Process: 422/2018-T

Date: May 13, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 422/2018-T) addresses the challenge to Corporate Income Tax (IRC) assessments for the 2015 tax year, arising from transfer pricing corrections. The taxpayer, A... S.A., contested assessment statements and default interest charges totaling €64,108.51, arguing that the Tax Authority's corrections lacked proper legal foundation and violated fundamental legal principles. Critically, the case involves the concept of 'invalidade subsequente' (subsequent invalidity) - where consequential tax acts become invalid due to the annulment of underlying assessments. The taxpayer had previously succeeded in arbitral proceedings challenging IRC assessments for 2011-2012 (Case 733/2015-T) and 2013-2014 (Case 162/2018-T), with favorable decisions already rendered. The Tax Authority had begun implementing voluntary execution of those prior decisions, including cancelling related collection notices and enforcement proceedings. The arbitral tribunal was properly constituted under RJAT provisions, with three arbitrators appointed according to Decree-Law 10/2011. The procedural framework demonstrates compliance with Article 10 RJAT requirements for initiating tax arbitration. The taxpayer had exhausted administrative remedies by filing an administrative claim on 12-06-2017, which was rejected, and subsequently challenged through arbitration on 31-08-2018. A bank guarantee was provided to suspend enforcement proceedings. The decision establishes important precedents regarding the cascading effect of annulled transfer pricing adjustments on subsequent tax years and the proper procedures for challenging consequential IRC assessments before CAAD.

Full Decision

ARBITRAL DECISION

I – REPORT

1. On 31 August 2018, A..., S.A., Tax Identification Number..., with registered office at Rua..., no...., ... -..., ...-..., Amadora, filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the following tax assessment acts relating to the tax year 2015:

a) Corporate Income Tax Assessment Statement No. 2016..., of 12-12-2016, which determined an amount due of € 64,108.51;

b) Corporate Income Tax Assessment Statement No. 2018..., of 07-02-2018, in the same amount, and respective statement of account adjustment No. 2018..., of 12-02-2018; and

c) Statements of assessment of default interest No. 2016..., of 15-12-2016 and No. 2018..., of 12-02-2018.

2. To substantiate its request, the Claimant alleges, in summary, that the grounds used by the Respondent to make the corrections not only are contrary to the law, but result in disrespect for fundamental principles of our legal order, in addition to the lack of reasoning.

3. On 03-09-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

4. The Claimant proceeded with the designation of an arbitrator, having appointed Dr. Paulo Mendonça, pursuant to Article 11(2) of the RJAT. Pursuant to Article 11(3) of the same article, the Respondent appointed Dr. Nuno Maldonado de Sousa as arbitrator.

5. The arbitrators designated by the parties were appointed and accepted their respective duties.

6. Following a request submitted by the arbitrators designated by the parties that the president arbitrator be designated by the Deontological Council, Dr. José Pedro Carvalho was appointed as president arbitrator pursuant to Article 6(2)(b) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, and Article 5 of the Regulation for Selection and Designation of Arbitrators in Tax Matters, who, within the applicable deadline, also accepted the duty.

7. On 08-11-2018, the parties were notified of these designations and did not manifest any intention to refuse any of them.

8. In accordance with the provision of Article 11(7) of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the collective Arbitral Tribunal was constituted on 28-11-2018.

9. On 29-11-2018, the Claimant filed a request withdrawing its request for suspension of the proceedings, formulated in the initial Request.

10. On 15-01-2019, the Respondent, duly notified for this purpose, filed its answer defending itself by exception and by challenge.

11. By request of 31-01-2019, the Claimant exercised the right of reply with respect to the matter of exception raised by the Respondent.

12. Under the provisions of subsections (c) and (e) of Article 16 and Article 29(2), both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

13. Having been granted a deadline for the submission of written arguments, the same were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

14. It was indicated that the final decision would be notified by the deadline set forth in Article 21(1) of the RJAT.

15. The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2(1)(a), 5 and 6(2)(b) of the RJAT.

The parties have legal personality and capacity, are legitimately interested and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Administrative Regulation No. 112-A/2011, of 22 March.

