Process: 74/2018-T

Date: October 29, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 74/2018-T) addresses a taxpayer's challenge to IRS (Personal Income Tax) assessments for 2011-2014 after failing to properly register for Portugal's Non-Habitual Resident (NHR) tax regime. The Claimant argued he fulfilled all conditions for NHR status in 2011 but was unable to benefit due to alleged errors by the tax services, including incorrect information provided, unnecessary documentation requirements, refusal to process his registration request, and ultimately informing him the request was untimely. The Claimant requested ex officio revision under Article 78 of the General Tax Law (LGT), claiming manifest error attributable to the services created serious injustice. The Tax Authority (AT) countered that for 2011, the revision request was time-barred, and for subsequent years (2012-2014), no service error existed since assessments were correctly made based on the Claimant's registration status as an ordinary resident at the time. The AT argued that taxation was applied according to legal requirements under Articles 76 of the IRS Code and principles of legality, justice, equality and impartiality. The Claimant also alleged lack of prior hearing regarding dismissal of the revision request under Article 60 LGT. The case highlights critical procedural requirements for NHR registration, strict time limits for tax revision requests, the narrow definition of 'error attributable to services,' and the principle that taxpayers cannot benefit from special tax regimes without proper administrative registration, regardless of substantive eligibility.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

REPORT

A..., resident at Rua ..., no. ..., Ground Floor right, in Lisbon, tax identification number ..., hereinafter designated as "Claimant", hereby, pursuant to the provisions of paragraph a) of no. 1 of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), requests the constitution of an arbitral tribunal and submits a request for arbitral pronouncement, in which the Tax and Customs Authority (hereinafter designated as "Respondent" or "TA") is respondent, which has as its object the dismissal order of the hierarchical appeal filed against the dismissal of the ex officio revision request of the Personal Income Tax (hereinafter "PIT") assessments for the years 2011, 2012, 2013 and 2014, issued by the Director of the Central Service of the PIT Services Directorate, dated 7 December 2017, with a view to its annulment, insofar as it is vitiated by illegality and that, consequently, the said ex officio revision of the said assessments be ordered.

The request for constitution of an arbitral tribunal was accepted by the Illustrious President of CAAD and notified to the Respondent on 28 February 2018.

The Claimant opted not to appoint an arbitrator, having, pursuant to no. 1 of article 6 and no. 1 of article 11 of RJAT, the Deontological Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who accepted the assignment within the legally stipulated deadline.

The parties were duly notified of the appointment on 13 April 2018, and did not manifest any intention to refuse it.

In accordance with the provisions of paragraph c) of no. 1 of article 11 of RJAT, the sole arbitral tribunal was constituted on 7 May 2018.

The Respondent was notified on 8 May 2018 of the order issued by the arbitral tribunal, pursuant to the provisions of no. 1 of article 17 of RJAT, to submit a response, request the production of additional evidence and remit the administrative file.

The Respondent filed its response on 8 June 2108, in which it upheld the legality of the assessments, concluding for the total dismissal of the request with the consequent acquittal thereof. The Respondent further requested the waiver of witness testimony considering it unnecessary and procedurally futile. In the event that this waiver is not accepted, the Respondent requested notification of the Claimant to indicate the facts stated in the request for arbitral pronouncement on which witness testimony would be produced.

By order notified on 14 June 2018, the arbitral tribunal designated 6 July 2018, at 10:00 hours, for the purpose of holding the first meeting, pursuant to article 18 of RJAT. It further indicated that, pursuant to no. 2 of article 18 of RJAT, at the said meeting witness examination would take place, followed by oral arguments, if necessary. The Claimant was also requested to indicate the facts on which witness testimony would be produced.

On 25 June 2018, the Claimant's Attorney came to the file requesting the rescheduling of the meeting pursuant to article 18 of RJAT, due to the Claimant's professional travel abroad, as well as that witness examination be carried out at the end of July 2018, considering that they are frequently out of the country on professional trips. She also indicated the facts on which witness testimony should focus.

Considering the fact that CAAD does not conduct proceedings during judicial holidays, the holding of the first meeting, pursuant to article 18 of RJAT, was rescheduled to 13 July 2018, at 10:00 hours.

On 9 July 2018, the Respondent filed the administrative file.

On the same date, the Claimant's Attorney came to the file to waive the holding of the first meeting, due to the Claimant's absence from the country and failure to ensure the attendance of the indicated witnesses.

Following the request filed, the Arbitral Tribunal set a period of 10 successive days, for the Claimant and Respondent, in that order, to submit their final written arguments. The arbitral tribunal designated 6 November 2018 for the pronouncement of the arbitral decision, having the Claimant been warned that he should proceed with payment of the subsequent arbitral fee pursuant to no. 3 of article 4 of the Regulation of Costs in Arbitration Proceedings, and communicate its payment to CAAD.

Neither the Claimant nor the Respondent submitted written arguments.

CLAIMS OF THE PARTIES

To support the request for arbitral pronouncement, the Claimant invoked the illegality of the PIT assessments for 2011, 2012, 2013 and 2014, in that:

The Claimant fulfilled, in 2011, all the conditions to benefit from the status of non-habitual resident. The Claimant only did not benefit from the said scheme in 2011 and subsequent years because there was a situation of serious and notorious injustice, which resulted from manifest error by the services, for which reason he requested the ex officio revision of the PIT assessments pursuant to the provisions of article 78 of the LGT, to the extent that:

  • The services provided incorrect information to the Claimant;
  • Subjected him to the presentation of documents that were not necessary under legal terms;
  • Refused to process a request for registration as a non-habitual resident submitted by the Claimant;
  • Accepted another request regarding the same fact, but classifying it under a different scheme;
  • Leaving the Claimant to believe that his case was being followed and treated without incident;
  • Surprising him with the final decision that the request made was, after all, untimely.

