Process: 637/2016-T

Date: April 10, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Process 637/2016-T addresses fundamental principles of collaboration and burden of proof in IRS disputes involving undeclared securities and real estate transactions. The claimant initially failed to declare real estate transactions for 2013, subsequently submitting modified declarations (Annex G) after Tax Authority notification through cross-referencing with model 13 declarations. The Tax Authority issued assessment 2014… calculating €70,574.77 in tax plus €72,168.01 compensatory interest. The claimant then filed a substitute declaration altering the declared values, which was converted into a gracious complaint. The central legal issue concerns the allocation of evidentiary burdens when taxpayers submit substitute declarations with altered expense claims. The Tax Authority requested justification for alterations and supporting documentation for expenses and charges. The claimant responded citing the principle of collaboration, arguing that since the financial institution (B… SA) had declared all transactions via model 13 declarations, the Tax Authority possessed superior knowledge and should utilize that information. This case illustrates the tension between the taxpayer's duty to substantiate claimed deductions and the Tax Authority's obligation to utilize available third-party information under the principle of collaboration (artigo 59 LGT). The arbitral tribunal must determine whether the Tax Authority properly discharged its burden of proof for the assessment, and conversely, whether the claimant adequately substantiated the expenses and charges claimed in the substitute declaration. The case demonstrates CAAD's role in reviewing procedural compliance under Decree-Law 10/2011 and substantive legality of IRS assessments involving Category G income from securities transactions and derivative financial instruments under articles 10 and 19 CIRS.

Full Decision

ARBITRAL DECISION

The arbitrators Cons. Jorge Manuel Lopes de Sousa (presiding arbitrator), Dr. José Nunes Barata and Augusto Vieira (member arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 12-01-2017, agree as follows:

1. Report

A…, NIF …, resident at Av. … no. …-…, …-…, …-Cacém (hereinafter referred to as "Claimant"), presented, under the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters - RJAT), a request for arbitral decision with a view to assessing the legality and annulment of the IRS assessment no. 2014…, relating to the year 2013.

The TAX AUTHORITY AND CUSTOMS AUTHORITY is the respondent.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax Authority and Customs Authority on 11-11-2016.

Under the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned signatories, who communicated acceptance of the appointment within the applicable period.

On 28-12-2016 the parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with article 11 no. 1 paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 12-01-2017.

The Tax Authority and Customs Authority responded by arguing that the request should be ruled unfounded.

By order of 15-02-2017, a hearing was dispensed with and it was decided that the case would proceed with written submissions.

The parties presented their submissions.

The arbitral tribunal was regularly constituted in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The parties are duly represented and enjoy legal standing and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is not affected by any nullities and there are no exceptions and no obstacle to the assessment of the merits of the case.

2. Statement of Facts

2.1. Proven Facts

Based on the elements contained in the case file and documents attached with the request for arbitral decision, the following facts are considered proven:

a) The Claimant submitted the declaration mod. 3 of income for 2013, without having declared the real estate transactions carried out in that year;

b) Upon detecting the omission, the Tax Authority and Customs Authority, through data cross-checking with declarations mod. 13, notified the Claimant to submit the mod. 3 declaration, accompanied by Annex G (article 3 of the Response);

c) On 23-12-2014, the Claimant submitted the declaration mod. 3 accompanied by Annex G (cf. pages 9 and 10 of the PA), and therein declared the following values:

[table content preserved in format]

d) On 23-06-2015, the Tax Authority and Customs Authority issued assessment no. 2014…, in which it calculated the tax to be paid in the amount of €70,574.77, plus compensatory interest in the amount of €72,168.01;

e) On 21-09-2015, the Claimant submitted a substitute declaration mod. 3 for the same year of 2013 (document no. 8 attached with the request for arbitral decision, the contents of which are reproduced herein), altering Annex G and therein declaring:

