Process: 199/2017-T

Date: March 14, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Process 199/2017-T addresses the material competence of the Portuguese Tax Arbitral Tribunal to rule on challenges against decisions denying ex officio review of IRS self-assessments. Taxpayers challenged the denial of their request for official revision of their 2011 IRS assessment, claiming they incorrectly reported capital gains from the sale of seven urban plots. The property was originally acquired in 1987 by succession as rural land, later converted to urban buildable land in 1990, and subdivided in 2007. The taxpayers argued the transitional regime under Article 5 of Decree-Law 442-A/88 applied, meaning gains from property acquired before the IRS Code's entry into force should not be subject to capital gains taxation. They erroneously filled in the annex for taxable capital gains instead of the annex for non-taxable gains. The Tax Authority denied the ex officio review request. The central procedural issue concerns whether CAAD has jurisdiction to hear appeals against denials of official revision requests when the underlying dispute involves errors in self-assessment. The decision examines the boundaries of arbitral competence under the RJAT framework, specifically whether impugnação (judicial challenge) through arbitration is the appropriate remedy for contesting refusals of ex officio review, or whether such disputes fall outside the tribunal's material competence, requiring taxpayers to pursue alternative administrative or judicial remedies.

Full Decision

ARBITRAL DECISION

REPORT

On March 23, 2017, taxpayers A… and B…, with tax identification numbers … and …, respectively, residents of Rua …, no. …, …, …-… …, Vila Nova de Gaia, hereinafter referred to as Claimants, requested the constitution of an Arbitral Tribunal and submitted an application for arbitral decision, in accordance with paragraph a) of no. 1 of article 2 and paragraph a) of no. 1 of article 10 of Decree-Law no. 10/2011, of January 20 (Legal Framework of Arbitration in Tax Matters, hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter referred to as AT) is the Respondent.

The Claimants are represented in these proceedings by their attorney, Dr. C…, and the Respondent is represented by legal counsels, Dr. D… and Dr. E…

The application for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and was notified to the Respondent on March 30, 2017.

By means of the application for constitution of the Arbitral Tribunal and for arbitral decision, the Claimants seek the declaration of illegality of the decision refusing the application for official revision relating to the Personal Income Tax (IRS) for 2011, and consequently, correction of the tax act of IRS assessment for the year 2011. Furthermore, the Claimants seek reimbursement of the total amount of tax improperly paid in the amount of € 17,066.27 (seventeen thousand, sixty-six euros and twenty-seven cents).

Having verified the formal regularity of the application submitted, in accordance with the provisions of paragraph a) of no. 2 of article 6 of RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD.

The Arbitrator accepted the appointment made, and the Arbitral Tribunal was constituted on June 2, 2017, at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as per the minutes of constitution of the Arbitral Tribunal which were drawn up and are attached to these proceedings.

After being notified for this purpose, the Respondent presented its answer on July 12, 2017.

On October 2, 2017, the meeting referred to in article 18 of RJAT took place, as well as the hearing of witnesses called by the Claimants, and the Parties were informed that the matter of exception raised by the Respondent in its answer would be subject to final pronouncement, that the amendment to the list of witnesses presented by the Claimants on September 28, 2017 had been admitted, and that the Claimants and the Respondent, in that order and successively, should submit written arguments within 10 days, with the Respondent's period beginning to run upon notification of the attachment of the Claimants' arguments.

The Claimants on October 12, 2017 presented their arguments, and on October 25, 2017 the Respondent presented its counter-arguments.

The Tribunal, in compliance with the provisions of no. 2 of article 18 of RJAT, designated December 2, 2017 for the purpose of rendering the arbitral decision, and warned the Claimants at the meeting referred to in article 18 of RJAT that they should proceed with payment of the subsequent arbitration fee, in accordance with no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD. However, the Tribunal determined the extension of the deadline for issuance and notification to the parties of the arbitral decision by two periods of two months, having communicated to the Parties this extension and the reasons supporting it.

