Process: 589/2018-T

Date: April 30, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Process 589/2018-T addressed the supervening inutility of proceedings in Portuguese tax arbitration when the Tax Authority revokes a contested assessment during proceedings. The taxpayer challenged IRS liquidation no. 2017 and compensatory interest for fiscal year 2015, totaling €63,454.07, as well as the dismissal of their gracious complaint. The core issues included lack of substantiation of the tax assessment and omission of the right to a hearing. Before the respondent's deadline to file a response, the Tax Authority conducted an internal review and concluded the IRS assessment should be annulled due to lack of substantiation and because facts requiring indirect assessment (avaliação indirecta) determination were present, constituting an omission of an essential formality. The Tax Authority formally revoked the contested act through hierarchical approval and communicated this to CAAD under article 13 of RJAT. The tribunal notified the claimant multiple times to confirm whether they wished to continue proceedings given the revocation, but the taxpayer failed to respond. This case demonstrates the doctrine of supervening inutility, where the purpose of arbitration ceases when the administrative authority voluntarily grants the relief sought. The tribunal suspended further procedural steps, recognizing that the Tax Authority's acknowledgment of illegality and subsequent revocation eliminated the litigation object, making continued proceedings unnecessary unless the taxpayer demonstrated remaining interest in a formal decision.

Full Decision

ARBITRAL DECISION

The Arbitrators, Counselor Maria Fernanda dos Santos Maçãs (in the capacity of arbitrator-president), Dr. Jorge Carita (in the capacity of arbitrator member) and Dr. Alexandre Andrade (in the capacity of arbitrator member), were appointed by the Deontological Council of the Centre for Administrative Arbitration (hereinafter referred to only as CAAD) to form the Collective Arbitral Tribunal, which Tribunal was constituted on 6 February 2019, hereby agree as follows:

I. REPORT

  1. A..., (hereinafter referred to only as Claimant), with Tax Identification Number..., resident at..., n.º...,......,.....-... Belas, filed, on 23 November 2018, a request for constitution of an Arbitral Tribunal, in accordance with Decree-Law no. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the TAX AND CUSTOMS AUTHORITY (hereinafter referred to only as Respondent) is the Respondent.

The Claimant was notified, through Official Letter no.... of 24 August 2018, from the Finance Directorate of Lisbon – Administrative Justice Division, that the Gracious Complaint filed against the acts of assessment of Personal Income Tax (IRS) and Compensatory Interest no. 2017..., both issued by the Director General of the Tax and Customs Authority by reference to the fiscal year 2015, in the amount of € 59,983.26 and € 3,470.81 respectively, was dismissed by Dispatch of the Division Chief (in the exercise of subdelegated powers), dated 25 July 2018 (page 1 of the Request for Arbitral Pronouncement, hereinafter, in the identification of pages, referred to only as RAP).

The Request for Arbitral Pronouncement was filed both against the decision of the gracious complaint and against the acts of assessment of IRS and Compensatory Interest no.s 2017..., issued by reference to the fiscal year 2015 (page 2 of the RAP).

  1. The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 26 November 2018 and automatically notified to the Respondent.

  2. The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to article 6, paragraph 2, subsection a) of RJAT (Decree-Law no. 10/2011, of 20 January), the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, all of whom communicated acceptance of the appointment within the applicable time period.

  3. The Respondent submitted, on 3 January 2019, in compliance with the provisions of paragraph 1 of article 13 of RJAT, a communication with Information, indicating the following Conclusion and Proposed Decision: IV – Conclusion: Following consideration of the request for arbitral pronouncement, it appears to us that the assessment of IRS for the 2015 tax year in force should not be maintained due to lack of substantiation and because there are facts that lead to the determination of taxable income through indirect assessment, which constitute an omission of an essential formality generating illegality, a ground for annulment of the tax act, thereby precluding consideration of the decision of dismissal rendered in the context of the Gracious Complaint no. 2017... VI: Proposed Decision: For all the foregoing, the annulment of the assessment of IRS for the year 2015, no.s 2017... and 2017... is proposed.

Such information was subject to the following Opinion of the Director of Services: I confirm, whereby the revocation of the act contested in CAAD is proposed, on the grounds and basis invoked. For consideration by higher authority.

