Process: 755/2014-T

Date: May 5, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

CAAD Process 755/2014-T addresses fiscal residence determination when a Portuguese taxpayer relocates to Angola for employment. The claimant moved to Angola in February 2013 under an employment contract and secondment agreement with Bank B, remaining there for 215 days during 2013. He formally declared his change of residence to Angolan authorities in July 2013 and to the Portuguese Tax Authority in November 2013. The dispute centers on whether Portuguese-source employment income should be taxed at the 25% liberatory rate applicable to non-residents under Article 71(4)(a) of the IRS Code, rather than the higher withholding rates applied by his Portuguese employer. The claimant sought reimbursement of €6,948.52 in excess withholding. The Tax Authority contested the non-resident status, arguing that physical presence abroad exceeding 183 days is insufficient alone, noting the employer continued withholding as a resident, the claimant failed to inform his employer of the status change, and no Angolan tax residence certificate was provided. The case examines the interplay between the 183-day rule, formal residence declarations under Article 99(2)(b) of the IRS Code, the presumption of declarative truth under Article 75 of the General Tax Law, and employer withholding obligations. The decision has implications for determining when non-resident tax treatment begins and whether compensatory interest is owed for unlawful assessments.

Full Decision

ARBITRAL DECISION[1]

  1. Report

A - General

1.1. A, resident at …Street, Republic of Angola, taxpayer no. …, (hereinafter referred to as "Claimant"), submitted, on 31.10.2014, a request for the constitution of a sole arbitral tribunal in tax matters, which was accepted, seeking the declaration of illegality of the decision to reject the Administrative Review no. … and consequent annulment of the tax assessment act for Personal Income Tax (hereinafter "PIT") no. 2014 …, of 12.08.2014, relating to the year 2013, which constitutes document no. 2 attached to the case file with the request for arbitral pronouncement.

1.2. Pursuant to the provisions of subparagraph a) of section 2 of article 6 and subparagraph b) of section 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Center for Administrative Arbitration (CAAD) designated Nuno Pombo as arbitrator, and the parties, after being duly notified, did not manifest opposition to this designation.

1.3. By order of 12.11.2014, the Tax and Customs Authority (hereinafter referred to as "Respondent") proceeded to designate Messrs. Dr. … and Ms. Dr. … to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provisions of subparagraph c) of section 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 07.01.2015.

1.5. On 19.01.2015, the head of the service of the Respondent was notified to, if willing, within a period of 30 days, present a response and request additional evidence production.

1.6. On 12.02.2015, the Respondent submitted its response.

B – Position of the Claimant

1.7. The Claimant is non-resident, for tax purposes, in Portuguese territory, having its tax residence in the Republic of Angola.

1.8. The Claimant has resided since 06.02.2013 in the Republic of Angola, where he exercises his professional activity at Bank B (hereinafter "B"), following an employment contract concluded with that credit institution and the secondment agreement concluded between the Claimant, B and Bank C, S.A., both from February 2013.

1.9. The Claimant went to Angola on 06.02.2013, and, during that same year, remained there for 215 (two hundred and fifteen) days.

1.10. When renewing his citizen card, the Claimant declared to the competent services of the Institute of Registries and Notaries, on 02.07.2013, that he resided in the Republic of Angola, at …, on …Street.

1.11. On 11.11.2013, the Claimant communicated to the Respondent the change of residence, through the submission of a declaration of change of residence for tax purposes and appointment of tax representative.

1.12. Thus, the employment income from Portuguese source earned by the Claimant in 2013, including that earned up to October 2013, should have all been subject to a liberatory rate of 25%, pursuant to subparagraph a) of section 4 of article 71 of the PIT Code.

1.13. It turns out that the employment income from Portuguese source earned by the Claimant up to October 2013 was subject to a withholding rate at source higher than that which should have been applied, which is why the Claimant submitted, on 30.04.2014, a Form 3 income declaration (although he was exempt from doing so), including therein only the income he had earned in 2013 in Portuguese territory up to October 2013.

1.14. On 31.07.2013 the Claimant received from the Respondent the information that there was a discrepancy in his income declaration, and therefore, even though he was not obliged to do so, on 07.08.2014, he included in the Form 3 income declaration, also the employment income from Portuguese source earned in the months of November and December 2013, which had been correctly taxed at the liberatory rate of 25%.

1.15. The next day, on 08.08.2014, he received information from the Respondent, inviting him to replace the Form 3 income declaration, including therein only the Portuguese source income earned by him up to October 2013, the Respondent having considered that this income had been subject to taxation at the liberatory rate of 25%, when in fact it had been effectively subject to withholding at source at the rate of 34%.

1.16. The Respondent does not recognize the non-resident status of the Claimant, and consequently ignores his right to be reimbursed for the amounts of tax withheld in excess, corresponding to the difference between the withholding rate at source applied to the employment income from Portuguese source that he earned up to October 2013 and that which should have been applied for these purposes, in the amount of €6,948.52 (six thousand nine hundred and forty-eight euros and fifty-two cents).

