VAT Self-Assessment Review: CAAD Ruling on Material Incompetence and VAT Regularization (Case 299/2013-T)

ARBITRAL AWARD

The arbitrators Dr. Jorge Manuel Lopes de Sousa (presiding arbitrator), Prof. Doctor Clotilde Celorico Palma and Dr. Marta Gaudêncio, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 19-02-2014, agree as follows:

1. Report

The A, with NIPC …, submitted an application for constitution of a collective arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRAT), in which the TAX AUTHORITY AND CUSTOMS AUTHORITY is respondent.

The Applicant requests, ultimately, that it be declared "illegal the act of self-assessment of VAT undervalued" (referring to the VAT which it deducted in the year 2008) and that "the decision rejecting the application for administrative review submitted by A be annulled, consequently authorizing the deduction of the amount of VAT overpaid during the year 2008, equivalent to the sum of Euro 98,080.66".

The application for constitution of the arbitral tribunal was accepted by the President of CAAC and automatically notified to the Tax Authority and Customs Authority on 19-12-2013.

Pursuant to the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the LRAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories of this award, who communicated acceptance of the office within the applicable period.

On 04-02-2014 the parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, section 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of section 1 of article 11 of the LRAT, in the wording introduced by article 228 of Law No. 66-B/2012, the Arbitral Tribunal was constituted on 19-02-2014.

The Tax Authority and Customs Authority submitted a response, raising exceptions of lack of jurisdiction of the Arbitral Tribunal ratione materiae to assess the application for VAT regularization and the application for annulment of the self-assessment act.

On 16-05-2014, the meeting provided for in article 18 of the LRAT took place, in which the Applicant commented on the exceptions raised by the Tax Authority and Customs Authority and it was agreed that the submissions would be presented in writing.

The Applicant submitted submissions in which it formulated the following conclusions:

A) It is clear from the application for arbitral pronouncement that precedes that the self-assessment acts whose analysis was requested were duly identified and, similarly, what are the grounds which, in the Applicant's understanding, determine their declaration of illegality as well as attest to the illegality of the decision rejecting the application for administrative review that underlies it.

B) In the application for arbitral pronouncement that precedes, the A expressly requested that the illegality of the self-assessment acts in question be assessed (mediate object) – namely, the self-assessment acts in VAT, embodied in the periodic declarations of November and December 2008, issued by the here respondent – and, likewise, the illegality of the decision of the tax authority rejecting the application for administrative review submitted (immediate object), where the A was denied the right to deduct/regularize in its favor the VAT overpaid in the years in question.

C) In fact, it must be emphasized that the right to deduct/regularize the tax is an intrinsic consequence of the declaration of illegality of the acts in question.

D) The A submitted the application for administrative review here in issue, pursuant to and for the purposes of section 1 of article 98 of the VAT Code and article 78 of the General Tax Law (LGT).

E) Therefore, by submitting the application for administrative review, as was incumbent upon it under the law, the Applicant initiated the appropriate means to the intended purpose – return of VAT overpaid – in a timely manner, especially within the 4-year period legally established for that purpose.

F) Now, to this extent, and faced with adoption of an opposite thesis, the decision rejecting the application is hereby in issue tainted, by error attributable to the services, in the form of an error of law, given the incorrect interpretation of the normative set applicable in this case.

G) As, moreover, better explained in the application for arbitral pronouncement that precedes.

H) Additionally, it is important to emphasize that the situation in question does not constitute a "material error or calculation error", so the provisions of section 6 of article 78 of the VAT Code do not apply in this case.

I) In fact, we are not, in this case, faced with any material errors or calculation errors but rather with so-called "errors of law".

J) Without prejudice, it should always be noted that, if it were questioned – which out of mere caution of representation is conceded – that what was in issue were "material errors or calculation errors", it is certain that, in line with the jurisprudential understanding on the matter, the respective correction period would not be limited to 2 (two) years.

K) In strict terms, it is imperative to emphasize that this period applies only to correction effected by the taxpayer, without need for prior authorization from the tax authority, while maintaining, however, the possibility that, when the tax to be corrected has been borne for more than 2 years (naturally bounded by the maximum limit of four years), correction thereof may be requested by the taxpayer through administrative review to the tax authority.

L) The understanding advocated above is, moreover, the only interpretation consistent with the solution resulting from the combination of article 98 of the VAT Code with article 78 of the LGT.

We therefore reiterate to Your Excellency that you deign to grant the present application, declaring the illegality of the self-assessment acts in question, relating to the months of November and December 2008 (mediate object) as well as the illegality of the Order rejecting the application for administrative review submitted (immediate object) and, consequently, authorizing the deduction/regularization, in favor of the Applicant, of VAT overpaid, in the total amount of Euro 98,080.66.

The Tax Authority and Customs Authority submitted submissions in which it concluded as follows:

A. The act challenged in the present proceedings is the act rejecting the application for regularization of deductible VAT, relating to the tax periods of the years 2008.

B. The present arbitral instance is, subject to better opinion, materially incompetent to know of the present proceedings.

C. Foremost because, at no moment is any specific liquidation act, relating to the year 2008, that comes to be challenged identified, only referring to that year as having been the one in which the illegality intended to be remedied allegedly occurred.

D. In this way, the Tribunal cannot exercise the powers conferred upon it by law (namely, declare the illegality of self-assessment acts of taxes), since, in addition to not knowing which self-assessment acts to audit, it is equally ignorant of the defects which, concretely, the Applicant attributes to each one of them.

E. However, even if it is considered that there is an auditable object, the application formulated would be outside the material scope of tax arbitration, in that the application formulated is directed at condemning the TA to recognize the right to VAT deduction.

F. Now, as the Respondent has not requested in the application filed any assessment of the legality of tax liquidation acts, self-assessment, withholding at source, payment on account or fixing of taxable matter, the Tribunal should be considered incompetent to know of the same.

G. On the other hand, given the situation sub judice, and as results from reading article 2, paragraph a) of Ordinance 112-A/2011 of 22.03, mandatory precedence of gracious complaint was always required, provided for in art. 131 section 1 of the CPPT.

H. Thus, given the foregoing, there exists an exception (dilatory) which, embodied in the lack of material jurisdiction of the arbitral tribunal, bars knowledge of the application and should, therefore, determine the acquittal of the Respondent entity from the instance, given the provisions of articles 576, section 1 and 577, paragraph a) of the Code of Civil Procedure, applicable ex vi article 29, section 1, paragraph e) of the LRAT.

I. Thus not being understood, which out of mere duty is contemplated, it would always be said that, also with respect to the merits of the application, there is no reason favoring the Applicant, as will be seen below.

J. The now Applicant, as a public law entity, carries out operations that are outside the field of application of the tax, as they result from its powers of authority, taxable operations within the field of the tax and, also, operations exempt from tax.

K. Following internal review of procedures, the R. determined the amount of tax allegedly overpaid in the amount of € 93,326.09, as a result of a recalculation of the pro rata.

L. The mechanism of VAT deductions is provided for in articles 19 to 26 of the VAT Code, with article 19 stating that, for calculation of the tax due, taxpayers deduct from the tax levied on taxable operations in a given period, the tax that was invoiced to them in the acquisition of goods and services by other taxpayers, a situation that should be reflected in the periodic declaration referred to in paragraph c) of section 1 of article 29 of the VAT Code.

