IRS Capital Gains Tax Exemption on Reinvestment of Primary Residence Proceeds – CAAD Case 589/2016-T

ARBITRAL DECISION

I – Report

1. On 29 September 2016, A…, with Tax Identification Number (NIF) … and tax domicile at Rua …, no. …, …, …-…, Lisbon, came, pursuant to Article 10 of the Legal Framework for Tax Arbitration (RJAT), to request the establishment of an arbitral tribunal, with a view to declaring the illegality and respective annulment of the decision rejecting the hierarchical appeal no. …2012… filed against the decision rejecting the gracious complaint no. ..2012…, and consequent annulment of the Personal Income Tax (IRS) Assessment for the year 2007 with no. 2011…, as well as the condemnation of the Tax Administration (AT) to refund the amount of € 14,488.83 (fourteen thousand four hundred and eighty-eight euros and eighty-three cents), paid by the Applicant as a result of the notification of the said assessment, plus accrued interest. In addition to the power of attorney and proof of payment of the initial arbitration fee, the Applicant submitted five documents.

2. In the Request for Arbitral Decision, the Applicant chose not to appoint an arbitrator, and by decision of the President of the Deontological Council, pursuant to Article 6(1) of the RJAT, the undersigned was appointed as sole arbitrator, who accepted the office within the legally prescribed period.

3. The arbitral tribunal was constituted on 19 December 2016.

4. The Tax and Customs Administration (AT or Respondent) sent, on 31 January 2017, its Reply and the administrative file (PA).

5. On 26 April 2017, the examination of witnesses was conducted and the tribunal set the deadline for submission of successive written submissions (which were presented on 10 and 22 May 2016, respectively), indicating that the arbitral award would be delivered by 18 June 2017.

6. The Request for Arbitral Decision

The Applicant contends, in summary (for our responsibility):

• On 17 January 2007, the Applicant and another person acquired, for the value of € 190,000, the autonomous fraction L, corresponding to the fourth floor left duplex, intended for residential purposes, located at number … of Rua …/number … of …, in Lisbon.

• In the deed of purchase and sale, whereby the Applicant acquired 50% of the ownership of the said property (equivalent to the value of € 95,000), the acquirers declared that it was intended for their own permanent residence, and they actually devoted it to such purpose.

• In the same year 2007 (through a deed executed on 10 July), the Applicant and the other co-owner proceeded to alienate the fraction for € 380,000, with the value of € 190,000 being attributable to the Applicant.

• In the Personal Income Tax declaration corresponding to 2007, the Applicant declared the reinvestment of the realization value of the property in another property devoted to their own permanent residence, such reinvestment actually occurring in 2007, and the Applicant subsequently used that other property as their own permanent residence.

• Despite the attachment of documents at the prior hearing stage, specifically the certificate issued by the Parish Council of … and a gas supply contract with company B…, SA, executed on 20 January 2007 and terminated on 28 August 2007, as well as the respective invoices, the AT did not accept the application of the reinvestment regime provided for in Article 10, no. 5 of the IRS Code, on the grounds that the Applicant did not have his own permanent residence in the first fraction in the tax year 2007, and issued the Personal Income Tax Assessment no. 2011 …, in the amount of € 14,488.80, which was subject to a gracious complaint, and subsequently hierarchical appeal, both dismissed.

• The AT's understanding that Article 10, no. 5 of the IRS Code requires that "the property generating the capital gains corresponded to the habitual residence of the taxpayer benefiting from the income, that is, to his tax domicile", violates the principles of legality and proportionality (Articles 103, no. 2 and 165, no. 1, subsection i) of the CRP, Article 8 of the LGT and Article 46 of the CPPT).

• Having been amply demonstrated in the records that the Applicant had his own permanent residence in the alienated property in 2007, he cannot fail to benefit from the exclusion from taxation provided in subsection b) of no. 10 of Article 5 of the IRS Code, which requires that the alienated property be intended for own permanent residence, being not required, contrary to what the AT understands, that the Applicant have his tax domicile in the property in question.

• Own permanent residence and tax domicile are different concepts, with different meanings and different legal consequences, and the fact that the Applicant - by mere oversight - did not immediately alter his tax residence to the property in question (which was held by the Applicant only for a short period of time), is absolutely irrelevant for the purposes of Article 10, no. 5 of the IRS Code, which requires only and solely the own permanent residence of the taxpayer.

• If the registered tax domicile is evidence of own permanent residence, it is not the most certain and much less the only proof of own permanent residence – it has been understood, for example, that unmarried couples may opt for the taxation regime provided in the IRS Code as long as they can prove the verification of the prerequisites of the unmarried couple status.

• And in the case at hand, being the IRS Code silent regarding the necessity for the taxpayer to have his tax domicile in his own permanent residence – as happens in Article 46 of the Tax Benefits Framework (EBF) regarding the exemption from Property Tax (IMI) provided for properties intended for own permanent residence - this means that such is not effectively necessary for the purposes of the reinvestment regime for realization value.

• Therefore, given the documentary evidence already produced and witness testimony to be presented, Article 10, no. 5 of the IRS Code should be applied, which makes no reference whatsoever to the concept of "tax domicile", but only to the concept of "own permanent residence".

• If it could be considered that there exists a presumption that the own permanent residence of a given Personal Income Tax taxpayer corresponds to the address communicated to the AT (i.e. to the tax domicile), the benefit could be awarded to someone who did not have their own permanent residence there.

• And if such a presumption existed, it would be rebuttable, which the Applicant did, whereby the correction carried out by the AT, as well as the assessment in question that materializes it, are illegal.

• The understanding defended has been almost uniform in the arbitral tribunals constituted under the auspices of the CAAD (for example, proceedings 103/2013-T, 739/2014-T, 696/2015-T and 37/2013-T).

• The AT's interpretation is illegal due to violation of no. 5 of Article 10 of the IRS Code and unconstitutional due to violation of the principles of parliamentary reserve (165, no. 1, subsection i) and 103 of the CRP) and proportionality, since it would be manifestly disproportionate that without legal basis the Applicant would be prevented from benefiting from the regime of exclusion from taxation by reinvestment of realization value only because by mere oversight they did not communicate in time their change of tax domicile.

• The present request for arbitral decision should be considered entirely well-founded, annulling the decision rejecting the hierarchical appeal, the decision rejecting the gracious complaint and the Personal Income Tax assessment for the tax year 2007, and reimbursing the Applicant the amount € 14,488.33 unduly paid as a result of the said assessment, and further paying to the Applicant compensatory interest on the amount unduly paid, pursuant to Articles 43 of the LGT and 61 of the CPPT, as well as default interest if applicable.

7. The Reply

The Respondent replied, in summary (for our responsibility):

• Without adopting a strictly literal interpretation, and resorting to elements of interpretation of laws (Articles 11(1) of the LGT and 9(1) of the Civil Code), it rejects the Applicant's interpretation that the correspondence between tax domicile and own permanent residence would have to be expressly provided for by the legislator in no. 5 of Article 10 of the IRS Code, as a condition for exclusion from taxation of gains obtained (no. 1 of the same article).