C – Position of the Respondent

1.17. The Respondent, in its response, expresses the understanding that the case raises the discussion on the "attribution of responsibility for the excess withholding" suffered by the Claimant regarding the year 2013, which implies that his residence for tax purposes in that same year must be demonstrated.

1.18. The employment income from Portuguese source earned by the Claimant up to October 2013 was paid by Bank C, his employer entity, which, since February 2013, promoted the secondment of this employee so that he would work temporarily in Angola.

1.19. The Respondent therefore finds it strange that the entity responsible for the secondment ignores the non-resident status of the Claimant, effecting the necessary withholdings at source as if he were a resident.

1.20. Subparagraph b) of section 2 of article 99 of the PIT Code provides that holders of employment income are obliged to present a declaration to the entity owing the income containing the essential data relating to their personal and family situation, as well as any other fiscally relevant information that occurs subsequently, it not having been demonstrated that the Claimant informed Bank C, S.A. of his status as "non-resident", and the bank did not apply to this income a withholding rate at source different from that which resulted applicable based on the information provided by the Claimant.

1.21. The Respondent also notes that the Claimant never contested the withholdings effected by Bank C, and therefore the behavior of the Claimant, contrary to what it had previously accepted, violates the principle of good faith to which it is equally bound.

1.22. Although the Respondent admits that the Claimant communicated the change of his tax domicile to Angola on 11.11.2013 (after having transmitted this same information in August 2013, when renewing his citizen card), it must be recognized that the principle of declarative truth enshrined in article 75 of the General Tax Law is a presumption "iuris tantum", and therefore the Respondent can "require the presentation of means of proof that demonstrate its veracity".

1.23. The mere fact that someone remains outside Portuguese territory for more than 183 days is not sufficient to conclude their non-residence for tax purposes in that same territory.

1.24. Moreover, in the view of the Respondent, it is symptomatic that the Claimant never presented and attached to the case file a copy of a tax residence certificate in Angola.

D – Conclusion of the Report

1.25. By order of 09.03.2015, the arbitral tribunal waived the meeting provided for in article 18 of the Legal Framework for Arbitration in Tax Matters (LFATM), since it was of the view that the parties had submitted to the proceedings all the factual elements necessary and sufficient for rendering the decision.

1.26. By petition of 17.03.2015, the Claimant expressed the view that said meeting should not be waived, with the Respondent opposing this request.

1.27. The arbitral tribunal, taking into account the position of the parties, decided to schedule the meeting for 21.04.2015, inviting them, if willing, to present their oral arguments thereat, which both did, following the argumentative line already set out in the case file.

1.28. The arbitral tribunal is materially competent, pursuant to the provisions of articles 2, section 1, subparagraph a) of the LFATM.

1.29. The parties have judicial personality and capacity and have legitimacy pursuant to article 4 and section 2 of article 10 of the LFATM, and article 1 of Ordinance no. 112-A/2011, of 22 March.

1.30. The cumulation of claims made in the present request for arbitral pronouncement, in homage to the principle of procedural efficiency, is justified insofar as article 3 of the LFATM, by expressly allowing the possibility of "cumulation of claims even if relating to different acts", accommodates, without interpretive abuse, the consideration of a claim that flows, in necessary terms, from the judgment that the arbitral tribunal endorses regarding the validity of the assessment called into question.

1.31. The proceedings do not suffer from any nullity nor were any exceptions raised by the parties that prevent the consideration of the merits of the case, and therefore the conditions are met for rendering the arbitral decision.

  1. Factual Matters

2.1. Facts Proved

   The following facts are considered proved:

2.1.1. On 20.02.2013, although with effects as of 02.02.2013, a secondment agreement was concluded between the Claimant, B and Bank C, S.A., whereby the Claimant accepted to exercise professional functions in the Republic of Angola (doc. no. 3, attached with the request for arbitral pronouncement).

2.1.2. On 14.02.2013 the Claimant and B concluded an employment contract, whereby the former obliged himself to work for the latter at its headquarters in Luanda "or at any other location where it is located" (doc. no. 5, attached with the request for arbitral pronouncement).

2.1.3. The Claimant traveled to Angola on 06.02.2013, and, during that same year, remained there for 215 (two hundred and fifteen) days (docs. no. 6 to no. 11, attached with the request for arbitral pronouncement).

2.1.4. When renewing his citizen card, the Claimant declared to the competent services of the Institute of Registries and Notaries, on 02.07.2013, that he resided in the Republic of Angola, at …, on …Street (doc. no. 12, attached with the request for arbitral pronouncement).

2.1.5. On 11.11.2013, the Claimant communicated to the Respondent the change of residence, through the submission of a declaration of change of residence for tax purposes and appointment of tax representative (doc. no. 13, attached with the request for arbitral pronouncement).

