Process: 82/2015-T

Date: October 16, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 82/2015-T addressed whether a Portuguese taxpayer with a 78% permanent disability could retroactively claim IRS tax deductions using a medical certificate obtained after statutory deadlines expired. The taxpayer was diagnosed with cancer in 2009, underwent surgery and prolonged treatment, but only received the Multi-Purpose Medical Incapacity Certificate on July 9, 2013. The IRS assessments for 2009-2011 totaling €48,061.52 did not reflect disability deductions because the taxpayer's annual declarations (filed May 2010-2012) contained no incapacity claims, as documentation was unavailable at filing time. The taxpayer filed gracious complaints on July 30, 2013, which were dismissed as untimely—deadlines had expired in January 2011, December 2011, and December 2012 respectively. Hierarchical appeals were also denied. The Tax Authority argued the supervening document came too late and the taxpayer failed to prove absence of negligence in obtaining certification. Article 13(7) of the CIRS establishes that personal situation relevant for taxation is determined on December 31 of the tax year. The central legal question became whether Article 87 CIRS disability benefits could apply retroactively when certification was obtained years after assessment deadlines, particularly regarding burden of proof under Article 74 LGT that the taxpayer wasn't negligent. The AT did not dispute the medical facts—the 78% incapacity since 2009—but challenged procedural timeliness. The taxpayer requested annulment of dismissal decisions, partial annulment of IRS assessments, and compensatory interest under Article 43 LGT. The arbitral tribunal examined whether the procedural remedy was appropriate, whether claims were time-barred, and critically, whether the taxpayer bore responsibility for the delayed certification during cancer treatment that left him severely weakened.

Full Decision

ARBITRAL DECISION

  1. Report

A…, taxpayer No. ..., resident at Av…, Lisbon, requested the constitution of an Arbitral Tribunal pursuant to the corresponding Legal Framework for Tax Arbitration, for examination of the legality of the assessment acts for Personal Income Tax (IRS) relating to the years 2009, 2010 and 2011, in the amounts of € 14,208.16 (fourteen thousand two hundred and eight euros and sixteen cents), € 7,758.99 (seven thousand seven hundred and fifty-eight euros and ninety-nine cents), and € 26,094.37 (twenty-six thousand ninety-four euros and thirty-seven cents), respectively, all totaling the amount of € 48,061.52 (forty-eight thousand and sixty-one euros and fifty-two cents).

The Defendant is the Tax and Customs Authority (AT).

The request for constitution of the arbitral tribunal was presented on 09-02-2015, having been accepted by the President of CAAD on the 11th of that month and notified to the AT on that same day.

Pursuant to the provisions of subsection a) of paragraph 2 of article 6 and subsection b) of paragraph 1 of article 11 of the RJAT, the Deontological Council designated the undersigned as sole arbitrator, who communicated acceptance of the appointment within the applicable period.

In compliance with the provisions of subsection c) of paragraph 1 of article 11 of the RJAT, the sole arbitral tribunal was constituted on 20-04-2015.

The AT submitted its response in a timely manner.

The meeting referred to in article 18 of the RJAT took place on 09-09-2015, with the parties opting to submit arguments in writing, which they did, reiterating their respective positions.

The arbitral tribunal was regularly constituted and has jurisdiction.

The parties possess legal personality and capacity, are entitled to participate, and are duly represented (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Ministerial Order No. 112-A/2011, of 22 March).

The case is not affected by any nullities.

  1. Subject Matter of the Dispute

The present request for arbitral decision was brought against assessments No. 2010..., No. 2011... and No. 2012…, relating, respectively, to IRS for the years 2009, 2010 and 2011, in a total amount of tax payable of € 48,061.52.

The Claimant lodged a gracious complaint against such assessments. These complaints were dismissed by decisions of the Chief of the Lisbon Finance Service 8, which denied them merit (..., ... and ...). For this reason, the Claimant lodged hierarchical appeals against these dismissals. However, the aforementioned IRS assessments were again upheld, now by decisions dismissing the corresponding hierarchical appeals (..., ... and ...).

2.1 Position of the Claimant

The Claimant requests the annulment of those dismissal decisions, with the consequent partial annulment of the aforementioned IRS assessments, further requesting compensatory interest under article 43 of the LGT. And he bases his request on grounds of violation of the provisions of article 87 of the Personal Income Tax Code (CIRS), due to error attributable to the services.