II. CLAIMANTS' ARGUMENTS

The Claimants sustain their application, as well as in their arguments, in summary, as follows:

The Claimants support the application for revocation of the decision refusing the application for official revision of the IRS assessment act for the year 2011, case no. 2016…, and consequently, the annulment of the underlying IRS assessment relating to excess tax paid for the year 2011 to which they were subjected, for suffering from the following defects:

The Claimants submitted their IRS Form 3 Declaration for the year 2011 on November 12, 2012, filling in the annex intended for taxation of capital gains arising from the onerous disposal of 7 (seven) urban plots, instead of filling in annex G1 referring to capital gains not subject to taxation.

Following the aforementioned careless conduct, the AT services issued the corresponding IRS assessment for the year 2011, which is why "(…) the application aims to obtain arbitral pronouncement regarding the declaration of illegality, and consequent annulment, of the tax act refusing the official revision (…) mentioned, as well as of the IRS assessment for the year 2011."

In the first place, in this context, the Claimants understand that "the remedy of impugning which is now being resorted to was (…) the most adequate to satisfy the claims of the Claimants here", "(…) having been timely and legitimate its presentation (…)", concluding, furthermore, that the Arbitral Tribunal is competent to consider it.

Indeed, "in the year 1987, the male Claimant and his brother, F…, acquired by succession caused by the death of the mother of both, Mrs. D. G…, a rural property called '…', in …, parish of …, Vila Nova de Gaia (…)", and "acquired the ownership of the property according to the regime of co-ownership (…)".

However, "during the year 1990, the nature of the rural property just referred to was changed to urban property (buildable land) (…)" and "Years later - after the entry into force of the IRS Code - the male Claimant allocated the aforementioned property to his business and professional activity, namely to the acquisition and disposal of real property."

Furthermore, "in the year 2007, the aforementioned property, which at that time was registered in the … Land Registry Office of Vila Nova de Gaia, under no. …/…, was subject to a subdivision process consisting of 23 plots (…)", and "in the year 2011, the male Claimant and his brother (…)" sold 7 (seven) of those plots.

In that follow-up, "On November 12, 2012, the Claimants herein, complying with the tax duties incumbent upon them, specifically, the provisions of no. 1 of article 57 of the IRS Code, submitted their IRS Form 3 Declaration for the year 2011, indicating, - erroneously - in annex G relating to capital gains, the onerous disposal (…) of 7 (seven) urban plots".

However, "the gains that were not subject to capital gains tax, created by the code approved by Decree-Law no. 46373, of June 9, 1965, as well as those derived from the onerous transfer of rural properties dedicated to the exercise of agricultural activity or from the allocation of these to a commercial or industrial activity, exercised by the respective owner, are only subject to IRS if the acquisition of the goods or rights to which they relate was made after the entry into force of this Code (emphasis of the Claimants).", a circumstance which, in the opinion of the Claimants, is verified in the case under analysis, being "(…) unambiguous that the rural property was acquired in the year 1987, by succession", and "Not being, therefore, as of 1987, buildable land and as such, was not covered by the scope of DL no. 46373, of June 6 (Capital Gains Tax Code)".

For which reason "it is manifest that the requirements upon which the non-subjection to taxation in the context of capital gains in the aforementioned disposals are materially verified."

Furthermore, "the Tax Administration has the duty to correct officially all errors in declarations that may result in greater taxation than that which is due under the law (…)".

In this sequence, "the Claimants cannot peacefully agree with the fixing of the taxable amount carried out by the Tax and Customs Authority, primarily because it advocated for the non-application of the Transitional Regime of non-taxation of capital gains to the case in question."

For this reason, they request that the Arbitral Tribunal declare: (i.) the revocation of the decision refusing the application for official revision of the assessment act for the year 2011, for violation of law; (ii.) the annulment of the underlying IRS assessment, for suffering from the defect of illegality; (iii.) the reimbursement of IRS improperly paid in the amount of € 17,066.27; (iv.) the payment of compensatory interest.

III. RESPONDENT'S DEFENCE

In its Answer, as well as in its counter-arguments, the Respondent invoked, in summary, the following:

For its part, the AT comes in its answer to defend itself by exception and by way of impugning, in the following manner:

The Respondent begins by defending itself by exception regarding the untimeliness of the application, that is, "as follows from article 140 of IRS, the Claimants were obligated to, if they understood that there was an error in the income declaration, file a voluntary reclamation within two years from the end of the legal deadline for filing the declaration."

