Process: 737/2016-T

Date: June 23, 2017

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Process 737/2016-T addresses the strict formal requirements for de facto unions (common-law partnerships) to file joint IRS tax returns in Portugal. The case involved a couple who lived together since 1997 and filed joint returns for 2011-2013, but faced ex officio tax assessments totaling over €37,000 after the Tax Authority (AT) determined they failed to meet legal requirements. The central dispute concerned Article 14(2) of the Personal Income Tax Code (CIRS), which requires identical fiscal domiciles registered with AT for more than two years prior to December 31 of the tax year. The taxpayers argued they genuinely cohabited and updated their addresses on Citizen Cards, but the AT's system failed to reflect these changes promptly—with delays of 2-3 years. The AT maintained that fiscal domicile registration is a formal requirement under Article 19 of the General Tax Law, and the data in the Taxpayer Registry Management System (SGRC) determines compliance regardless of actual living arrangements. The taxpayers challenged this interpretation as unconstitutional, arguing it violated the principle of taxation according to ability to pay (Articles 104, 12, 13, and 1 of the Portuguese Constitution) by treating the domicile presumption as absolute and irrebuttable. They contended that after 14-16 years of cohabitation, with a shared child and jointly-owned properties with mortgage responsibilities, the material reality should prevail over administrative formalities. This arbitration highlights the tension between the AT's focus on preventing artificial de facto unions through strict formal requirements versus taxpayers' rights to have their actual circumstances recognized, particularly when administrative delays cause registration discrepancies beyond their control.

Full Decision

ARBITRAL DECISION

1. REPORT

On 13-12-2016, the Applicants A…, taxpayer no. …, and B…, taxpayer no. …, both residing at Rua da …, …, lot…, …, …-… Quarteira, hereinafter referred to as Applicants, submitted to the Administrative Arbitration Center (CAAD) a request for the constitution of an arbitral tribunal with a view to annulling the Personal Income Tax (IRS) assessments for the years 2011, 2012 and 2013.

Position of the Applicants:

The Applicants begin by asserting that the contested assessments result from an erroneous and unconstitutional interpretation and application of the law.

The Applicants allege that they have lived together in a de facto union, sharing roof, table and accommodation, since 1997, and only began to submit the IRS Model 3 declaration as de facto partners from the year 2002, following the entry into force of Law no. 7/2011 of 11 May (De Facto Union Law).

They further state that in April 2003, C…, their child, was born, and in December of that year they acquired a property in common, with the constitution of a mortgage loan, with shared responsibility in equal parts. And in 2003, the Applicants established their tax domicile at the address of the said property, located in …, …, …, …, …, Quarteira.

In 2008, the Applicants acquired another property under the same conditions as the previously acquired one - with the constitution of a mortgage loan, with shared responsibility in equal parts. And they changed their tax domicile to the address of this property, located in …, …, Boliqueime, since it was their intention to proceed with the sale of the first property. However, the sale did not take place, which is why they resumed residing in the first property, having leased the property located in Boliqueime.

In 12-2008, Applicant B… renewed his Citizen Card, having declared his residence in …, …, …, …, Vilamoura. However, in the Tax Administration's system, his residence continued to be …, …, Boliqueime. And at the end of 2009, the Applicant also renewed her Citizen Card and updated her address to …, …, …, …, Vilamoura.

The Applicants allege that Applicant's tax domicile would only change to Vilamoura in July 2011, that is, two years after the renewal of the Citizen Card, and that of the Applicant only occurred in August 2012, that is, three years after the renewal of her Citizen Card.

The Applicants allege that there was a failure in terms of consistency between the data provided by them when renewing the Citizen Card and the data contained in the Tax Administration and Customs Authority's (AT) system.

And they state that it is documented that from 2009, the Applicants and their child established their residence on Rua da …, …, …, …, Vilamoura, asserting that the property located in …, …, …, …, Vilamoura, is the same as that corresponding to the address Rua da…, …, …, …, Vilamoura.

Regarding the years 2011, 2012 and 2013, the Applicants allege that they submitted the Model 3 income declaration jointly. And they were subsequently notified of the existence of irregularities for non-compliance with legal requirements for de facto union status.

