Joint Custody Tax Deduction Denied: IRS Household Rules Under Article 13 CIRS (Case 753/2016-T)

ARBITRAL DECISION

PARTIES

Claimant: A..., NIF ... with registered address at Rua ..., nº ... –...– … Lisbon.

Respondent: Tax and Customs Authority (AT)

I. REPORT

a) On 23 December 2016 the Claimant filed with CAAD a request for arbitral pronouncement (PPA) requesting, under the Legal Regime for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests the annulment of assessment no. 2016 ... relating to Personal Income Tax (IRS) for the year 2015, which resulted in a net collection of 34,293.02 euros and an amount payable of 994.06 euros, document no. 2016... .

c) Since it attributes the defect of illegality to it, requesting restitution of the overpaid amount, increased by compensatory interest, in accordance with article 61 of CPPT, calculated until effective reimbursement of tax that may have been unduly paid.

d) And concludes by requesting that the TAS "disapply the norms contained in nos. 7 and 9 of article 13 of the IRS Code, as they are affected by material unconstitutionality, proceeding to the consequent annulment of the assessment act in question for lack of law defect, correcting the respective assessment."

THE CAUSE OF ACTION

e) The Claimant, father of 3 minor children, entered into an agreement with his ex-spouse for the regulation of parental responsibilities in the divorce proceedings, with joint custody and sharing of costs between the parents, "in the same terms as those of de facto unions and married couples who choose not to file jointly,"

f) But because the AT "... in proceeding with the assessment, considered that the children under his joint custody responsibility did not belong to the Claimant's family unit," he understands that there occurs "... inequality, as the Claimant and his ex-spouse cannot obtain, under analogous conditions to those above (de facto unions and married couples) fiscal recognition of their family composition, in clear disregard of the commands of the Tax Constitution, Family Guarantees and Fundamental Rights of citizens."

g) Verifying a violation of the constitutional principle of equality, since "... there exist materially similar situations with diametrically opposite solutions, especially in the choice for separate taxation of income for Married and De Facto Unions, innovation from the IRS "Reform" and enshrined in article 13, no. 2 of CIRS."

h) Concluding that it is "...imperative to disapply the norms, by reason of their material unconstitutionality and in full exercise of the powers of concrete constitutional review enshrined in article 204 of CRP, which lead to the disregard of dependents as members of the family unit for tax purposes," "...thus operating an analogical integration of the relevant norms applicable to De Facto Unions and Marriages that choose separate taxation of income, that is, allowing the application of the family quotient and tax deductions to both parents in proportion to their contribution."

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

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

j) The Ethics Council of CAAD appointed the signatory of this decision as arbitrator, the parties being notified thereof on 10.02.2017. The parties did not manifest any intention to refuse the appointment, in accordance with article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

k) The Singular Arbitral Tribunal (TAS) has been, since 27.02.2017, regularly constituted to appraise and decide the object of this dispute (articles 2, no. 1, paragraph a) and 30, no. 1, of RJAT).

l) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 27.02.2017, which is hereby reproduced.

m) On 27-02-2017 AT was notified in accordance with and for the purposes of article 17-1 of RJAT. It replied on 05.04.2017 attaching the Administrative File (PA) composed of two computerized files designated by PA1 with two pages and PA2 with nine pages.

n) The meeting of parties provided for in article 18 of RJAT was not held in view of the position of both parties. By order of 05.04.2017 a deadline was set for the presentation of successive written submissions. On 21.04.2017 the Claimant presented its submissions. On 08.05.2017 the Respondent filed a counter-submission. Both parties advocated, respectively, for the position already assumed in the request for pronouncement and in the reply.

PROCEDURAL REQUIREMENTS

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

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

t) Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the prescribed deadline in paragraph a) of no. 1 of article 10 of RJAT, as results from the fact that the Claimant presented the request for pronouncement on 23.12.2016 and alleged that "... was notified of the assessment on 04-08-2016, with the payment deadline being presented as 03-10-2016," which the AT did not dispute.

SUMMARY OF THE CLAIMANT'S POSITION

u) The Claimant alleges the following facts: "On 23-05-2016 ... declared Income for IRS purposes by digital submission of IRS Form 3" and "... has 3 dependents in his charge." "In the process of regulation of parental responsibilities, joint custody of the minor children of the ex-spouses was decreed." But the "Tax and Customs Authority, in proceeding with the assessment, considered that the children under his joint custody responsibility did not belong to the Claimant's family unit as shown in the IRS assessment demonstration, field 10."

v) He considers that there are unconstitutional norms, referring: "Article 13 of the Code of Personal Income Tax (CIRS) underwent a reformulation during the "reform" ... promoted for the year 2015 by Law 86-E/2014, of 31 December," resulting from "... material discrimination of family situations in non-conformity with the Constitution of the Portuguese Republic," "having completely disregarded a myriad of family and para-family situations, especially those arising from divorce, subjecting them to unjustifiably discriminatory treatment in relation to other para-family situations, treated adequately by law," to the extent that "... the combined interpretation of no. 7 with no. 9, both of said article, disregards as family unit the situation of the current Claimant, as was seen in the assessment now challenged, by preventing both those responsible for the joint custody of dependents from declaring them as part of their family unit, imposing on a bizarrely arbitrary criterion the definition of the family situation of taxpayers."

w) And he explains: "The implication of this (dis)consideration is extensive, but particularly visible as regards the family quotient and also as regards tax deductions, both advocated by CIRS as a way of giving effect to the constitutional command of article 104, no. 1 of CRP: income tax must take into account both the income and the needs of the family unit of the Taxpayer." Adding that "our system of tax deductions in IRS is entirely dependent on the figure of the family unit, using it as a criterion of apparent agility for determining not only personalizing deductions, but also those intended to relieve particular family expenses - health, education — from the classification as "income," which would require their taxation." Being that "... the family quotient promotes positive discrimination — albeit limited — of subjects who have others in their family unit, fictionally mathematizing what in fact happens: the allocation of part of net income from tax to the needs of the remaining members of the unit."