It was also subject to a Dispatch of the Sub-Director-General, by delegation, in the following terms: I revoke the contested act on the grounds invoked. Proceed in accordance with what is proposed and carry out any other necessary procedures.

  1. This communication, in accordance with paragraph 1 of article 13 of RJAT, was notified to the Claimant on 3 January 2019 and was subject to a Dispatch of the President of the Centre for Administrative Arbitration (CAAD), dated 2 January 2019 (placed in the Case Management System on 3 January 2019), in the following terms: with reference to Case no. 589/2018-T and following the communication from the Tax and Customs Authority provided for in article 13, paragraph 1 of Decree-Law 10/2011 of 20 January (RJAT), it is requested of Your Excellency that, in view of the circumstances provided for in article 13, paragraph 2 of RJAT, you be pleased to inform CAAD, if you so wish, about the continuation of the proceedings.

  2. The Claimant was notified of the Dispatch of the President of the Centre for Administrative Arbitration (CAAD) on 3 January 2019.

  3. The Claimant said or requested nothing in the case, following the notification referred to above.

  4. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 26 November 2018 and subsequently notified to the Respondent.

  5. In accordance with the provisions of paragraph 1 of article 6 and subsection b) of paragraph 1 of article 11 of RJAT, the Deontological Council of CAAD appointed as Arbitrators of the Collective Arbitral Tribunal the signatories, who communicated acceptance of the appointment within the applicable time period.

  6. On 17 January 2019, the Parties were duly notified of this appointment, having shown no desire to challenge the appointment of the arbitrators, in accordance with the combined provisions of subsections a) and b) of paragraph 1 of article 11 of RJAT and articles 6 and 7 of the CAAD Deontological Code.

  7. In compliance with the provisions of subsection c) of paragraph 1 of article 11 of RJAT, the Collective Arbitral Tribunal was constituted on 6 February 2019.

  8. On 8 February 2019, the Arbitral Tribunal issued an Arbitral Dispatch for notification of the Respondent to submit a Response, to annex a copy of the Administrative File, and to request, if it so wished, the production of additional evidence. The Respondent was notified of this Dispatch on 8 February 2019.

  9. The Respondent filed a request in the Case Management System, addressed to the President of CAAD, on 12 February 2019, stating: Having the Tax Authority on 3 January effected the communication provided for in article 13 of RJAT, informing of the revocation of the contested act, it was nevertheless notified on 8 of the current month in accordance with article 17 of RJAT, whereby information is requested about the procedures carried out in the meantime.

  10. In response, the President of CAAD issued, on 12 February 2019, the following dispatch: Since the President of the Centre for Administrative Arbitration has no legal competence to consider the request made in the application filed by the Respondent on 12-02-2019, it shall be remitted to the Arbitral Tribunal.

  11. On 12 February 2019, the Arbitral Tribunal issued the following Arbitral Dispatch: The dispatch issued on 8 February 2019 is nullified. Both parties shall be notified of this dispatch. This Dispatch was notified to the Parties on 13 February 2019.

  12. On 17 February 2019, the Arbitral Tribunal issued the following Arbitral Dispatch: Considering the Request of the Respondent Entity of 12 February and taking into account that this entity proceeded to revoke the contested tax act, in the exercise of the autonomy of the Arbitral Tribunal in conducting the proceedings [subsection c) of article 16 of RJAT], as well as the principles of procedural economy and expedition, the Claimant is notified to appear in the case to state, within a period of 10 days, whether it maintains or not an interest in the continuation of these proceedings. Both parties shall be notified of this dispatch.

  13. Once again notified of that dispatch, the Claimant did not respond.

  14. To substantiate the request, in summary, the Claimant invokes the following: (i) lack of substantiation of the acts, (ii) omission of notification for exercise of the right of hearing, (iii) illegality of the assessment acts, (iv) illegality of the compensatory interest assessments and, finally, (v) illegality of the decision of the Gracious Complaint.