M. For analysis of the situation in question, it is equally relevant to take into account the provisions of articles 22, 78 section 6 and 98, all of the VAT Code, as well as article 78 section 1 of the LGT.

N. Thus, notwithstanding the administrative review and deduction right regimes appearing referred to in the same legal provision and deduction corresponding to a moment of self-assessment, in truth, they are juridically independent of each other – that of administrative review is regulated pursuant to art. 78 of the LGT and the right to VAT deduction in the various norms of the respective Code.

O. The VAT taxpayer does not have freedom to determine the moment of exercise of that right, with art. 98 section 2 of the VAT Code limiting itself to fixing only a general maximum limit, from which that right can no longer be exercised.

P. To understand it otherwise, the norms that provide for special periods would have no useful meaning, as the norm that establishes the general four-year period would always be superimposed upon them, in manifest violation of the provisions of section 3 of art. 7 of the Civil Code.

Q. Indeed, the general rules of Law provide that general law does not repeal special law even if the former is subsequent.

R. Regarding the relationship between the rules inherent in articles 78 and 98 of the VAT Code, one should pay attention to the content of decisions issued in arbitral proceedings within processes 91/2013-T and 117/2013-T, as well as the Award of the STA, issued on 18.05.2011, relating to process 0966/2010.

S. In the latter, one can read, specifically, that "[...] from this article 22 it is inferred that the deduction of the tax cannot be effected at any moment, at the choice of the taxpayer, the useful scope of the referred norms being precisely to exclude that this can take place at different moments, when such is not specially provided for. Community law, which has primacy over internal law provided that the fundamental principles of the democratic rule of law are not violated [...] points in the direction of this interpretation being correct. [...] From this regulation, it is concluded that tax deduction can only be effected outside the moments considered appropriate under conditions to be fixed, which precludes the viability of a thesis that boils down to attributing to the taxpayer the right to make the deduction when it wishes, within the maximum period legally permissible. For this reason, section 2 of art. 92 of the CIVA, in establishing that the right to deduction can only be exercised up to the limit of four years after the birth of the right to deduction, cannot have the scope of attributing to the taxpayer the freedom to choose any moment within that period to effect the deduction, but rather to fix a maximum limit that cannot be exceeded, even in cases where deduction can be effected at moments different from those indicated in that art. 22, this maximum limit which, as results from the opening part of that section 2, shall apply when there is no special norm fixing a lower or higher limit."

T. And further that, "Beyond art. 71, section 6, of the CIVA, there is no legal provision that can be interpreted as allowing the taxpayer to exercise the right to deduction at a moment subsequent to those resulting from this art. 22 indicated, in cases where, by a lapse effected in its accounts, it only detects that it had the right to deduction at a moment subsequent to when it should have effected it."

U. It is therefore incontestable that the Applicant is subordinate to the rules regulating the right to deduction contained in the VAT Code, because, if not, taxpayers could, even if the legal requirements for the right to deduction were not met, obtain the same result through recourse to the administrative review mechanism, relegating to second place the norms specific to the VAT tax.

V. Therefore, given the legislation applicable to this case, it is understood that the four-year period established in section 2 of art. 98 of the CIVA and in art. 78 of the LGT cannot be applicable, but rather the specific norm of art. 78 section 6 of the VAT Code, which provides, for these cases, a period of two years.

W. In fact, the exercise of the right to deduction is temporally limited, not to any period subsequent to receipt of the invoices, as the Applicant wishes to assert, but rather to the period subsequent to when such receipt occurred, that is, to the immediately following one, so that said deduction should be reflected, not in any periodic declaration to be submitted up to the limit of the four-year period from the birth of the right to deduction, as the Applicant also erroneously wishes to assert.

X. Still referring to the already mentioned decision of Process 91/2013-T, read the same when it refers that "The Respondent intends that this doctrine became outdated with the amendment to art. 22, but that is not the case, since the provision continues to establish the period for exercise of the right to deduction, and in this case, since we are faced with a material error, the correction period is that contained in the former art. 71, section 6, today art. 78, section 6 of the CIVA. Thus, the maximum period of expiration of art. 98 is not applicable since there is a legal provision establishing an inferior period."

Y. It is even the Applicant itself that states that until the moment of internal review of procedures it only deducted VAT borne on inputs relating to taxed operations, not having deducted the tax borne on inputs of mixed use because it understood that it was not deductible.

Z. Now, we are thus faced with a material error, since those acquisitions were registered in the Applicant's accounts, but it chose not to exercise the right to deduction in the respective periodic declarations.

AA. That is, it is an error of registration of the R. and not an error of law as it intends, and the mechanism provided for regularization of these situations is that of art. 78 section 6 of the VAT Code to which it was no longer possible to resort because the two-year period established therein had elapsed.

BB. As equally results from the cited Award of the STA, from it clearly results the inference that the errors contained in the self-assessment acts subject to the requested administrative review constitute material errors, because they are internal errors of the Applicant, in the valuation of what should constitute deductible and non-deductible VAT, determined accountingly and reported, in that measure, in its respective periodic declaration of the tax.

CC. Whether in the situation subject to assessment by the STA, or in the one sub judice, it is a question of correction by the taxpayer of the registration and determination of deductible VAT in its accounts with reference to the period in question, with the consequent alteration of its respective periodic declaration of the tax.

DD. Therefore, as concluded there, beyond article 78 section 6 of the VAT Code, there is no legal provision that can be interpreted as allowing the taxpayer to exercise the right to deduction at moments subsequent to those resulting from article 22 of the VAT Code, in cases where, by a lapse effected in its accounts, it only detects that it had the right to deduction at a moment subsequent to when it should have effected it.

EE. Therefore, it must be concluded that the Applicant should have complied with the rules provided for in article 23 of the VAT Code, that is, it should have effected the deduction of the tax for goods and services of mixed use, which it registered in its accounts, respecting both the general rule of section 2 of article 22 of the VAT Code, and also section 6 of article 23, correcting at the end of each year these amounts, based on determination of the pro rata definitivos, which, as it itself states, did not occur, having instead considered the tax as not deductible.

FF. Regarding the STA judgment cited by the R., relating to process 0366/11, the same seems to us out of context since it deals with a situation of excess liquidation and not deduction right, which implies different perspectives and application of distinct norms.

We therefore determine that, with the learned supplementation of Your Excellencies, the dilatory exceptions of lack of material jurisdiction of this Arbitral Tribunal should be judged founded, accordingly acquitting the Respondent entity from the instance, or if thus not understood, the present application for arbitral pronouncement be judged unfounded, as unproven, and, consequently, the Respondent acquitted of all claims with the legal consequences thereof.

Subsequently, the Arbitral Tribunal notified the Parties to comment on the issue of lack of jurisdiction ratione materiae raised, in addition to what the Tax Authority and Customs Authority defends, under the perspective that the act rejecting the application for administrative review was not based on an assessment of the legality or illegality of the liquidation or liquidations of VAT and it could be understood that the arbitral tribunals operating in the CAAC are not competent to assess applications for declaration of illegality of acts that are not of one of the types expressly indicated in article 2, section 1, of the LRAT nor acts that know of the legality of acts of one of these types, a question which can be raised in light of the possible limitation of the jurisdiction of the arbitral tribunals to the scope of the judicial challenge process and the definition of the scope of this resulting from paragraphs d) and p) of section 1, of article 97 of the CPPT.

