Process: 48/2018-T

Date: October 9, 2018

Tax Type: ISV

Source: Original CAAD Decision

Summary

This arbitral decision from CAAD (Process 48/2018-T) addresses a jurisdictional question regarding ISV (Imposto Sobre Veículos - Vehicle Tax) exemption benefits for new residents in Portugal. Two claimants, A and B, challenged the Tax Authority's denial of ISV exemption requests for vehicles imported from Ukraine, arguing their residence period should be counted from the issuance of their Residence Authorizations on February 5, 2016. The initial exemption requests, filed in July 2016 with the Customs Office, were denied in January 2017. Following the dismissal of hierarchical appeals by the Deputy Director-General in October 2017, the claimants sought arbitration at CAAD, requesting annulment of the denial decisions and granting of the tax benefit valued at €70,000. However, the arbitral tribunal raised sua sponte the question of its material jurisdiction to decide the case. According to Article 2 of the RJAT (Legal Regime of Arbitration in Tax Matters), tax arbitration jurisdiction is limited to specific matters, primarily concerning illegality of tax assessment acts and certain procedural acts. The tribunal analyzed whether disputes regarding ISV exemption benefits fall within CAAD's competence, as these involve decisions on tax benefit applications rather than tax assessments themselves. The decision examines the scope of Decree-Law 10/2011, which implemented tax arbitration with more restricted scope than initially authorized, specifically excluding alternative jurisdiction over actions for recognition of rights. This case illustrates the fundamental importance of determining arbitral jurisdiction before examining substantive issues in Portuguese tax disputes, particularly regarding administrative decisions on tax benefits versus traditional assessment acts.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Taborda da Gama and Marisa Isabel Almeida Araújo, designated by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 5 February 2018, A..., taxpayer no. ..., and B..., with residence at Rua ..., no. ...-..., ...-... Odivelas, filed a request for constitution of an arbitral tribunal, pursuant to the joint provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the annulment of acts of dismissal issued by the Deputy Director-General of the Tax and Customs Authority, dated 31-10-2017, of the Hierarchical Appeals filed on 27-04-2017 with the DSIECIV of AT, following the dismissal orders issued on 04-01-2017 by the Director of the Customs Office of ..., of the requests for ISV exemption filed on 18-07-2016 and 07-07-2016 respectively, with the Customs Office of ..., and the grant of said tax benefit in the amount of €70,000.00.

To support their request, the Claimants allege, in summary, that the period of residence of the Claimants should be counted from the issuance of their respective Residence Authorizations, that is, from 5 February 2016, and therefore the said orders should be revoked as contrary to law.

On 06-02-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to AT.

The Claimants did not proceed to appoint an arbitrator, and therefore, pursuant to the provisions of item a) of article 6(2) and item a) of article 11(1) of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 27-03-2018, the parties were notified of these designations and did not manifest the intention to object to any of them.

In accordance with the provisions of item c) of article 11(1) of the RJAT, the collective Arbitral Tribunal was constituted on 16-04-2018.

On 16-05-2018, the Respondent, duly notified for this purpose, filed its response, defending itself solely by way of objection.

Pursuant to the provisions of items 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.

Having been granted a period for the submission of written arguments, these were submitted by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

The Tribunal raised, of its own motion, the question of its material jurisdiction to decide the present case, and the parties were afforded the opportunity to exercise their right to be heard, which was done by the Respondent, contending that the lack of jurisdiction should be upheld.

The Arbitral Tribunal is duly constituted, in accordance with articles 2(1, item a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings are not affected by any nullities.

Having considered all of the above, it behoves us to decide as follows:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

On 7 July 2017, B... filed with the Customs Office of ... a request for a tax benefit formulated pursuant to article 58 of the Code of Tax on Vehicles (CISV) approved by Law no. 22-A/2017, of 29 June, for the definitive importation of a vehicle of the brand ..., registration ..., coming from Ukraine.

A..., requested on 18 July 2016, from the same Customs Office, a tax benefit on the same terms, for the definitive importation of a vehicle of the brand..., final Ukrainian registration ....

