Process: 124/2016-T

Date: January 12, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 124/2016-T addressed the tax deductibility of wind turbine depreciation for IRC (Corporate Income Tax) purposes. The taxpayer, a wind farm operator, challenged an IRC assessment for fiscal year 2010 that disallowed €84,275.32 in depreciation costs. The dispute centered on whether wind turbines should be depreciated over 16 years (6.25% rate) as the taxpayer applied, or over 20-30 years as the Tax Authority (AT) proposed based on technical specifications. The taxpayer argued that economic useful life, not technical durability, should determine the depreciation period under Article 31(2) of the CIRC and Article 5(3) of Regulatory Decree 25/2009. The company justified the 16-year period by reference to Decree-Law 189/88 and Decree-Law 312/2001, which guarantee remuneration for renewable energy supply for only 15 years, after which profitability becomes uncertain. The taxpayer contended that IRC depreciation rules require correlation between asset costs and revenues generated, making the economic reality of the business operation determinative. The Tax Authority relied on supplier technical data from the equipment manufacturer and International Electronics Committee standards recommending a minimum 20-year turbine design life. The taxpayer also raised constitutional objections, alleging violation of equality principles and real profit taxation by discriminating against wind farms compared to hydroelectric plants. Additionally, the taxpayer sought compensation for costs incurred from providing a guarantee of €20,457.79 during the tax challenge, arguing such guarantee provision was unjustified. The case illustrates the tension between technical asset specifications and economic business reality in determining fiscally deductible depreciation periods under Portuguese corporate tax law.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, Lda., taxpayer no. … (hereinafter referred to as the Claimant), filed on 02/03/2016 a request for arbitral pronouncement, in which it seeks the annulment of the tax assessment act for Corporate Income Tax (IRC) no. 2014…, the assessment of compensatory interest no. 2015… and the statement of account adjustment no. 2015… – considering as a tax-deductible cost the amount of € 84,275.32, relating to the part of depreciation of the wind turbines of the wind farm at … – concerning the tax year 2010 and the condemnation of the Tax and Customs Authority (AT) to pay damages for unjustified provision of guarantee.

1.2. The Honourable President of the Deontological Board of the Administrative Arbitration Centre (CAAD) designated on 27/04/2016 as arbitrator, Francisco Nicolau Domingos.

1.3. On 12/05/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provision of art. 17 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 12/05/2016 to, if it wished, submit a response, request the production of additional evidence and attach the Administrative Case File (PA) to the record.

1.5. On 09/06/2016 the Respondent submitted its response in which it sustains that the IRC assessment should be maintained in the legal system.

1.6. The tribunal on 15/07/2016 determined that the Claimant should come before the tribunal to indicate the factual matters of its request for arbitral pronouncement regarding which it intended the production of witness evidence.

1.7. The Claimant on 06/09/2016 identified by petition such points of fact.

1.8. The tribunal on 16/09/2016 issued an order determining the conduct of witness evidence production for 07/10/2016 given its relevance to the arbitral decision to be rendered.

1.9. On 07/10/2016 witness evidence was produced, the tribunal determined that the case should proceed to submissions, communicated to the Claimant the obligation to proceed with payment of the subsequent arbitration fee and set the deadline for rendering the arbitral decision.

1.10. The Claimant submitted its final written submissions on 18/10/2016, concluding for the acceptance of the request for arbitral pronouncement.

1.11. The Respondent, in its final written submissions of 28/10/2016, argued that the assessments should be maintained in the legal system, given their legality.

1.12. The tribunal on 12/11/2016 extended by 2 months the deadline for rendering the arbitral decision.

2. CASE MANAGEMENT

The case does not suffer from nullities, no questions were raised that would prevent examination of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide on the claim, and consequently, the conditions are met for the arbitral decision to be rendered.

3. POSITION OF THE PARTIES

The Claimant alleges as a matter of fact that following the inspection procedure resulting from service order no. OI2014…, of general scope carried out with respect to IRC and concerning the fiscal year 2010, it was proposed to correct the fiscal result from € 656,955.20 to € 791,230.52, that is, in the amount of € 134,275.32.

The basis for such proposal was founded on the following: i) The establishment of a provision, in the amount of € 50,000, relating to judicial case no. 235/07.5TBRSD, in the context of which B… and others contested the installation by the Claimant of wind turbines on property of which they are owners and ii) The depreciation rate of 6.25% practiced by the Claimant, Lda. with respect to the three wind turbines that make up the wind farm at … .