The Parties commented on this issue of lack of jurisdiction ratione materiae.

The Arbitral Tribunal was regularly constituted and, subsequently, the replacement of the Presiding Arbitrator was effected by the President of the Deontological Council of the CAAC, due to supervening impediment.

The parties have legal personality and capacity and are legitimate (arts. 4 and 10, section 2, of the same statute and art. 1 of Ordinance No. 112-A/2011, of 22 March).

The process is not affected by nullities.

2. Factual Matters

2.1. Established Facts

The following facts are considered proven:

a. The Applicant is a local public law entity whose activity consists in the pursuit of its municipal functions in the various areas of activity, being framed, for VAT purposes, under the normal monthly regime;

b. In the pursuit of its functions, the Applicant performs a set of operations within the scope of its powers of authority (such as the collection of licenses and taxes), which are excluded from VAT liability under section 2 of article 2 of the VAT Code;

c. The Applicant also performs a set of operations, whether transfers of goods or provision of services, that do not fall within the scope of its powers of authority or public functions.

d. The Applicant also performs VAT-taxed operations (such as operation of parking areas, leasing of equipment and infrastructures, among others) and operations exempt from this tax (such as rental of apartments in social housing estates).

e. The Applicant, in 2012, carried out a review of the procedures adopted in the context of VAT for the year 2008 (namely, the deduction methods applied in that year), which resulted, in its understanding, in an additional amount of VAT to deduct, namely as a result of two aspects, namely:

– Increase in the deduction percentage (pro rata), which was applied to VAT incurred in the acquisition of resources of "mixed" use (i.e., used indiscriminately for the activity of the A as a whole, whether taxed or not taxed in VAT, usually called "common resources"), thus resulting in an amount of VAT to recover of € 93,326.09;

– Application of the real allocation method, in the recovery of VAT for resources intended for the realization of taxed operations carried out by the A, having resulted in an amount of VAT to recover of € 3,035.43.

f. The Applicant also proceeded to correct the VAT which it had deducted and which was associated with resources used exclusively in activities that do not confer the right to deduction, having effected the respective correction in favor of the State (in the amount of € 29,712.34).

g. Additionally, and still within the scope of the procedure review carried out, the Applicant understood that it had regularized VAT in favor of the State in excess (in the amount of € 1,719.14) regarding credit note No. 2008…, whose VAT amounts to Euro 1,790.77.

h. As a consequence of the review carried out, and on the basis of the provisions of article 23 of the VAT Code, the Applicant calculated its deduction percentage, relating to the year 2008, which became 4% (whereas the percentage that had been applied by the A referred to only 2%).

i. As a result of the application of the percentage which the Applicant understood to be correct deduction to the VAT borne in the acquisition of common resources, an amount of tax was determined which the Applicant understands was overpaid in 2008, and as such still capable of deduction, in the amount of € 93,326.09.

j. Additionally, also for the year 2008, the Applicant proceeded to apply the real allocation method, having, for that purpose, identified the resources used for the realization of taxed activities that confer the right to deduction.

k. The Applicant concluded that the VAT incurred in the acquisition of resources associated with the leasing of the Palace …, the Old Factory … and the Garden and Grounds of the Palace … to Group B, S.A. was capable of full deduction.

l. The Applicant proceeded to determine the VAT incurred in the acquisition of resources directly associated with the taxed leasing mentioned above only for the months of November and December 2008, as it understood that as to these it was still within the legal period for VAT recovery, determining the amount of tax which it understands was overpaid, in the months of November and December 2008, in the amount of € 3,035.43.

m. Still within the scope of the procedure review carried out, the Applicant understood that it had regularized VAT in favor of the State in excess (in the amount of € 1,719.14) regarding credit note No. 2008… in the amount of € 1,790.77, issued by C, E.M., for having regularized in favor of the State the entirety of the VAT of this credit note, when it had only deducted by pro rata the VAT of the invoice that was corrected by this credit note.

n. The Applicant, in order to recover the VAT which it understood was overpaid in the year 2008, submitted, on 30-11-2012, an application for administrative review, requesting authorization from the Tax Authority to effect the regularization/deduction of VAT overpaid during the year 2008, in the total amount of € 98,080.66 (document No. 1 attached to the application for arbitral pronouncement, whose content is given as reproduced).

o. Regarding the application for administrative review, an Information No. … dated 12-07-2013 was prepared in the Division of Liquidation of Taxes on Income and Expenditure – VAT of the Finance Department of …, a copy of which is contained in document No. 2 attached to the application for arbitral pronouncement, which is given as reproduced, of which the following appears, among other things:

1. Situation Presented

1.1 It is a local public law entity whose activity consists in the pursuit of its municipal functions, being framed for VAT purposes under the normal monthly regime.

1.2 In the pursuit of its functions the Respondent performs operations within the scope of powers of authority, which are excluded from VAT liability under section 2 of article 2 of the VAT Code.

1.3 Nevertheless, it also performs a set of operations, whether transfers of goods or provision of services, that do not fall within the scope of its powers of authority or public functions and are therefore subject to VAT under the general terms of the Code.

1.4 In the year 2008 the deduction method used by the Municipality was the pro rata, having applied a deduction percentage of 2% to the VAT of resources acquired for its activity in that year.

1.5 During the year 2012, the Municipality was subject to an inspection by the tax authority, which covered the year 2008.

1.6 The Municipality was notified on 11 October 2012, of the draft report, in which arithmetic corrections were proposed relating to improperly deducted VAT (VAT associated with resources used exclusively in activities that do not confer the right to deduction), in the amount of € 29,712.34, which in agreement it voluntarily proceeded to correct, in field 41 of the replacement declaration filed for the period 08 03 (document 1).

1.7 The Municipality carried out a review of the deduction methods applied in 2008, which results in the following changes, now in its favor:

a) Review of the calculation of the deduction percentage (pro rata) and application thereof only to the VAT borne on resources of "mixed" use

b) Full deduction of the VAT of resources intended for the realization of taxed operations that confer the right to deduction.

1.8 Therefore it divides the statement in the following points:

1.8.1 "VAT to be recovered by application of the pro rata deduction method",

• for having carried out a review of the procedures in the calculation of the deduction percentage (pro rata) to be applied to the year 2008,

On the basis of the provisions of article 23 of the VAT Code the respondent calculated a deduction percentage of 4% (document 2), and determined an amount of tax overpaid in the year 2008, of € 93,326.09 (document 3), VAT associated with:

• works carried out on buildings (documents 4 and 5) and,

• expenses

1.8.2 "VAT to be recovered by application of the real allocation method"

• for having carried out the identification of resources used for the realization of taxed activities that confer right to deduction, concluding that in the year 2008, the VAT Factory of … and the Garden and Grounds of the Palace of … to Group B, S.A., was capable of full deduction, as per binding information (document No. 7). It proceeded to determine the VAT incurred only for the months of November and December 2008. Given that it had only proceeded to deduction of part of the VAT in question by the pro rata method (2%), the amount of tax overpaid was determined, which amounts to € 3,035.43 (document No. 8).