x) Now, since "... joint custody became the default system in the definition of parental responsibilities with the entry into force of Law 61/2008, of 31 October (the so-called "Divorce Law"), which broke with many years of legal and jurisdictional tradition of the non-responsibility of one of the parents as to parental responsibilities that imposed the sole custody system," with this new institution "... an attempt is made, through an agreement between the parents, to approximate the post-divorce family reality with the previous one, seeking that from this maintenance results a better formative environment for the minor."

y) To the extent that "... he obtained, in the regulation of parental responsibilities, a situation of perfect co-responsibility between himself and his ex-spouse, with sharing of burdens and responsibilities between them and the corresponding sharing of costs," bearing "... 50% of the living costs of the minors," "in the same terms as those of de facto unions and married couples who choose not to file jointly," there is inequality "... as the Claimant and his ex-spouse cannot obtain, under analogous conditions to those above, fiscal recognition of their family composition, in clear disregard of the commands of the Tax Constitution, Family Guarantees and Fundamental Rights of citizens."

z) This regime violates the provisions of article 104, no. 1 of CRP, "...as a manifestation of the Principle of Contributory Capacity, a limit on the freedom of the Tax Legislator," and citing Prof. Rui Duarte Morais refers "...the legislator cannot fail to contemplate expenses with family burdens that (...) are inevitable," since "impressively as a Fundamental Right, in article 36 ... the Constituent Legislator burdens the State with the recognition of the dissolution of marriage by reason of divorce with the same force as marriage itself; and immediately thereafter affirm the maintenance of parental responsibilities after such dissolution, in the form of the duty to educate and maintain the children." And in "article 67 ... the legislator consecrates the family as a fundamental element of society and further charges the State, under the aegis of Family protection, with regulating taxes and social benefits, in harmony with family burdens," "and does so in broad terms of family definition, including at least all family compositions admitted by law."

aa) Concluding: "It thus becomes unequivocal that the Tax Legislator, by promoting the 'IRS Reform,' grossly violated the constitutional commands to which it is subject, by disregarding as family unit the dependents and claimant, when there was the possibility to agree on what is best for the specific dependents, between the parents and with mediation and ratification by a Judge, giving rise to Joint Custody in which both jointly contribute (pardon the pleonasm) to a complete and functional development of their children; in short, so that the ex-spouses, in fulfillment of the best interests of the child, mutually support each other in the fulfillment of their Constitutional, moral and social duties to their children."

bb) Given that "... there exist materially similar situations with diametrically opposite solutions, especially in the choice for separate taxation of income for Married and De Facto Unions, innovation from the 'IRS Reform' enshrined in article 13, no. 2 of CIRS," the "...disapplication of the norms is imperative, by reason of their material unconstitutionality and in full exercise of the powers of concrete constitutional review enshrined in article 204 of CRP, which lead to the disregard of dependents as members of the family unit for tax purposes, thus operating an analogical integration of the relevant norms applicable to De Facto Unions and Marriages that choose separate taxation of income, that is, allowing the application of the family quotient and tax deductions to both parents in proportion to their contribution." This is because, "... tax deductions are not an exceptional norm, being instead a criterion for correcting the amount in collection, to adapt it to the actual contributory capacity of Taxpayers."

cc) He understands that there is an error in the assessment attributable to AT since "the tax administration is generally obliged to act in conformity with the law (articles 266, no. 1, of the Constitution of the Portuguese Republic and 55 of LGT), whereby, regardless of proof of fault of any of the persons or entities that compose it, any illegality not resulting from an action of the taxpayer will be attributable to the fault of the services themselves" (in accordance with the Decision of the Supreme Administrative Court, of 12 December 2001, Case no. 26233).

dd) In submissions the Claimant sustained what he had already referred to in his request for arbitral pronouncement.

SUMMARY OF THE RESPONDENT'S POSITION

ee) The Respondent argues "through a reading of the request for arbitral pronouncement, that the Claimant imputes no other defect of illegality to the tax assessment act other than that of the alleged non-conformity with the Constitution, resulting from the conjunction of no. 7 and no. 9 of article 13 of CIRS with the principle of equality, provided for in article 13 of the Constitution of the Portuguese Republic (CRP)," and in this conformity refers "... that the Claimant seeks an appraisal, in abstracto, of the norms in question," concluding that "... in this way, the Arbitral Tribunal is materially incompetent to appraise the constitutionality of the same, of the norm in question, in the terms requested."

ff) Therefore "... it follows that the Constitutional Court is the competent forum to know either the illegality or the unconstitutionality of legal norms [articles 280, no. 2, paragraphs a) and d) and 281, no. 1, paragraphs a) and b) and no. 3 of CRP and articles 6 and 66 of the Constitutional Court Act]" and not the "Arbitral Tribunal ... given that what is sought is the abstract review of the constitutionality of the norms, a matter constitutionally reserved to the Constitutional Court, in accordance with paragraph a) of no. 2 of article 281 of CRP."

gg) And citing a Decision of the Central Administrative Court of the South, rendered in case no. 02791/99, it refers: "Now, in accordance with article 281, no. 1, al. a) of CRP, such review is the exclusive competence of the Constitutional Court and is expressly excluded from the competence of administrative courts, by no. 5 of article 11 of ETAF, which can only know the question of unconstitutionality as an incident, with regard to another question submitted to them and not in a direct action or appeal of constitutionality. Therefore, this Court is not competent to know the present appeal, as the Constitutional Court is the body to which the abstract review of constitutionality is assigned,"

hh) Concludes "... by the impossibility of this Arbitral Tribunal to decide the present dispute, to the extent that there is verified the dilatory exception of material incompetence, from which follows the absolution of the Respondent from the instance, in accordance with the joint provisions of articles 278, no. 1, paragraph a) and 576, nos. 1 and 2 of CPC, applicable ex vi article 29, no. 1, paragraph e) of RJAT."