2.2 Position of the Defendant

For its part, the AT contends for the maintenance in the legal order of the contested tax acts, raising two exceptions (unsuitability of the procedural remedy and, subsidiarily, lapse of the right to act), further specifically impugning the claim.

Very briefly, the Defendant does not contest the factual underlying basis of the tax benefit that the Claimant invokes (partial incapacity commenced in 2009), but rather the untimeliness of the claim, in that proof of that incapacity was made after the expiration of the prescribed period, without the Claimant having demonstrated that the subsequent obtaining of the document proving incapacity is not due to his own negligence.

2.3 Summary

From the foregoing it follows that the controversial legal matter consists of determining whether the proceedings are appropriate and whether the claim is or is not untimely.

In fact, once the preliminary procedural question is overcome, the controversial matter of fact in the case, and for which the burden of proof, in accordance with the provisions of paragraph 1 of article 74 of the LGT, falls upon the Claimant, will consist of determining the existence or absence of responsibility on his part in obtaining the medical certificate, only on a date subsequent to the lapse of the right to lodge a gracious complaint against the IRS assessments in question.

  1. Matters of Fact

3.1 Proven Facts

a) In 2009, a tumor was diagnosed in the now-Claimant, following which he underwent surgical intervention, with the subsequent biopsy revealing it to be a carcinoma (cancer).

b) The Claimant underwent prolonged treatment that weakened him with no possibility of recovery.

c) The Claimant possesses a permanent global incapacity of 78% since 2009.

d) On 09 July 2013 a medical certificate was issued certifying this incapacity and that it has been in place since 2009.

e) The Claimant submitted on 27 May 2010 his IRS Declaration Form 3 for the year 2009, on 31 May 2011 the declaration for the year 2010, and on 31 May 2012 the declaration for the year 2011.

f) In these declarations the Claimant did not report any incapacity.

g) At that time the Claimant did not have proof of this incapacity.

h) For this reason, the IRS assessment acts relating to those years did not take into account any incapacity of the Claimant.

i) The Claimant submitted, on 30 July 2013, a gracious complaint regarding each of the IRS assessment acts (relating to 2009, 2010 and 2011).

j) These complaints were subject to dismissal, on the grounds that each of them: "to be delivered within the legal period, would have had to be submitted by 2011-01-10, [for the year 2009; "by 2011-12-26", for the year 2010; and "by 2012-12-27" for the year 2011] pursuant to the combination of articles 140 of the CIRS, paragraph 1 of article 70 of the CPPT, when on that date the complainant still did not possess the Multi-Purpose Medical Incapacity Certificate, which was only issued on 09-07-2013, and therefore on that date the legal period for filing the gracious complaint had already elapsed".

k) The Claimant lodged a timely hierarchical appeal against the dismissal of the gracious complaints referred to above.

l) By official letter No. 13891 of 30.09.2014 the Claimant was notified to "attach a copy of the medical board request (…) referred to in the written pleadings in the gracious proceedings.

m) The Claimant never attached such copy, nor indicated on what date the medical board was requested by him.

n) On 18 November 2014 the Claimant was notified of the decision to dismiss the hierarchical appeal relating to the year 2009.

o) The dismissal was based on the following grounds:

  1. "The passive subject, with an assigned incapacity of 78%, intended to benefit from the regime provided for in article 87 of the Personal Income Tax Code (CIRS) for persons with disabilities, as well as from the reduction of the taxable base by 10% (limited to € 2,500.00) in the year in question - 2009 - pursuant to article 69, paragraph 1 of Law No. 64-A/2008, of 31/12 (State Budget Law for 2009).

  2. Article 13, paragraph 7 of the CIRS provides that 'The personal and family situation of passive subjects relevant for purposes of taxation is that which exists on the last day of the year to which the tax pertains.'

  3. This means that, as regards the year 2009, the personal situation of the appellant verified on 31 December of that year was that of a person without disabilities, as there was no element, at that date, which demonstrated the contrary.

  4. It should be emphasized that this personal situation is the one which applies for tax purposes, for taxation. The condition resulting from illness and the resulting incapacity (nor the suffering he had to endure) is not questioned in any way.

