Process: 38/2015-T

Date: June 30, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

Process 38/2015-T concerns a taxpayer challenge to a supplementary IRS (Personal Income Tax) assessment for 2012 involving €25,519.05 in disputed tax. The case addresses double taxation (duplicação de colecta) and errors in quantifying taxable income. The claimant, a cork producer, contested an assessment that increased taxable income by €63,588.00 based on two invoices for cork sales issued in 2012. The taxpayer argued this created illegal double taxation because the income had already been taxed over the preceding nine years under accounting deferral principles. Specifically, the claimant had annually recognized one-ninth of projected cork sale revenues in profit account #71, making these amounts subject to IRS taxation each year despite being estimated future income. When actual sales occurred in 2012, the Tax Authority assessed the full invoice amounts without crediting the previously taxed deferred income, effectively taxing the same economic reality twice. The claimant sought arbitration at CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011, requesting annulment of the assessment plus reimbursement with compensatory interest. The Tax Authority raised procedural exceptions, particularly regarding timeliness (tempestividade), arguing the 90-day deadline under article 10(1)(a) of the LRTA had expired when calculated from the voluntary payment deadline (April 24, 2014) rather than from the rejection of the administrative appeal (December 12, 2014). The Authority contended that since the arbitration request targeted the underlying assessment rather than the appeal rejection decision, standard deadlines applied. The case illustrates critical issues in Portuguese tax procedure: the calculation of deadlines for contesting assessments, the interplay between administrative appeals and arbitration, proper quantification of taxable income under changing accounting standards, and remedies for double taxation including compensatory interest entitlements.

Full Decision

Case No. 38/2015-T

Claimant: A

Respondent: Tax and Customs Authority

I. REPORT

A, Tax Identification Number …, with tax domicile in …, in … (hereinafter referred to as Claimant), submitted on 23-01-2015 a request for constitution of a sole arbitrator tribunal, in accordance with articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to as LRTA), in conjunction with article (a) of article 99 of the Tax Procedural Code, naming as Respondent the Tax and Customs Authority (hereinafter referred to as Respondent).

The Claimant requests the declaration of illegality of the supplementary Personal Income Tax assessment No. 2014 ... relating to the year 2012 which resulted from an increase to the taxable income in the amount of Euro 63,588.00. As a consequence of such annulment, the Claimant requests the reimbursement of amounts unduly paid in enforcement proceedings, in the amount of Euro 26,749.30, increased by compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of the Administrative Arbitration Centre on 26-01-2015 and notified to the Tax and Customs Authority on the same date.

In accordance with the provision of article (a) of paragraph 2 of article 6 and article (b) of paragraph 1 of article 11 of the LRTA, the Ethics Committee appointed as arbitrator of the sole arbitrator tribunal the undersigned, who communicated acceptance of the assignment within the applicable deadline.

On 16-03-2015 the parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11 paragraph 1, articles (a) and (b) of the LRTA and articles 6 and 7 of the Code of Ethics.

In accordance with the provision of article (c) of paragraph 1 of article 11 of the LRTA, the sole arbitrator tribunal was constituted on 31-03-2015.

In its response, the Respondent requested, as a preliminary matter, the correction of the value of the economic benefit of the arbitration request to Euro 25,519.05, and not the Euro 26,749.30 declared by the Claimant, raising various exceptions that would preclude examination of the claim submitted.

Notified for this purpose, the Claimant submitted a written response to the exceptions invoked by the Respondent, and ultimately requested reduction of the claim by Euro 1,230.25 and fixed the value of the economic benefit of the action at Euro 25,519.05, as proposed by the Respondent.

After the pleadings submitted, it was, by order of 16-06-2015, dispensed with the meeting provided for in article 18 of the LRTA, as it was understood that this tribunal was in a position to take a stand on the Claimant's request.

The Arbitral Tribunal was duly constituted and is competent.

The parties have legal personality and legal capacity and are legitimate (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by any nullity.

