Process: 4/2018-T

Date: May 29, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 4/2018-T) addresses the formal and material requirements for VAT regularization under Portuguese law, specifically concerning uncollectible debts and the expiry period (caducidade) for tax assessments. The claimant, A... LDA, challenged seven additional VAT assessments totaling €363,453.32 for 2013 monthly periods, plus default interest of €689.44. The dispute centered on whether the taxpayer properly regularized VAT on uncollectible credits from clients under Article 78(7) of the VAT Code. The Tax Authority argued the company failed to provide the required Computerized Records of Executions (RIE) proving assets were insufficient in enforcement proceedings. The taxpayer contended it possessed alternative documentary evidence demonstrating non-recovery of debts, including certificates from executive actions. A critical issue was whether the Tax Authority exceeded the caducidade deadline for issuing these assessments, as the inspection began in July 2017 for 2013 periods. Under Portuguese tax law, the general limitation period is four years from the end of the tax year. The tribunal examined whether formal documentation requirements (RIE certificates) could be substituted with equivalent proof of debt uncollectibility, and whether procedural delays affected the validity of assessments. This case illustrates the tension between strict formal compliance and substantive evidence in VAT adjustments, while highlighting taxpayers' rights to challenge assessments through CAAD arbitration when caducidade and procedural requirements are potentially violated.

Full Decision

ARBITRAL DECISION [1] (consult full version in PDF)

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr. Sílvia Oliveira and Prof. Doctor Miguel Patrício (arbitrator members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 12-03-2018, agree as follows:

1. Report

A..., LDA., NIPC..., with registered office at ..., no. ..., ..., ...-... ... (hereinafter referred to as "Claimant"), submitted, pursuant to Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters or "RJAT"), a request for arbitral pronouncement seeking a declaration of the illegality of the additional VAT assessments with nos. ..., ..., ..., ..., ..., 2017 ... and ..., referring to the taxation periods of 1301M, 1302M, 1303M, 1304M, 1307M, 201310 and 1311M, respectively, in the total amount of € 363,453.32 and the default interest assessment with no. 2017..., referring to the taxation period of 201310, with the amount payable of € 689.44.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 04-01-2018.

Pursuant to the provisions of paragraph a) of article 6, paragraph 2, and paragraph b) of article 11, paragraph 1 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the charge within the applicable deadline.

On 20-02-2018 the parties were duly notified of such appointment, having not manifested any intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, paragraph 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of article 11, paragraph 1 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 12-03-2018.

The Tax and Customs Authority submitted a response in which it argued that the request should be judged as without merit.

By order of 24-04-2018 the holding of a hearing was dispensed with and it was decided that the case would proceed with written submissions.

The parties submitted their arguments.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, paragraph a), and 10, paragraph 1, of the RJAT, and is competent.

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

The case does not suffer from any nullities.

2. Facts

2.1. Established Facts

Based on the elements contained in the case file and the administrative case file attached to the record, the following facts are considered established:

  • In respect of VAT, in the period of 2013, the Claimant was within the normal monthly periodicity regime;

  • The Tax and Customs Authority carried out an inspection action on the Claimant covered by service order no. OI2017..., of 29-05-2017, referring to the year 2013;

  • The inspection action began on 05-07-2017;

  • In that inspection action a Draft Report of Tax Inspection (document no. 2 attached with the request for arbitral pronouncement, the content of which is reproduced herein);

  • The Claimant made pronouncements on that draft Tax Inspection Report in the terms contained in document no. 3 attached with the request for arbitral pronouncement, the content of which is reproduced herein, in which it refers, among other things, to the following:

The Tax Inspection understood that the taxpayer in the various executive actions presented against its debtor clients did not have the respective Computerized Records of Executions (RIE) of the extinction of the execution because no attachable assets were found, and consequently, for that reason did not comply with the requirements provided under paragraph a) of article 78, paragraph 7 of the VAT Code, and could not have regularized the VAT in the manner it did.

(...)

It is very clear from the law that the legislator, with the possibility of deducting the tax relating to credits considered uncollectible in execution proceedings, aimed to ensure that the patrimonial insufficiency of the executed party was demonstrated in the execution proceedings, proving the impossibility of payment of the claimant's credits.

Now, the taxpayer, as in the attached arbitral decision, has various certificates relating to the said executive actions, which unquestionably attest that the taxpayer received nothing, certificates which are attached hereto and are hereby fully reproduced (Doc. 3).

There is no room for doubt that one thing is the fact upon which the legitimacy of the exercise of the right depends, and another will be the means of proof for such fact.

In that sense, the taxpayer at that date might not have had such Computerized Record (RIE), but it effectively has other sufficient and unequivocal means of proof (Doc. 3) that allow proving the same fact.

In light of the above, it should be concluded that the inspectors should review the position set forth in the Draft Inspection Report notified to the taxpayer.

