Process: 192/2016-T

Date: December 5, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 192/2016-T, a financial company challenged Stamp Duty assessments for 2010-2011 totaling €16,245.74, related to portfolio management commissions charged to a Cayman Islands-domiciled fund. The applicant argued the inspection procedure was illegal due to non-compliance with PNAIT requirements, citing a prior CAAD decision (716/2014-T) that invalidated the same inspection for Corporate Income Tax purposes. Additionally, the taxpayer contended that portfolio management services are subject to VAT under article 9(27)(e) of the VAT Code and therefore excluded from Stamp Duty under article 1(2) of the Stamp Duty Code, which exempts operations subject to and not exempt from VAT. The Tax Authority countered that the arbitral tribunal lacked competence to assess procedural irregularities, that such defects wouldn't invalidate the assessments, and that the commissions fall under item 17.3 of the General Table (financial operations) and are not exempt because the client is domiciled in a privileged tax regime territory (article 7(1)(e) of the Stamp Duty Code). The case raises fundamental questions about the interplay between procedural legality in tax inspections, the delimitation of Stamp Duty versus VAT taxation on financial services, and the effect of prior arbitral decisions on related tax assessments stemming from the same inspection procedure.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 29.03.2016, the Applicant, A…, S.A., taxpayer number…, with registered office at Avenue … nos …/…, in Porto, requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to the annulment of the assessments of STAMP DUTY relating to the years 2010 and 2011, identified as follows:

(i) Demonstration of Assessment of Stamp Duty – Document Id. 2014…; Year to which the Stamp Duty relates – 2010; Assessment no. 2014…; Amount to pay: €8,239.95; Payment deadline: 11 July 2014;

(ii) Demonstration of Assessment of Stamp Duty – Document Id. 2014…; Year to which the Stamp Duty relates – 2011; Assessment no. 2014…; Amount to pay: €8,005.79; Payment deadline: 11 July 2014.

The Applicant, alleging that it has paid the amounts in question, further petitions for the condemnation of the Respondent to the restitution of the same, as well as to the payment of indemnification interest.

  1. The request to constitute the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Tax and Customs Authority. Pursuant to article 6, no. 1, of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, the undersigned was designated as arbitrator, and communicated to the Deontological Council and the Centre for Administrative Arbitration the acceptance of the appointment within the regularly applicable time limit.

The Arbitral Tribunal was constituted on 20-06-2016.

  1. The grounds presented by the Applicant in support of its claim were, in summary, as follows:

  • The notification of the rejection of the administrative review is illegal due to lack of indication of the author of the act rejecting the administrative review – violation of no. 6 of article 77 of the LGT and of no. 2 of article 36 of the CPPT and also due to lack of complete indication of the means of defence.

  • The inspection actions comply with the National Plan of Tax Inspection Activities (PNAIT), as established in no. 1 of article 23 of the Supplementary Regime of Tax Inspection Procedure (RCPIT), but it happens that the Inspection Report does not identify, by any means, the terms of its compliance with that plan.

  • The decision of the CAAD on the illegality of the same inspection – the decision in Case no. 716/2014-T (CIT – Transfer Pricing), of 27-05-2015, which assessed the legality of the inspection procedure that gave rise to the REPORT that served as the basis for the AT to proceed with the additional assessments (CIT and Stamp Duty, 2010/2011) to the Claimant, of CIT and Stamp Duty, which is given here as fully reproduced and which the Tribunal duly assessed and concluded regarding the extension of the inspection to CIT, whose legality of the additional assessments of 2010/2011 were submitted to its assessment, applies, precisely as stated, to the assessments of Stamp Duty of 2010/2011, now also submitted to its assessment.

  • There is, therefore, illegality of the inspection procedure, which vitiates it with invalidity, in so far as the motivation justifying its institution by the AT is illegal, violating the principle of tax legality, which covers the rules of the tax inspection procedure – see paragraph e) of no. 2 of article 8 and paragraph h) of no. 1 of article 54 of the LGT;

  • On the other hand, in the assessments notified to the Claimant, there is no factual or legal reasoning whatsoever, and they are therefore illegal assessments.

