Process: 360/2014-T

Date: December 19, 2014

Tax Type: IVA

Source: Original CAAD Decision

Summary

This arbitration case (Process 360/2014-T) involved a VAT assessment of €2,226.51 for February 2010 against A.., S.A., arising from a tax inspection that found improper VAT deductions on hotel and travel expenses. The company challenged the assessment, arguing that under Articles 6(7)(a), 14(1)(r), and 78(14) of the Portuguese VAT Code (CIVA), delays in assessment and deduction were permitted, and that filing a replacement declaration within the objection deadline under Article 59 of the Tax Procedure Code cancelled the self-assessment effect, causing no prejudice to State revenues. After the arbitration request was filed but before a decision on merits, the Director-General of the Tax Authority exercised powers under Article 13 of RJAT to fully revoke both the VAT assessment and compensatory interest, acknowledging the revocation also entitled the taxpayer to indemnity interest. The Tax Authority then raised procedural exceptions, arguing the arbitral court was improperly established and materially incompetent to decide the indemnity interest claim, since the underlying assessments no longer existed. Alternatively, it claimed supervening futility of the dispute and sought to impose costs on the claimant. The arbitral judge distinguished between material competence and substantive merit, holding that the court retained competence to decide indemnity interest claims as a consequence of its competence over tax assessment legality under Article 2(a) of RJAT. The decision clarified that supervening futility occurs when the dispute's object ceases to exist during proceedings, though ancillary claims like indemnity interest may survive. The case illustrates the procedural complexities when tax authorities voluntarily revoke assessments during arbitration, including questions of court competence, cost allocation, and the taxpayer's right to compensation for amounts improperly collected, even after administrative revocation restores substantive legality.

Full Decision

ARBITRAL DECISION

Decides, in these proceedings, Arbitral Judge Professor Doctor Clotilde Celorico Palma:

A - Report

A.., S.A. – BRANCH IN PORTUGAL, with Tax Number … (Claimant), filed against the TAX AND CUSTOMS AUTHORITY (AT or Respondent), a request for arbitral pronouncement seeking the annulment of VAT assessment no. ..., of 26 November 2013, relating to the period of February 2010, in the amount of € 2,226.51 and the corresponding assessment of compensatory interest no. ..., in the amount of € 308.17, as well as the condemnation of the Respondent to payment of indemnity interest.

It alleges, in summary, that it was subject to a tax inspection action that determined a proposed correction regarding VAT improperly deducted, VAT not assessed and VAT assessed at a lower rate than due, which was entirely upheld in the final inspection report, following which it was notified of assessment no. ..., in the amount of € 2,226.51, relating to VAT for February 2010, which partially incorporated the aforementioned corrections and whose payment deadline ended on 31 January 2014, having proceeded to payment of said VAT on 5 December 2013, pursuant to Decree-Law no. 151-A/2013, of 31 October, with waiver of compensatory interest.

It adds that this procedure is in accordance with the provision in paragraph a) of article 6, section 7 and paragraph r) of article 14, section 1, both of the Value Added Tax Code (CIVA), given that the delay in assessment and deduction of tax is permitted under the terms set out in section 14 of article 78 of the same instrument, without prejudice to any applicable administrative penalties, therefore correction was not justified and the tax act in question, all the more so as there was no prejudice to the State.

It maintains that the said assessment is illegal, due to errors in factual and legal assumptions, given that VAT deducted for expenses with hotel stays and air travel that it incurred in the period in question corresponded to a deduction supported by self-assessment of the tax in question, which the inspection itself recognized, thus there being no actual prejudice to tax revenue insofar as the replacement declaration cancelled the effect of the self-assessment and deduction of tax, a declaration which article 59, section 3, paragraph b), § II, and section 5, of the Code of Tax Procedure and Process (CPPT), permits within the deadline for objection.

It concludes by requesting that the illegality of the assessment in question be declared, for violation of the provisions of articles 6, 14 and 78 of the CIVA and 268 of the Constitution of the Portuguese Republic (CRP), with entitlement to reimbursement of the sum of € 2,226.51, plus indemnity interest under the provisions of article 43 of the General Tax Law (LGT).