Since the taxpayer has conclusive proof to attest to the uncollectibility of the credit!

Therefore, the exercise of its right to deduction in the manner carried out is legitimate.

  • Following the exercise of the right to a hearing, the Tax and Customs Authority prepared a new draft Tax Inspection Report, again notifying the Claimant to make pronouncements (documents no. 4 attached with the request for arbitral pronouncement, the content of which is reproduced herein);

  • The Claimant did not exercise the right to a hearing on the second draft Tax Inspection Report;

  • Following the non-exercise of the right to a hearing, the Tax Inspection Report contained in the administrative case file was prepared and document no. 5 attached with the request for arbitral pronouncement, the content of which is reproduced herein, in which it refers, among other things, to the following:

III.1. VAT

A... has been in VAT credit position since the year 2012. This situation derives from the fact that between the period 2012.02 to 2012.10., the taxable person came to consider very high values in field 40 - Adjustments in Favor of the Taxable Person.

Regarding the period under analysis (2013) we found that A... carried out, mainly Intra-Community Transfers of Goods (TIB). From the analysis of the available elements we verified that these transfers referred to services provided by the company to other group companies, namely to A... Spain, A... Italy and A... Austria. When questioned by the representative about the content of these services, he stated that these were services provided by company employees who were collaborating with other group companies.

Given that A... is in a tax credit position at the beginning of the year, in the amount of € 321,256.52, and given that this situation results from VAT adjustments in favor of the company, the documents that gave rise to the said adjustments were, in more detail, examined.

III.1.1. Tax Incorrectly Adjusted in Favor of the Taxable Person (article 78 of the VAT Code)

The situation of the taxable person's Tax credit relates to the period of 2012.02, and contributing to this fact were the values declared in field 40 mainly in the periods between 2012.02 and 2013.12.

From the analysis of the elements made available by the taxable person as well as the periodic VAT declarations filed, we found that the following values were declared in field 40:

As can be seen in the table presented above, A... made adjustments in its favor, in the last two years, in the total amount of €954,960.05, and in the year 2012, the adjusted value corresponds to 78.6% of the total, with part of this value (€324,320.77) carried over to the following year.

From the analysis of the documents made available by the taxable person, we were able to ascertain that these amounts refer to VAT on credits considered uncollectible from insolvent taxpayers and taxpayers in execution proceedings.

In the presence of this fact, a more detailed analysis was conducted of the documents relating to these adjustments, with reference to the provisions in paragraph 7 and paragraph 11 of article 78 of the VAT Code,

Documents of more relevant values, referring to the years 2012 and 2013, were analyzed on a sampling basis.

From the documents analyzed contained in the accounting records relating to the adjustment of VAT in favor of the taxable person (field 40), the following situations were detected:

  • In the deduction of VAT relating to credits considered uncollectible in insolvency proceedings, paragraph b) paragraph 7 of article 78 of the VAT Code, for each client there was an individual file, which contained a copy of the current account, court certificate with the date of final judgment of the sentence declaring insolvency and also the list of invoices and credit notes subject to claim. There was also proof of the communication to the acquirer of goods or services of the total or partial annulation of the tax, as provided for in paragraph 11 of article 78 of the VAT Code.

However, from the analysis of the situations described above, we found that the taxable person adjusted, in the year 2012, VAT on credits for which the deadline for the right to deduction had already expired (doc 222134) (annex 2).

Doc 222134, relating to the insolvency proceedings: .../06... TYLSB, relating to the insolvent taxable person: B..., S.A, NIF -..., contained a certificate issued by the Commercial Court of Lisbon - ... Court, which stated:

"HEREBY CERTIFIES NARRATIVELY that by judgment of 02/04/2007, which became final on 12/06/2007, the company "B..., S.A" was declared Insolvent (...)".

Now, in accordance with paragraph 2 of article 98 of the VAT Code, the deadline for exercising the right to deduct VAT is four years after the birth of the right to deduction. Thus, given that the final judgment occurred on 16/06/2007, A... could only adjust the VAT within the four years after that date, that is, until 16/06/2011.

  • Regarding the adjustment of VAT on credits considered uncollectible in execution proceedings, paragraph a) of paragraph 7 of article 78 of the VAT Code, we found that there was an individual file for each client containing a copy of the current account, list of invoices and credit notes subject to claim, proof of communication to the acquirer of goods or services of the total or partial annulation of the tax, as provided for in paragraph 11 of article 78 of the VAT Code.

However, in none of the cases analyzed was there proof of the registration of the extinction of the execution for failure to find attachable assets (paragraph b) of paragraph 2 of article 717 of the Code of Civil Procedure), a necessary requirement for its acceptability. There are only certificates issued by the Court, which state:

"It certifies that in this Secretariat there are pending common execution proceedings (Enforcement Application), with no. (...)".

By way of example, I attach document no. 222113, registered in the year 2012, relating to client C..., NIF - ... (annex 3).

