Process: 28/2018-T

Date: June 8, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 28/2018-T) addresses a VAT double taxation dispute involving a university law professor who conducted arbitration activities through a commercial company (B... Lda.) in 2014-2015. The Portuguese Tax Authority (AT) conducted an inspection and issued multiple VAT assessments totaling €29,466.52 plus €3,515.22 in compensatory interest across several quarters. The claimant challenged eight separate tax assessments through CAAD arbitration under Article 2(1)(a) of RJAT and Articles 99 and 102(1)(a) of the Tax Procedure Code (CPPT). The case involves allegations of duplicação de colecta (double collection) where the same income was potentially taxed twice - once at the company level and again at the individual taxpayer level. The arbitral tribunal was constituted with three arbitrators: one designated by the claimant (Prof. Rui Duarte Morais), one by AT (Dr. Emanuel Augusto Vidal Lima), and a president (Counselor Jorge Lopes de Sousa) chosen by mutual agreement. The dispute centers on whether arbitration fees earned by the professor should be taxed as individual professional income or corporate income, given that the company invoiced clients, employed resources, and received payments. The AT's inspection revealed discrepancies between income declared personally versus through the corporate entity, leading to corrective assessments for unreported business and professional income under IRS Category B and corresponding VAT obligations.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Counselor Jorge Manuel Lopes de Sousa (arbitrator-president, designated by the other Arbitrators), Prof. Doctor Rui Duarte Morais and Dr. Emanuel Augusto Vidal Lima, designated by the Claimant and the Respondent, respectively, to form the Arbitral Tribunal, constituted on 05-04-2018, agree as follows:

1. Report

A…, taxpayer no.…, with residence at Rua…, no.…, …, …-… Coimbra, covered by the area of jurisdiction of the Tax Office of… (hereinafter referred to as "Claimant"), came, under paragraph a) of no. 1 of article 2 and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), in conjunction with the provisions of paragraph a) of article 99 and paragraph a) of no. 1 of article 102 of the Tax Procedure and Process Code, to submit requests for annulment of the following VAT assessments and compensatory interest:

  • Tax assessment for VAT collection no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 22,719.85;

  • Tax assessment for compensatory interest collection no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 2,888.22;

  • Tax assessment for VAT collection no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 3,066.67;

  • Tax assessment for compensatory interest collection no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 327.67;

  • Tax assessment for VAT collection no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 1,380.00;

  • Tax assessment for compensatory interest collection no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 121.13;

  • Tax assessment for VAT collection no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 2,300.00;

  • Tax assessment for compensatory interest collection no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 178.20.

The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Respondent.

The Claimant designated as Arbitrator Prof. Doctor Rui Duarte Morais, under the provisions of article 6, no. 2, paragraph b), of the RJAT.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Portuguese Tax and Customs Authority on 24-01-2018.

In accordance with the provisions of paragraph b) of no. 2 of article 6 and no. 3 of the RJAT, and within the period provided for in no. 1 of article 13 of the RJAT, the senior official of the Tax Administration service designated as Arbitrator Dr. Emanuel Augusto Vidal Lima.

The Arbitrators designated by the Parties agreed to designate Counselor Jorge Lopes de Sousa as arbitrator-president, who accepted the designation.

In accordance with and for the purposes of the provisions of no. 7 of article 11 of the RJAT, the President of CAAD informed the Parties of this designation on 15-03-2018.

Thus, in accordance with the provisions of no. 7 of article 11 of the RJAT, with the period provided for in no. 1 of article 13 of the RJAT having elapsed without the Parties presenting any objections, the Collective Arbitral Tribunal was constituted on 05-04-2018.

The Portuguese Tax and Customs Authority presented a response in which it argues that the request for arbitral pronouncement should be judged unfounded.

By order of 10-05-2018, the holding of a meeting was dispensed with and it was decided that the proceedings would continue with written pleadings.

The Parties presented pleadings.

The Arbitral Tribunal was regularly constituted and is competent.

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

There are no obstacles to the assessment of the merits of the case.

