IRS Liquidation Annulled: Failure to Consider Filed Tax Return and Marital Quotient (CAAD 574/2015-T)

ARBITRAL DECISION

I. Report

1. On 01-09-2015, the taxpayer A..., TIN..., submitted a request for the constitution of a sole arbitrator tribunal, pursuant to the combined provisions of articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), with a view to challenging the illegality of the IRS assessment for 2012.

2. Pursuant to article 6(1) of the RJAT, the Deontological Council of the Arbitration Centre appointed the undersigned arbitrator, notifying the parties.

3. The tribunal is duly constituted to review and decide the subject matter of the proceedings.

4. The allegations supporting the Claimant's request for arbitral decision are, in summary, as follows:

4.1 The assessment made against the Claimant was made ex officio for allegedly not having submitted the respective income declaration for 2012.

4.2 This fact is, however, false, as such declaration was timely submitted by the Claimant, as he duly informed the Tax Authority.

4.3 It thus follows that the assessment at issue suffers from an error in its factual premises, due to lack of justification for the ex officio acts of assessment.

4.4 It lacks legal foundation to completely disregard the income declaration for 2012, submitted by the Claimant and his wife.

4.5 It should be noted that the taxpayer's declarative obligation is exhausted with the submission of the declaration, provided for in article 57 of the IRS Code, since the validation thereof is dependent only and solely on the Tax Authority's Services.

4.6 That, should they find any divergence, they can only invite the taxpayer to regularize, and, if he fails to do so, grants the Tax Authority the right to effect the ex officio amendment of the declaration.

4.7 This is because such amendment was due to the Tax Authority's non-acceptance of the regime which the Claimant believes to be applicable to him.

4.8 Furthermore, it is found that the Tax Authority disregarded the marital status of married and, therefore, did not apply the spousal coefficient, as the Claimant was penalized for not having submitted his income declaration, applying to him the higher coefficient.

4.9 Contending that because the declaration was not submitted – which is false – there is no place for the application of the spousal coefficient – which is illegal.

4.10 However, the taxpayer's family situation can never cease to be taken into consideration in his tax framework, and it should be noted in this regard that the 'spousal quotient' does not constitute any "deduction" that is excluded by article 76(3) of the IRS Code, invoked in the contested decision.

4.11 Being certain that the Claimant does not need to prove, but only to declare his marital status, which he did in his income declaration, which the Tax Authority chose to disregard.

4.12 Such declaration enjoys a presumption of truthfulness, pursuant to article 75 of the General Tax Law, which the Tax Authority, at no moment, challenged – nor could it, as none of the circumstances provided for in section 2 of that provision are present.

4.13 Furthermore, such information expressly results from his taxpayer registry and from the declarations submitted in previous years, exempting the Claimant from its proof, pursuant to article 74(2) of the General Tax Law.

4.14 Being certain that the Claimant's marital status is contained in the records of the Public Administration itself to which, should it deem necessary, the Tax Authority has direct and free access.

4.15 Furthermore, the Claimant has come to ascertain that the disregard of the income declaration he submitted, jointly with his spouse, was due to discrepancies regarding his income, discrepancies which are, moreover, illegal, as will be demonstrated hereinafter.

4.16 Now, pursuant to article 69 of the IRS Code, "In the case of married taxpayers not judicially separated as to persons and property, the applicable rates are those corresponding to the collectible income divided by 2".

4.17 A legal provision which the contested assessment act did not comply with.

4.18 And do not say that such application was not made in view of article 76(3) of the IRS Code.

4.19 Furthermore, it is reiterated that the "spousal quotient" does not constitute any "deduction" but only a method of determining the applicable rate.

4.20 Effectively, the Claimant commenced his activity on 01/10/2009, not foreseeing that his sales volume would exceed €149,739.37, as provided in the wording in force at the date of article 28(2) of the IRS Code.