Since "(…) the IRS declaration would have to be filed by the end of May 2012, thus the voluntary reclamation mandatory would have to be presented, at the latest by May 31, 2015 (…)", which did not occur.

Indeed, "(…) they failed to comply with a mandatory formality to be able to discuss the assessment judicially."

Furthermore, the Respondent understands that the review of the application for official revision of the tax act falls outside the jurisdiction of the Arbitral Tribunal.

In accordance with Regulation no. 112-A/2011, of March 22, article 2, the AT is "(…) bound by the arbitral claims that have as their object the review of claims relating to taxes whose administration is entrusted to it, referred to in article 2, no. 1 of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at the source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process"".

In these terms, being faced with "an (…) arbitral pronouncement application sub judice [which] has as its object, albeit indirectly, the IRS assessment," "Assessment that was the subject of an application for Official Revision of a Tax Act," "the assessment here impugned cannot be reviewed by the Arbitral Tribunal," given that "(…) it was not preceded by the mandatory voluntary reclamation in accordance with article 140 of IRS."

As such, the Respondent concludes that the constituted Arbitral Tribunal is materially incompetent to review and decide the application that is the subject of the dispute sub judice, which constitutes a dilatory exception that prevents the continuation of the proceedings, under penalty that, if this is not understood, such interpretation would be not only illegal, but manifestly unconstitutional, for violation of the constitutional principles of "(…) the rule of law and the separation of powers (see articles 2 and 111, both of the Constitution, as well as legality (see articles 3/2 and 266/2, both of the CRP), as a corollary of the principle of indisposability of tax credits inherent in article 30, no. 2 of LGT, which bind the legislator and all activity of the AT."

Furthermore, regarding the defence by way of impugning that "(…) there is no doubt that we are in the presence of true buildable land, whose transfer would be subject to taxation in light of the rules of CIMV, and that, for this reason, the exclusion provided for in the transitional regime will not apply to it."

The Respondent also alleges that "(…) as the burden of proof falls on the claimant that the goods or values were acquired on a date prior to the entry into force of CIRS (see no. 2 of article 5 of DL Law no. 442-A/88, of November 30) – which should have been done through the filing of annex G1 – should it exist -, the error would always be attributable to the Claimants, given that the contested assessment did not result from any official correction."

Indeed, "(…) there is no alleged error attributable to the AT, and the present application for pronouncement should be judged without merit."

IV. PRELIMINARY QUESTION

In accordance with article 13 of the Code of Procedure in Administrative Courts (CPTA), by way of article 29, no. 1, paragraph c) of RJAT, "The scope of administrative jurisdiction and the jurisdiction of administrative courts, in any of their species, is of public order and its review precedes that of any other matter." (emphasis ours).

Mário Aroso de Almeida and Carlos Alberto Fernandes Cadilha assert that "The attribution of absolute priority to the knowledge of the question of jurisdiction is justified by the consideration that the only question for which an incompetent court is competent is to review its incompetence. Once that incompetence is verified, it naturally becomes prevented from entering into the review, either of the remaining procedural prerequisites, or, obviously, of the merits of the case." (see in Commentary to the Code of Procedure in Administrative Courts, 4th edition, Almedina, Coimbra, 2017, p. 147).

Therefore, the exception of material incompetence raised by the Respondent will be reviewed immediately, and it is certain that if this question is well-founded the knowledge of the remaining exceptions raised, as well as the merits of the case, will be prejudiced by becoming useless.

The Claimants submitted to the review of this Arbitral Tribunal the following applications:

  • Declaration of illegality of the act refusing the application for official revision relating to IRS for the year 2011, ordering its revocation;

  • Consequently, correction/annulment of the underlying IRS assessment act; and furthermore,

  • Reimbursement of the total amount of tax improperly paid in the amount of € 17,066.27 (seventeen thousand, sixty-six euros and twenty-seven cents), plus compensatory interest.

Decree-Law no. 10/2011, of January 20, introduced into the Portuguese legal system arbitration in tax matters as an alternative form of jurisdictional resolution of conflicts in the tax field (see article 1).

According to the preamble of the aforementioned decree-law, the introduction of arbitration in tax matters into the Portuguese legal system aims essentially to "(…) on the one hand, to strengthen the effective protection of the rights and legally protected interests of taxpayers, on the other hand, to impart greater speed in the resolution of disputes between the tax administration and the taxpayer and, finally, to reduce the pending cases in administrative and tax courts."

