Process: 207/2014-T

Date: October 7, 2014

Tax Type: IVA

Source: Original CAAD Decision

Summary

In Process 207/2014-T, a municipal enterprise (A, E.M.) challenged the Tax Authority's rejection of an official review request (pedido de revisão oficiosa) seeking to recover €7,000 in excess VAT self-assessed for November and December 2008. The company, wholly owned by the Municipality of Alfândega da Fé and operating tourist facilities under a program agreement, initially treated municipal subsidies as taxable for VAT purposes. After reviewing administrative doctrine developments regarding subsidy treatment in the local business sector, the claimant determined VAT had been incorrectly collected and filed an official review request on December 28, 2012. The Tax Authority rejected the request in November 2013, citing untimeliness under article 78(3) of the VAT Code, which imposes a two-year limitation period. The claimant argued this was an error of law, not invoice correction, invoking the four-year period under article 78(2) of the General Tax Law (LGT) for errors attributable to tax services, and article 98 of the VAT Code. The Tax Authority raised a preliminary objection challenging the CAAD arbitral tribunal's material jurisdiction to review decisions on official review requests concerning VAT self-assessments, citing articles 2(1)(a) and 4(1) of the RJAT and Ordinance 112-A/2011. This jurisdictional exception questions whether arbitral tribunals have competence over procedural decisions rejecting official reviews based on time-bar grounds, rather than substantive VAT assessment determinations.

Full Decision

ARBITRAL DECISION

The Arbitrator Dr. Filipa Barros (sole arbitrator), appointed by the Ethics Council of the Administrative Arbitration Center ("CAAD") to form the Sole Arbitral Tribunal, constituted on 9 May 2014, decides as follows:

I. REPORT

The company A, E.M., with registered office in ... Alfândega da Fé, Tax Number ..., hereinafter "Claimant," hereby requests, pursuant to article 2, no. 1, subparagraph a), and article 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT"[1], and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, the constitution of an Arbitral Tribunal to pronounce on the illegality and consequent annulment of the Decision issued by the General Director of the Tax and Customs Authority (hereinafter "TA") which rejected the request for Official Review of VAT self-assessment for the periods of November and December 2008, with a view to regularizing VAT collected in excess in the amount of €7,000.00 and consequent declaration of illegality of the acts of VAT self-assessment for the periods in question.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and was immediately notified to the Respondent in accordance with legal requirements.

Pursuant to article 6, no. 1 and subparagraph b) of article 11, no. 1 of the RJAT, by decision of the President of the Ethics Council, duly communicated to the parties within the legally prescribed time limits, the Arbitrator Dr. Filipa Barros was appointed to the Sole Arbitral Tribunal, and she communicated her acceptance of the appointment to the Ethics Council and to the Administrative Arbitration Center within the time period established in article 4 of the Code of Ethics of the Administrative Arbitration Center.

The Tribunal was constituted on 9 May 2014, in accordance with the provision of subparagraph c) of article 11, no. 1 of the RJAT.

On 1 July 2014, at 15:00 hours, a meeting took place at the headquarters of CAAD between the appointed Arbitrator and the representative of the Respondent, in accordance with article 18 of the RJAT. The Claimant was not represented.

At that meeting, the Tribunal became aware of the exceptions raised by the Respondent and admitted the Claimant's written response to the exceptions raised by the TA. After hearing the Respondent's representative, she stated her wish to waive final oral or written submissions (cf. Meeting Minutes).

To support its request, the Claimant alleges, in essence, the following:

a) The Claimant is a municipal company, whose share capital is entirely held by the Municipality of Alfândega da Fé, with which it entered into a program agreement whose purpose is to pursue a set of objectives of social and economic importance for the municipality through the guarantee of integrated tourist exploitation of B (currently designated C), in coordination with the exploitation of other tourist units in the region, as well as the exploitation of a physical fitness center, as defined in the program agreement that binds the parties.

b) To pursue the duties provided in the program agreement, the Municipality of Alfândega da Fé commits to transfer a monthly financial contribution, or subsidy, to the Claimant, ensuring coverage of the deficit resulting from the activity carried out by the latter.

c) Taking advantage of the latest developments in administrative doctrine regarding the treatment of subsidies in VAT matters in the local business sector, the Claimant conducted a review of the procedures adopted regarding VAT, within the context of the treatment accorded to the subsidy granted by the Municipality, and concluded that VAT had been collected induly, thereby determining excessive tax in the months between November and December of the year 2008, in the total amount of €7,000.00;

d) In order to recover the VAT collected in excess, as a result of what it considered to be an incorrect classification for VAT purposes of the aforementioned transfers made as subsidies to the company's activity, the Claimant submitted, on 28.12.2012, pursuant to article 78 of the General Tax Code (LGT) and nos. 1 and 2 of article 98 of the VAT Code, a request for official review of the VAT self-assessment made in excess in the periodic declarations for the months of November and December 2008.

e) The Official Review Request was rejected by decision of the Deputy General Director of 13.11.2013, by subdelegation of powers from the General Director of the Tax and Customs Authority (TA), as confirmed by Official Letter no. ... of 22.11.2013 from the VAT Services Department, and that decision stated, in summary, the following: the TA considered that the regularization sought by the Claimant could not be authorized due to the timeliness of the regularization period requested, since on the date of submission of the request, the two-year period provided in no. 3 of article 78 of the VAT Code had already expired.