  5. However, for the retroactive effect of the declaration of incapacity to assume tax relevance, it is necessary that the passive subject demonstrate the so-called 'supervening document', that is, that he alleges and proves that he could not obtain, or have at his disposal, on a date prior to that which appears as the date of issue of the document, despite having made efforts and diligences in that direction."

  6. This is the understanding that has been followed by the services and which results from the combination of the following documents:

a) Administrative doctrine set forth in Circular No. 15, of 14/09/1992 of the IRS Service Directorate, namely in its paragraphs 2, 'the documents proving tax-relevant disability only produce effects from the date of their issue, it being considered, however, for purposes of assessment, the personal situation of the passive subject on 31 December of each year, without prejudice to the provisions of the following paragraph,' and 3, 'If the documents proving tax-relevant disability state that it expressly applies to a date prior to their respective issue, the same may substantiate the filing of a gracious complaint or judicial challenge against IRS assessments for previous years, provided that the legal period for such purpose still runs.';

b) Article 70, paragraph 4, of the CPPT, 'In case of a supervening document or judgment, as well as any other fact that could not have been invoked within the period provided for in paragraph 1, this period is counted from the date on which it became possible for the complainant to obtain the document or know the fact.'; and

c) Article 74, paragraph 1 of the LGT, which determines that, 'The burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers rests upon whoever invokes them.'

  1. However, nothing in the case shows the impossibility for the passive subject of obtaining the medical incapacity certificate at a moment prior to that in which he obtained it, namely on the date declared as the beginning of the incapacity.

  2. In fact, without detracting from the serious and grave difficulties which illness and treatments certainly brought to the life of the appellant, it is the understanding of these Services that even so, these would not prevent efforts to obtain the incapacity certificate at a moment prior to that in which he did so.

  3. Moreover, having been notified that the appellant should attach a copy of the medical board request – in order to determine the date on which it was submitted – the appellant stated that he does not possess any type of document proving this request (…).

  4. Therefore, we understand that proof has not been made of the supervening nature of the medical incapacity certificate, for the purposes provided for in article 70, paragraph 4 of the CPPT.

  5. Given that such proof is an obligation of the passive subject, as we have seen above (point No. 13)."

  6. Thus, we conclude that on 30/07/2013 – the date of submission of the gracious complaint – the 150-day period for filing a gracious complaint regarding the IRS assessment for 2009 of the appellant had already elapsed, as results from the combination of the provisions of article 140, paragraph 4, subsection a) of the CIRS and article 70, paragraph 1 of the CPPT.

  7. In fact, having the appellant been notified of the 2009 IRS assessment on 23/08/2010, the 150-day period for filing the respective gracious complaint ended on 20/01/2011.

  8. Accordingly, it appears that the decision of the Lisbon Finance Service 8 was correct, and we are of the opinion that the present appeal should be dismissed.

(…)

In these terms, and based on the grounds set forth above, the present hierarchical appeal should be dismissed, and the appellant is dispensed from the hearing provided for in subsection b) of paragraph 1 of article 60 of the LGT, having already been heard previously on the matter under discussion, there being no new facts suitable to alter the direction of the decision and the tax administration being merely making the interpretation and application of the legal norms it considers applicable to the case."

p) This reasoning was followed in the dismissal of the hierarchical appeals relating to the other years.

q) Thus, for 2010 it is stated that:

  1. Thus, we conclude that on 30/07/2013 – the date of submission of the gracious complaint – the 150-day period for filing a gracious complaint regarding the 2010 IRS assessment of the appellant had already elapsed, as results from the combination of the provisions of article 140, paragraph 4, subsection a) of the CIRS and article 70, paragraph 1 of the CPPT.

  2. In fact, having the appellant been notified of the 2010 IRS assessment on 1/08/2011, the 150-day period for filing the respective gracious complaint ended on 29/12/2011.

  3. Accordingly, it appears that the decision of the Lisbon Finance Service 8 was correct, and we are of the opinion that the present appeal should be dismissed."

r) And with reference to the year 2011 it is stated that:

  1. Thus, we conclude that on 30/07/2013 – the date of submission of the gracious complaint – the 150-day period for filing a gracious complaint regarding the 2011 IRS assessment of the appellant had already elapsed, as results from the combination of the provisions of article 140, paragraph 4, subsection a) of the CIRS and article 70, paragraph 1 of the CPPT.