2. Statement of Facts

2.1. Proven Facts

The following facts are considered proven:

  • The Claimant is a university professor in the field of Law and exercises a number of other activities linked to his legal training, namely that of legal consultant and arbitrator in disputes submitted to arbitral jurisdiction, in Portugal and abroad;

  • This arbitration activity has been carried out since 2008;

  • The Claimant develops this activity with recourse to a significant set of human and material resources, without which he considers it impossible to exercise the function in minimally satisfactory terms;

  • The Claimant chose to carry out such activity through a commercial company, doing so in the years 2014 and 2015 through the company "B…, Lda.", collective person no.…;

  • It is within the scope of this company that such arbitration activity is organized, through the hiring and acquisition of all goods and services essential thereto;

  • The Claimant is a partner of B…, Lda., with 1% of the capital, with the remaining 99% belonging to his mother;

  • The Claimant has always been a de facto or de jure manager of the company;

  • The Claimant always provided the complete identification of the company (name, tax number and collective person number, IBAN), as the service provider, the invoices corresponding to the services in question were always issued by the company and it was to this company that the arbitration centers always made the respective payments;

  • The Tax and Customs Administration carried out a tax inspection of the Claimant under Service Orders nos. OI2017… and OI2017…;

  • In this inspection, the Tax Inspection Report was prepared, contained in document no. 2 attached with the request for arbitral pronouncement, the contents of which are reproduced herein, which refers, among other things, to the following:

II.2 - Reason, scope and temporal scope

The present inspection, of general scope and extending to the years 2014 and 2015, arose as a result of inspection procedures carried out, under Service Order no. OI2017… and orders nos. DI2017… and DI2017…, to two companies of which the taxpayer in question is a partner, namely C…. Lda. NIF… and B…, Lda, NIF…, in the context of which it was found that the taxpayer did not declare either all the real estate income earned by him in the year 2015, or all the business and professional income obtained by him in the years 2014 and 2015.

II.3 - Other Situations

II.3.1 - Tax Classification

The taxpayer is taxed under IRS and VAT for the exercise of the following activities:

  • main activity with code 6011 - legal consultants.
  • secondary activity with code 6012 - professors from the activity table referred to in article 115 of the IRS Code;
  • secondary activity by CAE 090030 - artistic and literary creation;

For IRS purposes, category B, he is classified under the Simplified System for determining taxable income and, under VAT, he is classified in the normal regime with quarterly periodicity.

III - Description of the facts and grounds for corrections that are merely arithmetic to the tax base

(...)

III.2 - Business and professional income not declared - 2014 and 2015

From the procedures carried out with the company B... Lda. NIF… it was found that this company recognized as IRC income and VAT tax base for the years 2014 and 2015, various invoices issued by it to several clients, in some of which it proceeded to levy VAT, relating to the provision of arbitration services, as per the following list:

[TABLE: Details of invoices with amounts and dates]

By way of example, invoice no. 9/2015 of 14/05/2015, in the amount of € 184,009.11, is attached. See Annex 2, page 1.

In the invoices where no VAT was levied, this was because these were operations not located in Portugal, and were not subject to VAT in Portugal, as provided for in article 6, no. 6, paragraph a), contrario sensu, of the VAT Code.

When one of the partners of this company, namely the taxpayer object of the present analysis, was asked to explain the origin of such income, he stated that these were income derived from the provision of arbitration services in disputes of national and international scope, for which he was appointed as arbitrator by the competent entities, the partner A…, NIF…, who is duly registered as an arbitrator on the lists of voluntary arbitration with the respective national and international supervisory authorities, having presented a copy of one of these appointments. See Annex 2, pages 2 and 3.

It is thus verified that the income derived from the provision of arbitration services performed by the taxpayer A…, as an arbitrator registered in the National Arbitration Committee and following his appointment in several national and international arbitration conventions, was invoiced to the clients, party(ies) in dispute in the arbitral process, and received by the company B…, Lda., of which the taxpayer in question is a partner, with a stake of only 1% of the capital, with his mother being the holder of a stake of 99%.

Now, in light of the framework law on voluntary arbitration, Law 63 of 14/12/2011, participation in arbitration proceedings occurs by appointment of one or more arbitrators, who compose the arbitral tribunal, who must always be natural persons, as stipulated in article 9, no. 1 of this Law 63 of 2011, the legal framework for voluntary arbitration, the law being explicit in the sense that it is not permissible for legal persons to be appointed as arbitrators, with no. 3 of this same legal provision requiring that arbitrators be independent and impartial.

