Process: 701/2015-T

Date: May 4, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

This arbitration case (Process 701/2015-T) involved a taxpayer challenging the Tax Authority's denial of an official review request concerning Personal Income Tax (IRS) assessments for 2011 and 2012. The taxpayer sought recognition of a tax exemption provided under Article 39(1) of the Portuguese Tax Benefits Statute (EBF), arguing that all legal requirements for the exemption were met. The claimant contended that the denial order violated Article 39(1) of the EBF and that the taxation constituted grave and notorious injustice under Article 78(4) of the General Tax Law (LGT), warranting official review and correction of the tax assessments. The Tax Authority responded by raising preliminary objections, including expiration of the right of action and material incompetence of the arbitral tribunal. On the merits, the Tax Authority argued that no grave and notorious injustice existed and that the denial order was legally sound. The arbitral tribunal was regularly constituted on February 5, 2016, under the Legal Regime of Arbitration in Tax Matters (RJAT), with arbitrator Arlindo José Francisco appointed. Both parties agreed to waive witness evidence and the hearing under Article 18 of RJAT, as the matter involved purely legal issues with well-defined facts. The tribunal granted parties the opportunity to submit written memoranda. However, on April 11, 2016, before any substantive decision on the merits, the claimant voluntarily withdrew the arbitration request. Consequently, the tribunal declared the withdrawal valid and effective, ordering extinction of the proceedings. The process value was fixed at €9,347.00, and arbitration costs of €918.00 were imposed on the claimant under Article 537(1) of the Civil Procedure Code, as the withdrawing party bears procedural costs.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A... CF [1] ... with tax residence at Rua da ... nº..., Block ... – ...Dept - Paço de Arcos, area of the ... tax service of ... submitted a request for arbitral decision, under the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT [2], with the AT [3] being required, in order to assess the legality of the order denying the request for official review of tax acts regarding the assessment of PIT [5] for the years 2011 and 2012.

  2. Which was made without exercising the option of appointing an arbitrator, and was accepted by the Honorable President of CAAD [4] on 27/11/2015 and notified to AT on 04/12/2015.

  3. Pursuant to and for the purposes of the provisions in no. 2 of article 6 of the RJAT, by decision of the Honorable President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, on 27/10/2015, the arbitrator Arlindo José Francisco was appointed, who communicated his acceptance of the assignment within the legally stipulated deadline.

  4. The tribunal was constituted on 05/02/2016 in accordance with the provisions contained in 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.

  5. With his request, the claimant seeks the annulment of the order denying the request for official review and the consequent annulment of the corrections of the PIT [5] assessment acts for the years 2011 and 2012 with recognition of the tax benefit provided for in article 39, no. 1 of the EBF [6].

  6. He supports his point of view, in summary, on the understanding that the order denying the request violates no. 1 of article 39 of the EBF, since all the legal requirements for the PIT exemption of the income in question are met, and its taxation constitutes a case of serious and notorious injustice to which no. 4 of article 78 of the LGT [7] refers.

  7. In the reply, the respondent, primarily, considers that the right of action has expired, that the tribunal is materially incompetent, and should this not be the case, neither is there serious and notorious injustice invoked, nor does the order denying the request for official review suffer from any defect, so it should be maintained.

II - SANATION

The tribunal was regularly constituted.

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

In light of the reply from the respondent, which, in addition to the exceptions already mentioned, considers that the matter in question is merely one of law, requested the waiver of witness evidence and party statements as they are shown to be unnecessary, as well as the holding of the meeting provided for in article 18 of the RJAT and the submission of written memoranda, the tribunal issued on 08/03/2016 the following order: "I invite the claimant to, within 10 days, if he wishes, present his position regarding what was alleged by the AT, namely regarding:

  • the exceptions raised;

  • witness evidence;

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

  • the waiver of the production of written memoranda.

Notify."

On 29/03/2016, the claimant presented his response, and the tribunal on the same date issued the following order: "Having examined the case file, it appears:

  • That the parties are in agreement as to the waiver of the meeting provided for in article 18 of the RJAT;

  • That the claimant presented his position regarding the exceptions raised in the respondent's reply;

  • That the factual matter is perfectly defined, with the issues to be decided being matters of law only;

  • That regarding the production of written memoranda, the respondent considers them unnecessary and the claimant conditions his position on what shall be decided regarding the evidence.

In this manner, the tribunal decides to waive the meeting of article 18 of the RJAT, as well as the hearing of witnesses, as it considers the factual matter to be perfectly defined, and grants 10 days to the parties to, if they wish, produce written memoranda in successive exchange, with the deadline for the claimant beginning to run with the notification of this order and for the respondent with the notification of any memoranda produced by the claimant.

Notify."

On 11/04/2016, the claimant withdrew from the requests formulated within the scope of the action brought, with the consequent extinction of the proceedings.

It falls to the tribunal to decide.

IV – DECISION

The tribunal thus decides:

a) Inasmuch as the request for withdrawal is a freely disposable right, the claimant is a legitimate party to do so, 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 the RJAT, the tribunal declares the withdrawal presented to be valid and effective, declaring the instance extinct.

