Process: 314/2018-T

Date: November 22, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 314/2018-T) addresses the complex interaction between IRC compensatory interest, default interest, and payments on account following submission of a substitution declaration. The Claimant challenged an IRC liquidation for 2015 that included both compensatory and default interest relating to payments on account. A critical jurisdictional question arose regarding CAAD's competence to order payment of indemnity interest stemming from administrative acts of offsetting credits within tax enforcement proceedings. The tribunal clarified that while CAAD arbitral tribunals constitute an alternative to judicial challenge proceedings, their competence extends beyond mere annulment declarations to include condemning decisions for indemnity interest. However, this competence is restricted to indemnity interest directly consequent to annulment of the contested liquidation act itself, not separate acts performed during tax enforcement proceedings such as credit offsetting. The decision emphasizes that Article 2 RJAT's reference to 'declaration of illegality' should be interpreted broadly to encompass powers equivalent to tax courts in judicial challenges, including ordering payment of indemnity interest as prescribed by Article 43 of the General Tax Law and Article 61(4) of the Tax Procedure Code. The tribunal confirmed its authority to assess the legality of IRC liquidations including interest components and to order restoration of legality, but distinguished this from competence over purely enforcement-related administrative acts. This ruling provides important guidance on the scope of CAAD jurisdiction regarding consequential financial remedies in IRC disputes involving substitution declarations and installment payment recalculations.

Full Decision

Arbitral Decision

The arbiters Advisor Jorge Lopes de Sousa (arbitrator-president), Dr. Alexandre Andrade and Professor Doctor Fernando Borges de Araújo (arbiters-members) designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 12-09-2018, hereby agree as follows:

1. Report

A..., S.A. (hereinafter referred to as the "Claimant"), holder of the unique number of legal entity and registration..., with registered office at ..., no...., ... –... Lisbon, in its capacity as the dominant company of Group B..., came, pursuant to the provisions of article 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal, with a view to the declaration of illegality of the decision rejecting the administrative appeal no. ...2018... and the demonstration of Corporate Income Tax (IRC) liquidation no. 2016 ... which includes compensatory interest and default interest relating to payments on account of IRC for the financial year 2015, with its consequent annulment.

The Claimant further requests the condemnation of the Tax Authority for the payment of indemnifying interest and compensation for the provision of undue guarantee.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 06-07-2018.

Pursuant to the provisions of article 6, paragraph 2, subsection a) and article 11, paragraph 1, subsection b) of the RJAT, the Deontological Council designated as arbiters the signatories, who communicated acceptance of the assignment within the applicable deadline.

On 23-08-2018, the parties were duly notified of this designation, and did not manifest any will to refuse the designation of the arbiters, in accordance with the combined provisions of article 11, paragraph 1, subsections a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of article 11, paragraph 1, subsection c) of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 12-09-2018.

The Tax and Customs Authority submitted a response, raising the question of the material incompetence of the Arbitral Tribunal to consider the request for condemnation to pay indemnifying interest by virtue of an administrative act, embodied in the offsetting of liquidations, within the scope of a tax enforcement procedure.

By order of 26-10-2018, the meeting provided for in article 18 of the RJAT was waived and it was decided that the proceedings would continue with written submissions.

The parties submitted written arguments.

The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2, paragraph 1, subsection a), and 10, paragraph 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, possess legal personality and legal capacity, are legitimately parties and are represented (articles 4 and 10, paragraph 2, of the same legal instrument and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

It is necessary to assess, as a priority, the question of incompetence raised by the Tax and Customs Authority [article 13 of the Code of Procedure in Administrative Courts, applicable to tax arbitration proceedings by virtue of the provisions of article 29, paragraph 1, subsection c), of the RJAT].

2. Question of the Incompetence of the Arbitral Tribunal to Consider the Request for Condemnation of the Respondent to Pay Indemnifying Interest by Virtue of an Administrative Act, Embodied in the Offsetting of Liquidations, Within the Scope of a Tax Enforcement Procedure

The competence of arbitral tribunals operating at CAAD is provided for the assessment of the legality of acts of the types indicated in article 2 of the RJAT, namely acts of tax liquidation, self-liquidation, withholding at source and payments on account and acts of determination of taxable matter, determination of collectable matter and determination of patrimonial values.

In accordance with the provisions of article 24, subsection b) of the RJAT, the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the Tax Administration from the end of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favour of the taxpayer and until the end of the deadline provided for the voluntary execution of sentences of tax courts, "restore the situation that would have existed if the tax act which was the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in line with the provisions of article 100 of the General Tax Law [applicable by virtue of the provisions of article 29, paragraph 1, subsection a) of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of administrative appeal, judicial challenge or appeal in favour of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the subject of the dispute, including the payment of indemnifying interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2, paragraph 1, subsections a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at CAAD, not making reference to condemning decisions, it should be understood that their competences include the powers that in judicial challenge proceedings are attributed to tax courts, being this the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially an annulment process for tax acts, admits the condemnation of the Tax Administration to pay indemnifying interest, as can be inferred from article 43, paragraph 1, of the General Tax Law, in which it is established that "indemnifying interest is due when it is determined, in administrative appeal or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due" and article 61, paragraph 4 of the Tax Code of Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the original wording), which states that "if the decision recognizing the right to indemnifying interest is judicial, the payment deadline is counted from the beginning of the deadline for its voluntary execution".

Thus, paragraph 5 of article 24 of the RJAT, in stating that "payment of interest, regardless of its nature, is due, as provided for in the general tax law and in the Tax Code of Procedure and Process", should be understood as permitting the recognition of the right to indemnifying interest in the arbitral process.

Naturally, since the subject matter of the process is a tax liquidation act, the right to indemnifying interest that may be recognized in arbitral proceedings is restricted to those that should be due as a consequence of the annulment of the contested act and not acts that have been carried out in tax enforcement proceedings, namely those that decided the offsetting of credits, without prejudice to the relevance of acts of this type as a means of implementing payment of the liquidated amount.