2.1.6. The employment income from Portuguese source earned by the Claimant up to October 2013 was effectively subject to withholding at source at a rate of 34% (article 12 of the request for arbitral pronouncement and doc. no. 14 attached therewith and article 12 of the Respondent's response).

2.1.7. On 30.04.2014 the Claimant presented a Form 3 income declaration, including therein only the Portuguese source income that he had earned up to October 2013, which gave rise to the assessment no. 2014 … (article 9 of the request for arbitral pronouncement and doc. no. 15 attached therewith and articles 14 and 16 of the Respondent's response)

2.1.8. On 07.08.2014 the Claimant presented a new Form 3 income declaration, including therein not only the income referred to in 2.1.7 but also the employment income from Portuguese source earned in the months of November and December 2013, which was taxed at the liberatory rate of 25%, which gave rise to the assessment no. 2014 … (article 10 of the request for arbitral pronouncement and doc. no. 15 attached therewith and articles 14 and 17 of the Respondent's response).

2.1.9. On 08.08.2014 the Claimant presented a third Form 3 income declaration, including therein only the Portuguese source income earned by him up to October 2013, which was invalidated by the system due to the amount of the declared income (article 11 of the request for arbitral pronouncement and doc. no. 15 attached therewith and articles 14 and 18 of the Respondent's response).

2.1.10. In all the Form 3 income declarations presented by the Claimant, box 4 of table 5 was marked, reserved for "non-residents" (article 15 of the Respondent's response).

2.1.11. Until the salary processing of October 2013, the Claimant did not inform Bank C, the entity owing his Portuguese source income, that he was non-resident in Portuguese territory for tax purposes, and therefore the bank proceeded, regarding the income earned by the Claimant up to October 2013, to withhold at source as if he were resident for tax purposes in Portuguese territory (position of the Claimant expressed at the meeting referred to in article 18 of the LFATM).

2.1.12. The Claimant never contested the withholdings effected by Bank C in the payment of the income earned by him up to October 2013 (position of the Claimant expressed at the meeting referred to in article 18 of the LFATM).

2.1.13. On 13.08.2014 the Claimant presented an administrative review against the assessment no. 2014 …, which was rejected by order of the Head of Finance of 14.10.2014.

2.2. Facts Not Proved

   The following facts are considered not proved:

2.2.1. Following the presentation of his Form 3 income declaration on 30.04.2014, the Claimant received information from the Respondent indicating the existence of a discrepancy in that same declaration.

2.2.2. On 08.08.2014 the Claimant received information from the Respondent to the effect of replacing the Form 3 income declaration that he had presented on 07.08.2014, so as to include therein only the Portuguese source income earned up to October 2013.

  1. Legal Matters

3.1. Issues to be Decided

It follows from what has been set out above that the issues to be considered are, in essence:

a) Whether the Claimant, in 2013, should be considered resident for tax purposes in Portuguese territory;

b) Whether, should the request for a declaration of illegality and consequent annulment of the contested assessment be upheld, the Claimant, in the context of the present arbitral proceedings, may obtain a judgment against the Respondent for the payment of indemnification interest regarding the excess withholding at source that it ultimately sustained.

3.2. Tax Residence

3.2.1. The Effects of Tax Residence – Scope of Subjection

Article 13, section 1 of the PIT Code reads that "persons who reside in Portuguese territory are subject to PIT and those who, not residing therein, here obtain income". Therefore, both residents in Portuguese territory and non-residents therein may be subject to PIT. However, they will not be subject to it in identical terms. In fact, it is important to note the scope of tax subjection. Article 15 of the PIT Code provides this distinction:

1 - Where persons reside in Portuguese territory, PIT applies to all their income, including that obtained outside that territory.

2 - In the case of non-residents, PIT applies solely to income obtained in Portuguese territory.

The scope of PIT subjection is so different for a resident and a non-resident that it would be strange if the legislator had left this important determination to the discretion of each individual. This is not the case, as is known. The concept of tax residence is neither in the free discretion of taxpayers, nor could it be, nor is it, and could not be, at the discretion of the tax and customs authority. This determination must be made in the exact terms of the law.

3.2.2. The Criteria for Determining Tax Residence in Portuguese Territory

Article 16 of the PIT Code provides, insofar as relevant to the case, as follows:

1 - Persons are resident in Portuguese territory who, in the year to which the income relates:

a) Have remained therein for more than 183 days, consecutive or interpolated;

b) Having remained for a shorter period, there have, on 31 December of that year, housing in conditions that suggest the intention to maintain and occupy it as habitual residence;

(…)

The legislator chose as the first criterion for determining tax residence in Portuguese territory the temporal connection with it, to the extent of considering as tax resident in Portuguese territory anyone who has remained therein for more than 183 days, consecutive or interpolated. A contrario, it would be said that anyone who has remained in Portuguese territory for fewer than 183 days will be considered non-resident. This criterion, because objective, does not raise particular difficulties in its application, operating by the simple demonstration of someone's physical presence in Portuguese territory.