ii) Even if it were not so, the Respondent alleges that: "there is moreover that, in the scope of the appraisal of the abstract review of constitutionality, the Respondent would always be a legitimate party," "since, as is well known, the Tax Administration cannot refuse to apply norms on the ground of their unconstitutionality or illegality, being subject to the principle of legality, as provided for in articles 266, no. 2 of CRP, 3, no. 1 of CPA and 55 of LGT (in this sense, in accordance with point 11 of the arbitral decision rendered in case no. 705/2015-T)," "in accordance with Gomes Canotilho/Vital Moreira 'the Administration, in view of the hierarchy of sources and its direct subordination to law, cannot refuse to apply a law or fail to comply with it invoking or questioning its unconstitutionality.'"

jj) Concluding that "being at issue a normative act emanated from the Parliament in the typical form of a legislative act, the Court should always declare the absolution of the Respondent from the instance, given the dilatory exception of passive illegitimacy demonstrated in the present arbitral proceedings, in accordance with articles 278, no. 1, paragraph d) and 576, nos. 1 and 2 of CPC, applicable ex vi article 29, no. 1, paragraph e) of RJAT."

kk) He understands that "...AT could not/cannot refuse to apply a norm or fail to comply with the law invoking or questioning its constitutionality, being subject to the principle of legality, as provided for in articles 266, no. 2 of CRP, 3, no. 1 of CPA and 55 of LGT."

ll) Regarding the tax regime applicable to the case here in discussion, he refers: "from a reading of the agreement on the exercise of parental responsibilities it was determined that '3. For the purposes of identification documents and similar, the parents agree that, preferably, the address of the mother's house shall be indicated.' (... in accordance with document 2 attached with the request for arbitral pronouncement)," therefore "considering the legal provision transcribed above, in cases of divorce in which responsibilities are exercised jointly by both parents, dependents shall be part of the unit of the parent to whom the residence determined in the agreement on the exercise of parental responsibilities corresponds." "Fact is that the agreement itself provided that the address to be indicated, for the legal purposes deemed convenient, would be that of the mother, notwithstanding that it was expressly determined that parental responsibilities would be exercised jointly by both parents."

mm) Concluding: "In view of the above, AT in proceeding with the assessment of the tax here reviewed restricted itself to the strict application of the law." "The fact is that the Claimant does not impute any other defect to the tax assessment act." "Basing its defense solely and exclusively on arguments concerning the possible unconstitutionality of the norms invoked, namely the alleged violation of the principle of equality." "Founding itself, for this purpose, on the analogy between its situation and the situation provided for De Facto Unions and Married Couples," "it is found that the Claimant seeks to raise the violation of the principle of equality before the tax law in the dimension of the prohibition of differentiation in equal situations."

nn) Finalizes in this way: "however, it becomes imperative to clarify that, in light of the Constitution, situations that prove to be equal are treated equally and different situations will have to be treated differently in the exact measure of their difference." "Which, in our view, proves to be the case."

oo) On the conformity of nos. 7 and 9 of article 13 of the IRS Code with the CRP, namely the principle of equality, he refers that the "... Court should, in this context, from the perspective of the prohibition of arbitrariness arising from the principle of equality, 'solely verify if the legislative solution presents itself as absolutely intolerable and inadmissible, from a legal-constitutional perspective, for which no intelligible basis can be found'" verifying if, in the case in question, "'discriminatory distinctions were established, that is, inequalities of treatment materially unfounded, without any reasonable basis or without any objective and rational justification'" in Decision of the Constitutional Court no. 528/2012, of 7 November."

pp) Adding that "the principle of equality, in its sub-dimension of the principle of proportionality, requires verification by the judge that legislative solutions do not prove to be indubitably, glaringly, absolutely unreasonable, having as a presupposition a differentiation that is required, by all that has been referenced above," therefore it is required that "... a judgment of evaluation that takes into account not only the existence of an objective rational basis in the attribution of differentiated treatment to categories of citizens, but which also assesses the measure of the difference established, in order to verify its adequacy in view of the basis invoked."

qq) And continues referring: "as to the sub-dimension of the principle of equality, i.e., proportionality (or proportional equality paraphrasing the Constitutional Court) that body has already pronounced itself several times, therefore we again call upon, among several, decision no. 183/2013, where the Illustrious Judges discoursed as follows: 'the principle of equality requires that, along with the existence of a material basis for the option to differentiate, the differentiated treatment thus imposed be proportionate (...) the inequality of treatment shall, in the measure in which it is imposed, be proportional, both to the reasons that justify the unequal treatment - it cannot be "excessive," from the point of view of the purpose pursued - and to the measure of the difference found to exist between the group of recipients of the differentiating norm and the group of those who are excluded from its effects or scope of application.'" "Continuing: 'proportional equality implies the consideration of the degree of differentiation imposed, both in its relation to the purposes pursued - which presupposes that differentiating measures are imposed in a necessary, adequate and not excessive degree from the point of view of the interest one seeks to protect (...) - and within the scope of the comparison to be established between the subjects affected by the measure and the subjects who are not and, from the point of view of that purpose, between some and others and the State.'"

rr) Concluding that: "In this way, it is inevitable to conclude that there does not follow from the interpretation of no. 7 and no. 9 of article 13 of CIRS any violation of the principle of equality inherent in the CRP."

ss) As regards the request for compensatory interest, he understands that there occurred no error of fact or law attributable to AT, the requirements of article 43 of LGT not being verified.

tt) In submissions it maintained what was already referred to in the reply to the request for pronouncement.

uu) He advocates for the maintenance in the legal order of the tax act in question as it is in conformity with the law, with the success of the exceptions raised and absolution of the instance, or if they do not proceed, with the dismissal of the requests and consequent absolution thereof.

