Process: 277/2015-T

Date: January 10, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 277/2015-T) addresses a challenge by A... Lda. against additional VAT assessments for the third quarter of September 2010 and fourth quarter of December 2010, totaling €28,747.27 including compensatory interest. The company invoked multiple grounds for annulment under the Tax Arbitration Legal Framework (RJAT - Decree-Law 10/2011). The central dispute concerned whether the Portuguese Tax Authority's right to assess had expired under Article 45 of the General Tax Law (LGT), which establishes a general four-year limitation period ending December 31, 2014 for 2010 tax periods. The applicant initially argued the assessments were not made within this timeframe, then amended its claim to assert it never received notification of the assessments in 2014, placing the burden of proof on the Tax Authority. The Tax Authority countered that assessments were issued on November 25, 2014, within the limitation period, with suspension during the inspection procedure per Article 46(1) LGT, and notification occurred on November 27, 2014 via electronic ViaCTT mailbox. Additional procedural challenges included alleged failures to deliver the inspection Service Order copy as required by Article 51 RCPIT, invalid notification signatures, improper notification of the inspection conclusion report, lack of assessment reasoning, and substantive errors regarding revenue recognition in accounting records and VAT deductibility of business partner study expenses. The case illustrates critical procedural requirements in Portuguese tax inspections, the intersection of limitation periods with inspection suspension rules, electronic notification validity, and VAT deduction rules for property-related and business development expenses under Portuguese law.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., Lda., NIPC..., with registered office at Av. da ..., no. ..., ...-... ...(hereinafter referred to solely as Applicant), presented, on 29-04-2015, a request for constitution of a sole arbitrator tribunal, under the terms of articles 2º and 10º of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to solely as RJAT), in conjunction with art. 102º of the CPPT, in which the Tax and Customs Authority is Respondent (hereinafter referred to solely as Respondent).

The Applicant requests the annulment, on the grounds of its illegality, of the acts of additional VAT assessment for the periods 2010-09T and 2010-12T, and respective compensatory interest, in a total of € 28,747.27.

The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD on 04-05-2015 and notified to the Tax and Customs Authority on that same date.

In accordance with the provisions of paragraph a) of no. 2 of article 6º and paragraph b) of no. 1 of article 11º of the RJAT, the Deontological Council appointed as arbitrator of the sole arbitrator tribunal the undersigned, who communicated acceptance of the task within the applicable period.

On 19-06-2015, the Parties were duly notified of this appointment and did not manifest the will to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11º no. 1, paragraphs a) and b) of the RJAT and articles 6º and 7º of the Deontological Code.

In accordance with the provision of paragraph c) of no. 1 of article 11º of the RJAT, the sole arbitrator tribunal was constituted on 14-07-2015.

Notified to comment on the Applicant's request, the Respondent presented its reply on 29-09-2015, arguing for the dismissal of the request submitted by the Applicant.

Following the scheduling of the meeting of art. 18º of the RJAT for questioning of the witnesses listed by the Applicant, the latter came to declare that it waived the requested evidence, proposing that the proceedings continue to written submissions.

Notified of this proposal from the Applicant, the Respondent came to counter-propose the use of evidence produced in proc. no. 259/2015-T which was handled by CAAD, under the terms of no. 1 of art. 421º of the CPC.

The Applicant did not object, so the request for use of evidence was granted and the production of testimonial evidence in these proceedings was dispensed with.

The Parties presented their respective submissions, with the Applicant having made the (partial) alteration of the cause of action, now invoking the lack of notification of the contested assessments within the statutory limitation period for the right to assess. In its submissions, the Respondent opposed this alteration, taking the opportunity to attach printouts retrieved from the information system of the Tax and Customs Authority attesting to the date of notification of the contested assessments. By autonomous request, the Applicant opposed the attachment of these documents, challenging their authenticity.

By request dated 05-01-2016, the Respondent came to attach to the file a copy of the decision issued in the arbitral process that was handled under no. 317/2015-T in which the Applicant was a party.

