VAT Self-Assessment Official Review: Timeliness and Arbitral Tribunal Competence (CAAD 427/2015-T)

ARBITRAL DECISION

The Arbitrator Dr. Filipa Barros (sole arbitrator), appointed by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Sole Arbitral Tribunal, constituted on 14 September 2015, hereby decides as follows:

I. REPORT

A..., with registered office at the building... located at..., no...., ...-..., Tax ID..., hereinafter "Claimant", hereby petitions, in accordance with the provisions of Article 2, paragraph 1, item a), and Article 10, paragraphs 1 and 2, both of Decree-Law no. 10/2011 of 20 January, hereinafter referred to as "RJAT"[1], and Articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, for the constitution of an Arbitral Tribunal for the declaration of illegality of self-assessment acts relating to the fiscal years 2009 and 2011, embodied in the periodic declarations of December 2009 and January to October 2011, with all consequent effects, namely the declaration of illegality and annulment of the act of dismissal of the request for official review of VAT relating to the years 2009 and 2011, with a view to regularizing VAT charged in excess in the amount of € 52,056.45.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and immediately notified to the Respondent in accordance with legal provisions.

In accordance with and for the purposes of paragraph 1 of Article 6 and item b) of paragraph 1 of Article 11 of RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally prescribed deadlines, Dr. Filipa Barros was appointed arbitrator of the Sole Arbitral Tribunal, who communicated her acceptance of the charge to the Deontological Council and the Administrative Arbitration Centre within the deadline stipulated in Article 4 of the Deontological Code of the Administrative Arbitration Centre.

The Tribunal was constituted on 14 September 2015, in accordance with the requirement of item c) of paragraph 1 of Article 11 of RJAT.

On 15 October 2015, the Respondent, duly notified for such purpose, submitted her response defending herself by exception and by denial.

On 30 October 2015, the Claimant, duly notified for such purpose, pronounced in writing on the exceptions raised by the Respondent in her response, arguing for their dismissal.

Subsequently, both parties, duly notified for such purpose, communicated to the proceedings that they waived the holding of the meeting referred to in Article 18 of RJAT, wherefore the holding of said meeting of the Arbitral Tribunal, in accordance with and for the purposes of Article 18 of RJAT, was dispensed with, taking into account that, in this case, none of the purposes legally entrusted to it were present, and that the arbitral proceedings are governed by the principles of procedural economy and the prohibition of performing useless acts.

Subsequently, a period of 20 days was granted to the Claimant and the Respondent to present, successively, their respective written submissions, a faculty which the parties chose not to exercise.

In support of her request, the Claimant essentially alleges the following:

a) The Claimant is a legal entity of public law on a territorial basis, whose activity consists of the pursuit of its municipal competencies in the most diverse areas, being classified for VAT purposes under the normal monthly regime. Within this scope, and following a review it conducted of its internal procedures relating to the years 2009 and 2011 regarding VAT, it verified that it incurred excess VAT on the acquisition of certain resources directly associated with the Municipality's taxable activities, namely Championship..., camping park at..., sale of bags at the smoke fair, water distribution to residents, whereby, as these resources are exclusively intended for performing taxable operations, the Municipality was entitled to deduct all VAT incurred in the acquisition of such resources.

b) Furthermore, the Claimant detected the possibility of partial VAT deduction through actual allocation in resources simultaneously allocated to taxable activities and non-taxable activities that do not confer the right to deduction, as well as the possibility of partial deduction through the use of the pro-rata method applicable to VAT incurred in mixed-use resources.

c) With a view to recovering the excess VAT charged, as a result of what it considered to be an incorrect classification for VAT purposes of the aforementioned operations, the Claimant submitted on 30 December 2013, in accordance with the provisions of Article 78 of the General Tax Code (LGT) and Article 98 of the VAT Code, a request for official review of the self-assessments of VAT made in excess in the total amount of € 52,056.45 (€ 27,081.07 relating to the year 2009 and € 24,975.38 relating to 2011).

d) The Official Review Request was dismissed, as per Official Letter no.... of 14 April 2015, by administrative order of 23/03/2015 issued by His Excellency the Deputy Director-General, by delegation of authority of the VAT Administration Division of the VAT Services Directorate, considering that the Tax Authority that the regularization sought by the Claimant could not be authorized due to the untimeliness of the requested regularization period, being inapplicable to it neither the 4-year period provided for in paragraph 2 of Article 98 of CIVA and paragraph 1 of Article 78 of LGT, nor the 2-year period provided for in paragraph 1 of Article 131 of the Tax Procedure and Process Code (CPPT) and paragraph 6 of Article 78 of CIVA.

e) In this regard, the Claimant understands that the fact that the invoices are recorded does not prevent the possibility of a correction being made to the VAT deducted by the Municipality, in accordance with the rule contained in paragraph 2 of Article 98 of the VAT Code, which allows the right to reimbursement of tax paid in excess up to the expiration of 4 years after the birth of the right to deduction, the tax in question still being within the temporal limit at the time of submission of the official review request.

f) The Claimant further states that paragraph 1 of Article 98 does not preclude the taxable person from performing a retroactive revision of the VAT deduction method, using for this purpose the official review mechanism provided for in Article 78 of LGT.

g) Within this framework, the Claimant contends that the case at hand does not constitute an incorrect transcription of invoices or errors in the transcription of accounting record values, therefore it is not a material error or calculation error, subsumed in paragraph 6 of Article 78 of the VAT Code, but rather an "error of law." And even if, by mere hypothesis, it were considered a material or calculation error, the Claimant would have 4 years to make that correction.

