Process: 540/2017-T

Date: March 23, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 540/2017-T) addresses a fundamental procedural issue in Portuguese VAT law: the burden of proof for notification in tax inspection procedures. A company contested additional VAT assessments totaling €209,407.65 for the 2012 tax year, plus €54,645.84 in compensatory interest. The Tax Authority had disallowed VAT deductions after the taxpayer allegedly failed to respond to two notification letters requesting supporting documentation. However, the arbitral tribunal found that the Tax Authority failed to prove the company actually received these notifications. Postal tracking showed 'Item not found' status, and the Authority acknowledged that postal records are only maintained for one year. The tribunal emphasized that under Portuguese administrative procedure law, the burden of proving proper notification rests with the Tax Authority, not the taxpayer. Without valid proof of notification, the inspection procedure was deemed to have violated the taxpayer's right to be heard (direito de audição) and procedural fairness. The decision demonstrates that tax authorities cannot simply rely on having sent notifications—they must prove actual receipt or compliance with legal notification requirements. When this proof is lacking, subsequent tax assessments become procedurally defective. The case illustrates the importance of proper administrative procedure in tax matters and reinforces taxpayer protections in Portuguese tax arbitration. Tax professionals should note that taxpayers can successfully challenge assessments based on notification failures, even when substantive tax issues might be complex. This ruling protects taxpayers from assessments issued following inspection procedures where their participation rights were compromised by unproven notifications.

Full Decision

Arbitral Decision

The arbitrators Counselor Jorge Lopes de Sousa (arbitrator-chairman), Dr. Paulo Lourenço and Dr. António Pragal Colaço (arbitrators-members), appointed by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 20-12-2017, agree as follows:

1. Report

A…, LDA., with registered office at …, no. …, … - … Lisbon, registered at the Commercial Registry Office of Lisbon, with unique registration and tax identification number … (hereinafter referred to as the "Claimant"), came, pursuant to article 10, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "LRAT"), to submit a request for arbitral decision seeking to contest the tacit dismissal that was formed on the administrative appeal submitted on 07-03-2017, in which it contested the additional VAT assessments relating to the periods 2012/01 to 2012/12 and respective compensatory interest for the fiscal year 2012.

The Claimant requests that the legality of the additional VAT assessments for the VAT periods 2012/01 to 2012/12, in the total amount of €209,407.65, and the respective compensatory interest assessments, in the amount of €54,645.84, be assessed and their annulment, or nullity, be declared, all with the due legal consequences.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAC and automatically notified to the Tax and Customs Authority on 09-10-2017.

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LRAT, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.

On 28-11-2017 the parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the LRAT, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 20-12-2017.

On 01-02-2018, the Tax and Customs Authority submitted a reply in which it argued that the request should be judged to be without merit.

By order of 22-02-2018, a hearing was dispensed with and it was decided that the proceeding would continue with written submissions.

The parties submitted their submissions.

The arbitral tribunal was duly constituted, in light of the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of the LRAT, and is competent.

The parties are duly represented, enjoy legal standing and capacity and have legitimacy (articles 4 and 10, no. 2, of the same instrument and article 1 of Order no. 112-A/2011, of 22 March).

The proceeding does not suffer from any nullities.

2. Factual Matters

2.1. Proven Facts

Based on the elements contained in the proceeding and in the administrative file attached to the records, the following facts are considered proven:

  • The Claimant A…, LDA., is registered in the registry with main CAE (Economic Activity Code) 47 915, being classified, for VAT purposes, under the normal regime with monthly periodicity since 01-04-1987;

  • The Tax and Customs Authority conducted an inspection of the Claimant in which it prepared the Tax Inspection Report contained in document no. 1 attached with the request for arbitral decision, the contents of which are reproduced, in which it states, among other things, the following:

III. DESCRIPTION OF FACTS AND BASIS FOR CORRECTIONS THAT ARE PURELY ARITHMETICAL

In the course of this inspection procedure, the taxpayer was notified by letter no. …, dated 2015/09/21, with CTT registration no. RD … PT, to proceed with the delivery of various documents and clarifications. Namely: what are the values declared in Field 40 of the VAT declarations of the year in question (see Annex I of 2 pages).