II. THE APPLICANT'S REQUEST

In the present proceedings, the Applicant requests the annulment of the acts of additional VAT assessment for the periods 2010-09T and 2010-12T, and respective compensatory interest, in a total of € 28,747.27.

To support its request, the Applicant attributes to the identified acts various defects that will imply their invalidity, namely:

a) the expiry of the right to assess, on the grounds that the assessment of the debts in question would not have been effected within the general statutory limitation period for the right to assess, that is, until 31/12/2014, under the terms of art. 45º of the LGT. In the submissions presented, the Applicant alters the cause of action on this matter, now alleging that it did not receive any of the notifications of the assessments in 2014. The proof of this receipt would fall upon the Respondent, which would not have effected it, so the decision on the matter should be to its detriment.

b) the omission of an essential legal formality consisting in the failure to deliver a copy of the Service Order that determined the inspection, under the terms of nos. 1 and 2 of art. 51º of the RCPIT.

c) the omission of an essential legal formality consisting in the invalidity of the notification of the note of proceedings relating to the conclusion of the inspection acts, inasmuch as the same was signed by someone who was not the legal representative of the Applicant nor had any employment or professional relationship with it. In addition, such notification does not comply with the formal requirements required by art. 61º of the RCPIT, namely the signature by the tax inspectors and the description of the proceedings carried out.

d) the failure to notify the Applicant of the conclusion report which was previously notified to the Applicant's legal representative, with the Applicant only being informed that such notification had occurred. This conduct of the Respondent violates the rules of arts. 36º et seq. of the CPPT, and it should be concluded that there was no notification to the Applicant, with the consequent legal effects.

e) the lack of reasoning of the assessments because the assessment notes contain only the statement of VAT values for 2010 without any explanation as to the grounds for such determinations.

f) error regarding the factual and legal assumptions regarding the assessed VAT inasmuch as the Respondent would not have demonstrated that the amount of increase in revenues recorded in account #27219 corresponded to services rendered but not yet invoiced. With regard to the study expenses for identifying a business partner, the corresponding VAT would be deductible because the services were intended to obtain customers and, to that extent, would be indispensable for the realization of future revenues and for the company's own activity.

III. THE RESPONDENT'S REPLY

In its reply, the Respondent came to contest the Applicant's position, concluding that the request for arbitral pronouncement should be dismissed, responding to each of the points raised by the Applicant as follows:

a) the alleged expiry of the right to assess does not hold because the contested assessments were effected on 25-11-2014, that is, within the legal statutory limitation period for assessment provided in art. 45º of the LGT, without prejudice to its suspension by virtue of the institution of the external inspection procedure, under the terms of art. 46º, no. 1, of the LGT. With regard to the alteration of the cause of action made by the Applicant in its submissions, the same should not be considered; but, in the event that it were, the Respondent attaches the documents retrieved from the computer system of the Tax and Customs Authority confirming that the notification of the acts of assessment now contested occurred on 27-11-2014, through access to the ViaCTT mail box.

b) the alleged omission of an essential legal formality consisting in the failure to deliver a copy of the Service Order that determined the inspection, under the terms of nos. 1 and 2 of art. 51º of the RCPIT, does not hold because the note of commencement of the inspection was signed by Mrs. Dr. ..., Certified Accountant of the Applicant. In addition, the Applicant's own managers were present at various meetings with the inspectors, having even made statements. And never, at any time, was this issue raised by any of them.

c) likewise, the alleged omission of an essential legal formality consisting in the invalidity of the notification of the note of proceedings relating to the conclusion of the inspection acts does not hold because "the note of proceedings has only the purpose of marking the date of conclusion of the material acts of inspection, but this does not mean the end of the inspection procedure, since this only becomes effective with the preparation of the final report, which aims to identify and systematize the facts detected and qualify them from a legal-tax point of view. And since the final act of the inspection procedure is reduced to the respective final report, the alleged failure of notification to which article 61º/1 of the RCPIT refers is degraded, necessarily, into a mere irregularity, without invalidating effects, provided that the interested party has been given the legal possibility of exercising their right to be heard, either during the procedure, or at the end of the procedure when preparing the draft final report. Which is what actually happened".