1.8.3 "Other Corrections"

In the scope of procedure review, the Municipality found that it had regularized VAT in favor of the State in excess, in the amount of € 1,719.14 with respect to credit note No. … in the amount of € 1,790.77, for having regularized in favor of the State the entirety of the VAT, when it had only deducted by pro rata the VAT of the invoice corrected by this credit note. Thus the regularization in favor of the State should correspond only to 4% (value of the pro rata) of the amount of VAT mentioned in the credit note.

Thus it requests authorization to proceed with the said correction.

1.9 Given the foregoing, the respondent considers that it has the right to correct VAT in its favor in the amount of € 98,080.66, in accordance with articles 98 of the CIVA and 78 of the LGT. All supporting documents are filed in the financial department of the respondent, available for inspection by the tax authority.

1. The Application

2.1 The object of the present petition consists of the recognition of the right to proceed with VAT deduction, for having carried out a review of the deduction methods applied in 2008, following inspection by the tax authority, which covered the year 2008.

For being a mixed taxpayer, the respondent proceeded to use the pro rata method to determine the deductible portion of the tax it bore on inputs necessary for its activity, in accordance with article 23 of the CIVA. The provisional deduction percentage of 2007 was applied in 2008 and is identical to the definitive one, 2%.

Following the procedure review the pro rata definitive determined is 4%.

The respondent understands itself to be in conditions to exercise the right to regularize in its favor the VAT liquidated in excess in the amount of € 98,080.66, determined from January to December 2008, for having used in 2008, pro rata of 2%, point 1.8.1, or for not having deducted, as per point 1.8.2 or for having made regularizations for amounts above, as per point 1.8.3, invoking sections 1 and 2 of article 98 of the VAT Code and section 1 of article 78 of the LGT.

The tax administration is obliged to pronounce itself by force of the provision of section 1 of article 56 of the LGT.

2.2 Section 1 of article 78 of the LGT provides as follows:

"Review of tax acts by the entity that performed them may be effected on the initiative of the taxpayer, within the period of administrative complaint and on the basis of any illegality, or, on the initiative of the tax administration, within four years after the liquidation or at any time if the tax has not yet been paid, on the basis of error attributable to the services".

The taxpayer had a tax inspection for the fiscal year 2008 and did not lodge an administrative complaint, on the basis of any illegality, within the 120-day period, although it disagreed with the pro rata definitive of 2% determined in 2008.

2.3 Section 2 of article 78 of the LGT further refers, "Without prejudice to the legal burdens of complaint or challenge by the taxpayer, error in self-assessment is considered attributable to the services, for purposes of the above number".

As section 2 of article 78 of the LGT provides, the possibility of review was expanded in cases of self-assessment, allowing when the error is attributable to the taxpayer, that it be deemed attributable to the tax authority, but it does not prejudice the legal burdens of complaint or challenge, so the taxpayer in case of self-assessment, should have submitted, prior to the application for administrative review, the complaint provided for in section 1 of article 131 of the Code of Tax Procedure and Process, within the legally established period, of two years.

2.4 In accordance with the provisions of section 2 of article 22 of the VAT Code (wording prior to Decree-Law No. 197/2012, of 24 August) which constitutes the general rule, "Without prejudice to the provisions of article 78, deduction shall be effected in the declaration of the period or of a subsequent period to that in which the receipt of invoices, equivalent documents or receipt of VAT that is part of the import declarations, and section 3 of the same provision determines, "If the receipt of the documents referred to in the preceding number takes place in a declaration period different from that of their issuance, deduction may be effected, if still possible, in the declaration period in which that issuance took place".

2.5 Thus the periods provided for VAT deduction are embodied in section 2 of article 22 of the CIVA, so that, in accordance with the legislation, section 2 of article 98 of the CIVA establishes that the right to deduction can be exercised up to the limit of four years after the birth of the right to deduction, but the taxpayer is not given the freedom to determine the moment of exercise of that right, with the said provision limiting itself to fixing only a general maximum limit, from which the right to deduction can no longer be exercised.

2.6 In accordance with section 1 of article 22 of the CIVA, "The right to deduction arises at the moment the deductible tax becomes due, in accordance with that established by articles 7 and 8, being effected through subtraction from the total amount of tax due by the taxpayer's taxable operations, during a declaration period, of the amount of deductible tax, due during the same period."

2.7 The application for administrative review of the tax acts was filed on 2012-11-30, in the Finance Service of …, so given section 1 of article 22 of the CIVA and section 1 of article 78 of the LGT, for the VAT self-assessments occurring in the months of January to October 2008, the application for administrative review is untimely. For the months of November and December 2008, under section 1 of article 78, although the application falls within the concept of VAT self-assessment, the tax acts in question can no longer be reviewed, since there are no legal provisions that allow the exercise of deduction of documents recorded in 2008.

The VAT regularization in favor of the taxpayer, requested by the Municipality, refers to documents already recorded, so the taxpayer's petition cannot benefit from the extended four-year period established for section 2 of article 98 of the CIVA, as there are periods established in article 22 of the CIVA for the exercise of the right to deduction.

1. Conclusion

3.1 Given the legal provisions cited and in accordance with section 2 of article 22 of the CIVA, which provides "Without prejudice to the provisions of article 78, deduction shall be effected in the declaration of the period or of a subsequent period to that in which the receipt of invoices, equivalent documents or receipt of VAT that is part of the import declarations", there is no longer any legal provision that allows the exercise of the right to VAT deduction at a moment subsequent to those established in article 22 of the VAT Code.

3.2 Given that there is no legal provision that allows the taxpayer to exercise the right to deduction at a moment subsequent to the periods established in article 22 of the CIVA, the application for administrative review should be rejected.

p. The Applicant was notified to exercise the right to a hearing based on the information referred to and did not exercise it.

q. With the date of 16-09-2013, in the referred Division of Liquidation of Taxes on Income and Expenditure – VAT of the Finance Department of … an Information was prepared whose copy is contained in document No. 2 attached to the application for arbitral pronouncement, whose content is given as reproduced, in which it refers, among other things, to the following:

A draft decision was issued, in the sense of rejection of the application for administrative review.

Through No. n/office … of 2012-07-12, the respondent was notified of the draft decision to, if it wished, come to exercise the right to a hearing, within the period of 15 (fifteen) days, pursuant to order endorsed by the Head of Division of the DLIRD, on 2012-07-12, in our Information … of 2012-07-12.

Notification was effected, in accordance with article 60 of the LGT, by sending of the said office, under postal registration No. … on 2012-07-15, notification being presumed effected on 2012-07-18, pursuant to section 3 of article 38 and section 1 of article 39, both of the CPPT.

Verifying that, upon the lapse of that period, the taxpayer did not exercise the right to a hearing, we are of the opinion that the proposal contained in our Information … of 2012-07-12, rejecting the present application for administrative review, should be maintained.

r. The application for administrative review was rejected by order of 16-01-2013, issued by the Head of the Division of Liquidation of Taxes on Income and Expenditure – VAT of the Finance Department of …, which has the following content:

"I agree.

Notify the decision in accordance with article 77 of the LGT, referring to the respective means of defense".

s. The order rejecting the application for administrative review was notified to the now Applicant, on 18-09-2013, through Office No. …, of 16-09-2013 (Document No. 2 attached to the application for arbitral pronouncement, whose content is given as reproduced).

t. In the notification of this order of rejection it refers, among other things, to the following:

You are hereby notified that, by order of 16-09-2013, endorsed in Information … of 16.09-2013, the application for review of the tax act referred to above was rejected, with the reasoning contained in the attached documents, with 7 pages.

