Process: 713/2015-T

Date: May 4, 2016

Tax Type: IRS

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 713/2015-T) addresses whether common-law partners (união de facto) can file joint IRS tax returns when they lack identical registered tax domiciles. The petitioners, living together for over five years with a child, filed a joint 2014 IRS return indicating their de facto union status. The Tax Authority (AT) rejected this filing and issued a separate assessment of €1,259.04, arguing the couple failed to meet the requirements of article 14(2) of the IRS Code, which mandates identity of tax domicile during both the qualification period for de facto union and the taxation year. The petitioners challenged this through CAAD arbitration, contending that the tax domicile requirement constitutes a rebuttable presumption rather than an absolute barrier. They presented evidence of cohabitation including utility bills, shared residence, common economy, and their child. Their legal argument invokes Constitutional protections: Article 36 CRP protects families regardless of formation; Article 67(2)(f) CRP requires tax systems to account for family charges; and Article 104(1) CRP establishes progressive taxation considering household needs. The petitioners cited Law 7/2001, which defines de facto union as two persons living in conditions analogous to spouses for over two years, provable by any legally admissible means. They referenced case law, including a Central Administrative Court decision (05655/12) suggesting that proof of actual cohabitation at the same habitual residence satisfies the tax domicile identity requirement, even absent formal communication to AT. The AT maintained that article 19 LGT requires mandatory communication of tax domicile changes, and non-communication renders domicile changes ineffective for tax purposes. This case highlights the tension between formal administrative requirements and substantive recognition of family arrangements for Portuguese tax purposes.

Full Decision

ARBITRAL DECISION

  1. REPORT

A... and B..., residents of Rua da..., no...., ...-... Caneças, with taxpayer identification numbers ... and ..., respectively (hereinafter referred to as the Petitioners), hereby, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters ("RJAT"), request the constitution of an Arbitral Tribunal, with the intervention of a sole arbitrator, against the Tax and Customs Authority (AT), for the purpose of declaring the illegality and consequent annulment of the Personal Income Tax (IRS) assessment for the year 2014, no. 2015..., in the amount of € 1,259.04, issued on 21/08/2015, in the name of the first Petitioner, given that the AT disregarded the income declaration submitted by both for that year, in which they marked the option for joint taxation, indicating their marital status as "de facto union".

Additionally, the Petitioners request that (i) the reinstatement of the jointly submitted IRS model 3 declaration, in the capacity of "de facto union", on 7/05/2015, be ordered; (ii) the AT be condemned to annul all acts subsequent to the issuance of the disputed assessment, namely the initiation of the tax enforcement proceeding no. ...2015..., annulment of the fine and restitution of the amount paid by the first Petitioner, of € 37.50, plus interest, and furthermore the restitution of whatever has been paid in the identified tax enforcement proceeding; (iii) the AT be condemned to pay default interest on any tax credit arising from the annulment of the disputed tax act, for a fact attributable to that entity, attributing to the request the value of € 1,259.04.

The following are, in summary, the grounds for the request to annul the IRS assessment for the year 2014:

a. The Petitioners submitted in a timely manner the IRS model 3 declaration for the year 2014, therein marking their marital status as "de facto union";

b. Subsequently, the first Petitioner was notified by the AT that the declaration had been selected for analysis, "for the following situation(s) having been detected: Non-compliance by the taxpayers with the legal requirements of de facto union";

c. The first Petitioner submitted a substitute declaration, with indication of the marital status of "single"; the second Petitioner, for not having obtained income subject to tax, was exempted from submission of the declaration, pursuant to article 58 of the IRS Code;

d. The Petitioners live in de facto union, at the same address, sharing housing and meals, living in common economy for more than five years, and have a child, born in 2010 (articles 61 and 62 of the p. i.);

e. "Moreover, from common living, other supplementary means of proof are evident that attest to the existence of the De Facto Union of the Petitioners for more than 5 years, of which examples are invoices for the supply of electricity, gas, water services, of the intermediate years (...)" – article 66 of the p. i.;

f. Therefore, they cannot be denied any rights legally and constitutionally established: article 36 of the Constitution of the Portuguese Republic (CRP) establishes the protection of the family, regardless of the form of its constitution, it being incumbent on the State to regulate taxes and social benefits, in accordance with charges, as expressly provided in paragraph f) of no. 2 of article 67 of the CRP;

g. Article 104, no. 1, of the CRP, establishes the principle of contributory capacity and requires that the taxation of personal income shall be effected through a "single and progressive tax, taking into account the needs and income of the household", which applies regardless of the manner in which the household or the family is constituted;

