Process: 723/2016-T

Date: May 15, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

In Process 723/2016-T, a taxpayer challenged an IRS assessment for 2014, claiming entitlement to taxation under the economia comum (common economy) regime with her daughter pursuant to Article 7 of Law 6/2001. The Tax Authority rejected this status and issued a corrected assessment, arguing that Law 6/2001 required implementing regulations that were never published, rendering Article 7 unenforceable. The claimant filed a reclamação graciosa (administrative review petition) which was dismissed, prompting arbitration before CAAD. The taxpayer's central argument was that Article 7 did not require implementing regulations to be directly applicable, evidenced by the fact that it remained in force until expressly repealed by Law 82-E/2014 with the 2015 State Budget. She argued that if the provision had never been enforceable due to lack of regulation, legislative repeal would have been unnecessary. The claimant further contended that the Tax Authority never disputed that she actually lived in common economy with her daughter, but instead relied solely on the alleged lack of implementing regulations. Article 8 of Law 6/2001 mandated the Government to publish implementing regulations within 90 days, but the claimant argued this did not suspend the law's effectiveness. The arbitral tribunal was constituted as a singular tribunal under RJAT procedures, with both parties submitting written arguments after waiving the oral hearing. This case highlights the tension between self-executing tax legislation and administrative implementation requirements, particularly regarding protective measures for non-traditional households under IRS law.

Full Decision

ARBITRAL DECISION

Parties

Claimant: A…, NIF …, with tax domicile at Rua …, nº…, …-… .

Respondent: Tax and Customs Authority (AT)

I. REPORT

a) On 05 December 2016 the Claimant filed with CAAD a request for arbitral pronouncement (PPA) requesting, under the Legal Regime of Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests the annulment of assessment no. 2016… relating to Personal Income Tax (IRS) for the year 2014, resulting in an IRS refund of €666.60. From this assessment she filed a petition for administrative review no. …2016…, which was dismissed by order of the Director of Finance of … .

c) She requests the annulment of the assessment and the order dismissing her petition for administrative review, in addition to the refund, according to the return she submitted that was not accepted by the tax authorities, plus compensatory interest.

THE CAUSE OF ACTION

d) The Claimant invokes the illegality of the contested assessment, for non-compliance with article 7 of Law no. 6/2001, of 11 May, (repealed by Law no. 82-E/2014, of 31 December) in force in the year to which the assessed tax relates.

e) She claims that in that year she lived in common economy with her daughter B… and met the conditions to be taxed under the fiscal regime applicable to persons living in common economy, alleging that the law does not require implementation regulations.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

f) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 19-12-2016.

g) By the CAAD Deontological Council an arbitrator was appointed, who is the signatory of this decision, with the parties being notified thereof on 31.01.2017. The parties did not express any intention to challenge the appointment, in accordance with article 11, paragraph 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

h) The Singular Arbitral Tribunal (TAS) has been, since 16.02.2017, duly constituted to examine and decide the subject matter of this dispute (articles 2, paragraph 1, subparagraph a) and 30, paragraph 1, of RJAT).

i) All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 06.02.2017, which is hereby reproduced.

j) On 16-02-2017 AT was notified in accordance with article 17-1 of RJAT. It responded on 20.03.2017 enclosing the Administrative File (PA) composed of four computerized files designated as PA with 14 pages, PA 2 with 10 pages, PA 3 with 12 pages, PA 4 with 14 pages.

k) By agreement of the parties, the meeting of the parties of article 18 of RJAT was not held. By order of 21.03.2017 a deadline was set for the submission of successive written submissions. On 02.04.2017 the Claimant submitted her submissions. On 19.04.2017 the Respondent filed its counter-submissions. Both parties maintained the position already assumed in the request for pronouncement and in the response, respectively.

PROCEDURAL REQUIREMENTS

r) Legitimacy, capacity and representation – The parties are legitimate, possess legal personality and procedural capacity and are represented (articles 4 and 10, paragraph 2, of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

s) Principle of contradiction – AT was notified in accordance with subparagraph j) of this Report. All procedural documents and all documents attached to the case were made available to the respective counterparty in CAAD's Case Management System. Both parties were always notified of their attachment.

t) Dilatory exceptions – The arbitral procedure is not affected by nullities and the request for arbitral pronouncement is timely since it was filed within the prescribed deadline in subparagraph a) of paragraph 1 of article 10 of RJAT, as evidenced by the fact that the Claimant filed the request on 05.12.2016 and the dismissal decision of the petition for administrative review was notified by letter dated 09.09.2016, registered with CTT on 12.09.2016, as per pages 11 and 12 of PA 4, attached with AT's response.

SUMMARY OF CLAIMANT'S POSITION

u) The Claimant alleges the following facts: "In the year 2014, the year to which the tax relates, … lived in common economy with her daughter B…". "With whom she had already lived in such situation for more than two years". "The addresses shown in the tax identification numbers of both being identical". "Having submitted the tax return with no. ...-2014-…, on 25 April 2015, where, in the civil status field, no. 4 was indicated (de facto union)".

v) And continues: "Having received notification dated 25-6-2015 requesting replacement of the return". "Replacement to which the Claimant did not proceed". "Having subsequently received letter no.…, of 2 October 2015, for exercise of the right to a hearing regarding the draft decision sent to her". "With the services saying that the Claimant did not meet the requirements of Law 7/2001". "Having subsequently, despite the facts alleged in the exercise of the right to a hearing, corrected the submitted return based on the grounds stated in the order of 8 January 2016, in which, in summary, they say that, given the administrative instructions transmitted by circular letter no. 19664, of 18-11-2013, from the IRS Directorate, common economy could not be considered since such law was never regulated". "Without at any point saying that the Claimant does not live in common economy with her daughter".

w) And concludes by stating: "Having the services subsequently eliminated the return initially submitted and gathered official return in which only the Claimant appears in the composition of the household". "Official return which resulted in the official assessment now contested".

