relating to the 2010 taxation period and of the order dismissing the gracious complaint should be assessed, declaring its illegality, with reimbursement of the amount paid unduly, plus the respective compensatory interest, as provided in sections 1 and 2 of article 43 of the LGT.

8. THE REPLY

The Respondent replies, in summary:

• There is no reason to contest the impugnation of the order which, on 28 May 2015, upheld the act of levy of IRS No. 2014..., relating to 2010, dismissed the gracious complaint presented on 10 December 2014, in which the Claimant alleged that he lived with B... in sharing of table, bed and dwelling, in conditions analogous to those of spouses, for at least 8 years, that is, since 2006.

• As results from the factuality stated, C. and B... only had coinciding tax domicile, as relevant for the purposes of IRS for 2010, in the period between March 2007 and July 2008, therefore in a factual situation that does not fit the provision of section 2 of art. 14 of the CIRS.

• The TA did not have at its disposal any elements that would allow it to infer that the Claimant, when submitting the IRS declaration/Model 3, relating to the year 2010, had lived in de facto union for more than two years with B..., the invocation of the regime of proof contained in art. 74 of the LGT not being justified, as the tax administration founded its decision on the elements provided by C. (and by B...), and it was for the former to prove that he actually lived in de facto union for more than two years with B....

• The Claimant failed to make that proof because he changed his tax domicile in July 2008 to Street..., declaring, for the purposes of the benefit of IMI exemption, that this is his own and permanent residence, while B..., with whom he allegedly lived in de facto union, did not proceed to change his tax domicile.

• The identity of tax domicile is indispensable for fulfilling the assumptions of de facto union and the "communication of the domicile of the taxpayer to the tax administration is mandatory, under the terms of the law" and "the change of domicile is ineffective until it is communicated to the tax administration" (sections 3 and 4 of the same legal provision). "Being thus, it is understood that in the face of the obligation to communicate change of domicile, under penalty of ineffectiveness thereof, while such is not communicated – cfr. sections 1, 3 and 4 of article 19, section 1, of the General Tax Law, the provision of article 1, section 2, of Law 7/2001 of 11 May - «persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years» is not applicable (cf. Judgment of the TCAS, of 22/1/2015, Proc. 6655/13).

• But even if it were understood that, for the purposes in question, the change of tax domicile, vis-à-vis the TA, could be demonstrated by other means of proof, C. did not unequivocally demonstrate that, in the relevant period, for the purposes of IRS for 2010, he lived in de facto union with B... because the document issued by the Parish Council of..., of 12/3/2010, is not accompanied by the statement of both members of the de facto union under oath of honor, that they live in de facto union for more than two years and of certified copies of the complete birth registration of each of them (Law No. 7/2001, art. 2-A), and is contradictory with other data, in saying that he lived, since a period before 12/3/2008 ("for more than two years"), at Street..., with A..., in conditions analogous to those of spouses, when he presented rental receipts for a property located at..., ..., Viseu, where he allegedly resided during the year 2007 and until December 2008 with B... (allegedly also, in conditions analogous to those of spouses).

• Also, the Consular Registration Certificate does not have the virtue of demonstrating what is claimed by C., because both in the tax registration of C., as in that of B..., they do not appear as "non-residents" (but rather as "residents" with different tax domiciles) and the "enregistrement de la déclaration conjointe de pacte de solidarité" is not translated and constitutes only a declaration of registration of an agreement, whose terms are unknown, having no legal effect in the national legal system and failing to demonstrate that C. and B..., for the purposes of the IRS/Model 3 declaration, concerning the year 2010, lived in de facto union for more than two years.

• In light of the above, no defect can be attributed to the levy in question or to the act which ruled on the respective gracious complaint, which made a correct application of the law to the facts, nor is there legal ground for the payment of compensatory interest.

9. OBJECT OF THE REQUEST

The appreciation of the present Request implies knowing whether the Claimant could, in the model 3 IRS declaration for 2010, have indicated as marital status "de facto united" and be taxed in this tax by the regime applicable to taxpayers married and not judicially separated as to persons and property, in accordance with the provision of article 14 of the CIRS, despite the fact that in that year and in the two preceding years, he and the person with whom he invokes having lived in conditions analogous to those of spouses, were not, due to non-compliance with the obligation provided for in article 19, section 2, of the LGT, registered in the taxpayer register of the Tax Administration with the same tax domicile.

10. SANITATION

The arbitral court is materially competent, in accordance with the terms of articles 2, section 1, paragraph (a) of the Legal Regime for Arbitration in Tax Matters.

The parties have legal capacity and standing in accordance with articles 4 and 10, section 2, of the Legal Regime for Arbitration in Tax Matters (LRM) and article 1 of Order No. 112-A/2011, of 22 March.

The proceeding does not suffer from any nullity nor have the parties raised any exceptions that prevent the appreciation of the merits of the case, so the conditions are met for the issuance of the arbitral decision.