h. On the other hand, the principle of equality, set forth in article 13 of the CRP, imposes the "prohibition of administrative measures bearing unequal coercive effects (...)";

i. Law no. 7/2001, of 11/05, establishes in its article 1, no. 2 that "De facto union is the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years" and, in no. 1 of article 2-A, that, "In the absence of legal or regulatory provision requiring specific documentary proof, de facto union is proven by any legally admissible means";

j. No. 2 of article 14 of the IRS Code, in establishing that "The application of the regime referred to in no. 1 depends on the identity of tax domicile of the taxpayers during the period required by law for verification of the presuppositions of de facto union and during the taxation period, as well as the signature, by both, of the respective income declaration", contains a presumption with immediate and evident implications on the principle of contributory capacity;

k. As the Constitutional Court recognized, in Decision no. 348/97, "the presumptions established in the norms of tax incidence always admit proof to the contrary", whereby the presumption contained in no. 2 of article 14 of the IRS Code is rebuttable, by any legally admissible means of proof;

l. Case law has understood that, although tax law requires coincidence, for more than two years and during the taxation period, of the same tax domicile, the non-communication or non-coincidence of the tax domicile of the taxpayers "does not affect the substance" of "being" in de facto union, as it is nothing more than a matter of effectiveness of communication with the AT;

m. It was concluded, in the Decision of the Central Administrative Court of the South, of 05/03/2015, proceeding 05655/12, that "Two persons living (...) in conditions analogous to those of spouses for more than two years, at the same habitual residence [proof which is the responsibility of the taxpayers, in case of non-compliance with the obligation to communicate provided in no. 3 of article 19 of the LGT] verify the identity of tax domicile provided for in no. 2 of art. 14 of the IRS Code";

n. The same is to say that, if in the specific case, the Petitioners prove de facto union, for more than two years, the lack of communication of the common tax domicile does not prevail over the reality of the existence of such de facto union, for the legally necessary and required period so that they may exercise the option for joint taxation of their income.

Notified in the terms and for the purposes provided in article 17 of the RJAT, the AT submitted the PA and response, defending the maintenance of the assessment act that is the object of the present request for arbitral decision, with the following grounds:

a. The question at issue is whether the Petitioners met, for purposes of the 2014 IRS, the presuppositions provided in article 14 of the IRS Code, so that they could opt for the taxation regime of married taxpayers not judicially separated in persons and property, applicable to de facto unions, as they had declared in the IRS model 3 declaration, submitted on 07/05/2015;

b. Beyond the requirements provided in no. 1 of article 14 of the IRS Code, no. 2 of the same article requires the "identity of tax domicile of the taxpayers during the period required by law for verification of the presuppositions of de facto union and during the taxation period, as well as the signature, by both, of the respective income declaration";

c. The tax domicile of natural persons is, save provision to the contrary, the place of their habitual residence (article 19, no. 1, paragraph a), of the LGT), being mandatory the communication thereof to the AT (no. 3 of article 19 of the LGT) and any change of domicile not communicated to the tax administration being ineffective (no. 4 of the same legal provision);

d. Now, as appears from the PA and the Petitioners do not deny, they did not have the same tax domicile during the relevant period for the exercise of the option referred to in article 14 of the IRS Code;

e. Even if it were understood that, in the absence of identity of tax domicile, proof of de facto union, for purposes of IRS, could be effected by other means, the Petitioners failed to demonstrate, unequivocally, that in 2014 they had lived for more than two years in de facto union;

f. Although in 2010 the Petitioners had the same tax domicile, "in the following years, different addresses were declared, by initiative of the Ps., either through the internet, or through updating data on the Citizen Card, which only coincide again in the year 2015 (already after the year of taxation in question)", (...) "[i]t being demonstrated that the lack of identity of tax domicile was not even due to the inertia of one, or both, in updating the tax domicile, as required by law, with the AT"; (...) "in reality, the Ps. altered, on various occasions, their domicile, even during the temporal period relevant to ascertain the verification of the presuppositions of art. 14 of the IRS Code, however, to different addresses" – articles 23 to 26 of the AT's response;

g. The Certificate of Residence from the Union of Parishes of ... and ..., of 26/01/2015, states that "(...) the Petitioner has lived for more than 5 years in de facto union with his partner (...) according to statements made by him" and was not accompanied by the documents to which article 2-A of Law no. 7/2001 refers;

