Process: 184/2018-T

Date: November 16, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 184/2018-T) addresses a fundamental procedural challenge to an IRC (Corporate Income Tax) assessment concerning the distinction between internal and external tax inspections. The claimant, A... Lda., contested IRC assessment no. 2016... for tax year 2012, arguing that the Tax Authority (AT) improperly classified a second inspection (Service Order OI2015...) as 'internal' when it relied entirely on evidence collected during a prior external VAT inspection (Service Order OI2014...). Under Article 13 of RCPIT, internal inspections must be conducted exclusively within tax administration offices using formal document analysis, while external inspections involve acts performed at taxpayer premises or third-party locations. The claimant argued that since all evidence originated from external inspection acts, the second procedure should have been classified as external, and its misclassification violated procedural rules under Article 163 NCPA, rendering the assessment voidable. The claimant sought declaration of illegality, reimbursement of €12,267.84, plus indemnificatory interest under Article 43 LGT. The AT countered that once legitimately in possession of documents revealing IRC implications, it could properly analyze them through an appropriately authorized internal procedure without requiring new external collection acts. The AT argued any procedural irregularity was cured through the claimant's participation in prior hearing rights without objection. This case raises critical questions about procedural safeguards, the scope of inspection authorizations, taxpayer protection principles including legal certainty and legitimate expectations under Article 2 of the Portuguese Constitution, and the limits of AT's authority to leverage findings across multiple tax procedures.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

I. REPORT

I.1

On 9 April 2018, the claimant A..., Lda., legal entity no. ..., with registered office at Rua..., no. ..., ...-... Maia, requested, in accordance with and for the purposes of the provisions of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January, the constitution of an Arbitral Court with designation of the sole arbitrator by the Ethics Council of the Centre for Administrative Arbitration, in accordance with the provisions of article 6, no. 1, of the said legislation.

The request for constitution of the Arbitral Court was accepted by the Esteemed President of CAAD and was notified to the Tax and Customs Authority (hereinafter referred to as TA or "Respondent") on 16 April 2018.

The Claimant did not proceed to nominate an arbitrator, wherefore, under the provisions of article 5, no. 2, subsection b) and article 6, no. 1, of the RJAT, the undersigned was designated by the President of the Ethics Council of CAAD to be part of this sole Arbitral Court, having accepted in accordance with legal provisions.

The TA submitted its response on 3 September 2018.

By order of 06.09.2018, the holding of the meeting provided for in article 18 of the RJAT was waived and it was decided that the case would proceed with written final submissions.

Notified for this purpose, neither party submitted submissions.

The Claimant requests that the Arbitral Court declare the illegality of the rejection of the administrative complaint and, likewise, the illegality of the Corporate Income Tax (IRC) assessment no. 2016..., relating to the year 2012, including compensatory interest, with all legal consequences, namely the reimbursement to the claimant of the sum of €12,267.84, plus indemnificatory interest.

II.A. The Claimant sustains its request, in summary, on the following grounds:

Through the service order OI2014..., an external inspection procedure against the claimant commenced on 14-08-2014, in the context of a request for VAT refund.

From that procedure resulted the inspection report sent to the claimant on 28-03-2017.

According to that report, the inspection acts of that inspection procedure were concluded on 27-09-2016.

During that inspection, the claimant was requested to provide, in addition to all accounting records, numerous documents and clarifications, which its managers provided, to the extent of their knowledge.

Coinciding with the conclusion of those inspection acts – which occurred on 27-09-2016 – the claimant was confronted, on 24-10-2016, with another draft inspection report, initiated with Service Order 2015..., which led to the final report on which the assessment now contested is based.

According to the aforementioned draft and report, the inspection in question, initiated with Service Order 2015..., originated, without mentioning the previous inspection procedure, "because transactions and facts with tax implications in the Corporate Income Tax (IRC) sphere were detected".

The Claimant alleges that it is false that the inspection action, initiated with Service Order 2015..., has an internal character.

According to the Claimant, the report itself expressly assumes that the inspection acts had an external character, as it is evident that they resulted from the collection of elements in the external procedure that was ongoing.

The Claimant continues by noting that from the reasoning of the report in question, it follows, with striking clarity, that the alleged internal inspection acts carried out are sustained exclusively in the inspection acts performed in that other external inspection procedure.