As the taxpayer did not respond to this notification, letter no. …, dated 2016/02/11, with CTT registration no. RD … PT, was sent to him (see Annex II of 2 pages).

Thus the taxpayer was notified again of the contents of the notification referred to above, and also to prove the values declared as deductible VAT (fields 20, 21, 22, 23 and 24) in the same declarations. This notification was also not responded to.

  1. CORRECTIONS IN VAT

The taxpayer during the year 2012 proceeded to file VAT declarations as he was obliged to do under paragraph c) of no. 1 of article 29 and paragraph b) of no. 1 of article 41, both of the VAT Code (CIVA).

In the declarations he declared the following values:

[Table follows in original]

These values would be deductible under articles 19 to 26 of the CIVA, provided they were duly documented.

Notified to the taxpayer to present the supporting documents for deduction of these values, as explained above, he did not present any justification until the present date.

Therefore, these values are considered as improper VAT deduction.

The disregard of these values is proposed.

  • Following the inspection, the Tax and Customs Authority issued the following VAT assessments, which are contained in documents nos. 3 to 14 attached with the request for arbitral decision, the contents of which are reproduced:

[Table follows in original]

  • The Tax and Customs Authority further issued the corresponding compensatory interest assessments, which are contained in documents nos. 15 to 27 attached with the request for arbitral decision, the contents of which are reproduced:

[Table follows in original]

  • On 07-03-2017, the Claimant submitted an administrative appeal of the assessments referred to, in the terms contained in document no. 29 attached with the request for arbitral decision, the contents of which are reproduced, accompanied by documents relating to proof of the values declared as deductible VAT;

  • The Tax and Customs Authority issued the notifications referred to in the Tax Inspection Report;

  • The administrative appeal was not decided until 06-10-2017, the date on which the Claimant submitted the request for arbitral decision that gave rise to the present proceeding.

2.2. Unproven Facts

It was not proven that the Claimant received the notifications that the Tax Inspection Report refers to having been effected with registrations RD … PT and RD … PT.

The Tax and Customs Authority presented copies of the postal registrations, but it was not proven that the Claimant received any of the letters, as in document no. 2 attached with the request for arbitral decision, which is a copy of the document delivery consultation, such registrations are referred to as "Item not found".

Furthermore, the Tax and Customs Authority itself alleging that, after one year, the postal services no longer maintain records of document deliveries, no additional diligence is justified to ascertain whether delivery was effected.

2.3. Reasoning for the Determination of Factual Matters

The proven facts are based on the documents attached by the Claimant with the request for arbitral decision and on the administrative file attached by the Tax and Customs Authority.

3. Legal Matters

The Tax and Customs Authority considered in the Tax Inspection Report that the VAT values contained in the declarations submitted by the Claimant in the year 2012 "would be deductible under articles 19 to 26 of the CIVA, provided they were duly documented".

According to what is stated in the Tax Inspection Report, the Claimant was notified twice to "prove the values declared as deductible VAT" and, the Tax and Customs Authority having received no response, it considered "these values as improper VAT deduction".

Thus, the Claimant's failure to respond to the notifications and the failure to present documentation that could prove the declared values were the basis for the assessments. That is, the Tax and Customs Authority did not consider the deductible VAT "because the respective supporting documentation had not been presented", as the Tax and Customs Authority summarizes in article 12 of its Reply.

The Claimant states that it was not notified and, in its administrative appeal, presented numerous documents (which it presented again in this arbitral proceeding), regarding which there was no appraisal by the Tax and Customs Authority, either in the administrative appeal or in the present proceeding.

However, as results from the factual matters determined, it was not proven that the notifications were received.

Under article 74, no. 1, of the LGT (General Tax Law), "the burden of proof of the facts constituting the rights of the tax authority or of the taxpayers falls on whoever invokes them".

Therefore, the Tax and Customs Authority being the one who invokes that it effected the notifications, which are the factual requirement of the assessments, the doubt about the receipt of those notifications must be procedurally weighed against the Tax and Customs Authority, which procedurally amounts to considering that they were not effected.

