Process: 612/2018-T

Date: October 15, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Case 612/2018-T addressed whether an IRC (corporate income tax) assessment for fiscal year 2008 could be challenged through official review (revisão oficiosa) based on alleged errors attributable to tax services. The claimant, a business association, received Commerce Modernization Fund (MODCOM) subsidies for commercial promotion activities. Following a tax inspection triggered by fraud investigation requests, the Tax Authority corrected IRC taxable income for 2008, alleging fictitious invoicing between the association and service providers. After partially unsuccessful administrative appeal, and after the statutory deadline for judicial review expired, the claimant requested official review under Article 78 of the General Tax Law (LGT), arguing the assessment contained errors of fact and law attributable to tax services. The Tax Authority rejected this request, prompting arbitration. The Authority raised a preliminary objection of incompetence, arguing that CAAD lacks jurisdiction to review decisions rejecting official review requests under Article 2(1) RJAT. The claimant contended the assessment lacked proper substantiation under Article 77 LGT, that the Tax Authority failed to prove fictitious operations, and that the inspection incorrectly presumed invoice irregularities without evidence. The claimant noted that other related assessments from the same inspection had been annulled by previous CAAD decisions. This case involves critical questions about CAAD's jurisdictional scope over official review rejections, the substantiation requirements for IRC assessments based on presumed fictitious transactions, and the conditions for establishing administrative error justifying official review after standard appeal deadlines expire.

Full Decision

ARBITRAL TAX JURISPRUDENCE

Process No. 612/2018-T

Decision Date: 2019-10-15

IRC

Value of Claim: € 42,511.61

Subject Matter: IRC - Official Review – Error Attributable to the Services.

ARBITRAL DECISION

I – REPORT

  1. A..., legal entity No. ..., with registered office at Rua..., ..., ..., filed on 04-12-2018, a request for constitution of the arbitral tribunal, pursuant to articles 2º and 10º of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with article 102º of the Code of Tax Procedure and Process (CPPT), in which the Tax and Customs Authority (hereinafter referred to only as Respondent or AT) is requested.

  2. The Claimant seeks, through its request, the annulment of the decision to reject the request for official review which was processed under No. ...2017..., of the Department of Services for the Tax on Income of Legal Entities and, consequently, of the act of assessment of IRC and compensatory interest for the fiscal year 2008.

  3. 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 05-12-2018.

3.1. The Claimant did not proceed to the appointment of an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of article 6º, paragraph 2, and subparagraph b) of article 11º, paragraph 1, of the RJAT, the President of the Deontological Council appointed the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the appointment within the respective deadline.

3.2. On 24-01-2019 the parties were notified of the appointment of the arbitrator, and no objection was raised.

3.3. In accordance with the provisions of subparagraph c) of article 11º, paragraph 1, of the RJAT, the arbitral tribunal was constituted on 13-02-2019.

3.4. In these terms, the Arbitral Tribunal is regularly constituted to consider and decide the subject matter of the process.

  1. To substantiate the request for arbitral pronouncement, the Claimant alleges, in summary, the following:

The Claimant is a private-character association of business persons, without profit-making purposes, whose object is the defense, representation and promotion of the legitimate economic, professional and social interests of its members, as well as their rights, prestige and dignity.

Over recent years, it has applied, with remarkable success, for financial incentives granted by the Commerce Modernization Fund, for financing of initiatives in the municipalities within its area of influence, related to street animation or revaluation of certain zones of traditional commerce, aimed at promoting and developing local commerce, without at any moment its own eligibility or even the eligibility of the expenses incurred being called into question.

The tax administration conducted to the Claimant a tax inspection procedure, external and of general scope, with temporal scope covering the fiscal years 2008, 2009, 2010 and 2011, which, as results from the Inspection Report, was motivated by express request of DSIFAE (Department of Services for Investigation of Fraud and Special Actions), aimed at ascertaining possible irregularities in the granting of public funds, more specifically the financial incentives granted by the Commerce Modernization Fund.

From the said inspection procedure resulted corrections in the field of VAT, for the years 2008, 2009 and 2011, and also corrections to the taxable matter of IRC, for the fiscal years 2008, 2010 and 2011.

According to the tax administration, the Claimant allegedly participated, together with the companies with which it maintained commercial relations, during the fiscal years in question, in the issuance of invoices not corresponding, in whole or in part, to operations effectively performed.

Not conforming to the said assessment act, the Claimant filed, with the Tax Office of ..., a Friendly Complaint contesting the legality of the corrections made to the taxable matter of IRC, for the fiscal year 2008, as a result of which it was notified of the decision of (partial) rejection.

The remaining assessment acts resulting from the inspection action identified above were all annulled by arbitral decisions.

Taking into account such facts and assumptions, and the fact that the deadline provided for in article 56º, paragraph 2, subparagraph a) of the General Tax Law had elapsed (since the decision on the Friendly Complaint is from 2014), the Claimant filed the Request for Official Review of the assessment act of IRC and Compensatory Interest No. 2014..., on the understanding that the said assessment act is illegal, as it was performed based on error regarding the assumptions, of fact and law, attributable to the services and which demonstrate a taxation misaligned with the legal-tax reality of the Claimant. Which received a dispatch of rejection.

The acts and assessments at issue result from a mistaken application of the law and an erroneous qualification of the facts, whereby it shall be concluded that there was error attributable to the services, which should, in the context of Official Review, have been corrected by the tax administration.

The error in which the tax administration incurred is evident by virtue of the understanding that the invoices issued by service providers to the Claimant, and by this to those, do not title real operations, in an unfounded and unsubstantiated presumption.

If this is not so understood, the present Request for Arbitral Pronouncement should nonetheless be upheld by virtue of the existence of grave and notorious injustice.

From the assessment act of IRC and Compensatory Interest at issue does not result sufficient necessary substantiation, neither of fact nor of law, as required by the provisions of article 77º of the General Tax Law, so as to justify the decision therein inserted.

The Claimant, objectively unaware of the grounds underlying the said assessment act of IRC and Compensatory Interest, as these did not appear in the corresponding acts, nor was any express or implicit reference made to any concrete and determined document that is contemporary or prior to those same acts and having not been notified in the terms and for the purposes provided for in subparagraph a) of article 60º, paragraph 1, of the General Tax Law, there occurred an omission of an essential legal formality.

