Process: 97/2015-T

Date: October 14, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

This arbitral case (97/2015-T) concerns the IRS tax exemption under Article 39(1) of the Tax Benefits Statute (EBF) for income earned by a Portuguese teacher working in Luxembourg. The Applicant worked as a teacher in Luxembourg's Consular Area during 2010 under a Portugal-Luxembourg cultural cooperation agreement signed in 1982, earning €53,874.10. She declared this income as exempt (code 406, Annex H) in her 2010 tax return. The Tax Authority challenged this exemption in 2014, issuing a correction and ex officio assessment totaling €15,519.76 in tax and compensatory interest. The Applicant argues that Article 39(1) EBF provides an automatic exemption for income earned by taxpayers posted abroad pursuant to cooperation agreements, requiring no prior recognition. She contends the TA violated the Principle of Legality by imposing additional requirements beyond those in the statute. The Tax Authority counters that the Applicant failed to prove her teaching contract was concluded pursuant to a qualifying cooperation agreement, arguing the attached document constitutes a Program rather than a properly ratified International Agreement under Article 8 of the Portuguese Constitution. The core legal dispute centers on whether the Portugal-Luxembourg agreement qualifies as a 'cooperation agreement' under Article 39(1) EBF, whether the teacher was properly 'posted' pursuant to it, and whether additional formalities beyond the statutory text can be required for this automatic tax benefit.

Full Decision

ARBITRAL DECISION

Case No. 97/2015-T

Subject: IRS – Tax Benefits – Cooperation Agreement – Article 39, No. 1 of the Tax Benefits Statute

Applicant: A...

Respondent: Tax and Customs Authority

I – Report

  1. On 16 February 2015, A..., taxpayer no. ..., with domicile at ... no. ..., ...-... ..., came, pursuant to the provisions of Article 2, No. 1, Paragraph a) of Decree-Law No. 10/2011, of 20 January (RJAT) and Articles 1, Paragraph a) and 2 of Ministerial Order No. 112-A/2011, of 22 March, to request the constitution of an arbitral tribunal for the examination and declaration of illegality of the tax assessment no. 2014 ... of IRS for the year 2010, as well as for compensatory interest, in the total amount of € 15,519.76 (fifteen thousand five hundred and nineteen euros and seventy-six cents). Attached, in addition to the legal proxy and proof of payment of the initial fee, were 23 documents.

  2. In the Request for Arbitral Pronouncement, the Applicant opted not to appoint an arbitrator, and by decision of the President of the Deontological Council, pursuant to No. 1 of Article 6 of the RJAT, the undersigned was appointed as sole arbitrator, who accepted the position within the legally prescribed period.

  3. The arbitral tribunal was constituted on 28 April 2015.

  4. The Tax and Customs Administration (TA or Respondent) sent, on 27 May 2015, its Reply as well as the administrative file (PA).

  5. With the assent of the Parties, the holding of the meeting of Article 18 of the RJAT was waived, but not the submission of successive written arguments – which were submitted on 9 July and 4 September – indicating that the arbitral decision would be communicated by 25 October 2015.

6. The Request for Pronouncement

In the initial Request, the Applicant argues, in summary:

  • The object of the present request for constitution of the arbitral tribunal is the IRS tax assessment act no. 2014 ..., the act demonstrating interest calculation and the act demonstrating settlement no. 2014 ..., relating to the fiscal year 2010, which determined tax payable in the amount of € 15,519.76 (see cited Documents 1, 2 and 3).

  • Under the cultural cooperation agreement between Portugal and Luxembourg in the fields of education, science, culture, arts and sports, signed on 12/07/1982 (see Article 9), the Luxembourg Ministry of Education established, in primary education (1st to 6th year of schooling), courses in Portuguese language that form part of the Luxembourg school schedule.

  • Following the aforementioned cooperation agreement between Portugal and Luxembourg, as well as the establishment of courses in Portuguese language, an administrative contract of teaching services was concluded between the Ministry of Education/Office of European Affairs and International Relations and the present Applicant, to exercise teaching functions in the Consular Area of Luxembourg during the school year 2006/2007, a contract initially valid between 01/09/2006 and 31/08/2007, which was subsequently renewed successively until 31/08/2009, and later automatically converted into a service commission valid for one year, pursuant to the provisions of Article 3, No. 5 of Decree-Law No. 165-C/2009, of 28 July, this commission being renewed for an additional year, by Order issued by the President of the Institute ... I.P.

  • Thus, in the fiscal year 2010, the present Applicant exercised, under the aforementioned cooperation agreement, teaching functions in the Consular Area of Luxembourg, having earned in that year income, in the capacity of a teacher, under the aforementioned cooperation agreement in the total amount of € 53,874.10.

  • On 25/04/2011, the present Applicant submitted her periodic income statement for the fiscal year 2010, having entered, with code 406, in Section 4 of Annex H thereof, the income earned under the aforementioned cooperation agreement.

  • Notified on 25/09/2014, to exercise her right of prior hearing on the draft correction to the periodic income statement submitted for the fiscal year 2010 with a view to taxing, under IRS, the exempt income declared by the present Applicant in field 406 of Annex H, the Applicant responded by attaching supporting documents of the exemption.

  • The TA maintained the correction, notifying the Applicant to deliver a substitute statement, which she did not do, followed by the ex officio assessment which is the subject of the present request for pronouncement, in which the disputed question is therefore whether the income earned by the Applicant, in the exercise of the profession of teacher in Luxembourg, during the year 2010, meets the conditions to enjoy the exemption contemplated in No. 1 of Article 39 of the Tax Benefits Statute (EBF).

  • According to the provisions of this rule, the income earned by taxpayers posted abroad, pursuant to cooperation agreements, in the performance of their functions, are exempt from IRS, and should, according to the instructions for completing Annex H of the IRS Income Statement Form 3, contained in Ministerial Order No. 1303/2010, of 22 December, in section 4 of annex H be entered with code 406 as "Remuneration earned pursuant to cooperation agreements – (Article 39, Nos. 1 and 2 of the EBF) – exemption not dependent on prior recognition".

  • As the Tax Authority itself recognizes in its Circular Office No. 20 107 of 30/08/2005, this is an automatic benefit, resulting directly and immediately from the law, not dependent on an act of recognition, requiring for its application only that the sole prerequisites listed in the aforementioned No. 1 of Article 39 of the EBF be met, that is, that the taxpayer be posted abroad pursuant to a cooperation agreement.

  • In the case at hand, the Applicant is posted in Luxembourg, exercising the activity of teacher in the Consular Area of Luxembourg, pursuant to the cooperation agreement concluded between Portugal and Luxembourg, which aims to promote exchange at various levels, namely at the level of education through the teaching of courses in integrated format, whereby the income earned by the Applicant, in the capacity of a teacher under the aforementioned agreement, is exempt from taxation, pursuant to No. 1 of Article 39 of the EBF, and the TA violated this rule as well as the Principle of Legality enshrined constitutionally in Article 103 of the Constitution of the Portuguese Republic (CRP).