Indeed, in view of article 2, no. 1 of Decree-Law no. 10/2011, of January 20, it is established with precision what are the matters on which the Arbitral Tribunal may pronounce itself. Thus, the jurisdiction of arbitral tribunals covers the review of the declaration of illegality of tax assessments, self-assessment, withholding at the source and those of payment on account, and the declaration of illegality of acts of determination of the taxable amount when it does not give rise to the assessment of any tax, of acts of determination of the taxable matter and of acts of establishment of property values.

However, "The binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of this law [Decree-Law no. 10/2011, of January 20] depends on a regulation by the members of Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered.", being thus indisputable that broad discretion is granted to the Government to bind the tax administration to the jurisdiction of the Tax Arbitral Tribunal (see article 4, no. 1, as amended by article 160 of Law no. 64-A/2011, of December 30 [State Budget for 2012]).

The original wording of article 4, no. 1 of Decree-Law no. 10/2011, of January 20, stipulated that pure and simply the tax authority was bound by the jurisdiction of the Tax Arbitral Tribunal without any possibility of limiting its adherence as a function of the type and value of the case.

The imposition of parameters regarding the binding of the tax administration to the jurisdiction of the Tax Arbitral Tribunal was thus an innovation of Law no. 64-A/2011, of December 30 (State Budget for 2012).

Continuing, Regulation no. 112-A/2011, of March 22, then bound the tax administration to the jurisdiction of the Arbitral Tribunal in tax matters, associating it with this mechanism of alternative dispute resolution, under the terms and conditions established therein, taking into account the specificity and value of the matters at issue.

Pursuant to article 2 of the aforementioned regulation, as regards the subject matter of these proceedings, the services and bodies of the Ministry of Finance – Tax and Customs Authority – bind themselves to the jurisdiction of arbitral tribunals functioning at the Administrative Arbitration Centre (CAAD) that have as their object "(…) the review of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of January 20, with the exception of the following:

"Claims relating to the declaration of illegality of self-assessment acts, withholding at the source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process;".

Now, being in the presence of a self-assessment, as is the case with IRS in these proceedings, if the taxpayer has not complied with the burden of previously resorting to the administrative procedure to challenge the self-assessment, they cannot, thus, access the jurisdiction of the Tax Arbitral Tribunal.

The "recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process", that is, recourse to the administrative remedy of voluntary reclamation, as defined in those articles, is required in cases where the tax administration has not taken any position regarding its relationship with the taxpayer, favoring the optimized and generalized realization of the principle of access to courts, which is a constitutional concern expressed in nos. 1 and 4 of article 20 of the Constitution of the Portuguese Republic (CRP), to the detriment of the constitutional principle of the contentiousness of any administrative acts that injure rights or legally protected interests, set forth in no. 4 of article 268 of the CRP.

As Jorge Lopes de Sousa aptly states, "that constitutional norm [no. 4 of article 268 of the CRP] aims to ensure the protection of the administered against acts of the administration and not against those which they themselves commit, which have negative effects on their legal spheres. In the case of self-assessment acts, there is no tax administration action that is harmful to taxpayers, so one is not in the presence of a situation directly framed in that no. 4 of art. 268, because no administrative act was committed, namely in light of the concept adopted in art. 120 of CPA which, although provided for in that Code, has been generalizedly applied, by analogy, in the absence of another legally defined concept." (see in Code of Procedure and Tax Process, 6th edition, annotated and commented, Áreas Editora, 2011, p. 406).

However, if the taxpayer presents an application for official revision at a time when they were still in time to present a voluntary reclamation, in accordance with article 131 of CPPT, the request in which they formulate this application should be converted into a reclamation, as it is the most appropriate procedural means for this purpose and there exists the legal duty of the tax administration to correct deficiencies or procedural irregularities, as stipulated by article 19 of CPPT, including by effecting conversion to the most appropriate procedural form, as thus determined by article 52 of CPPT, as well as follows from the provisions of articles 145, no. 3 and 147, no. 2, both of CPPT (see Jorge Lopes de Sousa, ob. cit., p. 413).