  2. In fact, having the appellant been notified of the 2011 IRS assessment on 2/08/2010, the 150-day period for filing the respective gracious complaint ended on 31/12/2012.

  3. Accordingly, it appears that the decision of the Lisbon Finance Service 8 was correct, and we are of the opinion that the present appeal should be dismissed."

3.2 Unproven Facts

It was not proven on what date the medical certificate proving the Claimant's incapacity was requested, nor the reasons why it was only issued on 09.07.2013, namely that it was only then due to reasons beyond the Claimant's control.

3.3 Justification of the Determination of the Matters of Fact

The proven facts are based on the allegations of the parties and on the documents offered, the correspondence of which to reality is not disputed, with the exception of the cause of the supervening nature of the medical certificate in question.

  1. Matters of Law

The Claimant combines three claims: the annulment of the IRS assessments for 2009, 2010 and 2011. However, with regard to any one of these assessments, what is at issue is whether they suffer from a defect of violation of law by not considering the provisions of article 87 of the CIRS, that is, the incapacity that came to be recognized for the Claimant. But the possibility of analyzing the validity of any one of these assessments depends on the Claimant still having a period within which to act, which means determining whether a document issued in 2013 is a relevant supervening fact for this purpose or not.

4.1 Joinder of Claims

That is, there is joinder of claims, but these are similar (partial annulment of three successive IRS assessments to the same passive subject), with the same legal ground (article 87 of the CIRS – Deduction relating to persons with disabilities) and of fact (incapacity thereof), and in all three claims the same question of timeliness is raised (untimeliness due to expiration of the period).

As already mentioned, the question at issue in the present action consists of determining whether the incapacity that came to be recognized for the Claimant should be relevant for determining the quantum of IRS due in the years 2009, 2010 and 2011. And for this purpose it is fundamental to decide whether the recognition of this incapacity only occurred in 2013 for some reason beyond the Claimant's control.

It is thus fully justified that the claims be joined (article 3, paragraph 1 of the RJAT), since they are based on the same factuality and the same legal question.

4.2 Exceptions: Suitability and Procedural Timeliness

However, as mentioned, the Defendant raises two exceptions capable of preventing the examination of the merits of the claim, which is why they should be analyzed previously. These are the lack of suitability of the procedural remedy used and, subsidiarily, the lapse of the right to act.

As regards the "unsuitability of the procedural remedy," the Defendant alleges that the claim and the cause of action in the present arbitral decision correspond solely to the decisions handed down in hierarchical appeal proceedings, by which the decisions that refused to grant the complaints lodged by the Claimant were upheld, on the ground of their untimeliness. Thus the claim would not be arbitrable, as it would escape the jurisdiction of arbitral tribunals and the binding nature of the AT.

However, this is not so. As the main claim, the Claimant requests that "the assessments of Personal Income Tax (IRS) … relating to the years 2009, 2010 and 2011, in the amounts of € 14,208.16, € 7,758.99 and € 26,094.37, respectively, all in a total of € 48,061.52 (forty-eight thousand, sixty-one euros and fifty-two cents), be partially annulled, (…)". Accordingly, what the Claimant is requesting is indeed the "declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account;" (article 2, paragraph 1, subsection a) of the RJAT), a matter for which the arbitral tribunal has jurisdiction to examine the claim.

Accordingly, given that the Claimant's claim corresponds to partial annulment of IRS assessments, as it indeed does, the exception of unsuitability of the remedy should be dismissed.

The Defendant further contends that the gracious complaint is untimely, and consequently decided to dismiss it, as it did not consider the date on which the Claimant obtained the medical certificate (9 July 2013) to be relevant.

In fact, the period for lodging a gracious complaint is counted from the date of the IRS assessment (Articles 101, paragraph 2 and 60, paragraph 1 of the CPPT) and it had already fully elapsed (having been entirely exhausted) with reference to any one of the three IRS assessments in question here. But where a relevant supervening fact occurs, that period is counted from the date of the latter (paragraph 4 of article 70 of the CPPT) and not from the date of the assessment. Now, everything hinges therefore on the possible relevance of the supervening fact (issuance of medical certificate) to open a new period for challenging each one of the three tax assessments in question.

