Process: 313/2016-T

Date: November 15, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD case 313/2016-T addressed a dispute over IRC (corporate income tax) assessment for an investment fund's 2014 fiscal year. The fund challenged assessment act no. 2015..., claiming the Tax Authority failed to credit €50,243.57 in withholding taxes paid on 30 April 2015 for autonomous taxation of foreign-source income and capital gains under Article 22(1)(n) and (c) of the Portuguese Tax Benefits Statute (EBF). The fund initially filed Form 22 with an incorrect amount (€20,543.57) on 18 May 2015, later correcting it via substitute declaration on 12 April 2016. After a partially-granted administrative review, the fund sought arbitration. The Tax Authority raised a critical preliminary objection of untimeliness (intempestividade), arguing the fund should have challenged the decision refusing the administrative review rather than the original assessment act. Under RJAT rules, when an administrative review partially modifies an assessment, the proper object for arbitral challenge becomes the review decision, not the superseded assessment act. On the merits, the AT contended the €50,243.57 withholding payment bore a 28 April 2015 recording date with period designation '2015/April', making it attributable to fiscal year 2015, not 2014. The fund's operations personnel were proposed as witnesses but the tribunal rejected this evidence as legally irrelevant. This case illustrates procedural complexities in Portuguese tax arbitration, particularly regarding the correct identification of challengeable acts post-administrative review, and substantive issues around temporal allocation of withholding tax credits for investment funds under the special EBF regime governing foreign-source income taxation.

Full Decision

ARBITRATION DECISION

1. REPORT

1.1 A..., a legal entity number..., managed and represented by B..., INVESTMENT FUND MANAGEMENT COMPANY, S.A., came, on 09 June 2016, under Article 10 of Decree-Law No. 10/2011 of 20 January (hereinafter RJAT), to request the constitution of an arbitration tribunal.

1.2 The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3 The Deontological Council of the Administrative Arbitration Center (CAAD) appointed the undersigned to form the Sole Arbitration Tribunal, notifying the parties thereof, and the Tribunal was constituted on 01 September 2016.

1.4 The request for arbitration has as its object "the corporate income tax assessment act for the fiscal year 2014 number 2015... (assessment no. 2015...), in the amount of €30,305.99, with payment deadline until 11 December 2015", better identified in the Claimant's request and in the documents attached thereto, to which reference is made herein.

The Claimant invokes the illegality of the assessment act, alleging that "the totality of amounts withheld at source during the fiscal year 2014" were not taken "into consideration", which refer to "the autonomous taxation, by the Fund, of income and capital gains obtained outside Portuguese territory during the fiscal year 2014, in accordance with subparagraphs n) and c) of no. 1 of Article 22 of the EBF in force until 30/06/2015" (sic).

It alleges that it made payment of all autonomous taxation on 30/04/2015, in the total amount of €50,243.57, through the Withholding Tax Certificate no. ... and that it filled in the 209-IRC Investment Funds box, which, it understands, has been practice since the law came into force, and that on 18 May 2015 it submitted Form 22 declaration for that 2014 fiscal year having, however, made an error in the completion and inserted, by mistake, the amount of €20,543.57 an error which it corrected through a replacement declaration submitted on 12 April 2016.

The Claimant states that it filed an administrative request for review, which was partially granted, but understands, notwithstanding this, that "the tax assessment remains wrong and in need of corrections", by understanding that the withholdings mentioned therein, in the amount of €24,010.33, paid on 30 April 2014, relate to the 2013 fiscal year and not to 2014, at issue and cannot, as such, be considered in the 2014 fiscal year.

It concludes by requesting the annulment of the assessment act at issue and its "replacement with another that takes into account that the amount to be considered, in field 359 of box 10, of the aforesaid declaration, is €50,243.57, all with the due and legal consequences".

1.5 The TAX AND CUSTOMS AUTHORITY submitted its response on 07.10.2016 and attached, on the same date, the administrative file, raising preliminary objections and substantive defenses.

