Process: 336/2017-T

Date: November 30, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 336/2017-T addresses a critical jurisdictional issue in Portuguese VAT arbitration involving the Autonomous Region of Madeira. A beverage production company sought to challenge VAT self-assessments totaling €64,624.30 for 2014-2015 through the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal. The central legal question concerned whether CAAD has jurisdiction over disputes involving regional tax authorities from autonomous regions with their own fiscal administration structures. The Tax Authority raised two preliminary exceptions: first, that the arbitral tribunal lacked competence to adjudicate the matter; second, that the national Tax and Customs Authority (AT) was not competent to represent the Regional Government of Madeira or the Regional Directorate of Fiscal Affairs (DRAF/AT-RAM). This case highlights the complex relationship between national tax arbitration mechanisms established under the RJAT (Regime Jurídico da Arbitragem Tributária - Legal Framework for Tax Arbitration) and the constitutional autonomy of Portugal's island regions. The jurisdictional scope of CAAD is defined by Article 2 of Decree-Law 10/2011 and Order 112-A/2011, which establish material and value-based limitations on arbitrable disputes. The fundamental issue revolves around whether these national arbitration provisions extend to tax acts issued by regional authorities operating under their own fiscal competences, or whether such disputes fall outside CAAD's jurisdiction due to the autonomous regions' special constitutional status. This decision has significant implications for taxpayers in Madeira and the Azores seeking alternative dispute resolution mechanisms for VAT and other tax controversies, potentially limiting access to the expedited arbitration process available to mainland taxpayers.

Full Decision

ARBITRAL DECISION

The arbitrators José Pedro Carvalho (Presiding Arbitrator), Ricardo Jorge Rodrigues Pereira and Alberto Amorim Pereira, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 22 May 2017, A…, Sole Member Company, Ltd., Tax Identification Number …, with registered office at …, Madeira, filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012 of 31 December (hereinafter abbreviated as RJAT), seeking the declaration of illegality of Value Added Tax (VAT) self-assessment acts for the years 2014 and 2015, in the amount of €64,624.30 (sixty-four thousand, six hundred and twenty-four euros, and thirty cents), indicated below, and of the decision dismissing the administrative complaint concerning those matters, issued by the Regional Director of the Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira.

To support its request, the claimant alleges, in summary, that they result from an interpretation contrary to applicable law and violation of fundamental domestic and community principles in VAT matters.

On 23-05-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT (Tax Authority).

The claimant did not appoint an arbitrator, whereupon, pursuant to article 6(2)(a) and article 11(1)(a) of the RJAT, the President of the Ethics Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable time period.

On 11-07-2017, the parties were notified of these appointments and did not manifest any intention to challenge them.

In accordance with the provisions of article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 26-07-2017.

On 28-09-2017, the respondent, duly notified for that purpose, filed its response, defending itself by way of exception and by way of challenge.

The claimant exercised its right of reply in writing regarding the matter of exception contained in the Response.

Pursuant to articles 16(c) and 16(e) and article 29(2) of the RJAT, the holding of the hearing referred to in article 18 of the RJAT was dispensed with, as well as the presentation of arguments by the parties, and a period of 30 days was fixed for the delivery of the final decision following the presentation of arguments by the respondent.

The Arbitral Tribunal is regularly constituted in accordance with articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are proper parties and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Order No. 112-A/2011 of 22 March.

The proceedings are not affected by any nullities.

Therefore, there is no obstacle to the consideration of the case.

All matters having been considered, it is necessary to deliver:

II. DECISION

A. MATTERS OF FACT

A.1. Facts Established as Proven

  1. The claimant is a regional company engaged in the production and distribution of beverages in the Autonomous Region of Madeira, with registered office at … and …, Madeira.

  2. The claimant, in a timely manner, carried out the following VAT self-assessments:

[Table of self-assessments]

  1. The claimant filed an administrative complaint against the aforementioned self-assessment acts, pursuant to articles 68 et seq. and 131 of the Code of Tax Procedure and Process (CPPT), by reference to article 98(1) of the Value Added Tax Code (CIVA).

