Process: 506/2017-T

Date: May 25, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitration case 506/2017-T addressed whether a UK pension fund could challenge IRC withholding tax of €148,607.20 through arbitral jurisdiction after rejection of an official review (revisão oficiosa). The case centered on jurisdictional questions regarding the proper administrative route for contesting withholding tax acts. The claimant, a UK pension fund, alleged multiple procedural violations including breach of the right to prior hearing (audiência prévia), errors in proof assessment, violation of burden of proof rules, breach of inquisitorial principles, and violation of EU tax equality principles. The Portuguese Tax Authority (AT) raised a preliminary objection arguing lack of material jurisdiction, contending that challenges to self-assessment acts like withholding tax require prior gracious complaint (reclamação graciosa) under articles 131-133 of the Tax Procedure Code (CPPT), not official review. The tribunal analyzed Regulation 112-A/2011, which binds the Tax Administration to arbitral jurisdiction but excludes claims regarding self-assessment acts not preceded by proper administrative routes. The decision hinged on interpreting whether official review constitutes valid administrative precedent and whether the exception in Article 131(3) CPPT applies when the foundation is exclusively a matter of law and withholding follows generic AT guidelines. The case illustrates critical procedural requirements for non-resident entities challenging Portuguese withholding tax, particularly regarding mandatory administrative prerequisites before accessing arbitral or judicial review, and the intersection of Portuguese procedural law with EU principles of tax equality and non-discrimination.

Full Decision

ARBITRAL DECISION

I – REPORT

On 12 September 2017, "A...", acting as "A..." of B..., Pension Fund, with registered office in ..., United Kingdom, with Portuguese tax identification number ... (hereinafter "Claimant") filed a request for constitution of an arbitral tribunal, in accordance with and for the purposes of the provisions contained in articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law No. 10/2011, of 20 January (RJAT).

By means of the request for constitution of the arbitral tribunal and for arbitral decision, the Claimant seeks the annulment of the act of express rejection of the Official Review, in which the (il)legality of the withholding at source made on a definitive basis was discussed, in the total amount of €148,607.20 (one hundred forty-eight thousand six hundred seven euros and twenty cents).

In fact, not accepting the aforementioned act of rejection of the Official Review, the Claimant requested the constitution of this arbitral tribunal, formulating, as understood, a request for annulment of the decision rejecting the official review and consequent declaration of illegality of the withholding at source carried out against the Claimant, on the grounds of defects constituting violations of:

  • Breach of the right to prior hearing;

  • Error in the assessment of proof regarding the withholding of tax;

  • Violation of the rules of allocation of burden of proof;

  • Violation of the principles of inquisitorial procedure, cooperation and substantive truth;

  • Violation of the principle of tax equality and European Union Law

With the petition, the Claimant submitted 9 documents.

In exercising the option for appointment of an arbitrator provided for in paragraph b) of no. 2 and in compliance with the provisions of paragraph g) of no. 2 of article 10 and no. 2 of article 11, all of the RJAT, the Claimant appointed as Arbitrator Dr. Carla Castelo Trindade.

In accordance with the provisions of paragraph b) of no. 2 of article 6 and no. 3 of article 11 of the RJAT, with the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, and within the period provided for in no. 1 of article 13 of the RJAT, the senior official of the Tax Administration Authority designated as Arbitrator His Excellency Professor Doctor Manuel Pires.

By agreement, the arbitrators appointed by the parties indicated, to preside over this Arbitral Tribunal, Dr. José Poças Falcão, who, within the applicable period, accepted the appointment.

The parties were notified of this designation, and no request for recusal of the appointment as arbitrator of those comprising this tribunal was presented.

Thus, in accordance with the provision contained in paragraph c) of no. 1 and in no. 8 of article 11 of the RJAT, with the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 6 December 2017.

Notified to present its response, the Tax and Customs Authority (hereinafter "Respondent") exercised such right.

Given that, in the case, none of the purposes that are legally assigned to the meeting referred to in article 18 of the RJAT were present, and having regard to the position taken by the parties in their pleadings, pursuant to the provisions of articles 16, paragraph c) and 19 of the RJAT, as well as the principles of procedural efficiency and prohibition of useless acts, the holding of this meeting was dispensed with, and the parties were notified to submit observations, if they wished.

On 25 January 2018, the Respondent submitted to the proceedings a copy of the administrative procedure.

The parties submitted observations.

II. CASE MANAGEMENT

The arbitral tribunal was properly constituted.

The Respondent invoked a dilatory exception of lack of material jurisdiction. In fact, in its response, the Respondent defended itself by way of exception, invoking the lack of material jurisdiction of the arbitral tribunal arising from the circumstance that the request for arbitral decision was formulated following the rejection of a request for official review.

The Respondent argues, in summary, that article 2, paragraph a) of Regulation No. 112-A/2011, of 22 March, by which the Tax and Customs Authority became bound to arbitral jurisdiction, excludes claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route, through a gracious complaint, in accordance with article 131 of the Code of Tax Procedure and Process. In the Respondent's view, "in the situation sub judice, for the present Arbitral Tribunal to be able to pronounce itself, it was always necessary that the request for arbitral decision be with reference to the gracious complaint in accordance with the provisions of no. 1 of article 132 of the CPPT, which did not occur".

The jurisdiction of arbitral tribunals operating in the CAAD is, in the first instance, limited to the matters indicated in art. 2, no. 1, of Decree-Law No. 10/2011, of 20 January (RJAT).

However, in a second instance, the jurisdiction of arbitral tribunals operating in the CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction by Regulation No. 112-A/2011, of 22 March, since art. 4 of the RJAT provides that "the binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on a regulation of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered".

In view of this second limitation on the jurisdiction of arbitral tribunals operating in the CAAD, the resolution of the question of jurisdiction essentially depends on the terms of this binding, since, even if one is in a situation that may be framed in that article 2 of the RJAT, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded.

In paragraph a) of art. 2 of this Regulation No. 112-A/2011, there are explicitly excluded from the scope of the binding of the Tax Administration to the jurisdiction of arbitral tribunals operating in the CAAD the "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" (emphasis ours).

The express reference to the precedent "recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" should be interpreted from the outset as referring to cases in which such recourse is mandatory, through a gracious complaint, which is the administrative means expressly provided for in those articles 131 to 133 of the CPPT, to whose terms it refers. In truth, it would not be understood that, when administrative challenge is not necessary "when its foundation is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidelines issued by the tax administration" (cfr. art. 131, no. 3, of the CPPT, applicable to cases of withholding at source, by virtue of the provision in no. 6 of art. 132 of the same Code), the jurisdiction of the arbitral route would be excluded due to the failure to carry out such administrative challenge which, within the scope of the CPPT, is understood to be unnecessary.

In the case at hand, the declaration of illegality of a self-assessment act is sought, following the rejection of a request for review of tax acts carried out after the expiry of the two-year period provided for in article 132, which was followed by hierarchical appeal.