The substantiation of the Inspection Report itself is not congruent, nor indeed clear, whereby it is concluded that there is a lack, incongruence or insufficiency of substantiation itself.

By not demonstrating the fictitious nature of the operations titled by the invoices at issue, nor invoking sufficiently concrete indications of such fact, the tax administration does not fulfill the burden of proof that rested upon it for purposes of disregarding the expenses underlying those invoices and, consequently, of the taxation of the amounts received under MODCOM.

Grounding the corrections to the taxable matter that appear to substantiate the assessment acts at issue appear to violate the law and to err in fact and law regarding the assumptions, it was also necessary, for this reason, to carry out the review and consequent annulment of the said tax acts.

It concludes by the illegality of the assessment of tax, compensatory interest and municipal surcharge, requesting its annulment with the consequent restitution of tax plus the payment of indemnity interest.

  1. For its part, the Tax and Customs Authority presented a response, invoking in summary, the following:

Given the content of the request for arbitral pronouncement presented, in which the decision to reject the request for official review is elected as the subject of arbitral pronouncement, it must from the outset raise the exception of incompetence of the Arbitral Tribunal, in light of paragraph 1 of article 2º of the RJAT.

In fact, the competence of the Arbitral Tribunal comprises the assessment of the illegality of an assessment act, and the assessment of a request for official review made under article 78º of the LGT involves the assessment not only of the legality of the assessment act at issue, but also the assessment of the issues raised of grave or notorious injustice upon which this legal instrument rests.

It happens, however, that arbitral tribunals have competence only to assess the claims for a declaration of illegality of tax acts and the questions inherent thereto, such as error attributable to the services and the claim for indemnity interest for undue tax payment.

The exception of incompetence of the arbitral tribunal should be judged upheld, pursuant to paragraph 1 of article 2º of the RJAT, to assess the assumptions upon which the legality of the official review of article 78º of the LGT rests, by virtue of this legal instrument not being satisfied with the declaration of illegality of the tax.

The assessment No. 2014..., impugned, is a tax administrative act that reiterates the aforesaid decision of partial acceptance of the friendly complaint, being a merely consequential act intended to execute the decision of the services and, as a confirmatory act of the decision proferred in the friendly complaint, such assessment is a confirmatory act not impugnable.

Wherefore the exception of non-existence of processual subject matter should be judged upheld, by virtue of that assessment, in light of article 52º of the CPTA, being a non-impugnable administrative act, and consequently not being susceptible to official review under article 78º of the LGT.

Since at the date when the request for official review was made to the AT the three-year deadline provided for in article 78º of the LGT was already barred, and this deadline is counted from the notification of the 2013... assessment, and not from the 2014... assessment which, in light of article 52º of the CPTA, is a non-impugnable administrative act, the right of action has lapsed, which is an insurmountable dilatory exception.

Furthermore, the Claimant, having not conformed with the decision of partial acceptance proferred in the context of that friendly complaint, should have reacted against it in the terms and within the legally established deadlines for that purpose. The fact that, following and in execution of that friendly complaint, a corrective assessment was issued does not grant to the taxpayer the right to react against that corrective assessment with the same grounds that it had already invoked in that friendly complaint, even if through a request for official review that repeats those arguments adding other new ones of alleged grave or notorious injustice.

Wherefore, in the same way, the right of action has lapsed.

As regards the lack of substantiation of the tax act, it sustains that the decision to assess the tax has as its basis the agreement with the proposal of correction sanctioned by the tax inspection that preceded it, and which is set out in the report of the tax inspection, pursuant to paragraph 1 of article 77º of the LGT. The elements that make up the substantiation of the tax act, expressly provided for in paragraph 2 of article 77º of the CPPT, are contained in the content of the tax inspection report, which was notified to the Claimant, and it is on the basis of its content that the Claimant comes to contest the corrections made.

Article 103º, paragraph 2 and article 268º, paragraph 3 of the CRP, or article 77º of the LGT, was not minimally violated, wherefore the defect of form for lack of substantiation of the assessment act should be judged unwarranted.

The purposes intended with it were achieved, namely: the understanding of the content of the act by its addressees and the possibility of reacting against it. The Claimant, contrary to what it alleges, came to know the origin and reason for the assessment, what was assessed and how and what the reasons and manner in which it was carried out.

As regards the alleged omission of an essential legal formality by failure to notify the SP to exercise its right to prior hearing, the Claimant has no reason whatsoever, with particular relevance to the waiver contained in paragraph 3 of article 60º of the LGT, in conjunction with subparagraph a) of its paragraph 1.

The substantiation of the corrections clearly demonstrates an adequate assessment and weighing of the reasons of fact and law that determined the additional assessment impugned, the reasons why the corrections were made were unequivocally demonstrated.

It fell to the AT to bear the burden of proof of the assumptions of its right to proceed with corrections, demonstrating the factuality that led it to consider that the accounting of the Claimant showed considerable inconsistencies, capable of undermining the presumption of veracity of the operations recorded by the taxpayer, which is plainly reflected in the inspection report. The presumption ceasing, the burden of proof of the facts about which doubts were raised then fell upon the Claimant.

The Respondent concludes for the legality of the assessment act contested by the Claimant which should, thus, be maintained.

  1. On 28-06-2019, the meeting provided for in article 18º of the RJAT took place, in which the witnesses presented by the Claimant were examined and the notification of the recording of the testimony of B... in other arbitral processes was ordered.

  2. The parties filed written submissions, reiterating and developing their respective legal positions, and the Claimant further filed a response to the submissions presented by the Respondent which, having been considered procedurally inadmissible, was ordered to be removed from the file.

II – CASE MANAGEMENT

8.1. The tribunal is competent and regularly constituted.

8.2. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (articles 4º and 10º, paragraph 2, of the RJAT and article 1º of Order No. 112-A/2011, of 22 March).

8.3. The process does not suffer from nullities.

8.4. Several exceptions were raised by the Respondent that prevent the consideration of the merits of the case, as to which the Claimant pronounced itself, the knowledge of which depends on the matter of fact to be established, wherefore they shall only be assessed finally.