  • The mere existence of an inspection REPORT does not permit the AT to proceed with an arbitrary assessment of taxes without basing it on the reasoning that the Constitution requires for the performance of any acts of the administration.

  • Pursuant to the combined provisions of articles 1/1, paragraph a) and article 2/1, paragraph a) of the VAT Code, the commissions charged for the provision of portfolio management services are subject to and not exempt from Value Added Tax (VAT).

  • Indeed, by virtue of the non-exclusion from VAT taxation – article 9/27/e) expressly excludes from VAT exemption the portfolio management services,

  • Portfolio management services are, to the contrary, excluded from the concept of "financial operations" delimiting the objective scope of the Stamp Duty tax, pursuant to the combined provisions of article 1/1 of the Stamp Duty Code and Item 17 of the General Table of Stamp Duty.

  • The circumstance that, by virtue of the location of the operation, pursuant to article 6 of the VAT Code, may have, in the case in question, determined the non-application of VAT, does not prejudice the non-subjection of the operation to Stamp Duty.

  1. The ATA – Tax and Customs Administration, called upon to make its submissions, contested the claim of the Applicant, defending itself through opposition, in summary, with the following grounds:

BY EXCEPTION,

  • The defects invoked by the Applicant [indicated in points i) and ii) of article 2 of this Reply] relating to the supposed illegalities of the notification and the inspection procedure cannot be assessed by the Arbitral Tribunal due to lack of material competence.

  • Once those defects, were they to be upheld (which is denied), would not have any impact on the additional assessment acts of stamp duty at issue here.

  • The competence of arbitral tribunals is confined to the matters indicated in no. 1 of article 2 of the RJAT.

  • The competence of arbitral tribunals results from the provisions of no. 1 of article 2 of the RJAT as well as from Ordinance no. 112-A/2011, of 22 March, pursuant to article 4 of the RJAT, by the terms to which the Tax Administration has committed to that jurisdiction.

  • The exceptions set out above should be judged as well-founded and, consequently, the entity respondent should be absolved of the instance;

Should that not be the case,

BY OPPOSITION

  • The Applicant provided investment management services for Fund B…, through a sub-management contract entered into with C… (the manager responsible for the Fund) on 2009-07-22, as described in the RIT, to which reference is made.

  • These management services gave rise to the issuance of invoices, paid in 2010 and 2011, which appear in the table on page 63 of the RIT.

  • This provision of services is subject to stamp duty, as it falls within item 17.3 of the General Table of Stamp Duty [commission charged by a financial company (objective scope), by cross-reference to no. 1 of article 1 of the respective code.]

  • The commissions charged by the Applicant are not exempt from stamp duty, as provided in paragraph e) of no. 1 of article 7 of the Stamp Duty Code, given that its client is domiciled in a territory with a more privileged tax regime - Cayman Islands.

  • In this case, the exclusion of stamp duty scope provided in no. 2 of article 1 of the Stamp Duty Code does not apply, which provides: "Operations subject to value added tax and not exempt therefrom are not subject to tax."

  • The Applicant states that that notification does not contain the indication of the author of the act rejecting the administrative review. However, the Applicant is not correct, as that notification includes the order of 28/12/2015 signed by the Head of the Finance Service of Porto…, as appears in the PA (p. 106).

  • Furthermore, this alleged defect (which does not exist, as has been seen) could never result in the annulment of the assessments as the Applicant claims, as it is an act external to the assessment, which could only affect its effectiveness and not its validity.

  • On the other hand, article 37, no. 1 of the CPPT provides that: "If the communication of the decision on tax matters does not contain the legally required reasoning, the indication of the means of reaction against the notified act or other requirements required by tax laws, the interested party may, within 30 days or within the period for administrative review, appeal or other judicial remedy that may follow from this decision, if shorter, request the notification of the requirements that have been omitted or the issuing of a certified copy containing them, free of any payment."