h) Thus, the Claimant reiterates that it incurred excess VAT during the years 2009 and 2011, not having deducted it because it erred in the application of deduction methods (e.g., error of law) and not because it simply chose not to do so.

i) Accordingly, it contends that the review of tax acts by the tax administration's initiative may take place within the period of four years from the assessment on the basis of error attributable to the services, considering as such the error in self-assessment, in accordance with paragraph 1 of Article 78 of LGT and paragraph 1 of Article 98 of the VAT Code.

j) In conclusion, it is requested from its petition that the illegality of the self-assessment acts relating to the year 2009 (periodic declaration of December 2009) and year 2011 (periodic declarations from January to October 2011) be declared, with the consequent annulment of the decision dismissing the official review request for the said periods, with all other legal consequences, namely the reimbursement of VAT incurred in excess in the amount of € 52,056.45.

The Tax Authority responds to the Claimant's request by exception and by denial.

Within the scope of the response by exception, the issue of the incompetence of the Arbitral Tribunal to appreciate and decide on the request for pronouncement is raised, alleging, in summary, the following:

a) The subject matter of the request for arbitral pronouncement is embodied in the decision dismissing the official review request, in which authorization was petitioned for deduction, in accordance with the provisions of Article 98 of the VAT Code and Article 78 of the General Tax Code, of VAT incurred by A... on the acquisition of mixed-use resources in the amount of €52,956.45 (...)", without requesting the annulment of any self-assessment act. In turn, the decision dismissing the official review request at issue in the present proceedings was based on the fact that the request should be dismissed due to untimeliness of the right to regularization, understanding that neither the 4-year period provided for in paragraph 2 of Article 98 of the VAT Code and paragraph 1 of Article 78 of LGT would be applicable, nor even the two-year period provided for in paragraph 1 of Article 131 of CPPT or paragraph 6 of Article 78 of the VAT Code. Since the legality of any tax assessment or self-assessment act was not appreciated, particularly given that only in the arbitral proceedings did the Claimant raise such a request.

b) Therefore, the Tax Authority initially contends that the material incompetence of the Arbitral Tribunal results from the underlying cause of the dismissal of the official review request. Indeed, the administrative act leading to the dismissal of the official review request was based on the invocation of the untimeliness of the requested VAT regularization, with no appreciation of the legality of any assessment/self-assessment acts, which would result in the unsusceptibility of the act to be challenged through judicial review, it being certain that the tax arbitral proceedings are established by reference and in all respects similar to the judicial review proceedings in relation to which it should constitute an alternative procedural means.

c) Thus, basing itself on the line followed by other CAAD decisions on the matter, in all respects similar to those in the case at hand, in some cases filed by Municipalities, the Tax Authority states that "the review of the act in question is outside the scope of matters susceptible to appreciation in the arbitral sphere in accordance with Article 2 of RJAT (...)", invoking a dilatory exception that prevents knowledge of the merits of the case, and should determine the dismissal of the proceedings in accordance with Articles 576, paragraph 1 and 577, item a) of CPC, applicable ex vi Article 29, paragraph 1, item e) of RJAT.

d) Second, the Tax Authority invokes the untimeliness of the request for arbitral pronouncement resulting from the fact that the tax act subject to the request is reduced to the declaration of illegality of VAT self-assessment acts relating to fiscal years 2009 and 2011, embodied in periodic declarations of December 2009 and January to October 2011. In this regard, and admitting that the subject matter of the request is the self-assessment acts pertaining to the aforementioned periods, the legal deadline for challenging acts in the arbitral sphere would clearly be exceeded.

e) Now, Article 10 of RJAT establishes, regarding assessment and self-assessment acts, that the period for submitting the request for arbitral pronouncement is 90 (ninety) days, referring, as to the moment the counting begins, to what is prescribed in Article 102, paragraphs 1 and 2 of the Tax Procedure and Process Code.

f) In these terms, having the request for constitution of the arbitral tribunal been formulated only in 2015, and this request not being based on the existence of any gracious remedy for the self-assessment act where a decision had been issued dismissing, wholly or partially, the claims made therein (which would constitute a second-degree act), the Tax Authority concludes regarding its untimeliness, requiring the declaration of lack of merit and the dismissal of the Respondent from the proceedings.

g) In addition to the aforementioned, the Tax Authority also invokes the incompetence of the Arbitral Tribunals operating at CAAD to appreciate decisions dismissing official review requests. To this end, the Tax Authority understands that in view of the provisions of Articles 2, paragraph 1, item a) and 4, paragraph 1, both of RJAT, and Articles 1 and 2, item a), both of Ordinance no. 112-A/2011 of 22.03, there is an exception of material incompetence of the Arbitral Tribunal to appreciate and decide on the aforementioned request (cf. Articles 576, paragraphs 1 and 2 and 577, item a) of CPC, ex vi Article 29, paragraph 1, items a) and e) of RJAT.

h) Such impediment would result from the referral of paragraph 1 of Article 4 of RJAT to Ordinance no. 112-A/2011, which establishes the binding of the Tax Authority to the jurisdiction of Arbitral Tribunals constituted in accordance with that decree-law, namely regarding the type and maximum value of disputes covered.