III – MATTERS OF FACT AND LAW

III.1. Matters of Fact

Taking into account the positions assumed by the parties, the documentary evidence and the administrative process attached to the file, as well as the testimony of the witnesses – bearing in mind that the Tribunal has no duty to pronounce on all alleged matters, but rather the duty to select those that matter for the decision, taking into consideration the cause of action that grounds the request formulated (cfr. articles 596º, no. 1 and 607º, nos. 2 to 4, of the Civil Code, as amended by Law 41/2013, of 26/6) and to record whether it considers it proven or not proven (cfr. article 123º, paragraph 2, of the CPPT) – the following facts are considered proven, with relevance for the assessment and decision of the questions raised:

a) The Claimant is a private-character association of business persons, without profit-making purposes, which enjoys legal personality, constituted in accordance with the law to subsist for an indeterminate period, and whose object is the defense, representation and promotion of the legitimate economic, professional and social interests of its members, as well as their rights, prestige and dignity;

b) Considering its nature and the pressing necessity of obtaining the investment necessary for carrying out the said initiatives and achieving the objectives they entail, the Claimant has been applying for public funds, namely the Commerce Modernization Fund, created through Decree-Law No. 178/2004, of 27 July, aimed at the modernization and revitalization of commercial activity, particularly in commerce centers with a predominance of independent proximity commerce, in urban or rural areas, as well as the promotion of actions and training programs directed at the commerce sector;

c) Framing the Claimant as a beneficiary entity of the incentives financed by that Fund, it applied, with success, for the financial support granted by that Fund, namely in the years 2008, 2009 and 2011;

d) The eligibility conditions of the Claimant and the economic and financial viability of the projects through which it applied for the financial incentives granted by the Fund, went through the scrutiny of two of the entities responsible for the management of the Fund — the General Directorate of Enterprise – DGE – and the Institute for Support to Small and Medium Enterprises and Investment – IAPMEI.

e) Accredited by External Service Orders No. OI2012... and OI2012..., dated 17 April 2012 and 25 May 2012, the tax administration initiated a tax inspection procedure, external and of general scope, with temporal scope covering the fiscal years 2008, 2009, 2010 and 2011 of the Claimant;

f) Tax inspection which, as results from the Inspection Report, was motivated by express request of DSIFAE (Department of Services for Investigation of Fraud and Special Actions), aimed at ascertaining possible irregularities in the granting of public funds, more specifically the financial incentives granted by the Commerce Modernization Fund;

g) From the said inspection procedure resulted corrections in the field of VAT, for the years 2008, 2009 and 2011, corresponding to alleged failure to remit VAT collected to the State coffers, in the total amount of € 57,775.67 and also corrections to the taxable matter of IRC, for the fiscal years 2008, 2010 and 2011, in the global amount of € 353,826.68, reflected in the declared result of the Claimant through the increase of this amount to the taxable profit;

h) According to the Inspection Report, the Claimant allegedly participated, together with the companies with which it maintained commercial relations, during the fiscal years in question, in the issuance of invoices not corresponding, in whole or in part, to operations effectively performed;

i) It appears, in particular, in the Inspection Report:

– "We verified that the entities, C... and D..., in the fiscal years in which they had commercial relations with A..., were simultaneously its suppliers and customers, a situation which confirmed the indications that led to the initiation of the present actions.

– In turn A... issues invoices in favor of the companies of group E...

– Simultaneously A... is issuer, in favor of D..., of invoices...

– Right here we can draw an obvious conclusion: the participants change, or part of them, but the behaviors persist! In fact, it seems to be this type of generalized posture, we witness the inflating of costs with the actions applying for public financing, to maximize the almost only source of revenue of the Association which, according to what was being transmitted to us, will hardly be able to meet its current expenses. If we analyze the sources of revenue of A..., we clearly saw that it does not have the capacity to meet the part of the costs of the initiatives in question that are not co-financed, which, we must not forget, are at minimum 40%.

– Analyzing the accounts we observed that all of the invoices issued by D... in January 2011 gave rise to the issuance of a payment receipt through a check (25-02-2011). The same occurring with the invoices issued by A... to D... (28-02-2011). However, on the same date as the issuance of these latter checks, others were issued by D... in favor of A... in the amounts of 13,159.45€, 11,503.58€, 14,488.49€, 8,181.47€ and 15,534.26€. Of all of them, in the total amount of 110,377.00€, debt declarations were signed by A... in favor of D....

– The invoices issued by A... and settled by means of check, as described in the point above served to attenuate the effects of invoicing, with indications of titling fictitious operations, issued by D....

– It is to be noted that in the movements described above the global values are exactly equal, that is, the total invoicing of January of D... to A... is equal to the value of the checks issued by the latter in favor of the former, with one of equal value for each invoice issued by A... and another for the remainder up to the total amount of an invoice of D....

– Following these movements, there is a record of the entry into the bank accounts of A... of transfers from MODCOM, whereby it is concluded that, once again, the reason for these machinations is the obtaining of subsidies, for whose receipt there is a necessity to prove the payments of the co-financed services.

– In identical manner occurred with the deposit of the check from E... in the account of A... (...) in the amount of 64,800.00€ on 24/02/2011, following the receipts issued by C... related to invoices from 2010.

– Beyond these financial movements, a capital entry was further detected in the bank accounts of A..., resulting from a transfer from D... in the amount of 15,100.00€, corresponding to invoice No. 269 of the latter itself, on 28/7/2011, that amount having, on the immediately following day, been subject to bank transfer between accounts of A..., from where it left on 02/08 for payment of invoice 269 of D...".

