Process: 566/2018-T

Date: March 26, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 566/2018-T) addresses the statute of limitations (caducidade) for IRC (corporate income tax) assessments in Portugal. The claimant, a holding company (SGPS) and parent of a tax consolidation group (RETGS), challenged IRC assessments for 2013 arising from tax inspections of subsidiary companies. The core legal issue concerned whether the Tax Authority's right to assess had lapsed under Articles 45 and 46 of the General Tax Code (LGT). The standard limitation period is four years from the end of the tax year for periodic taxes like IRC. However, Article 46 provides for suspension of this period during tax inspection proceedings. The claimant argued the assessment was time-barred, but the Tax Authority contended that the inspection commenced on 03-10-2017 and the Tax Inspection Report was notified on 23-03-2018, with the assessment itself notified on 08-07-2018. The arbitral tribunal, constituted under Decree-Law 10/2011 (RJAT), had to determine whether these procedural steps occurred within the applicable limitation period, considering suspension rules. The claimant also sought compensation for the bank guarantee provided to suspend enforcement proceedings. This decision illustrates critical procedural requirements for IRC assessments in group taxation regimes, the calculation of limitation periods when tax inspections are involved, and the importance of proper notification procedures in Portuguese tax law.

Full Decision

ARBITRAL DECISION

The arbitrators Counsel Jorge Lopes de Sousa (arbitrator-president), Dr. Adelaide Moura and Dr. Ana Teixeira de Sousa (arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 24-01-2019, hereby agree as follows:

1. REPORT

A..., SGPS, S.A., a commercial company registered under the single registration number at the Commercial Registry Office and collective person identification number ..., with registered office at ..., ...-... ... ... (hereinafter, simply "A..." or "Claimant"), has, under the terms of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Tribunal.

The Claimant requests the annulment of the corporate income tax (IRC) assessment act for 2013 with number 2018... and the consequent interest accrual assessment acts with numbers 2018... 2018... and 2018..., embodied in the account settlement statement with number 2018....

The Claimant further requests compensation for the guarantee provided.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 14-11-2018.

Pursuant to the terms of paragraph a) of paragraph 2 of Article 6 and paragraph b) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Arbitrators who were initially appointed by the Deontological Council communicated their acceptance of the assignment within the applicable time period.

On 04-01-2019 the parties were duly notified of such appointment and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined terms of Article 11, paragraph 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provision of paragraph c) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 24-01-2019.

The Tax and Customs Administration submitted a response in which it argued that the claim should be dismissed.

By order of 01-03-2018, the Tax and Customs Authority was notified to clarify and attach to the proceedings documentary evidence on the following facts:

– whether any other notification was made to the Claimant of any other assessment made following the inspection referred to in the proceedings;

– if affirmative, documentary proof must be provided of the date on which the availability was registered "in the electronic notification support system associated with the single digital address or in the electronic postal box" and the content of the document that was made available through these means, or any of them.

By the same order, the Taxpayer was notified to inform whether any other notification of the contested assessment was made to it and, if affirmative, the date on which it was made available and the content of the notification.

The Taxpayer presented documentary proof of the notification made to it on 09-07-2018, the date on which it accessed the Electronic Postal Box.

The Tax and Customs Authority stated that the only notification made to the Claimant was the one indicated as the subject matter of this proceeding and argued that, even considering the assessment notified on 07-07-2018, there is no lapse of the right to assess, since the external inspection action commenced on 03-10-2017 with the signing of the service order (page 143 of the Administrative File) and suspension continued until 23-03-2018 (page 224 of the Administrative File).

By order of 25-03-2019, the meeting provided for in Article 18 of the RJAT was waived and the submission of pleadings was dispensed with.

The arbitral tribunal was regularly constituted in accordance with the provisions of Articles 2, paragraph 1, paragraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.

The Parties are duly represented and have legal standing and capacity and are entitled to bring proceedings (Articles 4 and 10, paragraph 2, of the same decree-law and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by any nullity.

2. MATERIAL FACTS

2.1. Proven Facts

The following facts are considered proven:

– In 2013, the Claimant was the parent company of a group of companies subject to the special tax regime for groups of companies (RETGS), which, among others, included the following companies:

a) B... SGPS, S.A., with tax identification number..., hereinafter referred to as "B...";

b) C... SGPS, S.A., with tax identification number..., hereinafter referred to as "C...".