i) Now, in accordance with Article 2, item a) of Ordinance 112-A/2011, the binding of the Tax Authority to the jurisdiction of the Arbitral Tribunals has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in paragraph 1 of Article 2 of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Tax Procedure and Process Code";

j) Accordingly, and in view of the terms of binding of the Tax Authority, in the situation at hand it was incumbent to have mandatory priority of gracious complaint in accordance with paragraph 1 of Article 131 of CPPT, on the basis that the expression "recourse to the administrative remedy" does not also reference the official review of the tax act, literally excluded from the material competence of Arbitral Tribunals and legally prohibited in the arbitral sphere. For this purpose, the Tax Authority invokes the general rules and principles of interpretation and application of laws contained in Article 9 of the Civil Code, by referral of paragraph 1 of Article 11 of LGT, basing the essence of its interpretation on the literal element of the rule, concluding that "the letter of the law cannot be disregarded, being the primary reference and starting point for the interpreter." In these terms, it contends for the exclusion of the material competence of arbitral tribunals in disputes, such as the situation sub judice, which have as their object the declaration of illegality of self-assessment acts if not preceded by gracious complaint in accordance with Article 131 of CPPT.

k) The Tax Authority concludes its thesis by referring that a literal interpretation of the provisions of the Binding Ordinance is imperative in view of respect for constitutional principles of the Rule of Law and Separation of Powers (cf. Articles 2 and 111, both of CRP) as well as legality (cf. Articles 3, paragraph 2 and 266, paragraph 2, both of CRP) as a corollary of the principle of Unavailability of Tax Credits, inherent in Article 30, paragraph 2 of LGT.

l) Additionally, the Tax Authority invokes the exception of material incompetence given the Claimant's request for condemnation directed to "the reimbursement of VAT incurred in excess in the periods in question, in the amount of €52,056.45". In this regard, the Tax Authority contends that the scope of competence of the arbitral tribunals constituted in accordance with the provisions of Decree-Law no. 10/2011 of 20 January does not contemplate the possibility of appreciation of requests aimed at the recognition of rights in tax matters, concluding that also by this means there is a dilatory exception, embodied in the material incompetence of the arbitral tribunal, which, preventing knowledge of the request, should lead to the dismissal of the Respondent from the proceedings.

m) The Tax Authority also responded by denial. It sustained a position contrary to that presented by the Claimant regarding the susceptibility of the VAT regularization request presented in accordance with paragraph 1 of Article 78 of LGT and paragraph 1 of Article 98 of the VAT Code to merit approval.

n) Thus, the Tax Authority contended that the situation in the case at hand of omission of deduction of tax with common costs does not constitute an error in self-assessment but a legitimate option between mixed taxable persons, whereby in any case the 4-year period provided for in paragraph 1 of Article 78 of LGT and paragraph 1 of Article 98 of the VAT Code would never be applicable, since retroactive application of a deduction method can only be effected in accordance with paragraph 6 of Article 23 of the VAT Code.

o) Additionally, it considers that the Claimant at no time validated the amounts allegedly deducted in default, since the analysis of this issue by the Tax Authority was prejudiced in view of the preclusion of the deduction period provided for in paragraph 6 of Article 78 of the VAT Code.

p) The Tax Authority concludes by the dismissal of all requests, since the Claimant provides no evidence of the right which it claims in the proceedings, namely the amounts of tax to be deducted through the presentation of the accounting documents supporting its claim.

Subsequently, the tribunal notified the Claimant to pronounce on the matter of exception, which defended the competence of the arbitral tribunal and the timeliness of the request for arbitral pronouncement.

Preliminary Proceedings

The parties have personality and legal capacity, show themselves to be legitimate and are regularly represented (cf. Articles 4 and 10, paragraph 2 of RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March).

Exception or preliminary question: of the material incompetence of the Arbitral Tribunal.

The Tax Authority raises, among other issues, that of the material incompetence of the Arbitral Tribunal to appreciate the request.

Taking into account that the scope of the tribunal's material competence is of public order and its knowledge precedes that of any other matter (Article 13 of the Administrative Court Procedure Code applicable ex vi Article 29, paragraph 1, item c) of RJAT), and that the infraction of the rules of competence on the basis of matter determines the absolute incompetence of the tribunal, which is of official knowledge [Articles 16, paragraphs 1 and 2 of the Tax Procedure and Process Code applicable ex vi Article 29, paragraph 1, items a) and c) of RJAT], it is necessary to begin by appreciating the dilatory exception raised by the Respondent regarding the incompetence of the Arbitral Tribunal.

Let us see, in the first place, the facts and, in particular, those especially relevant for the delivery of a decision regarding the material competence of the Arbitral Tribunal.

II. GROUNDS

A. Proven Facts:

The following facts are documentally proven and/or accepted by the parties in their respective pleadings:

1. The Claimant is a collective entity of public law on a territorial basis, whose activity consists of the pursuit of its attributions and the execution of its respective municipal competencies in the most diverse areas of activity;

2. For VAT purposes, the Claimant is registered as a VAT taxable person, classified under the normal monthly periodicity regime;

3. In the exercise of the "Local Government" activity, the Claimant simultaneously performs operations not subject to tax (those resulting from the exercise of powers of authority), operations subject but exempt from VAT that do not confer the right to deduction, as well as operations subject that confer the right to deduction;

4. Within the scope of a review of internal procedures for the years 2009 and 2011, the Claimant verified that in its activity it incurred excess VAT, in so far as it only deducted the VAT incurred on the acquisition of resources associated with water distribution through the application of the actual allocation method;

