Process: 131/2019-T

Date: October 23, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Case 131/2019-T) addresses the tribunal's material incompetence to rule on the rejection of an official tax review request. The claimant, a restaurant company, challenged IRC assessments for 2012-2014 involving autonomous taxation on a service vehicle and disallowed deductions for property expenses (rent, electricity, water) related to a Michelin-distinguished restaurant operation. The company argued the vehicle was exclusively for business use and that property expenses were indispensable to its restaurant activity, citing Supreme Administrative Court jurisprudence on the 'indispensability' requirement. However, the Tax Authority filed the official review request under article 56(2) of the LGT, noting it had already ruled on identical claims through an administrative appeal less than two years prior, with no new elements presented. The Authority argued this filing decision was an administrative act not involving examination of tax assessment legality, thus falling outside CAAD's jurisdiction under article 97 of the CPPT. The tribunal found itself materially incompetent, as the challenged act was purely procedural—a decision not to re-examine previously decided issues—rather than a substantive tax assessment decision. This ruling clarifies that CAAD arbitration is limited to challenges against tax assessment acts themselves, not against administrative decisions refusing to reconsider prior rulings on procedural grounds, which must be challenged through administrative courts under CPTA procedures.

Full Decision

ARBITRAL TAX JURISPRUDENCE

Case No. 131/2019-T

Date of Decision: 2019-10-23

Corporate Income Tax (IRC)

Value of Claim: €8,507.10

Subject Matter: IRC – Dismissal of Official Review Request. Material Incompetence.

ARBITRAL DECISION (consult full version in PDF)

The arbitrator Dr. Henrique Nogueira Nunes, designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 8 May 2019, hereby decides as follows:

I – REPORT

1.1 A..., Lda, with the tax identification number..., hereinafter referred to as the "Claimant", requested the constitution of the Arbitral Tribunal pursuant to articles 2, paragraph 1, subparagraph a) and 10 of Decree-Law No. 10/2011 of 20 January (hereinafter "RJAT").

1.2 The request for arbitral pronouncement, as configured, has as its object the declaration of illegality of the acts of additional assessment of Corporate Income Tax (IRC), relating to the years 2012, 2013 and 2014; declaration of illegality of the act of deemed refusal of the Administrative Appeal relating to the same years; the declaration of illegality of the act of filing the Official Review of the tax act; further requesting the reimbursement of the amount of €8,107.06, plus interest accrued.

1.3 In support of its claim, the Claimant alleges, in summary, the following defects:

(i) That the use of its service vehicle is exclusively professional, whereby the respective expenses are endowed with business character, reason for which these expenses should not be subject to autonomous taxation.

(ii) That the autonomous taxation additionally assessed in relation to the service vehicle is excessive, whereby it requests the correction of the IRC self-assessment for that period accordingly.

(iii) That in section III 1.1.1, 2.1.1 and 3.1.1 of the Tax Inspection Report, it is stated that expenses are presented as costs in the years 2012, 2013 and 2014, respectively, relating to property located in Urbanization..., namely electricity, water and property rent, and that the property described above serves as a location for some key points of the Claimant's activity as a restaurant business that received a distinguished "Michelin" medal.

(iv) And that this resulted in a benefit, an income, for the activity carried out by the Claimant.

(v) Regarding the causal nexus between income and expenses, in the Judgment of 24 September 2014, it considers that the Supreme Administrative Court clarified the issue in the sense that the interpretation of "indispensability" translates into expenses incurred or supported in the context of the activity or in the company's interest.

(vi) By way of conclusion, it argues for the illegality of the assessment acts and compensatory interest now claimed, due to error regarding the factual and legal assumptions, further requesting the reimbursement of the tax paid plus interest accrued.

(vii) It configures its claim by stating that, as the formation of the deemed refusal of the Administrative Appeal occurred on 6 November 2016, it hereby requests the declaration of illegality of the acts of additional assessment of IRC relating to the years 2012, 2013 and 2014, as well as the declaration of illegality of the act of deemed refusal of the Administrative Appeal.