On 15-07-2013, the Applicants assert that they sent a request to the AT informing that they lived in a de facto union and that only by oversight was the communication of change of tax domicile not effected.

In response, the Applicants state that the AT concluded that the requirements for them to be considered in a de facto union were not met, and notified the Applicants to submit new income declarations, and issued ex officio tax assessments and compensatory interest relating to the years 2011, 2012 and 2013.

The Applicants state that they proceeded to pay the ex officio tax assessed for the years 2011, 2012 and 2013, in the amounts of €7,699.73, €14,098.46 and €15,966.90.

Not agreeing with the assessments, the Applicants report that they filed an administrative complaint, as well as a complaint with the Ombudsman. The said administrative complaint filed was rejected.

In effect, the Applicants understand that, given that proof was made that they were already living in conditions analogous to those of spouses for more than 14, 15 and 16 years when they submitted the income declaration, the requirements set out in Article 14, nos. 1 and 2 of the Personal Income Tax Code cannot fail to be deemed as verified, and consequently, they contend that the assessments should be annulled due to violation of law.

On the other hand, the Applicants state that the AT interprets the presumption contained in Articles 14 of the Personal Income Tax Code and 19 of the General Tax Law as an absolute presumption (presumption juris et de jure), in the sense that it does not admit proof of tax domicile by any legally admissible means. And thus, the Applicants allege that such provisions would be unconstitutional for violation of the principle of taxable capacity provided for in Articles 104, 12, 13 and 1 of the Constitution of the Portuguese Republic (CRP).

Finally, the Applicants request that the AT be condemned to reimburse the tax unduly paid, as well as to payment of compensatory interest, pursuant to Articles 43 and 100 of the General Tax Law.

The Applicants further request the joinder of claimants and the cumulation of claims, as there is identity of factual grounds, identity of legal grounds and identity of the tribunal competent to decide.

Position of the Respondent:

The AT, in its response, states that the status of de facto unions for tax purposes is an option and not an obligation. And the essential difference compared to the tax regime applied to married persons is that, in order to be able to opt for it, the fulfilment of some factual requirements for its legal recognition is required, these being the identity of tax domicile and joint signature of the declaration.

The AT bases its understanding on Article 14, no. 2 of the Personal Income Tax Code, stating that the requirements referred to above are the identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the taxation period, as well as signature, by both, of the respective income declaration.

The AT states that what is at issue is the fundamental duty to update the domicile in the Taxpayer Registry Management System, in accordance with Article 19 of the General Tax Law.

The Respondent alleges that, since the tax status of de facto union has underlying both the conformity of material facts with the law that protects de facto unions (no. 1 of Art. 14 CIRS), and the burden of declaring in time the domicile for tax purposes (no. 2 of Art. 14 CIRS), the data communicated to the AT to appear in the SGRC acquire, by this means, a qualified value in the context of the acquisitive requirements of that status. And no. 2 of the said Article 14 of the CIRS presupposes that the domicile of the taxpayers in a de facto union in accordance with the respective law is identical, communicated to the AT, to appear in the SGRC for more than two years counting from 31 December of the taxation year in question, since, for IRS purposes, what matters is the personal situation of the taxpayers "as it existed on the last day of the year to which the tax relates," as determined by no. 7 of Article 13 of the CIRS.

The Respondent understands that, under the principle of tax equality, based on taxable capacity, the legislative measure, inherent in Article 14 of the CIRS, added by Law no. 30-G/2000, proves to be an appropriate and not excessive measure, intended to combat the artificial creation of de facto unions, making the exercise of a right correspond to the essential fulfilment within tax policies. Thus, for the AT, when there is no timely communication or there has been no communication at all, by both or one of the members of the de facto union, of the change of domicile, for registration purposes in the taxpayer number, the formal acquisitive requirement of the tax status of de facto unions, provided for in Article 14 of the CIRS, ceases to be met.

The Respondent states that Law no. 7/2010 of 11 May, which adopts measures for the protection of de facto unions, established that persons who live in a de facto union for more than two years have the right to benefit from the tax regime applicable to married taxpayers not judicially separated as to persons and property. Thus, the essential requirement for taxpayers living in a de facto union to benefit from the tax regime identical to the regime of married taxpayers (joint taxation) is the fact of living in a de facto union for more than two years, which is measured by the identity of tax domicile.