– The companies B... and C... were subject to external tax inspection actions, of partial scope, relating to corporate income tax (IRC) for the tax year 2013, which resulted in corrections made at the level of the individual taxable base of said companies;

– Subsequently, the Claimant, as the parent company of the RETGS, was notified of the Tax Inspection Report, which contained only the corrections made at the level of the said individual companies (document no. 2, attached with the request for arbitral opinion, the content of which is reproduced herein);

– Following notification of the Tax Inspection Report referred to, the Claimant was notified of the IRC and compensatory interest assessment relating to the 2013 period with number 2018..., dated 26-03-2018, with account settlement date of 06-07-2018 (document no. 1 attached with the request for arbitral opinion, the content of which is reproduced herein);

– The Claimant was notified of the commencement of the inspection on 03-10-2017 (page 143 of the administrative file);

– The Claimant was notified of the Tax Inspection Report on 23-03-2018 (page 224 of the Administrative File);

– The said assessment and the statements of the IRC and compensatory interest assessments and the account settlement were notified to the Claimant on 08-07-2018 (documents submitted by the Claimant on 15-03-2019, the content of which is reproduced herein);

– On 26-09-2018, the Claimant provided a bank guarantee to suspend the compulsory enforcement proceedings no. ...2010... instituted for coercive recovery of the assessed amount (document no. 3 attached with the request for arbitral opinion, the content of which is reproduced herein);

– On 13-11-2018, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

2.2. Facts Not Proven and Reasoning of the Decision on Material Facts

There are no relevant facts for the decision of the case that have not been proven.

The proven facts are based on documents submitted by the Claimant and the Tax and Customs Authority whose correspondence to reality is not disputed.

3. LEGAL ISSUES

The first defect that the Claimant attributes to the contested assessment is the lapse of the right to assess.

Articles 45 and 46 of the General Tax Code establish the following, to the extent relevant:

Article 45

Lapse of the right to assess

  1. The right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years, when the law does not otherwise provide.

  2. In the case of an error disclosed in the statement of the taxpayer, the lapse period referred to in the preceding paragraph is three years.

  3. In the case where any deduction or tax credit has been made, the lapse period is that of the exercise of that right.

  4. The lapse period is counted, for periodic taxes, from the end of the year in which the taxable event occurred and, for taxes of single obligation, from the date on which the taxable event occurred, except for value added tax and income taxes when taxation is effected by withholding at source as a final payment, in which case that period is counted from the beginning of the civil year following that in which, respectively, the tax became due or the taxable event occurred.

Article 46

Suspension of the lapse period

  1. The lapse period is suspended by notification to the taxpayer, in accordance with legal requirements, of the service order or decision at the commencement of the external inspection action, ceasing, however, this effect, with the period being counted from its beginning, should the duration of the external inspection exceed the period of six months following notification, plus the period in which the time limit for concluding the inspection procedure is suspended.

  2. The lapse period is further suspended:

a) In case of court litigation on the resolution of which the assessment of the tax depends, from its commencement until the judgment becomes final;

b) In case of contractual tax benefits, from commencement until termination of the contract or during the course of the period of the benefits;

c) In case of conditional tax benefits, from submission of the statement until the end of the legal period for compliance with the condition;

d) In the case that the right to assess results from a complaint or objection, from its submission until the decision thereon;

e) With the submission of a request for revision of the taxable base, until notification of the respective decision.

In paragraph 1 of Article 45, it is established that "the right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years", which entails that failure to notify within that period affects the right to assess, which is considered illegal if notification occurs after that period.

In the case at hand, the commencement of the lapse period of the right to assess, relating to IRC for the 2013 tax year, occurred on 01-01-2014, in accordance with paragraph 4 of Article 45.

Therefore, without considering suspension periods, the lapse period of the right to assess would have ended on 31-12-2017 (period of four years, provided for in paragraph 1 of Article 45).

However, pursuant to paragraph 1 of Article 46 of the General Tax Code, "the lapse period is suspended by notification to the taxpayer, in accordance with legal requirements, of the service order or decision at the commencement of the external inspection action, ceasing, however, this effect, with the period being counted from its beginning, should the duration of the external inspection exceed the period of six months following notification, plus the period in which the time limit for concluding the inspection procedure is suspended".

In the case at hand, no external inspection was conducted of the Claimant itself, the parent company of the group, but the inspection that was conducted on it is limited to the application to the Claimant of the corrections that were made in two external inspections carried out on the subsidiary companies.