[table content preserved in format]

f) The substitute declaration was by the Tax Authority and Customs Authority converted into a gracious complaint (document no. 9 attached with the request for arbitral decision, the contents of which are reproduced herein);

g) On a date not determined (due to illegibility, the documents in the administrative file on this point are unclear), the Tax Authority and Customs Authority, within the scope of said gracious complaint procedure, notified B… SA to "present the substitute declaration model 13 - securities, autonomous warrants and derivative financial instruments, foreseen in article 124 of the CIRS, concerning the year 2012", "due to the fact of having presented the last substitute declaration model 13, concerning the year 2012, on 2015-03-05, and the same containing only operations referring to the month of January, when it had previously presented others, on 2014-07-21 and on 2013-08-23, with operations concerning the entire year 2012" "and due to the need to assess the income obtained by the claimant in reference" (page 59 of the PA);

h) On 24-03-2016, the Claimant was notified to justify "the alterations made in that declaration and also the identification of the products/values/dates of the transactions, as well as the corresponding supporting documents for the expenses and charges relating to those" (pages 61 and 62 of the PA and document no. 11 attached with the request for arbitral decision, the contents of which are reproduced herein);

i) In response, the Claimant submitted the request dated 12-04-2016, which appears on pages 63 to 67 of the PA and in document no. 12 attached with the request for arbitral decision, the contents of which are reproduced herein, wherein it states, among other things, the following:

12th

From the integrated account statement it follows that in the year 2013:

i) on 02.01.2013 the equity capital of the now Claimant was €149,464.26;

ii) various withdrawals were made totaling €97,740.00;

iii) interest was charged in the total amount of €11,624.91;

iv) commissions were charged in the total amount of €4,321.17;

v) charges were levied in the total amount of €514.33;

Cf. Doc n.° xx

13th

Furthermore, B… declared through the corresponding model 13 all financial transactions, so the AT has knowledge of them and will be in a better position than the now Claimant.

14th

Notwithstanding the above, the now Claimant is available to provide any other clarifications that may be deemed necessary.

j) With the request referred to in the preceding paragraph, the Claimant submitted documents nos. 6 and 7 attached with the request for arbitral decision, the contents of which are reproduced herein;

k) Following the presentation of the request, the Tax Authority and Customs Authority prepared the information contained on pages 125 and 126 of the PA, the contents of which are reproduced herein, wherein it states, among other things, the following:

4 – ASSESSMENT

The issue to be analyzed in the present case concerns Category G income for IRS purposes, namely, capital gains from securities obtained relating to derivative financial instruments, as provided in article 19 no. 1 paragraph e) of the CIRS.

However, capital gains from securities provided for in article 10 no. 1 paragraph e) of the CIRS are constituted by net income, calculated in each year, as per no. 4 paragraph c) of the same article.

From the consultation made to the tax system of this Tax Authority there are no complete model 13 declarations, that is, they are not properly presented by the respective entities in accordance with article 124 of the CIRS.

For the purpose of proceeding with the analysis of the values in a clear and unequivocal manner, the claimant was notified to justify the values altered in her model 3 income declaration, of substitution, the identification of the products / values / dates of the transactions, as well as the supporting documents for the expenses.

The claimant came to present photocopies of documents already contained in the case file, attached to her initial petition.

Due to lack of necessary information, namely the demonstration of calculations made in an evidenced manner with the respective supporting documents, as well as complete information from model 13 declarations, as referred to above, it is not possible to determine the values of the gains relating to capital gains from securities obtained in the year 2013.

Under article 74 of the LGT the burden of proof rests with the taxpayer, now claimant.

l) On 10-06-2016, the Claimant was notified of the draft decision that precedes, to exercise the right of hearing, within a period of 15 days (pages 127 to 129 of the PA);

m) On 30-06-2016, the Claimant requested an extension of the period to exercise the right of hearing, in the terms contained in document no. 14 attached with the request for arbitral decision, the contents of which are reproduced herein, wherein it states, among other things, the following:

1st

The Claimant came on 12.04.2016 to justify the income declaration model 3 of substitution having even attached all the elements that were provided to her by B…, SA. (hereinafter B…), the entity to whom the discretionary management of the portfolio was entrusted.