II GROUNDS

11. FACTS FOUND PROVED

11.1. In 2000 A... (Claimant) began to be part of the Board of Directors of "C..., S.A.", headquartered in the municipality of..., municipality of Viseu, where he developed his professional activity (document No. 6 attached to the Request for Arbitral Pronouncement and witness testimony).

11.2. In 2006, the Claimant and B... began to live together in Viseu, sharing a house where they slept, took their meals and received friends (witness testimony).

11.3. In the years 2006, 2007 and 2008 B... had her tax domicile at Street..., ..., Plot... No....-... Viseu (doc. No. 7, 8 attached to the Request and pp. 3 to 5 of the draft order, sent on 30.9.2014, by the IRS Service Directorate, relating to the Request for official review, in CF).

11.4. The Claimant had in 2007 and part of 2008 tax domicile at Street..., ..., Plot... ...No....-... Viseu (Doc. No. 6, 8 and 15 and CF, draft order for official review, p. 6).

11.5. On 25 July 2008, the Claimant proceeded to change his tax domicile to Street..., No. ... ..., ...-..., corresponding to a property which he then acquired and for which he requested IMI exemption under article 46, section 1, of the EBF, invoking that it is a property intended for own and permanent residence (Doc. No. 6 and 8 – certificate – and CF, draft order for official review, p. 6, CF4, pp. 169 et seq.).

11.6. The apartment located at ..., ..., ... No....-... Viseu was the subject, during the years 2007 and 2008, of a lease agreement between C..., S.A. and D... (cf. documents No. 9 and 10, attached to the Request).

11.7. In 2008, even after the acquisition of the property in Porto, the Claimant continued his professional activity in Viseu and to reside in this city, with B... (docs. 6, 10 and witness testimony).

11.8. In 2009, A... went to live and work in Marseille, France, accompanied by B... (doc. No. 12 and witness testimony).

11.9. On 6 February 2009, the General Consulate of Portugal in Marseille issued the consular registration certificate No. ... valid for five years in the name of B... with residence at ..., ..., ..., ..., ..., Marseille (document No. 12 attached to the Request for Arbitral Pronouncement).

11.10. On 28.07.2009 the Claimant and B... celebrated a "Pacte civil de solidarité" at the Tribunal d'Instance de Marseille (Doc. No. 11 attached to the Request).

11.11. On 12 March 2010, the Parish Council of ... issued a document attesting that B..., according to her own declarations, resided at Street..., ..., ... for more than two years (Document No. 13 attached to the Request).

11.12. On 4 July 2011, B... changed her tax domicile in Portugal to Street..., No. ... B, ...-... Porto (draft order relating to the Request for official review, p. 6, in CF).

11.13. On 19 December 2011 the Claimant and B... married in..., Carregal do Sal (document No. 14 attached to the Request for Arbitral Pronouncement), with two children being born to the couple, on 12 April 2012 and 9 July 2013 (art. 42 Request and witness testimony).

11.14. On 05 April 2011, the Claimant and B..., jointly, submitted an income declaration/model 3 relating to 2010, in which they indicated they were living in de facto union (arts. 4 and 5 of the Request and CF).

11.15. On 26 December 2011, the Claimant was notified of the order for the exercise of the right to a hearing, which contained the following: Should, likewise, "(…) submit a replacement statement alone, without TP B, changing marital status to 'Single, widowed, divorced or judicially separated', by reason of not meeting the conditions to submit as 'De facto United', TP B should perform the same procedure" (cf. document No. 4 attached to the Request for Arbitral Pronouncement).

11.16. On 24 January 2012, the Claimant exercised the prior hearing right arguing in the sense of the application of the de facto union regime for the 2010 tax year (document No. 5 attached to the Request for Arbitral Pronouncement).

11.17. In the face of the rejection of the arguments invoked in the hearing (order of 08.02.2012 notified on 13.02.2012), the Claimant submitted, on 05.06.2012, a new IRS Model 3 Income Declaration, with Annexes A and H attached, and indicating single marital status in Section 6.

11.18. The declaration referred to in the previous number resulted in levy No. 2012..., of 04.07.2012, with tax to be reimbursed in the amount of € 71.72, (document No. 15 attached to the Request for Arbitral Pronouncement), to which the Claimant reacted by presenting, on 28.11.2013, a request for review of the tax act of IRS levy No. 2012..., where he continued to assert the existence of de facto union (document No. 16 attached to the Request for Arbitral Pronouncement).

11.19. On 16 May 2014, the Claimant submitted a replacement declaration (Model 3 IRS) relating to the 2010 tax year, proceeding to the additional submission of Annex J – income obtained abroad - and indicating single marital status in Section 6. (art. 50 of the Request, art. 11 of the Reply and CF4, pp. 166 to 168).

11.20. On 16 October 2014 the Claimant, notified of the draft dismissal of the request for review referred to in 11.18, responded that, in light of the submission of the replacement declaration referred to in the previous number, the review proceeding should be terminated (art. 54 of the Request and document No. 17 attached to the Request for Arbitral Pronouncement, CF2, p. 83).