  • Therefore, the Applicant, if that is what it understood, should have requested the notification of the omitted requirement or the issuing of a certified copy containing it, which it did not do.

  • Nor could that alleged invalidity ever imply the annulment of the notified act for the reasons mentioned above, since the notification is an act external to the assessment.

  • In our understanding, the alleged illegality of the inspection procedure invoked by the Applicant, were it to be upheld, would amount to mere irregularity, and could not result in the annulment of the assessment acts,

  • Since the Applicant was duly notified of the change in the scope of the inspection procedure, having perfect and full knowledge of its reasoning since 19-02-2014, as can be read on page 5 of the RIT: "The Service Order initially had partial scope (CIT, VAT), and that scope was extended to general, by virtue of the fact that the global situation of the company was under analysis. This change to the Service Order was notified to A… on 2014-02-19."

  • As the Applicant well knows, the factual reasoning and the legal reasoning underlying the issuance of the stamp duty assessments at issue here are duly set forth in the Inspection Report referred to throughout the PI.

  • This provision of services is subject to stamp duty, as it falls within item 17.3 of the General Table of Stamp Duty [commission charged by a financial company (objective scope), by cross-reference to no. 1 of article 1 of the respective code.]

  • The commissions charged by the Applicant are not exempt from stamp duty, as provided in paragraph e) of no. 1 of article 7 of the Stamp Duty Code, given that its client is domiciled in a territory with a privileged tax regime - Cayman Islands.

  1. By order of 31.10.2016, the exceptions of material incompetence raised by the Respondent were judged as unfounded.

As there was no situation provided for in article 18, no. 1, of the RJAT that would make necessary the arbitral meeting provided therein, its holding was dispensed with, on the grounds of the prohibition of useless acts.

The holding of oral arguments was also dispensed with, pursuant to article 18, no. 2, of the RJAT, "to the contrary".

  1. The tribunal is materially competent and is regularly constituted pursuant to the RJAT.

The parties have legal personality and capacity, are entitled and are legally represented.

The proceedings do not suffer from defects that would invalidate it.

  1. It is necessary to resolve the following issues:

a) The issue of the illegality of the notification of the rejection of the administrative review, due to lack of indication of the author of the act rejecting the administrative review and also due to lack of complete indication of the means of defence.

b) The issue of the illegality of the inspection procedure.

c) The issue of lack of reasoning.

d) The issue of the illegality of the assessment due to violation of the tax scope norm.

II – Relevant Facts

  1. The following facts are considered proven:
  • The Respondent proceeded with the following stamp duty assessments:

Demonstration of Assessment of Stamp Duty – Document Id. 2014…; Year to which the Stamp Duty relates – 2010; Assessment no. 2014…; Amount to pay: €8,239.95; Payment deadline: 11 July 2014;

Demonstration of Assessment of Stamp Duty – Document Id. 2014…; Year to which the Stamp Duty relates – 2011; Assessment no. 2014…; Amount to pay: €8,005.79; Payment deadline: 11 July 2014.

  • The Claimant proceeded with the payment of the referred amounts.

  • The Applicant presented an administrative review of these tax acts, which was the subject of a rejection decision.

  • In the Value Added Tax ("VAT") Return for April 2013, A… requested a refund of that tax in the amount of €162,705.28, which gave rise to an inspection procedure for the years 2010 and 2011 of the then Claimant.

  • The scope of the inspection, initially partial [Corporate Income Tax ("CIT") and VAT], was, in February 2014, extended to general, culminating in May 2014 with the notification to the CLAIMANT of the respective Final Tax Inspection Report 05 2013…- OI2013… – Service Order no. OI2013….

  • The report contains, in particular, the following:

(…)

  1. The notification of the final inspection report made to the Respondent contains the following:

With relevance to the decision of the case, there are no unproven facts.