j) Following the notification of the Inspection Report, the Claimant was notified of the assessment act of IRC and Compensatory Interest No. 2013..., performed with reference to the fiscal year 2008, in the amount of € 51,406.38;

k) By not conforming to that assessment act, the Claimant filed, with the Tax Office of ..., a Friendly Complaint contesting the legality of the corrections made to the taxable matter of IRC, for the fiscal year 2008;

l) Friendly Complaint which was registered under No. ...2014... which received a dispatch of partial acceptance from the Finance Department of ..., notified to the Claimant by Office Letter No. ... of 12 June 2014;

m) The Claimant having conformed to the said partial acceptance, was notified of a new assessment act of IRC and Compensatory Interest No. 2014..., of 14 July 2014, performed with reference to the fiscal year 2008 in the global amount of € 42,511.61;

n) The Claimant proceeded to payment of the assessed tax;

o) The assessment acts of IRC, for the fiscal years 2010 and 2011, were the subject of requests for arbitral pronouncement which were judged upheld, in the proceedings that were processed under No. 714/2014-T and 251/2015-T;

p) The assessment act of VAT for the year 2008 was, in like manner, the subject of a request for arbitral pronouncement, through CAAD, under process No. 252/2015-T which was judged upheld.

q) On 17 January 2017 the Claimant filed a request for official review of the assessment of IRC No. 2014..., relating to the fiscal year 2008;

r) The request for official review was formulated with the same subject matter and grounds that appeared in the friendly complaint filed in the year 2014 (cf. article 12º of the request for official review);

s) The said request for official review was rejected by dispatch of 5 March 2018 from the Department of Services for the Tax on Income of Legal Entities;

t) The companies C..., E... and D... were known to the Claimant's employees as suppliers of services, in particular of market studies, advertising and logistical support;

u) Such companies did not have sufficient human resources and it was the employees of the Association themselves who often had to substitute for them in the ongoing actions;

v) The Association ceded its own facilities to such companies;

w) The said companies did not bring adequate advertising, wherefore the advertising flyers were made by the own employees, in particular by F...;

x) On many occasions, the Association's employees closed the doors of the Association because they were personally outside performing animation and training actions that were supposed to be performed by those companies.

Substantiation of matters of fact:

The matter of fact given as proven rests on the critical examination of the documentary evidence presented and not contested, which is here considered as reproduced, of the administrative process attached to the file, as well as the testimony of witnesses G... and F... and, in indirect manner, H....

No facts with relevance to the decision of the case were given as not proven.

III.2. Matters of Law

The Respondent raised, in the response presented, several exceptions, namely:

a) Incompetence of the Arbitral Tribunal.

b) Non-existence of processual subject matter.

c) Lapse of the right of action.

Let us examine.

a) Incompetence of the Arbitral Tribunal.

The Respondent sustains that, having the present arbitral process as its basis the decision to reject the request for official review, there occurs incompetence of the arbitral tribunal, in light of paragraph 1 of article 2º of the RJAT.

It defends that the assessment of a request for official review made under article 78º of the LGT involves the assessment not only of the legality of the assessment act at issue, but also the assessment of the issues raised of grave or notorious injustice upon which this legal instrument rests, which goes beyond the competence of the arbitral tribunal which comprises only the assessment of the illegality of an assessment act.

It thus understands that the judgment to be formed by the Arbitral Tribunal with a view to assessing the intended grave or notorious injustice, referred to in paragraphs 4 and 5 of article 78º of the LGT, is a value judgment that goes beyond the question of mere illegality of the tax due to error attributable to the services and, consequently, the scope of competencies of arbitral tribunals.

We understand that without reason.

The question of the material competence of arbitral tribunals to assess requests for official review has already been the subject of several decisions.

First and foremost, it should be noted that it is today consolidated jurisprudence that, since the AT can, on its own initiative, proceed with the official review of the tax act, within the period of four years following the assessment or at any time if the tax has not yet been paid, based on error attributable to the services (article 78º, paragraph 1, of the General Tax Law), the taxpayer can also, within that deadline for official review, request this same review with that ground.

The competence of the arbitral tribunals that function in CAAD is, in the first place, defined by the subjects indicated in article 2º, paragraph 1, of the RJAT. In a second place, the competence of the arbitral tribunals that function in CAAD is also limited by the terms in which AT was bound to that jurisdiction by Order No. 112-A/2011, of 22 March, since article 4º of the RJAT establishes that "the binding of the tax administration to the jurisdiction of the tribunals constituted in accordance with the terms of the present law depends on an order of the members of the Government responsible for the areas of finances and justice, which establishes, in particular, the type and maximum value of the disputes covered".

Whereby it is concluded that "in view of this second limitation of the competence of the arbitral tribunals that function in CAAD, the resolution of the question of competence essentially depends on the terms and nature of this binding, because, even if one is faced with a situation that can be framed in that article 2º of the RJAT, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded. That is, the scope of arbitral processes is restricted to questions of the legality of acts of the types referred to in article 2º of the RJAT that are covered by the binding made in Order No. 112-A/2011", cfr. Decision of TCAS of 28/4/2016 (proc. 09286/16)" (Arbitral Decision No. 473/2017-T, of 8-4-2018).

Now, "the «formula declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account», used in subparagraph a) of paragraph 1 of article 2º of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly impugned. In fact, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of an act of second instance, which confirms an assessment act, incorporating its illegality" (Decision 620/2017-T of 30-04-2018).

It is further said in the same arbitral decision that "the inclusion in the competencies of the arbitral tribunals that function in CAAD of cases in which the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of acts of second instance, which are the immediate subject of the impugnatory claim, results with certainty from the reference that in that norm is made to acts of self-assessment, withholding at source and payment on account, which expressly refer to being included among the competencies of the arbitral tribunals (...) the reference that in subparagraph a) of paragraph 1 of article 10º of the RJAT is made to paragraph 2 of article 102º of the CPPT, in which the impugnation of acts of rejection of friendly complaints is provided for, dispels any doubts that the competencies of the arbitral tribunals that function in CAAD cover cases in which the declaration of illegality of the acts referred to in subparagraph a) of that article 2º of the RJAT has to be obtained following the declaration of the illegality of acts of second instance".

By way of absolute clarity it is transcribed more extensively what is referred to in Decision 617/2015-T of 22-02-2016:

– "In article 2º of the RJAT, in which the «Competence of arbitral tribunals» is defined, the assessment of claims for a declaration of illegality of acts of rejection of requests for official review of tax acts is not expressly included, since, in the wording introduced by Law No. 64-B/2011, of 30 December, only the competence of the arbitral tribunals for «the declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account» and «the declaration of illegality of acts of fixation of the taxable matter when it does not give rise to the assessment of any tax, of acts of determination of collectible matter and of acts of fixation of patrimonial values» is indicated.