4.21 Having therefore exercised his right to option regarding the taxation regime, having opted for the organized accounting regime.

4.22 Well knowing that his option, pursuant to article 28(5) of the same provision, was subject to a minimum period of residence of three years.

4.23 Having fulfilled all his tax obligations, namely declarative ones, during the following three years, based on the organized accounting regime in which he believed to be framed, according to the dictates of the law.

4.24 It happens, however, that the Claimant and his spouse were surprised with his notification to submit again his IRS Form 3 declaration for 2012.

4.25 Not understanding or agreeing with such information, the Claimant submitted a request to the Tax Authority.

4.26 To date, the Claimant has not received any response to his request, with the Tax Authority incurring a violation of its duty to decide.

4.27 In fact, not only was the Tax Authority obliged to respond to the request submitted by the Claimant, but, in light of it, it should have refrained from issuing the assessment.

4.28 Effectively, pursuant to article 28(3) and (4) of the IRS Code, the option for taxation according to organized accounting must be exercised in the activity commencement declaration or by the end of March of the year in which they intend to be taxed in this manner, through an amendment declaration.

4.29 The validity of this option is 3 years, by virtue of article 28(5) of the same provision, as amended by Law 53-A/2006 of 29/12 and in force to date.

4.30 From the letter of the law – which offers no doubts whatsoever – it follows that, having a taxpayer been framed in one of the two taxation regimes provided for in article 28(1) of the IRS Code, the period of mandatory residence is three years, always renewable for a new period of 3 years should the option for another regime not be exercised.

4.31 Therefore, it must be concluded that, at the commencement of activity, framing is done in accordance with the annual value of estimated income.

4.32 However, if the taxpayer has a framing, dictated by the annual value of income, in Simplified Regime but exercises the option for the Organized Accounting regime, it is the exercised option that prevails for framing purposes – pursuant to article 28(10) of the IRS Code – well knowing, however, that such option is valid for the following three years – article 28(5) of the same legal provision.

4.33 Therefore, the Claimant should have been framed in the regime for which he opted – organized accounting regime – and should be allowed to exercise again his right to option for such regime, once the mandatory period of residence had elapsed.

4.34 The failure to fulfill obligations cannot be imputed to the Claimant, but rather to the Tax Authority which, understanding – albeit incorrectly, as has been demonstrated – that the Claimant was not framed in the regime he had opted for, was obliged to notify him to exercise his right to be heard, pursuant to article 60 of the General Tax Law.

4.35 Or, even if this were not understood, at least be informed of the ex officio amendment of his taxation regime, since this was initiated by the Tax Authority, without the Claimant even having knowledge.

4.36 Because such knowledge only came from the divergence that occurred in his income declaration.

4.37 For which reason a declaration was submitted as being framed in the organized accounting regime – and rightly so, for the reasons already set forth.

4.38 A declaration which the Tax Authority decided simply to disregard, treating it as not submitted.

4.39 Furthermore, the assessment that would result from the declaration submitted by the Claimant and his wife, and which should have been made, would generate no tax to pay.

4.40 The ex officio IRS assessment at issue is not justified, pursuant to articles 77 et seq. of the General Tax Law, and should therefore be annulled pursuant to articles 135 of the Administrative Procedure Code (CPA), applicable by referral of paragraph d) of article 2 of the Tax Procedural Code.

4.41 The assessment sub judice does not even refer to any opinion or information containing the factual and legal justification that led to its ex officio issuance.

4.42 In the assessment sub judice, the Tax Authority does not invoke the norm or the facts which, according to the position assumed by it, legitimize that corrections be made to the taxable income, and by the application of article 74(1) of the General Tax Law, which is a transposition of article 342(1) of the Civil Code, the Tax Authority does not meet the burden of proof of the constitutive facts of its right to effect corrections, which, in addition to constituting a substantial defect, also constitutes a formal defect, due to lack of justification of the act.