If you do not agree with the decision, you may appeal hierarchically under articles 80 of the General Tax Law (LGT) and 66 section 1 of the Code of Tax Procedure and Process (CPPT), within the period of 30 (thirty) days from the date of notification, or file a judicial challenge under article 95, sections 1 and 2 paragraph d) of the LGT and article 97 of the CPPT, within the period provided for in article 102, section 1 of the CPPT.

The periods are counted continuously, from the day following the date of signature of the receipt notice for this notification.

u. On 17-12-2013, the Applicant submitted the application for constitution of the arbitral tribunal which gave rise to the present proceedings.

3. Exceptions

The Tax Authority and Customs Authority raised exceptions, one arising from the lack of auditable object in arbitral proceedings, due to lack of identification of the VAT self-assessment acts to which the Applicant refers and another relating to the material jurisdiction of the arbitral tribunals to recognize the right to VAT deduction.

Furthermore, this Arbitral Tribunal also raised the issue of lack of material jurisdiction to know of the legality of acts rejecting applications for administrative review that do not involve the assessment of the legality of liquidation acts, including self-assessment.

Issues of jurisdiction are of priority knowledge, as results from the provision of article 13 of the Code of Process in Administrative Courts, subsidiarily applicable, by force of the provision of article 29, section 1, paragraph c), of the LRAT.

For this reason, the examination of the jurisdiction issues raised shall begin, it being certain that, if any of the issues is founded, the knowledge of the other matters will be prejudiced, as it becomes useless.

3.1. Issues of Lack of Material Jurisdiction

The Applicant submitted to the assessment of this Arbitral Tribunal the following applications:

– declare illegal the self-assessment act in question;

– proceed to the annulment of the decision rejecting the application for administrative review submitted by the Municipality;

– authorize the deduction of the amount of VAT overpaid during the year 2008, equivalent to the sum of Euro 98,080.66.

3.2. Issue of the Jurisdiction of this Arbitral Tribunal to Assess the Application for Authorization of VAT Deduction

The jurisdiction of the arbitral tribunals operating in the CAAC is, in the first place, limited to the matters indicated in article 2, section 1, of Decree-Law No. 10/2011, of 20 January (LRAT).

This provision refers that the jurisdiction of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of tax liquidation acts, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts of fixing taxable matter when it does not give rise to the liquidation of any tax, of acts of determination of taxable matter and of acts fixing property values; (wording of Law No. 64-B/2011, of 30 December)

In addition to the direct assessment of the legality of acts of this type, are also included in the jurisdictions of the arbitral tribunals operating in the CAAC jurisdictions to assess acts of second or third degree which have as object the assessment of the legality of acts of those types, namely acts that decide administrative complaints and hierarchical appeals, as can be inferred from the express references made in article 10, section 1, paragraph a), of the LRAT to section 2 of article 102 of the CPPT (which reports to the judicial challenge of decisions on administrative complaints) and to "the decision of the hierarchical appeal".

Thus, it is manifest that it does not fall within the scope of these jurisdictions to issue authorizations nor to assess the legality or illegality of decisions rejecting requests for authorization for VAT deduction or its regularization.

In truth, although it has been understood, in harmony with long uniform jurisprudence of the Supreme Administrative Court that, following declaration of illegality of liquidation acts, issued in judicial challenge proceedings, decisions can be issued condemning payment of indemnity interest as well as, by force of article 171, section 1, of the CPPT, condemnation to payment of indemnities for unjust security, the fact is that there is no legal basis to allow other types of condemnations to be issued, even if they are consequences, at the executive level, of the declaration of illegality of liquidation acts.

In fact, as follows from the provision of article 24 of the LRAT, the definition of the acts in which the execution of arbitral judgments should be concretized is, in the first instance, incumbent upon the Tax Authority and Customs Authority, with the subsequent possibility of recourse to tax tribunals to require coercively the execution, within the scope of the judgment execution process, provided for in article 146 of the CPPT and articles 173 and following of the Code of Process in Administrative Courts.

Thus, it is manifest the incompetence of this Arbitral Tribunal to assess the application for authorization of regularization of VAT formulated by the Respondent, so the exception of incompetence raised by the Tax Authority and Customs Authority in articles 25 and 26 of its Response proceeds, as to this claim.

3.3. Issue of Jurisdiction to Declare Illegality of Self-Assessment Acts Following Applications for Administrative Review

The jurisdiction of the arbitral tribunals operating in the CAAC is, in the first place, limited to the matters indicated in art. 2, section 1, of Decree-Law No. 10/2011, of 20 January (LRAT).

In a second respect, the jurisdiction of the arbitral tribunals operating in the CAAC is also limited by the terms in which the Tax Administration was bound to that jurisdiction by Ordinance No. 112-A/2011, of 22 March, since art. 4 of the LRAT establishes that "the binding of the tax administration to the jurisdiction of tribunals constituted under the terms of this law depends on an ordinance of the members of Government responsible for the areas of finance and justice, which establishes, namely, the type and maximum value of the disputes covered".

In light of this second limitation of the jurisdiction of the arbitral tribunals operating in the CAAC, the resolution of the issue of jurisdiction depends essentially on the terms of this binding, since, even if one is faced with a situation that can be framed in that art. 2 of the LRAT, if it is not covered by the binding it will be precluded the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal.

In paragraph a) of art. 2 of this Ordinance No. 112-A/2011, expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of the arbitral tribunals operating in the CAAC are "claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

The express reference to the preceding "recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" should be interpreted as reporting to cases where such recourse is mandatory, through administrative complaint, which is the administrative means indicated in those arts. 131 to 133 of the CPPT, for which reference is made. In fact, first of all, it would not be understood that, as administrative challenge is not necessary "when its basis is exclusively a matter of law and the self-assessment has been effected in accordance with generic orientations issued by the tax administration" (art. 131, section 3, of the CPPT, applicable to cases of withholding at source, by force of the provision of section 6 of art. 132 of the same Code), the arbitral jurisdiction be precluded because that administrative challenge, which is understood to be unnecessary, was not effected.

In the case in question, it is requested the declaration of illegality of VAT self-assessment acts relating to the fiscal year 2008, as well as the declaration of illegality and annulment of the act rejecting the application for administrative review.

Thus, it is important, first of all, to clarify whether the declaration of illegality of acts rejecting applications for review of the tax act, provided for in art. 78 of the LGT, is included in the jurisdictions attributed to the arbitral tribunals operating in the CAAC by art. 2 of the LRAT.

In fact, in this art. 2 there is no express reference to these acts, contrary to what occurs with the legislative authorization in which the Government based itself to approve the LRAT, which refers to "applications for review of tax acts" and "administrative acts that involve the assessment of the legality of liquidation acts".

However, the formula "declaration of illegality of tax liquidation acts, self-assessment, withholding at source and payment on account", used in paragraph a) of section 1 of art. 2 of the LRAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In fact, the illegality of liquidation acts can be declared jurisdictionally as a corollary of the illegality of an act of second degree, which confirms a liquidation act, incorporating its illegality.