II. THE CLAIMANT'S CLAIM

As stated, the Claimant requests the declaration of illegality and consequent annulment of the supplementary Personal Income Tax assessment No. 2014 ... relating to the year 2012, with tax payable in the amount of Euro 25,519.05 (corresponding to the difference between the value of the supplementary assessment - Euro 30,343.65 - and the amount initially assessed and paid - Euro 4,824.60). In addition to the reimbursement of said amount, the Claimant also requests the reimbursement of the amount of Euro 1,230.25, corresponding to default interest and costs paid under the enforcement proceedings instituted for coercive collection of the Personal Income Tax debt now contested, all increased by compensatory interest.

Following the response submitted by the Respondent and the exceptions invoked, the Claimant reduced the claim by Euro 1,230.25, maintaining only the request for declaration of illegality and consequent annulment of the supplementary Personal Income Tax assessment for the year 2012, in the amount of Euro 25,519.05, with consequent reimbursement of this amount, increased by compensatory interest.

The supplementary assessment made by the Tax and Customs Authority originated from an increase to the taxable income in the amount of Euro 63,588.00 corresponding to invoices Nos. …/2012 and …./2012, in the amounts of Euro 61,248.00 and Euro 2,340.00 respectively, relating to sales of raw cork and cork pieces.

It is the case that, in the Claimant's view, this increase to the taxable income is illegal inasmuch as such income had been recognised as profit over the 9 years prior to 2012 under the principle of deferral, having been subjected to taxation in Personal Income Tax during that period.

According to the accounting rules adopted by the Claimant, in the 9 years prior to 2012, one-ninth of the forecast of future income from the sale of cork was annually recognised in account #2719 as a counterpart to profit account #71. With the entry into force of the Accounting Standards, the accounting began to be carried out in account #34, in accordance with Accounting and Financial Reporting Standards Nos. 17 and 18. By annually recording such amounts in account #71, such profits – although merely estimated and foreseeable – were considered for the purposes of determining the taxable income for the year and, to that extent, subjected to Personal Income Tax.

Accordingly, by disregarding the amounts recorded in the Claimant's accounting and subjected to Personal Income Tax in prior years, the Tax and Customs Authority assessed and collected tax twice on the same income: in each of the years referred to, by virtue of the recognition made, and in 2012, by virtue of the invoices actually issued.

In light of the foregoing, the Claimant concludes that the contested supplementary Personal Income Tax assessment is illegal due to double taxation and error in the quantification of the taxable income, and therefore requests its annulment, with the consequent return of tax paid increased by compensatory interest.

III. THE RESPONDENT'S RESPONSE

In its response submitted, the Respondent raises various exceptions regarding the right to reimbursement of the amount of Euro 1,230.25 paid as an addition in enforcement proceedings.

As to the merits of the arbitration request – the illegality of the supplementary Personal Income Tax assessment for the year 2012 with No. 2014 ... – the Respondent immediately invokes the exception of untimeliness in that the request was submitted beyond the 90 days provided for in article (a) of paragraph 1 of article 10 of the LRTA, counted from the end of the deadline for voluntary payment, by reference to paragraph 1 of article 102 of the Tax Procedural Code.

The Respondent acknowledges that the Claimant lodged an administrative appeal regarding the supplementary assessment contested in the present proceedings and that this was rejected by order of 12/12/2014. However, the arbitration request does not have as its immediate object this rejection, given that the Claimant never raised any question regarding said decision. To that extent, with the arbitration request having as its immediate and sole object the supplementary Personal Income Tax assessment, the 90-day deadline is counted, under general rules, from the end of the deadline for voluntary payment of the disputed debt (that is, from 24/04/2014).

Additionally, the Respondent invokes lack of object of the arbitration request, inasmuch as the Claimant would be seeking the inclusion in 2012 of expenses incurred in prior years, and extinction of the right of action on the grounds that the Claimant would be seeking revision of Personal Income Tax assessments for years prior to 2012, which will be legally impossible with respect to assessments prior to 2008 due to the expiration of the general deadline for extinction of the right to assess.