Notified of the request, the Director-General of the Tax and Customs Authority (AT) came to communicate, under article 13 of the (Legal Regime of Tax Arbitration) RJAT, that it had proceeded to "the full revocation of the VAT assessments and respective compensatory interest", informing that this revocation would be made known "to the competent services for its execution, so that they may proceed with the necessary steps for immediate and full restoration of legality" and requesting that notification be given to the Claimant so that it could pronounce itself on the revocation and its interest in maintaining the request for establishment of the Arbitral Court.

Pronouncing itself, the Claimant requested that the Respondent AT come forward to pronounce itself on the request for payment of indemnity interest, since it had petitioned not only the revocation of the VAT assessment and reimbursement of the sums paid but also payment of indemnity interest, "only thus safeguarding the claims formulated by the claimant in these proceedings".

Subsequently (on 15 July 2014), by order of the President of the CAAD Deontological Council, notification was given of the establishment of the singular Arbitral Court and the designation of the respective arbitrator, which was followed by notification of the AT to respond within 30 days.

Within that deadline the AT came to communicate that, "in the light of the Claimant's request contained in the petition in question, it comes hereby to communicate that the Director-General of the AT pronounced itself in the sense that indemnity interest is owed following the total revocation of the acts of VAT assessment and respective compensatory interest which are the subject of the request for arbitral pronouncement in the process aforesaid, carried out under the terms and deadlines provided for in article 13 of the RJAT".

Subsequently the AT presented its response raising the improper establishment of the Arbitral Court and arguing the dilatory exception of unimpeachability of the tax assessment acts which are the subject of the arbitral request, absolving itself accordingly the Respondent of the instance in the terms petitioned above, with the other legal consequences, since in the meantime such acts were revoked under article 13 of the RJAT, with the costs of the proceeding relating to the request for indemnity interest to be charged to the Claimant by the absence of defeat of the Respondent, for having pronounced itself favourably as to that segment of the request.

In the alternative, it maintains that the dilatory exception of material incompetence of this Arbitral Court should be judged well-founded in relation to the request for indemnity interest, absolving itself accordingly the Respondent of the instance, with the other legal consequences, insofar as one is no longer faced with a request for recognition of entitlement to indemnity interest in connection with a request for declaration of illegality of any of the acts named in paragraphs a) and b) of article 2, section 1 of the RJAT, since the assessment acts were in the meantime revoked.

In the further alternative, it invokes that then a decision should be handed down declaring the instance extinct by impossibility or supervening futility of the dispute in relation to the request for indemnity interest, with the imputation of procedural costs to the Claimant.

Notified, the Claimant came to argue for extinction of the instance with costs imputed to the Respondent.

Questions to be resolved:

The following are the questions to be resolved:

· Whether the Arbitral Court is incompetent to know of the illegality of the disputed assessments.

· Whether the establishment of the Arbitral Court was improper.

· To determine whether supervening futility of the dispute occurs.

· To determine to whom responsibility for payment of costs should be imputed.

B – Case Management

The Respondent raises the incompetence of the Court, alleging that it cannot know the question relating to indemnity interest.

This question, as shall be better explained hereinafter, is not a question of material competence of the Court but rather a question of eventual well-foundedness, or otherwise, of the request for condemnation of the AT in the payment of indemnity interest.

In fact, in accordance with the RJAT [article 2, paragraph a)], the arbitral courts which function under the aegis of the Administrative Arbitration Centre have competence to consider this question, as a consequence of competence to consider the legality of tax assessment acts. In this order of ideas, the material competence of the Arbitral Court, - in the sense of the doctrine of Antunes Varela[1] - results from the possibility of including the legal relationship in the said rule of reception of competence. Another question will be the eventual impossibility of the Court considering the request formulated by the Claimant as well-founded. But such impossibility is not confused with the material incompetence of the Court, nor even with the (in)competence relating to.