The proceedings are not affected by any defects in form.

Thus, there is no obstacle to the examination of the case.

Having considered everything herein,

II. DECISION

A. FINDINGS OF FACT

A.1. Facts Established as Proved

1. The assessments which are the subject of the present arbitral proceedings originate from corrections made by the Tax Authority to the tax year 2015.

2. These corrections result from corrections to previous tax years (since 2011), which were based on the application of transfer pricing rules.

3. The Claimant filed requests for arbitral pronouncement against the additional assessments for 2011 and 2012 (Case No. 733/2015-T) and for 2013 and 2014 (Case No. 162/2018-T), both of which have already been judged favorably.

4. In the context of voluntary execution of the respective arbitral decisions, the Tax Authority has already proceeded with the full restoration of the factual situation for the tax years 2011 and 2012.

5. With respect to the tax years 2013 and 2014, the Tax Authority has determined the procedures already carried out with a view to cancelling the contested assessments and restoring the deductible tax losses, including the total cancellation of collection notice No. 2016..., the debt certificate 2017... and the enforcement proceeding No. ... 2016..., relating to the tax year 2015.

6. Some of the procedures referred to have already been implemented and others await completion.

7. The Claimant, on 12-06-2017, filed an administrative claim against the additional assessments for 2015, which are the subject of the present arbitral action.

8. By letter of 06-03-2018, the Claimant was notified by registered mail of the draft rejection of the administrative claim.

9. Having the Claimant exercised in writing the right to be heard, a decision was made to reject the administrative claim.

10. The Claimant was notified of said decision by registered mail on 30-04-2018.

11. For coercive collection of the Corporate Income Tax Assessment No. 2016..., relating to 2015, an enforcement proceeding No. ...2017... was initiated by the Amadora Financial Services Office.

12. With a view to its suspension, the Claimant filed with the Amadora Financial Services Office an autonomous bank guarantee No. GAR/..., issued by Bank ..., S.A., in the amount of € 81,387.65, as stated in the summons.

A.2. Facts Established as Not Proved

1. That the Tax Authority has cancelled:

a) The Corporate Income Tax Assessment Statement No. 2016..., of 12-12-2016;

b) The Corporate Income Tax Assessment Statement No. 2018..., of 07-02-2018, and the respective account adjustment statement No. 2018..., of 12-02-2018; and

c) The statements of assessment of default interest No. 2016..., of 15-12-2016 and No. 2018..., of 12-02-2018.

A.3. Reasoning for the Findings of Fact Proved and Not Proved

Regarding the findings of fact, the Tribunal does not have to pronounce itself on everything that was alleged by the parties; rather, it is the duty of the Tribunal to select the facts that matter to the decision and to distinguish the proved facts from those not proved (see Article 123(2) of the Tax Code of Procedure and Process (CPPT) and Article 607(3) of the Code of Civil Procedure (CPC), applicable by virtue of Article 29(1), subsections (a) and (e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are selected and circumscribed according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of the RJAT).

Thus, having considered the positions assumed by the parties, in light of Article 110(7) of the CPPT, the documentary evidence and the administrative file included in the record, the facts listed above were considered proved, with relevance for the decision, taking into account that, as stated in the Court of Administrative Law (South) judgment of 26-06-2014, decided in case 07148/13, "the evidentiary value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged."

The fact established as not proved is due to the absence of any evidence demonstrating it.

In fact, although in the context of arguments the Respondent states that the "acts at issue (...) have already been cancelled in the context of execution of judgments", the truth is that no element was presented demonstrating this, and it is certain that in those same arguments the Respondent refers to points 86 to 94 of the Response, where, among other things, it was stated that "the issuance of a new assessment for the year 2015" was missing.