1.4 The Tax and Customs Authority, hereinafter referred to as the "Respondent" or "TA", replied, in summary, as follows:

(i) It defends itself by exception, alleging the impropriety of the remedy and raising the incompetence of the Arbitral Tribunal.

(ii) That the Claimant was notified on 2017-10-23 of the draft refusal of the administrative appeal to exercise the right to hearing, which it did not do, and was notified on 2017-11-22 of the refusal decision, informing it of the available means of defence, and received on 22/11/2017.

(iii) That against the decision refusing the administrative appeal, the Claimant filed a request for official review pursuant to article 78 of the General Tax Law (LGT) based on a request received on 2018-04-05 at the Finance Service of Loulé-... with the subject Request for Review of the Tax Act in which the taxpayer A..., Lda, NIPC..., is the Claimant, arguing, in summary:

  • It requests the review of the following tax acts:

    • Assessment of IRC for the year 2012, with No. 2016..., corresponding to Collection Notice No. 2016..., in the amount of €2,526.13, already paid;

    • Assessment of IRC for the year 2013, with No. 2016..., corresponding to Collection Notice No. 2016..., in the amount of €4,360.41, already paid;

    • Assessment of IRC for the year 2014, with No. 2016..., which led to Collection Notice No. 2016..., in the amount of €1,490.63, already paid.

(iv) That the official review request filed pursuant to art. 78, no. 1 of the LGT aimed at the annulment of the acts of additional assessment, arising from correction documents prepared by the Tax Inspection Services within the scope of inspection procedures, authorised by Service Orders Nos. OI2015..., OI2015..., OI2016..., and Order for Refusal of Administrative Appeal, notified to the Claimant's representative on 2017-11-22, alleging illegality of the acts due to lack of reasoning and errors regarding the factual and legal assumptions due to error attributable to the services.

(v) And that in response to the official review request, the Claimant disagreed with the arithmetic corrections made by the Tax Inspection Services, forwarding the arguments of error attributable to the services to those alleged in the Administrative Appeal.

(vi) And that in response to the Official Review Request, the TA decided as follows: "Pursuant to article 56 of the General Tax Law (LGT), the TA is obliged to pronounce itself on all matters within its competence that are presented to it by means of appeals, remedies, representations, expositions, complaints or any other means provided for by law by taxpayers or anyone with legitimate interest; however, the legal provision of subparagraph a) of paragraph 2 of article 56 stipulates that there is no duty to decide when the TA has pronounced itself less than two years before on a request from the same author with identical object and grounds.

In the specific case at hand, no presentation of new elements is envisaged, whereby the applicability of the provision of paragraph 2 of article 56 of the LGT appears applicable, considering that the official review request filed by the claimant on 2018-04-05, instituted with No. ...2018... relates to identical object and grounds as the administrative appeal with No. ...2016..., on which the TA has already pronounced itself with Order for Refusal on 2017-11-17 and finality on 2018-01-01.

In view of the foregoing, the filing of the present procedure is proposed..."

(vii) It maintains that such decision does not involve the examination of the legality of the tax assessment act, reason for which it understands that the contentious remedy to challenge it is, pursuant to subparagraph p) of paragraph 1 and paragraph 2 of article 97 of the Code of Administrative Procedure and Tax Procedure (CPPT), the formerly called "contentious remedy" (current administrative action) provided for and regulated by the rules of the Code of Administrative Procedure and Tax Procedure (CPTA).

(viii) And that the Arbitral Tribunal does not have competence to examine the claim since it is an administrative act in tax matters that does not involve the examination of the legality of a tax assessment act, inasmuch as the administrative act leading to the filing of the official review request was based on the invocation of the provision in paragraph 2 of article 56 of the LGT, that is, the fact that the TA has pronounced itself on the same issue, same facts, with the same reasoning, in the administrative appeal proceedings, less than 2 years ago, not being, for that reason, examined the legality of any assessment acts nor of the decision given in the administrative appeal proceedings.