  • As in the case under analysis the tax law does not make the exemption depend on any other requirements beyond those contained in Article 39, No. 1 of the EBF and the principle of tax legality prevents the Tax Authority from establishing additional requirements to the functioning of a tax benefit, the illegality of the assessment act at issue is undeniable.

  • In view of the foregoing, the tribunal should order the annulment of the disputed assessment act, as well as of the respective demonstration of interest calculation and settlement adjustment, as well as condemn the TA to pay indemnification interest, pursuant to Articles 24, No. 1, Paragraph b), and No. 5, of the RJAT, 100 and 43, No. 1, of the LGT.

7. The Reply

The Respondent replies, in summary:

  • The Applicant has no grounds when she considers that the income she earned, in the exercise of the profession of teacher in Luxembourg in 2010, meets the conditions to enjoy the exemption contemplated in No. 1 of Article 39 of the EBF.

  • The Applicant did not prove that her teaching contract (concluded for the school year 2006/2007) was concluded pursuant to any cooperation agreement for the purposes of applying Article 39 of the EBF, nor did she attach the cooperation agreement referred to in Article 11 of the request for arbitral pronouncement (pi);

  • The Agreement she attaches (Document 1) constitutes a Program, not an International Agreement, convention or accord, it did not undergo the necessary and mandatory procedure of ratification and/or approval set forth in Article 8 of the Constitution of the Portuguese Republic, so as to bind the Portuguese State.

  • From the documents attached, it does not follow that the Applicant's contractual position classifies her as «...persons posted abroad pursuant to cooperation agreements, with respect to income earned within the scope of the respective agreement.» (cf. No. 1 of Article 39 of the EBF) or as an agent of Portuguese cooperation, within the meaning of Law No. 13/2004, of 14 April.

  • Nor is this the position of the Institute ..., Institute ..., IP for situations of fact exactly equal – Office No. ...-S/2014/4229 of 25.09.2014 clarifies the non-existence of any correlation between the functions performed by the Applicant and the cooperation agreements provided for in Article 39 of the EBF.

  • The applicability to the case of the norms of Law No. 13/2004, of 14 April (framework and legal status of the agent of Portuguese cooperation), is not verified, as regards the definition of cooperator, cooperation contract, cooperation action (Articles 2, 1; 7, 1, 3, 1, c), nor does the Grand Duchy of Luxembourg appear on the list of countries receiving official development assistance contained in "The Dac List of Oda Recipients" of the OECD.

  • The Agreement concluded between the Government of the Portuguese Republic and the Government of the Grand Duchy of Luxembourg was not concluded within the scope of cooperation but of a mere cultural agreement, as results from Decree No. 129/82, of 16 November, pursuant to which the two countries limit themselves to establishing guiding principles so as to promote the development of cultural initiatives established between the contracting countries with the objective of promoting social, cultural and sports activities aimed at citizens (see Article 2 of the Agreement)

  • And the teaching service contract granted by the Applicant in 2006, converted into a service commission, falls within the scope of application of the legal regime of Portuguese education abroad, covered by Decree-Law No. 165/2006 of 11 August, with Law No. 13/2004, of 14 April, not being applicable to it, which is a conditio sine qua non of the application of the exemption provided for in No. 1 of Article 39 of the EBF.

  • Cooperation contracts are subject to registration, in accordance with Article 8 of Law No. 13/2004, and must have, mandatorily, the clauses provided for in Article 9 of the same law, proof that the Applicant did not make.

  • Circular Office No. 20107/2005, of 30 August, and the Binding Information regarding Case: .../ ..., clarify the conditions of application of Article 39 of the EBF.

  • The requirements for application of Article 39 of the EBF are not met, the tax benefit in question cannot be applied to her.

  • Pursuant to the above-transcribed Article 19 of the Model Tax Convention on Income and Capital «salaries, wages and other similar remuneration paid by a Contracting State to an individual for services rendered to that State, subdivision or authority, are taxable only in that State.»

  • According to No. 1 of Article 2 of the EBF, tax benefits are «...measures of an exceptional nature instituted for the protection of relevant extra-fiscal public interests that are superior to the taxation they prevent.»

  • The invocation of the application of an automatic benefit does not dispense with the burden of proof of the verification of the prerequisites for which "ope lege" that tax benefit was granted.

  • Any interpretation that would deprive the TA of the possibility of controlling the requirements for granting tax benefits of automatic application would be unconstitutional for violation of the constitutional principles of the rule of law and separation of powers (see Articles 2 and 111, both of the CRP), as well as of legality (see Articles 3, No. 2, and 266, No. 2, both of the CRP), as a corollary of the principle of non-disposability of tax credits implicit in Article 30, No. 2 of the LGT, which bind the legislator and all activity of the TA.

  • Article 14, No. 2, of the LGT is very clear in providing that «Holders of tax benefits of any nature are always obliged to reveal or authorize the revelation to the tax administration of the prerequisites for their granting...»

  • For which reason, the Applicant's claim should be denied, the acts under review maintained, and no indemnification interest being owed as there is no error attributable to the services generating any obligation to indemnify.

8. Arguments

In the arguments attached, the Parties reiterated the arguments previously presented.

9. Object of the Request

The fundamental legal question to be decided consists of determining whether the income earned by the Applicant in the exercise of teaching functions in the year 2010 in the Grand Duchy of Luxembourg is subject to Personal Income Tax (IRS) under general terms or whether it enjoys exemption under Article 39, No. 1 of the Tax Benefits Statute (EBF).

10. Curative Examination

The arbitral tribunal is materially competent, pursuant to the provisions of Articles 2, No. 1, Paragraph a) of the Legal Regime of Arbitration in Tax Matters.

The parties enjoy legal personality and capacity and have standing pursuant to Articles 4 and 10, No. 2, of the Legal Regime of Arbitration in Tax Matters (RJAT) and Article 1 of Ministerial Order No. 112-A/2011, of 22 March.

The case does not suffer from any nullity nor have the parties raised any exceptions that prevent examination of the merits of the case, whereby the conditions for the pronouncement of the arbitral decision are met.

II. GROUNDS

11. Proven Facts

Based on the documents attached by the Applicant and Respondent, including the documents attached to the Request, as well as those contained in the Administrative File attached by the Respondent, documentation which is hereby considered as reproduced.

11.1. On 12 July 1982, a cultural cooperation agreement was signed between Portugal and Luxembourg in the fields of education, science, culture, arts and sports, (Document No. 4, attached to the Request for Pronouncement).

11.2. On 23 September 1982, the Council of Ministers approved, for ratification, a Cultural Agreement signed in Lisbon on 12 July 1982 between the Government of the Portuguese Republic and the Government of the Grand Duchy of Luxembourg, that decision, Decree No. 129/82, being published in the Diário da República on 16 November 1982 (Document No. 4, attached to the Request).

