Summary
This CAAD arbitral decision addresses a dispute over IRS (Personal Income Tax) assessments for 2010 involving the determination of business and professional income and the organized accounting regime option. The taxpayer challenged two ex officio assessments—one for €136.64 assessed to her and another for €39,002.96 assessed to her husband—arguing they were unlawful on two main grounds. First, the Tax Authority failed to recognize her husband's election of the organized accounting regime (contabilidade organizada) when he commenced professional activity on October 1, 2009, which directly affects how business income is calculated. Second, the assessments failed to apply the marital quotient (quociente conjugal) despite their registered married status and joint tax filing. The case originated from a hierarchical appeal against decisions made in administrative complaint proceedings. The arbitral tribunal was constituted on December 4, 2015, under the Legal Regime for Arbitration in Tax Matters (RJAT). Key procedural issues emerged regarding the taxpayer's standing to challenge her husband's separate assessment and the timeliness of the arbitral request. The Tax Authority contended that the organized accounting option was not properly granted and that testimonial evidence would be inadmissible. The taxpayer maintained they had timely filed a joint income tax return for 2010, contradicting the AT's basis for making ex officio assessments. The dispute underscores the critical importance of the initial choice of accounting regime at business commencement, as this determination directly affects income calculation methodology, available deductions, and resulting tax liabilities. The case also highlights taxpayers' rights to challenge assessments that fail to recognize elected tax regimes or properly apply marital taxation rules.
Full Decision
ARBITRAL DECISION
Parties
Claimant – A…, NF…, with domicile at Rua…, nº … … …, … - … ….
Respondent – TAX AND CUSTOMS AUTHORITY (AT).
I. REPORT
a) On 01-09-2015, the Claimant filed with CAAD a request seeking, under the Legal Regime for Arbitration in Tax Matters (RJAT), the constitution of a single arbitral tribunal (TAS).
THE REQUEST
b) The Claimant challenges the decision rendered in the hierarchical appeal gracious procedure nº … 2013 … brought against the decision adopted in the gracious complaint procedure nº … 2012…, which concern the assessment of PIT for 2010 nº 2012…, in the amount of 136.64 euros;
c) It further challenges "the consequent assessment of PIT effected to her husband B…, NF … with nº 2012…", in the amount of 39,002.96 euros;
d) It considers that the ex officio assessments are in non-conformity with the law in that they failed to account for her marital status of married and did not apply the marital quotient, the family situation being recorded in the taxpayer register.
e) It objects to the "discrepancies" on the basis of which the AT rejected the return filed by not accepting that her husband was not granted the organized accounting regime which he chose on the date of beginning of activity on 01.10.2009.
f) It concludes by requesting the annulment of both assessments, and that they be replaced by another reflecting the income return timely filed, jointly, and further requests that the compensatory interest that was assessed be consequently considered "null".
ON THE SINGLE ARBITRAL TRIBUNAL (TAS)
g) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 21-09-2015.
h) By the Deontological Council of CAAD, the undersigned was designated as arbitrator, the parties being notified thereof on 19-11-2015. The parties did not express any wish to reject the appointment, pursuant to article 11.º no. 1 subsections a) and b) of RJAT and articles 6.º and 7.º of the Deontological Code.
i) Whereby the Single Arbitral Tribunal (TAS) has been, since 04-12-2015, regularly constituted to hear and decide the subject matter of this dispute (articles 2.º, no. 1, subsection a) and 30.º, no. 1, of RJAT).
j) All these acts are documented in the communication of constitution of the Single Arbitral Tribunal dated 04-12-2015 which is hereby reproduced.
k) On 04-12-2015 the AT was notified pursuant to and for the purposes of article 17º-1 of RJAT. It responded on 19.01.2016 attaching the PA, composed of 1 computerized file with 25 sheets and 25 written pages.
l) In the notification referred to in the preceding item, since the Claimant listed witnesses, the parties were invited: "The Respondent to pronounce itself, in the response to the request for pronouncement, on this specific matter, indicating, if it sees fit, witness evidence. The Claimant to indicate, within the period of 10 days counted from the date of notification of the AT's Response, whether it maintains the request for hearing of witnesses and, if affirmative, to express, by reference to the articles of procedural documents, the subject matter to which the testimony relates".
m) The AT came in the final part of its response to argue that in the case testimonial evidence was not admissible and if heard would result in a useless act. The Claimant made no reference within the period granted to it, whereby the lack of interest in producing testimonial evidence was considered and its production was dismissed by order of 09.02.2015.