  15. Regarding the lack of substantiation (page 3 of RAP) of the acts, the Claimant invokes, in summary, the following:

  • Upon examination of the assessment acts which also constitute the subject matter of the request for arbitral pronouncement, it is found that they do not have sufficient necessary substantiation, in fact and in law. (page 3 of RAP)

  • In fact, all the grounds that determined their issuance are not explained, with only a laconic and insufficient reference being made to a set of amounts, and that the tax assessment was not carried out using indirect methods. (page 3 of RAP)

  • Additionally, it is only stated that each of the acts may be subject to gracious complaint or judicial challenge, without even identifying the specific legal provisions on which it is based. (page 3 of RAP)

  • However, in the assessment acts which are also the subject matter of this request for arbitral pronouncement there is no express or implicit reference to any other specific document for which it might clearly and expressly refer, and thus, since the legally required substantiation – that is, the cognitive process that justifies the decision taken – does not appear in the act itself, it also cannot be understood in the present case that this has been fulfilled by reference to any other document which is not even identified therein. (pages 7 and 8 of RAP)

  • On the other hand, there is no demonstration (the burden of which, in accordance with article 74 of the General Tax Law, falls upon the Tax and Customs Authority) that the taxable income was determined on the basis of existing and available elements. (page 8 of RAP)

  • That is, the Tax and Customs Authority does not demonstrate the essential elements of its claim and which would justify the practice of the assessment acts whose legality is also contested. (page 8 of RAP)

  • It seems, therefore, clear that one should conclude that the act of assessment of IRS and Compensatory Interest relating to the fiscal year 2015, which also constitutes the subject matter of this action, was carried out in violation of the legal norms and principles applicable, in particular articles 268, paragraph 3, of the CRP and article 77 of the LGT, 123, 124 and 125 of the CPA and should be annulled accordingly (cf. article 135 of the CPA). (page 8 of RAP)

  1. Regarding the omission of notification for exercise of the right of hearing (page 9 of RAP), the Claimant invokes, in summary, the following:
  • the Claimant was not notified at any time prior to the practice of the assessment acts (or at any other time, for that matter) to express his views on their content. Specifically, the Claimant was not notified as provided for in subsection a) of paragraph 1 of article 60 of the LGT. (page 9 of RAP)
  1. Regarding the illegality of the assessment acts (page 14 et seq. of RAP), the Claimant invokes, in summary, the following:

  • The Claimant, in his Request for Pronouncement, before invoking illegality due to violation of the principle of inquisitorial investigation and pursuit of substantive truth – (page 18 of RAP) (…) begins with introductory considerations, framing his legal-fiscal situation, namely, indicating his status as an entrepreneur engaged in motor vehicle trade, earning income from category B of IRS, being in the organized accounting system. (page 14 of RAP)

  • That he always provided the relevant elements to the certified accountant so that he could make the necessary accounting entries and present the tax returns and that he always considered his tax situation to be regularized given that: a) declaratory obligations were always fulfilled; and, b) the assessed tax was always diligently paid. (pages 15 and 16 of RAP)

  • However, as it is abundantly and widely described in the gracious complaint, the Claimant was confronted by the Tax and Customs Authority with the existence of inconsistencies between the tax returns presented. (page 16 of RAP)

  • In light of the notification received, the Claimant sought the collaboration of the certified accountant for clarification of the situation. However, such collaboration was never possible to obtain. (page 16 of RAP)

  • The Tax and Customs Authority carried out the act of assessment of IRS and Compensatory Interest no. 2017.... (page 17 of RAP)

  • The Claimant presented, by reference to the year 2015, a substitute income tax return which accurately and faithfully reflects his tax situation and, unable to accept the decision rendered, the Claimant filed a gracious complaint. (page 17 of RAP)

  • The gracious complaint was subject to a draft decision (of dismissal). The Claimant attached accounting documents to the proceedings to prove the overstatement of the quantification by the Tax and Customs Authority. Finally, the Claimant was notified of the final decision rendered on the gracious complaint, and the request made was dismissed. (page 17 of RAP)

– The Tax and Customs Authority considers, in summary, that the Claimant did not introduce into the case the necessary and appropriate elements to demonstrate that the substitute return presented accurately reflects his actual tax situation. It is further stated that the Claimant did not demonstrate that his accounting is organized in accordance with commercial and fiscal legislation. (page 18 of RAP)

  • As is evident, the decision in question is illegal, as is the assessment act, and is based on incorrect factual and legal presumptions. (page 18 of RAP)