The Claimant, after being notified of the final inspection report and the additional IRC assessment, increased by compensatory interest in the total amount of € 25,299.66, understood to accept the correction relating to the provision established in the amount of € 50,000. Accordingly, it proceeded to make partial payment of the tax and compensatory interest in the part relating to the correction arising from the disregard of the provision of € 50,000, in the amount of € 9,689.07.

However, it did not agree with the disregard of the depreciation rate of 6.25% used by it with respect to the wind turbines which, in its view, is not higher than the "expected useful life period," having as reference art. 31, no. 2 of the Code of Corporate Income Tax (CIRC) and art. 5, no. 3 of Regulatory Decree no. 25/2009, of 14 September and submitted an administrative complaint on 02/07/2015.

To defend the illegality of such correction, it argues that the AT services did not take care to understand the economic rationale that lay behind the adoption of a useful life period corresponding to 16 years with respect to the depreciation of the wind turbines installed in the wind farm at … .

For this reason, it argues that, pursuant to the provisions of Annex II to Decree-Law no. 189/88, of 27 May, in its current wording, renewable energy plants licensed under such decree and Decree-Law no. 312/2001, of 10 December are remunerated for the supply of electricity to the national medium and high voltage distribution network, in accordance with a mathematical formula that enables all economic agents linked to the sector to have an exact notion of the remuneration to be earned during 15 years.

It adds that, from such date, the profitability of the wind farm at … is not assured and that during a year an analysis will be conducted to assess its maintenance in light of market conditions.

In all rigor, it observes that if the parties agree with respect to the circumstance that, in the present case, the depreciation rate should be reasonable, having regard to the expected useful life period, such is not the case with respect to the legal-tax meaning of the said useful life period.

In fact, it states that AT interprets the concept in the light of "guarantee of proper functioning," when it bases its corrections on technical data made available by the supplier of the equipment and, in its view, the utility relevant within the framework of IRC is the economic and not the "durability" of the asset.

As well as it argues that it is necessary to take into account the concrete and actual conditions in which the Claimant operates and correlate the costs of use of an asset (wind turbines) with the revenues it generates. For this reason, the business plan outlined by it had as its objective to effect a reconciliation of accounts between the income generated and the costs associated with its installation and maintenance. In summary, it argues that the reasoning used by AT in the correction did not take into account the criterion of reasonableness, by basing itself exclusively on technical and theoretical elements, disconnected from the concrete conditions in which the Claimant operates.

On the other hand, it invokes that the depreciation rate proposed by AT is unconstitutional, for violation of the principle of equality and taxation of real profit, insofar as it would cause discrimination with respect to the regime applicable to other energy producing entities, such as the case of hydroelectric plants.

Finally, it argues that arbitral tribunals are competent to recognize the right to payment of damages for unjustified provision of guarantee and that, in the present case, the Claimant provided guarantee in the amount of € 20,457.79. Thus, during the period in which the provision of guarantee is pending, it will incur costs, the amount of which it seeks to have reimbursed.

For its part, the Respondent, in its Response argues that, if one should admit an expected useful life period for tax purposes of 20 years, because the supplier of the equipment in question, C… A/S, made available technical data that corroborates that period, the International Electronics Committee, in its standard …-1, recommends that turbines be designed having as minimum useful life of 20 years and it was 30 years the period of duration of an agreement of assignment of the right of use and enjoyment corresponding to a parcel of land.

The only criterion that the law imposes on AT is that it, in determining the depreciation rate, observe the "expected useful life period," this being the only criterion that could determine the said rate with objectivity, rigor and certainty.

The concept of economic utility that the Claimant alleges has no legal basis whatsoever, and indeed it would be curious that the useful life of an asset was dependent on the economic performance of a particular taxpayer or the project in which the asset to be depreciated is inserted.

It further adds that, in the present proceedings we are not faced with any gap, but in the presence of a simple unregulated case, where it is the legislator itself who assumes in art. 31, no. 2 of CIRC, that it can opt not to set depreciation rates for certain assets and, in that event, enshrines the criterion to be used by AT, that of reasonableness, having regard to the expected useful life period.

It concludes by arguing that it acted in accordance with art. 31, no. 2 of CIRC, that is, that the application of the 5% rate to wind turbines is not unjustified or disproportionate, since it results from the expected useful life period and fully respects the principles of equality, proportionality and taxation of real profit.

