Process: 232/2017-T

Date: December 6, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

In Process 232/2017-T, the CAAD examined its own jurisdiction to order VAT refunds arising from overpayments in tax enforcement proceedings. The case involved a credit assignee (Applicant A…) who acquired a €234,696.00 claim from the original taxpayer B… S.A., representing excess payments made during IVA enforcement process no. …2009…. Between July 2010 and October 2016, B… paid €953,595.17 against an executable debt of €718,899.17, creating an overpayment. The Applicant requested the arbitral tribunal to condemn the Tax Authority to refund this amount. The Tax Authority raised a preliminary objection challenging CAAD's material competence to decide the matter. The tribunal noted that Decree-Law 10/2011 (RJAT) instituted tax arbitration with limited scope, restricting jurisdiction to matters specifically listed in Article 2, and notably excluding alternative competence for actions seeking recognition of rights or legitimate interests in tax matters. The tribunal prioritized examining this jurisdictional question given its logical precedence, as a finding of incompetence would preclude examination of the substantive refund claim. This decision clarifies the boundaries of CAAD's jurisdiction under RJAT, particularly regarding restitution claims arising from enforcement proceedings and the standing of credit assignees to pursue tax arbitration.

Full Decision

ARBITRAL AWARD

The Arbitrators José Pedro Carvalho (Arbitrator President), Filipa Correia Pinto and Carlos Lobo, appointed by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal:

I – REPORT

On 3 April 2016, A… taxpayer no. …, with an office at Rua …, no. …, …, in the city of Braga, under the Credit Assignment Contract concluded with the Passive Subject (PS) B… (B…, S.A.), Tax ID…, with registered office in Porto filed a request for the constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011 of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012 of 31 December (hereinafter, abbreviated as RJAT), requesting that the Tax Authority be condemned "to urgently refund to the Applicant/Assignee the amount of €234,696.00, plus any other amounts it has since received under the enforcement process referred to above, by means of bank transfer to the account" indicated by it.

To substantiate its request, the Applicant alleges, in summary, that:

i. Between 10 July 2010 and 25 October 2016, B…, S.A. paid to the Tax Authority the total amount of €953,595.17, on account of the capital debt and compensatory and default interest in the enforcement process no. …2009…, assigned to the Finance Service of Porto-…, in which the amount to be executed relates to an IVA debt of €718,899.17, "whereby by 25-10-2016 it had paid on account an additional €234,696.00";

ii. The Tax Authority continued to receive other amounts on account of the said debt, within the scope of the aforementioned enforcement process, whereby it must refund these amounts to the executed party;

iii. The Tax Authority must also, from the Applicant's perspective, cancel the payments on account made to it by virtue of article 4 of Decree-Law no. 151-A/2013 of 31 October, which established an exceptional regime for the regularization of tax debts (RERD) and the principle of equality of all taxpayers before the law;

iv. By Credit Assignment Contract executed on 21-3-2017, the executed party B…, S.A. assigned to the here Applicant its credit of €234,696.00, arising from payments on account of the executable debt and interest made in the enforcement process.

On 04-04-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not proceed to appoint an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 05-06-2017, the parties were notified of these appointments and expressed no intention to challenge any of them.

In accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 21-06-2017.

On 11-09-2017, the Respondent, duly notified for this purpose, filed its response, defending itself solely by way of exception and objection.

On 26-09-2017, the Applicant exercised its right to reply in relation to the matters that required it, contained in the Respondent's response.

Under the provisions of paragraphs c) and e) of article 16 and no. 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

Having been granted a period for the presentation of written arguments, these were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for the pronouncement of final decision, following the presentation of arguments by the Respondent.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the RJAT.

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

The case is not affected by any nullities.

Thus, there is no obstacle to the examination of the case.

Everything considered, it is necessary to decide:

II. DECISION

A. MATTERS OF FACT

A.1. For the purposes of this decision, the following facts are established as proven:

1. Between 10 July 2010 and 25 October 2016, B…, S.A. paid to the Tax Authority the total amount of €953,595.17, on account of the capital debt and compensatory and default interest in the enforcement process no. …2009…, assigned to the Finance Service of Porto-…, in which the amount to be executed relates to an IVA debt of €718,899.17, whereby by 25-10-2016 it had paid on account an additional €234,696.00;

2. The Tax Authority continued to receive other amounts on account of the said debt, within the scope of the aforementioned enforcement process;

3. By Credit Assignment Contract executed on 21-3-2017, the executed party B…, S.A. assigned to the here Applicant its credit of €234,696.00, arising from payments on account of the executable debt and interest made in the enforcement process.