This requirement that the arbitrator be a natural person also has justification in the impossibility or difficulty of verifying independence and impartiality, if it is a legal person, as in this concrete case, where the taxpayer, an arbitrator, in issuing invoices in the name of the company, is acting in representation of this company in a corporate relationship in which he has only 1% of decision-making power, since the other partner and manager has 99% of such decision-making power, which appears to us to be incompatible with what is advocated in this legal regime.

Hence arbitrators are always appointed in an individual capacity, as illustrated by the appointment contained in Annex 2, pages 2 to 3.

Therefore, it appears to us that the income derived from the provision of arbitration services is in substance income to be taxed in the personal sphere of the taxpayer and as such taxable under IRS as category B income, in accordance with articles 3 and 18 of the IRS Code and not under Corporation Tax, since it was the individual taxpayer in question who provided these services, having been appointed for this purpose.

When confronted with the fact that he had not included in his annual income declaration, for the years in question, the income obtained from the provision of arbitration services in which he intervened as an arbitrator, the taxpayer alleged, in summary, the following:

  • That the income in question is profit of the company and not of his own, since although arbitrators must be natural persons, he acted in representation of the company and it was the company that received the amounts from the clients for the provision of arbitration services;

  • That this does not result, in the end, in any prejudice to tax revenue, since the profits remain bound in his company and when distributed will be subject to taxation under IRS;

  • That the fact that he only has 1% of the capital was due to family matters and not a possible way to avoid the fiscal attribution regime of the Corporation Tax Code;

  • That, in essence, he did nothing more than what companies of insolvency administrators do (who are also appointed individually) and law firms, among others.

Regarding the first argument, it does not appear to us that it should be considered, since it was the taxpayer, a natural person, who was appointed as arbitrator, and not the company, a legal person, which can never be appointed as an arbitrator, as we mentioned above in light of no. 3 of article 9 of Law 63/2011, it cannot be accepted that the arbitrator A…, has acted, in the specific context of the arbitrations in which he participated, in an individual capacity, in representation of the company B… and it will not be by virtue of the fact that it was the company that issued the invoices relating to those service provisions and even received the amount thereof that one must conclude that this partner, an arbitrator, acted here in representation of the company. Indeed, regardless of form, the fact is that these were, in substance, and in our opinion, income from the individual sphere of the partner, the taxpayer in question here, since such income derives from a service provided by him in an individual capacity for which he was appointed individually. See Annex 3, pages 1 to 3 - "statement of availability, impartiality, independence and banking instructions".

Regarding the second argument, it equally appears to us that the taxpayer has no grounds, since one fact is certain and indisputable: if the income in question had been included under IRS by its beneficial owner, the natural person mentioned above, the tax rate that would apply to it would exceed 48% (the highest IRS rate, see article 68 of the IRS Code), considering the IRS surcharge then in effect, see article 72-A of the IRS Code, whereas, by being included in the income of the legal person B…, a legal entity distinct from the one appointed as arbitrator and who provided the services in question, they were taxed only at rates of 23% and 21%, respectively in 2014 and 2015. And the fact that such income, having remained bound in the company, could in the future be subject to taxation under IRS upon its eventual distribution is not at all clear and certain, since at the time it was not known, and still is not known, whether there will be a distribution of profits by the partners, whether there will be profits to distribute, whether there will be eventual dissolution of the company, whether there will be anything to distribute among the partners, and if there is whether there will be any taxation. That is, in the periods in question, at the date of the IRS taxable event (end of the tax periods of 2014 and 2015), there was in fact prejudice to the National Treasury resulting from the abysmal difference between the tax revenue collected via taxation of such income under Corporation Tax and what would be collected if the same had been, as should be in our opinion, taxed under IRS.

Regarding the third argument, it is true that, with the partner in question (the one who receives income from the activities referred to in the list referred to in article 151 of the IRS Code) having only 1% of the capital of company B… (which recognized the income in question as its own), the same will not, in light of what is stipulated in article 6, no. 4, of the Corporation Tax Code, be classified under the fiscal transparency regime, the income in question thus not being taxed under IRS by means of the attribution referred to in this legal provision, but rather under Corporation Tax. Without calling into question the argument put forward by the taxpayer for the distribution of the capital of this company, it has always caused us some perplexity that the "engine" of the company's activity, given the object of the company, the activities for which it is classified and the income that it is in fact obtaining, holds only 1% of the capital of the same, when it is he who, in fact, exercises the activities carried out by the company.