Without prejudice to the exceptions invoked, and as regards the question of the legality of the contested assessment, the Respondent is of the view that the Claimant has no merit in that the documentation presented will demonstrate that, from 2010, with the introduction of the Accounting Standards and the consequent change in accounting treatment, the Claimant ceased to consider any anticipated profit from cork sales and therefore the Claimant's allegation that such profits had already been annualised in the years prior to 2012 will not be entirely correct.

Furthermore, in the Respondent's view, it was demonstrated that, in 2012, invoices Nos. 1/2012 and 2/2012, in the amounts indicated, were not recorded in the "Sales" account, with such amounts having been merely deducted from the balance of account #272109, without being included in the Claimant's income statement.

In the Respondent's view, the Claimant has not demonstrated, in a solid and convincing manner, the allegations made in the arbitration request and therefore the increase to the taxable income that formed the basis of the 2012 supplementary assessment should be maintained.

It thus concludes for the rejection of the Claimant's request, and therefore the Claimant shall have no right to any reimbursement of tax increased by compensatory interest.

IV. FINDINGS OF FACT

A. Established Facts

The following facts are established:

  1. In 2013, the Respondent made a Personal Income Tax assessment No. 2013 ... relating to the year 2012, with tax payable in the amount of Euro 4,824.60.

  2. On 22/02/2014, the Respondent made a supplementary Personal Income Tax assessment No. 2014 ... with reference to the year 2012, with additional tax and compensatory interest payable in the amount of Euro 25,519.05.

  3. The deadline for voluntary payment ended on 24/04/2015.

  4. On 15/05/2015 enforcement proceedings were instituted by the Lisbon Finance Service 3 which proceeded under the number ....

  5. The Claimant lodged an administrative appeal of the supplementary assessment referred to in 2.

  6. The administrative appeal was rejected by order of 12/12/2014, notified to the Claimant by official letter No. …1, of 17/12/2014.

  7. On 04/11/2014 the Claimant proceeded to pay the debt and respective addition under the enforcement proceedings referred to in point 4.

  8. The arbitration request was submitted on 23/01/2015.

B. Facts Not Established

No other facts with relevance to the arbitral decision were established.

C. Basis of the Findings of Fact

The findings of fact established are based on documentary evidence submitted and not contested.

V. ISSUES TO BE DECIDED

It results from the foregoing that, in its response, the Respondent raised the exception of untimeliness of the arbitration request in that it was submitted beyond the 90 days provided for in article (a) of paragraph 1 of article 10 of the LRTA, counted from the end of the deadline for voluntary payment – 24/04/2014, in accordance with point 3 of the established facts - by application of article (a) of paragraph 1 of article 102 of the Tax Procedural Code. Notified to pronounce itself on this exception, the Claimant said nothing.

The first issue to be decided concerns the determination of the initial moment for counting the deadline for submitting the arbitration request, with two hypotheses being put forward: (i) the end of the deadline for voluntary payment of the disputed assessment, the hypothesis defended by the Respondent; or (ii) the notification of the rejection decision of the administrative appeal lodged by the Claimant (attached by the Claimant, without any framework).

If we opt for the first hypothesis, we would have to conclude by the untimeliness of the arbitration request; if we opt for the second hypothesis, the request is timely, and it is incumbent on this tribunal to examine the other issues raised.

In our view, the answer to this issue will be found in the request made by the Claimant and in the delimitation of the object effected by this tribunal in the initial petition, since it is this request that demarcates the cognitive and decision-making powers of the tribunal (see articles 608 and 609 of the Civil Procedure Code).

Now, the Claimant begins its petition by declaring that it submits for arbitral decision "the decision of the tax administration (TA) relating to the supplementary assessment in Personal Income Tax for illegality in the act of tax assessment and illegality in the act of determining the taxable income, for error in assessment and quantification of income, profits and patrimonial values with the following grounds: (…)".