n) In the order referred to in the preceding item, the parties' meeting of article 18º of RJAT was dispensed with "unless any of the parties should indicate that it does not waive it, within the period of 5 days". The case proceeded with optional and successive written submissions, for a period of 10 days for each party.
o) Again, the Claimant did not present submissions. Nor did the AT present counter-submissions within the fixed period.
p) Since in its response the AT raised impeditive facts to the success of the request brought by the Claimant and placed in question the value of the economic utility attributed to the case, by order of 14.03.2016 the Claimant was invited to pronounce itself within 10 days, "on the matter of the exception raised by the AT and on the fixing of the value of the economic utility".
q) Meanwhile on 21.03.2016 the Respondent expressed "…that it maintains interest in exercising the inalienable procedural prerogative of, and after the Claimant, pronouncing itself".
r) By order of 28.03.2016 the TAS further invited the parties to take a position on the relevance of the document of sheets 5 of PA (immediately injurious interlocutory act).
s) On 06.04.2016 the Claimant came to take a position regarding the alleged lack of active legitimacy to challenge the assessment of PIT of her husband B…, NF … with nº 2012…", in the amount of 39,002.96 euros. It pronounced itself further on the timeliness and challengeability of this assessment and on the relevance of the document of sheets 5 of PA.
t) Also on 06.04.2016 the Claimant attached to the case the content of the hierarchical appeal request that it presented against the ex officio assessment of PIT that was notified to her separately and against the assessment of PIT that was notified to her husband B…, also separately.
u) The Respondent, on 22.04.2016, counter-replied arguing for the maintenance of what it had already stated in the response to the request for pronouncement.
PROCEDURAL REQUIREMENTS
a) Legitimacy, capacity and representation – As to A…, it is verified that she enjoys legal personality, judicial capacity, is a legitimate party and is represented (articles 4.º and 10.º, no. 2, of RJAT and article 1.º of Regulation nº 112-A/2011, of 22 March). As to the request aiming at the annulment of the PIT assessment 2012 … notified to B…, NF … it is considered that the Claimant is a legitimate party pursuant to the decision adopted below.
b) Contradiction - The Respondent was notified pursuant to item k) of this Report. All procedural documents and all documents attached to the case were made available to the respective counterparty in the CAAD Case Management System. Both parties were always notified of their attachment. Compliance was specifically achieved with the provision of article 3º no. 3 of CPC ex vi article 29º-1-e) of RJAT regarding the matter of the exception raised by the AT.
c) Dilatory exceptions - The arbitral procedure as to A… does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the period prescribed in subsection a) of no. 1 of article 10.º of RJAT.
Indeed, the AT itself did not place in question, as to the ex officio assessment of PIT notified to the Claimant, the implicit counting of the period for challenge that was put into practice, having done so as to B…, accepting, however, that the content of the gracious complaint brought and the subsequent hierarchical appeal contained "the … assessment of PIT effected to the appellant's husband, B… assessment bearing the number 2012…". As to the request for pronouncement aimed at annulling the PIT assessment 2012 … notified to B…, NF…, it is considered as timely, pursuant to the decision adopted below.
SUMMARY OF THE CLAIMANT'S POSITION
d) The Claimant argues that the assessments effected were made ex officio "allegedly because the respective income return for the year 2010 was not filed", which she deems to be untrue since in the decision on the hierarchical appeal the AT states that the appellant: "… and her husband B…, NF…, submitted on 2011/06/01 by electronic transmission, the income return Form 3 accompanied by Annexes A, C and E".
e) It argues that the declarative obligation of article 57º of the PIT Code is exhausted with its submission, because validation is only dependent on the AT and that if discrepancies exist the AT should promote an invitation for their correction but not promote ex officio alteration of the return.
f) It considers that the ex officio assessments are in non-conformity with the law in that they failed to account for her marital status of married and the marital quotient was not applied, the family situation being recorded in the taxpayer register.
g) It chose not to substitute the PIT return filed jointly with her husband, in view of the notification made to her to do so, by fully endorsing its content.
h) It expresses that the husband B… began his activity on 01.10.2009 having there chosen the organized accounting regime, whereby in view of the minimum period of permanence of 3 years (no. 5 of article 28º of the PIT Code) he could not have been denied the return on the ground that his regime was the simplified one in the year 2010.
i) That he even tried until 31.03.2012 to re-opt for the organized accounting regime, which the AT's computer system did not allow him.
j) It attributes to the ex officio assessments in question the defect of lack of reasoning.