The inclusion in the jurisdictions of the arbitral tribunals operating in the CAAC of cases in which the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of acts of second degree, which are the immediate object of the impugning claim, results with certainty from the reference which in that provision is made to self-assessment, withholding at source and payment on account acts, which are expressly referred to as included among the jurisdictions of the arbitral tribunals. Indeed, with respect to these acts it is imposed, as a rule, the necessary administrative complaint, in arts. 131 to 133 of the CPPT, so, in these cases, the immediate object of the challenge process is, as a rule, the act of second degree that assesses the legality of the liquidation act, an act which, if it confirms it, must be annulled to obtain the declaration of illegality of the liquidation act. The reference which in paragraph a) of section 1 of art. 10 of the LRAT is made to section 2 of art. 102 of the CPPT, in which the challenge of acts rejecting administrative complaints is provided for, dispels any doubts that the arbitral tribunals operating in the CAAC cover cases in which the declaration of illegality of the acts referred to in paragraph a) of that art. 2 of the LRAT must be obtained following the declaration of the illegality of acts of second degree.

In fact, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted these jurisdictions of the arbitral tribunals operating in the CAAC, when it precluded from the scope of these jurisdictions "claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has the effect of restricting its binding to cases in which this recourse to the administrative route was used.

Having obtained the conclusion that the formula used in paragraph a) of section 1 of art. 2 of the LRAT does not exclude cases in which the declaration of illegality results from the illegality of an act of second degree, it shall also cover cases in which the act of second degree is that of rejection of an application for review of the tax act, since no reason can be seen to restrict it, especially since, in cases where the review application is submitted within the period of administrative complaint, it must be equated with an administrative complaint. ( [1] )

The express reference to article 131 of the CPPT which is made in article 2 of Ordinance No. 112-A/2011 cannot have the decisive effect of precluding the possibility of assessing applications for illegality of acts rejecting applications for administrative review of self-assessment acts.

In fact, the interpretation exclusively based on the literal wording which the Tax Authority and Customs Authority defends in the present process cannot be accepted, since in the interpretation of tax norms the general rules and principles of interpretation and application of laws are observed (article 11, section 1, of the LGT) and article 9, section 1, expressly prohibits interpretations exclusively based on the literal wording of norms by establishing that "interpretation should not be confined to the letter of the law", rather it should "reconstitute from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

As for the correspondence between interpretation and the letter of the law, only "a minimum of verbal correspondence, even if imperfectly expressed" is required (article 9, section 3, of the Civil Code) which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even recognizing in it imperfection in the expression of the legislative intent.

For this reason, the letter of the law is not an obstacle to declarative interpretation, which explains the scope of the literal wording, nor even extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would intend to say, that is, when it said imperfectly what it intended to say. In extensive interpretation "it is the proper valorization of the norm (its "spirit") that leads to discovery of the need to extend the text thereof to the hypothesis that it does not cover", "the expansive force of the proper legal valorization is capable of leading the provision of the norm to cover hypotheses of the same type not covered by the text". ( [2] )

Extensive interpretation, thus, is imposed by the evaluative and axiological coherence of the legal system, erected by article 9, section 1, of the Civil Code as a primordial interpretative criterion through the imposition of observance of the principle of unity of the legal system.

It is manifest that the scope of the requirement of prior administrative complaint, necessary to open the contentious route of challenge of self-assessment acts, provided for in section 1 of article 131 of the CPPT, has as its sole justification the fact that with respect to this type of acts there is no taking of position of the Tax Administration on the legality of the legal situation created with the act, a position that could even turn out to be favorable to the taxpayer, avoiding the need for recourse to the contentious route.

In fact, besides no other justification being envisioned for this requirement, the fact that an identical necessary administrative complaint is provided for challenge of withholding at source and payment on account acts (in articles 132, section 3, and 133, section 2, of the CPPT), which have in common with self-assessment acts the circumstance that there is also no taking of position of the Tax Administration on the legality of the acts, confirms that this is the reason for being of that necessary administrative complaint.

Another unequivocal confirmation that this is the reason for being of the requirement of necessary administrative complaint is found in section 3, of article 131 of the CPPT, in establishing that "without prejudice to the provisions of the preceding sections, when its basis is exclusively a matter of law and the self-assessment has been effected in accordance with generic orientations issued by the tax administration, the period for challenge does not depend on prior complaint, the challenge being presented within the period of section 1 of article 102". In fact, in situations of this type, there was a prior generic pronouncement of the Tax Administration on the legality of the legal situation created with the self-assessment act and it is this fact that explains that the necessary administrative complaint is no longer required.

Now, in cases where an application for administrative review of a liquidation act is formulated, the Tax Administration is provided, with this application, an opportunity to pronounce itself on the merits of the taxpayer's claim before the latter resorts to the jurisdictional route, so, in coherence with the solutions adopted in sections 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative assessment within that administrative review procedure, a new administrative assessment through administrative complaint be required. ( [3] )

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from submitting applications for administrative review in cases of self-assessment acts, since these are expressly referred to in section 2 of article 78 of the LGT.

In this context, allowing the law expressly that taxpayers opt for administrative complaint or administrative review of self-assessment acts and the application for administrative review being submitted within the period of administrative complaint being perfectly equivalent to an administrative complaint, as referred to, there cannot be any reason that could explain that a taxpayer who has opted for review of the tax act instead of administrative complaint cannot access the arbitral route.

For this reason, it is to be concluded that the members of Government who issued Ordinance No. 112-A/2011, in making reference to article 131 of the CPPT regarding applications for declaration of illegality of self-assessment acts, said imperfectly what they intended, since, intending to impose prior administrative assessment before contentious challenge of self-assessment acts, ended up including reference to article 131 which does not exhaust the possibilities of administrative assessment of these acts.

Furthermore, it should be noted that this interpretation not being confined to the literal wording is even specially justified in the case of paragraph a) of article 2 of Ordinance No. 112-A/2011, as its defects are evident: one is to associate the comprehensive formula "recourse to the administrative route" (which references, besides administrative complaint, hierarchical appeal and review of the tax act) to the "expression in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has potential restrictive scope to administrative complaint; another is to use the formula "preceded" by recourse to the administrative route, reporting to "claims relating to declaration of illegality of acts", which obviously would be much better suited with the feminine word "preceded".

For this reason, in addition to the general prohibition of interpretations limited to the letter of the law which is contained in article 9, section 1, of the Civil Code, in the specific case of paragraph a) of article 2 of Ordinance No. 112-A/2011 there is a special reason for not justifying great enthusiasm for a literal interpretation, which is the fact and the wording of that provision being manifestly defective.

Moreover, ensuring the review of the tax act the possibility of assessment of the taxpayer's claim before access to the contentious route that is intended to be achieved with the necessary administrative challenge, the most accurate solution, because it is the most coherent with the legislative design of "strengthening effective and actual protection of the rights and legally protected interests of taxpayers" manifested in section 2 of article 124 of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral route to assess the legality of liquidation acts previously assessed in administrative review procedure.

And, as it is the most accurate solution, it must be presumed to have been normatively adopted (article 9, section 3, of the Civil Code).

On the other hand, containing that paragraph a) of article 2 of Ordinance No. 112-A/2011 an imperfect formula, but which contains a comprehensive expression "recourse to the administrative route", which potentially references also the review of the tax act, there is found in the text the minimum of verbal correspondence, although imperfectly expressed, required by that section 3 of article 9 for the viability of adoption of the interpretation which enacts the most accurate solution.