2nd

Having even attached not only the copy of the declaration relating to the Register or 'Deposit sent provided by B…, but also the account statement containing all transactions relating to the underlying financial investments, whether by debit or credit.

3rd

It is thus concluded that the Claimant, in a completely transparent and collaborative manner, sent all the documents at her disposal that support the aforementioned income declaration model 3 of substitution.

4th

Having consulted the said documents it is easily concluded what the amount invested was and what capital gains were generated, just as the Claimant demonstrated in the request dated 12.04.2016.

5th

The Claimant thus trusted that the AT, confronting the IRS Model 3 of substitution, with the elements provided and with model 13, would conclude unequivocally that the now Claimant would be in the right.

6th

Despite the explanations given by the Claimant and the documents attached, it is with some surprise that the Claimant sees the proposal for dismissal decision.

7th

The proposal is even more surprising when the AT is based on the fact that complete model 13 declarations do not appear in the AT's tax system (?).

8th

On one hand, the Claimant cannot be prejudiced by the non-compliance with declaration obligations by third parties, all the more so being financial entities that have an increased duty of compliance.

9th

Especially since the AT can always raise with the entity in question any clarifications it deems necessary and in particular demand compliance with its declaration obligations through the application of the inquisitorial principle enshrined in article 58 of the LGT.

10th

And on the other hand, the AT now clarifying that it could not confront the IRS model 3 declaration submitted in complaint with model 13, one questions how it can purely and simply accept as valid the 1st declaration model 3 IRS in which the Claimant incurred in a manifest error, to the detriment of the substitute declaration supported with the documentation sent to the AT and supplemented by the justifications contained in the request dated 12.04.2016.

11th

The Claimant was thus convinced that she had provided all the clarifications, having even stated that if the AT needed further clarifications the Claimant was available to provide them, it being certain that the duty of collaboration enshrined in article 59 of the LGT is also applicable to the AT itself.

12th

Thus, given the multiplicity of financial transactions, it is requested of Your Excellency that you be pleased to extend the period for the exercise of the right of hearing for an equal period so that the Claimant may provide clarifications in a more detailed manner, so that the complaint may be granted as is in the most basic justice.

n) On 22-07-2016, the order dismissing the gracious complaint was issued, which appears on page 135 of the PA, in which concordance is manifested with the information contained on pages 136-137 of the same, the contents of which are reproduced herein, wherein it states, among other things, the following:

4 - ASSESSMENT

The issue to be analyzed in the present case concerns Category G income for IRS purposes, namely, capital gains from securities obtained relating to derivative financial instruments, as provided in article 10 no. 1 paragraph e) of the CIRS.

However, capital gains from securities provided for in article 10 no. 1 paragraph e) of the CIRS, are constituted by net income, calculated in each year, as per no. 4 paragraph c) of the same article.

From the consultation made to the tax system of this Tax Authority there are no complete model 13 declarations, that is, they are not properly presented by the respective entities in accordance with article 124 of the CIRS.

For the purpose of proceeding with the analysis of the values in a clear and unequivocal manner, the claimant was notified to justify the values altered in her model 3 income declaration, of substitution, the identification of the products / values / dates of the transactions, as well as the supporting documents for the expenses.

The claimant came to present photocopies of documents already contained in the case file, attached to her initial petition.

Due to lack of necessary information, namely the demonstration of calculations made in an evidenced manner with the respective supporting documents, as well as complete information from model 13 declarations, as referred to above, it is not possible to determine the values of the gains relating to capital gains from securities obtained in the year 2013.

Under article 74 of the LGT the burden of proof rests with the taxpayer, now claimant.

COMPENSATORY INTEREST

It should also be noted that given that the requisites of no. 1 of article 43 of the LGT are not met in the present case, the assessment of the right to compensatory interest is prejudiced.