Allegations made by the parties and presented as facts, consisting of strictly conclusive assertions insusceptible to proof and whose truthfulness must be evaluated in relation to the concrete findings of fact consolidated above, were not established as either proved or not proved.

B. THE LAW

a. Regarding the matter of exception

The Respondent begins its defense by arguing that the "Claimant's claim concerns solely the examination, in arbitral proceedings, of the execution of the arbitral decisions that determined the success of a request for annulment of the tax assessment acts for Corporate Income Tax for the tax years 2011 to 2014, but such claim exceeds the competence of the Arbitral Tribunal".

It concludes, therefore, that the "incompetence of the Tribunal to examine the request concerning the execution of arbitral judgments constitutes a dilatory exception that impedes the continuation of the proceedings and determines the dismissal of the defendant from the action, in accordance with the provisions of Articles 576(2) and 577(a) of the CPC and subsection (a) of Article 89(4) of the Administrative Procedure Code (CPTA), by virtue of Article 29(1)(e) of the RJAT".

As has been well established for a long time, "competence is determined by the plaintiff's claim, being a matter to be resolved solely in accordance with the terms of his claim (including the respective grounds)".

The request formulated by the Claimant is as follows:

"a) The declaration of illegality and annulment of the arithmetic corrections to the taxable base for Corporate Income Tax for the tax year 2015, made following the corrections made to the tax years 2013 to 2014 in the context of transfer pricing rules;

b) As a consequence of (a), the declaration of illegality and consequent annulment of the Corporate Income Tax Assessment No. 2016.., of 12.12.2016, and respective assessment of default interest, both relating to the tax year 2015;

c) Also as a consequence of (a), the declaration of illegality and consequent annulment of the Corporate Income Tax Assessment No. 2018.., of 07.02.2018, and respective assessment of default interest, both relating to the tax year 2015;

d) Still as a consequence of (a), the full restoration of the situation existing before the corrections made, namely with regard to the tax losses used and available for deduction;

e) Finally, the condemnation of the State Treasury to pay indemnification for reimbursement of the costs incurred with the provision of bank guarantee to prevent the coercive collection of the tax."

As can be seen, the request formulated by the Claimant is the declaration of illegality and annulment of the corrections made relating to the tax year 2015, embodied in the acts of Corporate Income Tax Assessment No. 2016..., of Corporate Income Tax Assessment Statement No. 2018.., of account adjustment statement No. 2018..., of 12-02-2018, and of statements of assessment of default interest No. 2016... and No. 2018..., with the due and legal effects arising therefrom.

Hence there is no doubt that the examination of such a request falls within the scope of the provision of Article 2(1)(a) of the RJAT, insofar as it concerns the "declaration of illegality of tax assessment acts".

Moreover, the Respondent itself recognizes, as it could not fail to do, that the competence of the Arbitral Tribunals operating in the CAAD unquestionably comprises "condemnations (...) arising from (...) declaratory powers based on illegality".

The fact that the same practical result could be obtained in other forums or by means of other procedural means, namely and in this case, by way of execution of judgments, does not stand in the way of the aforementioned conclusion.

Indeed, inasmuch as tax litigation is, as is well known, objective in nature, structured, generally, around the paradigm of "one act per action," it is not uncommon for situations to arise in which the same practical result sought by the taxpayer could be obtained by various means and in different forums, such as occurs, for example, in cases of challenge to tax acts that do not involve tax assessments (for example, denial or revocation of tax benefits), challenge to tax assessment acts, opposition to tax enforcement, or claims against acts of the tax enforcement officer.

It is not, thus, the material result aimed at with the procedural means used that defines the suitability of that means and/or the competence of the Tribunal, but rather the concrete request formulated.

Now, in this case, as has been seen, the request formulated is for the annulment of a tax assessment act and its consequences, which unquestionably falls within the competence of the Arbitral Tribunals operating in the CAAD.

Moreover, the grounds invoked by the Respondent, with all due respect, amount to a situation analogous to that provided for in Article 535(1)(c), that is, the use of a declaratory action in situations where there exists an executory title.

