Process: 659/2016-T

Date: May 4, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

In Process 659/2016-T, a taxpayer challenged IRS withholding tax acts for 2011, claiming non-resident status despite formal registration as a Portuguese tax resident. The applicant worked in Egypt under an international contract since 2007 and argued that withholding tax should have been applied at non-resident rates rather than resident rates, resulting in alleged excess withholding of €10,869.01. The taxpayer filed a hierarchical appeal against the dismissal of an administrative complaint, which was also dismissed. Subsequently, arbitration was requested at CAAD to annul the dismissal order and obtain a refund plus compensatory interest. The Tax Authority raised exceptions including prescription of the right of action, material incompetence of the tribunal, and absence of serious and notorious injustice. The core legal issue centered on Article 16 of CIRS regarding tax residency criteria and whether formal registration prevails over actual residence circumstances. The applicant contended that not meeting the residency requirements under Article 16 in 2011 should determine tax treatment regardless of administrative registration status. However, before the tribunal could rule on the substantive issues including the exceptions raised and the merits of the residency claim, the applicant withdrew the request. The CAAD tribunal accepted the withdrawal, terminated the proceedings, fixed the case value at €9,347, and ordered the applicant to bear costs of €918. No substantive decision was issued on tax residency criteria, withholding tax treatment, or refund entitlement.

Full Decision

ARBITRAL DECISION

I – REPORT

1. [A] CF[1], with tax residence at … no. …-…, …-… –…–…, area of the … Oeiras tax authority office (…) filed a request for arbitral pronouncement, pursuant to the provisions of subsection a) of no. 1 of article 2, of no. 1 of article 3 and subsection a) of no. 1 of article 10, all of the RJAT[2], with the AT[3] being requested, with a view to assessing the legality of the order dismissing the hierarchical appeal, the annulment of withholding tax acts and consequent reimbursement to the applicant of € 10,869.39 of withheld PIT, plus compensatory interest.

2. Which was filed without exercising the option to appoint an arbitrator, being accepted by His Excellency the President of CAAD[4] on 03/11/2016 and notified to the AT on the same date.

3. Pursuant to the provisions of no. 2 of article 6 of RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, on 04/01/2017, Arlindo José Francisco was appointed as arbitrator of the tribunal, who communicated acceptance of the appointment within the legally stipulated period.

4. The tribunal was constituted on 19/01/2017 in accordance with the provisions contained in subsection c) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of December 31.

5. With his request, the applicant seeks the annulment of the order dismissing the hierarchical appeal that he duly filed against the dismissal of an administrative complaint against the withholding tax acts for PIT[5] for the year 2011, with the consequent return of the tax overstated at the amount of €10,869.01.

6. He supports his position, in summary, on the understanding that in 2011, he did not meet any of the requirements provided in article 16 of CIRS[6], to be considered tax resident in Portugal.

7. In fact, as a result of the contract entered into in 2007 with B… SGPS SA and its first extension in 2011, he performed functions in Egypt.

8. Notwithstanding that he admits he did not proceed with changing his tax resident status in Portugal, he considers this irrelevant, supporting his position on a judgment of the TCA[7] of the South dated 29/01/2002.

9. Thus, the withholding tax borne was as a resident, when it should have been that of a non-resident, thus resulting in excessive withholding in the amount of € 10,869.01.

10. In the response, the respondent, in the first place, considers that the right of action has prescribed, that the tribunal is materially incompetent, and should this not be the case, the serious and notorious injustice invoked is also not present, nor the act dismissing the request for official review suffers from any defect and therefore should be maintained.

II - CASE MANAGEMENT

The tribunal was regularly constituted.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented in accordance with articles 4 and 10, no. 2 of RJAT and article 1 of Ordinance no. 112-A/2011, of March 22.

In view of the response from the respondent which, in addition to the exceptions already mentioned, considers that the matter in question is merely one of law and requested the waiver of the production of witness evidence and party statements as they would be pointless, as well as the holding of the meeting provided for in article 18 of RJAT and the submission of written pleadings, the tribunal issued the following order on 08/03/2016: "I invite the applicant, within 10 days, if he so wishes, to make a statement regarding what the respondent has argued, namely regarding:

- the exceptions raised;

- witness evidence;

- the waiver of the meeting of article 18 of RJAT; and

- the waiver of the production of written pleadings.

Notify."

On 29/03/2016, the applicant submitted his statement, and the tribunal on the same date issued the following order: "Having examined the case file, it is verified:

- That the parties are in agreement regarding the waiver of the meeting provided for in article 18 of RJAT;

- That the applicant has made a statement regarding the exceptions raised in the respondent's response;

- That the factual matter is perfectly defined, with the questions to be decided being only of law;

- That regarding the production of written pleadings, the respondent considers them unnecessary and the applicant conditions his position to what may be decided regarding evidence.

