Process: 593/2018-T

Date: November 21, 2025

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Case 593/2018-T addresses VAT assessments totaling €1,019,030.41 for tax years 2013-2014, involving allegations of false invoices under Article 19 CIVA. The original arbitral decision was annulled by the Central Administrative Court South (TCA Sul) for violating the principle of equality of parties and adversarial rights. The Tax Authority had requested submission of documentary evidence from ongoing criminal proceedings without providing the Claimant proper opportunity to examine and contest this evidence. This reformed arbitral decision, dated 21 November 2025, follows the TCA Sul's annulment order. The case involves monthly VAT assessments ranging from €71.82 to €78,574.42 across 21 assessment periods, plus compensatory interest. The Claimant challenged both the substantive assessments and the implied rejection of administrative appeals. The procedural violation centered on the Tax Authority's unilateral introduction of criminal case evidence without respecting the contraditório principle, which guarantees parties equal access to evidence and opportunity to respond. This case establishes important precedent regarding procedural fairness in tax arbitration, particularly concerning the admissibility of evidence from parallel criminal proceedings and the mandatory preservation of adversarial rights throughout arbitral proceedings, even when evidence originates from external judicial processes.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case No.: 593/2018-T
Subject Matter: VAT - False Invoices – Article 19 CIVA

Reformed by arbitral decision of 21 November 2025

ARBITRAL DECISION

The Arbitrators, Counsellor Carlos Cadilha (President), Professor Doctor Rui Duarte Morais and Dr. Carla Castelo Trindade, appointed to form this Arbitral Tribunal, agree as follows:

I. REPORT

The company A..., LDA (hereinafter referred to as "Claimant"), tax identification number..., with registered office at Rua..., ...-..., presented, in accordance with legal requirements, a request for constitution of a collective arbitral tribunal, with the Tax and Customs Authority as Respondent.

a) Object of the proceedings

1. The Claimant seeks:

  • The annulment of the assessment notices (and any consequent acts) identified below, relating to the tax years 2013 and 2014, in the total amount of €1,019,030.41;

  • The annulment of the acts of implied rejection of the administrative appeals submitted against such assessment notices;

  • Condemnation of the Respondent to pay compensatory interest.

2. The following assessment notices and consequent operations are being challenged:

  • VAT Assessment No. 2018... for the period of January 2013, document No. 2018..., in the amount of €12,183.38 (twelve thousand one hundred and eighty-three euros and thirty-eight cents) plus compensatory interest for the same period, document No. 2018... in the amount of €2,323.18 (two thousand three hundred and twenty-three euros and eighteen cents);

  • VAT Assessment No. 2018... for the period of February 2013, document No. 2018..., in the amount of €13,297.49 (thirteen thousand two hundred and ninety-seven euros and forty-nine cents) plus compensatory interest for the same period, document No. 2018... in the amount of €2,491.91 (two thousand four hundred and ninety-one euros and ninety-one cents);

  • VAT Assessment No. 2018... for the period of March 2013, document No. 2018..., in the amount of €12,664.58 (twelve thousand six hundred and sixty-four euros and fifty-eight cents) plus compensatory interest for the same period, document No. 2018... in the amount of €2,331.67 (two thousand three hundred and thirty-one euros and sixty-seven cents);

  • VAT Assessment No. 2018... for the period of April 2013, document No. 2018..., in the amount of €21,537.40 (twenty-one thousand five hundred and thirty-seven euros and forty cents) plus compensatory interest for the same period, document No. 2018... in the amount of €3,889.71 (three thousand eight hundred and eighty-nine euros and seventy-one cents);

  • VAT Assessment No. 2018... for the period of May 2013, document No. 2018..., in the amount of €34,016.03 (thirty-four thousand and sixteen euros and three cents) plus compensatory interest for the same period, document No. 2018... in the amount of €6,035.28 (six thousand and thirty-five euros and twenty-eight cents);

  • VAT Assessment No. 2018... for the period of June 2013, document No. 2018..., in the amount of €22,344.35 (twenty-two thousand three hundred and forty-four euros and thirty-five cents) plus compensatory interest for the same period, document No. 2018... in the amount of €3,883.63 (three thousand eight hundred and eighty-three euros and sixty-three cents);