By way of preliminary objection, the Respondent alleges that the request for arbitration is time-barred, as it targets the assessment act instead of targeting, as it should, the decision refusing (partially) the administrative request for review, and that, "having not done so, that is, having not expressly requested the annulment of the order that refused the administrative request for review filed by it, there is no basis that could establish the timeliness of the request and, consequently, the possibility for the Tribunal to appreciate the request formulated regarding the assessment act".

Therefore it concludes by seeking its dismissal from the proceedings.

On the merits, the Respondent comes to defend that "the Claimant confused the periods with respect to which it proceeded to deliver the amounts as withholding tax to the State Treasury", that "the amount of €50,243.57 sought to be entered in field 359 does not correspond to the 2014 fiscal year, but rather to 2015", "since, specifically, the movement was recorded and bears the date 28-04-2015" and the Claimant itself "in the field intended for entry of the period to which the said payment relates", "entered, including, period 2015/April" whereby "it can only be entered in the Form 22 declaration for fiscal year 2015, to be filed and submitted only in 2016".

It further alleges that, as a consequence of the administrative request for review filed, but ex officio and in respect of the principle of substantive truth, it proceeded to correct the amount declared by the Claimant from €20,543.57 to €24,010.33, which resulted in a decrease of the tax to be paid to €26,333.24, having thereby annulled the assessment challenged.

It concludes by seeking the inadmissibility of the witness evidence indicated by the Claimant and arguing for the maintenance of the act in the legal order, to the extent that, in its view, there is no concrete evidence that the amount of €50,243.57 corresponds to withholding tax derived from income and capital gains obtained in 2014 and that, on the other hand, the Claimant's own statement is to the effect that they refer to 2015.

1.6 On 18.10.2016, the Tribunal issued an order inviting the Claimant to comment on the preliminary objection raised by the Respondent and to indicate the facts it intended to prove through the testimony of the witnesses listed, as well as the basis for their knowledge.

1.7 On 28.10.2016, the Claimant came, in response to the preliminary objection, to argue that the administrative request for review has as its object an assessment act and that, although the object of the challenge is formally the decision refusing the administrative request for review, it is, indirectly, the assessment act that was the object of the review, the only one whose legality can be appreciated and for which the Arbitration Tribunal has jurisdiction.

To which it adds, it says, that it expressly mentions in its request the decision refusing the administrative request for review, with which it states it does not agree.

It further indicates that it intends for the witnesses to be examined on Articles 7 to 20 of the request, clarifying, as to the basis for their knowledge, that these are respectively the operations director and the operations manager of the requesting fund's management entity, "persons who process with the Tax Authority all tax declarations of the Requesting Fund".

It concludes by arguing for the dismissal of the preliminary objection, but contending that, if not understood this way, the Tribunal should invite the Claimant to correct the request, pursuant to Article 18 of the RJAT.

1.8 On 29.10.2016, the Tribunal issued an order deciding not to proceed with the examination of the witnesses listed, as it appeared on the one hand that the matters to be decided are fundamentally of law and that there are in the proceedings all the necessary elements for the delivery of the decision and, on the other, that the matter alleged in such articles, even if susceptible to witness evidence and which through that means would come to be judged as proven, could have no influence on the decision of the case. In the same order, the Tribunal gave notice of its intention to dispense with the holding of the meeting referred to in Article 18 of the RJAT, as none of the purposes legally assigned to it materialized, including the production of arguments, as they appeared unnecessary. The parties, notified thereof, did not come to object.

2. PRELIMINARY DETERMINATION

The Tribunal was properly constituted and is competent.

The parties have legal personality and judicial capacity, show themselves to be legitimate and are properly represented.

The proceedings do not suffer from any defects that would invalidate them.