4.43 In this sense, the assessment act cannot be considered justified either in fact or in law, once the Tax Authority is bound by compliance with the principle of legality provided for in article 104(1) of the Constitution of the Portuguese Republic (CRP), it would fall to it, in the substantial justification of the tax act, to invoke the legal norms that legitimize its action, under penalty of the Claimant being left not knowing on what basis the Tax Authority acted.

1. In turn, the defendant Tax Authority and Customs Authority presented a reply, in which it defended itself in the following terms:

5.1 There is a pending case at the ... Organizational Unit of the Lisbon Tax Court with Case No. .../14...BELRS which has as its object the decision of the Director of Services of the Income Tax Service Directorate (DSIRS), of 2014/08/01, issued in opinion no. .../14, notified to the present Claimant by official letter no., of 2014/08/26, from the Administrative Justice Division of the Finance Directorate of Lisbon, which dismissed his request, as he intended to be framed, under IRS, in the organized accounting regime for 2010.

5.2 Now, deriving from the rules of permanence in the organized accounting regime, cf. article 28(5) of the IRS Code, the decision to be rendered in that decision will necessarily have a bearing on the assessments downstream, notably, in what concerns us here, on assessment no. 2015 ... of 2012.

5.3 In view of which, pursuant to and for the purposes of article 272 of the Code of Civil Procedure, suspension of this instance is always requested, given the manifest relationship of prejudiciality between both actions.

5.4 On 01-10-2014, an administrative process was initiated at SF Loures ... concerning taxpayers in default of IRS Income Declaration, for 2012.

5.5 According to what was found by that Service, and as is possible to verify by observation of the Administrative Process, the present Claimant submitted via internet, on 30-05-2013, the IRS Income Declaration for 2012, having, however, the same remained in the status "Erroneous".

5.6 And, after the 30-day period for correction of the said error had elapsed, the present Claimant did not do so, which caused the said Declaration – submitted in the status of "Erroneous" – to lose all its substantive force.

5.7 Following this, on 16-01-2015, Service Loures ... notified the present Claimant that, within the period of 30 days, counted from the 3rd day after registration, he should correct the error he had incurred and thus submit the Missing Income Declaration.

5.8 Further noting that, should he not proceed with the submission of said declaration or not make the corresponding proof within 30 days, the Services would proceed to the respective assessment pursuant to article 76(3) of the IRS Code.

5.9 Qualifying, in that case, the taxpayer "as unmarried", that is, "unless he communicates, within the said period, the Tax Identification Number (TIN) of his spouse."

5.10 In his reply, the present Claimant alleged that he had submitted his income declaration for 2012 within the legal deadline.

5.11 Having equally confirmed receipt of the official letter from Service Loures ... of 11-06-2013, regarding the existence of a central error with the designation "C70 – incompatibility between the submitted annex and the option in registry", to which, according to him, he gave no credit.

5.12 Moreover, the present Claimant, in addition to not having regularized his tax situation, also failed to provide proof of his marital status.

5.13 Given the omissive conduct of the Claimant, on 26-02-2015, the Tax Authority Services proceeded to ex officio collection of Income (2012), having proceeded to assessment pursuant to article 76(3) of the IRS Code.

5.14 Being that, for the concretization of said assessment, the Services took into account what was registered in the Claimant's tax registry, namely the fact that he was in the Simplified Taxation Regime.

5.15 This because he did not exercise the option in 2010 in accordance with article 28(3), (4) paragraph b) and (5) of the IRS Code.

5.16 It should be said that (cf. page 14 of the Administrative Process) the first of the contradictions alleged by the Claimant stands out.

5.17 Being that according to what results from consultation of the Tax Authority's database, we have that the taxpayer, diametrically opposed to what he alleges, commenced his activity on 01-01-2006 and not as he states on 1-01-2009.

5.17 It is for this reason that on 01-01-2009, the taxpayer was still registered in the organized accounting regime for the purposes of taxation under IRS.