Lack of prior hearing regarding the dismissal of the request for ex officio revision of the PIT assessments for 2011, 2012, 2013 and 2014, pursuant to the provisions of article 60 of the LGT, to the extent that it is not accepted that such dismissal results directly from the application of current legislation to the facts presented by the taxpayer, now Claimant.

The Respondent submitted a response upholding the legality of the PIT assessments for 2011, 2012, 2013 and 2014 identified above, invoking, among other things, the following:

Regarding the revision on the basis of "error attributable to the services," for the year 2011, given the expiration of the time limit for that purpose, this part of the request should be rejected as untimely. Therefore, the disputed assessment does not suffer from the vice invoked by the Claimant.

With respect to the remaining years (2012, 2013 and 2014), concerning the alleged "error attributable to the services," it must be noted that although the law does not define a concept of "error attributable to the services," limiting itself to establishing that error in self-assessment is deemed attributable to the services (cf. no. 2 of article 78 of the LGT), it has been established jurisprudentially, repeatedly and uniformly, that such error encompasses any illegality (of fact and of law). In the case at hand, the determination of income from the capital gains in question was carried out by the TA in accordance with the elements contained in the Claimant's registration record and which at the time of the facts corresponded to the "resident" scheme. Thus, the Tax Administration made the disputed assessments in compliance with the legal requirements established in paragraphs b) and c) of no. 1 and no. 2 of article 76 of the PIT Code, as well as the principles of legality, justice, equality and impartiality – article 266, no. 2 of the CRP and 55 of the LGT, not suffering, therefore, from any vice that would compromise their legality. Concluding that, as he was not classified, by the DSRC, under the aforementioned scheme of non-habitual residents in Portugal, the taxation rates provided for in article 72, no. 6 of the PIT Code cannot be applied in 2012 to 2014.

The Claimant and the Respondent did not submit written arguments.

CASE MANAGEMENT

The present Arbitral Tribunal was regularly constituted and is competent to appreciate the questions indicated (paragraph a) of no. 1 of article 2 of RJAT), the parties enjoy legal personality and capacity and have standing (articles 4 and no. 2 of article 10 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

With respect to the timeliness of the present initial petition, having the Claimant been notified of the hierarchical appeal dismissal order on 14 December 2017, the deadline for submission of this document, taking into account the provisions of paragraph a) of no. 1 of article 10 of RJAT, ended on 14 March 2018. Having this initial petition been filed on 28 February 2018, it is timely.

The Claimant alleges as a preliminary issue the omission of prior hearing in the decision dismissing the request for ex officio revision, which will be analyzed after the determination of the facts, in the substantive part.

No other nullities are verified, nor were other exceptions or preliminary issues alleged by the parties that should be analyzed immediately, which could prevent the judgment on the merits.

FACTUAL MATTER

Facts Given as Proven

With relevance for the decision of the case, the following facts are given as proven.

The Claimant is a natural person with French nationality.

The Claimant has a Portuguese tax identification number issued since 25 January 2001 and was registered as a resident in Portugal as of 31 December 2011.

The Claimant worked until 2008 in the United Kingdom and from 2008 to 2011 in France.

The Claimant entered into an employment contract with a company resident in Portugal – B..., S.A. – to perform the functions of Executive Director, effective 1 September 2011.

The Claimant requested the competent foreign entities to issue documents proving fiscal residence and effective taxation in the United Kingdom and France.

On 14 September 2012, he sent the following request to the TA:

[Document referenced but content not fully visible in source]

In the absence of any response from the TA Services, the Claimant delivered on 20 November 2012, the following request to the Lisbon Tax Service ...:

[Document referenced but content not fully visible in source]

The Claimant was notified, through Letter ... dated 2 January 2013, of the draft decision dismissing his request, with the following grounds:

[Document referenced but content not fully visible in source]

The Claimant exercised his right of prior hearing, in accordance with law, by request sent on 14 January 2013.

In June 2013, the Claimant received a new draft decision, with a new ground for dismissal (untimeliness of the request) and granting him a new deadline for exercising the right of prior hearing:

[Document referenced but content not fully visible in source]

The Claimant again exercised his right of prior hearing on 12 July 2013, with the Taxpayer Registration Services Directorate – Taxpayer Identification Division dismissing the request, according to Letter no. ..., dated 13-08-2013 on the basis of the following grounds:

[Document referenced but content not fully visible in source]

The Claimant submitted the respective income tax returns for the years 2011, 2012, 2013 and 2014, as a resident, which resulted in the following Personal Income Tax ("PIT") assessments:

  • Assessment no. 2012..., dated 4 May 2012, for the year 2011, with compensation date of 16 May 2012 and amount to be refunded of €830.25.

  • Assessment no. 2014..., dated 12 June 2013, for the year 2012, with compensation date of 17 June 2013 and amount to be paid of €3,545.39;

  • Assessment no. 2014..., dated 22 May 2014, for the year 2013, with compensation date of 28 May 2014 and amount to be paid of €6,708.69;

  • Assessment no. 2015..., issued on 23 May 2015, for the year 2014, with compensation date of 3 June 2015 and amount to be refunded €2,501.77;

The Claimant submitted on 3 June 2016 a request for ex officio revision of the acts of assessment identified above, which would be dismissed on 14 December 2016 with the following grounds:

[Document referenced but content not fully visible in source]

From the dismissal of the Request for Ex Officio Revision, the Claimant filed a Hierarchical Appeal on 8 February 2017, with the following grounds:

  • Error attributable to the services with respect to the year 2011, the request for ex officio revision being timely;
  • Violation of law vice, given that the Claimant may use the request for ex officio revision to react against acts of assessment, even if based on vices of the act dismissing the request for classification under the non-habitual residents scheme;
  • Violation of law vice due to failure to comply with the duty of prior hearing, pursuant to article 60 of the LGT.