3. FINDINGS OF FACT

With relevance to the merits decision, the Tribunal considers the following facts to be proven:

1) On 28.04.2015, the Claimant submitted a "Withholding Tax Declaration" which received the number ... relating to 209 - IRC - Investment Funds (Art. 22 of the EBF)", in the amount of €50,243.57, which it paid on 30.04.2015;

2) On 08.10.2015, statement number 2015 ... of the IRC assessment for fiscal year 2015 number 2015... was issued, in the amount of €30,305.99, with payment deadline until 11.12.2015;

3) From that statement, in the fields "Withholding at Source" and "IRC to recover" appears the amount of €20,543.57 and in the field "Autonomous Taxation", the amount of €50,243.57;

4) On 14.03.2016, a registered letter with acknowledgment of receipt was sent to the Claimant, notifying it of the partial grant of the administrative request for review that it had filed against that assessment act and which received the number ...2015..., to the effect that "the amount of €24,010.33 is to be considered as withholding at source in the Form 22 IRC declaration for fiscal year 2014";

Facts Not Proven

No other facts relevant to the appreciation of the merits of the case were alleged by the parties that were not proven.

Reasoning for the Decision on Findings of Fact

The conviction as to the facts found to be proven was based on the allegations of the Claimant and Respondent not contradicted by the opposing party, supported by the documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were also not questioned.

4. LEGAL MATTERS - ISSUES TO BE DECIDED

A) Was the request for arbitration filed timely?
B) Does the assessment act at issue suffer from error, being subject to annulment as illegal?

It is necessary to decide:

Since the timeliness of the request for arbitration, invoked by the Respondent, amounts to a preliminary objection that prevents the proceedings from continuing, it must be appreciated as a priority (cf. Article 89, no. 1, letter h), of the CPTA and Articles 576, no. 2, 577 and 608, no. 1, of the CPC).

Thus,

A) ON THE TIMELINESS OF THE REQUEST FOR ARBITRATION:

The request for arbitration has as its object "the corporate income tax assessment act for fiscal year 2014 number 2015... (assessment no. 2015...), in the amount of €30,305.99, with payment deadline until 11 December 2015".

The period for challenging an assessment act is 90 days (pursuant to Article 10, no. 1, letter a), of the RJAT, counted from the facts provided in nos. 1 and 2 of Article 102 of the CPPT.

In the case at hand, the 90-day period shall be counted from the end of the voluntary payment period for the tax obligation, which was, in this case, 11 December 2015, by force of the provision of Article 104, no. 1, letter b), of the CIRC.

The request for arbitration was submitted on 09.06.2016, that is, already after the 90-day period had expired.

However, as the Claimant correctly argues, it is well established in the doctrine and in the arbitration jurisprudence of the CAAD that although Article 2, no. 1, letter a), of the RJAT makes explicit reference to the competence of arbitration tribunals to declare the illegality of assessment acts, this competence also extends to second and third-level acts that assess the legality of primary acts, such as decisions refusing administrative requests for review and decisions refusing hierarchical appeals filed against such review decisions.

What is the case is that, being this so, with the time period for challenging the assessment having expired, the Claimant had the option of challenging the decision refusing the administrative request for review, that is, to raise the assessment of the legality of the assessment depending on the filing of the challenge against the unfavorable decision rendered in the administrative review remedy.

Furthermore: the administrative request for review is, in cases of self-assessment, as in the case sub judice, as a rule, mandatory, a condition of challenge (cf. Article 131 of the CPPT).

What happens, however, is that what the Claimant requests is the annulment of the assessment act at issue and its "replacement with another that takes into account that the amount to be considered, in field 359 of box 10, of the aforesaid declaration, is €50,243.57, all with the due and legal consequences".

It is therefore clear that, despite making reference to the partial refusal of the administrative request for review that it filed, the Claimant identifies as the object of the arbitration request the IRC assessment act and, notwithstanding the allusion it makes to the refusal of the request, the truth is that it does not attack it in its arbitration request, merely stating that it continues to disagree with the position of the Tax Administration.