As for the last argument, it does not appear to us that it will be due to the fact that some companies (of insolvency administrators, of lawyers) assume as their own the income derived from services provided by their partners that the company in question, B…, Lda., can equally assume as its own the income derived from the provision of arbitration services provided by one of its partners, the taxpayer in question. Indeed, and as mentioned above, if law firms can exercise their activity through their partners, lawyers, the activity of arbitration is exclusive to natural persons because, unlike the activity of advocacy, it is based on an individual appointment. Equally, while the activity of companies administering insolvency can be exercised through its associates, judicial administrators/insolvency administrators, since the lists of judicial administrators existing in each district allow a given judicial administrator to be listed with the indication of partner of a given insolvency administration company, the activity of arbitration is exclusive to natural persons and is based on purely and simply individual appointment.

Finally, it should be added that the income in question, being from the personal and individual sphere of the taxpayer in question, since it derives from an activity for which it is he who is appointed and authorized, should be assumed by him and not by any legal person, since, deriving from an activity of a purely individual nature, they form part of the legal sphere of the individual person who performed them and not of the legal person of whom he is a partner. Indeed, legal persons, having been granted legal and tax personality, become centers of their own and autonomous legal sphere with respect to the rights and duties intrinsic to their members/partners, and thus do not have to assume, in the strict tax sense, income that is not theirs.

Therefore, given the facts and grounds exposed, it is our opinion that the income derived from the provision of arbitration services should be classified in the individual sphere of the taxpayer in question, as category B income of the IRS Code, in accordance with the provisions of articles 3 and 18 of the IRS Code, and we therefore propose its inclusion in his sphere.

(...)

III.4 - VAT in default

The VAT not paid by the taxpayer and in default amounts, per tax period, to the following amounts:

[TABLE: VAT amounts by period 2014-2015]

  • Following the inspection action, the Tax and Customs Administration issued the following assessments (document no. 1 attached with the request for arbitral pronouncement, the contents of which are reproduced herein):

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 22,719.85;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 2,888.22;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 3,066.67;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 327.67;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 1,380.00;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 121.13;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 2,300.00;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 178.20.

  • On 23-01-2018, the Claimant provided bank guarantee to suspend fiscal execution proceedings nos. …2017…, …2017…, …2017…, …2017…, …2017…, …2017…, …2017…, …2017…, …2017…, and …2017…, which include those instituted for forcible collection of the amounts assessed (document no. 3, attached with the Respondent's legitimacy, the contents of which are reproduced herein);

  • The VAT assessed by B…, Lda. in the invoices indicated in point III.2 of the Tax Inspection Report was paid by it to the Tax and Customs Authority;

  • On 24-01-2018, the Claimant submitted the request for constitution of an arbitral tribunal that gave rise to the present proceedings.

2.2. Unproven Facts

It was not proven that the bank guarantee provided is intended only to suspend fiscal executions instituted for collection of the amounts assessed that are subject of these proceedings.

In fact, the value of the guarantee is € 365,275.09, more than 10 times higher than the value of the assessments that are the subject of these proceedings, which is € 32,981.74, in total.

Therefore, in light of what was stated by the Claimant and the non-challenged assertion by the Tax and Customs Authority, it was considered proven that the amounts assessed that are the subject of these proceedings are subject to forcible collection in fiscal executions referred to in paragraph l) of the statement of facts established, but not that the guarantee provided relates only to executions instituted for collection of these amounts.

2.3. Reasoning for the Decision on Facts

The facts were taken as proven based on the Tax Inspection Report, documents attached to the request for arbitral pronouncement, and documents contained in the administrative file, which were stated by the Claimant and are not contested by the Tax and Customs Authority.

3. Legal Matters

3.1. Issue That Is Subject of the Proceedings

The Claimant had involvement as an arbitrator in several arbitral proceedings, with the respective fees paid to company B…, Lda., of which he is a partner, which issued the respective invoices, levying the VAT due, which was paid by the company to the Tax and Customs Authority.

The Tax and Customs Administration understood, based on the interpretation it made of the norms regulating voluntary arbitration (in particular the Law on Voluntary Arbitration - Law no. 63/2011, of 14 January), that the activity of arbitrator was not carried out by the said company, but rather by the Claimant, and therefore it is this taxpayer, "the service provider in question," who should have issued the invoices and levied the VAT.