III.1.1.1. Periods of 2012

• In accordance with paragraph b) of paragraph 7 of article 78 of the VAT Code we found that A... incorrectly adjusted VAT, in the amount of € 20,055.84, which was already outside the deadline for the right to deduction, pursuant to paragraph 2 of article 98 of the VAT Code.

With regard to the adjustment of VAT on credits considered uncollectible in execution proceedings, paragraph a) of paragraph 7 of article 78 of the VAT Code, we detected, for the period of 2012, irregularities in the documentation of the following clients, which although including the court certificate, this did not indicate the extinction of the execution for failure to find attachable assets.

When questioned, the representative of the taxable person was available to try to obtain the missing elements, having even sent by email some documentation which we now analyze:

Internal Document no. 222176

This document, registered in period 2012.05, refers to the recovery of VAT from client D..., Lda., NIF - ..., on credits considered uncollectible from Common Execution Proceedings no. .../10...SNT. In the document made available by the representative to justify the VAT adjustment, (annex 4), (print taken from the computer system "Citius", on 15-05-2017), we can verify that the case is extinct - Lack/Insufficiency of assets (without payment) as of 09-05-2017.

In light of this fact, the taxable person could not adjust the VAT in period 2012.05, since on that date the required conditions were not met.

Internal Document no. 222257

Document registered in the period 2012.10, relating to VAT recovery from client E..., Lda NIF - ..., on credits considered uncollectible, common execution proceedings no. .../08...TMSNT.

From the analysis of the document presented, (annex S) (print taken from the computer system "Citius", on 11-05-2017), it states: "Status. On 22/03/2013: Insolvency Extinction".

Therefore, in the period 2012.10, the conditions for VAT recovery were not met.

Internal Document no. 222260

Document registered in the period 2012.10, relating to VAT recovery from client F..., Lda, NIF - ..., on credits considered Uncollectible, common execution proceedings no. .../11...T2SNT.

From the analysis of the document presented, (annex G) (print taken from the computer system "Citius", on 12-05-2017), it states: "Status: On 24/10/2012. Interruption (art. 285 CPC)".

Therefore, in the period 2012.10, the conditions for VAT adjustment were not met, as the case was not extinct.

III.1.1.2. Periods of 2013

In the year 2013, from the sample selected, irregular situations were detected in the documentation of the following clients regarding the adjustment of VAT on credits considered uncollectible in execution proceedings, paragraph a) of paragraph 7 of article 78 of the VAT Code:

Let us analyze the elements sent by the company's representative:

Internal Document no. 222324

Document registered in period 2013.01, relating to VAT recovery from client G... L.da, NIF - ..., on credits considered uncollectible in common execution proceedings no. .../10...TBSTB.

From the analysis of the document presented, (annex 7) (print taken from the computer system "Citius", on 08-05-2017), it states: "Status: On 31/08/2014, Completed (Final in Court/Services)".

Therefore, in period 2013.01, the conditions for VAT recovery were not yet met.

Internal Document no. 222335

Document registered in period 2013.02, relating to VAT recovery from client H..., NIF - ..., on credits considered uncollectible in common execution proceedings no. .../12...SNT.

From the analysis of the document presented, (annex 8) (print taken from the computer system "Citius", on 08-05-2017), it states: "Status: On 28/08/2015, Extinction - Lack/Insufficiency of assets (Without payment)".

Therefore, in period 2013.01, the conditions for VAT recovery were not yet met.

Internal Document no. 222366

Document registered in period 2013.04, relating to VAT recovery from client Soc. I..., L.da, NIF - ..., on credits considered uncollectible in common execution proceedings no. .../08...TBAMD and no. .../12...T2SNT.

From the analysis of the document presented, (annex 9) (print taken from the computer system "Citius", on 12-05-2017), stating as: "Status: On 20/04/2015, Extinction - Lack/Insufficiency of assets (Without payment)", this referring to Proceedings: .../08...TBAMD. As for proceedings .../12...T2SNT, it states "Status: On 16/07/2015, Extinction - Lack/Insufficiency of assets (Without payment)".

Once again, it is verified that in period 2013.04, the conditions for VAT recovery were not met.

Internal Document no. 222422

Document registered in period 2013.07, relating to VAT recovery from client J..., L.da, NIF - ..., on credits considered uncollectible in common execution proceedings no. .../12...T2SNT.

From the analysis of the document presented, (annex 10) (print taken from the computer system "Citius", on 12-05-2017), we verify that it states as: "Status: On 31/10/2015. Extinction - Lack Insolvency".

It is thus verified that in period 2013.07, the conditions for VAT recovery were not met.

Internal Document no. 222483

Document registered in period 2013.11, relating to VAT recovery from client K..., Lda NIF – ..., on credits considered uncollectible in common execution proceedings no. .../13...T2SNT.