h. Also the remaining documents submitted by the Petitioners reinforce the insufficiency of proof of de facto union, and furthermore, as decided by the Central Administrative Court of the South, in the decision handed down on 22/01/2015, "The law makes the application of the regime of de facto union in the field of personal income tax incidence depend on identity of tax domicile (...) The concept used by the legislator in the norm of personal income tax incidence (...) is that of tax domicile and not any other such as household residence, habitual address, whereabouts or other. (...) This identity is not verified in the specific case, in the years in question and for the two-year period required by law, since in the records such is not proven (...). (...) Now, the Respondent did not communicate the change of tax domicile to (...), together with the Claimant, despite it being allegedly for his professional reasons such occurred, and the Claimant only communicated the change of tax domicile to (...) again in 2006, thus rendering ineffective the alleged changes of common residence. During these periods they failed to prove de facto union for two consecutive years";

i. In these terms, the assessment act does not suffer from any defect that would invalidate it, since it resulted from a correct application of law to the facts, and the total lack of merit of the request should be declared, for lack of legal support.

The request for constitution of the Arbitral Tribunal was received at the CAAD on 30 November 2015, having been accepted by the Honorable President of the CAAD and automatically notified to the AT, on 10 December 2015.

The Petitioners expressed their intention that the arbitrator be designated by the CAAD, whereby, pursuant to the provisions of no. 1 of article 6 of the RJAT, the undersigned was appointed arbitrator by the Honorable President of the Deontological Council of the CAAD, a responsibility which she accepted within the legally provided term, without objection from the Parties.

The Sole Arbitral Tribunal was regularly constituted on 10 February 2016 and is materially competent to appreciate and decide the dispute that is the object of these proceedings.

The Parties enjoy legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Regulatory Order no. 112-A/2011, of 22 March).

The proceeding does not suffer from nullities and no exceptions were raised.

The meeting to which article 18 of the RJAT refers, took place on 6 April 2015, and there was a hearing of the two witnesses called by the Petitioners:

The first witness, C..., with the remaining identifying details from the record, stated that:

a. She knows the Petitioner A..., of whom she is a work colleague, for 17 years;

b. The Petitioners have lived together for 13 years, on Rua..., no...., in Caneças, they share housing, bed and board and have a child of 5 years, who was born after the start of their common life;

d. When the Petitioner was single, she visited her on Rua do..., in Santa Cruz, but since she has lived maritally with the Petitioner B..., she visits them in Caneças.

The second witness, D..., with the remaining identifying details from the record, gave the following testimony:

a. He knows the Petitioner B..., of whom he is a colleague, since the age of 10, that is, for 34 years;

b. He met the Petitioner A... about 10 years ago, when the Petitioners began to live together on Rua da... no...., in Caneças, where, since then, he visits them regularly;

c. The Petitioner A... and the Petitioner B... are a couple in every respect, they have no other residence besides the one indicated, they lunch and dine together every day and have a common child of 5 years;

d. They make plans together with friends: if it is football, only the Petitioner B... goes; if it is a more family program, the Petitioner A... also accompanies them;

e. When questioned by the Honorable Representative of the AT as to whether the Petitioner B... had another house, located in ..., in Santo António dos Cavaleiros, she said yes, but that the residence is in Caneças.

The Parties opted for the production of successive written pleadings for ten days, commencing with the Petitioners, with 4 May 2016 being indicated as the date for pronouncement of the arbitral decision and the Petitioners being warned that, until that date, they should proceed to the payment of the subsequent arbitral fee.

Both Parties presented pleadings, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

  1. FACTS OF THE CASE

2.1. Facts deemed proven:

a. On 07/05/2015, the Petitioners submitted an IRS model 3 declaration, referring to the income of the year 2014, in which they marked the situation of "De Facto Union";

b. By notification no. DIV2/..., of 08/06/2015, the first Petitioner was informed that there was a discrepancy in the declaration J0.../..., due to "Non-compliance by the taxpayers with the legal requirements of de facto union", whereby she should contact the Tax Service of her tax domicile, accompanied "by all documents evidencing her personal and family situation";

c. On 24/07/2015, the Petitioners requested the elimination of the declaration J0.../..., with the first Petitioner presenting a substitute declaration on 18/08/2015;

d. The substitute declaration gave rise to assessment no. 2015..., in the amount of € 1,259.04, with a deadline for voluntary payment until 30/09/2015;

e. On 14/09/2015, the first Petitioner paid the amount of € 37.50, referring to the fine fixed for late filing of the IRS model 3 declaration for 2014 (fine reduction proceeding no. ...2015...);