We cannot, therefore, fail to agree with the Respondent when it, in its response, argues that the Claimant did not formulate to the Tribunal any request tending toward the annulment of the decision refusing (partially) the administrative request for review.

Now, notwithstanding what the Claimant argues, which argues for the dismissal of the preliminary objection, while at the same time believing that the Tribunal should have invited it to amend the arbitration request, the scope of the Tribunal's power to review is limited by the request and this Tribunal is exclusively confronted with the direct challenge, filed time-barred, against an IRC assessment act which, note well, in fact, no longer exists in the legal order, given the decision rendered by the Tax Administration, the consequent annulment of the challenged assessment and its replacement with another that reflects that decision.

As is well stated in the arbitration decision rendered in case number 261-T/2013, access to justice is not unlimited or unconditional and is exercised in accordance with the legal norms that regulate it. The Claimant had an appropriate means to ensure its claim – to challenge the decision refusing the administrative request for review – but did not do so.

Finally, the Tribunal cannot agree with the Claimant when it suggests that it is the Tribunal that should invite it to remedy the deficiencies in the request pursuant to Article 18 of the RJAT. Note that letter c) of no. 1 of the RJAT, in providing for the possibility of the Tribunal "inviting the parties to correct their procedural pleadings, when necessary" gives concrete form to the possibility of invitation to perfect the pleading provided for in Articles 590, nos. 3 to 7, of the C.P.C., and 88, no. 2 of the CPTA.

Note, however, that, on the one hand, the admissibility of correction of irregularities in the pleadings relates to the matters of fact and their proof and, on the other, that it is expressly limited, pursuant to no. 5 of the cited Article 590 of the C.P.C., by the provision of Article 265 regarding the modification of the claim and the cause of action.

In the case at hand, therefore, the Tribunal could not permit the "correction" of what the Claimant calls deficiencies in its pleading, because no such deficiencies exist in the sense that it seeks to give them.

The Claimant identifies its cause of action and its claim clearly: what happens is that, by force of the decision on the administrative request for review, which grants it even if only partially, and of the correction that the Respondent carried out ex officio, the challenged assessment act no longer exists in the legal order.

In truth, the Tribunal understands that, without prejudice to the provision of letter c) of Article 16 and Article 19 of the RJAT, it is always governed by the applicable procedural rules. In the concrete case, by those that govern the moments and prerequisites for modifications to the claim and the cause of action regulated in Articles 264 and 265 of the Code of Civil Procedure, applicable ex vi of Article 2 CPPT and Article 29 of the RJAT.

Therefore any modification would have to come from the Claimant and would always require the consent of the Respondent, the Tribunal understanding further that, in any case, it would always be barred to it because with both the claim (the annulment of the decision on the request and the new tax assessment resulting therefrom) and the cause of action (the refusal of the request) at issue, the legal relationship under dispute would, in fact, be substantially different.

Further: Article 20 of the RJAT governs, referring to Article 64 of the Code of Procedure in Administrative Courts, cases of objective modification, specifying that this can occur when there is substitution during the proceedings of the acts that are the object of the claim based on new facts. This is, manifestly, not what occurs in the case sub judice.

In any case, without prejudice to the foregoing considerations, the truth is that the Tribunal was not called upon to decide on the admissibility of the modification, since the Claimant requested nothing to that effect.

Furthermore: as stated above, if the Tribunal were to invite the Claimant to "remedy the deficiencies" in its request, it would, in truth, by opening to it the way to modify both the cause of action and the claim, be permitting it to formulate an entirely new challenge against a different legal act, but taking advantage of the date of filing of the arbitration request and obtaining, in that way, an extension of the period for challenging the decision that was rendered on the administrative request for review – a period which, in the meantime, had expired. This would confer on the Claimant an unfair and illegitimate advantage over the Respondent, being, naturally, prohibited to the Tribunal to do so.