SUMMARY OF THE RESPONDENT'S POSITION
k) The Respondent opposes by invoking the exception of lack of active legitimacy of the Claimant as to the challenge of the PIT assessment of her husband B…, requesting dismissal of the case.
l) As to the PIT assessment effected to the Claimant's husband, with nº 2012…", in the amount of 39,002.96 euros, it further invokes untimeliness as to the presentation of the request for pronouncement, since this is a tax assessment act of 29.10.2012, with a payment deadline of 12.12.2012.
m) It further places in question the value of the case as a result of the alleged success of the exceptions raised.
n) It reaffirms that the Claimant and her husband filed the PIT return for 2010 on 01-06-2011 with annexes A, C and E, but the computer system found central errors to exist, because it did not accept the organized accounting option.
o) It invokes the regime of subsection d) of article 7º of Regulation 159/2003, of 18.02 according to which the return is considered without effect if the errors are not corrected within 30 days, to justify the notification that came to be made on 07.10.2011, with the warning that if a new return is not filed, of subsections b) and c) of no. 1 and nos. 2 and 3 of article 76º of the PIT Code.
p) As to the framework within the simplified regime the AT states that the option taken on the date of registration – of organized accounting – was valid only for 2009 since it indicated a turnover of 102,000.00 euros. As to 2010, because in 2009 he only obtained 9,632.01 euros of income, he became subject to the simplified regime since he did not opt, by the month of March 2010, for the organized accounting regime.
q) It considers that the tax acts under scrutiny are duly reasoned pursuant to no. 2 of article 77º of the LGT, invoking that the taxpayers had full knowledge that if they did not present the Form 3 return, after being notified pursuant to no. 3 of article 76º of the PIT Code, the assessment would be made on the basis of the information available.
r) It concludes by arguing for the success of the exceptions and for dismissal of the requests.
II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE
The first question to be resolved shall be that relating to the exception of lack of active legitimacy of the Claimant as to the challenge of the PIT assessment of her husband B… and as to the exception of untimeliness of this assessment, with nº 2012…", in the amount of 39,002.96 euros.
The second question to be resolved concerns the determination as to whether the decision rendered in the hierarchical appeal gracious procedure nº … 2013 … brought by the Claimant against the decision adopted in the gracious complaint procedure nº … 2012…, which concern the assessment of PIT for 2010 nº 2012…, in the amount of 136.64 euros, "and the consequent assessment of PIT effected to the Claimant's husband, B…, NF…, with the number 2012…" in the amount of 39,002.96 euros, suffers from any illegality.
Finally, it is necessary to assess the question raised by the AT regarding the fixing of the value of economic utility, should one of the above-mentioned exceptions be successful.
III. PROVEN AND UNPROVEN FACTUAL MATTERS AND REASONING
With relevance to the decision, these are the facts that are considered proven, indicating the respective documents (proof by documents), as reasoning.
Proven Facts
1) The Claimant and the taxpayer B…, her husband, submitted on 01-06-2011 by electronic transmission, the income return Form 3 accompanied by annexes A, C and E – article 10º of the request for pronouncement, article 25º of the response and sheets 15 of PA.
2) The return had "central errors", since there was found to be incompatibility between the annex filed and the option in the register (code C70) – article 26 of the response and sheets 15 of PA.
3) As to Code C70 referred to in the preceding subsection, it states at http://www.portaldasfinancas.gov.pt/de/ajuda/DGCI/FAQED3.htm, the following: "Incompatibility between the annex filed and the sales volume or option in the register - correct the sales volume value or update the registration situation".
4) A situation that was not corrected within the 30-day period, provided for in subsection d) of article 7.º of Regulation nº 159/2003, of 18 February – article 27º of the response and sheets 15 of PA.
5) The taxpayer B…, NF…, filed a declaration of resumption of activity on 01-10-2009, in which he indicated an estimated turnover of € 102,000.00 for the year 2009, having there opted for the organized accounting regime – articles 31º and 32º of the response, article 48º of the request for pronouncement and sheets 15 of PA.
