Process: 287/2018-T

Date: September 28, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 287/2018-T) addresses mandatory legal representation requirements in Portuguese tax arbitration proceedings. A commercial company challenged IRC (Corporate Income Tax) assessments totaling €19,650.52 for tax years 2014 and 2016. The company's partner-manager filed the arbitration request without retaining a lawyer. The arbitral tribunal determined that under Article 6(1) of the CPPT, applicable to tax arbitration via Article 29(1)(a) of the LFATM, legal representation by a qualified lawyer is mandatory when the economic value exceeds twice the jurisdiction of first instance tax courts (€5,000 x 2 = €10,000). Since the claim exceeded this threshold, the claimant was legally required to appoint a lawyer. The tribunal issued an order granting the claimant 10 days to retain legal counsel, warning of dismissal for non-compliance. Despite proper notification, the claimant remained procedurally inactive, neither appointing a lawyer nor requesting anything regarding legal representation. The tribunal ruled that mandatory legal representation constitutes a positive procedural prerequisite whose absence prevents adjudication on the merits. Consequently, the tribunal summarily rejected the arbitration request, absolved the Tax Authority from the proceedings, and ordered the claimant to pay procedural costs of €1,224. This decision reinforces that tax arbitration proceedings have jurisdictional nature equivalent to judicial proceedings, requiring strict compliance with legal representation rules when statutory thresholds are exceeded.

Full Decision

ARBITRAL DECISION

I

  1. On 13 June 2018, the commercial company A..., Lda., NIPC..., with registered office at ..., ... (hereinafter, the Claimant), filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LFATM), seeking the declaration of illegality and annulment of IRC assessments nos. 2018..., referring to the year 2014, in the amount of € 11,762.45, and 2018..., referring to the year 2016, in the amount of € 7,888.07.

The Claimant attached five (5) documents and did not request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, the Respondent or AT).

  1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 19 June 2018.

  2. The Claimant did not proceed to appoint an arbitrator, whereupon, pursuant to the provisions of no. 1 of article 6 and paragraph a) of no. 1 of article 11 of the LFATM, the President of the CAAD Deontological Board designated the undersigned as arbitrator of the single Arbitral Tribunal, who communicated acceptance of the appointment within the applicable time period.

  3. On 1 August 2018, the Parties were duly notified of such designation and did not express any wish to challenge the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs b) and c), of the LFATM and articles 6 and 7 of the CAAD Deontological Code.

  4. Accordingly, in compliance with the provision in paragraph c) of no. 1 of article 11 of the LFATM, the single Arbitral Tribunal was constituted on 22 August 2018.

  5. On 3 September 2018, an order was issued requiring notification to the Claimant "to, within a period of 10 (ten) days, retain a lawyer, under penalty of the Respondent being absolved of the instance".

  6. The Claimant, despite having been duly notified of the order referred to in the preceding point, maintained a posture of complete procedural inertia, neither retaining a lawyer nor requesting anything whatsoever regarding legal representation.

It is therefore necessary to examine and decide.

II

  1. In the present proceedings, the request for constitution of an Arbitral Tribunal and the respective request for arbitral pronouncement are signed by a partner-manager of the Claimant A..., Lda., B....

The value of the economic utility of the request indicated amounts to € 19,650.52.

  1. Article 6, no. 1, of the CPPT, applicable pursuant to article 29, no. 1, paragraph a), of the LFATM, provides that "[i]t is mandatory to retain a lawyer in judicial proceedings whose value exceeds twice the jurisdiction of the tax court of first instance, as well as in proceedings within the jurisdiction of the Central Administrative Court and the Supreme Administrative Court".

Pursuant to article 105 of the LGT, "[t]he jurisdiction of tax courts corresponds to that which is established for courts of first instance"; in accordance with the provision in no. 1 of article 44 of the Law of the Organization of the Judicial System (Law no. 62/2013, of 26 August), the jurisdiction of courts of first instance is € 5,000.00.

Thus, the jurisdiction of administrative and tax courts is € 5,000.00 and, therefore, it is mandatory to retain a lawyer in judicial proceedings whose value exceeds € 10,000.00.

The foregoing has full application to tax arbitral proceedings, since these, as provided in Decree-Law no. 10/2011, of 20 January, have a jurisdictional nature.