11.3. The Luxembourg Ministry of Education has been organizing since 1983 integrated courses in mother tongue in primary education, up to the 6th year of schooling, that education having been, from 2001, in Esch-sur-Alzette, generalized to all primary schools, during two hours per week taught by teachers from Portugal, covering various subjects, during school hours, with non-mandatory attendance, recognizing that mastery of the mother tongue allows better school performance, more harmonious development of the child and added value for the future (information from the Luxembourg National Ministry of Education, Document No. 5).

11.4. Envisioned by the National Ministry of Education of the Grand Duchy of Luxembourg to function for Italian and Portuguese mother tongues, the integrated courses in Italian language were suppressed by the Italian embassy from 2005 due to lack of enrollments, while in 2009/2010, in 14 municipalities, 28% of students of Portuguese nationality enrolled in primary education attended integrated courses in Portuguese language (See response from the Minister of the Grand Duchy to a question posed to the Chamber of Deputies, Document No. 6, attached to the Request).

11.5. On 13 November 2002, the IX Joint Commission meeting took place in Luxembourg, presided by the President of the Institute ..., to, in application of the Agreement signed on 12 July 1982, establish a cooperation program for the three-year period 2003 to 2005 between the two countries in the fields of education, language, science and higher education, culture, youth, associativism, sport and social communication (Document No. 6, attached to the Request).

11.6. On 4 June 2008, in Lisbon, was signed by the Vice-President of the Institute ..., in representation of the Government of the Portuguese Republic and the General Director of the Ministry of Culture, Education and Higher Learning and Research of Luxembourg, in representation of the Government of the Grand Duchy of Luxembourg, a Cultural Cooperation Program for the period 2008-2011 in the fields of Education, Language, Science, Technology and Higher Education, Culture, Youth and Sport, Associativism and Social Communication (Document No. 7 attached to the Request).

11.7. On 11 September 2006, the Applicant concluded, in Portugal, with the Ministry of Education/Office of European Affairs and International Relations an "administrative contract of teaching services in accordance with Article 33 of the Teaching Career Statute and Article 21 of Decree-Law No. 165/2006, of 11 August", for the school year 2006/2007, as a teacher of the 1st ... of basic education to exercise teaching functions in Esch-sur-Alzette, in the Consular Area of Luxembourg, with monthly remuneration paid in accordance with the Salary Table approved by Joint Order of the Ministers of Foreign Affairs, Finance and Education, in the amount of € 3,365.73, to be in effect until 31 August 2007, and which was renewed successively until 31 August 2008 and then until 31 August 2009 (Documents Nos. 8, 9 and 10, attached to the Request).

11.8. The aforementioned administrative contract of teaching services was, pursuant to the provisions of Article 3, No. 5 of Decree-Law No. 165-C/2009, of 28 July, automatically converted into a service commission, valid for one year (Document No. 11 attached to Request).

11.9. By Order (extract) No. 15612/2011, of 11 July 2011, from the President of the Institute ..., I.P., the service commission referred to in the previous number was renewed for an additional year, pursuant to Article 20 of Decree-Law No. 165/2006, of 11 August, as amended by Decree-Law No. 165-C/2009, of 28/7, and Articles 24 and 37 of Law No. 12-A/2008, of 27/2 (Document No. 12 attached to Request).

11.10. The Applicant continued to exercise functions as a teacher of the 1st ... of Basic Education, placed in the Consular area of Luxembourg, being on 24 January 2014 in a service commission in accordance with Decree-Law No. 234/2012, of 30 October (Documents Nos. 13, 14, 15, attached to the Request).

11.11. In fiscal year 2010, the amounts of € 50,025.95 and € 3,848.15 were paid to the Applicant, respectively borne by the Institute ... and by the GEPE of the Ministry of Education (Documents Nos. 16 and 17 attached to Request).

11.12. On 25/04/2011, the Applicant submitted the periodic income statement for the fiscal year 2010, with identification number 2402-IO246-15, having entered with code 406, in Section 4 of Annex H thereof the amounts paid by the two entities, in the total amount of € 53,874.10 (Document No. 18 attached to Request).

11.13. On 25 September 2014, the Applicant was notified, through Office No. ..., of 22.09.2014, from the Finance Service of ..., of the intention of the TA services to proceed with corrections to the amounts entered in the periodic income statement submitted for fiscal year 2010, transferring the income from code 406 to 401, being invited to exercise the right of prior hearing on the draft correction (Document No. 19 attached to Request).

11.14. On 30 September 2014, the present Applicant exercised the right of prior hearing (Document No. 20 attached to Request).

11.15. On 8 October 2014, the Applicant was notified by Office No. ... of 07/10/2014, of the Order of the Chief of the Finance Service of ..., that it maintained the corrections, setting a period of 15 days for presentation of a substitute statement for fiscal year 2010, so that the amounts entered in field 406, of section 4 of Annex H would be transferred to field 401, of section 4 of Annex A (see cited Document No. 21 attached to Request).

11.16. The Applicant did not present a substitute statement, with the TA proceeding ex officio to the assessment, and proceeding with notification on 11 and 12 November 2014, of the IRS assessment act No. 2014 ... and of the respective demonstration of interest calculation and settlement adjustment, relating to fiscal year 2010, with payment deadline of 15 December 2014 (Documents Nos. 1, 2 and 3 attached to the Request)

11.17. On 21 November 2014, payment of the amount of € 15,519.76 was made (Document No. 23 attached to Request).

12. Unproven Facts

It was not proven that the Applicant signed a contract designated as a cooperation contract. It is configured that whether or not the Applicant signed a cooperation contract constitutes a question of law, dependent on the qualification of the contract for the exercise of teaching functions in the Grand Duchy of Luxembourg.

Thus, there are no proven facts relevant to the decision.

13. Grounds for the Proven and Unproven Facts

The establishment of the factuality was made on the basis of the facts alleged by the Applicant and not contested by the TA, as well as on all the documentation attached to the case file, including the administrative file.

14. Application of Law

14.1. The Applicant's Legal Relationship

According to the factual matters established (points 11.7 to 11.10), the Applicant has exercised teaching functions under the legal regime established in Decree-Law No. 165/2006, of 11 August, and successive amendments to this decree[1], her remuneration in the fiscal year in question in the case (2010) being borne by the Ministry of Education and the Institute ..., I.P.

Decree-Law No. 165/2006 establishes the "legal regime of Portuguese education abroad, as a special form of school education, as provided for in Paragraph e) of No. 1 of Article 19 of the Law of Bases of the Education System, approved by Law No. 46/86, of 14 October, with the amendments introduced by Laws No. 115/97, of 17 September, and No. 49/2005, of 30 August" (wording of Article 1, No. 1, still in force).

The decree shows how the Ministry of Education, to implement support for foreign education, recruited and placed abroad teaching personnel, bound to the Ministry of Education's rolls or specially contracted[2].

