Process: 262/2018-T

Date: October 22, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD arbitral process 262/2018-T addressed a dispute concerning the classification of a notary under IRS tax regimes. The claimant, a private sector notary since 2005, initially opted for the organized accounting regime (regime de contabilidade organizada) and maintained annual income exceeding statutory thresholds from 2005-2013. Following Law 83-C/2013's amendment to Article 28(2) of the IRS Code, the Tax Authority reclassified the taxpayer to the simplified regime (regime simplificado) for 2014 and 2015, arguing that 2013 income fell below the new threshold. This resulted in IRS assessments totaling €47,873.05 for 2014 and €50,473.03 for 2015. The claimants challenged these assessments, seeking annulment and reimbursement with compensatory interest. The Tax Authority raised a preliminary objection regarding the arbitral tribunal's material competence, arguing the dispute concerned regime classification rather than assessment acts. The CAAD tribunal dismissed this exception, affirming its jurisdiction under Article 2(1)(a) of RJAT, which grants arbitral courts competence over assessment act illegality declarations. The tribunal clarified that interlocutory procedural acts, including regime classification decisions, are not autonomously challengeable but can be contested through challenging final assessment acts, pursuant to Article 54 of the Tax Procedure Code. This decision establishes important precedent regarding CAAD's jurisdiction over disputes where regime classification directly affects tax assessments, and confirms taxpayers' right to challenge assessment acts arising from administrative reclassification decisions.

Full Decision

Arbitral Decision

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr. Paulo Ferreira Alves and Prof. Doctor Jónatas Machado (arbitrator-members) appointed by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Court, constituted on 01-08-2018, agree as follows:

1. Report

A..., taxpayer no..., (hereinafter referred to as "Claimant") and husband B..., taxpayer no..., both with tax domicile at Rua..., no..., ...-... / ...– Aveiro (hereinafter referred to jointly as "Claimants"), have, pursuant to the provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Court, with a view to the declaration of illegality and annulment of the following IRS assessment acts:

  • Assessment no. 2018..., relating to the period 2014-01-01 to 2014-12-31, in the amount of € 47,873.05, with the voluntary payment period deadline occurring on 28-02-2018;

  • Assessment no. 2018..., relating to the period 2015-01-01 to 2015-12-31, in the amount of € 50,473.03, with the voluntary payment period deadline occurring on 28-02-2018.

The Claimants further request reimbursement of the tax paid unduly, plus compensatory interest.

The respondent is the TAX AUTHORITY AND CUSTOMS SERVICE.

The request for constitution of the arbitral court was accepted by the President of the CAAD and automatically notified to the Tax Authority and Customs Service on 23-05-2018.

On 12-07-2018, pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral court the signatories, who communicated acceptance of the appointment within the applicable deadline.

On that same date, the parties were duly notified of such appointment, and did not manifest any will to refuse the appointment of the arbitrators, in accordance with the combined terms of article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Ethics Code.

Thus, in accordance with the provision in subparagraph c) of paragraph 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral court was constituted on 01-08-2018.

The Tax Authority and Customs Service filed a response, in which it raised the question of incompetence of this Arbitral Court and argued for the dismissal of the claim.

By order of 28-09-2018, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with optional written pleadings for a period of 10 days, with the deadline for the Claimant's pleadings starting with notification of the order and the deadline for the Tax Authority's pleadings starting with notification of submission of the Claimant's pleadings.

The Parties filed pleadings.

The arbitral court was duly constituted, in accordance with the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law no. 10/2011, of 20 January.

The Parties are duly represented and have legal personality and capacity, are legitimate and are represented (articles 4 and 10, paragraph 2, of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

It is necessary to first assess the question of incompetence, pursuant to article 13 of the Code of Administrative Court Procedure, applicable to tax arbitral proceedings by virtue of the provision in article 29, paragraph 1, subparagraph c), of the RJAT.