The Claimant understands that "he thus acts in a position that we can describe as 'improper representation' of the company, insofar as the activity in which the 'business' of B…, Lda. materializes is the exercise of the arbitral function, by the Claimant himself, in a strictly individual capacity and according to deontological criteria (of impartiality and independence) that are only applicable to him."

The Claimant argues that, with the VAT due for such activity being paid by the said company, the requirement of the same tax that is imposed on him in the challenged assessments constitutes double collection.

The solution to the question of the legal permissibility of the invoicing of arbitrator's fees by a commercial company is not relevant to the decision of the case, since what matters to tax law is economic reality, as it occurred, regardless of the lawfulness or not of the acts that meet the assumptions of the applicable norms of incidence (article 10 of the General Tax Law).

As the Claimant states, "the AT [Tax Authority] did not base the challenged acts on verification of, for example, a situation that gives rise to the ineffectiveness of legal acts, such as simulation of legal acts or abuse of legal forms." In particular, not having made use of the application of the general anti-abuse clause provided for in article 38, no. 2, of the General Tax Law, all acts performed by the Claimant and by company B…, Lda., are effective within the scope of tax law.

In any case, the question that the Claimant raises, which is that of the existence of a situation of double collection, does not depend on the lawfulness or not of the acts performed.

Thus, the question that arises is whether there is double collection in a situation in which:

– functions of arbitrator were performed by the Claimant in several arbitral proceedings;

– with respect to the remuneration of this activity, invoices were issued by a company, with VAT assessment;

– the VAT assessed was paid to the Tax and Customs Authority by the company;

– the Claimant did not issue invoices nor assess VAT with respect to the activity he developed.

3.2. Possibility of Invoking Double Collection as a Defect in Tax Assessment Acts

Double collection is provided for in article 205 of the Tax Procedure and Process Code, as a ground for objection to fiscal execution.

In accordance with no. 1 of this article 205: "there shall be double collection for purposes of the preceding article when, an entire tax being paid, another tax of equal nature relating to the same taxable event and the same period of time is required from the same or a different person."

Double collection is considered doctrinally and jurisprudentially a "heresy" in our tax system,[1] and should be known officially by the Tax and Customs Authority or by the Courts, in accordance with article 175 of the same Code.

Since the law prohibits double collection, when it derives from the issuance of a new assessment and the tax assessed is paid in full, with respect to the same taxable event and the same period of time, it constitutes unlawfulness of that new assessment, which is susceptible of being invoked in a judicial challenge proceeding, which can be based on "any unlawfulness" (article 99 of the Tax Procedure and Process Code).

Confirmation that the invocation of double collection is not restricted to fiscal execution proceedings is found in no. 6 of article 78 of the General Tax Law, which provides for the possibility of revision of the tax act on this ground.

3.3. Question of the Existence or Not of Double Collection

As follows from no. 1 of article 205 of the Tax Procedure and Process Code, applied to situations in which tax assessment acts are challenged, there shall be double collection when, an entire tax being paid, another tax of equal nature relating to the same taxable event and the same period of time is required from the same or a different person.

In the case at hand, it is clear that such a situation occurs.

In fact, with the company B…, Lda. having paid in full the VAT due for the Claimant's interventions in arbitral proceedings, the Tax and Customs Authority cannot require the amount of VAT due for such interventions, whether from that company or from the Claimant or from any other person.

The fact that it was not the Claimant who made the VAT payment is irrelevant for this purpose, as it is expressly provided that there is double collection even when the new requirement for tax is made to a different person.

It is true that an obstacle to the recognition of the existence of a situation of double collection could be the possibility that the payment made by B…, Lda. could be eliminated, in particular through regularizations as suggested by the Tax and Customs Authority in article 4 of its pleadings.

In fact, the double collection regime presupposes that the first payment is consolidated, since what justifies the non-requirement of new tax is the fact that with the dual application of the same tax norm to a concrete situation there is created a situation of unjustified enrichment of the public treasury.

However, in the case at hand, with the VAT being mentioned in invoices issued by B…, Lda., the tax is always owed by it, since, in accordance with the rulings of the European Court of Justice of 31-01-2013, handed down in cases nos. C-642/11 and C-643/11, "the value added tax mentioned in an invoice by a person is owed by it, independently of the effective existence of a taxable transaction."

In fact, article 203 of Directive no. 2006/112/EC is peremptory: "VAT is owed by all persons who mention such tax in an invoice," even "incorrectly," as clarified by article 2, no. 1, paragraph c), of the VAT Code.

