Process: 354/2014-T

Date: February 4, 2015

Tax Type: IRC IVA

Source: Original CAAD Decision

Summary

This arbitral decision addresses the jurisdictional limits of Portugal's CAAD tax arbitration system regarding indirect methods assessments. The claimant contested IRC and IVA assessments totaling €58,617.37 for fiscal years 2008-2009, which were determined using indirect methods following a review procedure under Article 91 of the General Tax Law. The Tax Authority raised a preliminary objection arguing lack of material jurisdiction. The tribunal identified that Order 112-A/2011, Article 2(b) explicitly excludes from CAAD jurisdiction any claims relating to determinations of taxable matter by indirect methods, including review procedure decisions. The claimant's procedural silence throughout the proceedings—failing to respond to notifications regarding the jurisdictional exception, witness examination, and arguments submission—further weakened their position. The tribunal applied Article 54 of the Tax Procedure Code, which prevents separate challenges to interlocutory procedural acts, requiring illegalities to be raised when contesting the final decision. However, since the challenged assessments derived entirely from an indirect methods determination—explicitly excluded from arbitral jurisdiction by law—the tribunal concluded it lacked competence to hear the substantive merits. This decision reinforces the strict statutory limitations on CAAD's jurisdiction and demonstrates that taxpayers contesting indirect method assessments must pursue judicial review through administrative courts rather than tax arbitration, regardless of other procedural considerations.

Full Decision

ARBITRAL DECISION

I – REPORT

A…, LDA., with Tax Identification Number …, with registered office in…, filed a request for the constitution of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of articles 2 no. 1/a) and 10 no. 1/a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRATM), requesting the declaration of illegality of the VAT and Corporate Income Tax assessment acts, relating to the fiscal years 2008 and 2009, which resulted in a global balance due of €58,617.37, corresponding to:

i. €12,704.03, relating to VAT assessment for 2008;

ii. €11,815.69, relating to VAT assessment for 2009;

iii. €16,263.94, relating to Corporate Income Tax assessment for 2008;

iv. €17,833.71, relating to Corporate Income Tax assessment for 2009.

The request for constitution of the arbitral tribunal was filed on 23-04-2014 and accepted by the President of CAAD, and automatically notified to the Tax and Customs Authority, on 28-04-2014.

Pursuant to the provisions of article 6 no. 2 a) and article 11 no. 1 b) of the LRATM, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable timeframe.

On 16-06-2014 the parties were duly notified of such appointment, and did not manifest any intention to challenge the arbitrator's appointment, pursuant to the combined provisions of article 11 no. 1 a) and b) of the LRATM and articles 6 and 7 of the Ethics Code.

Thus, in accordance with the provisions of article 11 no. 1 c) of the LRATM, as amended by article 228 of Law no. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 01-07-2014.

Notified for such purpose, the Tax and Customs Authority responded, by way of exception, raising the tribunal's lack of material jurisdiction, and by way of challenge, arguing that the request should be deemed unfounded.

Notified to pronounce itself, within the applicable deadline, on the matter of exception contained in the defence, the Claimant remained silent.

Notified to inform, within the applicable deadline, whether, given the positions assumed by the parties in the pleadings, it maintains an interest in the examination of the witnesses listed by it, or if it waived such examination, the Claimant remained silent.

Given the lack of response from the Claimant, with regard to the order mentioned above, it was notified to respond to it within the applicable deadline, under penalty of, in the absence of any response within such deadline, it being considered, under the provisions of article 16 c) and f) of the LRATM, that it waived the examination of the witnesses listed by it. Again, the Claimant remained silent.

An order was then issued determining that the testimonial evidence listed by the Claimant would not be produced, dispensing with the hearing referred to in article 18 of the LRATM, setting a deadline for the submission of successive and optional written arguments and for the delivery of the final decision.

The Claimant did not submit any arguments, while the Tax Authority submitted a motion, reaffirming all it had stated in its defence.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2 no. 1 a) and 30 no. 1 of Decree-Law no. 10/2011, of 20 January.

Thus, since the parties have legal personality and capacity, are legitimate and are represented (arts. 4 and 10 no. 2 of the same decree-law and article 1 of Order no. 112-A/2011, of 22 March), and the proceedings are not affected by any nullities, it is proper to deliver.

III. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1- The assessments subject to the present proceedings were based on the decision made within the scope of the review procedure no. …, which concerns the request for review of taxable matter, submitted by the claimant under art. 91 of the General Tax Law (GTL), determined by indirect methods, in the context of Corporate Income Tax and VAT, for the years 2008 and 2009.

A.2. Facts Established as Not Proven

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

A.3. Reasoning on Proven and Not Proven Factual Matters

With regard to factual matters, the Tribunal is not required to pronounce on everything alleged by the parties, but rather has the duty to select the facts that are relevant to the decision and to distinguish the proven matters from the not proven ones (cf. art. 123 no. 2 of the TCPP and article 607 no. 3 of the CPC, applicable by virtue of article 29 no. 1 a) and e) of the LRATM).

Thus, the facts relevant to the judgment of the case are selected and determined based on their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (cf. previous article 511 no. 1 of the CPC, corresponding to the current article 596, applicable by virtue of article 29 no. 1 e) of the LRATM).

Thus, taking into account the positions assumed by the parties and the documentary evidence submitted with the proceedings, it is considered proven, and relevant to the decision, the fact listed above, which is moreover consensually recognized and accepted by the parties.

B. LAW

The Claimant in the proceedings challenges the quantification of the taxable matter carried out in the assessments whose legality it contests.