f) In this regard, the Claimant maintains that the case in question does not constitute the correction of inaccurate invoices, but rather an error of law, and even if, purely hypothetically, one were to consider it as a correction of inaccurate invoices, the Claimant would have 4 years to make that correction (2 years without needing prior authorization from the tax authority, and if the tax was collected more than 2 years ago, it would be necessary to request such approval, as was indeed done);

g) Accordingly, it argues that the review of tax acts by initiative of the tax administration may take place within the four-year period from the assessment on the basis of an error attributable to the services, considering as such the error in the self-assessment, in accordance with no. 2 of article 78 of the LGT. It further argues that article 98, nos. 1 and 2 of the VAT Code apply to the case in question regardless of the registration of the invoices supporting the operations.

h) Thus, the fact that the invoices were properly recorded in accounting and at a time prior to the regularization of the tax cannot prevent the possibility of regularizing the tax paid in excess, within the four-year period.

i) Concluding, as is evident from its request, that it be declared that the act of VAT self-assessment is illegal and the decision rejecting the request for official review for the months of November and December 2008 is consequentially annulled, in the amount of €7,000.00 with all other legal consequences, namely the reimbursement of this amount plus indemnity interest until full reimbursement.

The TA responds to the Claimant's request by way of exception and on the merits.

In the exception response, the TA raises the issue of the Arbitral Tribunal's lack of jurisdiction to appreciate and decide the request, alleging, in summary, the following:

The Claimant identified as the tax act that is the immediate subject matter of the arbitral pronouncement request the decision rejecting the official review, in which it petitioned for the regularization of the tax that it allegedly paid in excess, having as remote object "acts of self-assessment" relating to the months of November and December of the year 2008.

For its part, the decision rejecting the official review request at issue here was based on the fact that "the request should be rejected due to expiration of the right to regularization."

To this effect, the TA maintains that in light of articles 2, no. 1, subparagraph a) and 4, no. 1, both of the RJAT, and articles 1 and 2, subparagraph a), both of Ordinance no. 112-A/2011, of 22.03, there is an exception of lack of material jurisdiction of the Arbitral Tribunal to appreciate and decide the aforementioned request (cf. Articles 493, nos. 1 and 2 and 494, subparagraph a) of the Code of Civil Procedure, pursuant to articles 29, no. 1, subparagraphs a) and e) of the RJAT, an understanding that is corroborated by recent case law of the Arbitral Tribunal excluding from the scope of its jurisdiction the appreciation of legality or illegality of decisions rejecting VAT regularization requests, as well as issuing authorizations for taxpayers to regularize VAT in their favor.

It is further argued that the lack of material jurisdiction of the Arbitral Tribunal results from the underlying cause of the rejection of the official review request. In effect, the administrative act leading to the rejection of the official review request was based on the invocation of the timeliness of the requested VAT regularization, and the legality of any assessment/self-assessment acts was not consequently appreciated, which would result in the act being insusceptible to challenge through judicial review.

In this sense, the TA maintains that even if it were merely hypothetically considered that the legality contested results from a second-degree act and would cover cases in which the second-degree act is the rejection of a request for official review of the tax assessment act, in the case at hand this does not occur since the grounds for rejection were the timeliness of the VAT regularization requested by the Claimant, and there is lack of material jurisdiction of the arbitral court, pursuant to subparagraph a) of no. 1 of article 2 of the RJAT, due to the absence of appreciation of the legality of the self-assessment act within the framework of the official review procedure.

In addition to the grounds mentioned, the TA also invokes the lack of jurisdiction of the Arbitral Tribunals functioning at CAAD to appreciate decisions rejecting requests for official review.

Such impediment would result from the reference in no. 1 of article 4 of the RJAT to Ordinance no. 112-A/2011, which establishes the TA's binding nature to the jurisdiction of the Arbitral Tribunals constituted in accordance with that legal instrument, namely with respect to the type and maximum value of the disputes covered.

Now, pursuant to article 2, subparagraph a) of Ordinance 112-A/2011, the TA's binding nature to the jurisdiction of the Arbitral Tribunals has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the RJAT, "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process";

Accordingly, and taking into account the terms of the TA's binding nature, in the situation at issue a mandatory prior complaint, pursuant to no. 1 of article 131 of the CPPT, was required, on the grounds that the expression "recourse to the administrative remedy" does not also reference the official review of the tax act, literally excluded from the material jurisdiction of the Arbitral Tribunals and legally prohibited in the arbitral context. For this purpose, the TA invokes the general rules and principles of interpretation and application of laws contained in article 9 of the Civil Code, by reference to no. 1 of article 11 of the LGT, basing the essential part of its interpretation on the literal element of the norm, concluding that "the letter of the law cannot be disregarded, being the principal reference and starting point for the interpreter."

The TA further invokes the timeliness of the request for arbitral pronouncement resulting from the fact that the tax act that is the subject matter of the request is reducible to the declaration of illegality of the VAT self-assessment act carried out in the months of November and December 2008, this being the remote object of the request, whose illegality it seeks to remedy.

Now, article 10 of the RJAT establishes, with respect to assessment and self-assessment acts, that the period for submitting the request for arbitral pronouncement is 90 (ninety) days, referring, as to the moment of the start of counting, to the provision in article 102, nos. 1 and 2 of the Code of Tax Procedure and Process (CPPT).

Accordingly, the 90 (ninety) day period would have as its starting point the day following the expiration of the voluntary payment period for the tax obligation, which in the case at hand would coincide with the date of submission of the periodic (monthly) VAT declaration, whose due date would be at the latest 10 February 2009.

In these terms, given that the request for constitution of the arbitral tribunal was submitted on 29 October 2013, and that this request was not based on the existence of any gracious remedy of the self-assessment act in which a decision had been issued rejecting the claims therein, the TA concludes that it is untimely, requiring a declaration of lack of merit and the dismissal of the case of the Respondent.