It is important, first of all, to clarify whether the declaration of illegality of acts of rejection of requests for review of tax acts, provided for in art. 78 of the LGT, is included in the competencies attributed to arbitral tribunals operating in the CAAD by art. 2 of the RJAT, insofar as the latter provision makes no express reference to acts of rejection of official review requests.

Now, the formula "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account", used in paragraph a) of no. 1 of art. 2 of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which such an act of rejection is directly challenged. In fact, the illegality of assessment acts (first-instance acts) may be declared jurisdictionally as a corollary of the illegality of a second-instance act, which confirms an assessment act, incorporating its illegality.

The inclusion in the competencies of arbitral tribunals operating in the CAAD of cases in which the declaration of illegality of the acts indicated therein is made through the declaration of illegality of second-instance acts results with certainty from the reference made in that norm to self-assessment acts, withholding at source and payment on account, which are expressly referred to as being included among the competencies of arbitral tribunals. In any case, when the taxpayer brings the first-instance act to the knowledge of the arbitral tribunal by way of a rejection of a gracious complaint, hierarchical appeal or official review request (second-instance act), it is still the first that is the object of the request for arbitral decision. It is still the (il)legality of the first-instance act that the arbitral tribunal must assess and declare.

What article 2 of the RJAT does not permit, in any way, is the assessment of defects specific to the second-instance act. As referred to by Carla Castela Trindade, "it is understood, in this regard, that second or third-instance acts may always be arbitrable insofar as they themselves entail, and only to that extent, the (il)legality of the assessment acts in question. (...) It is defended here, therefore, an interpretation according to which the defects specific to acts of rejection of gracious complaints, hierarchical appeals or requests for review of tax acts are not arbitrable because they escape the material scope of tax arbitration." (cfr. Legal Framework for Tax Arbitration Annotated (2016) pp. 69-70).

In this way, there is no doubt that an assessment act in the broad sense may be brought to the knowledge of the arbitral tribunal following an act of rejection of a request for official review – functioning the official review as the recourse to the administrative route, i.e., as administrative consideration prior to judicial or jurisdictional review, legally required – provided that the object of the request for arbitral decision is still that first-instance act whose (il)legality the taxpayer claims.

Having reached this conclusion, it remains to ascertain whether, regarding self-assessment acts, paragraph a) of no. 1 of article 2 of the RJAT, when combined with paragraph a) of article 2 of the Binding Regulation, excludes cases in which the request for arbitral decision was not preceded by a gracious complaint – or, for what matters here, by recourse to the administrative route that may perfectly well occur through official review or hierarchical appeal – necessary, provided for in articles 131 to 133 of the CPPT, within the two-year period, but rather by a request for official review of a tax act, within the longer four-year period, permitted by article 78 of the LGT.

That a request for official review of a tax act should be equated to the necessary gracious complaint provided for in articles 131 to 133 of the CPPT when carried out within the period of the gracious complaint (two years), does not raise great doubts in our minds. This has, moreover, been the prevailing understanding of doctrine and jurisprudence. Moreover, the Supreme Court of Justice has repeatedly pronounced itself in the sense of this equation. See, for all, the Judgment of 12 July 2006, delivered in the scope of process no. 0402/06 (available at www.dgsi.pt), where it was decided:

"However, it is not a matter of indifference to the taxpayer whether or not to challenge the acts of assessment within their respective periods, since in case of annulment in judicial or administrative challenge proceedings, any illegality may be invoked and there is entitlement to indemnity interest from the date of undue payment until the issuance of the credit note (arts. 43, no. 1, of the LGT and 61, no. 3, of the CPPT), while in cases of official review of the assessment (when not done at the taxpayer's request, within the period of administrative complaint, a situation that is comparable to a gracious complaint) there is only entitlement to indemnity interest under the terms of article 43, no. 3, of the LGT and annulment may only be based on error attributable to the services and duplication of collection (article 78, nos. 1 and 6, of the LGT).

Essentially, the regime of art 78, when the review request is formulated beyond the periods of administrative and contentious challenge, reduces to a means of restitution of what was unduly paid, with revocation and cessation for the future of the effects of the assessment act, and not to an annulling means, with retroactive destruction of the effects of the act.

From this perspective, 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 administrative and contentious challenge means (when used at a time when the latter may still be utilized) or complementary to them (when the periods for utilizing the means of challenging the assessment act have already been exhausted).

This is a regime that is strongly guaranteeing when compared with the regime for challenging administrative acts, but this reinforcement finds explanation in the nature that is strongly aggressive to the legal sphere of individuals that is had by tax assessment acts."

The question arises, this is so, when the request for official review is made already after the two-year period provided for the necessary gracious complaint. However, we anticipate that, as defended by Carla Castelo Trindade, "this admissibility [of equation of the request for official review to the necessary gracious complaint] applies, by a fortiori, both to the request for official review submitted outside the period provided for the necessary gracious complaint (which is 2 years in accordance with those articles of the CPPT), as well as to the request that is made when it was still possible to submit a gracious complaint" (cfr. Legal Framework for Tax Arbitration Annotated (2016) p. 97).

However, regarding the equation of the request for official review to the necessary gracious complaint for purposes of access to the arbitral route, the Respondent argues that the express reference to articles 131 to 133 of the CPPT made in article 2 of the Binding Regulation does not permit any interpretation other than that, in order for the act to be subject to arbitral jurisdiction, it must necessarily be preceded by a gracious complaint, as this is the procedural reaction means expressly provided for in articles 131 to 133 of the CPPT.

However, we consider that such express reference to articles 131 to 133 of the CPPT cannot have the decisive scope of excluding the possibility of assessment of requests for illegality of acts of rejection of requests for official review of acts of the types referred to therein. In fact, the interpretation exclusively based on the literal wording that the Respondent defends in the present proceedings cannot be accepted, since in the interpretation of tax norms the rules and general principles of interpretation and application of laws are observed (article 11, no. 1, of the LGT) and article 9, no. 1, expressly prohibits interpretations exclusively based on the literal wording of the norms by providing that "interpretation should not be limited to the letter of the law", and instead should, "reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied". As for the correspondence between the interpretation and the letter of the law, "a minimum of verbal correspondence is sufficient, even if imperfectly expressed" (cfr article 9, no. 3, of the Civil Code) which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging in it imperfection in the expression of the legislative intent.

Thus, the letter of the law is not an obstacle to a declarative interpretation, which explains the scope of the literal wording, nor even an extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, he would have intended to say, that is, when he imperfectly stated what he intended to say. In extensive interpretation "it is the very evaluation of the norm (its 'spirit') that leads to the discovery of the need to extend the text thereof to the hypothesis that it does not cover", "the expansive force of the very legal evaluation is capable of leading the provision of the norm to cover hypotheses of the same type not covered by the text". Extensive interpretation, therefore, is imposed by the evaluative and axiological coherence of the legal system, established by article 9, no. 1, of the Civil Code as a fundamental interpretive criterion through the imposition of observance of the principle of unity of the legal system.