Decree-Law No. 119/2007, of 27 April, establishes as general powers of the Institute ...[3], I.P., namely, "to structure and coordinate the policy of dissemination and promotion of the Portuguese language and culture abroad and to promote Portuguese as a language of international communication", "to ensure the country's representation in the negotiation of cultural agreements and respective cooperation programs, coordinating the participation of state departments with responsibilities in the fields of culture and education[4], and to "coordinate the activity of the network of teaching of Portuguese language and culture abroad at basic and secondary education level (Article 3, No. 2, Paragraphs a), b) and n), with the mission falling to it, in coordination with other government departments, to manage the network of teaching Portuguese abroad at basic and secondary level (Article 3, No. 1).

Decree-Law No. 165/2006 provided that the provision of teaching services abroad should be carried out under contract, observing the requirements provided for in Article 22 of the Teaching Career Statute of Preschool Educators and Teachers of Basic and Secondary Education, with the provisions of Article 33 of the Teaching Career Statute being applied with appropriate adaptations[5].

Without going into detail regarding the status of foreign teacher and its relation to the status of teaching career, it is to be said that the regime applicable in the first place to the Applicant, until 31 August 2009, took into account the "provisions of Article 33 of the Teaching Career Statute and Article 21 of Decree-Law No. 165/2006, of 11 August", and, after that date, the amendments resulting from Decree-Law No. 165-C/2009, of 28 July (proven facts 11.7. and 11.8.)

Decree-Law No. 165-C/2009, which introduced various amendments to Decree-Law No. 165/2006, states in its preamble that the constant alteration of the Portuguese education network abroad does not allow the functions exercised there to constitute the adoption of a special career, in accordance with Law No. 12-A/2008, of 27 February. In this way, and since the exercise of these teaching functions requires specialization of the Portuguese education component abroad, the Government decided that these are to be exercised under a service commission regime, and recruitment carried out by public competition, aiming to expand the possibility of access to these functions to all teachers with the appropriate profile.

Thus, Articles 21 and the new wording given to Article 20 must be taken into account, which now provides that teachers of Portuguese education abroad exercise the position of professor or lecturer under a service commission regime in accordance with the terms defined in the decree, in its new wording[6].

It should also be noted, provisions such as that «The recruitment of teaching personnel of Portuguese education abroad is carried out by means of a public call for applications open to candidates, whether or not having a legal employment relationship in the public sector for an indefinite period» (Article 31, No. 1), and that «The remuneration levels corresponding to the base remuneration of teachers of Portuguese education abroad are set out in a table to be approved by regulatory decree» (Article 34, No. 1), or the possibility of local recruitment by a simplified competitive procedure to meet temporary needs (Article 32).

In the original wording of Decree-Law No. 165/2006, No. 7 of Article 20 stated: «Teaching services in countries in which Portugal develops cooperation actions and namely in African countries with Portuguese as an official language and in Timor-Leste may still be provided under the cooperation agent regime, in accordance with applicable legislation, provided that those actions are properly recognized as cooperation actions by the service of the central administration responsible for Portuguese cooperation for development». (underlined)

This No. 7 of Article 20 of DL 165/2006 was repealed by Decree-Law No. 165-C/2009, but Article 4 of this decree states, in No. 4, «Teaching services in countries in which Portugal develops cooperation actions and namely in African countries with Portuguese as an official language and in Timor-Leste may still be provided under the cooperation agent regime in accordance with applicable legislation, provided that those actions are properly recognized as cooperation actions by the service of the central administration responsible for Portuguese cooperation for development» (underlined).

14.2. On the Applicability of a Norm of the EBF

14.2.1. Benefits in the Field of Cooperation

The Tax Benefits Statute, approved by Decree-Law No. 215/89, of 1 June, provided in Article 46: "Persons posted abroad pursuant to cooperation agreements are exempted from IRS, with respect to income earned within the scope of the respective agreement"[7].

The then Article 46 was subject to successive amendments, by Laws No. 65/90, of 28/12, Law No. 75/93, of 20/12, Law No. 10-B/96, of 23 March, Law No. 127-B/97, of 20 December:

  • The first, Law No. 65/90, introduced a number (No. 2)[8] expanding the benefit to persons posted abroad in the service of companies that have concluded agreements with foreign entities, provided that these obtained approval from the Minister of Finance, demonstrating the advantages for the national interest, it concerned actions and cooperation relationships promoted by companies not covered by DL 362/85, of 10/9, but justifying itself for agreements with less developed countries as was the scope of this decree[9];

  • Law No. 75/93 added a number (numbered 3)[10], requiring the aggregation of exempt income for purposes of the rate applicable to remaining income;

  • Law No. 10-B/96 added a number (which became No. 3), which permitted the application of the provisions of No. 1 to remuneration earned by military personnel and members of security forces posted abroad pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service, provided that "national interest" was recognized and added an article, 42-A, on exemption of personnel in peacekeeping missions, being dependent on recognition of the fulfillment of requirements by the Minister of Finance[11].

  • Law No. 127-B/97, added a number (numbered 2) "Military personnel and members of security forces posted abroad pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service are equally exempted from IRS, with respect to income earned within the scope of the respective agreement", the previous No. 2 becoming 3, and clarifying (in a No. 5) that the exemption referred to in No. 3 (referring to workers in the service of companies) also covered income earned by persons posted abroad exercising activity within the scope of professions contained in the list attached to the IRS Code, net of charges provided for in Article 26 of said Code».

With the restructuring of the tax system occurring in 2001, and wording given to the decrees by Decree-Law No. 198/2001, of 3 July, the regime was maintained, coming to be provided in Article 37 of the EBF, and, with the new numbering and republication carried out by Decree-Law No. 108/2008, of 26 June, became Article 39, presenting the following wording:

«1 - Persons posted abroad, pursuant to cooperation agreements, are exempted from IRS, with respect to income earned within the scope of the respective agreement.

2 - Military personnel and members of security forces posted abroad, pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service, are equally exempted from IRS, with respect to income earned within the scope of the respective agreement.

3 - The Minister of Finance may, at the request of the interested entities, grant IRS exemption with respect to income earned by persons posted abroad in the service of those entities, pursuant to contracts concluded with foreign entities, provided that the advantages of such contracts for the national interest are demonstrated.

4 - The provisions of the foregoing numbers do not prejudice the aggregation of exempt income, for purposes of the provision in No. 4 of Article 22 of the IRS Code, and determination of the rate applicable to remaining collectible income.

5 - The exemption referred to in No. 3 is extensible, under the same conditions, to income earned by persons posted abroad, provided that they exercise their activity within the scope of professions contained in the list referred to in Article 151 of the IRS Code, net of deductible charges in accordance with the same Code.»

This is the norm that was in force at the time of the situation subject to examination in the case.

In its interpretation, regard cannot be overlooked to the genesis of the norm, interpretations to which it was subject, amendments that occurred and their respective causes.