  1. The Tribunal's conviction regarding the decision on the facts was based on the documents contained in the proceedings, as well as on the submissions presented, and it is worth noting that there is complete agreement between the parties regarding the facts, with disagreement limited to matters of law.

-III- The Applicable Law

  1. As can be read in the arbitral decision rendered in case 716/2014-T[1], which dealt with the same inspection procedure that is at issue in the present proceedings (and in which corporate income tax was at issue), and whose considerations, which are followed, are fully applicable in the present proceedings:

"The Applicant raises the issues in a certain order, placing several as 'preliminary issues', from which it can be inferred that it intends for that order of knowledge to be followed, with priority knowledge of those indicated as 'preliminary'.

Thus, since there is no situation of nullity within the meaning of article 133 of the 1991 Administrative Procedure Code, the order indicated shall be followed, pursuant to the final part of paragraph b) of no. 2 of article 124 of the CPPT, applicable to tax arbitral proceedings by virtue of the provisions of article 29, no. 1, paragraph c), of the RJAT.

However, as that CPPT provision requires that the aim be the most stable or effective protection of the injured interests, if it is to be judged that the petition for arbitral pronouncement is well-founded by some defect that ensures this protection, the knowledge of the rest will be prejudiced, which is a corollary of the principle of prohibition of useless acts, set out in article 130 of the CPC subsidiarily applicable by virtue of the provisions of article 29, no. 1, paragraph e), of the RJAT."

  1. The issue of the illegality of the notification of the rejection of the administrative review, due to lack of indication of the author of the act rejecting the administrative review and also due to lack of complete indication of the means of defence.

As can be read in CPPT annotated and commented by Jorge Lopes de Sousa, 6th ed., 2011, Vol. I, (page 345), in a note to article 36 of the CPPT "Deficiencies in the notification that affect its validity lead to the notified act not being effective in relation to the notified party, as is expressly provided in no. 1 of this article. However, deficiencies that affect the validity of the notification do not affect the validity of the notified act. Indeed, the notification of an act is an act external to it and, therefore, the defects that affect the notification, being able to determine the invalidity of the notification and the consequent ineffectiveness of the notified act, do not affect the validity of this."

Thus, deficiencies in the notification could never originate the illegality of the rejection decision itself of the administrative review, but only its ineffectiveness.

In the case in question, it happens that the Applicant only requests the annulment of the stamp duty assessments. It is quite evident that, in no case, the deficiency of the notification of the rejection decision of the administrative review could put into question the effectiveness of the assessments subject to such procedure and even less their legality.

Thus, without need for further considerations, this allegation of the Applicant is unfounded.

  1. The issue of the illegality of the inspection procedure

The following considerations can also be read in the arbitral decision rendered in case 716/2014-T referred to above, which are also followed and which are, in the same way, transferable to the present proceedings:

"Neither in the reasoning indicated in the Tax Inspection Report nor in the pages of the administrative file is there any reference to indications of infraction, noting that the only ground invoked to justify the inspection was the fact that the Applicant had presented a VAT refund request of an amount 'significantly higher than the previous one'.

But, if it is true that this fact justifies the inspection in the context of VAT, it remains unclear what the reason was for deciding to carry out an inspection concerning CIT for the years 2010 and 2011.

Namely, although the Tax and Customs Authority in the transcribed article 16 of the Reply states that 'with the VAT refund request resulted indications, as results from the reasoning contained in pages 1 to 5 of the PA that led the Inspection Services to change the scope of the inspection action from partial to general', in none of those pages is there mention of 'indications' or of tax infraction, and, as concerns 'indications', only those of tax infraction could justify the inspection in the context of CIT, in face of paragraph d) of no. 1 of article 27 of the RCPIT, invoked by the Tax and Customs Authority in article 17 of its Reply.

On the other hand, if it is true that article 15, no. 1, of the RCPIT establishes that 'the purposes, scope and extension of the inspection procedure may be altered during its execution by means of a reasoned order of the entity that ordered it, and must be notified to the inspected entity', it is also true that the reasoning required, in order to be relevant, must explain what the reason or reasons were for which the deciding entity opted to determine the extension.