However, the fact that subparagraph a) of paragraph 1 of article 10º of the RJAT makes reference to paragraphs 1 and 2 of article 102º of the CPPT, in which the various types of acts giving rise to the deadline for judicial impugnation are indicated, including the friendly complaint, allows us to perceive that all types of acts susceptible to being impugned through judicial impugnation process, covered by those paragraphs 1 and 2, shall be covered within the scope of jurisdiction of the arbitral tribunals that function in CAAD, provided they have as their subject an act of one of the types indicated in that article 2º of the RJAT.

Moreover, this interpretation in the sense of the identity of the fields of application of the process of judicial impugnation and of the arbitral process is the one that is in harmony with the said legislative authorization in which the Government based itself to approve the RJAT, granted by article 124º of Law No. 3-B/2010, of 28 April, in which the intention that the arbitral tax process constitutes an alternative procedural means to the process of judicial impugnation and to the action for recognition of a right or legitimate interest in tax matters is revealed (paragraph 2).

But, this same argument that is extracted from the legislative authorization leads to the conclusion that the possibility of utilizing the arbitral process will be excluded when, in the judicial process in tax matters, the judicial impugnation or the action for recognition of a right or legitimate interest is not usable.

In fact, since this is the meaning of the said legislative authorization law and inserting itself in the relative reservation of legislative competence of the Assembly of the Republic to legislate on the «tax system», including the «guarantees of taxpayers» [articles 103º, paragraph 2, and 165º, paragraph 1, subparagraph i), of the CRP] and on the «organization and competence of the courts» [article 165º, paragraph 1, subparagraph p), of the CRP], the said article 2º of the RJAT cannot, under pain of unconstitutionality, due to lack of coverage in the legislative authorization law that limits the power of the Government (article 112º, paragraph 2, of the CRP), be interpreted as granting to the arbitral tribunals that function in CAAD competence for the assessment of the legality of other types of acts, for whose impugnation the process of judicial impugnation and the action for recognition of a right or legitimate interest are not suitable.

Thus, to resolve the question of the competence of this Arbitral Tribunal it becomes necessary to ascertain whether the legality of the act of rejection of the request for official review could or could not be assessed, in a tax court, through the process of judicial impugnation or action for recognition of a right or legitimate interest.

The acts of rejection of a request for official review of the tax act and of rejection of hierarchical appeal constitute administrative acts, in the light of the definitions furnished by articles 120º of the Code of Administrative Procedure of 1991 and 148º of the Code of Administrative Procedure of 2015, [subsidiarily applicable in tax matters, by force of the provisions of article 2º, subparagraph c), of the LGT, 2º, subparagraph d), of the CPPT, and 29º, paragraph 1, subparagraph d), of the RJAT], as they constitute decisions of organs of the Administration that, pursuant to public powers, aimed to produce external legal effects in an individual and concrete situation.

On the other hand, it is also indisputable that it is acts in tax matters since the application of norms of tax law is made therein.

Thus, the acts of rejection of the request for official review and of rejection of hierarchical appeal constitute administrative acts in tax matters.

From subparagraphs d) and p) of paragraph 1 and of paragraph 2 of article 97º of the CPPT there is inferred the rule that the impugnation of administrative acts in tax matters is made, in the judicial tax process, through judicial impugnation or special administrative action (which succeeded the contentious appeal, in accordance with article 191º of the Code of Process in Administrative Courts) according to whether these acts involve or do not involve the assessment of the legality of administrative assessment acts.

Possibly, as an exception to this rule can be considered the cases of impugnation of acts of rejection of friendly complaints, due to the fact that there is a special norm, which is paragraph 2 of article 102º of the CPPT, from which it can be inferred that judicial impugnation is always usable. Other exceptions to that rule may be found in special norms, subsequent to the CPPT, which expressly provide for the judicial impugnation process as a means to impugn certain types of acts.

But, in cases in which there are no special norms, that criterion of distribution of the fields of application of the process of judicial impugnation and special administrative action is to be applied.

In view of this criterion of distribution of the fields of application of the process of judicial impugnation and special administrative action, the acts proferred in procedures of official review of acts of self-assessment can only be impugned through the process of judicial impugnation when they involve the assessment of the legality of these acts of self-assessment. If the act of rejection of the request for official review of the act of self-assessment does not involve the assessment of the legality thereof, the special administrative action will be applicable. It is a criterion for distinguishing the fields of application of the said procedural means of questionable justification, but the fact is that it is what results from the content of subparagraphs d) and p) of paragraph 1 of article 97º of the CPPT and has been uniformly adopted by the Supreme Administrative Court".

In the same line, in Arbitral Decision No. 346/2017-T, of 06-02-2018, it is said that: "the acts that decide friendly complaints, hierarchical appeals or requests for review of a tax act constitute acts of second and third instance insofar as they involve the assessment of legality of acts of first instance, that is, assessment acts and, as such, it is understood that it falls within the scope of competence of the arbitral tribunals to assess those acts. Only in cases in which the act of second or third instance assessed only and solely a preliminary question whose solution prevented the assessment of the legality of the primary act – such as, for example, untimeliness, illegitimacy or incompetence – would be outside the scope of material competence of the arbitral tribunals that function next to CAAD".

That is, one could discuss the competence of the arbitral tribunals in the case that in the request for official review it was not intended to discuss the legality of the assessment act.

Which, it should be said, is not the case, since the Claimant there expressly requested that the illegality of the assessment be declared, a claim that was rejected by the AT (cf. Arbitral Decision of 25-01-2019, in Proc. 263/2018-T).

Reiterating what was said, by the reasons exhaustively set out in the decisions cited, which we subscribe to integrally, the invoked exception of material competence of the arbitral tribunal to assess the request is unwarranted.

b) Non-existence of processual subject matter

Furthermore, the Respondent alleges that the assessment No. 2014..., subject of the arbitral request, is not impugnable, in view of the provisions of article 52º of the CPTA, whereby it concludes that there is no processual subject matter.

It considers, for such conclusion, that that assessment constitutes a mere corrective tax act, consequential to the partial acceptance of the friendly complaint previously filed by the Claimant, existing in the legal order as a concretization of what was decided by the Services in the context of the friendly complaint, and the taxpayer can react against this act only insofar as it does not reflect or does not execute what was decided by the Services in the context of the friendly complaint.