  • VAT Assessment No. 2018... for the period of July 2013, document No. 2018..., in the amount of €78,574.42 (seventy-eight thousand five hundred and seventy-four euros and forty-two cents) plus compensatory interest for the same period, document No. 2018... in the amount of €13,407.16 (thirteen thousand four hundred and seven euros and sixteen cents);

  • VAT Assessment No. 2018... for the period of August 2013, document No. 2018..., in the amount of €15,455.15 (fifteen thousand four hundred and fifty-five euros and fifteen cents) plus compensatory interest for the same period, document No. 2018... in the amount of €2,586.30 (two thousand five hundred and eighty-six euros and thirty cents);

  • VAT Assessment No. 2018... for the period of September 2013, document No. 2018..., in the amount of €3,524.87 (three thousand five hundred and twenty-four euros and eighty-seven cents) plus compensatory interest for the same period, document No. 2018... in the amount of €577.49 (five hundred and seventy-seven euros and forty-nine cents);

  • VAT Assessment No. 2018... for the period of October 2013, document No. 2018..., in the amount of €39,803.07 (thirty-nine thousand eight hundred and three euros and seven cents) plus compensatory interest for the same period, document No. 2018... in the amount of €6,394.66 (six thousand three hundred and ninety-four euros and sixty-six cents);

  • VAT Assessment No. 2018... for the period of November 2013, document No. 2018..., in the amount of €8,051.23 (eight thousand fifty-one euros and twenty-three cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,266.13 (one thousand two hundred and sixty-six euros and thirteen cents);

  • VAT Assessment No. 2018... for the period of December 2013, document No. 2018..., in the amount of €10,285.59 (ten thousand two hundred and eighty-five euros and fifty-nine cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,582.57 (one thousand five hundred and eighty-two euros and fifty-seven cents);

  • VAT Assessment No. 2018... for the period of January 2014, document No. 2018..., in the amount of €9,166.18 (nine thousand one hundred and sixty-six euros and eighteen cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,382.20 (one thousand three hundred and eighty-two euros and twenty cents);

  • VAT Assessment No. 2018... for the period of February 2014, document No. 2018..., in the amount of €6,206.52 (six thousand two hundred and six euros and fifty-two cents) plus compensatory interest for the same period, document No. 2018... in the amount of €914.82 (nine hundred and fourteen euros and eighty-two cents);

  • VAT Assessment No. 2018... for the period of March 2014, document No. 2018..., in the amount of €10,895.58 (ten thousand eight hundred and ninety-five euros and fifty-eight cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,567.76 (one thousand five hundred and sixty-seven euros and seventy-six cents);

  • VAT Assessment No. 2018... for the period of April 2014, document No. 2018..., in the amount of €15,121.46 (fifteen thousand one hundred and twenty-one euros and forty-six cents) plus compensatory interest for the same period, document No. 2018... in the amount of €2,126.11 (two thousand one hundred and twenty-six euros and eleven cents);

  • VAT Assessment No. 2018... for the period of May 2014, document No. 2018..., in the amount of €13,094.14 (thirteen thousand and ninety-four euros and fourteen cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,799.45 (one thousand seven hundred and ninety-nine euros and forty-five cents);

  • VAT Assessment No. 2018... for the period of June 2014, document No. 2018..., in the amount of €8,629.92 (eight thousand six hundred and twenty-nine euros and ninety-two cents) plus compensatory interest for the same period, document No. 2018... in the amount of €1,155.69 (one thousand one hundred and fifty-five euros and sixty-nine cents);

  • VAT Assessment No. 2018... for the period of July 2014, document No. 2018..., in the amount of €71.82 (seventy-one euros and eighty-two cents);

  • VAT Assessment No. 2018... for the period of August 2014, document No. 2018..., in the amount of €1,830.96 (one thousand eight hundred and thirty euros and ninety-six cents) plus compensatory interest for the same period, document No. 2018... in the amount of €233.15 (two hundred and thirty-three euros and fifteen cents);

  • VAT Assessment No. 2018... for the period of September 2014, document No. 2018..., in the amount of €24,230.78 (twenty-four thousand two hundred and thirty euros and seventy-eight cents) plus compensatory interest for the same period, document No. 2018... in the amount of €3,003.28 (three thousand and three euros and twenty-eight cents).