• The fact that it is not expressly enshrined in Article 10 of the IRS Code that there is affectation to own permanent residence of the taxpayer of the property where he fixes his tax domicile, does not mean that such does not result from the entirety of the applicable tax norms when interpreted in accordance with the various elements of legal hermeneutics, to which points the systematic element, the confrontation with other norms of the system.

• Taking into account Article 19 of the LGT, it is concluded that the communication of tax domicile is mandatory and only with this does the tax domicile declared by the taxpayer have effect with the AT.

• And the provision in Article 43 of the CPPT, fully applicable to the case, requires participation of change of domicile.

• And the provision in Article 10 of the IRS Code should be interpreted in a conjugated manner and not in disharmony with the provision in Article 42 of the EBF, resulting manifest from its confrontation with Articles 19 of the LGT and Article 43 of the CPPT that, from the tax perspective, the concepts of own permanent residence and tax domicile must coincide with each other, being that the tax domicile declared to the AT is an indispensable legal requirement for the taxpayer to benefit from the exclusion from taxation by reinvestment of realization value of own permanent residence.

• As to the teleological element of the norms in question, the duty to communicate tax domicile has underlying a clear purpose of certainty and legal security, and the fixing and communication of tax domicile to the AT is a formal requirement on which the legislator makes the exclusion from taxation by reinvestment of realization value of own permanent residence, provided in Article 10, no. 5 of the IRS Code, depend.

• The interpretation defended by the Applicant goes against the spirit of the legislator, making an interpretation against legem of the applicable tax norms to the case; if one were to admit the interpretation defended by the Applicant, the Tax Administration would fare very poorly, from the perspective of legal certainty and security, in that it would open the door to the possibility of the same taxpayer declaring a given property as being their tax domicile, for purposes of enjoying the exemption from IMI for own permanent residence and another for purposes of exclusion from taxation by reinvestment of capital gains (or of many other tax advantages dependent on the place of fixing own permanent residence), in that, to prove the place of own permanent residence and benefit from these tax advantages, it would suffice to present correspondence addressed to the address of the property in question.

• Only the mandatory communication of tax domicile as a formal requirement to operationalize the exclusion from taxation by reinvestment of capital gains for own permanent residence is compatible with a systematic interpretation of tax laws, as well as with the purpose underlying the legislator's spirit (in this sense, cite the Judgment of the Administrative Court of Appeal (TCAS) in proceedings no. 04550/11).

• As to the allegation of violation of the principle of legality (Articles 103, no. 2 and 165, no. 1, subsection i) of the CRP and Article 8 of the LGT), the interpretation and application of the legal norms propounded by the Applicant is what proves contrary to law and violative of the principle of tax legality and the principle of typicality, by introducing total uncertainty in the application of the regime and in the attribution of tax benefits dependent on the fixing of own permanent residence and the declaration of tax domicile.

8. Submissions

In the submissions, the Parties reproduced, in essence, the arguments contained in the initial pleadings.

9. Subject Matter of the Request

The fundamental issue subject to this Request is whether the Applicant, when alienating a property previously acquired under declaration of being intended for own permanent residence, effectively met the conditions to benefit from the regime provided in no. 5 of Article 10 of the IRS Code of exclusion from taxation of gains arising from the transfer of own permanent residence, subject to incidence in subsection a) of no. 1 of the same article.

Beyond the issues relating to evidence, the decisive legal question is raised regarding the interpretation of the concept of "own permanent residence" required, as a condition for exclusion from taxation, in the referred provision (Article 10 of the IRS Code), and its articulation with the norms relating to tax domicile, in particular Article 19, no. 2 of the LGT and Article 43 of the CPPT.

10. Preliminary Determination

The sole arbitral tribunal is materially competent, pursuant to the provisions of Articles 2, no. 1, subsection a) of the Legal Framework for Arbitration in Tax Matters.

The parties have judicial personality and capacity and have standing pursuant to Articles 4 and 10, no. 2 of the Legal Framework for Arbitration in Tax Matters (RJAT) and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor did the parties raise any exceptions that obstruct the examination on the merits of the case, so that the conditions for the delivery of the arbitral award are met.

II LEGAL GROUNDS

11. Proven Facts

11.1. On 17 January 2007, the Applicant, A…, acquired, in co-ownership with C…- 50% each - the autonomous fraction corresponding to the fourth floor left apartment of no. … of Rua …/ no. … of Travessa de …, Parish of …, in Lisbon, for the price of € 190,000 (Deed of purchase and sale, PA, annex 1, fls. 49 to 52).

11.2. In the referred deed of purchase and sale, the residence of the buyers is indicated as Rua …, no. …, …, Lisbon, the place where the Applicant had his tax domicile (Doc. no. 3 attached with the Request and information of the Tax Service, PA, annex 2, fls. 22).

11.3. On 14 March 2007, the Applicant altered his tax domicile from Rua …, no. …, …, Lisbon to Rua do …, no. …, …, in Lisbon, a domicile he maintained until 2009, when he altered it to Rua da …, …, ... of in Lisbon. (PA, Annex 3, fls. 28).

11.4. On 10 July 2007, the Applicant and the other co-owner sold, for 380 thousand euros, the property subject to these proceedings, to D… and E… (PA, annex 1, fls. 54 to 60).

11.5. The buyers of the said property on 10-07-2007, D… and E…, declared, in the deed of purchase and sale, to be both resident in Rua …, no. …, …, in Lisbon, and to intend the acquired fraction for their own permanent residence (PA, annex 1, fls. 54 to 60).

11.6. In the deed of purchase and sale referred to in the previous number, the sellers declared to be resident, the Applicant, in Rua …, no. …, …, in Lisbon, and C…, in …, no. …, …, Oeiras (PA, annex 1, fls. 54 to 60).

11.7. On 25 September 2008, the Applicant submitted a replacement Personal Income Tax declaration[1], for the year 2007, indicating reinvestment of the realization value of the property in another property devoted to own permanent residence (PA, annex 1, fls. 68 et seq. and 82).

11.8. On the basis of information sent by the Lisbon Tax Service … (official letter no. …, of 20-09-2011), the Lisbon Tax Service …, through official letter no. …, dated 17 October 2011, notified the Applicant to clarify, through the exercise of the right to prior hearing, inaccuracies detected in his Personal Income Tax declaration (PA annex 1, part 1, fls. 42 to 44, PAT 33/2016, fls.5).

11.9. On 31 October 2011, the Parish Council of … issued, in the exercise of competence granted by subsection p) of no. 6 of Article 34 of Law no. 169/99, amended by Law no. 5-A/2002, of 11/1, attesting that "on the basis of information collected, whose elements are on file", that the Applicant "resided in this parish from January 2007 to July 2007" (Doc. no. 3 attached with the Request and PA, 1, part 1, fls. 61).

11.10. The Applicant was holder of a gas supply contract to the apartment located in Rua …, no. …, …, in Lisbon (Doc. no. 5 attached with the Request and PA, 1, part 1, fls. 62 to 66).

11.11. Regarding the notification referred to in 11.8, the Applicant exercised the right to prior hearing on 3 November 2011, attaching the documents referred to in 11.09 and 11.10, which after being analyzed, did not alter the understanding of the AT which decided that the Applicant, not having had his own permanent residence in the fraction in question in the tax year 2007, could not benefit from the reinvestment regime provided in Article 10, no. 5 of the Personal Income Tax Code ("IRS") and that the capital gains obtained from the alienation of such property should have been subject to taxation under the IRS - Category G. (PA1, annex 1, fls. 45 et seq.).