It is clear that the scope of the requirement of prior gracious complaint, necessary to open the contentious route for challenging acts of the types referred to in articles 131 to 133 of the CPPT, has as its sole justification the fact that, regarding this type of acts, there is no position taken by the Tax Administration on the legality of the legal situation created with the act, a position that may even be favorable to the taxpayer, avoiding the need to recourse to the contentious route. Hence the necessary gracious complaint is also provided for with respect to acts of withholding at source and payment on account, which have in common with self-assessment acts the circumstance that there is also no position taken by the Tax Administration on the legality of the acts.

Confirming this understanding unequivocally (that the necessary gracious complaint was provided so that the Tax Administration could pronounce itself, for the first time, on the act before the contentious route is opened), no. 3 of article 131 of the CPPT, establishes that "notwithstanding the provisions of the preceding paragraphs, when its foundation is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidelines issued by the tax administration, the period for challenge does not depend on prior complaint, and the challenge should be submitted within the period of no. 1 of article 102" (emphasis ours) – a norm which, moreover, is also applicable to acts of withholding at source by reference in no. 6 of article 132 of the CPPT. In these cases, there was a prior generic pronouncement by the Tax Administration on the legality of the legal situation created with the self-assessment or withholding at source act, and it is this fact that explains why the necessary gracious complaint ceases to be required.

Now, in cases where a request for official review of a self-assessment or withholding at source act is formulated, the Tax Administration is provided, with this request, with an opportunity to pronounce itself on the merits of the claim of the taxpayer before the latter resorts to the jurisdictional route, so that, in coherence with the solutions adopted in nos. 1 and 3 of article 131 and 3 and 6 of article 132 of the CPPT, it is not required that, cumulatively with the possibility of administrative assessment within the scope of that official review procedure, a new administrative assessment be required through a gracious complaint (this in case the taxpayer was still in time to avail himself of the gracious complaint, i.e., still within the two-year period).

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from formulating requests for official review in cases of self-assessment acts, since these were expressly referred to in no. 2 of article 78 of the LGT and in no. 2 of article 54 of the same Law it is established that the applicability to self-assessment and withholding at source of the guarantees of taxpayers provided for in no. 1, in which official review is included. And to self-assessment acts, performed by the taxpayer, are comparable, by mere declarative interpretation, those of withholding at source which are performed by the tax substitute, who is considered a taxpayer (article 18, no. 3, of the LGT).

In this context, since the law expressly permits taxpayers to opt for a gracious complaint or official review of self-assessment and withholding at source acts, there is no reason not to permit access to the arbitral route by a taxpayer who has opted for review of the tax act instead of a gracious complaint.

Therefore, it is to be concluded that the members of the Government who issued the Binding Regulation, when they made reference to articles 131 to 133 of the CPPT, stated imperfectly what they intended, since, intending to impose prior administrative assessment to the contentious challenge of acts of the types referred to, they ended up including a reference to articles 131 to 133, articles which, as seen, do not exhaust the possibilities of administrative assessment of such acts.

Moreover, it is to be noted that this interpretation, not limiting itself to the literal wording, is even particularly justified in the case of paragraph a) of article 2 of the Binding Regulation, as its imperfections are evident. A first one, that of associating the comprehensive formula "recourse to the administrative route" (which references, beyond the gracious complaint, hierarchical appeal and review of the tax act) with the "expression in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has potential restrictive scope to the gracious complaint. A second, that of using the formula "preceded" by recourse to the administrative route, referring to "claims relating to the declaration of illegality of acts", which, obviously, would be much better suited to the feminine word "preceded".

Thus, since the review of the tax act provides the possibility of assessment of the taxpayer's claim prior to access to the contentious route that is intended to be achieved with the necessary administrative challenge, the most correct solution, because it is most consistent with the legislative objective of "reinforcing effective and efficient protection of the legally protected rights and interests of taxpayers" manifested in no. 2 of article 124 of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral route to assess the legality of self-assessment, withholding at source or payment on account acts previously assessed in an official review procedure. And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, no. 3, of the Civil Code).

On the other hand, since that paragraph a) of article 2 of the Binding Regulation contains an imperfect formula, but which contains a comprehensive expression "recourse to the administrative route", which potentially also references the review of the tax act, there is found in the text the minimum verbal correspondence, although imperfectly expressed, required by that no. 3 of article 9 for the viability of the adoption of the interpretation that enshrines the most correct solution.

It is to be concluded, therefore, that article 2, paragraph a) of the Binding Regulation, properly interpreted on the basis of the criteria for interpretation of the law provided for in article 9 of the Civil Code and applicable to substantive and procedural tax norms, by force of the provision in article 11, no. 1, of the LGT, enables the submission of requests for arbitral decision regarding acts of withholding at source that have been preceded by a request for official review.

In anticipation of this understanding, the Respondent argues that "such an interpretation is not only illegal, but manifestly unconstitutional, by violation of the constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the CRP), as well as of legality (cf. articles 3, no. 2, and 266, no. 2, both of the CRP), as a corollary of the principle of indisposability of tax credits inherent in article 30, no. 2 of the LGT, which bind the legislator and all activity of the TA".

In fact, the Constitution does not require that the interpretation of normative instruments be limited to the literal wording and, in the case at hand, as explained, properly interpreted the norms of article 2, no. 1, of the RJAT and article 2 of the Binding Regulation, it is concluded that the binding of the Tax Administration to arbitral tribunals operating in the CAAD covers cases in which self-assessment acts have been preceded by requests for official review. For this reason, the interpretation now being made does not extend the binding of the Tax Administration beyond what is evident in the law, but rather defines exactly its terms, following the rules for interpretation of generically provided norms.

On the other hand, in interpreting and applying legal norms, this arbitral tribunal is performing the function that is constitutionally assigned to it (articles 202, no. 1, 203 and 209, no. 2, of the CRP), so it is not discernible how there can be any violation of the principles of separation of powers, the rule of law and legality, since what is decided by this tribunal evidences, precisely, the perfect implementation of these principles. In fact, the National Assembly authorized the Government to legislate (cfr. article 124 of Law No. 3-B/2010, of 28 April); the Government, in the exercise of legislative powers, issued the RJAT; the Administration, through two members of the Government, issued the Binding Regulation; the arbitral tribunal, in the exercise of its powers, interprets and applies the aforementioned normative instruments.

As regards the principle of legality, it is recalled that this translates into compliance with the law, in the interpretation that is made of it by the courts, which is binding on the interpretations of other state bodies (article 205, no. 2, of the CRP). It is precisely the application of legality that is being done in recognizing the jurisdiction of arbitral tribunals to know of requests for declaration of illegality of self-assessment acts preceded by access to the administrative route through a request for official review.

As for the invocation of the principle of indisposability of tax credits, as defined in article 30, no. 2, of the LGT, which states that "the tax credit is indisposable, and conditions for its reduction or extinction may only be established with respect for the principle of equality and tax legality", this is, certainly, an oversight, since in deciding on its jurisdiction the arbitral tribunal is not performing any act of disposition of any credit. In any case, as well understood by the Constitutional Court, following the generality of doctrine, the principle of indisposability of tax credits applies to the Administration and not to the courts.