  • Adjustment in the assessment of Corporate Income Tax (IRC) for 2013 and respective compensatory interest, in the amount of €345,951.67 (three hundred and forty-five thousand nine hundred and fifty-one euros and sixty-seven cents), as shown in the compensation document No. 2018... resulting from the following operations:

    i. Reversal of the 2013 assessment: Assessment No. 2016... in the amount of €4,890.29 (four thousand eight hundred and ninety euros and twenty-nine cents);

    ii. Adjustment of 2013 assessment: Assessment No. 2018... in the amount of €298,504.61 (two hundred and ninety-eight thousand five hundred and four euros and sixty-one cents);

  • Compensatory interest: Assessment No. 2018... in the amount of €42,330.40 (forty-two thousand three hundred and thirty euros and forty cents);

  • Compensatory interest for prepaid tax: Assessment No. 2018... in the amount of €10.40 (ten euros and forty cents);

  • Compensatory interest for unduly received amounts: Assessment No. 2018... in the amount of €215.97 (two hundred and fifteen euros and ninety-seven cents);

  • Adjustment in the assessment of Corporate Income Tax (IRC) for 2014 and respective compensatory interest, in the amount of €253,141.66 (two hundred and fifty-three thousand one hundred and forty-one euros and sixty-six cents), as shown in the compensation document No. 2018... resulting from the following operations:

    i. Reversal of the 2014 assessment, Assessment No. 2016..., in the amount of €3,406.95 (three thousand four hundred and six euros and ninety-five cents), to be deducted from the sum of the remaining assessments;

    ii. Adjustment of 2014 assessment, Assessment No. 2018..., in the amount of €233,248.20 (two hundred and thirty-three thousand two hundred and forty-eight euros and twenty cents);

  • Interest on arrears, Assessment No. 2018..., in the amount of €835.64 (eight hundred and thirty-five euros and sixty-four cents);

  • Compensatory interest, Assessment No. 2018..., in the amount of €22,464.77 (twenty-two thousand four hundred and sixty-four euros and seventy-seven cents).

b) Positions of the parties

The supplementary assessments being challenged result from the Respondent's Tax Authority's consideration that invoices (listed in section II.3.4.3.3.2 of the Inspection Report – page 19 et seq.), relating to purchases of timber by the Claimant, represent simulated transactions, that is, "false invoices".

The supplementary assessments being challenged, with regard to Corporate Income Tax (IRC), resulted from non-acceptance as a tax-deductible expense of the amounts covered by such invoices.

The Claimant, in its initial request, alleges the reality of the timber sales transactions underlying the issuance of such invoices and has attached a Legal Opinion authored by Professor Doctor Gustavo Lopes Courinha.

c) Procedural steps

The request for constitution of the arbitral tribunal was accepted on 28 November 2018.

The Claimant proceeded with the appointment of an Arbitrator, in accordance with legal requirements, designating Professor Doctor Rui Duarte Morais for this purpose.

The Respondent likewise proceeded with the appointment of an Arbitrator, naming Dr. Carla Castelo Trindade.

Counsellor Carlos Cadilha was appointed, by mutual agreement between the auxiliary Arbitrators, to preside over the arbitral panel.

The arbitral tribunal was constituted on 11 February 2019.

On 18 March 2019, the Respondent replied, arguing for the dismissal of the arbitral pronouncement request.

On 26 April 2019, the Respondent submitted a motion, and the arbitral tribunal decided that it would rule thereon at the meeting provided for in Article 18 of the RJAT [Arbitral Tribunal Rules].

On 3 May 2019, the meeting provided for in Article 18 of the RJAT was held.

By virtue of the motion presented by the Respondent, in which it requested suspension of the proceedings pursuant to Article 272 of the Code of Civil Procedure, pending final decision in criminal proceedings, the Tribunal issued the following order: "The rule in Portuguese law is the rule of the primacy of criminal law. Article 47 of the RGIT [Tax Inspection General Rules] enshrines an exception to such rule and imposes on the tax tribunal and the criminal court that criminal proceedings be suspended pending decision of the tax challenge proceedings. In the binding order, both the Ministry of Finance and the Ministry of Justice bind themselves to all the RJAT, with the exception of matters specifically provided therein. Thus, the Tribunal cannot suspend the proceedings, but rather must apply Article 47 of the RGIT. It is finally noted that the difference in means referred to by the representative of the Tax and Customs Authority was duly safeguarded by the Portuguese legislator when it admitted the suspension of the prescription period for assessment when criminal proceedings are pending."