f. On 9/10/2015, a gracious complaint (no. ...2015...) was filed, in which the Petitioners requested the annulment of the issued assessment and the reinstatement of the declaration submitted by both, in the capacity of de facto union, attaching copies of the following documents evidencing their family situation, also attached to the request for arbitral decision:

a. Certificate of "Birth Entry no. ... of the year 2010", issued by the Civil Registry Office of Lisbon, which attests the birth, on 11/01/2010, of E..., child of both Petitioners, in which they declared to have a common address on Rua da..., no...., ...-... Caneças, Odivelas;

b. Certificate of Residence no. ... –...-2015, consisting of one page, issued by the Union of Parishes of ... and..., municipality of Odivelas, on 26/01/2015, which attests that "B... (...) resides on Rua da..., no. ... –...– Caneças for about five years" and that "has lived for five years with his partner mentioned above [A...], according to statements made by him";

c. Declaration of both Petitioners, of the same earlier date, in which they declare "under pledge of honor and for all purposes deemed appropriate, that they have lived in de facto union for more than 5 (five years)";

d. Electricity consumption invoice from F... (billing period: 15/01/2013 to 12/03/2013), in the amount of € 30.06, payable until 02/04/2013, referring to the consumption of Rua..., Lot ... B Santa Cruz ...-... ..., in the name of A... and sent to her at Rua da..., no...., ..., ...-... Caneças;

e. Document of formalization of purchase of services from G..., with no visible date, in the name of A..., with the email address B...@HOTMAIL.COM and address on Rua..., no...., ..., ...-... Caneças;

f. Invoice/Receipt no. ..., from the Municipality of ... – Water and Sanitation Service, of 28/02/2013 and payable until 25/03/2013, referring to the consumption of February 2013, of Rua..., no...., ..., contracted in the name of the first Petitioner and sent to her at Rua ..., no...., ..., ...-... Caneças;

g. Invoice H... Energia no. ... (02/01/2013 to 01/03/2013), issued on 01/03/2013 in the amount of € 5.15 and with a payment deadline of 15/03/2013, referring to the "fixed propane term" contracted by A..., for R. ... ..., Santa Cruz, ...-... ..., sent to her at the address of Rua..., no...., ..., ...-... Caneças;

h. Invoice no. 2013... (from 19/01/2013 to 20/02/2013), issued on 25/02/2013 by the SMAS of Torres Vedras, in the amount of € 12.24, payable until 13/03/2013, referring to the consumption contracted by A... for Rua do ... ... B, ..., Santa Cruz, which was sent to her at the address of Rua..., no...., ..., ...-... Caneças;

i. Statement issued on 13/01/2010 by the Maternity Hospital Dr. Alfredo da Costa – Lisbon, which attests that A..., resident at Rua..., no. ... –..., parish of Caneças, municipality of Loures, was admitted there between 11/01/2010 and 13/01/2010 and had a live male birth on 11/01/2010;

j. Insurance proposal no. ..., policy no. PC..., from I..., commencing on 04/10/2012, in which B... appears as the policyholder and insured person, with address on Rua..., no. ... and with the email address B...@hotmail.com;

k. Receipt no. ... issued on 05/07/2013 by J..., Ltd. (Condominiums), referring to the payment of condominium fees for the months of April to July 2013, of an autonomous unit located at..., no...., in the name of B..., with address on Rua..., no...., ...-..., Caneças;

l. Notification from the District Center of Social Security of Lisbon, dated 10/07/2013, addressed to B..., with address on Rua..., no...., ...-..., Caneças;

g. The successive addresses declared by the Petitioners, contained in the "System for Management and Registration of Taxpayers" of the AT, were as follows:

a. A...:

i. 10/04/2006 (SF Loures...) – Rua do..., Lot...–..., ..., Torres Vedras;

ii. 28/04/2010 (citizen card) – Rua da..., no...., Caneças;

iii. 20/02/2013 (citizen card) – Rua do..., Lot ... –..., ..., Torres Vedras;

iv. 24/01/2015 (citizen card) – Rua da..., no...., Caneças;

b. B...:

i. 16/09/2002 (SF Loures...) –..., Lot ... –..., Santo António dos Cavaleiros;

ii. 17/05/2009 (internet) – Rua da..., no...., Caneças;

iii. 09/10/2009 (citizen card) –..., no...– ...B, Santo António dos Cavaleiros;

iv. 06/10/2011 (internet) – Rua da..., no...., Caneças;

v. 31/05/2012 (internet) –..., no...–..., Santo António dos Cavaleiros;

vi. 24/01/2015 (citizen card) – Rua..., no...., Caneças;

h. The gracious complaint was dismissed by order of the Head of the Tax Service of..., of 25/11/2015, remitted to the first Petitioner by means of letter no. ... from that Tax Service, of the same date, returned to sender, re-sent under cover of the postal registration record no. RF...PT, on 18/12/2015 and again returned to sender on 04/01/2016;

i. The IRS assessment for the year 2014 gave rise to the initiation of the tax enforcement proceeding no. ...2015..., in which the first Petitioner is executed and in which a payment of € 134.03 was made on 30/11/2015.

