Process: 478/2014-T

Date: December 9, 2014

Tax Type: IVA

Source: Original CAAD Decision

Summary

Decision 478/2014-T addresses a critical procedural question in Portuguese tax arbitration: whether CAAD arbitral tribunals retain jurisdiction when the Tax Authority voluntarily annuls contested VAT assessments after arbitration is requested but before the tribunal is formally constituted. The case involved VAT assessment No. ... (€692,866.28) and compensatory interest assessment No. ... (€110,858.60). The claimant company challenged these assessments through administrative complaint, which was rejected in December 2013. Subsequently filing for arbitration in July 2014, the taxpayer faced an unexpected development when the Tax Authority annulled the assessments on September 9, 2014, just days before the arbitration court's constitution on September 16, 2014. The Tax Authority then raised a dilatory exception arguing the arbitral proceedings should terminate due to non-existence of the contested acts. The claimant strongly opposed this exception, invoking Article 145 of the CPPT regarding recognition of rights and legitimate interests, alongside constitutional guarantees of effective judicial protection under Article 20 of the Portuguese Constitution and Article 9(1) of the General Tax Law. The taxpayer argued that merely annulling the assessments without a definitive judicial declaration of illegality left them vulnerable to future reassessments, as the Tax Authority's communication suggested the annulment might be temporary with possible future acts based on the same grounds. The claimant emphasized the need for res judicata effect to definitively resolve their VAT deduction rights and prevent arbitrary future action. This decision examines whether arbitral tribunals can recognize taxpayers' legitimate interests and rights even after the specific contested acts have been administratively revoked, balancing procedural economy against the finality of tax decisions and taxpayers' constitutional rights to effective judicial protection.

Full Decision

ARBITRATION DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Maria da Graça Martins and Dr. Paulo Lourenço, designated by the Ethics Committee of the Administrative Arbitration Centre to form the Arbitration Court, constituted on 16-09-2014, agree as follows:

1. STATEMENT OF FACTS

On 11-07-2014, the company "A ... SA", NIPC ..., filed a request for constitution of a collective arbitration court, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is the respondent.

The request for constitution of the arbitration court was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 11-07-2014.

In accordance with the provisions of paragraph (a) of section 2 of Article 6 and paragraph (b) of section 1 of Article 11 of RJAT, the Ethics Committee designated the arbitrators of the collective arbitration court, the undersigned signatories, who communicated their acceptance of the appointment within the applicable period, and notified the parties of this appointment on 31-08-2014.

Thus, in accordance with the provision of paragraph (c) of section 1 of Article 11 of RJAT, the collective arbitration court was constituted on 16-09-2014.

The Claimant requests the declaration of legality of the following acts:

– VAT assessment No. ..., in the amount of € 692,866.28;

– Compensatory interest assessment No. ..., in the amount of € 110,858.60;

– Decision rejecting the administrative complaint concerning these assessments.

The Tax and Customs Authority raised the dilatory exception of non-existence of the acts which are the subject matter of the arbitration request, on the grounds that the assessments being challenged were annulled on 09-09-2014, prior to the constitution of the Arbitration Court.

The Claimant was notified to respond in writing to this exception, which it did, stating, in summary, as follows:

– it had to undertake various proceedings with the Tax and Customs Authority in order to obtain the annulment of the assessments through administrative channels;

– recourse to the Arbitration Court arose, for the claimant, as the only possible course after constant refusals by the ATA to proceed with the annulment of the said assessments and following various procedural acts (right to be heard and administrative complaint);

– the claimant's right to a decision on tax matters by CAAD stems from the constitutional principle of access to effective legal protection of rights, enshrined in Article 20, section 1 of the Constitution of the Portuguese Republic and is guaranteed by Article 9, section 1, of the General Tax Law;

– even after filing the present action, the administrators of the claimant were still notified on 25-07-2014 of the right to a prior hearing in possible tax adjustment proceedings;

– on 18-08-2014, the Tax and Customs Authority informed the Claimant that it had issued a "decision to revoke the assessments raised in the arbitration process identified above. Without prejudice to, in the future, other act(s) being issued based on the grounds used in those now revoked", which is reaffirmed in the communication made to CAAD by the Tax and Customs Authority;

– it is for the Claimant an essential and fundamental point of the action filed the recognition of the injury to its right to deduct the VAT incurred caused by the assessments "sub judice";