x) Regarding article 8 of Law 6/2001, of 11 March, which provides that the Government will publish, within 90 days, the implementing regulations of the norms of this law that require them, she states the following:

y) The "Law … came into force the day following its publication but … regarding provisions with budgetary impact, only produced effects with the subsequent Budget Law after its entry into force, that is, with the General State Budget of 2002", questioning: "Now, if the taxation of taxpayers in common economy as de facto unions was the only norm of such diploma with budgetary impact, how could the legislator say that it comes into force with the State Budget law for 2012 if, as the ATA claims, it needed implementation regulation?".

z) She concludes: "… because the ordinary legislator saw no need for implementation of it", "because … if it had been considered that it needed implementation regulation, surely it would have said that such provision would only produce effects with the State Budget Law after its implementation".

aa) And adds that "having article 7 of such diploma, which the Claimant invoked upon submitting the 2014 tax return, been repealed by Law no. 82-E/2004, of 31/12, that is, by the law that approved the General State Budget for 2015", insofar as AT invokes that it was not in force because it was not regulated, such understanding does not hold, because if it were so "… such norm would not need to be repealed since it never came into force due to not being directly enforceable".

bb) And further states that from: "a reading of Law 6/2001 it is clear that, of the provisions of such law with budgetary impact are the cited article 7, which has since been repealed, and subparagraph c) of article 4 of such law which provides that persons living in common economy are subject to the regime of personal income tax under the same conditions as married taxpayers not judicially separated as to persons and property". "Since these are the only ones with impact on budgetary revenue". "That is, such norms, because they refer to the Code of Personal Income Tax, are more than clear, requiring no norm to implement them". "Being the same complemented by the Code of Personal Income Tax, in force since 1 January 1989". "Which provides for the taxation of married persons as well as the regime applicable to de facto unions".

cc) In summary: "Hence such norm, in the part with fiscal implications, required no implementation". "Referring article 7 thereof to the situation of persons in de facto union, hence the Claimant indicated, in the civil status field, the de facto union". "Being duly regulated in the IRS Code the situation of persons living in de facto union"

dd) She concludes by requesting the granting of the arbitral petition and "… consequently, the dismissal of the petition for administrative review being considered illegal and the contested assessment annulled and the refund to which the Claimant is entitled calculated based on the return she submitted, with the difference in the refund returned together with compensatory interest, under the provisions of subparagraph a) of paragraph 2 of article 43 of LGT".

ee) In her submissions she maintained what she had already stated in the arbitral pronouncement request.

SUMMARY OF RESPONDENT'S POSITION

ff) The Respondent first expounds what the concept of "household" is, eligible for IRS purposes, citing paragraphs 2, 3 and 4 of article 13 of the IRS Code. It then refers to the fiscal regime of de facto unions contained in article 14 of the IRS Code.

gg) Regarding the application of Law 6/2001, of 11 May, it states, in light of what is already contained in the rationale of the decision dismissing the petition for administrative review: "Paragraph 1 of article 1 provides that Law no. 6/2001 of 11 May establishes the regime for protection of persons living in common economy for more than two years". "Article 4, paragraph 1, subparagraph c) under the heading 'applicable rights' provides for the application of the regime of personal income tax under the same conditions as married taxpayers not judicially separated as to persons and property, in accordance with article 7". "And article 7 (fiscal regime) of Law no. 6/2001 provides that: 'To the situation of two persons living in common economy regime, there applies, with appropriate adjustments, the provisions of article 14-A of the IRS Code, approved by Decree-Law no. 442-A/88, of 30 November'". "However, article 8 of such diploma provides that the present law needs to be regulated, which to date has never occurred, with no implementation regulation existing in this matter, which moreover is recognized by the Claimant".

hh) Regarding the need for implementation of Law no. 6/2011, of 11 May, which it contends prevents its application, it counters what was stated by the Claimant: "…although it has not been regulated, the Claimant cannot presume that, even though it is expressly stipulated in article 8 of Law no. 6/2001 of 11 May that it will be regulated, and in article 7 of the same legal diploma (fiscal regime) it was not because it did not need to be". "Rather, it so needed to be regulated that the Claimant, in desperation, designates, as civil status that of de facto union with her daughter B…, NIF…, and considers her as taxpayer B, a fact which is itself referred to and confirmed in her petition for constitution of the arbitral tribunal" (the TAS considers that the word "not" contained in this paragraph of the response constitutes a manifest typographical error, which is apparent from the context of the response)

ii) Since the Claimant filled in "… voluntarily and knowingly, in field 6, table 4, of IRS model 3 return, that her civil status for the year 2014 is that of de facto union, living in common economy with B…, NIF…" and because "… B…, NIF…, born on 01-07-1987, is her daughter", it would never be possible to apply the fiscal regime of de facto unions, for the reason that "… Law no. 7/2001 of 11 May, which adopted the protection measures for de facto unions, provided in its article 2, subparagraph d) that direct line kinship was an impediment to the legal effects of that law".

jj) On the other hand, it states that: "… in the years 2012 and 2013, respectively, which constitute the last two years that the Claimant declares to have lived, in common economy with B…, NIF…, the IRS model 3 returns filed were marked substantially differently". "This is because, in the year 2012, the Claimant marked her civil status as 'single, widowed, divorced or judicially separated' and daughter B… appeared, correctly, as a dependent". "And in the year 2013, the Claimant also marks her civil status as 'single, widowed, divorced or judicially separated', with her daughter B… filing the IRS model 3 return in her own name".

kk) She concludes: "Thus, what is verified is that in the year 2014, the Claimant, contrary to what she marked in the two previous years, now comes to declare that she is in a situation of 'de facto union' with her daughter B…, NIF…".

ll) She draws the following final conclusions in her response: 1 - "The provision of article 7 of law no. 6/2001 of 11 May is not applicable to the present case, insofar as it was never, in accordance with article 8 of the same law, regulated, with this article being repealed by Law no. 82-E/2014 of 31 December". 2 – "On the other hand and once again it is emphasized that the Claimant marked her civil status in the IRS model 3 return of the year 2014 as 'de facto union' having indicated her daughter B…, NIF…, as taxpayer B, which is neither legally nor fiscally admissible, under the terms of Law no. 7/2001 of 11 May with the amendments of Law no. 23/2010 of 30 August and articles 13 and 14 of CIRS". 3 – "Moreover, daughter B…, NIF…, with date of birth 1-07-1987, in the year 2014, does not form part of the household in tax terms of the taxpayer - subject B - and Claimant A… (NIF…), nor as a dependent, given having exceeded the conditions provided in subparagraph b) of paragraph 4 of article 13 of CIRS, namely that of age".

mm) It advocates for the maintenance in the legal order of the tax act in question as being in conformity with the law, with dismissal of the petition. In her counter-submissions it maintained what it had already stated in its response.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

First, it should be noted that the grounds adduced in articles 21 to 24 of the Response cannot be considered as constituting the rationale of the contested act, since they were not adduced in the rationale of the order dismissing the petition for administrative review.