From the analysis of the document presented, (annex 11) (print taken from the computer system "Citius", on 15-05-2017), it states: "Extinction of Proceedings: 09-05-2017- Non-existence of Assets".

It is thus verified that in period 2013.11, the conditions for VAT recovery were not met, as the proceedings were only extinct on 09-05-2017.

Given the above, and verifying that for purposes of VAT adjustment relating to uncollectible credits under paragraphs a) and b) of paragraph 7 of article 78, as well as paragraph 2 of article 98 of the VAT Code, the taxable person cannot adjust VAT, in the total amount of € 363,453.32, and that €290,785.71 must be deducted in field 61 of the declaration of period 201301 and €72,667.61 in fields 40 of the declarations of periods 2013.01; 2013.02; 2013.04; 2013.04; 2013.07 and 2013.11, since it does not possess the legally required documents.

III.1.1.3 Declaration Amendments

The following table demonstrates the alterations resulting from the change of values evidenced by the taxable person after correction of the values entered in field 40. In this table the values contained in field 61 - Tax Credit, which will be addressed later, are not taken into account. As can be seen, after the correction of VAT incorrectly considered in field 40 the result of the declaration initially declared by the taxable person (column c) changes substantially (column f).

After correcting the values evidenced in field 40, we will now address the consequences of the Tax Credit incorrectly considered.

As can be seen in the following table, the incorrect consideration of values in field 61 of the periodic declarations resulted in failure to pay tax from February 2013 onwards (line 7 of the following table).

In fact, after the corrections made to both field 40 and the value of field 61, the taxable person would only be in tax credit position in the months of January, November and December 2013.

III.1.2. Total Corrections Proposed

It is important to refer to the following:

As provided in paragraph 3 of article 45 of the General Tax Law (LGT), in cases where loss carryforwards, as well as any other deductions or Tax credits, have been made, the statute of limitations is that of the exercise of that right.

As has already been demonstrated above, the taxable person by using in the 2013 periodic declaration a tax credit (even if generated in prior years) is exercising in 2013 the right to deduct it, and in light of the aforementioned article there has not yet been a statute of limitations on tax assessment, and therefore the appropriate correction will be made.

III.1.2.1. Corrections in field 61

III.1.2.2. Corrections in field 42

  • The tax deducted by the Claimant was carried forward successively to the year 2014, the Claimant having presented no request for refund (articles 23, 32, and 36 of the Response);

  • Following the inspection, the Tax and Customs Authority made corrections in the global amount of € 363,453.32, in the terms referred to in the Tax Inspection Report and issued VAT assessments with nos. ..., ..., ..., ..., ..., 2017 ... and ..., relating to the taxation periods of 1301M, 1302M, 1303M, 1304M, 1307M, 1310M and 1311M, respectively, and the default interest assessment with no. 2017..., relating to the taxation period of 1310M, with the amount payable of € 689.44;

  • The Claimant, at the dates on which it made the adjustments referred to in the Tax Inspection Report, had not received the credits referred to in the certificates contained in documents nos. 6 to 33 attached with the request for arbitral pronouncement, the contents of which are reproduced herein;

  • On the dates on which the adjustments were made, the registration of the extinction of the respective executions for non-discovery of attachable assets was not made in the Computerized Record of Executions, as provided in paragraph c) of paragraph 2 of article 806 of the Code of Civil Procedure of 1961 and in paragraph b) of paragraph 2 of article 717 of the Code of Civil Procedure of 2013;

  • In some cases, the execution agents did not have the possibility to register the extinction of the executions, because they were not inserted or updated in the Computerized Record of Executions;

  • In all cases of adjustments analyzed by the Tax and Customs Authority, the Claimant possessed proof that the claims had been made in the execution proceedings and that it had made the communication to the acquirers of goods and services of the annulation of the tax, as provided in paragraph 11 of article 78 of the VAT Code (articles 58 and 62 of the Response);

  • The Claimant, in period 2012.04, adjusted VAT in the amount of € 20,055.84, relating to a credit of € 98,914.85 against the company "B..., S.A." NIF ... (doc. no. 222134), which was declared insolvent in insolvency proceedings: .../06...TYLSB, by judgment of the Commercial Court of Lisbon — ... Court, which became final on 12-06-2007 (annex 2 to the Tax Inspection Report, page 5/6);

  • On 03-01-2018, the Claimant submitted the request for arbitral pronouncement which gave rise to the present case.

2.2. Unestablished Facts and Justification of the Facts

It was not proven that the Claimant effected payment of the amounts indicated as "amount payable" in the impugned assessments. No proof document of payment was presented.

The established facts are based on the administrative case file and on the documents attached with the request for arbitral pronouncement.

3. Law

The defects attributed by the Claimant to the impugned assessments shall be examined in the order indicated in the request for arbitral pronouncement.

