Process: 183/2018-T

Date: October 8, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 183/2018-T) addressed whether a Stamp Duty assessment for 2013 could be annulled due to the Tax Authority's failure to notify the taxpayer of the commencement of an inspection procedure. The claimant company challenged assessment no. 2016... totaling €30,812.05, arguing that the AT violated essential procedural formalities by not notifying them when opening service order OI2015... for Stamp Duty inspection. The company contended that while undergoing an external VAT inspection (OI2014...), the AT improperly classified a subsequent Stamp Duty inspection as 'internal' to avoid notification requirements, despite collecting evidence at the taxpayer's premises during the external procedure. The claimant argued this misclassification violated legal certainty principles under Article 13 of RCPIT and Article 163 of NCPA. The Tax Authority defended its position, asserting that the internal classification was appropriate since the Stamp Duty inspection used documents already collected during the legitimate external VAT procedure. The AT argued that notification of the draft report satisfied procedural requirements for internal inspections, and any irregularity was cured when the taxpayer exercised their right to be heard. The case raises fundamental questions about procedural safeguards in Portuguese tax inspections, the distinction between internal and external procedures, and whether the AT can open derivative inspection procedures without separate notification when implications for additional taxes emerge from an ongoing inspection.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

REPORT

On 9 April 2018, the company A..., LDA, with tax identification number ... and with registered office at Rua ..., no. ..., ...-... ... (hereinafter referred to as the Claimant), came, under the combined provisions of Articles 2, no. 1, letter a) and 10, no. 1, letter a), of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (RJAT), to request the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority is defendant (hereinafter AT or Defendant), with a view to the declaration of illegality and consequent annulment of the Stamp Duty assessment no. 2016..., referring to the year 2013, which, increased with default interest, amounts to the total sum of €30,812.05, as well as the act of dismissal of the administrative complaint procedure that had it as its subject matter.

The Claimant further requests the condemnation of the Defendant to the restitution of the amount paid, increased with compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the AT, and, pursuant to the provisions of no. 1 of Article 6 and letter b) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatory as arbitrator of the singular arbitral tribunal, having the latter communicated acceptance of the assignment within the applicable period, without objection from the Parties.

Summary of the Parties' Positions

Of the Claimant:

As grounds for the request to annul the act of Stamp Duty assessment referring to the year 2013, identified in the request for arbitral pronouncement, and the subsequent dismissal of the administrative complaint, the Claimant invokes the following:

  • In the context of a request for VAT reimbursement, the Claimant was subject to an external inspection procedure, covered by service order OI2014..., which commenced on 14.08.2014 and whose inspection acts were concluded on 27.09.2016;

  • In the course of said procedure, numerous documents and clarifications were requested from the Claimant, in addition to the provision of all accounting records;

  • On 24.10.2016, the Claimant was notified of the draft report of another inspection procedure, opened based on the dispatch of the Head of the Inspection Team, of 04.10.2016, which gave rise to the final report underlying the Stamp Duty assessment now being contested;

  • According to the respective service order no. OI2015..., this latter procedure was classified as "internal action of partial scope, [which] focused on the data regarding the onerous transfer of commercial establishments through public deed of Payment in Kind dated 2013-10-11, elements collected under service order no. OI2014...";

  • However, it is false that the inspection procedure in the context of Stamp Duty has an internal nature, as the very report expressly states that the inspection acts resulted from the collection of elements in the external procedure in progress under service order OI2014..., and both procedures were the responsibility of the same tax inspector;

  • There can be no doubt that the elements were collected at the Claimant's premises, within the scope of an external inspection procedure in progress;

  • The distinction between an internal inspection procedure and an external inspection procedure is not negligible, since "The violation of rules inherent to the tax inspection procedure causes defects determining the voidability of the assessment resulting from such procedure, as established in no. 1 of Article 163 of the NCPA";

  • "Any other interpretation would violate constitutional principles of legal certainty and protection of trust (...)";

  • In the present case, the partial scope inspection procedure for VAT, initiated on 14.08.2014, had already expired, and its scope could not be altered to other taxes;

  • The false and artificial solution found by the Tax Inspection Services was to qualify as internal, rather than external, the inspection procedure opened with service order OI2015...;

  • Without any of the legal formalities being observed, which taints the said procedure with illegality, as well as the assessment here contested, which resulted from it;

  • The Stamp Duty assessment now being contested is manifestly illegal, "since the Claimant never had knowledge of the procedure in question, but only of its conclusion, with the sending of the draft report";

  • Having the Claimant proceeded to payment of the assessed tax, there shall be entitlement to payment of compensatory interest, pursuant to Article 43 of the LGT and Article 24, no. 5, of the RJAT.