(ix) For the reasons set out above, it understands that the material incompetence of the arbitral tribunal should be recognised, and consequently, the Respondent Entity should be absolved accordingly.

(x) It also invokes the timeliness of the request for arbitral pronouncement, alleging that the act under challenge will be the order refusing the Administrative Appeal, notified to the Claimant on 22/11/2017 and, the deadline for filing a request for arbitral pronouncement being defined pursuant to article 10 of the RJAT, its formulation on 25/02/2019 denotes its manifest lack of timeliness, and consequently it should be absolved accordingly.

(xi) Furthermore, it defends itself through Opposition, sustaining, in summary, that the Claimant understands that by assigning the aforementioned vehicle to its business activity, it is sufficient to remove the respective charges from autonomous taxation, with which it disagrees.

(xii) It alleges that charges relating to light passenger vehicles are subject to autonomous taxation regardless of whether or not they are tax-deductible under IRC and that even if one considers their use by CHEF B... or the Claimant, within the scope of its activity or for other purposes, it is totally irrelevant for the purposes of autonomous taxation.

(xiii) Whereby it argues for the dismissal of the claim.

1.5 The Tribunal decided to dispense with the holding of the first meeting of the Arbitral Tribunal as per arbitral order notified to the parties in accordance with the provision of article 18 of the RJAT.

By Arbitral Order dated 12-06-2019, the Claimant was notified to respond, if willing, to the matter of exception invoked by the Respondent, which it did not do.

By Arbitral Order dated 01-10-2019, both parties were equally notified to submit Submissions, neither having opted to do so. For the purposes of issuing the arbitral decision, the same was set until the end of the legal deadline.

1.7 The Tribunal was duly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be legitimate and are duly represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance No. 112-A/2011 of 22 March).

No procedural nullities were identified.

2. ISSUES TO BE DECIDED

  1. Exception raised by the Respondent of material incompetence of the Arbitral Tribunal.

  2. Exception of lack of timeliness of the arbitral claim.

  3. Examination of the substantive issue concerning the legality of the assessments in dispute herein.

However, and because the Respondent raised an exception in its Reply, it is necessary to examine it first, as its success implies the dismissal of the arbitral instance and the non-examination of the claim.

3. FACTUAL MATTERS

As relevant for the examination and decision on the merits, the following facts are found to be proven:

a) The Claimant was subject to a tax inspection, conducted by the Finance Department of Faro, under service orders OI2015..., OI2015... and OI2016..., of general scope, concerning IRC and VAT, relating to the years 2012, 2013 and 2014 (cf. Administrative File attached to the case);

b) Arithmetic corrections were made in IRC proceedings relating to the deduction of expenses not deemed indispensable to obtain or secure income subject to IRC pursuant to article 23 of the Corporate Income Tax Code (CIRC), namely general expenses related to property not used for the activity (fixed assets) and not corresponding to the establishment and autonomous taxation with expenses relating to light passenger vehicles pursuant to article 3 of article 88 of the CIRC (cf. Administrative File attached to the case);

c) From the corrections made in IRC and VAT proceedings, the following assessments resulted:

(cf. Administrative File attached to the case).

d) On 6 April 2016, the Claimant was notified of the IRC assessment statements, and was subsequently notified of the statements of compensatory interest assessments and the corresponding account adjustments, relating to the years 2012 (collection notice No. 2016... – €2,526.13), 2013 (collection notice No. 2016..., in the amount of €4,630.41) and 2014 (collection notice No. 2016..., in the amount of €1,490.63) as per Document No. 3 attached by the Claimant with the arbitral claim.

e) The Claimant proceeded with payment of the tax and respective compensatory interest (cf. Doc. No. 4 attached to the case by the Claimant).

f) The Claimant filed an Administrative Appeal, addressed to the Finance Directorate of Faro and delivered at the Finance Office of Loulé... (cf. Document No. 5 attached to the case by the Claimant).

g) On 23 October 2017, the Claimant was notified of the draft refusal of the Administrative Appeal (cf. Document No. 6 attached to the case by the Claimant).