The TA also responded on the merits. It maintained a position contrary to that presented by the Claimant regarding the susceptibility of the VAT regularization request to be granted.

Thus, the TA argued for the application to the situation at hand of the special rules enshrined in the VAT Code, subsuming the requested regularization to the provision in no. 3 of article 78 of the VAT Code—rectification of the tax for reasons other than reduction of the taxable value of the transaction—which would result in the expiration of the aforementioned right to regularization upon the expiration of the two-year period.

The TA concludes by requesting dismissal of the request.

Procedural Dismissal

The parties have legal standing and capacity, are legitimate parties, and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

Exception or preliminary question: the lack of material jurisdiction of the Arbitral Tribunal.

The TA raises, among other issues, the question of the lack of material jurisdiction of the Arbitral Tribunal to appreciate the request.

And it bases its position on the fact that the subject matter of the case is a request for arbitral pronouncement concerning an act of self-assessment—to which the Claimant attributes the vice of illegality—without there having been prior recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process, such recourse being required by the terms of the TA's binding nature to arbitral jurisdiction under the binding ordinance.

Taking into account that the scope of material jurisdiction of the tribunal is of public order and its knowledge takes precedence over any other matter (article 13 of the Code of Procedure of Administrative Courts applicable pursuant to article 29, no. 1, subparagraph c) of the RJAT), and that the violation of the rules of jurisdiction ratione materiae determines the absolute lack of jurisdiction of the tribunal, which is subject to ex officio knowledge [articles 16, nos. 1 and 2 of the Code of Tax Procedure and Process applicable pursuant to article 29, no. 1, subparagraphs a) and c) of the RJAT], it is important to begin by appreciating the dilatory exception raised by the Respondent regarding the arbitral tribunal's lack of jurisdiction.

Let us first examine the facts, and in particular those that are specifically relevant to the pronouncement of a decision on the material jurisdiction of the Arbitral Tribunal.

II. REASONING

Proven Facts:

The following facts are documented and/or accepted by the parties in their respective pleadings:

  1. The Claimant is a public legal entity, endowed with legal personality and administrative, financial and patrimonial autonomy subject to the superintendence of the Municipality of Alfândega da Fé, with its share capital being entirely held by the Municipality;

  2. The Claimant has as its corporate purpose the promotion and development of tourism in the Municipality of Alfândega da Fé;

  3. For purposes of value added tax, the Claimant is registered as a VAT taxpayer, framed in the normal monthly periodicity regime;

  4. On 2 March 2006, a program agreement was entered into between the Municipality and the municipal company A (whose period of validity is 15 years), which has as its purpose ensuring the pursuit of sectoral objectives of social and economic importance for the municipality of Alfândega da Fé, through the guarantee of integrated and sustainable tourist exploitation of B (currently designated C), in coordination with the management of seven tourism units/apartments located in the villages of Sendim da Serra, Gouveia, Colmeais, Covelas, Felgueiras, Vales and Cabreira, and also the exploitation of D, cf. document no. 1 attached to the Request for Arbitral Pronouncement;

  5. The aforementioned program agreement defines, thus, the duties, rights, guarantees and counterparts necessary for company A to undertake the exploitation of those units/apartments, as well as D, with all revenues and liabilities inherent thereto, namely, promotion and publicity with marketing actions, provision of various services to customers (for example, organization of seasonal promotions, sporting, cultural, ethnographic and gastronomic events, with emphasis on local traditions), maintenance and cleaning of accommodation units, as well as all other normal responsibilities arising from its exploitation, cf. document no. 1, attached to the Request for Arbitral Pronouncement;

  6. By undertaking, on the part of the Claimant, the aforementioned competencies, as well as the burdens and expenses inherent thereto, the Municipality committed to transferring a monthly financial contribution to the sphere of the former, thus ensuring coverage of the deficit resulting from the activity carried out;

  7. Motivated by developments in administrative doctrine regarding the treatment of subsidies in VAT matters in the local business sector, the Claimant proceeded to review its procedures with respect to the classification for VAT purposes of the subsidy granted by the Municipality, within the framework of the program agreement, in order to provide more correct treatment in this area, avoiding unnecessary costs, cf. Request for Arbitral Pronouncement;

  8. As a consequence of the aforementioned review of procedures, the Claimant verified that it had charged VAT unduly to the Municipality in the year 2008, at the normal rate of 20%, calculated on the value of the subsidy received in that same year, the amount of the tax in question being €7,000.00, cf. documents no. 3, 4 and 5, attached to the Request for Arbitral Pronouncement.

  9. Having considered that the financial transfers made by the Municipality in favor of the Claimant constituted true subsidies, not subject to VAT, the Claimant proceeded to correct the initially adopted classification for VAT purposes, issuing new documents in substitution of the invoices/receipts that had been issued to the Municipality with VAT, cf. documents nos. 6, 7 and 8, attached to the Request for Arbitral Pronouncement.

  10. In order to recover the VAT collected in excess, corresponding to €7,000.00, the Claimant submitted, on 28.12.2012, pursuant to article 78 of the General Tax Code (LGT) and article 98 of the VAT Code, a request for official review of the VAT self-assessment carried out, requesting authorization from the Tax Authority to regularize the VAT collected in excess during the year 2008, cf. document no. 2 of the Request for Arbitral Pronouncement and PA;

  11. In the aforementioned official review request, the Claimant set forth the facts and legal reasons by which it considered VAT had been collected in excess, ending the official review request by requesting that it be authorized, under article 78 of the LGT combined with nos. 1 and 2 of article 98 of the VAT Code "to regularize, in its favor, VAT collected in excess in the total amount of €7,000.00," cf. request formulated in the official review request submitted.