  • Since the Claimant pursues a commercial activity independently, the income earned as a result thereof is classifiable in category "B" of IRS (cf. article 3 of the IRS Code). Under article 28 of the IRS Code, taxable income in the case of business and professional income may be determined either through the application of the rules of organized accounting or through accounting. In the concrete case, the Claimant determines his taxable income on the basis of accounting, and therefore ex vi article 32 of the IRS Code the rules set out in the IRC Code apply. That is precisely what the Claimant did, bringing to the case the necessary elements for the correct determination of the tax, that is, of his actual tax capacity. (pages 23 and 24 of RAP)

  • According to the relevant accounting elements, the net profit for the fiscal year amounts to € 10,767.09. With no corrections in the fiscal year in question resulting from the application of tax rules, that net profit corresponds to taxable profit – € 10,767.09. (page 25 of RAP)

  • in accordance with the provisions of article 75 of the LGT, the declarations and accounting elements of the Claimant (and any taxpayer) benefit from a presumption of truthfulness – and in the concrete case they are indeed truthful. And since a presumption is established in favor of the taxpayer, it is the Tax and Customs Authority that must demonstrate the non-occurrence of the requisites on which that presumption depends. Contrary to what is stated in the decision of the gracious complaint, the burden of proof that the accounting is organized in accordance with tax and commercial law does not fall on the Claimant. It falls on the Tax and Customs Authority to demonstrate that it is not, so that, if it wishes, it may attempt to rebut the presumption. Having failed to do so, the Claimant benefits from the aforementioned presumption. (page 26 of RAP)

  • But further: given the evidence presented, it is manifest that, at a minimum (in fact it is evident that the act is illegal), there is founded doubt about the existence of the taxable fact (as configured by the Tax and Customs Authority) and its quantification. Thus, in accordance with the provisions of article 100, paragraph 1, of the Administrative Procedure Code in Tax Matters (CPPT), the assessment act which also constitutes the subject matter of this action should be annulled. Therefore, the assessment act in question is illegal for being based on incorrect factual and legal presumptions and for violation of articles 3 and 32 of the IRS Code, 3, 15, 16 and 17 of the IRC Code, and should be annulled accordingly, which is hereby requested. (page 27 of RAP)

  1. Regarding the illegality of the assessments of compensatory interest (page 27 of RAP), the Claimant invokes, in summary, the following:

  • Along with the tax assessment, the present Claimant was also notified of the assessment of compensatory interest, which amounts to € 3,319.96. Given the content of the notifications received, the compensatory interest was assessed in accordance with the provisions of articles 35 of the LGT and 91 of the IRS Code. (page 27 of RAP)

  • However, in the present case none of the conditions on which the Law makes the assessment of compensatory interest dependent are met, and therefore such assessment is illegal. (page 28 of RAP)

  • Indeed, from the assessments of compensatory interest notified to the Claimant there does not result concrete demonstration of the taxpayer's fault in the alleged delay in payment of the tax. (page 31 of RAP)

  • The Claimant should have been notified expressly, in order that, if it so wished, it could express its views on the intention of the Tax and Customs Authority to proceed to the assessment of compensatory interest and on the factual and legal conditions of that decision. (page 37 of RAP)

  • The assessment of compensatory interest under examination is also illegal, not only because of its lack of substantiation and violation of law, but also because of the omission of another essential legal formality, namely, because of violation of the provisions of articles 267, paragraph 5, of the Constitution of the Portuguese Republic and 60, paragraph 1, subsection a) and paragraph 3, of the General Tax Law. (page 37 of RAP)

  1. Finally, regarding the illegality of the Decision of the Gracious Complaint (page 38 of RAP), the Claimant invokes, in summary, the following:

  • in maintaining in force in the legal order the contested assessment acts, the Division Chief acted in error as to the factual and legal presumptions, and the defects imputed to the assessment acts are transmitted to the very decision that maintains them, which is hereby invoked for all legal purposes. It is found that the Division Chief did not express herself on all the questions raised by the Claimant (then Complainant), thereby violating the provisions of article 56 of the LGT. (page 38 of RAP)

  • As provided for in article 60, paragraph 7 of the LGT, the new elements raised in the hearing of taxpayers are mandatorily taken into account in the substantiation of the decision. (page 39 of RAP)

  • However, she did not take them into account in due measure, as she limited herself to a laconic statement, devoid of substance, without conducting a critical analysis of them. (page 40 of RAP)

  • The assessment act in question (and likewise the decision that maintained it in the legal order) is illegal for violation of the provisions of articles 60, paragraph 7 and 77 of the LGT, and should be annulled (as should the decision of the gracious complaint) accordingly. (page 40 of RAP)

  1. No pleadings were presented.

II. JOINDER OF ISSUES

The parties have standing and legal capacity, show themselves to be legitimized, and are regularly represented (articles 4 and 10, paragraph 2, of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

The tribunal is competent and regularly constituted.