PRIOR HEARING. CONCLUSION AND PROPOSAL FOR DECISION

Having notified the representative of the claimant for the exercise of the right of hearing prior to the decision of the procedure, in accordance with articles 60 no. 1 paragraph b) of the LGT and article 45 of the CPPT, through official letter no. …, of 09-06-2016, under the registration of the CTT no. RD …PT, the same came to present a request requesting an extension of the period for the purpose of exercising said right of hearing.

Nevertheless, although the representative was not expressly notified of the deferment of the request, the same under article 60 no. 6 of the LGT could only have been deferred for a maximum of 25 days, that is, until the date of 11/07/2016, the said date being exceeded.

Until the present date, the same has not presented any elements or documents.

In these terms, having regard to the facts and grounds invoked in the draft decision contained on pages 124 to 126, we are of the opinion that the same be converted into a final decision in the sense of its DISMISSAL.

o) Concerning the year 2012, an assessment no. 2015… was issued by the Tax Authority and Customs Authority on 14-08-2015, a copy of which appears in document no. 10 attached with the request for arbitral decision, the contents of which are reproduced herein, in which, among other things, it refers to "LOSSES TO CARRY FORWARD 419,313.37";

p) From the computer system of the Tax Authority and Customs Authority there appears part of the list of transactions carried out on securities in the year 2013, referring that "245 results were found" and that "the first 90 are presented" (page 15 of the administrative file);

q) On 25-10-2016, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present case.

2.2. Unproven Facts

It was not proven that B… SA provided any response to the notification made to it by the Tax Authority and Customs Authority.

2.3. Grounds for Determination of Statement of Facts

The proven facts are based on the documents attached by the Claimant with the request for arbitral decision and in the administrative case file.

3. Legal Issues

Following notification by the Tax Authority and Customs Authority, the Claimant submitted an IRS declaration for the year 2013, with Annex G in which various transactions on securities are mentioned.

Based on that declaration the Tax Authority and Customs Authority issued the contested assessment.

Subsequently, the Claimant submitted a substitute declaration and was notified to justify the alterations and identify the products/values/dates of the transactions, as well as the corresponding supporting documents for the expenses and charges relating to those.

The Claimant submitted documents nos. 6 and 7 attached with the request for arbitral decision, which she had already attached, and the Tax Authority and Customs Authority notified the entity that had carried out the financial transactions, B… SA, to "present the substitute declaration model 13 - securities, autonomous warrants and derivative financial instruments, foreseen in article 124 of the CIRS, concerning the year 2012", "due to the fact of having presented the last substitute declaration model 13, concerning the year 2012, on 2015-03-05, and the same containing only operations referring to the month of January, when it had previously presented others, on 2014-07-21 and on 2013-08-23, with operations concerning the entire year 2012".

No response from B… SA to the notification made appears in the case file.

On the other hand, it is found that the information requested by the Tax Authority and Customs Authority from B… SA concerned transactions carried out in the year 2012 and not in 2013, these being the ones at issue in the present case.

3.1. Issue of Losses to Carry Forward Determined in the Assessment for the Year 2012

In the present case, the Claimant attaches a copy of the assessment for the year 2012, in which losses to carry forward are mentioned that were not considered in the contested assessment.

However, as the Tax Authority and Customs Authority refers in its Response, this assessment is subsequent to the contested assessment and this ground was not invoked in the gracious complaint.

It not being demonstrated that the losses in question were calculated in an assessment prior to the contested assessment, it also cannot be considered demonstrated that the contested assessment is affected by a defect due to them not having been considered, nor that the decision of the gracious complaint is affected by a defect, since the issue was neither raised nor assessed.

On the other hand, in a contention of mere legality, as is provided for in the RJAT for arbitral tribunals functioning in the CAAD, in which the aim is only the declaration of illegality of acts of the types provided for in paragraphs a) and b) of no. 1 of its article 2, it is necessary to assess the legality of the contested act as it occurred, so this Arbitral Tribunal cannot assess the possible relevance of said losses without, previously, the issue having been submitted to the assessment of the Tax Authority and Customs Authority, within the scope of a tax procedure.