II - QUESTIONS THAT THE TRIBUNAL MUST RESOLVE

The first and pivotal question that arises is whether what is at issue in this proceeding – regardless of what the parties allege - is a request for successive and concrete review of constitutionality (articles 277 and 280 of CRP) or a request for successive and abstract review of constitutionality (articles 277 and 281 of CRP).

It is in the answer to be given to this question that the fate of the two exceptions raised by AT lies.

The substantive question placed here by the Claimant is of great relevance, as can be seen from the fact that Parliament itself, through Resolution no. 86/2017, (DR no. 98/2017 Series I of 2017-05-22) has recommended to the Government that "eliminate existing discriminations in personal income tax regarding the exercise of parental responsibilities," allowing situations such as those the Claimant raises here to have a solution, at the IRS level, identical to others enshrined for other parents of minors, in the state of married or de facto unions.

The existence of this Parliament Resolution gives comfort to the Claimant's point of view and shows that in the matter dealt with in this proceeding, there exist "discriminations" (using the expression of the legislative body) that may not be compatible with the constitutional text, at least in the implicit reading made by the members of parliament who approved it, who, it may be said, could have opted for another route: directly raising to the Constitutional Court the unconstitutionality of the norms that establish these recognized "discriminations."

But what is at issue here is, in the first place, to know whether this proceeding, in the terms in which it was promoted, is the proper one to obtain a disapplication of the norms of nos. 7 and 9 of article 13 of the IRS Code by this TAS, independently of the merit of the substantive question, which, according to the Parliament Resolution seems should be considered unquestionable.

In the document "System of Concrete Constitutional Review in Portugal" available at https://repositorio.ucp.pt/bitstream/10400.14/15245/1/Tese_indice_v03.pdf authored by Paula Margarida Tavares Falcão, Advisor Professor Doctor Jorge Miranda, 25 March 2013, it is stated at page 20:

"The Portuguese Constitution provides in its articles the existence of four mechanisms of constitutional review, namely:

• Preventive constitutional review (articles 277, 278, C.R.P.), in which the Constitutional Court pronounces on the unconstitutionality of certain legal norms, before they enter into force in the legal order;

• Successive, concrete review (articles 277 and 280 of C.R.P.), by which any court may judge or not any unconstitutional normative acts;

• Successive, abstract review (articles 277 and 281, C.R.P.), through which only the Constitutional Court has standing and the power to declare or not the unconstitutionality of a certain legal norm;

• Review of unconstitutionality by omission (article 283, C.R.P.), by the Constitutional Court, which occurs 'by virtue of an unconstitutional silence of the legislative bodies' (CANOTILHO, JOSÉ JOAQUIM GOMES, 'Law, rights; Court, courts, in Portugal - The Political and Constitutional System,' org. by M. Baptista Coelho, 1989, Lisbon, pages 901 et seq.)"

And at page 21:

"The invocation of concrete review of a norm arises when, in the course of an action brought in the common courts, for the defense of a right or interest of an individual, the unconstitutionality of a norm applicable to the concrete case is raised. Thus, the question of unconstitutionality presents itself as a prejudicial question, dependent on the main action and which is raised incidentally in a proceeding relating to a different question (MIRANDA, JORGE, 'Manual of Constitutional Law,' Volume VI, Coimbra Editora, 4th Edition, Coimbra, 2013, pages 58 and 251). There being no action in our system of unconstitutionality, in which the object is, purely and simply, the evaluation of the unconstitutionality of norms. As Professor Jorge Miranda teaches 'The question of unconstitutionality can and should only be known and decided to the extent that there is an inseverable nexus between it and the main question object of the proceeding, between it and the case submitted for judgment' (MIRANDA, JORGE, 'Manual of Constitutional Law,' Volume VI, Coimbra Editora, 4th Edition, Coimbra, 2013, page 244). Now Professor Blanco de Morais defines the process of constitutional review as having for its object a heterogeneous prejudicial question, devoid of devolutive character and which emerges as an incident, within the scope of a main process" (MORAIS, CARLOS BLANCO DE 'Constitutional Justice, Volume II, Portuguese constitutional contentious between the mixed model and the temptation of the remittal system,' Coimbra, Coimbra Editora, 2005, page 562)."

In the dissertation: "Concrete review in Portugal: from the text of the Constitution to judicial practice" available at https://estudogeral.sib.uc.pt/1/A fiscalizacao concreta em Portugal.pdf, by Thiago de Almeida Ventura, it is stated at pages 57 and 58:

"Concrete constitutional review occurs 'in the cases submitted for judgment' (article 204, CRP), that is, incidentally – and not as the principal object – in the course of a common proceeding (civil, criminal, administrative, etc.). Concrete review is, therefore, an incidental review.