The fact alleged by the Tax and Customs Authority that the postal services do not maintain records of deliveries after the period of one year does not relieve the Tax and Customs Authority of proving this, for it should have obtained a copy of the delivery registration while it was being provided by those services.

In this context, being the failure to respond to the notifications referred to the fact on which the Tax and Customs Authority based the assessments, the lack of correspondence to the reality of that fact implies that the assessments suffer from a defect of violation of law due to error regarding the factual requirements.

Furthermore, in the case of tacit dismissal of administrative challenge of express acts, such as that of tacit dismissal of administrative appeal of assessments, it is to be considered that the express reasoning of the challenged acts is transferred to the silent act of dismissal of the appeal, it being understood that the second-level act maintained the primary acts for the same reasons.[1] That is, it is fictively deemed that the administrative appeal was dismissed "because the respective supporting documentation had not been presented".

Having the Claimant presented numerous documents with its administrative appeal, the lack of their presentation also no longer corresponds to reality, and therefore cannot justify the maintenance of the assessments.

Based on the foregoing, the contested assessments suffer from a defect due to error regarding the factual requirements, which justifies their annulment, under article 163, no. 1, of the Code of Administrative Procedure subsidiarily applicable under article 2, paragraph c), of the LGT.

4. Decision

In these terms, this Arbitral Tribunal agrees to:

  • Judge the request for arbitral decision to be well-founded;

  • Annul the following VAT assessments and compensatory interest assessments:

[Tables follow in original]

5. Value of the Proceeding

In accordance with the provisions of article 306, no. 2, of the CPC (Code of Civil Procedure) and 97-A, no. 1, paragraph a), of the CPPT (Code of Tax Procedure) and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €264,053.49.

6. Costs

Under article 22, no. 4, of the LRAT, the amount of costs is fixed at €4,896.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, chargeable to the Tax and Customs Authority.

Lisbon, 23-03-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Paulo Lourenço)

(António Pragal Colaço)

[1] In this sense, the following decisions of the Supreme Administrative Court may be seen:

  • of the Plenary, of 29-10-97, handed down in appeal no. 22267, published in the Bulletin of the Ministry of Justice no. 470, page 305, and in Appendix to the Official Gazette of 11-1-2001, page 1932;

  • of the Administrative Litigation Section, of 26-9-1996, handed down in appeal no. 39810, published in Appendix to the Official Gazette of 15-3-99, page 6309;

  • of the Administrative Litigation Section of 23-3-2000, handed down in appeal no. 40827;

  • of the Administrative Litigation Section of 14-3-2001, case no. 38225, published in Doctrinal Decisions of the Supreme Administrative Court, no. 479, page 1401, and in Appendix to the Official Gazette of 21-7-2003, page 2067.

In the same sense, see VIEIRA DE ANDRADE, The duty of express reasoning of administrative acts, page 162.