In the case at hand, the Claimant requests indemnifying interest as a consequence of the annulment of the liquidation it contests, so the assessment of the request for interest falls within the competence of arbitral tribunals operating at CAAD.

The exception raised by the Tax and Customs Authority is therefore without merit.

3. Statement of Facts

3.1. Proven Facts

  • The Claimant is the dominant company of Group B..., subject to the Group Tax Consolidation Regime (RETGS) and, in that capacity, is the entity responsible for presenting the periodic income statement of the group;

  • In this context, the Claimant proceeded to self-liquidate IRC for group B..., for the financial year 2014, by filing the Modelo 22 Declaration relating to that year identified by no...., with the date of receipt by the Tax Authority of 27-05-2015 (document no. 5 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • In the course of the year 2015, the Claimant proceeded to liquidate the Payments on Account of IRC of the Group for 2015, calculated on the basis of the tax liquidated in 2014, on the dates of 31-07-2015, 30-09-2015 and 15-12-2015 (documents nos. 6, 7 and 8 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • In 2016, following events that occurred after the closure of accounts for the period of 2014 and after the submission of the Modelo 22 Declaration relating to that year, the Claimant had to make certain alterations relating, namely, to:

    • Restructuring Support Programme;
    • Increase in expenses associated with the cancellation of credits of C... against the State (D..., "E...");
    • SIFIDE 2014;
    • Recognition of the increase on the "child values" awarded in 2014;
    • Change in procedure in terms of net job creation;

  • These alterations created the necessity to replace the Modelo 22 declaration relating to 2014 that had been submitted on 27-05-2015, so the Claimant presented substitute declarations to the Modelo 22 Declaration for the financial year 2014, one submitted on 27-01-2016 and another submitted on 30-05-2016 (documents nos. 9 and 10 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • From the substitute Modelo 22 declarations for the financial year 2014, delivered by the Claimant in 2016, tax payable resulted in the amounts of € 32,786,679.31 and € 1,725,462.03, given that the tax adjustments made were, in their majority, in favour of the State;

  • The Claimant paid on the dates of 27-01-2016 and 31-05-2016, respectively, the tax payable to the State, resulting from said substitute declarations (documents nos. 11 and 12 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced), as well as the compensatory interest and default interest liquidated (documents nos. 13, 14, 15 and 16 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 05-06-2017, the Claimant was notified of the Demonstration of Corporate Income Tax (IRC) Liquidation no. 2016 ... and respective Demonstration of Liquidation of Interest no. 2017..., from which results a payment amount of € 1,099,290.69, as compensatory interest and € 55,190.26 as default interest (documents nos. 17 and 18 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • In said demonstration of compensatory interest and default interest, the following indications are included: "Compensatory Interest on Payments on Account (article 107 of the Corporate Income Tax Code)" and "Default Interest (article 109 of the Corporate Income Tax Code and article 44 of the General Tax Law)";

  • On 05-07-2017, the Claimant requested from the Tax and Customs Authority, pursuant to the provisions of article 37 of the Tax Code of Procedure and Process, the "sufficient and complete substantiation of the Demonstration of IRC Liquidation and the Demonstration of Liquidation of Interest" (document no. 22 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 26-09-2017 the Claimant was notified of Information no. ...-AIR2/2017 (which is contained in document no. 23 attached to the request for arbitral pronouncement the contents of which are taken as reproduced) in which it is stated that it was found that there remained "reasons to the point that in this case there could be supervenient futility of the dispute in relation to the request now formulated", and that "[a]nalysed the merits of the request now formulated by the Claimant, we find (…) that the act of liquidation of compensatory interest, here at issue, has already been annulled, and a new demonstration of liquidation of compensatory interest has been issued";

  • In August 2017, the Claimant was summoned in the tax enforcement proceeding no. ...2017..., instituted for the coercive collection of said liquidation no. 2016 ... (document no. 19 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 24-08-2017, the Claimant presented a bank guarantee to suspend execution and lodge an administrative appeal (document no. 20 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced), which guarantee was accepted by the Tax and Customs Authority (document no. 21 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 12-09-2017, the Claimant was notified of the Demonstration of Financial Readjustment of Corporate Income Tax (IRC) Liquidation and respective Demonstration of Liquidation of Interest from which results a payment amount of € 1,099,290.69, as compensatory interest and € 55,190.26 as default interest (documents nos. 2 and 3 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • In the Demonstration of compensatory interest are included the indications "Compensatory Interest – Payments on Account (articles 102 of the Corporate Income Tax Code and 35 of the General Tax Law)" and "Default Interest (article 109 of the Corporate Income Tax Code and article 44 of the General Tax Law)";

  • Following the substitution of the act of liquidation of compensatory interest and the issuance of the corrected demonstration of liquidation of compensatory interest, the tax enforcement proceeding was annulled on 11-11-2017 and the respective bank guarantee cancelled (document no. 24 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • The Claimant incurred costs with the constitution and maintenance of the bank guarantee no.... of F... amounting to € 9,643.38 (document no. 25 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 05-03-2018, the Claimant filed an administrative appeal against said tax acts of liquidation of compensatory interest and default interest, requesting their annulment on the basis of their illegality, due to error as to the facts and legal grounds of the attribution of responsibility for interest (document no. 26 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 04-12-2017, the Tax and Customs Authority used the credit resulting from the contested liquidation to offset part of the reimbursement it made to the Claimant (document no. 27 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced);

  • On 10-04-2018, the Claimant was notified by the Tax Authority of the decision rejecting the administrative appeal, based on Information no. ...-AIR1/2018 included in document no. 1 attached to the request for arbitral pronouncement, the contents of which are taken as reproduced, in which, among other things, the following is stated:

§ IV. ANALYSIS OF THE REQUEST

  1. Having examined the contents of the initial petition submitted by the Appellant, and considering that, in the proceedings, the issue at stake is to determine whether the tax acts to be reviewed suffer or not from the vices of illegality pointed out to them, we are then assessing the merit of the arguments brought to our knowledge in this proceeding. This pari passu with the path taken by the appellant.