It being settled that in the case of an error in self-assessment, the impugning shall necessarily be preceded by a voluntary reclamation, we will note the fact that the voluntary reclamation previously qualified by article 131 of CPPT as mandatory to open the contentious procedure – if its grounds are not exclusively a matter of law and the self-assessment was not made in accordance with general guidance issued by the tax administration (see nos. 1 and 3 of that article) – must be presented within two years after the filing of the income declaration.

That is, recourse to the administrative procedure (voluntary reclamation – revision of tax acts) to impugn a self-assessment must necessarily be used within two years, otherwise, it should be considered untimely.

In article 78 of the General Tax Law (LGT) the regime of revision of tax acts is established.

According to its no. 1, "The revision of tax acts by the entity that carried them out may be effected at the initiative of the taxpayer, within the period of administrative reclamation and on the grounds of any illegality, or, at the initiative of the tax administration, within four years after the assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services."

However, no. 2 of that same article was repealed by paragraph h) of no. 1 of article 215 of Law no. 7-A/2016 of March 30, whereby the revision of the tax act was no longer possible in relation to all assessment acts, since it was no longer fictioned, for the purposes of no. 1 of this article 78, that the error is always attributable to the services and, on this grounds, revision would be admitted within four years after the assessment (see the repealed no. 2: "Without prejudice to the legal burdens of reclamation or impugning by the taxpayer, the error in self-assessment is considered attributable to the services.").

The origin of no. 2 of article 78 in question stemmed from the administrative interpretation followed regarding the body of article 139 of the repealed Industrial Contribution Code (CCI), which was expressed in Circular no. 23/77, of October 6, of the then Directorate General of Contributions and Taxes (DGCI), under the terms of which errors in excess committed by taxpayers who proceeded with the self-assessment, voluntary or mandatory, of industrial contribution were susceptible to official annulment under the same terms as the assessment carried out by the services.

As would be affirmed by Costa Teixeira, Martins Barreiros and Quintino Ferreira (in "Industrial Contribution Code Annotated" Rei dos Livros, Lisbon, 1984, p. 849), self-assessment, by virtue of being authored by the taxpayer, remained a true assessment, and could thus be revised on the grounds of any illegality within the period of official revision of tax acts strictly speaking, then 5 years, to which article 139 of the CCI referred.

It should be noted that, when that administrative guidance was issued, there was no mechanism of necessary reclamation of the self-assessment as a condition of access to judicial impugning, which would only be introduced much later, in article 151 of the Code of Tax Procedure (CPT), approved by article 1 of Decree-Law no. 154/91, of April 23, under the authority granted by no. 2 of article 2 of Law no. 37/90, of August 10.

Such a mechanism of necessary prior reclamation would be reproduced in the aforementioned no. 1 of article 131 of CPPT, approved by article 1 of Decree-Law no. 433/99, of October 26, with the "nuance" that there would be no necessary reclamation of self-assessment, in the case where the cumulative circumstances are verified that its grounds are exclusively a matter of law and that, in the self-assessment, the taxpayer followed the general instructions issued by the Tax Authority, which is obviously a case in which the necessary reclamation has no utility, since it normally results from it, given the hierarchical character of the organization of the tax administration, in the confirmation of those instructions.

The prior voluntary reclamation qualified by article 131 of CPPT to open the contentious procedure is a true legal burden, understood as the instrument through which the legal system imposes on any subject of law the adoption of a certain conduct, under penalty of bearing the legally foreseen consequences, generally unfavorable.

A burden is thus the conduct that the subject must follow to achieve a certain advantage, frequently translated into the acquisition or preservation of a right, or to avoid given prejudice, differentiating itself from mere legal obligation because it exists for the protection of the interest of the burdened party and not of another's interest.

By way of conclusion of what we have already written, in view of what follows from article 2, paragraph a) of Decree-Law no. 10/2011, of January 20, and Regulation no. 112-A, of March 22, we understand that: first, if the taxpayer intends to present an application for declaration of illegality before an Arbitral Tribunal, a voluntary reclamation will always be necessary (serving for the case also an application for official revision provided that at a time when they were still in time to present a voluntary reclamation). Second, that this application was presented within two years after the filing of the self-assessment declaration.

