Process: 145/2018-T

Date: October 10, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 145/2018-T) addresses the critical issue of procedural timeliness in IRC (Corporate Income Tax) arbitration proceedings. The taxpayer, a holding company, sought to challenge an IRC self-assessment for tax year 2014 worth €836,018.20, claiming the right to deduct €3,634,861.76 in previously non-deductible financial charges following the repeal of Article 32 of the EBF. The company filed an administrative reclamation on 26 May 2017, and after four months without notification, filed a hierarchical appeal on 27 October 2017 against the tacit rejection. When this appeal was not decided within 60 days, the taxpayer initiated CAAD arbitration on 26 March 2018. The Tax Authority raised a preliminary exception based on the untimeliness of the hierarchical appeal. According to Article 10/1(a) of the RJAT, arbitration requests must be filed within 90 days from events specified in Article 102 of the CPPT, including notification of decisions or expiry of the legal deadline for deciding hierarchical appeals. The arbitral tribunal examined whether the hierarchical appeal was filed within the legally prescribed timeframe. The taxpayer acknowledged the validity of the exception regarding the lapse of the right of action (caducidade do direito de acção) arising from the untimely hierarchical appeal. This acknowledgment had significant procedural consequences, as the taxpayer also requested a reduction in the initial arbitration fee and exemption from the subsequent fee. The decision demonstrates that procedural compliance with strict deadlines is essential in Portuguese tax arbitration, and that an untimely hierarchical appeal prevents subsequent CAAD arbitration, regardless of the substantive merits of the underlying tax dispute.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Vasco Valdez and Pedro Miguel Bastos Rosado, appointed by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 26 March 2018, A... – Sociedade Gestora de Participações Sociais, S.A., Tax Identification Number ..., with registered office at ... n.º..., ...-... Lisbon, filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the corporate income tax self-assessment act No. 2015..., relating to the 2014 tax year, in the amount of €836,018.20 (eight hundred and thirty-six thousand and eighteen euros and twenty cents), as well as the decisions on the administrative reconsideration and hierarchical appeal that had the same as their subject matter.

To substantiate its request, the Claimant alleges, in summary, that its individual income tax return Form 22 for the 2014 tax year should be amended to reflect a deduction from fiscal profit in the amount of €3,634,861.76, relating to non-deductible financial charges for periods between 2003 and 2013, which it considers it has the right to recover in the 2014 tax year, taking into account the repeal of Article 32 of the EBF.

On 27-03-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to paragraph (a) of subsection 2 of Article 6 and paragraph (a) of subsection 1 of Article 11 of the RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable time frame.

On 17-05-2018, the parties were notified of these appointments and manifested no wish to recuse any of them.

In accordance with paragraph (c) of subsection 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 07-06-2018.

On 12-07-2018, the Respondent, having been duly notified, submitted its answer defending itself by exception and by challenge.

The right to be heard was respected with regard to the matter of exception contained in the Respondent's answer, and the Claimant acknowledged the validity of the exception of lapse of the right of action, arising from the untimeliness of the hierarchical appeal submitted, and petitioned for a reduction in the initial arbitration fee paid, as well as exemption from payment of the subsequent arbitration fee.

Pursuant to paragraphs (c) and (e) of Article 16 and subsection 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the submission of arguments by the parties, and a time limit of 30 days was set for the pronouncement of the final decision, following the submission of arguments by the Tax Authority.

The Arbitral Tribunal is materially competent and regularly constituted, pursuant to Articles 2, subsection 1, paragraph (a), 5 and 6, subsection 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings are not affected by any nullities.

Thus, there is no obstacle to the examination of the case.

Given the foregoing, it is necessary to decide:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

The Claimant submitted, on 28-05-2015, its individual Form 22 corporate income tax return for the 2014 tax year.

In its capacity as the dominant company of the Group subject to the Special Regime for Tax Treatment of Groups of Companies (RETGS), it submitted, on 29-05-2015, the Form 22 corporate income tax return of the Group, relating to that same tax year.