It invokes, for that purpose, the provisions of article 53º of the CPPT when it determines that confirmatory acts are not impugnable and that legal acts of execution of administrative acts are only impugnable for their own defects, insofar as they have innovative content of a decisive character.

In fact, it sustains that, as that assessment is an administrative act that reiterates what was decided in the friendly complaint, it is nothing more than a confirmatory act of the decision pronounced therein and, as such, not impugnable.

It concludes, in that manner, that there is no processual subject matter insusceptible to official review.

Now, analyzing the assessment notice sent to the Claimant, from its content it does not result that one is faced with any corrective tax act, which would be necessary and decisive for so concluding.

Indeed, the assessment notice expressly states that "you may complain or impugn in accordance with the terms and deadlines established in articles 137º of the CIRC and 70º and 102º of the CPPT". That is, the AT acted by performing a new assessment act.

As is said in the Decision of TCA South of 09-01-2007 – Proc. 848/05:

– "The additional assessment is that in which the AT, verifying that by virtue of omission a provision inferior to the legal was defined, fixes the quantitative that should be added to it so that an absolute conformity with the law is verified, with the maintenance of all the effects of the act primitively performed, to which the first is added, both concurring for the definition of the provision legally due.

– If, after the performance of an additional assessment act, the AT, recognizing the reason of the taxpayer, annuls one or more items contained therein in this way diminishing the amount of the tax provision, but proceeds to a total (not partial) annulment and replacement of the prior assessment by that new assessment, we then find ourselves faced with a new assessment act, having the prior ceased to exist legally, whereby the judicial impugnation that aimed to annul it lost its object, the verification of a supervening impossibility of the suit occurring"

An identical conclusion can be drawn from the Decision of TCA South of 03-07-2012 – Proc. 040076/10, when it is said: "(…) confronted with two assessment acts, relating to the same tax event, it is necessary to ascertain whether the second constitutes (or does not constitute) a «new assessment, autonomous and distinct from the prior», that is, an assessment that has nothing to do with the one that preceded it, other than the circumstance of its appearance having been motivated by the annulment/revocation of the original".

As was already referred, in the assessment notice 2014... notified to the Claimant and which embodies the assessment act, no reference is made to the prior assessment and much less that it would constitute a correction of the same.

That is, from the confrontation of the elements contained in the two assessment notices, nothing allows us to conclude that the second does not constitute a new and autonomous assessment.

From the foregoing it thus results that the assessment act whose illegality the Respondent invokes does not translate a mere correction of the prior assessment, being constituted as a new and autonomous assessment act susceptible to being impugned autonomously.

The exception of non-existence of processual subject matter sought by the Respondent is thus unwarranted.

c) Lapse of the right of action

To invoke the exception of lapse of the right of action the Respondent invokes two distinct arguments.

On the one hand, maintaining that the assessment 2014... constitutes a non-impugnable act, it defends that the request for official review should relate to the initial assessment – 2013... – to thereby conclude that on the date of presentation of the arbitral request the three-year deadline provided for in article 78º of the LGT was already barred.

On the other hand, understanding that the subject of the arbitral request would be the partial acceptance of the friendly complaint – and subsequent assessment – the Respondent invokes that the new assessment does not grant to the taxpayer the right to react against it with the same grounds that it had already invoked in the friendly complaint, even if through a request for official review that repeats those arguments adding other new ones of alleged grave or notorious injustice, reason why the lapse of the right of action would also occur.

It should be clarified that, allegedly under the cover of the principle of cooperation with the Arbitral Tribunal and the principle of discovery of material truth, the Respondent intended in the submissions it presented to "perfect its defense", invoking new grounds which, by processual inopportuneness, will not be taken into account here.

The applicable norm to the question at hand and which delimits the scope of processual intervention of the Claimant and, consequently, of the tribunal is article 78º of the LGT which provides:

"1. The review of tax acts by the entity that performed them can be effected on the initiative of the taxpayer, within the deadline for administrative complaint and based on any illegality, or, on the initiative of the tax administration, within the period of four years after the assessment or at any time if the tax has not yet been paid, based on error attributable to the services.

  1. The review of tax acts in accordance with paragraph 1, regardless of whether it is a material or legal error, implies its respective recognition duly substantiated in accordance with paragraph 1 of the preceding article.

  2. The senior official of the service can authorize, exceptionally, within the three years following that of the tax act the review of the taxable matter ascertained based on grave or notorious injustice, provided that the error is not attributable to negligent behavior of the taxpayer.

  3. For the purposes of the preceding paragraph, only the ostensive and unequivocal injustice is considered notorious and grave the resulting from taxation manifestly exaggerated and disproportionate with the reality or from which elevated prejudice has resulted for the National Treasury".

The institute of review of tax acts constitutes "a recognition within the scope of tax law of the duty to revoke illegal acts", which "... exists in relation to all taxes, as the principles of justice, equality and legality impose that all errors of assessments that have led to the collection of tax in an amount superior to that which would be due in light of the law be corrected" (Leite Campos, Benjamim Rodrigues and Lopes de Sousa – LGT 4th ed., page 704).

It is, moreover, settled jurisprudence that "it follows from the law and constitutes pacified jurisprudence of this Supreme Court that the official review of tax acts to which the final part of paragraph 1 of article 78º of the LGT alludes 'on the initiative of the tax administration' can be carried out at the request of the taxpayer (article 78º, paragraph 7 of the LGT), and the rejection, express or tacit, of that request for official review is susceptible to contentious impugnation, in accordance with article 95º, paragraph 1 and 2, subparagraph d) of the LGT and article 97º, paragraph 1, subparagraph d) of the CPPT, when the assessment of the legality of the assessment act is at issue and this possibility is not prejudiced by the fact of the request for official review having been presented long after the deadlines for administrative impugnation have been exhausted, but within the period of 4 years for the review of the assessment act 'on the initiative of the tax administration' (Decision STA of 19-11-2014 – Proc. 0886/14).