Article 13 of the Supplementary Regime of Tax Inspection Procedure (RCPIT) adopts the criterion of distinction between internal and external inspection procedures, clarifying that the procedure is qualified as internal "when inspection acts are carried out exclusively in the tax administration services through formal and consistency analysis of documents", being external "when inspection acts are carried out, in whole or in part, in facilities or premises of taxpayers or other tax obligors, of third parties with whom they maintain economic relations, or in any other place to which the administration has access".

This means that inspection shall only be qualifiable as internal when it was conducted on the basis of documents not obtained through inspection acts outside the services, which, given what has already been described, is not the case for the Claimant.

The violation of the rules inherent to tax inspection procedure gives rise to defects determining the annulability of the assessment resulting from such procedure, as established in no. 1 of article 163 of the NCPA.

Any other interpretation would violate the constitutional principles of legal certainty and protection of trust which are assumed to be classifying principles of a Democratic State governed by the rule of law (article 2 of the Constitution), and which imply certainty and security in the rights of persons and in legally created expectations to which is immanent an idea of protection of the trust of citizens and the community in the legal order and in State action.

Thus, the Claimant concludes that, with the illegality of the assessment declared, it is entitled not only to its reimbursement, but also, under article 43 of the General Tax Law (LGT), to indemnificatory interest.

II.B In its Response, the TA invoked the following:

The inspection procedure, authorized by Service Order OI2014..., commenced on 14/08/2014.

In March 2017, the inspection report was sent, the notification of which (on 20/03/2017) marked the conclusion of the inspection procedure (OI2014...).

From the inspection report drawn up in that procedure, the following was stated:

«

»

In that report, in point III.1.4 - in section C, the tax implications of the irregularities found in inventories are expressly mentioned:

"

Service Order OI2015... was issued on 9/03/2015, of partial scope for Corporate Income Tax (IRC) for the year 2012, within which, as results from the respective inspection report, elements previously collected were used:

«

»

The Claimant was notified to exercise the right of prior hearing under article 60 of the LGT and the RCPIT, by letter of 21/10/2016 with reference to the draft corrections of the inspection report issued under Service Order OI2015..., which was converted into final form.

Should any irregularity exist in the inspection procedure, it was cured by the Claimant's intervention in the procedure, without it having been invoked.

If elements collected in the context of an external inspection procedure, in the case of operations/transactions, can only give rise to corrections under that tax in accordance with the authorization, this does not prevent the TA, upon becoming aware that those transactions whose elements were collected legitimately, also have possible implications in the IRC sphere, once in possession of those elements, from opening another more appropriate procedure, and after analysis of those documents, from proposing the necessary corrections within the scope of IRC.

For the TA, it cannot be stated that, because they were collected within the scope of another inspection procedure referring only to VAT/2014, they cannot be analyzed, because already in the possession of the TA, in order to verify all implications of those inventory omissions in the context of other taxes, legitimizing that analysis with an appropriate authorization.

Accordingly, such elements were collected lawfully and it would in no way be legitimate for the TA, being in possession of those elements, to open a new external inspection action, with new deployment to the company's premises, to collect the same elements it already had in its possession.

For which reason, with tax inspection in possession of elements where it encounters situations not in conformity with another tax sphere, there is support for the necessity to issue another authorization with appropriate scope and extent which enables it to make the respective corrections within the scope of IRC.

For the TA, the inspection procedure opened with Service Order OI2015... was correctly qualified as internal in accordance with article 13 of the RCPIT, as it took place entirely within the TA's facilities, because the documents analyzed were in the TA's possession, and no deployment to the Claimant's facilities was necessary.

II. PROCEEDINGS CLARIFICATION

The Court is competent and is regularly constituted, in accordance with articles 2, no. 1, subsection a), 5 and 6, all of the RJAT.

The parties have legal personality and legal capacity.

The parties are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings are proper.

There are no other preliminary questions to be examined nor defects that invalidate the proceedings.

It is now incumbent to examine the merits of the request.

III. THEMA DECIDENDUM

The central question to be decided, as raised by the Claimant, is whether documentary elements collected in the context of an external tax inspection procedure can be subsequently used in an internal inspection procedure, without altering its internal classification.