Of the Defendant:

Notified pursuant to the provisions of Article 17 of the RJAT, the AT presented a response and submitted the administrative file (PA), defending the legality and maintenance of the assessment act subject of the present request for arbitral pronouncement, with the following grounds:

  • The contested assessment originated from corrections of a purely arithmetical nature in Stamp Duty proceedings, under inspection action no. OI 2015...;

  • Prior to that inspection procedure, another had been conducted, covered by service order OI2014..., whose scope fell within the 2014 fiscal year, for analysis of the operations and their respective tax classifications in VAT proceedings;

  • As transactions and facts were also identified with implications in Stamp Duty and Corporate Income Tax (IRC) proceedings, autonomous inspection procedures were opened for those taxes;

  • Thus, service order OI2015... was issued on 18.03.2015, of partial scope for Stamp Duty and extension to the year 2013, within which, as results from the respective Report, the elements previously collected were used;

  • The Claimant grounds the request for declaration of illegality of the Stamp Duty assessment, invoking the violation of Article 13 of the RCPIT, by not having been notified of the commencement of the inspection action based on OI2015..., classified as having an internal scope, which would constitute the omission of an essential legal formality of the assessment;

  • However, the Claimant is not correct, as such formality is not essential and, should there have been any irregularity, it must be considered cured by the notification of the Claimant for the exercise of the right to be heard, within the scope of the procedure opened by OI2014..., of which "the deeds of Payment in Kind, through which it acquired two butchery establishments, in addition to the verification of the amounts of VAT lacking, such acquisitions also had implications in terms of Stamp Duty and IRC", having said nothing;

  • The only formality required in the internal inspection procedure is the notification of the draft Inspection Report, so that the taxpayer may exercise the right to be heard, which, in the present case, was complied with;

  • The Claimant is also not correct regarding the alleged violation of rules inherent to the inspection procedure, because the inspection action was classified as internal;

  • It happens that, during the inspection action carried out under an external service order OI2014..., of partial scope -VAT/2014- to verify the conformity between the content of declarations submitted by the Claimant and the reality ascertained within the scope of analysis of the VAT reimbursement requested, elements were collected that also had implications in terms of Stamp Duty and IRC;

  • If the elements collected in the external inspection procedure can only give rise to corrections within the scope of that tax, according to the accreditation, this does not prevent the AT, upon becoming aware that those transactions, whose elements were collected legitimately, have possible implications in terms of Stamp Duty, from opening another more appropriate procedure, to then, after analysis of those documents, propose the necessary corrections within the scope of that tax;

  • In the situation in question, it cannot be said that, because they were collected within the scope of another inspection procedure, such elements cannot be analysed, because already in the possession of the AT, in order to verify all implications of the same transactions in terms of other taxes, legitimating such analysis with an appropriate accreditation;

  • What would not be legitimate is for the Tax Administration, in possession of these elements, collected legitimately, to open a new external inspection action, with a new visit to the company's premises, to collect the same elements it already had in its possession;

  • Therefore, the inspection procedure opened with service order OI2015... was correctly classified as internal, pursuant to Article 13 of the RCPITA, as it took place entirely in the AT's premises, since the documents analysed were in the possession of the AT, and no visit to the Claimant's premises was necessary;

  • The contested assessment does not suffer from any illegality, the Defendant having made a correct interpretation and application of the articles cited, which is why it should be maintained;

  • As there is no error on the part of the services in the application of the law to the facts at hand, there is no place for the payment of compensatory interest, and the Defendant should be absolved of the request with the remaining legal consequences.