4.3 Declaratory Nature of the Proof of Incapacity

The parties disagree on the constitutive or declaratory nature of the certification of incapacity (certificate), although not on its effects. This is because both recognize the relevance of the recognition (declaration) of incapacity to project its effects on past assessments, although they then disagree on the timeliness of invoking these effects.

In this sense, the controversy is therefore irrelevant to the decision of the case. In any case, the recognition of the passive subject's incapacity in a medical certificate is not a constitutive fact of the Claimant's right, but rather a merely declaratory fact of that right, although it is a condition for the exercise thereof, in the present case the deduction provided for in article 87 of the CIRS, in that from its issuance (proving the incapacity), in accordance with legally defined terms, depends the Claimant's right to the requested exemption (if the justification of the untimeliness of its obtaining is properly demonstrated).

And this possibility depends on the Claimant still having a period within which to act. Having the entire period provided for in the CPPT elapsed, counted from the assessment, when the gracious complaint was submitted, the relevance of the supervening fact depends on proof of the absence of fault on the Claimant's part in its late submission (article 70, paragraph 4 of the CPPT).

4.4 Supervening Fact

Thus, except if it is legitimate to resort to the mechanism of official revision, the date of issue of the medical certificate would be relevant for the commencement of the counting of the complaint period, as it would be from that moment that the counting of the period for challenging the assessments in question would begin.

Pursuant to paragraph 4 of article 70 of the CPPT, a new period for the gracious complaint will be initiated with the obtaining of the aforementioned medical certificate, when it was not possible to obtain it within the general complaint period counted from the notification of the assessment. But this will only occur if that document (certification or recognition of incapacity) could not have been obtained during the course of the general complaint period, for otherwise the medical certificate will not constitute a relevant supervening document for purposes of that paragraph 4.

Thus, the subsequent issuance of the medical certificate in question may, in theory, constitute a relevant supervening fact as is referred to in the Decision of the Supreme Administrative Court cited in the case (Decision of the Supreme Administrative Court handed down in case No. 0329/11, of 11.02.2011):

"I - The administrative complaint submitted within the period then provided for in paragraph 2 of article 70 of the CPPT, counted from the date on which the incapacity certificate was obtained, is not untimely, as without the certification of incapacity neither the right to the tax benefit nor the possibility of challenging, administratively or judicially, the assessed liabilities could be recognized.

This, presupposing that proof is made that the document could only be obtained at a moment subsequent to the expiration of the initial period, for reasons beyond the taxpayer's control. That is, if the absence of fault on the part of the taxpayer in the late obtaining of the document is demonstrated, which must be demonstrated. As follows from the combination of the phrase ("the date on which it became possible for the complainant to obtain the document") contained in paragraph 4 of article 70 of the CPPT with paragraph 1 of article 74 of the LGT.

4.5 Burden of Proof

Now, as the Defendant alleges, this proof was not made in the least, neither in the administrative phase, although the Claimant was notified by the Services to present proof capable of demonstrating the date of the request for proof of incapacity, which he also did not do in the arbitral proceedings.

Now, such absence of demonstration cannot but decisively affect his procedural position, as it corresponds to a matter of fact which the Claimant cannot fail to know, and could have proven, given the nature of the facts, and it was up to him to provide such proof in order to avail himself of the new period, pursuant to the aforementioned allocation of the burden of proof.

Note that, in fact, the Claimant did not even indicate the date of the medical board request, let alone present proof of the date of that request, and also does not demonstrate any circumstance, from his medical history or otherwise, capable of justifying an alleged delay in the request and in obtaining the certificate in question.

Thus, with regard to the assessments made in years prior to the date of the medical certificate certifying the incapacity, and since this expressly states that the incapacity applies from 2009 (a date prior to its issuance, 2013), the Claimant may lodge a gracious complaint in order to have the tax benefit considered in the respective assessments, provided that the medical certificate could not have been obtained before the expiration of that period, as in that case it would be regarded as a supervening document for purposes of paragraph 4 of article 70 of the CPPT.

As follows from the foregoing, the Defendant is therefore correct when it contends that a new period has no application in the case at hand, by virtue of the document not being to be considered supervening for purposes of paragraph 4 of article 70 of the CPPT, for not demonstrating that it could not have been obtained before the expiration of that period. And the AT is also correct when it imputes to the Claimant the consequence of this absence of demonstration, as it falls upon him the burden of proof of the constitutive facts of the right he invokes, as expressly results from paragraph 1 of article 74 of the LGT.