Thus, in the absence of the establishment of an action or a direct appeal of unconstitutionality in the Portuguese legal-constitutional order, the question of unconstitutionality can only arise incidentally with regard to another question of law submitted to judicial appraisal. (In accordance with J. J. Gomes Canotilho/Vital Moreira, Constitution..., II, p. 520. Note, however, that the impossibility of anyone addressing a court to request – as a principal object – the declaration of unconstitutionality of a norm does not prevent the incident of unconstitutionality from being provoked by bringing a declaratory action (of simple appraisal, of condemnation or constitutive) whose success is dependent on a positive decision (or acceptance) of unconstitutionality (in accordance with Jorge Miranda, Manual..., VI, pp. 59 and 244). Similarly, cf. António Rocha Marques, The Court...", p. 459. See also, António de Araújo/Joaquim Pedro Cardoso da Costa, "III Conference...", p. 35. In this case, the main question refers to the constitutionally guaranteed right, while the question arising incidentally in the proceeding concerns normative unconstitutionality (cf. Jorge Miranda, Manual..., VI, pp. 59-60). Consequently, the question of unconstitutionality presents itself as a mere incident of the instance (Cf. Vitalino Canas, The processes of review of constitutionality and legality by the Constitutional Court: nature and structuring principles, Coimbra Editora, Coimbra, 1986, p. 37. However, "when one speaks of an incident of unconstitutionality, it is only in contraposition to a proper constitutional proceeding, not because there exists an incident highlighted by law to unfold with certain subjects, before this or that judge, in certain terms, requiring or dispensing with certain proofs and with certain effects" (Jorge Miranda, Contribution to a theory of unconstitutionality, 1st ed. reprint 1968, Coimbra Editora, Coimbra, 2007, p. 260), although its legal nature is quite controversial in doctrine (Is it an incidental or prejudicial question? Not being our intention to develop such controversy in this area – which would oblige us to venture into concepts pertaining to procedural law, namely civil procedural law – we shall limit ourselves to briefly allude to the doctrinal divergence. In the understanding of Jorge Miranda – long defended by the Author –, "unconstitutionality constitutes the object of a prejudicial question – hence how it should be first characterized. If the accessory questions that arise in the course of a proceeding [...] can be either substantive or adjectival in nature, it is very clear that unconstitutionality is a prejudicial question, and never incidental. Indeed, before a question of unconstitutionality, the judge places himself, not in Procedural Law, but in Constitutional Law". However, continues the Author, "it is an improper question [...]." Having the question of unconstitutionality been raised, it accrues, accumulates with the question object of the proceeding, and to judge it is competent the judge himself to whom the allegation was made: the judge of the case. It does not therefore transfer to any other proceeding or to any other court" (Contribution..., pp. 258-259). More recently, cf. Jorge Miranda, Manual..., VI, pp. 58 and 245; Jorge Miranda / Rui Medeiros, Constitution..., III, pp. 58-59, although here the Authors recognize that "it is controversial whether the qualification as a prejudicial question is also justified when the question of [un]constitutionality pertains to the procedural norms applicable in the main proceeding" (ibidem, p. 58). In similar sense, cf. Carlos Blanco de Morais, Justice..., II, pp. 601-614, mainly pp. 609 et seq.. In the understanding of this Author, the question of unconstitutionality constitutes "a heterogeneous prejudicial question, devoid of devolutive character and which emerges incidentally, within the scope of a main proceeding" (ibidem, p. 609). In contrary sense, cf. Vitalino Canas, The processes..., pp. 37-38, note 26, for whom "it is not to be excluded that the question of [un]constitutionality results in an adjectival question"; António Rocha Marques, "The Court...", p. 461, who bases his position on the idea underlying the prejudiciality of the incompetence of the judge of the case to, in the first instance, decide the question raised, which, in turn, is not verified as to the question of unconstitutionality. This argument is, however, refuted by Carlos Blanco de Morais, for whom the notion of separation of competences does not assume relevant character in the configuration of prejudiciality (cf. Justice..., II, pp. 605-608). Apparently also in contrary sense, cf. J. J. Gomes Canotilho, Law..., p. 986; Vital Moreira, "The 'concrete review'...", p. 835; J. J. Gomes Canotilho / Vital Moreira, Constitution..., II, p. 940)."

Thus, the first task of this TAS consists in determining, in view of the content and manner in which the question here to be decided is placed, whether it is

• an incidental request for successive and concrete constitutional review (articles 277 and 280 of CRP), as configured by the Claimant;

or

• a request for successive and abstract constitutional review (articles 277 and 281 of CRP), as defended by the Respondent.

Having decided this question, the request for pronouncement will proceed (if it is concluded that it is an incidental request for successive and concrete constitutional review given the implicit acknowledgment by Parliament itself that "discrimination" exists) or will not proceed (if it is concluded that it is a request for successive and abstract constitutional review), since only the Constitutional Court has competence to appraise the dissonance of a norm in general and abstract terms, in view of constitutional principles, through a process solely directed as the principal and only object to obtain such declaration, especially since, in principle, in such proceedings the Prime Minister himself is the respondent and not, as here happens, the Tax Authority.

Let it be said that, in both cases, any natural or legal person can participate in the decision to be adopted by the Constitutional Court, directly as an incident in a proceeding in which he is an interested party, in the case of "successive and concrete constitutional review" (with mandatory appeal by the Public Ministry to the Constitutional Court) and indirectly in the case of "successive and abstract constitutional review," through associations or entities representing the interests in discussion or in confrontation, including constituting a representative, under the legal figure of "amicus curiae," attaching in the Constitutional Court itself, opinions in defense of their point of view (1).

Finally, by the manner in which the Claimant attributes the value to the cause, in view of article 97A of CPPT (paragraph e) of no. 2 of article 10 of RJAT by force of paragraph a) of no. 1 of article 29 of RJAT), it falls to the TAS to set the value to be attributed to the cause.

III. ESTABLISHED AND NON-ESTABLISHED FACTS.

REASONING

With respect to the facts, the Tribunal need not pronounce on everything alleged by the parties, being instead its duty to select the facts that matter for the decision and to discriminate the established facts from the non-established (in accordance with article 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable ex vi article 29, no. 1, paragraphs a) and e), of RJAT).

Accordingly, the facts relevant to the judgment of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (in accordance with the previous article 511, no. 1, of CPC, corresponding to the current article 596, applicable ex vi article 29, no. 1, paragraph e), of RJAT).

Thus, having regard to the positions assumed by the parties and the documentary evidence attached, the following facts were considered established, as having relevance for the decision, as listed below, indicating the respective documents (proof by documents) as reasoning.