6) By notification dated 07.10.2011 and as to PIT for 2010, the AT notified the Claimant that the Form 3 return was not recorded in the database, inviting her to regularize the situation by filing the return pursuant to no. 3 of article 76º of the PIT Code or to "if you wish to provide any clarification you may do so through the website selecting options-consult-declarations-PIT-consult-discrepancies or answer the questionnaire attached and send it by mail or deliver it directly at the SF of Loures-…" – sheets 5 of PA, article 52º of the request for pronouncement, final part of article 29º of the Response and sheets 15 of PA.
7) In the notification referred to in the preceding number there is also stated: "If you do not proceed to file the return within the aforementioned period, or do not prove its filing or that you are not obliged to file it, the assessment shall be made pursuant to subsections b) and c) of no. 1 and nos. 2 and 3 of article 76º of the PIT Code, as unmarried, unless you communicate, within the aforementioned period, the NF of your spouse" - sheets 5 of PA.
8) The Claimant and her husband chose not to substitute the return referred to in 1) by fully endorsing its content – article 16º of the request for pronouncement.
9) The Claimant was notified, on an unascertained date, of the billing note 2012…, under registration of CTT RY… PT in the amount of 136.64 euros, relating to an ex officio assessment of PIT for the year 2010 – Document nº 3 attached with the request for pronouncement.
10) The Claimant presented on 28.01.2013 a gracious complaint, not attached to this case, against the assessment referred to in the preceding subsection, the content of which corresponds to that of the hierarchical appeal referred to in the following subsection, having been dismissed by order of 28.06.2013 of the Head of Division of the Administrative Justice Division of DFL, which was notified to her by office … of 02.07.2013 – Documents nº 1 and 2 attached with the request for pronouncement and sheets 14 of PA as regards the content of the gracious complaint, which is said to have been "reiterated" in the hierarchical appeal.
11) The Claimant presented on 02.08.2013 a hierarchical appeal against the dismissal order referred to in the preceding subsection, expressing in its point 1: "the object of this hierarchical appeal is the decision rendered in the gracious complaint procedure nº …2012…, which has as its object the PIT assessment number 2012…, relating to the year 2010, effected to the appellant and the consequent assessment of PIT effected to the appellant's husband, B…, NF…, assessment bearing the nº 2012…" having been dismissed by order of 20.03.2015 of the Head of Division of Administrative Division of DSIRS, which was notified to her by office … of 20.04.2015 – Document nº 1 attached with the request for pronouncement and point 1 of the document attached to the Claimant's submission of 06.04.2016.
12) The ex officio assessment of PIT for 2010 to B…, NF … with nº 2012…", in the amount of 39,002.96 euros, was effected with the date of 29.10.2012 and with a payment deadline of 12.12.2012 – Document nº 4 attached with the request for pronouncement.
13) In the PIT return for 2009, annex C, B…, declared the amount of 9,632.01 euros – article 43º of the response and non-contestation by the Claimant in the submission of 06.04.2016 (admission of fact by agreement).
14) B… tried on an undetermined date to re-opt, before 31.03.2012, for the organized accounting regime, but the AT's computer system did not allow it – article 65º of the request for pronouncement and overall position of the AT which considers that the law does not allow the taxpayer to opt, in the registration of beginning of activity, for the organized accounting regime, maintaining it for 3 years, regardless of turnover.
15) On 01-09-2015, the Claimant filed with CAAD the present request for pronouncement – entry record in the SGP of the request for pronouncement.
Unproven Facts
There is no other alleged factuality that has not been considered proven and that is relevant for the resolution of the procedural dispute.
IV. ASSESSMENT OF THE QUESTIONS FOR THE TAS TO RESOLVE
The questions to be addressed shall be those referred to in point II above.
Centering the Claimant's dispute on the circumstance that the AT disregarded the organized accounting regime, which B…, NF…, the Claimant's husband, opted for when he filed the declaration of resumption of activity on 01-10-2009, the fact is that the assessment of this situation by the TAS is dependent on the possible failure of the exception of lack of legitimacy and further on the exception of untimeliness of presentation of the request for pronouncement in the part relating to her husband.
Should any of the exceptions succeed, the Tribunal will not be able to decide on this question, it being certain that it appears clear that "the simplified regime of taxation (article 28º of the PIT Code) constitutes a non-binding regime, valid only for those who have not opted for the organized accounting regime" – Decision of the STA of 04-11-2015, case 0877, at www.dgsi.pt.