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

c) To fix the costs, under the authority of no. 4 of article 22 of the RJAT, in the amount of € 918.00 in accordance with the provisions in table I referred to in article 4 of the RCPAT, which are borne by the claimant under the terms of article 537 no. 1 of the CPC, ex vi article 29 of the RJAT.

Notify.

Lisbon, 04 May 2016

Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by reference from article 29, no. 1, paragraph e) of the RJAT, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for taxpayer
[2] Acronym for Legal Regime of 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 Tax Benefits Statute
[7] Acronym for General Tax Law
[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 is the IRS tax exemption under Article 39(1) of the Portuguese Tax Benefits Statute (EBF)?
Article 39(1) of the Portuguese Tax Benefits Statute (EBF) provides an exemption from Personal Income Tax (IRS) for specific categories of income. While this decision does not detail the exact scope of the exemption, the taxpayer claimed entitlement to this benefit for income earned in 2011 and 2012. To obtain recognition of exemption under Article 39(1) EBF, taxpayers must demonstrate compliance with all legal requirements established in the statute. When the Tax Authority denies recognition of such exemption, taxpayers may challenge the denial through official review proceedings under Article 78 of the General Tax Law or through arbitration under the RJAT. The exemption operates as a tax benefit requiring formal recognition by the Tax Authority, and disputes regarding denial of such recognition fall within the jurisdiction of tax arbitration tribunals.
Can a taxpayer request official review (revisão oficiosa) of IRS assessments under Article 78 of the LGT?
Yes, taxpayers can request official review (revisão oficiosa) of IRS assessments under Article 78 of the General Tax Law (LGT). Official review is an administrative mechanism allowing the Tax Authority to reexamine and correct tax acts on its own initiative or upon taxpayer request. Article 78(4) of the LGT specifically addresses situations involving grave and notorious injustice, which can justify official review and correction of tax assessments. In this case, the taxpayer requested official review of IRS assessments for 2011 and 2012, seeking recognition of tax exemption under Article 39(1) EBF. The Tax Authority denied this request through an administrative order. When official review is denied, taxpayers have the right to challenge the denial order through tax arbitration proceedings under the RJAT, as demonstrated in this case, where the claimant sought arbitral review of the denial order before subsequently withdrawing the claim.
What constitutes grave and notorious injustice for purposes of tax reassessment in Portugal?
Grave and notorious injustice (injustiça grave e notória) under Portuguese tax law, particularly Article 78(4) of the General Tax Law (LGT), constitutes grounds for official review and correction of tax acts. This legal concept refers to situations where tax assessments result in manifestly unjust outcomes that are evident and substantial. In this case, the taxpayer argued that taxation of income that should qualify for exemption under Article 39(1) of the Tax Benefits Statute constituted grave and notorious injustice. However, the Tax Authority contested this characterization, denying both the existence of such injustice and the validity of the exemption claim. The standard for grave and notorious injustice is high, requiring demonstration that the tax assessment is both seriously unjust and obviously so. The determination involves analyzing whether all legal requirements for the claimed tax benefit are met and whether denial of such benefit produces a manifestly inequitable result. Ultimately, this case did not reach a substantive decision on whether grave and notorious injustice existed, as the claimant withdrew the arbitration request.
What is the CAAD arbitration procedure for challenging IRS tax exemption denials?
The CAAD (Administrative Arbitration Center) arbitration procedure for challenging IRS tax exemption denials follows the Legal Regime of Arbitration in Tax Matters (RJAT). The procedure begins when a taxpayer submits an arbitration request under Articles 2(1)(a), 3(1), and 10(1)(a) of the RJAT to challenge administrative acts, such as denial orders for official review of tax assessments. The request is accepted by the President of CAAD and notified to the Tax Authority. An arbitrator is appointed by the President of the Deontological Council (or the taxpayer may choose to appoint one), and the tribunal is constituted once the arbitrator accepts. The Tax Authority submits a reply, which may raise preliminary objections and address the merits. The tribunal may decide procedural matters, including whether to hold hearings under Article 18 RJAT or proceed based on written submissions when issues are purely legal. Parties may waive witness evidence and submit written memoranda. The tribunal then issues a decision on preliminary matters and merits. In this case, the process value was €9,347.00, and arbitration costs were €918.00 according to the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).
What are the legal requirements to obtain recognition of IRS income exemption under the EBF?
To obtain recognition of IRS income exemption under the Portuguese Tax Benefits Statute (EBF), taxpayers must satisfy all legal requirements established in the applicable exemption provision. While this decision does not enumerate the specific requirements for Article 39(1) EBF exemption, the general framework requires: (1) demonstrating that the income falls within the category covered by the exemption provision; (2) meeting any temporal, quantitative, or qualitative conditions specified in the statute; (3) complying with formal requirements for requesting recognition of the exemption from the Tax Authority; and (4) providing documentary evidence supporting entitlement to the benefit. In this case, the taxpayer asserted that all legal requirements were met for exemption of income in 2011 and 2012, but the Tax Authority disagreed. When the Tax Authority denies recognition of exemption, taxpayers may first request official review under Article 78 LGT, arguing that denial constitutes grave and notorious injustice. If official review is denied, taxpayers can challenge the denial through tax arbitration. The burden rests on the taxpayer to prove compliance with statutory requirements for the claimed exemption.