The Respondent is based on Supreme Administrative Court decision no. 0761/15, which states that: "IV. If the existence of identity of the place of habitual residence of the taxpayers is proven for a period of more than two years, the first of the conditions established in no. 2 of Article 14 of the CIRS is deemed to be met; V. Although Article 19, no. 3, of the General Tax Law establishes the obligation of communication of the taxpayer's domicile to the Tax Administration, providing that, in the event there is a change of domicile without such being communicated to the Tax Administration, the consequence is its respective ineffectiveness, as long as such communication is not made (Article 19, no. 4 General Tax Law), what is meant here is ineffectiveness in the strict sense which is not confused with invalidity. VI. This ineffectiveness to which the legislator refers occurs only within the scope of the relationship between the taxpayers and the Tax Administration."

The AT alleges that the law establishes that "the tax domicile of the taxpayer is, save as otherwise provided, "for natural persons the place of habitual residence" (Article 19, no. 1, clause a) of the General Tax Law), being "mandatory, in accordance with the law, the communication of the taxpayer's domicile to the tax administration" and "ineffective the change of domicile as long as it is not communicated to the tax administration" (nos. 3 and 4 of the General Tax Law).

And concludes that, faced with the obligation of communication of change of domicile, under penalty of ineffectiveness thereof, as long as it is not communicated, it is not applicable for IRS taxation purposes, the provision in Article 1, no. 2 of Law 7/2001 of 11 May "persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years".

That is, communication of tax domicile is mandatory and only with this does the tax domicile declared by the taxpayer have effectiveness before the AT.

Now, in the case at hand, the AT considers that only in August 2012 was there identity of tax domicile of the Applicants, and therefore only after that date does the counting of the two years begin for them to benefit from the tax regime of de facto unions.

As for the failure in terms of consistency between the data provided by the Applicants when renewing the Citizen Cards and the data contained in the AT's system, a failure alleged by the Applicants, the AT invokes its lack of passive legitimacy in any eventual claim whose legitimacy belongs to the Institute of Registries and Notaries.

As for the documents attached by the Applicants to the arbitral request, the Respondent affirms that they do not demonstrate in a clear, obvious, evident and credible manner, that they had identity of domicile between 2009 to 2011.

And concludes by stating that the arbitral request should be judged unfounded due to lack of proof, with the tax acts of assessment contested remaining in the legal order, absolving the Respondent of the claim.

A sole arbitrator was appointed on 08-02-2017, Suzana Fernandes da Costa.

In accordance with the provisions of Article 11, no. 1, clause c) of the Tax Arbitration Regulations, the singular arbitral tribunal was constituted on 23-02-2017.

On 31-03-2017, the Applicant was ordered to be notified to exercise the right to be heard regarding the preliminary question of lack of passive legitimacy contained in the AT's response.

On 03-04-2017, the Applicants came to inform that they understood that the invocation they made in the arbitral request relating to the failure of consistency between the data contained in the Citizen Card and the data contained in the AT's cadastral databases, was intended solely to demonstrate that it was not attributable to the Applicants, but they do not attribute it to the Respondent nor to the Institute of Registries and Notaries.

A ruling was issued on 04-04-2017, dispensing with the holding of the meeting provided for in Article 18 of the Tax Arbitration Regulations and notifying the parties to submit, if they wish, written submissions. In the same ruling, 23-06-2017 was set as the date for the pronouncement of the arbitral decision, and the Applicant was warned to proceed with payment of the subsequent arbitration fee and to provide proof of payment to the CAAD.

On 12-04-2017, the Applicants submitted their submissions. And the Respondent submitted theirs on 26-04-2017.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10, nos. 1 and 2 of the Tax Arbitration Regulations and Article 1 of Administrative Regulation no. 112-A/2011 of 22 March).

The present request for arbitral pronouncement was submitted in a timely manner, in accordance with Article 10, no. 1 clause a) of Decree-Law no. 10/2011 of 20 January.

The case does not suffer from nullities and no preliminary questions were raised, with the exception of the joinder and cumulation of claims and lack of passive legitimacy, which shall be decided hereinafter.

