Process: 64/2015-T

Date: June 22, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

Process 64/2015-T addresses the jurisdiction of Portuguese tax arbitral tribunals to assess VAT restitution claims and the right to VAT deduction for financial institutions. Bank A, a credit institution, filed an arbitral request seeking annulment of decisions dismissing its hierarchical appeals and reimbursement of €271,987.93 in overpaid VAT for periods 2008-2010. The bank's activities comprised both VAT-deductible and non-deductible operations, requiring use of the pro rata method (6% for 2008-2009, 7% for 2010) and direct allocation method. Initially, the bank applied direct allocation to specific areas like medallic and numismatic activities. Following an internal review, the bank identified additional activities (Security of Titles, Project Finance, and Leasing) where direct allocation could apply, previously treated under the pro rata methodology. The bank filed official review requests in September 2012, which were dismissed in May 2014. Subsequent hierarchical appeals were also dismissed in October 2014, leading to the arbitral request in February 2015. The Tax Authority raised preliminary exceptions challenging the arbitral tribunal's jurisdiction to hear VAT reimbursement requests and alleging procedural time limit violations. The tribunal, constituted under Decree-Law 10/2011 and comprising three arbitrators, proceeded with written pleadings after waiving the preliminary hearing. This case presents fundamental issues regarding CAAD's competence in VAT matters, the scope of VAT deduction rights for mixed-activity entities, and proper application of direct allocation versus pro rata methodologies in the financial sector.

Full Decision

Case No. 64/2015-T

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Maria Alexandra Mesquita and Dr. Filomena Oliveira, appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 14-04-2015, agree as follows:

  1. Report

Bank A… S. A., Tax ID …, with registered office at Street …, no. …, Porto, following the dismissals of the Hierarchical Appeals filed by it as a consequence of the dismissal of the Requests for Official Review of Value Added Tax ("VAT") self-assessments made in the periods from 2008 to 2010, has presented a request for constitution of the arbitral tribunal, in accordance with the combined provisions of articles 2nd and 10th of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the TAX AUTHORITY AND CUSTOMS AUTHORITY is Respondent.

The Claimant seeks the declaration of illegality and annulment of the aforementioned acts dismissing the Hierarchical Appeals presented following the Official Review Requests it had filed and, consequently, of the VAT self-assessments relating to the periods from January to December 2008 and 2009 and from January to June 2010 due to overpayment of tax in the amount of € 271,987.93 (two hundred and seventy-one thousand nine hundred and eighty-seven euros and ninety-three cents), whose reimbursement is petitioned.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority on 06-02-2015.

In accordance with the provisions of subparagraph a) of article 6(2) and subparagraph b) of article 11(1) of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned arbitrators, who communicated acceptance of the appointment within the applicable period.

On 26-03-2015 the parties were duly notified of this appointment, and did not manifest any intent to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11(1), subparagraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in compliance with the provision of subparagraph c) of article 11(1) of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, the Arbitral Tribunal was constituted on 14-04-2015.

The Tax Authority and Customs Authority filed a response, raising exceptions of lack of jurisdiction of the Arbitral Tribunal to hear the case and procedural time limit.

By order of 18-05-2015 the holding of the meeting provided for in article 18 of RJAT was waived and it was decided that the case would proceed with written pleadings.

The Parties filed pleadings.

The Arbitral Tribunal was regularly constituted.

The Parties are duly represented, have legal standing and capacity and are legitimate (arts. 4 and 10(2) of the same statute and art. 1 of Ordinance No. 112-A/2011, of 22 March).

The case is not affected by nullities.