5. Specifically, the Claimant conducted a review of the deduction methods applied in 2009 which resulted in the following changes:

a. Possibility of full deduction (through the application of the actual allocation method) of VAT on resources associated with the performance of taxable operations (Championship..., Camping Park..., sale of bags at the smoke fair, septic tank cleaning and also water distribution – in this case some resources whose VAT had not yet been deducted, despite being related to water distribution);

b. Possibility of partial deduction (through the application of actual allocation with criteria) of VAT on resources simultaneously allocated to water distribution (taxable activity that confers the right to deduction) and to wastewater treatment (non-taxable activity that does not confer the right to deduction); and

c. Possibility of partial deduction (through the application of the pro-rata method) of VAT incurred in "mixed" use resources (i.e., resources used indistinctly for the municipality's activity as a whole, whether taxable or non-taxable for VAT purposes, commonly also designated as common resources)

1. As a result of the aforementioned review of internal procedures in the above-mentioned aspects, the Claimant calculated tax incurred in excess in the amount of € 52,056.45;

2. In the years 2009 and 2011, the Claimant did not proceed to any deduction of tax relating to mixed-use goods;

3. With a view to recovering the VAT it incurred in excess, corresponding to € 52,056.45, the Claimant submitted on 30.12.2013, in accordance with the provisions of Article 78 of LGT and Article 98 of the VAT Code, a request for official review of the VAT self-assessment effected, requesting authorization from the Tax Authority to regularize the VAT charged in excess during the years 2009 (in the amount of € 27,081.07) and 2011 (in the amount of 24,975.28) cf. document no. 2 of the Request for Arbitral Pronouncement and PA;

4. In said official review request, the Claimant exposed the factual and legal reasons why it considered it had incurred excess VAT, stating that its claim was protected by paragraph 2 of Article 98 of the VAT Code, a rule that authorizes the exercise of the right to deduction of tax paid in excess up to the expiration of 4 years after the birth of that right. It further contends that an error attributable to the services is considered the error in self-assessment, a circumstance which justifies the submission of an official review request;

5. The Claimant concludes the official review request by requesting, in accordance with Article 78 of LGT combined with Article 98 of the VAT Code, that it be "authorized to deduct the VAT incurred by A... on the acquisition of mixed-use resources in the amount of € 52,056.45 resulting from the application of the pro-rata deduction methods and actual allocation with objective criteria, calculated in accordance with Article 23 of the VAT Code." Cf. request formulated in the official review request submitted.

6. The Official Review Request was dismissed, as per Official Letter no.... of 14 April 2015, by administrative order of 23.03.2015 issued by His Excellency the Deputy Director-General, by delegation of authority of the VAT Administration Division of the VAT Services Directorate, which administrative order, in accordance with information to that effect (Information no....), contained, among other matters, and in summary, the following [Cf. PA file]:

"II. APPRECIATION

1. Retroactive application of deduction methods and cost segregation of activity sectors

2. Thus, in the years 2009 and 2011, despite not having deducted any tax relating to mixed-use goods in accordance with Article 23 of CIVA, the Claimant intends to do so on the basis of an official review request submitted at the end of 2013.

(...)

1. Now it is understood that in either situation, the four-year period provided for in paragraph 2 of Article 98 of CIVA and paragraph 1 of Article 78 of LGT is not applicable, nor even the two-year period provided for in paragraph 1 of Article 131 of the Tax Procedure and Process Code (CPPT) or in paragraph 6 of Article 78 of CIVA"

2. The situation described of omission of deduction of tax incurred with common costs does not constitute an error but a legitimate and common option among mixed taxable persons. (...)

(...)

1. This understanding was conveyed in the opinion of the Centre for Tax and Customs Studies (CEFA) no. .../2013 of 2013-10-04, authored by Dr.... with a concordant opinion from the CEFA Director of 2013-10-08

2. As follows from the following citations from that Opinion, it was understood that the change of the VAT deduction method and the retroactive application of a deduction method find no support in paragraph 6 of Article 78 nor in any other provision of CIVA, in so far as this option can only be made under the conditions of paragraph 1 of Article 20, paragraph 1 of Article 22 and Article 23 of CIVA.

(...)

1. Right to deduction of Article 98, paragraph 2 of CIVA

2. What the Claimant intends to demonstrate is that its claim can be achieved within the four-year period by invoking that this is the period of the right to deduction provided for in paragraph 2 of Article 98 of CIVA and that the claim can be made through the request for review of self-assessments made in accordance with paragraph 1 of Article 78 of LGT.

3. From paragraph 2 of Article 98 of CIVA results that, "Without prejudice to special provisions, the right to deduction or reimbursement of tax paid in excess can only be exercised up to the expiration of four years after the birth of the right to deduction". What is in question in this rule is the exercise "for the first time" of the right to deduction of tax incurred.

4. What the Claimant raises is the regularization of previously deducted tax and not its initial deduction. The difference is that tax regularization consists of the rectification/correction of tax (in this case) self-assessed in a previous periodic declaration. What is at issue is the alteration of a previous act of the taxable person.

(...)

1. As results from the summary of the judgment of the Supreme Administrative Court (STA) of 2011-05-18, case 966/2010, "paragraph 2 of Article 98 of CIVA, in establishing that the right to deduction can only be exercised up to the limit of four years after the birth of the right to deduction, does not have the scope of granting the taxable person the freedom to choose any moment within that period to effect the deduction, but rather to set a maximum limit that cannot be exceeded, even in cases where deduction can be effected at moments different from those indicated in that Article 22."

2. That is, in the situation at hand, where the Claimant intends to regularize tax recorded in the accounting records since the years 2009 and 2011, the four-year period of paragraph 2 of Article 98 of CIVA would never be applicable.

3. Regularization of tax through the review of Article 78 of LGT

4. As exposed, the second argument put forward regarding the application of the four-year period to the Claimant's claim is based on subsumption in paragraph 1 of Article 78 of LGT.