For as Jorge Lopes de Sousa states, in Tax Procedure and Process Code, 6th edition, 2011, Volume I, Áreas Publisher, p. 644, "if the gracious complaint is based on a supervening document … the period for filing the gracious complaint shall be counted from the date on which it became possible for the complainant to obtain the document …", but it shall fall upon the Claimant the "burden of proving" that "late obtaining or knowledge and the impossibility of invoking within normal periods", all "in line with the rule of article 74, paragraph 1 of the LGT".

4.6 Official Revision

The question may now be raised, as the Claimant does, whether, having the AT classified the gracious complaint as untimely, it should nonetheless have examined the merits of the claim, converting the gracious complaint into official revision provided for in article 78 of the LGT, now in compliance with article 52 of the CPPT, as a way of observing the principle of legality with respect to the IRS assessment acts for the years 2009, 2010 and 2011. This is all the more so because the failure to recognize the incapacity, resulting in higher tax than would be due if it could be, would be characterized as gross and notorious injustice.

The power-duty (binding power) resting on the AT to officially rectify illegal tax acts, even through conversion of a complaint into revision, was recognized by the case law of the Supreme Administrative Court, namely in case No. 031/12, 06.06.2012 cited by the Claimant, where it is stated that "I - The administrative complaint submitted within the period then provided for in paragraph 2 of article 70 of the CPPT, counted from the date on which the incapacity certificate was obtained, is not untimely, as without the certification of incapacity neither the right to the tax benefit nor the possibility of challenging, administratively or judicially, the assessed liabilities could be recognized. II - Even if this were not so, the untimeliness of the complaint would not constitute a legal obstacle to its conversion into revision proceedings on the grounds of gross and notorious injustice, under the provisions of paragraph 4 of article 78 of the LGT, since such possibility does not preclude the untimeliness of the gracious complaint, as for this purpose only the timeliness of the appropriate procedural remedy is relevant, and the fact that the law provides that 'the head of the service may, exceptionally, authorize' the revision does not preclude the possibility of conversion of the gracious complaint into a request for revision on the grounds of gross or notorious injustice, as such power of authorization is not mere discretion but rather a true power-duty'.

This power-duty flows unequivocally from the obligation to exercise "its attributions in the pursuit of the public interest, in accordance with the principles of legality, equality, proportionality, justice, impartiality and expedition, with respect for the guarantees of taxpayers and other tax-bound parties", as under article 55 of the LGT, its action must always be mindful of the public interest and the discovery of the material truth, the principle of equality, proportionality and respect for the guarantees of taxpayers.

The Claimant's position is thus that, given that it is demonstrated that he suffers from a permanent incapacity of 78% since 2009, as is shown by the medical certificate of 09.07.2013, and thus meets the necessary conditions for the application of the tax benefit provided for in article 87 of the CIRS, the AT should, taking into account the circumstances of the case, proceed to correct the IRS assessment acts for the years 2009, 2010 and 2012, through conversion of the gracious complaints, under article 52 of the CPPT, into revision of a tax act, provided for in article 78 of the LGT. This is because, in the Claimant's view, it would still be within the time period to do so, since revision may be carried out "on the initiative of the passive subject, within the period for administrative complaint and on the grounds of any illegality, or on the initiative of the tax administration, within four years after the assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services."; adding that the assessment acts at issue reflect a (IRS) tax paid in excess of that actually due, classifiable as gross and notorious injustice under paragraph 5 of that legal provision.

Now, as Jesuíno Alcântara Martins states in Tax Procedural Guarantees, in Lessons in Taxation, João Ricardo Catarino and Vasco Branco Guimarães (coord.) Almedina, 2012, p. 445, "in line with the case law established in the decision of 12.07.06 of the Supreme Administrative Court (Case 0402/06, 2nd Section), it appears to us that, even after the expiration of the periods for gracious complaint, the Tax Administration has the duty to revoke illegal tax assessment acts, under the conditions and with the time limits referred to in article 78 of the LGT", because "the principles of justice, equality and legality, which the Tax Administration must observe in the totality of its activity (article 266, paragraph 2 of the CRP and article 55 of the LGT), require that errors in assessments that have led to the collection of amounts of taxes that are not legally due be officially corrected (…). Provided that there is gross or notorious injustice, considering as 'notorious the injustice that is obvious and unequivocal and grave that resulting from taxation manifestly excessive and disproportionate to reality or from which significant harm has resulted to the taxpayer'" (ibid., p. 444).