The Claimant was notified of the draft dismissal of the hierarchical appeal and exercised the right of hearing on 31 October 2017.

The hierarchical appeal was dismissed by order of 14 December 2017.

On 28 February 2018, the Claimant submitted the present request for constitution of the arbitral tribunal/arbitral pronouncement.

Facts Not Proven

The date on which the Claimant is alleged to have gone to the Lisbon Tax Service - ... in the year 2011 to register as a non-habitual resident was not proven.

The date on which, as a result of the alleged refusal by the Lisbon Tax Service - ... of his registration as a non-habitual resident, he requested the tax authorities of the United Kingdom and France to issue documents proving his effective taxation abroad in the five years prior to 2011, through a certificate of residence/proof of income taxation was not proven.

There are no other facts with relevance for the decision that have not been given as proven.

Reasoning of Proven and Unproven Factual Matter

The Tribunal's conviction regarding the facts given as proven resulted from the full examination of the documents filed in the case, as well as from the appreciation of the content of the pleadings and the administrative file equally filed in the case.

QUESTION TO BE DECIDED

The claimant alleges as a preliminary issue the lack of prior hearing in the decision dismissing the request for ex officio revision.

The main question presented to the tribunal is to decide on the legality of the PIT assessments for 2011, 2012, 2013 and 2014, which are based on the failure to classify the taxpayer under the taxation scheme provided for non-habitual residents, pursuant to the provisions of articles 16, 72 and 81 of the PIT Code, which were subject to a request for ex officio revision dismissed by the Tax and Customs Authority and whose dismissal order was subject to hierarchical appeal which was also dismissed by the Tax and Customs Authority.

SUBSTANTIVE REASONING

Omission of the Exercise of the Right of Prior Hearing

The Claimant invokes the vice of omission of prior hearing with respect to the order dismissing the request for ex officio revision of the assessments for 2011 to 2014, inclusive.

The Respondent, in turn, alleges that such prior hearing could be waived on the basis of the fact that the decision results directly from the application of the law pursuant to paragraph a) of no. 3 of Circular 13/99, of 8 July.

The right of participation of interested parties in the formation of decisions affecting them is enshrined in no. 5 of article 267 of the Constitution of the Portuguese Republic (CRP) and is embodied in article 60 of the LGT, article 45 of CPPT, and article 100 of the CPA, by force of article 2, paragraph d) of CPPT.

Pursuant to article 60 of the LGT, under the heading "Principle of Participation,"

1 - The participation of taxpayers in the formation of decisions affecting them may take place, whenever the law does not prescribe otherwise, by any of the following means:

a) Right of hearing before assessment;

b) Right of hearing before the total or partial dismissal of requests, complaints, appeals or petitions;

c) Right of hearing before the revocation of any benefit or administrative act in tax matters;(…)

2 - Hearing is waived:

a) In the case of assessment being made on the basis of the taxpayer's declaration or the decision on the request, complaint, appeal or petition being favorable to him;

b) In the case of assessment being made ex officio, on the basis of objective values provided for by law, provided that the taxpayer has been notified to present the missing declaration, without having done so.

3 - Having the taxpayer been previously heard in any of the phases of the procedure referred to in paragraphs b) to e) of no. 1, his hearing before assessment is waived, except in case of invocation of new facts on which he has not pronounced himself.

4 - The right of hearing must be exercised within the deadline fixed by the tax administration in registered mail to be sent for that purpose to the taxpayer's tax address.

5 - In any of the circumstances referred to in no. 1, for purposes of exercising the right of hearing, the tax administration must communicate to the taxpayer the draft of the decision and its reasoning.

6 - The deadline for exercising orally or in writing the right of hearing is 15 days, and the tax administration may extend this deadline to a maximum of 25 days depending on the complexity of the matter.

7 - The new elements raised in the hearing of taxpayers are necessarily taken into account in the reasoning of the decision." (emphasis added).

Thus, the participation of taxpayers in the formation of decisions affecting them may take place, in particular, by the right of hearing before assessment, in the case of procedures ending with the practice of a tax act of assessment, but also by the right of hearing before the total or partial dismissal of requests, complaints, appeals or petitions (article 60, no. 1, paragraphs a) and b) of the LGT).

Participation, which is only waived pursuant to no. 3 of article 60 of the LGT

In turn, Circular no. 13/99, of 8 July, invoked by the Respondent to justify the waiver of prior hearing, provides as follows:

"(…) 3. Decisions in which the hearing of interested parties may be waived:

The hearing of interested parties may be waived, without prejudice to the necessary assessment of the specific case and appropriate reasoning, namely when:

a) The tax administration, solely, appreciates the facts given by the taxpayer, limiting itself in its decision to the interpretation of the legal norms applicable to the case; This situation includes all decisions on petitions, requests, complaints and appeals in which the administration merely concludes, in light of the facts and arguments raised by the taxpayer and applicable law, the lack of merit of its claim.

b) The tax administration acts exclusively within the scope of bound powers;

By way of example, assessments made by the tax administration, by legal requirement, on the basis of the entire taxable income of the nearest fiscal year that is determined.

c) The tax administration performs an act on the basis of facts already submitted, in another phase of the procedure, to the hearing of taxpayers; Indeed, the participation of the taxpayer should only take place once again when there are new facts and only within the scope of a procedure having several phases or several sequential procedures. In this sense, paragraph a) of article 103 of the CPA provides. Thus, for example, there should be no right of hearing before an assessment when it is based on corrections made in inspection action, provided that in this phase of the procedure the exercise of such right has already been possible.