d) the failure to notify the Applicant of the conclusion report has no merit whatsoever because the conclusion report was notified to the legal representative constituted in the inspection procedure, in compliance with the provisions of art. 40º of the CPPT, and there are therefore no doubts whatsoever as to compliance with the legal procedures.

e) the alleged lack of reasoning of the assessments does not hold because the assessment notes sent to the Applicant contain expressly the following text: "Additional assessment made on the basis of correction effected by the Tax Inspection Services", which translates into a legally permissible reference to the inspection report notified to the legal representative of the Applicant.

f) as to the error regarding the factual and legal assumptions, the Respondent considers the corrections effected to be correct given that the assessed VAT results from (i) services rendered not invoiced and therefore recorded as increase in revenues and (ii) regularizations of VAT deducted with reference to immovable property, under the terms of articles 24º and 25º of the CIVA. The non-deductible VAT results from the acquisition of services not related to the Applicant's activity.

IV. PROCEDURAL HEARING

The Arbitral Tribunal was regularly constituted and is competent.

The parties enjoy tax and judicial capacity and are entitled to be parties (arts. 4º and 10º, no. 2, of the same legislation and art. 1º of Ordinance no. 112-A/2011, of 22 March).

The process does not suffer from nullities and no obstacle arises to the consideration of the merits of the case.

V. FACTUAL MATTERS

A. Facts Proven

The following facts are considered proven:

  1. The Applicant is a commercial entity engaged in accounting and audit activities, tax consulting.

  2. The Applicant is included in the general accounting regime for IRC purposes.

  3. Regarding VAT, the Applicant is included in the normal quarterly periodicity regime.

  4. In November 2010, Messrs. B... and C... acquired from the Applicant the immovable property located at ..., ... and Av. da... , ...e..., in ... .

  5. In the year 2010, and until 20-12-2010, B... and C... were managers of the Applicant.

  6. On 20-12-2010, D... and E... were appointed managers of the Applicant.

  7. From 2011 onwards, the Applicant's accounting was monitored by the Certified Accountant ..., responsible for its preparation, who was in office in the year 2014, namely during the inspection.

  8. By quota transfer agreement dated 30-10-2012, B... and C... and their respective spouses transferred the quotas they held in the capital of the Applicant in favor of D... and E... .

  9. In 2014, the Applicant was subject to an external general tax inspection, with focus on the fiscal years 2010 and 2011, which took place between 04-06-2014 and 30-09-2014.

  10. On 20-05-2014, by official notice no. ..., the Respondent proceeded to preliminary notification of the Applicant regarding the institution of said external inspection procedure, of general scope, with focus on the fiscal years 2010 and 2011.

  11. On 05-06-2014, the Certified Accountant ... signed the copy of the Service Order of the inspection procedure.

  12. On 03-10-2014, Mr. C..., in the alleged capacity of manager, signed the copy of the note of proceedings under the terms of art. 61º of the RCPIT.

  13. By official notice no. ..., dated 16-10-2014, sent by registered postal notice, the Applicant was notified of the closure of the inspection proceedings relating to the fiscal year 2010 and the institution of a new procedure with focus on the fiscal year 2011.

  14. From that inspection resulted the conclusion report which was notified to the Applicant's legal representative through official notice no. ..., dated 06-11-2014, sent by registered letter with acknowledgment of receipt on the same date and received on 07-11-2014.

  15. Notice of this dispatch was given to the Applicant via official notice no. ..., dated 06-11-2014, sent by registered letter with acknowledgment of receipt on the same date and received on 07-11-2014.

  16. The inspection report contains the following regarding the contested VAT:

[Contents of report excerpt not fully legible in original]

  1. The Applicant was notified of the proposed conclusions of the inspection report.

  2. The Applicant exercised its right to prior hearing, having moreover attached various documents to the inspection file by request dated 29-10-2014.