  1. Statement of Facts

a) The Claimant is a credit institution whose corporate purpose consists of conducting financial operations;

b) The activity carried out by the Claimant, within its corporate purpose, comprises operations that do not confer the right to deduct VAT and operations that confer that same right;

c) In the years 2008 to 2010, part of the goods and services acquired by the Claimant was used both in operations that confer the right to deduction and in operations that do not confer that same right;

d) The Claimant used in the aforementioned period two methods to determine the amount of VAT incurred in the acquisition of goods and services allocated to both types of operations eligible for deduction, the deduction percentage method ("pro rata") and the direct allocation method;

e) When calculating the amount of deductible VAT for the years 2008 to 2010, the Claimant calculated a final pro rata of 6% for the years 2008 and 2009, and 7% for the year 2010;

f) The aforementioned percentages were applied to the VAT that the Claimant understood to be eligible for deduction, with the exception of the VAT incurred in the acquisition of goods and services allocated to the areas in which the Claimant used the direct allocation method, and of the VAT incurred in acquisitions of goods and services allocated to the areas in which the Claimant understood it had the right to full deduction of VAT;

g) Within its activity, the Claimant acquired goods and services exclusively allocated to taxed activities, deducting the entirety of the tax incurred, in the same manner that it acquired goods and services in relation to which, because they were not allocated to any taxed activity, the Claimant did not deduct the amount of VAT incurred therein;

h) In the terms outlined above, the Claimant made use of the direct allocation method;

i) In the period from 2008 to 2010, the Claimant applied the direct allocation method in the areas of medallic and numismatic activities, among others, because they were specific business areas, which the Claimant understood permitted the clear identification of their respective inputs exclusively allocated to these activities;

j) Within an internal review of procedures carried out by the Claimant, it came to understand that there was a possibility of extending the application of the direct allocation and allocation methods to the activities of Security of Titles, Project Finance and Leasing, the VAT incurred on which was, until then, being deducted under the pro rata methodology;

k) Wishing to exercise its right to deduction concerning the amount of VAT deductible in the terms referred to, the Claimant presented, on 07-09-2012, three requests for official review, through which it set forth the factual situation at issue and petitioned for confirmation of the right to deduction in the total amount of € 271,987.82 (corresponding to the sum of the values itemized in each official review request, namely the amounts of € 132,549.72, € 113,988.17 and € 25,449.93);

l) The Claimant was notified, through Official Letters No. …, No. … and No. …, all of 13-05-2014, of the decisions dismissing the Official Review Requests it had filed;

m) On 12-06-2014, the Claimant filed hierarchical appeals against the decisions dismissing the official review requests;

n) On 03-11-2014, through Official Letters No. …, No. … and No. …, issued on 31-10-2014, the Claimant was notified of the dismissal decision issued on the hierarchical appeals filed (article 57 of the arbitral decision request, documents Nos. 7, 8 and 9 attached to the arbitral decision request and documents 1, 2 and 3 attached to the Response, whose contents are hereby reproduced);

o) On 04-02-2015, the Claimant filed the arbitral decision request that gave rise to this case.

2.1. Facts Not Proven

There are no potentially relevant facts for the decision that have not been found proven.

2.2. Reasoning of the Factual Decision

The facts found proven are contained in the administrative file submitted with the Response, in the documents submitted by the Claimant with the arbitral decision request and correspond to what is alleged by the Claimant without contradiction by the Tax Authority and Customs Authority.

  1. Issues of Jurisdiction of the Arbitral Tribunal

Since jurisdictional issues are logically a matter of priority examination, as recognized in article 13 of the Code of Administrative Court Procedure, the examination of the jurisdictional issues raised will be undertaken first.

3.1. Issue of the Jurisdiction of this Arbitral Tribunal to Hear the Request for VAT Reimbursement

The Tax Authority and Customs Authority raises the issue of the jurisdiction of this Arbitral Tribunal to hear the request for VAT reimbursement.

The jurisdiction of the arbitral tribunals operating at CAAD is defined, in the first place, by article 2 of RJAT, from which this jurisdiction derives and comprises the examination of the following claims:

a) The declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts fixing the taxable base when they do not give rise to the assessment of any tax, of acts determining the collectible base and of acts fixing patrimonial values; (wording of Law No. 64-B/2011, of 30 December)

Beyond the direct examination of the legality of acts of this type, the jurisdiction of the arbitral tribunals operating at CAAD also includes jurisdiction to examine second or third-degree acts whose object is the examination of the legality of acts of those types, namely acts deciding on administrative complaints and hierarchical appeals, as can be inferred from the express references made in article 10(1), subparagraph a) of RJAT to article 102(2) of CPPT (which refers to judicial challenge of decisions on administrative complaints) and to "the decision of the hierarchical appeal".