The ratio of this guarantee of the taxpayer is found in the principle of material truth, for if the administration performs an erroneous act, it is legally imposed upon it the duty to correct it, even if, in some cases, nothing has been requested by the taxpayer.

However, once the deadline for the friendly complaint or judicial impugnation has been exceeded, the official review must be based on "error attributable to the services". In this regard, it is understood that the same can result either from material or factual error or from legal error.

"The attributability to the services is independent of the culpability of any of its employees in performing assessment affected by error since 'the tax administration is generically obligated to act in conformity with the law (articles 266º, paragraph 1 of the CRP and 55º of the LGT), whereby, regardless of the proof of culpability of any of the persons or entities that comprise it, any illegality not resulting from an action of the taxpayer will be attributable to the culpability of the services themselves'. - cfr. Decision of this STA of 14 March 2012, rec. No. 1007/11" (Decision STA of 19-11-2014 – Proc. 0886/14).

In the case at hand, the Claimant alleges that the assessment whose illegality it intends to see declared results from a mistaken application of the law and an erroneous qualification of the facts, concluding that "... the error in which the tax administration incurred is evident by virtue of the understanding that the invoices issued by service providers to the Claimant, and by this to those, do not title real operations, in an unfounded and unsubstantiated presumption" (article 45º of the request).

Analyzing the inspection report that underlies the assessment in question, it appears that the AT enumerated in a precise and clear manner the arguments that in its understanding constitute indications of the existence of simulated operations in the accounting of the Claimant and appear in subparagraph i) of the list of established facts.

In view of the assessment subsequent to that inspection report, the Claimant filed a friendly complaint in which it refuted the arguments contained therein and which resulted in the partial acceptance of the claim that it formulated in that administrative process. Partial acceptance with which the Claimant conformed, having not reacted administratively or contentiously to the assessment of the facts at issue.

It is a fact that article 74º, paragraph 1 of the LGT distributes in a clear manner the burden of proof between the Tax Administration and the taxpayers, to the effect that proof of the facts constitutive of rights falls to whoever invokes them. It follows that the taxpayer (complainant/impugnant) does not have to prove the non-existence or erroneous quantification of the tax event, which follows from the principle that it has in its favor a presumption established in the law and is dispensed from the proof of the presumed fact (cfr. articles 349º and 350º paragraph 1 of the Civil Code) which is reinforced by the presumption of truth of the declarations of truth of declarations and of other elements of the taxpayers, established in article 74º of the LGT.

However, such "presumption ceases when, even though the books or accounting is organized in accordance with the law, it is affected by errors or inaccuracies, or there are «well-founded indications» that, despite its correct organization, it does not reflect the effective taxable matter. Clearly falls within this provision the case in which the accounting, impeccably organized, when evaluated from the technical-accounting point of view, nevertheless omits operations performed; and the inverse case falls within it – that of including operations not performed. The latter is that which is commonly being called 'false invoices', that is, the accounting considers (and treats in an accountingly correct manner) documents issued in legal form, but which do not correspond to any reality, because the operations that it was supposed to reflect actually did not take place. And here, the law requires only 'well-founded indications', that is, it does not impose on the Administration the 'proof proven' that behind the documents there is not the reality that they normally reflect and prove, it is satisfied with well-founded indications to cease the presumption in favor of the taxpayer. And the taxpayer, deprived of the protective shield of the presumption, has only to demonstrate the veracity of its accounting elements and respective documents, thus put in question, in view of those «well-founded indications»" (Decision STA Plenary of 07-05-2003 – Proc. 01026/02).

Transposing to the case at hand, we have that the AT enumerated in the inspection report, in a clear manner, the facts that in its understanding constitute indications of the existence of non-real operations, acting in conformity with the principle of administrative legality, according to which the Administration can only act if the law permits it, and cannot do so against it, it being certain that it did not have the burden of proof of the non-existence of the tax facts. The indications collected by the AT and set out in the inspection report constitute objective probative elements, it having fulfilled the burden of proof that was incumbent upon it in the sense of the substantial substantiation of the acts in question that the law requires to legitimize the corrections to the declared taxable matter.

It fell to the Claimant, to make its thesis prevail, proof to the contrary, which it refrained from doing at the proper moment.

To do so now, by virtue of the deadline for administrative complaint having been exceeded, there would have to be demonstrated the existence of error attributable to the services which, as can be seen, did not exist nor does it exist. It should be said, moreover, that the expression "error attributable to the services" is directly related to the activity of the AT (error of fact, operational or material or of law), and it cannot act in a broader manner in the matter of official review of tax acts than in the context of revocation based on illegality, by way of friendly complaint or judicial impugnation.

Whereby it results that the lapse of the right of action of the Claimant occurs by virtue of the requirements provided for in paragraph 1 of article 78º, paragraph 1 of the LGT not being verified.

It should be said, on the other hand, that it is also not seen that there can occur, as the Claimant intends, the existence of grave or notorious injustice. Only the ostensive and unequivocal injustice is to be considered notorious and the grave resulting from taxation manifestly exaggerated and disproportionate with the reality (paragraph 5 of article 78º of the LGT).

The factuality in which the Claimant essentially grounds the allegation of the existence of such injustice resides in the fact that arbitral decisions have been handed down which declared illegal assessments whose grounds result from the same inspection report. Which, solely for that reason, is not warranted.

For the injustice to be ostensive and unequivocal it would have to be patent in an ineluctable manner, by not being open to discussion. In the concrete case, there would be no need for production and assessment of evidence, with a view to obtaining a critical judgment thereon.

Moreover, given the matter of fact to be proven, a direct parallelism cannot be established between the circumstances of fact existing in the various fiscal years. By way of simplification it will be said – bearing in mind the concrete facts – that it is not by virtue of the fact that a given company has provided services in a given fiscal year that it has issued in another fiscal year invoices without those services having occurred and that, in that manner, title non-real operations.

In summary, the alleged grave and notorious injustice that would legitimize the Claimant's request for review does not exist, whereby, also by this route, the lapse of the right of action would occur, whereby, in any circumstance, the Respondent is right when it defends the untimeliness of the request for official review.

It should be clarified, in any case, that it does not constitute an obstacle to the filing of a request for official review – as the Respondent defends – the repetition of arguments already set out in a prior friendly complaint. It is only not to be admitted because error attributable to the services does not occur, nor grave or notorious injustice.