In summary, it argues that no defect or illegality can be attributed to the correction made.

Thus, the tribunal must determine the following questions:

i) Whether the additional IRC assessment and compensatory interest for the year 2010 are illegal;

ii) Whether the interpretation of the Respondent, in considering, in the present case, 20 years as the expected useful life period, violates the constitutional principle of equality and taxation by real income;

iii) Whether the Claimant is entitled to damages for unjustified provision of guarantee.

4. FACTUAL MATTERS

4.1. Facts considered proven

4.1.1. The Claimant produces electricity by wind power.

4.1.2. To accomplish this purpose it has wind farms with wind turbines.

4.1.3. One of these farms is installed in …–… .

4.1.4. The Claimant allocated € 6,742,025.21 to the acquisition and installation of three wind turbines in such farm, model V 90, from manufacturer C… A/S, with a view to carrying out its corporate purpose.

4.1.5. Within the scope of Service Order no. OI2014…, of 02/07/2014, AT conducted a general inspection action concerning the tax period of 2010.

4.1.6. As a result of such inspection action an Inspection Report was drawn up, which is given as fully reproduced and where the following is noted, in particular: "From the analysis of the Depreciation and Amortization Schedule contained in the Tax File (Annex 4), it was found that the main item refers to 'Central Equipment' in the amount of € 6,742,025.21, with code …, whose depreciation in the fiscal year is € 421,376.57. As verified in previous inspection actions, that item refers to the acquisition and installation of 3 wind turbines, Brand and manufacturer – C…, Model V90, which are being depreciated at a rate of 6.25%, based on a useful life period of 16 years. The tax regime for depreciation and amortization is governed by Regulatory Decree no. 25/2009, of 14 September, which does not provide for any specific rate for wind energy production equipment. Thus and given the non-existence of this type of equipment in the tables attached to Regulatory Decree 25/2009, of 14 September, in accordance with no. 2 of article 31 of CIRC and no. 3 of article 5 of 25/2009, of 14/09, with respect to assets for which depreciation or amortization rates have not been set, as is the case with wind turbines, those considered reasonable by the Directorate-General of Taxes are accepted, having regard to the expected useful life period. By consulting the technical data made available on the internet by the supplier of the equipment in question – C… A/S, it is verified that the minimum expected useful life period for these equipments is 20 years (Annex 5), which is in line with what is recommended by the International Electronics Committee, in its standard …-1. (…) Thus the maximum depreciation rate allowed for tax purposes cannot exceed 5%, as provided for in no. 3 of art. 5 of Regulatory Decree no. 25/2009, of 14/09 and no. 2, of art. 31 of CIRC, whereby the following correction to the amortizations for the fiscal year is proposed, as they are not deductible expenses for tax purposes in accordance with the provisions of item c), of no. 1, of art. 34 of CIRC:

Code | Equipment Value | Depreciation Rate Applied | Maximum Depreciation Rate Allowed | Depreciation Practiced | Depreciation Accepted | Correction
---|---|---|---|---|---|---
… | €6,742,025.21 | 6.25% | 5% | €421,376.58 | €337,101.26 | €84,275.32

(…)".

4.1.7. The Claimant was notified of the right to be heard by means of official notice on 28/11/2014.

4.1.8. The Claimant exercised the right to be heard on 17/12/2014.

4.1.9. The final tax inspection report was notified to the Claimant by official notice dated 26/12/2014.

4.1.10. As a result of such corrections the Claimant was notified of the additional IRC assessment no. 2014… in the amount of € 25,299.66, which includes the assessment of compensatory interest in the amount of € 3,144.24 and the statement of account adjustment no. 2015… .

4.1.11. Subsequently, the Claimant accepted the correction of the provision established in the amount of € 50,000 and proceeded to make an on-account payment of € 9,689.07 within the scope of the fiscal execution process no. …2015… .

4.1.12. With a view to suspending the executive proceeding no. …2015… the Claimant presented on 19/06/2015 a bank guarantee in the amount of € 20,457.79.

4.1.13. An administrative complaint was filed regarding the 2010 IRC assessment with a view to considering as a tax-deductible cost the amount of € 84,275.32 relating to the part of the depreciation of the wind turbines of the wind farm at … .

4.1.14. On 03/12/2015 the Claimant was notified of the final decision of express dismissal of the administrative complaint filed.