The Court is, therefore, absolutely competent.

The parties have legal personality and capacity, are legitimate and are properly represented. There are no nullities and prior questions affecting the entire proceeding.

C - Grounds

  1. Facts:

a) On 26 November 2013, an additional assessment no. ..., relating to VAT for the period of February 2010, in the amount of € 2,226.51, with a payment deadline of 31 January 2014, was made to the Claimant, based on a correction made by the Tax Inspection services;

b) On the same date an assessment no. ..., relating to compensatory interest for delay in assessment of the tax referred to in a), in the period comprised between 12 April 2010 and 26 September 2013, in the amount of € 308.17, was made to the Claimant;

c) On 29 April 2014, the Claimant presented at the CAAD a request for establishment of an Arbitral Court for consideration of the legality and annulment of the assessments referred to above in a) and b), refund of the sums paid in the meantime and condemnation of the Respondent AT in indemnity interest;

d) On 5 May 2014, the Respondent was notified of the request after its acceptance;

e) On 17 June 2014, a court order designating legal experts and a petition were presented by the AT by email, communicating that the Director-General of the AT proceeded to "the full revocation of the VAT assessment acts and respective compensatory interest" and that such revocation would be made known "to the competent services for its execution, so that they may proceed with the necessary steps for immediate and full restoration of legality", requesting that notification be given to the Claimant so that it could pronounce itself on the revocation and its interest in maintaining the request for establishment of the Arbitral Court;

f) Following such petition, on 19 June 2014, the President of the CAAD notified the Claimant to pronounce itself on continuation of the proceeding;

g) On the same date the parties were notified of the designation of an arbitrator for the singular Arbitral Court;

h) On 3 July 2014, the Respondent AT pronounced itself in the sense that "the establishment of the arbitral court should not proceed whilst the Claimant did not manifest its position as to the revocation of the assessment acts which are the subject of the request for arbitral pronouncement and any interest in continuation of the proceeding";

i) On 9 July 2014, the Claimant requested that the Respondent AT be notified to pronounce itself as to the request for payment of indemnity interest, formulated in the initial petition, noting that "only thus safeguarding the claims formulated by the claimant in these proceedings";

j) On 14 July 2014, the parties were notified of the establishment of the singular Arbitral Court.

k) On 17 July 2014, the Respondent was notified to present its response;

l) On 23 July 2014, the Respondent informed that "the Director-General of the AT considered that indemnity interest is owed following the total revocation of the VAT assessment acts and respective compensatory interest";

m) Following various procedural vicissitudes the Respondent AT presented its response, which concludes in the following terms:

  • the dilatory exception of unimpeachability of the tax assessment acts which are the subject of the arbitral request should be judged well-founded, absolving itself accordingly the Respondent of the instance in the terms petitioned above, with the other legal consequences.

  • any costs of the proceeding relating to the request for indemnity interest should be charged to the Claimant by the absence of defeat of the Respondent, in the terms petitioned above.

Or, in the alternative,

  • the dilatory exception of material incompetence of this Arbitral Court in relation to the request for indemnity interest should be judged well-founded, absolving itself accordingly the Respondent of the instance, with the other legal consequences.

Or in the further alternative,

  • a decision should be handed down declaring the instance extinct by impossibility or supervening futility of the dispute in relation to the request for indemnity interest, with the imputation of procedural costs to the Claimant, in the terms petitioned above.
  1. Law

Having been resolved the question of the alleged material incompetence of the Court to know of the matter relating to indemnity interest, the question to which a response must be given next concerns the alleged illegality committed in the establishment of the Arbitral Court, because before such establishment the disputed tax act was revoked.

The Respondent maintains that the Arbitral Court could not have been established, under article 13 of the RJAT, insofar as the tax acts had been revoked, which determined their unimpeachability by the non-existence of any right and legally protected interest, since they are not "capable of producing any external efficacy [cf. article 95, sections 1 and 2 of the General Tax Law, as well as article 133, section 2, paragraph i) of the Administrative Procedure Code (CPA)]", and therefore the Arbitral Court was established without there existing, "at the date of revocation, any arbitral proceeding but only a request for establishment of an arbitral court".