Having said this,

§ IV.I. On the calculation of tax

§ IV.1.1. On compensatory interest and default interest

§ IV.I.I.I. On the arguments of the Appellant

  1. The Appellant comes to contest the liquidation of compensatory interest and default interest relating to payments on account ("PPCs"), on the ground that these are not due.

  2. To this end, the Appellant states that although in the period of 2014 it filed its income declaration, "Modelo 22" ("DRM22") within the legally provided deadline (and also made the respective payments on account in the period of 2015, taking as reference the self-liquidation of the previous period), in 2016, after the closure of accounts for the year 2014, it found, however, that events occurred which obliged it to file a substitute DRM22, altering the quantum of tax assessed for this same period of 2014.

  3. The taxable profit of the year 2014 was then increased through said DRM22.

However,

  1. The Appellant says that this later alteration cannot have repercussions for the purpose of calculating PPCs previously calculated.

  2. Furthermore, the Appellant states that since this alteration only occurred at a later time after the calculation of the payments on account ("PPCs") to be made in 2015, neither compensatory interest nor default interest is due, because the calculation of said PPCs should be made by reference to the tax situation existing at the date of the calculation of the PPCs and not by reference to the tax situation that later occurred through the substitute DRM22.

  3. That is, in summary, the Appellant understands that what is relevant for the PPCs is the situation existing at the moment of their calculation, and it is not admissible that any alteration to that situation should later have effects on the cited PPCs.

Notwithstanding,

  1. The Appellant was notified of liquidation no. 2016..., in which, in addition to the IRC proper, there was also an amount of € 1,099,290.69 (one million, ninety-nine thousand, two hundred and ninety euros and sixty-nine cents) of compensatory interest, and € 55,190.26 (fifty-five thousand, one hundred and ninety euros and twenty-six cents), this as default interest.

  2. According to the respective calculation demonstration, these same compensatory interest and default interest are, for their part, connected with the PPCs.

Now,

  1. Following its understanding, the Appellant, resorting to the legal norm that provides for the PPCs, considers that it does not impose any recalculation of these payments by virtue of the alteration of the value of the tax liquidated in the previous year, including by submission of a substitute income declaration.

  2. As can be verified, the Appellant proceeded in accordance with the provisions of article 105 of the Corporate Income Tax Code, "having delivered the due installments in the amount legally calculated and in the time legally determined", and therefore there was no delay in the liquidation.

  3. The Appellant emphasizes that only in 2016 did it find that it was necessary to replace the income declaration relating to 2014, therefore, it would have been impossible at the date of the filing of the first payment on account to have knowledge that its respective calculation basis would be altered.

  4. In order to support this claim, the Appellant cites a judgment of the Central Administrative Court South ("TCAS"), in which it is indicated that from the presentation of a new declaration (substitute) it cannot be understood that "the taxpayer did not comply with its obligation, that is, that it did not pay in full the value relating to the 'payment on account' (...)."

  5. This understanding is, in the Appellant's view, entirely applicable to the concrete case, since in addition to having obtained no benefit, article 122 of the Corporate Income Tax Code allows, in case tax lower than due has been liquidated, the presentation of a substitute declaration, with the respective payment of the tax in arrears plus compensatory interest.

In these terms,

  1. Considering these arguments, the Appellant requests here the annulment of said liquidations of compensatory interest and default interest, with all legal consequences that may apply to the case.

§ IV.I.I.II. On the assessment

  1. The issue that is important to address in the concrete case concerns the legality of the charging of compensatory interest and default interest with reference to the PPCs of 2015, due to the Appellant having altered the calculation of tax for the period of 2014, which, it is well known, recall, has repercussions on the calculation of the advance deliveries to be made on account of the year 2015.

  2. In concrete terms, according to our view, the thema decidendum revolves around ascertaining whether the alteration made through the DRM22 of a given period of taxation has or does not, retroactively, have repercussions on the calculation of the payments that were based on the initial tax situation that this same substitute DRM22 later altered.

Let us then see:

  1. The PPC represents nothing more than an advance cash delivery, made on account of the IRC due, finally, in the period of formation of the tax fact.

  2. This payment must be assessed in relation to the accounting situation of the company at the end of the fiscal period to which it refers.

  3. There being no sum to be delivered (in advance) on account of the tax due finally, with respect to the period of formation of the tax fact, namely due to the non-existence of taxable profit revealed by the accounts, that PPC on account has no substantive foundation.

  4. Confirming this understanding we have the provisions of article 107 of the Corporate Income Tax Code, which, in order to give body to one of the structuring principles of the Portuguese tax system which is the principle of taxation of the real income of companies, limits the delivery of payments when the taxpayer has elements that the payment made is equal to or greater than the tax that will be due based on the collectable matter.

  5. It is clear here the existence of a nexus of causality between the events resulting from the alteration of the amount of tax formed in the previous taxation period and the PPCs to be made in the following period.

  6. In turn, as can be extracted from the provisions of article 104 of the Corporate Income Tax Code, after the calculation of tax by the taxpayers themselves in accordance with article 90 of the same legal instrument, the rules of payment are made as follows:

1 – The entities that engage, as their principal activity, in activity of a commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, shall proceed to payment of tax in the following terms:

a) In three payments on account, with maturity dates in July, September and 15 December of the year to which the taxable profit relates or, in the cases of paragraphs 2 and 3 of article 8, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective taxation period;

b) Until the last day of the deadline set for sending the periodic income statement, for the difference that exists between the total tax calculated therein and the amounts delivered on account

c) Until the day of sending the substitute declaration referred to in article 122, for the difference that exists between the total tax calculated therein and the amounts already paid.

  1. For the case at hand, that which matters to us is the situation contemplated by subsection a) and for which article 105 of the same Code comes to stipulate the respective calculation rules:

1 – Payments on account are calculated on the basis of the tax liquidated in accordance with paragraph 1 of article 90 relating to the taxation period immediately preceding that in which those payments should be made, net of the deduction referred to in subsection e) of paragraph 2 of that article.