3.1. Question of Non-Consideration of What the Claimant Said in the Exercise of the Right to a Hearing

In the inspection action, a Draft Tax Inspection Report was prepared which was amended following the Claimant having made pronouncements in the exercise of the right to a hearing, with the new draft being notified to the Claimant to make pronouncements.

The Claimant refers that "It was only stated by the TA in that 2nd Project Report that 'Given the right to a hearing exercised by the taxpayer on 30-08-2017 concerning the draft report sent through official communication no. ... of 03-08-2017, it became appropriate to effect new notification of the draft report.'".

It does not correspond to reality that in the 2nd draft Tax Inspection Report the Tax and Customs Authority did not consider the pronouncement of the Claimant, as it was the pronouncement that led the Tax and Customs Authority to amend the first, although in small points.

Specifically, as the Tax and Customs Authority refers in its response, "at point 3 of the right to a hearing the Claimant argued that we would be before an insolvency proceeding and not before an execution proceeding regarding entity B..., S.A. and the 2nd draft TIR reflects that correction on p. 10 and in the table on p. 11" and the calculation error which it referred to regarding period 2013.08 "was taken into account, it suffices to compare the table on p. 14 of the 1st TIR with the table on p. 14 of the 2nd TIR".

However, in that 2nd draft Tax Inspection Report, as also in the Final Report, the Tax and Customs Authority does not pronounce on the claim formulated by the Claimant when exercising the right to a hearing on the 1st draft Tax Inspection Report to the effect that the elements of proof presented by it would allow considering proven the uncollectibility of the credits.

Having the Claimant, in exercising the right to a hearing on the 1st draft Tax Inspection Report, presented new elements of proof of the uncollectibility of the credits and having argued that it was sufficient, to assure the legality of the adjustments, the proof resulting from those elements, the Tax and Customs Authority was obligatorily required to pronounce on the relevance or lack thereof of such proof, for, by force of the provision in article 60, paragraph 7, of the LGT, "new elements raised in the hearing of taxpayers are necessarily taken into account in the justification of the decision".

The Tax and Customs Authority took no position whatsoever on such proof presented nor on the position defended by the Claimant, to the effect that it could prove the uncollectibility of the credits by such means, despite the registration provided for in paragraph a) of paragraph 7 of article 78 of VAT Code not having been made, limiting itself to repeating what it had said in the 1st draft Tax Inspection Report.

Thus, a procedural defect occurs, by violation of the aforementioned paragraph 7 of article 60 of the LGT, because the Tax and Customs Authority did not take into account in the justification of its decision the new elements of proof presented by the Claimant, nor did it take a position on the thesis defended by the latter on the admissibility of alternative means of proof of the uncollectibility of the credits in relation to the registration of executions.

3.2. Question of the Possibility or Not of Examination of Documents Relating to Tax Situations Already Covered by the Statute of Limitations on the Right to Assess, Without Extension Thereof

The Tax and Customs Authority carried out an inspection on the Claimant relating to the year 2013, of partial scope of VAT, as defined in service order OI2017..., of 29-05-2017, the inspection having begun on 05-07-2017.

In this inspection, the Tax and Customs Authority understood that there occurred during the year 2012 improper VAT adjustments relating to credits that the Claimant considered uncollectible, which were reflected in the 2013 balance, whereby it made a correction relating to period 2013.01, based on VAT adjustments which it considered improper, occurring previously.

The Claimant questions, in sum, the possibility that in an inspection relating to the year 2013, elements relating to prior years should be considered, without extension of the inspection.

However, there is no legal obstacle to the fact that, to carry out an inspection relating to VAT of the year 2013, elements relating to prior years should be considered, as follows from the express wording of paragraph 1 of article 36 of the Supplementary Procedure for Tax Inspection Regime (RCPIT) which establishes that "the tax inspection procedure may be initiated until the expiry of the statute of limitations on the right to assess taxes or the sanction procedure, without prejudice to the right to examine documents relating to tax situations already covered by that deadline, which taxable persons and other tax-bound parties have the obligation to retain".

In this case, there is the legal obligation to retain documents for 10 years, by force of the provision in article 52, paragraph 1, of the VAT Code.

Therefore, the Tax and Customs Authority, in carrying out an inspection relating to the year 2013, could examine documents relating to tax situations occurring within this 10-year period during which the obligation to retain documents is mandatory.

3.3. Question of the Possibility of Initiating Inspection After the Expiry of the Statute of Limitations on the Right to Assess (articles 23 to 29 of the request for arbitral pronouncement)

As follows from the aforementioned article 36, paragraph 1, of the RCPIT, "the tax inspection procedure may be initiated until the expiry of the statute of limitations on the right to assess taxes".

Article 94, paragraph 1, of the VAT Code, in the wording in force until the end of 2017, establishes that "tax may only be assessed within the timeframes and in the manner provided for in articles 45 and 46 of the General Tax Law". [2]

Pursuant to article 45, paragraph 1, of the LGT, "the right to assess taxes is barred if the assessment is not validly notified to the taxpayer within four years, when the law does not provide otherwise".