  2. The aforementioned administrative complaint was directed to the Director of the Regional Tax Affairs Directorate.

  3. Such administrative procedure was processed under number … at the Regional Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira and was expressly dismissed by means of the decision issued by the Regional Director of the Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning Regarding the Matters of Fact Proven and Not Proven

Regarding matters of fact, the Tribunal does not need to rule on everything alleged by the parties, but rather has the duty to select the facts that are important for the decision and to distinguish between the matters proven and not proven (see article 123(2) of the CPPT and article 607(3) of the Code of Civil Procedure, applicable by virtue of article 29(1)(a) and (e) of the RJAT).

Thus, the facts relevant to the judgment of the case are selected and delimited according to their legal relevance, which is established having regard to the various plausible solutions to the question(s) of law (see former article 511(1) of the Code of Civil Procedure, corresponding to current article 596, applicable by virtue of article 29(1)(e) of the RJAT).

Therefore, taking into account the positions assumed by the parties, in light of article 110(7) of the CPPT, and the documentary evidence attached to the proceedings, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts, consisting of strictly conclusory statements incapable of proof, were neither established as proven nor as not proven, and their veracity must be assessed in relation to the specific matters of fact established above.

B. MATTERS OF LAW

The respondent begins by raising the following issues which, given their logical priority and the fact that their success would preclude consideration of the other issues raised before this Arbitral Tribunal, shall be considered first:

a) On the one hand, this Arbitral Tribunal does not have jurisdiction to rule on the issue at hand; and

b) On the other hand, the Tax and Customs Authority (AT) is not competent to represent the Regional Government of Madeira or the Regional Directorate of Fiscal Affairs (DRAF), the current Tax Authority of the Autonomous Region of Madeira (AT-RAM).

Article 124 of Law No. 3-B/2010 of 28 April authorized the Government to legislate "with a view to establishing arbitration as an alternative form of jurisdictional resolution of disputes in tax matters", so that the tax arbitration process would constitute an alternative procedural remedy to the process of judicial review and to the action for recognition of a right or legitimate interest in tax matters.

Decree-Law No. 10/2011 of 20 January (RJAT) implemented the aforementioned legislative authorization with a narrower scope than initially foreseen, notably not providing for an alternative jurisdiction to that of the action for recognition of a right or legitimate interest in tax matters, and "established tax arbitration limited to certain matters, listed in its article 2", making the binding of the tax administration dependent on "an order of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered"[1].

The scope of tax arbitration jurisdiction is thus delimited, in the first place, by the provisions of article 2 of the RJAT, which sets out, in its paragraph 1, the criteria for material allocation of jurisdiction, covering the consideration of claims directed to the declaration of illegality of acts of tax assessment.

Given the voluntary nature of submission to arbitration jurisdiction, in the second place, "the jurisdiction of the arbitral tribunals operating at the CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, as set out in Order No. 112-A/2011 of 22 March, for article 4(1) of the RJAT provides that 'the binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of this law depends on an order of the members of the Government responsible for the areas of finance and justice'"[2].

Order No. 112-A/2011 of 22 March provides, in its article 2, that "The services and bodies referred to in the previous article bind themselves to the jurisdiction of the arbitral tribunals operating at the CAAD which have as their object the consideration of claims relating to taxes whose administration is entrusted to them, referred to in article 2(1) of Decree-Law No. 10/2011 of 20 January, with the exception of the following:...", indicated in the subsequent paragraphs of the same article.

The same Order, in its article 1, as the AT states, binds:

"the following services of the Ministry of Finance and Public Administration:

a. The General Directorate of Taxes (DGCI); and

b. The General Directorate of Customs and Excise Duties (DGAIEC)"

With regard to the question of jurisdiction, the Tax and Customs Authority alleges, in summary, that "what is at issue here is a tax assessed not by the Tax and Customs Authority (AT), as is stated in the request for arbitration, but rather by the AT-RAM;", wherefore, citing the decision in case 89/2012T of the CAAD[3], the AT concludes that "the legal relationship in question does not fall within the core of tax relationships covered by the jurisdiction of tax arbitral tribunals, being located in a broad set of other tax-legal relationships not susceptible to intervention by tax arbitration justice", and thus not falling within the jurisdiction of arbitral tribunals in tax matters operating at the CAAD, as results from the combination of Decree-Law No. 10/2011 of 20 January with Order No. 112-A/2011 of 22 March.

In fact, and as the AT points out, in accordance with the applicable legal instruments indicated, only the Tax and Customs Authority, as successor to the following services of the Ministry of Finance and Public Administration, are subjectively bound to the jurisdiction of arbitral tribunals in tax matters operating at the CAAD:

a) The General Directorate of Taxes (DGCI); and

b) The General Directorate of Customs and Excise Duties (DGAIEC).