4.1.15. The Claimant on 02/03/2016 filed the request for arbitral pronouncement that underlies the present case.

4.1.16. The Claimant considered that the wind turbines have a useful life period of 16 years, depreciating them at a rate of 6.25%.

4.1.17. The energy produced by the Claimant is sold in accordance with the conditions provided for in Decree-Law no. 189/88, of 27 May.

4.1.18. The payment of the guaranteed tariff for energy production from renewable sources is 15 years.

4.1.19. The residual value of the wind turbines is zero after the expiry of 15 years, since they are not sold and are dismantled, having no market value.

4.1.20. Wind turbines constitute an area very sensitive to technological advances.

4.1.21. The dismantling costs, after those 15 years, are significant and the proceeds from the sale of copper incorporated in the wind turbines are not sufficient to ensure such costs.

4.1.22. The Claimant planned its activity on the basis of such circumstances.

4.2. Facts not considered proven

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

4.3. Justification of the factual matters considered proven

The factual matters given as proven stem from the documents used for each of the facts alleged and whose authenticity was not called into question, as well as from the testimony of witnesses, D… (4.1.19 to 4.1.22) and E… (4.1.19 to 4.1.22), who gave it with impartiality and knowledge of the facts they reported.

5. ON THE LAW

The essential question in this case is to determine what is the depreciation rate that should be used for the wind turbines that make up the wind farm of the Claimant located at … . That is, to determine, in light of the tax framework in effect in the fiscal year 2010, what is the expected useful life period of the Claimant's wind turbines described in the tax inspection report, in order to ascertain the depreciation rate to be considered for tax purposes.

Thus, there is, from the outset, a need to identify the legal framework upon which the parties disagree in their interpretation.

Thus, art. 31 of CIRC, as amended by Decree-Law no. 159/2009, of 13 July, provides the following: "1. In the method of constant quotas, the annual quota of depreciation or amortization that can be accepted as an expense of the tax period is determined by applying the depreciation or amortization rates defined in the regulatory decree establishing the respective regime to the following values:

a) Cost of acquisition or production;

b) Value resulting from revaluation under tax legislation;

c) Market value, as of the date of the opening of the books, for assets subject to valuation for this purpose, when the cost of acquisition or production is not known.

With respect to elements for which depreciation or amortization rates have not been set, those which the Directorate-General of Taxes considers reasonable (emphasized) are accepted, having regard to the expected useful life period (emphasized)…".

Moreover, Regulatory Decree no. 25/2009, of 14 September also provides in art. 5, no. 3 that: "…with respect to elements for which depreciation or amortization rates have not been set in the tables referred to in no. 1, those which the Directorate-General of Taxes considers reasonable, having regard to the expected useful life period (emphasized) are accepted".

In sum, not being provided for in Regulatory Decree no. 25/2009, of 14 September, in the wording in effect on the date of the tax event, the depreciation rate for wind turbines, the Claimant, at the behest of art. 31, no. 2 of CIRC was required to apply a rate it considered reasonable, having regard to the "expected useful life period" for wind turbines.

But, how should the tribunal assess the reasonableness of the depreciation rate used (6.25%) taking into account the expected useful life period for wind turbines?

In such activity it is necessary to assess the data brought to the record by the parties, that is, the information provided by supplier C… A/S and the document that analyzes the useful life of equipment for hydroelectric energy production. Moreover, the specificity of the question requires that one assess, not only elements of an accounting and tax nature, but also those of an economic, technical nature and the testimony of the witnesses themselves.

From the evidence in the record it results that, in 2010, there was no reason to expect a useful life period longer than the 16 years that the Claimant took into account in conducting the amortizations, especially, the 20 years, used by AT, because it was indicated to it by the supplier of the wind turbines that the said period is 20 years, as recommended by standard …-1 of the International Electronics Committee, in holding that turbines should be designed having as minimum useful life such number of years.

From the proven factual matters it results that, not only did the Claimant project its activity for the period of guaranteed tariff for energy produced using wind power, but also the wind turbines become obsolete before reaching 15 years of use, they have high dismantling costs and these equipments have no market value.

Consequently, the information gathered by AT cannot be considered determinative that a useful life period of 20 years should be expected for wind turbines in view of the above.