h) On 22 November 2017, notified of the order refusing the Administrative Appeal (cf. Document No. 7 attached to the case by the Claimant).

i) Against the decision refusing the administrative appeal, the Claimant filed a request for official review pursuant to article 78 of the LGT based on the request received with No. 2018... on 2018-04-05 at the Finance Service of Loulé-... sent by registered mail with No. RH...PT of 2018-04-04, with the subject Request for Review of the Tax Act in which the taxpayer A..., Lda, NIPC..., is the Claimant, where it requests the review of the following tax acts:

i. Assessment of IRC for the year 2012, with No. 2016..., corresponding to Collection Notice No. 2016..., in the amount of €2,526.13, already paid;

ii. Assessment of IRC for the year 2013, with No. 2016..., corresponding to Collection Notice No. 2016..., in the amount of €4,360.41, already paid;

iii. Assessment of IRC for the year 2014, with No. 2016..., which led to Collection Notice No. 2016..., in the amount of €1,490.63, already paid.

(cf. Administrative File attached to the case by the Respondent).

j) Such request was filed on 5 April 2018 (Document No. 8 attached to the case by the Claimant).

k) The official review request filed pursuant to article 78, paragraph 1 of the LGT aimed at the annulment of the acts of additional assessment, arising from correction documents prepared by the Inspection Services within the scope of inspection procedures, authorised by Service Orders Nos. OI2015..., OI2015..., OI2016..., and Order for Refusal of Administrative Appeal, notified to the Claimant on 2017-11-22, alleging illegality of the acts due to lack of reasoning and errors regarding the factual and legal assumptions due to error attributable to the services. (cf. Administrative File attached to the case).

l) In response to the Official Review Request, the TA decided as follows: "Pursuant to article 56 of the General Tax Law (LGT), the TA is obliged to pronounce itself on all matters within its competence that are presented to it by means of appeals, remedies, representations, expositions, complaints or any other means provided for by law by taxpayers or anyone with legitimate interest; however, the legal provision of subparagraph a) of paragraph 2 of article 56 stipulates that there is no duty to decide when the TA has pronounced itself less than two years before on a request from the same author with identical object and grounds.

In the specific case at hand, no presentation of new elements is envisaged, whereby the applicability of the provision of paragraph 2 of article 56 of the LGT appears applicable, considering that the official review request filed by the claimant on 2018-04-05, instituted with No. ...2018... relates to identical object and grounds as the administrative appeal with No. ...2016..., on which the TA has already pronounced itself with Order for Refusal on 2017-11-17 and finality on 2018-01-01.

In view of the foregoing, the filing of the present procedure is proposed..."

m) On 26 November 2018, the Claimant was notified of the order filing the request for review of the tax act (Document No. 9 attached to the case by the Claimant).

n) The value of the economic utility of the claim as configured by the Claimant in its arbitral claim is the value corresponding to the assessment notices for which the declaration of illegality is sought, in the total amount of €8,507.10, being the sum of €2,526.13 relating to the year 2012, the sum of €4,630.41 relating to the year 2013 and the sum of €1,490.63 relating to the year 2014, plus respective compensatory interest. (cf. article 124 of the arbitral claim).

o) On 27 February 2019, the Claimant filed a request for the constitution of the Arbitral Tribunal with the CAAD – cf. electronic request in the CAAD system.

4. UNPROVEN FACTS

There are no other facts relevant to the merits of the case that have not been proven.

5. REASONING OF THE DECISION ON MATTERS OF FACT

As regards the essential facts, the matters established are formed identically by both parties and the Tribunal's conviction was formed on the basis of the documentary (official) elements attached to the proceedings and discriminated above, whose authenticity and veracity were not questioned by either party.

It should be noted that the Tribunal does not have the duty to pronounce on all the matters alleged, but rather has the duty to select only those that are relevant to the decision, taking into account the cause (or causes) of action that grounds the claim formulated by the Claimant as plaintiff (cf. articles 596, paragraph 1 and 607, paragraphs 2 to 4, of the Civil Code, as amended by Law 41/2013 of 26/6) and to state whether it considers it proven or not proven (cf. article 123, paragraph 2, of the CPPT).