No exceptions were invoked nor was the production of additional evidence requested. Thus, by arbitral dispatch of 4 September 2018, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, and the Parties were invited to produce successive written submissions within a period of 10 days commencing with the Claimant, with 8 October 2018 fixed as the date for pronouncement of the final decision and the Claimant warned that, by that date, it should proceed to payment of the remaining arbitral fee.

The Parties produced no submissions.

PRELIMINARY MATTERS

  • The singular arbitral tribunal is competent and was regularly constituted on 21 June 2018, in accordance with the provisions of letter c) of no. 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December;

  • The parties have legal standing and capacity, are legitimately represented, and are duly represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March;

  • The proceedings do not suffer from vices that would invalidate them;

  • No exceptions were invoked that it falls to the Arbitral Tribunal to consider and decide.

III. GROUNDS

III.1 FACTUAL MATTERS

A – Proven Facts:

In the decision, the arbitrator shall discriminate the proven matter from the unproven, substantiating its decisions (Article 123, no. 2, of the Code of Tax Procedure and Process [CPPT], subsidiarily applicable to the arbitral tax process, pursuant to Article 29, no. 1, letter a), of the RJAT), under penalty of nullity, imposed by no. 1 of Article 125 of the same CPPT.

The factual matter relevant to the understanding and decision of the case, after critical examination of the documentary evidence and the administrative file (PA) joined to the record, is established as follows:

  • The Claimant is a limited liability company that exercises, as its principal activity, the manufacture of jewellery articles and other articles of jewellery making, with CAE 32122, classified for VAT purposes in the normal monthly scheme and for Corporate Income Tax purposes in the general taxation scheme (Reports of the Tax Inspection joined to the PA – VAT, hereinafter RIT 1 and, Stamp Duty, hereinafter RIT 2);

  • With a view to analysing the VAT reimbursement requested by the Claimant, with reference to period 14.05, an external and partial scope tax inspection procedure was opened, accredited by service order OI2014... (RIT 1);

  • This procedure commenced on 14.08.2014 with the signature of the service order by the managing partner of the taxpayer, to whom a copy was delivered; the inspection acts were concluded on 27.09.2016, with the issuance of the respective diligence note (RIT 1);

  • From the draft of RIT 1, concerning the analysis of the VAT reimbursement request for period 14.05, notified to the Claimant by official letter from the Finance Directorate of Porto, of 12.12.2016, for the exercise of the right to be heard, besides situations relating to the failure to assess that tax due to the cessation of operation of two butchery establishments, the following is contained, namely:

"(...)

(...)"

  • Converted to final form, the final version of RIT 1 was notified to the Claimant by official letter from the Finance Directorate of Porto, of 14.03.2017, containing, besides the excerpt transcribed, in particular, the following:

"(...)

(...)"

  • The tax inspection procedure in Stamp Duty (RIT 2), accredited by internal service order OI2015..., had as its object the analysis "[o]f the data regarding the onerous transfer of commercial establishments through public deed of Payment in Kind dated 2013-10-11, elements collected under service order no. OI2014...";

  • In which Stamp Duty in arrears was ascertained, in accordance with what is described therein:

"(...)

(...)

(...)

(...)"

  • The draft of RIT 2 was notified to the Claimant by official letter from the Finance Directorate of Porto, of 20.10.2016, for exercise of the right to be heard, coming to be converted to final form;

  • Following the corrections proposed in RIT 2, carried out under internal service order OI2015..., the Stamp Duty assessment (item 27.1 of the General Table of Stamp Duty) no. 2016..., in the amount of €27,500.00 and the default interest assessment no. 2016..., in the amount of €3,312.05, in the total amount of €30,812.05, were issued on 13.12.2016, to which corresponds the collection note with the reference ... and payment deadline of 09.02.2017;

  • The debt of Stamp Duty and default interest was extinguished by compensation with the VAT reimbursement for period 14.05, on 04.04.2017;

  • On 08.06.2017 an administrative complaint was filed against the assessment now being contested, filed under number ...2017..., on the ground of the omission of essential formalities of the inspection procedure and consequent illegality of the Stamp Duty assessment act no. 2016...;

  • The draft decision dismissing the administrative complaint was notified to the Claimant by official letter from the Finance Service of ..., of 14.11.2017;

  • The final decision dismissing the administrative complaint, pursuant to the dispatch of the Head of the Finance Service of ..., of 19.12.2017, was notified to the Claimant by official letter from that Finance Service, issued under the CTT registration no. RF ... PT, of 5.01.2018, received on 08.01.2018.