On the other hand, the fact that Law no. 82-D/2014, of 31 December, came expressly and specifically to incorporate "wind energy equipment" into the list of rates in table II attached to Regulatory Decree no. 25/2009, of 14 September and indicate rate 8, which corresponds to 12.5 years of useful life, points to the correctness of the reasonableness judgment made by the Claimant in using a useful life period of 16 years.

Thus, by applying the 8% rate set in this new decree to equipment similar to that of the Claimant, even though for tax periods after 2015, one cannot but conclude that in 2010 it was reasonable to understand that a useful life period of no more than 16 years should be expected.

In truth, if it is true that the said legislative amendment does not have retroactive effects, it is also true that the central question of this case is to ascertain whether it was reasonable in 2010 to expect less than 20 years of useful life for wind turbines and it is manifest that the fact that the legislator in 2014 concluded that the appropriate useful life period is 12.5 years, demonstrates that, in the legislative judgment, it was already perfectly reasonable that a period longer than [1] be expected.

In the present case it appears that the Claimant even used a depreciation rate corresponding to a useful life period longer than 12.5 years, whereby there is no basis for AT not to consider reasonable the expected useful life period that results from the 6.25% rate.

And a different conclusion is not reached by the fact that the Claimant entered into an agreement for assignment of the right of use and enjoyment of a parcel of land, in that this does not eternalize itself in the legal system. Or, stated differently, nothing prevents it from being modified or terminated.

For this sum of reasons, the assessment that is the subject of these proceedings suffers from the defect of violation of law, due to error as to the factual and legal presuppositions and, as such, must be annulled.

In parallel, if the IRC assessment is illegal for being based on a correction to the taxable matter without legal support, the assessment of compensatory interest suffers from a similar defect.

Finally, the Claimant makes a claim for damages for unjustified provision of guarantee, inasmuch as it understands that there is an error attributable to AT in the practice of the additional assessment.

It happens that, art. 2, no. 1, items a) and b) of RJAT delimits the competence of arbitral tribunals that function under the auspices of CAAD with the "declaration of illegality."

Thus, it is legitimate to question whether it is possible to condemn AT to pay damages for unjustified provision of guarantee?

In the first place, the legislator, in the legislative authorization granted by Law no. 3-B/2010, of 28 April wrote that: "The tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters." In other words, it is in light of such legislative purpose that articles 2, 10 and 24, no. 1, item b), all of RJAT, must be interpreted.

In truth, art. 171 of the Code of Tax Procedure and Process (CPPT) establishes that: "Damages in case of a bank guarantee or equivalent unjustifiably provided shall be requested in the case in which the legality of the enforceable debt is contested."

For this reason, in the arbitration process it is possible, not only to assess claims of an annulment nature, but also recognition of the right to damages for unjustified provision of guarantee.

The regime of the right to damages for unjustified guarantee is provided for in art. 53 of the General Tax Law (LGT) which provides the following: "1. A taxpayer who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified wholly or partially for losses resulting from its provision, if he has maintained it for a period longer than three years in proportion to the finality in administrative review, challenge or opposition to execution which have as their object the guaranteed debt. 2. The period referred to in the preceding paragraph does not apply when it is found, in administrative complaint or judicial challenge, that there was an error attributable to the services in the assessment of the tax. 3. The indemnification referred to in no. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnity interest provided for in this law and can be requested in the administrative complaint or judicial challenge itself, or autonomously. 4. Indemnification for unjustified provision of guarantee shall be paid by deduction from the tax revenue of the year in which it was effected."

In the present case, it is possible to ascertain from the proven factual matters that a fiscal execution process no. …2015… was instituted at the Tax Service of … and that the Claimant provided a guarantee to suspend such process in the amount of € 20,457.79.

Thus, the error underlying the additional IRC assessment and the assessment of compensatory interest is attributable to AT, inasmuch as the correction undertaken was at its initiative and the Claimant did not contribute to such error being practiced. In effect, the provision of a bank guarantee with a view to suspending the fiscal execution process appears to be not owed and, as such, the Claimant has the right to be indemnified for the losses that resulted from the guarantee provided.

With no elements available to determine the amount of indemnification, the condemnation must be made with reference to what comes to be assessed in execution of the present decision.

6. DECISION

In these terms and with the justification described above the tribunal decides:

i) Annul the express dismissal of the administrative complaint and consequently, the IRC assessment no. 2014…, the assessment of compensatory interest no. 2015…, concerning the tax year 2010 and the statement of account adjustment no. 2015…, in the part corresponding to the correction of the depreciation rate of the wind turbines.

ii) Condemn the Respondent to pay damages to the Claimant, for unjustified provision of guarantee, in the amount to be fixed in execution of this decision.