The same applies to second-instance procedures, such as complaints and hierarchical appeals, provided that there are no new facts capable of influencing the final decision and the taxpayer has already been heard on the facts under discussion in the procedure that is the subject of the appeal or complaint.(…)"[1] (emphasis added).

In the case at hand, it results from the case file that the TA did not conduct a prior hearing of the Claimant on the dismissal of the request for ex officio revision of the assessments, pursuant to point 3 paragraph a) of the said Circular 13/99, of 8 July, sustaining that "it may be waived when in the dismissal of hierarchical appeal filed against the decision of administrative complaint only factuality and legal grounds already known to the taxpayer were appreciated (cf. Supreme Administrative Court Judgment, Case 0223/14, of 06-05-2015, Court: 2nd Section)" (cf. article 59 of the Respondent's Response).

In this regard, it should be noted that the judgment cited by the Respondent was decided in a different situation, in which a Claimant did not exercise the right of hearing in the administrative complaint, for which he was duly notified, and who, subsequently, already in hierarchical appeal proceedings filed from that same complaint, was not called to exercise the right of hearing before the decision to dismiss was made.

However, in the case at hand, the right of hearing omitted was not in hierarchical appeal proceedings, but in proceedings for ex officio revision of the PIT assessments for 2011 to 2014.

The question that arises is whether there could have been a waiver of prior hearing of the taxpayer in dismissal proceedings of a request for ex officio revision followed by hierarchical appeal of the dismissal decision.

According to the judgment cited by the Respondent, such a waiver of prior hearing does not result directly from no. 3 of article 60 of the LGT: "(…) It is important to bear in mind that no. 1 of article 60 of the LGT prescribes prior hearing of the taxpayer before dismissal both in the administrative complaint and in the appeal. No. 3 of article 60 of the LGT prescribes the waiver of prior hearing of the taxpayer before assessment in the cases discriminated there, so the waiver effected in the situation of the case does not result directly from that no. 3. But this does not mean that such waiver is not equally necessary in procedures subsequent to assessment provided it is justified by considering that from the procedure under analysis it can be concluded that compliance with the constitutional principle of taxpayer participation was given in another form.(…)"

Concluding that "This reasoning is in our view clearly sufficient to justify in this case the waiver of such legal requirement, for inasmuch as no elements other than those already known to the appellant were taken into account in the appealed decision and on which he was duly given opportunity to pronounce himself, the guarantee and defense function, the primary function of such legal requirement in tax law and expression of the requirement of the constitutional principle of participation imposed by article 267/5 of the CRP is fully assured".

In the same sense, see the more recent judgment of the Supreme Administrative Court in appeal no. 0242/17 of 19 September 2018[2] "The appellant reproduced in the hierarchical appeal petition the grounds invoked in the administrative complaint, in the course of which he had exercised the right of hearing (cfr. nos. 18 to 21, 23 and 24 of the Probative Record, as well as the provision of no. 5 of article 60 of the LGT), and even the eventual omission of the right of hearing in the appeal phase, occurring downstream, does not have an invalidating effect on the tax assessment act, practiced upstream, only being able to determine the annulment of the decision dismissing the hierarchical appeal. (Cfr. the judgments of the Supreme Administrative Court, of 16/06/2004, case no. 01877/03; of 15/10/2008, case no. 0542/08; and of 25/06/2009, case no. 0345/09.)".

In the case at hand, the Claimant was not heard in exercise of the right of hearing before the decision to dismiss the request for revision of the PIT assessments was made. However, the Claimant filed a hierarchical appeal of this decision.

The hierarchical appeal, provided for in article 66 of CPPT, has as its objective the partial or total revocation of the appealed act, aiming to appreciate the legality of the acts of assessment. Thus, in that procedure it will be incumbent on the superior in the hierarchy to re-examine all of the appealed acts, including the assessment acts and the ex officio revision procedure. The hierarchical appeal is thus a procedure consequent to the ex officio revision request filed and this in turn to the assessments.

Having the appellant exercised the right of hearing in the hierarchical appeal procedure before the decision to be made on the order dismissing the request for ex officio revision was pronounced.

Wherefore, in light of the foregoing, it must be concluded that, although the waiver of prior hearing of the taxpayer with respect to the request for ex officio revision is not provided for in no. 3 of article 60 of the LGT, to the extent that the same facts were subject to analysis and decision in hierarchical appeal proceedings and within the scope of which the Claimant was given an opportunity to pronounce himself on the decision dismissing said appeal, the taxpayer's right of participation in the decision may be considered assured.

Legality of the PIT Assessments for 2011 to 2014

Procedural Means of Reaction

On the procedural means of reaction that should have been used by the Claimant – request for ex officio revision of the tax acts (PIT assessments for 2011 to 2014), the Respondent counters that the appropriate means to react against the order dismissing the request for the taxpayer's classification under the "non-habitual residents" scheme was the hierarchical appeal, pursuant to the provisions of article 80 of the LGT and no. 4 of article 65 of CPPT, to be filed by the now Appellant within thirty days of notification of the said Order or the competent administrative action. Wherefore, with the hierarchical appeal deadline largely expired, it was not possible, in hierarchical appeal proceedings, its conversion into the appropriate means to re-appreciate the request, so that classification remained consolidated.