2. Question of Incompetence

The Tax Authority and Customs Service raises the question of incompetence of this Arbitral Court ratione materiae, because, in summary, "the claim in question amounts to a request for an arbitral decision determining that the Claimant was covered by the organized accounting regime, in the years 2014 and 2015" and "the Claimants are seeking a declaration of illegality of the Tax Administration's decision that classified the Claimant in the simplified taxation regime", which does not constitute an act that can be framed within article 2 of the RJAT.

The Claimants request the declaration of illegality and annulment of assessment acts, which they identify.

The interlocutory acts of the assessment procedure, including those that decided to apply the simplified regime, are not autonomously challengeable, as they are not injurious, and any illegality previously committed may be invoked in challenging the final decision, by virtue of the provision in article 54 of the Code of Tax Procedure applicable to tax arbitral proceedings by virtue of the provision in article 29, paragraph 1, subparagraph c), of the RJAT.

It is in light of the claim or set of claims formulated by the claimant that the appropriateness of special procedural forms, namely the arbitral process, is assessed. ([1])

Article 2, paragraph 1, subparagraph a), of the RJAT includes within the competence of arbitral courts operating at the CAAD the declaration of illegality of assessment acts.

Therefore, since the declaration of illegality of assessment acts is requested, it must be concluded that this Arbitral Court is competent to assess the Claimants' claim.

Therefore, the exception raised is dismissed.

3. Factual Matter

3.1. Proven Facts

The following facts are considered proven:

  • The Claimant engages in the profession of "notary", having on 13-09-2005 chosen to transition to the new notary regime (private sector);

  • On 23-09-2005, the Claimant chose the organized accounting regime, communicating this choice to the Tax Service of Aveiro-..., through the declaration contained in document no. 1 enclosed with the request for arbitral decision, the contents of which are reproduced herein (agreement of the Parties, in article 13 of the request for arbitral decision and article 37 of the response);

  • From 2005 to 2013, the Claimant was integrated into the organized accounting regime, always maintaining annual income exceeding the amounts that, by virtue of the provision in article 28 of the IRS Code, required the application of this regime;

  • In 2012, the Claimant's income was € 191,235.51;

  • In 2013, the Claimant declared as Category B income the amount of € 180,179.96;

  • In 2014, the Claimant declared as Category B income the amount of € 211,337.49;

  • The Claimant, until 2015, made no further choice regarding the application of any regime following the initial choice of 23-09-2005;

  • The Claimant submitted income returns for the years 2014 and 2015 based on the application of the organized accounting regime;

  • The Tax Authority and Customs Service determined that, following the amendment to article 28, paragraph 2, of the IRS Code effected by Law no. 83-C/2013, of 31 December, the Claimant should be classified under the simplified regime, because the income value for 2013 was below the amount stated in this rule;

  • The Tax Authority and Customs Service notified the Claimant to amend the income returns submitted for the years 2014 and 2015, and the Claimant submitted requests arguing that the organized accounting regime should apply to her (documents nos. 7 and 9 enclosed with the request for arbitral decision, the contents of which are reproduced herein);

  • The Tax Authority and Customs Service rejected the Claimant's claim for 2014, based on information, the contents of which are reproduced herein, stating, among other things, the following:

"In the statement made in exercise of the right to prior hearing, the taxpayer bases her interpretation on facts and law relating to the costs of the activity and its income and makes some considerations on her classification, manifesting the choice for the organized accounting regime given the C70 error relating to incompatibility between the annex submitted and the choice in the registry of the IRS model 3 declaration for the year 2014.

Pursuant to paragraph 2 of the same article, in accordance with the text given by article 84 of Law no. 3-B/2010, of 28 April, those covered by the simplified regime are taxpayers who, in the exercise of their activity, did not exceed in the immediately preceding tax period an annual net income amount of this category of € 150,000.00.

The taxpayer was classified in the organized accounting regime by legal obligation, since 2005, due to the total results obtained exceeding the amount of € 150,000.00 provided for in paragraph 2 of article 28 of the IRS Code.

In the specific case, in 2012, the total income was € 191,235.51, exceeding the amount of € 150,000.00 provided for in paragraph 2 of article 28 of the IRS Code, in accordance with the text given by article 84 of Law no. 3-B/2010, of 28 April.