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning for the proven and not proven matters of fact

With regard to the matters of fact, the Tribunal need not rule on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven from the not proven matters (see article 123, no. 2 of the CPPT and article 607, no. 3 of the CPC, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the RJAT).

In this way, the pertinent facts for the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see previous article 511, no. 1 of the CPC, corresponding to current article 596, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence attached to the case, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose veracity must be ascertained in relation to the concrete matters of fact consolidated above, were not considered as either proven or not proven.

B. ON THE LAW

Among several preliminary questions, the Respondent raises the question of the material incompetence of CAAD to decide on the present request for arbitral pronouncement, a question which, given its logical precedence and the fact that if upheld it would preclude the examination of the other questions raised before this Arbitral Tribunal, shall be examined first.

*

Article 124 of Law no. 3-B/2010 of 28 April authorized the Government to legislate "in order to institute arbitration as an alternative form of jurisdictional resolution of conflicts in tax matters," so that the tax arbitration process would constitute an alternative procedural means to the judicial review process and to the action for the recognition of a right or legitimate interest in tax matters.

Decree-Law no. 10/2011 of 20 January (RJAT) implemented the aforementioned legislative authorization with a narrower scope than initially provided for, notably not contemplating an alternative competence to that of the action for the recognition of a right or legitimate interest in tax matters, and "instituted tax arbitration limited to certain matters, listed in its article 2," making the binding of the tax authority dependent on "an ordinance of the members of Government responsible for the areas of finance and justice, which establishes, in particular the type and maximum value of disputes covered"[1].

The scope of tax arbitral jurisdiction is thus delimited, first and foremost, by the provisions of article 2 of the RJAT, which sets forth in its no. 1 the criteria for material distribution of competence, covering the examination of claims aimed at the declaration of: a) illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account; and b) illegality of acts determining the taxable base when they do not give rise to the assessment of any tax, acts determining the taxable matter and acts fixing patrimony values.

Given the voluntary character of submission to arbitral jurisdiction, secondly, "the competence of arbitral tribunals functioning at CAAD is also limited by the terms in which the Tax Authority bound itself to such jurisdiction, specified in Ordinance no. 112-A/2011 of 22 March, since article 4, no. 1 of the RJAT establishes that "the binding of the tax authority to the jurisdiction of tribunals constituted under the terms of this law depends on an ordinance of the members of Government responsible for the areas of finance and justice"[2].

Ordinance no. 112-A/2011 of 22 March provides in its article 2 that "The services and bodies referred to in the previous article bind themselves to the jurisdiction of the arbitral tribunals functioning at CAAD which have as their object the examination 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 20 January, with the exception of the following:...", indicated in the subsequent paragraphs of the same article, which for this case present no relevance.

The same Ordinance, in its first article, as the Tax Authority states, binds:

"the following services of the Ministry of Finance and Public Administration:

a. The General Directorate of Taxes (DGCI); and

b. The General Directorate of Customs and Special Consumption Taxes (DGAIEC)".

Thus, under the terms of the applicable legal instruments indicated, only those subjectively bound to the jurisdiction of the arbitral tribunals in tax matters, functioning at CAAD, are the Tax and Customs Authority, as successor to the following services of the Ministry of Finance and Public Administration:

a) The General Directorate of Taxes (DGCI); and

b) The General Directorate of Customs and Special Consumption Taxes (DGAIEC).

Objectively, the binding to the arbitral tribunals in tax matters, functioning at CAAD, as aforesaid, is delimited under the terms of article 2 of the RJAT, together with article 2 of Ordinance no. 112-A/2011 of 22 March.

In this regard, it should be noted that, as is common knowledge, Portuguese tax litigation still proceeds from an objectivist matrix, being structured broadly as a "process against an act" (tax act), and, as follows from article 2 of the RJAT, tax arbitration litigation does not depart from the referred matrix. That is, in summary, tax litigation, including arbitration, typically and as happens in the present case, concerns a tax act whose legality must be examined, not seeking full protection, or even limited protection, of all types of legal relationships established between the tax authority and taxpayers.

In this framework, to ascertain the material competence of arbitral tribunals in tax matters functioning at CAAD, one must determine whether the case concerns the examination of the legality of any or several of the acts covered by the delimitation resulting from the articulation of articles 2 of the RJAT and 2 of Ordinance 112-A/2011.