5. Now, having concluded that in the case at hand there is no error in self-assessment, the Claimant's claim could never be accepted on the basis of the tax review embodied in paragraph 1 of Article 98 of CIVA and paragraph 1 of Article 78 of LGT.

(...)

1. It also appears that the situation of error invoked by the Claimant, if it existed, could not be qualified as an error in self-assessment, and therefore not an error attributable to the services.

(...)

1. That is, the error is not in self-assessment but in the operations carried out upstream, it not being considered legitimate to extend the concept of error in self-assessment to these situations in which tax self-assessment is limited to reflecting pre-existing errors.

2. Errors in self-assessment are those that occur only in the periodic declaration, as is the typical case of errors in the transcription of invoices or records into the fields of periodic tax declarations.

3. Thus it is demonstrated that the error in self-assessment referred to in Article 78 of LGT, which is considered attributable to the services, is the error that occurs only in the tax self-assessment operation, the concept not being extendable to prior errors which come to have an impact on the completion of the periodic tax declaration submitted by the taxable person.

(...)

III – ABSENCE OF PROCEDURAL ACTS

1. It should be noted that having been considered that, as alleged, the Claimant's claims did not have legal viability, no procedural acts were undertaken to ascertain the facts supporting the requests, in particular regarding the methodology for calculating the amounts it intends to regularize.

(...)

V – CONCLUSION

1. In conclusion, without prior hearing of the Claimant, it is proposed that the official review request for VAT self-assessments for the years 2009 and 2011, in the amount of € 52,056.45, be dismissed.

1. On 10 July 2015, the Claimant filed the request for constitution of the arbitral tribunal, formulating the requests for pronouncement regarding the illegality of VAT self-assessments relating to fiscal years 2009 and 2011, embodied in periodic declarations of December 2009 and January to October 2011, with all legal consequences, namely the declaration of illegality and annulment of the administrative order dismissing the VAT official review request referred to above - Cf. electronic request submitted to CAAD.

III. REASONING

Regarding the factual matter, the Tribunal need not pronounce on everything alleged by the parties, being incumbent upon it instead the duty to select the facts which matter for the decision and discriminate proven from unproven matter (cfr. Article 123, paragraph 2 of CPPT and Article 607, paragraph 3 of CPC, applicable ex vi Article 29, paragraph 1, items a) and e) of RJAT).

In this way, the facts pertinent to the judgment of the case are selected and defined according to their legal relevance, which is established in view of the various plausible solutions of the legal issue(s) (cfr. former Article 511, paragraph 1 of CPC, corresponding to current Article 596, applicable ex vi Article 29, paragraph 1, item e) of RJAT).

Thus, taking into consideration the positions assumed by the parties, the documentary evidence and the PA joined to the proceedings, it was considered proven, with relevance for the decision, the facts listed above, which are moreover consensually recognized and accepted by the parties.

IV. ON THE LAW

Material incompetence: the terms of its grounding by the Tax Authority

Prior to knowledge of the merits of the request formulated by the Claimant, the Tax Authority questions the competence of the Arbitral jurisdiction regarding the matter.

At issue, for appreciation of the material competence of this Arbitral Tribunal, is solely and only to determine whether, within the factual framework described, it can or cannot be concluded regarding the binding of the Tax Authority to arbitral jurisdiction.

Basing the existence of a dilatory exception, the Tax Authority contends that the material incompetence of the Arbitral Tribunal results from the underlying cause of the dismissal of the official review request. Indeed, the administrative act leading to the dismissal of the official review request was based on the invocation of the untimeliness of the requested VAT regularization, taking position only on this matter, with no appreciation made regarding the legality of any self-assessment acts, which would result in the unsusceptibility of the act to being challenged through judicial review.

In this sense, the Tax Authority considers that the "request for arbitral pronouncement has as its immediate object the decision dismissing the official review, not having as its mediate object any tax assessment act, since in the official review procedure the legality of any assessment act was not appreciated, particularly given that only in the arbitral pronouncement did the Claimant raise such a request." Thus, with no appreciation or discussion of the legality of the assessment act due to an obstacle to such knowledge, such as for example untimeliness, judicial review would not be the appropriate procedural means.

Now, with the arbitral process being established by reference and with an object in all respects similar to the judicial review process, the review of the act in question would be outside the matters susceptible to appreciation in the arbitral sphere, resulting in material incompetence of the arbitral jurisdiction in accordance with item a) of paragraph 1 of Article 2 of RJAT, by absence of appreciation of the legality of the self-assessment act within the scope of the official review procedure.

Additionally, the Tax Authority invokes material incompetence by virtue of the failure to verify the mandatory precedence of gracious complaint, contending in summary the impossibility of knowing the Claimant's request in view of the provisions of Articles 2, paragraph 1, item a) and 4, paragraph 1, both of RJAT, and Articles 1 and 2, item a), both of Ordinance no. 112-A/2011 of 22.03 (cf. Articles 576, paragraphs 1 and 2 and 577, item a) of CPC, ex vi Article 29, paragraph 1, items a) and e) of RJAT).

Within the scope of the grounds referred to, the Tax Authority contends that the incompetence of the Arbitral Tribunals operating at CAAD to appreciate decisions dismissing official review requests results from an analysis of the literal, systematic, historical and teleological interpretative elements of Ordinance no. 112-A/2011 which binds the Tax Authority to the jurisdiction of arbitral tribunals only if the request for declaration of illegality of the self-assessment act has been preceded by recourse to the administrative remedy by means of gracious complaint.