In the case brought before this arbitral tribunal, there is no doubt whatsoever that the Claimant, during the year 2013, did not remain in Portuguese territory for more than 183 days, even if interpolated.

However, it should not be thought that this is the definitive and final criterion. It is not. In fact, pursuant to subparagraph b) of section 1 of this provision, anyone who, having remained therein in a given calendar year for fewer than 183 days, there has, on 31 December of that year, housing in conditions that suggest the intention to maintain and occupy it as habitual residence, will also be considered resident in Portuguese territory.

3.2.3. Obligation to Communicate Tax Domicile

Tax domicile of individuals is understood to be the place where they have their habitual residence[2]. The legislator does not define the concept of "habitual residence", used also, as we have seen, to attract to Portuguese territory the tax residence of those who, having remained therein for fewer than 183 days, there have, on 31 December of the year in question, housing in conditions that suggest the intention to maintain and occupy it as habitual residence.

Dictionary writers teach that "residence" is the place where someone establishes their abode during a certain period. It is a concept that, more than mere presence, suggests on the part of the inhabitant a certain intentional permanence. It is not surprising, therefore, that the adjective chosen by the legislator to qualify this residence is "habitual", which is to say, routine, customary. However, as it also seems to emerge with crystal clarity, the period determining for this determination will not coincide with eternity. Thus, "habitual residence" will not be synonymous with "lifelong residence".

Now, because precisely the concept of habitual residence is volatile, susceptible to change, the legislator imposed, in section 3 of article 19 of the General Tax Law, the obligation of taxpayers to communicate their respective domicile to the tax authority. As is evident, no one is in better conditions to declare the domicile of someone than the person themselves. It is moreover a natural consequence of the principle of good faith by which the relations between the tax administration and taxpayers must be guided that it should impose upon these the duty to communicate their domicile and upon the latter the duty to adhere to what is communicated to it.

However, the provision we have just cited is even more specific. It is not enough for the taxpayer to communicate the domicile. This communication must be made "in accordance with the law". This care is also understood. The legal order itself chooses the means by which the declarations of taxpayers before the tax authority are to produce their effects. Legal certainty demands that rigor be used in communications of this nature, given their consequences. Because in fact, upon them depends the normal development of the legal relationship established between the taxpayer and the State, as tax creditor.

The consequence, for the taxpayer, of non-communication, in accordance with the law, of the change of their domicile, is that this change is unenforceable against the tax authority. It would not be reasonable to consider effective, for tax purposes, against the administration, a change of domicile that it does not know of or has no obligation to know. Hence, section 4 of article 19 of the General Tax Law renders unenforceable the change of domicile while it is not communicated (in accordance with the law, it is understood) to the tax authority.

3.3. The Communication of the Change of Tax Domicile Made by the Claimant

Following the above, it is important to verify whether the Claimant communicated, in accordance with the law, the change of his domicile to the Republic of Angola.

It was demonstrated in the case file that the Claimant proceeded to renew his citizen card on 02.07.2013, having declared on that occasion that his residence had changed to the Republic of Angola, more precisely at …, ….

Now, as the Claimant rightly recalls, the tax and customs authority in section 4.1 of the circular letter no. …, of 26.02.2013 states that "pursuant to the provisions of articles 13, section 3 and 20, section 2 of Law no. 7/2007, of 5 February, which created the citizen card, the change of tax domicile of taxpayers who are holders of a citizen card must be effected with the reception services designated therein". Furthermore, when the Claimant contacted the competent services of the Institute of Registries and Notaries to obtain information about his request for change of domicile, he obtained the following telling response: "I inform you that in similar situations, it is this department that effects the procedures with the tax authorities to ascertain the address listed in that service".

However, the Claimant did not merely wait for the change of domicile communicated when renewing his citizen card to produce its expected and necessary effects with the tax and customs authority. On his own initiative, on 11.11.2013, he expressly communicated to the Respondent the change of tax domicile, through the submission of a declaration of change of residence for tax purposes, accordingly appointing his tax representative.

We thus have not one, but two coinciding declarations made by the Claimant, one in July and another in November 2013. One might pose the problem of whether these declarations were presented in a timely manner, having in view the effects sought by the Claimant with the present request for arbitral pronouncement.

The answer to be given to this question cannot ignore the rule contained in section 7 of article 13 of the PIT Code, according to which "the personal and family situation of taxpayers relevant for tax purposes is that which exists on the last day of the year to which the tax relates". It makes no sense, therefore, to advocate what can be read (not without surprise) in section 4 of the proposed decision of the administrative review opportunely presented by the Claimant: "Having analyzed the elements attached to the case file, it is verified that contrary to what is stated in the initial petition, the complainant in the year in question only on 2013.11.01 changed his status to 'non-resident' appointing his representative on that date as shown in the System of Management and Registration of Taxpayers", as a result of which he meets the conditions to be taxed in the capacity of resident". This statement, strangely endorsed by the hierarchy, not only finds no support in the letter of the law, but contradicts it frontally and grossly. As is evident, what matters is to determine what the personal situation of the Claimant was, whether resident or non-resident, on 31.12.2013. Moreover, pursuant to the law, the quality of resident (and that of non-resident) does not depend on any communication, but rather results from the meeting of factual requirements, to which certain legal effects are associated.