The Applicants request the joinder of claimants and the cumulation of claims, as there is identity of factual grounds, identity of legal grounds and identity of the tribunal competent to decide.

The cumulation of claims and the joinder of claimants are admissible, in accordance with Article 3, no. 1 of the Tax Arbitration Regulations, when the merits of the claims depend essentially on the assessment of the same factual circumstances and the interpretation and application of the same legal principles or rules.

In the present case, the cumulation of claims and the joinder of claimants are admissible, and are thus admitted.

2. PRELIMINARY QUESTION: LACK OF PASSIVE LEGITIMACY OF THE TAX ADMINISTRATION AND CUSTOMS AUTHORITY

In its response, the AT invokes, although not configuring it as an exception, its lack of passive legitimacy in any eventual claim whose legitimacy belongs to the Institute of Registries and Notaries.

The Applicants, after being notified to comment on this matter of exception, came to inform the case file that they understand that the invocation they made in the arbitral request relating to the failure of consistency between the data contained in the Citizen Card and the data contained in the AT's cadastral databases, was intended solely to demonstrate that it was not attributable to the Applicants, but they do not attribute it to the Respondent nor to the Institute of Registries and Notaries.

Now, procedural legitimacy is the procedural requirement through which the law selects the legal subjects admitted to participate in each case brought to court. Such requirement should be assessed in the strict terms in which the Applicant in the initial pleading outlined or configured the contested material relationship, with passive legitimacy being held by the other party in this relationship, as provided by the judgment of the Central Administrative Court North of 28-02-2014 in process no. 01788/09.9BEBRG.

Since the object of the claim is the Personal Income Tax assessments for the years 2011, 2012 and 2013, it is understood that the exception of lack of passive legitimacy of the AT is not verified.

3. FACTUAL MATTERS

3.1. Proven Facts:

Having analyzed the documentary evidence produced, the following facts are considered proven and relevant for the decision of the case:

  1. The Applicants submitted Personal Income Tax Model 3 declarations for the years 2011, 2012 and 2013, indicating as marital status "de facto partners".

  2. The Applicants were notified of the ex officio Personal Income Tax assessments for the years 2011, 2012 and 2013, in the amounts of €7,699.73, €14,098.46 and €15,966.90, attached to the arbitral request as document 21.

  3. The Applicants lived, from December 2003 to the beginning of 2008, in the property acquired in that year, located in Rua …, …, …, …, Vilamoura, having the Applicants declared in the deed that the property was intended for own and permanent dwelling, as shown by a copy of the deed attached to the arbitral request as document 4.

  4. At the beginning of 2008, the Applicants leased the property referred to in the previous point, and acquired another property in which they began to reside, located at …, …, in Boliqueime.

  5. And at the end of 2008, the Applicants again came to reside in the property located in Rua …, …, …, …, Vilamoura, owing to their failure to dispose of that property, as was their objective, as shown by various documents attached to the arbitral request.

  6. The tax domicile of Applicant changed to Rua …, …, …, …, Vilamoura, only in August 2012.

  7. The tax domicile of the Applicant changed to Rua…, …, …, …, Vilamoura, only in July 2011.

  8. The Applicants chose to proceed with payment of the Personal Income Tax assessments for the years 2011, 2012 and 2013, as shown by the proofs attached to the arbitral request as document 21.

No other facts with relevance for the decision of the case were proven.

3.2. Substantiation of Proven Factual Matters:

Regarding the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the case file.

4. LEGAL MATTERS

4.1. Object and Scope of the Present Case

The question to be decided in the present case is to what extent the lack of common tax domicile constitutes a presumption of the non-existence of a de facto union, when its members exercise the option of taxation under the taxation regime of married taxpayers.

In other words, the question to be resolved consists of knowing whether the Applicants could, in the Personal Income Tax Model 3 declarations for the years 2011, 2012 and 2013, have indicated as marital status "de facto partners" and be taxed under that tax by the regime applicable to married taxpayers not judicially separated as to persons and property, in accordance with Article 14 of the Personal Income Tax Code, despite them not being registered in the AT's taxpayer registry with the same tax domicile, in the two previous years.

The CAAD decisions in processes no. 547/2016-T, 773/2015-T, 564/2015-T, 413/2016-T, 304/2015-T and no. 497/2014-T have already pronounced on this same question.