Thus, without prejudice to the duties imposed on the Tax Authority and Customs Authority in the execution of judgment, the issue of losses to carry forward is not considered.

3.2. Issue of Violation of the Principle of Collaboration and the Rule of Burden of Proof

The Claimant attributes to the decision of the gracious complaint violation of the principle of collaboration stated in article 59 of the LGT and violation of the rule of burden of proof contained in article 74, no. 2, of the same Law, under which "when the elements of proof of the facts are in the possession of the tax administration, the burden referred to in the previous number is considered satisfied if the interested party has proceeded to its correct identification with the tax administration".

In the case at hand, the Claimant, in addition to sending documents in which the financial transactions relating to the year 2013 carried out through B… SA are mentioned, made reference to the declaration model 13, which "credit institutions and financial companies must communicate to the Tax Authority and Customs Authority, by the end of the month of March of each year, concerning each taxpayer" (article 124 of the CIRS).

In the case at hand, it is found that this declaration model 13 was presented, as the Tax Authority and Customs Authority itself refers in article 3 of the Response that it was through data cross-checking with it that the Claimant was notified to submit the declaration model 3 accompanied by Annex G.

However, the declaration model 3 would be incomplete, as can be inferred from the notification made by the Tax Authority and Customs Authority to B… SA, which appears on page 59 of the administrative file, or the computer system of the Tax Authority and Customs Authority did not present all the data contained therein, as can be inferred from page 15 of the administrative file, in which the computer system of the Tax Authority and Customs Authority refers to presenting only 90 of 245 results that it found.

In the proceedings it carried out in relation to B… SA, the Tax Authority and Customs Authority, possibly by oversight, determined the presentation of declaration model 13 concerning the year 2012 and not 2013.

But the fact is that the decision of the gracious complaint was issued without the said declaration model 13 or any response from B… SA having been attached to the gracious complaint procedure.

Article 74, no. 2, of the LGT, in an interpretation compatible with the constitutional principle of proportionality, when referring that the burden of proof is satisfied "when the elements of proof of the facts are in the possession of the tax administration", must be understood as referring to those that should be in the possession of the latter, when they should be provided by third parties.

In fact, the taxpayer does not have the legal ability to issue himself the declaration model 13 provided for in article 124, and the imposition of the burden of proof cannot be translated, by force of the constitutional principle of prohibition of defenselessness, which emanates from the principle of the right to effective judicial protection (article 20, no. 1, of the Constitution of the Portuguese Republic), into being required of the taxpayer the presentation of a means of proof that is not at his disposal.

For this reason, the burden of proof must be considered satisfied, under the referred no. 2 of article 74, when the taxpayer indicates as a means of proof documents that, by force of law, must be provided to the Tax Authority and Customs Authority by third parties and that are not at the taxpayer's disposal to present.

To this is added the fact that, in the case at hand, it is confirmed that the declaration model 13 for the year 2013 was presented, as can be seen on page 15 of the administrative file, from the computer system of the Tax Authority and Customs Authority there appears part of the list of transactions carried out on securities in the year 2013, referring that "245 results were found" and that "the first 90 are presented". For this reason, it is concluded that the information provided by the Taxpayer, referring to the declaration model 13, constitutes the "correct identification with the tax administration", for the purpose of article 74, no. 2, of the LGT.

Thus, it is concluded that the Claimant fully satisfied the burden of proof of the transactions, and the burden cannot be considered as not fulfilled by the fact that, as appears from the "print" on page 15 of the administrative file, the computer system of the Tax Authority and Customs Authority did not present the other 155 results that are referred to as having been "found", but not presented.