Therefore, it cannot be concluded other than that the Claimant proceeded in accordance with the law to communicate the change of his tax domicile and that he did so in a timely manner, insofar as knowledge of the change of tax domicile reached the tax authority before the end of the year to which the withholdings at source originated the present request for arbitral pronouncement. Note, however, that this statement, by itself, does not authorize the conclusion that the Claimant should then be considered non-resident in Portuguese territory in the year 2013.

   3.4. The Presumption of Veracity of What is Declared

If it is true that one cannot extract from the adequate and timely communication of the change of domicile to foreign territory the necessary conclusion that the Claimant should be considered non-resident in Portuguese territory in the year 2013, it is equally true that from this declaration it is important to draw the proper legal consequences.

Section 1 of article 75 of the General Tax Law expressly enshrines the presumption of veracity of the declarations of taxpayers, when presented in accordance with the terms provided by law. It is important not to lose sight of the sense and scope of this genuine legal presumption. Faced with a declaration presented by the taxpayer in accordance with the law, as is the case, it will be incumbent upon the tax authority to demonstrate that what is declared cannot be accepted.

Thus, if it is understood that a taxpayer declared in accordance with the law the change of his domicile (even if to a foreign country), that declaration will be presumed true until the tax authority demonstrates that, notwithstanding the formal perfection of the declaration, the stated change cannot be accepted because it does not correspond to the truth. This presumption constitutes a true reversal of the burden of proof.

The Respondent is right when it states, in article 36 of its response, that "the principle of declarative truth enshrined in article 75 of the General Tax Law is a presumption iuris tantum, which is why the Tax Authority can always place in question what is declared by the taxpayer".

This statement, which is accepted as an indisputable principle, cannot be read with a breadth capable of frustrating the sole useful effect of said legal presumption. That is, it is at the very least premature, not to say abusive, to conclude that the tax and customs authority can demand of the taxpayer the presentation of means of proof demonstrating the veracity of what is declared. Because the understanding that the presumption of veracity of which we have spoken is rebuttable, as it effectively is, can only mean that the tax and customs authority can present (and not demand from anyone) the demonstration that what is declared by the taxpayer does not correspond to the truth. Upon examination of the case file, it is manifest that the Respondent, at no point, not even in its response, presented this demonstration.

It is therefore illegitimate, excessive and improper the Respondent's claim that it would be incumbent upon the Claimant to declare in accordance with the law the change of tax domicile, appoint his tax representative, demonstrate that during the year 2013 he did not remain in Portuguese territory for more than 183 days, and also prove that, on 31.12.2013, he did not have housing therein in conditions suggesting the intention to maintain and occupy it as habitual residence. This evidentiary effort, as has been sought to be demonstrated, is not authorized by law.

Nor does the law make non-residence in Portuguese territory dependent on residence in any other territory, which is why it will not be advisable to draw consequences from the non-presentation by the Claimant of a never-requested tax residence certificate in the Republic of Angola.

Nor is it conceivable to refuse the quality of non-resident in Portuguese territory of the Claimant with the argument that his Angolan employer entity hired him, in February 2013, as a "non-resident foreigner", when in fact it follows from the contract itself the necessity of the employee to provide his work, for three years, in Angolan territory.

   3.5. Conclusion

By the foregoing, the arbitral tribunal is of the view that the decision to reject the administrative review opportunely presented by the Claimant, by which he requested reimbursement of what was withheld in excess by Bank C, S.A. upon payment of his income up to October 2013, is illegal.

This conclusion, contrary to what the Respondent suggests in its response, does not call into question the conduct of the entity owing that income. In fact, Bank C, S.A., in the absence of communication by the taxpayer, could not alter, on its own initiative, the declared personal situation of the taxpayer, but had the duty to proceed with the withholdings at source as before. The inertia of the taxpayer, if it existed[3], is only imputable to the taxpayer himself, and it accordingly falls to him to bear the detriment that resulted from this omission.

   3.6. On Indemnification Interest

Subparagraph b) of section 1 of article 24 of the LFATM provides that "the arbitral decision on the merits of the claim to which no appeal or challenge lies is binding on the tax authority as of the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the granting of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of the sentences of the tax courts, restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose".