Now, in the case in question, it is not minimally clear what the reason was for deciding to carry out the extension of the inspection to CIT and for the years 2010 and 2011, when it was only necessary to verify the regularity of a VAT refund request, and therefore it is necessary to conclude that the order that decided the extension is not reasoned, as far as this matter is concerned.

On the other hand, the Tax and Customs Authority has not even in the present arbitral proceedings invoked any other ground provided for in article 27 of the RCPIT for the selection of the taxable person to be inspected, apart from paragraph d) of no. 1 of article 27.

Being thus, as this Arbitral Tribunal cannot ascertain what the reason or reasons were for which it was decided to carry out the inspection in the context of CIT relating to the years 2010 and 2011, it cannot fail to conclude that the decision to extend the inspection as to this matter was illegal, which constitutes a defect with an impact on the assessment act carried out on the basis of the inspection procedure."

Following this understanding, it is also concluded in this proceeding that the decision to extend the inspection as to this matter was illegal, which constitutes a defect with an impact on the assessment act carried out on the basis of the inspection procedure, which implies the annulment of the tax acts subject to the present proceedings.[2]

  1. The issue of lack of reasoning

The Applicant, alleging that the tax in question results from an inspection procedure, still alleges that the Tax Administration did not communicate to the taxpayer the reasoning for the assessment, with the act lacking in reasoning.

It is not correct, as there is no violation of article 77 of the General Tax Law.

Indeed, in the notification of the inspection report, the following was stated:

"Within a short period, the services of the Tax and Customs Authority (AT) will proceed with the notification of the respective assessment, which will contain the means of defence, as well as the payment period, if applicable."

It is, therefore, clear that the inspection report is part of the reasoning of the tax act, as, indeed, the Applicant unequivocally understood, alleging the illegality of such report and petitioning the annulment of the assessment on the basis of it.

Thus, and without need for other considerations, it is also judged that the alleged defect of lack of reasoning is unfounded.

  1. The issue of the illegality of the assessment due to violation of the tax scope norm.

The Applicant further alleges that portfolio management services are, to the contrary, excluded from the concept of "financial operations" delimiting the objective scope of Stamp Duty, pursuant to the combined provisions of article 1/1 of the Stamp Duty Code and Item 17 of the General Table of Stamp Duty, and that the circumstance that, by virtue of the location of the operation, pursuant to article 6 of the VAT Code, may have, in the case in question, determined the non-application of VAT, does not prejudice the non-subjection of the operation to Stamp Duty.

The Respondent, on the other hand, contends that this provision of services is subject to stamp duty, as it falls within item 17.3 of the General Table of Stamp Duty [commission charged by a financial company (objective scope), by cross-reference to no. 1 of article 1 of the respective code], and that the commissions charged by the Applicant are not exempt from stamp duty, as provided in paragraph e) of no. 1 of article 7 of the Stamp Duty Code, given that its client is domiciled in a territory with a privileged tax regime - Cayman Islands.

Let us see.

From item 17.3 of the General Table of Stamp Duty the following appears:

"Operations carried out by or with the intermediation of credit institutions, financial companies or other entities legally assimilated to them and any other financial institutions - on the amount charged:

17.3.1 Interest on, in particular, discount of bills and treasury bills, on loans, on credit accounts and on credit without liquidation 4%

17.3.2 Premiums and interest on letters taken, of letters to be received on behalf of others, of drafts issued on national locations or any transfers 4%

17.3.3 Commissions for guarantees provided 3%

17.3.4 - Other commissions and consideration for financial services, including fees relating to payment card operations - 4%."

