Process: 279/2019-T

Date: August 2, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (279/2019-T) addressed the challenge of VAT assessments totaling €345,011.55 for tax periods throughout 2014. The claimant, A... S.A., contested additional VAT assessments and compensatory interest across twelve monthly periods. During the arbitration proceedings, after the tribunal was constituted on July 8, 2019, the Portuguese Tax and Customs Authority (AT) voluntarily revoked all disputed assessments and ordered reimbursement of taxes paid plus indemnificatory interest. Following this revocation, the claimant declared it no longer maintained interest in continuing the proceedings pursuant to Article 13(2) of RJAT and requested dismissal of the case plus refund of arbitration fees. The tribunal addressed the critical issue of cost allocation in such circumstances. Under Article 22(4) of RJAT, when parties opt for designated arbitrators (rather than sole arbitrator appointment by CAAD), the claimant bears all arbitration costs regardless of the outcome, even with full success on merits. The tribunal clarified that this cost regime applies equally when proceedings terminate due to AT's voluntary revocation of assessments. The decision established important precedent that taxpayers choosing the three-arbitrator panel option cannot recover arbitration costs even when the tax authority concedes by revoking the contested acts during proceedings. This represents a significant consideration for taxpayers evaluating arbitration strategies, as the designated arbitrator option involves non-recoverable costs irrespective of whether victory comes through substantive decision or administrative revocation.

Full Decision

TAX ARBITRATION JURISPRUDENCE

Case No. 279/2019-T

Decision Date:
2019-08-02

VAT

Value of Claim:
€ 345,011.55

Subject Matter:
VAT – Revocation of the disputed act. Termination of proceedings. Responsibility for costs.

ARBITRAL DECISION

The arbitrators Counselor Jorge Lopes de Sousa (arbitrator-president, designated by the other Arbitrators), Professor Doctor Clotilde Celorico Palma and Doctor Emanuel Vidal Lima (arbitrators members, designated by the Claimant and Respondent, respectively), in order to constitute the Arbitral Tribunal, established on 08-07-2019, hereby agree as follows:

  1. A..., S.A., an anonymous commercial company with registered office at ..., ...-... ..., holding the Single Number for Legal Persons and registration in the Commercial Registry Office ... (hereinafter referred to as the "Claimant"), filed a request for the constitution of an Arbitral Tribunal with a view to the annulment of the following assessments:

  1. Additional VAT Assessment No. 2018..., relating to the period 201401M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 41,936.35;

  2. Compensatory interest assessment No. 2018..., relating to the period 201401M, which determined an amount payable of EUR 7,932.28 and respective account settlement statement No. 2018...;

  3. Additional VAT Assessment No. 2018..., relating to the period 201402M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 53,714.92;

  4. Compensatory interest assessment No. 2018..., relating to the period 201402M, which determined an amount payable of EUR 9,977.73 and respective account settlement statement No. 2018...;

  5. Additional VAT Assessment No. 2018..., relating to the period 201403M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 43,259.39;

  6. Compensatory interest assessment No. 2018..., relating to the period 201403M, which determined an amount payable of EUR 7,993.87 and respective account settlement statement No. 2018...;

  7. Additional VAT Assessment No. 2018..., relating to the period 201404M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 36,323.64;

  8. Compensatory interest assessment No. 2018..., relating to the period 201404M, which determined an amount payable of EUR 6,500.43 and respective account settlement statement No. 2018...;

  9. Additional VAT Assessment No. 2018..., relating to the period 201405M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 42,815.37;

  10. Compensatory interest assessment No. 2018..., relating to the period 201405M, which determined an amount payable of EUR 7,526.12 and respective account settlement statement No. 2018...;

  11. Additional VAT Assessment No. 2018..., relating to the period 201406M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 27,876.59;

  12. Compensatory interest assessment No. 2018..., relating to the period 201406M, which determined an amount payable of EUR 4,802.41 and respective account settlement statement No. 2018...;

  13. Additional VAT Assessment No. 2018..., relating to the period 201407M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 36,106.64;

  14. Compensatory interest assessment No. 2018..., relating to the period 201407M, which determined an amount payable of EUR 6,101.52 and respective account settlement statement No. 2018...;

  15. Additional VAT Assessment No. 2018..., relating to the period 201408M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 2,829.55;

  16. Compensatory interest assessment No. 2018..., relating to the period 201408M, which determined an amount payable of EUR 468.85 and respective account settlement statement No. 2018...;

  17. Additional VAT Assessment No. 2018..., relating to the period 201409M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 23,549.24;

  18. Compensatory interest assessment No. 2018..., relating to the period 201409M, which determined an amount payable of EUR 3,822.07 and respective account settlement statement No. 2018...;

  19. Additional VAT Assessment No. 2018..., relating to the period 201410M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 15,976.88;

  20. Compensatory interest assessment No. 2018..., relating to the period 201410M, which determined an amount payable of EUR 2,540.54 and respective account settlement statement No. 2018...;

  21. Additional VAT Assessment No. 2018..., relating to the period 201411M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 8,535.64;

  22. Compensatory interest assessment No. 2018..., relating to the period 201411M, which determined an amount payable of EUR 1,326.41 and respective account settlement statement No. 2018...;

  23. Additional VAT Assessment No. 2018..., relating to the period 201412M, and the respective account settlement statement No. 2018..., which determined tax payable in the amount of EUR 12,087.34;

  24. Compensatory interest assessment No. 2018..., relating to the period 201412M, which determined an amount payable of EUR 1,177.30 and respective account settlement statement No. 2018....