It is not ignored that the legislative authorization granted to the Government by article 124 of Law no. 3-B/2010, of 28 April, on the basis of which the LFATM was approved, determines that the tax arbitral proceeding constitutes an alternative procedural means to the judicial challenge proceeding and to the action for recognition of a right or legitimate interest in tax matters. Although subparagraphs a) and b) of section 1 of article 2 of the LFATM ground the competence of arbitral tribunals in "declarations of illegality", it seems reasonable the understanding that his competences include the powers that in judicial challenge proceedings are attributed to the tax courts, and it is certain that in judicial challenge proceedings, in addition to annulment of tax acts, requests for indemnification can be considered, in particular regarding indemnification interest.

In fact, the principle of cognizability of indemnification requests, in administrative review or in judicial proceedings, is justified whenever the damage that is sought to be compensated results from fact attributable to the tax and customs authority. Manifestations of this principle are found in section 1 of article 43 of the General Tax Law and in article 61 of the Tax Procedure and Process Code.

The right to the perception of indemnification interest by the Claimant depends on the verification of the following prerequisites: a) error attributable to the services; b) that from said error results the payment of tax in an amount greater than that legally due; c) that the error of the services be analyzed in administrative review or judicial challenge proceedings.

As is evident, there is no error attributable to the services when the Claimant sees his Portuguese source income up to October 2013 subject to withholding at source at a rate higher than that which proves applicable. But, in fact, this is not what the Claimant alleges. The error of the services is not therefore in the withholding and delivery of the withheld amount to the public treasury.

Recall that the Claimant, regardless of whether or not he was obliged to do so, presented, from 30.04.2014 to 08.08.2014, three Form 3 income declarations. If the second replaces the first, the third did not produce the same effects relative to the second because it was "automatically invalidated by the system". Now, it does not follow from the case file that this succession of declarative events was prompted by the Respondent. The first declaration is replaced by the second and the assessment no. 2014 …, of 12.08.2014, takes that declaration as valid. The third declaration, in view of the understandable standardization of the system, was automatically invalidated, taking into account what had previously been declared by the Claimant, on his exclusive initiative.

Note that the standardization of the system and its automatisms do not in themselves enclose definitive and unassailable positions on the part of the tax and customs authority. Feeling aggrieved, the taxpayer can always resort to the mechanisms that the law places at his disposal to ensure his rights. One of these mechanisms is, precisely, the administrative review.

In the present case, error attributable to the services exists and resides in the refusal of the Respondent to repair what called for evident remedy. From the analysis of the administrative proceedings, it is verified that the Respondent, already in the administrative review stage, could and should have upheld the Claimant's request, as he had transmitted the necessary and sufficient elements for the essential repair of the situation. The Respondent erred when it understood that it should not reimburse the Claimant for the sums withheld in excess and delivered to the State, an error that deserves to be censured pursuant to the law, in particular in light of the provisions of article 43 and article 100 of the General Tax Law. Consequently, the arbitral tribunal is of the view that, in theory, the Claimant has the right to indemnification interest.

A different problem consists in knowing from what period this indemnification interest should be calculated. On this matter, the Claimant remains silent. He merely requests, in terms that are considered appropriate, the indemnification interest to which he may be entitled. It will therefore fall to the arbitral tribunal, insofar as possible, to clarify this question.

As was said, the censurable error of the services does not reside in the excess withholding or in the delivery of this excess to the public treasury. Consequently, these are not the moments relevant for commencing the calculation of the respective interest. The error attributable to the services, as was expressed, consists, in the view of this arbitral tribunal, in the decision to reject the administrative review opportunely presented by the Claimant, and this is the procedurally appropriate means for the repair sought by him. It also makes no sense, in the present case, to consider for these purposes the period between the delivery to the State of the sums wrongly withheld and the decision on the administrative review.

It is important not to lose sight of the fact that the Respondent contributed in no way to the Claimant being deprived of the sums wrongly delivered to the State, and it is also important not to forget that the right to the perception of indemnification interest corresponds, in essence, to the materialization of a generic right to indemnification.

In the case submitted before this arbitral tribunal, it must be recognized that as a result of action by a third party, as occurred with the administrative review, the Respondent could become aware of the illegality of the assessment no. 2014 …, of 12.08.2014. Therefore, relevance cannot be given, for these purposes, to the period prior to the request for administrative review. However, with an undue, illegal and prejudicial decision to the patrimony of the Claimant, the Respondent places itself under the duty to repair the lesion it created in another's patrimonial sphere.

The problem now is whether the date of the decision on the administrative review or any other moment that is not dependent on the conduct of the Respondent should be relevant. Because it cannot fail to be striking the admission of the possibility of the Respondent being prejudiced based on its diligence. When someone files an administrative review of a tax act, they expect the tax and customs authority to consider their claim with the greatest possible promptness, the legislator offering mechanisms aimed at safeguarding the rights and expectations of the claimant in cases where, instead of the desired diligence, he finds himself faced with the inertia of the decision-maker. Now, in the generality of cases, this inertia does not prejudice the claimant. Or rather, in the generality of cases, the law provides for the removal of the damage that the claimant suffers from the inertia of the administration. We say in the generality of cases, because the rule is precisely that indemnification interest begins to be calculated as of the date when the taxpayer finds himself deprived of the sums that are ultimately to be considered his.