For its part, from article 7 of the Stamp Duty Code, the following appears:

"1 - The following are also exempt from the tax:

(…)

e) Interest and commissions charged, guarantees provided and, as well, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose fulfil the types of credit institutions, financial companies and financial institutions provided for in community legislation, one and all domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with a privileged tax regime, to be defined by ordinance of the Minister of Finance;"

On the other hand, from the wording of article 1, no. 2, of this Code it appears that:

"2 - Operations subject to value added tax and not exempt therefrom are not subject to tax."

Finally, pursuant to article 6, no. 6, of the Value Added Tax Code:

"6 - Taxable are the provisions of services made to:

a) A taxable person referred to in no. 5 of article 2, whose head office, stable establishment or, in its absence, the domicile to which the services are provided, is situated in national territory, wherever the head office, stable establishment or, in its absence, the domicile of the service provider is situated;

b) A person who is not a taxable person, when the service provider has in national territory the head office of its activity, a stable establishment or, in its absence, the domicile from which the services are provided."

On article 6 of the VAT Code, Clotilde Celorico Palma tells us that "This legal provision deals with the rules for locating internal operations, that is, operations that are understood to be carried out in national territory, locating, to the contrary, the other operations, outside that territory, not being subject to VAT in Portugal".[3]

For his part, Rui Laires[4] writes that "In order to be faced with a provision of goods submitted to the VAT rules in force in Portugal,[5] article 1/1, a), along with other conditions imposes that it be considered carried out in national territory. Article 6/6 contains the two general rules for locating in national territory the provision of services. One of them, contained in paragraph a), is applicable when the recipient of the services is a VAT taxable person acting within the framework of its activity. Another, contained in paragraph b), is applicable when the recipient is not a VAT taxable person acting within the scope of an economic activity".[6]

On no. 2 of article 1 of the Stamp Duty Code, António Santos Rocha-Eduardo José Martins Brás write:[7]

"This norm negatively delimits the scope of stamp duty to operations that are subject to value added tax (VAT) and that are not exempt therefrom, that is, there will be no subjection to stamp duty when on the same economic operation another indirect taxation has been levied.

In this way, even if the acts, contracts, documents, securities, papers and other facts are provided for in the general table, they will not be subject to stamp duty, if it is shown to be due on them, value added tax.

It appears to us that at the genesis of the regulation provided by no. 2 of the norm, the legislator intends to avoid double taxation in the context of VAT and Stamp Duty (…)".[8]

In this line, it appears to us, indeed, that both the spirit and the letter of article 1, no. 2, of the Stamp Duty Code, point to the direction of the non-subjection to stamp duty only in the case where actual taxation in the context of Value Added Tax has been levied on the facts in question, a situation that did not occur in the case of these proceedings.

Thus, the tax acts in question do not suffer from the defect of violation of law, by infraction of the scope norms, and the annulment is not declared also on this ground.

  1. The Applicant further requested the condemnation of the Respondent to refund the amounts paid corresponding to the assessment subject to this proceeding, as well as the respective indemnification interest.

Let us see.

In accordance with the provisions of paragraph b) of article 24 of the RJAT, the arbitral decision on the merit of the petition for which no appeal or challenge is permitted binds the tax administration from the end of the period provided for an appeal or challenge, and the administration must, in the exact terms of the proceedings of the arbitral decision in favor of the taxable person and until the end of the period provided for the spontaneous execution of sentences of the tax courts "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that effect", which is in keeping with the provisions of article 100 of the LGT [applicable by virtue of the provisions of paragraph a) of no. 1 of article 29 of the RJAT], which establishes that "the Tax Administration is obliged, in the event of full or partial success of an administrative review, judicial challenge or appeal in favor of the taxable person, to immediately and fully restore the legality of the act or situation subject to the dispute, including the payment of indemnification interest, if applicable, from the end of the period for execution of the decision."