Therefore,

  1. It is thus found that, in order to make the delivery of PPCs, it is necessary to have as a calculation basis the tax assessed in the previous period, and we are faced with a nexus of causality between two realities, dependent on one another for these purposes.

  2. This dependence is evidenced by the reference of the PPCs to the quantum of IRC assessed in the immediately preceding taxation period – i.e., the nearest one.

  3. For obvious reasons, the PPCs cannot have as their basis the quantum of the period itself to which they refer. The legislator provided for this.

  4. With this legal solution, the aim was, among other reasons, on the one hand, to give the PPCs an adequacy closer to the period in which they will be inserted, and, on the other, with the least cost of context, on the part of the taxpayers, to allow the respective calculation of the deliveries to be made for this purpose.

  5. Note, however, that, with regard to this matter, the legislator makes reference not to the tax situation (of the base year of calculation) at the moment of the PPCs but only, and solely, to the tax situation of the taxation period (of the base year of calculation), which, naturally, should have reflected all vicissitudes that occur at this level, especially by virtue of the later submission of a substitute DRM22.

  6. It is to the taxpayer that, materially, falls the task of articulating said two elements of connection, in terms of, itself, in its process of calculation, decreasing or increasing the PPCs, under penalty of, in the absence, incurring in compensatory interest.

  7. If the payments were initially made on the basis of a measure that was not the correct one, when it should have been, such fact can only be attributed to the taxpayer itself and not to the Tax Authority.

  8. In the present case, the Appellant, by altering the basis, via a substitute DRM22, given its error verified at the time of the initial "self-liquidation", implied that, equally by its own error, the deliveries made as PPCs were not correct, in this case by deficiency.

  9. If the calculation basis is altered, then, a fortiori, the amount of the deliveries made (or, rather, that should have been made) would also be altered.

  10. In the situation at hand, considering that the Appellant through the substitute DRM22 assessed a new amount of tax relating to 2014, this fact will necessarily influence the amount to be delivered as payments on account in 2015, which should have been in a higher value.

  11. The error in the calculation basis is that of the Appellant and, as such, a fortiori, so too is the error in the delivery of the PPCs.

  12. If, for reasons attributable solely to the taxpayer itself, the connection between the calculation basis (the previous year) and the amount of the PPCs relating to the period (the following year) no longer exists, and repercussions arise at the level of compensatory interest whose regime is set out in article 102 of the Corporate Income Tax Code, in conjunction with the provisions of article 35, this of the General Tax Law, then, from this perspective, we are faced with a true delay in the delivery of tax, a situation in which the National Treasury is harmed and, consequently, should be compensated for the loss of the availability of the sum that ceased to be liquidated at the moment it should have been.

Furthermore,

  1. To this end, the Tax Studies Centre ("CEF") itself has already pronounced, through its Opinion no. 77/2011, of 28 November.

  2. Article 102 of the Corporate Income Tax Code, under the heading "Compensatory Interest", provides as follows:

1 – Whenever, by a fact attributable to the taxpayer, the liquidation of part or all of the tax due or the delivery of tax payable in advance or to be withheld is delayed or undue reimbursement is obtained, compensatory interest accrues to the amount of tax at the rate and in the terms provided for in article 35 of the General Tax Law.

3 – Compensatory interest is calculated day by day as follows:

a) From the end of the deadline for presentation of the declaration until the correction, amendment or detection of the omission that caused the delay in liquidation;

b) If the special payment on account referred to in article 106 has not been made, in whole or in part, from the day following the end of the respective deadline until the end of the deadline for delivery of the income statement or until the date of self-liquidation, if earlier, with the accrued interest to be paid jointly;

c) If there is a delay in the special payment on account, from the day following the end of the respective deadline until the date on which it was made, to be paid jointly;

d) From receipt of the undue reimbursement until the date of the correction or amendment of the omission that caused it.

4 – There is considered to be a delay in liquidation whenever the periodic income declaration referred to in subsection b) of paragraph 1 of article 117 is presented or sent outside the established deadline without the tax due being totally paid within the legal deadline.

  1. On the other hand, equally to this end, article 35 of the General Tax Law, in its paragraph 1, also under the heading "Compensatory Interest, provides as follows:

1 - Compensatory interest is due when, by a fact attributable to the taxpayer, the liquidation of part or all of the tax due or the delivery of tax payable in advance or withheld is delayed or to be withheld under the tax substitution scheme.

  1. Finally, still with respect to compensatory interest, it should also be said that, contrary to what the Appellant attempts to infer, there is no duplication thereof, since the calculation basis and the calculation period of one and the other are completely distinct.

Continuing:

  1. In turn, now with respect to the segment of default interest, it is important for us to emphasize the provisions of article 44 of the General Tax Law, which, recall, provides as follows:

1 - Default interest is due when the taxpayer does not pay the tax due within the legal deadline.

2 - Default interest applicable to tax debts is due until the date of payment of the debt.

  1. As to this matter the law is very clear and simple: there being payments made outside the deadline, default interest due on that time gap should be calculated and quantified.

  2. As the judgment of the TCAS, of 26 June 2012, handed down in the scope of proceeding no. 04704/2011 states very well:

" Default interest (resulting from debtor's default) presupposes that the performance has become certain, exigible and liquid. The moment of constitution in default, which has to do with the exigibility of the performance, depends on the nature of the obligation. Being the obligation pure, default only exists after the debtor is called upon to perform (see article 805, paragraph 1, of the Civil Code). On the contrary, if the obligation has a certain deadline, the call will not be necessary for default to occur, which occurs as soon as the obligation matures (...)."

  1. It is thus that to the situation at hand default interest is due along with compensatory interest, for, from the moment that the Appellant delivers the substitute DRM22 altering the quantum of tax relating to 2014, which, as has been seen, will influence the amount corresponding to the PPCs of 2015, we are then faced with a debt that is certain, exigible and with a determined deadline, but which was not complied with by the Appellant.