The Claimant opted for the constitution of an Arbitral Tribunal with designation of Arbitrators by the Parties, pursuant to Article 6, No. 1, subparagraph b), of Decree-Law No. 10/2011, of 20 January (RJAT).

The Tax and Customs Authority is the respondent to whom the initiation of proceedings was notified on 24-04-2019.

As the Tax and Customs Authority did not use the power provided for in Article 13, No. 1, of the RJAT, the Arbitral Tribunal was established on 08-07-2019.

On this same date, the Tax and Customs Authority was notified to respond.

On 02-08-2019, the Claimant attached a document which is a notification that was made to it by the Tax and Customs Authority of the revocation of the disputed additional assessments and respective compensatory interest, with reimbursement of the tax paid plus indemnificatory interest.

In light of this decision by the Tax and Customs Authority, the Claimant hereby:

– declares that "pursuant to and for the purposes of Article 13, No. 2, of the Legal Regime for Tax Arbitration ("RJAT"), the Claimant hereby declares that it does not maintain an interest in the continuation of the arbitral proceedings";

– requests the dismissal of the present arbitral proceedings and, likewise, the refund of the arbitration fee borne, pursuant to subparagraph b) of Article 3-A of the Regulations on Costs in Tax Arbitration Proceedings, all with the other legal consequences.

  1. Regarding responsibility for the costs of the proceedings, the Claimant formulated in the request for arbitral ruling a request for the condemnation of the Tax and Customs Authority to pay the costs of the proceedings and, in the application presented on 02-08-2019, requests "the refund of the arbitration fee borne, pursuant to subparagraph b) of Article 3-A of the Regulations on Costs in Tax Arbitration Proceedings".

These claims have no basis in arbitral proceedings in which the claimant opts for the choice of arbitrator, since, in those cases, responsibility for costs always falls to the claimant, regardless of the tenor of the decision to be rendered, that is, even if it obtains full success in the action.

In fact, the regime for fixing costs in the arbitral decision and their distribution is expressly provided for in Article 22, No. 4, of the RJAT, which establishes that "the arbitral decision rendered by the arbitral tribunal contains the fixing of the amount and the distribution among the parties of the costs directly arising from the arbitral proceedings, when the tribunal has been established pursuant to the terms provided in No. 1 and in subparagraph a) of No. 2 of Article 6".

As results from this express reference to subparagraph a) of No. 2 of Article 6, and not also to subparagraph b) of the same number, the fixing of the amount and distribution among the parties of the costs only takes place in cases in which the Arbitral Tribunal is established with the designation of Arbitrators "by the Deontological Council of the Administrative Arbitration Center, from among the list of arbitrators that comprise the Administrative Arbitration Center".

In the present case, the Arbitral Tribunal was not established pursuant to that subparagraph a), but rather pursuant to subparagraph b), with the designation of Arbitrators by the Parties.

Thus, the aforesaid provision of No. 4 of Article 22 does not apply to this type of arbitral proceedings, which is justified by the fact that in this type of proceedings the costs are paid in advance and responsibility for them always falls to the taxpayer, even if it obtains full success, as results from No. 2 of Article 5 of the Regulations on Costs in Tax Arbitration Proceedings, which establishes that, "in case of designation of arbitrator by the taxpayer", "the arbitration fee is entirely borne by the taxpayer and paid, in its entirety, by bank transfer to the CAAD account before the request for constitution of the arbitral tribunal is formulated pursuant to subparagraph f) of No. 2 of Article 10 of the Legal Regime for Arbitration".

On the other hand, as results from the express tenor of No. 6 of Article 4 of the Regulations on Costs in Tax Arbitration Proceedings, "in addition to the cases expressly provided for in this regulation, there is no refund, reimbursement or compensation, of any kind whatsoever".

The refund of the arbitration fee is only provided for in cases where the "procedure ceases for any reason before the arbitral tribunal is established" (Article 3-A of the Regulations on Costs in Tax Arbitration Proceedings).

Indeed, this is a solution that is justified by parity or even more reason in the case of proceedings in which the taxpayer opts for the designation of arbitrator, since even if the taxpayer obtains full success, it is always responsible for the totality of the costs of the arbitral proceedings. In this case, it was within the scope of an administrative decision rendered within the framework of the arbitral proceedings that the Claimant obtained the satisfaction of its claims.