See:

In 1995, on the scope of cooperation agreements covered under this article, Teresa Barbot Faria referred, in annotations[12] to Article 46, No. 1, to the understanding of the Tax Studies Center, sanctioned by order of the General Director of 3 January 1990, that the expression "cooperation agreements" used in that article covers only agreements concluded with the intervention of the Portuguese State, namely those provided for in No. 1 of Article 7 of Decree-Law No. 363/85, of 10 September, which approves the Cooperator Statute.

Frequently raised the question of the applicability of tax benefit to military personnel deployed on missions, the tax administration[13] opposed such understanding, being followed by legislative intervention that led to amendments to the wording described above, first by Law No. 52-C/96, of 27 December, and then, by Law No. 127-B/97, of 20 December, only with the latter decree (wording given by Article 43, No. 1 to Article 46 of the EBF) beginning to provide for IRS exemption for «military personnel and members of security forces posted abroad, pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service, with respect to income earned within the scope of the respective agreement» (No. 2 of Article 46) (underlined).

That is, prior to Law No. 52-C/96, Article 46 of the EBF did not provide for application to military personnel deployed on missions, and then, but before the amendment introduced by Law No. 127-B/97 (OE for 2008), provided for but with the requirement of prior recognition of the benefit.

Confirming this interpretation, see the Decision of the TCAS (Administrative Court of Appeals), issued on 19 October 2004, in case 07203/02, in whose summary were included the following conclusions: «IX - The income earned by a military person in 1994 within the scope of military-technical cooperation agreements was not included in the provision of Article 46, No. 1, of the EBF, being that the cooperation agreements referred to in this legal norm were exclusively those that complied with the regime of Decree-Law No. 363/85, of 10 September, of a quite different nature. X - The income earned by military personnel within the scope of military-technical cooperation agreements only from 1 January 1997 began to benefit from IRS exemption, not by force of the aforementioned No. 1 of Article 46, but by force of No. 3 of the same article, in the wording given by the State Budget Law for 1997».

It was a case of a military person deployed in service in Mozambique, between 9 February and 27 October 1994, integrated in a military-technical cooperation mission between the Portuguese Republic and the People's Republic of Mozambique, pursuant to the Technical Cooperation Agreement in the Military Field between the Portuguese Republic and the People's Republic of Mozambique approved by Decree No. 27/90, of 11 July, of the Ministry of Foreign Affairs.

The Court understood that on the date the EBF was published – 31 October 1989, through Decree-Law No. 215/89 – Decree-Law No. 363/85, of 10 September, was in force, which, pursuant to its Article 1, «establishes the norms and defines the principles governing the action of the cooperator, constituting elements of his statute», being that, pursuant to Article 2, No. 1, cooperator, for the purposes provided for therein «is every Portuguese citizen who, possessing the qualifications duly recognized in the exercise of his activity, commits, by contract in accordance with No. 1 of Article 7, to provide service within the scope of cooperation relations, in accordance with that provided for in the following article»[14].

And, continuing to cite, it also said: «Surely it was for the persons considered as cooperators under this statute that Article 46, No. 1 (19), of the EBF, provided (as an automatic exemption, that is, independent of recognition by the TA) the IRS exemption, with respect to income earned in that capacity, which capacity, should the TA, within the scope of its powers of checking the veracity of the elements declared by taxpayers, request proof thereof, would be made by presenting the contract referred to in Article 7 of Decree-Law No. 363/85, of 10 September. Well, it seems to us that the so-called «technical cooperation agreement in the military field between the portuguese republic and the people's republic of mozambique», concluded on 7 December 1988 and published in the Diário da República – I Series, of 11 July 1990, agreement under which the Appellant provided service in Mozambique, does not fall within the scope of the cooperation agreements with the legal regime defined by Decree-Law No. 363/85, of 10 September. And it will not be only the lack of a written contract that determines this conclusion: there is a whole set of elements that regulate that cooperation agreement that depart from the legal regime provided for in Decree-Law No. 363/85, of 10 September. Moreover, and in support of the thesis we sustain, the legislator, through Law No. 52-C/96, of 27 December (State Budget Law for 1996), gave the following new wording to Article 46 of the EBF: «1 - Persons posted abroad pursuant to cooperation agreements are exempted from IRS, with respect to income earned within the scope of the respective agreement. 2 - The Minister of Finance may, at the request of the interested entities, or by registration, grant IRS exemption with respect to income earned by persons posted abroad in the service of those entities, pursuant to contracts concluded with foreign entities, provided that the advantages of such contracts for the national interest are demonstrated. 3 - The provision of the foregoing number also applies to remuneration earned by military personnel and members of security forces posted abroad pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service, provided that national interest is recognized. 4 - The provisions of the foregoing numbers do not prejudice the aggregation of exempt income, for purposes of the provision in Article 72 of the IRS Code and determination of the rate applicable to remaining collectible income». This means, if any doubts remained, that the legislator never intended to include in the provision of No. 1 of said legal provision the military-technical cooperation agreements concluded by the Portuguese State, agreements that, as we have already seen, have a distinct nature and legal regime from those. For this reason, it felt the need to create a new tax benefit, to grant, from 1 January 1997, IRS exemption with respect to remuneration earned by military personnel and members of security forces posted abroad pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service, provided that national interest is recognized. In any case, and contrary to what occurred with the exemption provided for cooperation agreements to which No. 1 of Article 46 of the EBF alluded, the exemption provided for in No. 3 was not automatic, but rather dependent on recognition by the Minister of Finance, at the request of the interested parties. Only from 1 January 1998 did such exemption become automatic, now in accordance with No. 2 of Article 46 of the EBF, to which Law No. 127-B/97, of 20 December (State Budget Law for 1998) gave the following wording: «1 - Persons posted abroad pursuant to cooperation agreements are exempted from IRS, with respect to income earned within the scope of the respective agreement. 2 - Military personnel and members of security forces posted abroad pursuant to military-technical cooperation agreements concluded by the Portuguese State and in its service are equally exempted from IRS, with respect to income earned within the scope of the respective agreement (...)».

In any case, the legislator continued to presume differences in nature and legal regime of "cooperation agreements" and "military-technical cooperation agreements. It seems to us, therefore, that the TA was correct in considering that the Taxpayer did not benefit, with respect to the income in question, from the exemption provided for in Article 46, No. 1, of the EBF.»

14.2.2. Regarding the Applicability of the Current Article 39 of the EBF to the Exercise of Teaching Functions

We saw in the foregoing number the legislative evolution of Article 46 of the EBF and the legal interpretation of which it was subject, with denial of application of No. 1 to military personnel posted even though pursuant to "cooperation agreements".

Will the cooperation agreements now provided for in No. 1 of Article 39 of the EBF be applicable to national citizens, teachers posted abroad in the exercise of teaching functions?

The wording of Article 39 of the EBF has not suffered amendments, with all the previous reasoning made with respect to Article 46 of the EBF (and Article 37, between 2001 and 2008) being applicable to it.