However, as the same author states, this possibility only occurs "provided that the error is not attributable" (ibid., p. 444) to the passive subject. Which brings us back to the already discussed question of the (lack of) proof of the absence of responsibility on the Claimant's part in obtaining the medical certificate when he did. And, for that same reason, the Claimant's subsidiary claim also cannot be granted.

On the other hand, the evaluation of the conversion of the claim into official revision proceedings, or the examination of its merits, which would only be viable in official revision, would always be of doubtful arbitrability, given the binding conditions of the AT, as set out in the Decision of CAAD of 22/04/2014, in case P-236–T 2013, thus approaching the first exception raised by the Defendant.

4.7 Conclusion

For the reasons set forth, the exception of untimeliness of the claim should be upheld and, as a consequence, the claim should be dismissed, with the tax acts questioned being maintained in the legal order.

  1. Compensatory Interest

With the tax acts being maintained in the legal order, the claim for recognition of compensatory interest in favor of the Claimant is consequently dismissed.

  1. Operative Part

In accordance with the foregoing, the exception of untimeliness of the claim is upheld and the claim is dismissed for this reason, with the legal consequences, and the claim for recognition of the right to compensatory interest is consequently dismissed.

  1. Value of the Case

In accordance with the provisions of article 306, paragraphs 1 and 2, of the CPC and 97-A, paragraph 1, subsection a), of the CPPT and 3, paragraph 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at € 48,061.52 (forty-eight thousand, sixty-one euros and fifty-two cents).

  1. Costs

Pursuant to article 22, paragraph 4, of the RJAT, the amount of costs is fixed at € 2,142.00 (two thousand, one hundred and forty-two euros), pursuant to Table I attached to the Costs Regulation in Tax Arbitration Proceedings, entirely at the charge of the Claimant.

Document prepared by computer, pursuant to the Code of Civil Procedure (CPC), applicable by reference of article 29, paragraph 1, subsection e) of the RJAT, with blank lines.