Thus, it is manifest that it is not within the scope of these jurisdictions to examine the legality or illegality of decisions dismissing VAT reimbursement requests, regardless of whether the reimbursement of amounts paid could result from annulling decisions of acts of the types included in those jurisdictions.

Accordingly, the exception of lack of jurisdiction raised by the Tax Authority and Customs Authority is upheld as to the claim for VAT reimbursement.

3.2. Issue of the Jurisdiction of the Arbitral Tribunals Operating at CAAD to Hear Decisions Dismissing Official Review Requests

The Claimant also requests that the illegality of VAT self-assessment acts be declared, a request that falls within subparagraph a) of article 2(1) of RJAT, reproduced above.

However, under article 4(1) of RJAT, the Government restricted the binding nature of the Tax Authority and Customs Authority to the arbitral tribunals operating at CAAD, establishing that "the binding nature of the tax administration to the jurisdiction of the tribunals constituted in accordance with the terms of this law depends on an ordinance of the members of Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered".

In light of this second limitation on the jurisdiction of the arbitral tribunals operating at CAAD, the resolution of the jurisdictional issue depends essentially on the terms of this binding, since, even if one is dealing with a situation that falls within that article 2 of RJAT, if it is not covered by the binding nature, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded.

The binding nature was concretized through Ordinance No. 112-A/2011, of 22 March, which in its article 2, establishes that the following are excepted from the binding nature: "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative avenue in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

The express reference to the prior "resort to the administrative avenue in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" should be interpreted as referring to cases in which such resort is mandatory, through the administrative complaint, which is the administrative means indicated in those articles 131 to 133 of CPPT, to whose terms reference is made. In fact, from the outset, it would not be understood why, when administrative challenge is not necessary "when its basis is exclusively a matter of law and the self-assessment has been made in accordance with generic guidelines issued by the tax administration" (art. 131(3) of CPPT, applicable to cases of withholding at source, by virtue of the provision in article 132(6) of the same Code), the arbitral jurisdiction would be excluded due to that administrative challenge, which is understood to be unnecessary, not having been made.

In the case at hand, it was not proven that the VAT self-assessment had "been made in accordance with generic guidelines of the tax administration", nor was an administrative complaint filed in accordance with article 131 of CPPT.

However, official review requests were filed in which the Claimant made reference to acts of VAT assessment incorrectly made, as support for the correction request it formulated.

Thus, it is important, before anything else, to clarify whether the declaration of illegality of acts dismissing requests for review of the tax act, provided for in article 78 of LGT, is included in the jurisdiction conferred on the arbitral tribunals operating at CAAD by article 2 of RJAT.

In fact, in this article 2 there is no express reference to these acts, contrary to what occurs with the legislative authorization on which the Government based itself to approve RJAT, which refers to "requests for review of tax acts" and "administrative acts that involve the examination of the legality of assessment acts".

However, the formula "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account", used in subparagraph a) of article 2(1) of RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which a direct challenge is made to an act of one of those types. In fact, the illegality of assessment acts can be jurisdictionally declared as a corollary of the illegality of a second-degree act (administrative complaint) or third-degree act (hierarchical appeal), which confirms an assessment act, incorporating its illegality.