In accordance with the principle of free assessment of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed on the basis of the examination and evaluation it makes of the means of proof brought to the proceedings and in accordance with its experience of life and knowledge of persons (cf. article 607, paragraph 5, of the Civil Code, as amended by Law No. 41/2013 of 26/6). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents – cf. article 371 of the Civil Code) does the principle of free assessment of evidence not apply to the evaluation of the evidence produced.

6. LAW

On the Matter of Exception: On the Incompetence of the Arbitral Tribunal

In accordance with the provision of article 608, paragraph 1 of the Code of Civil Procedure (CPC), applicable by virtue of the provision of article 29 of the RJAT, "(…) the judgment shall first examine the procedural questions that may determine the dismissal of the instance (…)", and the judge shall "resolve all questions that the parties have submitted to its examination, except those whose decision is precluded by the solution given to others (…)".

Let us therefore examine the exception raised by the Respondent, examining first the incompetence of the Arbitral Tribunal to examine the claim as invoked by the Respondent.

As is known, only in cases where the second or third-degree act examined only and solely a preliminary question whose solution prevented the examination of the legality of the primary act – such as, for example, lack of timeliness, lack of standing or incompetence – would the examination of requests for official review fall outside the material competence of arbitral tribunals – this has been the prevailing understanding of the arbitral tribunals functioning at the CAAD.

That is, if the TA refused to examine the official review request on the grounds of any preliminary question that prevents the examination of the legality of the first-degree tax act, there is a situation in which such act would have to be challenged through administrative action and consequently would fall outside the sphere of competence of the arbitral tribunal.

This issue, which is moreover, of official cognisance, has, prima facie, relevance, insofar as, upon examining the decision of the official review procedure at issue herein, the same did not pronounce concretely on the legality of the assessments, but merely on the filing of the procedure due to the applicability of the provision in paragraph 2 of article 56 of the LGT, that is, considering that not yet two years had elapsed since the submission of the request by the same author and with identical object and grounds and that consisted in the submission of the Administrative Appeal that was submitted by the Claimant and expressly refused by the TA, whereby it decided to file the official review request without examining it, concluding that "In the specific case at hand, no presentation of new elements is envisaged, whereby the applicability of the provision of paragraph 2 of article 56 of the LGT appears applicable, considering that the official review request filed by the claimant on 2018-04-05, instituted with No. ...2018... relates to identical object and grounds as the administrative appeal with No. ...2016..., on which the TA has already pronounced itself with Order for Refusal".

That is, in the case at hand, the TA did not conduct a new analysis of the substantive issue at hand, merely not deciding it as it considered that on the same issue it had already decided less than two years before.

In these terms, and in accordance with the prevailing understanding, that is, that only second and third-degree acts that examine the legality of the assessment may be the object of the arbitral process, and verifying that the decision of the official review procedure did not examine the legality of the assessment acts, but rather decided on the filing of the official review request, this Tribunal understands that the incompetence of the same is verified as invoked by the Respondent.

We are thus facing an administrative act in tax matters that, by not examining or discussing the legality of the assessment act, cannot be challenged through judicial remedy, in accordance with the provisions of subparagraph a) of paragraph 1 of article 97 of the CPPT and article 2 of the RJAT (see, in this sense, the Judgment of the Supreme Administrative Court of 28-04-2010 handed down in case No. 0120/09), which is to say that it does not fall within the scope of material competence of Arbitral Tribunals.

Reason for which the decision is for the acceptance of the dilatory exception invoked by the Respondent, which dictates its dismissal from the instance, in accordance with the provision in paragraph 1 of article 278 of the new CPC, applicable ex vi subparagraph e) of article 2, subparagraph e) of the CPPT and subparagraph e) paragraph 1 of article 29 of the RJAT.