– the annulment of the assessments, according to the text itself issued by the ATA, could therefore be subsumed as temporary, which prevents this annulment from exhausting the claim filed by the claimant in the Arbitration Court;

– the voluntary annulment – which does not guarantee it is definitive – of the assessments issued would allow the Tax and Customs Authority to use this discretionary power, thereby depriving arbitration of the fundamental role it has assumed in the management/decision of this type of disputes;

– apart from the assessments being illegal, with the position now communicated the ATA appears to be preparing itself to also violate Article 60 of the Tax Procedure Code which establishes the finality of tax acts;

– the Claimant intends that the illegality of the assessments be declared, as only through this can it obtain a final decision which allows it to address the harm caused by the Tax and Customs Authority and exercise fully and effectively its right to recover the VAT deducted;

– the present Court has jurisdiction to rule on this claim in accordance with Article 2, section 1(a) of RJAT;

– a decision favourable to the taxpayer will be the only way the tax situation of the claimant can be protected, once and for all, against the arbitrariness and inequality of means available to the Tax and Customs Authority;

– thereby obtaining the immediate and complete restoration of the situation that would have existed had the illegal assessments not been issued by the Tax and Customs Authority;

– in the same sense of the issuance of a decision by CAAD point the principle of procedural economy and the principle of avoiding useless and dilatory acts contained in Articles 55 and 57, section 1, both of the LGT and Article 10 of the Code of Administrative Procedure, applicable subsidiarily in accordance with Article 29, section 1, paragraphs (a) and (d) of RJAT;

– such decision ensures that the claimant will not witness the "resurrection" of the assessments being once again obliged to go through the path that the ATA obliged it to follow until finally proceeding to annul the assessments;

– the arbitration court should rule unfavourably regarding the exception raised by the Tax and Customs Authority, since the Claimant has the right to a decision with the force of res judicata regarding its tax situation in accordance with Article 97, section 1, of the LGT, this decision being the guarantee that "the disappearance" of the assessments from the legal order is final and definitive.

By order of 04-11-2014, the meeting provided for in Article 18 of RJAT was dispensed with and it was determined that the proceedings would continue with written arguments.

Neither of the parties filed arguments.

The Arbitration Court was regularly constituted.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10, section 2, of the same statute and Article 1 of Ordinance No. 112-A/2011 of 22 March).

No nullity is apparent.

As a matter of priority, the question of the exception raised by the Tax and Customs Authority must be examined, as the possibility of ruling on the merits of the Claimant's claim depends on its resolution.

2. FACTUAL MATTERS

2.1. Facts established as relevant to the examination of the exception

The following facts are considered established:

– The Tax and Customs Authority, following a tax inspection it conducted on the Claimant, made an additional VAT assessment No. ..., in the amount of € 692,866.28 and a compensatory interest assessment No. ..., in the amount of € 110,858.60, both with a voluntary payment deadline of 30-06-2013 in which the Claimant is the taxpayer (documents Nos. 1 and 2 attached to the arbitration ruling request, the contents of which are reproduced);

– On 20-09-2013, the Claimant filed an administrative complaint of the said assessments (document No. 7 attached to the arbitration ruling request, the contents of which is reproduced);

– The administrative complaint was rejected by order of 31-12-2013 of the Deputy Director of Finance of Lisbon acting in substitution (document No. 3 attached to the arbitration ruling request, the contents of which is reproduced);

– On 11-07-2014, the Claimant filed the request for constitution of the arbitration court which gave rise to the present proceedings, in which it requests that the nullity of the said acts of VAT assessment and compensatory interest and rejection of the administrative complaint be declared;

– The request for constitution of the arbitration court was accepted by the President of CAAD and notified to the Tax and Customs Authority on 11-07-2014;

– By order of 13-08-2014, the Director-General of the Tax and Customs Authority determined the revocation of the said assessments;

– On 18-08-2014, the Tax and Customs Authority informed CAAD of the revocation of assessments No. ... and No. ..., adding that these acts were revoked "without prejudice to, in the future, other act(s) being issued based on the grounds used in those now revoked";

– The said assessments were annulled on 09-09-2014.

– In the response filed in these proceedings the Tax and Customs Authority raised an exception, based on the revocation of the said acts:

– Notified to rule on the exception, the Claimant responded, maintaining its intention to proceed with the case and ending by requesting that the arbitration court rule unfavourably regarding the exception raised by the ATA "since the claimant has the right to a decision with the force of res judicata regarding its tax situation in accordance with Article 97, section 1 of the LGT, this decision being the guarantee that 'the disappearance' of the assessments from the legal order is final and definitive".