Outside the scope of the binding of the tax administration to the jurisdiction of the Arbitral Tribunal, thus remains the review of the voluntary reclamation/official revision of the tax acts that was presented beyond the two-year period.

Inherent to the figure of burden is, indeed, its sanctioning character of the omission by the burdened party of a legal obligation established in their own interest, in this case, the presentation of a voluntary reclamation within the legal period as a condition of the impugnability of the act.

There is no burden when the omission of the alleged burdened party has no legal consequences which, in this case, could only consist in the preclusion of the right of review by the Courts of the self-assessment, in the case that the Tax Authority considers it legally made.

It is a fact that, when the challenged act is of the authorship of the Tax Authority, the non-compliance with the burden of reclaiming does not prejudice the subsequent revision of the tax act on the grounds of error attributable to the services. In those cases, however, the legislator would have opted not to establish any mechanism of necessary prior reclamation, which applies only when the challenged act is a self-assessment.

That would be the meaning of the expression "Without prejudice to the legal burdens of reclamation or impugning by the taxpayer", which opened no. 2 of article 78 of LGT: to reassert that the equation of error attributable to services with error in self-assessment does not prejudice the dependence of its judicial impugnability on prior reclamation.

The doctrine that the judicial impugnability of self-assessment depends on prior reclamation is found in numerous case law of the Supreme Administrative Court (see Rulings of May 22, 2013, case 0178113, of March 12, 2014, case 61916113, of October 29, 2014, case 0154013, of April 8, 2015, case 0472112, of November 28, 2015, and of November 16, 2016, case 01487113).

It is certain that a set of other Rulings of the Supreme Administrative Court, among which those of June 14, 2012, case 0259112, of March 13, 2013, case 01183/1, of February 26, 2014, case 0481113, of November 18, 2015, case 01509113, and of November 28, 2017, case no. 0532/07, would pronounce themselves in the sense that non-compliance with the burden of prior reclamation does not prejudice the impugnability of the refusal of the application for official revision of self-assessment on the grounds of error attributable to the services.

It is also in this line that the Ruling no. 134/2017-T of July 14, of CAAD is inserted.

All these Rulings explicitly or implicitly refer to the doctrine of the Ruling, also of the Supreme Administrative Court, of November 8, 2007, case 0532/07, which inaugurated this line of case law.

To that extent, the refusal of the application for official revision of self-assessment on the grounds of error attributable to the services would be impugnable, even when the taxpayer had not deduced the necessary reclamation referred to in no. 1 of article 131 of CPPT and it was already no longer possible, by untimeliness, to convert the application for official revision into necessary reclamation.

It happens, however, that article 2 of Regulation no. 112-A/2011 expressly exceptions from the binding to arbitral jurisdiction the claims relating to the declaration of illegality of self-assessment acts, withholding at the source and payment on account, which are not preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of CPPT.

From the expression "recourse to the administrative procedure in accordance with articles 131 to 133 of CPPT", it follows that capable of opening the way to arbitral jurisdiction is any and every administrative means – voluntary reclamation and revision of tax acts – provided that it is invoked within two years after the filing of the self-assessment declaration.

This is not the classification of a new case of necessary prior reclamation not provided for in law, but the legitimate exercise by the Government of the power to, as the superior body of public administration, bind to the jurisdiction of the Tax Arbitral Tribunal as a function of the disputes covered.

Nothing prevents, moreover, in light of the aforementioned case law, the taxpayer from impugning before the tax courts the refusal of the application for official revision of self-assessment, which cannot be converted into voluntary reclamation. It is only precluded to have recourse to arbitral jurisdiction.

The fact that the tax arbitral proceeding constitutes an alternative procedural means to the judicial impugning process does not mean, consequently, that the scope of these proceedings is absolutely identical.

That scope may vary as a function of the terms, more or less broad, of the adherence of the AT to the Legal Framework of Arbitration in Tax Matters (Decree-Law no. 10/2011, of January 20).

Now it happens, however, as seems to be defended by some case law, that access to the Arbitral Tribunal may also be made by way of impugning the application for official revision of the assessment and not only by way of impugning, but of the refusal of the voluntary reclamation, equating, for these purposes, the regime of CAAD to that of Tax Courts, it not being possible to forget that this faculty is determined by the provision of article 131 of CPPT, in light of what is enshrined in paragraph c) of article 2 of Regulation no. 112-A/2011, of March 22.