*

In the present case, the Applicant assumes that it filed the arbitration request "with a view to impugning the payments on account made (...) within the scope of the tax enforcement process no. …2009…, in which the company B…, Tax ID…, is executed," although this objective does not have a direct correspondence in the request, where no annulment of any act is petitioned, but merely that the Tax Authority be condemned "to urgently refund to the Applicant/Assignee the amount of €234,696.00, plus any other amounts it has since received under the enforcement process referred to above, by means of bank transfer to the account" indicated by it, and, on the other hand, further in the initial Application, the Applicant refers to the fact that "the present action is intended to obtain the performance to which the Tax Authority is obliged and which it refuses to recognize".

Subsequently, in the exercise of its right to reply, the Applicant came to assert that:

- what "is at issue are the excesses in payments on account required of B…, SA, by the Treasury";

- "The legality of the debt was never the subject of discussion by the here Applicant, nor by B…, S.A.";

- "the impugning of payments on account is expressly included as a matter for examination by the Arbitral Tribunals";

- "what is discussed here is not the legality of the debt, but rather, and let us reiterate, the excesses in payments on account made by the passive subject B…, S.A.".

*

With all due respect, including for the extensive legal career that the Applicant took pains to bring to the case, it appears that the latter labors under some confusion.

Indeed, as was stated above, and has been repeatedly stated and recognized both in doctrine and in case law, tax arbitration litigation was created as an alternative to the judicial review process provided for in the CPPT and which is, by nature, fundamentally intended for the discussion of the legality of the tax debt, which the Applicant expressly recognizes it does not intend.

It is this alternative character to the judicial review process that explains why paragraph a) of no. 1 of article 2 of the RJAT[3] is drafted on the basis of the same paragraph of the same number of article 97 of the CPPT, which provides that:

"1 - The judicial tax process comprises:

a) The review of tax assessments, including parafiscal taxes and self-assessment, withholding at source and payment on account;"[4].

Both of these provisions are reflected in article 95/2/a) of the LGT, which prescribes that:

"2 - May be harmful, in particular:

a) The assessment of taxes, and for the purposes of this law also considered as such acts of self-assessment, withholding at source and payment on account;"[5].

The LGT itself defines what it understands as acts of payment on account, in its article 33, where it can be read:

"Anticipated monetary deliveries made by passive subjects during the period of formation of the tax event constitute payment on account of the tax finally due."

The review of these payments on account, which may be subject to the judicial review process and, in parallel, to arbitral review, is regulated in article 133 of the CPPT, applicable to tax litigation by paragraph a) of article 2 of Ordinance no. 112-A/2011 of 22 March.

Hence, from the outset, if that were the case, that is, if we were dealing with the review of a payment on account covered by the provisions of paragraphs a) of no. 1 of article 97 of the CPPT and of article 2 of the RJAT, the Applicant should nonetheless demonstrate the requirements of the aforementioned article 133 of the CPPT, by virtue of the provision in paragraph a) of article 2 of Ordinance no. 112-A/2011 of 22 March.

However, this is not even the case, since the case does not concern the examination of the legality of an act of payment on account, as presupposed by paragraphs a) of no. 1 of article 97 of the CPPT and of article 2 of the RJAT, and by articles 133 of the CPPT and 95/2/a) of the LGT.

As Counselor Jorge Lopes de Sousa clarifies[6]:

"Payments on account of the tax finally due are the anticipated monetary deliveries made by passive subjects during the period of formation of the tax event (article 33 of the LGT).

Apart from these payments on account, made during the period of formation of the tax event, the CPPT provides (...) for the possibility of other payments on account, made after the formation of this event, but before the extraction of the debt certificate, or in the course of the enforcement process (...).

It is to the payments on account made during the period of formation of the tax event that this article 133 refers."[7].

Also Carla Castelo Trindade[8], writes, in a note to paragraph a) of no. 1 of article 2 of the RJAT that:

"also resorting to the LGT, this time to article 33, acts of payment on account will be those through which passive subjects – and no longer substitute taxpayers – proceed with the delivery of anticipated tax during the period of formation of the tax event.".

And, further on[9], the same author continues:

"the CPPT provides for two other situations of payments on account which appear to us to be outside the scope of material competence of the arbitral tribunals insofar as they are not true acts of payment on account, as defined by the LGT. (...)

However, false acts of payment on account are not susceptible to arbitration..."

Now, in the present case, it is manifest that we are not dealing with any of the acts referred to in article 2 of the RJAT, in particular, an act of payment on account, insofar as it does not concern any anticipated monetary delivery made during the period of formation of the tax event, but rather payments made within the scope of the tax enforcement process (therefore, necessarily, after the formation of the tax event), on account of the executable debt, an act which, moreover, for identical reasons and in function of the norms referred to above, could never be subject to a judicial review process in the judicial tax tribunals.

