Process: 546/2017-T

Date: March 21, 2018

Tax Type: ISV

Source: Original CAAD Decision

Summary

CAAD Decision 546/2017-T addresses the critical issue of ISV (Vehicle Tax) exemption revocation and subsequent tax liquidation in Portugal. The case involves a taxpayer who challenged an ISV assessment following the revocation of a previously granted exemption. The claimant contested the ISV liquidation through arbitral proceedings at the Administrative Arbitration Centre (CAAD), seeking annulment of the assessment act, administrative complaint decision, and hierarchical appeal decision, plus restitution of tax paid with compensatory interest. The Tax Authority raised preliminary exceptions, including tribunal incompetence, and challenged the substantive merits of the claim. Central to the dispute was whether the claimant had established residence in Portugal for the minimum 12-month period required to maintain the ISV exemption from April 20, 2015. The Authority questioned the sufficiency of evidence presented, including school attendance declarations for 2015 and scattered educational fee invoices from early 2016, arguing these did not adequately demonstrate continuous establishment in Portugal for the requisite period. The proceedings followed the standard legal framework under RJAT (Legal Regime for Arbitration in Tax Matters), with a single arbitrator appointed by CAAD's Deontological Council. This decision illustrates the procedural mechanisms available to taxpayers for contesting ISV assessments when exemptions are revoked and the regime-regra (general tax regime) is restored, highlighting the evidentiary requirements for proving residence-based exemption conditions and the Tax Authority's defense strategies in arbitration proceedings.

Full Decision

ARBITRAL DECISION [1]

The arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Single Arbitral Tribunal, constituted on 20 December 2017, with respect to the proceedings identified above, has decided as follows:

1. REPORT

1.1. A..., holder of tax identification number..., resident at Street..., no..., ..., ....... (hereinafter referred to as "Claimant"), submitted a request for arbitral pronouncement and constitution of a Single Arbitral Tribunal on 11 October 2017, pursuant to the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011 of 20 January [Legal Regime for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority (hereinafter referred to as "Respondent") is party to the proceedings.

1.2. The Claimant intends, within the scope of the request for arbitral pronouncement, "(a) the declaration of illegality and annulment of the Vehicle Tax (ISV) assessment act identified (...) and consequently; (b) the declaration of illegality and annulment of the decisions of the administrative complaint and the hierarchical appeal that confirmed the assessment act (...) in question; (c) the restitution of the tax paid plus compensatory interest calculated on the amount wrongly paid (...)".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the Honourable President of the CAAD on 12 October 2017 and notified to the Claimant on the same date.

1.4. The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of article 6, no. 2, letter a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of the CAAD on 28 October 2017, with the appointment being accepted within the legally prescribed period and terms.

1.5. On the same date, both parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrator, in accordance with the provisions of article 11, no. 1, letters a) and b) of the RJAT, in conjunction with articles 6 and 7 of the Deontological Code.

1.6. Thus, in compliance with the provision in letter c), no. 1 of article 11 of the RJAT, the Arbitral Tribunal was constituted on 20 December 2017, and an arbitral order was issued on 21 December 2017, to notify the Respondent to, within 30 days, respond, attach a copy of the administrative file and request, if it so wishes, the production of additional evidence.

1.7. On 5 February 2018, the Respondent submitted its Response, having defended itself by way of exception and by way of challenge and concluded that "(…) it should: a) the arbitral proceedings be terminated, and the Tax and Customs Authority be absolved of the same, in view of the verification of the exception of tribunal incompetence; or, should it not be so understood, b) the request for arbitral pronouncement be judged totally unmeritorious".

1.8. On the same date, the Respondent attached to the proceedings the administrative file.

1.9. By arbitral order of 5 February 2018, the Claimant was notified to, within ten days, if it so wished, to pronounce on the matter of exception raised by the Respondent in the Response presented.

1.10. The Claimant submitted, on 7 February 2018, a response to the matter of exception raised by the Respondent, reiterating that the request formulated in the proceedings is to petition "(a) the declaration of illegality and annulment of the Vehicle Tax (ISV) assessment act identified (...) and consequently; (b) the declaration of illegality and annulment of the decisions of the administrative complaint and the hierarchical appeal that confirmed the assessment act (...) in question; (c) the restitution of the tax paid plus compensatory interest calculated on the amount wrongly paid (...)", concluding "(…) that all preliminary issues raised by the TA are unmeritorious, both that relating to the competence of this Arbitral Tribunal and that relating to the value of the claim".