However, for the case at hand, the truth is that:

  • The binding of the AT to CAAD depends on a manifestation of will by the Government, expressed in a joint regulation of the Ministers of Finance and Justice, with the nature of a regulatory act;

  • Such adherence need not be en bloc, but as a function of the type, value and other relevant elements of the disputes covered;

  • The binding of the AT to arbitral tribunals, when the declaration of illegality of self-assessment is at issue, depends, cumulatively, under the terms of article 2 of Regulation 112-A/2011, on prior recourse to the administrative procedure, which may be the voluntary reclamation or the application for official revision of the tax act, and on the administrative procedure being initiated within two years (see no. 1 of article 131 of CPPT);

  • The AT is thus not bound by CAAD decisions on applications for declaration of illegality of self-assessment presented beyond the two years following this.

Having exhausted access to CAAD by way of the prior filing of a voluntary reclamation, by virtue of the two-year period for its presentation having already elapsed, it seems that a new avenue of "reclamation" (attempt at annulment of the assessment) is opened to the taxpayer, which is called "official revision", thereby allowing to reopen and double the available period for this purpose.

The Tribunal understands that perhaps that was not the intention, not so much of the legislator, but more of the Regulation of adherence of the AT to CAAD.

It seems that the door would be left open, in case something was going wrong with the voluntary reclamation (any defect of form or untimeliness of its presentation), for the taxpayer by appealing within the two subsequent years to official revision, to reacquire access to a Tribunal that would be closed to them.

Even admitting that the AT is obligated, outside what appears to have been its intention, in the context of the Regulation of Adherence, to accept the legitimacy of CAAD for the review of the application for constitution of the Tribunal in the case of refusal of the application for official revision, it would make more sense that this only occurred when self-assessments, payments on account and withholding for final purposes were not at issue, but rather additional assessments made by the AT outside the scope of these self-assessments.

In the specific case, with the IRS declaration for the year 2011 having to be filed by the end of May 2012, thus the voluntary reclamation or the application for official revision mandatory should have been presented at the latest by May 31, 2014, when in the specific case of these proceedings, the application for official revision was presented on June 13, 2016, consequently beyond the deadline required by article 131 of CPPT, given that it is a case of self-assessment, as is the case with IRS.

The certainty and legal security, the need for rapid consolidation of tax acts, requires respect for a shorter period, avoiding the perpetuation of the conflict with the acceptance of such an extended revision period.

One might understand that from the expression "recourse to the administrative procedure in accordance with articles 131 to 133 of CPPT" would result that capable of opening the way to arbitral jurisdiction is not any and every administrative means of revision of tax acts, but only voluntary reclamation, the sole avenue, to the exclusion of any other, to which those legal norms refer, as is indeed the doctrine of Ruling 236/2013-T of CAAD, and as is consonant with the argument invoked by the AT.

However, by force of article 52 of CPPT, such burden is considered fulfilled when the application for official revision of self-assessment has been presented within the two-year period provided for in no. 1 of article 131 of CPPT, never thereafter.

Thus, this Arbitral Tribunal is materially incompetent to review and decide the application that is the subject of the dispute sub judice, under the terms of articles 2, no. 1, paragraph a) and 4, no. 1, both of RJAT and of articles 1 and 2, paragraph a), of Regulation no. 112-A/2011, which constitutes a dilatory exception impeditive of knowledge of the merits of the case, in accordance with the provisions of article 576, nos. 1 and 2 of CPC by way of article 2, paragraph e) of CPPT and article 29, no. 1, paragraphs a) and e) of RJAT, which obstructs the knowledge of the application and the absolution of the Respondent from the suit, under the terms of articles 576, no. 2 and 577, paragraph a) of CPC, by way of article 29, no. 1, paragraphs a) and e) of RJAT.

V. DECISION

In harmony with the above, it is decided:

  • To uphold the dilatory exception of the incompetence of this Tribunal with respect to the matter raised by the Respondent;

  • To absolve the Respondent from the suit (see articles 96 and 278 of the Code of Civil Procedure);

  • To condemn the Claimants to the costs of the proceedings.