Thus, and in view of the fact that the requirements set forth in article 2 of the RJAT are not met, it is concluded that the arbitral tribunals functioning at CAAD are materially incompetent to determine the present dispute, which prevents the examination of the remaining questions raised in the case.

*

C. DECISION

Therefore, it is decided that this Arbitral Tribunal is materially incompetent to adjudicate the present dispute, under article 2 of the RJAT and, consequently, absolds the Respondent from the proceedings and condemns the Applicant to the costs of the process.

D. Value of the process

The value of the process is fixed at €234,696.00, under article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes.

E. Costs

The arbitration fee is fixed at €4,284.00, under Table I of the Regulation of Costs in Tax Arbitration Processes, to be paid by the Applicant, since it gave rise to the action, under articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulation.

Notify accordingly.

Lisbon, 6 December 2017

The Arbitrator President

(José Pedro Carvalho)

The Arbitrator Adjunct

(Filipa Correia Pinto)

The Arbitrator Adjunct

(Carlos Lobo)

[1] As amended by Law no. 64-B/2011 of 30 December.

[2] Excerpt from the Arbitral Award, process no. 48/2012.

[3] Where the Applicant argues the competence of the arbitral tribunals functioning at CAAD to examine its claim (see point 50 of its Application exercising the right to reply).

[4] Emphasis ours.

[5] Emphasis ours.

[6] "CPPT – Annotated and Commented", vol. I, Áreas Editora, 2006, p. 955.

[7] Emphasis ours.

[8] "Legal Framework for Tax Arbitration – Annotated", Coimbra, 2016, p. 64.

[9] Ibid., p. 66.

Frequently Asked Questions

Automatically Created

Does the CAAD have jurisdiction to order refunds of overpayments made in tax execution proceedings?
The case suggests CAAD's jurisdiction is limited to matters explicitly listed in Article 2 of RJAT (Decree-Law 10/2011). Requests for refunds of overpayments in tax execution proceedings may fall outside this scope, as they could be characterized as actions for recognition of a right rather than challenges to tax liquidation acts. The RJAT framework deliberately excluded arbitral competence over actions for recognition of rights or legitimate interests in tax matters.
Can a creditor who acquired tax credits through a credit assignment agreement file an arbitration claim before the CAAD?
The case raises questions about whether a credit assignee has standing before CAAD. While the original taxpayer (B… S.A.) made the overpayments, the Applicant acquired the refund claim through a credit assignment contract dated 21-03-2017. The tribunal must determine whether such assignment transfers not only the substantive right but also procedural standing to pursue arbitration under RJAT, particularly when the assignee was not the original party to the tax relationship.
What are the limits of arbitral tribunal competence under the RJAT (Decree-Law 10/2011) for IVA (VAT) disputes?
Under RJAT (Decree-Law 10/2011), arbitral tribunal competence is strictly limited to matters enumerated in Article 2. The regime was implemented with narrower scope than the legislative authorization provided, explicitly excluding alternative jurisdiction over actions for recognition of rights or legitimate interests. For IVA disputes, CAAD typically has jurisdiction over challenges to liquidation acts, but requests for restitution of amounts paid during enforcement proceedings may exceed these statutory limits, requiring taxpayers to pursue alternative judicial remedies in administrative or tax courts.
Is a request for restitution of excess payments in a tax execution process considered an act of tax liquidation subject to arbitration?
A request for restitution of excess payments made during tax execution proceedings is likely not considered an act of tax liquidation subject to arbitration under RJAT. Tax liquidation acts typically refer to the administrative determination of tax liability, while refund claims arising from enforcement overpayments constitute requests for recognition of a creditor right against the Tax Authority. Since RJAT Article 2 limits arbitral jurisdiction to specific matters and explicitly excludes actions for recognition of rights, such restitution claims may fall outside CAAD's material competence.
What legal remedies are available when the CAAD declares itself incompetent to rule on VAT refund claims arising from executed debt overpayments?
When CAAD declares itself materially incompetent to rule on a claim, the applicant must pursue alternative judicial remedies. For VAT refund claims arising from enforcement overpayments, taxpayers may file an action for recognition of a right or legitimate interest in the administrative courts under Article 146 of the CPTA (Code of Administrative Court Procedure). Alternatively, depending on the specific circumstances, remedies may include administrative claims for restitution under Article 100 of the LGT (General Tax Law) or challenges within the enforcement proceedings themselves. The incompetence ruling does not extinguish the substantive right but redirects the taxpayer to the appropriate jurisdictional avenue.