In any case, even if the declaration model 13 had been presented incomplete (which is not credible in view of what is referred to in the said page 15 of the administrative file, as those other 155 results were found), it would still have been incumbent on the Tax Authority and Customs Authority, in compliance with the duties of obtaining proof imposed by article 58 of the LGT, to notify B… SA to present the complete declaration concerning the year 2013 or to carry out any other proceedings that would appear appropriate for this purpose (which it did not do, as it notified it to present elements concerning the year 2012 and not 2013).

On the other hand, as the Claimant argues, if the declaration model 13 was incomplete, the Tax Authority and Customs Authority, in observance of the principle of collaboration stated in no. 1 of article 59 of the LGT, should have informed the Claimant of the "elements existing to allow the Claimant to assess whether she could, at least partially, have documentary support for the financial transactions".

Thus, not giving knowledge to the Claimant of the contents of the said declaration model 13 that was presented by B… SA, and not having even proceeded to have it completed (the proceedings carried out concern the year 2012 and not 2013), it must be concluded that the Tax Authority and Customs Authority violated the principle of collaboration imposed in the said article 59, no. 1, of the LGT which requires that the Tax Authority and Customs Authority give knowledge to the taxpayer of all the information concerning him that is relevant for the tax procedure.

For the above reasons, it is concluded that the Claimant gave satisfaction to the burden of proof by presenting the documents that were at her disposal and by indicating as a means of proof the declaration model 13 that the Tax Authority and Customs Authority should have at its disposal.

Consequently, the decision of the gracious complaint is illegal in the judgment it made regarding the burden of proof.

On the other hand, the burden of proof of the financial transactions carried out by the Claimant in the year 2013 falling on the Tax Authority and Customs Authority, the doubt about the totality of the transactions carried out must be valued procedurally and in process to the benefit of the Claimant, which amounts to considering proven that the financial transactions carried out in the year 2013 are those referred to in the substitute declaration that she presented.

For this reason, the contested assessment, which had as its premise other values, is affected by a defect of error regarding the factual premises, which justifies its annulment.

4. Decision

In these terms, the members of this Arbitral Tribunal agree:

a) Not to consider the issue of losses from 2012 possibly to be carried forward to 2013;

b) To rule the request for arbitral decision as founded regarding the issue of illegality of IRS assessment no. 2014…;

c) To annul the said assessment.

5. Value of the Case

In accordance with the provisions of article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €70,574.77.

6. Costs

Under article 22, no. 4, of the RJAT, the amount of costs is fixed at €2,448.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.

Lisbon, 10-04-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(José Nunes Barata)

(Augusto Vieira)