It is to be concluded, thus, that article 2 paragraph a) of Ordinance No. 112-A/2011, properly interpreted on the basis of the criteria of interpretation of law provided for in article 9 of the Civil Code and applicable to substantive and adjectival tax norms, by force of the provision of article 11, section 1, of the LGT, enables the submission of applications for arbitral pronouncement regarding self-assessment acts that have been preceded by an application for administrative review.

3.4. Issue of the Incompetence of this Arbitral Tribunal to Assess the Legality of Self-Assessment Acts Preceded by an Application for Administrative Review Whose Decision Does Not Involve Assessment of the Legality of Those Acts

As referred to, this Arbitral Tribunal notified the Parties to comment on the issue of lack of jurisdiction ratione materiae raised under the perspective that the act rejecting the application for administrative review was not based on an assessment of the legality or illegality of the liquidation or liquidations of VAT.

In art. 2 of the LRAT, in which the "Jurisdiction of arbitral tribunals" is defined, the assessment of claims for declaration of illegality of acts rejecting applications for administrative review of tax acts is not expressly included, since, in the wording introduced by Law No. 64-B/2011, of 30 December, only the jurisdiction of arbitral tribunals for "declaration of illegality of tax liquidation acts, self-assessment, withholding at source and payment on account acts" and "declaration of illegality of acts of fixing taxable matter when it does not give rise to the liquidation of any tax, of acts of determination of taxable matter and of acts fixing property values" is indicated.

However, the fact that paragraph a) of section 1 of art. 10 of the LRAT makes reference to sections 1 and 2 of art. 102 of the CPPT, in which the various types of acts giving rise to the judicial challenge period are indicated, including administrative complaint, makes it perceivable that all types of acts capable of being challenged through the judicial challenge process, covered by those sections 1 and 2, will be covered within the scope of the jurisdiction of the arbitral tribunals operating in the CAAC, provided they have as object an act of one of the types indicated in that art. 2 of the LRAT.

In fact, this interpretation in the sense of identity of the fields of application of the judicial challenge process and the arbitral process is that which is in harmony with the referred legislative authorization in which the Government based itself to approve the LRAT, granted by art. 124 of Law No. 3-B/2010, of 28 April, in which it reveals the intention that the tax arbitral process constitute "an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters" (section 2).

But, this same argument which is extracted from the legislative authorization leads to the conclusion that the possibility of use of the arbitral process will be precluded when, in the judicial tax process, judicial challenge or action for recognition of a right or legitimate interest cannot be used.

In fact, being this the sense of the referred legislative authorization law and being inserted in the relative reservation of legislative competence of the Assembly of the Republic to legislate on the "tax system", including "guarantees of taxpayers" [arts. 103, section 2, and 165, section 1, paragraph i), of the CRP] ( [4] ), and on the "organization and jurisdiction of courts" [art. 165, section 1, paragraph p), of the CRP], the referred art. 2 of the LRAT cannot, under penalty of unconstitutionality, for lack of coverage in the legislative authorization law that limits the power of the Government (art. 112, section 2, of the CRP), be interpreted as attributing to the arbitral tribunals operating in the CAAC jurisdiction for the assessment of the legality of other types of acts, for whose challenge the judicial challenge process and the action for recognition of a right or legitimate interest are not appropriate.

Thus, to resolve the issue of jurisdiction of this Arbitral Tribunal it becomes necessary to determine whether the legality of the act rejecting the application for administrative review could or could not be assessed, in a tax tribunal, through judicial challenge process or action for recognition of a right or legitimate interest.

The act rejecting an application for administrative review of the tax act constitutes an administrative act, as per the definition provided by art. 120 of the CPA [subsidiarily applicable in tax matters, by force of the provision of art. 2, paragraph d), of the LGT, section 2, paragraph d), of the CPPT, and 29, section 1, paragraph d), of the LRAT], since it constitutes a decision of a body of the Administration which under the authority of norms of public law aimed to produce legal effects in an individual and concrete situation.

On the other hand, it is also unquestionable that it is an act in tax matters since the application of norms of tax law is made therein.

Thus, that act rejecting the application for administrative review constitutes an "administrative act in tax matters".

From paragraphs d) and p) of section 1 and section 2 of art. 97 of the CPPT the rule is inferred that challenge of administrative acts in tax matters is done, in the judicial tax process, through judicial challenge or special administrative action (which succeeded the administrative law appeal, pursuant to art. 191 of the Code of Process in Administrative Courts) depending on whether those acts involve or do not involve the assessment of the legality of administrative liquidation acts. ( [5] )

Possibly, as an exception to this rule may be considered cases of challenge of acts rejecting administrative complaints, due to the existence of a special provision, which is section 2 of art. 102 of the CPPT, from which it can be inferred that judicial challenge is always usable. ( [6] ) Other exceptions to that rule may be found in special provisions, subsequent to the CPPT, that expressly provide for the judicial challenge process as a means to challenge a certain type of acts. ( [7] )

But, in cases where there are no special provisions, that criterion of distribution of fields of application of the judicial challenge process and the special administrative action applies.

Face with this criterion of distribution of fields of application of the judicial challenge process and special administrative action, acts issued in procedures of administrative review of self-assessment acts can only be challenged through judicial challenge process when they involve the assessment of the legality of these self-assessment acts. If the act rejecting the application for administrative review of a self-assessment act does not involve the assessment of the legality of this, the special administrative action shall apply. It is a criterion for distinguishing the fields of application of said procedural means of doubtful justification, but the fact is that it is what results from the wording of paragraphs d) and p) of section 1 of article 97 of the CPPT and has been uniformly adopted by the Supreme Administrative Court. ( [8] )

This finding that there is always an appropriate procedural means to contenciously challenge the act rejecting the application for administrative review of a self-assessment act leads, forthwith, to the conclusion that one is not faced with a situation in which, in the judicial tax process, the action for recognition of a right or legitimate interest could be used, since its application in tax contentious matters has a residual nature, in that these actions "can only be proposed always that this procedural means is the most appropriate to ensure full, effective and actual protection of the right or legally protected interest" (art. 145, section 3, of the CPPT).

Another conclusion which the referred delimitation of the fields of application of the judicial challenge process and special administrative action permits is that, restricting the jurisdiction of the arbitral tribunals operating in the CAAC to the field of application of the judicial challenge process, only insert themselves in this jurisdiction the applications for declaration of illegality of acts rejecting applications for administrative review of self-assessment acts that involve the assessment of the legality of these acts.

The legislative concern in precluding from the jurisdictions of the arbitral tribunals operating in the CAAC the assessment of the legality of administrative acts that do not involve the assessment of the legality of liquidation acts, in addition to resulting, first of all, from the generic directive of creation of an alternative means to the judicial challenge process and the action for recognition of a right or legitimate interest, results clearly from paragraph a) of section 4 of art. 124 of Law No. 3-B/2010, of 28 April, in which are indicated among the possible objects of the tax arbitral process "the administrative acts that involve the assessment of the legality of liquidation acts", since this specification can only be justified by a legislative intent in the sense of excluding from the possible objects of the arbitral process the assessment of the legality of acts that do not involve the assessment of the legality of liquidation acts.

For this reason, the solution of the issue of jurisdiction of this Arbitral Tribunal connected with the content of the act rejecting the application for administrative review depends on the analysis of this act.