It is further understood that, with respect to this issue, the right to be heard provided for in letter a) of Article 16 of the RJAT was exercised and the principle of equality was respected: the Tribunal, in light of the Respondent's response, invited the Claimant to comment on the preliminary objections raised. It had ample opportunity to request of the Tribunal what it deemed convenient, and on that occasion did not request any modification of the claim or the cause of action. Subsequently, the Tribunal gave notice of its intention to dispense with the meeting referred to in Article 18 of the RJAT, considering that none of the functions assigned to it by the Regulation were at issue and, once again, the Claimant made no statement, accepting the dispensation.

In this context, the Tribunal's decision is not surprising, which we believe complies with the provisions of both Article 18 of the RAJT and Article 3 of the C.P.C.

Given that the preliminary objection invoked is upheld, the appreciation of the remaining issues raised in the proceedings is prejudiced.

5. DECISION

In these terms, with the reasoning above, it is decided to uphold the preliminary objection of timeliness of the arbitration request and, as a consequence, to dismiss the Respondent from the proceedings.

* * *

The value of the case is fixed at €30,305.99 (thirty thousand, three hundred and five euros and ninety-nine cents), in accordance with the provisions of Articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, letter a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at €1,836.00 (one thousand eight hundred and thirty-six euros) under Article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Claimant, in accordance with the provisions of Articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the CPC.

Let notice be given.

Lisbon, 15 November 2016

The Arbitrator,

(Eva Dias Costa)

Text prepared on computer, pursuant to Article 131, no. 5 of the Code of Civil Procedure, applicable by reference of Article 29, no. 1, letter e) of the RJAT.

Frequently Asked Questions

Automatically Created

What was the IRC tax assessment dispute in CAAD case 313/2016-T about?
The dispute concerned an IRC assessment act for fiscal year 2014 where an investment fund claimed the Tax Authority failed to properly credit €50,243.57 in withholding taxes related to autonomous taxation of foreign-source income and capital gains under Article 22 of the EBF (Estatuto dos Benefícios Fiscais). The fund had made errors in its original Form 22 declaration and sought correction through a substitute declaration.
Why was the arbitral request in process 313/2016-T considered untimely (intempestivo)?
The Tax Authority argued the arbitral request was untimely because it targeted the original assessment act instead of the decision that partially refused the administrative review request. Under RJAT principles, once an administrative review decision is issued that modifies or confirms an assessment, that decision becomes the proper object for judicial or arbitral challenge, not the underlying assessment act. The fund's failure to expressly request annulment of the review decision allegedly rendered the arbitration request time-barred.
How are withholding tax credits (retenções na fonte) applied to investment fund IRC returns in Portugal?
For investment funds, withholding tax credits from foreign-source income under Article 22 of the EBF must be reported in field 359 of box 10 on Form 22. The credits are attributed to the fiscal year in which the underlying income was obtained, not necessarily when payment was made to the Tax Treasury. The withholding tax declaration (Declaração de Retenção na Fonte) and payment timing must align with the correct fiscal period designation to ensure proper crediting against IRC liability.
What is the deadline for filing an arbitral tax claim (pedido de pronúncia arbitral) under the RJAT?
Under the RJAT (Regime Jurídico da Arbitragem Tributária - Decree-Law 10/2011 of 20 January), taxpayers generally have 90 days from notification of the tax act or decision to file an arbitral claim. However, when an administrative review is filed and decided, the deadline runs from notification of the review decision, and that decision becomes the proper object of challenge, not the original assessment act that was subject to review.
Can a Modelo 22 substitute declaration correct IRC withholding tax errors for investment funds?
Yes, taxpayers can file substitute declarations (declarações de substituição) to correct errors in the original Form 22, including corrections to withholding tax amounts reported in field 359. However, timing is critical: the correction must properly identify which fiscal year the withholding taxes relate to based on when the underlying income was obtained, not merely when payment was made. Misidentification of the fiscal period can result in the Tax Authority rejecting the credited amounts as not pertaining to the declared fiscal year.