IV. FACTUAL MATTERS

IV.1. Proven Facts

Before entering into the examination of the questions, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence, the tax administrative procedure attached and considering the facts alleged, is established as follows:

Through Service Order OI2014..., an external inspection procedure against the claimant commenced on 14-08-2014, in the context of a request for VAT refund.

From that procedure resulted the inspection report sent to the claimant on 28-03-2017.

The inspection acts of that inspection procedure were concluded on 27-09-2016.

During that inspection, the claimant was requested to provide, in addition to all accounting records, documents (inventories and transactions) and clarifications, which its managers provided.

Service Order OI2015... was issued on 09/03/2015, of partial scope for Corporate Income Tax (IRC) for the year 2012, with this tax inspection procedure being classified as internal.

The Claimant was notified to exercise the right of prior hearing under article 60 of the LGT and the RCPIT, by letter of 21/10/2016 with reference to the draft corrections of the inspection report issued under Service Order OI2015..., which was converted into final form.

The Respondent used in this inspection procedure (OI2015...) the documents collected in the inspection procedure initiated by Service Order OI2014..., such as inventories and transactions.

The inspection procedure (OI2015...) was concluded and notified to the claimant through the letter dated 14/03/2017.

IV.2. Unproven Facts

There are no essential unproven facts, since all facts relevant to the examination of the request were considered proven.

IV.3. Reasoning of Factual Matters

The proven facts comprise uncontested matters and matters documented in the proceedings.

The facts contained in numbers 1 to 8 are regarded as established by analysis of the administrative procedure, by documents submitted by the Claimant (documents 1 to 4 of the request for constitution of the Court) and by the position taken by the parties.

V. The Law

V.1 External Inspection vs. Internal Inspection

The main legal question to be determined is the classification of the tax inspection procedure.

The wording of article 13 of the RCPITA, at the time of the issuance of Service Order OI2015... (09/03/2015), was as follows:

Place of inspection procedure

As to the place of conduct, the procedure may be classified as:

a) Internal, when inspection acts are carried out exclusively in the tax administration services through formal and consistency analysis of documents;

b) External, when inspection acts are carried out, in whole or in part, in facilities or premises of taxpayers or other tax obligors, of third parties with whom they maintain economic relations, or in any other place to which the administration has access.

The TA classified the tax inspection procedure as internal. The classification of the procedure as internal, given by the TA, is not binding and does not depend on its discretion. In this sense, see the learned judgment of the TCAS, of 01-10-2014 in the context of case no. 04817/11, available for consultation at www.dgsi.pt, in whose summary it can be read:

I - As to the place of conduct, the procedure may be classified as: a) Internal, when inspection acts are carried out exclusively in the tax administration services through formal and consistency analysis of documents; b) External, when inspection acts are carried out, in whole or in part, in facilities or premises of taxpayers or other tax obligors, of third parties with whom they maintain economic relations, or in any other place to which the administration has access.

II - The qualification given by the Administration to a procedure is not binding.

Following the most authoritative doctrine[1] and case law on the matter, "the internal or external character of the [inspection] procedure cannot be arbitrarily fixed by the Tax Administration, but rather results from the necessity of conducting inspection acts 'in facilities or premises of taxpayers or other tax obligors, of third parties with whom they maintain economic relations, or in any other place to which the administration has access'" (cf. arbitral judgment rendered in Case no. 164/2013-T of the CAAD).

The inspection procedure may be classified as either an internal procedure or an external procedure (article 13, subsections a) and b) of the RCPITA).

Having regard to the wording of article 13 of the RPITA at the time of the issuance of the Service Order (09.03.2015), the procedure shall be internal when the inspection acts are carried out exclusively in the TA's services through the analysis of the form and consistency of documents.

The procedure shall be external when the inspection acts are carried out in whole or in part in the facilities of the taxpayer.

For the procedure to be classified as internal, the inspection acts must be conducted exclusively in the tax administration's services through formal and consistency analysis of documents. If they are not, we are faced with an external procedure.

The internal procedure is a kind of cadastral inspection, carried out within the inspection services themselves, using elements declared by taxpayers and those to which the TA has direct access. This type of procedure encompasses mere verification activities in which the Administration merely checks compliance by taxpayers of their declaration obligations, whether these are principal or accessory declaration obligations.

In these cases, the Administration assesses, according to the information available to it, whether the taxpayer complied with its obligations and whether there is any discrepancy with other elements in its possession, namely declarations from third parties. These are control activities, in which the Administration conducts no diligence outside its premises.