And, it must be said from the outset that it appears to us to be "an option" of the taxpayer that made at the time of filing his declaration of registration in the register, as it will be one made later. It is, moreover, what appears to be clear in view of the literality of the paper model in force since 2013 (and certainly before) in accordance with the content of the respective table 10, proceeding on the assumption that the models of forms and returns embody the reading of the law brought into practice by the AT and which it considers to be the most assertive (which can be consulted on its website).
As to the exception of lack of active legitimacy of the Claimant to challenge the ex officio PIT assessment of her husband B… with nº 2012…, in the amount of 39,002.96 euros.
In articles 6º to 8º of the response the Respondent alleges that the Claimant is an illegitimate party as to the challenge of assessment nº 2012…, which was issued in the name of B…, for the reason that she did not make proof in the pleadings of the family aggregate.
However, the act under scrutiny is the decision to dismiss the hierarchical appeal to which reference is made in subsection 11) of the proven facts.
And the material object of the request made by the Claimant in the hierarchical appeal was textually as follows: "the object of this hierarchical appeal is the decision rendered in the gracious complaint procedure nº …2012…, which has as its object the PIT assessment number 2012…, relating to the year 2010, effected to the appellant and the consequent assessment of PIT effected to the appellant's husband, B…, NF…, assessment bearing the nº 2012…" (emphasis ours).
The Respondent assessed in points 10 to 14 of the decision under scrutiny, the substantive question raised by the Claimant in the hierarchical appeal, that is, the question which prevented the acceptance of the Form 3 return submitted by the Claimant and her husband, jointly (the framework in the simplified regime of category C income in the three-year period from 2010 to 2012). That is, it did not place in question, in the gracious procedures (complaint and appeal), the legitimacy of the Claimant in questioning the very ex officio PIT assessment made separately to her husband.
The Claimant came in the request for arbitral pronouncement to discuss in the same terms in which she discussed in the gracious procedures the subject matter of the dispute. With the same breadth and the same literality.
Although the Claimant's husband, B…, NF…, also began at the AT, as stated in sheets 10 of PA, gracious procedures separately: "… her spouse taxpayer…, presented separately, gracious complaint nº … 2013 … … relating to the same tax and same year", in truth the Claimant here made encompass in her procedures (gracious complaint and hierarchical appeal) the discussion on the legality of the assessment made, separately, to her own husband.
Could she have done so?
It appears to us that yes. First, it is the Respondent who did not place this desideratum in question in the gracious procedures, as is apparent from the proven facts (also see the second item of point V – sheets 10 of PA and no. 4 of point B - sheets 14 of PA). Second, this possibility results from express law: nos. 5 and 6º of article 16º of the LGT.
The knowledge (and lack of opposition to the defense of his interests) of B…, the Claimant's husband, as to the PIT assessment that she challenges and has challenged in the gracious phase, is configured as being a notorious fact, since the billing note of the ex officio PIT assessment in question was attached to this case. The Claimant's husband necessarily received notification of the PIT assessment and made it available to his spouse so that she could act accordingly, it being certain that knowledge and absence of express opposition are presumed until proof to the contrary (no. 6 of article 16º of the LGT).
And as to proof of the family aggregate?
In the logical discourse used in the decision dismissing the gracious complaint and in the decision dismissing the hierarchical appeal, the only question is that the Claimant and B…, do not constitute a family aggregate, taking into account that the substantive question in dispute is the non-acceptance of the joint Form 3 PIT return, because the AT understands that both of them could not file it, as to category C income earned by B… under the organized accounting regime, since they would have to do so under the simplified regime. Hence the disregard of the joint return presented and the requirement to file a return with the correction of what it calls the "central error C70", which the taxpayers do not accept (subsection 8) of the proven facts).
In essence, the AT accepts that both, the Claimant and B…, are factually husband and wife, as results from the proven facts (subsection 1) of the proven facts). It only does not accept this desideratum through the application of the ex officio PIT assessment regime in the dynamic referred to above of producing an ex officio assessment. The crux of the dispute is centered on a moment prior to that of the ex officio assessment.
On the other hand, the Respondent did not question, either in the gracious procedures or in this case, that both taxpayers are not, in fact, husband and wife and that such fact is not recorded in the taxpayers' register.
We thus consider it established that it is sufficiently demonstrated that the Claimant and B…, are wife and husband and that this is recorded in the taxpayers' fiscal register, at the date of the facts here under discussion.
"It constitutes current jurisprudence the doctrine that legitimacy is a matter of the position of the parties in relation to the disputed substantive legal relationship, and not of the merits of the request" (decision of the STJ of 03.04.76, of 06.06.75, of 25.11.72 and of 11.06.69 in BMJ 256).