B – Unproven Facts

There are no facts of interest for the decision that should be considered as unproven.

C. Substantiation of Proven and Unproven Factual Matters

Regarding the factual matter, the Tribunal does not have to pronounce on everything that was alleged by the Parties; rather, it falls to it to select the facts that matter for the decision and to discriminate the proven matter from the unproven.

Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of Law (cf. former Article 511, no. 1, of the CPC, corresponding to the current Article 596, applicable ex vi of Article 29, no. 1, letter e), of the RJAT).

Thus, taking into account the documentary evidence attached to PI and PA and the positions assumed by the Parties in their respective pleadings, the facts above enunciated are considered as proven.

III.2 OF LAW

The Issue to be Decided

The Tax and Customs Authority assessed the Claimant with Stamp Duty provided for in item 27.1 of the General Table of Stamp Duty, based on purely arithmetical corrections made within the scope of a tax inspection procedure, which it classified as internal and whose elements had been collected in the course of a prior external and partial inspection procedure (VAT 2014).

The Claimant invokes the expiry of that first inspection procedure, preventing the extension of its scope so as to encompass the acts related to the corrections made in Stamp Duty proceedings.

It further contests the internal nature of the inspection procedure that led to the corrections in the basis of the contested assessment, as based on elements collected in the Claimant's accounting records.

It thus considers that, this inspection procedure should be classified as external, essential formalities were omitted which entail its invalidity, determining the voidability of the tax act resulting from such corrections.

For its part, the Defendant contends that there was no omission of any essential legal formality of the inspection procedure opened by service order OI2015..., correctly classified as internal, and that, should there have been any irregularity, particularly the lack of notification of the commencement of that procedure to the Claimant, the same must be considered cured by the notification of the inspection report draft, for purposes of the exercise of the right to be heard.

That, the elements allowing for the corrections in Stamp Duty proceedings, in the basis of the contested assessment, being legally collected within the scope of the prior external inspection procedure, opening a new external procedure would violate the principle of proportionality.

The question to be decided is, therefore, whether, in the inspection procedure that gave rise to the Stamp Duty assessment contested, essential legal formalities were omitted which determine its illegality, vitiating the subsequent tax act, so as to justify its annulment.

The tax inspection procedure aims at the observation of tax realities, the verification of compliance with tax obligations, and the prevention of tax infractions (Article 2, no. 1, of the Supplementary Regime of Tax and Customs Inspection Procedure – RCPITA), may be initiated until the end of the limitation period for assessment of taxes, is continuous, and must be concluded within a maximum period of six months from notification of its commencement, a period that may be extended before its expiry, under the conditions provided in Article 36 of the RCPITA.

This tax procedure is classified, as to the place where inspection acts are carried out, as internal and external, according to whether such acts "are carried out exclusively in the tax administration's offices through formal and coherence analysis of documents" or "are carried out, in whole or in part, at the premises or dependencies of taxpayers or other tax obligors, third parties with whom they maintain economic relations, or at any other location to which the administration has access", as set out in Article 13, letters a) and b), respectively, of the RCPITA, in the wording prior to Decree-Law no. 36/2016, of 1 July, in force at the date of issuance of OI2015....

As to its scope, the tax inspection procedure may be general or polivalent, if it encompasses the totality of the tax situation or the set of tax obligations of the person inspected (Article 14, no. 1, letter a), of the RCPITA), and partial or univalent, when it concerns only certain taxes or obligations of taxpayers or other tax obligors (Article 14, no. 1, letter b), of the RCPITA) and also when it aims only at the consultation and collection of certain documents and elements and the verification of computer systems used by taxpayers or other tax obligors (Article 14, no. 2, of the RCPITA).