  3. On 25-11-2014, the Respondent made the following assessments:

a) assessment no. ..., in the amount of € 735.00, relating to VAT for the period 2010-09T;

b) assessment no. ..., in the amount of € 116.31, relating to compensatory interest for the period 2010-09T;

c) assessment no. ..., in the amount of € 24,296.14, relating to VAT for the period 2010-12T; and

d) assessment no. ..., in the amount of € 3,566.82, relating to compensatory interest for the period 2010-12T.

B. Facts Not Proven

It was not proven that the balance of account #27219 corresponds to the profit resulting from the sale of the Applicant's immovable property to its former partners.

C. Reasoning on Factual Matters

With regard to factual matters, the tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that are important for the decision and discriminate between proven and unproven matter (cfr. art. 123º, no. 2, of the CPPT and article 607º, no. 3 of the CPC, applicable by virtue of article 29º, no. 1, paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and delineated in function of their legal relevance, which is established in attention to the various plausible solutions to the legal question(s) (cfr. previous article 511º, no. 1, of the CPC, corresponding to current article 596º, applicable by virtue of article 29º, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110º, no. 7 of the CPPT, the documentary evidence, the administrative process attached to the file and the testimony of the witnesses listed by the Applicant, the facts listed above were considered proven, with relevance for the decision.

With regard to the testimonial evidence produced, although it was not essential for the determination of the facts, this Tribunal proceeded to its analysis, and it should therefore be noted that the testimonies given were regarded as serious and impartial in the eyes of the Tribunal.

VI. LEGAL MATTERS

A) Alteration (Partial) of the Cause of Action

In the initial petition submitted, the Applicant invokes the passage of the statutory limitation period for the right to assess the tax provided in art. 45º of the LGT, alleging that the VAT assessments for the periods 2010-09T and 2010-12T, and respective compensatory interest, were made beyond the statutory limitation period which would be 31-12-2014. This very thing results from the words of the Applicant which we transcribe: "The assessment was effected beyond those four years. Thus, the expiry of that right should be declared, which is hereby requested and alleged for all legal purposes. Such expiry that affects not only its efficacy, preventing it in practice from producing the effects for which it was intended, but also the very legality of the act." – cfr. articles 13º to 15º of the initial petition.

It happens that, in its Submissions, the Applicant alters this cause of action, now referring to the absence of notification of said VAT assessments and respective compensatory interest within the general statutory limitation period, and not to the performance of the assessment act beyond its respective legal period. And, in the words of the Applicant, "In conclusion, notifications to taxpayers that affect their legal sphere must be effectively communicated to them, that is, they must be given actual knowledge, in order for them to produce their effects. Without this cognizability, the communication made is not valid nor effective, producing no effect, being null" – cfr. points 47 and 48 of the Applicant's Submissions.

Therefore, in its Submissions, the Applicant seems to defend that the invalidity of the contested assessments will result, not from the exercise of the tax power beyond its respective legal period – that is, the performance of a tax act in a period in which the Respondent would no longer have powers to do so –, as invoked in the initial petition, but from the fact that, within that same legal period, valid notification of the tax assessment acts was not made.

The Respondent opposed this alteration of the cause of action. Nevertheless, and out of an abundance of caution, the Respondent attached with its Submissions the documents retrieved from the information system of the Tax and Customs Authority that will make it possible to verify that the assessments were validly notified to the Applicant before 31-12-2014.

It is necessary to decide on the admissibility of this alteration.

Now, in arbitral proceedings, the principle of stability of the instance provided for in art. 260º of the CPC applies, applicable by virtue of the reference in paragraph e) of no. 1 of art. 29º of the RJAT. To that extent, once the respondent has been cited – in this case, the Tax and Customs Authority – "the instance must remain the same as to the parties, the claim and the cause of action, except for the possibilities for modification provided by law".

In the absence of agreement between the parties regarding the alteration of the claim or cause of action (admissible under the terms of art. 264º of the CPC), the law determines that the alteration of the cause of action will only be admissible if (i) it is a consequence of admission made by the respondent and accepted by the applicant (no. 1 of art. 265º of the CPC) or (ii) it is the development or consequence of the original claim (no. 2 of art. 265º of the CPC).