It adds that the Arbitral Court "cannot have as its object the disputed tax assessment acts in the request for arbitral pronouncement, because the annulled acts are no longer impeachable by the non-existence of right and legally protected interest, for a reason not attributable to the AT".

It concluded that the assessment acts cannot "be the subject of pronouncement by this Court", that the arbitral request ceased "to have economic utility, since the value initially attributed in the request corresponds to acts totally revoked" and that, therefore, the value of the proceeding "shall necessarily be null", that one is not "faced with the supervening futility of the dispute, being instead a matter that is no longer/can no longer be submitted to the arbitral court by virtue of the revocation carried out", that it should also be absolved of the instance and that procedural costs cannot be charged to it.

With regard to costs relating to the request for recognition of indemnity interest, it considers that, having presented its response to the request formulated in this respect by the Claimant and there being no attribution to it of the establishment of the Arbitral Court, the petition it presented in this respect is timely and relates to the phase of the arbitral proceeding, the request relating to indemnity interest "does not form part of the object of this arbitral proceeding", therefore costs "cannot be charged to it".

Let us examine:

Under article 13, section 1, of the RJAT, "In requests for arbitral pronouncement which have as their object the consideration of legality of the tax acts provided for in article 2, the senior leader of the tax administration service may, within 30 days from knowledge of the request for establishment of the arbitral court, proceed to revocation, ratification, reform or conversion of the tax act whose illegality was raised, practicing, when necessary, a replacement tax act, and must notify the president of the Administrative Arbitration Centre (CAAD) of his decision, upon which the deadline referred to in paragraph c) of section 1 of article 11 then begins." (As amended by Law no. 66-8/2012, of 31 December).

That is, after notification to the CAAD president of the revocatory act or replacement act, a ten-day deadline begins for communication to the parties of the establishment of the Arbitral Court, which deadline, in the absence of a revocatory or replacement act, is counted from notification of the designation of the arbitrators, if the parties have not objected to such designation.

Replacement acts, as the very name indicates, are secondary disintegrative acts which, like revocation, aim to produce effects on a prior act but which differ from it in that they involve a total or partial replacement of the prior act[2].

However, not even total replacement prevents the establishment of the Arbitral Court. As results from article 13, section 2, of the RJAT, even if the tax act which is the object of the request for arbitral pronouncement is totally or partially altered or replaced by another, the arbitral proceeding may continue if, after the senior leader of the Tax Administration service notifies the taxpayer to, within 10 days, pronounce itself, the latter says nothing or declares that it maintains its interest. And so it is because, if the act is totally replaced by another, the claimant may have an interest in the declaration of illegality of this latter. If the replacement is partial, even if the claimant conformed itself with the replacement act there would always subsist a part of the replaced act which (could) merit its disapproval.

The same applies if instead of replacement there occurs revocation, total or partial, of the disputed act.

Revocation, which supposes a non-conformity between the standard of action established previously by the author of the act and the standard which emerges from subsequent factual or legal alterations, also constituting a secondary act (act about act), causes the disintegration of the prior administrative act, determining its disappearance from the legal order and extinguishing its effects. When originated by the practice of a new subsequent tax act, revocation may be total or partial, depending on whether the latter eliminates in its entirety or not the prior tax act. In these two situations revocation is part of the institute of revision. In fact, article 54, section 1, paragraphs c) and e), of the LGT, establishes a clear distinction between revision of the tax act and the issue or revocation of administrative acts in tax matters. A distinction which is also made in the reference to tax acts stricto sensu contained in article 10, section 1, paragraph a), of the CPPT and to acts in taxable matters, to which article 9, section 2, of the same instrument alludes, and also to administrative acts in taxable matters, to which article 10, section 1, paragraph d), of the CCPT refers. Hence the revocation of the tax act, by replacement, is applicable the discipline of article 78 of the LGT and not the regime of article 79 of the same instrument[3].