11.12. The AT proceeded with corrections, with official declaration …-2007-… -…, and assessment no. 2011…, dated 14 November 2011, in the amount of € 14,488.80, which, after account adjustments, resulted in the issuance of collection notice no. 2011…, whose payment the Applicant made on 19 December 2011 (PA, annex 1, fls. 73 et seq, annex 2, fls. 21 and 22 and doc. no. 3 attached by the Applicant).

11.13. On 2 April 2012, the Applicant submitted a gracious complaint of the assessment act, which was numbered …2012…, having been notified, by registered mail, with date of 18 July 2012, for prior hearing on draft decision of 17-07-2012, where it concluded that "not being met the requirement demanded by Article 10, no. 5, subsection a) of the IRS Code "transfer …of properties intended for own permanent residence", since fiscally, the habitual residence (tax domicile) of the complainant does not correspond to the address of the property subject to transfer, the respective gain cannot benefit from the exclusion from taxation". (PA, annex 2, fl. 29).

11.14. The Applicant did not then exercise the right to hearing, and the proposed decision rejecting the gracious complaint was converted into final form, by decision of the Chief of the Tax Service of 13 August 2012, notified by official letter dated 10 August 2016 (PA, annex 2, fls. 28 to 30).

11.15. From the dismissal of the gracious complaint, on 17 September 2012, a hierarchical appeal (no. …2012…) was filed, which was subject to reports of the Justice Division of the Lisbon Finance Department and the Personal Income Tax Services Division, respectively of 30/11/2012 and 3/1/2016, concluding, in point 6 of the latter report: "Therefore, and despite the evidence to the contrary presented by the taxpayer (in particular the declaration issued by the Parish Council of …) from the conjunction of the various facts described above and the appraisal of the evidence produced by them, it does not seem to us possible to establish that the property generating the capital gains has effectively corresponded to the place of permanent residence of the now appellant, and it is therefore to be confirmed the sense of the appealed decision, which should be maintained". (PA, annex 3, fls. 24 to 29).

11.16. Dispensed with the notification for prior hearing in accordance with subsection c) of point 3 of Circular no. 13, of 08-07-1999, 1 July 2016, the hierarchical appeal was dismissed by decision of 14 June 2016 of the Chief of Division of the Personal Income Tax Services Division, with subdelegated authority, having been notified to the Applicant, by official letter (no. …) of 30 June 2016, in the person of his representative, on 1 July 2016 (Doc. no. 1 attached with the Request and PA annex 3 and PAT, fls.6), following which the present Request for arbitral decision was presented, on 26 September 2016.

12. Unproven Facts

Facts invoked in the Request and not contained in the previous number are not established as "proven facts".

13. Basis for Proven and Unproven Facts

The determination of the factual basis was based on the documents submitted by the Applicant (Request for arbitral decision, documents attached with the Request and submissions) and Respondent (Reply, Administrative file attached to the records and submissions). Also taken into account were the testimony of the witnesses presented by the Applicant (both residents of the building in 2007, one presenting himself as a long-time friend of the Applicant and the other simply as a neighbor, both having declared that the Applicant lived in the building although they were unable to specify the period in which this occurred).

The proven facts are sufficient for the decision in the case.

14. Application of Law

14.1. The Facts to be Legally Characterized

Not in issue in the proceedings is the discussion about the truthfulness of the legal fact consisting of the transfer of property rights verified with the deed executed on 17 January 2007, whereby the Applicant became owner of an autonomous fraction of a building located in Lisbon. And it is also an established fact that in the deed of purchase and sale it was declared by the acquirers – the Applicant and another person – that they intended the fraction for own permanent residence. As is undisputed the fact that the buyers of that building sold it after a few months, on 10 July 2007.

The focus of the dispute is, indeed, whether the requirement - actual affectation of the building to his own permanent residence - was met for the Applicant, which is necessary in order that he could be excluded from taxation for gains obtained from the paid transfer of the building acquired in January 2007, sold at double the price in July of the same year.

That is to say, it is a matter of knowing whether, beyond the declaration he made, contained in the deed of purchase and sale, of affectation for residential purposes, the building in question was actually devoted to the declared purpose. The importance of this evaluation is relevant given the reason for the exclusion provided in no. 5 of Article 10 of the IRS Code - it is about excluding from taxation capital gains realized in the paid transfer of properties actually intended for permanent residence of the taxpayers.

The Applicant contends that, from the acquisition of the building, he and the other co-owner actually intended the fraction for their own permanent residence, and that this fact is demonstrated through documentary evidence (certificate issued by the Parish Council of … and gas supply contract) and witness testimony. To the contrary, the AT understands that, in the tax year 2007, the Applicant did not have his own permanent residence in the fraction in question. As to the evidence invoked, it considers that the parish council's certificate does not prove residence but only that (that entity) attested to residence, on the basis of direct information from its members, or on the basis of testimony or testimony of the person themselves. And that the Natural Gas supply contract also does not demonstrate the existence of any consumption, or any habitual living. On the other hand, it argues that given the provision in Article 19 of the LGT, which makes the tax domicile of the taxpayer coincide with the place of habitual residence, the Applicant never altered his tax domicile to the address of the property in question.

There is then a need to decide, on the factual situation – pronouncing ourselves on the evidence produced – and taking into account the applicable law. Let us begin with the analysis of the legal regime relevant for appreciation and weighing of the factuality.

14.2. The Applicable Law

14.2.1. The Taxation of Capital Gains Income under Personal Income Tax and Exclusion in Cases of Gains Obtained from the Transfer of Own Permanent Residence and Reinvestment in Property with the Same Purpose

At issue is the application of Article 10 of the IRS Code, relating to capital gains income, includable for taxation under Personal Income Tax as "capital increments" (Articles 1, no. 1, and 9, no. 1, a) of the same Code).

No. 1 of Article 10 of the IRS Code provides that "capital gains are gains obtained which, not being considered business, professional, capital or real property income, result from: a) Paid alienation of real rights over immovable property and affectation of any property of personal assets to business and professional activity exercised in individual name by its owner". (our emphasis).

However, according to no. 5 of the same Article 10, "Excluded from taxation are gains arising from the paid transfer of properties intended for own permanent residence of the taxpayer or of his family unit, in the following conditions: a) If, within 36 months from the date of realization, the realization value, deducted from the amortization of any loan contracted for the acquisition of the property, is reinvested in the acquisition of ownership of another property, land for the construction of property, or in the construction, extension or improvement of another property exclusively with the same purpose located in Portuguese territory or in the territory of another Member State of the European Union or European Economic Area, provided that, in the latter case, there exists an exchange of information in tax matters; b) If the realization value, deducted from the amortization of any loan contracted for the acquisition of the property, is used in the payment of the acquisition referred to in the previous subsection, provided that it is effected in the 24 months immediately preceding; c) For the purposes of the provision in subsection a), the taxpayer shall manifest the intention to proceed with reinvestment, even if partial, mentioning, in the income declaration for the year of alienation, the value he intends to reinvest". (wording in effect in 2007).