Objectively, the binding to arbitral tribunals in tax matters operating at the CAAD, as stated above, is delimited in accordance with article 2 of the RJAT, combined with article 2 of Order No. 112-A/2011 of 22 March.

For this purpose, it is necessary to bear in mind that, as is generally known, Portuguese tax litigation still proceeds from an objectivist framework and is structured, broadly speaking, as a "single-act" (tax) process, and, as clearly follows from article 2 of the RJAT, tax arbitration litigation does not depart from that framework. That is to say, in summary, tax litigation, including arbitration, as a rule and as is the case here, has as its object a tax act whose legality must be reviewed.

In this framework, to assess the material jurisdiction of the arbitral tribunals in tax matters operating at the CAAD, one must ascertain whether the assessment concerns the legality of one or more acts comprised in the delimitation resulting from the combination of articles 2 of the RJAT and 2 of Order 112-A/2011.

Next, one must ascertain whether the AT, as successor to one of the entities listed in article 1 of that same Order, has an interest in opposing the claimant's claim and whether the res judicata that finally forms has useful effect, which is the same as saying that it is necessary to know whether any tax act can be attributed to the AT that meets the requirements resulting from the aforementioned combination of articles 2 of the RJAT and 2 of Order 112-A/2011.

At issue in the present proceedings are VAT self-assessments of the claimant. Order 112-A/2011 provides, for this purpose, in its article 2(a), that the services provided for in paragraph 1 bind themselves to the jurisdiction of the CAAD concerning disputes which have as their object the consideration of claims relating to the declaration of illegality of self-assessment acts, provided that "they have been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

In the present case, it can be seen, first of all, that

  • Self-assessments of a legal person having its registered office in the RAM and with activity at the regional level are at issue (see point 1 of the facts established as proven);

  • The self-assessments were carried out by the claimant;

  • The administrative complaint relating thereto, filed by the claimant, was directed to the Director of the Regional Tax Affairs Directorate and was processed under number … at the Regional Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira and was expressly dismissed by means of the decision issued by the Regional Director of the Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira.

Furthermore, it is clear that the AT is a distinct entity and does not represent the Tax Authority and Fiscal Affairs of the Autonomous Region of Madeira (AT-RAM), created by Regional Regulatory Decree No. 14/2015/M of 19 August.

In light of these circumstances, it is considered unnecessary to enter into the issue of whether it falls within the scope of the attributions of regional tax administrations the assessment and collection of VAT due by entities engaged in activity exclusively at the regional level, as appears to be the case with the claimant.

In fact, the answer to such a question could only go in one of two directions (there is no third option):

i. either it would be concluded that the administration of the assessment and the tax in question belongs to the AT;

ii. or it would be concluded that the administration of the assessment and the tax in question belongs to the AT-RAM.

In the latter case, there remain, it is believed, no doubts that:

a. the administration of the assessment and the tax in question belonging to the AT-RAM;

b. the administrative complaint having been presented and decided by the AT-RAM;

c. the AT-RAM not having been bound in any way to the jurisdiction of the CAAD, nor being represented by the AT, the sole entity that bound itself to that jurisdiction by Order 112-A/2011;

the consideration of the dispute sub iudice will be outside the jurisdiction of the CAAD, by virtue of the provisions of article 4(1) of the RJAT – lack of binding.

Now if the answer to the question stated above goes in the first of the directions indicated, that is, that the administration of the assessment and the tax in question belongs to the AT, it would be necessary to conclude also by the same material incompetence of the CAAD, now by virtue of the same article 4(1) of the RJAT, combined with article 2(1)(a) of Order 112-A/2011.

In fact, in such a situation, there would be a breach of the same article 4(1) of the RJAT, combined with article 2(1)(a) of Order 112-A/2011, because the self-assessment acts in question were not "preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

In fact, in that case – if the administration of the assessment and the tax in question belonged to the AT – although it appears that an administrative complaint was filed having as its object the self-assessments in question, it also appears that it was not directed to nor decided by any body forming part of the AT, wherefore the aforementioned requirement of "recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" cannot be considered satisfied.