The inclusion in the jurisdiction of the arbitral tribunals operating at CAAD of cases in which the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-degree or third-degree acts, which are the immediate object of the impugning claim, results with certainty from the reference made in that rule to self-assessment, withholding at source and payment on account acts, which are expressly referred to as included among the jurisdiction of the arbitral tribunals. In fact, with respect to these acts, administrative complaint is imposed, as a rule, as mandatory, in articles 131 to 133 of CPPT, so that, in these cases, the immediate object of the challenge proceeding is, as a rule, the second-degree act that examines the legality of the assessment act, an act which, if it confirms it, must be annulled to obtain the declaration of illegality of the assessment act. The reference made in subparagraph a) of article 10(1) of RJAT to article 102(2) of CPPT, which provides for the challenge of acts dismissing administrative complaints, removes any doubt that the cases in which the declaration of illegality of the acts referred to in subparagraph a) of that article 2 of RJAT must be obtained following the declaration of illegality of second-degree acts are covered by the jurisdiction of the arbitral tribunals operating at CAAD.

In fact, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted this jurisdiction of the arbitral tribunals operating at CAAD, by excluding from the scope of that jurisdiction "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative avenue in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has the effect of restricting its binding nature to cases in which that resort to the administrative avenue was used.

Having reached the conclusion that the formula used in subparagraph a) of article 2(1) of RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-degree act, it will also encompass cases in which the second-degree act is the dismissal of a request for review of the tax act, since there is no reason seen to restrict it, especially since, in cases in which the review request is made within the administrative complaint period, it should be equated to an administrative complaint. ([1])

The express reference to article 131 of CPPT made in article 2 of Ordinance No. 112-A/2011 cannot have the decisive effect of excluding the possibility of examining claims for illegality of acts dismissing official review requests of self-assessment acts.

In fact, the interpretation exclusively based on the literal wording defended by the Tax Authority and Customs Authority in this case cannot be accepted, since in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (article 11(1) of LGT) and article 9(1) expressly prohibits interpretations exclusively based on the literal wording of the rules by establishing that "interpretation should not limit itself to the letter of the law", and should instead "reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied".

As to the correspondence between the interpretation and the letter of the law, there is only need for "a minimum of verbal correspondence, even if imperfectly expressed" (article 9(3) of the Civil Code), which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even recognizing in it imperfection in the expression of the legislative intent.

For this reason, the letter of the law is not an obstacle to declarative interpretation, which makes explicit the scope of the literal wording, nor even extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would intend to say, that is, when it imperfectly said what it intended to say. In extensive interpretation "it is the very assessment of the norm (its 'spirit') that leads to the discovery of the need to extend its text to the hypothesis that it does not cover", "the expansive force of the legal assessment itself is capable of leading the provision of the norm to cover hypotheses of the same type not covered by the text". ([2])

Extensive interpretation is thus imposed by the evaluative and axiological coherence of the legal system, established by article 9(1) of the Civil Code as a primary interpretive criterion through the imposition of observance of the principle of unity of the legal system.

It is manifest that the scope of the requirement of prior administrative complaint, necessary to open the contentious avenue for challenge of self-assessment acts, provided for in article 131(1) of CPPT, has as its only justification the fact that, in relation to that type of acts, there is no prior position taken by the Tax Administration on the legality of the legal situation created by the act, a position that could even turn out to be favorable to the taxpayer, avoiding the need to resort to the contentious avenue.

In fact, beyond not seeing any other justification for that requirement, the fact that an identical mandatory administrative complaint is provided for contentious challenge of withholding at source and payment on account acts (in articles 132(3) and 133(2) of CPPT), which have in common with self-assessment acts the circumstance that there is also no prior position taken by the Tax Administration on the legality of the acts, confirms that that is the reason for that mandatory administrative complaint.

An unequivocal further confirmation that that is the reason for the requirement of mandatory administrative complaint is found in article 131(3) of CPPT, by establishing that "without prejudice to the provisions of the preceding paragraphs, when its basis is exclusively a matter of law and the self-assessment has been made in accordance with generic guidelines issued by the tax administration, the period for challenge does not depend on prior complaint, the challenge being presented within the period of article 102(1)". In fact, in situations of this type, there was prior generic pronouncement by the Tax Administration on the legality of the legal situation created by the self-assessment act and it is that fact which explains why the mandatory administrative complaint ceases to be required.