5.18 This is because the taxpayer exercised such option in the year he commenced activity, that is, as demonstrated above, on 1-01-2006, having at that time, as is required by law, opted for one of the regimes provided for in article 28 of the IRS Code, i.e., in this case, organized accounting.

5.19 As can be seen, in the referred page 14 of the Administrative Process, the taxpayer's framing in income tax for 2010 was that of the simplified regime.

5.20 It was for that reason that the Tax Authority Services, in proceeding to assess under IRS for 2012, took the simplified regime as, so to speak, the starting point for its implementation and materialization in the taxpayer's sphere.

5.21 To which is added the fact that, still according to that page 14 of the Administrative Process, the simplified regime began on 01-01-2010 and ended on 31-12-2012.

5.22 This in strict compliance with what is provided in article 28(1) of the IRS Code.

5.23 Furthermore, in accordance with the wording of article 28(2), paragraphs a) and b) of the IRS Code, in force at the time of the facts, those encompassed by the simplified regime are taxpayers who, in the exercise of their activity, have not exceeded in the immediately preceding tax period any of the following limits:

Sales volume – €149,739.37

Net value of other income from this category – €99,759.58.

5.24 Now, in the year of activity reinstatement declaration, 2009, the Claimant estimated as the annual net value of other income from category B (IRS) the amount of €102,000.00.

5.25 Having, as resulted from the law (article 28(2) of the IRS Code), been encompassed by the organized accounting regime.

5.26 The limit set in article 28(2) of the IRS Code for framing in the simplified regime was altered by the wording given by Law no. 3-B/2010 of 28/4 which determined that those encompassed by that regime are taxpayers who, in the exercise of their activity, have not exceeded in the immediately preceding tax period an annual amount of net income from this category of €150,000.00.

5.27 Now, not meeting the premises of inclusion in the organized accounting regime for the following year, because the amount declared in annex C of the 2009 IRS declaration was €9,632.01 (document no. 2 which is protested to be attached), and thus not reaching the limit of €150,000.00, provided for in article 28(2) of the IRS Code, the framing was effected in accordance with what is established in law, in the simplified regime, for the triennium 2010/2012.

5.28 Because, if the Claimant was framed in the organized accounting regime in the year of activity reinstatement, 2009, due to the fact that the estimated value of income was superior to the established limit, but the income actually received in that year was inferior to that legally stipulated limit, he becomes framed in the simplified regime in the following year, unless, by the end of March, he opts for the organized accounting regime.

5.29 Should he not exercise the provided option, he will remain in the simplified regime for a minimum period of three years, except if in the following year he exceeds the limit, in an amount superior to 25% of the respective amount, in which case he will be framed in the organized accounting regime from the following year onwards (cf. Article 28(6) IRS Code).

5.30 Therefore, if the Claimant intended that business and professional income, from 2010 onwards, be determined based on organized accounting, he should have exercised the option for that regime by the end of March 2010, as provided in article 28(3), paragraph b) of (4) and (5) of the IRS Code.

5.31 Having the Claimant earned in 2009 income in the amount of €9,632.01, inferior to the limit provided for in article 28(2) of the IRS Code, thus meeting the premises to be framed in the simplified regime in 2010, and not having exercised the option for taxation by the organized accounting regime, he was automatically framed in the simplified regime in the triennium 2010/2012, triennium which encompasses the year in question.

5.32 Nor let the Claimant allege that, as concerns proof of his marital status, he would always be exempt from providing it, because, pursuant to article 75 of the General Tax Law, taxpayers' declarations presented in accordance with the law are presumed to be true and made in good faith only until proof to the contrary.

5.33 Being, however, that this presumption does not apply when declarations, accounts or records reveal omissions, errors or well-founded indications that they do not reflect the real taxable matter of the taxpayer.

5.34 Furthermore, because, pursuant to article 13(7) of the IRS Code, the personal and family situation of taxpayers relevant for taxation purposes is that which exists on the last day of the year to which the tax relates.