Now, in accordance with Article 2, item a) of Ordinance 112-A/2011, the binding of the Tax Authority to the jurisdiction of the Arbitral Tribunals has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in paragraph 1 of Article 2 of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Tax Procedure and Process Code";

Accordingly, and in view of the terms of binding of the Tax Authority, in the situation at hand it was incumbent to have mandatory priority of gracious complaint in accordance with paragraph 1 of Article 131 of CPPT, on the basis that the expression "recourse to the administrative remedy" does not also reference the official review of the tax act, literally excluded from the material competence of Arbitral Tribunals and legally prohibited in the arbitral sphere.

Finally, the Tax Authority invokes the exception of material incompetence regarding the request formulated by the Claimant for condemnation of the Tax Authority for "reimbursement of VAT incurred in excess in the periods in question, in the amount of € 52,056.45". Thus, the Tax Authority contends that the scope of arbitral tax jurisdiction is delimited, in the first place, by the provisions of Article 2 of RJAT which sets forth in its paragraph 1 the criteria for material distribution of competence, covering the appreciation of claims directed to the declaration of illegality of tax assessment acts, the legislator not having chosen to contemplate the possibility of appreciation of requests aimed at the recognition of rights in tax matters.

Let us then examine the question.

Material competence of Arbitral Tax Tribunals:

The scope of arbitral tax jurisdiction results, in the first place, from the provisions of Article 2, paragraph 1 of RJAT, which sets forth the criteria for determining the material competence of arbitral tribunals in the following terms:

"The competence of arbitral tribunals comprises the appreciation of the following claims:

a) The declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account acts;

b) The declaration of illegality of acts fixing taxable matter when they do not give rise to the assessment of any tax, acts determining taxable matter and acts fixing patrimonial values;

c) Repealed (by Article 160 of Law no. 64-B/2011 of 30 December, which approved the State Budget for 2012)."

In view of this provision, it should be understood that the competence of arbitral tribunals "is restricted to activity connected with tax assessment acts, being outside its competence the appreciation of the legality of administrative acts of total or partial dismissal or revocation of exemptions or other fiscal benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax questions that do not involve appreciation of the assessment act referred to in item p) of paragraph 1 of Article 97 of CPPT".[2]

The appreciation of the arbitral tribunal's competence involves a judgment on the adequacy to the case sub judice of the procedural means of special administrative action or judicial review proceedings, in view of the provisions of Article 97 of CPPT, which proceeds with the definition of their respective fields of application distinguishing "review of administrative acts in tax matters which involve appreciation of the legality of the assessment act" (in accordance with item d) of paragraph 1) and "contentious recourse of the total or partial dismissal or revocation of exemptions or other fiscal benefits, when dependent on recognition by the tax administration, as well as other administrative acts relating to tax questions that do not involve appreciation of the legality of the assessment act" (in accordance with item p) of paragraph 1), it being that in accordance with paragraph 2 of Article 97, "contentious recourse of administrative acts in tax matters, which do not involve appreciation of the legality of the assessment act, of the Tax Administration, comprising the central government, regional governments and their members, even when practiced by delegation, is regulated by the norms on proceedings in administrative courts".

To concretize such distinction between the scope of application of these procedural means, which by virtue of item a) of paragraph 1 of Article 2 of RJAT possesses relevance in defining the competence of arbitral tax tribunals, consolidated case law orientation is as follows: "the use of the judicial review process or contentious recourse (currently special administrative action, by virtue of the provisions of Article 191 of CPTA) depends on the content of the challenged act: if it involves appreciation of the legality of an assessment act the judicial review process shall be applicable and if it does not involve such appreciation, contentious recourse/special administrative action shall be applicable".[3]

Thus, having present these basic principles, to determine the competence of the arbitral tribunal it is incumbent to ascertain the content of the challenged act, so as to verify whether it involved appreciation of an assessment or self-assessment act.

For this purpose, as results from the expression "appreciation" used in item d) of paragraph 1 of Article 97 of CPPT, it suffices that in the act in question there has been evaluation or examination of the "legality of the assessment act", even if such appreciation is not the basis of the administrative decision.[4]

Subsumption:

Now, as clearly results from the case file and from the list of proven facts, what is at issue here is the dismissal of the request for official review of VAT self-assessment, submitted by the Claimant on 30.12.2013, in accordance with the provisions of Article 78 of LGT and Article 98 of the VAT Code, requesting authorization from the Tax Authority to regularize the VAT charged in excess during the years 2009 (in the amount of € 27,081.07) and 2011 (in the amount of 24,975.28).

This request was dismissed on the ground of untimeliness, the administrative order stating, "(…) it is understood that in either situation, the four-year period provided for in paragraph 2 of Article 98 of CIVA and paragraph 1 of Article 78 of LGT is not applicable, nor even the two-year period provided for in paragraph 1 of Article 131 of the Tax Procedure and Process Code (CPPT) or in paragraph 6 of Article 78 of CIVA."

There is also found in the Information that underlies the grounds for dismissal of the official review request the following conclusion: "49. It should be noted that having been considered that, as alleged, the Claimant's claims did not have legal viability, no procedural acts were undertaken to ascertain the facts supporting the requests, in particular regarding the methodology for calculating the amounts it intends to regularize."

From the foregoing results the obvious conclusion that the Tax Authority did not appreciate the legality of the assessment.

The act which is at issue, which constitutes the immediate object of the present proceedings, is consequently and undoubtedly the decision dismissing the official review request submitted.

This decision of dismissal, in turn, concerns "official review of VAT self-assessment" and thus incides on the self-assessment acts of the tax relating to 2009 and 2011, regarding whose illegality the Claimant intends to base its right to regularization of excess VAT charged.