  12. The Claimant was notified of the rejection of the Official Review Request submitted, by decision of the Deputy General Director of 13.11.2013, by subdelegation of powers from the General Director of the Tax and Customs Authority (TA), pursuant to Official Letter no. ... from the VAT Services Department, and that decision contained, in accordance with opinion and information in that sense (Information no. 2377), among other things, and in summary, the following [cf. document no. 8 of the Request for Arbitral Pronouncement and Administrative Process]:

"IV. APPRECIATION"

  1. The mechanism of official review is applicable to VAT, as is expressly provided in no. 1 of article 98 of the VAT Code and the configuration of this challenging mechanism in the LGT. However, the applicability of article 78 of the LGT does not prejudice the specific features of the functioning of VAT. In particular, the official review of VAT self-assessment cannot prejudice the requirements of the right to regularization, under penalty of the rules governing this right being deprived of any effectiveness.

  2. From the perspective of the Claimant, the errors found, being in the self-assessment, would be considered attributable to the services, in accordance with no. 2 of article 78 of the LGT.

  3. However, in this particular situation, it will be difficult to admit the existence of a mere error in the self-assessment, since the errors are prior and stem from the very invoicing of transactions by the taxpayer. The self-assessments made merely reflect the existing accounting records, not giving rise to a new error.

  4. Even if they were considered attributable to the services, in accordance with no. 1 of article 78 of the LGT, from the existence of these errors it cannot be extrapolated, as a consequence, the assertion that the period for official review is four years in situations of error in VAT self-assessment.

  5. In reality, the equation in the second part of no. 2 of article 78 of the LGT operates "without prejudice to the legal burdens of complaint or challenge by the taxpayer." Which would literally permit the conclusion that, in the case of error in self-assessment, the taxpayer would always be bound by the legal burdens of complaint or challenge provided for in the law.

  6. Now, in the case of VAT self-assessment, article 131 of the Code of Tax Procedure and Process (CPPT) establishes a mechanism of gracious complaint to be directed to the head of the regional peripheral body within two years after the declaration. A complaint that is, moreover, necessary for purposes of judicial challenge.

  7. However, one must take into account the circumstance that the case law of the Supreme Administrative Court has established that the request for official review of the tax act on the basis of error in self-assessment is not dependent on the prior complaint in accordance with article 131 of the CPPT, and may even be submitted beyond the two-year period established in that provision of the CPPT.

  8. It remains to be determined whether, in the specific case of VAT, the request for official review of the tax act of self-assessment may override the rules governing the right to regularization of this tax. In other words, to assess the possibility of a taxpayer who, eventually, in accordance with the VAT Code, can no longer regularize the VAT collected, achieving the same result through the official review provided for in no. 1 of article 78 of the LGT and no. 1 of article 98 of the VAT Code.

  9. The answer must be in the negative. In reality, the official review of the tax cannot prejudice the imperative nature of the rules that establish special periods for the exercise of the right to regularization. Under penalty of these rules being deprived of any imperative character and of that right, in practice, being able to be exercised by means of the official review mechanism within the four-year period established in no. 1 of article 78 of the LGT.

  10. No. 2 of article 98 of the VAT Code establishes a maximum general limit from which the right to regularization of the tax paid in excess can no longer be exercised. Moreover, this reality is well expressed in the initial part of the rule, in accordance with which the four-year period is applicable "without prejudice to special provisions." Thus, that maximum four-year period does not apply whenever there is a special rule that establishes a different temporal limit. This was, moreover, the understanding of the judgment of the Supreme Administrative Court of 2011-05-18, case no. 966/2010.

  11. Having concluded that the period for official review does not override the regularization periods provided for in the VAT Code, it remains to be determined what regime is provided in this Code for the type of regularization requested by the Claimant.

  12. To the rectification of the tax for reasons other than reduction of the taxable value of the transaction, no. 3 of article 78 of the VAT Code applies, according to which, in cases of inaccurate invoices that have given rise to the registration referred to in article 45, as is the present case where the question was raised long after that registration, the rectification is mandatory when less tax has been collected and is optional when there is excess tax collected, but may only be effected within a two-year period.

  13. Accordingly, the requested regularization, relating to the correction of VAT collected in excess, may only be exercised within the two-year period provided for in no. 3 of article 78 of the VAT Code.

  14. The four-year period provided for in no. 2 of article 98 of the VAT Code would only be applicable, as a consequence of the inapplicability of no. 3 of article 78 or of any other special period provided for in that same Code, if the invoices supporting the regularization had not been recorded in the accounting of the taxpayer.

  15. The regularization request submitted by the Claimant took place long after the two-year period imposed by no. 3 of article 76.0 of the VAT Code. As explained, given that the right to regularization claimed has expired, that same right cannot be exercised by way of the official review provided for in article 78 of the LGT.

  16. Thus, the review request should be rejected due to expiration of the right to regularization. In light of this expiration, the analysis of other questions that might prevent the requested regularization is prejudiced, and first and foremost, whether in this situation there is an error attributable to the services.

(...)"

  1. On 28 February 2014, the Claimant filed the request for constitution of the arbitral tribunal, formulating requests for pronouncement on the illegality of the aforementioned rejection decision and annulment of the VAT self-assessments relating to the months of November and December 2008, - cf. electronic request submitted to CAAD.