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning at the CAAD, not making reference to condemnatory decisions, it should be understood that the competence includes the powers attributed to tax courts in judicial challenge proceedings, this being the interpretation that is in keeping with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first directive, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".[9]

The judicial challenge process, despite being essentially a process for the annulment of tax acts, admits the condemnation of the Tax Administration to the payment of indemnification interest, as is derived from article 43, no. 1, of the LGT, which establishes that "indemnification interest is due when it is determined, in administrative review or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount higher than that legally due", and from article 61, no. 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which provides "if the decision that recognized the right to indemnification interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT, when it says "payment of interest, regardless of its nature, is due, pursuant to the provisions of the general tax law and the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to indemnification interest in the arbitral process.

In the case in question, it is manifest that, following the illegality of the assessment acts, there is place for reimbursement of the tax, by virtue of the aforementioned articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out".

As regards indemnification interest, this claim is still to be assessed in light of article 43 of the General Tax Law.

As previously stated, there is in this case the occurrence of "error attributable to the services". Furthermore, the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa is embraced, who maintain that "The error attributable to the services that carried out the assessment is demonstrated when an administrative review or judicial challenge of that same assessment is made and the error is not attributable to the taxpayer" (GENERAL TAX LAW, Annotated and Commented, encounters of writing, 4th Edition, 2012, p. 342).

In the case "sub judice", the error that gave rise to the assessments, now annulled, not being attributable to the Applicant but exclusively to the Respondent, the request for the condemnation of the Respondent as to the indemnification interest cannot fail to proceed.

Thus, the Tax and Customs Authority must execute this decision, pursuant to article 24, no. 1, of the RJAT, reimbursing the amounts paid by the Applicant in relation to the annulled assessments, with indemnification interest at the legal rate.

Indemnification interest is due from the date of payment until the date of processing of the credit note, in which they are included (article 61, no. 5, of the CPPT).

-IV- Decision

Thus, the arbitral tribunal decides, judging the petition for arbitral pronouncement to be well-founded:

a) To declare the illegality and the consequent annulment of the tax act sub judice on the basis of the defect indicated.

b) To condemn the Respondent to refund to the applicant the amounts paid with indemnification interest at the legal rate, counted from the date of payment until the date of processing of the credit note.

Value of the action: €16,245.74 (sixteen thousand, two hundred and forty-five euros and seventy-four cents) pursuant to the provisions of article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Costs Regulation in Arbitration Proceedings.

Costs, in the amount of €918.00 (nine hundred and eighteen euros) by the Respondent pursuant to no. 4 of article 22 of the RJAT.

Let it be notified.

Lisbon, CAAD, 5.12.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] Accessible at the website "https://caad.org.pt/tributario/decisoes/"

[2] Also in this sense Joaquim Freitas da Rocha-João Damião da Cunha who write "Both the lack of a reasoned order and the lack of valid notification to the taxpayer of this order determines, in our view, the invalidity of the assessment act resulting from the inspection procedure, by violation of the principle of legality" (RCPIT annotated and commented, Coimbra Editor, 1st Edition, 2013)

[3] Clotilde Celorico Palma, Introduction to Value Added Tax, IDEFF Notebooks, no. 1, 4th edition, Almedina, 2009, p. 92, Emphasis ours.

[4] in" VAT Code and RITI, Notes and Comments, Coordination and Organization Clotilde Celorico Palma and António Carlos Santos, Almedina, 2014, , p. 88.

[5] Emphasis ours.

[6] The same author had already written that "When a given transfer of goods, provision of services, intra-community acquisition of goods or import of goods is, pursuant to the relevant provisions on the matter, to be considered carried out in national territory, that operation is covered by the scope of Portuguese VAT, being considered subject to tax in Portugal (…).

To the contrary, if a given transfer of goods, provision of services, intra-community acquisition of goods or import of goods is not considered to be carried out in national territory, the same is not covered by the scope of Portuguese VAT, and therefore cannot be submitted to VAT in Portugal" (The Scope and Territoriality Criteria in VAT, Almedina, 2008, p. 30.

[7] Taxation of Assets, IMI-IMT and Stamp Duty (Annotated and Commented), Almedina, 2015, p. 528.

[8] Emphasis ours.