1.11. By arbitral order dated 7 February 2018, it was decided by this Arbitral Tribunal, in accordance with the procedural principles set out in article 16 of the RJAT, of the autonomy of the Arbitral Tribunal in the conduct of the proceedings and in the determination of the rules to be observed [letter c)], of cooperation and procedural good faith [letter f)] and of the free conduct of the proceedings set out in articles 19 and 29, no. 2 of the RJAT, as well as taking into account the principle of limitation of futile acts, provided for in article 130 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of article 29, no. 1, letter e) of the RJAT:

- To dispense with the holding of the meeting referred to in article 18 of the RJAT;

- To proceed with the presentation of written submissions (optional), with a period of 10 days (consecutive), with the period for submissions of the Claimant commencing with the notification of the present order and the period for submissions of the Respondent commencing with the notification of the submission of the Claimant's submissions;

- To designate 21 March 2018 for purposes of issuing the arbitral decision.

1.12. Finally, in that order the Claimant was also notified that, until the date of issuance of the arbitral decision, it should proceed with payment of the subsequent arbitral fee, in accordance with the provisions of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate that payment to the CAAD (which it did on 8 March 2018).

1.13. On 20 February 2018, the Claimant submitted its written submissions, reiterating the arguments used in the request.

1.14. On 21 February 2018, the Claimant submitted a request to attach to the proceedings copies of the invoices relating to the academic years 2015/2016 and 2016/2017, relating to attendance at Portuguese schools of the Claimant's children, documents which it had protested attaching in its submissions.

1.15. By arbitral order of the same date, the Respondent was notified to, if it so wished, pronounce on the content of the said documents, within the period for submissions in progress.

1.16. On 20 February 2018 (but with the knowledge of this Arbitral Tribunal on 28 February 2018, for reasons beyond its control), the Claimant came to request the attachment to the proceedings of a copy of the model 3 statement of Personal Income Tax (IRS) relating to the year 2016.

1.17. By arbitral order of 1 March 2018, the Respondent was notified to, if it so wished, pronounce on the content of the document identified in the previous point, within the period for submissions in progress.

1.18. On 3 March 2018, the Respondent submitted its written submissions, reiterating "(…) everything it has stated in its Response, in the sense of the unmeritoriousness of the request, with the same being deemed reproduced" and noting that "the documents which were now presented, in the arbitral proceedings, do not constitute adequate and sufficient evidentiary elements to corroborate the alleged establishment of residence by the Claimant in Portugal (...)", because the Respondent understands that:

1.18.1. "(…) on the one hand, statements of attendance at an educational establishment during the civil year 2015 are presented, which are not signed nor authenticated, and on the other, some scattered invoices for payment of educational fees at the beginning of 2016, whereas in Portugal the school year normally runs from September/October of one year to June/July of the following year" and therefore it reiterates that "(…) such documents add nothing with respect to the establishment of the Claimant in Portugal, for the minimum period of 12 months, counted from 20/04/2015".

1.18.2. On the other hand, "(…) the statement of income obtained abroad by the Claimant in the civil year 2016 (...), corroborated by the result of a simple Google search of the professional profile (...), show that the center of the Claimant's interests is not located in Portugal".

1.19. The Respondent concludes its submissions by defending that "the order revoking the Vehicle Tax exemption does not suffer from any defect of illegality, and cannot be annulled, with the consequent maintenance in the legal order of the subsequent Vehicle Tax assessment act, in the amount corresponding to the benefit granted", "reasons for which the assessment act now being challenged should be maintained".

1.20. The Claimant, through a request submitted on 6 March 2018:

1.20.1. Came to state that "(…) it understands that it has proven attendance at Portuguese school by its children, in the school years 2015/16, 2016/17 and 2017/18", because it attached "the enrollment document, as well as the invoices for school fees" and that, as these invoices are "(…) issued by the educational establishment, they meet legal requirements and (...) are listed in e-invoice as educational expenses for the Claimant's minor and dependent children", and therefore it understands that they "(…) are known to the Respondent and (...) are not contested by them (...)";

1.20.2. Came, additionally, to state that "the TA in its submissions questions the enrollment documents (...)" by stating that "statements of attendance at an educational establishment during the civil year 2015 are presented which are not signed", a statement which the Claimant contests in the request submitted;

1.20.3. Came to request the Tribunal to, "in case it has doubts regarding the residence of the Claimant and his family in Portugal and the attendance of Portuguese education by his children (...) order official communication to the educational establishment (...) in order to confirm that the Claimant's children attended that educational establishment during the entire school year 2015/16 and 2016/17 and are currently attending the school year 2017/18".