Accordingly, and in view of the terms of binding of the Tax Authority, in the situation at hand, it was incumbent to have mandatory priority of gracious complaint, with the consequent pronouncement on the merits of the claim presented, in the light of the provisions of paragraph 1 of Article 131 of CPPT, since and moreover the expression "recourse to the administrative remedy" does not also reference official review of the tax act[5], literally excluded from the material competence of Arbitral Tribunals and legally prohibited in the arbitral sphere.

That is, and stated in another way: we are facing an administrative act in tax matters which, by not appreciating or discussing the legality of the assessment act, cannot be subject to review through judicial review in accordance with the terms provided in item a) of paragraph 1 of Article 97 of CPPT and Article 2 of RJAT.[6]

This supports the Tax Authority's understanding regarding the issue of material incompetence of Arbitral Tribunals for appreciation of the object of this dispute.

That is: it is considered, following and with the grounds of previous decisions handed down by the Arbitral Tribunal[7], that it is not within the scope of arbitral competence to appreciate the legality or illegality of decisions dismissing VAT regularization requests presented in accordance with Article 78 of LGT, nor, as requested by the Claimant, to hand down annulment decisions of VAT self-assessment acts without precedence of appreciation of the legality of those acts by the Tax Authority in accordance with Articles 131 to 133 of CPPT.

Naturally, the grounds of the Tax Authority's decision when it concludes and decides on the dismissal of the official review request, using the argument of untimeliness of the right to regularization/deduction of excess VAT incurred during the years 2009 and 2011, may be disputable.

The truth, however, is that even if the grounds of that administrative order had eventually indicated that the fate of the request could be approval if untimeliness did not occur, this would not remove from the administrative order its nature of non-pronouncement on the merits and consequently the non-fulfillment of the necessary prerequisite for the material competence of Arbitral Tax Tribunals constituted within CAAD.

The arguments invoked by the Claimant thus have no legal support.

Regarding the material competence of arbitral tribunals for appreciation of claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative remedy in accordance with Article 131 of CPPT but solely by official review in accordance with Article 78 of LGT, reference is made here to the understanding propounded in another decision of this arbitral jurisdiction specifically Arbitral Decision no. 148/2014-T of 19 September.

The formula "declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account acts" used in item a) of paragraph 1 of Article 2 of RJAT does not restrict, in a mere declarative interpretation and as has been seen, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. Indeed, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-degree act (gracious complaint) or third-degree act (hierarchical appeal) which confirms an assessment act, incorporating its illegality.

Accordingly, the inclusion is admitted in the competencies of arbitral tribunals operating at CAAD in cases where the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of second-degree or third-degree acts which are the immediate object of the impugnatory claim, by reference to the acts of self-assessment, withholding at source and payment on account, which are expressly referred to as included among the competencies of arbitral tribunals.

On the other hand, prior pronouncement by the Tax Administration in other proceedings provided for in the Law, in particular in the process of review of tax acts provided for in Article 78 of LGT[8], would only be possibly to be considered [and there are, at minimum, strong doubts that it could be] as equivalent to the requirement provided in Article 2 of the aforementioned Ordinance no. 112-A/2011 of prior "(…) recourse to the administrative remedy in accordance with Articles 131 to 133 of the Tax Procedure and Process Code (…)" only in the case of actual and real pronouncement regarding the merits and/or illegality of the self-assessment act[9].

Now, if the fulfillment of that prerequisite could be considered independently of merit appreciation and in particular when rejected or summarily dismissed due to untimeliness, the way would thereby be found to open the arbitral avenue: it would suffice the submission of a complaint or review request manifestly out of time and, the request denied, submit the request for arbitral pronouncement without risk of inadmissibility due to material incompetence of the Arbitral Tribunal.

This was not, naturally, the objective of the legislator of the cited Ordinance when drafting the rule in question, but rather manifestly intended to exclude from arbitral jurisdiction the appreciation and decision regarding namely self-assessment of taxes without it having first been appreciated on the merits by the Tax Authority through the remedial mechanisms in accordance with Articles 131 to 133 of CPPT.

In view of the foregoing, it is considered that the Respondent is in the right, and this Arbitral Tribunal is materially incompetent to appreciate and decide the request which is the object of the dispute sub judice in accordance with Articles 2, paragraph 1, item a) and 4, paragraph 1, both of RJAT and Articles 1 and 2, item a), of Ordinance no. 112-A/2011, which constitutes a dilatory exception preventing knowledge of the merits of the case, leading to the dismissal of the proceedings in accordance with the provisions of Article 576, paragraphs 1 and 2 and 577, item a) of CPC ex vi Article 29, paragraph 1, items a) and e) of RJAT.

IV. DECISION

Weighing the grounds set forth, this Tribunal decides:

a) To uphold the exception of material incompetence raised by the Tax and Customs Authority and in consequence, dismiss the Respondent from the proceedings;

b) To uphold, in consequence, as moot the knowledge of the remaining exceptions and the substantive matter raised.

c) To condemn the Claimant to payment of costs (Article 22, paragraph 4 of RJAT), fixing these in the amount of € 2,142.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Value of the proceedings:

In accordance with the provisions of Article 306, paragraph 2 of CPC and Article 97-A, paragraph 1, item a) of CPPT and Article 3, paragraphs 1 and 2 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings is fixed in value at € 52,056.45.

Lisbon, 26 January 2016

The Arbitrator

(Filipa Barros)

[1] Acronym for Legal Regime for Tax Arbitration.

[2] See Jorge Lopes de Sousa, Commentary on the Legal Regime for Tax Arbitration in Guide to Tax Arbitration, Almedina, 2013, p. 105.