Frequently Asked Questions

Automatically Created

What happens when the Portuguese Tax Authority fails to prove notification of VAT additional assessments?
When the Portuguese Tax Authority fails to prove notification of VAT additional assessments, the underlying tax inspection procedure becomes procedurally defective. In Process 540/2017-T, the CAAD tribunal determined that the burden of proving proper notification rests with the Tax Authority. Without valid proof that the taxpayer received notifications requesting documentation, the Authority cannot claim the taxpayer failed to respond. The tribunal found that postal registration numbers alone are insufficient—actual delivery must be proven. When postal tracking shows 'Item not found' and records have been deleted after one year, the Tax Authority cannot meet its burden of proof. This procedural failure violates the taxpayer's constitutional right to be heard (direito de audição) and compromises the validity of subsequent assessments. The legal consequence is typically annulment of the assessments, as they were issued following a defective procedure that denied the taxpayer the opportunity to present documentation and exercise defense rights during the inspection phase.
Can VAT additional assessments for 2012 be challenged through tax arbitration (CAAD) in Portugal?
Yes, VAT additional assessments for 2012 can be challenged through tax arbitration (CAAD) in Portugal. Under Article 10(1)(a) of the RJAT (Legal Regime for Tax Arbitration), taxpayers may submit requests for arbitral decisions to contest tax assessments. In this case, the taxpayer challenged the tacit rejection of an administrative appeal (reclamação graciosa) submitted on March 7, 2017 against VAT assessments for periods 2012/01 to 2012/12. The arbitral tribunal confirmed its jurisdiction and competence under Articles 2(1)(a) and 10(1) of RJAT. Tax arbitration provides an alternative to judicial courts for resolving tax disputes, offering faster resolution times. The CAAD was properly constituted with three arbitrators appointed by the Ethics Council. Taxpayers can contest both the principal tax assessments and related compensatory interest assessments through a single arbitration proceeding. There are no temporal limitations preventing challenge of 2012 assessments if proper administrative procedures (like filing a gracious complaint) were followed within statutory deadlines before initiating arbitration.
What is the legal consequence of tacit rejection of a gracious complaint (reclamação graciosa) regarding VAT in Portugal?
Under Portuguese tax law, when a gracious complaint (reclamação graciosa) is not decided within the statutory period, a tacit rejection is formed. In this case, the administrative appeal filed on March 7, 2017 was not decided by October 6, 2017, when the taxpayer submitted the arbitration request. Article 10(1)(a) of the RJAT specifically allows taxpayers to contest tacit rejections through tax arbitration. The tacit rejection has the same legal effect as an express dismissal, preserving the taxpayer's right to judicial or arbitral review. This procedural mechanism prevents the Tax Authority from blocking taxpayer access to justice through administrative inaction. Once tacit rejection is formed, the taxpayer may immediately proceed to arbitration without waiting for an express decision. The CAAD tribunal treats tacit rejections as valid grounds for arbitration, examining both procedural and substantive aspects of the underlying assessments. This legal framework ensures taxpayers are not prejudiced by administrative delays and maintains effective judicial protection of taxpayer rights, as guaranteed by the Portuguese Constitution and EU law principles.
How does the CAAD arbitral tribunal handle disputes over IVA (VAT) liquidations and compensatory interest?
The CAAD arbitral tribunal handles disputes over IVA (VAT) liquidations and compensatory interest by conducting a comprehensive review of both procedural and substantive legality. In Process 540/2017-T, the tribunal constituted a collective panel of three arbitrators to examine VAT assessments totaling €209,407.65 plus €54,645.84 in compensatory interest for the 2012 tax year. The tribunal follows a structured process: accepting the case, appointing arbitrators, allowing the Tax Authority to submit a defense (contestação), and deciding whether oral hearings are necessary. The tribunal independently evaluates the factual record based on the administrative file and documents submitted by both parties. It applies the burden of proof rules, placing responsibility on the Tax Authority to demonstrate the legality of assessments, particularly regarding procedural requirements like proper notification. The tribunal examines whether the Tax Authority complied with substantive VAT law provisions (Articles 19-26 of CIVA regarding deductibility) and procedural requirements under administrative law. When procedural defects are found—such as failure to prove notification—the tribunal may annul assessments without reaching substantive tax issues. Decisions address both principal tax and related compensatory interest assessments together, providing comprehensive resolution of the dispute.
What are the taxpayer's rights when contesting VAT additional assessments totaling over €200,000 in Portuguese tax arbitration?
Taxpayers contesting VAT additional assessments exceeding €200,000 in Portuguese tax arbitration have robust procedural and substantive rights. Under the RJAT, taxpayers may request formation of a collective arbitral tribunal (three arbitrators instead of a single arbitrator) for complex or high-value cases, ensuring more thorough deliberation. In this case involving €264,053.49 total (tax plus interest), a three-member tribunal was constituted. Taxpayers have the right to proper notification of all tax inspection procedures and assessments, with the burden on the Tax Authority to prove compliance. They may challenge both procedural defects (like notification failures) and substantive errors in tax calculation. Taxpayers can submit extensive documentation, including evidence not presented during the administrative phase, as occurred here when the company submitted VAT documentation with its arbitration request and administrative appeal. They have the right to written submissions presenting legal arguments and can request oral hearings. The right to constitutional and administrative procedural protections applies, including the right to be heard (direito de audição). Arbitration provides faster resolution than judicial courts while maintaining full legal protection. Successful challenges result in annulment of assessments with full reversal of tax and interest obligations.