Frequently Asked Questions

Automatically Created

What is the principle of collaboration (princípio da colaboração) in Portuguese tax law and how does it affect IRS disputes?
The principle of collaboration (princípio da colaboração) in Portuguese tax law, enshrined in Article 59 of the Lei Geral Tributária (LGT), establishes reciprocal duties between taxpayers and the Tax Authority to cooperate in establishing tax facts. Taxpayers must provide truthful information, documentation, and clarifications when requested. Simultaneously, the Tax Authority must utilize information at its disposal, including third-party declarations (such as model 13 declarations from financial institutions), to establish the correct tax situation. In IRS disputes, this principle affects how evidentiary burdens are allocated: while taxpayers must substantiate claimed expenses and deductions, the Tax Authority cannot ignore readily available information from other sources and must actively use cross-referenced data to verify declared income. The principle prevents both parties from adopting passive positions, requiring active cooperation in tax determination.
Who bears the burden of proof in IRS assessments involving undeclared real estate transactions in Portugal?
In IRS assessments involving undeclared real estate transactions in Portugal, the burden of proof (ónus da prova) follows the general rule of Article 74 of the LGT: the Tax Authority bears the burden of proving the facts constituting the tax obligation and determining the taxable amount. However, taxpayers bear the burden of proving facts that support tax benefits, deductions, or expense claims they invoke. In cases of initially undeclared transactions subsequently corrected through substitute declarations, the Tax Authority must prove the existence and value of the taxable transactions (often through third-party declarations like model 13), while the taxpayer must substantiate any expenses, charges, or acquisition costs claimed to reduce the taxable gain. When taxpayers alter previously declared values, they bear the burden of justifying those modifications with appropriate supporting documentation. The principle of collaboration requires both parties to use available information, preventing the Tax Authority from demanding proof of facts already in its possession through mandatory third-party reporting obligations.
How does the CAAD arbitration tribunal handle cases of unreported property sales for IRS purposes?
The CAAD (Centro de Arbitragem Administrativa) arbitration tribunal handles cases of unreported property sales for IRS purposes by reviewing both procedural legality and substantive correctness of Tax Authority assessments under Decree-Law 10/2011 (RJAT). The tribunal examines whether the Tax Authority properly notified the taxpayer, allowed adequate opportunity to respond, and correctly applied IRS Code provisions regarding capital gains (Category G income under articles 10 and 19 CIRS). In cases involving initially unreported transactions, CAAD verifies whether the Tax Authority appropriately used cross-referencing mechanisms (comparing taxpayer declarations with third-party model 13 declarations from financial institutions or notaries) to detect omissions. The tribunal assesses whether taxpayers were given proper opportunity to submit substitute declarations and supporting documentation. CAAD also evaluates whether the Tax Authority discharged its burden of proof regarding the taxable amount while respecting the principle of collaboration by utilizing available third-party information. The tribunal can annul assessments that fail to meet procedural requirements or lack adequate substantiation, or confirm assessments when taxpayers fail to prove claimed deductions despite proper notification.
What are the legal consequences of failing to declare real estate operations in Portuguese IRS tax returns?
Failing to declare real estate operations in Portuguese IRS tax returns triggers several legal consequences. First, upon detection (typically through cross-referencing with model 13 declarations from financial institutions or notarial declarations), the Tax Authority issues notifications requiring submission of corrected declarations with Annex G detailing the transactions. Second, the Tax Authority issues corrective assessments calculating tax on undeclared capital gains (Category G income under articles 10 and 19 CIRS), which constitute the difference between sale proceeds and acquisition costs plus allowable expenses. Third, compensatory interest (juros compensatórios) accrues automatically under Article 35 LGT from the original payment deadline until actual payment, compensating the State for delayed tax receipt—as illustrated in this case where €72,168.01 interest was charged on €70,574.77 tax. Fourth, potential penalties may apply under the Tax Infractions Regime (RGIT) for tax fraud or negligent omissions, depending on culpability. Fifth, taxpayers face increased scrutiny and may be required to provide extensive documentation justifying claimed expenses. These consequences underscore the importance of complete initial declarations and prompt voluntary correction of any omissions before Tax Authority detection.
What procedural steps apply when challenging an IRS tax assessment through CAAD arbitration under Decree-Law 10/2011?
Challenging an IRS tax assessment through CAAD arbitration under Decree-Law 10/2011 involves specific procedural steps. First, the taxpayer files a request for arbitral decision (pedido de constituição de tribunal arbitral) within 90 days of notification of the contested act, under Articles 2(1)(a) and 10 RJAT, identifying the assessment and grounds for challenge. Second, the CAAD President accepts the request and automatically notifies the Tax Authority and Customs Authority (Article 6(2)). Third, the Deontological Council appoints arbitrators—either a sole arbitrator or three-member panel depending on the case value (Article 11(1)(b)). Fourth, parties are notified of arbitrator appointments and may refuse within the statutory period (Articles 6 and 7 of the Deontological Code). Fifth, the arbitral tribunal is formally constituted (Article 11(1)(c)). Sixth, the Tax Authority files its response defending the assessment. Seventh, the tribunal determines whether a hearing is necessary or decides based on written submissions. Eighth, parties submit their final conclusions. Finally, the tribunal issues a binding decision within the statutory timeframe, which may annul, modify, or confirm the assessment. This streamlined process typically concludes within 6-12 months, offering faster resolution than judicial courts.