In fact, and ultimately, what the Respondent alleges is that the Claimant, by virtue of the decisions in arbitral cases No. 733/2015-T and 162/2018-T, already has an executory title to obtain the effects it seeks to obtain in the present action.

Such a situation, however, does not constitute an exception, but merely implies responsibility for costs on the part of the defendant, in accordance with the provision of the CPC referred to.

In this case, however, such relevance does not apply, inasmuch as, having the Claimant opted to designate an arbitrator, costs will, even in case of full success of the request, be borne by the Claimant, as results from the provisions of Article 12(2) and (3) and Article 22(4) of the RJAT.

Therefore, the alleged incompetence of this arbitral tribunal should not be upheld.

*

The Respondent further reiterates the incompetence of this Tribunal, "should the Tribunal find itself implicitly requested to determine the tax losses to be taken into account in the tax year 2015".

As can be seen, such is not the case; therefore, considering that what is requested by the Claimant is the annulment, for illegality, of a tax assessment act and its consequences, the exception argued and now in question should likewise not be upheld.

*

b. On the merits of the case

As has already been stated, the question that arises in the present arbitral proceedings is that of determining the legality of the corrections made by the Tax Authority relating to the tax year 2015, embodied in the acts of Corporate Income Tax Assessment No. 2016..., of Corporate Income Tax Assessment Statement No. 2018..., of account adjustment statement No. 2018..., of 12-02-2018, and of statements of assessment of default interest No. 2016... and No. 2018...

As is agreed upon between the parties, the corrections in question result from corrections to previous tax years (2011 to 2014), which were based on the application of transfer pricing rules, corrections that were annulled by decisions made in arbitral cases No. 733/2015-T (2011 and 2012) and 162/2018-T (2013 and 2014), both of the CAAD.

Based on the circumstances referred to, the Claimant seeks that, as a consequence, the corrections made to the tax year 2015, embodied in the tax acts which are the subject of the present arbitral action, be annulled.

In light of what has been found, it cannot be concluded, it is believed, other than in favor of the Claimant.

Indeed, as the Respondent itself acknowledges, the tax acts which are the subject of the present arbitral action are consequential and related acts of the acts annulled in arbitral cases No. 733/2015-T and 162/2018-T.

Now, as was stated in the Supreme Administrative Court (STA) judgment of 30-01-2007, made in case 040201A:

"VI - A related act shall be one that has with the preceding act a relationship that could necessarily determine the invalidity of the second, had the latter been made, in the terms in which it was actually made, at a moment when the annulment of the first had already been decreed.

VII - The invalidity of the related act thus results from an autonomous cause in relation to that which determined the fall of the preceding act, which concerns its own requirements of validity and which is concretized in a defect of its own, pertaining to one of its structural elements: procedure, subject, object, content.

VIII - A related act shall thus be null if the legal definition contained in the annulled act constituted the basis for the issuance of that act, in such terms that it can be affirmed that it represented an essential element of its issuance, in the sense of Article 133 of the Administrative Procedure Code (CPA), at the level of the subject, the object, the presuppositions, the content... - an element that would not exist if, at the moment when the related act was made, the preceding act had already been annulled - and the annulment came to remove with retroactive effects - provided an essential element to the related act."

The aforementioned judgment was rendered in the context of the former version of the CPA which, in its Article 133(1)(i), provided for the nullity of "consequential acts of previously annulled or revoked administrative acts, provided there are no counterinterested parties with a legitimate interest in the maintenance of the consequential act".

The current CPA abandoned that provision, with no analogous provision appearing in the new Article 161.

Nevertheless, despite consequential acts of previously annulled or revoked administrative acts no longer being considered vitiated by nullity, the same acts cannot be considered otherwise than voidable.

Thus, as explained by Prof. Dr. José Carlos Vieira de Andrade:

"There is to be considered, finally, a special situation, concerning the annulment of 'consequential acts' of annulled acts.