III. RATIONALE

The Tribunal's conviction in establishing the factual framework above is reaffirmed to be based on the documentation attached to the case, the administrative proceeding file and the acceptance, or non-challenge by the TA, of the factual framework drawn by the Claimant in its request for arbitral pronouncement.

The Lack of Material Jurisdiction: Terms of Its Foundation by the TA

At issue, for appreciation of the material jurisdiction of this Arbitral Tribunal, is solely the question of whether, within the factual framework described, it can or cannot be concluded that the TA is bound to arbitral jurisdiction.

In support of the exception, the TA argues, in summary, that in light of articles 2, no. 1, subparagraph a) and 4, no. 1, both of the RJAT, and articles 1 and 2, subparagraph a), both of Ordinance no. 112-A/2011, of 22.03, the exception of lack of material jurisdiction of the Arbitral Tribunal to appreciate and decide the Claimant's request is established (cf. articles 493, nos. 1 and 2 and 494, subparagraph a) of the Code of Civil Procedure, pursuant to article 29, no. 1, subparagraphs a) and e) of the RJAT), an understanding, moreover, corroborated by recent case law of the Arbitral Tribunal excluding from the scope of its jurisdiction the appreciation of legality or illegality of decisions rejecting VAT regularization requests, as well as issuing authorizations for taxpayers to regularize VAT in their favor.

It is further argued that the lack of material jurisdiction of the Arbitral Tribunal results from the underlying cause of the rejection of the official review request. In effect, the administrative act leading to the rejection of the official review request was based on the invocation of the timeliness of the requested VAT regularization, and the legality of any self-assessment acts was not consequently appreciated, which would result in the act being insusceptible to challenge through judicial review.

In this sense, the TA maintains that even if it were merely hypothetically considered that the legality contested results from a second-degree act and would cover cases in which the second-degree act is the rejection of a request for official review of the tax assessment act, in the case at hand this does not occur since the grounds for rejection were the timeliness of the VAT regularization requested by the Claimant, and there is lack of material jurisdiction of the arbitral court, pursuant to subparagraph a) of no. 1 of article 2 of the RJAT, due to the absence of appreciation of the legality of the self-assessment act within the framework of the official review procedure.

In addition to the grounds mentioned, the TA also invokes the lack of jurisdiction of the Arbitral Tribunals functioning at CAAD to appreciate decisions rejecting requests for official review.

Such impediment would result from the reference in no. 1 of article 4 of the RJAT to Ordinance no. 112-A/2011, which establishes the TA's binding nature to the jurisdiction of the Arbitral Tribunals constituted in accordance with that legal instrument, namely with respect to the type and maximum value of the disputes covered.

Now, pursuant to article 2, subparagraph a) of Ordinance 112-A/2011, the TA's binding nature to the jurisdiction of the Arbitral Tribunals has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the RJAT, "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process";

Accordingly, and taking into account the terms of the TA's binding nature, in the situation at issue a mandatory prior complaint, pursuant to no. 1 of article 131 of the CPPT, was required, on the grounds that the expression "recourse to the administrative remedy" does not also reference the official review of the tax act, literally excluded from the material jurisdiction of the Arbitral Tribunals and legally prohibited in the arbitral context.

Let us examine the question.

The Material Jurisdiction of Tax Arbitral Tribunals:

The scope of tax arbitral jurisdiction results, in the first place, from the provision in article 2, no. 1 of the RJAT, which sets out the criteria for determining the material jurisdiction of arbitral tribunals in the following terms:

"The jurisdiction of arbitral tribunals comprises the appreciation of the following claims:

a) The declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payments on account;

b) The declaration of illegality of acts fixing the taxable matter when it does not give rise to the assessment of any tax, acts determining the taxable amount and acts fixing patrimonial values."

In light of this provision, it should be understood that the jurisdiction of arbitral tribunals "is restricted to activity connected with tax assessment acts, falling outside its jurisdiction the appreciation of the legality of administrative acts of total or partial rejection or revocation of tax exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve appreciation of the assessment act, referred to in subparagraph p) of no. 1 of article 97 of the CPPT".[2]

The appreciation of the arbitral tribunal's jurisdiction involves an assessment of the suitability to the case sub judice of the means of special administrative action or of the judicial review process, in light of the provision in article 97 of the CPPT, which defines the respective fields of application by distinguishing "the challenge of administrative acts in tax matters that involve the appreciation of the legality of the assessment act" (in accordance with subparagraph d) of no. 1) and "the administrative suit of the total or partial rejection or revocation of tax exemptions or other tax benefits, when dependent on recognition by the tax administration, as well as other administrative acts relating to tax matters that do not involve appreciation of the legality of the assessment act" (in accordance with subparagraph p) of no. 1), and, in accordance with no. 2 of article 97, the "administrative suit of administrative acts in tax matters, which do not involve appreciation of the legality of the assessment act, of the authorship of the tax administration, comprising the central government, the regional governments and their members, even when carried out by delegation, is regulated by the rules on procedure in administrative courts".

To implement such a distinction between the scope of application of these procedural means, which, by virtue of subparagraph a) of no. 1 of article 2 of the RJAT, has relevance in defining the jurisdiction of tax arbitral tribunals, it is established case law that "the use of the judicial review process or administrative suit (now special administrative action, pursuant to article 191 of the Code of Administrative Procedure) depends on the content of the act being challenged: if it involves the appreciation of the legality of an assessment act, the judicial review process is applicable and if it does not involve such appreciation, the administrative suit/special administrative action is applicable", (cf. the judgment of the SAC of 25.6.2009, case no. 0194/09).