Accordingly,

  1. Considering what has been said so far, it cannot, therefore, proceed with the annulment of the contested tax acts, and therefore the claim now formulated by the Appellant is without merit, both as to indemnifying interest and as to default interest.

§ V. RIGHT TO HEARING

  1. Through a communication emanating from the Management Unit, the Appellant was duly notified to, if it so wished, exercise its right to participate, in the form of prior hearing, in written form, in accordance with the provisions of subsection b) of paragraph 1 of article 60 of the General Tax Law, in turn combined with the provisions of article 122 of the Code of Administrative Procedure ("CPA").

  2. Once the deadline granted had elapsed, the Appellant did not exercise its right to participate, in the form of prior hearing, in written form, and this Management Unit did not discover any other elements capable of calling into question the conclusions previously proposed.

In these terms,

  1. Considering the permanence of the validity of the presuppositions that, as to fact and law, underpinned our previous "Draft Decision", we are then to understand it as final, with all legal consequences.

§ VI. THE CONCLUSION

In accordance with what has been previously stated and having examined all the elements of the proceedings, in particular our previous "Draft Decision" and the procedural documents filed by the Appellant, it seems to us that the request inserted in the proceedings should be rejected, in accordance with the contents of the "summary table" mentioned in the preamble of our Information, with all legal consequences, namely, where applicable, with respect to the provisions of article 163 of the Code of Administrative Procedure and also, to the compliance with what is determined by article 100 of the General Tax Law.

Furthermore, it is informed that, in case of Superior Approval, the Appellant be notified, through communication in accordance with the provisions of articles 35 to 41, all of the Tax Code of Procedure and Process, with all legal consequences.

  • On 05-07-2018, the Claimant submitted the request for arbitral pronouncement which gave rise to the present proceeding.

3.2. Unproven Facts and Justification of the Determination of the Statement of Facts

There are no facts relevant to the decision of the case that have not been proven.

The facts were established as proven on the basis of documents filed by the Claimant and those contained in the administrative proceedings.

There is no controversy over the proven facts.

4. Legal Issues

The Claimant filed the model 22 income declaration of IRC for the financial year 2014, within the legal deadline.

In the financial year 2015, the Claimant made the three payments on account provided for in subsection a) of paragraph 1 of article 104 of the Corporate Income Tax Code, calculated on the basis of the tax liquidated in accordance with paragraph 1 of article 90 relating to the taxation period of 2014, in accordance with paragraph 1 of article 105 of the same Code.

However, in 2016, after the closure of accounts for the year 2014, the Claimant found that events had occurred which obliged it to file a substitute DRM22, altering the amount of tax assessed for the period of 2014.

The Tax and Customs Authority understood that compensatory interest and default interest are due, with respect to the difference between the amount of payments on account made and the value that would have been paid if the Claimant had considered for its calculation the values resulting from the substitute declarations.

The Claimant raises the following essential questions:

a) to ascertain whether, as the Tax Authority contends, the value of the payment on account due in a given financial year is altered by virtue of a correction to the income declaration of the previous financial year which served as the basis for the calculation of that payment on account as the Tax Authority contends, or whether, on the contrary, the value of the payment on account due in a given financial year is that which results from the calculation made in accordance with article 105 of the Corporate Income Tax Code; and

b) to ascertain whether, in any event, all the requirements provided for in paragraph 1 of article 102 of the Corporate Income Tax Code and in paragraph 1 of article 35 of the General Tax Law for the liquidation of compensatory interest are met, in particular the fault in the delay in liquidation, and the requirements provided for in article 44 of the General Tax Law, for liquidation of default interest.

The Claimant imputes to the contested liquidation:

– a defect of violation of law due to misinterpretation of articles 104 and 105 of the Corporate Income Tax Code;

– a defect of violation of law due to error in the factual and legal presuppositions for the application of article 102 of the Corporate Income Tax Code;

– a defect of violation of law due to error in the factual and legal presuppositions for the application of article 44 of the General Tax Law;

4.1. Issue of the Defect of Violation of Law Due to Misinterpretation of Articles 104 and 105 of the Corporate Income Tax Code

Articles 104 and 105 of the Corporate Income Tax Code establish the following, to the extent relevant here:

Article 104

Rules of Payment

1 - The entities that engage, as their principal activity, in activity of a commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, shall proceed to payment of tax in the following terms:

  • In three payments on account, with maturity dates in July, September and 15 December of the year to which the taxable profit relates or, in the cases of paragraphs 2 and 3 of article 8, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective taxation period;

  • Until the last day of the deadline set for sending the periodic income statement, for the difference that exists between the total tax calculated therein and the amounts delivered on account;

  • Until the day of sending the substitute declaration referred to in article 122, for the difference that exists between the total tax calculated therein and the amounts already paid.

2 – (...)

3 – (...)

4 - Taxpayers are dispensed from making payments on account when the tax for the taxation period of reference for its calculation is less than (euro) 200.

5 - If the payment referred to in subsection a) of paragraph 1 is not made within the deadlines mentioned therein, compensatory interest begins to accrue immediately, which is calculated until the end of the deadline for sending the declaration or until the date of payment of the self-liquidation, if earlier, or, in case of mere delay, until the date of the payment on account delivery, which in this case must be paid simultaneously.

6 – (...)

7 – (...)

Article 105

Calculation of Payments on Account

1 - Payments on account are calculated on the basis of the tax liquidated in accordance with paragraph 1 of article 90 relating to the taxation period immediately preceding that in which those payments should be made, net of the deduction referred to in subsection e) of paragraph 2 of that article.

2 - Payments on account for taxpayers whose turnover for the taxation period immediately preceding that in which those payments should be made is equal to or less than (euro) 500 000 correspond to 80% of the amount of the tax referred to in the previous paragraph, divided into three equal amounts, rounded up to euros.