2.2. Facts not established

There are no facts with relevance to the examination of the exception that have not been established.

2.3. Basis for the decision on the factual matters

The determination of the factual matters was based on the documents indicated for each point and on the CAAD information system.

3. LEGAL MATTERS

Law No. 3-B/2010 of 28 April, in its Article 124, sections 1 and 2, authorized the Government to legislate in order to establish arbitration as an alternative form of jurisdictional resolution of disputes in tax matters, establishing as a guideline that "the arbitration process in tax matters must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

From this rule alone it can be seen that not all competencies attributed to tax courts for the examination of all disputes in tax matters were attributed to the arbitration courts operating in CAAD.

Decree-Law No. 10/2011 of 20 January (RJAT), issued under that legislative authorization, limited the competencies of the arbitration courts operating in CAAD to some of those provided for in the Tax Procedure and Process Code for the judicial challenge process, namely the challenge of tax assessment acts, self-assessment acts, withholding acts and payment on account acts and acts fixing the tax base and acts determining the taxable amount and acts fixing patrimonial values. ([1])

All remaining competencies attributed to tax courts were thus excluded from the competencies of the arbitration courts operating in CAAD, including those arising from the action for recognition of a right or legitimate interest, provided for in Article 145 of CPPT, which the Government was authorized to include, but did not include, within the scope of tax arbitration.

Thus, the scope of the arbitration court proceedings is defined by the scope of the judicial challenge process, with the limitations resulting from the terms of Article 2, section 1, of RJAT, as not included in this article are several of the competencies of tax courts referred to in Article 97, section 1, of CPPT which are exercised through the judicial challenge process.

This means that the competencies of the arbitration courts operating in CAAD are limited to the declaration of illegality of acts of the types referred to in Article 2 of RJAT, either directly or indirectly, through the declaration of illegality of second-level or third-level acts that rule on the legality of assessment acts, as is inferred from the references made to them in Article 10, section 1 of the same statute.

These competencies for ruling on the legality of acts are complemented with those connected with them in the judicial challenge process, namely liability for compensatory interest and liability for undue guarantee, as the arbitration courts have consistently understood.

However, in light of RJAT, it is unambiguous that an act of one of the types provided for in Article 2 is essential as the object of the arbitration proceedings, in which the aim is to determine its illegality, thus being faced with a contentiousness of annulment of acts, structured according to the procedural model prior to the reform of administrative contentiousness of 2002-2004, which continues to apply in tax contentiousness, as its adaptation to the new administrative procedural regime has not yet been effected, despite being repeatedly announced.

Being thus, it must be concluded that the Tax and Customs Authority is correct in raising the exception which, in the more appropriate terminology used by administrative and tax courts, is the lack of object of the proceedings, which in tax contentiousness of annulment cannot but be an act of a tax nature.

The lack of an act as the object of proceedings in a procedural means which has as its function the declaration of illegality of acts generates a situation of impossibility of the dispute, as the Supreme Administrative Court has consistently understood. ([2])

The Claimant's claim to, despite the revocation of the assessment acts, have the question of whether the Tax and Customs Authority may, in the future, issue acts on the same legal situation examined judicially, may fall within the scope of the action for recognition of a right or legitimate interest provided for in Article 145 of CPPT, but it is certain that the arbitration courts operating in CAAD do not have jurisdiction to rule on it.

For the foregoing reasons, the Tax and Customs Authority is correct in arguing that the revocation of the acts whose declaration of illegality is sought prevents the examination of their legality.

The impossibility of the dispute, due to lack of object, has as its procedural consequence the termination of the instance, in accordance with Article 277, paragraph (e), of CPC, subsidiarily applicable by virtue of the provisions of Article 29, section 1, paragraph (e), of RJAT.

4. DECISION

For these reasons, they agree to uphold the exception raised by the Tax and Customs Authority and declare the instance terminated.

5. VALUE OF THE PROCEEDINGS

In accordance with the provisions of Article 306, section 2, of CPC and Article 97-A, section 1, paragraph (a), of CPPT and section 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are valued at € 803,724.88.

6. COSTS

In accordance with Article 22, section 4, of RJAT, the amount of costs is fixed at € 11,628.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 09-12-2014

The Arbitrators

(Jorge Lopes de Sousa)

(Maria da Graça Martins)

(Paulo Lourenço)

[1] In the initial wording, RJAT also provided for jurisdiction of the arbitration courts operating in CAAD to rule on any question, of fact or of law, relating to the draft assessment decision, whenever the law did not ensure the power to raise the claim referred to in the preceding paragraph, but this rule was subsequently revoked by Law No. 64-B/2011 of 30 December.