Thus, having in mind these basic principles, to determine the arbitral tribunal's jurisdiction it is necessary to ascertain the content of the act being challenged, in order to verify whether it involved the appreciation of an assessment or self-assessment act.

For this purpose, as results from the expression "appreciation" used in subparagraph d) of no. 1 of article 97 of the CPPT, it suffices that the act in question had evaluated or examined the "legality of the assessment act," even if such appreciation is not the basis for the administrative decision (cf., to this effect, the arbitral judgment of 06/12/2013, handed down in case no. 117/2013-T).

Subsumption:

Now, as clearly appears from the case file and from the list of proven facts, what is at issue here is the rejection of the request for official review of VAT self-assessment, submitted by the Claimant, pursuant to article 78 of the LGT and no. 1 of article 98 of the VAT Code, on 28.12.2012 requesting authorization from the TA to regularize VAT allegedly collected in excess (€7,000.00) during the year 2008.

This request was rejected on the grounds of, quoting the decision, "(…) expiration of the right to regularization" due to timeliness of the respective request, in light of the provision in no. 3 of article 78 of the VAT Code.

From the above, the obvious conclusion emerges that the TA did not appreciate the legality of the assessment.

The act that is at issue, which constitutes the immediate subject matter of the present case, is, consequent and undoubtedly, the decision rejecting the official review request submitted.

This rejection decision, in turn, relates to "the official review of VAT self-assessment" and thus falls upon the acts of VAT self-assessment relating to 2008, on whose illegality the Claimant seeks to base its right to regularize the VAT collected in excess.

Accordingly, and taking into account the terms of the TA's binding nature, in the situation at issue a mandatory prior complaint would have been required, with the consequent pronouncement on the merits of the claim presented, in light of the provision in no. 1 of article 131 of the CPPT, since and in addition, the expression "recourse to the administrative remedy" does not also reference the official review of the tax act[3], literally excluded from the material jurisdiction of the Arbitral Tribunals and legally prohibited in the arbitral context.

Or, stated differently: we are faced with an administrative act in tax matters which, by not appreciating or discussing the legality of the assessment act, cannot be reviewable through judicial review, in accordance with the provision in subparagraph a) of no. 1 of article 97 of the CPPT and article 2 of the RJAT.[4]

The understanding of the TA regarding the question of the lack of material jurisdiction of the Arbitral Tribunals to appreciate the subject matter of this dispute is thus upheld.

Or, that is: it is considered, in line with and on the grounds of previous decisions handed down by the Arbitral Tribunal[5], that it does not fall within the scope of arbitral jurisdiction to appreciate the legality or illegality of decisions rejecting requests for VAT regularization submitted in accordance with article 78 of the LGT or, as the Claimant requests, to hand down decisions annulling VAT self-assessment without prior appreciation of the legality of these acts by the TA, in accordance with articles 131 to 133 of the CPPT.

It is naturally possible to dispute the grounds of the TA's decision when it concludes and decides to reject the review request, using the timeliness argument.

The truth, however, is that, even if the grounds of that decision might have indicated that the outcome of the request could have been approval if timeliness had not been an issue, this did not deprive the decision of its nature as a non-pronouncement on the merits and, consequently, the non-fulfillment of the necessary prerequisite for the material jurisdiction of the Tax Arbitral Tribunals constituted within the framework of CAAD.

The arguments invoked by the Claimant thus have no legal basis.

With respect to the TA's prior pronouncement in other procedures, in addition to the gracious complaint, reference is made herein to the understanding propounded in another collective body of this arbitral jurisdiction (cf. Judgment no. 148/2014-T of 19 September).

The formula "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payments on account," used in subparagraph a) of no. 1 of article 2 of the RJAT does not restrict, in a mere declarative interpretation and as has been seen, the scope of arbitral jurisdiction to cases where an act of one of those types is directly challenged. Indeed, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-degree act (gracious complaint) or third-degree act (hierarchical appeal), which confirms an assessment act, embodying its illegality.

Accordingly, the inclusion is admitted in the jurisdiction of the arbitral tribunals functioning at CAAD in cases where the declaration of illegality of the acts mentioned is carried out through the declaration of illegality of second-degree or third-degree acts, which are the immediate subject matter of the challenging claim, by way of the reference made in that rule to the self-assessment, withholding at source and payments on account acts, which are expressly referred to as included among the jurisdiction of the arbitral tribunals.

On the other hand, the TA's prior pronouncement in other proceedings provided for in the Law, namely in the procedure for reviewing the tax acts provided for in article 78 of the LGT[6], would only be possibly considered [and there are, at least, serious doubts that it could be] as equivalent to the requirement provided for in article 2 of the aforementioned Ordinance no. 112-A/2011 of prior "(...) recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process (...)" , in the event of actual and real pronouncement on the merits and/or illegality of the self-assessment act[7].

If the fulfillment of that prerequisite could be considered independently of appreciation of the merits and, in particular, when it was rejected or summarily dismissed due to timeliness, this would thereby be found the means of opening the arbitral avenue: it would suffice the submission of a complaint or review request manifestly out of time and, the request being denied, submission of the request for arbitral pronouncement without risk of inadmissibility due to lack of material jurisdiction of the Arbitral Tribunal.

That was not, naturally, the objective of the legislator of the aforementioned Ordinance when drafting the provision in question, but rather, and manifestly, intended to exclude from arbitral jurisdiction the appreciation and decision regarding, in particular, self-assessment of taxes without it having been first appreciated on the merits of that claim by the TA through the appeal mechanisms in accordance with articles 131 to 133 of the CPPT.