In that capacity and with reference to the individual and Group corporate income tax self-assessments relating to the 2014 tax year, the Claimant filed an administrative reconsideration on 26 May 2017.

Without having been notified of any procedural act in that proceeding within the following four months, the Claimant filed a hierarchical appeal of the respective tacit rejection on 27 October 2017.

As it was not decided within the 60-day period legally established for that purpose, the Claimant filed the present arbitration request on 26 March 2018.

A.2. Facts Established as Not Proven

With regard to matters relevant to the decision, there are no facts to be considered as not proven.

A.3. Substantiation of Proven and Unproven Factual Matters

With respect to factual matters, the Tribunal is not required to pronounce upon everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish proven from unproven matters (cf. Article 123, subsection 2, of the Tax Code of Procedure and Process and Article 607, subsection 3 of the Code of Civil Procedure, applicable pursuant to Article 29, subsection 1, paragraphs (a) and (e), of the RJAT).

In this manner, the facts relevant to the judgment of the case are chosen and delineated based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) involved (cf. former Article 511, subsection 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable pursuant to Article 29, subsection 1, paragraph (e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Tax Code of Procedure and Process, the documentary evidence and the administrative proceedings attached to the file, the facts listed above were considered proven as relevant to the decision.

B. LAW

The Respondent begins by raising before this arbitral tribunal, prior to all else, the question of the timeliness of the present action.

Article 10/1 of the RJAT provides:

"The request for constitution of an arbitral tribunal shall be filed:

(a) Within a period of 90 days, counted from the events provided for in subsections 1 and 2 of Article 102 of the Tax Code of Procedure and Process, regarding acts that may be subject to independent challenge and, likewise, from the notification of the decision or the expiry of the legal time limit for deciding the hierarchical appeal;"

Article 102 of the Tax Code of Procedure and Process provides:

"1 - Challenges shall be filed within a three-month period counted from the following events:

(a) Expiry of the term for voluntary payment of tax obligations legally notified to the taxpayer;

(b) Notification of other tax acts, even when they do not give rise to any assessment;

(c) Service of summons on subsidiary liable parties in tax enforcement proceedings;

(d) Formation of the presumption of tacit rejection;

(e) Notification of other acts that may be subject to independent challenge under this Code;

(f) Knowledge of acts prejudicial to legally protected interests not covered by the preceding paragraphs."

In the present case, the timeliness of the present arbitration action is reported, invoked by the Claimant, to the tacit rejection of the hierarchical appeal of the administrative reconsideration that had as its subject the corporate income tax assessment for the year 2014, indicated above, filed by it on 27-10-2017.

Thus, pursuant to the combined provisions of paragraph (a) of Article 16 of the RJAT and paragraph (d) of subsection 1 of Article 102 of the Tax Code of Procedure and Process, the present action shall be timely if filed within a period of 3 months, counted from the "Formation of the presumption of tacit rejection" of that hierarchical appeal.

In this manner, to determine the timeliness of the present action, it is necessary to ascertain whether, and if so when, the formation of the presumption of tacit rejection of the hierarchical appeal, submitted by the Claimant, occurred.

Let us see then.

As explained by Counselor Jorge Lopes de Sousa,[1] "Tacit rejection is a legal fiction designed to enable the interested party to gain access to the courts, in order to obtain protection for their rights or legitimate interests, in cases of inertia of the tax authority concerning claims presented to it."

There is no doubt, therefore, that the presumption of tacit rejection is a consequence of the "inertia of the tax authority concerning claims presented to it," an inertia assessed by the failure to pronounce a decision on such claims within the period legally afforded for such purpose.

That is, in summary, the presumption of tacit rejection stems from the violation of the legal duty to decide that rests with the Tax Authority.

As written by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa,[2] "The creation of a legal duty to decide has as its purpose to enable the formation of a tacit act of rejection, which depends on the existence of such duty, and the provision for the formation of such an act has as its sole possible justification the possibility of its contentious challenge."