4.2. The Claim for Declaration of Illegality and Annulment of the Contested Assessments

According to Casalta Nabais,[1] the fiscal consideration of the family, in income taxation, is imposed not only by no. 1 of Article 104 of the Constitution of the Portuguese Republic, but also by its Article 67, no. 2, clause f), which establishes the state duty to "Regulate taxes and social benefits, in harmony with family burdens", implying the prohibition of unfavorable discrimination against married taxpayers or those with children, as against single taxpayers or those without children, and not the imposition on the legislator of the use of tax benefits for the promotion of the constitution and development of the family.

The formulation of constitutional protection of the family, in terms of income taxation, could legitimize the choice for its "personalization", a solution that was not adopted by the legislator, despite references to "household" and the joint responsibility of the persons to whom its direction falls.

The concept of family initially accepted by the Personal Income Tax Code (Article 14 - Taxpayer – now Article 13) is that of the nuclear family, constituted by the parents and dependents in their charge, but it was also, predominantly, that of the family founded on marriage, as follows from the reference to "spouses" and "children" or "stepchildren", a concept that was being broadened, as regards dependents, by the inclusion of adoptees and minors under guardianship and also that of the single-parent family, by the reference to "the single father or mother", although in this case the "family quotient" was not established as exists, for example, in France (among us, Article 79, no. 1, clause c), of the Personal Income Tax Code, in the wording given to it by Law no. 53-A/2006, of 29 December, established an increase to the specific deduction to be attributed to the taxpayer, in single-parent families, an increase that was maintained by Law no. 55-A/2010, of 31 December, although with reference to the value of the IAS).

However, the concept of family accepted by the initial version of the Personal Income Tax Code, left out other "modalities" of family, such as that constituted through de facto union, covered by both Article 36, no. 1, and Article 67 of the Constitution of the Portuguese Republic, a social reality revealing taxable capacity in conditions similar to those of the household to which Article 14 (now Article 13) referred, which was to be remedied by the addition of Article 14-A (now Article 14), by Law no. 30-G/2000, of 29 December.

Let us examine the wording of Article 14 of the Personal Income Tax Code, at the time of the facts:

"1 - Persons living in a de facto union who meet the requirements provided for in the respective law, may opt for the taxation regime of married taxpayers not judicially separated as to persons and property.

2 - The application of the regime referred to in the preceding number depends on the identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the taxation period, as well as on the signature, by both, of the respective income declaration.

3 - In the case of exercise of the option provided for in no. 1, the provisions of no. 2 of Article 13 apply, both de facto partners being responsible for the fulfilment of tax obligations."

Thus, to benefit from the taxation regime of married taxpayers not judicially separated as to persons and property, the following three requirements had to be met:

a) Existence of a de facto union;

b) Identity of tax domicile for two years;

c) Signature of the income declaration, by both taxpayers.

Now, in accordance with Article 1, no. 2 of Law no. 7/2001 of 11 May, a 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.

Article 3, clause d) of the said Law no. 7/2001 of 11 May, provides that persons living in a de facto union in the conditions provided for in the same law, have the right to the application of the Personal Income Tax regime in the same conditions applicable to married taxpayers not separated as to persons and property.

On the other hand, Article 19, no. 1 of the General Tax Law, provided, at the time of the facts, the following:

"1 - The tax domicile of the taxpayer is, save as otherwise provided:

a) For natural persons, the place of habitual residence;"

And no. 3 of Article 19 of the General Tax Law provides that communication of the taxpayer's domicile to the AT is mandatory. And no. 4 of the same legal provision states that the change of domicile is ineffective as long as it is not communicated to the AT.

Thus, the non-communication of the change of domicile is sanctioned as a mere ineffectiveness, or non-production of effects before the AT, and not any invalidity of the change of domicile.

If the communication provided for in Article 19, no. 3 of the General Tax Law is effected, the taxpayers have in their favor a presumption that their tax domicile corresponds to the domicile contained in the Taxpayer Registry Management System. And conversely, in the case of taxpayers not fulfilling this obligation, it falls to them to prove their respective tax domicile, as stated in the most recent CAAD decision, in process no. 547/2016-T.