5.35 Which corroborates the request made by the Services to the Claimant to clarify his marital status in 2012.

5.36 As this is an ex officio assessment, it is limited to the boundaries enshrined in the IRS Code, namely in the provisions of articles 79(1) and 97(3) of the IRS Code, as per article 76(1) paragraph b) and (3) of the IRS Code (as amended by Law no. 53-A/2006, in force at the time of the facts).

5.37 Being that, pursuant to this latter provision, when a declaration has not been submitted, the income recipient is notified by registered mail to fulfill the missing obligation within 30 days, after which the assessment is made, with no regard to article 70, and only the deductions provided for in article 79(1) paragraph a) and article 97(3) are made.

5.38 Which, as we have seen, occurred, and it should be noted that the Claimant has not brought to the proceedings any conclusive and sufficient element of proof of this allegation, and therefore there is no place for the application of the spousal coefficient.

5.39 Finally, regarding the Claimant's argument of lack of prior hearing, it follows from article 60(2) paragraph b) of the General Tax Law that it is dispensed with in the case of ex officio assessment, based on objective values provided for in law, provided that the taxpayer has been notified to submit the missing declaration, without having done so.

5.40 The Claimant, without reason, further alleges lack of justification of the assessment act, because, in accordance with what has been demonstrated in the factual part, the Claimant was notified by the Services to, in the face of erroneous income declaration submitted – equivalent to failure to submit the same – within 30 days, regularize the situation.

5.41 Being obliged to submit for that purpose the income declaration for 2012, and/or presented within the said period the TIN of his spouse.

5.42 That is, the Claimant is not unaware of the cognitive route that underlies the ex officio assessment for 2012.

5.43 Effectively, the CRP, in its article 268(3), guarantees to those administered the right to express and accessible justification of all administrative acts that affect rights or legally protected interests.

5.44 In that context, in tax matters, the duty to justify the decision acts of procedures and tax acts is embodied in article 77 of the General Tax Law.

5.45 Thus, article 77(2) of the General Tax Law establishes the requirements for justification of acts of assessment of taxes, prescribing that they must contain a summary justification, the applicable legal provisions, the qualification and quantification of tax facts and the operations for determining the taxable matter and the tax.

5.46 Now, in the situation at hand, the taxpayer present Claimant had full knowledge that, having not submitted the IRS form 3 declaration for 2012, even after being notified to do so, the ex officio assessment would be based on the elements available to the Tax Authority, as it was notified to that effect, pursuant to article 76(3) of the IRS Code.

5.47 And even so, if he had any doubt whatsoever regarding the origin and amount of income contained in the notified assessment, he could have resorted to the provision of article 37(2) of the Tax Procedural Code, and within 30 days, or within the period for objection, requesting notification of the requirements that, in his opinion, were omitted, or the issuance of a certified copy containing them.

5.48 Thus, the ex officio assessment in question should be considered duly justified, once it consisted of the indication of the reasons of fact and law that led to its issuance, which were, 1) the failure to submit an income declaration and 2) the legal norm that authorizes the Tax Authority to substitute itself, containing therein the qualification and quantification of tax facts and the operations for determining the taxable matter and the tax, as well as the deadlines and means of reaction against the notified act.

5.48 Therefore, it does not suffer from a formal defect concerning justification, as its terms make known the reasons of fact and law that presided over the Tax Authority's action, and the entire path it took to reach the definition of the legal situation of the present taxpayer Claimant.

1. On 02/02/2016, an arbitral order was issued, considering unnecessary the meeting provided for in article 18 of the RJAT, given that the circumstances that are the subject of the various paragraphs of section 1 of this provision were not present, and the parties were invited to, within five (5) days, communicate to the proceedings whether, notwithstanding, they still intended the holding of the meeting referred to in article 18 of the RJAT, justifying that intent.