In the present proceedings, none of these situations occurred. Indeed, the Respondent opposed the alteration of the cause of action as described above; in addition, taking into account what was petitioned and alleged by the Applicant, this Tribunal cannot consider that the alteration of the cause of action made by the Applicant in the submissions results from any admission by the Respondent or that it is a mere development or consequence of the Applicant's original claim.

As Jorge Lopes de Sousa notes, Código de Procedimento e de Processo Tributário anotado e comentado, Vol. I, Áreas Editora, 5th Edition, 2006, page 783, note 11, "The indication of the claim or claims and the facts on which it is based, as well as the indication of the defects that the challenging party attributes to the act being challenged must be made in the petition, and subsequently, as a rule, new claims cannot be formulated or new facts invoked or other defects attributed, in particular in the submissions provided for in art. 120º of this Code. This understanding, which has been almost generally adopted by the STA, is based on the principle of stability of the instance (art. 268º of the CPC), and on the burden imposed on the challenger to set forth in the petition for challenge the facts and the legal reasons that support the claim (no. 1 of art. 108º)."

In addition, as the STA concluded in the ruling of 14-09-2011, issued in proc. no. 0559/11 (available at www.dgsi.pt), "The expiry of the right to assess is not cognizable ex officio. It is in the initial petition that the facts that make up the cause of action must be alleged and the claim that flows from it must be formulated, and the powers of the tribunal are thereby delimited, except as to matters of ex officio cognizance. Even though the tribunal is not bound by the legal classification that the parties attribute to the alleged facts, the applicant must in the initial petition invoke all the facts that make up the defects, as well as expressly invoke the defects that make the act being challenged invalid."

In view of the foregoing, this Tribunal concludes that the matter of the alleged absence of notification of the assessment acts within the general statutory limitation period could and should have been invoked in the initial petition submitted by the Applicant, there being no justification whatsoever for this fact to be brought to the proceedings only with the final submissions provided in no. 2 of art. 18º of the RJAT.

The alteration of cause of action made by the Applicant in its Submissions is therefore rejected.

As a consequence, in the exercise of procedural celerity and freedom of procedural management, this Tribunal will not rule on the admissibility of the documents attached by the Respondent with its submissions, nor on the authenticity and genuineness thereof, as raised by the Applicant, as this appears futile and without relevance to the issues being examined in the present proceedings.

B) On the Consideration of Law

As referred to above, in the request for arbitral pronouncement, the Applicant contests the legality of the acts of VAT assessment and compensatory interest for the periods 2010-09T and 2010-12, alleging a series of defects that, if considered well-founded, will imply the annulment of those acts, with the consequent legal effects.

It is therefore necessary to analyze the various issues raised by the Applicant:

Contrary to what is alleged by the Applicant, the expiry of the right to assess does not occur because the contested assessments were effected on 25-11-2014, that is, still within the statutory limitation period which, as the Applicant itself recognizes, would end – except for any interrupting or suspending fact – on 31-12-2014, in accordance with the rules of art. 45º of the LGT. The Respondent acted within the legal period to do so, and therefore such a defect cannot be attributed to the contested assessment acts.

With regard to the alleged failure to deliver the copy of the service, under the terms of art. 51º of the RCPIT, the Applicant's claim cannot be upheld. Indeed, it appears from the list of proven facts that, on 20-05-2014, the notice letter required by art. 49º of the RCPIT was sent. In addition, it is also proven that the copy of the service order was delivered to the Certified Accountant, ..., who signed the respective note of proceedings.