Indeed, Article 74, no. 1 of the General Tax Law requires that the burden of proof of the facts constituting the rights of the AT or taxpayers lies with whoever invokes them.

What the law (Article 14 of the Personal Income Tax Code) requires is the identity of tax domicile and not the identity of the domicile contained in the Taxpayer Registry Management System.

The communication of any change of tax domicile relates exclusively to the formal scope of the tax legal relationship, in accordance with no. 2 of Article 43 of the Code of Tax Procedural Law. Therefore, the lack of such communication cannot have material effects on the situation of taxpayers, such as preventing the application of a certain legal taxation regime.

It being established in doctrine and jurisprudence that the communication of any change of tax domicile relates exclusively to the formal scope of the tax legal relationship, it must be concluded that the lack of such communication cannot have material effects on the situation of taxpayers, such as preventing the application of a certain legal taxation regime, as stated in Recommendation no. 1/A/2013 from the Ombudsman.

The said Recommendation no. 1/A/2013 from the Ombudsman further states that "the realization of the principle of legality by the tax administration determines a principlist interpretation of the rules, that is, an interpretation of the rules, in particular of the rules of incidence, according to the basic principles of the Fiscal Constitution, which implies, as regards the situation being dealt with, the harmonization of the legal provisions contained in Articles 14, no. 2, of the Personal Income Tax Code, 19 of the General Tax Law, 43 of the Code of Tax Procedural Law and 117, no. 4, of the Tax Inspection Regulation, which must necessarily pass through the acceptance of proof of cohabitation of de facto partners for more than two years, by other means, other than solely by the identity of tax domicile. Although common tax domicile may prefigure a means of qualified proof, this, however, cannot be the exclusive one, for the reasons already pointed out.

As stated in the CAAD decision in process no. 773/2015-T, "the lack of communication and change of tax domicile only produces effects at the level of its effectiveness, which does not affect the substance, and at the level of contraventional liability – (see Judgment of the Central Administrative Court South, rendered in the context of process no. 8313/14, of 19.02.2015, process no. 4550/11, of 7.04.2011 and 5655/12 of 5.03.2015)".

The said Judgment of the Central Administrative Court South in process no. 8313/14 of 19-02-2015, states that "it must be concluded that non-compliance with that communication does not prevent the Applicants from choosing the taxation regime of married taxpayers not judicially separated as to persons and property provided for in no. 1 of art. 14 of the CIRS".

Indeed, two persons living in conditions analogous to those of spouses for more than two years, in the same habitual residence (proof that falls to the taxpayers), the identity of tax domicile provided for in no. 2 of Article 14 of the Personal Income Tax Code is verified.

In the concrete case, the Applicants proved that they live in a de facto union for more than two years.

Indeed, it appears from the proven facts that the Applicants lived, from December 2003 to the beginning of 2008, in the property acquired in that year, located in Rua …, …, …, …, Vilamoura, having the Applicants declared in the deed that the property was intended for own and permanent dwelling. At the beginning of 2008, the Applicants leased the property above identified and acquired another property in which they began to reside, located at …, …, in Boliqueime. And at the end of 2008, the Applicants again came to reside in the property located in Rua …, …, …, …, Vilamoura, owing to their failure to dispose of that property, as was their objective, having leased the property in Boliqueime.

However, the tax domicile of Applicant changed to Rua …, …, …, …, Vilamoura, only in July 2011, and the tax domicile of the Applicant changed to this only in August 2012.

The Applicants would have to prove that they lived in a de facto union for more than two years.

Article 13, no. 2 of the Personal Income Tax Code provides that the personal and family situation of the taxpayer relevant for taxation purposes is that which existed on the last day of the year to which the tax relates.

Thus, faced with Personal Income Tax assessments for 2011, 2012 and 2013, it was necessary to prove the de facto union from 01-01-2009 until 31-12-2013. Proof which we understand was made, since the Applicants managed to demonstrate that they live in a de facto union, uninterruptedly, since 2003. Indeed, there is no doubt that both had, from that date, the same tax domicile.

As stated in the CAAD decision in process no. 547/2016-T, de facto union requires no special formality, and proof of its existence can be made by any legally admissible means, as expressly provided for in Article 2-A, no. 1 of Law no. 7/2001 of 11 May.