Of course, nothing prevents the tax act from being revoked by an administrative act in tax matters, practiced by the entity which practiced the first one or by its hierarchical superior, in which case the provisions of article 79 of the LGT apply, whose section 1 establishes that, "The decision act may revoke in full or in part a prior act or reform it, ratify it or convert it within the deadlines for its revision".

What seems certain is that revocation, whether the result of replacement of the tax act or of its pure and simple revocation, constitutes a true revision of the tax act in favour of the administration or in favour of the taxpayer and a means of curing the defects of the assessment. For this reason it must always be founded on the illegality or invalidity of the revoked act, since annulling revocation, founded on inconvenience based on the public interest in the elimination of a valid act, does not seem to be possible in the light of article 30, section 2, of the LGT, which establishes the unavailability of the tax credit, which can only be reduced or extinguished "with respect for the principle of equality and tax legality"; in fact, the principle of relative unavailability of tax obligations (also touched upon in articles 36, sections 2 and 3, of the same legal instrument and 85 of the CPPT) prevents the tax act from disappearing from the legal order by mere convenience, even if founded in public interest, an impossibility which extends to other stages of the tax legal relationship[4], because in light of the principle of tax legality, enshrined in articles 8, section 1, of the LGT and 103, section 2 and 165, section 1, paragraph i), of the CRP, total or partial waiver of tax credit may only be authorized by Law of the Assembly of the Republic or by Decree-Law approved under a legislative authorization.

Moreover, it results from article 36, section 2, of the LGT, that "the essential elements of the tax legal relationship cannot be altered by the will of the parties", which means that the constitution, persistence and extinction of the tax legal relationship escape the will of the taxpayer and even of the Tax Administration, which amounts to saying that it is an obligation strictly bound to legally defined elements[5].

But although revocation has disintegrative or destructive effects, in whole or in part, of a prior act, even in the case of total revocation the claimant may have an interest in the declaration of illegality of the revoked act as support for any indemnity request for damages caused to him until the production of effects of the revocatory act. In fact, although prima facie article 13, section 2, of the RJAT, does not refer to revoked acts, the fact is that it is indisputable that arbitral courts have competence to declare the illegality of an act, even if it has already disappeared from the legal order. Provided that the claimant has some interest in such declaration. Moreover, this has been the settled case-law understanding of the STA.

Even in the case where revocation of the tax act is the result of a subsequent administrative act in tax matters, since its efficacy in relation to the taxpayer depends on the revocatory act being notified to him, the claimant, if unaware of the practice of the act because it was not brought to his knowledge, may submit it to Arbitral Court with a view to declaration of its illegality. In this case, even if the Court comes to recognize that the act cannot be annulled, because it has in the meantime disappeared from the legal order, it cannot fail to recognize that the activity of the Court is entirely attributable to the AT.

The same applies, moreover, if revocation occurs after the request for establishment of the Arbitral Court, under article 13 of the RJAT.

Under article 36, section 1, of the CPPT, "Acts in tax matters which affect the rights and legitimate interests of taxpayers only produce effects in relation to these when validly notified to them".

As Jorge Lopes de Sousa observes, in light of "the supremacy of the LGT over the CPPT (art. 1 thereof) [this rule] must be interpreted in harmony with what is prescribed in section 6 of art. 77 of the LGT, in which it is determined that the efficacy of the decision of the tax proceeding depends on notification, without any restriction being established to decisions which affect rights and legitimate interests"[6].

That is, regardless of whether the act affects rights or legitimate interests, its external efficacy depends on notification made by the Tax Administration services, as is indeed required by article 268, section 4, of the CRP and also results from article 68 of the CPA.

And as the above-mentioned author emphasizes, "[i]n the light of this express requirement of notification as a condition of efficacy of acts in tax matters which affect rights or legitimate interests, cases of exemption and notification provided for in article 67 of the CPA cannot be considered applicable in the field of tax proceeding.

Nor does eventual publication dispense with notification, even if it be mandatory, as a condition of efficacy of the act".