Indeed, as is well known, "self-assessment, which is carried out by the taxpayer, does not constitute an administrative act and, therefore, is not directly challengeable, requiring before challenge action by the AT in order to 'administrativize' the act."[4], and "Pursuant to article 131 of the CPPT, the presentation of a prior administrative complaint is necessary as a means of opening the contentious route when the taxpayer wishes to invoke an error committed in the self-assessment of a tax, to be deduced within a period of two years from the filing of the return, which makes sense in that there is not yet any harmful action by the tax administration that can be directly challenged, the taxpayer having to provoke that tax act with the complaint."[5]

Now, in this case, the AT, bound to the CAAD, did not "administrativize" the claimant's self-assessments, did not perform any act harmful to the taxpayer's interests, wherefore the requirement of "recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", as presupposed by article 4(1) of the RJAT, combined with article 2(1)(a) of Order 112-A/2011, is not satisfied.

This situation is, moreover, directly attributable to the claimant, which directed the administrative complaint to a body of a public legal person not forming part of the AT, and even if it understood that it was the competence of this one (the AT) and not of the AT-RAM to decide its administrative complaint, it would be to the judicial tax courts that it should have sought the annulment of that decision on the basis of that same incompetence, the arbitral tribunals operating at the CAAD not being able to pronounce on such a question (jurisdiction or lack of jurisdiction of the AT-RAM to consider the administrative complaint relating to the claimant's VAT self-assessments) because the AT-RAM is not bound to the jurisdiction of this Arbitration Centre.

In this way, and also through this avenue, it would be concluded in the same way, that is, by the lack of jurisdiction of the arbitral tribunals operating at the CAAD to resolve the present dispute, which precludes consideration of the remaining issues raised in the proceedings.

The arguments presented by the claimant when exercising its right of reply regarding the matter of exception, essentially based on article 1(3) of the LGT (General Law on Taxation) and on the unconstitutionality of the judgment of material incompetence of this Tribunal, will not hinder the conclusion reached.

Therefore, as regards the norm cited, it restricts its concept of "tax administration" for the purposes of the preceding paragraph, that is, for the purposes of application of the LGT, there being no doubt, nor being called into question by what is now decided, that the LGT is applicable to all entities listed in the aforementioned article 1(3) thereof, which obviously says nothing about their binding to the jurisdiction of the arbitral tribunals operating at the CAAD, which, under article 4(1) of the RJAT, was defined in article 1 of Order 112-A/2011, setting out entities in which the bodies of regional tax administrations are not included, which the AT – Tax and Customs Authority – succeeded.

By considering that the jurisdiction of the arbitral tribunals operating at the CAAD does not cover the assessment of the legality of acts performed by the AT-RAM, it is not violating the principle of equality and right of access to law and effective judicial protection, first and foremost because the Portuguese State and the Autonomous Region of Madeira are distinct legal persons governed by public law, which, as such, are free to determine by appropriate means their will to be subject, or not, to alternative dispute resolution mechanisms, and also because there exist in the national legal system appropriate means to obtain effective protection of the claimant's rights, and any alleged inequality in terms of speed in the resolution of the dispute is equally ensured by the national legal system, namely by the already recognized right of those harmed by delay in obtaining a final court decision to compensation for damages resulting therefrom.

C. DECISION

It is therefore decided that this Arbitral Tribunal lacks material jurisdiction to judge the present dispute, pursuant to article 4(1) of the RJAT, combined with article 2(1)(a) of Order 112-A/2011, and, consequently, the respondent is absolved from the instance and the claimant is condemned to the costs of the proceedings.

D. Value of the Proceedings

The value of the proceedings is fixed at €64,624.30 (sixty-four thousand, six hundred and twenty-four euros, and thirty cents), pursuant to article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of article 29(1)(a) and (b) of the RJAT and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the claimant, since she caused the action, in accordance with articles 12(2) and 22(4) of the RJAT and article 4(4) of the aforementioned Regulation.

Let notification be made.

Lisbon 30 November 2017

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Ricardo Jorge Rodrigues Pereira)

The Arbitrator Member

(Alberto Amorim Pereira)

[1] As amended by Law No. 64-B/2011 of 30 December.

[2] Extract from the Arbitral Decision, case No. 48/2012.

[3] Available for consultation at www.caad.org.pt.

[4] See Decision of the STA of 12-10-2011, rendered in case 0860/10, available at www.dgsi.pt.

[5] Decision of the STA of 07-12-2011, rendered in case 0299/11, id.