  1. Accordingly, given the stated value of the economic utility of the request, in this tax arbitral proceeding it is mandatory for the Claimant to retain a lawyer.

  2. Legal representation, specifically when retention of a lawyer is mandatory, constitutes a positive procedural prerequisite, that is, it is one of the "requirements whose existence is essential for the judge to pronounce on the merits or lack of merits of the action" (Antunes Varela, J. Miguel Bezerra and Sampaio and Nora, Manual de Processo Civil, 2nd revised and updated edition, Coimbra, Coimbra Editora, 1985, p. 106).

Thus, the lack of legal representation, in cases where retention of a lawyer is mandatory, produces the effects inherent to the lack of a procedural prerequisite; specifically: if the plaintiff is the party in default, the defendant shall be absolved of the instance; if it is the defendant in default, his defence shall be rendered null and the proceedings shall proceed in default against him; if it is the appellant in default, the appeal shall be rendered null (cf. article 41 of the CPC, applicable pursuant to article 29, no. 1, paragraph e), of the LFATM).

  1. In the present case, as we have seen, it is mandatory for the Claimant to retain a lawyer, which the Claimant has not done – notwithstanding having been duly notified to this effect, with notice of the corresponding penalty – nor having appeared in the case to request anything whatsoever regarding legal representation.

In these terms, this Arbitral Tribunal decides:

  • To reject summarily the request for arbitral pronouncement;

  • To absolve the Tax and Customs Authority of the instance;

  • To condemn the Claimant to pay the costs of the proceedings.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 19,650.52 (nineteen thousand six hundred and fifty euros and fifty-two cents).

COSTS

Pursuant to article 22, no. 4, of the LFATM, the amount of costs is set at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 28 September 2018.

The Arbitrator,

(Ricardo Rodrigues Pereira)

Frequently Asked Questions

Automatically Created

Is it mandatory to appoint a lawyer in Portuguese tax arbitration proceedings (CAAD)?
Yes, it is mandatory to appoint a lawyer in Portuguese tax arbitration proceedings at CAAD when the economic value of the dispute exceeds €10,000. Article 6(1) of the CPPT, applicable to tax arbitration under Article 29(1)(a) of the LFATM, requires legal representation in proceedings exceeding twice the jurisdiction of first instance courts (€5,000 x 2). Tax arbitration has jurisdictional nature equivalent to judicial proceedings, making these requirements fully applicable.
What happens if a party fails to appoint legal representation in CAAD arbitration when required by law?
If a party fails to appoint mandatory legal representation in CAAD arbitration, the tribunal will absolve the opposing party from the proceedings and summarily reject the claim. According to Article 41 of the CPC (applicable via Article 29(1)(e) of LFATM), lack of legal representation when required constitutes absence of a positive procedural prerequisite. The defaulting party will be condemned to pay procedural costs, and the tribunal cannot examine the merits of the case.
What is the monetary threshold for mandatory legal representation in Portuguese tax court cases under the CPPT?
The monetary threshold for mandatory legal representation in Portuguese tax court cases is €10,000. Under Article 6(1) of the CPPT, a lawyer must be retained in judicial proceedings whose value exceeds twice the jurisdiction of tax courts of first instance. Since Article 105 of the LGT and Article 44(1) of Law 62/2013 establish first instance jurisdiction at €5,000, mandatory representation applies above €10,000.
Can a company manager personally file a tax arbitration claim at CAAD without a lawyer for IRC disputes?
No, a company manager cannot personally file a tax arbitration claim at CAAD without a lawyer for IRC disputes exceeding €10,000. Even though the manager may have statutory authority to represent the company, mandatory legal representation requirements under Article 6(1) of CPPT apply to tax arbitration proceedings with jurisdictional nature. Failure to retain qualified legal counsel results in summary rejection of the claim and absolution of the Tax Authority from the proceedings.
What are the consequences of procedural inaction after being ordered to appoint a lawyer in CAAD proceedings?
The consequences of procedural inaction after being ordered to appoint a lawyer in CAAD proceedings include: (1) summary rejection of the arbitration request; (2) absolution of the Tax and Customs Authority from the proceedings; (3) condemnation to pay all procedural costs (in this case €1,224); and (4) inability to have the merits of the tax dispute examined. The tribunal cannot proceed to substantive analysis when the positive procedural prerequisite of mandatory legal representation is absent.