Now, in cases in which an official review request is formulated for an assessment act, the Tax Administration is provided, with this request, an opportunity to take a position on the merits of the claim of the taxpayer before the latter resorts to the jurisdictional avenue, so that, in coherence with the solutions adopted in articles 131(1) and (3) of CPPT, it cannot be required that, cumulatively with the possibility of administrative examination within that official review procedure, a new administrative examination be required through an administrative complaint. ([3])

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from filing official review requests in cases of self-assessment acts, since these are expressly referred to in article 78(2) of LGT.

In this context, the law expressly permitting taxpayers to opt for administrative complaint or official review of self-assessment acts and being the official review request filed within the administrative complaint period perfectly equivalent to an administrative complaint, as stated, there can be no reason that could explain why a taxpayer who has opted for review of the tax act instead of administrative complaint could not have access to the arbitral avenue.

Therefore, it is to be concluded that the members of Government that issued Ordinance No. 112-A/2011, when making reference to article 131 of CPPT regarding claims for declaration of illegality of self-assessment acts, said imperfectly what they intended, since, intending to impose prior administrative examination to the contentious challenge of self-assessment acts, they ended up including a reference to article 131 that does not exhaust the possibilities of administrative examination of those acts.

Moreover, it is to be noted that this interpretation, not limiting itself to the literal wording, is especially justified in the case of subparagraph a) of article 2 of Ordinance No. 112-A/2011, because its imperfections are evident: one, is associating the comprehensive formula "resort to the administrative avenue" (which references, beyond administrative complaint, hierarchical appeal and review of the tax act) with the expression "in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has potential restrictive scope to administrative complaint; another is using the formula "preceded" by resort to the administrative avenue, referring to "claims relating to the declaration of illegality of acts", which would obviously be much better matched with the feminine word "preceded".

Therefore, beyond the general prohibition of interpretations limited to the letter of the law contained in article 9(1) of the Civil Code, in the specific case of subparagraph a) of article 2 of Ordinance No. 112-A/2011 there is a special reason for not being justified great enthusiasm for a literal interpretation, which is the fact that the wording of that rule is manifestly defective.

Furthermore, by ensuring the review of the tax act the possibility of examination of the claim of the taxpayer before access to the contentious avenue that is intended to be achieved with the necessary administrative challenge, the most correct solution, because it is the most coherent with the legislative design of "reinforcing the effective and actual protection of the rights and legally protected interests of taxpayers" manifested in article 124(2) of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral avenue to examine the legality of assessment acts previously examined in a review procedure.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9(3) of the Civil Code).

On the other hand, since that subparagraph a) of article 2 of Ordinance No. 112-A/2011 contains an imperfect formula, but that contains a comprehensive expression "resort to the administrative avenue", which potentially also references review of the tax act, the minimum of verbal correspondence, although imperfectly expressed, required by that article 9(3) is found in the text for the viability of the adoption of the interpretation that enshrines the most correct solution.

It is to be concluded, therefore, that article 2, subparagraph a) of Ordinance No. 112-A/2011, duly interpreted on the basis of the criteria for interpretation of law provided for in article 9 of the Civil Code and applicable to substantive and adjective tax rules, by virtue of the provision in article 11(1) of LGT, makes possible the presentation of claims for arbitral decision regarding self-assessment acts that have been preceded by an official review request.

As to the alleged incompatibility of examination by arbitral tribunals with the "constitutional principles of the rule of law and separation of powers (see articles 2 and 111, both of CRP), as well as of the right of access to justice (article 20 of CRP) and of legality [see articles 3(2), 202 and 203 of CRP and also article 266(2) of CRP, in its corollary of the principle of indisposability of tax credits inherent in article 30(2) of LGT, which bind the legislator and all activity of the Tax Authority and Customs Authority", it is manifest that it does not occur, since the interpretation referred to embodies, precisely, the affirmation of the principles of separation of powers (the jurisdictional function falls to courts, including arbitral ones, by virtue of article 209(2) of CRP), of the right of access to justice (which is made possible by allowing examination of claims by courts and not prohibiting it) and of legality (since, as was demonstrated, the jurisdiction referred to derives from law, duly interpreted).