3 - Payments on account for taxpayers whose turnover for the taxation period immediately preceding that in which those payments should be made is greater than (euro) 500 000 correspond to 95% of the amount of the tax referred to in paragraph 1, divided into three equal amounts, rounded up to euros.

4 – (...)

5 – (...)

6 – (...)

7 – (...)

8 – (...)

As results from the literal wording of paragraph 1 of article 105, "payments on account are calculated on the basis of the tax liquidated in accordance with paragraph 1 of article 90 relating to the taxation period immediately preceding that in which those payments should be made, net of the deduction referred to in subsection e) of paragraph 2 of that article".

Thus, on the dates of payment provided for in paragraph 1 of article 104, the tax payable is that which at those moments results from the liquidation relating to the previous period, as there is no other value of reference for the calculation of payments on account.

Only for situations in which payments on account are not made within the deadlines provided for in subsection a) of paragraph 1 of article 104 is it provided for in paragraph 5 thereof that "compensatory interest begins to accrue immediately, which is calculated until the end of the deadline for sending the declaration or until the date of payment of the self-liquidation, if earlier, or, in case of mere delay, until the date of the payment on account delivery, which in this case must be paid simultaneously".

In the case at hand, the facts which justified the substitute declarations and the increase in tax due occurred after the payments had been made, so obviously, that increase could not be considered in the calculation of payments on account, which is made "on the basis of the tax liquidated" relating to the previous period.

Thus, it must be concluded that there is no support in articles 104 and 105 of the Corporate Income Tax Code for the retroactive calculation of payments on account made by the Tax and Customs Authority on the basis of alteration of the liquidation relating to the financial year 2014.

There is not, therefore, a special regime from which results the responsibility for compensatory interest derived from alterations of the liquidation that serves as the basis for calculation of subsequent payments on account after its implementation.

Therefore, the liquidation of compensatory interest can only be based on the general presuppositions provided for in articles 102 of the Corporate Income Tax Code and 35 of the General Tax Law.

4.2. Issue of the Defect of Violation of Law Due to Error in the Factual and Legal Presuppositions for the Application of Article 102 of the Corporate Income Tax Code

Article 102, paragraph 1, of the Corporate Income Tax Code establishes that "whenever, by a fact attributable to the taxpayer, the liquidation of part or all of the tax due or the delivery of tax payable in advance or to be withheld is delayed or undue reimbursement is obtained, compensatory interest accrues to the amount of tax at the rate and in the terms provided for in article 35 of the General Tax Law".

The reference made in this norm to delay in the "delivery of tax payable in advance", which is consistent with the general rule of article 35, paragraph 1, of the General Tax Law, has the potential to cover delay in the delivery of tax that should be paid as payments on account.

But, as it is a general requirement of responsibility for compensatory interest, long peacefully affirmed by the jurisprudence of the Supreme Administrative Court, responsibility for the payment of compensatory interest depends on the "existence of a tax debt, the existence of a delay in the implementation of a tax liquidation, and the imputability of this delay to the conduct of the taxpayer". "This imputability requires the existence of a nexus of causality between the conduct of the taxpayer and the aforementioned delay and the possibility of making a judgment of censure of the taxpayer's conduct (fault)". ( [1] )

In the case at hand, no reference is even made to fault of the Claimant in the delay in liquidation, and in any case, there is no indication that it could have presented the substitute declarations it presented in 2016 in time to alter the amounts of the payments on account made in 2015.

On the other hand, if it is true that, as the Supreme Administrative Court also holds, "when a particular conduct constitutes a fact qualified by law as illicit, the existence of fault should be derived from the fulfilment of the normative hypothesis in the form presupposed in the provision of the type of illicit fact respectively, not because fault is presumed, but because it is something which as a rule or prima-facie is connected to the illicit-typical character of the fact respectively", it is also true that in the case at hand no infraction is identified, because the Claimant made the payments on account in the exact amounts that resulted from the law and there are no indications of any conduct that is wilful or negligent and that is connected with the presentation of the substitute declarations.

In fact, as the Central Administrative Court South and the Central Administrative Court North have held, the infraction provided for in article 114, paragraph 2, subsection f), of the General Regime of Tax Infractions, ("failure to pay, in whole or in part, the tax payment due as a payment on account of the tax due finally"), is not committed by "the taxpayer who in a given year proceeds in a timely and complete manner to the payment on account by reference to the tax that at the date of that payment was liquidated relating to the previous year, even if later, by virtue of the presentation of a new income declaration (Mod. 22) comes to be liquidated, relating to the previous year, a tax of higher value". ( [2] )

On the other hand, the good faith of the Claimant in presenting the substitute declarations based on supervenient elements is to be presumed (article 59, paragraph 2, of the General Tax Law) and there are no elements that permit it to be considered that this presumption has been rebutted.

In these terms, one of the requirements of responsibility for compensatory interest is absent, so the respective liquidation suffers from a defect of violation of law, due to misinterpretation of articles 102, paragraph 1, of the Corporate Income Tax Code and 35, paragraph 1, of the General Tax Law, which justifies its annulment, in accordance with article 163, paragraph 1, of the Code of Administrative Procedure subsidiarily applicable in accordance with article 2, subsection c), of the General Tax Law.

4.3. Defect of Violation of Law Due to Error in the Factual and Legal Presuppositions for the Application of Article 44 of the General Tax Law

Article 44 of the General Tax Law provides for the responsibility of taxpayers for default interest, establishing that "default interest is due when the taxpayer does not pay the tax due within the legal deadline".

As results from this norm, responsibility for default interest has as a presupposition the existence of "tax due" that is not paid within the legal deadline.

Compensatory interest is included in the tax debt itself (article 35, paragraph 8, of the General Tax Law), so it can be the basis for liquidation of default interest.

However, in the case at hand, compensatory interest is not due, for the reasons referred to.

Therefore, the liquidation of default interest is illegal, due to violation of article 44, paragraph 1, of the General Tax Law.