11.21. The income declaration submitted on 16 May 2014 resulted in levy No. 2014..., of 17 June 2014, in which tax to be paid was calculated in the amount of € 14,476.80, plus compensatory interest in the amount of € 1,769.43, for a total of € 16,246.23 (document No. 1 attached to the Request for Arbitral Pronouncement).

11.22. Disagreeing with the legality of the levy referred to in the previous number, as in it he declared marital status "single" and not "De facto United" with B..., the Claimant presented, on 10 December 2014, a gracious complaint, to which was assigned the number ...2014... – IRS/2010 (12/2015) (document No. 2 attached to the Request for Arbitral Pronouncement and CF1, p. 2 et seq.).

11.23. Regarding the gracious complaint referred to in the previous number a draft decision was prepared, notified for prior hearing by office No. ... from the Finance Directorate of ..., on 10 April 2014, which, in the absence of a response, was converted, on 28 May 2015, into a final order of dismissal, notified by office No..., received on 03 June 2015 (documents No. 3 and 4 attached to the Request and CF4, pp. 171 to 178).

11.24. On 31 August 2015 the present Request for Arbitral Pronouncement was filed with the CAAD.

12. FACTS NOT FOUND PROVED

With relevance to the decision, there are no facts that should be considered as not proven.

13. GROUNDS FOR THE FACTS FOUND PROVED AND NOT PROVED

The establishment of factuality was based on the documents submitted by the Claimant (Request for Arbitral Pronouncement, documents attached to the Request, arguments) and Respondent (Reply, Administrative Case File attached to the case file, arguments) as well as the statements, with internal and overall coherence, given by the witnesses presented by the Claimant who demonstrated concrete and personal knowledge of the facts about which they were heard.

The facts found proven are sufficient for the decision of the case.

14. APPLICATION OF LAW

14.1. The facts to be legally framed

From the factuality established, it is concluded that it is not disputed that the Claimant and B...:

• Between March 2007 and July 2008, had tax domicile in Viseu, at the same address corresponding to the apartment which was the subject of a lease agreement in which the company to whose administration the Claimant belonged appears as lessee;

• From July 2011 onwards, again had a common tax domicile in Porto, in a house acquired in July 2008 by the Claimant;

• Married each other in December 2011.

Despite the lack of consensus on the facts or their effects, the court considers that on the basis of the factuality established, it is concluded that:

• The Claimant and B... lived in the same house in Viseu in the years 2007 and 2008, and in 2008, although the Claimant acquired in July a property in Porto intended for own and permanent residence, he continued to work in the Viseu area, and, according to the conviction acquired by the conjunction of all the evidence produced, also maintained, in fact, his habitual residence in Viseu;

• The Claimant and B... lived together in France during 2009, having executed in August of that year, in Marseille, a Pact which, given French law, is an agreement with effects in large part identical to those arising from marriage;

• The parish council of..., in Porto, issued in March 2010 (a date still distant from the submission of the IRS declaration) a certificate to the effect that B... then resided at Street..., in Porto.

It is admitted that there were several contradictions in the Claimant's argumentation throughout the administrative proceeding: the document from the parish council of ... attests that B... said, in March 2010, that she resided in the parish for more than two years, which, without further explanation, seems scarcely reconcilable with residence in Viseu in 2008 and in France in 2009 (admitting, however, that the justification may be, at least in part, the fact that the Claimant went to work in France only temporarily, and therefore did not both change their status as residents of Portugal). But taking into account all the evidence produced – documentary and testimonial – the court became convinced that the Claimant and B... have lived in conditions identical to those of spouses since at least 2007.

However, since the Claimant acquired in mid-2008 a property intended for own and permanent residence in Porto, and changed his tax domicile to that address, while the companion maintained her tax domicile in Viseu, the question arises of whether the lack of coincidence of tax domicile in the year 2010 and in the two preceding years prevents his joint taxation in the year 2010.

14.2. The legal regime in question – interpretative doubts

Since it is a matter of IRS levy, whose tax event is complex and of successive formation, relating to 2010, the personal and family situation of the taxpayers relevant for taxation purposes is that which existed on the last day of the year to which the tax relates (section 7 of article 13 of the CIRS).

At that date, article 14 of the CIRS, under the heading "De facto unions", provided: « 1- Persons living in de facto union who meet the assumptions contained in the respective law may opt for the tax regime of taxpayers married and not judicially separated as to persons and property. 2 - The application of the regime referred to in the previous number depends on the identity of tax domicile of the taxpayers during the period required by law to verify the assumptions of de facto union and during the taxation period, as well as on the signature, by both, of the respective income declaration. 3 - In the case of exercise of the option provided for in section 1, the provision of section 2 of article 13 applies, with both de facto united parties being responsible for compliance with tax obligations».