In the sense of the interpretation above defended, that article 2 of the Binding Regulation does not exclude the assessment by arbitral tribunals of self-assessment, withholding at source and payment on account acts preceded by a request for review of a tax act, see the judgment delivered by the Central Administrative Court of the South, of 27 April 2017, in the scope of process no. 08599/15 (available at www.dgsi.pt), where it was summarily decided that "Article 2, paragraph a) of Regulation No. 112-A/2011 enables the submission of requests for arbitral decision regarding self-assessment acts that have been preceded by a request for official review", further adding that:

"The reference to article 131 of the CPPT made in article 2 of Regulation No. 112-A/2011 does not expressly exclude the binding of the TA to the jurisdiction of arbitral tribunals when claims for illegality of acts of rejection of requests for official review of self-assessment acts are at issue.

There being no express exclusion, it cannot be said that we are faced with an expansion of the binding, but merely with the interpretation of a norm excluding binding, and to that extent there is no violation of any constitutional principle or provision."

This exception of lack of jurisdiction on the ground of non-presentation of a gracious complaint of the self-assessment is therefore unfounded.

The parties are legitimate and properly represented.

The proceedings are free of nullities.

It remains to decide.

III.1. FACTS FOUND TO BE PROVEN

Regarding the factual matter, it is important, first and foremost, to note that the tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish between proven and unproven facts. All in accordance with article 123, no. 2, of the Code of Tax Procedure and Process and article 607, nos. 2, 3 and 4 of the Code of Civil Procedure, applicable ex vi article 29, no. 1, paragraphs a) and e), of the RJAT. Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in view of the various plausible solutions to the question(s) of Law (cfr. article 596 Code of Civil Procedure applicable ex vi article 29, no. 1, paragraph e), of the RJAT).

Now, having regard to the positions assumed by the parties, and to the documentary evidence submitted to the proceedings, the following facts with relevance to the decision are considered to be proven:

  1. The Claimant is a legal entity under the law of the United Kingdom, constituted in the legal form of a Pension Fund, in accordance with the legislation of the United Kingdom and duly approved by the Tax Administration of that Country.

  2. The Claimant's tax residence is situated in the United Kingdom, being considered, therefore, a non-resident taxpayer for tax purposes in Portugal (cfr. Document no. 2 submitted with the request for arbitral decision)

  3. The Claimant held financial investments in Portugal, namely shareholdings in entities resident for tax purposes in Portugal.

  4. In the year 2009, the Claimant, in its capacity as a shareholder of entities resident for tax purposes in Portugal, received dividends from those shareholdings in the gross total amount of 743,036.01 Euros (seven hundred forty-three thousand thirty-six euros and one cent) (cfr. Document no. 2 submitted with the request for arbitral decision).

  5. The gross amount of dividends received by the Claimant in Portugal, in 2009, was subject to withholding at source at the liberatory rate of 20% in the context of Corporate Income Tax, resulting in withheld tax in the amount of 148,607.20 Euros (one hundred forty-eight thousand six hundred seven euros and twenty cents) (cfr. Declarations issued by "C..." and "D..." attached to Document no. 2 submitted with the request for arbitral decision).

  6. On 28 December 2011, the Claimant, considering the aforementioned withholding to be illegal, filed a gracious complaint (cfr. Document no. 2 submitted with the request for arbitral decision).

  7. By official memorandum no. ... of 24/10/2012, the Claimant was notified of the 1st Draft Decision – which was received by the Claimant's tax representative on 25 October 2012 – to exercise, if desired, its right to prior hearing (cfr. Document no. 3 submitted with the request for arbitral decision).

  8. By request submitted on 2 November 2012, the Claimant exercised its right to prior hearing.

  9. The gracious complaint was rejected, on the ground of its untimeliness, by decision issued on 11 December 2012, and notified on 14 December 2012, having been converted into an official review, on the basis of error attributable to the services (cfr. Document no. 5 submitted with the request for arbitral decision).

  10. On 03 July 2013, by official memorandum no. ..., the Claimant was notified of the 2nd Draft Decision, to exercise, if desired, its right to prior hearing regarding the Respondent's intention to reject the request for official review (cfr. Document no. 6 submitted with the request for arbitral decision).

  11. The Claimant did not exercise its right to prior hearing regarding the 2nd Draft Decision.

  12. On 11.9.2013, by decision issued by the Deputy Director General of the TA in the Report no. .../2013, of 13 May 2013, the withholdings were considered to be tainted by illegality and the Corporate Income Tax assessment was found to be erroneous, with the consequent authorization for the review of the tax acts now in question;

  13. On 19 December 2013, the Respondent notified the Claimant to identify and submit a copy of the tax payment receipts to the State treasury in relation to the aforementioned dividends (cfr. Document no. 7 submitted with the request for arbitral decision).

  14. By request dated 24 January 2014, the Claimant requested the suspension of the tax proceedings for a period of not less than three months, such being the period provided for obtaining the receipts of the tax whose reimbursement it was requesting (cfr. Document no. 8 submitted with the request for arbitral decision).

  15. This request was rejected by the Respondent on the alleged ground of lack of legal basis (cfr. in the administrative proceedings the decision notified to the Claimant by official memorandum no. .../2014, of 18-2-2014).

  16. On 14-3-2014, the Claimant, unable to obtain copies or identification of the aforementioned tax payment receipts, submitted to the services of the Respondent, a request seeking the official review and reimbursement of the withheld tax in the amount of €148,607.20, submitting, as evidence, 4 (four) documents [declarations issued by "C..." and "D..." containing the list of dividends paid by them to the Claimant, in their capacity as financial intermediaries and declarations issued by Bank E... to D..., which acted as a financial intermediary in the purchase of the shares that gave rise to the payment of the aforementioned dividends].

  17. The administrative proceedings culminated with the decision rejecting the request for official review, issued on 06 June 2017 and notified to the Claimant on 14 June 2017, on the ground of the failure to submit the tax receipts requested (cfr. Document no. 1 submitted with the request for arbitral decision).

III.2. FACTS NOT FOUND TO BE PROVEN

As stated, regarding the factual matter taken as established, the tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to discriminate between proven and unproven facts as provided in article 123, no. 2, of the CPPT applicable ex vi article 29, no. 1, paragraphs a) and e), of the RJAT. Thus, the facts pertinent to the judgment of the case were, as referred to above, chosen and defined according to their legal relevance, there being no other facts alleged that are relevant for the proper composition of the procedural dispute.

IV. LEGAL MATTERS

What is at issue in the proceedings is the alleged illegality of the Corporate Income Tax assessment act resulting from the rejection of the review request on the ground of failure to identify the tax payment receipts withheld in the State treasury, an omission that prevents the issuance of the reimbursement check for the respective amount.

In fact, having regard to the positions of the parties assumed in the pleadings submitted, the central question to be resolved by the present arbitral tribunal consists in assessing the illegality of the act of withholding at source carried out on a definitive basis, in the amount of 148,607.20 Euros, relating to income earned by the Claimant in the year 2009, in the context of Corporate Income Tax, in the consideration that, as had previously been accepted by the TA, the Corporate Income Tax assessment had, in the case, no legal basis.