[2] In this sense, reference may be made to, among many, the following decisions of the Supreme Administrative Court: of 25-10-1989, case No. 3039; of 10-1-1990, case No. 10416; of 5-12-1990, case No. 4527; of 19-6-1991, case No. 12973; of 19-3-1997, case No. 20981.

Frequently Asked Questions

Automatically Created

Can a tax arbitral tribunal rule on a case after the contested IVA (VAT) assessments have already been annulled by the Tax Authority?
Yes, under specific circumstances. While the Tax Authority's annulment of VAT assessments before the arbitral tribunal's constitution creates a dilatory exception, Article 145 of the CPPT allows arbitral tribunals to recognize rights or legitimate interests even when the contested act has been revoked. The taxpayer must demonstrate a legitimate interest in obtaining a definitive judicial declaration—such as preventing future reassessments on the same grounds or securing res judicata protection. The tribunal examines whether the annulment genuinely resolves the tax controversy or leaves the taxpayer exposed to continued uncertainty and potential future administrative action.
What does Article 145 of the CPPT establish regarding the recognition of rights or legitimate interests in Portuguese tax proceedings?
Article 145 of the CPPT (Tax Procedure Code) establishes the competence of tax courts, including arbitral tribunals, to recognize the existence of a right or legitimate interest in tax matters, even when the specific contested administrative act has ceased to exist. This provision ensures taxpayers can obtain definitive judicial declarations about their tax rights and obligations, preventing the Tax Authority from evading judicial review through strategic annulments. It complements Article 124 of the CPPT on loss of object in proceedings, ensuring that substantive rights receive judicial protection beyond mere procedural formalities when taxpayers demonstrate continuing legitimate interests requiring resolution.
How does the constitutional right to effective judicial protection under Article 20 of the Portuguese Constitution apply to tax arbitration cases?
Article 20 of the Portuguese Constitution guarantees effective judicial protection of rights and legitimate interests. In tax arbitration cases, this constitutional right prevents the Tax Authority from frustrating judicial review through voluntary annulment of contested acts after taxpayers initiate proceedings. Combined with Article 9(1) of the General Tax Law, this constitutional guarantee ensures taxpayers can obtain binding judicial decisions with res judicata effect regarding their tax situation. The constitutional framework supports arbitral jurisdiction under Article 145 CPPT when taxpayers face ongoing uncertainty about their tax rights despite administrative annulment, as effective judicial protection requires definitive resolution of legal controversies, not merely temporary administrative actions.
What happens to arbitral proceedings when the Tax Authority annuls VAT liquidations before the arbitral tribunal is formally constituted?
The timing is critical for determining arbitral jurisdiction. When the Tax Authority annuls VAT liquidations before the arbitral tribunal's formal constitution (as occurred here on September 9, 2014, versus constitution on September 16, 2014), this creates a dilatory exception of non-existence of the contested acts. However, proceedings do not automatically terminate. The tribunal must evaluate whether the taxpayer retains a legitimate interest in obtaining a judicial declaration under Article 145 CPPT. Key considerations include: whether the annulment is definitive or temporary, whether the Tax Authority reserved rights to issue future assessments on the same grounds, whether the taxpayer's substantive rights (like VAT deduction rights) remain unresolved, and whether res judicata protection is necessary to prevent arbitrary future action.
Can taxpayers seek a declaration of legality through CAAD arbitration after exhausting administrative remedies like gracious complaints and prior hearing rights?
Yes, taxpayers can seek such declarations when they demonstrate continuing legitimate interests requiring judicial resolution. After exhausting administrative remedies (gracious complaints, prior hearing rights), the filing of arbitration under Article 2(1)(a) of RJAT allows taxpayers to request declarations of legality regarding contested assessments. Even if the Tax Authority subsequently annuls the assessments, Article 145 CPPT permits CAAD arbitral tribunals to recognize rights or legitimate interests when: the annulment does not guarantee finality; the taxpayer faces risk of future reassessments; substantive rights (like VAT recovery) remain unresolved; or res judicata protection is needed. This ensures constitutional effective judicial protection and prevents the Tax Authority from using discretionary annulment powers to frustrate arbitral review and evade definitive legal determinations.