With respect to its amplitude or temporal extension, the tax inspection procedure may cover only one or more than one tax period (Article 14, no. 3, of the RCPITA).

However, the classification initially assigned by the AT to the tax inspection procedure may be altered during its execution, with respect to its purposes, scope, and extension, by substantiated dispatch of the entity that ordered it, to be notified to the inspected entity (Article 15, no. 1, of the RCPITA).

Case law and legal doctrine have held that the alteration of the purposes, scope, and extension of the tax procedure is a discretionary power of the entity that determined that procedure, since it is "the exercise of the competence attributed to the Tax Administration to carry out all diligences necessary to ascertain the tax situation of taxpayers, to be executed through an inspection procedure, which shall follow the terms fixed for it in law, art. 63 of the General Tax Law" (cf. the Decision of the Supreme Administrative Court [STA], case no. 1101/15, of 15.06.2016), all the more so because, if such alteration were not possible, "Such would surely mean an inadequate and disproportionate limitation of administrative powers and, equally or more important than that, a violation of the aforementioned principles, admitting that the administration would not be obliged to, by all means, ascertain the material truth"[1].

However, the Claimant contends that there was no alteration of the external inspection procedure, of partial scope, opened by service order no. OI2014... for analysis of the VAT reimbursement request for period 14.05, because it had already expired, for which reason the AT, in a false and artificial manner, opened a new inspection procedure by internal service order no. OI2015....

However, it is believed that the Claimant is not correct.

Effectively, although at the date of the opening of the procedure based on internal service order no. OI2015... the period of six months referred to in no. 2 of Article 36 of the RCPITA had long since passed from the date of commencement of the inspection procedure accredited by service order no. OI2014..., such would not prove to be prohibitive of the alteration of its purposes, scope, or extension, so long as it had not been concluded, since it is undisputed that the nature of that six-month period is merely advisory, its non-compliance having as its only consequence "only and solely the non-suspension of the limitation period, pursuant to no. 1 of Article 46 of the LGT"[2].

Now, the expiry of the right to assess the contested tax is not an issue that arises here – it is, in this case, Stamp Duty for the year 2013, whose assessment was issued in 2016, before the expiry period referred to in Articles 45 of the General Tax Law (LGT) and 39 of the Stamp Duty Code was completed.

As an alternative to the alteration of the purposes, scope, or extension of the external tax inspection procedure, the AT, after the conclusion of the inspection acts, opted to open an autonomous inspection procedure, which it classified as internal, to, based on the elements collected in the course of the prior inspection procedure, related both to VAT (cessation of operation of butchery establishments, on an onerous basis) and to Stamp Duty (acquisition of those same commercial establishments, by way of business transfer) proceed to analyse this latter tax situation of the Claimant.

As Nuno de Oliveira Garcia and Rita Carvalho Nunes write, "the classification of inspection procedures as internal or external is not limited to a mere distinction of a spatial or locational nature of the inspection acts, in fact entailing important consequences, insofar as the external inspection procedure can restrict the fundamental rights and freedoms of taxpayers, from the outset (...) in the matter relating to the expiry of the right to assess taxes."[3]

Moreover, as a manifestation of "one of the most important rules resulting from the Principle of the Rule of Law, and particularly its sub-principle of legal certainty and protection of trust"[4], the law imposes prior notification of the external inspection procedure to the taxpayer (Article 49 of the RCPITA), giving him knowledge, in particular, of its scope and extension, in order to avoid "the carrying out of surprise inspections"[5].

In the case at hand and as results from the proven facts, the Claimant only became aware of the existence of the inspection procedure from which the contested assessment resulted, upon notification of the draft inspection report (RIT 2), which, in its view, would reduce to the omission of an essential legal formality of that procedure.

However, even though it must be considered that the tax procedure under analysis was incorrectly classified by the AT as having an internal nature, because based on documents collected from the Claimant's accounting, albeit already in the possession of the AT at the date of its opening, it must always be questioned whether the lack of notification of its commencement is capable of generating the voidability of the subsequent assessment.