Thus, having earned in 2013 income below the limit provided for in paragraph 2 of article 28 of the IRS Code (€ 180,179.96), meeting the requirements to be classified under the simplified regime in 2014 and not having exercised this right guaranteed to her by law, she was classified in this regime.

The circular notice no. 20172, of 2014-03-28, from this Department also provides that, in the case of taxpayers who in 2013 were in the organized accounting regime by legal imposition, they are classified under the simplified regime in 2014 if their annual net Category B income in 2013 was equal to or below € 200,000. If they wish to maintain the organized accounting regime, they must exercise this choice by the end of March 2014.

Objectively, she does not submit new elements that would permit a change to the proposed rejection of the request, remaining in the simplified regime in the three-year period 2014/16.

Based on the foregoing, we propose the final conversion of the draft rejection of the taxpayer's request for change from the simplified regime for determining Category B income of IRS to the organized accounting regime, for the year 2014."

  • The Tax Authority and Customs Service rejected the Claimant's claim for 2015, based on information, the contents of which are reproduced herein, stating, among other things, the following:

"The taxpayer was classified in the organized accounting regime by legal obligation since 2005, due to the total results obtained exceeding the amount of 150,000.00€, provided for in paragraph 2 of article 28 of the IRS Code, in accordance with the text given by article 84 of Law no. 3-B/2010, of 28 April.

However, Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, amended the limit provided for in paragraph 2 of article 28 of the IRS Code to 200,000.00€, thus those covered by the simplified regime are taxpayers who, in the exercise of their activity, did not exceed in the immediately preceding tax period an annual net income amount of this category of 200,000.00€.

In the specific case, in 2013, the taxpayer earned income in the amount of 180,179.96€, income below the limit provided for in paragraph 2 of article 28 of the IRS Code, thus meeting the requirements to be classified under the simplified regime in 2014 and not having exercised the choice guaranteed to her by law (paragraphs 3 and 4 of article 28 of the IRS Code), she was classified under this regime.

As for the year 2014, the taxpayer earned income in the amount of 211,337.49€.

Pursuant to paragraph 6 of article 25 of the IRS Code, the application of the Simplified Regime ceases

only when the amount referred to in paragraph 2 of the same article is exceeded in two consecutive tax periods or, when it is exceeded in a single exercise by an amount exceeding 25%, in which case taxation under the Organized Accounting Regime takes place from the tax period following that in which any of these facts occur.

With the taxpayer classified in the simplified regime in 2014 and not having exceeded the value of 250,000.00€, considering that the condition of exceeding the limit in a single exercise by more than 25% is not verified and not having exercised the choice for the Organized Accounting Regime by the end of March 2015, as stipulated in paragraphs 3 and 4 of article 28 of the IRS Code, the classification under the simplified regime is thus maintained for the year 2015.

Based on the foregoing, we inform that the taxpayer's request for change from the simplified regime for determining Category B income of IRS to the organized accounting regime should be rejected, for the year 2015, and thus within 15 days, the IRS model 3 declaration should be submitted/corrected for the year 2015, where she should declare the Category B income earned in the above year from her notary activity, in Annex B."

  • Following the decisions to reject the claims, the Tax Authority and Customs Service issued the following IRS assessments:

    • Assessment no. 2018..., relating to the period 2014-01-01 to 2014-12-31, in the amount of € 47,873.05, with the voluntary payment period deadline occurring on 28-02-2018;

    • Assessment no. 2018..., relating to the period 2015-01-01 to 2015-12-31, in the amount of € 50,473.03, with the voluntary payment period deadline occurring on 28-02-2018;

  • On 28-02-2018, the Claimants made payment of the amounts of € 47,873.05 and € 50,473.03, relating to the aforementioned assessments (documents nos. 18 and 29 enclosed with the request for arbitral decision, the contents of which are reproduced herein);

  • On 22-05-2018, the Claimants filed the request for arbitral decision that gave rise to the present proceedings.