And concludes with the following request: "In these terms, with the learned and competent supplementation, should: a) the supplementary assessment 2014 ... and its respective compensatory interest from the assessment be annulled; b) the reimbursement of the payment of this supplementary assessment which the taxpayer claimant herein meanwhile paid on 04/11/2014 by payment slip No. ..., be ordered, with the reimbursement of the amount paid of 26,749.30 € increased by compensatory interest at the legal rate, in accordance with the provisions of article 43 of the General Tax Law".

The object of the request, expressly delimited by the Claimant, is the alleged illegality of the supplementary Personal Income Tax assessment and not the rejection of the administrative appeal submitted. It should be noted, furthermore, that at no point in the petition or the request submitted did the Claimant make any assessment of the rejection and its grounds, having formulated no request regarding such tax act. This tribunal became aware of the existence of an administrative appeal only and solely because the Claimant attached a copy of the rejection decision without, however, deriving any legal or juridical effect from it. Such document is attached to the proceedings but no mention is made of it and its contents throughout the initial petition.

Being the cognitive powers of the tribunal delimited by the facts alleged by the parties, the judge cannot decide on issues not raised by them, nor condemn in an object different from or in a quantity greater than the claim. Except for issues of official notice, there must be identity between the cause of action and the cause for judgment, and these cannot differ.

To that extent, with the present proceedings having as their object the supplementary Personal Income Tax assessment for the year 2012, made in February 2014, this tribunal cannot fail to agree with the Respondent and conclude that the arbitration request, submitted on 23/01/2015, is untimely. The 90-day deadline for requesting arbitration began on 25/04/2014, after the end of the deadline for voluntary payment, and would therefore be fully elapsed by 23/01/2015, the date of submission of the arbitration request [see article (a) of paragraph 1 of article 102 of the Tax Procedural Code by reference to article (a) of paragraph 1 of article 10 of the LRTA].

Finding the exception invoked to be well-founded, examination of the remaining issues raised in the proceedings is prejudiced.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides to find the exception of untimeliness of the arbitration request to be well-founded and, in consequence, to find the arbitration request to be without merit, hereby absolving the Respondent.

Value of the Proceedings: In accordance with the provision of article 306, paragraph 2, of the Civil Procedure Code and article 97-A, paragraph 1, article (a) of the Tax Procedural Code and article 3, paragraph 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 25,519.05.

Costs: In accordance with paragraph 4 of article 22 of the LRTA, the amount of costs is fixed at € 1,530.00, in accordance with Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Let this arbitral decision be recorded and notified to the parties.