That is, they cannot constitute grounds of the contested act, since all that constitutes an alteration of the rationale of the appealed act cannot be upheld here.

Post hoc rationale will be irrelevant, with the acts whose legality is questioned needing to be examined as they were performed, the tribunal not being able, upon ascertaining the invocation of an illegal ground as support for the administrative decision, to examine whether its action could be based on other grounds (see STA rulings of 10-11-98, Full Court, in case no. 32702, published in Appendix to the Official Journal of 12-4-2001, page 1207, of 19/06/2002, case no. 47787, published in Appendix to the Official Journal of 10-2-2004, page 4289, of 09/10/2002, case no. 600/02, of 12/03/2003, case no. 1661/02).

Let us examine the full text of the order dismissing the petition for administrative review:

"Comes … in the capacity of mandatary of A…, taxpayer no.…, with power of attorney attached to the file, to petition against the assessment of IRS for the year 2014 claiming, in summary, that in the year 2014 she lived in common economy with her daughter B…, with whom she had already lived in such situation for more than two years, the addresses being identical. In the petition presented at SF … on 2016-05-23 she bases her position with the allegations transcribed in the part of interest for the decision:

   (…)

  1.    In the year 2014, the year to which the tax relates, the claimant lived in common economy with her daughter B… .

  2.    With whom she had already lived for more than two years.

  3.    The addresses shown in the tax identification numbers of both being identical.

(…)

  1. (...) given the administrative instructions transmitted by circular letter no. 19664 of 2013-11-18 from DSIRS common economy could not be considered since such Law was never regulated.

  2. Without at any point saying that the Claimant does not live in common economy with her daughter.

  3. Having subsequently eliminated the return initially submitted and gathered official return in which only the Claimant appears in the composition of the household.

(…)

  1. Pursuant to paragraph 1 of article 2 of Law no. 6/2001, of 12 May, 'common economy is understood as the situation of persons who live in communion of table and dwelling for more than two years and have established a joint living arrangement of mutual aid or sharing of resources'.

  2. As per the rationale of the Ruling of 5-12-2013, of the TR of Lisbon, in case no. 546/10.2YXLSB.L1-6, 'common economy' is a legal concept with statutory definition, as results from Law no. 6/2001, of 11-05, which came to adopt 'measures to protect persons living in common economy 'the situation of persons who live in communion of table and dwelling' for a certain period of time (more than two years in the statement of this legal provision) 'and have established a joint living arrangement of mutual aid or sharing of resources'. It excepts, however, the same legal diploma, cases, among others, where there exists between the persons a contractual link, namely subletting and lodging, which implies the same residence or common dwelling, or where common economy is related to the pursuit of transitional purposes (cf. art. 3).

By rule, then, there is common economy when there is a living arrangement in communion of table and dwelling based on the establishment of bonds of (reciprocal) mutual aid or sharing of resources.

As has been the settled understanding, 'common economy presupposes a communion of life, based on a home in the family and moral sense, a joint living with special affectio or connection between the persons, cohabitation which does not require permanence in the physical sense, but admits possible absences without intention to leave the dwelling, subject to a common household economy, with all or only some contributing to common expenses'.

  1. Having in obedience to such principles, article 7 of such Law, with the wording at that date, stipulated that to the situation of two persons living in common economy there applies, with the necessary adjustments, the provisions of art. 14A of CIRS, approved by Decree-Law no. 442-A/88, of 30 November.

  2.        Norm of CIRS which regulates the possibility of persons living in de facto union being able to opt for the regime of taxation of married taxpayers not judicially separated as to persons and property. 18. Having article 80 of Law 6/2001 stipulated that the Government will publish, within 90 days, the implementing regulations of the norms of this law that require them.

(…)

  1. Now if the taxation of taxpayers in common economy as de facto unions was the only norm of such diploma with budgetary impact, how could the legislator say that it comes into force with the State Budget Law for 2002 if, as AT claims, it required implementation regulation.

  2. Surely because the ordinary legislator saw no need for its implementation.

(…)

  1. Thus the questions to be resolved in the present petition are two:

1 - Whether the provision of art. 7 of Law 6/2001 of 12 May is directly enforceable and; 2 - Whether the claimant and B… lived in common economy.

(…)

  1. Moreover, in addition to all that has been stated above, the IRS return for the year 2014 submitted by the claimant was corrected, a return that was corrected by the services.

  2. A correction provided for in paragraph 4 of art. 65 of CIRS.

  3. And which is the competence of the Director of Finance of … and can be delegated to other officials whenever the large number of them justifies it.

Now,

  1. The correction made was carried out by the Head of Finance Service of … without in such order any mention being made to the order of delegation for the performance of the act.

  2. In accordance with paragraph 1 of article 36 of the New Administrative Procedure Code, competence is defined by Law or regulation, without prejudice as to delegation of powers.

  3. With the claimant unaware whether there was any delegation of powers to the entity that performed the act.

  4. For, if there was not, we are faced with an act null for usurpation of power, as determined by subparagraph a) of paragraph 2 of art. 166 of the Administrative Procedure Code.

Given this, the correction made should be considered illegal and assessment should be issued in accordance with the return submitted by the claimant"

"The claimant has legitimacy in accordance with the conjugated provisions of arts. 15, 18, paragraph 3 and 65 of LGT and the mandatary, already identified, was appointed as provided in article 5 of CPPT.