In the case in question, the reason invoked for rejection of the administrative review was the untimeliness of the intended regularization, which, obviously, does not entail assessment of the legality or otherwise of any liquidation act.

However, face with the criterion of distribution of the fields of the judicial challenge process and special administrative action delineated by paragraphs d) and p) of section 1 of article 97 of the CPPT, it is not necessary that the assessment of the legality of a liquidation act be the basis of the procedural decision or that in the application formulated assessment of the legality of a liquidation act be requested, sufficing that this act involve it, which, in this context, means that the challenged act includes a judgment on the legality of a liquidation act, even if its legality or illegality is not the basis of the decision. It would be different if the law employed other expressions, such as "assesses" or "decides".

Now, in the case in question, one cannot understand that the decision on the application for administrative review includes the assessment of the legality of any liquidation act, since, as can be seen from the text of the information on which the rejection decision was based, which was reproduced in paragraph o) of the factual matters established, at no point does it refer whether they are or are not in agreement with the corrections the Applicant wishes to have authorized.

In fact, from point 1 to point 2.1 of the Information it is merely a report of the procedural situation presented for decision, only from point 2.2 passing to assessment of the application.

In that point 2.2 of the Information, it refers that the regime of article 78, section 1, of the LGT and it is found that the Applicant did not lodge an administrative complaint on the basis of any illegality within the 120-day period.

In point 2.3 of the Information, section 2 of the same article 78 is transcribed and it is concluded therefrom (rightly or wrongly) that the Applicant "should have submitted, prior to the application for administrative review, the complaint provided for in section 1 of article 131 of the Code of Tax Procedure and Process, within the legally established period, of two years".

In point 2.4 of the Information, sections 2 and 3 of article 22 of the CIVA are referred to.

In point 2.5 of the Information, articles 22, section 2, and 98, section 2, are referred to and it is concluded therefrom that there is a maximum period of four years for exercise of the right to deduction, "but the taxpayer is not given the freedom to determine the moment of exercise of that right, with the said provision limiting itself to fixing only a general maximum limit, from which the right to deduction can no longer be exercised".

In point 2.6 of the Information, article 22, section 1, of the CIVA is reproduced.

In point 2.7 of the Information, the date of submission of the application for administrative review is referred to and it is concluded that it was untimely, in light of the provision of article 78, section 1, of the LGT, regarding VAT self-assessments of January to October 2008. As for VAT self-assessments of November and December 2008, it is referred that "the tax acts in question can no longer be reviewed, since there are no legal provisions that allow the exercise of deduction of documents recorded in 2008" and that the VAT regularization requested "refers to documents already recorded, so the taxpayer's petition cannot benefit from the extended four-year period established for section 2 of article 98 of the CIVA, as there are periods established in article 22 of the CIVA for the exercise of the right to deduction".

In the "Conclusion" of said Information, it is referred that, "given the legal provisions cited and in accordance with section 2 of article 22 of the CIVA, (...) there is no longer any legal provision that allows the exercise of the right to VAT deduction at a moment subsequent to those established in article 22 of the VAT Code" and that "Given that there is no legal provision that allows the taxpayer to exercise the right to deduction at a moment subsequent to the periods established in article 22 of the CIVA, the application for administrative review should be rejected".

There is not found, thus, in said Information, which embodies the reasoning of the act rejecting the application for administrative review, any reference to the legality of the self-assessment acts, assessing only whether the application was timely, in light of article 78 of the LGT and articles 22 and 98 of the CIVA.

The Information subsequent to notification for exercise of the right to a hearing, which was reproduced in paragraph q) of the factual matters established contains only references to notification of the draft decision and non-exercise of the right to a hearing, terminating with proposal to maintain the rejection proposed in the prior Information.

The act of rejection limits itself to manifesting agreement with this Information.

Thus, it is unequivocal that the act rejecting the application for administrative review does not involve the assessment of the legality of the self-assessment acts, since at no point does it say whether the corrections the Applicant intended to effect have support in the substantive law, the rejection being based only on the lack of legal provision that provides for the possibility of exercise of the right to deduction at the moment in which the Applicant intended to exercise it.

Being so, by what was said above about the limitation of the jurisdictions of the arbitral tribunals operating in the CAAC to the assessment of the legality of acts deciding applications for administrative review that involve the assessment of the legality of liquidation acts, it must be concluded by the incompetence of this Arbitral Tribunal to assess the legality of the act rejecting the application for administrative review.

The incompetence to assess the legality of the act rejecting the application for administrative review has as a corollary the incompetence to assess the legality of the self-assessment acts which the Respondent refers to.

In fact, as the Respondent itself refers, the immediate object of the application for arbitral pronouncement is the illegality of the act rejecting the application for administrative review, the illegality of the self-assessment acts being merely mediate object of the application for arbitral pronouncement, which has as a consequence that the illegality of these acts can only be assessed through the assessment of the illegality of the act rejecting the application for administrative review (which would be tainted with illegality if, assessing the legality of illegal self-assessment acts, it rejected their review by considering them legal). [9]

The fact, referred to in paragraph t) of the factual matters established, that in the notification which was made to the Respondent the possibility is indicated of "filing a judicial challenge under article 95, sections 1 and 2 paragraph d) of the LGT and article 97 of the CPPT, within the period provided for in article 102, section 1 of the CPPT", while potentially relevant for other effects, namely for the purpose of use of the faculty provided for in section 4 of article 37 of the CPPT (to be assessed by the competent tribunal), does not pertain to the assessment of jurisdiction.

In fact, the material jurisdiction of Tribunals in the area of public law is of public order, as follows from article 13 of the Code of Process in Administrative Courts, subsidiarily applicable by force of the provision of article 29, section 1, paragraph c), of the LRAT, so it only depends on the act itself that is the object of the process, and the Tax Administration cannot alter the jurisdiction of the Tribunals, via its notification.

By the foregoing, there is verified the exception of lack of material jurisdiction, which is an obstacle to assessment of the merits of the case and justifies the acquittal of the Tax Authority and Customs Authority from the instance [articles 16, section 1, of the CPPT and 278, section 1, paragraph a), of the CPC, subsidiarily applicable by force of the provision of article 29, section 1, paragraphs c) and e), of the LRAT].

4. Issues of Prejudiced Knowledge

In harmony with the foregoing, the exceptions of lack of material jurisdiction and untimeliness raised by the Tax Authority and Customs Authority proceed, so there are obstacles to the assessment of the applications formulated by the Respondent.

Consequently, it is incumbent to acquit the Tax Authority and Customs Authority from the instance, the knowledge of the remaining issues raised in the process being prejudiced.

5. Decision

In these terms, the Arbitral Tribunal agrees to:

– judge the exceptions of lack of material jurisdiction of this Arbitral Tribunal to assess the merits of the case to be founded;

– acquit the Tax Authority and Customs Authority from the instance.

6. Value of the Process

In harmony with the provision of art. 315, section 2, of the CPC and 97-A, section 1, paragraph a), of the CPPT and section 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is fixed at € 98,080.66.

7. Costs

Pursuant to art. 22, section 4, of the LRAT, the amount of costs is fixed at € 2,754.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Applicant.

Lisbon, 10-10-2014

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Clotilde Celorico Palma)

(Marta Gaudêncio)