Thereupon followed the giving of party statements and hearing of witnesses, as evidenced by the minutes of the sessions in which they occurred.

In closing arguments, the parties made pronouncements on the facts to be considered proven and reiterated their previous positions on questions of law.

II - SANATION

The Arbitral Tribunal is materially competent and is regularly constituted.

The parties have legal personality and capacity, show themselves to be legitimate, and are regularly represented.

The action is timely.

The proceedings do not suffer from nullities.

There are no other exceptions that need to be addressed now.

III. AS TO THE FACTS

a) Facts proven

The following facts are considered proven:

a) The Claimant was subject to an external inspection for the tax years 2013 and 2014.

b) The deadlines of the inspection procedures were extended for two periods of three months, by orders of the Deputy Director of Finance, by delegation of the Director of Finance of Lisbon, which were not communicated to the Claimant.

c) The Claimant was notified on 16 November of the draft inspection report.

d) The Claimant delivered its statement during prior hearing proceedings.

e) The Finance Directorate of Lisbon, on 18-01-2020, notified the Claimant, through its representative, of the final inspection report, containing the corrections resulting from the inspection action, relating to the tax years 2013 and 2014, both for VAT and for Corporate Income Tax (IRC).

f) In accordance with the said report, the Finance Directorate of Lisbon corrected the taxable income of the Claimant, for Corporate Income Tax (IRC) purposes, by €1,183,424.25, for 2013, and by €900,644.00, for 2014.

g) Also in accordance with the same report, a deficit was found, for VAT purposes, of €272,187.53, for 2013, and €104,380.24, for 2014.

h) The Claimant made payment of the amounts resulting from the assessments being challenged on 26 February 2018.

i) On 21 May 2018, the Claimant submitted an administrative appeal of the VAT assessment acts and the Corporate Income Tax (IRC) assessment acts, for 2013 and 2014.

j) The corrections made, for both VAT and Corporate Income Tax (IRC) purposes, resulted from non-acceptance of the reality of the transactions underlying the invoices, covering timber sales to the Claimant, issued by B... – Unipessoal, Lda, C... – Unipessoal, Lda and D..., contained in documents No. 1 to 222 attached with the arbitral pronouncement request.

k) The Claimant sells timber, its main customer being E... – Timber Supply ACE, of which the Claimant is a supplier, namely of eucalyptus logs.

l) The timber commercialized by the Claimant originates from: (i) purchases from timber producers – natural and legal persons – which may or may not include timber felling on the property; (ii) timber felling on its own properties; (iii) timber felling on rented properties; (iv) rights to fell trees on third-party properties; (v) purchases from other timber merchants who buy and sell timber.

m) The Claimant was obligated contractually, in the years in question, to supply E... with certain minimum quantities of cubic meters of timber.

n) When the Claimant purchases timber from other merchants (suppliers) for resale to E..., even if it does not ensure the same margin as when it purchases from an individual or when it fells timber from its own or rented property or from property where it has felling rights, it benefits from such purchases because, on the one hand, it ensures continuity as a supplier to E..., and on the other, it ensures receipt of a premium.

o) E... enters into contracts with only 3 or 4 market players, incentivizing the highest possible volume of timber supply by each of them.

p) Each timber merchant with whom E... has a contract thus has an interest in the greatest amount of timber possible being delivered, by itself or on its behalf, to E..., because, in addition to fulfilling its contractual obligations, the premium paid by E... varies depending on the total amount of timber delivered.

q) The Claimant's suppliers have an interest in this business because, in addition to being able to sell their timber in this way, they receive the corresponding price in cash from the Claimant, whereas E... pays the Claimant and other companies with which it has contracts within approximately 90 days.

r) The prices shown in the invoices in question in these proceedings correspond to those practiced by E... with the Claimant on the corresponding dates.

s) Normally, these transactions occur "at the door" of E...'s receiving yards: the carrier delivers the timber in the name of the Claimant, using "delivery notes" previously made available to it by the Claimant for this purpose, and then the supplier invoices the corresponding amount to the Claimant.