3.2. Unproven Facts and Reasoning for the Establishment of the Factual Matter

The facts were established as proven based on the documents enclosed with the request for arbitral decision and on the administrative file.

There is no controversy regarding the facts relevant to the decision of the case.

4. Legal Matter

The Claimant chose the application of the organized accounting regime in 2005, when she commenced the activity, and since then obtained, until 2013, Category B income exceeding the amount of € 150,000.00 which, under article 28, paragraph 2, of the IRS Code, in the text prior to Law no. 83-C/2013, of 31 December, was the maximum limit for application of the simplified regime.

In 2013, the Claimant had Category B income in the amount of € 180,179.96.

With the text of Law no. 83-C/2013, paragraph 2 of article 28 of the IRS Code came to provide as follows:

"2 - Those covered by the simplified regime are taxpayers who, in the exercise of their activity, did not exceed in the immediately preceding tax period an annual net income amount of this category of (euro) 200,000."

The Tax Authority and Customs Service interpreted this rule as determining the application of the simplified regime to all taxpayers who until then were subject to the organized accounting regime by legal imposition and, believing this to be the Claimant's situation, imposed the application of the simplified regime on her, because she had not manifested the choice for the organized accounting regime by the end of March 2014.

Taxpayers in Category B of IRS may be subject to organized accounting regime by choice or by legal imposition.

The Claimant was subject to the organized accounting regime by choice manifested in 2005 and, subsequently, also by legal imposition, because the Category B income she came to earn always exceeded the amount of € 150,000.00, provided for in article 28, paragraph 2, of the IRS Code, in the texts prior to Law no. 83-C/2013.

Thus, there are two legal grounds for the organized accounting regime to apply to the Claimant, each of them sufficient, by itself, to determine the application of this regime.

And, obviously, when a legal situation has two autonomous grounds, each of them sufficient to give it legal support by itself, the fact that one of them ceases to subsist does not prevent the maintenance of the situation based on the other.

Thus, the essence of the question is whether the Claimant's initial choice for the application of the organized accounting regime loses relevance by the fact that, subsequently, the application of this regime becomes mandatory, because the income earned is not compatible with the application of the simplified regime.

In paragraph 2 of article 28 of the Corporate IRS Code, in force in September 2005, when the Claimant began her activity, it was indicated that those "covered by the simplified regime are taxpayers who, not having chosen the organized accounting regime, did not exceed in their activity, in the immediately preceding tax period" any of the limits of sales volume or net value of the remaining Category B income (text of Decree-Law no. 198/2001, of 3 July).

The Claimant chose the organized accounting regime, so the application of the simplified regime was precluded.

In the remaining paragraphs of this article 28, there was no provision for the cessation of the application of the organized accounting regime by choice of the taxpayer, but rather the situations in which the simplified regime ceased.

With the text that Law no. 53-A/2006, of 29 December, gave to paragraph 5 of article 28, which is still in force, there came to exist a minimum period of permanence of three years in either regime, "renewable for equal periods, except if the taxpayer communicates, in accordance with subparagraph b) of the preceding paragraph, the change in the regime under which it is covered".

Thus, the choice for the organized accounting regime having been made and the Claimant not having communicated the change of regime, the application of the organized accounting regime was renewed by successive three-year periods until the years 2014 and 2015, which are at issue here.

Therefore, as the Supreme Administrative Court understood in the judgment of 11 May 2016, delivered in case no. 01536/15, "having the taxpayers chosen to be taxed based on their accounting, the Tax Administration cannot come to classify them under the simplified taxation regime". As is stated in the same judgment, "the Tax Administration could not have substituted itself for the taxpayers in this choice, because the minimum period of permanence in the chosen regime was not exceeded, but, above all, because only taxpayers can choose a different regime, except when classified in the simplified regime they exceed the income amount previously indicated in two successive periods – article 28, paragraph 6 of the IRS Code".

Law no. 83-C/2013, of 31 December, did not change this regime, limiting itself, insofar as relevant here, to increasing the amount of income from which the application of the organized accounting regime is mandatory, not imposing its cessation.