By orders dated 04-01-2017 and issued by the Director of the Customs Office in service memoranda no. .../.../2017, of 03-01-2017 and .../... /2017 (ISV), of 04-01-2017, the requested exemptions were denied and the benefit requests were dismissed.

By Official Letters no. ISV-.../2017 of 02-01-2017, no.-.../2017, of 07-03-2017, no. ISV-.../2017, of 05-01-2017 and no. ISV-.../2017, of 07-03-2017, the Claimants were notified of their respective decisions.

From the aforementioned decisions, the Claimants filed Hierarchical Appeals, on 27-04-2017 and 07-04-2017 respectively.

These were dismissed, upholding the appealed decisions, on 31-10-2017 by orders dismissing the hierarchical appeals issued by the Deputy Director-General, issued respectively in Memorandum no. DIV/.../2017, of 28-09-2017 and Memorandum no. DIV .../2017, of 27.10.2017, and the Claimants were notified of these decisions through Official Letters no..., of 02-11-2017, and no..., of 02-11-2017.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Grounds for the Factual Matters Proven and Not Proven

Regarding the factual matters, the Tribunal need not pronounce on everything alleged by the parties; rather, it is incumbent upon it to select the facts that matter for the decision and to distinguish between proven and unproven factual matters (cf. article 123(2) of the CPPT and article 607(3) of the CPC, applicable by virtue of article 29(1, items a) and e) of the RJAT).

Thus, the facts pertinent to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal issue(s) (cf. former article 511(1) of the CPC, corresponding to the present article 596, applicable by virtue of article 29(1, item e) of the RJAT).

Accordingly, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the administrative file attached to the case, the facts listed above were considered proven, with relevance to the decision.

B. ON THE LAW

Prior to examining the merits of the case, it is necessary to assess the jurisdiction of arbitral tribunals in tax matters, functioning within CAAD, to decide it.

Article 124 of Law no. 3-B/2010, of 28 April, authorized the Government to legislate "in order to establish arbitration as an alternative form of jurisdictional resolution of disputes in tax matters", so that the tax arbitral process would constitute an alternative procedural means to judicial challenge proceedings and to actions for the recognition of a right or legitimate interest in tax matters.

Decree-Law no. 10/2011, of 20 January (RJAT), implemented the aforementioned legislative authorization with a more restricted scope than initially foreseen, not contemplating in particular an alternative jurisdiction to that of actions for the recognition of a right or legitimate interest in tax matters, and "established tax arbitration limited to certain matters, listed in its article 2", making the binding of the Tax Administration dependent on "an ordinance by the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered"[1].

The scope of tax arbitral jurisdiction is thus delimited, in the first place, by the provisions of article 2 of the RJAT, which sets forth in its section 1 the criteria for material division of jurisdiction, encompassing the examination of claims directed at the declaration of:

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

b) illegality of acts establishing the taxable matter when it does not give rise to the assessment of any tax, of acts determining the taxable income and of acts fixing asset values.

Given the voluntary nature of submission to arbitral jurisdiction, in a second place "the jurisdiction of arbitral tribunals functioning under CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, concretized in Ordinance no. 112-A/2011, of 22 March, since article 4(1) of the RJAT establishes that 'the binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance by the members of the Government responsible for the areas of finance and justice'"[2].

Ordinance no. 112-A/2011, of 22 March, provides in its article 2 that "The services and bodies referred to in the previous article bind themselves to the jurisdiction of arbitral tribunals functioning at CAAD which have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in section 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:...", indicated in the subsequent items of the same article, which includes in item c), for what concerns the case at hand, "Claims relating to customs duties on imports and other indirect taxes levied on goods subject to import duties;".

The same Ordinance, in its first article, as indicated by AT, binds:

"the following services of the Ministry of Finance and Public Administration:

a. The General Directorate of Taxes (DGCI); and

b. The General Directorate of Customs and Special Excise Duties (DGAIEC)".