In light of the above, it is considered that the Respondent is correct, and this Arbitral Tribunal is materially lacking in jurisdiction to appreciate and decide the request that is the subject matter of the dispute sub judice, in accordance with articles 2, no. 1, subparagraph a) and 4, no. 1, both of the RJAT and articles 1 and 2, subparagraph a) of Ordinance no. 112-A/2011, which constitutes a dilatory exception preventing knowledge of the merits of the case, in accordance with the provision in article 576, nos. 1 and 2 of the Code of Civil Procedure, pursuant to article 2, subparagraph e) of the CPPT and article 29, no. 1, subparagraphs a) and e) of the RJAT, which prevents knowledge of the request and results in the dismissal of the case of the TA, in accordance with articles 576, no. 2 and 577, subparagraph a) of the Code of Civil Procedure, pursuant to article 29, no. 1, subparagraphs a) and e) of the RJAT.

IV. DECISION

Considering the reasoning set forth, this Tribunal decides:

a) To uphold the exception of lack of material jurisdiction raised by the Tax and Customs Authority and, consequently, to dismiss the case of the Respondent;

b) To deem, consequently, moot the knowledge of the other exceptions and the question on the merits invoked.

c) To order the Claimant to pay the costs (article 22, no. 4 of the RJAT), fixing these at the amount of €612.00, in accordance with Table I annexed to the Regulations for Costs in Tax Arbitration Proceedings.

Value of the Case:

In accordance with the provision in article 306, no. 2 of the Code of Civil Procedure and 97-A, no. 1, subparagraph a) of the CPPT and article 3, nos. 1 and 2 of the Regulations for Costs in Tax Arbitration Proceedings, the value of the case is fixed at €7,000.00.

Lisbon, 7 October 2014

The Arbitrator

(Filipa Barros)

[1] Acronym for the Legal Framework for Tax Arbitration.

[2] See Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration in Guide to Tax Arbitration, Almedina, 2013, p. 105.

[3] As will be noted below, it may be arguable whether the TA's pronouncement in gracious complaint proceedings is equivalent to the pronouncement, for example, in the official review procedure provided for in article 78 of the LGT.

[4] Cf. Judgment of the SAC of 12-7-2006, case no. 402/06, in which reference is made to the official review procedure as a "complement to the means of administrative and judicial challenge of such acts, to be pursued within the normal respective time limits, which aims to make it possible to remedy injustices of taxation both in favor of the taxpayer and in favor of the administration. Essentially, the regime of article 78, when the review request is formulated beyond the periods of administrative and judicial challenge, is reduced to a means of restitution of unduly paid amounts, with revocation and cessation for the future of the effects of the assessment act, and not an annulment means, with retroactive destruction of the effects of the act. In this light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of an assessment act, but rather as an alternative to the means of administrative and judicial challenge (when used at a time when these can still be used) or complementary to them (when the periods for using the means of challenging the assessment act have already expired). It is a regime that is strongly protective when compared with the regime for challenging administrative acts, but this effort finds explanation in the strongly aggressive nature of the legal sphere of individuals with respect to tax assessment acts. And, continuing that judgment, (...) although article 78 of the LGT, with respect to review of the tax act by initiative of the taxpayer, refers only to that which takes place within the "period of administrative complaint," in no. 6 of the same article (in its original wording, which is no. 7 in the current wording) reference is made to "taxpayer request" for the carrying out of official review, which reveals that this, despite the impropriety of the designation as "official," may also have the taxpayer's initiative underlying it. Identical reference is made in no. 1 of article 49 of the LGT, which speaks of "request for official review," and in subparagraph a) of no. 4 of article 86 of the CPPT, which refers to the submission of "request for official review of the tax assessment, on the grounds of error attributable to the services." It is, thus, indisputable that it is admitted, alongside the so-called review of the tax act by initiative of the taxpayer (within the period of administrative complaint), that "official review" also be carried out (which the Administration must carry out on its own initiative). On the other hand, subparagraph d) of no. 2 of article 95 of the LGT refers to acts of rejection of review requests among the potentially injurious acts that are susceptible to being challenged contenciously. No distinction is made here between acts of rejection carried out as a consequence of a request by the taxpayer made within the period of administrative complaint or beyond it, and thus the contentious challengeability of acts of rejection of review requests carried out in either situation, which, moreover, is a corollary of the constitutional principle of contentious challengeability of all acts that injure rights or legitimate interests of the governed (article 268, no. 4, of the Portuguese Constitution).

[5] Cf., for example, Judgments nos. 236/2013-T, 244/2013-T, 148/2014-T at www.caad.org.pt

[6] Now, in cases in which a request for official review of a self-assessment act is formulated, as occurs in the case at hand, the TA is provided with, by this request, an opportunity to pronounce on the merits of the claim of the taxpayer before the latter resorts to the judicial forum, and thus, in consistency with the solutions adopted in nos. 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative appreciation within the framework of that official review procedure, a new administrative appreciation through gracious complaint be required (Cf., to this effect, the Judgments of the Supreme Administrative Court of 12-7-2006, handed down in case no. 402/06, and of 14-11-2007, case no. 565/07 at http://www.dgsi.pt/)