This exclusion from incidence norm relating to capital gains realized in immovable property has as its objective "to encourage the ownership of property intended for permanent residence. To this end, the law provides for the exclusion from taxation of capital gains realized in the paid transfer of properties intended for own permanent residence of the taxpayer whenever, within certain periods and conditions, the realization value is reinvested in property intended for the same purpose (…)"[2]. The conditions provided for reinvestment impose affectation within tight timeframes, avoiding that construction or improvement be delayed, with frustration of the normative scope. "The general objective of the exclusion from incidence regime is, therefore, not to hinder the acquisition, immediate or mediate, of own permanent residence financed with the product of the alienation of another property to which the same purpose had been given. A roll-over technique is used that makes such capital gains non-taxable as long as realization values are reinvested in properties also intended for residence (…). The exclusion referred to is valid only for capital gains of properties intended for own permanent residence when reinvestment occurs in properties with the same purpose. The "starting" property and the "arrival" property must be intended for own permanent residence".[3]

14.2.2. The Concept of Own Permanent Residence

In the wording prior to that introduced by Law no. 30-G/2000, of 29 December, no. 5 of Article 10 of the IRS Code read: "excluded from taxation are gains arising from the paid transfer of properties intended for residence of the taxpayer or of his family unit, in the following conditions", wording that had been in place since the text approved by Decree-Law no. 442-A/88, of 30 November.

However, this text was based on the legislative authorization granted by Law no. 106/88, of 17 September, whose Article 13, no. 6, stated: "Capital gains resulting from the paid transfer of properties intended for the person's own residence do not count as Personal Income Tax income, provided that the product of the alienation is reinvested in the acquisition of another property or land for the construction of property exclusively with the same purpose" (our emphasis).

Thus, the change in wording introduced in 2000 is likely to have intended to emphasize/clarify that the exclusion from taxation was restricted to cases of alienation of own permanent residence with reinvestment in another with the same purpose.

The exclusion from incidence in question finds its justification in the necessity to stimulate and encourage access to own property, a reflection of the right to housing constitutionally provided for[4].

As the expression and objective indicate, "own permanent residence" implies the organization in the property of the conditions of his normal life and that of his family unit, such that he sees it as the place of his residence, necessarily being associated with the concept of habitual residence.

Although it can be observed that, on the conceptual level, "neither the concept of habitual residence is identified with permanent residence, nor does domicile coincide with address, that is, the place where the person has his residence, such as can be inferred from the two numbers of Article 82 of the Civil Code (cf. Antunes Varela and Pires de Lima, Annotated Civil Code, Vol. I, p. 98 and Luís Carvalho Fernandes, General Theory of Civil Law, Vol. I, p. 380 and 381)"[5], it cannot fail to, in the interpretation of no. 5 of Article 10 of the IRS Code, given the purpose of the norm, require the requirement of permanence in "residence" with habituality and normality and, on the other hand, take into account that it is a concept used in a tax norm, specifically in a norm of exclusion from taxation[6], the provisions of Articles 11[7] and 59, no. 4[8] of the LGT being relevant.

Now, not being the concept of "own permanent residence" a concept proper, specific to another branch of law, it shall have to be interpreted according to the normal canons of interpretive activity, taking into account in particular the systematic and teleological elements, and having in account the set of tax norms.

From that set assumes special relevance subsection a) of no. 1 of Article 19 of the General Tax Law which provides that the tax domicile of taxpayers in the case of individuals is, unless otherwise provided, the place of their habitual residence.

In the wording in effect at the time of the facts, the referred Article 19 of the LGT further provided that "It is mandatory, as per the law, to communicate the domicile of the taxpayer to the tax administration" (no. 2), being "(…) ineffective the change of domicile while not communicated to the tax administration" (no. 3). In no. 6 it provided: "The tax administration may rectify ex officio the tax domicile of taxpayers if such results from the elements at its disposal".[9]

In the proceedings, the Parties uphold opposite positions on the relevance of the application of Article 19 of the General Tax Law.

14.2.3. Analysis of the Parties' Arguments on the Issue

The Applicant contends that no. 5 of Article 10 of the IRS Code makes no reference whatsoever to the concept of "tax domicile", but only to the concept of "own permanent residence" and that there is no correspondence or confusion between the two concepts, referring to different realities and with different purposes.

And considers that there is only coincidence between tax domicile and permanent residence when the legislator expressly determines it, which, not being the case of Article 10, no. 5 of the IRS Code, leads to the conclusion that the AT's interpretation, by requiring that an Personal Income Tax taxpayer have his tax domicile in his own permanent residence as a condition to benefit from the reinvestment regime provided therein, violates the provision in Article 9, no. 2 of the Civil Code, applicable ex vi Article 11, no. 1 of the LGT.

He alleges that, even in cases where the law establishes a relationship between own permanent residence and tax domicile (above all, in the case of application of the exemption provided in the current Article 46 of the EBF), the taxpayer is not prevented from demonstrating that he effectively resides in the property subject to the exemption (even in cases where, by oversight, he did not alter his tax address). He indicates that the courts have repeatedly understood that, for the purposes of applying no. 5 of Article 10 of the IRS Code, it suffices to demonstrate own permanent residence, regardless of the change in tax domicile.

The AT proposes another analysis, invoking the systematic and teleological elements of interpretation.

As to the first element, it considers that it results from the conjunction of Articles 19 of the LGT, 43 of the CPPT and 42 of the EBF that the concepts of own permanent residence and tax domicile must, from a tax perspective, coincide with each other, being that the tax domicile declared to the AT is an indispensable legal requirement for the taxpayer to benefit from the exclusion from taxation by reinvestment of the realization value of own permanent residence.

Articles 19 of the LGT and 43 of the CPPT provide for the mandatory communication of tax domicile by the taxpayer, and respective changes, being a condition of effectiveness in its relationships with the AT. The provision in Article 10 of the IRS Code shall be interpreted in conjunction with the referred articles, resulting that, from the tax perspective, there must be coincidence between the concepts of own permanent residence and tax domicile declared to the AT, this being an indispensable legal requirement for the taxpayer to benefit from the exclusion from taxation by reinvestment of the realization value of own permanent residence.

As to the teleological element, the AT emphasizes that the duty to communicate tax domicile has underlying the purpose of certainty and legal security, whereby the coincidence of own permanent residence with tax domicile realizes a requirement formally considered indispensable to the exclusion from taxation by reinvestment of the realization value of own permanent residence, provided in Article 10, no. 5 of the IRS Code.

It further considers the Respondent that the interpretation defended by the Applicant is what would be contrary to law, and violative of legal certainty and security, making it possible for situations where the same taxpayer could declare a given property as being his tax domicile for purposes of enjoying the exemption from IMI for own permanent residence and avail himself, regarding another property, of the exclusion from taxation by reinvestment of capital gains (or of many other tax advantages dependent on the place of fixing own permanent residence), in that, to prove the place of own permanent residence and benefit from other tax advantages, it would suffice to present correspondence addressed to the address of this other property. Whereby, it concludes, only the mandatory communication of tax domicile as a formal requirement to operationalize the exclusion from taxation by reinvestment of capital gains for own permanent residence is compatible with a systematic interpretation of tax laws, as well as with the respective purpose.