By force of the provision in paragraph 3 of the same article, in cases where a deduction of tax has been made, the statute of limitations is that of the exercise of that right.

The Tax and Customs Authority refers in the Tax Inspection Report that "by using in the 2013 periodic declaration a tax credit (even if generated in prior years) it is exercising in 2013 the right of deduction thereof, and in light of the aforementioned article there has not yet been a statute of limitations on assessment of the tax, and therefore the appropriate correction will be made".

However, pursuant to paragraph 4 of article 45 of the LGT, "the statute of limitations period is counted (...) in value-added tax (...) from the beginning of the calendar year following that in which (...) the exigibility of the tax occurred".

Thus, as follows from the express wording of this paragraph 4 of article 45, regarding Value-Added Tax the counting of the statute of limitations period is made "from the beginning of the calendar year following that in which the exigibility of the tax occurred".

The moment in which tax exigibility occurs, for this purpose, is that in which the tax creditor may demand its payment.

The Claimant, before using the tax credit in the January 2013 periodic declaration, used the credits derived from each of the adjustments in the declarations relating to the periods of March, April, May, June, October and December 2012, and the VAT that may have been improperly adjusted in each of these periods was exigible from the 10th day of the 2nd month subsequent to that to which the operations of each period relate, as follows from the provision in article 41, paragraph 1, paragraph a), of the VAT Code.

Thus, regarding adjustments made in the periods of March, April, May, June and October 2012, the exigibility of tax resulting from improper adjustments occurred still in the year 2012, and therefore the 4-year statute of limitations period had already expired when the inspection was initiated on 05-07-2017.

Only regarding adjustments made in the period of December 2012 did the exigibility of the respective tax occur in February 2013, and therefore only in this case is the inspection timely.

Therefore, it is illegal, being based on an inspection procedure initiated after the expiry of the statute of limitations on the right to assess, the assessment no. ..., relating to period 1301M, as to the corrections in the amount of € 283,273.11 (corrections referred to in point III.1.1.1. of the Tax Inspection Report, being € 20,055.84 relating to the credit of company B... S.A. and € 263,217.27 relating to the remaining adjustments made in the periods of March to October 2012).

3.4. Violation of the Principles of Legality, Equality, Proportionality, Justice and Impartiality, in Respect of Taxpayer Safeguards, Resulting From the Inspection Procedure

The Claimant invokes violation of these principles, without specifying in what the violation of the principles it invokes consists.

In any case, only in relation to the principle of legality is a violation detected, in the terms indicated in points 3.1 and 3.3.

3.5. Question of the Statute of Limitations on the Right to Assess Relating to Adjustments Made in the Year 2012

As follows from what was referred to in point 3.3., the statute of limitations on the right to assess occurred only in relation to adjustments made until October 2012.

Therefore, the assessment no. ... is illegal in the terms referred to in point 3.3.

3.6. Question of the Means of Proof of the Uncollectibility of the Credit

VAT adjustments are at issue, made on the basis of uncollectibility of credits under paragraph 7 of article 78 of the VAT Code, which establishes the following, in the wording of Law no. 3-B/2010, of 28 April.

7 - Taxable persons may also deduct the tax relating to credits considered uncollectible:

a) In execution proceedings, after the registration referred to in paragraph c) of paragraph 2 of article 806 of the Code of Civil Procedure; [3]

Paragraph c) of paragraph 2 of article 806 of the CPC establishes that in the computerized record of executions must be mentioned the extinction of the execution for failure to find attachable assets.

This is a formal requirement intended solely to ensure uncollectibility.

As the Claimant pertinently recalls, the CJEU in its judgment of 15-09-2016, delivered in case no. C-516/14, clarified the following:

37 It is to be recalled that, according to constant case law of the Court of Justice, the right of taxable persons to deduct from the VAT they owe the VAT due or paid on goods acquired and services supplied to them upstream constitutes a fundamental principle of the common VAT system established by the legislation of the Union (judgment of 13 February 2014, Maks Pen, C-18/13, EU:C:2014:69, no. 23 and case law cited there) (no. 37)

38 The Court of Justice has repeatedly held that the right to deduct VAT provided for in articles 167 et seq. of Directive 2006/112 is an integral part of the VAT mechanism and cannot, in principle, be limited. That right is immediately exercised in respect of the totality of the taxes which have burdened the upstream transactions (see, to that effect, judgment of 13 February 2014, Maks Pen, C-18/13, EU:C:2014:69, no. 24 and case law cited there).

39 The deduction scheme is intended to relieve the taxable person entirely of the burden of VAT due or paid in the context of all his economic activities. The common VAT system thus ensures neutrality as regards the tax burden on all economic activities, whatever their purpose or results, provided that those activities are themselves, in principle, subject to VAT (judgment of 22 October 2015, PPUH Stehcemp, C-277/14, EU:C:2015:719, no. 27 and case law cited there).