Therefore, as the Tax and Customs Authority argues, it should be considered that the suspension of the lapse period of the right to assess provided for in paragraph 1 of Article 46 applies to the Claimant as a result of external inspections, since, ultimately, the corrections made to the Claimant are based on external inspections.

In this case, the inspection of the Claimant commenced with notification made on 03-10-2017 (page 143 of the administrative file) and the suspension of the lapse period of the right to assess was maintained until 23-03-2018, the date on which the Tax Inspection Report was notified (page 223 of the administrative file).

Between these dates 171 days elapsed.

Therefore, the lapse period of the right to assess extended until 20-06-2018 (171 days after the four years from the commencement of the lapse period on 31-12-2017 had been completed).

Thus, although the assessment was prepared on 28-03-2018 (within the lapse period of the right to assess), its notification, made in July 2018, was made after the end of that period.

As follows from the express wording of Article 45, paragraph 1, of the General Tax Code, it is the notification of the assessment and not its preparation that is relevant for purposes of determining the lapse period of the right to assess.

Therefore, as the notification of the assessment was not made within the lapse period, the assessment is affected by a defect constituting violation of law that justifies its annulment.

3.1. Compensatory Interest Assessments

The assessments of compensatory interest are based on the IRC assessment (Article 35, paragraph 8, of the General Tax Code) and therefore are affected by the same defect and their notification is also subject to the lapse period of the right to assess.

3.2. Issues Rendered Moot

As the request for arbitral opinion proceeds on the basis of the defect of lapse of the right to assess, which ensures effective protection of the Claimant's interests, the examination of the remaining defects attributed to the contested assessment is rendered moot and unnecessary.

4. COMPENSATION FOR UNDUE GUARANTEE

The Claimant further formulates a request for compensation for an undue guarantee, having provided a bank guarantee to suspend compulsory enforcement proceedings instituted for recovery of the assessed amount.

Article 171 of the Administrative Tax Procedure Code establishes that "compensation in the case of a bank guarantee or equivalent unduly provided shall be claimed in the proceedings in which the legality of the debt subject to enforcement is disputed" and that "compensation must be claimed in the complaint, objection or appeal or, in the case where the grounds therefore are subsequent, within 30 days of its occurrence".

Thus, it is unequivocal that the procedure for judicial challenge encompasses the possibility of a judgment condemning the payment of compensation for an undue guarantee and is, in principle, the appropriate procedural means for formulating such a claim, which is justified by evident reasons of procedural economy, since the right to compensation for an undue guarantee depends on what is decided regarding the legality or illegality of the assessment act.

The request for constitution of the arbitral tribunal and for arbitral opinion has as a corollary that it will be in the arbitral proceedings that the "legality of the debt subject to enforcement" will be discussed, and therefore, as follows from the express wording of said paragraph 1 of Article 171 of the Administrative Tax Procedure Code, the arbitral proceedings are also the appropriate forum for examining the request for compensation for an undue guarantee.

The regime for the right to compensation for an undue guarantee is provided for in Article 53 of the General Tax Code, which establishes the following:

Article 53

Guarantee in case of undue provision

  1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent, shall be fully or partially compensated for the losses resulting from its provision, should he have maintained it for a period exceeding three years, in proportion to the outcome of administrative appeal, judicial challenge or opposition to enforcement that have as their object the debt guaranteed.

  2. The period referred to in the preceding paragraph shall not apply when it is verified, in a gracious complaint or judicial challenge, that there was an error imputable to the services in the assessment of the tax.

  3. The compensation referred to in paragraph 1 has as a maximum limit the amount resulting from the application to the guaranteed value of the rate of compensatory interest provided for in this law and may be claimed in the same proceeding for complaint or judicial challenge, or autonomously.

  4. Compensation for provision of an undue guarantee shall be paid by offset against the tax revenue of the year in which payment is made.

In the case at hand, the error that justifies the annulment of the IRC and compensatory interest assessment is imputable to the Tax and Customs Authority, since it was incumbent upon it to effect notification of the assessment within the lapse period.

Therefore, the Claimant is entitled to compensation for the guarantee provided.

In the absence of elements that allow determination of the compensation amount, the judgment must be rendered with reference to what is determined in execution of the present decision (Articles 609, paragraph 2, of the Code of Civil Procedure, applicable in accordance with Article 2, paragraph d) of the General Tax Code).