The case law of the Superior Courts has long held that the lack of notification of the commencement of external inspection will only generate invalidity if it can be demonstrated that the inspected entity did not become aware of the procedure and its object in time to pronounce itself on it.

Thus, in the words of the learned Decision handed down by the STA in case no. 1095/15, of 29.06.2016:

"I - Even though the inspection procedure was wrongly classified as internal, when it should have been external, such error is irrelevant to the decision to be made if it cannot be concluded that any essential formality imposed by this latter type of inspection has been omitted.

II - The lack of the prior notification provided for in art. 49 of the RCPIT does not generate the voidability of the decision of the procedure, the formality being reduced to a mere irregularity, without invalidating effects, if the interested party was given knowledge of the procedure and its object in time to participate in it and if he was given the legal possibility of exercising his right to be heard during the inspection procedure."

Reverting to the case at hand, it will be said that even though the tax inspection procedure opened by internal service order no. OI2015... should have been classified as external, the lack of notification of its commencement does not constitute an omission of essential formality, insofar as the Claimant had the possibility of intervening in it, being notified to exercise the right to be heard on the inspection report draft, pursuant to Article 60 of the RCPITA.

In light of the foregoing, it is concluded that the Stamp Duty assessment for 2013, subject of the present request for arbitral pronouncement, does not suffer from the defects imputed to it by the Claimant, wherefore it should be maintained in the legal order, as should the second-instance act which concerned it.

Questions of Knowledge Prejudiced

In the decision, the arbitrator must pronounce on all questions that it must consider, abstaining from pronouncing on questions of which it should not be aware (final segment of no. 1 of Article 125 of the CPPT), and the questions over which the powers of cognition of the tribunal extend are, in accordance with no. 2 of Article 608 of the CPC, applicable subsidiarily to the arbitral tax process, by referral of Article 29, no. 1, letter e), of the RJAT, "the questions that the parties have submitted to its consideration, except those whose decision is prejudiced by the solution given to others (...)".

In light of the solution given to the question of the validity of the tax inspection procedure opened by internal service order no. OI2015... and the subsequent Stamp Duty assessment for 2013 now being contested, knowledge of the remaining questions raised by the Parties is prejudiced, in particular that regarding the request for compensatory interest.

DECISION

Based on the factual and legal grounds set out above and, pursuant to Article 2 of the RJAT, it is decided, judging the present request for arbitral pronouncement entirely without merit, to determine the maintenance of the Stamp Duty assessment act no. 2016... and default interest, referring to the year 2013, as well as the act dismissing the administrative complaint which had it as its subject matter, absolving the AT of all requests.

VALUE OF THE CASE: In accordance with Article 306, nos. 1 and 2, of the CPC, Article 97-A, no. 1, letter a), of the CPPT, and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €30,812.05 (thirty thousand, eight hundred and twelve euros and five cents).

COSTS: Calculated in accordance with Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and the Table I annexed thereto, in the amount of €1,836.00 (one thousand, eight hundred and thirty-six euros), to be borne by the Claimant.

Let it be notified.

Lisbon, 8 October 2018.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, pursuant to no. 5 of Article 131 of the CPC, applicable by referral of letter e) of no. 1 of Article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 spelling agreement.

[1] Cf. Joaquim Freitas da Rocha and João Damião Caldeira, "Supplementary Regime of Tax Inspection Procedure – RCPIT, Annotated and Commented", Coimbra Editora, 2013, p. 89.

[2] Cf. AA and work cited, p. 199.

[3] AA cited, "External Tax Inspection and the Relevance of Material Inspection Acts", in Journal of Public Finances and Tax Law, Year 4, March 2011, pp. 249 et seq.

[4] Cf. Joaquim Freitas da Rocha and João Damião Caldeira, work cited, p. 268.

[5] Idem.