4.4. Illegality of the Decision on Administrative Appeal

The decision rejecting the administrative appeal, which upheld the contested liquidation, suffers from the defects that affect the latter, so its annulment is also justified, in accordance with article 163, paragraph 1, of the Code of Administrative Procedure subsidiarily applicable in accordance with article 2, subsection c), of the General Tax Law.

5. Indemnifying Interest

The Claimant makes a request for indemnifying interest.

It was proven that, on 04-12-2017, the Tax and Customs Authority used the credit resulting from the contested liquidation to offset part of the reimbursement it made to the Claimant, which is equivalent to payment.

In accordance with the provisions of article 24, subsection b) of the RJAT, the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the Tax Administration from the end of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favour of the taxpayer and until the end of the deadline provided for the voluntary execution of sentences of tax courts, "restore the situation that would have existed if the tax act which was the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in line with the provisions of article 100 of the General Tax Law [applicable by virtue of the provisions of article 29, paragraph 1, subsection a) of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of administrative appeal, judicial challenge or appeal in favour of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the subject of the dispute, including the payment of indemnifying interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2, paragraph 1, subsections a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at CAAD, not making reference to condemning decisions, it should be understood that their competences include the powers that in judicial challenge proceedings are attributed to tax courts, being this the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially an annulment process for tax acts, admits the condemnation of the Tax Administration to pay indemnifying interest, as can be inferred from article 43, paragraph 1, of the General Tax Law, in which it is established that "indemnifying interest is due when it is determined, in administrative appeal or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due" and article 61, paragraph 4 of the Tax Code of Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the original wording), which states that "if the decision recognizing the right to indemnifying interest is judicial, the payment deadline is counted from the beginning of the deadline for its voluntary execution".

Thus, paragraph 5 of article 24 of the RJAT, in stating that "payment of interest, regardless of its nature, is due, as provided for in the general tax law and in the Tax Code of Procedure and Process", should be understood as permitting the recognition of the right to indemnifying interest in the arbitral process.

In the case at hand, following the illegality of the liquidation act and its annulment, indemnifying interest is due to the Claimant, since the liquidation is attributable to the Tax Administration, which by its own initiative carried it out without legal support.

Thus, as a consequence of the annulment of the liquidation, the Claimant is entitled to indemnifying interest, in accordance with article 43, paragraph 1, of the General Tax Law and article 61 of the Tax Code of Procedure and Process, calculated on the amount it paid, from the date of payment by offsetting (04-12-2017), until the date on which a credit note is processed, in which they are included (article 61, paragraph 5, of the Tax Code of Procedure and Process).

Indemnifying interest is due at the legal supplementary rate (articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the General Tax Law, article 559 of the Civil Code and Order no. 291/2003, of 8 April).

6. Compensation for Undue Guarantee

The Claimant provided a guarantee to suspend the tax enforcement proceeding instituted for the coercive collection of the contested liquidation and makes a request for compensation for the expenses it incurred, in the amount of € 9,643.38.

Article 171 of the Tax Code of Procedure and Process establishes that "compensation in case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the debt to be enforced is contested" and that "compensation should be requested in the appeal, challenge or appeal or in case its basis is supervenient within 30 days after its occurrence".

Thus, it is unequivocal that the judicial challenge process encompasses the possibility of condemnation to pay for an undue guarantee and is even, in principle, the appropriate procedural means for making such a request, which is justified by obvious reasons of procedural economy, since the right to compensation for an undue guarantee depends on what is decided regarding the legality or illegality of the tax liquidation act.

The request for constitution of the arbitral tribunal and for arbitral pronouncement has as a corollary that it be in the arbitral process that the "legality of the debt to be enforced" will be discussed, so, as results from the express wording of that paragraph 1 of the said article 171 of the Tax Code of Procedure and Process, it is also the arbitral process that is appropriate for assessing the request for compensation for an undue guarantee.

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

Article 53

Guarantee in Case of Undue Payment

  1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be compensated in whole or in part for the harm resulting from its provision, if it has maintained it for a period exceeding three years in proportion to the success in administrative appeal, challenge or opposition to execution which have as their subject the debt guaranteed.

  2. The deadline referred to in the previous paragraph does not apply when it is determined, in administrative appeal or judicial challenge, that there was an error attributable to the services in the liquidation of the tax.

  3. The compensation referred to in paragraph 1 has as a maximum limit the amount resulting from the application to the value guaranteed of the rate of indemnifying interest provided for in this law and may be requested in the actual process of administrative appeal or judicial challenge, or autonomously.

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

In the case at hand, the errors underlying the liquidation are attributable to the Tax and Customs Authority, since it issued the liquidation by its own initiative and the errors are not attributable to the Claimant.

Therefore, the Claimant is entitled to compensation for the expenses in the amount of € 9,643.38 that it incurred with the guarantee provided.

7. Decision

In accordance with what has been stated, the arbiters on this Arbitral Tribunal agree:

  • To judge the exception of incompetence raised by the Tax and Customs Authority as without merit;

  • To judge the request for arbitral pronouncement as well-founded;

  • To annul the decision rejecting the administrative appeal no. ...2018...;

  • To annul the liquidation of IRC relating to compensatory interest and default interest no. 2016...;

  • To judge the request for indemnifying interest as well-founded and to condemn the Tax and Customs Authority to pay it to the Claimant, in the terms referred to in point 5 of the present decision;

  • To judge the request for compensation for undue guarantee as well-founded and to condemn the Tax and Customs Authority to pay the Claimant the sum of € 9,643.38 that this incurred with the guarantee provided.

8. Value of the Proceedings

In accordance with the provisions of articles 296, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, subsection a), of the Tax Code of Procedure and Process and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 1,154,480.95.