5. DECISION

In these terms, this Arbitral Tribunal hereby agrees to:

– Uphold the request for arbitral opinion;

– Annul the IRC assessment for 2013 with number 2018... and the consequent acts of compensatory interest assessment with numbers 2018... 2018... and 2018..., embodied in the account settlement statement with number 2018...;

– Uphold the request for payment of compensation for undue guarantee and condemn the Tax and Customs Authority to pay to the Claimant the compensation to be determined in execution of judgment for the guarantee provided to suspend the compulsory enforcement proceedings no. ...2010....

6. VALUE OF THE PROCEEDINGS

In accordance with the provisions of Article 306, paragraph 2, of the Code of Civil Procedure and Article 97-A, paragraph 1, paragraph a), of the Administrative Tax Procedure Code and Article 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 253,295.33.

7. COSTS

In accordance with Article 22, paragraph 4, of the RJAT, the amount of costs is set at € 4,896.00, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 26-03-2019

The Arbitrators

(Jorge Lopes de Sousa)

(Adelaide Moura)

(Ana Teixeira de Sousa)

Frequently Asked Questions

Automatically Created

What is the statute of limitations (caducidade) for IRC tax assessments in Portugal?
The statute of limitations (caducidade) for IRC tax assessments in Portugal is generally four years from the end of the year in which the taxable event occurred, as established in Article 45(1) of the General Tax Code (LGT). This period is reduced to three years when there is an error disclosed in the taxpayer's statement (Article 45(2) LGT). However, Article 46 LGT provides for suspension of the limitation period during tax inspection proceedings and other procedural acts, which can extend the effective time available to the Tax Authority to complete assessments.
How does the expiry of the right to tax liquidation (caducidade do direito de liquidação) affect IRC assessments?
The expiry of the right to tax liquidation (caducidade do direito de liquidação) results in the nullification of IRC assessments notified after the applicable limitation period. If the Tax Authority fails to validly notify an assessment within the statutory timeframe (typically four years, subject to suspensions under Article 46 LGT), the assessment becomes invalid and must be annulled. Taxpayers can challenge time-barred assessments through administrative complaints or arbitration at CAAD. The calculation requires careful analysis of when the limitation period commenced, any suspension periods during tax inspections, and the actual notification date of the assessment to the taxpayer.
What are the notification requirements for IRC tax liquidation decisions following a tax inspection in Portugal?
Notification requirements for IRC tax liquidation decisions following a tax inspection require compliance with Articles 77 and 46 of the LGT. The Tax Authority must first notify the taxpayer of the Tax Inspection Report, allowing the taxpayer to exercise their right to be heard before the final assessment. The assessment itself must then be validly notified within the applicable limitation period, accounting for any suspensions during the inspection. Notification is typically made through the taxpayer's Electronic Postal Box (Caixa Postal Eletrónica) or single digital address. The notification date is critical for determining compliance with limitation periods and for calculating deadlines for taxpayer challenges.
Can a taxpayer claim compensation for guarantees provided during an IRC tax dispute at CAAD?
Yes, taxpayers can claim compensation for guarantees provided during IRC tax disputes at CAAD under Article 24(5) of the RJAT (Decree-Law 10/2011). When a taxpayer provides a bank guarantee or other security to suspend enforcement proceedings and subsequently prevails in arbitration, they are entitled to compensation for the costs incurred in providing that guarantee. This includes bank fees, commission charges, and other expenses directly related to obtaining and maintaining the guarantee. The claimant must specifically request this compensation in their arbitration petition, as occurred in this case where the claimant provided a bank guarantee on 26-09-2018 to suspend enforcement proceedings.
What is the legal framework for challenging IRC tax assessments through CAAD arbitration under Decree-Law 10/2011 (RJAT)?
The legal framework for challenging IRC tax assessments through CAAD arbitration is established by Decree-Law 10/2011 (RJAT - Legal Regime for Administrative Arbitration). Taxpayers can request formation of an arbitral tribunal to challenge tax assessments, including IRC liquidations, as an alternative to judicial court proceedings. The RJAT establishes procedural rules including: requirements for the arbitration request, appointment of arbitrators by the Deontological Council, constitution of the tribunal, submission of responses by the Tax Authority, evidence gathering, and issuance of decisions. Article 2(1)(a) grants CAAD jurisdiction over challenges to tax acts, while Articles 10-11 govern tribunal constitution. The process provides a faster, specialized alternative to traditional tax litigation in administrative courts.