Established Facts

1. On 20.11.2013 the Claimant and his ex-spouse entered into an AGREEMENT ON THE EXERCISE OF PARENTAL RESPONSIBILITIES in accordance with article 1905 of the Civil Code and article 174 of OTM, regarding the three minor children, in the following terms (in the part of interest here), approved by judgment of 09.12.2013 of the Honorable Judge of the ... Family Court for Minors of Lisbon – 2nd Section – Case no. .../11... TMLSB-A:

2. "... the minors ... shall be entrusted to the care and custody of both parents, residing one week at the mother's house and another at the father's house, successively and alternately, with the exchange to take place on Sunday at 19:00 hours, the parent who has the minors delivering them to the other. Exceptionally, provided that 48 hours' notice is given, the minors may be delivered, on Monday, directly at the educational establishment or at the home of the other parent.

3. Parental responsibilities shall be exercised jointly by both parents, being their responsibility to decide all matters relating to the life of the minors under conditions identical to those in force during the marriage, except in cases of manifest urgency in which either parent may act alone, having to give notice to the other parent as soon as possible.

4. For the purposes of identification documents and similar, the parents agree that, preferably, the address of the mother's house shall be indicated.

5. The parents agree that at the current time a private school is the best option for their children. Thus, the minors shall continue to attend private educational institutions until, by mutual agreement, it is decided otherwise.

6. The Father shall bear entirely the expenses relating to school tuition fees.

7. He shall also bear entirely the payment of health insurance premiums subscribed in the name of the minors.

8. The current expenses of the minors shall be borne in the proportion of 50% by each parent, as well as expenses relating to extracurricular activities of the same provided that their attendance is approved by both.

9. They shall likewise be borne in the proportion of 50% the medical and medicinal expenses not covered by health insurance, as well as registrations, uniforms, sports equipment, school books and mandatory school materials.

10. The parent who makes the payment relating to the expenses referenced in points 6 and 7 shall send to the other the respective proof of expense, within a maximum period of thirty days, and shall be reimbursed within a maximum period of fifteen days.

11. Each parent shall provide clothing for the minors in the weeks when he/she is with them, except for those pieces commonly most expensive (winter boots, jackets, overcoats, sneakers), which shall be borne by both parents."

...

In accordance with article 6 of the request for arbitral pronouncement (ppa) and pages 6 and 7 of document no. 2 attached with the ppa.

1. On 23-05-2016 the Claimant submitted, by electronic means, the IRS declaration of Form 3 for the year 2015 – in accordance with article 4 of the request for arbitral pronouncement (ppa), article 5 of the reply and first page of PA 2 attached with the reply;

2. In the declaration the Claimant marked in table 4 field 03 (single, divorced or legally separated) – in accordance with article 6 of the reply and first page of PA 2 attached with the reply;

3. In the field for family unit, he indicated in table 6 B the existence of three dependents in joint custody regime – in accordance with article 5 of the ppa, article 7 of the reply and pages 1 and 2 of PA2 attached with the reply.

4. The Respondent, in proceeding with the assessment, considered that the children under joint custody responsibility did not belong to the Claimant's family unit – in accordance with article 7 of the ppa and demonstration of IRS assessment which constitutes PA1 with two pages attached by AT with the reply, combined with the overall position assumed in the reply.

5. On 02.08.2016 the corresponding assessment no. 2016... was issued, notified on 04.08.2016, from which resulted a net collection of € 34,293.02 and a value of tax to pay of € 994.06, with payment deadline of 03.10.2016, which was paid on 09.08.2016 – in accordance with article 2 of the ppa, articles 8 and 9 of the reply and demonstration of IRS assessment which constitutes PA1 with two pages attached by AT with the reply.

6. On 23 December 2016 the Claimant filed with CAAD the present request for arbitral pronouncement (ppa) – entry registration in the CAAD's CMS of the request for arbitral pronouncement.

Non-Established Facts

There is no other factuality alleged that has not been considered established and that is relevant for the composition of the procedural dispute.

IV. APPRAISAL OF THE QUESTIONS THAT THE SINGULAR ARBITRAL TRIBUNAL (TAS) MUST RESOLVE

To conclude whether the present request for arbitral pronouncement corresponds to an incidental request for successive and concrete constitutional review (articles 277 and 280 of CRP), as configured by the Claimant, or a request for successive and abstract constitutional review (articles 277 and 281 of CRP), as defended by the Respondent, we must consider the entire content of the request submitted to the TAS and which was set out in paragraphs v) through ee) of the Report in terms of expressing the Claimant's position.

Let us then see what is referred to in the request for arbitral pronouncement (repeating what is set out above in the Report):

1. "Article 13 of the Code of Personal Income Tax (CIRS) underwent a reformulation during the 'reform' ... promoted for the year 2015 by Law 86-E/2014, of 31 December," resulting from "... material discrimination of family situations in non-conformity with the Constitution of the Portuguese Republic," "having completely disregarded a myriad of family and para-family situations, especially those arising from divorce, subjecting them to unjustifiably discriminatory treatment in relation to other para-family situations, treated adequately by law," to the extent that "... the combined interpretation of no. 7 with no. 9, both of said article, disregards as family unit the situation of the present Claimant, as was seen in the assessment now challenged, by preventing both those responsible for the joint custody of dependents from declaring them as part of their family unit, imposing on a bizarrely arbitrary criterion the definition of the family situation of taxpayers."

2. "The implication of this (dis)consideration is extensive, but particularly visible as regards the family quotient and also as regards tax deductions, both advocated by CIRS as a way of giving effect to the constitutional command of article 104, no. 1 of CRP: income tax must take into account both the income and the needs of the family unit of the Taxpayer." "Our system of tax deductions in IRS is entirely dependent on the figure of the family unit, using it as a criterion of apparent agility for determining not only personalizing deductions, but also those intended to relieve particular family expenses - health, education — from the classification as 'income,' which would require their taxation." Being that "... the family quotient promotes positive discrimination — albeit limited — of subjects who have others in their family unit, fictionally mathematizing what in fact happens: the allocation of part of net income from tax to the needs of the remaining members of the unit."