Analyzing the arguments in present, it is emphasized from the outset that the position of the Applicant, in defending that only a correct interpretation of no. 5 of Article 10 of the IRS Code is one that completely dissociates the concepts "own permanent residence" and tax domicile", raises profound concerns on our part.

In fact, no. 1 of Article 19 of the General Tax Law enshrines "a concept of tax domicile independent of common law", giving rise to the recognition that: "the duty to communicate the effective tax domicile – understood not as any arbitrary choice but the true center of the taxpayer's activity (…) - and the possibility of the Tax Administration to proceed with its effective confirmation assume today particular relevance by virtue, not only of the particular complexity that tax control of tax obligations today assumes, resulting, in part, from the extreme mobility of elements of tax facts, but also because its proof may sometimes depend on citizens' access to advantages of a tax nature (…)[10]". (our emphasis)

Continuing to cite the annotations of the same Author to the LGT, "the fulfillment of this duty is also understood as being of paramount interest to the taxpayer who wishes to exercise, within the framework of the law, the rights that assist him before the tax administration, since the lack of indication of the correct tax domicile deprives him of an indispensable point of contact with it, for the full exercise of his rights and fulfillment of his obligations" and that "the sense of the norm is to impose on taxpayers that they communicate the change of residence in procedures that concern them prior to the change of their tax identification card, where the respective tax number appears".[11] And, as to no. 6 of Article 19, it was noted that its content is unprecedented because "it grants the Tax Administration the right to proceed with the ex officio rectification of the tax domicile of the taxpayer in case of ascertaining that it does not correspond to the real". And it added that "this possibility – to be effected through the alteration of the tax identification card – prevents evasion of the fulfillment of the ancillary obligations of taxes and undue maintenance of tax or social benefits resulting from the declared domicile of the taxpayer not corresponding to the real".[12]

We fully adhere to the comments above reproduced, seeing in them an interpretation that adequately explains the establishment of the tax domicile regime provided in Articles 19 of the LGT and 43 of the CPPT, not leading to its futility or reduced effectiveness.

From the outset, it should be noted that the fact that Article 19 foresees the possibility of ex officio rectification by the Tax Administration of tax domicile, characterized as a debureaucratization, is a measure that is necessary if the AT discovers divergences between existing records and reality, but does not seem to us to be capable of being understood as an imposition on the Administration to proceed, in each concrete case, with supplementary investigation to, despite the existence of a registered domicile, declared by the taxpayer, ascertain the truthfulness thereof with a view to concluding on its respective coincidence with habitual residence.

As well as the interpretation that it would be incumbent on the AT to demonstrate that a taxpayer did not have own residence at the place invoked as such but not coinciding with the registered tax domicile, would constitute an inversion of the normal criterion of distribution of the burden of proof, taking into account the conjunction of Articles 74 and 19 of the LGT.

For this tribunal understands that considering (as happens in some judicial decisions) that the Tax Administration has the power/duty to correct a cadastre when it has ex officio knowledge of data corresponding to different factuality, is quite different from imposing on it increased burdens of investigation when Article 19 of the LGT has, precisely, the purpose of mitigating the difficulties of proof.

The tribunal also does not consider curial the thesis defended by the Applicant when it opposes the situations provided in Article 10, no. 5 of the IRS Code (exclusion from taxation in the case of reinvestment in permanent residence) and in Article 42 of the EBF (exemption from IMI for urban properties intended for residence), concluding, through a contrario sensu reasoning, the irrelevance of the concept of tax domicile in the application of the law in the first case.

No. 1 of Article 42 (current 46) of the EBF provided, at the time of the situation sub judice: "Are exempt from municipal property tax, as per the table referred to in no. 5, properties or parts of urban residential properties built, extended, improved or acquired for valuable consideration intended for own permanent residence of the taxpayer or of his family unit and are actually devoted to such purpose within six months after acquisition or the conclusion of construction, extension or improvements, unless for a reason not attributable to the beneficiary, the exemption request being submitted by taxpayers by the end of 60 days following that period". And no. 8 of the same article clarified "For purposes of this article, it is considered that there has been affectation of properties or parts of properties to own permanent residence of the taxpayer or of his family unit, if their respective tax domicile is fixed therein".

This number was introduced in the Tax Benefits Framework - then as no. 7 of Article 42 and relating to Local Property Tax - by Law no. 109-B/01, of 27/12, Budget Law/2002.

This addition seems to us to have corresponded more to a need for clarification and alert to taxpayers in a matter (exemption from Local Property Tax, later IMI) that interested the generality of buyers of their own home and who had to request the respective exemption, with risks of losing part of the exemption period due to difficulties of proof of actual move to the place[13]. But it can be said that the relevance of tax domicile already derived from the provision in Article 19 of the LGT and in Article 43 of the CPPT. The rule clearly and expressly enunciated, by Law no. 109-B/01, of 27/12, Budget Law/2002, as no. 7 of Article 42 of the EBF, seems to us to be only the clarification of a conclusion that derived from the application of the system of tax norms.

That is to say, we do not see that the provision in no. 8 (previously no. 7) of Article 42 of the EBF, at the time of the situation that concerns us, constitutes a special or exceptional regime, rather it should be seen in it the emergence of a general principle that derived from the obligation to update the taxpayers' cadastral data, and which configures tax domicile as the first and most important element of proof of the taxpayer's habitual residence.

And it is of elementary common sense that this coincides, in principle, with own permanent residence[14].

This conclusion does not prevent, however, the raising of the question of the existence of situations in which the non-coincidence of those two realities (tax domicile and place of own permanent residence) may not prevent the application of the norms in question (no. 5 of Article 10 of the IRS Code and Article 46, ex 42, of the EBF).

14.2.4. Own Permanent Residence Not Coinciding with Tax Domicile

From the outset, it is verified that the norm providing for the exclusion from taxation of capital gains (no. 5 of Article 10 of the IRS Code) when admitting the disjunction – own permanent residence of the taxpayer or of his family unit – raises the possibility that exclusion from taxation be compatible with a situation where despite the holder of income taxable under Personal Income Tax not residing at the place, maintains therein members of his family unit. But, because that situation is not that of the proceedings, we shall not dwell on the development of that issue.

Focusing the present decision on the controversial situation in the present proceedings, this tribunal considers that:

• Tax domicile is a special domicile that the taxpayer is obliged to keep up to date, and must, in principle, coincide with the place where he has his own permanent residence, above all because this can be subject to control by the AT for giving rise to tax advantages or benefits, and it can be said that from the regime of Articles 19 of the LGT and 43 of the CPPT results a presumption of coincidence of those situations;

• There are reasons that can very legitimately justify the lack of coincidence of those realities, first and foremost professional[15] but also personal (for example, necessity to be away from the residence area every day to provide support to family members);

• There can also be pure forgetfulness, which being a much less legitimate reason, shall nevertheless have to be confronted with the possible disproportionality that would mean the loss of certain benefits beyond the specific penalty for such forgetfulness (treated as an administrative infraction);

• Not resulting from Article 19 of the LGT an irrebuttable presumption (Article 73 of the LGT), taxpayers will be able, faced with the divergence between tax domicile and permanent own residence, "to prove the facts demonstrative of which that address corresponded to their permanent own residence, in accordance with the rules of burden of proof. Thus, it results from Article 74, no. 1 of the LGT that the "burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls on those who invoke them". Also Article 342 of the Civil Code determines in its no. 1 that "he who invokes a right falls the burden of proving the facts constitutive of the alleged right", determining no. 2 of the same article that "The burden of proof of facts impeaching, modifying or extinguishing the invoked right falls on him against whom it is invoked"."[16]

That is, one subscribes to the position of the TCAS (Judgment of 8 October 2015, in proceedings no. 06685/13) in the sense that "(…) if it is legitimate for the AT in the tax procedure to oppose the recognition of a certain right of the taxpayer derived from substantive law when this merely invokes his tax domicile but has not communicated his change, it is no longer legitimate the non-recognition of that right when, beyond the invocation of tax domicile, the taxpayer proves that at the date of the facts constitutive of his substantive right he had habitual residence in the place in question."[17]

It remains then to conclude whether evidence was produced that the Applicant actually devoted the property acquired in January 2007 to his own permanent residence.