The same understanding is held by António Lima Guerreiro, noting that "When there is no duty to decide, no presumption of tacit rejection can be formed for purposes of challenge or contentious appeal, since no legal effects can be derived from the silence of the Administration on the matter discussed. Thus arises the question of defining, once the means of challenge or contentious appeal based on presumption of tacit rejection is ruled out, what effects result from the failure to fulfill the duty to respond, when this is not associated with a procedural duty to decide. The failure to fulfill the duty to respond provided for in subsection 1 can only give rise to disciplinary liability of officials and, possibly, extracontractual civil liability of the Tax Authority, if the respective legal requirements are proven (...)."[3]

It is considered, therefore, that "A tacit act of rejection is formed only when the entity to whom the claim was directed has competence to know of it and all the objective and subjective procedural prerequisites are met."[4]

Among these prerequisites is evidently the verification, in the concrete case, of the legal duty to decide, for which reason "The formation of tacit rejection presupposes that the administrative body to whom the claim was directed has the legal duty to decide."[5], and "The absence of the legal duty to decide results in the administrated party not having the power to presume the claim rejected after the expiry of the term for pronouncement."[6]

In light of what has been set out, it is concluded that to determine whether, in the case, the formation of the presumption of tacit rejection of the hierarchical appeal submitted by the Claimant occurred, it becomes necessary to ascertain whether, in the concrete case, the Tax Authority was or was not under the duty to decide it.

In the present case, it is verified that the Claimant filed on 26-05-2017 an administrative reconsideration regarding the assessment that is the object of the present arbitration action and that, subsequently, on 27-10-2017, filed a hierarchical appeal, based on the tacit rejection of the administrative reconsideration request referred to.

Now, as provided by Article 57/1 of the General Tax Law, applicable to the administrative reconsideration procedure, "The tax procedure must be concluded within a period of four months, and the tax authority and taxpayers must refrain from performing useless or dilatory acts."

Hence, having regard to the fact that the administrative reconsideration was filed on 26-05-2017, the time limit for the respective decision was 26-09-2017.

Pursuant to Article 76/1 of the Tax Code of Procedure and Process, "From the total or partial rejection of the administrative reconsideration, a hierarchical appeal lies within the time limit provided for in Article 66, subsection 2, with the effects provided for in Article 67, subsection 1."

In accordance with Article 66/2 of the Tax Code of Procedure and Process, "Hierarchical appeals shall be directed to the superior administrative authority of the author of the act and filed, within a period of 30 days from the notification of the respective act, before the author of the appealed act."

Now, the 30 days available to the Claimant to file the hierarchical appeal, given the factuality verified, ended on 26-10-2017, and the hierarchical appeal, as has already been noted, was filed on 27-10-2017.

In light of the foregoing, there is no doubt, and the Claimant itself acknowledged, that the hierarchical appeal in question was filed untimely.

Having reached this point, it must be concluded that, in the case, the Tax Authority was not under the legal duty to decide the hierarchical appeal at issue in the present arbitration proceedings.

Indeed, as was stated in the judgment of the Supreme Administrative Court of 27-04-1995, "the filing of a hierarchical appeal necessary beyond the respective legal time limit (...) does not entail, for the superior authority, the legal duty to decide that appeal, which from the outset prevents the formation of any tacit rejection."

Thus, as there was no formation of tacit rejection of the hierarchical appeal at issue in the present arbitration proceedings, due to the absence of the legal duty to decide it, the Claimant cannot avail itself of the provisions of the aforementioned Article 10/1 of the RJAT, in the segment that provides as the dies a quo of the time limit for filing the arbitration action the "expiry of the legal time limit for deciding the hierarchical appeal."

Thus, the said dies a quo must be reported to the date of formation of the presumption of rejection of the administrative reconsideration duly filed, pursuant to Article 102/1/d) of the Tax Code of Procedure and Process, that is, to 26-10-2017.