"The assessment from which a refund of € 666.60 was calculated was issued on 2016-02-03, so, as determined by paragraph 1 of article 140 of CIRS combined with the provisions of paragraph 1 of article 70 and subparagraph b) of paragraph 1 of article 102 both of CPPT, the petition filed on 2016-05-23 is timely.

Having analyzed the arguments presented we are to report the following:

i The IRS return submitted by the claimant - with the daughter as taxpayer B - could not be accepted by AT since, despite the identity of residence, direct line kinship is an impediment to the legal effects of de facto union - as provided in subparagraph d) of article 2 of Law 7/2001.

ii Being able to take advantage, however, of the regime for protection of persons living in common economy for more than two years approved by Law 61/2001 of 11 May.

iii) Under which she would benefit, in accordance with subparagraph c) of paragraph 1 of article 4 of the application of the IRS regime under the same conditions defined for married taxpayers not judicially separated as to persons and property, in accordance with article 7.

iv) Which determines that, to the situation of two persons living in common economy regime, there applies, with appropriate adjustments, the provisions of article 14-A of the IRS Code.

v) However, despite article 8 providing for the implementation of the norms of that Law within 90 days, this did not occur.

vi) In accordance with clarification disclosed by letter no.… of 2013-11-18 from the IRS Directorate, the IRS regime is not applicable under the same conditions as married taxpayers not judicially separated as to persons and property to persons living in common economy.

vii) Article 55 of CPPT provides that generic guidelines issued by the senior official of the service or to whom he has delegated such competence bind the tax administration.

viii) Thus, although the norm contained in Law 6/2001 is a valid norm, it is the understanding of the services that it lacks implementation regulation to be effective.

ix) The claimant further alleges that the correction, carried out by the Head of Finance Service of …, falls within the competence of the Director of Finance of … with the claimant unaware whether there was any delegation of powers to the entity that performed the act.

x) The correction of the return submitted by the claimant was carried out under paragraph 3 of article 65 of CIRS following a discrepancy detected in the return.

xi) Upon marking as civil status field 4 - De Facto Union - the return was selected for analysis of its requirements.

xii) Which it did not meet. For which she was notified for return correction.

xiv) It was thus corrected officially by the Head of Finance Service of ….

xv) Under the delegation of competencies of the then Director of Finance of …, C…, in accordance with Order no. …/2015 of 15-10-2015.

xvi) Through which he delegated his competence to the Heads of Finance Services to Effect, in accordance with paragraph 5 of article 65, the alteration of elements declared by taxpayers with tax domicile in the geographic area of the respective Finance Service. This delegation took effect from 23-03-2015. On 30-12-2015, by the Director of Finance of …, at that time, D…, the delegation of competence was signed for the Heads of Finance Services to Effect, in accordance with paragraph 5 of article 65, the alteration of elements declared by taxpayers with tax domicile in the geographic area of the respective Finance Service. With effect from 30-10-2015. Delegation published on 29-04-2016 through Order no. …/2016.

In light of the above it is proposed that the petition be dismissed.

Finance Directorate of…, on 2016-08-05

(…- I TE)"

Now, in light of this rationale of the contested act, it seems possible to conclude that:

ü It is not contested, as to the Claimant, that she meets the requirements of articles 2 and 3 of Law no. 6/2001 of 11 May;

ü And as to the application of the fiscal regime of article 7 of Law no. 6/2001 of 11 May, what is stated is the following:

a) that the Claimant could "… take advantage … of the regime for protection of persons living in common economy for more than two years approved by Law 61/2001 of 11 May";

b) "in accordance with clarification disclosed by letter no. 19664 of 2013-11-18 from the IRS Directorate, the IRS regime is not applicable under the same conditions as married taxpayers not judicially separated as to persons and property to persons living in common economy";

c) taking into account what "article 55 of CPPT provides that generic guidelines issued by the senior official of the service or to whom he has delegated such competence bind the tax administration";

d) That "… although the norm contained in Law 6/2001 is a valid norm, it is the understanding of the services that it lacks implementation regulation to be effective".

From the above, it appears that the only point of contention between the parties concerns only, using the Claimant's expression, determining:

  • Whether the provision of article 7 of Law 6/2001 of 11 May (in force at the time of the facts) is directly enforceable; since

In the reading that the TAS makes of the content of the rationale of the order of dismissal, as to the fulfillment by the Claimant of the requirements of article 2 and 3 of Law 6/2001, of 11 May, it is configured that the Respondent considers that they are met. She simply did not consider them because the law was not regulated, insofar as there is a generic guidance from AT that this regime is not effective or enforceable.

In the first place, it shall be taken into account that the Claimant's declarations contained in the tax return benefit from the presumption of truth – paragraph 1 of article 75 of LGT.

The discussion conducted in this proceeding (moreover, as the Respondent acknowledges) is not whether the Claimant lived in de facto union with her daughter, nor is it about the direct application, to the case, of the legal-fiscal regime of de facto unions (Law 7/2001, of 11.05 and article 14 of CIRS). It concerns the application of the fiscal regime of de facto unions, with "with appropriate adjustments" to an alleged situation of living in "common economy".

The Claimant, as she had no field in the Model 3 IRS return to mark the option to which she claims entitlement, marked it in the one referring to "de facto unions" for the reason that the fiscal regime she seeks to enjoy refers to article 14A of the IRS Code (de facto unions – current article 14 of the IRS Code).

A fiscal regime which, if applied, must be so "with appropriate adjustments", being that in the regime of "common economy", it is not a ground for exclusion when it concerns mother and daughter (for lack of express law in that sense), requiring only that there exist "… a communion of life, based on a home in the family and moral sense, a joint living with special affectio or connection between the persons, cohabitation which does not require permanence in the physical sense, but admits possible absences without intention to leave the dwelling, subject to a common household economy, with all or only some contributing to common expenses".

Finally, by the way in which the Claimant attributes the value to the matter at stake, in light of article 97A of CPPT (subparagraph e) of paragraph 2 of article 10 of RJAT by virtue of subparagraph a) of paragraph 1 of article 29 of RJAT), it falls to the TAS to fix the value to be attributed to the matter at stake.