(...)

42 The Court of Justice has held that the fundamental principle of VAT neutrality requires that deduction of that tax paid upstream be granted if the substantive requirements are met, even if taxable persons have neglected certain formal requirements. Accordingly, when the tax administration has the data needed to know that the substantive requirements have been met, it cannot impose additional conditions on the taxable person's right to deduct the tax which might have the effect of negating that right (see, to that effect, judgments of 21 October 2010, Nidera Handelscompagnie, C-385/09, EU:C:2010:627, no. 42; of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wasiewicz, C-280/10, EU:C:2012:107, no. 43; and of 9 July 2015, Salomie and Oltean, C-183/14, EU:C:2015:454, nos. 58, 59 and case law cited there).

It follows from this case law that, it being proven that the substantive requirements of the exercise of the right to deduction are met, this right cannot be refused.

Therefore, the formal requirement provided for in paragraph a) of paragraph 7 of article 78 of the VAT Code will be incompatible with the aforementioned norms and principles of European Union law when, with the substantive requirements of the exercise of the right to deduction being satisfied, it leads to the impossibility of such exercise.

Furthermore, we are dealing with a formal requirement, which is the effectuation of the registration of the extinction due to non-existence of attachable assets, the satisfaction of which is not even within the availability of the taxable person, as the registration must be effectuated by the execution agent and depends on the operationality of a computerized system which, as appears from the record, is not always assured. As the Claimant rightly argues, in light of that CJEU case law, it cannot be accepted that "the taxpayer could be harmed by the fact that the execution agent does not comply with its legal obligations, and even more striking, in certain cases, even if the execution agent intends to do so, the computerized system does not permit it to be accomplished due to technical problems".

And, being incompatible with European Union law, such formal requirement shall cease to be applied, by force of paragraph 4 of article 8 of the Constitution (CRP), which establishes that "the provisions of the treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective competencies, are applicable in the internal legal order, in the terms defined by the law of the Union, with respect for the fundamental principles of the democratic rule of law".

Thus, it does not constitute a sufficient ground to conclude as to the illegality of the adjustments the finding referred to by the Tax and Customs Authority in the Tax Inspection Report that "in none of the cases analyzed was there proof of the registration of the extinction of the execution for failure to find attachable assets (paragraph b) of paragraph 2 of article 717 of the Code of Civil Procedure), a requirement necessary for its acceptability", as in light of such CJEU case law based on the principle of VAT neutrality, this formal requirement cannot be considered necessary for the acceptability of the adjustments, only being necessary the verification of the substantive requirements, namely proof of the uncollectibility of the credits, which was not appreciated by the Tax and Customs Authority in the Tax Inspection Report.

It must thus be concluded that the position adopted by the Tax and Customs Authority in the Tax Inspection Report, which underlies the impugned assessments, suffers from a defect of violation of law, by error as to the legal presuppositions, in understanding that the registration of the extinction of the executions was a necessary requirement of the adjustments.

Moreover, examining the documents nos. 6 to 33 attached by the Claimant in the present case, it is to be concluded that none of the credits on which the assessments were based were collected by the Claimant, and therefore the proof produced points in the direction that the substantive requirements of the adjustments it made are satisfied.

By the foregoing, the impugned assessments suffer from a defect of violation of law which justifies their annulation, in the terms of article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable in the terms of article 2, paragraph c), of the LGT.

3.7. Default Interest

The default interest assessed has as its presupposition the assessment of tax, and therefore the defects from which the VAT assessments suffer are reflected in the assessment of default interest, justifying its annulation.

4. Indemnificatory Interest

The Claimant requests indemnificatory interest.

The right to indemnificatory interest depends on the existence of an improper payment of tax, as follows from paragraph 1 of article 43 of the LGT.

In the case at hand, it was not proven that the Claimant effected payment of the amounts assessed, and therefore the request for indemnificatory interest is without merit.

5. Decision

In these terms, this Arbitral Tribunal agrees:

  • To judge the request for arbitral pronouncement as well-founded regarding the corrections effectuated and the annulation of the assessments;

  • To annul the corrections in the global amount of € 363,453.32, referred to in the Tax Inspection Report and the VAT assessments with nos. ..., ..., ..., ..., ..., 2017 ... and ..., relating to the taxation periods of 1301M, 1302M, 1303M, 1304M, 1307M, 1310M and 1311M, respectively, and the default interest assessment with no. 2017..., relating to the taxation period of 1310M, with the amount payable of € 689.44;

  • To judge the request for indemnificatory interest as without merit.

6. Case Value

In accordance with the provisions of article 306, paragraph 2, of the CPC and article 97-A, paragraph 1, paragraph a), of the Code of Tax Procedure and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 364,142.76 (value of the corrections and the default interest assessment).