As we have seen, the present case assumes different characteristics. In it, the date of delivery to the State of the sums wrongly withheld can never be relevant, for the reasons indicated. Could then the moment of the administration's decision be the relevant temporal moment? If so, it could always be said that, regardless of the outcome of the administrative review, the administration would have no interest in dispatching it before the end of the period it had for doing so. It makes no sense, in the view of this arbitral tribunal, to punish the administration for deciding, even if wrongly, before the end of the period it would have for doing so. Therefore, the moment to be chosen for purposes of commencing the calculation of interest cannot be linked to the conduct of the administration. It must be a moment independent of that conduct.

As was demonstrated, the Respondent contributed in no way to the prejudicial situation of the patrimony of the Claimant. However, once alerted, by procedurally appropriate means, such as administrative review, to the existence of an illegality, it must proceed to "immediate and complete restoration of the situation that would have existed if the illegality had not been committed" (article 100 of the General Tax Law). However, in cases where the illegality is not attributable to the administration, it is from the most elementary reasonableness to admit an appropriate period for the administration, after becoming aware of the illegality, to proceed to the complete restoration of the situation that would have existed if it had not existed.

The legislator understood that one year is an appropriate period for the administration to return to the taxpayer what was paid in excess. This was the time period adopted by subparagraph c) of section 3 of article 43 of the General Tax Law. The legislator understood that from the date of becoming aware of the taxpayer's claim, it is reasonable for the administration to take a year to consider his request, dispatch it, and, if the taxpayer's claim proves justified, return to him what it received from him in excess. Therefore, the arbitral tribunal is of the view that indemnification interest would only begin to accrue one year after the date of the administrative review request, which has not yet occurred.

  1. Decision

Pursuant to the foregoing grounds and considerations, the arbitral tribunal decides:

a) To uphold the request for arbitral pronouncement, declaring the decision to reject the administrative review no. … to be illegal;

b) Consequently, to partially annul the assessment no. 2014 …, of 12.08.2014, in the part relating to the excess withholding at source, condemning the Respondent to reimburse the Claimant for this excess, in the amount of €6,948.52 (six thousand nine hundred and forty-eight euros and fifty-two cents).

c) To dismiss the request for recognition of the right to indemnification interest, as it would only be due as of one year after the filing of the administrative review until full reimbursement.

  1. Value of the Case

In accordance with the provisions of section 2 of article 315 of the Code of Civil Procedure, subparagraph a) of section 1 of article 97-A of the Tax Procedure and Process Code and also section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €6,948.52 (six thousand nine hundred and forty-eight euros and fifty-two cents).

  1. Costs

For the purposes of the provisions of section 2 of article 12 and section 4 of article 22 of the LFATM and section 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €612.00 (six hundred and twelve euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Lisbon, 5 May 2015

The Arbitrator

(Nuno Pombo)

		[1] Text prepared by computer pursuant to the provisions of article 131, section 5, of the Code of Civil Procedure, applicable by referral of article 29 of the LFATM. The drafting of this arbitral decision follows the orthography prior to the Orthographic Agreement of 1990.


	[2] See subparagraph a) of section 1 of article 19 of the General Tax Law.
	


	[3] We say "if it existed" because, as was seen, the quality of resident in Portuguese territory of a given taxpayer (and, symmetrically, that of non-resident) presupposes his remaining therein for more than 183 days.