These acts were until 2015 considered null, albeit with reservation of the legitimate interests of counterinterested parties, but now become merely voidable, having regard to their removal from the list of nullities established in the (current) Article 161.

However, pursuant to Article 172(2), the Administration, when proceeding to the administrative annulment of an act, within its duty of restoration of the hypothetical current situation – that is, of the situation that would exist if the annulled act had not been made (or had been made without the defect that generated the voidability) –, may have the duty to 'annul, reform or replace the consequential acts' and, it is added, 'without dependence on any time limit'.

The Code of Process (CPTA) had already established a specific regime for the invalidation of consequential acts of judicially annulled acts, a regime that is now, in essence, transposed to administrative annulment, saving the position of good faith beneficiaries of consequential acts performed more than one year ago, in primary terms or, at least, by means of indemnification (172(3) of the CPA), in addition to the establishment of a specific regime for situations of workers (172(4)).

This regime implies, however, special care in the delimitation of the concept of consequential act and in the application of the respective invalidatory regime.

Firstly, in the line of jurisprudence that has been consolidating within the framework of judicial annulment, consequential acts for this purpose are only those acts whose maintenance is incompatible with the restoration of the hypothetical situation required by the annulment, considered the respective grounds and scope.

Then, in our opinion, against the dominant position in doctrine and jurisprudence, not only the interests of third parties, strangers to the legal relationship touched by the annulled act, should be protected, but also the interests of direct beneficiaries of the consequential act, who may be in good faith, despite not being unaware of the precariousness of their situation.

Finally, it would not be understood, in the normative context of the CPA, an annulment of the consequential act 'without dependence on any time limit' in the sense of an annulment at any moment – in reality, what is meant is 'even if the act has become unimpeachable', with the temporal limits established in Article 168 applying: which establishes a six-month period after knowledge of the defect and a general five-year period for any administrative annulment, counted from the moment of making of the act. In practice, the annulment of the consequential act shall take place even in the immediate sequel of administrative annulment, which is subject to these limits."

In these terms, with no doubt remaining that the maintenance of the tax acts which are the subject of the present arbitral action is incompatible with the restoration of the hypothetical situation required by the annulment of the acts which are the subject of arbitral cases No. 733/2015-T and 162/2018-T, considering the respective grounds and scope, in the words of the Illustrious Professor, and that the legal definition contained in the acts annulled in arbitral cases No. 733/2015-T and 162/2018-T constituted the basis for the issuance of the acts which are the subject of the present arbitral action, in such terms that it can be affirmed that they represented an essential element of their issuance, in the words of the STA, it cannot fail to be considered that "the invalidity of the related act thus results from an autonomous cause in relation to that which determined the fall of the preceding act, which concerns its own requirements of validity and which is concretized in a defect of its own, pertaining to one of its structural elements".

Such invalidity as must be recognized, in the terms set forth, thus determining the annulment of the acts which are the subject of the present arbitral action.

There is no verification, contrary to what the Respondent proposes, of any "situation of impossibility or futility of the action".

Indeed, such a situation could only arise were it proven that, to date, the tax acts which are the subject of the present arbitral action had been annulled.

Such not being the case, as results from the facts established as proved, the subject matter of the action is maintained in the legal order, therefore there is no impossibility or futility of the action.

In light of the foregoing, the arbitral request should be upheld, determining the annulment of the tax acts that constitute the subject matter of the present action, and the examination of the remaining questions raised by the Claimant becomes moot.

*

The Claimant formulated a request for indemnification for an improper guarantee.

The arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Authority from the expiration of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and up to the expiration of the deadline provided for spontaneous execution of sentences of tax courts, restore the situation that would exist if the tax act which is the subject of the arbitral decision had not been made, adopting the acts and operations necessary for such purpose, as expressly results from subsection (b) of Article 24 of the RJAT.