2. The parties did not request that the meeting provided for in article 18 of the RJAT be held.

II. Established Facts

1. With relevance for the decision of the case, the following facts are considered established:

8.1 The Claimant is married to B... since 4 May 1978.

8.2 The Claimant and his spouse submitted via internet, on 30-05-2013, the IRS Income Declaration for 2012.

8.3 The IRS declaration in the computer system remained in the status "Erroneous".

8.4 The Claimant received an official letter from Service Loures ... of 11-06-2013, regarding the existence of a central error with the designation "C70 – incompatibility between the submitted annex and the option in registry".

8.5 On 01-10-2014, an administrative process was initiated at Service Loures ... concerning taxpayers in default of IRS Income Declaration for 2012.

8.6 On 16-01-2015, the Claimant was notified to, within the period of 30 days, counted from the 3rd day after registration, correct the error and submit the Missing Income Declaration.

8.7 In that notification it was stated that should the Claimant not proceed with the submission of said declaration or not make the corresponding proof within 30 days, the Services would proceed to the respective assessment pursuant to article 76(3) of the IRS Code, qualifying, in that case, the taxpayer "as unmarried", that is, "unless he communicates, within the said period, the Tax Identification Number (TIN) of his spouse."

8.8 On 16-2-2015 the Claimant submitted a statement, where he alleged that he had submitted the Income Declaration within the legal deadline, having attached a document proving the same with the TIN of his spouse and a civil registry certificate proving his marriage.

8.9 On 26-02-2015, the Tax Authority Services proceeded to ex officio collection of Income (2012), having proceeded to assess IRS.

III. Unestablished Facts

1. The date of submission by the Claimant of the activity commencement declaration.

IV – On the Law

1. The following are the matters to be reviewed.

• The existence of a prejudicial issue.

• The lack of justification of the act.

• The verification of the submission of the IRS declaration and application of the spousal coefficient

Let us examine these matters:

THE EXISTENCE OF A PREJUDICIAL ISSUE

1. If a prejudicial issue existed, pursuant to article 272 of the Code of Civil Procedure, the Arbitral Tribunal could suspend the instance until a decision was rendered on that matter. It therefore becomes necessary to ascertain whether such a prejudicial issue is actually present.

As results from the attached documentation, there is pending before the Lisbon Tax Court a special administrative action, under no. .../14...BELRS, awaiting decision.

The object of the action in question is the decision denying the hierarchical appeal lodged against the decision denying the request to change the taxation regime, being that the present Claimant seeks to be inserted in the Organized Accounting Regime for the years 2010 and 2011 and to be able to choose the same regime in the triennium 2012 to 2014.

Given that we are dealing with an IRS assessment for 2012, in which the Claimant seeks to be inserted in the Organized Accounting Regime, we are dealing with the same assessment in dispute in these proceedings. It thus appears clear that a decision in the special administrative action in favor of the present Claimant would result in the need to annul this IRS assessment and replace it with another, given that he would be in a different taxation regime.

However, the main defect that is invoked in the present proceedings does not relate to the framing in the Organized Accounting Regime, but rather to the non-application of the spousal coefficient. This defect pointed out to the assessment is in no way dependent on the decision that will be rendered in the special administrative action proceedings, constituting an independent ground for annulment, in relation to which no prejudiciality is verified.

It is therefore seen no utility in suspending the instance until the decision of the other case, and therefore this request is denied.

LACK OF JUSTIFICATION OF THE ACT

Contrary to what the Claimant contends, it does not appear that it can be considered that the Tax Authority violated the duty to justify.

Effectively, article 77(1) of the General Tax Law states that "the procedural decision is always justified by means of a brief statement of the reasons of fact and law that motivated it, and the justification may consist of a mere statement of agreement with the grounds of previous opinions, information or proposals, including those that form part of the tax audit report".