As results from the factual matters established above, the assessments subject to the present proceedings were based on the decision made within the scope of the review procedure no. ..., which concerns the request for review of taxable matter, submitted by the claimant under art. 91 of the General Tax Law (GTL), determined by indirect methods, in the context of Corporate Income Tax and VAT, for the years 2008 and 2009.

The Tax Authority, in its defence, raised the preliminary question of the jurisdiction of the arbitral tribunals constituted at CAAD to hear the questions raised.

Indeed, article 4 no. 1 of the LRATM provides:

"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, which establishes, in particular, the type and maximum value of disputes covered.".

In turn, Order no. 112-A/2011 of 22 March, in its article 2, provides that:

"The services and bodies referred to in the previous article are bound by the jurisdiction of the arbitral tribunals operating at CAAD that have as their object the consideration of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following: (...)

b) Claims relating to acts of determination of collectible matter and acts of determination of taxable matter, both by indirect methods, including the decision of the review procedure;".

As is well known, pursuant to article 54 of the TCPP, "Except when they are immediately prejudicial to the rights of the taxpayer or unless expressly provided otherwise, the interlocutory acts of the procedure are not subject to judicial challenge, without prejudice to any illegality previously committed being invoked in challenging the final decision.".

In the present case, the illegalities that the Claimant points to in the challenged act all stem from illegalities that affect the validity of the decision made within the scope of the review procedure no. ..., which concerns the request for review of taxable matter, submitted by the claimant under art. 91 of the General Tax Law (GTL), determined by indirect methods, in the context of Corporate Income Tax and VAT, for the years 2008 and 2009.

That is to say, in other words, it is not possible to recognize the merit of any of the illegalities raised by the Claimant, without calling into question the validity of the act performed within the scope of the review procedure initiated by the Claimant.

Now, as has been seen, the arbitral tribunals operating at CAAD do not have jurisdiction to judge such matters, since the binding of the Tax Authority to those tribunals does not cover them.

Thus, necessarily, the merit of the exception of lack of material jurisdiction, raised by the Tax Authority in its defence, must be recognized.

This, moreover, has been the unanimous understanding of the case law of the arbitral tribunals operating at CAAD, and in this regard, the decisions rendered in cases 17-2012T, 52-2012T and 70-2012T[1] can be consulted.

In light of all the foregoing, it is concluded that the exception raised by the Tax and Customs Authority regarding the absolute lack of jurisdiction of this arbitral tribunal (ratione materiae) has merit, thus making it impossible to decide on the other questions raised.

C. Decision

The Tribunal hereby Decides:

a) To uphold the dilatory exception of absolute lack of jurisdiction of this arbitral tribunal invoked by the Tax and Customs Authority;

b) To discharge the Respondent from the instance; and

c) To condemn the Claimant to pay the costs of the proceedings, in the amount of €2,142.00, taking into account any payments made in the meantime.

D. Value of the Case

The value of the case is fixed at €58,617.37, pursuant to article 97-A no. 1 a) of the Code of Procedure and Tax Process, applicable by virtue of a) and b) of no. 1 of article 29 of the LRATM and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €2,142.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid in full by the Claimants, pursuant to articles 12 no. 2 and 22 no. 4, both of the LRATM, and article 4 no. 4 of the said Regulation.

Let it be notified.

Lisbon

4 February 2015

The Arbitrator

(José Pedro Carvalho)

[1] Available at www.caad.org.pt.

Frequently Asked Questions

Automatically Created

What are indirect methods (métodos indirectos) for determining IRC and IVA tax liability in Portugal?
Indirect methods (métodos indirectos) are alternative techniques used by Portuguese Tax Authorities to determine IRC and IVA liability when direct examination of accounting records is impossible, unreliable, or insufficient. These methods apply when taxpayers lack proper documentation, maintain inadequate books, or present inconsistent records. The tax authority uses presumptive calculations, economic indicators, bank movements, lifestyle evidence, and comparative data from similar businesses to estimate taxable income and VAT obligations. Indirect methods are governed by Article 87-90 of the Tax Procedure Code (CPPT) and Article 91 of the General Tax Law (LGT), which allows taxpayers to request review of determinations made through these methods.
Does the CAAD arbitral tribunal have jurisdiction to review tax assessments based on indirect methods?
No, CAAD arbitral tribunals lack jurisdiction to review tax assessments based on indirect methods. Order 112-A/2011 of 22 March, Article 2(b), explicitly excludes from arbitral jurisdiction 'claims relating to acts of determination of collectible matter and acts of determination of taxable matter, both by indirect methods, including the decision of the review procedure.' This exclusion is absolute and applies even when taxpayers challenge the quantification or legality of such assessments. Process 354/2014-T confirmed this limitation, holding that all illegalities stemming from indirect methods determinations fall outside CAAD competence. Taxpayers must instead seek judicial review through administrative and tax courts (Tribunais Administrativos e Fiscais) for such matters.
What happens when a taxpayer fails to respond to procedural notifications in Portuguese tax arbitration?
When taxpayers fail to respond to procedural notifications in Portuguese tax arbitration, they face significant consequences including deemed waiver of procedural rights. In Process 354/2014-T, the claimant's repeated silence resulted in: (1) inability to contest the jurisdictional exception raised by the Tax Authority; (2) waiver of witness examination under Article 16(c) and (f) of RJAT; (3) elimination of the oral hearing; and (4) loss of opportunity to submit written arguments. The tribunal proceeded to decision without the claimant's input on critical issues. Article 16 of Decree-Law 10/2011 allows tribunals to interpret silence as waiver or acquiescence. While silence doesn't automatically result in case dismissal, it severely prejudices the taxpayer's position and strengthens the opposing party's arguments, potentially leading to unfavorable outcomes.