To the best of this Tribunal's judgment, the reasoning advanced by the Respondent is not persuasive.

It is appropriate here to invoke the Judgment of the Constitutional Court in case no. 410/2015, of 19 November, concerning an act of cessation of tax benefit which "by preventing the impugnation of the act of tax assessment from being grounded in vices peculiar to the act of cessation of the tax benefit, the interpretation that the appealed decision made of article 54 of CPPT seriously unprotects the rights of the taxpayer".

Add to this the arbitral decision of CAAD, in case no. 514/2015-T[3], of 17 August 2016, cited by the Claimant and which we concur with:

"In this sequence, we cannot follow, with all due respect, the position of the Respondent, that the Claimant, by not independently impugning the act that determined his non-registration in the tax scheme of non-habitual residents, ceases to be able to impugn the consequent PIT assessment of 2010, on the basis of vices of that act. Indeed, the Claimant could have independently impugned the act of non-registration as a non-habitual resident for tax purposes, taking into account the indisputable principle of unitary impugn, and it cannot be overlooked that the Respondent's position is very onerous for the taxpayer, allowing the consolidation in the legal order of acts that gravely prejudice him. However, his choice not to do so is a faculty to impugn and not a burden. Thus, in light of the principles of effective judicial protection and justice, inscribed in articles 20 and 268, no. 4 of the CRP, the Claimant cannot be prevented from impugning the act of PIT assessment for 2010, with vices peculiar to his act of non-registration as a non-habitual resident for tax purposes."

In that measure, it should be admitted pursuant to the principle of effective judicial protection and justice, that the Claimant, despite not having appealed the act of non-registration as a non-habitual resident for tax purposes, may appeal the tax acts of assessment that were subsequently issued by the Tax Authority in light of that classification.

Request for Ex Officio Revision of Tax Acts

Admitting thus the recoverability of the tax acts of assessment, it must be ascertained whether the request for ex officio revision in question in the present case complied with the legal requirements.

Consider the wording of article 78 of the LGT in force at the date of submission of the request:

"1 - The revision of tax acts by the entity that performed them may be effected at the initiative of the taxpayer, within the administrative complaint period and on the basis of any illegality, or, at the initiative of the tax administration, within four years after assessment or at any time if the tax has not yet been paid, on the basis of error attributable to the services.

2 - (Repealed by paragraph h) of no. 1 of article 215 of Law no. 7-A/2016 of 30 March)

3 - The revision of tax acts pursuant to no. 1, regardless of whether it is material or substantive error, implies their respective recognition duly reasoned pursuant to no. 1 of the preceding article. (Wording of Law 55-B/2004, of 30 December)

4 - The senior manager of the service may exceptionally authorize, in the three years following the year of the tax act, the revision of the taxable matter ascertained on the basis of serious or notorious injustice, provided that the error is not attributable to negligent conduct by the taxpayer. (Wording of no. 1 of article 57 of Law no. 60-A/2005, of 30 December)

5 - For purposes of the preceding number, only manifestly offensive injustice is considered notorious and grave that resulting from taxation manifestly excessive and disproportionate to reality or from which significant loss resulted for the National Treasury. (Wording of Law 55-B/2004, of 30 December) (…)".

There exists at the date of pronouncement of the present judgment extensive case law from superior courts and arbitral tribunals functioning at CAAD on the request for revision of the tax act provided for in article 78 of the LGT.

Thus, the request for revision of the tax act, pursuant to the final part of no. 1 of article 78, may be submitted within 4 years, even if at the initiative of the taxpayer, now Claimant, provided that it is on the basis of "error attributable to the services".

Regarding what constitutes "error attributable to the services," it is case law of superior courts that it is an error of law and not a mere slip or material error[4].

As Professor Rui Duarte Morais teaches, "When the assessment is made by the tax administration, we can state, as a rule, that the deficient application of the law to the specific case – error of law – is attributable to the services. (…) However, it must be taken into account that the completion of declarations has implicit in it a certain degree of legal qualification of facts. If, for example, in his PIT declaration, the taxpayer included in the "annex" relating to taxable capital gains a capital gain not subject to taxation, the tax administration (the computer system) will make the assessment in accordance with what was declared, calculating an excessive amount of tax. It seems to us that, even for systemic coherence with what happens in self-assessment situations, this error (which is an error of law) should be deemed attributable to the services. In the case of self-assessment, the law expressly equates, even if only for revision purposes, the error (of law or of fact) committed by the taxpayer with an error committed by the services." (Emphasis added). [5] [6]

Thus, in the case sub judice, it must be ascertained whether the errors evident in the PIT declarations should be attributed to the services, or, as the Respondent claims, should be attributed to the Claimant.

In the context of PIT, the principle of taxpayer declaration applies[7], which means that the taxpayer has the initial burden in the assessment procedure with the submission of the declaration: "The Portuguese tax system thus enshrines the method of taxpayer declaration in the determination of taxable matter (articles 57 to 61 of CIRS, 16 of CIRC and 28 to 40 of CIVA). (…) Therefore, when the taxpayer's declaration accords with the elements contained in his accounts or records, these being organized in accordance with the law and there being no errors, inaccuracies or other reasonable indications that it does not correspond to reality, it is presumed that the declared taxable matter is real. And, as results from the provision of article 38 of CIRS, the TA may only correct the declarations of taxpayers and proceed to the corresponding additional assessment when it fundedly considers that they show a lower tax than due"[8] [9]

Indeed, "PIT is a tax that is 'other-assessed,' with assessment being the responsibility of DGCI (article 75)".[10]

Being the assessment, in the strict sense, the tax act par excellence that is incumbent on the TA, with the issuance thereof, the TA accepts the qualification and quantification of income contained in the PIT declarations submitted by the now Claimant, for the fiscal years 2011, 2012, 2013 and 2014. Having not proceeded to any correction at the time of submission of the declarations, nor having requested any additional clarification, subsequently, as was incumbent on them, the services conformed to the income declarations, transforming them into tax assessments.