Thus, we conclude, as in the said CAAD decision: once proof has been made of the identity of tax domicile and given that the requirement of identity of tax domicile with the Taxpayer Registry Management System is not constitutive of the taxpayer's right, it must be concluded that non-compliance with the obligation provided for in Article 19, no. 3 of the General Tax Law does not prevent taxpayers from choosing the taxation regime of married taxpayers not judicially separated as to persons and property provided for in Article 14, no. 2 of the Personal Income Tax Code, when they have managed, by other means, to make the proof incumbent on them, of the identity of tax domicile and of the de facto union – in that sense, see judgment of the Central Administrative Court South of 19-02-2015, process no. 08313/14.

As defended in the judgment of the Central Administrative Court South of 05-03-2015, process number 05655/12, "two persons living, regardless of sex, in conditions analogous to those of spouses for more than two years, in the same habitual residence (proof which falls to the taxpayers, in the case of non-compliance with the obligation of communication provided for in no. 3 of art. 19 of the General Tax Law) the identity of tax domicile provided for in no. 2 of art. 14 of the CIRS is verified".

See Recommendation no. 1/A/2013 from the Office of the Ombudsman, pursuant to which it was understood that "taxpayers who, living in a de facto union, as defined by the respective law and who have not timely proceeded to change their tax domicile, cannot fail to benefit from the joint taxation regime for which they have opted, without prejudice to the contraventional liability that may apply to the case, in accordance with no. 4 of Article 117 of the Tax Inspection Regulation".

Indeed, any other interpretation of Article 14 of the Personal Income Tax Code would violate in an ostensive manner the constitutional principles of protection of the family, of taxable capacity and of equality.

It is thus verified that the first two requirements provided for in Article 14 of the Personal Income Tax Code for choosing the taxation regime of married taxpayers not judicially separated as to persons and property are met, that is, existence of a de facto union and identity of tax domicile of the taxpayers for more than two years and during the taxation period.

As for the third requirement required by Article 14 of the Personal Income Tax Code, signature of the income declaration by both taxpayers, which has not been questioned by the AT, it must necessarily be concluded that it is verified.

In light of all that has been stated, verifying that all the requirements provided for in Article 14 of the Personal Income Tax Code were met, the Applicants could choose, as they did, in the income declaration filed relating to the years 2011, 2012 and 2013, the taxation regime of married taxpayers not judicially separated as to persons and property.

Thus, it is clear that there is no legal basis for the assessment act contested, imposing itself, therefore, its annulment.

4.3. On Compensatory Interest

The Applicant states that she proceeded to pay the assessments in question in the present case, and requests reimbursement of the amount paid plus compensatory interest.

Article 43, no. 1 of the General Tax Law provides that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than the legally due", with no. 4 of Art. 61 of the Code of Tax Procedural Law providing that "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary performance".

In the present case, the error affecting the assessments is attributable to the AT, which assessed the tax without any factual or legal support, so there is no doubt that there is a right to compensatory interest.

It remains to know from which date the same are due.

In light of the lack of identity of tax domicile registered in the Taxpayer Registry Management System, the AT could only have become aware of the error when properly alerted by the Applicants.

We understand that such alert only arose with the administrative complaint, in which the Applicants attached documents proving the identity of tax domicile and the actual de facto union.

Thus, we conclude, as in the CAAD decision in process no. 547/2016-T, that the AT should have changed the decision and corrected the error upon issuing the decision on the administrative complaint filed, a decision dated 13-09-2016.

Indeed, the Respondent should be condemned to payment of compensatory interest from 13-09-2016, until the date of actual reimbursement of the tax unduly paid.

5. DECISION

In light of the foregoing, it is determined:

a) To fully uphold the claim filed by the Applicants in the present tax arbitration case, regarding the illegality of the Personal Income Tax assessments for the years 2011, 2012 and 2013, object of the present arbitral request;

b) To uphold the claim for condemnation of the Tax Administration and Customs Authority to reimburse the Applicant, the amount of tax unduly paid, plus compensatory interest in accordance with legal provisions, from 13-09-2016 until the date of full reimbursement thereof.