t) The payments corresponding to the invoices in question in these proceedings were made by check or bank transfer, after the Claimant verified such invoices and the corresponding timber entry documents in E...'s yards.

u) The supplier D... was known in his area as one of the main employers in the timber extraction sector and to have a large fleet of trucks and tractors.

v) B..., Lda and C..., Lda engaged in the activity of timber extraction and commerce, both having at least fleets of vehicles suitable for such purposes.

w) Timber was delivered in the quantities referred to in the invoices in question in these proceedings to E..., which proceeded with their receipt in its yards.

x) E... cannot identify the location of extraction of the timber in question because it is uncertified timber.

y) The Respondent attempted, without success, to contact the suppliers in question, B..., C... and D....

z) These companies were, at the time, in a situation of general non-compliance with their accounting, reporting and payment obligations, which did not allow for documentary verification of the reality of the transactions corresponding to the invoices issued by them in question in these proceedings.

The conviction of the Arbitral Tribunal was based on the documentation attached to the proceedings and on the party statements and testimonies, which were, in essence, convincing and consistent – the witnesses' "reasons for knowledge" being different – namely regarding the manner in which the transactions in question are conducted, which correspond to a current practice in the sector, as well as the manner in which payments were made to the suppliers of the Claimant's timber.

The witness, called by the Respondent, F..., tax inspector, confirmed that it was the absence of documentation regarding the structure and functioning of the supplying companies – the three companies whose truthfulness of the invoices they issued was questioned – and also what was ascertained regarding some other companies, suppliers to those companies, that led to the reality of the transactions underlying the invoices in question being called into question.

The two witnesses called by the Respondent confirmed that the Respondent, both in the criminal proceedings and in the administrative procedure, did not attempt to investigate whether the money corresponding to the price covered by such invoices "returned" to the managers, administrators or persons related to the Claimant, having in particular not proceeded with bank secrecy waivers.

b) Facts not proven

a) The Respondent did not prove any facts capable of indicating that the timber corresponding to the invoices whose reality it did not accept came from sources other than the suppliers B..., Lda, C..., Lda and D....

b) No proof was made, even of an indicative nature, that there were subsequent receipts of money by the administrators or managers of the Claimant or by third parties related thereto, whose origin could be associated with the "return," in whole or in part, of the price paid.

c) No proof was made, even of an indicative nature, beyond the absence of documentation that should be possessed, that the Respondent did not have the structure that would allow it to carry out – directly or indirectly – the transactions that the Tax Authority considers simulated.

d) No proof was made, even of an indicative nature, of price simulation.

III - THE LAW

1. Assessments being challenged

The Tax Authority bases the VAT assessments on the provisions of Article 19, paragraph 3 of the CIVA [Portuguese VAT Code], according to which no deduction can be made of tax resulting from a simulated transaction or in which the price shown on the invoice is simulated.

It is important to begin by clarifying that the burden of proof of facts indicating the alleged simulation falls on the Tax Authority, since facts constituting the right to the tax it invokes are at issue.

As it is established jurisprudence (e.g., STA Decision No. 0591/15, of 17/02/2016), given the provisions of Article 74 of the LGT [General Tax Law], the Tax Authority must, in a first phase, prove facts that constitute serious indication that the allegedly simulated transactions did not exist (it does not have to make direct proof of the simulated agreement); having made such indicative proof, it falls to the taxpayer to prove the veracity of the transactions.

There is indicative proof at issue, it is true, but necessarily "solid" proof, since the refusal of the right to VAT deduction is absolutely exceptional, being permissible only when it is proven, based on objective elements, that such right was invoked fraudulently or abusively (in this regard there is extensive jurisprudence of the CJEU, such as, for example, case C-277/14, of 22/10/2015).

In the specific case, the Tax Authority did not provide proof of any facts that would allow the simulation of the transactions underlying the issuance of the invoices in question to be indicated, and thus did not fulfill its burden of proof to which it was bound.