7. CASE VALUE

The case value is set at € 15,610.59, pursuant to art. 97-A of CPPT, applicable by virtue of the provision of art. 29, no. 1, item a) of RJAT and art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to the charge of the Respondent, in the amount of € 918, pursuant to art. 22, no. 4 of RJAT and Table I attached to RCPAT, insofar as the claim fully succeeded.

Notify.

Lisbon, 12 January 2017

The Arbitrator,

Francisco Nicolau Domingos

[1] See in this sense arbitral decision no. 16/2015-T, of 01/09/2015 and in which served as arbitrator-president the Counsellor JORGE LOPES DE SOUSA.

Frequently Asked Questions

Automatically Created

What are the IRC rules for depreciation and amortization of wind turbines (aerogeradores) in Portugal?
Under Portuguese IRC law, wind turbine depreciation must be reasonable relative to the expected useful life period pursuant to Article 31(2) of the CIRC and Article 5(3) of Regulatory Decree 25/2009. The dispute in Process 124/2016-T centered on whether useful life means technical durability (20-30 years based on manufacturer specifications) or economic utility (16 years based on guaranteed remuneration periods under renewable energy legislation). The Tax Authority typically references technical standards and supplier data, while taxpayers may argue for shorter periods based on the economic reality of guaranteed revenue streams under Decree-Law 189/88 and Decree-Law 312/2001.
Can wind farm operators deduct wind turbine amortization costs as a fiscally deductible expense under Portuguese corporate tax law?
Yes, wind farm operators can deduct wind turbine amortization as a fiscally deductible expense under Portuguese IRC law, provided the depreciation rate is reasonable and corresponds to the expected useful life of the assets. However, the Tax Authority may challenge the depreciation period if it considers the rate applied to be excessive. In Process 124/2016-T, the taxpayer applied a 6.25% annual depreciation rate (16-year useful life) which AT contested, proposing a longer useful life based on technical specifications. The deductibility is not in question, but rather the appropriate depreciation period and whether it should reflect economic or technical useful life.
How did the CAAD arbitral tribunal rule on the tax deductibility of wind turbine depreciation in Process 124/2016-T?
The complete arbitral decision is not provided in the available excerpt, which ends during the presentation of the Respondent's arguments. However, the case involved determining whether the taxpayer's 6.25% depreciation rate (16-year useful life) was reasonable under Article 31(2) CIRC. The tribunal heard witness evidence on October 7, 2016, and both parties submitted final written submissions. The Claimant argued for acceptance based on economic useful life tied to guaranteed remuneration periods, while the Respondent defended the IRC assessment based on technical specifications supporting 20-30 year useful life. The tribunal's ruling on this matter would establish important precedent for renewable energy depreciation practices.
What is the procedure for challenging an IRC tax assessment on wind turbine amortization before the CAAD?
To challenge an IRC assessment on wind turbine amortization before CAAD, taxpayers must file a request for arbitral pronouncement as provided in Decree-Law 10/2011 (RJAT). In Process 124/2016-T, the procedure included: (1) filing the arbitration request on February 3, 2016; (2) appointment of arbitrator by the CAAD President; (3) constitution of the arbitral tribunal on May 12, 2016; (4) notification of the Tax Authority to submit response and administrative file; (5) identification of factual matters requiring witness evidence; (6) hearing for witness testimony; (7) submission of final written submissions by both parties. Before initiating arbitration, taxpayers typically file an administrative complaint. The taxpayer may need to provide a guarantee to suspend collection during the challenge process.
Is a taxpayer entitled to compensation for undue guarantee costs when contesting an IRC tax assessment in Portugal?
Yes, under Portuguese tax law, taxpayers may be entitled to compensation for costs incurred from providing guarantees when contesting IRC assessments if the guarantee proves unjustified. In Process 124/2016-T, the taxpayer specifically requested damages for unjustified guarantee provision of €20,457.79, arguing that CAAD arbitral tribunals have jurisdiction to recognize such compensation rights. The taxpayer claimed it incurred costs during the period the guarantee was pending and sought reimbursement. The right to compensation depends on successfully demonstrating that the underlying tax assessment was illegal and that the guarantee requirement imposed an unjustified financial burden on the taxpayer during the administrative or judicial challenge process.