In the same provision "the legislator made clear that the effects provided therein are 'without prejudice to the other effects provided for in the Tax Code of Procedure and Process'. It is considered in this regard that the legislator is here referring to all effects that derive from the CPPT, for the taxpayer, and that are applicable after the consolidation in the legal order of a certain tax-legal situation, resulting from a definitive decision whether it be administrative or judicial."

Notwithstanding the judicial challenge process being essentially a process of mere annulment, therein may be pronounced a condemnation of the Tax Authority to pay indemnification for an improper guarantee, as results from Article 171 of the CPPT.

As was stated in the decision made in Case No. 28/2013-T "it is unequivocal that the judicial challenge process encompasses the possibility of condemnation to pay for an improper guarantee and is even, in principle, the appropriate procedural means to formulate such a request, which is justified by evident reasons of procedural efficiency, as the right to indemnification for an improper guarantee depends on what is decided regarding the legality or illegality of the tax assessment act. The request for constitution of the arbitral tribunal has as a corollary that it will be in the arbitral process that the 'legality of the enforceable debt' will be discussed, therefore, as results from the express wording of that Article 171(1) of the CPPT, it is also the arbitral process that is appropriate for examining the request for indemnification for an improperly provided guarantee."

It is thus concluded that this tribunal is competent to examine the request for indemnification for an improperly provided guarantee.

The regime for the right to indemnification for an improper guarantee is contained in Article 53 of the General Tax Law (LGT), which establishes the following:

"1. The debtor who, in order to suspend enforcement, offers a bank guarantee or equivalent shall be indemnified in whole or in part for damages resulting from its provision, should it have been maintained for a period exceeding three years in proportion to success in administrative appeal, judicial challenge or opposition to enforcement that have as their object the debt guaranteed.

2. The deadline referred to in the previous number shall not apply when it is verified, in administrative claim or judicial challenge, that there was an error attributable to the services in the tax assessment.

3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the rate of indemnity interest provided for in the present law and may be requested in the administrative claim or judicial challenge itself, or autonomously.

4. The indemnification for provision of an improper guarantee shall be paid by offset against the tax revenue of the year in which payment is made."

In the case at hand, it is verified that the error that affects the tax assessment acts partially annulled is attributable to the Respondent entity, as the assessments were of its initiative and the Claimant in no way contributed to such an error being made.

The Claimant thus has the right to indemnification for the guarantee provided.

However, neither were the costs that the Claimant incurred to provide the guarantee alleged nor proved, therefore it is not feasible to determine here the indemnification to which the Claimant is entitled, which may be done, if necessary, in execution of this decision.

*

C. DECISION

In view of the foregoing, this Arbitral Tribunal decides to uphold in full the arbitral request formulated and, as a consequence:

a) Annul the Corporate Income Tax Assessment Statement No. 2016..., of 12-12-2016, which determined an amount due of € 64,108.51, the Corporate Income Tax Assessment Statement No. 2018..., of 07-02-2018, in the same amount, and the respective account adjustment statement No. 2018..., of 12-02-2018, the statements of assessment of default interest No. 2016..., of 15-12-2016 and No. 2018..., of 12-02-2018;

b) Condemn the Respondent to pay to the Claimant indemnification for the provision of an improper guarantee, in the terms set forth above.

D. Case Value

The case value is fixed at € 64,108.51, pursuant to Article 97-A(1)(a) of the Tax Code of Procedure and Process, applicable by virtue of subsections (a) and (b) of Article 29(1) of the RJAT and Article 3(3) of the Regulation of Costs in Tax Arbitration Proceedings.

Let notification be made.