In the case sub judice, we are faced with an error of fact and of law – non-classification of the Claimant as a "non-habitual resident" – an error evidenced in the declarations submitted by the Claimant, but which cannot but be deemed attributable to the services, for purposes of a request for revision of the tax act.

Therefore, concluding that there exists an "error attributable to the services," its review will be permitted within a period of 4 years following the PIT assessments.

In that measure, having the request for ex officio revision been submitted on 3 June 2016, it is untimely with respect to the PIT assessment for 2011, given that the 4-year period had been exceeded with respect to the first assessment, dated 4 May 2012, and is timely with respect to the PIT assessments for 2012, 2013 and 2014.

The analysis of the verification of the requirements of the request for revision pursuant to the provisions of no. 4 of article 78 of the LGT is thus foreclosed, that is, on the basis of serious or notorious injustice.

Tax Scheme of Non-Habitual Resident

The tax scheme of non-habitual resident, in the context of PIT, was introduced into the Portuguese legal order by articles 23 to 25 of Decree-Law no. 249/2009, of 23 September.

At the date of the facts, the scheme was provided for in articles 16, no. 6 to no. 9, article 72, and article 81 of the PIT Code.

Thus, in 2011, article 16, under the heading "Tax Residence," as worded by Decree-Law no. 249/2009, mentioned above:

"(…) 6 - Taxpayers are considered not to have habitual residence in Portuguese territory those who, becoming tax residents, in particular pursuant to paragraph b) of no. 1, have not been taxed as such in any of the five preceding years in the context of PIT.

7 - The taxpayer who is considered a non-habitual resident acquires the right to be taxed as such for a period of 10 consecutive years, renewable, with the registration of such status in the taxpayer register of the Directorate-General for Taxes.

8 - The enjoyment of the right to be taxed as a non-habitual resident in each year of the period referred to in the preceding number requires that the taxpayer be considered resident in that year for purposes of PIT.

9 - The taxpayer who has not enjoyed the right referred to in the preceding number in one or more years of the period referred to in no. 7 may resume the enjoyment thereof in any of the remaining years of that period, provided that he again be considered resident for purposes of PIT."

In turn, Circular no. 2/2010 of 6 May clarified the registration procedure in the following terms:

[Document referenced but content not fully visible in source]

Furthermore, article 72, under the heading "Special Rates," as worded at the date the facts occurred, established in the following numbers that:

"6 - Net income from categories A and B earned in activities of high added value, with scientific, artistic or technical character, to be defined by regulation of the member of Government responsible for the area of finance, by non-habitual residents in Portuguese territory, are taxed at the rate of 20%.(…)"

In complement to the scheme established by the PIT Code, Ordinance 12/2010 of 7 January was published, which approved the table of activities of high added value, for purposes of the provision of no. 6 of article 72. According to no. 1 of this table, it applies to "senior managers of companies," with the code 802 being assigned to this activity.

Article 16 of the PIT Code would be amended by Law no. 20/2012, of 14 May, which entered into force on 15 May 2012:

"(…) 6 - Non-habitual residents in Portuguese territory are considered those taxpayers who, becoming tax residents pursuant to nos. 1 or 2, have not been residents in Portuguese territory in any of the five preceding years.

7 - The taxpayer who is considered a non-habitual resident acquires the right to be taxed as such for a period of 10 consecutive years from the year, inclusive, of his registration as a resident in Portuguese territory.

8 - The taxpayer must apply for registration as a non-habitual resident in the act of registration as a resident in Portuguese territory or, subsequently, until 31 March, inclusive, of the year following that in which he becomes resident in that territory.

9 - The enjoyment of the right to be taxed as a non-habitual resident in each year of the period referred to in no. 7 depends on the taxpayer being, in that year, considered resident in Portuguese territory.

10 - The taxpayer who has not enjoyed the right referred to in the preceding number in one or more years of the period referred to in no. 7 may resume the enjoyment thereof in any of the remaining years of that period, from the year, inclusive, in which he again becomes resident in Portuguese territory."

No. 2 of article 5 of Law no. 20/2012 established the following transitional provision:

"The new deadline provided for in no. 8 of article 16 of the PIT Code does not apply to taxpayers who became resident in Portuguese territory until 31 December 2011 and applied, before the date of entry into force of this law, for registration as a non-habitual resident pursuant to the previous wording of that provision, which did not provide any time limit for the submission of this request." (bold added).

As results from the transitional provision above transcribed, the new deadline provided for in no. 8 of article 16 of the PIT Code was not applicable to taxpayers who:

  • became resident in Portuguese territory until 31 December 2011;
  • applied, until 15 May 2012, for registration as a non-habitual resident.

Following the amendment of article 16 of the PIT Code, Circular no. 9/2012 of 3 August was published, which amended Circular /2010, in the following terms:

[Document referenced but content not fully visible in source]

[Document referenced but content not fully visible in source]

Note that, in light of the law applicable to the facts in 2011, no deadline was provided for in the PIT Code for submission of the request for taxation in accordance with the scheme for non-habitual residents.

Circular no. 2/2010 of 6 May itself clarified nothing more than the conditions for registration in the taxpayer register, including:"b) Prove at the time of registration the prior residence and taxation abroad, by means of a certificate of residence demonstrating effective taxation(…)".