In this manner, the tribunal decides to waive the meeting of article 18 of RJAT, as well as the hearing of witnesses, considering the factual matter to be perfectly defined, and grants 10 days to the parties to, if they so wish, produce written pleadings with successive treatment, with the period for the applicant commencing upon notification of this order and for the respondent commencing upon notification of any pleadings submitted by the applicant.

Notify."

On 11/04/2016 the applicant withdrew the claims formulated in the scope of the action brought, with the consequent termination of the proceedings.

Decision is required.

IV – DECISION

Thus the tribunal decides:

a) As the request for withdrawal is a freely disposable right, the applicant is a legitimate party therefor and having regard to the provisions contained in articles 277 d); 285, no. 2, 286, no. 1, 289 and 300 of the CPC, applicable ex vi article 29 of RJAT, the tribunal declares the withdrawal presented to be valid and effective, declaring the instance terminated.

b) To fix the value of the case at € 9,347.00 in accordance with the provisions contained in article 299, no. 1, of the CPC[8], article 97-A of CPPT[9], and article 3, no. 2, of RCPAT[10].

c) To fix the costs, pursuant to no. 4 of article 22 of RJAT, in the amount of € 918.00 in accordance with the provisions of Table I referred to in article 4 of RCPAT, which shall be borne by the applicant in accordance with article 537, no. 1 of the CPC, ex vi article 29 of RJAT.

Notify.

Lisbon, May 4, 2017

Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by referral of article 29, no. 1, subsection e) of RJAT, with blank verses and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for taxpayer
[2] Acronym for Legal Framework for Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Center
[5] Acronym for Personal Income Tax
[6] Acronym for Personal Income Tax Code
[7] Acronym for Central Administrative Court
[8] Acronym for Civil Procedure Code
[9] Acronym for Tax Procedure and Process Code
[10] Acronym for Regulation on Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What are the criteria under Article 16 of the CIRS to determine tax residency in Portugal?
Article 16 of CIRS establishes criteria for determining tax residency in Portugal, including physical presence in Portuguese territory for more than 183 days (consecutive or interpolated) in any 12-month period beginning or ending in the year in question, or having a habitual residence in Portugal on any day of that period. The taxpayer in this case argued that working in Egypt since 2007 meant these requirements were not met in 2011, despite maintaining formal registration as a Portuguese tax resident.
Can a taxpayer be treated as a non-resident for IRS withholding tax purposes despite being registered as a resident in Portugal?
The case raised the issue of whether actual residence circumstances can override formal administrative registration for withholding tax purposes. The taxpayer argued that formal registration as a resident was irrelevant if Article 16 CIRS requirements were not met, citing a 2002 TCA South judgment. However, since the case was withdrawn before decision, no definitive ruling was issued on whether substance prevails over form in determining withholding tax treatment for IRS purposes.
How do you challenge IRS withholding tax through a hierarchical appeal and arbitration at CAAD?
To challenge IRS withholding tax through hierarchical appeal and CAAD arbitration: (1) file an administrative complaint (reclamação graciosa) against the withholding tax acts; (2) if dismissed, file a hierarchical appeal (recurso hierárquico); (3) if the hierarchical appeal is dismissed, file an arbitration request at CAAD pursuant to Articles 2(1)(a), 3(1), and 10(1)(a) of RJAT within the applicable deadlines, seeking annulment of the dismissal order and any consequent refunds.
What is the tax treatment of income earned abroad by a Portuguese taxpayer working under an international contract?
Income earned abroad by Portuguese tax residents working under international contracts is generally subject to IRS, but the withholding tax rate and treatment differ significantly between residents and non-residents. Residents face progressive withholding rates while non-residents are subject to flat withholding rates under Article 71 of CIRS. The taxpayer claimed that applying resident withholding rates to income earned in Egypt resulted in excess tax of €10,869.01 compared to non-resident treatment.
Is a taxpayer entitled to a refund and compensatory interest for excess IRS withheld at source as a resident instead of a non-resident?
A taxpayer is potentially entitled to a refund and compensatory interest (juros indemnizatórios) for excess IRS withheld at source if it can be proven that incorrect resident rates were applied when non-resident rates should have been used. The refund claim requires demonstrating non-resident status under Article 16 of CIRS for the relevant tax year. In this case, the taxpayer sought €10,869.01 plus compensatory interest, but withdrew the claim before the tribunal could rule on entitlement.