2.2. Rationale for proven facts:

The conviction of the Tribunal regarding the facts deemed proven resulted from critical analysis of the documentary evidence attached to the request for arbitral decision, the PA submitted by the AT and the testimonial evidence produced.

2.3. Facts not proven

There are no material facts for the decision of the case that have not been proven.

  1. LEGAL GROUNDS – RATIONALE

3.1. Preliminary Questions

  1. One of the preliminary questions that arise before the Arbitral Tribunal concerns the timeliness of the request, taking into account the deadline for voluntary payment of the disputed assessment, as well as the fact that, at the date of the request for arbitral decision on 30/11/2015, the deadline for formation of the implied dismissal of the gracious complaint presented against the same assessment on 09/10/2015 had not yet elapsed.

Pursuant to article 10, no. 1, paragraph a), of the RJAT, the request for constitution of the arbitral tribunal must be presented within a period of 90 days from the facts provided for in nos. 1 and 2 of article 102 of the Tax Procedure and Process Code (CPPT), as to acts susceptible to autonomous challenge.

No. 2 of the aforementioned article, which established the period of 15 days for judicial challenge, counted from the date of notification of dismissal of the gracious complaint, was revoked by Law no. 82-E/2014, of 31 December (State Budget for 2015), the following being the text of no. 1 of the cited article 102 of the CPPT:

"Article 102 – Judicial challenge. Deadline for submission

1 – The challenge shall be submitted within the period of three months counted from the following facts: (Amended by law no. 66-B/2012, of 31 December)

a) End of the deadline for voluntary payment of tax installments legally notified to the taxpayer;

b) Notification of the remaining tax acts, even when they do not give rise to any assessment;

c) Service of process on subsidiary responsible parties in a tax enforcement proceeding;

d) Formation of the presumption of implied dismissal;

e) Notification of the remaining acts that may be subject to challenge pursuant to this Code;

f) Awareness of acts lesive to legally protected interests not covered in the preceding paragraphs."

In the situation of the present proceedings, at the date of presentation of the request for arbitral decision, the period of 90 days from the end of the deadline for payment of the tax installment required of the first Petitioner, as IRS for the year 2014, had not yet elapsed; however, as a gracious complaint was filed and the four-month period established by no. 1 of article 57 of the General Tax Law (LGT) for the decision of the procedure had not elapsed, and its implied dismissal cannot be presumed (no. 5 of article 57 of the LGT), the question of timeliness or admissibility of the request for arbitral decision may arise.

However, as no. 3 of article 111 of the CPPT provides that "3 – Should a gracious complaint regarding the same act have been filed prior to receipt of the challenge petition, it shall be appended to the judicial challenge, in the state in which it is found, being considered, for all purposes, within the scope of the challenge proceeding", and, as the Petitioners were not notified of the decision dismissing the gracious complaint, a complete copy of which is contained in the PA sent to the proceedings by the Respondent, the request must be considered timely, for having been presented before 90 days had elapsed from the end of the deadline for voluntary payment of the disputed assessment.

  1. A second preliminary question relates to the competence of the arbitral tribunal to know the requests concerning (i) reinstatement of the IRS model 3 declaration submitted by the Petitioners on 07/05/2015, in the capacity of "de facto union", (ii) condemnation of the AT to annul all acts subsequent to the issuance of the disputed assessment, namely the initiation of the tax enforcement proceeding no. ...2015..., as well as to the annulment of the fine and restitution of the amount paid by the first Petitioner, of € 37.50; (iii) condemnation of the AT to pay default interest on any tax credit arising from the annulment of the disputed tax act, for a fact attributable to that entity.

In fact, the competence of the arbitral tribunals that function under the aegis of the CAAD is set forth in article 2 of the RJAT, being limited to the appreciation of the claims identified in its no. 1, namely: "a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account" and "b) The declaration of illegality of acts of determination of taxable income when it does not give rise to the assessment of any tax, of acts of determination of collectable income and of acts of determination of patrimonial values".

Thus, this Arbitral Tribunal is considered competent to know the claim relating to the appreciation of the legality of the assessment act that is the object of the proceedings, without prejudice to the provisions of article 24 of the RJAT, in case the claim is upheld.