As referred to above, in the decision on the exception of lack of jurisdiction invoked by the Respondent, the object of the request for arbitral decision is still the assessment of the first-instance tax act (the act of withholding at source of Corporate Income Tax, relating to the year 2009). Should such act be illegal, its maintenance in the legal order by way of the rejection of the request for official review will result in a defect of violation of law.

Since the Claimant has imputed various defects to the challenged tax act, the order of knowledge of the same must be determined, and the order of article 124 of the CPPT, applicable by force of article 29, no. 1, paragraph a) of the RJAT must be observed.

The Claimant invokes, in the first place, the violation of the right to prior hearing, constituting a defect of law by violation of breach of essential formalities, which, if upheld, will give rise to the annulment of the tax act, in accordance with the provision in article 60, no. 1, paragraph b), and no. 5 of the LGT.

In the second place, the Claimant invokes error by the Tax Administration regarding the assessment of proof of the tax withholding, also constituting a defect of law and which, if upheld, will likewise result in the declaration of illegality of the aforementioned withholding.

In the third place, the Claimant alleges the violation of the rules of allocation of burden of proof, which, if upheld, will give rise to the annulment of the tax act on the grounds of violation of the rules contained in article 74, nos. 1 and 2, of the LGT.

Still regarding defects of violation of law, in the fourth place, the Claimant alleges the violation of the principles of inquisitorial procedure, cooperation and substantive truth, which, if upheld, will lead to the annulment of the challenged act and to the consequent declaration of illegality of the withholding carried out, in accordance with articles 58 and 59 of the LGT, as well as of the CPPT itself, particularly in articles 48, 50 and paragraph e) of article 69.

Finally, in the fifth place, the Claimant alleges the violation of European Union Law and the principle of tax equality. The violation of the principle of tax equality is manifested in differentiated treatment between residents and non-residents, which, if upheld, constitutes the violation of a fundamental right as results from articles 13 and 104 of the Constitution of the Portuguese Republic (CRP). To this extent, the Claimant argues that the Tax Administration should have declared such withholding null. Thus, not having done so, the Claimant alleges the violation of the principle of non-discrimination on the grounds of nationality enshrined in the current article 18 of the Treaty on the European Union, and if verified it likewise results in a violation of the principle of equality, as well as of the European principles of freedom of establishment and freedom of movement of capital, both provided for in the current article 63 TFEU. Thus, should such alleged violations be verified on the grounds of violation of the constitutional principle of the primacy of European Law in accordance with article 8 of the CRP and article 1, no. 1, of the LGT, they will give rise to annulment (and not nullity, as alleged by the Claimant) of the tax act having regard to the provision in article 161, no. 2, paragraph d), of the current Code of Administrative Procedure, applicable ex vi paragraph d) of no. 1 of article 29 of the RJAT.

Among the defects invoked by the Claimant, the defects of violation of law due to violation of the principle of tax equality and European Union Law will first be analyzed, and subsequently the defects of violation of law due to error by the Tax Administration regarding the assessment of proof of the tax withholding and due to violation of the rules of allocation of burden of proof, since these are the ones that will lead to the "more stable or effective protection of the offended interests" to the extent that their eventual success will prevent the renewal of the act.

It should be noted preliminarily that the Courts do not have to assess all the arguments formulated by the parties, as has been repeatedly stated by Jurisprudence (see inter alia, Judgment of the Plenary of the 2nd Section of the STA, of 7 June 1995, delivered in the scope of appeal no. 5239, in DR – Appendix of 31 March 97, pgs. 36-40 and Judgment of the STA – 2nd Sec. – of 23 April 1997, DR/AP of 9 Oct 97, p. 1094, also published at www.dgsi.pt).

Defects of Violation of Law

As alleged by the Claimant, dividends, as income resulting from financial income, paid by an entity resident to a taxpayer also resident for tax purposes in Portugal were, at the date of the facts, subject to withholding at source at the liberatory rate of 20%, in accordance with the provision in articles 94, no. 1, paragraph c) and 94 of the Corporate Income Tax Code, as well as article 101, no. 1, paragraph a), of the Income Tax Code. By way of exception, article 16 of the Pension Fund Regime provides that Pension Funds that are established and operated in accordance with national legislation are exempt from taxation in the context of Corporate Income Tax.

In turn, in cases of distribution of dividends by entities resident in Portugal to pension funds non-resident in Portugal – and, therefore, constituted in accordance with the legislation of other States, particularly Member States – income obtained in Portugal were, at the date of the facts, subject to liberatory withholding at source at the rate of 20%, under the provision in articles 94, no. 1, paragraph c), and 87, no. 4, paragraph c), both of the Corporate Income Tax Code.

Thus, a pension fund resident in Portugal, when it receives dividends or other income from entities based in Portugal, is subject to a more favorable tax regime than that applicable to a pension fund constituted in accordance with the legislation of any other Member State when it receives dividends or other income from Portuguese sources. The former enjoy the exemption provided for in the Pension Fund Regime, the latter are subject to liberatory withholding at source.

Now, article 18 of the TFEU establishes a generic prohibition of discrimination based on nationality, subsequently concretized in article 63 of the TFEU regarding the free movement of capital, thereby establishing a prohibition of any form of discrimination based on nationality or place of investment between entities or persons resident in Member States of the European Union.

This is, moreover, one of the basic principles of European Union Law.

There is no doubt that the distribution of dividends is a movement of capital, as such governed by the principle of freedom of movement of capital, in the meaning of article 63 of the TFEU.

Thus, the Claimant is correct when it states that the distributions of dividends to it made in the year 2009 constitute a movement of capital, and it is necessary to establish whether the national legislation is, or is not, contrary to the provision in article 63 of the TFEU, by way of the introduction of discriminatory treatment between pension funds resident in Portugal and pension funds established in other Member States of the European Union.

By decision delivered on 6 October 2011, in the scope of process 403/09, the Court of Justice of the European Union (CJEU) considered, precisely, that in taxing dividends earned by non-resident pension funds at a rate higher than that applicable to dividends earned by pension funds resident in Portuguese territory, Portugal did not comply with the obligations incumbent upon it by virtue of articles 63 of the TFEU, inherited from article 40 of the Agreement on the European Economic Area, of 2 May 1992.

In general, we follow the understanding enshrined in the aforementioned judgment, which, moreover, determined that Portugal adapt its national legislation so as to eliminate such discrimination. As a result, a no. 7 was added to article 16 of the Pension Fund Regime (by way of article 144 of Law No. 64-B/2011, of 30 December, which, however, according to the Respondent's invocation, only became applicable from 1 January 2012, not being applicable retroactively).

However, and as the Respondent itself properly states in its act of rejection of the request for official review, regardless of the entry into force of the norm, the fact is that the earlier legislation was in profound violation with European Union Law, in view of the restriction imposed by the earlier wording of article 16 of the Pension Fund Regime. Thus, the withholdings at source carried out on the basis of the earlier wording of the norm are tainted by illegality.