"Legitimacy is a position of plaintiff and defendant, in relation to the object of the case, a quality that justifies that such plaintiff, or such defendant, may engage in court with the object of the case" – Castro Mendes, Manual of Civil Procedure, page 251.
In the terms outlined, in view of the content of the request made by the Claimant in the hierarchical appeal, here under scrutiny (and the correlative decision by the AT dismissing it which assessed the substantive question relating to B…) and taking into account the provision of article 26º of CPC (ex vi subsection d) of article 2º of LGT) the TAS considers that the Claimant is a legitimate party to challenge the ex officio PIT assessment notified to her husband B… with nº 2012…, in the amount of 39,002.96 euros.
As to the exception of untimeliness of presentation of the request for pronouncement relating to the PIT assessment effected to the Claimant's husband, with nº 2012…, in the amount of 39,002.96 euros.
The answer to this question is intimately connected to the preceding question.
As stated, although B…, the Claimant's husband, presented separate gracious procedures aimed at the annulment of the ex officio PIT assessment with nº 2012…, in the amount of 39,002.96 euros, (procedures whose contents the parties did not bring to this case) the truth is that the Claimant included in the thema decidendum of the gracious complaint and hierarchical appeal relating to the PIT assessment attributed to her separately, the assessment of the legality of the PIT assessment debited, also separately, to her spouse.
And the Respondent not only did not place in question, at that opportunity, the procedural regularity of this joinder of requests, but assessed the concrete substantive question which prevented the acceptance of the PIT return presented jointly by the taxpayers: the question of the disregard – in 2010 - of the option made for the organized accounting regime on the date of his registration with the taxpayer register in 2009, as to category C income of B….
The act here under scrutiny is the decision which fell upon the hierarchical appeal, expressed in 11) of the established matter, since, according to the parties, the content of the gracious complaint (which was not attached to the pleadings) is consistent with that of such appeal.
This hierarchical appeal did not have, by the description, as its "sole and exclusive" objective (as is referred to in article 12º of the AT's Response) to attack the PIT assessment act 2012 … of 136.64 euros.
Thus, the period for the Claimant to react, at CAAD, shall have to be counted from the notification of the decision to which reference is made in 11) of the established matter. The counting of which, not even the Respondent itself placed in question, in the part relating to the timeliness of the Claimant's request for arbitral pronouncement and regarding the ex officio PIT assessment notified to her, separately.
In this conformity, only the alleged exception of untimeliness of presentation of the request for pronouncement as to the ex officio PIT assessment effected to the Claimant's husband, with nº 2012…, in the amount of 39,002.96 euros, can fail, since in the decision here under scrutiny, such assessment was part of the thema decidendum, on the basis of an express request by the Claimant (subsection 11) of the established matter) which the AT, at the proper time, did not question, in terms of procedural regularity.
The assessment of the fixing of the value of economic utility is consequently prejudiced, the value indicated by the Claimant being maintained, which corresponds to the sum of the taxes of the two ex officio PIT assessments made separately to the taxpayers.
The decision rendered in the hierarchical appeal gracious procedure nº … 2013 …brought by the Claimant against the decision adopted in the gracious complaint procedure nº … 2012 …, which concern the assessment of PIT for 2010 nº 2012…, in the amount of 136.64 euros and regarding the consequent assessment of PIT effected to the appellant's husband, B…, NF…, assessment bearing the nº 2012…, in the amount of 39,002.96 euros, suffers from some illegality?
The Respondent bases its reasoning, to justify the disregard of the PIT return (error with code C70), according to articles 41º and 42º of the opposition, on the fact that B… when he presented the declaration of resumption of activity on 01-10-2009, indicated a turnover – category C income - estimated at € 102,000.00 for the year 2009, having there opted for the organized accounting regime, which was in accordance with the wording of article 28º-2 of the PIT Code (subsection 5) of the proven facts). And he only came to declare, in 2009, 9,632.01 euros, far below the estimated value.
It alleges that such limit of 102,000.00 euros was changed by Law 3-B/2010, of 28.04 (State Budget Law for 2010), becoming 150,000.00 euros (currently 200,000.00 euros since January 2014).
The TAS cannot decide otherwise than according to "constituted law".
First, the change in the limit (to apply from the date of application of the change, that is, for the future) we do not see how it can affect the option for the organized accounting regime made, at an earlier time, in 2009, (already consolidated in the legal order), by the taxpayer, even taking into account the transitional rule of article 91º of the State Budget Law for 2010.