3.2. On the merits of the disputed assessment. Proof of de facto union.

Article 1, no. 2, of Law no. 7/2001, of 11 May, as amended by Law no. 23/2010, of 30 August, defines de facto union as "the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years", whose proof, in the absence of legal or regulatory provision requiring specific documentary proof, is made "by any legally admissible means", as provided in article 2-A, no. 1, of the same statute, no. 2 of the mentioned article determining that, "In case de facto union is proven by a declaration issued by the competent parish council, the document must be accompanied by a declaration of both members of the de facto union, under pledge of honor, that they have lived in de facto union for more than two years, and by certified copies of the complete birth certificate of each of them".

Among the rights recognized to persons living in de facto union is the one provided in paragraph d) of no. 1 of Law no. 7/2001, of 11 May, in the current wording, of benefiting from "d) Application of the personal income tax regime under the same conditions applicable to married taxpayers not judicially separated in persons and property".

The option for application of the income taxation regime, under the mentioned conditions, depended, pursuant to no. 2 of article 14 of the IRS Code, as worded at the date of the facts, on two requirements: (i) "the identity of tax domicile of the taxpayers during the period required by law for verification of the presuppositions of de facto union and during the taxation period" and "the signature, by both, of the respective income declaration".

With respect to the identity of tax domicile of the taxpayers for the two-year period and during the taxation period (the year of submission of the income declaration, on the basis of which the assessment of the tax relating to the taxable fact produced in the previous calendar year is, as a rule, effected), case law has, for the most part, understood that "The concept of tax domicile is defined in paragraph a) of no. 1 of art. 19, no. 1 of the LGT, and thus, save provision to the contrary, the tax domicile of the taxpayer, in the case of natural persons, is the place of habitual residence"; "The failure to communicate the taxpayer's domicile to the tax administration is a matter of effectiveness of the change, of its production of effects before the AT, which does not affect the substance, and does not even integrate, the legal concept of tax domicile provided for in no. 1 of art. 19 of the LGT"; "For purposes of no. 2 of art. 14 of the IRS Code, the identity of tax domicile of the taxpayers is verified when these have the same habitual residence [proven], regardless of compliance with the communication provided for in no. 3 of art. 19 of the LGT"; "The absence of such communication shall be relevant for purposes of proof of tax domicile, which shall be the responsibility of the taxpayers, in view of the ineffectiveness of the change of domicile resulting from the provision of no. 4 of art. 19 of the LGT" and that "Two persons living, regardless of sex, in conditions analogous to those of spouses for more than two years, at the same habitual residence [proof which is the responsibility of the taxpayers, in case of non-compliance with the obligation to communicate provided in no. 3 of art. 19 of the LGT] verify the identity of tax domicile provided for in no. 2 of art. 14 of the IRS Code" – see the Decision handed down by the Central Administrative Court of the South, of 5/03/2015, proceeding no. 05655/12.

Also the Ombudsman, in Recommendation no. 1/A//2013, addressed to the Director-General of the Tax and Customs Authority, within the scope of proceeding R-1266/10 (A2), understood that if "the communication of any change of tax domicile is confined exclusively to the formal scope of the tax legal relationship, the conclusion is imposed that the lack of such communication cannot have material effects on the situation of the taxpayers, such as preventing the application of a certain legal taxation regime", that "Article 14 of the IRS Code, as a norm of personal tax incidence, contains in its no. 2 the presumption that, not having the taxpayers a common tax domicile for the period mentioned therein, they cannot be considered as being in de facto union, for purposes of application of a taxation regime that may be more advantageous to them and which they may choose in the income declaration. Being a presumption contained in a norm of incidence, it may (should be able to) be rebutted" and that "the implementation of the principle of legality by the tax administration determines a principialist interpretation of the norms, that is, an interpretation of the norms, especially of incidence norms, according to the basic principles of the Tax Constitution, which implies, as to the situation in question, the harmonization of the legal provisions contained in articles 14, no. 2, of the IRS Code, 19 of the LGT, 43 of the CPPT and 117, no. 4, of the Tax Regulations, which necessarily must pass through the acceptance of proof of cohabitation of the de facto union members for more than two years, by other means than solely by the identity of tax domicile. Although the common tax domicile may present a qualified means of proof, this, however, cannot be the exclusive one, for the reasons already pointed out".