[3] See Judgment of the STA of 25.6.2009, case no. 0194/09.

[4] In this sense, the arbitral decision of 06.12.2013 handed down in case no. 117/2013-T.

[5] As will be stated infra, it may be disputable the equivalence of the pronouncement by the Tax Authority in the sphere of gracious complaint to the pronouncement for example in the sphere of the official review procedure provided for in Article 78 of LGT.

[6] Cf. Judgment of the STA of 12-7-2006, case no. 402/06, in which it is stated that the review procedure "is admitted as a complement to the remedial means administrative and contentious of those acts to be raised within the respective normal deadlines, which is intended to enable remedy injustices of taxation both in favor of the taxpayer and in favor of the administration. Essentially, the regime of Article 78, when the review request is formulated beyond the deadlines for administrative and contentious remedy, comes down to a means of restitution of amounts unduly paid, with revocation and cessation for the future of the effects of the assessment act, and not an annulment means with retroactive destruction of the effects of the act. In this light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of an assessment act but rather as an alternative means to the administrative and contentious remedial means (when used at a time when those can still be used) or supplementary to them (when the deadlines for using the remedial means of the assessment act have already been exhausted). This is a regime strongly guarantistic when compared with the regime for reviewing administrative acts, but this effort finds explanation in the strongly aggressive nature in relation to the legal sphere of individuals inherent in acts of tax assessment.

And, continues that judgment, (…) although Article 78 of LGT, regarding review of the act on the initiative of the taxpayer, refers only to that which takes place within "the period of administrative complaint" in paragraph 6 of the same article (in the original wording, which is paragraph 7 in current wording) reference is made to "request of the taxpayer" for the performance of official review which reveals that this despite the impropriety of the designation as "official" may also have underlying it the initiative of the taxpayer. Identical reference is made in paragraph 1 of Article 49 of LGT which speaks of "request for official review" and in item a) of paragraph 4 of Article 86 of CPPT which refers to the submission of "request for official review of the tax assessment with the basis in error attributable to the services." It is thus indisputable that is admitted alongside the so-called review of the act on the initiative of the taxpayer (within the period of administrative complaint) that is also done in the sequence and on his initiative the "official review" (which the Administration must perform on its own initiative). On the other hand, item d) of paragraph 2 of Article 95 of LGT refers to acts of dismissal of review requests among potentially injurious acts that are susceptible to being challenged contentiously. No distinction is made here between acts of dismissal practiced as a result of a request by the taxpayer made within the period of administrative complaint or beyond it whereby the contentious challengeability to acts of dismissal of review requests practiced in either situation which moreover is a corollary of the constitutional principle of contentious challengeability of all acts that injure the rights or legitimate interests of the administered (Article 268, paragraph 4 of CRP).

[7] In this sense, there is extensive case law emanating from the Arbitral Tribunal, being indicated by way of merely exemplary some of the following decisions: Arbitral Proceedings no. 236/2013-T, no. 244/2013-T, no. 148/2014-T, no. 613/2014-T in www.caad.org.pt

[8] Now in cases where an official review request is formulated for a self-assessment act as occurs in the case at hand is provided to the Tax Authority with this request an opportunity to pronounce on the merits of the claim of the taxable person before it has recourse to the jurisdictional avenue whereby in coherence with the solutions adopted in paragraphs 1 and 3 of Article 131 of CPPT cannot be required that cumulatively with the possibility of administrative appreciation within the scope of that official review procedure one requires a new administrative appreciation through gracious complaint (cf. in this sense the Judgments of the Supreme Administrative Court of 12-7-2006 handed down in case no. 402/06 and of 14-11-2007 case no. 565/07 in http://www.dgsi.pt/)

[9] Just as has already been understood in diverse decisions of arbitral tribunals of this CAAD (cf. for example the decisions of 06/12/2013 handed down in case no. 117/2013-T and of 23/10/2012 case no. 73/2012-T where other case law is cited) and without disregarding although the existence of contrary understanding (see the decision of 09/11/2012 case no. 51/2012-T) this tribunal also understands that should be considered included in the competencies attributed to arbitral tribunals the appreciation of acts of dismissal of official review requests for self-assessment acts since on one hand the formula "declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account acts" used in item a) of paragraph 1 of Article 2 of RJAT comprises both cases where an act of one of those types is directly challenged as cases where a second-degree act is challenged that maintains an assessment act without declaring its illegality and on the other hand the content of item a) of Article 2 of Ordinance no. 112-A/2011 of 22 March to which paragraph 1 of Article 4 of RJAT refers should not be interpreted in attention to its ratio legis in the sense of excluding the dismissal of a request for official review given that in official review is provided to the Tax Administration the opportunity to pronounce on the merits of the claim of the taxable person before it has recourse to the jurisdictional avenue it not being reasonable that cumulatively with the possibility of administrative appreciation within the scope of that official review procedure one should require a new administrative appreciation through gracious complaint whereby one cannot justify removing the jurisdiction of arbitral tribunals operating at CAAD in cases where a request for official review is formulated without prior gracious complaint with which would be created without sufficient foundation a new situation of mandatory gracious complaint exclusive to arbitral jurisdiction. However it is emphasized not sufficing to be proven prior recourse to the administrative remedy by whatever of the means mentioned it is also absolutely necessary to prove that there was actual and real pronouncement by the Administration of the merits of the requests a prerequisite which for the purposes of competence of the Arbitral Tribunal is not fulfilled when and if that appreciation of legality was summarily denied by for example untimeliness of the request for official review.