De facto union, according to Law No. 7/2001, of 11 May, with the wording given to it by Law No. 23/2010, of 30 August, is the situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years" (section 2 of article 1). The Law provided that "persons living in de facto union under the conditions provided in said law have the right to the application of the personal income tax regime under the same conditions applicable to taxpayers married and not judicially separated as to persons and property (paragraph (d) of art. 3), establishing that "In the absence of legal or regulatory provision that requires specific documentary proof, de facto union is proven by any legally admissible means" (article 2-A).

Comparing the norms of the two decrees, it is verified that the option by taxpayers in de facto union, for a regime of taxation of taxpayers married and not judicially separated as to persons and property, in addition to the signature by both of the respective income declaration, presupposed the identity of tax domicile of the taxpayers during the period required by law to verify the assumptions of de facto union and during the taxation period (section 2 of art. 14 of the CIRS).

According to paragraph (a) of section 1 of art. 19, section 1 of the LGT, the tax domicile of the taxpayer is, in the case of individuals, except as otherwise provided, the place of habitual residence. In the wording in force in 2010, article 19 further provided that "The communication of the domicile of the taxpayer to the tax administration is mandatory, under the terms of the law" (section 2), and is "(…) ineffective the change of domicile until it is communicated to the tax administration" (section 3). In section 6 it provided: " The tax administration may officially correct the tax domicile of taxpayers if this results from the elements at its disposal".

From a certain point onwards[1] differences arose between taxpayers and the tax administration regarding the interpretation of these combined norms, and there came to be two schools of jurisprudential interpretation: one makes "the application of the de facto union regime in the context of IRS personal incidence depend on the identity of tax domicile – art. 14 section 2 CIRS", considering that "for the fulfillment of the assumptions of de facto union contained in Law 7/2001 of 11/5, the identity of tax domicile is determinative", while the other understands that "by reference to the provisions of articles 13 and 14 of the CIRS" (…) the law does not impose as a condition the tax domicile of the Claimants but that of the residence of the family unit", and this is verified when the taxpayers "despite having different tax domiciles, did not cease cohabitation"[2].

14.3. Balancing the arguments in the present case

Let us take as paradigmatic of the theses in question, two decisions issued on the matter by the TCAS, the Judgment of 22 January 2015 in proc. 6655/13 (Judge Bárbara Tavares Teles) and the Judgment of 5 March 2015, in proc. 5655/12 (Reporting Judge Cristina Flora).

In the first case[3] (Proceeding 6655/13), the TCAS considered that «the law makes the application of the de facto union regime in the context of IRS personal incidence depend on the identity of tax domicile – art. 14 section 2 CIRS, contrary to what is stated in the first instance judgment. The concept used by the legislator in the norm of IRS personal incidence above referred to is that of tax domicile and no other such as family unit residence, habitual address, whereabouts or other. Despite the concept of family unit that is enshrined in art. 13 of the said code, the truth is that for the fulfillment of the assumptions of de facto union contained in the respective Law 7/2001 of 11/05, the identity of tax domicile is determinative. That identity does not occur in the case at hand, in the years in question and for the period required of two years in the law, since in the case file such is not proven, save from 14/03/2006 onwards. Being thus, it is manifestly insufficient to prove that, in the years covered by the levy acts impugned, the Respondents lived in de facto union for more than two years with identity of tax domicile. To this end the law establishes that the "communication of the domicile of the taxpayer to the tax administration is mandatory, under the terms of the law" and "the change of domicile is ineffective until it is communicated to the tax administration" (sections 3 and 4 of the same legal provision). Being thus, it is understood that faced with the obligation to communicate change of domicile, under penalty of ineffectiveness thereof, while such is not communicated – cfr. sections 1, 3 and 4 of article 19, section 1, of the General Tax Law, the provision of article 1, section 2, of Law 7/2001 of 11 May - «persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years» is not applicable. Now, the Respondent did not communicate the change of tax domicile to Braga, together with the Co-Respondent, although it was allegedly for his professional reasons that this occurred, and the Co-Respondent only came back to communicate the change of tax domicile to Sines in 2006, thus rendering ineffective the alleged common changes of residence. During those periods they failed to prove de facto union for two consecutive years.».

In the second case (05655/12)[4], the TCAS considered[5]:

«The concept of tax domicile is defined in paragraph (a) of section 1 of art. 19, section 1 of the LGT, and in this manner, except as otherwise provided, the tax domicile of the taxpayer, in the case of individuals, is the place of habitual residence. It is habitual residence that integrates the concept of tax domicile. In this manner, when the habitual residence of the taxpayer, individual person, occurs in a determined place, then that is his tax domicile, regardless of its communication to the TA. That is, the legal provision does not make the concept of tax domicile dependent on any communication, but solely on "habitual residence". The obligation to communicate the domicile of the taxpayer to the tax administration is only provided for, autonomously, in section 3 of that legal provision, and section 4 establishes that the change is ineffective until it is communicated to the tax administration. Now, it is only a matter of the effectiveness of the change of domicile, its production of effects vis-à-vis the TA, which does not affect the substance, and does not even integrate, the legal concept of tax domicile provided for in section 1 of art. 19 of the LGT. In other words, the tax domicile of a particular taxpayer, individual person, which is the place of his habitual residence, ceases not to be by not having been communicated to the TA. Consequently, for the purposes of the provision of section 2 of art. 14 of the CIRS, the identity of tax domicile of the taxpayers is verified when they have the same habitual residence [proven], regardless of compliance with the communication provided for in section 3 of art. 19 of the LGT. The absence of that communication will be relevant, in this case, for the purposes of proof of tax domicile, which will fall to the taxpayers, in view of the ineffectiveness of the change of domicile that results from the provision of section 4 of art. 19 of the LGT. Indeed, non-compliance with the communication provided for in section 3 of art. 19 may have as a legal consequence the requirement of proof of identity of domicile [habitual residence] by the TA, as under section 4 the non-compliance with that obligation leads to the ineffectiveness of the change of domicile. However, once proof of the identity of tax domicile is made, as that legal requirement is not constitutive of the right of the Claimants, then it must be concluded that non-compliance with that communication does not prevent the Claimants from opting for the tax regime of taxpayers married and not judicially separated as to persons and property provided for in section 1 of art. 14 of the CIRS (in that sense, see, the recent Judgment of the TCA South of 19/02/2015, proc. No. 08313). In sum, with two persons, regardless of sex, living in conditions analogous to those of spouses for more than two years, in the same habitual residence [proof which falls to the taxpayers, in the event of non-compliance with the obligation to communicate provided for in section 3 of art. 19 of the LGT] the identity of tax domicile provided for in the provision of section 2 of art. 14 of the CIRS is verified. In this case, despite the change of tax domicile of the Claimant only being communicated to the TA on 26/11/2008, it results proven through the deposition of witnesses set out in the grounds of the judgment (which moreover is not put in issue by the State in the conclusions of the appeal), that both Claimants lived in the same house for more than 2 years, in conditions analogous to those of spouses, therefore the identity of tax domicile is verified for the purposes of section 2 of art. 14 of the CIRS, and thus the appeal of the State does not merit approval, with the appealed decision to be upheld with the present grounds.» (emphasis ours).

Analyzing the evolution of the institutes and norms in question[6], as well as the arguments expounded in the jurisprudence and also the argument of the Ombudsman in two Recommendations (No. 1/A/2013 and 13/A/2013) on the matter, we conclude, in the line of the interpretation adopted by the Judgments issued by the TCAS in proceedings Nos. 05655/12 and 08313[7]:

• Portuguese law enshrines the de facto union regime – situation in which two persons live in conditions analogous to those of spouses for more than two years - without requiring the performance of any special formality (written contract or registration) and admitting, in the absence of legal or regulatory provision that requires specific documentary proof, any type of proof (section 1 of article 2-A of Law No. 7/2011, of 11/05, with wording of Law No. 23/2010, of 30/08).

• Article 14 of the IRS Code, by making the option of subjects in a situation of de facto union for the tax regime applicable to taxpayers married and not judicially separated as to persons and property dependent on the identity of common tax domicile, raises the question of to what extent such requirement means that the lack of common tax domicile prevents the proof that the persons in question live "in conditions analogous to those of spouses".

• Non-alteration by the taxpayers of their tax domicile is susceptible to punishment, as a tax infraction, for failure to present or presentation outside the legal time limit of declarations or NIF cards for individuals as well as the inaccuracies or omissions made therein (section 4 of article 117 and section 4 of article 119, both of the RGIT, respectively).

• Being the requirements in tax matters justified regarding the need to prevent abuse or tax evasion, namely the obligation to communicate tax domicile (articles 19, section 2 of the LGT and 43 of the CTPP), it must be assessed, taking into account namely the provision of article 19, section 3 of the LGT, whether the non-timely compliance with such obligation prevents the exercise of rights whose ownership depends on said tax domicile, and to what extent can be attributed to that common registration of tax domicile a formality ad substantiam.

• In view of the evolution of the concept of family, with recognition of the family constituted through de facto union (articles 36, section 1 and 67 of the CRP) and its reflection in the norms of the IRS Code, should this reality deserve, as to taxpaying capacity, identical treatment to that made possible, through the system of joint taxation of the income of all members of the family unit and by the establishment of the "spousal quotient" (article 69 of the IRS Code), especially favorable to family units in which only one member to whom its direction falls obtains all or most of the income.

• Containing section 2 of article 14 of the IRS Code (norm of personal incidence), the presumption that, not having the taxpayers common tax domicile for the period mentioned there, they cannot be considered as de facto united, for the purposes of applying a tax regime - which may be more advantageous to them and which they may choose, in the income declaration - should be understood to be a rebuttable presumption (art. 73 of the LGT).