Now, under section 2 of article 36 of the CPPT, "notifications shall always contain the decision, its grounds and means of defence and deadline to react against the notified act, as well as indication of the entity which practiced it and whether it did so in the use of delegation or subdelegation of competencies".

This requirement is not met by mere communication that the disputed assessment was revoked, unaccompanied by the elements required by this rule, made within the scope of the arbitral proceeding. In this context the revocatory act has no efficacy vis-à-vis the claimant, in light of the provisions of the aforementioned article 36, section 2, of the CPPT and article 77 of the LGT.

But even were this not so, since the act revoking the disputed assessments did not pronounce itself on the request for payment of indemnity interest and since, notified of the AT's petition in which it (simply) communicated this revocation, the Claimant came to petition that the AT's request for payment of indemnity interest be considered, since only thus would the "claims formulated by the claimant in these proceedings" be "safeguarded", this revocation not having satisfied all of the Claimant's requests objectively imposed the establishment of the Arbitral Court, moreover in accordance with the implicit and subjectively manifested position of the Claimant.

As the request for establishment of the Arbitral Court was notified to the Respondent on 5 May 2014, it had 30 days to fully pronounce itself on the Claimant's request under article 13, section 1, of the RJAT. Now, the pronouncement on the request for indemnity interest only came to be manifested on a date after the said 30-day deadline (on 23 July 2014), therefore also by this means the establishment of the Arbitral Court was justified.

The Respondent's thesis that revocation of the tax acts precludes the right to consideration of their illegality has no support whatsoever. Although revocation of an administrative act carries with it, as a rule, the elimination of its legal effects, this does not mean that, by a stroke of magic, its practical or material effects disappear. These effects are produced as a consequence of an assessment which suffers from error attributable to the services and from which resulted the payment of a tax which was not due, as occurs in the present case. In this situation the taxpayer was temporarily dispossessed of the sum paid, which obviously causes him prejudice, whether by the impossibility of applying the respective amount or by the interest which it would provide him if he made a mere bank deposit.

Therefore, it is necessary to consider the legality of the act, even though it has already been revoked, since it is necessary to determine the cause which justifies the payment of indemnity interest which does not arise from the practice of the revocatory act.

As was decided in the judgment of the TCA Sul of 3 July 2012[7]:

"(…)

  1. Constituting a nuclear element of tax assessment acts the determination of the amount of tax to be paid/refunded, the focus must, from the outset, lie on verification of the amount of tax ascertained from the disputed assessments, examining, in particular, whether it remains unchanged and, if not, why.

  2. It is consolidated case-law, of the Contentious Tax Section of the STA, that, when the disputed assessment act is annulled solely for a defect of form, there is no support, under the provisions of article 43 of the LGT, for awarding indemnity interest to the claimant.

  3. Similarly, in cases where annulment of the disputed assessment has as its sole foundation the lapsing of the right to assess, for failure to notify the assessment within the period of lapse, there is no support, conferred by art. 43 LGT, for condemnation in the payment of this type of interest."

In this line, since the award of indemnity interest does not result from an automatic procedure of the revocatory act, the consideration of the illegality of the assessments in the concrete case was unavoidable, which justified the establishment of the Arbitral Court.

And, in this order of ideas, the argument that costs should not be supported by the AT lacks any support, being precisely the opposite the case, since it was the AT which gave rise to the arbitral proceeding.

Obviously the reasoning set forth above applies, mutatis mutandis, to the question of material competence of the Arbitral Court relating to the request for recognition of indemnity interest, which for the AT would not be possible to know because not connected "with a request for declaration of illegality of any of the acts named in paragraphs a) and b) of article 2, section 1 of the RJAT", because such request "is not in connection with a tax act of assessment whose legality may be discussed by the Court", by effect of revocation. As was said and is repeated, revocation of a tax act does not prevent the consideration of its illegality for determining the legal consistency of the material effects which that same illegality projected and of the prejudices which may result from them for the interested party.