15. Evidence Produced and Its Legal Framework

Let us recall that it was proven in the proceedings that the Applicant was a purchaser of a property on 17 January 2007 and proceeded to its alienation on 10 July 2007. The property is located at no. … of Rua …/ no. … of …, parish of … but the Applicant altered, on 14 March 2007, his tax domicile from the address declared at the time of acquisition – Rua …, no. …, …, Lisbon - to Rua …, no. …, …, in Lisbon, maintaining it until 2009, when he altered it to Rua da …, …, ... of in Lisbon.

That is, the Applicant never updated his tax domicile as being at no. … of Rua …, and, at the time of the sale of the property, it was the buyers of it who declared having tax domicile in the fraction located there.

The Applicant, who declared in the deed of acquisition of the property in question that he intended it for residence, delivered a Personal Income Tax declaration in 2008, indicating the sale of the property and that he would reinvest the realization value of the property in another property devoted to own permanent residence.

From this factuality results that the Applicant never proceeded to register as his tax domicile the property that, within a period of six months, he acquired and resold, although he claims to have actually devoted it to the purpose declared at acquisition, making it his own permanent residence.

The Applicant presented as documentary evidence that he made the place his own permanent residence a declaration from the Parish Council of …, dated 31 October 2011, attesting "on the basis of information collected, whose elements are on file", that the Applicant "resided in that parish between January 2007 and July 2007, and a document on which he appears as holder of a gas supply contract to the apartment located in Rua …, no. …, …, in Lisbon.

This declaration from the parish council, although issued pursuant to the law[18], is a document issued some years after the facts attested. It does not explain on what the knowledge of the facts is based, referring to documents on file, that is, it must have been based on the deed of purchase and sale itself where the intended use of the acquired property was declared and whose truthfulness was precisely what had to be demonstrated.

That is, taking into account the lack of coincidence of tax domicile, the certificate in question does not carry sufficient weight to, by itself alone, constitute proof of the situation invoked by the Applicant.

We adhere, on this point, to the conclusions of the Judgment delivered on 2 December 1999 by the Court of Appeal of Lisbon, in proceedings no. 0066156, in the sense that "The law only gives competence to parish councils to attest residence, but no longer permanent residence. The certificate of residence does not prove residence, it proves, rather, that the Parish Council, based on the direct information of its members or based on testimony or own declaration, attested to residence." (points II and III of the summary).

As to the gas contract in the name of the Applicant, it also does not prove the affectation of the property to own permanent residence, since such supply contract is compatible with the acquisition of the property for rental or merely for resale.

What, moreover, would be normal, would be the existence of other types of supply contracts for goods and services – water, electricity, telecommunications – as well as records of contacts with other entities, such as banks, and respective correspondence[19], elements that were not even mentioned by the Applicant.

And the witness testimony proved insufficient to remedy the insufficiencies of the documentary evidence.

The witness F… (partner of the company that sold the property to the Applicant, and resident at the time on the 3rd floor of the same building) who declared to be friend and colleague of the Applicant for more than twenty years, referred that he was several times in the house and that it was frequent for them to visit each other, and even to stay at each other's houses, but was unable to expressly guarantee that the Applicant had made the fraction in question his permanent residence in the period between acquisition and sale of the property located at no. … of Rua …. He also referred that the Applicant even had construction works done in that property but the period between purchase and resale is too short for, beyond the existence of works, the Applicant to have fixed there his own permanent residence, especially since in March of that year he declared to have tax domicile at another address.

The other witness, who declared to have also resided in a fraction located on the floor immediately below the Applicant's apartment, said she remembers seeing the Applicant living in the building. She affirmed that she saw him pass with shopping, accompanied by his girlfriend, but was unable to specify the period in which this occurred.

In sum, the witnesses did not give a sufficiently explicit and convincing contribution, adequate to support the conclusion that the Applicant actually devoted the property in question to his own permanent residence in the period between January and July 2007, so as to remedy the lack of coincidence of that address with the Applicant's tax domicile which, having been subject to change in that same period – in March 2007 – was not for the address of the property but for another location.

It is added that in July 2007, other persons – the buyers in the contract executed on the 10th of that month – declared to have, at the date of the deed, their residence in the acquired property.

16. Conclusion on the Issue in the Proceedings

16.1. As to the Legality of the Assessment

Being at issue the application of no. 5 of Article 10 of the IRS Code which excludes from taxation gains arising from the paid transfer of properties intended for own permanent residence of the taxpayer or of his family unit, provided that the realization value is reinvested in another property intended exclusively for the same purpose,[20] it is in this proceeding to appreciate the validity of the assessment that occurred due to lack of fulfillment of the first of the requirements, affectation of the alienated fraction to own permanent residence (as far as we can perceive, the Administration did not even reach the point of ascertaining the existence of actual reinvestment in property for own permanent residence).

Given the lack of tax domicile of the Applicant in the property he acquired with declaration of intending it for own permanent residence, and not having succeeded in proving by other means the actual affectation to that purpose, the request for declaration of illegality of the tax assessment cannot be granted, whereby the Request is considered not well-founded.

16.2. As to the Illegality of the Dismissal of the Gracious Complaint and Hierarchical Appeal

The dismissal of the gracious complaint was based on information that analyzed, fundamentally, the issue of the divergence existing between tax domicile and the place of the property whose subjection to capital gains obtained from its alienation is subject of controversy, not entering into the analysis of the evidence elements offered.

In the hierarchical appeal, despite the importance given to the obligation of coincidence of tax domicile and own permanent residence, the evidence produced was considered, the facts identified by the appellant, not being, however, considered capable of supporting the fixing by the taxpayer of own permanent residence in the property.

Thus, it is not understood that the dismissals of the administrative proceedings in question – gracious complaint and hierarchical appeal – are tainted with illegality. In any case, even if such administrative acts, of second and third degree, were incorrectly grounded, given that the present arbitral decision has concluded on the legality of the primary act, assessment, that question would become irrelevant to the decision that has as its object, mediate, the assessment act, which is truly what is disputed in the action (cf. Judgment of the SAT, 11-09-2013, proceedings no. 01138/12).

16.3. As to Unconstitutionality

The Applicant states that the interpretation that the AT makes of no. 5 of Article 10 of the IRS Code violates the principles of parliamentary reserve (Article 165, no. 1, subsection i) and 103 of the CRP) and proportionality.