That is, no specific procedure for registration of non-habitual residents was established, nor the registration deadline. It was required, however, that residence and effective taxation outside Portugal be proven by means of a fiscal residence certificate, a condition that did not result from the PIT Code and which would be repealed by Circular 9/2012.

However, despite no registration procedure for non-habitual residents being provided for, nor the registration deadline, it must be concluded that this scheme depended on the taxpayer's registration.

Pursuant to article 54 of the LGT, it is established that the "tax procedure follows written form," and pursuant to no. 1 of article 102 of the Code of Administrative Procedure ("CPA"), that the "initial petition of interested parties, except in cases where the law admits verbal requests, must be formulated in writing (…)",

Add the provision of no. 2 of article 5 of the Tax Benefits Statute, which establishes that tax benefits are automatic or dependent on recognition, the latter presupposing one or more subsequent acts of recognition, with the procedure being regulated by the LGT and CPPT.

Article 65 of CPPT, under the heading "Recognition of Tax Benefits," establishes that as a rule "the recognition of tax benefits depends on the initiative of interested parties, by means of a request specifically directed for that purpose, the calculation, when mandatory, of the benefit requested and proof of the verification of the presuppositions of recognition pursuant to the law."

No. 3 of article 65 of CPPT adds that "Requests (…) are submitted within the following deadlines: (…) b) In the remaining cases, until the limit of the deadline for submission of the income tax return for the period in which the presuppositions for the award of the tax benefit occur.".

In light of the foregoing, it must be concluded that, in 2011, despite there being no specific procedure provided for in the PIT Code, the general procedure rules provided for in the LGT, CPPT and CPA could be applied.

Therefore, the application of the scheme for non-habitual residents depended on the initiative of the interested party, by means of his registration with the tax service.

Such registration was to be made in writing and, in the absence of a specific deadline for submission, until the final deadline for submission of the PIT declaration for 2011, that is, until the end of April or May 2012.

However, Law no. 20/2012 would amend article 16 of the PIT Code establishing its own procedure and a deadline for submission of that request (31 March of the following year), which, however, would not apply to taxpayers who had become resident in Portuguese territory until 31 December 2011 and who had applied, until 15 May 2012, for registration as a non-habitual resident.

Now, article 74 of the LGT establishes that "The burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls on whoever invokes them." Therefore, it was incumbent on the Claimant to prove that he initiated the tax procedure with the Tax Service for registration as a non-habitual resident, still in 2011 and, at the latest, until 15 May 2012.

Having the Claimant failed to prove the date he presented himself to the Tax Service to request his registration as a non-habitual resident, nor the refusal of registration by that Service, due to lack of documentation proving residence outside Portugal in the five preceding years, an essential fact was left unproven with respect to the Claimant's claim.

Indeed, from the analysis of the documents filed by the Claimant, as well as from the administrative file filed by the Respondent, there are insufficient indications regarding the date of the visit to the tax service, the identification of the official at the tax service who was contacted and who allegedly provided the information or refused registration, nor the date on which the tax authorities of the United Kingdom and France were contacted by the Claimant to provide the information requested by the tax service, nor the date on which they provided such information. Indications that are fundamental to prove the Claimant's attempt to register with the tax service still in 2011.

In the absence of such indications and with only a formal request filed with the tax service, dated 14 September 2012, existing, the tribunal cannot consider it proven that the request for registration as a non-habitual resident was made in 2011.

In light of all the foregoing, it must be concluded that the request for registration as a non-habitual resident was untimely, wherefore the present request for arbitral pronouncement is to be adjudged without merit as unproven.

Conclusion

Wherefore, the request for a declaration of illegality of the PIT assessment for 2011 should be dismissed as untimely regarding the request for ex officio revision, and the request for a declaration of illegality of the PIT assessments for 2012, 2013 and 2014 should be dismissed as unproven regarding whether the request for registration as a non-habitual resident was submitted by 15 May 2012.

DECISION

Wherefore, this arbitral tribunal decides:

  • To adjudge without merit the request for arbitral pronouncement insofar as it petitions the annulment of the PIT assessment for the year 2011, as untimely regarding the request for ex officio revision;

  • To adjudge without merit the request for arbitral pronouncement insofar as it petitions the annulment of the PIT assessments for the years 2012, 2013 and 2014, as unproven;

  • To condemn the Claimant in costs.

VALUE OF THE CASE:

In accordance with the provision of no. 2 of article 306 of the CPC and paragraph a) of no. 1 of article 97-A of CPPT, applicable by force of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPTA), the case is assigned a value of €13,894.85 (thirteen thousand eight hundred ninety-four euros and eighty-five cents).

COSTS

Pursuant to no. 2 of article 12 and no. 4 of article 22, both of RJAT, and article 4, no. 4, of the cited Regulation, the amount of costs is set at €918.00, pursuant to Table I of RCPTA, calculated according to the value of the claim, to be borne by the Claimant.

Notify the parties of this arbitral decision and file the case.

Lisbon, 29 October 2018

The Sole Arbitrator,

(Vera Figueiredo)

Text prepared by computer, pursuant to no. 5 of article 131 of the Code of Civil Procedure, applicable by cross-reference to paragraph e) of no. 1 of article 29 of RJAT, drafted in accordance with the spelling of the Orthographic Agreement of the Portuguese Language, approved by Resolution of the Assembly of the Republic no. 26/91 and ratified by Decree of the President of the Republic no. 43/91, both of 23 August.

[1] Available at " http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/legislacao/instrucoes_administrativas/Pages/circulares-dgci.aspx"

[2] Available at www.dgsi.pt.