Only was it proved, with relevance: that timber corresponding to what was invoiced was sold, in the name of the Claimant, to E...; that such timber was delivered, normally by third parties (carriers), to the E... facilities; that checks corresponding to the prices shown on the invoices were issued and delivered to the Claimant's suppliers in question (B..., Lda, C..., Lda and D....). Moreover, it was proved that the Claimant's suppliers in question engaged regularly in timber commerce and, at the time the sales occurred, had their registration status properly regularized as VAT taxpayers.

Nothing was ascertained regarding the origin of the timber delivered to E..., and it is certain that the possible fiscally fraudulent character of some of the timber purchases by the Claimant's suppliers now in question (facts contained in the Inspection Report) would never permit, even if proven (which did not happen), concluding, without more, to the simulation of the purchases made by the Respondent, since different contracts of purchase and sale, involving distinct parties, are at issue.

Accordingly, it must be concluded, in view of the evidence produced in these proceedings (possibly different from that which may be obtained in others, notably in criminal proceedings), that no facts indicative of the alleged simulation were proved, and thus the provisions of Article 19, paragraph 3 of the CIVA cannot be applied in this case.

For the same reason, it must be concluded that, having not been made proof of the simulation, the amount corresponding to the price paid by the Claimant is a tax-deductible expense for Corporate Income Tax (IRC) purposes, since the purchase of goods for resale has underlying it a business purpose.

In view of the foregoing, the examination of the other defects imputed by the Claimant to the assessments being challenged is prejudiced.

2. Compensatory interest

The Claimant also petitioned for condemnation of the Respondent to pay compensatory interest, calculated from the date of payment until effective and complete reimbursement.

As was proved, the Claimant made payment, on 26 February 2018, of the amount resulting from the assessments it challenged, which was in the total amount of €1,019,030.41 (one million and nineteen thousand and thirty euros and forty-one cents), of which €419,937.07 (four hundred and nineteen thousand, nine hundred and thirty-seven euros and seven cents) related to VAT and €599,093.33 (five hundred and ninety-nine thousand, ninety-three euros and thirty-three cents) related to Corporate Income Tax (IRC).

Thus, the condition provided for in Article 43, paragraph 1 of the LGT (undue payment of the tax liability) is met, with the "error" being attributable to the services, since such payment resulted from assessments officially promoted by them.

IV - DECISION

a) The assessments being challenged are annulled, as illegal, in their entirety, with all other legal consequences, namely regarding the administrative appeals submitted.

b) The Respondent is condemned to pay the legally due compensatory interest.

Amount: €1,019,030.41.

Lisbon, 2 October 2019

Carlos Cadilha

Rui Duarte Morais

Carla Castelo Trindade

PREAMBLE TO REFORMED DECISION

They agree in the arbitral tribunal:

  1. The company A..., LDA, already identified in the proceedings, came to request, at first instance, the constitution of an arbitral tribunal, pursuant to the provisions of Article 2, paragraph 1, subparagraph a), and Article 10 of Decree-Law No. 10/2011, of 20 January, to examine the legality of the acts of VAT and Corporate Income Tax (IRC) assessment relating to the tax years 2013 and 2014, in the total amount of €1,019,030.41, and the legality of the acts of implied rejection of the administrative appeals filed against them, and further to condemn the Tax Authority to the payment of compensatory interest.

In exercise of the right of reply, the Tax Authority, in addition to arguing for the lack of merit of the arbitral request and requesting suspension of the arbitral proceedings due to a prejudicial connection with pending criminal proceedings involving the same facts, came to request the following documentary evidence: attachment to the proceedings of the evidence contained in case No. 1248/16.1IDLSB, namely the interrogation report and recording, at pages 923/924 and 933; certificates from the Commercial Registry, at pages 30/33, 308/311, 312/314, 327/334, 590/599, 892/899, 958/959 of the said proceedings; Powers of attorney, at pages 35/38; Income Tax (IRS) and VAT declarations of B..., at pages 106/120, 528/531, and publication in the Official Journal, at page 121; tax information and Social Security Institute information, at pages 124/133, 316/318, 322/326, 472/486, 523/527, 532/534, 602/609, 737/739; copy of judgment, at pages 935/956; copy of invoices and checks, at pages 47/62 and 657/670 (J...), 102/105, 671/673 (K...), 134/291 and 452/471 (B...); documents at pages 319/321; trial balance, bank statements and accounting documentation at pages 63/101, 366/448, 699/709; inspection action reports and final report, at pages 2/15, 17/22, 23/28, 348/365, 757/774.