9. Costs

Under the provisions of article 22, paragraph 4, of the RJAT, the amount of costs is fixed at € 15,912.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 22-11-2018

The Arbiters

(Jorge Lopes de Sousa)

(Alexandre Andrade)

(Fernando Araújo)

[1] Essentially in this sense, the following judgments of the Supreme Administrative Court may be consulted:

– of 23-09-1998, proceeding no. 022612, published in Appendix to the Official Gazette of 28-12-2001, page 2505;

– of 03-10-2001, proceeding no. 025034A, published in Doctrinal Judgments of the Supreme Administrative Court no. 492, page 1615, and in Appendix to the Official Gazette of 13-10-2003, page 2080;

– of 15-01-2003, proceeding no. 0891/02, published in Appendix to the Official Gazette of 12-03-2004, page 2859;

– of 12-03-2003, proceeding no. 026800, published in Doctrinal Judgments of the Supreme Administrative Court no. 506, page 219, and in Appendix to the Official Gazette of 25-3-2004, page 545;

– of 19-11-2008, proceeding no. 0325/08;

– of 11-03-2009, proceeding no. 0961/08;

– of 16-12-2010, proceeding no. 0587/10;

– of 23-04-2013, proceeding no. 01195/12;

– of the Plenary, of 22-01-2014, proceeding no. 01490/13; and

– of the Plenary, of 21-01-2015, proceeding no. 0632/14.

[2] Judgment of the Central Administrative Court South of 09-03-2017, handed down in proceeding no. 3110/15.6BESNT.

In the same line, the judgments of the Central Administrative Court South of 17-03-2016, handed down in proceeding no. 09374/16, and of the Central Administrative Court North of 21-12-2017, handed down in proceeding no. 00622/16.8BEAVR, and of 08-03-2018, handed down in proceeding no. 00415/11.9BECBR, may be consulted.

Frequently Asked Questions

Automatically Created

What are compensatory and default interest (juros compensatórios and juros de mora) in Portuguese IRC tax law?
Compensatory interest (juros compensatórios) in Portuguese IRC law represents compensation payable when taxes are paid late or in amounts lower than legally due, calculated from when payment should have occurred until actual payment. Default interest (juros de mora) applies to overdue tax debts and is charged at higher rates than compensatory interest, running from the end of the voluntary payment period until payment. Both are regulated by the General Tax Law (Articles 35 and 44) and can be challenged when resulting from contested tax liquidations, particularly when arising from recalculated payments on account following submission of substitution declarations that alter the tax base or liability for prior periods.
How do IRC installment payments (pagamentos por conta) interact with substitution declarations (declarações de substituição)?
IRC installment payments (pagamentos por conta) are advance payments made during the tax year based on the previous year's tax liability, calculated under Article 105 of the IRC Code. When taxpayers submit substitution declarations (declarações de substituição) correcting prior returns under Article 122 CIRC, this can trigger recalculation of payments on account that were originally computed based on the superseded declaration. If the substitution declaration increases taxable income, the Tax Authority may determine that installment payments were insufficient, leading to liquidation of additional tax plus compensatory and default interest. Taxpayers can challenge such liquidations through gracious complaint (reclamação graciosa) under Article 70 CPPT or direct arbitral proceedings at CAAD, arguing that interest charges are improper when the original payments were correctly calculated based on information available at the time.
Can the CAAD arbitral tribunal rule on indemnity interest claims arising from tax enforcement compensation?
The CAAD arbitral tribunal has limited competence regarding indemnity interest claims arising from tax enforcement compensation. According to this decision, CAAD's jurisdiction extends to ordering payment of indemnity interest (juros indemnizatórios) under Articles 43 LGT and 61(4) CPPT when such interest results directly from annulment of the contested tax liquidation act itself. However, CAAD lacks competence to order indemnity interest arising from separate administrative acts performed within tax enforcement proceedings, such as offsetting (compensação) of credits against debts under Articles 89-90 CPPT. The tribunal must distinguish between: (1) indemnity interest consequent to restoring legality after annulling an improper liquidation, which falls within CAAD competence under Article 24 RJAT; and (2) indemnity interest claimed due to enforcement acts like offsetting that prevented refunds, which constitutes a separate administrative act outside CAAD's material jurisdiction as defined in Article 2 RJAT.
What are the grounds for challenging IRC interest liquidations through gracious complaint (reclamação graciosa) in Portugal?
Grounds for challenging IRC interest liquidations through gracious complaint (reclamação graciosa) in Portugal include: (1) incorrect calculation of compensatory or default interest rates or periods; (2) improper application of interest when the underlying tax liability was correctly paid or when delay was not attributable to the taxpayer; (3) charging interest on payments on account that were correctly calculated based on the tax return in force at the time of payment, even if later substitution declarations increased liability; (4) failure to suspend interest during periods when collection was stayed due to guarantees provided; and (5) mathematical errors in interest computation. The gracious complaint must be filed within 120 days of notification of the liquidation under Article 70 CPPT, preceding the liquidation in the administrative hierarchy. Alternatively, taxpayers may bypass gracious complaint and proceed directly to CAAD arbitration under Article 10 RJAT for acts of liquidation including interest components, particularly when challenging the legal basis for charging interest rather than mere calculation errors.
Is a taxpayer entitled to compensation for undue guarantees provided in Portuguese tax arbitration proceedings?
Yes, taxpayers are entitled to compensation for undue guarantees provided in Portuguese tax arbitration proceedings when they succeed in challenging the underlying tax debt. Article 171 CPPT establishes that when enforcement is suspended by provision of a guarantee, and the taxpayer subsequently obtains annulment of the tax debt, compensation is due for costs incurred in providing that guarantee. This includes bank guarantee commissions, insurance premiums, or other expenses directly attributable to securing the guarantee. The compensation request may be included in the arbitral petition under Article 10(2) RJAT as an accessory claim to the principal challenge of the tax liquidation. However, the arbitral tribunal's competence is limited to determining entitlement to such compensation as a consequence of annulling the contested act; the actual quantification and payment procedures follow the rules in Articles 53-54 LGT. The Tax Authority must restore the situation that would have existed absent the illegal act, which encompasses reimbursing guarantee-related costs when suspension was necessitated by an ultimately illegal liquidation.