III. FACTS PROVEN AND NOT PROVEN. RATIONALE

Regarding the factual matter the Tribunal does not have to pronounce on everything that was alleged by the parties, it being incumbent upon it, rather, the duty to select the facts that matter for the decision and distinguish proven from unproven matters (as provided in article 123, paragraph 2, of CPPT and article 607, paragraph 3 of CPC, applicable ex vi article 29, paragraph 1, subparagraphs a) and e), of RJAT).

Thus, the facts relevant to the judgment of the case are selected and defined in light of their legal relevance, which is established in attention to the various plausible solutions of the question(s) of law (as per former article 511, paragraph 1, of CPC, corresponding to current article 596, applicable ex vi article 29, paragraph 1, subparagraph e), of RJAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence attached, the following facts were considered proven, with relevance for the decision, being indicated the respective documents (proof by documents), as rationale.

Facts Proven

  1.  On 25 April 2015 the Claimant submitted the IRS Model 3 tax return for the year 2014, with no. …-2014-…, marking on the front page of Model 3, in field 6, in box 4, the civil status of "de facto union" – in accordance with article 4 of the ppa and document no. 1 attached with the ppa.

  2.  On 25 June 2015 the Claimant received a notification indicating as subject "central errors in IRS Model 3 return – 2014 exercise" with the following content: "In your IRS Model 3 return submitted via Internet, the following errors were detected after central validation: E79 - NIF A OR B IN DIFFERENT HOUSEHOLDS FOR THE SAME PERIOD. You are requested to proceed with the correction of this return, for which you must enter the Finance Portal again (www.portaldasfinancas.gov.pt) and select the following options: 'Citizens-Submit-IRS-Correct', having 30 days for this purpose, counted from the date of issue of this document. Upon expiration of the period stated above without the aforementioned correction having been made, your record will be deleted, the return being considered as not having been filed with all legal consequences, as provided in paragraph 3 of article 3 of Ordinance no. 1303/2010, of 22 December" – in accordance with article 5 of the ppa and document no. 2 attached with the ppa.

  3.  The Claimant did not proceed with the modification of the return mentioned in the previous number and received letter no.…, of 2 October 2015, for exercise of the right to a hearing regarding the draft decision sent to her, with the following content: "The taxpayer (SP) appears in the divergence management application, with the following analysis codes: D31: De Facto Union; A…, NIF … and B…, NIF … resident at RUA … No. … - … …-… …, presented on 2015-04-25 the IRS return for the year 2014, with batch number …-04, which is in the situation of divergence.

1st Article 14 of the IRS Code determines that persons living in de facto union who meet the requirements of law 7/2001 of 11/05 may opt for the regime of taxation of married taxpayers not judicially separated as to persons and property.

2nd It is verified that, in the present case, given that it concerns a mother and daughter, this regime has no application at the fiscal level, as the basic requirement for taxpayers to be taxed as married is not met.

3rd In light of the above the IRS return for 2014 should be replaced, with two separate returns being filed by each of the persons in question. Attached is model request to be completed and delivered at this Finance Service, to request the annulment of the return which is in a situation of divergence." right which the Claimant exercised by advocating for the correction of the tax return – in accordance with articles 7 and 10 of the ppa, document no. 3 attached with the ppa and no. 4 of the 3rd page of PA2 attached with the response.

  1.  Notwithstanding the facts alleged in the exercise of the right to a hearing, AT corrected the submitted return, having communicated the grounds by letter … of 08.01.2016: "A…, NIF … and B…, NIF … resident at R … No. … - … …-… …, presented on 2015-04-25 the IRS return for the year 2014, with batch number …-04, which is in the situation of divergence.

1st - Article 14 of the IRS Code determines that persons living in de facto union who meet the requirements of law 7/2001 of 11/05 may opt for the regime of taxation of married taxpayers not judicially separated as to persons and property.

2nd - It is verified that, in the present case, given that it concerns a mother and daughter, this regime has no application at the fiscal level, as the basic requirement for taxpayers to be taxed as married is not met.

3rd - The taxpayer came to exercise the right to a hearing referred to in article 60 of the General Tax Law, through justification presented via the Internet on 2015-10-13, claiming that upon submitting the IRS return with her daughter, she intended to enjoy what is provided in Law no. 6/2001 - family protection law.

4th - The right to a hearing was exercised regarding the notification of divergences detected in the Model 3 tax return for the year 2014 with identification …-04, via letter no.… of 2015-10-02.

5th - In accordance with letter no. … of 2013-11-18 from the IRS Directorate: "... 4....Law no. 6/2001, of 11 May, provides for the regime for protection of persons living in common economy for more than two years, common economy being considered the situation of persons who live in communion of table and dwelling for more than two years and have established a joint living arrangement of mutual aid or sharing of resources (in accordance with Articles 1 and 2 of Law no. 6/2001).

  1. In accordance with its article 4, persons in a situation of common economy are granted the application of the IRS regime under the same conditions as married taxpayers not judicially separated as to persons and property, in accordance with the provisions of article 7, among other rights, with this article 7 determining the application, with appropriate adjustments, of the provisions of article 14 of CIRS.

  2. However, in accordance with the understanding the services have held, it is not possible to automatically transpose the rules applicable to situations of "de facto union" to those of "common economy", with the normative that defines the fiscal regime (article 7 of Law no. 6/2001) lacking implementation regulation to be applied, that is, although a valid norm, it lacks implementation regulation to be effective.

  3. Thus, because no implementing regulation has yet been published, despite the provisions of article 8 of Law no. 6/2001, to persons living in common economy under this law, the IRS regime is not applicable under the same conditions as married taxpayers not judicially separated as to persons and property."

6th - Thus it is concluded that it is not possible to apply the IRS regime established in article 14 of CIRS to persons living in common economy, due to the non-existence of fiscal implementation for that situation (as exists for de facto unions).

7th - In light of the above the decision to dismiss acceptance of the 2014 IRS return as de facto unions is maintained, with the determination to implement the corrections notified by letter no. … of 2015-10-02" – in accordance with article 10 of the ppa, document no. 4 attached with the ppa and page 3 and 5 of PA2 attached with AT's response.