By arbitral decision of 30 September 2019, the arbitral request was judged to have merit and, consequently, the illegality of the assessments being challenged was declared and they were annulled, and the Respondent was condemned to the payment of compensatory interest.

The Tax Authority filed an appeal against the arbitral decision before the Central Administrative Court of the South, on the grounds of improper pronouncement, violation of the principles of due process and equality of parties, and lack of factual and legal reasoning.

The Central Administrative Court of the South, by judgment of 25 May 2025, judged the appeal to have merit due to the arbitral tribunal's failure to respond to the Respondent's request for production of documentary evidence, which placed the Respondent in a situation of inequality in relation to the Claimant regarding the possibility of being able to influence the final decision, which vitiates the arbitral decision with nullity, due to violation of the principle of equality of parties and consequent improper pronouncement.

The judgment of the Central Administrative Court of the South became final on 9 July 2025.

  1. Following the annulling judgment, by order of 20 October 2025, the arbitral tribunal decided: a) to notify the Tax Authority to attach to the proceedings the documents which are in its possession or to which it has access; b) to notify the Tax Authority to indicate which documents in the possession of the Claimant or of third parties to which it does not have access; c) to notify the Tax Authority to specify the facts considered not proven in the arbitral decision in relation to which it may have an interest in attaching the documents in question.

In response, the Tax Authority, by motion of 3 November 2025, came to set forth and request the following:

  1. When the Respondent formulated the request for production of evidence (in 2019), an indictment order by the Public Prosecutor had been issued in case 1248/16.1IDLSB.

  2. And since it appeared relevant to the discovery of material truth, the following production of evidence was requested:

Attachment to the present proceedings of the evidence contained in case No. 1248/16.1IDLSB, namely:

Interrogation Report and recording at pages 923/924 and CD at pages 933;

Documentary evidence:

  • Certificates from the Commercial Registry at pages (of the said case) 30/33, 308/311, 312/314, 327/334, 590/599, 892/899, 958/959;

Powers of attorney at pages (of the said case) 35/38;

Income Tax (IRS) and VAT declarations of B..., at pages (of the said case) 106/120, 528/531; Official Journal publication at page (of the said case) 121 (B...);

Tax information and Social Security and IP information, at pages 124/133, 316/318, 322/326, 472/486, 523/527, 532/534, 602/609, 737/739;

Copy of judgment at page (of the said case) 935/956;

Copy of invoices and checks, at pages (of the said case) 47/62 and 657/670 (J...), 102/105, 671/673 (K...), 134/291 and 452/471 (B...);

Documents at pages (of the said case) 319/321;

Trial balance/Bank statements/accounting documentation, at pages (of the said case) 63/101, 366/448, 699/709;

Inspection action reports and final report at pages (of the said case) 2/15, 17/22, 23/28, 348/365, 757/774;

  • Commercial Registry Certificate at pages (of the said case) 883/890.

Testimonial evidence:

C..., tax inspector, with professional domicile at the Finance Directorate of Lisbon, Tax Inspection Area, page (of the said case) 773;

D..., instructor, with professional domicile at the Finance Directorate of Lisbon, Criminal Tax Proceedings Division, page (of the said case) 773;

E..., Administrator of Insolvency, id. at page (of the said case) 122;

F..., id. at page (of the said case) 553;

G..., id. at page (of the said case) 543;

H..., id. at page (of the said case) 547;

I..., id., at page (of the said case) 550.

  1. It happens, however, that in the meantime, that proceedings came to be judged, having, according to the certificate attached by the Claimant to the proceedings, become final on 09-12-2020.

  2. Having analyzed that judgment, it is found that the facts it was sought to ascertain at that time were addressed in that judgment, which culminated in the acquittal of the Claimant.

  3. And, from the facts that were found to be proven, unless there is better opinion, do not appear to result facts capable of altering the sense of the impugned Arbitral Decision.

  4. In this sequence, the Respondent understands that the certificate attached to the proceedings by the Claimant empties the content of the evidence production request previously presented, and thus the Respondent comes to withdraw it.