3. Since "... joint custody became the default system in the definition of parental responsibilities with the entry into force of Law 61/2008, of 31 October (the so-called 'Divorce Law'), which broke with many years of legal and jurisdictional tradition of the non-responsibility of one of the parents as to parental responsibilities that imposed the sole custody system," with this new institution "... an attempt is made, through an agreement between the parents, to approximate the post-divorce family reality with the previous one, seeking that from this maintenance results a better formative environment for the minor."

4. The Claimant "... obtained, in the regulation of parental responsibilities, a situation of perfect co-responsibility between himself and his ex-spouse, with sharing of burdens and responsibilities between them and the corresponding sharing of costs," bearing "... 50% of the living costs of the minors," "in the same terms as those of de facto unions and married couples who choose not to file jointly," there is inequality "... as the Claimant and his ex-spouse cannot obtain, under analogous conditions to those above, fiscal recognition of their family composition, in clear disregard of the commands of the Tax Constitution, Family Guarantees and Fundamental Rights of citizens."

5. This regime violates the provisions of article 104, no. 1 of CRP, "...as a manifestation of the Principle of Contributory Capacity, a limit on the freedom of the Tax Legislator," and citing Prof. Rui Duarte Morais refers "...the legislator cannot fail to contemplate expenses with family burdens that (...) are inevitable," since "impressively as a Fundamental Right, in article 36 ... the Constituent Legislator burdens the State with the recognition of the dissolution of marriage by reason of divorce with the same force as marriage itself; and immediately thereafter affirm the maintenance of parental responsibilities after such dissolution, in the form of the duty to educate and maintain the children." And in "article 67 ... the legislator consecrates the family as a fundamental element of society and further charges the State, under the aegis of Family protection, with regulating taxes and social benefits, in harmony with family burdens," "and does so in broad terms of family definition, including at least all family compositions admitted by law."

6. It is concluded that it becomes "... unequivocal that the Tax Legislator, by promoting the 'IRS Reform,' grossly violated the constitutional commands to which it is subject, by disregarding as family unit the dependents and claimant, when there was the possibility to agree on what is best for the specific dependents, between the parents and with mediation and ratification by a Judge, giving rise to Joint Custody in which both jointly contribute (pardon the pleonasm) to a complete and functional development of their children; in short, so that the ex-spouses, in fulfillment of the best interests of the child, mutually support each other in the fulfillment of their Constitutional, moral and social duties to their children."

7. Because "... there exist materially similar situations with diametrically opposite solutions, especially in the choice for separate taxation of income for Married and De Facto Unions, innovation from the 'IRS Reform' enshrined in article 13, no. 2 of CIRS," the "...disapplication of the norms is imperative, by reason of their material unconstitutionality and in full exercise of the powers of concrete constitutional review enshrined in article 204 of CRP, which lead to the disregard of dependents as members of the family unit for tax purposes, thus operating an analogical integration of the relevant norms applicable to De Facto Unions and Marriages that choose separate taxation of income, that is, allowing the application of the family quotient and tax deductions to both parents in proportion to their contribution." This is because, "... tax deductions are not an exceptional norm, being instead a criterion for correcting the amount in collection, to adapt it to the actual contributory capacity of Taxpayers."

In submissions the Claimant further refers:

1. "As referred to in the initial petition, the fact that he cannot see fiscally recognized his burden with his dependents, in a situation equal to that in which married and de facto union taxpayers with burden with dependents find themselves, places the claimant in a situation of inequality before the regime of guarantees granted to the family and the fundamental rights of citizens established in the C.R.P. (articles 26 no. 1, 36 nos. 1 and 4 and 67)."

2. "Article 104, no. 1, calls the tax system within the scope of this protection, imposing on the IRS, as an income tax, the obligation to take into account not only the income of the family, but also its needs. This means that the IRS must attend to the burdens borne by the family."

3. "By application of nos. 7 and 9 of article 13 of CIRS, the Claimant sees his right to the tax treatment due to him in accordance with articles 69, no. 1 and 78, no. 9 impaired. This treatment seeks the defense of his family, as established in the constitutional provisions referred to above of articles 26, 36 and 67 of the CRP. For this reason, the non-application of the norms provided for in those nos. 7 and 9 of article 13 must be declared by the court."

4. "Indeed, its application results in the disregard of the dependents in the family of the claimant, a fact that can have no other recognition than that of its concrete unconstitutionality. In these terms, the action of the court cannot be other than the use of its powers of concrete constitutional review."

5. "... the recognition of expenses incurred by a taxpayer with his dependents is part of the content of the defense of the family unit that is sought by articles 36 and 67 of the CRP and this cannot fail to be recognized by the court, since this is what article 104, no. 1 imposes," resulting from "... the above that the exceptions invoked by AT do not obtain: neither of material incompetence nor of passive illegitimacy. Similarly, it does not demonstrate that party, by challenge, any reason for the disapplication of the CIRS norms invoked."

The Claimant concludes by requesting that the TAS

"... disapply the norms contained in nos. 7 and 9 of article 13 of the IRS Code, as they are affected by material unconstitutionality, proceeding to the consequent annulment of the assessment act in question for lack of law defect, correcting the respective assessment."

Now, before this concrete request and this concrete cause of action, the TAS cannot conclude that it is an incidental request for successive and concrete constitutional review (articles 277 and 280 of CRP), as configured by the Claimant.

That is, independently of the merit of the substantive question, which, as referred to above, seems to us to have all the potential to merit a declaration of unconstitutionality (successive and abstract) of the norms contained in nos. 7 and 9 of article 13 of the IRS Code, the truth is that the entire logic of the present request for pronouncement is founded solely on the illegality of the assessment, by being in disharmony with constitutional principles.