The exception of untimeliness thus occurs, by lapse of the right of action, which is to be assessed ex officio, with the consequent absolution of the request, in accordance with the provisions of articles 576º and 579º of the CPC applicable ex vi article 29º of the RJAT.

In these terms, the remaining questions raised in the arbitral request are thereby prejudiced.

IV. DECISION

In these terms, it is decided in this Arbitral Tribunal:

a) Judge the exception of untimeliness of the arbitral request upheld, by lapse of the right of action, absolving the Respondent of all claims formulated.

b) Condemn the Claimant in the costs of the process.

V. VALUE OF THE PROCESS

The value of the process is fixed at 42,511.61 € (forty-two thousand five hundred and eleven euros and sixty-one cents), in accordance with article 97º-A, paragraph 1, a), of the Code of Tax Procedure and Process, applicable by force of subparagraphs a) and b) of paragraph 1 of article 29º of the Legal Regime for Tax Arbitration and paragraph 2 of article 3º of the Regulation of Costs in Tax Arbitration Processes.

VI. COSTS

The arbitration fee is fixed at 2,142.00 €, in accordance with Table I of the Regulation of Costs in Tax Arbitration Processes, in accordance with articles 12º, paragraph 2, and 22º, paragraph 4, both of the Legal Regime for Tax Arbitration, and article 4º, paragraph 4, of the said Regulation.

Lisbon, 15 October 2019

The Arbitrator

(António Alberto Franco)

Frequently Asked Questions

Automatically Created

What is an 'erro imputável aos serviços' (error attributable to tax services) in Portuguese IRC tax law?
An 'erro imputável aos serviços' (error attributable to tax services) in Portuguese IRC tax law refers to mistakes made by the Tax Authority in applying tax law or determining facts that result in incorrect tax assessments. Under Article 78 of the General Tax Law (LGT), such errors can justify official review (revisão oficiosa) even after normal appeal deadlines expire. The error must be attributable to the tax services themselves, not to the taxpayer, and typically involves incorrect legal interpretation, misapplication of law to facts, calculation errors, or assessments based on erroneous factual assumptions. In IRC contexts, this frequently arises when tax inspectors incorrectly disallow deductible expenses, mischaracterize transactions, or apply presumptions without adequate evidentiary support. The burden of demonstrating such error rests initially with the taxpayer requesting review, though the Tax Authority must prove the factual basis for its assessments when challenged.
Can a taxpayer request official review (revisão oficiosa) of an IRC tax assessment under Portuguese law?
Yes, taxpayers can request official review (revisão oficiosa) of IRC tax assessments under Portuguese law pursuant to Article 78 of the General Tax Law (LGT). This extraordinary administrative remedy allows taxpayers to challenge tax acts even after standard appeal deadlines have expired, provided specific conditions are met. The review can be requested when there is manifest illegality, error attributable to tax services, or when the assessment contradicts previous decisions on identical situations. For IRC assessments, official review is particularly relevant when tax inspections result in corrections based on erroneous factual or legal assumptions. The Tax Authority has discretionary power to conduct official review but must decide on properly submitted requests. If the request is rejected, the question arises whether such rejection can be challenged through CAAD arbitration—a jurisdictional issue addressed in this case under Article 2(1) RJAT, which may limit CAAD's competence to review official review rejection decisions.
What was the outcome of CAAD arbitration process 612/2018-T regarding the IRC assessment for 2008?
The excerpt provided does not contain the final decision or outcome of CAAD arbitration process 612/2018-T. The document presents only the initial phases: the claimant's request for arbitration challenging the rejection of an official review request concerning the 2008 IRC assessment; the constitution of the arbitral tribunal on February 13, 2019; the claimant's substantive arguments that the assessment was based on errors attributable to tax services, lacked proper substantiation, and incorrectly presumed fictitious invoicing; and the Tax Authority's preliminary objection raising the exception of incompetence under Article 2(1) RJAT, arguing that CAAD lacks jurisdiction to review decisions rejecting official review requests. The jurisdictional question regarding CAAD's competence to hear challenges to official review rejection decisions would need to be resolved before any substantive determination on the legality of the underlying 2008 IRC assessment could be made.
How does the official review procedure under Article 78 of the LGT apply to IRC liquidation errors?
The official review procedure under Article 78 of the General Tax Law (LGT) applies to IRC liquidation errors when the Tax Authority, either on its own initiative or upon taxpayer request, identifies errors attributable to tax services that resulted in incorrect tax assessments. For IRC liquidations, this encompasses errors in calculating taxable income, incorrect disallowance of deductible expenses, misapplication of tax rates or deductions, and assessments based on erroneous factual or legal assumptions. The procedure allows correction of tax acts that are manifestly illegal or contrary to law, even after normal administrative and judicial appeal deadlines have expired. When a taxpayer requests official review of an IRC assessment, they must demonstrate that the liquidation contains errors attributable to tax services—not errors caused by the taxpayer's own declarations. The Tax Authority must decide on such requests, and rejection decisions may raise questions about further appeal rights, including whether such rejections fall within CAAD's arbitral jurisdiction under the RJAT, as contested in this case.
What are the time limits for requesting an official review of an IRC tax assessment in Portugal?
Under Portuguese tax law, the time limits for requesting official review (revisão oficiosa) of IRC assessments are governed by Article 78(4) of the General Tax Law in conjunction with Article 45 LGT. Generally, official review requests must be submitted within the limitation period for tax assessments, which is four years from the beginning of the year following that in which the tax became due (Article 45 LGT). However, Article 78(1) LGT allows the Tax Authority to initiate official review at any time when there is manifest illegality. When taxpayers request official review after unsuccessful administrative appeals (such as reclamação graciosa), they must act within the general limitation period. In this case, the claimant filed for official review in 2017 concerning a 2008 fiscal year assessment, after the 2014 decision on the friendly complaint, arguing that Article 56(2)(a) LGT deadlines had elapsed. The question of whether official review can serve as an alternative remedy after standard appeal deadlines expire, and whether rejections of such requests are appealable to CAAD, represents a significant procedural issue in Portuguese tax litigation.