As to the violation of the principle of parliamentary reserve, the accusation is founded on the adoption by the AT of an interpretation different from that defended by the Applicant, being this one that subsection b) of no. 10 of Article 5 of the IRS Code requires that the alienated property be intended for own permanent residence but not that the taxpayer have his tax domicile therein.

If we understand correctly, the reasoning is that to extract from the law an interpretation different from that defended by the Applicant as correct, is equivalent to creating another norm, which is only permitted, in accordance with the constitutionally established procedures, by Law of the AR or Decree-Law of the Government based on legislative authorization. This interpretation seems to us, however, susceptible of leading to a broadening of the invocation of violation of the CRP to all cases in which there were divergences of interpretation of a norm in area of reserved competence of the AR.

That is to say, it is believed that the position of the AT on the concept of own permanent residence used in no. 5 of Article 10 of the IRS Code, and its articulation with the provision on tax domicile, understanding that the two realities must be coincident, does not, in itself, configure any violation of the principle of parliamentary reserve of the AR.

Another question is to invoke that the rejection by the Tax Administration of the possibility of a taxpayer being able to justify the divergence between tax domicile and own permanent residence by proving the latter, constitutes violation of the principle of proportionality. In the case of the proceedings, the Applicant alleges violation of the referred principle, on the grounds that it is manifestly disproportionate that he is prevented from benefiting from the regime of exclusion from taxation by reinvestment of realization value only because by mere oversight he did not communicate in time his change of tax domicile.

However, this argument could be acceptable if it had been proven that the Applicant actually devoted the property to own permanent residence, having simply forgotten to update the respective tax domicile. But, as seen, such a situation was not proven. The Applicant even remembered to update his tax domicile during the period in which he claims to have lived in the building but to have it registered at a different location from the building subject to these proceedings. Thus it is also concluded that the constitutional principle of proportionality was not violated.

And, the arbitral request not being well-founded, the request for refund of the amount paid is also not well-founded, as well as the request for payment of compensatory interest or default interest[21].

17. Decision

With the grounds exposed, the arbitral tribunal decides:

a) To judge not well-founded the request for arbitral decision of declaration of illegality and unconstitutionality of the Personal Income Tax assessment act (tax and compensatory interest), dated 14-11-2011, for the year 2007, with no. 2011…, as well as annulment of the decisions dismissing the gracious complaint and hierarchical appeal filed against the said assessment.

b) To consider not well-founded the request for condemnation of the Respondent to refund the amount paid as well as the payment of interest.

c) To condemn the Applicant in costs.

18. Value of the Proceedings

In accordance with the provision in no. 2 of Article 315 of the Code of Civil Procedure, subsection a) of no. 1 of Article 97-A of the Code of Tax Procedure and also no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are assigned the value of € 14,488.83 (fourteen thousand four hundred and eighty-eight euros and eighty-three cents).

19. Costs

For the purposes of the provision in no. 2 of Article 12 and no. 4 of Article 22 of the RJAT and no. 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 918.00 (nine hundred and eighteen euros), in accordance with Table I attached to the said Regulation, to be borne entirely by the Applicant.

Lisbon, 14 June 2017.

The Arbitrator

(Maria Manuela Roseiro)

[1] A first Personal Income Tax declaration must have been delivered on 26 May 2008 giving rise to assessment dated 21 July 2008 (PAT, fls. 3).

[2] Citing José Guilherme Xavier de Basto, in "IRS, Real Incidence and Determination of Net Income", Coimbra Publisher, 2007, pp. 412 et seq.

[3] José Guilherme Xavier de Basto, ibidem, pp. 413 and 414.

[4] Cf. subsection c) of no. 2 of Article 65 of the CRP. The protection of this right is reflected in other norms, including tax norms (for example, temporary exemption from IMI and, previously, from Local Property Tax).

[5] Cf. Judgment of the SAT of 23 November 2011, proceedings no. 0590/11.

[6] Taking into account the purpose of the exclusion, aiming at a purpose of an extra-fiscal nature – namely increasing social welfare through facilitating the purchase of own property – the referred negative delimitation of taxation seems to configure a conditioned exemption (cf. Saldanha Sanches, Manual of Tax Law, Coimbra Publisher, 3rd edition, pp. 450 et seq, including note 841). On discussion regarding the legal nature of exclusion norms, in particular in relation to tax exemption norms, Nuno Sá Gomes, General Theory of Tax Benefits, Bulletin of CTF no. 359, p. 118 et seq. Xavier de Basto, who characterizes the situation as exclusion from incidence of taxation of capital gains, subordinated to the principle of realization, and accompanied by mechanisms of limitation of tax requirement in cases of reinvestment in property of the same nature (roll over) (cf. cited work, pp. 385 to 387), uses the term "benefit" when referring to the exclusion from incidence of no. 5 of Article 10 of the IRS Code (ibidem, pp. 414 and 415).

[7] According to no. 2 of Article 11 of the LGT, "Whenever, in tax norms, terms proper to other branches of law are employed, the same must be interpreted in the same sense as they have there, unless otherwise derived directly from the law" and no. 3 of the same article: "Persisting doubt about the sense of the norms of incidence to apply, the substance of the tax facts shall be considered".

[8] "The collaboration of taxpayers with the tax administration comprises the fulfillment of the ancillary obligations provided in the law and the provision of clarifications that this requests from them regarding their tax situation, as well as regarding the economic relations they maintain with third parties". With interest also, taking into account the hypothesis that the exclusion configures a tax benefit, no. 2 of Article 14 of the LGT: "Holders of tax benefits of any nature are always obliged to reveal or authorize the revelation to the tax administration of the prerequisites of their grant, or to fulfill other obligations provided in the law or in the instrument of recognition of the benefit, namely those relating to taxes on income, expenditure or assets, or to the norms of the social security system, under penalty of the referred benefits becoming ineffective".

[9] In accordance with this norm, Article 43 of the CPPT, under the heading "Obligation to Participate in Domicile" provided: "1-Those interested who intervene or may intervene in any procedures or processes in the services of the tax administration or in the tax courts communicate, within 15 days, any change in their domicile or registered office. 2-The failure to receive any notice or communication expedited pursuant to the articles above, due to non-compliance with the provision in no. 1, is not opposable to the tax administration, without prejudice to what the law provides regarding the mandatory nature of citation and notification and the terms by which they must be effected. 3-The communication referred to in no. 1 shall only have effect, without prejudice to the legal possibility of the tax administration proceeding ex officio with its rectification if the interested party makes the proof of having already requested or obtained the fiscal update of the domicile or registered office".

[10] António Guerreiro, in General Tax Law Annotated, Rei dos Livros, p. 119.

[11] Lima Guerreiro, ibidem, pp. 120 and 121.

[12] Lima Guerreiro, ibidem, p. 122. He referred that: "the ex officio recordation of the change of residence must be the records note or, after being supplemented with the necessary elements, the participation of any public entity of the taxpayer's non-compliance with the duty of communication, when duly confirmed". Characterizing this normative provision as inserted in the line of debureaucratization and modernization of the tax administration, he further indicated that, in the hypothesis of constituting an error of the administration, there was the possibility of opposition by the taxpayer through reaction against undue rectification, in accordance with Article 147 of the CPPT (summons for conduct).