• Thus, taxpayers may rebut the presumption that has been applied to their concrete situation, through gracious complaint or judicial or arbitral impugnation, by making proof of the cohabitation of the de facto united for more than two years, by other means than solely by the identity of tax domicile, because although common tax domicile may prefigure a qualified means of proof, this does not configure itself in this case as exclusive.[8]

14.4. Conclusion regarding the situation in the case

14.4.1. Regarding the legality of the tax levy act

Having the present court considered that, despite the non-coincidence of tax domicile of the Claimant and B... during the entire period corresponding to the year 2010 and the two preceding years, proof was made in the case file that, during the said period, there had been cohabitation of both in conditions identical to those of spouses, it decides, with the grounds set out above, to declare the illegality of the IRS levy which is the subject of the present case, relating to the 2010 tax year.

14.4.2. Regarding the order dismissing the respective gracious complaint

As to the annulment of the order dismissing the gracious complaint, also requested by the Claimant, this will be an effect of the annulment of the tax levy act itself, which constitutes the real object of the Request for Pronouncement[9].

However, the appreciation of the manner in which the administration decided the gracious complaint acquires relevance with a view to assessing the administration's fault in the prejudice resulting from the payment of the tax (compensatory interest). Analyzing, briefly, the terms of the gracious complaint which carried the number ...2014..., and which was dismissed, by order of 28-05-2015, it is verified that the Complainant argued that, on the basis of the documents submitted by him, the TA should consider it demonstrated that the requirements relating to de facto union were met, with destruction of the presumption arising from the combination of articles 14, section 2 of the CIRS and 19 of the LGT, and inversion of the burden of proof (art. 74 of the LGT). He invoked that the principle of inquisitorial procedure obligated the TA to know officially of the requirements for de facto union, alleging that the discovery of material truth should be pursued without being subordinated to the initiative of the author of the request, that is to say to carry out the inquiries (…) convenient for the investigation, even on matters not mentioned in the requests or responses of the interested parties, and to decide on a matter different from or broader than what is requested, when the public interest so requires"(articles 56 and 67 of the CPA). He concluded that the TA, in not accepting the submission of a single IRS Model 3 Income Declaration by the couple, and in dismissing all of the Complainant's requests, incurred in the violation of articles 4, 56 and 87 of the CPA, article 58 of the LGT and article 266, section 1 of the CRP.

Now, the taxpayers, by not having maintained during the years relevant for the application of IRS relating to 2010, that is, 2008, 2009 and 2010, identity of tax domicile, had, in order to rebut the presumption contained in section 2 of article 14 of the CIRS, to present sufficient, clear and non-contradictory evidence, that there had been during the period in question, cohabitation of both, in a manner identical to that of spouses. It happens, however, that, faced with doubts, insufficiencies and contradictions of documents attached and elements contained in TA records, it is considered justified that the proof made in the administrative proceeding has not been sufficient to destroy the presumption arising from the combination of articles 14, section 2 of the CIRS and 19 of the LGT, leading to the inversion of the burden of proof. Nor is it proper to consider it reasonable to require the administration that, on its own initiative, should have to develop all the inquiries necessary to prove the material truth regarding the alleged cohabitation in conditions analogous to those of spouses of the Claimant with B....

14.4.3. Regarding compensatory interest

The Respondent requests the payment of compensatory interest, under sections 1 and 2 of article 43 of the LGT.

Section 1 of article 43 of the LGT provides that "compensatory interest is owed when it is determined, in gracious complaint or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount higher than that legally due" and section 2 adds that "It is also considered that there is error attributable to the services in cases where, although the levy is made on the basis of the taxpayer's declaration, the latter has followed, in completing it, the generic guidance of the tax administration, duly published".

As we understand that the right to compensatory interest can be recognized in arbitral proceedings (section 5 of art. 24 of the LRM), the question remains whether or not there was error attributable to the services.

In the present decision, the court decided for the illegality of the levy by disagreeing with the interpretation of the administration adopted in the said instructions of July 2008, which will have conditioned the model 3 IRS declaration made by the Claimant, in 2014, against his own will, where he declared single status instead of "de facto united" and which grounds the levy which is the subject of the present Request for Arbitral Pronouncement.

But the application of law depends not only on the interpretation of the applicable norms but also on the interpretation of factuality.

The taxpayers, by not having maintained during the years relevant for the application of IRS relating to 2010, that is, 2008, 2009 and 2010, identity of tax domicile, had, in order to rebut the presumption contained in section 2 of article 14 of the CIRS, to present sufficient, clear and non-contradictory evidence, that there had been during the period in question, cohabitation of both, in a manner identical to that of spouses.

As already mentioned, there were contradictions and situations that were little clarified and which could even raise doubts regarding other tax situations. It was in the appreciation of the evidence produced in the case file that the present court acquired, with the help of witness testimony, the conviction that the taxpayers had actually lived in conditions identical to those of spouses, with common habitual residence, in the year 2010 and in the two preceding years.

Thus, and as a consequence of what was already mentioned above, the court considers that the imprecision of some documents and statements of the Claimant as well as their confrontation with elements in the possession of the administration, justify that the levy cannot be attributed solely to an erroneous interpretation of the applicable law sustained by the Respondent[10], preventing a judgment of fault which would ground compensation through payment of compensatory interest. Accordingly, it is decided that these are not owed.