Lisbon, 30-06-2015

The Sole Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

What is double taxation (duplicação de colecta) in Portuguese IRS and how can it be challenged?
Double taxation (duplicação de colecta) in Portuguese IRS occurs when the same income or economic capacity is taxed multiple times, violating the principle that each taxpayer should only be taxed once on the same taxable event. In Process 38/2015-T, this arose when projected cork sale income was taxed annually over nine years as deferred revenue recognition in profit accounts, then taxed again in 2012 when actual sales invoices were issued. Taxpayers can challenge double taxation through administrative appeals to the Tax Authority, followed by judicial review in tax courts, or through tax arbitration at CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011. The challenge must demonstrate that the Tax Authority assessed tax on income already subjected to IRS in prior periods, constituting both double taxation and an error in quantifying the taxable base (matéria colectável). Relief includes annulment of the illegal assessment and reimbursement of overpaid taxes with compensatory interest.
Can taxpayers request arbitration at CAAD to dispute additional IRS tax assessments?
Yes, taxpayers can request arbitration at CAAD (Centro de Arbitragem Administrativa) to dispute additional IRS assessments. Under Decree-Law 10/2011 (LRTA - Legal Regime for Tax Arbitration), articles 2 and 10, taxpayers may submit arbitration requests for supplementary or corrective tax assessments, including IRS. Process 38/2015-T exemplifies this: the claimant filed for constitution of a sole arbitrator tribunal on January 23, 2015, to contest a 2014 supplementary IRS assessment for tax year 2012. The arbitration request must identify the contested act (the assessment notice number), specify the legal grounds for illegality, state the economic value of the dispute, and comply with procedural requirements in article 10 LRTA. Arbitration offers an alternative to traditional court litigation, providing faster resolution. The CAAD President accepts the request, appoints arbitrators, and the tribunal decides on the assessment's legality. Taxpayers can seek annulment of illegal assessments and reimbursement of amounts paid, plus compensatory interest.
What are the time limits (tempestividade) for contesting IRS tax assessments in Portugal?
Time limits (tempestividade) for contesting IRS assessments in Portugal are strictly regulated. Under article 10(1)(a) of the LRTA (Legal Regime for Tax Arbitration) combined with article 102(1) of the Tax Procedural Code (CPPT), taxpayers have 90 days from the end of the voluntary payment deadline to file arbitration requests challenging tax assessments. In Process 38/2015-T, the Tax Authority argued the deadline began April 24, 2014 (end of voluntary payment period), making the January 23, 2015 request untimely. However, when taxpayers first pursue administrative appeals (reclamação graciosa), the deadline calculation becomes complex. If the appeal is rejected, a new deadline may run from notification of that rejection decision. The case highlights that if the arbitration targets the original assessment rather than the appeal rejection, authorities may argue standard deadlines apply from the initial voluntary payment deadline. Taxpayers must carefully track deadlines: missing them results in preclusion (exceção de intempestividade), barring substantive review regardless of the claim's merits. Proper deadline calculation is critical for preserving contestation rights.
How is the taxable base (matéria colectável) quantified and what constitutes an error in IRS calculations?
The taxable base (matéria colectável) in IRS represents the amount of income subject to taxation after applying relevant deductions and adjustments. Quantification follows accounting rules, with taxable income determined from financial statements adjusted per tax law provisions. Errors in quantification (erro na quantificação da matéria colectável) occur when the Tax Authority incorrectly calculates taxable income, either by including amounts that shouldn't be taxed, excluding legitimate deductions, or applying wrong calculation methods. Process 38/2015-T illustrates this: the Authority added €63,588.00 to taxable income based on 2012 cork sale invoices without recognizing that this income had been progressively included in taxable profits over nine prior years through deferred revenue accounting (one-ninth annually in account #71). This created a quantification error because the same economic income was counted twice in the tax base. Proper quantification requires analyzing multi-year accounting treatments, recognizing income timing under applicable standards (SNC - Sistema de Normalização Contabilística), and avoiding duplicative inclusion of the same income across tax periods. Taxpayers can challenge quantification errors through administrative appeals or arbitration, demonstrating the miscalculation with accounting documentation.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when an IRS assessment is annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when an IRS assessment is annulled. Under Portuguese tax law (article 43 of the LGT - Lei Geral Tributária), when tax amounts are paid and later determined to be illegally assessed, the State must reimburse not only the principal amount but also compensatory interest to compensate for the taxpayer's loss of use of those funds. In Process 38/2015-T, the claimant specifically requested reimbursement of €25,519.05 in overpaid tax 'increased by compensatory interest' (acrescido de juros indemnizatórios). This interest accrues from the date of payment until reimbursement, calculated at legally established rates. The entitlement arises automatically upon annulment of the illegal assessment; taxpayers need not prove additional damages. Compensatory interest recognizes that the State improperly retained taxpayer funds and provides fair compensation for that period. The interest is distinct from default interest (juros de mora) charged when taxpayers pay late. Courts and arbitral tribunals regularly award compensatory interest as an integral component of relief when declaring assessments illegal, ensuring taxpayers are made whole for erroneous taxation.