The process is not affected by nullities.

III. SUBSEQUENT FUTILITY OF THE DISPUTE

Article 277, subsection e), of the Civil Procedure Code (CPC), applicable ex vi article 29, paragraph 1, subsection e), of RJAT, provides as follows: "Proceedings are terminated with the impossibility or subsequent futility of the dispute".

The impossibility of the dispute occurs in case of death or extinction of one of the parties, by disappearance or loss of the object of the proceedings, or by extinction of one of the interests in conflict.

Subsequent futility of the dispute occurs when, by virtue of new facts occurring during the pendency of the proceedings, the decision to be rendered no longer has any useful effect, either because it is impossible to satisfy the claim that the plaintiff wishes to assert in the proceedings, or because the purpose sought by the action has been achieved by other means.

Thus, the impossibility or subsequent futility of the dispute translates into an impossibility or legal futility, the determination of which is referred to in the law.

According to José Lebre de Freitas, Rui Pinto and João Redinha (Annotated Code of Civil Procedure, Volume 1, 2nd edition, Coimbra Editora, Coimbra, 2008, page 555), "the impossibility or subsequent futility of the dispute occurs when, by fact occurring during the pendency of the instance, the claim of the plaintiff cannot be maintained by virtue of the disappearance of the subjects or the object of the proceedings, or finds satisfaction outside the scheme of the remedy sought. In both cases, the resolution of the dispute ceases to be of interest – in the former, by impossibility of achieving the intended result; in the latter, because it has already been achieved by other means".

Turning to the concrete case, we find that, still in the course of the procedure for constitution of the arbitral tribunal, the TA fully and voluntarily satisfied the claims that the Claimant formulated in these proceedings.

In effect, as has been stated, the Respondent submitted, on 3 January 2019, in compliance with the provisions of paragraph 1 of article 13 of RJAT, a communication accounting for the proposal to annul the assessment of IRS for the year 2015, no.s 2017... and 2017..., which was subject to the following Opinion of the Director of Services: "I confirm, whereby the revocation of the act contested in CAAD is proposed, on the grounds and basis invoked". This Opinion, in turn, was also subject to a Dispatch of the Sub-Director-General, by delegation, in the following terms: "I revoke the contested act on the grounds invoked. Proceed in accordance with what is proposed and carry out any other necessary procedures."

To that extent, although the event that rendered consideration of the merits of the case pointless occurred before the constitution of this Arbitral Tribunal, the truth is that the results the Claimant sought with this arbitral proceeding have been fully achieved.

Thus, there is no doubt that the arbitral decision which would normally be rendered, considering the merits of the claims asserted, is devoid of any useful effect, and therefore its rendering is not justified.

Accordingly, with the necessary adaptations, we find verified the subsequent futility of the dispute.

IV. RESPONSIBILITY FOR COSTS

In accordance with the provisions of article 536, paragraph 3, of the CPC, applicable ex vi article 29, paragraph 1, subsection e), of RJAT, in cases of termination of proceedings by impossibility or subsequent futility of the dispute (except those provided for in the preceding paragraphs), responsibility for costs shall be borne by the plaintiff or claimant, unless such impossibility or futility is attributable to the defendant or respondent, in which case the latter is responsible for all costs; paragraph 4 of the same article provides, insofar as is pertinent here, that it is considered, in particular, that the subsequent futility of the dispute is attributable to the defendant or respondent when it results from voluntary satisfaction, by the latter, of the claim of the plaintiff or claimant.

In the case in question, as has been demonstrated, the Claimant's claim was voluntarily satisfied by the TA, as the latter revoked the contested tax act.

However, as has also been demonstrated, the TA proceeded to the aforementioned revocation before the constitution of this Arbitral Tribunal, and the continuation of the proceedings (more properly, of the arbitral proceeding), despite the complete and voluntary satisfaction of the claims made by the TA, can only be attributable to the Claimant.