Second, it must be noted that there is a ruling line of precedent that appears to be very clear (using the expression of the STA) applicable to the case "the simplified regime of taxation (article 28º of the PIT Code) constitutes a non-binding regime, valid only for those who have not opted for the organized accounting regime" – Decision of the STA of 04-11-2015, case 0877, at www.dgsi.pt.
Several decisions of the STA were adopted in the same logic, e.g.: (at www.dgsi.pt):
1. Decision of STA of 14-01-2015, case 0671/14 – 2nd Section, Rapporteur Mr. Counsellor Aragão Seia;
2. Decision of STA of 12-03-2014, case 0736/13 – 2nd Section, Rapporteur Ms. Counsellor Ascensão Lopes;
3. Decision of STA of 17-03-2010, case 056/10 – 2nd Section, Rapporteur Mr. Counsellor Valente Torrão;
4. Decision of STA of 13-06-2010, case 1032/09 – 2nd Section, Rapporteur Ms. Counsellor Dulce Neto.
That is, it appears that, in addition to the estimated or realized turnover (expressed in the return when opting for the organized accounting regime), the entities to which the regime of article 28º of the PIT Code applies (methods of determination of business and professional income), always maintain the default regime for which they opted to determine income according to organized accounting.
Once this option is made, be it adopted at the registration of the beginning or resumption of activity – see the wording of the form used by the AT – be it after such beginning or resumption of activity (subsections a) and b) of no. 4 of the PIT Code), in this latter case provided that the taxpayer has remained in the previous regime for at least 3 years, it is maintained for the future, automatically renewing for periods of 3 years, until such time as the taxpayer expressly comes, and provided that he complies with the other legal requirements, to change such option.
By order of the TAS of 28.03.2016, the parties were notified to take a position in the submissions they would present, on the relevance of the document which constitutes sheet 5 of PA (subsections 6) and 7) of the established facts).
Taking into account the Decision of the Constitutional Court nº 419/2015, of 19.11 (Official Gazette 2nd Series nº 227 of 19.11.2015) the immediate possibility for taxpayers to challenge such act of the Respondent that denies them the option they took when submitting their PIT return for 2010, being, consequently, immediately injurious, constitutes a faculty that does not prevent that when challenging the final act, the assessment, they may question its illegality.
In the terms outlined, the request for pronouncement cannot fail to succeed, since the decision adopted in the hierarchical appeal, here under discussion, is not in conformity with the norms contained in article 28º - 1 – 3 – 4 – 5 – 10 of the PIT Code, in the reading that results from the STA decision indicated above, the assessment of the alleged lack of reasoning of the ex officio PIT assessment acts being consequently prejudiced.
Compensatory Interest
The Claimant requests the annulment of compensatory interest. However, she did not attach to the case any billing note for such interest.
Pursuant to Article 100º of the LGT "The tax administration is obliged, in the event of total or partial success of a complaint, judicial challenge or appeal in favor of the taxpayer, to immediately and fully reconstitute the legality of the act or situation which is the subject matter of the dispute, including the payment of indemnificatory interest, if applicable, from the expiry of the period for execution of the decision."
Thus, if there is tax enforcement, the same must be terminated (article 205º of the CRP and articles 176º-1-b) and 270º-1, both of CPPT) as to the enforceable debt and as to compensatory interest, since the requirements of article 44º of the LGT and article 86º-1 of CPPT are not met, taking into account the annulment of the assessment which would serve as their basis.
V. OPERATIVE PART
In the terms and with the grounds set forth above, the request for arbitral pronouncement is deemed well-founded and in consequence:
The decision rendered in the hierarchical appeal procedure nº … 2013 … brought against the decision adopted in the gracious complaint procedure nº … 2012… is annulled;
Consequently, the following are annulled: the ex officio assessment of PIT for 2010 nº 2012 …, effected to the Claimant, in the amount of 136.64 euros and the ex officio assessment of PIT effected to B…, NF … with nº 2012…", in the amount of 39,002.96 euros, for being in non-conformity with the norms contained in article 28º nos. 1, 3, 4, 5 and 10 of the PIT Code (in the reading of the law proposed above);
The assessment of PIT for 2010 must be effected in the terms that result from the Form 3 return presented, jointly, by the taxpayers.