It should be noted that the legitimacy of the Certified Accountant to receive such documents and sign the said note of proceedings expressly results from the law – cfr. no. 3 of art. 51º of the RCPIT – it being unnecessary to have express authorization from the legal representatives of the entity to be notified or power of attorney with special powers. This has already been recognized by tax courts, of which the ruling of the TCA Sul of 23-10-2012, issued in proc. no. 05792/12 (available at www.dgsi.pt), is an example, in which it was concluded that "Certified Accountants can be notified of the beginning of the inspection procedure carried out by the Fiscal Authority, and moreover they have legitimacy to do so as results from the provision of article 51, no. 3, of the R.C.P.I.T., a provision that establishes the possibility of certified accountants and employees of the subjects being inspected (companies) signing the service orders, whenever their represented parties are not on the premises."

To that extent, there is no irregularity or illegality to be attributed to the Respondent's conduct, and the defect attributed to the contested acts is not upheld.

The same applies to the fact that the note of closure of the inspection proceedings was signed by C..., who, at the time of the inspection, no longer had any relationship with the Applicant. Indeed, as the Respondent correctly points out, this circumstance amounts to a mere procedural irregularity that did not in any way affect the Applicant's defense rights. And it did not affect because, as was verified, following the signature of such note of proceedings, the Applicant was notified to comment on the draft conclusions of the inspection report, which it did via request subscribed by its legal representative. If there is any procedural deviation here, it must be qualified as a mere irregularity that was cured by the procedural intervention of the Applicant in the context of prior hearing.

With regard to the alleged absence of signatures of the inspectors and the description of the proceedings carried out within the scope of the inspection in such closure note, we refer to the text of art. 61º of the RCPIT, from which it appears that such requirements of the Applicant are without legal foundation. Indeed, art. 61º of the RCPIT does not require that the note of proceedings be signed by the inspectors of the Tax and Customs Authority, their identification sufficing. In addition, the description of the proceedings carried out in the course of the inspection is only required in the situations provided for in paragraphs a) and c) of no. 4 of art. 46º of the RCPIT, that is, situations that have nothing to do with what is being discussed in the present proceedings.

In view of the foregoing, the alleged procedural invalidity invoked by the Respondent is not upheld.

For its part, with regard to the alleged failure to notify the Applicant of the final report, it appears from the list of proven facts that such report was sent to and received by the Applicant's legal representative on 07-11-2014. In addition to this, it is also demonstrated that, on the same date, the Applicant received a notice from the Respondent informing it that the final report had been sent to its legal representative.

Now, in accordance with art. 40º of the CPPT, entities that have constituted a legal representative shall be notified in the person of that representative, at its office, which is precisely what occurred in this case. To that extent, the Applicant's allegation cannot be upheld, and in the view of this Tribunal, it has no legal support whatsoever. This is now settled in the case law of tax courts, of which the rulings cited by the Respondent of the STA of 02-09-2014, proc. no. 01094/12, and TCA Norte of 18-03-2011, proc. no. 00178/06 (available at www.dgsi.pt) are examples.

In view of the foregoing, the alleged defect is not upheld.

On the other hand, the contested acts do not suffer from any defect of lack of reasoning because, as the Applicant itself recognizes, these result from the inspection carried out in the year 2014, with reference to the fiscal year 2010. In addition, in the assessment notes sent to the Applicant, the following indication is expressly stated in the "REASONING" field: "Additional assessment made on the basis of correction effected by the Tax Inspection Services." The assessment acts expressly refer to the conclusions of the inspection report that had been notified to the Applicant in the person of its legal representative. In addition, the Applicant raised no question and did not alert to any fact or circumstance that might lead this Tribunal to ponder whether the acts now being contested had, in fact, as their basis the inspection report referred to, attached to the file by the Respondent in accordance with the law and at the request of the Applicant when indicating the means of evidence.

This form of reasoning of the assessment act, by reference to a prior inspection report, is, in the view of this Tribunal, legally permissible and does not collide with any defense rights of the taxpayer who, based on that same report, is able to understand the rationale of the assessments made and their respective reasoning.