This Arbitral Tribunal adhering to the above-cited understanding, it is imperative to ascertain whether, in the specific case, the Petitioners produced sufficient proof of the verification of the presuppositions of de facto union, in order to be able to benefit from the income taxation regime, under the conditions applicable to married taxpayers not judicially separated in persons and property.

Pursuant to no. 1 of article 74 of the LGT, "1 – The burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers rests on whoever invokes them", falling on the Petitioners, in the specific case, to rebut the presumption that, despite not having had a common tax domicile during the fiscally relevant period (between 31/12/2012 and 31/12/2014 and, further, until 07/05/2015), they lived in de facto union.

It appears from the "System for Management and Registration of Taxpayers" of the AT, which is not denied by the Petitioners, that Petitioner A... had tax domicile on Rua..., no...., in Caneças, since 28/04/2010, and altered it, on the Citizen Card, to Rua..., Lot..., ..., ..., Torres Vedras, on 20/02/2013, while Petitioner B... who, on 06/10/2011, declared tax domicile on Rua..., no...., in Caneças, altered it to ..., no...., ..., in Santo António dos Cavaleiros, on 31/05/2012, with identity of tax domicile of the Petitioners being verified only at Rua..., no...., in Caneças, between 6/10/2011 and 31/05/2012 and, again, from 24/01/2015 onwards.

From the documentary evidence presented only does it result, as to the period relevant for the application of the taxation regime, in IRS, of married taxpayers not judicially separated in persons and property, that correspondence was directed to Petitioner A... at Rua..., no...., in Caneças, from February 2013 onwards (invoices from the SMAS of..., of 28/02/2013 and from the SMAS of..., of 25/02/2013) and that to Petitioner B... correspondence was directed to the same address, still in 2012, without precision of date (Insurance proposal no. ..., policy no. PC..., from I..., commencing on 04/10/2012).

However, there is no reference in the record to the reasons (professional or otherwise) that led the first Petitioner to communicate the change of her address on 02/02/2013, not to the common address invoked in the record, but rather to Rua..., Lot ... –... ...– Torres Vedras, a change that almost coincides temporally with the sending of invoices for water, gas and electricity referring to consumption located at that address, to Rua..., no...., in Caneças, not allowing it to be understood, with certainty, whether such correspondence was sent to her at this latter address, by being the place of her habitual residence or whether it was still directed there, despite her no longer being her habitual residence.

The Certificate of Residence issued by the Union of Parishes of ... and..., on 26/01/2015, lacks the evidentiary force to which article 2-A of Law no. 7/2001, of 11/05, refers, for not integrating all the remaining documents mentioned therein, and furthermore is not capable of making full proof, for not having been attested "on the basis of the perceptions of the documenting entity" (article 371 of the Civil Code), but rather on the basis of statements of the second Petitioner, not proving that the assertion is true.

The statement issued on 13/01/2010 by the Maternity Hospital Dr. Alfredo da Costa, in which the address of the first Petitioner appears on Rua..., no...., in Caneças, does not assume evidentiary relevance of de facto union between the Petitioners, in the years 2013 and 2014, the period relevant for joint taxation for purposes of IRS for 2014.

The same applies to the "Birth Entry no. ... of the year 2010", in which the common residence of the Petitioners appears at Rua..., no...., in Caneças.

The testimonial evidence, of free appreciation by the tribunal (article 396 of the Civil Code), did not prove sufficient to create the conviction that the Petitioners lived in de facto union between 31/12/2012 and 31/12/2014, failing to contradict the documentary evidence produced.

3.3. Questions of prejudicial knowledge

In the sentence, the judge must pronounce himself on all questions that he must appreciate, refraining from pronouncing himself on questions of which he should not know (final segment of no. 1 of article 125 of the CPPT), the questions on which the tribunal's powers of cognition rest being, in accordance with no. 2 of article 608 of the Code of Civil Procedure, applicable subsidiarily to the tax arbitration proceeding, by referral of article 29, no. 1, paragraph e), of the RJAT, "the questions that the parties have submitted to its appreciation, except those whose decision is prejudiced by the solution given to others (...)".

In view of the solution given to the question relating to the presuppositions of taxation of the income of the Petitioners under the regime applicable to married taxpayers not judicially separated in persons and property, the knowledge of the remaining questions included in the request for arbitral decision is prejudicial.

  1. DECISION

On the basis of the factual and legal grounds set forth above, it is decided, finding the present request for arbitral decision to lack merit, for not being proven, to order the maintenance of the disputed assessment.

CASE VALUE: In accordance with the provisions of article 306, nos. 1 and 2, of the Code of Civil Procedure, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at € 1,259.04 (one thousand two hundred fifty-nine euros and four cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed thereto, in the amount of € 306.00 (three hundred six euros), at the charge of the Petitioners.