  1.  AT proceeded to annul the return mentioned in 1. and promoted the official correction of the return where only the Claimant appears in the composition of the household – in accordance with article 12 of the ppa and first page of PA2 attached by the Respondent with the response.

  2.  On a date not ascertained AT notified the Claimant of assessment no. 2016… relating to Personal Income Tax (IRS) for the year 2014 from which resulted a refund in favor of the taxpayer in the amount of € 666.60 – in accordance with article 1 and 9 of AT's response.

  3.  On 23.05.2016 the Claimant filed a petition for administrative review against the assessment mentioned in the previous number which took the no. …2016…, which was dismissed in its entirety by order of the Director of Finance of … of 05.08.2016 with the rationale transcribed in section II of this decision and which is hereby reproduced. – in accordance with the first 5 pages of PA4 attached by the Respondent with the response, preamble of the ppa and article 1 of the Respondent's response.

  4.  In the year 2014, the year to which the tax relates, the Claimant lived in common economy with her daughter B…, with whom she had already lived in such situation for more than two years, the addresses shown in the tax identification numbers of both being identical. – in accordance with articles 1 to 3 of the ppa, overall position of AT in the response and in the rationale of the decision of the administrative review procedure.

  5.  On 05 December 2016 the Claimant delivered to CAAD the present request for arbitral pronouncement (ppa) – entry record in CAAD's Case Management System of the request for arbitral pronouncement.

Facts Not Proven

There is no other factuality alleged that was not considered proven and that is relevant for the resolution of the procedural dispute.

IV. ASSESSMENT OF THE QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

In the ruling of the STJ of 25.11.2004 (case 04B3633 – Rapporteur Counselor Ferreira de Almeida, at www.dgsi.pt) regarding the integration of the concept of "common economy" (subparagraph c) of article 64 of the 1990 RAU) it was established in conclusion II the following:

"II. The concept of 'common economy' presupposes a communion of life, based on a home in the family, moral, and social sense, a joint cohabitation with special 'affectio' or connection between the persons involved, such cohabitation not requiring permanence in the physical sense, rather admitting possible absences, without intention to leave the dwelling, subject to a common household economy with the breaking of the bonds established, with thus only a single household economy being verified, with all or only some contributing to common expenses".

The TAS considers, in light of the grounds of the contested act expressed in the decision dismissing the petition for administrative review, that AT admits that the Claimant meets the requirements referred to in the STJ ruling indicated above which result, moreover, from article 2 of Law 6/2001, of 11 May. This is why the factuality contained in 8. of part II of this decision was considered settled.

None of the exceptions of article 3 of Law 6/2001, of 11 May was invoked.

Regarding the question of the force of the regime provided for in Law 6/2001, of 11 May, although regarding the application of article 55 paragraph 1 subparagraph b) of CIRS (1994 wording) the Administrative Court of the North rendered judgment, case 00231/01 – Porto – 2nd Section – Tax Contentious, by ruling of 23.10.2008, Rapporteur Judge Aníbal Ferraz, at www.dgsi.pt, where the following conclusion is drawn:

"2. In our legal order, Law 6/2001 of 11.5 is in force, which, by express statement in its introductory part, 'adopts measures to protect persons living in common economy', which provides an invaluable contribution, specifically, a definition of the expression 'common economy'. Thus, pursuant to its article 2, paragraph 1, common economy should be understood as 'the situation of persons who live in communion of table and dwelling for more than two years and have established a joint living arrangement of mutual aid or sharing of resources'.

  1. From the transcribed normative segment flow as indelible traits, clearly identifying, of the legal concept under evaluation the 'communion of table and dwelling' and the 'joint living arrangement of mutual aid or sharing of resources'. It should be noted that these typical characteristics are compatible with the etymological root of the word economy: oikos (home) + nomia, from nemein (to administer, establish norms, decide).

  2. Thus, for it to be considered in the legal environment that a situation of common economy has been fulfilled, it is necessary that the subjects involved partake of the same table and dwelling, guiding their action by impulses of mutual aid or sharing of resources, garnered by the group and available".

That is, it seems to result from this decision of the TCA North, that Law 6/2011 of 11 May is "in force" and that the "communion of table and dwelling" has a causal relationship when two persons live and share the same dwelling (habitatio).

In the case, being mother and daughter, by simple rules of experience and common sense, it should be understood that this is what occurs between the Claimant and her daughter, including the "affectio".

AT states that "… in accordance with the understanding the services have held, it is not possible to automatically transpose the rules applicable to situations of 'de facto union' to those of 'common economy', with the normative that defines the fiscal regime (article 7 of Law no. 6/2001) lacking implementation regulation to be applied, that is, although a valid norm, it lacks implementation regulation to be effective".

However, no concrete relevant situation is adduced that would practically obstruct the application of the regime.

The only concrete obstacle that is adduced for the non-application in the present case of the fiscal regime in question is referred to in article 29 of AT's response (where by s.m.o. the word "not", which is here omitted, constitutes a manifest typographical error): "Rather, it so needed to be regulated that the Claimant, in desperation, marks, as civil status that of de facto union with her daughter B…, NIF…, and considers her as taxpayer B, a fact which is itself referred to and confirmed in her petition for constitution of the arbitral tribunal".

That is, the sole obstacle to the application of the regime to this specific case is invoked as the fact that there is no field in field 6 of the Model 3 return to mark "common economy". However, in the procedure for discussion of divergences in the tax return, the Claimant, taking into account the facts proven in 2 to 4 of part III of this decision, raised in discussion, through her participation in the decision, what was truly at issue and nothing prevented AT, indeed, from raising with the Claimant and her daughter other elements of proof, if there were doubts about the verification of the factual requirements for the application of the fiscal regime currently provided for in article 14 of the IRS Code, ex vi article 7 of Law 6/2011, of 11 May.

Finally, there are three arguments that seem to us to be decisive.

Let us see:

  • Article 7 of Law 6/2001, of 11.05 was repealed by Law 82-E/2014 of 31.12.2014, that is, from 01.01.2015 it ceased to have force in the legal order. The argument that this provision was not applicable "because it was not regulated" does not seem to hold since if it were so its repeal would appear irrelevant. Why remove from the legal order a fiscal regime not applicable?