Frequently Asked Questions

Automatically Created

What happens if the Portuguese Tax Authority fails to notify the taxpayer of the start of a tax inspection procedure?
Under Portuguese tax law, failure to notify a taxpayer of the commencement of a tax inspection procedure constitutes a violation of Article 13 of the RCPIT (Regime Complementar do Procedimento de Inspeção Tributária). This omission can render the inspection procedure and resulting assessment voidable under Article 163(1) of the NCPA, as it violates essential legal formalities. However, the Tax Authority may argue that such defects are cured if the taxpayer was subsequently notified of the draft report and exercised their right to be heard. The legal consequence depends on whether the inspection is classified as external (requiring initial notification) or internal (requiring only notification of draft findings). Courts and arbitration tribunals generally treat notification requirements as safeguarding constitutional principles of legal certainty and taxpayer protection.
Can a stamp tax (Imposto do Selo) assessment be annulled due to procedural defects in the tax inspection?
Yes, a Stamp Duty (Imposto do Selo) assessment can be annulled due to procedural defects in the tax inspection under Portuguese law. According to Article 163 of the NCPA, violations of rules inherent to the tax inspection procedure cause defects that render the resulting assessment voidable. The illegality of the inspection procedure taints the subsequent assessment act. Common procedural defects include failure to notify the taxpayer of the inspection's commencement (Article 13 RCPIT), improper classification of inspection type (internal vs. external), exceeding the inspection's authorized scope, or denial of the right to be heard. When such defects are established, CAAD arbitration tribunals have authority under the RJAT to declare the assessment illegal and order its annulment, along with restitution of amounts paid plus compensatory interest under Article 43 LGT.
What is the difference between an internal and external tax inspection procedure under Portuguese tax law?
Portuguese tax law distinguishes between external (externa) and internal (interna) inspection procedures with significant procedural differences. External inspections involve Tax Authority officials visiting the taxpayer's premises to collect documents, examine accounting records, and gather evidence on-site. These require formal notification to the taxpayer of the inspection's commencement under Article 13 RCPIT, specifying the scope, tax period, and taxes covered. Internal inspections are conducted at Tax Authority offices using documents and data already in the AT's possession, without visiting the taxpayer's premises. For internal inspections, notification of commencement is not required; only notification of the draft report for exercise of the right to be heard is mandatory. This distinction is legally significant because misclassifying an inspection type can constitute a procedural violation. If evidence is collected at taxpayer premises during what the AT labels an 'internal' procedure, courts may find the classification improper and the procedure defective.
Is the Tax Authority required to issue a separate notification when opening a new inspection order based on data collected from a prior inspection?
Under Portuguese tax inspection law, when the Tax Authority opens a new inspection procedure based on data collected during a prior inspection, the requirement for separate notification depends on the circumstances. If during an external inspection for one tax (e.g., VAT), evidence emerges revealing potential liabilities for another tax (e.g., Stamp Duty or IRC), the AT must issue a separate service order (ordem de serviço) for the new tax. The key question is whether this new procedure requires independent notification under Article 13 RCPIT. If the new inspection is classified as internal because it relies solely on documents already legitimately collected, the AT argues no separate commencement notification is required—only notification of draft findings. However, taxpayers can challenge this, arguing that if evidence was gathered at their premises during an external procedure, any derivative inspection should also be classified as external, requiring full notification. The proper classification affects procedural rights and potential grounds for annulment if notification requirements are not met.
Can taxpayers claim compensatory interest (juros indemnizatórios) when a stamp tax assessment is annulled by CAAD arbitration?
Yes, taxpayers can claim compensatory interest (juros indemnizatórios) when a Stamp Duty assessment is annulled by CAAD arbitration, provided legal requirements are met. Article 43 of the LGT (Lei Geral Tributária) establishes the right to compensatory interest when taxes are paid and subsequently the assessment is declared illegal or the taxpayer's position is recognized as correct. Article 24(5) of the RJAT specifically provides that favorable arbitral decisions entitle taxpayers to restitution of amounts paid plus compensatory interest. The interest compensates for the taxpayer's loss of use of funds improperly collected. It accrues from the date of payment until restitution, calculated according to the legal interest rate established in Portaria (ministerial order). To claim this interest, the taxpayer must have actually paid the contested assessment (rather than providing a guarantee) and obtain a favorable final decision annulling the assessment. The compensation recognizes that when the State collects taxes later determined to be illegal, it must restore the taxpayer to their prior economic position.