And it is the Respondent itself that states, in the same act of rejection of the request for official review, that "In fact, if we consider that the withholdings carried out before the wording given to article 16 of the Pension Fund Regime by article 144 of Law No. 64-B/2011, of 30 December were tainted by illegality, we would have to consider that the tax assessment then carried out was tainted by error, as such falling within the scope of the request for official review in the second part of no. 1 of article 78 of the LGT".

However, notwithstanding having recognized the illegality of the act of withholding at source at the liberatory rate, the Respondent nonetheless rejected the request for official review submitted by the Claimant due to failure to identify the delivery of the tax to the State treasury.

Given this, it is now necessary to determine whether, as alleged by the Claimant, there was or was not a defect of violation of law due to error in the Respondent's assessment of proof of the tax withholding, as well as due to violation of the rules of allocation of burden of proof that led to the disregard of the documentation submitted by the Claimant and, consequently, to the issuance of the act of rejection of the request for official review.

Having regard to the Respondent's assessment, it considers that in fact the Claimant submitted documents containing the reference to the withholding of the tax, without, however, in any of these proceeding with the identification of the receipt or receipts of withholding of the tax. Thus, in the Respondent's understanding, the failure to identify the receipt of delivery of the tax to the State treasury prevents the issuance of the respective reimbursement check for the tax.

However, as results from the matter of the administrative proceedings, the Claimant submitted to the Respondent the declarations issued by "C..." and "D..." containing the list of dividends paid by them to the Claimant, in their capacity as financial intermediaries (Cfr. supra, point 16, of the facts found to be proven).

Such declarations prove the actual withholding at source of Corporate Income Tax. Moreover, the Claimant submitted documentation relating to declarations issued by Bank E... to D..., which acted as a financial intermediary in the purchase of the shares that gave rise to the payment of the aforementioned dividends. From the analysis of such documentation it results that both the ISIN codes (International Securities Identification Number), as well as the dates relevant for purposes of payment of the dividends, are coincident with the information contained in that declaration of D....

It should be noted that although the amount of dividends indicated in the aforementioned declaration is not entirely coincident, such divergence results from the fact that D..., as a financial intermediary, provides services not only to the Claimant but also to its other clients. Thus, the dividends received by D... do not relate only to shares of the Claimant but also of other entities.

Thus, although the Claimant was not able to submit to the Respondent the tax withholding receipts requested, this occurred only because they were not made available to it by the entities that possess them, despite having made full proof of the withholding that was carried out against it (and which does not appear to be, in itself, called into question by the Respondent).

Given this, it results from article 74 of the LGT, under the heading "Burden of Proof" that:

"1. The burden of proof of the facts constituting the rights of the tax administration or taxpayers rests with whoever invokes them.

  1. When the evidence of the facts are in the possession of the tax administration, the burden provided for in the preceding number is considered satisfied if the interested party has proceeded with their proper identification to the tax administration. (...)".

It follows from the cited norm that the Respondent had, in the present case, the burden of demonstrating the factuality that led it to disregard the documentation submitted by the Claimant as proof of the withholding and, above all, as proof, at least, suggestive of the delivery of the withheld tax to the State Treasury (since it is mainly this that the Respondent required of the Claimant, as tax substitute).

Now, in casu, the Respondent could have full access to the tax withholding and delivery receipts, through a consultation of its own computer system, since from the declarations sent by the Claimant there is the Tax Identification Number of the Bank. It is indeed true that the Claimant did not proceed with the delivery of the receipts to the TA as requested of it. However, in accordance with the principle of inquisitorial procedure, it is incumbent upon the TA to carry out all the steps that appear necessary for the proper discovery of substantive truth. Thus, notwithstanding the Respondent's inability to obtain such receipts, the TA is capable of having access to information that would allow it to confirm the actual delivery of the tax. Hence, from the combination of the principles of inquisitorial procedure, cooperation and substantive truth, it appears to us manifest that the TA did not cooperate reciprocally with the Claimant, not contributing nor seeking the discovery of the substantive truth that is incumbent upon it. The only concern of the TA was merely a formalistic question, not observing the legal requirements that rest upon it, that is, those contained in articles 58 and 59 of the LGT and 48, 50 and 69, paragraph e) of the CPPT.

In view of the above, the Claimant's request for arbitral decision is entirely upheld, with regard to the existence of a defect of violation of law due to error in the assessment of proof of the tax withholding, as well as due to violation of the rules of allocation of burden of proof.

Thus, and as previously decided in Arbitral Process no. 91/2012-T, "the full upholding of defects of violation of law prejudices the knowledge of form and procedural defects, as results from the order of knowledge of defects provided for in no. 2 of article 124 of the CPPT, subsidiarily applicable by force of the provision in paragraph a) of no. 1 of article 29 of the Legal Framework for Tax Arbitration".

In fact, the establishment of an order of knowledge of defects is only justified by the circumstance that the eventual success of the defects of priority knowledge renders unnecessary the knowledge of the remaining ones, since if it were always necessary to know all the defects the order of their knowledge would be irrelevant.

By the above, the defects proceeding, the knowledge of the defects of violation of the right to prior hearing, of violation of the principles of inquisitorial procedure, cooperation and substantive truth already analyzed jointly with the two previous defects, as well as the alleged unconstitutionality, is prejudiced.

Indemnity Interest

The Claimant further requests that the payment of indemnity interest be determined, considering that the act of rejection of the request for official review, object of the present request, results from error in the application of the assumptions of fact and law on which the law makes depend the correction proposed by the Tax Administration, and that the error in question is entirely imputable to the Tax Administration.

The present tribunal is competent to analyze the question of the eventual condemnation of the Tax Administration to indemnity interest as provided in paragraph b) of article 24 of the Legal Framework for Tax Arbitration insofar as the arbitral decision on the merits of the claim, which is not subject to appeal or challenge, binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the execution of sentences from tax courts, "restore the situation that would exist if the tax act object of the arbitral decision had not been carried out, adopting the acts and operations necessary for such purpose", which is in line with the provision in article 100 of the LGT, applicable by force of the provision in paragraph a) of no. 1 of the Legal Framework for Tax Arbitration.

Already in the terms of no. 5 of article 24 of the Legal Framework for Tax Arbitration when it states that "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process," it is nothing more than the recognition of the right to indemnity interest in the arbitral proceedings.

Doctrine has also argued that the determination of the effects of its decisions falls within the scope of the competencies of arbitral tribunals, in the same terms provided for judicial challenge, particularly with regard to condemnation for indemnity interest or condemnation for unjustified guarantee (Cf. Carla Castelo Trindade (2016), "Legal Framework for Tax Arbitration Annotated", 121 and Jorge Lopes de Sousa (2013), "Commentary to the Legal Framework for Tax Arbitration", 116).

This was also the understanding of the arbitral tribunal constituted in the scope of process no. 66/2013-T, where claims for reimbursement and condemnation for payment of indemnity interest were also at issue. That tribunal concluded that:

"Thus, similarly to what occurs in tax courts in judicial challenge proceedings, this Tribunal is competent to assess requests for reimbursement of the amount paid and for payment of indemnity interest.

In the case at hand, it is clear that these requests must proceed, since the assessments are annulled and the error from which they suffer is imputable to the Tax Administration, so that the right to indemnity interest is recognized by article 43, no. 1 of the LGT."