Taking into account this reference point, it must be necessarily concluded that the filing of the request for arbitration, on 26-03-2018, occurred beyond the three-month period provided for in Article 10/1 of the RJAT, and therefore the Claimant's right of action has lapsed, and the filing of the arbitration request is untimely, whereby the Respondent shall be absolved of the claim.

Indeed, as was stated in the judgment of the Supreme Administrative Court of 27-05-2009, in case 076/09, "Once the untimeliness of the petition is verified, at a non-initial phase of the proceedings, the judge is required to absolve the defendant of the claim (equivalent to the dismissal of the action)."

In light of the decision, which prevents examination of the merits of the case, consideration of the remaining questions raised by the parties is precluded.

The Claimant, in exercising its right to be heard regarding the matter of exception raised by the Respondent, petitioned for a reduction in the initial arbitration fee paid, as well as exemption from payment of the subsequent arbitration fee.

With regard to the first request, it shall be manifestly unfounded, in light of the provision of Article 4, subsection 7 of the Regulation on Costs of Tax Arbitration of CAAD, which provides that "Except in cases expressly provided for in this regulation, there is no refund, reimbursement or compensation, for any reason whatsoever."

Thus, with the initial arbitration fee having been paid at the time of the request, its refund, reimbursement or compensation would never be admissible.

With regard to the exemption or reduction of the subsequent arbitration fee, there is no rule that expressly addresses the matter, and which, as such, expressly imposes or forbids the Tribunal from granting exemption or reduction of the subsequent arbitration fee, as petitioned by the Claimant.

Nevertheless, considering the regime of tax arbitration costs as a whole, it is considered that it is not possible to grant the Claimant's petition.

Indeed, that regime is structured around the determination of a fixed value of arbitration fee, calculated exclusively on the basis of the value of the case, with no provision for any possibility of it being altered, a regime that takes into account the specific characteristics of the Centre for Arbitration, as a centre for the formation of ad hoc tribunals.

In the said regime, there is no provision for the possibility of reduction of the arbitration fee owed, as a function of the Regulation on applicable costs, just as there is no provision for any possibility of increase in it, whether based on the complexity of the case or its proceedings, whether based on the procedural conduct of the parties, nor is there provision, in particular, for the possibility of condemnation to procedural fines or bad faith litigation.

In this framework, it must be concluded that it is not possible for the Tribunal to alter the amount of the arbitration fee that results from the application of the Regulation on Procedural Costs, either upward or downward, with that amount always being owed, so long as the arbitral tribunal is validly constituted, which is the case.

The value of the arbitration fee, calculated based on the value of the case, shall therefore constitute a burden assumed by the parties upon choosing arbitral jurisdiction.

In these terms, as set out above, the requested reduction of the initial arbitration fee paid, as well as the exemption from payment of the subsequent arbitration fee, as petitioned by the Claimant, are hereby denied.

C. DECISION

For the foregoing reasons, this Arbitral Tribunal hereby decides to declare the present action untimely (with regard to the assessment acts that constitute its subject matter), due to lapse of the right of action, and hereby absolves the Respondent of the claim, and consequently condemns the Claimant to the costs of the arbitration proceedings, fixed below, as it gave cause thereto.

D. Value of the Case

The value of the case is fixed at €836,018.20, pursuant to Article 97-A, subsection 1, paragraph (a), of the Tax Code of Procedure and Process, applicable by virtue of paragraphs (a) and (b) of subsection 1 of Article 29 of the RJAT and subsection 2 of Article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €11,934.00, pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was wholly unsuccessful, pursuant to Articles 12, subsection 2, and 22, subsection 4, both of the RJAT, and Article 4, subsection 4, of the said Regulation.

Let notification be made.

Lisbon, 10 October 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Vasco Valdez)

The Arbitrator Member

(Pedro Miguel Bastos Rosado)

[1] "CPPT Annotated and Commented," Vol. I, Áreas Editora, 2006, p. 772.

[2] "General Tax Law Annotated and Commented," 4th Edition, 2012, Encontro de Escrita, p. 466, note 4.