  • As to the implementation of the law referred to in article 8, having not occurred, it is possible to consider that it was not necessary, since in the final part of this legal provision it refers to "that require it".

  • As to the production of effects and because, at least the norm of article 7 of Law 6/2001, of 11.05, presupposes the diminution of State revenues (thus with budgetary impact), article 9 of the said Law is clear: "The provisions of this law that have budgetary impact take effect with the State Budget Law subsequent to its entry into force".

As to the assertion that the fiscal regime of article 7 (fiscal regime of persons living in common economy) of Law 6/2011, of 11 April, was not enforceable or could not be applied due to lack of implementation regulation, we do not see how the TAS could endorse it, since implementation regulation would only be prohibitive if the law concretely needed to be regulated, which is not the case or at least, such has not been sufficiently argued, for the reason that no concrete relevant obstacle was adduced.

On the other hand, the assertion contained in i) of the rationale of the order dismissing the petition for administrative review: "The IRS return submitted by the claimant - with the daughter as taxpayer B - could not be accepted by AT since, despite the identity of residence, direct line kinship is an impediment to the legal effects of de facto union - as provided in subparagraph d) of article 2 of Law 7/2001" is not configured in accordance with the regime of Law no. 6/2011, of 11 April, which is the one at issue here, which does not establish the limitation adduced. This law does not refer to Law no. 7/2001, of 11.04 but only to the regime of current article 14 of the IRS Code, with appropriate adjustments.

Thus, the request for arbitral pronouncement is granted.

On the Request for Compensatory Interest

The Claimant requests, in addition to the annulment of the IRC assessment, the refund of what she failed to receive (given what she had already received) together with compensatory interest.

Article 43, paragraph 1, of LGT provides that "compensatory interest is due when it is determined, in administrative review or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due".

As results from the literal content of this norm, the right to compensatory interest depends on "payment of the tax debt in an amount greater than legally due" and the existence of "error attributable to the services".

It was proven that the Claimant received the refund resulting from the assessment, being that if the assessment were made in accordance with the return submitted by the Claimant the amount of the same would, naturally, be greater. A situation which is equivalent to the payment of tax in an amount greater than legally due.

For the right to compensatory interest to be recognized, the following requirements must be met:

a) error attributable to the services in the determination of the tax owed;

b) that such error result in payment of tax in an amount greater than legally due;

c) that the error of the services be analyzed at the stage of administrative review, or judicial challenge.

Now, in light of the proven factual matter, it is verified that AT officially corrected, on its own initiative, a tax return submitted by the Claimant, without first ascertaining, if it had doubts, whether the requirements for taxation according to the current regime of article 14 of the IRS Code, to which article 7 of Law 6/2001, of 11 May referred, applied to the Claimant and her daughter. And in this manner issued an IRS assessment to the Claimant in non-compliance with the return submitted to it, in non-compliance with the requirement of article 7 of Law 6/2001, of 11 May and with current article 14 of the IRS Code.

It further maintained in the legal order the assessment act, even after the Claimant had filed a petition for administrative review, not having invoked arguments, as grounds for dismissal of the petition for administrative review and in this proceeding, specifically, that would have the power to convince the TAS that Law 6/2001, of 11.05 could not be applied, directly, without implementation regulation.

It is verified, from the above, that an error attributable to the services of AT occurred, in the assessment here contested.

Whereby the request for condemnation of AT to payment of compensatory interest is granted, on the difference in the amount to be determined for refund, less the amount already refunded.

Fixation of the Value of the Matter at Stake

In the request for pronouncement the Claimant initially states: "… notified of the dismissal of the petition for administrative review with the …2016…, comes, within the deadline referred to in subparagraph a) of paragraph 1 of article 10 of RJAT, based on illegality, to challenge such dismissal" …

She thus refers to the petition she made at the stage of administrative review, which, regarding the matter in question, stated: "…comes to petition against the assessment of IRS for the year 2014, from which resulted a refund in the amount of € 666.60" …

The request for pronouncement concludes by stating: "This arbitral petition should be judged upheld and well-founded and, consequently, the dismissal of the petition for administrative review be considered illegal and the contested assessment annulled with it and the refund to which the Claimant is entitled calculated based on the return she submitted, with the difference in the refund returned together with compensatory interest, under the provisions of subparagraph a) of paragraph 2 of article 43 of LGT".

Finally she attributes the value of the economic utility by stating: "Value of the matter – € 3,000.00 (difference in the refund value)".

AT in its response came to state that "The Claimant attributes to the arbitral petition the value of € 3,000.00, stating that it is the difference in the refund value, without further specification". "Now, pursuant to article 97-A of the Code of Procedure and Tax Process (CPPT), applicable by referral of article 29, paragraph 1, subparagraph a) of the Legal Regime of Tax Arbitration (RJAT), when an assessment is challenged, the value of the matter is that of the amount whose annulment is sought". "It is verified that the Claimant seeks the annulment of assessment no. 2016…, for the year 2014, with the value of € 666.60, a value which should be indicated for the present proceedings, with what was previously indicated needing to be corrected".

The Claimant, invited to pay the remaining arbitration fee, came to state by petition of 03.05.2017 that "there will be no payment of the remaining arbitration fee since, as alleged by ATA, the value of the matter is that of the contested assessment (666.60), that is, € 306.00 and these have already been paid".

Presented by the Claimant with the statement of the assessment in question, it is verified that in table 21 it refers to "net collection" of 10,849.81 euros.

Article 97A of CPPT, under the heading "value of the matter" provides that: "1 - The values to be considered, for purposes of costs or other matters provided by law, for actions conducted in tax courts, are as follows: a) When an assessment is challenged, that of the amount whose annulment is sought."

In a note to article 97A in CPPT, Volume II, 6th Edition, 2011, by Jorge Lopes de Sousa it is stated: "In light of the rule of subparagraph a) of paragraph 1 of this article 97-A, it must be concluded that, when a tax assessment act is challenged, the value of the matter is only that of the amount whose annulment is sought, which will be that of the assessment itself, if total annulment is sought, or the value of the part challenged, if only partial annulment is sought".