Likewise, article 97, no. 2, of the VAT Code establishes that "assessments can only be annulled when it is proven that the tax was not included in the invoice issued to the purchaser in accordance with article 37."

Thus, it is concluded that the VAT assessments challenged are affected by the defect of double collection, which constitutes unlawfulness that justifies their annulment, in accordance with article 163, no. 1, of the Code of Administrative Procedure, subsidiarily applicable in accordance with article 2, paragraph c), of the General Tax Law.

3.4. Assessments of Compensatory Interest

Assessments of compensatory interest have as their basis the VAT assessments, so the unlawfulness of the latter has as its corollary the legality of the former.

4. Indemnification for Improper Guarantee

The Claimant formulates a request for indemnification for provision of improper guarantee.

Article 171 of the Tax Procedure and Process Code establishes that "indemnification in case of bank guarantee or equivalent improperly provided shall be requested in the proceedings in which the lawfulness of the debt subject to execution is disputed" and that "indemnification must be requested in the complaint, challenge or appeal or in case its ground is subsequent within 30 days after its occurrence."

The request for constitution of the arbitral tribunal and for arbitral pronouncement has as its corollary the fact that it is in the arbitral proceedings that the "lawfulness of the debt subject to execution" will be discussed, and therefore, as results from the express wording of that no. 1 of the said article 171 of the Tax Procedure and Process Code, it is also the arbitral proceedings that are appropriate for considering the request for indemnification for improper guarantee.

The regime of the right to indemnification for improper guarantee is contained in article 53 of the General Tax Law, which establishes the following:

Article 53

Guarantee in case of improper provision

  1. The debtor who, to suspend execution, offers bank guarantee or equivalent shall be indemnified totally or partially for losses resulting from its provision, provided he has maintained it for a period exceeding three years in proportion to success in administrative appeal, challenge or objection to execution that have as their object the guaranteed debt.

  2. The period referred to in the preceding number does not apply when it is verified, in amicable settlement or judicial challenge, that there was error attributable to the services in the assessment of the tax.

  3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from application to the guaranteed value of the rate of indemnificatory interest provided for in this law and can be requested in the very proceedings of complaint or judicial challenge, or autonomously.

  4. Indemnification for improper provision of guarantee shall be paid by deduction from tax revenue of the year in which payment was made.

In the case at hand, the error of law that affects the challenged assessments is attributable to the Tax and Customs Authority, as they were issued at its initiative, and the Claimant in no way contributed to the error of law affecting them being committed.

Thus, the Claimant has the right to be indemnified for losses resulting from the provision of guarantee to suspend fiscal execution proceedings instituted for collection of the amounts assessed.

As mentioned in the decision on facts, the value of the guarantee provided by the Claimant is € 365,275.09, more than 10 times higher than the value of the assessments that are the subject of these proceedings, which is € 32,981.74, in total, and therefore that guarantee was not intended solely to suspend fiscal executions instituted for forcible collection of the amounts that are the subject of these proceedings.

With no elements allowing determination of the amount of indemnification, the condemnation shall have to be made with reference to what is to be assessed in execution of this judgment (article 609 of the Code of Civil Procedure).

5. Decision

Accordingly, this Arbitral Tribunal agrees to:

  1. Judge the request for arbitral pronouncement well-founded;

  2. Annul the following VAT and compensatory interest assessments:

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 22,719.85;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2014, in the amount of € 2,888.22;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 3,066.67;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the third quarter of 2014, in the amount of € 327.67;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 1,380.00;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the first quarter of 2015, in the amount of € 121.13;

  • VAT assessment no. 2017…, contained in document AT no. 2017… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 2,300.00;

  • Compensatory interest assessment no. 2017…, contained in document AT no.… and translated in the account reconciliation statement no. 2017…, relating to the second quarter of 2015, in the amount of € 178.20.

  1. Judge the request for indemnification for improper guarantee well-founded, and condemn the Tax and Customs Authority to indemnify the Claimant for expenses with the provision of guarantee in the part that is shown to be connected with fiscal executions instituted for collection of the amounts that are subject of the assessments now annulled.

6. Value of the Proceedings

In accordance with the provisions of article 306, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, paragraph a), of the Tax Procedure and Process Code and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 32,981.74.