7. Costs

In accordance with article 22, paragraph 4, of the RJAT, the amount of costs is set at € 6,120.00, in accordance with Table I appended to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Lisbon, 29-05-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Sílvia Oliveira)

(Miguel Patrício)

[1] The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as regards transcriptions effectuated.

[2] As results from this norm, there does not apply, in respect of VAT assessment, the understanding adopted by the Supreme Administrative Court in the judgment of 12-07-2007, delivered in case no. 0303/07, cited by the Tax and Customs Authority, and also in the judgment of 30-09-2009, case 0682/09, regarding refund requests, substantially based on paragraph 8 of article 22 of the VAT Code.

[3] By Law no. 82-B/2014, of 31 December, the wording of paragraph a), without substantial alteration of the regime, came to make reference to the wording of the CPC of 2013, "a) In execution proceedings, after the registration referred to in paragraph b) of paragraph 2 of article 717 of the Code of Civil Procedure".

Frequently Asked Questions

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What are the formal and material requirements for VAT regularization under Portuguese tax law?
Under Portuguese VAT law, regularization of uncollectible debts requires both material and formal requirements per Article 78(7) of the VAT Code. Materially, the debt must be definitively uncollectible, typically proven through unsuccessful enforcement proceedings. Formally, taxpayers must provide Computerized Records of Executions (RIE) showing no attachable assets were found. However, courts have recognized that alternative documentary evidence—such as certificates from executive actions confirming non-recovery—may satisfy proof requirements if they unequivocally demonstrate the debtor's patrimonial insufficiency and impossibility of payment. The distinction between the substantive fact (uncollectibility) and means of proof (specific documents) becomes crucial in disputes.
How does the expiry (caducidade) of the right to liquidation affect additional VAT assessments in Portugal?
Caducidade (expiry of the right to assessment) fundamentally affects VAT liquidations in Portugal under Article 45 of the LGT (General Tax Law). The Tax Authority generally has four years from the end of the tax year to issue additional assessments. For 2013 tax periods, this deadline would typically expire on December 31, 2017. If the Tax Authority issues assessments after caducidade expires, they are legally void and must be annulled. In this case, the inspection began in July 2017 for 2013 periods, with assessments issued in 2017, raising critical timing questions. Taxpayers can invoke caducidade as an absolute defense before CAAD arbitration tribunals, leading to automatic annulment regardless of the substantive merits of the tax adjustment.
Can the Portuguese Tax Authority issue additional VAT liquidations for periods 2013 after the caducidade deadline?
No, the Portuguese Tax Authority cannot validly issue additional VAT assessments for 2013 periods after the caducidade deadline expires. Under Article 45 of the LGT, the four-year limitation period for 2013 assessments runs from January 1, 2014, to December 31, 2017. Any assessments issued after this date are void ab initio due to expiry of the liquidation right. However, certain acts may interrupt or suspend the deadline, including notification of inspection commencement (which grants extended time), taxpayer hearings, or administrative complaint proceedings. In Process 4/2018-T, the critical analysis involves determining whether the inspection initiated in May-July 2017 was timely and whether procedural steps validly extended the assessment period before expiry.
What legal grounds can taxpayers use to challenge additional VAT assessments before CAAD arbitration tribunals?
Taxpayers can challenge additional VAT assessments before CAAD arbitration tribunals on multiple legal grounds: (1) Caducidade—expiry of the four-year assessment period under Article 45 LGT, rendering assessments void; (2) Substantive illegality—incorrect application of VAT rules, such as misinterpretation of Article 78 requirements for debt regularization; (3) Procedural violations—failure to respect audit rights, inadequate hearing opportunities, or improper notification; (4) Evidentiary sufficiency—challenging the Tax Authority's factual conclusions when taxpayers possess alternative proof meeting legal requirements; (5) Proportionality—arguing that formal documentation requirements should not override substantive evidence of compliance. CAAD tribunals have full jurisdiction to review both legal and factual aspects, providing comprehensive protection against potentially unlawful assessments.
How does CAAD arbitration process work for disputing IVA (VAT) liquidations in Portugal?
CAAD (Centro de Arbitragem Administrativa) arbitration for VAT disputes operates under Decree-Law 10/2011 (RJAT). Taxpayers must submit arbitration requests within 90 days of notification of contested acts. The process includes: (1) Filing a request specifying legal grounds and relief sought; (2) Automatic notification to the Tax Authority; (3) Appointment of arbitrators by the Deontological Council—either a sole arbitrator or three-member panel; (4) Tax Authority response within 30 days; (5) Optional hearing or written submissions as determined by the tribunal; (6) Final decision within six months (extendable). Parties must have legal representation. The tribunal examines legality of assessments, including substantive tax law application, procedural compliance, and limitation periods. Decisions are binding and enforceable like court judgments, with limited appeal grounds to administrative courts. CAAD provides faster, specialized resolution compared to traditional court litigation for tax disputes.