On this matter, the STA had the opportunity to pronounce itself in the ruling of 09/05/2001, proc. no. 025832 (available at www.dgsi.pt), concluding that "The right to reasoning of the tax act, or in tax matters, constitutes a specific guarantee of taxpayers, and must comply with the express requirements of arts. 82º of the CPT and 125º of the CPA, which correspond, moreover, essentially, to art. 1º nos. 1 and 2 of decree-law 256-A/77, of 17/06 - cfr., now art. 77º of the LGT. The act of additional assessment, based on a report of the tax inspection services, must be considered to be reasoned, even though it does not make express reference to it, if it is unquestionably situated within its legal and factual framework, which is perfectly clear, explanatory and duly notified."

In addition, from the analysis of the inspection report, as set forth in the excerpt above transcribed in the proven facts, the assessments made are demonstrated and reasoned, with the Respondent having proceeded to the adequate quantification and characterization of the tax acts so that the Applicant could understand and comprehend the corrections made. To that extent, it is concluded that full compliance was given to what is required by art. 77º of the LGT and art. 268º of the CRP, and the alleged lack of reasoning raised by the Applicant is not upheld.

Finally, regarding the corrections made by the Respondent in the course of the inspection, the Applicant has failed to demonstrate in what way these result from errors of fact or law or from an inadequate interpretation of the information collected from the Applicant's accounting and determined in the course of the inspection.

Indeed, with regard to the regularizations of the VAT deducted concerning the immovable property sold in November 2010, the Respondent proceeded to the adequate demonstration and quantification of the tax that should have been regularized as a result of the sale having been made without exemption waiver of VAT, under the terms of no. 5 of art. 24º of the CIVA. The Respondent itemized the various costs with works on the immovable property sold whose supported VAT was deducted by the Applicant and which would have to be regularized under the terms of the provision invoked. Both in the context of prior hearing and in the context of the request for arbitral pronouncement, the Applicant has failed to demonstrate in what way this regularization would not be due. In agreement with this Tribunal with the correction made by the Respondent, the Applicant's claim regarding this correction is rejected.

With regard to the VAT of the invoice from F..., Lda., NIPC..., in the amount of € 735.00, the Applicant believes there is a right to deduction of the tax because it considers that these services related to the activity of the Applicant and, to that extent, would be indispensable for the realization of tax-generating services. It happens, however, that no proof was made in that regard, and the Applicant has failed to overcome the information collected in the course of the inspection, to the effect that the entity in question had been contracted to find a business partner for the partners of the Applicant and not properly for the Applicant – which, moreover, came to pass with the change in management and subsequent transfer of the quotas representing the capital of the Applicant. To that extent, the refusal of deduction of the aforesaid tax is justified, for non-compliance with the general requirements of the right to deduction provided in art. 19º of the CIVA.

Finally, with regard to the assessment effected on the basis of the value of the balance of account #27219, the Applicant has failed to demonstrate that the values recorded there did not correspond to services rendered not invoiced, as per the information collected in the course of the inspection. In the present proceedings, no proof was made that contradicts the conclusions of the Respondent, and it would fall upon the Applicant to prove that the balance of such account resulted from the gains of the sale of the immovable property, which, as demonstrated above, was not considered proven.

In view of all that has been set forth, this Tribunal concludes that the defects attributed to the contested assessment acts are entirely without merit, and the Applicant has also failed to demonstrate that the corrections made by the Respondent are inadequate, unjustified, or illegal. The request for arbitral pronouncement is therefore entirely dismissed.

VII. DECISION

In accordance with what has been set forth, this Arbitral Tribunal decides to render entirely without merit the request for arbitral pronouncement and, in consequence, absolve the Respondent of the claim.

Case Value: In accordance with the provisions of article 306º, no. 2, of the CPC and 97º-A, no. 1, paragraph a), of the CPPT and 3º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of € 28,747.27.

Costs: Under the terms of no. 4 of art. 22º of the RJAT, the amount of costs is set at € 1,530.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Applicant.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 10-01-2016

The Sole Arbitrator

(Maria Forte Vaz)

[1] Although this fact only contends with the efficacy of the tax act, being a matter to be analyzed in the context of opposition to tax enforcement, it has come to be understood that the issue may be examined in the context of judicial challenge in cases where the statutory limitation period has already expired (cfr. Jorge Lopes de Sousa, Código de Procedimento e Processo Tributário anotado e comentado, Vol. I, 5th Edition, 2006, Áreas Editora, p. 707).