Lisbon, 13 May 2019

The President Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Paulo Mendonça)

The Arbitrator Member

(Nuno Maldonado de Sousa)

Frequently Asked Questions

Automatically Created

What is the legal basis for challenging IRC (Corporate Income Tax) assessments through tax arbitration in Portugal?
The legal basis for challenging IRC assessments through tax arbitration in Portugal is established in Articles 2 and 10 of Decree-Law No. 10/2011 (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária), as amended by Law 66-B/2012. Taxpayers can contest IRC assessments, including those arising from transfer pricing corrections, by filing a request for constitution of an arbitral tribunal with CAAD. The request must be submitted after exhausting administrative remedies (typically after rejection of an administrative claim under Article 131 CPPT). The arbitration framework provides an alternative dispute resolution mechanism to judicial courts for tax matters, with decisions having binding effect equivalent to court judgments.
What does 'invalidade subsequente' (subsequent invalidity) mean in the context of Portuguese tax law and consequential acts?
'Invalidade subsequente' (subsequent invalidity) in Portuguese tax law refers to the automatic invalidation of consequential tax acts when the underlying or foundational administrative act is annulled. In this case, when the Tax Authority's transfer pricing corrections for 2011-2014 were declared illegal through prior arbitral decisions (Cases 733/2015-T and 162/2018-T), the derivative IRC assessments for 2015 - which were calculated based on those invalidated corrections - become subsequently invalid. This principle reflects the concept of 'acto consequente' (consequential act), where dependent administrative acts cannot survive the annulment of their legal foundation. The Tax Authority must then cancel all related assessments, interest charges, collection notices, and enforcement proceedings.
How can a taxpayer contest an IRC tax assessment and related interest charges before the CAAD arbitral tribunal?
To contest an IRC assessment and related interest charges before CAAD, a taxpayer must: (1) First file an administrative claim (reclamação graciosa) within the legal deadline after notification of the assessment (Articles 131-133 CPPT); (2) After rejection of the administrative claim, file a request for arbitration within 90 days from notification of the rejection decision (Article 10 RJAT); (3) Submit the arbitration request electronically through CAAD's platform, including identification of the contested acts, legal grounds, supporting documents, and designation of an arbitrator; (4) Pay the required arbitration fee; (5) Optionally provide a bank guarantee to suspend enforcement proceedings during arbitration (Article 52 LGT and Article 169 CPPT). The request must clearly identify all contested acts, including assessment statements and default interest liquidations.
What are the procedural requirements for filing a tax arbitration request under the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária)?
The procedural requirements for filing a tax arbitration request under RJAT include: (1) Prior exhaustion of administrative remedies through rejection of an administrative claim (Article 10(1) RJAT); (2) Submission within 90 days from notification of the administrative claim decision; (3) Identification of the taxpayer with full legal capacity and standing (Articles 4 and 10 RJAT); (4) Specification of all contested tax acts with complete reference numbers and dates; (5) Statement of legal grounds and facts supporting the challenge; (6) Payment of the initial arbitration fee; (7) Designation of a party-appointed arbitrator (Article 11(2) RJAT) or request for appointment by CAAD; (8) Attachment of relevant supporting documents, including the contested assessments, administrative claim decision, and notification proof. The tribunal is constituted with three arbitrators: one appointed by each party and a president arbitrator designated by mutual agreement or by CAAD's Deontological Council.
When can a Portuguese tax assessment be declared illegal due to lack of proper legal justification (falta de fundamentação)?
A Portuguese tax assessment can be declared illegal due to lack of proper legal justification (falta de fundamentação) when it fails to comply with Article 77 of the Tax Procedure Code (LGT), which requires tax authorities to provide sufficient reasoning for their decisions. The assessment must clearly state: (1) the legal provisions supporting the corrections; (2) the factual findings and evidence relied upon; (3) the connection between facts and legal conclusions; and (4) the calculation methodology. In transfer pricing cases, the Tax Authority must specifically explain the basis for rejecting the taxpayer's transfer pricing methodology and justify the alternative approach adopted. Mere citation of legal provisions without explaining their application to the specific facts constitutes insufficient reasoning. Additionally, when assessments are based on invalidated prior corrections (as in this case with subsequent invalidity), they violate fundamental principles including legal certainty and prohibition of invalid administrative acts, rendering them illegal regardless of formal reasoning compliance.