15. DECISION

With the grounds stated, the arbitral court decides:

a) To judge well-founded the request for arbitral pronouncement of declaration of illegality of the IRS levy act (tax and compensatory interest), dated 17-06-2014, relating to the year 2010, with No. 2014..., with other legal effects namely the annulment of the order dismissing the gracious complaint.

b) To consider ill-founded the request for condemnation of the Respondent in the payment of compensatory interest.

c) To condemn the Respondent in costs.

16. VALUE OF THE PROCEEDING

In accordance with the provision of section 2 of article 315 of the CPC, in paragraph (a) of section 1 of article 97-A of the CTPP and also section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 16,246.23 (sixteen thousand, two hundred and forty-six euros and twenty-three cents).

17. COSTS

For the purposes of the provision of section 2 of article 12 and section 4 of article 22 of the LRM and section 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I annexed to said Regulation, to be borne entirely by the Respondent.

Lisbon, 17 May 2016.

The Arbitrator

(Maria Manuela Roseiro)

[1] According to analysis by the Ombudsman (in Recommendation No. 1/A/2013), many taxpayers living in de facto union had for years no problems with the application of article 14 of the CIRS (added to the CIRS by Law No. 30-G/2000, of 29/12, as article 14-A), with problems arising with the instructions of the IRS Service Directorate, of 14/07/2008, which determined that by combining article 14 of the CIRS and Law No. 7/2001, of 11/5, the application to de facto unions of the tax regime of taxpayers married and not judicially separated as to persons and property to de facto united depended on the cumulative verification of objective conditions and specifically stipulated in law, which were the identity of tax domicile for more than two years and during the taxation period and the signature, by both, in the respective income declaration. This clarification regarding the interpretation and application of section 2 of art. 14 of the CIRS sought to prevent situations of abuse identified in the exercise of that option by taxpayers who did not meet the legal requirements of de facto union (cf. Recommendation of the Ombudsman No. 13/A/2013).

[2] Cf. summary made by the Public Ministry regarding opposition of decisions in appeal 0761/15, STA (judgment of 16-12-2015). This Judgment – which admitted exceptional review appeal under the provision of article 150 of the CPTA – recognized the existence of the invoked opposition, stating it as follows: «In sum, the question which the Appellants intend to resolve with this review is whether, in the absence of communication to the tax administration of identical tax domicile, persons living in de facto union can still benefit from the tax regime of taxpayers married and not judicially separated as to persons and property (provided for in art. 14 of the CIRS) should they make proof, as they did in the case file, that they had the same place of habitual and common residence during the period required by law to verify the assumptions of de facto union and during the taxation period. That question, although never before placed before the STA, has been raised on various occasions before the Central Administrative Court, having obtained no unanimity of positions there, as can be seen from the reading of the appealed judgment (issued on 22/01/2015, in proc. No. 06655/13) in confrontation with the reading of the judgments issued on 5/03/2015, in proc. No. 05655/12 (with one dissenting vote) and on 19/02/2015, in proc. No. 08313/14, both in the opposite sense, that is, that sustained the position that "Proving that the two taxpayers have lived for more than twenty years in conditions analogous to those of spouses and in the same house, despite not having communicated the change of tax domicile should be able to benefit from the tax regime of taxpayers married and not judicially separated" and which are grounded, in summary, in the following legal motivation: "For the purposes of the provision of section 2 of art. 14 of the CIRS, the identity of tax domicile of the taxpayers is verified when they have the same habitual residence [proven], regardless of compliance with the communication provided for in section 3 of art. 19 of the LGT. // The absence of that communication will be relevant for the purposes of proof of tax domicile, which will fall to the taxpayers, in view of the ineffectiveness of the change of domicile that results from the provision of section 4 of art. 19 of the LGT. // With two persons, regardless of sex, living in conditions analogous to those of spouses for more than two years, in the same habitual residence [proof which falls to the taxpayers, in the event of non-compliance with the obligation to communicate provided for in section 3 of art. 19 of the LGT] the identity of tax domicile provided for in the provision of section 2 of art. 14 of the CIRS is verified.".

[3] This was a situation in which the services of the Finance Directorate of Setúbal had, in 2008, raised problems regarding IRS levies of two taxpayers, in de facto union between 2004 and 2007, because the tax domiciles in those years, and in the two preceding years, had been different – one in Braga another in Sines. The taxpayers invoked that they lived maritally and in conditions analogous to those of spouses since March 2002 with tax domicile in the municipality of Sines but that, for professional reasons, one of them had gone at one point to live in Braga and the other followed him later, where they remained for two years, having thereafter both returned to Sines.

[4] At issue was the IRS levy for 2009 of two taxpayers who had submitted a declaration in the situation of de facto union, but which the TA had identified as not having the same tax domicile in the two preceding years. The taxpayers invoked that they had lived together since 1995 and had a child in common, but one of them had for some time had tax domicile in a store where he worked but which would not present habitability conditions.