As stated in that judgment, "if permanence in the simplified regime implies that taxpayers, in the exercise of their activity, did not exceed in the immediately preceding tax period an annual net income amount of this category of (euro) 200,000, there is no specific requirement as to the value of income earned for them to be able to choose the determination of income based on accounting".

There is no legal provision that permits the conclusion that the choice for the organized accounting regime loses relevance by the fact that the application of this regime becomes mandatory.

Based on the foregoing, the disputed assessments, which are based on the premise that the simplified regime would be applicable to the Claimant, suffer from the defect of violation of law, which justifies their annulment, under article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable under article 2, subparagraph c), of the General Tax Law.

4. Reimbursement of Amounts Paid and Compensatory Interest

The Claimants request reimbursement of the tax paid, plus compensatory interest.

On 28-02-2018, the Claimants made payment of the amounts of € 47,873.05 and € 50,473.03, relating to the disputed assessments.

In accordance with the provision in subparagraph b) of article 24 of the RJAT, an arbitral decision on the merits of a claim from which no appeal or challenge may be brought binds the Tax Administration from the end of the deadline provided for appeal or challenge, and the Tax Administration must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for the voluntary execution of decisions of tax court judgments, "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for this purpose", which is in harmony with the provision in article 100 of the General Tax Law [applicable by virtue of the provision in subparagraph a) of paragraph 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a complaint, legal challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the litigation, including the payment of compensatory interest, if appropriate, from the end of the deadline for execution of the decision".

Although article 2, paragraph 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral courts operating at the CAAD, making no reference to condemning decisions, it should be understood that the powers that, in judicial challenge proceedings, are attributed to tax courts are comprised within its competence, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first guideline, that "the tax arbitral process must constitute a procedural means alternative to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

Judicial challenge proceedings, although essentially a process for annulment of tax acts, admit the conviction of the Tax Administration for payment of compensatory interest, as can be inferred from article 43, paragraph 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in a complaint or legal challenge, that there was an error attributable to the services that resulted in payment of the tax debt in an amount exceeding the legally due amount" and from article 61, paragraph 4, of the Code of Tax Procedure (in the text given by Law no. 55-A/2010, of 31 December, to which paragraph 2 corresponds in the original text), which provides that "if the decision recognizing the right to compensatory interest is judicial, the payment deadline is counted from the beginning of the deadline for its voluntary execution".

Thus, paragraph 5 of article 24 of the RJAT, when stating that "payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting recognition of the right to compensatory interest in the arbitral process.

On the other hand, as the right to compensatory interest depends on the existence of a right to a sum to be reimbursed, from this competence to decide on the right to compensatory interest it can be inferred that it extends to the assessment of the right to reimbursement.

In the case at hand, the disputed assessments suffer from the defect of violation of law attributable to the Tax Authority and Customs Service, which effected the assessments.

Thus, the Claimant is entitled to compensatory interest, under paragraph 1 of article 43 of the General Tax Law and article 61 of the Code of Tax Procedure.

Compensatory interest is due at the legal supplementary rate, under articles 43, paragraph 4, and 35, paragraph 10, of the General Tax Law, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April, from 28-02-2018 until reimbursement of the amounts paid.

5. Decision

In accordance with the foregoing, this Arbitral Court agrees to:

  • Rule that the exception raised by the Tax Authority and Customs Service is dismissed;

  • Rule that the request for arbitral decision is granted;

  • Declare the illegality and annul IRS assessments nos. 2018... and 2018...;

  • Condemn the Tax Authority and Customs Service to reimburse the Claimants in the amount of € 98,346.08, plus compensatory interest calculated thereon, in accordance with the terms referred to in section 4 of this judgment.

6. Value of the Proceedings

In accordance with the provision in articles 296, paragraph 1, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 98,346.08.

7. Costs

Under article 22, paragraph 4, of the RJAT, the amount of costs is set at € 2,754.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Service.