If the TAS "disapplied" the norms contained in nos. 7 and 9 of article 13 of the IRS Code, as requested, certainly in the mandatory appeal that would be filed from the decision by the Public Ministry, summary success would be obtained in the Constitutional Court, on the grounds of incompetence of the TAS (or of any other court), given this proceeding is not an incident of another question brought to the dispute. That is, it is not possible, in our legal order, to file an action or a direct appeal of unconstitutionality.

This is what results from the Decision of the Central Administrative Court of the South, filed in case no. 02791/99 cited by the Respondent:

"... thus, the knowledge of the merit of the present appeal would translate into an abstract review of constitutionality, implying its success the declaration of unconstitutionality of the regulatory norms with binding general force. Now, in accordance with article 281, no. 1, paragraph a) of CRP, such review is the exclusive competence of the Constitutional Court and is expressly excluded from the competence of administrative courts, by no. 5 of article 11 of ETAF, which can only know the question of unconstitutionality as an incident, with regard to another question submitted to them and not in a direct action or appeal of constitutionality. Therefore, this Court is not competent to know the present appeal, as the Constitutional Court is the body to which the abstract review of constitutionality is assigned."

In the first place it should be noted that arbitral (tax) tribunals can only decide according to "constituted law" (no. 2 of article 2 of RJAT).

Secondly, the norms on organization and procedure in administrative and tax courts are of subsidiary application to tax arbitral proceeding, as flows from article 29, no. 1, paragraph c) of RJAT.

In this way, the TAS cannot admit, on pain of violating the rules of its competence, the present request for arbitral pronouncement, being the dilatory exception of material incompetence upheld, from which follows the absolution of AT from the instance, in accordance with the joint provisions of articles 278, no. 1, paragraph a) and 576, nos. 1 and 2 of CPC, applicable ex vi article 29, no. 1, paragraph e) of RJAT.

The remaining questions are prejudiced, namely the appraisal of the other exception raised by the Respondent and appraisal of the request for condemnation of AT in the payment of compensatory interest.

Determination of the Value of the Cause

In the request for pronouncement the Claimant begins by referring that he requests the constitution of the Arbitral Tribunal: "... for appraisal of the legality of the assessment of Personal Income Tax (IRS), identified by document number 2016 ...(in accordance with a copy of the assessment note which is hereby attached as Document no. 1)."

The Claimant did not attach Document no. 1, but the Respondent attached it through PA1, indicating that assessment number 2016..., relating to the taxpayer ... and for the income period of 2015-01-01 to 2015-12-31, resulted in a net IRS collection of € 34,293.02, a value which, deducting payments on account and withholding at source and adding the surtax of € 3,009.39, results in an amount to pay of 994.06 euros.

In no. 1 of article 1 of the request for pronouncement it is stated: "The present Request for Arbitral Pronouncement has as its object the tax act of IRS Assessment better identified above."

The request for pronouncement concludes by referring: "It is requested from the learned tribunal that it disapply the norms contained in nos. 7 and 9 of article 13 of the IRS Code, as they are affected by Material Unconstitutionality, proceeding to the consequent annulment of the assessment act in question for lack of law defect, correcting the respective assessment."

Finally, the value of the economic utility is attributed by referring: "Hereby indicates the value of the process: € 994.06."

Article 97A of CPPT, under the heading "value of the cause" states: "1 - The amounts receivable, for the purposes of court fees or other purposes provided for in law, for actions that take place in tax courts, are the following: a) When an assessment is challenged, the amount whose annulment is sought."

In an annotation to article 97A in CPPT, Volume II, 6th Edition, 2011, by Jorge Lopes de Sousa, it is stated: "In view of the rule of paragraph a) of no. 1 of this article 97-A, it must be concluded that, when a tax assessment act is challenged, the value of the proceeding is only the amount whose annulment is sought, which will be that of the assessment itself, if total annulment is sought, or the value of the part challenged, if only partial annulment is sought."

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

The Claimant comes to challenge the assessment without having referred that he did so partially, being certain that when he refers "hereby indicates the value of the process: € 994.06," such indication is not in conformity with article 97A of CPPT, since what is not challenged are reimbursements or amounts to pay (for the reason that they are deducted, for example, from withholding at source and payments on account), but rather the assessments (either totally or partially, in which latter case should be specified or quantified the amounts, the specific importance in question, albeit approximate, that one seeks to see annulled, with the arithmetic operations leading to this, in view of the assessment note).

In view of the foregoing, the value of the economic utility is fixed at 34,293.02 euros, the amount corresponding to the net IRS collection appearing in the assessment note, placed entirely in question by the Claimant.

V - JUDGMENT

On the grounds and in the terms set out above:

• The dilatory exception of material incompetence of the TAS to appraise the present request for arbitral pronouncement is upheld, since in the reading here made, it is not an incidental request for successive and concrete constitutional review (articles 277 and 280 of CRP).

• The Tax Authority is absolved from the instance, in accordance with the joint provisions of articles 278, no. 1, paragraph a) and 576, nos. 1 and 2 of CPC, applicable ex vi article 29, no. 1, paragraph e) of RJAT.

• The knowledge of the remaining requests is prejudiced.

Value of the process: in accordance with the provisions of article 3, no. 2, of the Regulation of Fees in Tax Arbitration Proceedings (and paragraph a) of no. 1 of article 97A of CPPT), the value of the process is fixed at 34,293.02 euros.

Fees: in accordance with the provisions of article 22, no. 4, of RJAT, the amount of fees is fixed at € 1,836.00 according to Table I attached to the Regulation of Fees in Tax Arbitration Proceedings, to be borne by the Claimant.

Notify.

Lisbon, 24 May 2017

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared by computer in accordance with the provisions of article 131, no. 5, of CPC, applicable by reference from article 29 of RJAT.

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