According to article 77(2) of the same provision, the justification of tax acts may be effected in summary form, and must always contain the applicable legal provisions, the qualification and quantification of tax facts and the operations for determining the taxable matter and the tax.

In the same way, article 153 of the Code of Administrative Procedure states that "the justification must be express, through a brief statement of the factual and legal grounds of the decision, and may consist of a mere statement of agreement with the grounds of previous opinions, information or proposals, which shall in this case form an integral part of the respective act".

Now, the Claimant was expressly notified that the income declaration had not been successfully submitted in the computer system, and he was also given a period to regularize the situation.

The notification made to the Claimant presents the consequences of failing to regularize the declaration and the applicable legislation, and thus it cannot be considered that there is a lack of justification.

VERIFICATION OF THE SUBMISSION OF THE IRS DECLARATION AND APPLICATION OF THE SPOUSAL COEFFICIENT

The Claimant submitted via internet, on 30-05-2013, the IRS Income Declaration for 2012, with the IRS declaration in the computer system remaining in the status "Erroneous".

Given that the documentation presented by the Claimant expressly states that this same does not serve as proof of submission of the declaration.

It is therefore understood that it was the error in the computer filing that did not allow the submission of the declaration, and the Claimant did not submit a new declaration in computer or paper format.

In accordance with article 76(1) paragraph b) of the IRS Code, as no declaration has been submitted, the assessment is based on the elements available to the Directorate-General of Taxes.

Article 76(3) of the same provision states that when a declaration has not been submitted, the income recipient is notified by registered mail to fulfill the missing obligation within 30 days, after which the assessment is made, with no regard to article 70, and only the deductions provided for in article 79(1) paragraph a) and article 97(3) are made.

The Claimant was notified to proceed with the submission of the declaration and to indicate the tax identification number of his spouse, within the period of 30 days, having submitted a statement where from the attached documentation clearly results his marital status and the tax identification number of his spouse (cf. doc. no. 3, attached with the initial petition).

Being that, in any case, article 76(3) of the IRS Code does not allow the omission of submission of the declaration to have as a consequence the non-application of the spousal coefficient, provided for in article 69 of the IRS Code, since there is no reference in that provision to the non-application of this rule, only referring to the fact that no regard shall be given to article 70 and only the deductions provided for in article 79(1) paragraph a) and article 97(3) shall be made. It is manifest, however, that the spousal coefficient (splitting) does not correspond to a deduction, but rather to the consideration of the family unit for tax purposes, and therefore must be applied. Indeed, it is not clear what sense the legislator would make in maintaining in that case the deduction provided for in article 79(1) paragraph a) and ceasing to take into consideration the family coefficient.

The challenge to the assessment is therefore well-founded in this regard.

The Claimant requests, however, not only the annulment of the assessment but also its replacement with another corresponding to the income declaration he attempted to submit. It is manifest, however, that, as tax contentious proceedings are of annulment, the Arbitral Tribunal can only annul the assessment and not replace it with another. Furthermore, the Arbitral Tribunal considers that in fact no declaration was submitted, with only the non-application of the spousal coefficient by the Tax Authority Services being at issue. Consequently, the Tribunal can only annul this assessment, with it falling to the Tax Authority in a new assessment to calculate the tax based on the spousal coefficient.

V – Decision

It is therefore judged that the request for annulment of the IRS assessment no. 2015..., relating to the tax year 2012, is well-founded, and it is hereby annulled.

It is judged that the request for replacement with another assessment based on the submitted declaration is not well-founded.

The value of the case is set at: €9,089.51 (value indicated and not contested), and the value of the corresponding arbitration fee at €918 pursuant to Table I of the Regulations on Costs of Tax Arbitration Proceedings.

Given the partial non-success of the Claimant, it is deemed appropriate to apportion the costs of the present proceedings at 60% to be borne by the Tax Authority and 40% to be borne by the Claimant.

Lisbon, 23 March 2016

The Arbitrator

(Luís Menezes Leitão)