Lisbon, 4 May 2016.

The Arbitrator,

/Mariana Vargas/

Text produced by computer, pursuant to no. 5 of article 131 of the Code of Civil Procedure, applicable by referral of paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The drafting of this decision is governed by the 1990 spelling agreement.

Frequently Asked Questions

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Can common-law partners (união de facto) file joint IRS tax returns in Portugal?
Yes, common-law partners (união de facto) can file joint IRS tax returns in Portugal under article 14 of the IRS Code. They may elect the taxation regime applicable to married taxpayers not judicially separated in persons and property, provided they meet specific requirements: the de facto union must exist for more than two years as defined by Law 7/2001 (living in conditions analogous to spouses), both partners must have identity of tax domicile during the required period and the taxation year, and both must sign the joint income declaration (IRS Model 3). The Constitutional framework protects families regardless of their form of constitution, and the tax system must account for household charges and income.
What are the fiscal domicile requirements for joint taxation of unmarried couples under Portuguese tax law?
Portuguese tax law requires identity of fiscal domicile for joint taxation of unmarried couples under article 14(2) of the IRS Code. The tax domicile of natural persons is their place of habitual residence per article 19(1)(a) of the General Tax Law (LGT). Taxpayers must communicate their tax domicile and any changes to the Tax Authority (AT), and uncommunicated changes are legally ineffective under article 19(3) and (4) LGT. The domicile identity must exist during both the period required by law for verification of de facto union (minimum two years) and during the entire taxation year. However, case law suggests this requirement may be a rebuttable presumption - taxpayers can prove actual cohabitation at the same habitual residence through utility bills, lease agreements, and other evidence to demonstrate substantive tax domicile identity even if formal communication to AT was lacking.
What happens if the Portuguese Tax Authority rejects a joint IRS return filed by common-law partners?
If the Portuguese Tax Authority (AT) rejects a joint IRS return filed by common-law partners, it will disregard the jointly filed declaration and issue separate tax assessments. The AT typically requires the taxpayers to file substitute declarations with corrected marital status (usually 'single'). This can result in higher tax liability since joint filing often provides benefits through income splitting and progressive tax rates. The rejection may trigger additional consequences including initiation of tax enforcement proceedings, potential fines for incorrect filing, and loss of any tax refund that would have resulted from joint filing. Taxpayers who disagree with the rejection can challenge it through administrative appeal procedures or request arbitration through CAAD (Centro de Arbitragem Administrativa) within the legal deadlines. They must provide evidence proving their de facto union meets all legal requirements, particularly the tax domicile identity requirement.
How can taxpayers challenge an IRS tax assessment through CAAD arbitration in Portugal?
Taxpayers can challenge an IRS tax assessment through CAAD (Centro de Arbitragem Administrativa) arbitration by filing a request under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The request must identify the contested tax act (assessment number, amount, date), specify the legal grounds for annulment, and request specific relief (annulment of assessment, interest, reimbursement). Taxpayers can request a sole arbitrator or three-member arbitral tribunal. The process involves: (1) submitting the arbitration request with supporting documentation; (2) payment of initial arbitration fees; (3) notification of the Tax Authority to respond and submit the administrative file; (4) potential hearings and evidence presentation; (5) issuance of an arbitral decision which has the same legal force as a court judgment. CAAD arbitration offers advantages over traditional court litigation including faster resolution, specialized tax expertise, and relatively lower costs. Strict deadlines apply for initiating arbitration after the contested tax act.
What evidence is required to prove a common-law union (união de facto) for Portuguese tax purposes?
To prove a common-law union (união de facto) for Portuguese tax purposes, taxpayers must demonstrate they live in conditions analogous to spouses for more than two years, as defined by Law 7/2001. Article 2-A(1) of this law states that absent specific documentary requirements, de facto union can be proven by any legally admissible means. Acceptable evidence includes: utility bills (electricity, gas, water) in both names or showing the same address; lease agreements or property ownership documents showing shared residence; bank statements showing common economy or shared accounts; birth certificates of common children; witness testimony from neighbors or family; official correspondence addressed to both parties at the same address; and declarations from employers or institutions. For IRS joint filing purposes, additional evidence of tax domicile identity is crucial - this includes formal communication to the Tax Authority of the common address, registration documents showing the same habitual residence, and continuity of cohabitation throughout the required two-year period and the taxation year. The burden of proof rests on the taxpayers when the formal tax domicile registration doesn't reflect their actual living situation.