[13] No. 6 of the same article provided that for purposes of grant and cessation of the exemption nos. 4, 5 and 6 of the previous article apply and, in the case provided in no. 1 of the present article, if the affectation to permanent residence of the taxpayer or of his family unit occurs after the lapse of that period, (…) the exemption would start from the immediately following year, inclusive, to the verification of such prerequisites, ceasing, however, in the year in which it would end if the affectation to own permanent residence (…) had occurred in the six months immediately following the year of completion of construction, extension, improvements or acquisition for valuable consideration (…). Note that nos. 4, 5 and 6 of Article 41 stated "4-In cases provided in this article, the exemption is recognized by the chief of the tax office of the area of the property's location, in a properly documented request, which must be submitted by taxpayers within 90 days from the verification of the fact determining the exemption. 5-In the situations covered by the previous number, if the request is submitted beyond the referred period, the exemption starts from the immediately following year, inclusive, to its submission, ceasing, however, in the year in which it would end if the request had been submitted in time. 6-The tax benefits referred to in this article cease as soon as the prerequisites that determined them cease to be verified, and the owners, usufructuaries or superficiaries must comply with the provision in no. 1 of Article 13 of the Municipal Property Tax Code."

[14] As to the objection raised by the Applicant that "If it could be considered that there exists a presumption that the own permanent residence of a given Personal Income Tax taxpayer corresponds to the address communicated to the AT (i.e. to the tax domicile), the benefit could be awarded to someone who did not have residence there", it will be said that, notwithstanding the principle that the two realities coincide, it does not prevent, also in that case, the possibility of the administration, discovering the declared incorrection, drawing the due consequences therefrom.

[15] As noted in arbitral decision 144/2016-T, these circumstances "can require the taxpayer to be absent on working days from the area of his residence, as frequently happens with teachers, judges, doctors, nurses, engineers and many other professionals, who, by doing so, may prefer to indicate their tax domicile at the headquarters of their workplace to more easily be contacted, notified and receive their correspondence, notably registered, which they would be deprived of receiving or even withdrawing from the post office by notice, since this can only occur on working days and during the business hours of the respective services".

[16] We cite an excerpt from arbitral decision no. 144/2016-T, also referred to above (taking as reference judgments of the SAT of 9-7-2014, in proceedings no. 01146 and of 17-09-2014, in Proceedings 0158/13, and of 18-02-2016, in proceedings no. 08826/15): "The question common to all is whether the alienated property was actually (or not) permanent own residence, in the sense that the person interested resided therein (if not always, at least most of the time) and, above all, that it correspond to the center of his family and social interests. In the Judgments cited by the AT, it is also clear that the demonstration of such factuality is a matter of evidence, which may or may not be achieved. In the present proceedings, that evidence was achieved".

[17] In the decision in arbitral proceedings 564/2015-T, although in the assessment of a different case, of application of the joint taxation regime under Personal Income Tax to couples in unmarried unions, we adhere to the position adopted by the TCAS in Judgment 05655/12, of 5 March 2015, that "once the proof of the identity of the tax domicile is made, as that legal requirement is not constitutive of the right of the Appellants, then it must be concluded that the non-compliance with that communication does not prevent that the Appellants opt for the taxation regime of jointly taxed Personal Income Tax taxpayers not judicially separated in persons and property provided in no. 1 of Article 14 of the IRS Code (in this sense, see the recent Judgment of the Southern Administrative Court of Appeal of 19/02/2015, proceedings no. 08313). In sum, with two persons living, regardless of sex, in conditions analogous to those of spouses for more than two years, in the same habitual residence [evidence falling to the taxpayers, in the case of non-compliance with the obligation to communicate provided in no. 3 of Article 19 of the LGT], the identity of tax domicile provided in the provision of no. 2 of Article 14 of the IRS Code is verified".

It should be emphasized that in the case of the referred proceedings 564/2015-T (as in the cited judicial decision) evidence was made of the essential prerequisite in those cases, which was the fact that the taxpayers had the same habitual residence, living there in conditions analogous to those of spouses for the period of time required by law.

[18] Article 34 of Decree-Law no. 135/99, of 22 April provided: "1-The certificates of residence, life and economic situation of citizens, as well as the terms of identity and administrative justification, issued by parish councils, pursuant to subsections f) and q) of no. 1 of Article 27 of Decree-Law no. 100/84, of 29 March, must be issued as long as any of the members of the respective executive or parish assembly have direct knowledge of the facts to be attested, or when their proof is made by oral or written testimony of two citizen voters registered in the parish or, still, by declaration of the person themselves. 2-In cases of urgency, the president of the parish council may issue the certificates referred to in this diploma, independently of prior deliberation of the council. 3-No special form is required for the production of any of the proofs referred to, being, when oral, to be reduced to writing by the official who receives them and confirmed by the signature of those presenting them. 4-False declarations are punished in accordance with the law. 5-The certificate, relating to the economic situation of the citizen, which contains reference to his residence makes full proof of such fact and dispenses with the attachment in the same proceedings of a residence certificate or voter identification card. 6-The certificates referred to in the previous number can be replaced by certificates issued by the president of the council" (our emphasis). (no. 1 was amended by Decree-Law no. 73/2014, of 13/05, now reading: "The certificates of residence, life and economic situation of citizens, as well as the terms of identity and administrative justification, issued by parish councils, pursuant to subsections qq) and rr) of no. 1 of Article 16 of Law no. 75/2013, of 12 September, must be issued as long as any of the members of the respective executive or parish assembly have direct knowledge of the facts to be attested, or when their proof is made by oral or written testimony of two citizen voters registered in the parish or still by another legally admissible means".

[19] Now, referring (partially) to the Judgment of the SAT, delivered on 23 November 2011, in proceedings no. 0590/11 (although regarding the exemption from IMI), the prerequisite "own permanent residence" is the factual situation that conditions exclusion from taxation. The requirement of permanence in "residence" must be understood in the sense of habituality (…), to ensure the purpose underlying the attribution of the benefit, which consists in stimulating and encouraging access to own property (cf. subsection c) of no. 2 of Article 65 of the CRP). The beneficiary must organize in the property the conditions of his normal life and that of his family unit, such that he sees it as the place of his residence. Residence in a certain place, the habitatio, must be demonstrated through "justifying facts" that the beneficiary fixed in the property the center of his personal life. And exemplifies with facts capable of demonstrating the bond of the beneficiary to the property and respective necessary concretization through certain physical conditions (house, furniture, etc.), legal (contracts, declarations, registrations in records, etc.) and social (integration in the environment, knowledge of and by neighbors, etc.).

[20] In accordance with the provision in the subsections of no. 5 of Article 10 of the IRS Code, being necessary the affectation of the property acquired with the reinvestment to the residence of the acquirer or of his family unit until six months have elapsed after the end of the period in which the reinvestment must be effected (no. 6 of the same Article 10).

[21] Default interest, moreover, would only be due in case of granting of the present Request for arbitral decision, and default by the Respondent in execution of the judgment, in accordance with Articles 43, no. 5, 100, 102 of the LGT and 146, no. 2 of the CPPT.