Lisbon, 16-10-2015

The Sole Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Can a taxpayer claim IRS disability deductions in Portugal using a supervening medical document?
Yes, a taxpayer can potentially claim IRS disability deductions using a supervening medical document in Portugal, but strict conditions apply. Under Article 87 of the CIRS, taxpayers with certified disabilities are entitled to tax deductions. However, when the medical certificate is obtained after statutory deadlines for filing gracious complaints have expired, the taxpayer must prove that the delay in obtaining certification was not due to their own negligence. In Process 82/2015-T, the arbitral tribunal examined whether a 78% disability certificate issued in July 2013 could support retroactive deductions for 2009-2011, despite being obtained years after assessment dates. The burden of proof under Article 74 LGT falls on the taxpayer to demonstrate they acted diligently in seeking medical certification. Courts consider factors such as the nature of the illness, treatment demands, and whether reasonable efforts were made to obtain documentation timely. Simply having the disability is insufficient; procedural requirements and proof of non-negligence are essential for supervening documents to have retroactive tax effect.
What is the legal procedure for challenging IRS tax assessments through CAAD arbitration in Portugal?
The legal procedure for challenging IRS assessments through CAAD arbitration involves several steps. First, taxpayers must exhaust administrative remedies by filing a gracious complaint (reclamação graciosa) within the statutory deadline—generally 120 days from notification of the assessment under Article 70 CPPT. If the gracious complaint is dismissed, taxpayers can file a hierarchical appeal (recurso hierárquico). Only after these administrative proceedings are concluded can taxpayers request constitution of an arbitral tribunal under the RJAT (Legal Framework for Tax Arbitration). The request must be submitted to CAAD, which designates an arbitrator through its Deontological Council pursuant to Article 6(2)(a) and Article 11(1)(b) RJAT. Once the arbitrator accepts appointment, the tribunal is formally constituted under Article 11(1)(c). The Tax Authority submits its response, followed by a mandatory meeting under Article 18 RJAT where parties may opt for written arguments. The tribunal examines both procedural issues (jurisdiction, timeliness, standing) and substantive matters. In Process 82/2015-T, the arbitration was requested on February 9, 2015, and the tribunal was constituted on April 20, 2015, following proper notification to the AT.
How does Article 87 of the Portuguese IRS Code apply to disability-related tax deductions?
Article 87 of the Portuguese CIRS Code provides specific tax deductions for taxpayers with certified disabilities. The article grants preferential tax treatment to individuals who possess a Multi-Purpose Medical Incapacity Certificate (Atestado Médico de Incapacidade Multiuso) demonstrating permanent incapacity. The level of deduction corresponds to the degree of disability certified. However, Article 13(7) CIRS establishes that the relevant personal and family situation for tax purposes is that which exists on December 31 of the tax year in question. This creates a temporal requirement: the disability status must be verifiable as of year-end for that tax year. In Process 82/2015-T, although the taxpayer had a 78% incapacity since 2009 due to cancer, for Article 87 to apply to the 2009-2011 tax years, the certification needed to be obtained within procedural deadlines allowing for assessment correction. The Tax Authority emphasized that while the medical condition and suffering are not questioned, tax law requires timely documentation. When certification is obtained years later as a supervening document, its retroactive application depends on proving the taxpayer exercised due diligence in seeking certification and that any delay was not attributable to negligence, particularly when deadlines for administrative complaints have expired.
What happens when gracious complaints and hierarchical appeals against IRS liquidations are denied in Portugal?
When gracious complaints (reclamações graciosas) and hierarchical appeals (recursos hierárquicos) against IRS liquidations are denied in Portugal, taxpayers have several options. First, they can challenge the denial through judicial review by filing an action in the Administrative and Tax Courts within the statutory deadline of three months under Article 102 CPPT. Alternatively, since 2011, taxpayers can opt for tax arbitration through CAAD (Centro de Arbitragem Administrativa) under the RJAT framework, which offers a faster, specialized alternative to judicial proceedings. In Process 82/2015-T, the taxpayer's gracious complaints filed July 30, 2013 were dismissed on grounds of untimeliness—the complaints for 2009, 2010, and 2011 assessments should have been filed by January 10, 2011, December 26, 2011, and December 27, 2012 respectively. The hierarchical appeals against these dismissals were also denied, with the AT maintaining that on the relevant December 31 dates, the taxpayer's documented personal situation was that of a person without disabilities, as no certification existed at those times. After exhausting administrative remedies, the taxpayer exercised the arbitration option, requesting annulment of the dismissal decisions and partial annulment of IRS assessments totaling €48,061.52. The arbitral tribunal then examined both procedural defenses raised by the AT (unsuitability of remedy and lapse of right to act) and substantive issues regarding supervening documentation and taxpayer negligence.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) after a successful CAAD arbitration decision?
Yes, taxpayers may be entitled to compensatory interest (juros indemnizatórios) after a successful CAAD arbitration decision in Portugal, under Article 43 of the LGT (Lei Geral Tributária). Compensatory interest is designed to compensate taxpayers for the financial loss caused by unlawful retention of amounts by the Tax Authority. Article 43 LGT establishes that when tax paid is subsequently deemed undue or excessive, the State must pay compensatory interest from the date of payment until reimbursement. The interest rate and calculation method are specified in Article 43(4) and 35(10) LGT. For compensatory interest to be awarded, several conditions must be met: (1) the arbitral decision must annul or reduce the contested tax assessment; (2) the taxpayer must have actually paid the tax amount; (3) the payment must have occurred before the favorable decision; (4) the taxpayer must specifically request compensatory interest in the arbitration petition. In Process 82/2015-T, the taxpayer explicitly requested compensatory interest under Article 43 LGT alongside the annulment of dismissal decisions and partial annulment of IRS assessments. If the arbitral tribunal rules in the taxpayer's favor—finding the disability deductions were improperly denied and the supervening medical certificate should have been accepted—then compensatory interest would be calculated from the dates the taxpayer paid the contested IRS amounts (€14,208.16 for 2009, €7,758.99 for 2010, and €26,094.37 for 2011) until actual reimbursement by the Tax Authority.