[5] The Judgment was approved with a dissenting vote from one of the signatories of the decision in proc. 6655/13, reaffirming: «Contrary to the understanding that prevailed in the present judgment, I consider that the legislator, in art. 14, section 2, of the C.I.R.S., in referring that the tax regime of taxpayers married (cfr. section 1 of the norm) depends on the identity of tax domicile of the taxpayers during the period required by law to verify the assumptions of de facto union (cf. two years - art. 1, section 2, of Law 7/2001, of 11/5), is using the concept of tax domicile and not any other such as family unit residence, habitual address, whereabouts or other. Having the respondent updated the tax domicile only on 26/11/2008, it being unknown even which that domicile is in concrete terms, the respondents cannot avail themselves of the regime provided for in the cited art. 14 of the C.I.R.S., regarding the year 2009.».

[6] Following the amendment of Law 82-E/2014, of 31 December, article 14, section 2 of the CIRS provides that "The existence of identity of tax domicile of the taxpayers during the period required by law to verify the assumptions of de facto union, and during the taxation period, raises the presumption of the existence of de facto union when this is invoked by the taxpayers". Circular Order No. 20183 of the TA, of 3 March 2016, confirms that with the new wording, proof of de facto union and the minimum period thereof of two years is admitted, by any legally admissible means. Despite the insistence of the same circular order that this interpretation only applies after 1 January 2015, as it corresponds to the entry into force of the new wording, we believe, for the reasons we set out, there are no reasons not to understand that this could already be the case previously to the presumption being rebutted.

[7] Cf. summary of the decision of 19 February 2015, in proceeding 08313/14: «I – Persons living in de facto union need, in order to benefit from the right to be taxed according to the tax regime of taxpayers married and not judicially separated as to persons and property established in article 14 of the CIRS, to prove that that de facto union has lasted, at least, two years, that they possessed during that period of time the same tax domicile and presented an income declaration signed by both taxpayers de facto united. II – Being the tax domicile of individuals, as a rule, the place of habitual residence and, consequently, this habitual residence the place determined for the exercise of rights and compliance with duties provided for in tax law norms (art. 19, section 1, al. a), General Tax Law), it is that identity which should be respected by the taxpayer and it is that identity which should be respected by the Tax Administration, namely to ascertain whether or not the conditions required by law are met for two persons living in de facto union to benefit from the regime enshrined in article 14, section 1 of the CIRS. III – The communication of the change of tax domicile not being a constitutive element of the right referred to in I-, the omission of that formality cannot constitute grounds for the non-recognition of that same right. IV – Having been proven that, when the Claimants presented the joint income declarations for IRS purposes, they had lived for more than twenty years in conditions analogous to those of spouses and that throughout all those years both resided in the same house, the requirements set out in article 14, sections 1 and 2 of the CIRS should be judged to be met.»

[8] The observations made by the Ombudsman in Recommendation 13/A/2013 seem very pertinent, after recognizing as laudable the concern with the fight against fraud and tax evasion: «Moreover, this prevalence of form over substance ends up, curiously, opening the door to the situations of fraud it seeks to prevent. In that the declaration, for tax purposes, of the same tax domicile throughout two or more years – which the TA elevates to the sole and essential proof of de facto union - is not, evidently, a guarantee of the existence of a true de facto union. Citizens who cohabit with mere objectives of sharing expenses, without living in conditions analogous to those of spouses, certainly do not meet the requirements required by Law No. 7/2001, of 11 May, with the amendments introduced to it by Law No. 23/2010, of 30 August and have, in the eyes of the TA, a special facility in "proving" a non-existent "de facto union". Comparatively, citizens who have proof strongly indicating the cohabitation in common under the terms required by the law above mentioned – deeds of purchase and sale of properties intended for the residence of which the common address of both appears, correspondence addressed to each of the taxpayers, for that same address, much of it relating to common children, to mention only two examples - but who have not duly updated their tax domicile, are, by the TA, absolutely and definitively deprived of the possibility of proving their de facto union.».

[9] Understanding that "the real object of the impugnation is the levy act and not the act which decided the complaint, whereby it is the defects of that one and not of this order that are truly in question (…)"(Judgment of the STA of 18 May 2011, proc. No. 0156/11). Also Jorge Lopes de Sousa, Guide to Tax Arbitration, pp. 120 et seq., and Carla Castelo Trindade, Legal Regime for Tax Arbitration annotated, pp. 242 and 269.

[10] Because the payment of compensatory interest would not aim to compensate the Respondent for the interpretation adopted, in the abstract, in the tax administration instructions of 2008, being provided for in the case of fault in the error of the concrete levy. And the correct levy, in this case, would presuppose the clarity of the factual situation and the destruction of the presumption based on the (non-)identity of domicile, which we consider to have been achieved only in the judgment given the existing doubts (cf., e.g., relationship between the facts proven, 11.5, 11.7 and 11.11).