[9] On this issue see Jorge Lopes de Sousa, Commentary to the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, pp. 110-116).

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What are the legal requirements for a valid tax inspection procedure under Portuguese law?
Under Portuguese tax law, a valid inspection procedure must comply with several requirements: (1) conformity with the National Plan of Tax Inspection Activities (PNAIT) as required by article 23(1) of RCPIT, with the inspection report identifying the terms of compliance; (2) proper legal motivation justifying the inspection's institution by the Tax Authority, in accordance with the principle of tax legality under articles 8(2)(e) and 54(1)(h) of the LGT; (3) respect for taxpayers' procedural rights and guarantees throughout the inspection; and (4) clear documentation of the inspection's scope, objectives, and findings. Failure to comply with these requirements, particularly PNAIT compliance and proper motivation, can vitiate the inspection procedure with invalidity.
Can Stamp Tax (Imposto do Selo) assessments be annulled due to procedural irregularities in the inspection process?
Yes, Stamp Tax assessments can be annulled due to procedural irregularities in the inspection process, but the irregularity must be substantial and affect the validity of the assessment itself. Portuguese tax law distinguishes between defects that affect the validity of the tax assessment (vícios de validade) and those that merely affect its effectiveness (vícios de eficácia). Irregularities in the inspection procedure that violate fundamental principles, such as the principle of tax legality or lack of proper motivation under the LGT, can lead to annulment. However, the Tax Authority may argue that certain procedural defects are external to the assessment act and do not automatically result in its invalidity. CAAD arbitral tribunals have material competence under article 2(1) of the RJAT to assess the legality of tax assessments, including when procedural irregularities in the underlying inspection are alleged.
What is the role of the National Inspection Activity Plan (PNAIT) in validating tax inspections?
The National Inspection Activity Plan (PNAIT) serves as the legal framework governing tax inspection activities in Portugal. Under article 23(1) of the RCPIT (Supplementary Regime of Tax Inspection Procedure), inspection actions must comply with the PNAIT. The inspection report must identify and demonstrate the terms of its compliance with the plan. This requirement ensures that tax inspections are conducted systematically, transparently, and in accordance with predetermined criteria rather than arbitrarily. Failure to properly identify PNAIT compliance in the inspection report can be grounds for challenging the legality of the inspection procedure. The PNAIT requirement reflects the broader principle of tax legality under article 103 of the Portuguese Constitution and the LGT, which mandates that tax administration acts must be properly motivated and legally justified.
What are the notification requirements for rejecting a tax grievance (reclamação graciosa) under the LGT and CPPT?
The notification requirements for rejecting a tax grievance (reclamação graciosa) are governed by article 77(6) of the LGT and article 36(2) of the CPPT. These provisions require that notifications must: (1) indicate the author of the act rejecting the administrative review; (2) contain complete legal and factual reasoning for the decision; (3) provide full indication of the means of defense available to the taxpayer, including time limits for appeal; and (4) be signed by the competent authority. Under article 37(1) of the CPPT, if the notification lacks legally required reasoning or indication of means of reaction, the taxpayer may request clarification within 10 days. However, defects in notification are generally considered external to the assessment act itself and may affect effectiveness rather than validity, meaning they typically do not result in annulment of the underlying tax assessment.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when unlawful Stamp Tax liquidations are annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when unlawful Stamp Tax liquidations are annulled, pursuant to article 43 of the LGT. This provision establishes that when the Tax Authority is ordered to refund amounts unduly paid by taxpayers due to illegal tax assessments, compensatory interest is due from the date of payment until the date of restitution. The interest rate is determined by the Ministerial Order (Portaria) in force at the relevant time. Compensatory interest serves to compensate taxpayers for the financial loss resulting from being deprived of their funds due to unlawful tax collection. In arbitral proceedings under the RJAT, tribunals have competence to order not only the annulment of illegal assessments and restitution of amounts paid, but also the payment of compensatory interest calculated according to the legal rate and applicable periods.