  1. Article 13 of the RJAT establishes the following, insofar as relevant:

1 - In requests for arbitral ruling that have as their object the assessment of the legality of the tax acts provided for in Article 2, the maximum head of the tax administration service may, within 30 days from knowledge of the request for constitution of the arbitral tribunal, proceed to the revocation, ratification, reform or conversion of the tax act whose illegality has been raised, practicing, when necessary, a substitute tax act, and shall notify the president of the Administrative Arbitration Center (CAAD) of its decision, whereupon the count of the period referred to in subparagraph c) of No. 1 of Article 11 shall commence.

2 - When the tax act that is the object of the request for arbitral ruling is, pursuant to the above number, wholly or partially altered or replaced by another, the maximum head of the tax administration service proceeds to notify the taxpayer to, within 10 days, make a pronouncement, the procedure continuing with respect to such latter act if the taxpayer makes no statement or declares that it maintains its interest.

As results from what has been stated, the Tax and Customs Authority did not proceed to the revocation of the disputed assessments within the period indicated in No. 1 of this Article 13, and therefore the regime provided therein does not apply, which, if observed, would have prevented the constitution of the Arbitral Tribunal.

Thus, it is necessary to assess the manifestation of lack of interest by the Claimant in the continuation of the proceedings in light of the general rules.

This manifestation of lack of interest, complemented with the request for dismissal of the proceedings, objectively constitutes abandonment of the action, which brings the proceedings to an end, pursuant to Articles 283, No. 2, and 285, No. 2, d), of the CPC, subsidiarily applicable by virtue of the provision of Article 29, No. 1, subparagraph e), of the RJAT.

The representatives of the Claimant have special powers to abandon the action, as results from the power of attorney attached with the request for arbitral ruling, and the abandonment of the action does not depend on the acceptance of the Tax and Customs Authority, since it was presented before the filing of the reply (Article 286, No. 1, of the CPC).

Thus, regardless of whether, following the decision to revoke the disputed assessments with payment of indemnificatory interest, the present arbitral proceedings maintains or does not maintain any utility, the request for dismissal, manifested before the filing of the reply is relevant as abandonment of the action.

Wherefore, the decision is as follows:

a) declare the proceedings terminated by abandonment of the action;

b) deny the request for refund of the arbitration fee;

c) fix the value of the proceedings at € 345,011.55.

Lisbon, 02-08-2019

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Clotilde Celorico Palma)

(Emanuel Vidal Lima)

Frequently Asked Questions

Automatically Created

What happens when the Portuguese Tax Authority revokes a VAT assessment during arbitration proceedings?
When the Portuguese Tax Authority revokes a VAT assessment during arbitration proceedings, the contested act ceases to exist, eliminating the claimant's interest in continuing the case. According to Article 13(2) of RJAT, the claimant may declare they no longer maintain interest in the proceedings, leading to dismissal. The AT must reimburse taxes paid plus indemnificatory interest. The arbitration tribunal will issue a decision terminating the proceedings rather than ruling on the merits of the original dispute.
Who is responsible for arbitration costs when the tax authority revokes the contested VAT assessment?
When the tax authority revokes the contested VAT assessment during arbitration, responsibility for costs depends on the arbitration format chosen. Under Article 22(4) of RJAT, if the claimant opted for designation of arbitrators by the parties (three-arbitrator panel), the claimant bears all arbitration costs regardless of outcome, including cases where AT voluntarily revokes assessments. This non-recoverable cost obligation applies even when the taxpayer effectively prevails. Claimants cannot obtain refunds of arbitration fees paid, contrary to what might occur in sole arbitrator proceedings.
Can additional VAT assessments and compensatory interest be challenged through CAAD tax arbitration?
Yes, additional VAT assessments and compensatory interest can be challenged through CAAD tax arbitration. Portuguese taxpayers have the right to contest both the substantive VAT assessments and associated compensatory interest charges through the arbitral tribunal system established under RJAT (Decree-Law 10/2011). As demonstrated in this case, challenges can encompass multiple assessment periods simultaneously, allowing comprehensive dispute resolution for related tax determinations across different monthly VAT periods within a single arbitration proceeding before CAAD.
What are the legal grounds for extinction of proceedings in Portuguese tax arbitration cases?
The legal grounds for extinction of proceedings in Portuguese tax arbitration include circumstances where the claimant loses interest in continuing the case. Under Article 13(2) of RJAT, when the contested administrative act is revoked by the Tax Authority during proceedings, the claimant may declare they no longer maintain interest in continuation. This declaration, combined with the disappearance of the disputed act, provides basis for the tribunal to dismiss proceedings. The extinction occurs not through substantive decision on merits but through procedural termination due to supervening circumstances that eliminate the controversy.
How does the revocation of a contested act affect pending VAT arbitration proceedings at CAAD?
The revocation of a contested act during pending VAT arbitration proceedings at CAAD eliminates the object of the dispute, fundamentally altering the case's trajectory. When AT revokes the assessments, the claimant must be notified and given opportunity to declare whether they maintain interest in continuation per Article 13(2) RJAT. Upon declaration of no continuing interest, the tribunal dismisses the proceedings without substantive ruling on the original claims. However, cost allocation rules remain applicable—claimants who chose designated arbitrator procedures still bear full arbitration costs despite AT's concession through revocation, making the initial procedural choice significant for final financial outcomes.