Thus, concluding that this tribunal that the act of withholding at source of Corporate Income Tax relating to the year 2009 is illegal, and also illegal, by implication, the act of rejection of the request for official review, due to a defect of violation of law due to error regarding the assumptions of law, which justifies its annulment, in accordance with article 163 of the Code of Administrative Procedure, applicable in accordance with article 29, no. 1, paragraph d), of the Legal Framework for Tax Arbitration and 2, paragraph c) of the LGT, the Claimant's request for indemnity interest also proceeds, counted from the date on which the decision rejecting the request for official review occurred.

V. DECISION

The arbitral tribunal decides as follows:

a) To uphold in full the request for arbitral decision;

b) To declare the illegality and consequent annulment of the act of rejection of the official review, issued with delegation of authority, by Her Excellency the Deputy Director General, on 06/06/2017, and notified to the Claimant on 14/06/2017, and also of the acts of withholding at source of Corporate Income Tax, relating to the dividends distributed to the Claimant relating to the fiscal year 2009, in the assessed amount of 148,607.20 Euros, ordering the respective reimbursement;

c) To condemn the Tax and Customs Authority to pay to the Claimant indemnity interest, in accordance with article 43, no. 1, of the LGT and article 61 of the CPPT from the date of the decision rejecting the request for official review.

VI. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at 148,607.20 euros in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the Legal Framework for Tax Arbitration and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VII. COSTS

There is no place for the determination of costs [articles 6-b) and 4-1, a contrario, of the RJAT]

Notify.

Lisbon, 25 May 2018

The Collective Arbitral Tribunal

José Poças Falcão

(President Arbitrator)

Carla Castelo Trindade

(Adjunct Arbitrator)

Manuel Pires

(Adjunct Arbitrator and who annexes dissenting vote declaration)

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference to article 29, no. 1, paragraph e) of the Tax Arbitration Framework

The drafting of the present decision is governed by the old orthography.

DISSENTING VOTE DECLARATION

  1. I voted in dissent, as I understood there to be material lack of jurisdiction of the arbitral tribunal. Art. 1 of Decree-Law no. 10/2011, of 20 January, established "arbitration as an alternative means of jurisdictional resolution of disputes in tax matters". However, "The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on a regulation of the members of the government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered" (art. 4, no. 1 of the cited Decree-Law). Hence, unlike sometimes intended, the law does not correspond to generic, abstract, unconditional and unrestricted adherence to arbitration, but rather adherence to arbitration with legally permissible limitations. In accordance, in Regulation no. 112-A/2013, of 22 May, the binding of the now TA to the jurisdiction of arbitral tribunals was established (articles 1 and 2 preambles) "with the exception of (....) Claims relating to the declaration of illegality of self-assessment acts, withholding at source and payments on account, which have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" [cited article 2, paragraph a)]. The adherence, therefore, "to this mechanism of alternative resolution of disputes" was "in accordance with the terms and conditions here [in the cited regulation] established, taking into account the specificity and value of the matters in question", such that one cannot invoke the fullness of the alternative character of arbitration with challenge, since legally and expressly permitted limitations have been allowed, as well as established, to which one must necessarily attend, whatever the nature attributed to the regulation, even because of the heightened relevance, in the case, because, although in general the assessment of the type now in question is an exception, the return to the possibility of competence operates, should something be complied with that, without it, is repeated, would be outside the field of arbitration, that is, one is faced with an exception to the exception. The limitation, in the case under judgment, is the precedence of the gracious complaint and not "the recourse to the administrative route" in general referred to, but immediately limited. Otherwise, why was something added to the recourse to such route? It would be an inutility. How is it possible to understand that the corresponding norm permits the affirmation of obedience to the precept according to which "The interpretation cannot, however, consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, albeit imperfectly expressed" (article 9, no. 2 of the CC)? Otherwise, considering only the unlimited prior, what is the effect of the subsequent, constituted by the restriction? And it is because there is specificity and not generality that it is not acceptable to think that the desired was any type of prior assessment by the Administration of something it had not yet considered, to be submitted to an entity outside its scope, and it is not acceptable because there was specification established by the norm, there was limitation of the route to be used for such purpose. Moreover, the limitation is even more ostensive when article 124 of Law 3-B/2020, of 28 April, the law authorizing arbitration, refers, within the scope of the possibilities of the object of the proceedings, to acts "of total or partial rejection of gracious complaints or requests for review of tax acts, administrative acts that entail assessment of the legality of assessment acts", wording much broader than that finally adopted. An eventual different will of the legislator was in no way made explicit, on the contrary, the limitation ostensively added is revealing of the lack of such will, not being receivable the presumption of a judge without expertise or distracted (article 9, no. 3 of the CC). It is certain that the maxim in claris non fit interpretatio has been long superseded, but the extension of the letter of the law, which would occur with the intended interpretation, is only admissible for clear and determining reasons, which does not occur, since there are not even any reasons, given that the gracious complaint and the (official) review constitute different procedures both because of the initiative (articles 68 of the CPPT and 78 of the LGT), as for the objectives (idem), as for the periods (articles 70 of the CPPT and 78 of the LGT) as for the decision-maker (articles 75 of the CPPT, 78 of the LGT and 6, no. 4 of Decree-Law no. 433/99), as for the effects (articles 68 of the CPPT and 79 of the LGT), those being relevant, in the case under assessment, the periods and the decision-maker, so the respective equation is therefore totally forced and cannot be dictated by a mere identity between the review and the complaint resulting from both providing the possibility of prior assessment by the TA, since the differences noted with interest in the present scope and never considered, a not comprehensive interpretation, however, that does not eliminate that possibility of assessment. Therefore, it is not a matter of indifference the recourse to one or the other route, particularly regarding the difference concerning the entity of different hierarchical grade that will deliver the decision, it being obviously not a question of requiring the corresponding accumulation, since the legislator opted for only one: the gracious complaint. As a result of what was written, it is not admissible, it would even be incongruous, that the law, after explicitly stating the limitation following the generic reference to "recourse to the administrative route", should include implicitly the perfect equation, bearing in mind the interpretation of the relevant provision in accordance with jurisprudence in the scope of judicial challenge – article 131 of the CPPT, an argument consecrating, like others, the unacceptable tendency of seeking to cover arbitration with rules of other institutions, even in confrontation with the specific rules of the said arbitration. Therefore, it is not enough, to support the contrary opinion, mere reference to art. 131 of the CPPT. There is no reason, therefore, to disregard the reservation formulated, that the inclusion of the review should be considered unequivocal, striking, with that disregard and inclusion, the freedom and the option made, freedom and option that legally and clearly led to a restriction of the arbitral process compared to challenge, to its alternative character, freedom recognized by the decree-law and made concrete by the regulation, hence it cannot be attributed to it illegality of any degree. The contrary would be the expansion of the limited binding of arbitration, limitation that clearly was permitted and established, binding that does not exist in the case of challenge, a limitation that could even have been broader, given the provision in the decree-law under reference, it being well to emphasize that, with the character adopted, it is not impossible "arbitration as an alternative means of resolution of disputes in tax matters", as yet another element of protection of the taxpayer's interests, of reinforcement, therefore, of its protection, since arbitration is possible, which did not occur before, nor is it equally invocable the denial of the principle of access to law and of the taxpayer's right to effective jurisdictional protection, solely because it was not granted the choice that may exist in other domains but not in this, for the reasons here widely referred to and sufficiently justified. Otherwise, it is incomprehensibly placing the reasoning at a time prior to that of the limitations, obscuring them entirely contra legem. Also, therefore, cannot art. 78 of the LGT be considered violated, by merely not having admitted, in the case, the route established therein, having, however, been admitted another legally, there being nothing that would have prevented the route followed, being, on the contrary, admitted.