Thus, in accordance with the applicable legal instruments indicated, only the Tax and Customs Authority, as the successor to the following services of the Ministry of Finance and Public Administration, is subjectively bound to the jurisdiction of arbitral tribunals in tax matters functioning at CAAD:

a) The General Directorate of Taxes (DGCI); and

b) The General Directorate of Customs and Special Excise Duties (DGAIEC).

Objectively, the binding to arbitral tribunals in tax matters functioning at CAAD, as stated above, is delimited in accordance with article 2 of the RJAT, read together with article 2 of Ordinance no. 112-A/2011, of 22 March.

For this purpose, it must be recalled that, as is well known, Portuguese tax litigation still proceeds from an objectivist matrix, being structured, broadly speaking, as a "proceeding on a (tax) act", and, as follows from article 2 of the RJAT itself, arbitral tax litigation does not depart from such matrix. That is, in short, tax litigation, including arbitral, typically and as occurs in the case at hand, has as its object a tax act whose legality must be scrutinized, and does not aim at full, or even limited, protection of all types of legal relations that may arise between the tax administration and taxpayers.

In this framework, to assess, then, the material jurisdiction of arbitral tribunals in tax matters functioning at CAAD, one must determine whether the issue concerns the examination of the legality of one or more of the acts comprised in the delimited scope resulting from the articulation of articles 2 of the RJAT and 2 of Ordinance 112-A/2011.

In the present case, the Claimants seek the annulment of acts of dismissal issued by the Deputy Director-General of the Tax and Customs Authority, dated 31-10-2017, of the Hierarchical Appeals filed on 27-04-2017 with the DSIECIV of AT, following the dismissal orders issued on 04-01-2017 by the Director of the Customs Office of ..., of the requests for ISV exemption filed on 18-07-2016 and 07-07-2016 respectively, with the Customs Office of ..., and the grant of the said tax benefit.

As is evident, the acts in question do not correspond to any of the types listed in article 2 of the RJAT, and, as seen above, Decree-Law no. 10/2011, of 20 January, implemented the legislative authorization that legitimated it with a more restricted scope than initially foreseen, not contemplating in particular an alternative jurisdiction to that of actions for the recognition of a right or legitimate interest in tax matters, which would be necessary to admit claims for recognition of tax benefits as formulated by the Claimants (cf., in the sense of lack of jurisdiction in a similar case, arbitral proceeding 459/2014-T[3]).

Furthermore, the Claimants' claims concern "customs duties on imports and other indirect taxes levied on goods subject to import duties", and therefore, also in accordance with item c) of article 2 of Ordinance no. 112-A/2011, of 22 March, the examination of the Claimants' claims would be barred to arbitral tribunals in tax matters functioning under the aegis of CAAD.

Having regard to the foregoing, this arbitral tribunal has nothing left but to declare its lack of material jurisdiction to decide the case, which precludes examination of the remaining issues raised in the proceedings.

This is a matter of absolute lack of jurisdiction (cf. article 96 a) of the Code of Civil Procedure), to be raised of its own motion (cf. article 97(1) of the Code of Civil Procedure), and which entails the dismissal of the action (cf. article 99(1) of the Code of Civil Procedure).

C. DECISION

For these reasons, it is decided that this Arbitral Tribunal is materially lacking in jurisdiction to decide the present dispute, pursuant to article 2 of the RJAT, and consequently, the Respondent is absolved of the action and the Claimants are condemned to pay the costs of the proceedings.

D. Value of the Proceedings

The value of the proceedings is fixed at €79,000.00, in accordance with article 97-A(1, a) of the Tax Procedure and Process Code, applicable by virtue of items a) and b) of article 29(1) of the RJAT and section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimants, since the petition was entirely unsuccessful, in accordance with articles 12(2) and 22(4), both of the RJAT, and article 4(4) of the aforementioned Regulation.

Let notification be made.

Lisbon, 9 October 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(João Taborda da Gama)

The Arbitrator Member

(Marisa Isabel Almeida Araújo)

[1] As amended by Law no. 64-B/2011, of 30 December.

[2] Extract from Arbitral Decision, proceeding no. 48/2012.

[3] Available at: https://caad.org.pt/tributario/decisoes/decisao.php?s_isv=1&s_processo=&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=importação&id=836.