In the case at hand, the TA used documentation that had been obtained in the context of another external tax procedure (OI2014...) conducted against the Claimant.

In the inspection procedure sub judice (OI2015...), the TA's inspectors did not travel to the Claimant's facilities, nor to those of another taxpayer, nor did they request documentation from third parties. The inspection acts were all carried out exclusively in the tax administration's services. The inspection acts consisted of the analysis of documentation already in the TA's possession.

Accordingly, the tax inspection procedure must be materially and formally classified as being internal under article 13, subsection a) of the RCPITA.

Citing Nuno de Oliveira Garcia and Rita Carvalho Nunes: "(…) it appears that in choosing to initiate an external inspection, the fact of the existence, or otherwise, of another control means should be relevant, namely the internal inspection procedure, which proves capable of leading to the ascertainment of the material truth underlying the stated facts and the compliance with the taxpayer's tax obligations. Likewise, the existence of findings regarding the same inspected taxpayer and previous/subsequent fiscal years should also be relevant, which may be used, rather than initiating new external inspection procedures" In Review of Public Finance and Tax Law, Year IV, 1, 2011, p. 267.

The opening of a new external procedure, as appears to be required by the Claimant, would itself be compromising as it would imply the conduct of intrusive acts in the current life of the taxpayer, through the occupation of space at the taxpayer's premises by TA inspectors and by the requirement of their monitoring. This procedure would be disproportionate and unnecessary (article 7 of the RCPITA) because the TA already had in its possession the documents necessary to prepare the draft and the subsequent final report.

In light of the foregoing, we consider that the inspection procedure under examination should be classified as internal.

In this sense, see Judgment of the Central Administrative Court of the South of 29/06/2016, case no. 29/09/2016.

V – If the documents and information to which the Tax Administration "had access" and which were – after confrontation made with the declarations presented by the taxpayer – at the origin of the procedure came to its possession and were held by it after compliance by certain institutions with the legal obligations to which they are bound (provided for in article 119, no. 12, subsection b) of the Personal Income Tax Code, as amended by Decree-Law no. 72-A/2010, of 18 June - Model 39 declarations), there is no ground to conclude that such access was realized outside its facilities or that the Administration would only have the right to access those same elements if it traveled to the premises of those institutions.

Even if the internal inspection procedure had been misclassified, it was incumbent on the claimant to indicate what formalities imposed would have been omitted or violated leading to the annulment of the assessment. In this sense, see Judgment of the STA of 29.06.2016, case no. 01095/15: I - Even if the inspection procedure has been wrongly qualified as internal, when it should have been qualified as external, this error is irrelevant to the decision to be rendered if it cannot be concluded that any essential formality imposed by this latter inspection modality was omitted.

The Claimant not having, in this part, fulfilled its burden of allegation regarding the cause of action, as regards the defects imputed to the tax act challenged (article 10, no. 2, subsection c) of the RJAT), also by this route the request for annulment of the assessment is destined to be dismissed.

Finally, the Claimant invokes the violation of the constitutional principles of certainty and protection of trust arising from article 2 of the Constitution.

However, its allegation, devoid of any justification or substantiation, does not allow us to discern how these constitutional principles could have been violated in the case at hand. It is incumbent upon the Claimant to concretely enumerate the question of unconstitutionality, so that the Court before which the problem is raised knows that it has a specific issue of constitutionality to decide, which requires the identification in an express, direct and clear manner of the norm or a segment thereof or a given interpretation that may be qualified as violating the Fundamental Law. In this sense, it was written in Judgment no. 269/94, case no. 874/93:

"To raise the unconstitutionality of a legal norm is to do so in such a way that the court before which the question is placed knows that it has a specific constitutionality question to decide. This obviously demands that – as has already been stated – such be done in a clear and understandable manner, identifying the norm (or a segment thereof or a given interpretation thereof), which (in the understanding of the person raising this question) violates the Constitution; and it also demands that one point to why this incompatibility with the Fundamental Law, indicating, at least, the norm or constitutional principle infringed."

The Claimant neither states nor adduces any arguments, even with minimum content, to the effect that the principles invoked have been violated.

As is stated in Judgment no. 128/98, case no. 792/96:

"(...) Being the present constitutional review filed under article 70, no. 1, subsection b), of the Constitutional Court Law, it is necessary, in order to take cognizance of its object, that the appellant has raised a question of constitutionality during the proceedings.