Frequently Asked Questions

Automatically Created

What happens when a VAT dispute involves the Autonomous Region of Madeira and the regional tax authority?
When a VAT dispute involves the Autonomous Region of Madeira and its regional tax authority (AT-RAM), jurisdictional complications arise because Madeira operates under a special constitutional regime with its own fiscal administration. The key issue is whether the national CAAD arbitral tribunal system has competence to hear cases involving acts issued by regional tax authorities, or whether these fall outside CAAD's jurisdiction. Additionally, there is a question of representation: whether the national Tax and Customs Authority (AT) can legally represent the Regional Government of Madeira in arbitration proceedings, given that the regional authority (DRAF/AT-RAM) is a distinct entity with autonomous powers under the constitutional framework governing Portugal's autonomous regions.
Can a company challenge VAT self-assessment decisions through tax arbitration at CAAD?
Yes, companies can generally challenge VAT self-assessment decisions through tax arbitration at CAAD under the RJAT (Decree-Law 10/2011). However, when the self-assessments involve regional tax authorities from autonomous regions like Madeira or the Azores, the company's right to use CAAD arbitration may be limited or non-existent due to jurisdictional issues. The CAAD system was established for disputes involving the national tax administration, and its jurisdiction is defined by Article 2 of the RJAT and Order 112-A/2011. Companies must first file an administrative complaint (reclamação graciosa) under Articles 68 and following of the CPPT before accessing arbitration. In cases involving regional authorities, taxpayers may need to pursue alternative judicial remedies rather than CAAD arbitration.
What does incompetência (lack of jurisdiction) mean in Portuguese VAT arbitration cases?
Incompetência (lack of jurisdiction) in Portuguese VAT arbitration cases refers to situations where the arbitral tribunal does not have legal authority to adjudicate a particular dispute. This can occur due to material limitations (the type of tax act challenged), territorial limitations (especially with autonomous regions), value thresholds, or procedural requirements not being met. In the context of the Autonomous Region of Madeira, incompetência means the CAAD tribunal may lack jurisdiction because: (1) the acts were issued by a regional tax authority operating under autonomous constitutional powers rather than the national tax administration; (2) the national Tax Authority may not have legal standing to represent the regional government in arbitration; and (3) the RJAT framework may not extend to regional tax administrations. When a tribunal declares itself incompetent, the case cannot proceed in arbitration and must be resolved through other judicial channels.
How does the CAAD arbitral tribunal process work for VAT disputes in the Autonomous Region of Madeira?
The CAAD arbitral tribunal process for VAT disputes typically involves: (1) filing a request for arbitration under Article 10 of the RJAT within 90 days of the final administrative decision; (2) appointment of arbitrators by the CAAD Ethics Council; (3) constitution of the tribunal; (4) filing of the Tax Authority's response; (5) optional hearings and written arguments; and (6) a final decision within legal deadlines. However, for disputes in the Autonomous Region of Madeira, this process faces significant obstacles. The regional tax authority (AT-RAM/DRAF) operates independently from the national AT, creating representation and jurisdictional issues. The national AT may argue it lacks authority to represent regional interests, and the arbitral tribunal may declare itself incompetent to hear cases involving regional tax acts. This creates a gap in access to arbitration for Madeira-based taxpayers, potentially requiring them to use only traditional court proceedings (judicial review) rather than the faster arbitration alternative.
What are the legal grounds for contesting VAT self-assessments under the RJAT (Regime Jurídico da Arbitragem Tributária)?
The legal grounds for contesting VAT self-assessments under the RJAT include: (1) illegality of the tax assessment act based on violation of applicable law (Article 2(1)(a) of the RJAT); (2) violation of fundamental domestic and European Union principles in VAT matters; (3) incorrect interpretation or application of the VAT Code (CIVA); (4) procedural irregularities in the assessment process; and (5) miscalculation of tax amounts due. Taxpayers must first exhaust the administrative complaint procedure (reclamação graciosa) under Articles 68 et seq. and Article 98(1) of the CIVA before accessing arbitration. The request must be filed within 90 days of notification of the administrative decision dismissing the complaint. However, these grounds apply primarily to disputes involving the national tax administration; their applicability to regional tax authorities in autonomous regions like Madeira is precisely the jurisdictional question raised in cases like Process 336/2017-T, where the tribunal must first determine whether it has competence to hear the substantive legal arguments.