[7] Such as has already been understood in various decisions of arbitral tribunals of this CAAD (cf., for example, the judgments of 06/12/2013, handed down in case no. 117/2013-T and of 23/10/2012, case no. 73/2012-T, where other case law is invoked), and without disregarding, nonetheless, the existence of contrary understanding (see the judgment of 09/11/2012, case no. 51/2012-T), this tribunal also understands that the appreciation of acts of rejection of requests for official review of acts of self-assessment should be considered as included in the jurisdiction attributed to arbitral tribunals, since, on the one hand, the formula "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payments on account," used in subparagraph a) of no. 1 of article 2 of the RJAT, comprises both cases in which an act of one of those types is directly challenged and cases in which a second-degree act is challenged, which maintains an assessment act, not declaring its illegality, and, on the other hand, the content of subparagraph a) of article 2 of Ordinance no. 112-A/2011, of 22 March, for which no. 1 of article 4 of the RJAT refers, should not be interpreted, in light of its ratio legis, in the sense of excluding the rejection of a request for official review, given that in official review the Administration is provided with the opportunity to pronounce on the merits of the claim of the taxpayer before the latter resorts to the judicial forum, it being unreasonable that, cumulatively with the possibility of administrative appreciation within the framework of that official review procedure, a new administrative appreciation through gracious complaint be required, and thus there is no justification for excluding the jurisdiction of the arbitral tribunals functioning at CAAD in cases in which a request for official review is formulated without prior gracious complaint, which would create, without sufficient grounds, a new situation of mandatory gracious complaint exclusive to arbitral jurisdiction. However, it is emphasized, it is not sufficient to prove prior recourse to the administrative remedy by any of the aforementioned means, it is also absolutely necessary to prove that there was actual appreciation by the Administration of the merits of the claims, a requirement which, for purposes of the Arbitral Tribunal's jurisdiction, is not fulfilled when and if that appreciation of legality was summarily denied on, for example, the ground of timeliness of the request for official review.

Frequently Asked Questions

Automatically Created

Can the CAAD arbitral tribunal review VAT self-assessment disputes filed through official review requests?
The CAAD arbitral tribunal's jurisdiction over VAT self-assessment disputes through official review requests is contested. Under articles 2(1)(a) and 4(1) of RJAT and Ordinance 112-A/2011, the Tax Authority argues that decisions rejecting official review requests based on procedural grounds (such as time limits) fall outside the arbitral tribunal's material competence. The RJAT grants arbitration jurisdiction over 'tax acts' subject to specific value thresholds, but procedural decisions on review requests may be distinguished from substantive assessment acts. The exception raised in this case reflects ongoing debate about whether rejection of an official review constitutes a reviewable 'tax act' or merely a procedural decision on admissibility.
What are the time limits for filing a pedido de revisão oficiosa of VAT self-assessments in Portugal?
The time limits for filing official review requests (pedido de revisão oficiosa) of VAT self-assessments depend on the nature of the error. Article 78(3) of the VAT Code establishes a two-year period for regularization without prior authorization, while corrections beyond two years require Tax Authority approval. However, article 78(2) of the General Tax Law (LGT) provides a four-year period for review based on errors attributable to tax services. The distinction is critical: if the issue involves invoice correction or taxpayer error, the two-year VAT Code limit applies; if it constitutes a legal interpretation error or administrative guidance issue, the four-year LGT period may govern. Article 98 of the VAT Code addresses regularization procedures, but its interaction with these temporal limits depends on whether prior invoice registration occurred and the error's classification.
What happens when a VAT official review request is rejected as untimely (intempestividade)?
When a VAT official review request is rejected as untimely (intempestividade), the taxpayer faces significant challenges. The rejection means the Tax Authority determined the request exceeded applicable time limits—typically two years under article 78(3) of the VAT Code for regularizations without authorization. This prevents substantive review of whether excess tax was actually paid. The taxpayer may challenge this rejection through administrative or judicial review, arguing: (1) the four-year period under article 78(2) LGT applies instead; (2) the error constitutes a legal mistake rather than invoice correction; or (3) the calculation of time limits was incorrect. However, jurisdictional questions arise regarding whether such challenges fall within CAAD arbitral competence or require ordinary administrative court proceedings, as procedural admissibility decisions may be distinguished from substantive tax determinations.
Are municipal enterprises entitled to recover excess VAT through arbitral proceedings at CAAD?
Municipal enterprises' entitlement to recover excess VAT through CAAD arbitral proceedings depends on jurisdictional scope and the nature of claims. As legal entities subject to VAT obligations, municipal enterprises (empresas municipais) can generally access tax arbitration for disputes meeting RJAT thresholds and covered tax types. However, when recovery is sought through official review request rejection challenges, jurisdictional issues emerge. The Tax Authority's exception in this case questions whether arbitral tribunals have competence over procedural decisions rejecting reviews based on time-bar grounds, as opposed to substantive VAT assessment determinations. Municipal enterprises must establish that the contested act constitutes a reviewable 'tax act' under articles 2(1)(a) and 4(1) RJAT, not merely a procedural admissibility ruling, to successfully invoke arbitral jurisdiction for excess VAT recovery claims.
How does the arbitral tribunal assess its competence over VAT self-assessment corrections under the RJAT?
The arbitral tribunal assesses its competence over VAT self-assessment corrections under RJAT by distinguishing between substantive tax acts and procedural decisions. Articles 2(1)(a) and 4(1) of RJAT, together with Ordinance 112-A/2011, define arbitrable matters as 'tax acts' of specific types and values. The tribunal must determine whether a decision rejecting an official review request constitutes: (1) a substantive determination on the underlying self-assessment's validity (within jurisdiction); or (2) a procedural ruling on request admissibility based on time limits (potentially outside jurisdiction). This competence analysis considers whether the immediate object (rejection decision) versus remote object (underlying self-assessments) governs jurisdictional determination. The tribunal examines RJAT's scope provisions, relevant case law precedents on similar exceptions, and the distinction between reviewing assessment merits versus procedural gatekeeping decisions that prevent substantive review.