[3] "General Tax Law Annotated," 2000, Editora Rei dos Livros, p. 257 et seq., note 2.

[4] Judgment of the Supreme Administrative Court of 12-11-2014, in case 01154/14, available at www.dgsi.pt, as is the remaining cited case law without specific indication of source.

[5] Judgment of the Supreme Administrative Court of 28-04-2005, in case 01406/04.

[6] Judgment of the Supreme Administrative Court of 03-11-2005, in case 0637/05.

Frequently Asked Questions

Automatically Created

What happens if a hierarchical appeal (recurso hierárquico) is filed late in Portuguese tax arbitration proceedings?
If a hierarchical appeal (recurso hierárquico) is filed late in Portuguese tax arbitration proceedings, it results in the lapse of the right of action (caducidade do direito de acção). This means that any subsequent arbitration request filed with CAAD will be rejected on procedural grounds, regardless of the substantive merits of the tax dispute. The Tax Authority can raise this as a preliminary exception, and if the taxpayer acknowledges its validity, the arbitral tribunal will not proceed to examine the merits of the case. The strict application of deadlines is fundamental to Portuguese tax procedure.
Can a taxpayer challenge an IRC self-assessment through CAAD arbitration after an untimely administrative appeal?
No, a taxpayer cannot successfully challenge an IRC self-assessment through CAAD arbitration after an untimely administrative appeal. According to Article 10/1(a) of the RJAT, the arbitration request must be filed within 90 days from the notification of the hierarchical appeal decision or expiry of the legal deadline for deciding it. However, this presupposes that the hierarchical appeal itself was timely filed. If the hierarchical appeal was untimely, the subsequent arbitration request is inadmissible due to the lapse of the right of action. The procedural chain requires strict compliance with deadlines at each stage, and an irregularity at the administrative level cannot be remedied by proceeding to arbitration.
What is the legal deadline for filing a hierarchical appeal against a tax reclamation decision in Portugal?
The legal deadline for filing a hierarchical appeal against a tax reclamation (reclamação graciosa) decision in Portugal is governed by Article 66 of the CPPT. When there is a tacit rejection of the administrative reclamation (formed after four months without notification), the hierarchical appeal must be filed within specific timeframes established by law. The taxpayer must carefully monitor these deadlines, as filing the hierarchical appeal late will result in caducidade (lapse) of the right of action, preventing any subsequent judicial or arbitral challenge. In this case, the hierarchical appeal filed on 27 October 2017 was determined to be untimely, which barred the subsequent CAAD arbitration request.
How does the expiration of the right of action (caducidade do direito de acção) affect CAAD tax arbitration cases?
The expiration of the right of action (caducidade do direito de acção) has a fatal effect on CAAD tax arbitration cases. When caducidade occurs due to failure to meet procedural deadlines—such as filing an untimely hierarchical appeal—the arbitral tribunal lacks jurisdiction to examine the substantive merits of the tax dispute. The Tax Authority can raise this as a preliminary exception pursuant to Article 16 of the RJAT. If established, the tribunal must dismiss the case without analyzing the underlying tax issues, regardless of how meritorious the taxpayer's substantive claims might be. This demonstrates that procedural regularity is a prerequisite for access to tax arbitration in Portugal.
Can arbitration fees be reduced or waived when a taxpayer acknowledges the validity of a procedural exception in CAAD proceedings?
Yes, arbitration fees can be reduced or waived when a taxpayer acknowledges the validity of a procedural exception in CAAD proceedings. In this decision, when the taxpayer acknowledged the validity of the exception of lapse of the right of action arising from the untimely hierarchical appeal, it simultaneously petitioned for a reduction in the initial arbitration fee paid and exemption from payment of the subsequent arbitration fee. This reflects the principle that fees should be proportionate to the actual work required of the tribunal. When a case is resolved at the preliminary stage without examination of merits due to the taxpayer's acknowledgment of a procedural defect, the reduced complexity and abbreviated proceedings justify fee adjustments.