However, a question of constitutionality is only deemed properly raised during proceedings when the appellant identifies with precision the norm or norms which it considers to be unconstitutional, when it indicates the norms or constitutional principles which it considers violated and when it presents a reasoning, albeit brief, of the unconstitutionality raised".

Accordingly, it is incumbent upon the Claimant to individualize the basis of the question of constitutionality in a procedurally appropriate manner, developing, minimally, the understanding that permits concluding that the norms (or normative interpretations) applied will be unconstitutional. This is a consequence of the necessity of clarity in the presentation of arguments which is not satisfied with mere attribution of unconstitutionality to any other normative interpretation different from that intended or to the application of norms to the concrete situation.

As emphasized by Lopes do Rego (cf. Concrete Review Resources in the Law and Jurisprudence of the Constitutional Court, Almedina, Coimbra, 2010, p. 105), "it is incumbent on the appellant to provide the court with a justification or minimum reasoning for the unconstitutionality it invokes: in addition to necessarily having to confront the court which will render the decision, contested before the Constitutional Court, with the indication of which, in its perspective, are the norms or constitutional principles violated, the party lacks the duty to justify, in understandable and conclusive terms, the imputation of unconstitutionality it makes, articulating it with a minimum argumentative support, problematizing the constitutional validity of the norms questioned with a minimum substantiation that permits the court to know that, before exhausting its jurisdictional power, it has a legal-constitutional question to decide (cf., e.g., Judgments nos. 269/94, 273/94, 16/06, 645/06, 708/06 and 630/08)".

Notwithstanding the lack of substantiation of the alleged unconstitutionality invoked by the Claimant, we do not discern that the classification of the procedure in the context of tax inspection could have violated the constitutional norms invoked by the Claimant. The principle of legal certainty and the protection of trust are a guarantee of the stability and predictability of state action. This predictability of the TA's action in the case at hand was not put in question because no change occurred in the TA's conduct that would justify the invocation of these principles. The tax inspection procedure was initiated as internal and was concluded as internal.

The conduct of the TA in the classification of the inspection procedure did not create any expectation deserving legal protection.

Accordingly, there was no change in the TA's conduct that would justify the protection of the Claimant's trust.

Thus, we do not consider that the constitutional principles of certainty and protection of trust have been violated.

V.3 Indemnificatory Interest

The examination of the condemnation of the Respondent in the payment of indemnificatory interest is prejudiced by the solution reached above.

Maintaining the tax act under scrutiny, consequently, the request for indemnificatory interest should also be dismissed as not well-founded.

III. DECISION

In light of all that has been set forth, it is decided:

a) To dismiss entirely the request for declaration of the illegality of the rejection of the administrative complaint, of the illegality of the Corporate Income Tax (IRC) assessment no. 2016..., relating to the year 2012, and of compensatory interest;

b) To maintain entirely the tax act subject to these proceedings;

c) To condemn the Claimant in the payment of the costs of the proceedings, as follows.

The value of the case is fixed at €12,267.84 in accordance with article 97-A, no. 1, a), of the CPPT, applicable by force of subsection a) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at €918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid entirely by the Claimant, since the request was entirely not well-founded, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notify thereof.

Lisbon, 16 November 2018

The Arbitral Court

(André Festas da Silva)

[1] Cf. Joaquim Freitas Rocha and João Damião Caldeira, RCIPT Annotated and Commented, Coimbra Editora, 2013, p. 83