[3] Available at "https://caad.org.pt/tributario/decisoes/"

[4] See Supreme Administrative Court Judgment, of 22-03-2011, in appeal no. 01009/10, cited by Rui Duarte Morais in Manual of Tax Procedure and Process, Almedina, 2014

[5] Ibid

[6] To the contrary, Administrative Court of Appeals Judgment in case no. 887/11.1BELRA, of 6-04-2017, available at www.dgsi.pt

[7] For a more detailed explanation of the principle of declaration, in the context of PIT, we refer to the Administrative Court of Appeals Judgment, in case no. 01076/03, available at www.dgsi.pt

[8] See Administrative Court of Appeals Judgment of 03-05-2005, in case no. 01076/03, available at http://www.dgsi.pt/

[9] In the same sense, see Administrative Court of First Instance Judgment of 12-10-2006, in case no. 00277/04, available at http://www.dgsi.pt/: "As ALFREDO JOSÉ DE SOUSA and JOSÉ DA SILVA PAIXÃO state, 'A declaration is an act by which the taxpayer brings to the knowledge of the Tax Administration the existence of the taxable matter that makes up the tax event, indicating its amount and all elements necessary for the calculation of the tax (charges, deductions, etc.). The declaration is required by law and reflects an act of collaboration of the taxpayer given the public nature of the tax justified by the idea that the tax obligation is not a voluntary obligation, contractual, but the fulfillment of a legal duty. It is a mandatory act and if the taxpayer, being in the conditions provided for by law, fails to comply, he is subject to sanctions (articles 31 and 32 of RJIFNA)[(() Today the failure to submit declarations is provided for as a violation by article 117 of the General Tax Violations Regime (RGIT), approved by Law no. 15/2001, of 5 June, as amended by Rectification Declaration no. 15/2001, of 4 August.)]. The declaration is a sufficient basis for taxation and is an element justifying the corresponding revenue. Besides being an obligation of the taxpayer, it reflects evidence of taxable matter' (() Tax Code Commented and Annotated, 3rd edition, note 4 to article 76, page 162.)".

[10] Manuel Pires and Rita Calçada Pires, in Tax Law, pages 450-455, 5th Edition, Almedina 2016

Frequently Asked Questions

Automatically Created

What happens if a non-habitual resident in Portugal fails to register for the special IRS tax regime?
If a non-habitual resident fails to register for the special IRS tax regime in Portugal, they cannot benefit from the preferential tax rates applicable to NHR status, even if they substantively meet all eligibility conditions. Tax assessments will be made based on their registered status as an ordinary resident. This decision confirms that proper administrative registration with the DSRC (Directorate of Registration and Tax Notary Services) is a mandatory procedural requirement, not merely a formality. Taxpayers are taxed according to their registration status at the time of assessment, and retroactive application of NHR benefits after missing registration deadlines is generally not permitted unless strict revision conditions are met.
Can a taxpayer request an official review (revisão oficiosa) of IRS tax assessments under the non-habitual resident regime?
A taxpayer can request an official review (revisão oficiosa) of IRS assessments under Article 78 of the General Tax Law, but only under limited circumstances: when there is manifest error attributable to the tax services, when assessments violate essential legal rules, or when there is serious and notorious injustice. For NHR cases, the request must be filed within specific time limits. For 2011 assessments, this decision found the revision request was time-barred. For subsequent years, the tribunal indicated that 'error attributable to services' requires demonstrating actual illegality in the assessment process, not merely administrative difficulties in registration. The tax authority's correct application of law based on existing registration records does not constitute such error.
What is the process for filing a hierarchical appeal (recurso hierárquico) against an IRS tax assessment decision in Portugal?
The process for filing a hierarchical appeal (recurso hierárquico) against an IRS assessment decision involves submitting an appeal to the hierarchical superior of the entity that made the contested decision. In this case, the Claimant filed a hierarchical appeal against the dismissal of his ex officio revision request, which was decided by the Director of the Central Service of IRS Services. The hierarchical appeal must be filed within legally established time limits. If the hierarchical appeal is dismissed, taxpayers can then challenge the decision before the CAAD arbitral tribunal under the RJAT (Legal Regime of Tax Arbitration), as occurred in this case, providing an alternative to judicial courts for resolving tax disputes.
Does the CAAD arbitral tribunal have jurisdiction to review IRS assessments related to the non-habitual resident tax regime?
Yes, the CAAD arbitral tribunal has jurisdiction to review IRS assessments related to the non-habitual resident tax regime. Under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT), CAAD has competence over disputes concerning the legality of tax acts, including IRS assessments and decisions dismissing revision requests. In this case, the tribunal explicitly confirmed it was 'regularly constituted and is competent' to decide the matter. The tribunal's jurisdiction extends to evaluating whether the tax authority correctly applied NHR regime rules, whether procedural requirements were met, and whether grounds exist for ex officio revision of assessments under the General Tax Law.
What are the IRS tax implications for non-habitual residents in Portugal for multiple tax years (2011-2014)?
For non-habitual residents in Portugal, IRS tax implications vary significantly from ordinary residents. NHR status provides preferential tax treatment including potential exemption or reduced rates on foreign-source income and certain Portuguese-source income for ten consecutive years. However, this case demonstrates that failing to register timely has substantial financial consequences across multiple tax years. Without NHR registration, taxpayers are subject to standard progressive IRS rates (up to 48%) rather than the special rates under Article 72(6) of the IRS Code. The case covered tax years 2011-2014, showing that registration failures compound annually, resulting in significantly higher tax liabilities over time. Each year's assessment is treated separately for revision purposes, with different procedural deadlines applying.