As to the question of extinction of the instance by impossibility or futility of the dispute and costs not being imputable to the Respondent, this also has no merit whatsoever.

In fact, the principle prevailing in the Portuguese legal order is that the party which gave rise to it supports the costs of the proceeding (article 447-D, section 1, of the Code of Civil Procedure).

As was emphasized, the establishment of the Arbitral Court is entirely attributable to the Respondent, which did not eliminate all the effects produced by the revoked assessments within the deadline provided for in article 13, section 1, of the RJAT. It is not, therefore, applicable the provisions of article 535 of the CPC, which establishes the responsibility of the claimant/requester for costs but rather the provisions of article 537, section 3, of the same legal instrument, which establishes that in cases of extinction of the instance by impossibility or supervening futility of the dispute, responsibility for costs is borne by the claimant or requester, unless such impossibility or futility is attributable to the respondent or defendant, in which case it is the latter who is responsible for all costs.

Now, as results from section 4, "it is considered, in particular, that supervening futility of the dispute is attributable to the respondent or defendant when it results from voluntary satisfaction, on its part, of the claimant or requester's claim, outside the cases provided for in section 2 of the preceding article …".

In the concrete case the total satisfaction of the Claimant's claim occurred after the establishment of the Arbitral Court and also after the deadline provided for in article 13, section 1, of the RJAT, therefore there are no doubts whatsoever that costs must be, in their entirety, charged to the Respondent.

To conclude, it remains to say that, as was said, having occurred the total satisfaction of the claims formulated by the Claimant, supervening futility of the dispute is verified, which determines the extinction of the arbitral instance, under article 277, paragraph e), of the CPC.

Operative Part

In view of all the foregoing I judge the instance extinct by supervening futility of the dispute, with costs by the Respondent AT.

Value of the case: € 2,226.51 (two thousand, two hundred and twenty-six euros and fifty-one cents).

Costs in the amount of € 612 (six hundred and twelve euros), to be borne by the Respondent, in accordance with article 12, section 2, of the Regime of Tax Arbitration, article 4, section 3, of the RCPAT, and Table I attached to the latter.

Notify the parties.

Lisbon, Administrative Arbitration Centre, 19 December 2014

Text prepared by computer, under article 138, section 5, of the Code of Civil Procedure (CPC), applicable by reference of article 29, section 1, paragraph e), of the Regime of Tax Arbitration, with blank lines and revised by us.

The drafting of this decision is governed by the old orthography.

The Arbitral Judge

Clotilde Celorico Palma

[1] Manual of Civil Procedure, 2nd ed., Coimbra, Coimbra Ed., 1985, pp. 194 et seq.

[2] Cf. João Caupers, Introduction to Administrative Law, Lisbon, Âncora Ed., 2000, p. 201. This author includes the replacement act in the category of modifying administrative acts. Not so for Marcelo Rebelo de Sousa (Lessons in Administrative Law, Vol. I, Lisbon, Lex, 1999, p. 469), who separates modifiability from replacement. In any case, proceeding from the classical definition of tax act by Alberto Xavier, according to which the tax act is that "by which the Administration applies the tax rule in a concrete case" (Concept and Nature of the Tax Act, Coimbra, Almedina, 1972, p. 109), whether revocation or replacement, they provoke an alteration in the innovative element which the tax act adds to the tax fact, but leaving the latter untouched.

[3] Thus, Lima Guerreiro, General Tax Law Annotated, Lisbon, Kings of Books Ed., 2001, p. 343. It appears, in fact, that this is the best interpretation, since article 78 explicitly alludes to tax acts while the following article only covers decision acts. Although the tax act does not cease to be a decision act, it appears that the legislator's intent was to confine the discipline of revision of the tax act to article 78 and the revocation (which is also a form of revision of acts) of administrative acts in tax matters, although in both one case and the other the foundation may be the illegality of the prior act.