The examination of the remaining matter of exception is thus precluded (although this Tribunal does not understand why the Claimant requests the declaration of illegality of the act of deemed refusal of the Administrative Appeal when the same was expressly refused as, indeed, the Claimant itself states throughout the arbitral petition) and, likewise, the examination of the substantive issue.

7. DECISION

In view of the foregoing, this Singular Arbitral Tribunal hereby decides as follows:

  • To judge the dilatory exception of material incompetence invoked by the Respondent as well-founded, abssolving it from the instance.

The value of the proceedings is set at Euro 8,507.10, in accordance with the provisions of articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph a) of the CPPT and 306 of the CPC.

The Claimant is condemned to pay costs in the amount of Euro 918.00 under article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, in accordance with the provisions of articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Let it be notified.

Lisbon, 23 October 2019.

The Arbitrator,

(Henrique Nogueira Nunes)

Text prepared by computer, in accordance with article 131, paragraph 5 of the Civil Code of Procedure, applicable by referral from article 29, paragraph 1, subparagraph e) of the RJAT.

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

Frequently Asked Questions

Automatically Created

What happens when a taxpayer challenges the rejection of an ex officio tax review (revisão oficiosa) at CAAD arbitration?
When a taxpayer challenges the rejection of an official tax review (revisão oficiosa) at CAAD, the tribunal must first determine whether it has material competence. If the Tax Authority rejected the review under article 56(2) of the LGT because it previously ruled on identical claims within two years, this constitutes a procedural administrative decision rather than a substantive tax assessment. CAAD lacks jurisdiction over such procedural decisions, which must be challenged through administrative courts under CPTA. The tribunal will declare itself materially incompetent without examining the underlying tax merits.
Can company vehicle expenses be exempt from autonomous taxation (tributação autónoma) under Portuguese IRC if the vehicle is used exclusively for business purposes?
Company vehicle expenses can potentially be exempt from autonomous taxation under Portuguese IRC if the taxpayer proves exclusive business use. However, this requires demonstrating that the vehicle serves solely professional purposes with no personal use component. The burden of proof rests on the taxpayer to establish this exclusivity. Absent such proof, autonomous taxation applies under IRC rules designed to discourage tax-deductible personal consumption. The tribunal in this case did not reach the merits of this claim due to jurisdictional limitations.
What constitutes material incompetence (incompetência material) of a tax arbitration tribunal in Portuguese tax disputes?
Material incompetence (incompetência material) of a tax arbitration tribunal occurs when the challenged act falls outside CAAD's statutory jurisdiction under the RJAT. CAAD has competence only over acts involving examination of tax assessment legality. Administrative decisions on procedural matters—such as filing an official review request because the same issue was decided within two years under article 56(2) LGT—do not constitute tax assessment acts. Such procedural decisions must be challenged through administrative courts under article 97 CPPT and CPTA procedures, not through tax arbitration.
Are property expenses such as rent, electricity, and water deductible as business costs under Portuguese IRC if they relate to business activity?
Property expenses such as rent, electricity, and water are deductible as business costs under Portuguese IRC when they meet the 'indispensability' requirement of article 23 of the IRC Code. This requires demonstrating a causal nexus between the expenses and income generation, meaning expenses must be incurred in the context of business activity or in the company's interest. For a restaurant business, expenses related to property where business operations occur—such as a Michelin-distinguished establishment—would typically qualify as indispensable if they directly support revenue-generating activities.
How does the Portuguese Supreme Administrative Court interpret the 'indispensability' requirement for business expense deductions under IRC?
The Portuguese Supreme Administrative Court interprets the 'indispensability' requirement for business expense deductions under IRC as expenses incurred or supported in the context of the activity or in the company's interest. In its judgment of 24 September 2014, the Court clarified that indispensability does not require absolute necessity but rather a genuine connection to business operations and income generation. This functional interpretation allows deduction of expenses that serve legitimate business purposes, even if not strictly essential, provided they are incurred within the scope of the company's commercial activity and contribute to its income-producing capacity.