VI. VALUE OF THE CASE

The value of the case is fixed at € 17,066.27, in accordance with article 97-A, no. 1, a), of the Code of Procedure and Tax Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of costs is fixed at € 1,224.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimants, since the application was entirely without merit, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Let it be notified.

Lisbon, March 14, 2018

The Arbitrator,

(Jorge Carita)

Frequently Asked Questions

Automatically Created

What is the transitional regime under Article 5 of Decree-Law 442-A/88 for capital gains taxation in Portugal?
The transitional regime under Article 5 of Decree-Law 442-A/88 of November 30 establishes that capital gains not previously subject to the old Capital Gains Tax Code (Decree-Law 46373/65), as well as gains from onerous transfer of rural properties dedicated to agricultural activity or allocated to commercial/industrial activity by their owner, are only subject to IRS taxation if the acquisition occurred after the IRS Code entered into force. This means properties acquired before the IRS Code implementation may benefit from exemption from capital gains taxation, even if disposed of after the Code's entry into force, provided they meet the specific conditions of the transitional regime.
Can the CAAD Tax Arbitral Tribunal rule on appeals against decisions denying ex officio review of IRS self-assessments?
The CAAD Tax Arbitral Tribunal's competence to rule on appeals against decisions denying ex officio review of IRS self-assessments is limited. According to RJAT Article 2(1)(a), the tribunal has jurisdiction over challenges to tax acts and tax settlement acts. However, decisions refusing official revision requests are generally considered administrative acts that may fall outside the tribunal's material competence. When a taxpayer makes an error in self-assessment and the Tax Authority denies the ex officio correction, the appropriate remedy may be direct impugnação of the underlying self-assessment act rather than challenging the denial of revision, as the tribunal's jurisdiction typically requires a reviewable tax act issued by the administration, not merely confirmation of a taxpayer's own declaration.
What are the grounds for material incompetence of the Portuguese Tax Arbitral Tribunal in IRS disputes?
Material incompetence of the Portuguese Tax Arbitral Tribunal in IRS disputes arises when the challenged act falls outside the scope defined in RJAT Article 2(1). Grounds include: (1) challenging acts that are not 'tax settlement acts' or challengeable administrative acts; (2) disputes involving purely administrative decisions without direct tax settlement effects; (3) cases where the taxpayer seeks correction of their own self-assessment errors without a distinct reviewable act by the Tax Authority; (4) matters requiring official revision procedures rather than contentious proceedings; and (5) situations where alternative administrative remedies are the appropriate legal path. The tribunal must decline jurisdiction when the dispute concerns the refusal of ex officio review rather than the substantive legality of an assessment act issued by the administration.
How does the ex officio review procedure apply to errors in IRS self-assessment of capital gains in Portugal?
The ex officio review procedure for errors in IRS self-assessment of capital gains is governed by Article 78 of the General Tax Law (LGT). When a taxpayer discovers an error in their self-assessment that resulted in excess taxation, they may request the Tax Authority to conduct an official revision to correct the mistake. The request must demonstrate that the error led to greater taxation than legally due. The Tax Authority evaluates whether the claimed error exists and whether correction is legally justified. If denied, the taxpayer cannot directly challenge the denial through arbitration or impugnação; instead, they must challenge the underlying self-assessment act itself, arguing its illegality due to the error. The ex officio review is an administrative remedy, not a challengeable tax act, which creates jurisdictional limitations for subsequent arbitral or judicial review.
What happens when a taxpayer challenges an IRS capital gains assessment through arbitration and the tribunal declares material incompetence?
When a taxpayer challenges an IRS capital gains assessment through arbitration and the tribunal declares material incompetence, the arbitral proceedings are terminated without a decision on the merits. The tribunal issues a decision declaring it lacks jurisdiction to hear the case, typically because the challenged act (such as a denial of ex officio review) does not constitute a reviewable tax settlement act under RJAT. The taxpayer must then pursue the appropriate legal remedy, which may include: (1) filing an impugnação of the underlying self-assessment act in administrative tax court within the applicable statute of limitations; (2) pursuing administrative complaint procedures; or (3) requesting hierarchical review. The incompetence declaration does not prevent the taxpayer from seeking relief through proper channels, but they must act within statutory deadlines to avoid losing their right to challenge the assessment.