As for the combination with the norms of Decree-Law No. 165/2006, of 11 August, amended by Decree-Law No. 165-C/2009, 28 July, and by Decree-Law No. 234/2012, of 30 October, see now.

Decree-Law No. 165/2006 aims to create means to ensure constitutionally defined fundamental tasks: to ensure teaching and valorization of the Portuguese language, defend its use and foster its international dissemination, defend and promote Portuguese culture abroad and provide the children of Portuguese residents abroad access to that culture, as well as to access to the mother language. It was valued in action through the integration of learning in curricula of foreign countries, elaboration and accreditation of programs, all within the framework of best practices, namely those that follow the «Common European Framework of Reference for Languages, approved by the Council of Europe» (see preamble of DL 165/2006).

However, «Portuguese education abroad is a special form of school education» (preamble of DL 165-C/2009). Decree-Law No. 165/2006, in its original wording, mandated observance of norms of the Teaching Career Statute, being evaluated by its respective evaluation system (Articles 20 and 21 of the ECD)[15].

Currently, despite the repeal of Article 20 and amendments introduced to the wording of DL 165/2006, evaluation of teachers is performed according to the performance evaluation system of workers of the Public Administration (current Article 21 of) and it continues to be provided that the service provided as a teacher of education abroad is considered, for all legal purposes, effective service time in teaching functions in public education».

Already participation as a cooperator in a cooperation action has a specific meaning in the Portuguese legal order for decades – related to support to developing countries, namely and with special importance, to support actions to countries of Portuguese expression (PALOPs).

The importance of that action, largely triggered by decolonization and independence of new countries with special cultural and linguistic ties to Portugal (PALOPs), led to the establishment and development of the legal regime of cooperation, noting the successive decrees Decree-Law No. 180/76, of 9 March, Decree-Law No. 363/85, of 10 September, Decree-Law No. 10/2000, of 10 February (Timor) and Law No. 13/2004, of 14 April, as well as to the creation of structures designed for its specificity in various fields of Cooperation.

During the period of validity of Decree-Law No. 180/76, a fundamental role belonged to the Ministry of Cooperation, Decree-Law No. 363/85, referred in the preamble to the General Directorate of Cooperation and the Institute for Economic Cooperation, Law 13/2004 mentions the intervention of the Portuguese Institute for Development Support (IPAD).

Currently, a fundamental role falls in this area to the «... — Institute ..., I. P.», created by Decree-Law No. 21/2012, of 30 January, with a view to enhancing the capacity for intervention in the development of the international cooperation policy and external promotion of the Portuguese language and culture[16].

That is, the Institute ..., resulting from the merger of the Institute ..., I. P. (IC, I. P.), with the Portuguese Institute for Development Support, I. P. (IPAD, I. P.), with the subsequent reorganization and rationalization of the services of these two institutes, currently has, in articulation with the Ministries of Foreign Affairs and Education and Science, in the field of cooperation, in the field of external promotion of the Portuguese language and culture and within the scope of preschool education and basic and secondary levels of Portuguese education abroad, these three types of missions and responsibilities being clearly distinct in Nos. 2, 3 and 4 of Article 3 of the decree.

Regarding the case at hand, the activity of the Applicant, teaching Portuguese language in a developed country, a member, like Portugal, of the European Union, pursuant to an Agreement of cultural scope, is not susceptible of being confused with a cooperation action, subject to the framework of Law No. 13/2004, as we consider well explained in the Opinion attached to the case file, issued by the Institute ... for situations identical to that of the Applicant.

The legal regime of teaching situations and cooperation actions is distinct and different institutions were competent for their respective monitoring. Even when the different missions unite in the same institution, their distinction is maintained.

As an example that the legal order recognizes that the two situations do not confuse and must observe their respective legal regimes, with their requirements (and benefits...), see:

  • No. 4 of Article 4 of Decree-Law No. 165-C/2009: «Teaching services in countries in which Portugal develops cooperation actions and namely in African countries with Portuguese as an official language and in Timor-Leste may still be provided under the cooperation agent regime in accordance with applicable legislation, provided that those actions are properly recognized as cooperation actions by the service of the central administration responsible for Portuguese cooperation for development».

  • Article 15 of DL 75/2010, of 23/6, (decree introducing amendments to the Law of Bases of the Education System, No. 45/86), under the heading «Cooperation agents: «The regime of evaluation of performance in teaching functions of cooperation agents, whose legal status is established by Law No. 13/2004, of 14 April, is defined by joint order of the Government members responsible for the areas of foreign affairs, finance, Public Administration and education.

In the sense of non-application of the exemption provided for in Article 39 (Article 37 between 2001 and 2008) of the EBF to situations of these of exercise of Portuguese language teaching functions abroad within the scope of cultural agreements in developed European countries, the TCAN (Superior Administrative Court) decided, in cases 01104/07.4BEBRG (on 14 June 2012) and 01732/06.5BEBR (on 28 February 2013), the latter decision concluding, in summary: «I – The norm of Article 37, No. 1 of the EBF applicable (currently, corresponding to Article 39, No. 1 of the same legal decree) when it refers to "persons posted abroad, pursuant to cooperation agreements", has in view persons who, directly or indirectly, serve the Portuguese State in the fulfillment of international law obligations that result for it from the conclusion of treaties, bilateral or multilateral, which assume the form of international cooperation agreements. II – Law No. 13/2004, of 14 April, in its Article 3, Paragraph c), establishes that for purposes of its application the expression "cooperation action", to which Article 2, No. 1, refers, is the "action or project in favor of the development of countries receiving official development assistance or beneficiaries of humanitarian assistance" (moreover, in the path of what was already provided for in Articles 2, No. 1, and 3 of Decree-Law No. 363/85, of 10 September), whereby the teaching activity developed by a Portuguese language teacher in France under a deployment regime, pursuant to Decree-Law No. 13/98, of 24 January, does not fall within the scope of development cooperation or humanitarian assistance. (...)».

In both cases it was a situation in which the application of Article 37 was argued to income paid to Portuguese language teachers under an Agreement signed between the Portuguese Republic and the French Republic.