Also to invoke disagreement of the sort of word ("preceded" instead of "preceded", because referring to claims) as something probative of lack of rigor in the drafting of the provision under analysis, leading to another "deficiency" that would be the juxtaposition of the complaint to the administrative route in general, a juxtaposition that, according to the same opinion, would be unnecessary, is something that, by the comparison made, does not involve extended commentary, since it is sufficient to note that the two cases are qualitatively very disparate, without a trace of comparability. The restricted requirement is clear, there is no imperfection whatsoever, not forgetting that "in fixing the meaning and scope of the law, the interpreter will presume that the legislator considered the most correct solutions and knew how to express his thought in adequate terms" (article 9, no. 3 of the CC). Everything results in not being faced with mere literal interpretation, since the circumstantiality that surrounded the creation of the norm and its ratio clearly demonstrate what was stated. In the sense supported, what Counselor Jorge Lopes de Sousa taught in 2011 appears: "In accordance with the provision in article 2, paragraph a), of Regulation no. 112-A/2011, of 22 March, regarding self-assessment acts, the Tax Administration only bound itself to the jurisdiction of arbitral tribunals if the request for declaration of illegality was preceded by recourse to the administrative route, that is, by a gracious complaint. Therefore, if the taxpayer wishes to submit a request for declaration of illegality to an arbitral tribunal, the gracious complaint will always be necessary" (Code of Tax Procedure and Process Annotated and Commented, 6th edition, 2011, II volume, p. 409; cfr., for other types of cases, pgs. 430 and 428). And do not say either, by reflecting thought previously in vogue and not the current enlightened thought, that the solution object of our dissent has a guarantee function, since the assessment of taxes has an aggressive or even strongly aggressive nature, and to support our disagreement on this aspect it is not necessary to resort to Murphy and Nagel with their The Myth of Ownership - the taxes and justice. Concluding: from everything written it results that the material lack of jurisdiction of this arbitral tribunal to assess the present case should have been decided, finding procedure in the invoked exception, such that the merits of the request should not have been known. And do not say that the contrary opinion is accepted or, using the usual sense, do not say one is faced with vox clamantis in deserto. (cfr. judgments in Processes nos. 51/2012-T, 236/2013-T and 603/2014-T).

  1. I also voted in dissent because I understood, even if the previous exception were not upheld, which is not conceded, that the tribunal was incompetent as to the matter of reimbursement consequent to the success of the claim, considering the legal provisions governing the respective power to judge – namely articles 2, no. 1 and 24, no. 1, paragraph b) of the RJAT and Regulation no. 112-A, of 22

Frequently Asked Questions

Automatically Created

What was the outcome of CAAD arbitration case 506/2017-T regarding IRC withholding tax on a UK pension fund?
The text excerpt does not provide the final outcome of case 506/2017-T, as it ends during the preliminary jurisdictional analysis. The tribunal was examining whether it had jurisdiction to hear the case, given that the challenge followed rejection of an official review (revisão oficiosa) rather than a gracious complaint (reclamação graciosa). The Tax Authority argued the tribunal lacked jurisdiction under Regulation 112-A/2011, which excludes withholding tax challenges not preceded by proper administrative routes per articles 131-133 CPPT. The tribunal's analysis focused on whether official review constitutes valid administrative precedent for arbitral jurisdiction.
What are the requirements for proving withholding tax retention at source under Portuguese IRC law?
Under Portuguese IRC law, withholding tax retention proof requirements involve establishing both the fact of retention and its legal basis. The burden of proof typically falls on the Tax Authority to demonstrate lawful withholding, though taxpayers must substantiate claims for exemption or reduced rates. In this case, the claimant alleged violations of proof assessment rules and burden of proof allocation. Article 132(6) CPPT applies Article 131 provisions to withholding tax cases, requiring administrative challenge unless the foundation is exclusively a legal matter and withholding follows generic AT guidelines. Documentation of payment, applicable tax treaties, beneficiary status, and compliance with formal requirements are essential evidentiary elements.
Can a non-resident pension fund challenge a definitive withholding tax decision through official review (revisão oficiosa) in Portugal?
A non-resident pension fund can challenge definitive withholding tax through official review (revisão oficiosa) under Article 78 of the Tax Procedure Code (LGT), but jurisdictional limitations apply when seeking subsequent arbitral or judicial review. Regulation 112-A/2011 excludes from CAAD arbitral jurisdiction claims regarding self-assessment acts (including withholding tax) not preceded by administrative routes per Articles 131-133 CPPT. The proper route is typically gracious complaint (reclamação graciosa) under Article 132 CPPT, unless Article 131(3) exception applies—when the issue is exclusively legal and withholding follows generic AT guidelines. Official review filed after the two-year Article 132 deadline may not satisfy jurisdictional prerequisites for subsequent arbitral challenge.
How does the principle of EU tax equality apply to withholding tax on non-resident pension funds in Portugal?
EU tax equality principles prohibit discriminatory treatment of non-resident pension funds compared to resident entities regarding withholding tax. The claimant invoked violation of EU equality principles and European Union law, suggesting the withholding tax treatment discriminated against the UK pension fund. Portuguese courts and CAAD tribunals must interpret domestic tax provisions consistently with EU fundamental freedoms, particularly free movement of capital (Article 63 TFEU) and freedom of establishment. Tax treaties and EU Directives may provide exemptions or reduced rates. The principle requires comparable tax treatment for comparable situations, preventing restrictions on cross-border investment solely based on residence. Any differential treatment must be objectively justified and proportionate.
What procedural rights, including the right to a prior hearing (audiência prévia), apply in Portuguese tax arbitration cases involving withholding tax disputes?
The right to prior hearing (audiência prévia) in Portuguese tax arbitration derives from Article 60 LGT and constitutional administrative procedure principles. In withholding tax disputes, this right applies before adverse decisions affecting taxpayer rights, including rejection of review requests or confirmation of withholding obligations. The claimant specifically alleged breach of prior hearing rights as a substantive ground for annulment. Procedural rights in CAAD arbitration include: submission of evidence and observations (Article 16 RJAT), participation in hearings unless dispensed with under efficiency principles, access to administrative files, and opportunity to respond to all arguments. The tribunal must respect principles of contradiction, inquisitorial procedure, cooperation, and substantive truth-seeking. Violation of audiência prévia constitutes a procedural defect potentially justifying annulment of administrative acts.