But even if one defends that the institute of revocation of the tax act is exclusively comprised in the framework of article 79 of the LGT, the result shall always be the same: that of conferring on the Tax Administration, observed that certain conditions are, the power to review its own action, expunging from the legal order, in whole or in part, a prior tax act. In the contrary sense, judgment of the TCAS of 15 February 2011, appeal no. 04480/11, José Correia.

[4] Cf. Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law Commented and Annotated, 3rd Ed. Coimbra, Almedina, 2003, p. 160, with all doctrinal and case-law references.

[5] Write A. José de Sousa e Silva Paixão, in Code of Tax Procedure and Process Annotated, 1st ed., Coimbra, Almedina, 2000, p. 196, "The organs of the Tax Administration cannot, in fact, unlike what happens with the generality of private creditors, negotiate over tax debts, renounce them or forgive them, in whole or in part, nor likewise grant payment extensions for them or even accept that payment be made in advance or partially – unless, of course, the legislator himself permits it.

All acts of the tax administration, including of the Minister of Finance, authorizing extensions, suspension of enforcement, even under a payment installments regime, with respect to taxes already assessed, without any legal rule on which to base themselves, are illegal."

[6] Code of Tax Procedure and Process Annotated and Commented, 1st Vol., 6th ed., Lisbon, Áreas Ed., 2011, p. 341.

[7] Appeal no. 04076/10, Rel. Aníbal Ferraz.

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes a VAT assessment during arbitration proceedings?
When the Tax Authority revokes a VAT assessment during arbitration proceedings under Article 13 of RJAT, the underlying dispute over the assessment's legality becomes moot, as the challenged act ceases to exist. However, the taxpayer's claim for indemnity interest on amounts paid may survive the revocation. The Tax Authority must communicate the revocation to competent services for immediate execution and restoration of legality, and notify the claimant to determine whether they wish to continue proceedings regarding ancillary claims such as indemnity interest.
What is supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object of the dispute ceases to exist during the course of proceedings, making continuation of litigation pointless regarding the main claim. This typically happens when the Tax Authority revokes the challenged tax act under Article 13 of RJAT. However, this does not necessarily extinguish all aspects of the case, as claims for indemnity interest or other compensatory remedies may remain viable even after the primary assessment is revoked.
Can a taxpayer claim compensatory interest after a VAT assessment is revoked by the Tax Authority?
Yes, a taxpayer can claim indemnity interest after the Tax Authority revokes a VAT assessment. In this case, the Tax Authority explicitly acknowledged that indemnity interest was owed following the total revocation of the VAT assessment and compensatory interest under Article 13 of RJAT. Indemnity interest compensates taxpayers for amounts improperly paid and held by the State, calculated according to Article 43 of the General Tax Law (LGT), and this claim can be pursued in arbitration even after administrative revocation of the underlying assessment.
How are costs allocated when the Tax Authority revokes a tax act under Article 13 of the RJAT?
Cost allocation when the Tax Authority revokes a tax act under Article 13 of RJAT is contentious. The Tax Authority argued that costs relating to the indemnity interest claim should be charged to the claimant because there was no 'defeat' of the Respondent, having voluntarily agreed to that claim. Conversely, the claimant argued costs should be imputed to the Tax Authority as the losing party. The determination depends on whether the revocation is viewed as an acknowledgment of the illegality that motivated the arbitration request, suggesting the taxpayer substantially prevailed, or whether specific claims require separate cost analysis.
Is it legal to self-assess and deduct VAT on hotel and travel expenses under Articles 6, 14, and 78 of the Portuguese VAT Code?
Under Articles 6, 14, and 78 of the Portuguese VAT Code (CIVA), taxpayers may self-assess and deduct VAT, with Article 78(14) permitting delays in assessment and deduction under certain conditions without prejudice to administrative penalties. The claimant argued that filing a replacement declaration under Article 59(3)(b) and (5) of the Tax Procedure Code within the objection deadline cancelled the effect of the self-assessment and deduction, causing no actual prejudice to State revenues. The Tax Authority's subsequent full revocation of the assessment suggests acceptance of this legal position, though the decision text does not provide complete reasoning on the substantive VAT issue.