The Decision issued in case 01732/06, also citing the decision in case 01104/07, considered: «Effectively, pursuant to Paragraph c) of Article 3 of the same decree, it is established that for purposes of the present law the expression "cooperation action", to which Article 2, No. 1, refers, is the "action or project in favor of the development of countries receiving official development assistance or beneficiaries of humanitarian assistance" (moreover, in the path of what was already provided for in Articles 2, No. 1, and 3 of Decree-Law No. 363/85, of 10 September). Whence, immediately it is perceived, that it is not within this scope – of development cooperation or humanitarian assistance – that the teaching activity exercised by the Appellant in France is situated. Effectively, the Appellant was, in 2004, under a deployment regime, in France, teaching Portuguese, pursuant to Decree-Law No. 13/98, of 24 January, a decree that approved the legal regime of Portuguese education teachers abroad, specifically the regime of competitions, the conditions of work and the respective remuneration system. As affirmed in the said Decision of this TCAN of 14.06.2012, case No. 1104/07.4 BEBRG, and reiterated herein: "What is at issue is, then, pursuant to the preamble of the said DL No. 13/98, a special form of school education, resulting from duties of the Portuguese State defined in the Constitution of the Republic (see Articles 74 and 78), aiming to contribute to the valorization of the Portuguese language and culture among Portuguese communities residing abroad, at various levels of education and teaching. Therefore, what is in question is ensuring, in the interest of Portugal, the dissemination of the Portuguese language and culture, which has nothing to do with cooperation agreements in which the Portuguese State binds itself before other recipient/beneficiary States". In sum, the activity exercised by the Appellant, here the Appellant in Appeal, cannot, for purposes of application of Article 37, No. 1, of the EBF, be qualified as the exercise of functions abroad pursuant to a cooperation agreement.»

We fully subscribe to the doctrine of the cited Decisions, as well as to those already referred to in the preceding point, whereby it is decided, without further ado, that the Applicant's claim fails as her factual situation does not fall within Article 39 of the Tax Benefits Statute (EBF).

Fail, thus, naturally, the requests for reimbursement of the amount of tax meanwhile paid as well as for indemnification interest.

15. Decision

With the grounds set forth above, the arbitral tribunal decides:

a) To declare the request for arbitral pronouncement of declaration of illegality of the IRS assessment for the year 2010 (No. 2014 ...) unfounded.

b) To condemn the Applicant to pay costs.

16. Value of the Case

In accordance with the provision in No. 2 of Article 315 of the CPC, in Paragraph a) of No. 1 of Article 97-A of the CPPT and also No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 15,519.76 (fifteen thousand five hundred and nineteen euros and seventy-six cents).

17. Costs

For the purposes of the provision in No. 2 of Article 12 and in No. 4 of Article 22 of the RJAT and No. 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 918.00 (nine hundred and eighteen euros), pursuant to Table I attached to said Regulation, to be borne entirely by the Applicant.

Let it be notified.

Lisbon, 14 October 2015.

The Arbitrator

(Maria Manuela Roseiro)

[1] Decree-Law No. 165-C/2009, of 28 July, and DL 234/2012, of 30 October.

[2] The preamble of the decree refers to how the rules of that recruitment and the conditions of the exercise of its activity gave form to a specific legal regime, made concrete through Decree-Law No. 13/98, of 24 January, and developed by complementary legislative instruments, namely Regulatory Decree No. 4-A/98, of 6 April, and Decree-Law No. 176/2002, of 31 July, and how in order to organize and locally monitor the activities of Portuguese education abroad, was created by Decree-Law No. 264/77, of 1 July, a coordination service near some diplomatic missions or consular posts, the functioning norms of that service having been subsequently subject to a profound revision, embodied in Decree-Law No. 30/99, of 29 January. Following DL 165/2006, and on the same date, 11 August, was published Regulatory Decree No. 13/2006, establishing «the technical norms relating to competitions for filling positions of Portuguese education teachers abroad».

[3] Designated as «...—Institute ...», after restructuring carried out by DL No. 21/2012, of 30/01, which repealed Decree-Law No. 119/2007, of 27/04. Before this latter, the institute, created by DL No. 135/92, of 15/07, was governed by DL 170/97, of 05/07.

[4] See Article 3, Nos. 1 and 2. The wording of DL 165-A/2009 includes «higher education, youth, sport and social communication».

[5] See Article 21, Nos. 1 and 2 of DL 165/2006. Article 22 of the ECD refers to the general and specific requirements for admission to competition (being that competition is provided for by Article 17 as the normal and mandatory process of recruitment and selection of teaching staff) and Article 33 provided, with the heading, administrative contract, that «1 - The temporary exercise of teaching functions may be ensured by individuals who meet the requirements for admission to competition, under an administrative contract regime, with a view to satisfying residual needs of the education system not met by teaching staff from the rolls that arise until the end of the 1st school period, without prejudice to the special provisions contained in the legislation applicable to which refers No. 4 of Article 29. 2 - The principles governing the hiring of teaching staff under the provision of the foregoing number are fixed by joint order of the Government members responsible for the areas of Public Administration and Education».

This rule should be read in conjunction with Article 29 of the ECD which provided: 1 - The legal relationship of employment of teaching staff generally takes the form of appointment. 2 - Appointment may be provisional or definitive. 3 - The binding of teaching staff may take the form of administrative contract provided for in Article 33. 4 - The hiring of teaching staff may also take the form of a fixed-term work contract for the temporary exercise of teaching functions or training in specific technical areas, under the terms and conditions provided for in specific legislation». (The wording of Article 33 and Nos. 3 and 4 is as approved by DL 35/2007).

A more thorough interpretation of these norms would require more attention, taking into account the major changes that have occurred in recent years in the legislation relating to workers of public administration, being however unnecessary for the subject of the case.

[6] Provided that without prejudice to the provision of Article 15 (coordinators when civil servants or public administration agents), teaching services abroad were provided under the contract regime in accordance with Article 21.

[7] Exemption already established in the Professional Income Code (Article 2, § 5) for income from that tax, although not for Complementary Tax (see Teresa Barbot Faria, Tax Benefits Statute, Explanatory Notes, Rei dos Livros, 1995, 3rd edition, p. 222).

[8] «The Minister of Finance may, at the request of the interested companies, or by registration, grant IRS exemption with respect to income earned by persons posted abroad in the service of those, pursuant to contracts concluded with foreign entities, provided that the advantages of such contracts for the national interest are demonstrated».

[9] Teresa Barbot Faria (op. cit., p. 223).

[10] «The provisions of the foregoing numbers do not prejudice the aggregation of exempt income, for purposes of the provision in Article 72 of the IRS Code and determination of the rate applicable to remaining collectible income».

[11] «1 - Military personnel and members of security forces are exempted from IRS as to remuneration earned in the performance of functions integrated in military missions, carried out abroad, with humanitarian objectives or intended for the establishment, consolidation or maintenance of peace, in the service of the United Nations or other international organizations, regardless of the entity that bears the respective amounts. 2 - The provision of the foregoing number does not prejudice the aggregation of exempt income, for purposes of the provision in Article 72 of the IRS Code and determination of rate applicable to remaining collectible income. 3 - Recognition relating to the fulfillment of exemption requirements, when necessary, is the responsibility of the Minister of Finance».

[12] Op. cit. pp. 222 and 223.