Frequently Asked Questions

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What is the statute of limitations (caducidade) for VAT additional assessments in Portugal?
Under Portuguese tax law, the statute of limitations (caducidade) for VAT additional assessments is generally four years, as established in Article 45 of the General Tax Law (LGT). For tax periods in 2010, the limitation period would expire on December 31, 2014. However, Article 46(1) of the LGT provides for suspension of this limitation period when an external inspection procedure is initiated by the Tax Authority. This suspension mechanism extends the deadline beyond the standard four-year period, allowing tax authorities to complete inspections and issue assessments even if the initial limitation period would otherwise expire. The assessment must be completed and properly notified to the taxpayer within the applicable timeframe, considering any suspension periods, to be valid.
Can property-related expenses be deducted for IVA (VAT) purposes under Portuguese tax law?
Property-related expenses can be deducted for VAT purposes under Portuguese tax law, but only when they meet specific criteria. The expenses must be directly connected to the company's taxable economic activity and necessary for generating taxable revenues. In this case, the taxpayer argued that study expenses for identifying a business partner should be VAT-deductible because the services were intended to obtain customers and were indispensable for future revenue realization. Portuguese VAT law generally allows deduction of input VAT on goods and services used for taxable transactions under Article 20 of the VAT Code (CIVA). However, the Tax Authority may challenge deductions when expenses appear personal in nature, relate to exempt transactions, or lack proper documentation demonstrating their business purpose and direct connection to taxable activities.
How does the CAAD arbitral tribunal handle disputes over additional VAT assessments and compensatory interest?
The CAAD (Administrative Arbitration Center) arbitral tribunal handles VAT assessment disputes through a structured process under RJAT (Decree-Law 10/2011). Taxpayers can request constitution of an arbitral tribunal under Articles 2 and 10 RJAT in conjunction with Article 102 CPPT to challenge additional assessments and compensatory interest. After accepting the request, the CAAD President appoints an arbitrator, and both parties present arguments. The tribunal may schedule hearings under Article 18 RJAT for witness testimony, though parties can waive this evidence. Parties submit written submissions, and the tribunal issues a binding decision on the legality of the contested tax acts. The process provides an alternative to judicial courts, offering specialized tax expertise, faster resolution, and the ability to challenge both procedural and substantive aspects of tax assessments.
What procedural rules apply when a taxpayer challenges the notification deadline of a VAT assessment?
When a taxpayer challenges the notification deadline of a VAT assessment, specific procedural rules apply under Portuguese law. The burden of proof regarding notification typically falls on the Tax Authority, which must demonstrate that notification occurred within the applicable limitation period. The Tax Authority may present evidence from its computer systems, such as electronic notification records via ViaCTT platform, showing the date of notification. If a taxpayer amends their claim during proceedings to assert they never received notification, tribunals must evaluate whether this procedural amendment is admissible under Article 421 CPC. The taxpayer may challenge the authenticity of Tax Authority documents presented as evidence. Proper notification is essential because assessments not notified within the limitation period are invalid due to expiry of the right to assess (caducidade), providing grounds for annulment.
What is the legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT) in Portugal?
The legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Tax Matters) is established in Articles 2 and 10 of that decree, in conjunction with Article 102 CPPT (Tax Procedure Code). This framework allows taxpayers to challenge tax acts before specialized arbitral tribunals as an alternative to judicial courts. Taxpayers can request constitution of a sole arbitrator or three-arbitrator tribunal to review the legality of tax assessments, including VAT additional assessments and compensatory interest. The request must be submitted to CAAD, which appoints arbitrators from a roster. Article 11 RJAT governs the tribunal constitution process, while Article 6 addresses acceptance procedures. The RJAT framework provides jurisdiction over disputes involving acts subject to administrative or judicial review, offering binding decisions on tax matters with specialized expertise in Portuguese tax law.