Frequently Asked Questions

Automatically Created

What is the ISV (Imposto Sobre Veículos) tax exemption benefit for residents in Portugal?
The ISV exemption benefit for residents in Portugal, provided under Article 58 of the Vehicle Tax Code (CISV), allows individuals establishing residence in Portugal to import personal vehicles from abroad without paying the substantial vehicle tax (ISV). To qualify, applicants must demonstrate they meet specific residence requirements, including the timing and duration of their residence status. The exemption is designed to facilitate the relocation of individuals to Portugal by reducing the tax burden on importing their personal vehicles. However, the Tax Authority strictly interprets the residence period requirements, often denying applications where the residence status is deemed insufficiently established at the time of importation.
Does the CAAD arbitral tribunal have competence to decide on ISV tax benefit disputes?
The CAAD arbitral tribunal's competence to decide ISV tax benefit disputes is limited and questionable. According to Article 2 of the RJAT (Decree-Law 10/2011), tax arbitration jurisdiction primarily covers illegality of tax assessment acts, self-assessment, withholding, and payment on account. ISV exemption benefit decisions are administrative acts determining eligibility for tax benefits rather than tax assessment acts themselves. The tribunal raised sua sponte the jurisdictional question in this case, indicating potential lack of material competence. The scope of tax arbitration was intentionally restricted when implemented, excluding actions for recognition of rights or legitimate interests. Therefore, disputes regarding denial of ISV exemptions may fall outside CAAD's jurisdiction, potentially requiring resolution through administrative courts instead.
How is the start date of residence determined for ISV exemption purposes in Portugal?
For ISV exemption purposes, determining the start date of residence in Portugal is critical and contentious. In this case, the claimants argued their residence period should be counted from the issuance of their Residence Authorizations on February 5, 2016. However, the Tax Authority typically applies stricter criteria beyond mere administrative authorization. The interpretation involves analyzing when effective residence was established, considering factors beyond formal documentation. Portuguese tax law requires demonstrating actual residence establishment, not just bureaucratic approval. The timing is crucial because the exemption under Article 58 of the CISV requires the vehicle importation to occur within specific timeframes relative to establishing residence. Disputes frequently arise when there is a gap between receiving residence authorization and actual relocation or vehicle importation.
What is the procedure for appealing an ISV exemption denial through hierarchical recourse to the Portuguese Tax Authority?
The procedure for appealing an ISV exemption denial involves a two-tier administrative process before seeking judicial or arbitral review. First, when the Customs Office denies an ISV exemption request (as occurred here in January 2017), the taxpayer must file a hierarchical appeal (recurso hierárquico) with the Tax Authority within the legal deadline. This appeal is directed to superior administrative authorities within the Tax and Customs Authority structure. In this case, the claimants filed hierarchical appeals in April 2017 to the DSIECIV of AT. Second, if the hierarchical appeal is dismissed by the Deputy Director-General (as occurred in October 2017), taxpayers may then seek judicial review through administrative courts or potentially through tax arbitration at CAAD, though jurisdictional limitations may apply. The entire administrative process must be exhausted before accessing arbitral or judicial remedies.
Can taxpayers challenge the rejection of an ISV vehicle tax exemption of €70,000 through tax arbitration at CAAD?
Challenging rejection of an ISV vehicle tax exemption of €70,000 through tax arbitration at CAAD faces significant jurisdictional obstacles. While taxpayers can file arbitration requests under Articles 2 and 10 of the RJAT after exhausting administrative remedies, CAAD's competence is limited to specific categories of tax disputes. The tribunal in this case raised sua sponte whether it had material jurisdiction to decide ISV exemption benefit disputes, as these involve administrative decisions on benefit eligibility rather than tax assessment acts traditionally covered under Article 2(1) of the RJAT. Decree-Law 10/2011 implemented tax arbitration with restricted scope, deliberately excluding actions for recognition of rights or legitimate interests. Therefore, taxpayers seeking to challenge ISV exemption denials may need to pursue their claims through administrative courts rather than CAAD arbitration, depending on how the tribunal ultimately resolves the jurisdictional question.