[13] Representing a good synthesis of the positions in question, an excerpt from a decision of the TCAS of 15-10-2002 (rec.1653/99) is cited: «Effectively, the appellant considers himself covered by No. 1 of Article 46 of the Tax Benefits Statute due to the fact that, in the period of 27/05/96 to 31/12/96, he constituted himself as "person posted abroad pursuant to cooperation agreements" concluded by the Portuguese State, since in the text of No. 1 of that article no normative restriction is made regarding the type of beneficiary persons of the exemption, namely as regards the category or the nature of the cooperation agreement. Already from the perspective of the tax administration services that made the IRS assessment to him that year, as well as from the various entities that answered his successive presentations and requests he made on the matter, before the entry into force of the wording given to Article 46 of the EBF by Law No. 52-C/96, of 27-12, the exemption of No. 1 of Article 46 only covered the legal relationships of cooperation arising from cooperation agreements in the proper sense, that is, embodied in international treaties concluded with the intervention of the Portuguese State, a situation in which the appellant did not fall, whereby only from 1997 could he begin to benefit from the tax exemption provided for therein».

[14] «The provision of service by Portuguese cooperators will be mandatorily carried out under a written contract, which may take the following forms: a) Three-party contract, in which the cooperator, the Portuguese State and the requesting State will be parties; b) Contract to be made between the cooperator and the organism or employing entity of the requesting State, endorsed by the Portuguese State and the requesting State» (No. 1); «Of the contracts referred to in No. 1 shall consist the rights and obligations of each of the parties and shall include therein, in particular, clauses on the following matters: a) Object of the contract; b) Duration and renewal of the contract; c) Guarantees of counting of time of duration of the contract; d) Spirit of cooperation; e) Situation of the cooperator vis-à-vis the law of the requesting State; f) Remuneration; g) Monetary transfers; h) Rights of the family group; i) Social guarantees; j) Housing and accommodation; l) Illnesses and accidents at work m) Transportation; n) Customs exemptions; o) Holidays; p) Resolution of the contract; q) Applicable legislation.

[15] The Applicant was recruited under that decree, her contract having been automatically converted into a service commission in accordance with No. 5 of Article 3 of DL 165-C/2009 (transitional regime).

[16] DL 21/2012 repealed Decree-Law No. 119/2007, of 27/4, amended by DL No. 165-A/2009 (concerning the Institute Camões, previously responsible for the area of language, culture and teaching of Portuguese language and culture abroad) and Decree-Law No. 120/2007, of 27/4 (concerning IPAD, previously responsible for the area of Portuguese cooperation).

Frequently Asked Questions

Automatically Created

Are Portuguese teachers working in Luxembourg under a cooperation agreement entitled to IRS tax benefits under Article 39 of the EBF?
Portuguese teachers working in Luxembourg under a cooperation agreement may be entitled to IRS tax benefits under Article 39(1) of the EBF if they meet statutory requirements: being posted abroad pursuant to a properly constituted cooperation agreement. Article 39(1) EBF exempts income earned by taxpayers posted abroad under cooperation agreements from IRS taxation. This is an automatic benefit not requiring prior administrative recognition, as confirmed in Tax Authority Circular 20107 of 30/08/2005. However, the Tax Authority may challenge whether the agreement qualifies as a 'cooperation agreement' for tax purposes and whether it underwent proper constitutional ratification procedures under Article 8 of the Portuguese Constitution. Taxpayers must declare such exempt income using code 406 in Annex H of their IRS return.
How does the Portugal-Luxembourg cultural cooperation agreement affect the taxation of income earned by Portuguese teachers abroad?
The Portugal-Luxembourg cultural cooperation agreement of 1982 established Portuguese language courses integrated into Luxembourg's primary school curriculum, creating a framework for Portuguese teachers to work in Luxembourg's Consular Area. Teachers working under this agreement claim their income is exempt from IRS under Article 39(1) of the EBF, which exempts income earned by taxpayers posted abroad pursuant to cooperation agreements. However, the Tax Authority disputes whether this agreement constitutes a qualifying 'cooperation agreement' for Article 39 EBF purposes, arguing it may be a Program rather than a properly ratified International Agreement. The dispute centers on whether the agreement underwent mandatory ratification/approval procedures under Article 8 of the Portuguese Constitution and whether teachers are properly 'posted' pursuant to it. This affects whether their income receives automatic tax exemption or remains subject to normal IRS taxation.
Can the Portuguese Tax Authority (AT) issue an additional IRS assessment on income earned under an international cooperation agreement?
Yes, the Portuguese Tax Authority can issue additional IRS assessments on income previously declared as exempt under international cooperation agreements if it believes the exemption was improperly claimed. The procedure involves: (1) issuing a draft correction notice with the proposed changes; (2) granting the taxpayer the right of prior hearing (direito de audição prévia) to present arguments and supporting documentation; (3) if the TA maintains the correction, notifying the taxpayer to submit a substitute declaration; (4) if the taxpayer refuses, proceeding with an ex officio assessment. In this case, the TA issued a draft correction in September 2014 for the 2010 tax year (four years after the income was earned), allowed the Applicant to respond, maintained the correction despite submitted documentation, and ultimately issued an ex officio assessment for €15,519.76 including compensatory interest. Such assessments can be challenged through arbitral tribunal proceedings under the RJAT.
What is the arbitral tribunal procedure for challenging an IRS tax assessment related to tax benefits under the EBF?
The arbitral tribunal procedure for challenging IRS assessments related to Article 39 EBF tax benefits follows the framework established by Decree-Law 10/2011 (RJAT) and Ministerial Order 112-A/2011. The taxpayer files a Request for Arbitral Pronouncement under Article 2(1)(a) RJAT, attaching the contested assessment acts, legal proxy, supporting documents, and proof of payment of the initial fee. The taxpayer may appoint an arbitrator or allow the President of the Deontological Council to appoint one under Article 6 RJAT. After tribunal constitution, the Tax Authority submits a Reply and the administrative file. Parties may waive the Article 18 meeting but can submit successive written arguments. The tribunal must issue its decision within the legal timeframe. If successful, the taxpayer can obtain annulment of the contested acts and claim indemnification interest under Articles 24(1)(b) and (5) RJAT, and Articles 100 and 43(1) of the General Tax Law (LGT). The process provides an alternative to judicial courts for tax dispute resolution.
Are compensatory interest charges valid when an IRS assessment involving Article 39 EBF tax benefits is contested?
Compensatory interest charges on IRS assessments involving Article 39 EBF tax benefits are subject to the legality of the underlying assessment. If the principal tax assessment is found illegal and annulled, the associated compensatory interest must also be annulled as it derives from the unlawful tax obligation. In this case, the total amount contested (€15,519.76) includes both the IRS tax and compensatory interest calculated from the original due date. The Applicant challenges both components, arguing that since the income was properly exempt under Article 39(1) EBF, no tax was due and consequently no compensatory interest should accrue. Furthermore, if the tribunal finds the assessment illegal, the taxpayer may claim indemnification interest from the State under Articles 24(1)(b) and (5) RJAT, Articles 100 and 43(1) LGT, compensating for the financial prejudice suffered due to the unlawful tax collection. The validity of compensatory interest thus depends entirely on whether the Tax Authority properly denied the Article 39 EBF exemption.