Frequently Asked Questions

Automatically Created

What determines fiscal residence status for IRS purposes when a taxpayer moves to Angola?
Fiscal residence status for IRS purposes when moving to Angola is determined by multiple factors under Portuguese tax law. The primary test is the 183-day rule established in Article 16 of the IRS Code: a taxpayer is considered non-resident if they do not remain in Portuguese territory for more than 183 days (consecutive or interpolated) in any 12-month period beginning or ending in the relevant year. However, CAAD decision 755/2014-T clarifies that physical absence alone is insufficient. The taxpayer must establish actual residence abroad through concrete elements such as employment contracts, housing arrangements, and formal declarations. The claimant in this case stayed 215 days in Angola in 2013, exceeding the 183-day threshold. Additionally, formal communication to Portuguese authorities is required, including declaring the change when renewing identity documents and submitting a declaration of change of fiscal residence to the Tax Authority with appointment of a tax representative. While the Tax Authority argued that an Angolan tax residence certificate should be provided, the case demonstrates that residence determination involves analyzing the totality of circumstances, including employment relationships, physical presence, and formal declarations, rather than any single factor.
How does the 183-day rule apply to Portuguese tax residence in CAAD decision 755/2014-T?
The 183-day rule in CAAD decision 755/2014-T is applied as a necessary but not solely sufficient condition for determining non-resident status. The claimant remained in Angola for 215 days during 2013, clearly exceeding the 183-day threshold that would establish non-residence in Portugal under Article 16 of the IRS Code. This physical presence test creates a presumption of non-residence, meaning the claimant should not be considered a Portuguese tax resident for that year. However, the Tax Authority contested this straightforward application, arguing that mere physical absence exceeding 183 days does not automatically establish non-residence without additional supporting evidence. The Authority emphasized that the claimant's employer continued applying resident withholding rates, suggesting the claimant may not have properly communicated his status change despite the 183-day absence. The decision highlights that while the 183-day rule is the primary objective criterion, Portuguese tax authorities may examine whether the taxpayer has genuinely established residence abroad through employment contracts, housing arrangements, and formal compliance with notification obligations. The case demonstrates that taxpayers must not only meet the 183-day threshold but also ensure proper administrative compliance, including timely notification to employers and tax authorities and potentially obtaining foreign tax residence certificates.
Can a taxpayer claim non-resident IRS status after relocating abroad for employment?
Yes, a taxpayer can claim non-resident IRS status after relocating abroad for employment, as demonstrated in CAAD case 755/2014-T, but must comply with specific requirements. The claimant successfully argued for non-resident status based on relocating to Angola in February 2013 under an employment contract with Bank B and a secondment agreement between the claimant, Bank B, and Portuguese Bank C. Key requirements include: (1) establishing actual residence abroad by remaining outside Portugal for more than 183 days in the relevant tax year—the claimant stayed 215 days in Angola; (2) having substantive ties to the foreign country through employment contracts and housing arrangements; (3) formally communicating the change of residence to Portuguese authorities through a declaration of change of fiscal residence for tax purposes and appointing a tax representative—the claimant did this in November 2013; and (4) potentially obtaining a tax residence certificate from the country of new residence. Once non-resident status is established, Portuguese-source employment income becomes subject to the 25% liberatory withholding rate under Article 71(4)(a) of the IRS Code rather than progressive rates applicable to residents. However, taxpayers must also comply with Article 99(2)(b) of the IRS Code by informing their Portuguese employer of the status change to ensure correct withholding rates are applied prospectively. Failure to do so may complicate reimbursement claims for excess withholding, though it does not negate the underlying non-resident status.
What are the requirements to communicate a change of fiscal residence to the Portuguese Tax Authority?
To communicate a change of fiscal residence to the Portuguese Tax Authority, taxpayers must follow specific formal procedures as illustrated in CAAD decision 755/2014-T. First, when renewing identity documents such as the citizen card, the taxpayer should declare the new foreign residence to the Institute of Registries and Notaries—the claimant did this on 02.07.2013, declaring residence in Angola. Second, the taxpayer must submit a specific 'declaration of change of residence for tax purposes' (declaração de alteração de residência para efeitos fiscais) directly to the Tax Authority—the claimant submitted this on 11.11.2013. Third, non-residents must appoint a tax representative (representante fiscal) in Portugal who will act on their behalf for tax matters, and this appointment should be included in the declaration. The communication should include essential data about the new foreign residence address and the effective date of the change. Under Article 99(2)(b) of the IRS Code, taxpayers must also inform their Portuguese employer or income payor of any fiscally relevant changes to their personal situation, including residence status changes, to ensure correct withholding rates are applied. The Tax Authority applies the principle of declarative truth under Article 75 of the General Tax Law to these declarations, creating a rebuttable presumption (iuris tantum) that the declared information is accurate, though authorities may require additional proof such as foreign tax residence certificates, employment contracts, or housing documentation to verify the claimed residence change.
Are compensatory interest (juros indemnizatórios) awarded when IRS is unlawfully assessed on a non-resident taxpayer?
Compensatory interest (juros indemnizatórios) are generally awarded when IRS is unlawfully assessed on a non-resident taxpayer, as indicated by the thematic classification of CAAD decision 755/2014-T. Portuguese tax law provides for compensatory interest under Article 43 of the General Tax Law when the State unlawfully retains taxpayer funds through incorrect assessments or excessive withholdings. When a taxpayer is incorrectly treated as resident and subjected to higher withholding rates instead of the 25% liberatory rate applicable to non-residents under Article 71(4)(a) of the IRS Code, the excess amount constitutes an unlawful retention. In this case, the claimant sought reimbursement of €6,948.52 in excess withholding resulting from the application of 34% withholding rates instead of the 25% rate applicable to non-residents on Portuguese-source employment income. If the arbitral tribunal determines that the claimant was indeed non-resident for 2013 and entitled to the lower rate, compensatory interest would run from the date the excess withholding occurred until actual reimbursement. The interest compensates the taxpayer for being deprived of funds that should not have been withheld. The rate and calculation method for compensatory interest are established by law and updated periodically. However, if the tribunal finds that the taxpayer failed to meet obligations such as properly notifying the employer under Article 99(2)(b) of the IRS Code, this could potentially affect the award of interest, though it would not eliminate the right to principal reimbursement if non-resident status is established.