Notified to make pronouncement, given the new developments in the proceedings, the Claimant came to state that, in light of the Tax Authority's motion, "do not appear to result facts capable of altering the sense of the impugned arbitral decision".

  1. In this context, in view of the instructional effort undertaken by the arbitral tribunal in order to reform the arbitral decision and the response of the Tax Authority through the motion of 3 November 2025, set out above, by which it comes to withdraw the production of documentary evidence, and there being no other steps to be taken to comply with the judgment of the Central Administrative Court of the South, the arbitral decision should be upheld in its precise terms.

  2. Accordingly, it is decided to uphold the appealed arbitral decision regarding the merits of the arbitral request, with the consequent annulment of the assessments being challenged and the condemnation of the Respondent to the payment of compensatory interest.

Lisbon, 21 November 2025,

The President Arbitrator

Carlos Fernandes Cadilha

The Arbitrator Member

Carla Castelo Trindade

The Arbitrator Member

Rui Duarte Morais

Frequently Asked Questions

Automatically Created

What was the outcome of the arbitral decision reform in CAAD process 593/2018-T regarding VAT and IRC assessments?
The reformed arbitral decision in CAAD 593/2018-T was issued on 21 November 2025 following annulment by TCA Sul. The case involved VAT assessments totaling €1,019,030.41 for 2013-2014 based on alleged false invoices under Article 19 CIVA. The Claimant sought annulment of 21 monthly assessment notices and compensatory interest. The outcome of the reformed decision after procedural correction is not fully detailed in this excerpt, but the process was restarted to cure the procedural violations identified by the appellate court.
Why did the TCA Sul annul the original arbitral decision for violation of the principle of equality of parties?
The TCA Sul annulled the original arbitral decision because the Tax Authority violated the principle of equality of parties (igualdade das partes) and adversarial rights (princípio do contraditório). The violation occurred when the Tax Authority requested submission of documentary evidence from ongoing criminal proceedings without providing the Claimant adequate opportunity to examine, analyze, and contest this evidence. This unilateral introduction of evidence from external judicial proceedings without respecting the Claimant's right to respond constituted a fundamental procedural defect requiring annulment and reformation of the arbitral decision.
Can the Tax Authority request the submission of documentary evidence from criminal proceedings in Portuguese tax arbitration?
Yes, the Tax Authority can request submission of documentary evidence from criminal proceedings in Portuguese tax arbitration, but must strictly observe procedural guarantees. The TCA Sul's annulment in this case established that such evidence cannot be introduced unilaterally. The adversarial principle requires that when evidence from parallel criminal proceedings is submitted, the opposing party must receive full access to examine the evidence and adequate opportunity to respond, contest, and present counter-arguments. Failure to provide this opportunity violates constitutional and procedural rights to equality of arms and contradictory procedure.
What constitutes a violation of the adversarial principle (contraditório) in Portuguese tax arbitration proceedings?
Violation of the adversarial principle (princípio do contraditório) in Portuguese tax arbitration occurs when one party is denied meaningful opportunity to examine and contest evidence presented by the opposing party. In Case 593/2018-T, the violation consisted of the Tax Authority introducing documentary evidence from criminal proceedings without allowing the Claimant to properly review and respond to this evidence. The contraditório principle requires: (1) timely notice of evidence being introduced; (2) full access to examine such evidence; (3) adequate opportunity to present counter-arguments and rebuttal evidence; and (4) equal treatment of parties regarding evidentiary submissions. Any procedural asymmetry that materially prejudices a party's ability to defend its position constitutes a violation.
How does the reform of an arbitral decision work after an annulment by the Central Administrative Court in Portugal?
After annulment by the Central Administrative Court (Tribunal Central Administrativo), the reform of an arbitral decision in Portugal follows specific procedures. The appellate court issues an annulment order identifying the specific procedural or substantive defects. The case returns to the original arbitral tribunal (or a newly constituted tribunal with the same or different arbitrators) to issue a reformed decision. The tribunal must cure the identified defects while respecting the appellate court's guidance. In Case 593/2018-T, after TCA Sul annulled the decision for violating equality and adversarial principles, the tribunal reformed its decision on 21 November 2025, presumably after providing proper opportunity for both parties to present and contest all evidence, including materials from criminal proceedings. The reformed decision must comply with constitutional procedural guarantees.