Lisbon, 22-10-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Paulo Ferreira Alves)

(Jónatas Machado)

[1] ALBERTO DOS REIS, Code of Civil Procedure Annotated, volume II, pages 288-289, teaches:

"And as the aim for which, in each specific case, the process is used becomes known through the initial petition, since it is in this that the claimant formulates their claim and the claim stated by the claimant is what designates the aim to which the process is intended, the following conclusion is reached: the question of the propriety or impropriety of the special process is a matter, pure and simple, of adjustment of the claim of the action to the purpose for which the law created the respective special process".

Frequently Asked Questions

Automatically Created

What is the difference between the organized accounting regime and the simplified regime for IRS purposes in Portugal?
The organized accounting regime (regime de contabilidade organizada) requires taxpayers to maintain complete bookkeeping records and calculate taxable income based on actual revenues and documented expenses. The simplified regime (regime simplificado) applies coefficients to gross income to determine taxable profit without requiring detailed expense documentation. Under Article 28 of the IRS Code, taxpayers exceeding specific income thresholds must use organized accounting, while those below may choose between regimes. The organized accounting regime generally allows greater expense deductions but imposes more stringent compliance obligations, whereas the simplified regime reduces administrative burden but limits deductibility through standardized coefficients.
Can a taxpayer choose to switch between the organized accounting regime and the simplified regime for IRS?
Yes, taxpayers can choose between IRS regimes subject to specific conditions and procedures. Article 28(2) of the IRS Code allows taxpayers in the simplified regime to opt for organized accounting by communicating this choice to the tax authority during the month of January or within 90 days of starting business activity. Once exercised, this option remains valid for at least three years unless income exceeds thresholds mandating organized accounting. However, as illustrated in CAAD process 262/2018-T, disputes arise when legislative amendments alter threshold requirements, potentially causing tax authorities to reclassify taxpayers administratively. The case demonstrates that an initial regime choice may be contested by authorities following statutory changes affecting eligibility criteria.
What were the IRS tax assessments challenged in CAAD process 262/2018-T?
The challenged IRS assessments in CAAD process 262/2018-T were: Assessment 2018... for tax year 2014 (January 1 to December 31, 2014) totaling €47,873.05 with voluntary payment deadline February 28, 2018; and Assessment 2018... for tax year 2015 (January 1 to December 31, 2015) totaling €50,473.03, also due February 28, 2018. These assessments resulted from the Tax Authority's reclassification of the claimant from the organized accounting regime to the simplified regime following Law 83-C/2013's amendment to Article 28(2) of the IRS Code. The claimants challenged both assessments seeking annulment, reimbursement of amounts paid, and compensatory interest.
How does the CAAD arbitral tribunal handle disputes over IRS regime classification in Portugal?
The CAAD arbitral tribunal handles IRS regime classification disputes by asserting jurisdiction over assessment acts while recognizing that interlocutory procedural decisions, including regime classification, are not autonomously challengeable. In process 262/2018-T, the tribunal dismissed the Tax Authority's competence exception, ruling that Article 2(1)(a) RJAT grants arbitral courts jurisdiction to declare assessment acts illegal. The tribunal applied Article 54 of the Tax Procedure Code, allowing illegalities from preliminary administrative decisions to be contested through challenges to final assessment acts. This procedural approach enables taxpayers to contest regime classifications indirectly by challenging resulting tax assessments, ensuring comprehensive review of both substantive tax calculations and underlying administrative determinations affecting regime application.
Are taxpayers entitled to indemnity interest when IRS tax assessments are annulled by CAAD?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when IRS assessments are annulled by CAAD, as explicitly requested in process 262/2018-T. Article 43 of the General Tax Law (Lei Geral Tributária) establishes taxpayers' right to compensatory interest when tax amounts are refunded following successful challenges to assessment acts. Interest accrues from the payment date until refund, compensating taxpayers for the State's improper retention of funds. In arbitral proceedings under RJAT, tribunals routinely order compensatory interest alongside assessment annulment and principal tax reimbursement. The rate and calculation methodology follow statutory provisions in Article 43 LGT, ensuring taxpayers receive full compensation for financial prejudice resulting from illegal tax assessments, including time-value losses from premature or excessive tax collection.