Lisbon, 08-06-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Rui Duarte Morais)

(Emanuel Augusto Vidal Lima)

[1] TEIXEIRA RIBEIRO, Revista de Legislação e Jurisprudência, Year 120, page 278, and ruling of the Supreme Administrative Court of 29-11-1989, case no. 011877.

Frequently Asked Questions

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What is duplicação de colecta (double taxation) in Portuguese VAT law and when does it occur?
Duplicação de colecta (double collection/taxation) in Portuguese VAT law occurs when the same taxable transaction or income is subject to VAT assessment twice, either at different levels (individual and corporate) or through duplicate administrative acts. This typically arises when tax authorities issue overlapping assessments for the same economic activity, violating the principle against double taxation. In cases where a taxpayer operates both individually and through a corporate entity, careful analysis is required to determine the correct taxable person and avoid charging VAT twice on identical transactions. The issue often emerges during tax inspections when authorities reclassify income previously declared at the corporate level as individual professional income, potentially creating duplicate VAT obligations.
Can a taxpayer challenge multiple VAT (IVA) assessments and compensatory interest through CAAD arbitration?
Yes, taxpayers can challenge multiple VAT assessments and related compensatory interest simultaneously through CAAD (Centro de Arbitragem Administrativa) arbitration under Article 2(1)(a) of Decree-Law 10/2011 (RJAT) combined with Articles 99 and 102(1)(a) of the Tax Procedure Code (CPPT). The arbitration request can consolidate challenges to several related liquidation acts affecting different tax periods, as demonstrated in this case covering quarters from 2014-2015. The CAAD process allows taxpayers to contest both the principal VAT assessments and the compensatory interest charged on late payments in a single arbitral proceeding. Each party designates one arbitrator, who together select a president, forming a three-member tribunal that decides within legally prescribed timeframes, offering an alternative to traditional court litigation.
What are the legal grounds under Article 99 CPPT for annulling VAT liquidation acts in Portugal?
Article 99 of the CPPT establishes legal grounds for annulling tax liquidation acts (atos de liquidação), including: (a) illegality due to violation of law, including incorrect legal interpretation or application; (b) substantive errors in calculating the tax base or rate; (c) procedural irregularities affecting taxpayer rights; and (d) lack of factual basis supporting the assessment. Taxpayers may invoke these grounds to challenge VAT liquidations that suffer from legal errors, mathematical mistakes, insufficient evidence, or procedural defects. The annulment remedy under Article 99 applies when the liquidation act itself is defective, as opposed to challenging the underlying tax obligation. In VAT disputes, common grounds include incorrect classification of activities, double taxation, miscalculation of taxable amounts, or failure to recognize legitimate deductions.
How does the CAAD arbitral tribunal process work for disputing IVA assessments with the Portuguese Tax Authority (AT)?
The CAAD arbitral tribunal process for disputing IVA (VAT) assessments begins when a taxpayer submits a request for arbitration under RJAT (Decree-Law 10/2011). The CAAD President accepts the request and notifies the Portuguese Tax Authority (AT) automatically. Each party designates one arbitrator within the legal deadline - the taxpayer under Article 6(2)(b) and AT under Article 6(2)(b) and (3) RJAT. These arbitrators jointly select a president under Article 11(7), with parties having opportunity to object. Once constituted (typically within 2-3 months), the tribunal follows prescribed procedural steps: AT submits a response, the tribunal may dispense with hearings and order written pleadings, parties submit arguments, and the tribunal issues a binding decision. The process offers speedier resolution than traditional courts while maintaining full legal rigor and enforceability.
What time periods and deadlines apply for challenging VAT assessments under the RJAT (Decreto-Lei 10/2011)?
Under RJAT (Decreto-Lei 10/2011), strict time periods govern challenging VAT assessments through CAAD arbitration. Taxpayers must submit the arbitration request within 90 days from notification of the contested administrative act (liquidation or assessment), per Article 10 RJAT. After the CAAD President accepts and notifies AT (automatic notification under Article 11), AT has 15 days to designate its arbitrator (Article 6(3) and Article 13(1)). The claimant's designated arbitrator is named in the initial request. Once both arbitrators are appointed, they select the president, with parties having a period under Article 11(7) and 13(1) to object. The tribunal must be constituted and issue its decision within legally prescribed deadlines to ensure efficient dispute resolution. Missing these deadlines can result in loss of challenge rights or procedural sanctions.