Naturally the amounts to be refunded or paid, in an IRS assessment, are amounts that do not reflect the value of the assessment, understood as the product of the application of a rate to taxable income, plus possibly compensatory interest.

The Claimant comes to challenge the assessment without having expressly referred to doing so partially, being certain that when she states "Value of the matter – € 3,000.00 (difference in the refund value)" such indication is not in conformity with article 97A of CPPT, since what is not challenged are the refunds or the amounts to be paid (for the reason that they are deducted, e.g., from amounts withheld at source), but rather the assessments (in full or in part, with in the latter case specification and quantification of the amounts, the specific amount one seeks to see annulled, with the arithmetic operations leading thereto, in light of the assessment statement).

In this case, it is not demonstrated that the difference in refunds (between what occurred and what could have occurred if the assessment were made in accordance with the return submitted by the taxpayer) corresponds to a request for partial annulment of the overall assessment.

In light of what was found and the content of the assessment statement, the TAS also cannot endorse the statement that, in this case, the "assessment no. 2016…, for the year 2014," … has … "the value of € 666.60".

In light of the above, the value of the economic utility is fixed at 10,849.81 euros, a value corresponding to that of the net IRS collection shown in the assessment statement, globally challenged by the Claimant.

Since responsibility for indicating the value of the economic utility is that of the Claimant, the costs of this loss shall be charged to her.

V - DECISION

In the terms and with the grounds set forth above:

  • The request for arbitral pronouncement seeking the annulment of the IRS assessment no. 2016… relating to Personal Income Tax (IRS) for the year 2014 is upheld, as it is in non-compliance with article 7 of Law 6/2001, of 11.05 (in force at the time) which refers to the application of the regime of current article 14 of the IRS Code, with appropriate adjustments.

  • Consequently, the request for annulment of the order of 05.08.2016 dismissing the petition for administrative review no. …2016… is upheld, with the order and the assessment being annulled, with the new assessment to be carried out in accordance with the tax return submitted by the Claimant together with her daughter.

  • The request for condemnation of AT to payment of compensatory interest to the Claimant is upheld, calculated on the difference in her favor of what comes to be determined in accordance with this decision, less what has already been refunded to her.

Value of the matter: in accordance with the provisions of article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of paragraph 1 of article 97A of CPPT), the value of the matter is fixed at 10,849.81 euros.

Costs: pursuant to the provisions of article 22, paragraph 4, of RJAT, the amount of costs is fixed at € 918.00 according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, with 5/6 being charged to the Respondent (€765.00) and 1/6 to the Claimant (€153.00), in light of the losses.

Notify.

Lisbon, 15 May 2017

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Document prepared by computer in accordance with the provisions of article 131, paragraph 5, of CPC, applicable by referral of article 29 of RJAT.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the tax regime for persons living in 'economia comum' under Portuguese IRS law?
Under Portuguese IRS law, the tax regime for persons living in economia comum was established by Law 6/2001 of 11 May, particularly Article 7, which extended protection measures to individuals living in shared households. Article 4(c) of the same law provided that persons in common economy are subject to IRS under the same conditions as married taxpayers not judicially separated as to persons and property. This regime allowed household members sharing economic resources to be taxed jointly, potentially resulting in lower tax liability compared to individual taxation. However, the Tax Authority took the position that Article 7 required implementing regulations that were never published, questioning its enforceability until its repeal by Law 82-E/2014.
How do Articles 7 and 8 of Law 6/2001 protect shared-household taxpayers from higher IRS assessments?
Articles 7 and 8 of Law 6/2001 were designed to protect shared-household taxpayers from higher IRS assessments by extending to them the tax treatment afforded to married couples. Article 7 specifically established protective measures for persons living in common economy, allowing them to benefit from joint taxation rules that could result in lower effective tax rates than individual filing. Article 8 mandated that the Government publish implementing regulations within 90 days. The protective effect operates by preventing taxpayers in genuine common economy situations from being penalized with higher individual tax rates when they function economically as a household unit, similar to married couples who file jointly under Portuguese IRS law.
Can a taxpayer living with a family member claim economia comum status without additional regulation?
This is precisely the legal controversy in Process 723/2016-T. The claimant argued that a taxpayer living with a family member can claim economia comum status without additional implementing regulations, contending that Article 7 of Law 6/2001 was self-executing and directly applicable from its entry into force. The Tax Authority's contrary position, based on Circular Letter 19664 of 18-11-2013 from the IRS Directorate, held that common economy could not be recognized because Law 6/2001 was never regulated as mandated by Article 8. The claimant's strongest argument was that the law remained in force and was only repealed by Law 82-E/2014, suggesting legislative recognition of its effectiveness; if it had been unenforceable without regulations, repeal would have been unnecessary.
What is the CAAD arbitration procedure for challenging an IRS tax assessment in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging an IRS assessment begins with filing a pedido de pronúncia arbitral (PPA - request for arbitral pronouncement) within the statutory deadline after exhausting administrative remedies such as reclamação graciosa. In this case, the claimant filed on 05-12-2016 within the deadline following dismissal of her administrative review. The CAAD President accepts the request and notifies the Tax Authority, then appoints an arbitrator (or constitutes a panel). Parties may challenge arbitrator appointments. Once the tribunal is constituted, the Tax Authority responds and submits the administrative file. The parties may agree to waive the oral hearing in favor of written submissions. The tribunal issues a binding arbitral decision under the Legal Regime of Arbitration in Tax Matters (RJAT).
What remedies are available when a reclamação graciosa against an IRS assessment is denied?
When a reclamação graciosa against an IRS assessment is denied, as occurred in this case, the taxpayer has several remedies available under Portuguese law. The primary remedy is to request arbitration before CAAD within the statutory deadline (typically 90 days from notification of the dismissal decision), as the claimant did here. Alternatively, the taxpayer may file a judicial appeal (impugnação judicial) before the administrative and tax courts. Arbitration through CAAD offers advantages including faster resolution, specialized tax arbitrators, and lower costs compared to judicial proceedings. The arbitral decision is binding on both parties and has the same effect as a court judgment. If dissatisfied with the arbitral decision, limited appeal to the Court of Appeals may be available on specific legal grounds.