Frequently Asked Questions

Automatically Created

What is the legal distinction between internal and external tax inspections under Portuguese tax law?
Under Article 13 of RCPIT (Supplementary Regime of Tax Inspection Procedure), Portuguese tax law distinguishes internal from external inspections based on where inspection acts occur. An internal inspection is conducted exclusively within tax administration offices through formal analysis and consistency review of documents already in the AT's possession. An external inspection involves acts performed, wholly or partially, at taxpayer premises, third-party facilities with economic relations to the taxpayer, or any other location accessible to the administration. The qualification determines procedural rights, timelines, and formalities applicable to the inspection, with external inspections generally subject to more rigorous procedural requirements to protect taxpayer rights. Misclassification can constitute a procedural irregularity under Article 163 NCPA leading to assessment annulment.
Can the Portuguese Tax Authority (AT) initiate a second inspection based on findings from a prior inspection without proper justification?
Portuguese Tax Authority can initiate subsequent inspections based on findings from prior procedures, but must comply with strict procedural requirements. Each inspection requires proper authorization through a Service Order specifying the tax type, period, and scope. When evidence collected during one inspection (e.g., for VAT) reveals potential irregularities in another tax (e.g., IRC), the AT may open a separate procedure with appropriate authorization. However, the classification as internal or external must accurately reflect how evidence was obtained. If documents were collected through external acts, subsequent analysis cannot be reclassified as internal merely because documents are now in AT's possession. The principle of legal certainty and protection of legitimate expectations (Article 2 of Portuguese Constitution) requires transparent procedural compliance, and taxpayers retain rights to challenge improper procedure classifications under Article 163 NCPA.
What are the grounds for challenging an IRC tax assessment resulting from a tax inspection procedure?
Taxpayers can challenge IRC assessments on multiple grounds under Portuguese tax law. Procedural grounds include violations of RCPIT rules governing inspection procedures, such as improper classification of inspection type (internal vs. external), exceeding authorized scope, failure to provide prior hearing rights under Article 60 LGT, and non-compliance with notification requirements. Substantive grounds include incorrect application of IRC provisions, errors in fact determination, inadequate evidence supporting corrections, and violations of accounting principles. Constitutional grounds encompass breach of legal certainty, legitimate expectations, proportionality, and due process protections under Article 2 of the Portuguese Constitution. Procedural irregularities under Article 163 NCPA render assessments voidable. Challenges can be brought through administrative complaint procedures or directly to CAAD (Administrative Arbitration Center) under Decree-Law 10/2011. Successful challenges entitle taxpayers to assessment cancellation, reimbursement of amounts paid, compensatory interest, and potentially indemnificatory interest under Article 43 LGT for unlawful acts.
How does the CAAD arbitral tribunal evaluate the legality of IRC assessments and compensatory interest?
CAAD arbitral tribunals evaluate IRC assessment legality through comprehensive procedural and substantive review. Procedurally, tribunals examine whether the AT complied with RCPIT requirements, including proper inspection classification, scope limitations in Service Orders, taxpayer notification and prior hearing rights, and procedural timeline compliance. They assess whether inspection acts were lawfully conducted and documented. Substantively, tribunals review the factual basis for corrections, adequacy of evidence, proper application of IRC provisions, and reasonableness of AT's conclusions. Tribunals apply Constitutional principles including legal certainty, legitimate expectations, and proportionality as interpretive guides. Regarding compensatory interest, tribunals verify calculation accuracy and applicable rates when assessments are confirmed. When assessments are annulled for procedural or substantive defects, tribunals order refunds with compensatory interest for the period amounts were unlawfully retained. Additionally, under Article 43 LGT, tribunals may award indemnificatory interest when AT conduct is deemed unlawful, compensating taxpayers for losses beyond mere return of overpaid amounts, effectively penalizing improper administrative action.
What rights does a taxpayer have to claim reimbursement and indemnity interest after an unlawful IRC tax assessment?
Following an unlawful IRC assessment, Portuguese taxpayers have comprehensive reimbursement and interest rights. Primary rights include full refund of amounts paid pursuant to the illegal assessment, including principal tax and any associated compensatory interest originally charged. Under Article 43 LGT, taxpayers are entitled to compensatory interest (juros compensatórios) calculated from payment date until reimbursement, compensating for the State's use of funds to which it had no legal entitlement. Additionally, when AT conduct constitutes an unlawful act—such as procedural violations or assessments lacking legal foundation—taxpayers may claim indemnificatory interest (juros indemnizatórios) under Article 43 LGT, which serves as damages for losses caused by improper administrative action. Interest rates and calculation methods are established by ministerial order. Taxpayers can pursue these rights through administrative complaint procedures or CAAD arbitration under Decree-Law 10/2011. CAAD decisions ordering reimbursement are binding on the AT and enforceable. The combined effect of assessment annulment, compensatory interest, and indemnificatory interest provides comprehensive remediation, restoring taxpayers to their rightful financial position while deterring procedural irregularities and protecting constitutional guarantees of legal certainty and legitimate expectations inherent in a Democratic State governed by rule of law.