6. VALUE OF THE CASE:

In accordance with the provisions of Article 315, no. 2, of the Code of Civil Procedure and 97-A, no. 1, clause a) of the Code of Tax Procedural Law and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at €11,427.73.

7. COSTS:

In accordance with Article 22, no. 4, of the Tax Arbitration Regulations, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00, due by the Tax Administration and Customs Authority.

Notify.

Lisbon, 23 June 2017.

Text drafted by computer, in accordance with Article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of Article 29, no. 1, clause e) of the Tax Arbitration Regulations, reviewed by me.

The Arbitrator

Suzana Fernandes da Costa

[1] See NABAIS, José Casalta, "Tax Law", Almedina, Coimbra, 2000, pp. 158-160.

Frequently Asked Questions

Automatically Created

What are the requirements for filing joint IRS tax returns as a common-law couple (união de facto) in Portugal?
To file joint IRS tax returns as a de facto union in Portugal, couples must meet three cumulative requirements under Article 14 of the Personal Income Tax Code (CIRS): (1) cohabitation in conditions analogous to marriage for more than two years; (2) identical fiscal domiciles registered with the Tax Authority for more than two years counting backward from December 31 of the relevant tax year; and (3) joint signature of the tax declaration by both partners. The Tax Authority interprets these as formal requirements, particularly emphasizing that the fiscal domicile must be officially registered in the Taxpayer Registry Management System (SGRC), not merely the actual place of residence.
How does fiscal domicile affect the validity of joint tax declarations for unmarried partners?
Fiscal domicile is critical for joint IRS declarations of unmarried partners because Article 14(2) of the CIRS requires that both partners have identical fiscal domiciles registered with the Tax Authority for more than two years as of December 31 of the taxation year. The Tax Authority treats this as a formal prerequisite that must appear in its official registry system (SGRC). Even if a couple genuinely cohabits at the same address, if their registered fiscal domiciles differ in the AT's database, the joint declaration can be invalidated, resulting in ex officio separate assessments, additional tax liability, and compensatory interest.
Can the Portuguese Tax Authority reject joint IRS returns if partners have different registered addresses?
Yes, the Portuguese Tax Authority can and does reject joint IRS returns when de facto partners have different registered fiscal addresses in its system, even if they actually live together. In Process 737/2016-T, the AT invalidated joint returns for 2011-2013 because the partners' fiscal domiciles in the Taxpayer Registry Management System were not identical for the required two-year period prior to each tax year's December 31 deadline. The AT considers the formal registration requirement essential to prevent artificial de facto unions created solely for tax benefits, applying Article 14(2) CIRS strictly based on system records rather than actual cohabitation evidence.
What happens when the citizen card address does not match the fiscal domicile registered with the Tax Authority?
When the Citizen Card address differs from the fiscal domicile registered with the Tax Authority, the fiscal domicile in the AT's system prevails for tax purposes. In this case, the taxpayers updated their addresses on Citizen Cards in 2008-2009, but these changes only appeared in the AT's registry 2-3 years later (2011-2012). This discrepancy caused their joint IRS declarations to be rejected. Article 19 of the General Tax Law establishes taxpayers' duty to communicate domicile changes to the AT. The failure to ensure the AT's system reflects the correct domicile—regardless of updates to other official documents—can invalidate de facto union tax status and result in reassessments with substantial additional tax liability and compensatory interest.
How can taxpayers challenge IRS tax assessments based on common-law union status through arbitration at CAAD?
Taxpayers can challenge IRS assessments related to common-law union status by filing an arbitration request with CAAD (Centro de Arbitragem Administrativa) under the arbitral regime for tax disputes. In Process 737/2016-T, the applicants requested annulment of IRS assessments for 2011-2013 after exhausting administrative remedies (their administrative complaint was rejected). They argued the assessments violated the law through erroneous interpretation of Article 14 CIRS and claimed the strict domicile registration requirement was unconstitutional for violating the principle of taxation according to ability to pay (Articles 104, 12, 13, and 1 of the Portuguese Constitution). Taxpayers can also request reimbursement of unduly paid taxes and compensatory interest under Articles 43 and 100 of the General Tax Law. The arbitration allows for joinder of claimants and cumulation of claims when there is identity of factual and legal grounds.