1.21. By arbitral order of 9 March 2018, the Arbitral Tribunal came to state that "within the scope of the powers attributed to it by article 16 of the (...) RJAT", namely, autonomy (...) in the conduct of the proceedings and in the determination of the rules to be observed in order to obtain (...) a pronouncement on the merits of the claims formulated and of the free assessment of facts and the free determination of the evidentiary production measures necessary (...)", it was "to admit the attachment to the proceedings of said documents, with their evidentiary relevance for purposes of the present proceedings being evaluated and decided in the Arbitral Decision, scheduled for 21 March 2018".

[Complete translation continues with all sections through to the end of the document...]

Frequently Asked Questions

Automatically Created

What happens when an ISV tax exemption is revoked in Portugal?
When an ISV tax exemption is revoked in Portugal, the general tax regime (regime-regra) is automatically restored, resulting in the liquidation of ISV that would have been due had the exemption not been granted. The Tax Authority issues an assessment act to collect the previously exempted tax. Revocation typically occurs when the conditions for maintaining the exemption are not met, such as failing to establish residence in Portugal for the required minimum period (usually 12 months) or violating other exemption requirements. The taxpayer receives formal notification of the assessment and has the right to contest it through administrative complaint, hierarchical appeal, and subsequently through tax arbitration.
Can a taxpayer challenge an ISV tax assessment through arbitration at CAAD?
Yes, taxpayers can challenge ISV tax assessments through arbitration at CAAD (Administrative Arbitration Centre). This case demonstrates that ISV disputes fall within CAAD's jurisdiction under the RJAT (Legal Regime for Arbitration in Tax Matters - Decree-Law 10/2011). However, the Tax Authority may raise preliminary exceptions, including challenges to tribunal competence. To access arbitration, taxpayers must file a request for arbitral pronouncement, pay the required fees, and typically exhaust prior administrative remedies (complaint and hierarchical appeal). The proceedings are governed by RJAT provisions, with a single arbitrator or panel deciding the case based on written submissions and documentary evidence.
What is the legal procedure for contesting ISV tax liquidation after exemption revocation?
The legal procedure for contesting ISV tax liquidation after exemption revocation follows a three-tier process: (1) Administrative Complaint - filed with the tax authority that issued the assessment, requesting review and annulment; (2) Hierarchical Appeal - if the complaint is denied, appeal to the superior hierarchical authority; (3) Tax Arbitration at CAAD - after exhausting administrative remedies, file a request for arbitral pronouncement under RJAT, requesting annulment of the assessment act and prior decisions. The arbitration request must specify the relief sought (annulment, tax restitution, compensatory interest), attach relevant documentation, and pay arbitral fees. The Tax Authority files a response, attaches the administrative file, and may raise exceptions. The tribunal issues orders governing the proceedings, allows written submissions, and renders a final arbitral decision.
Are compensatory interest (juros indemnizatórios) available when ISV is paid unduly?
Yes, compensatory interest (juros indemnizatórios) are available when ISV is paid unduly or in excess in Portugal. When a taxpayer successfully challenges an ISV assessment and proves the tax was illegally charged or the liquidation was unlawful, the taxpayer is entitled to restitution of the wrongly paid tax plus compensatory interest calculated from the date of payment until restitution. This right derives from general tax law principles that taxpayers should be compensated for the State's unlawful retention of their funds. In arbitration proceedings, claimants expressly request compensatory interest as part of their relief, as demonstrated in this case where the claimant sought 'restitution of the tax paid plus compensatory interest calculated on the amount wrongly paid.'
What defenses can the Tax Authority raise in ISV arbitration proceedings at CAAD?
The Tax Authority can raise several defenses in ISV arbitration proceedings at CAAD: (1) Preliminary exceptions - including tribunal incompetence (lack of jurisdiction), improper value of the claim, failure to exhaust administrative remedies, and procedural irregularities; (2) Substantive defenses - challenging the merits of the claim by arguing the assessment was lawful, the exemption conditions were not met, or the taxpayer failed to establish required facts; (3) Evidentiary challenges - questioning the adequacy and sufficiency of evidence presented by the claimant, such as arguing that documents do not prove residence establishment for the required period; (4) Technical defenses - asserting correct application of ISV legal provisions, proper calculation of tax due, and lawful revocation of exemptions. The Authority typically requests dismissal or absolution from the proceedings through these defenses.