In effect, as we have seen, notified to express himself regarding the request filed by the TA, in accordance with the provisions of article 13, paragraph 1, of RJAT, the Taxpayer said or requested nothing in the case, and thus, given this silent conduct, it was only due to it that this Arbitral Tribunal came to be constituted; indeed, the constitution of the Arbitral Tribunal would not have occurred if the Claimant had, on that occasion, come forward to express himself in the sense of the subsequent futility of the dispute and consequent termination of the proceedings, since it is self-evident that this subsequent futility of the dispute was verified at a time prior to the constitution of the Arbitral Tribunal.

The costs of this proceeding must, therefore, be wholly attributable to the Taxpayer.

V. DECISION

Accordingly, this Arbitral Tribunal decides:

a) To declare the present arbitral proceeding terminated due to subsequent futility of the dispute;

b) To condemn the Claimant to payment of the costs of the proceeding.

VI. VALUE OF THE PROCEEDING

In accordance with the provisions of articles 306, paragraph 2, of the CPC, 97-A, paragraph 1, subsection a), of the Administrative Procedure Code in Tax Matters (CPPT), and 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceeding is set at € 63,454.07.

VII. COSTS

In accordance with the provisions of articles 12, paragraph 2, and 22, paragraph 4, of RJAT and article 4, paragraph 4, and Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 2,448.00, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Let notification be made.

Lisbon, 30 April 2019

The arbitrators,

Fernanda Maçãs (president)

Dr. Alexandre Andrade (arbitrator member)

Dr. Jorge Carita (arbitrator member)

Frequently Asked Questions

Automatically Created

What is supervening inutility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening inutility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object of the litigation ceases to exist during proceedings, making a decision unnecessary. This typically happens when the Tax Authority revokes the contested assessment before the tribunal issues its decision. Under article 13 of RJAT, when the Tax Authority acknowledges the taxpayer's claim and revokes the act, the tribunal must notify the claimant to confirm whether they wish to continue. If no continued interest exists, the arbitration terminates without a substantive decision, applying principles of procedural economy.
What were the IRS liquidation amounts contested in CAAD Process 589/2018-T?
The contested amounts in CAAD Process 589/2018-T were €59,983.26 for the IRS liquidation (assessment no. 2017) and €3,470.81 for compensatory interest (assessment no. 2017), both relating to fiscal year 2015. These assessments totaled €63,454.07 and were issued by the Director General of the Tax and Customs Authority. The taxpayer challenged both the original assessments and the dismissal decision of their gracious complaint rendered on July 25, 2018.
Can a taxpayer challenge both a tax assessment and a denied gracious complaint (reclamação graciosa) in CAAD arbitration?
Yes, a taxpayer can challenge both a tax assessment and a denied gracious complaint simultaneously in CAAD arbitration under Portuguese law. In Process 589/2018-T, the claimant contested both the IRS liquidation acts (no.s 2017) and the decision dismissing their gracious complaint no. 2017. This dual challenge is procedurally acceptable, allowing the arbitral tribunal to review both the merits of the underlying tax assessment and the administrative decision rejecting the internal complaint.
What happens when the Portuguese Tax Authority acknowledges a lack of justification in an IRS liquidation during arbitration?
When the Portuguese Tax Authority acknowledges lack of justification in an IRS liquidation during arbitration, it can revoke the contested act under article 13 of RJAT. In Process 589/2018-T, the Tax Authority's internal review concluded the assessment lacked substantiation and involved improper indirect assessment procedures, constituting an omission of essential formalities generating illegality. Following hierarchical approval by the Sub-Director-General, the Tax Authority formally revoked the contested assessments and notified CAAD, effectively granting the taxpayer's requested relief and potentially rendering the arbitration proceedings superfluous.
How does indirect assessment (avaliação indirecta) of taxable income affect the validity of an IRS liquidation in Portugal?
Indirect assessment (avaliação indirecta) of taxable income in Portugal requires strict compliance with procedural formalities under the Tax Procedures Code. When facts justifying indirect assessment exist but the Tax Authority fails to follow proper procedures—such as providing adequate substantiation or notification for hearing rights—the resulting IRS liquidation is illegally flawed. In Process 589/2018-T, the Tax Authority recognized that circumstances warranting indirect assessment were present but the assessment was conducted without proper procedural compliance, constituting an omission of essential formalities (preterição de formalidade essencial) that invalidated the liquidation and required its annulment.