***
Value of the case: in accordance with the provision of article 3.º, no. 2, of the Regulation of Costs in Arbitration Proceedings in Tax Matters (and subsection a) of no. 1 of article 97ºA of CPPT), the value of the case is fixed at 39,139.60 euros.
Costs: in accordance with the provision of article 22.º, no. 4, of RJAT, the amount of costs is fixed at € 1,836.00, according to Table I attached to the Regulation of Costs in Arbitration Proceedings in Tax Matters, to be borne by the Respondent.
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Lisbon, 02 May 2016
Single Arbitral Tribunal (TAS),
Text prepared by computer pursuant to the provision of article 131.º, no. 5, of CPC, applicable by reference in article 29.º of RJAT.
The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.
Frequently Asked Questions
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What happens when the Tax Authority fails to recognize the organized accounting regime chosen at the start of business activity?
When the Tax Authority fails to recognize a taxpayer's election of the organized accounting regime (contabilidade organizada) chosen at the commencement of business activity, it can result in ex officio tax assessments calculated under a different regime, typically the simplified regime, leading to substantially different tax liabilities. The taxpayer has the right to challenge such assessments through administrative complaint procedures (reclamação graciosa), hierarchical appeals, and ultimately through CAAD arbitration. The initial choice of accounting regime is a fundamental taxpayer right that directly impacts income determination methods. If the Tax Authority's failure to recognize the option is found unlawful, the assessments must be annulled and recalculated according to the properly chosen regime, with the burden on the taxpayer to prove the option was validly exercised at the start of activity.
Can IRS tax assessments be annulled for not applying the marital quotient (quociente conjugal) to married taxpayers?
Yes, IRS tax assessments can be annulled if the Tax Authority fails to apply the marital quotient (quociente conjugal) to married taxpayers entitled to joint taxation. When taxpayers are registered as married and file joint tax returns, the Tax Authority is obligated to apply marital quotient rules, which can significantly reduce tax liability by splitting income between spouses. Failure to apply this regime when applicable constitutes a legal error rendering the assessment unlawful. Taxpayers can challenge such assessments through administrative appeals and CAAD arbitral proceedings. If successful, the incorrect assessments are replaced with new ones properly applying the marital quotient, and any compensatory interest assessed on the unlawful amounts may also be cancelled.
How does the CAAD arbitral tribunal review disputes over official IRS tax assessments in Portugal?
The CAAD arbitral tribunal reviews IRS assessment disputes under the Legal Regime for Arbitration in Tax Matters (RJAT). The process begins with a taxpayer's request to constitute a single arbitral tribunal after exhausting administrative remedies. Once the arbitrator is designated and accepted, the tribunal is formally constituted, and the Tax Authority must submit the administrative file. The procedure includes opportunities for both parties to present arguments, evidence, and written submissions. The tribunal examines procedural requirements including legitimacy, timeliness, and legal capacity, and can dispense with witness hearings if unnecessary. It reviews both substantive legality and procedural correctness, with full jurisdiction to annul unlawful assessments and order their replacement with correct calculations, including adjustments to compensatory interest.
What are the taxpayer's rights when filing a hierarchical appeal against an IRS tax assessment decision?
When filing a hierarchical appeal (recurso hierárquico) against an IRS assessment decision, taxpayers have several fundamental rights. They can challenge both the original ex officio assessment and any prior administrative complaint decisions within legally prescribed timeframes. Taxpayers may present comprehensive arguments regarding factual and legal errors, including incorrect application of tax regimes, calculation errors, and failure to consider registered information such as marital status. The appeal can address substantive issues and reference previously filed tax returns and elected tax benefits. If the hierarchical appeal is denied, taxpayers retain the right to seek arbitral review through CAAD, ensuring multiple layers of protection against unlawful assessments.
How does the option for organized accounting at the start of professional activity affect the determination of business and professional income under IRS?
The option for organized accounting (contabilidade organizada) at the start of professional activity fundamentally affects how business and professional income is determined under IRS. When elected at activity commencement, taxable income is determined based on actual accounting records following proper bookkeeping standards, allowing deduction of real documented expenses against revenues. This contrasts with the simplified regime, which applies standard coefficients to gross income with limited deductions. The organized accounting option must be exercised at the start of activity and is binding. It typically benefits taxpayers with significant deductible expenses. Failure by the Tax Authority to recognize this initial election can result in incorrect assessment under the simplified regime, potentially causing substantially higher tax liabilities and affecting documentation requirements and available deductions.