Accordingly, the exception of lack of jurisdiction with this basis is unfounded.

3.3. Issue of Lack of Jurisdiction Due to the Examination Not Being Conducted on the Legality of Assessment Acts in the Decisions on Official Review Requests and in the Subsequent Hierarchical Appeals

The Tax Authority and Customs Authority also questions the material jurisdiction of this Arbitral Tribunal because in the acts dismissing the official review requests and in the decisions on the hierarchical appeals no examination was conducted on the legality of assessment acts and, therefore, one is not dealing with an act that is susceptible to being challenged through judicial challenge, whose scope cannot be exceeded by the arbitral process.

In article 2 of RJAT, in which the "Jurisdiction of the arbitral tribunals" is defined, the examination of claims for declaration of illegality of acts dismissing official review requests of tax acts is not expressly included, since, in the wording introduced by Law No. 64-B/2011, of 30 December, only the jurisdiction of the arbitral tribunals to "the declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account" and "the declaration of illegality of acts fixing the taxable base when they do not give rise to the assessment of any tax, of acts determining the collectible base and of acts fixing patrimonial values" is indicated.

However, the fact that subparagraph a) of article 10(1) of RJAT makes reference to article 102(1) and (2) of CPPT, in which the various types of acts giving rise to the period for judicial challenge are indicated, including administrative complaint, allows one to infer that all types of acts susceptible to being challenged through the judicial challenge process, covered by those paragraphs, will be encompassed within the scope of the jurisdiction of the arbitral tribunals operating at CAAD, provided that they have as their object an act of one of the types indicated in that article 2 of RJAT.

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

But this same argument that is drawn from the legislative authorization leads to the conclusion that the possibility of using the arbitral process will be excluded when, in the tax judicial process, judicial challenge or an action for recognition of a right or legitimate interest cannot be used.

In fact, being this the meaning of the aforementioned legislative authorization law and falling within the relative legislative competence of the Assembly of the Republic to legislate on the "tax system", including the "guarantees of taxpayers" [articles 103(2) and 165(1), subparagraph i) of CRP] ([4]), and on the "organization and jurisdiction of courts" [article 165(1), subparagraph p) of CRP], the aforementioned article 2 of RJAT cannot, on pain of unconstitutionality, due to lack of coverage in the legislative authorization law that limits the Government's power (article 112(2) of CRP), be interpreted as granting the arbitral tribunals operating at CAAD jurisdiction to examine the legality of other types of acts, for whose challenge the judicial challenge process and the action for recognition of a right or legitimate interest are not adequate.

Thus, in order to resolve the issue of the jurisdiction of the arbitral tribunals operating at CAAD connected with the content of the acts, it becomes necessary to ascertain whether the legality of the acts dismissing official review requests and of the hierarchical appeals could or could not be examined, in a tax court, through a judicial challenge process or action for recognition of a right or legitimate interest.

The acts dismissing official review requests and hierarchical appeals constitute administrative acts, in light of the definitions provided by article 120 of CPA of 1991 and article 148 of CPA of 2015 [subsidiarily applicable in tax matters, by virtue of the provision in article 2, subparagraph d) of LGT, article 2, subparagraph d) of CPPT, and article 29(1), subparagraph d) of RJAT], since they constitute decisions of a body of the Administration in the exercise of administrative law-making powers, under public law rules, aiming to produce legal effects in individual and concrete situations.

On the other hand, it is also unquestionable that these are acts in tax matters, since the application of tax law rules is made in them.

Thus, the acts dismissing official review requests and the acts dismissing hierarchical appeals constitute administrative acts in tax matters.

From subparagraphs d) and p) of article 97(1) and article 97(2) of CPPT the rule is inferred that the challenge of administrative acts in tax matters is made, in the tax judicial process, through judicial challenge or special administrative action (which succeeded the contentious appeal, in accordance with article 191 of the Code of Administrative Court Procedure) according to whether or not these acts involve the examination of the legality of administrative assessment acts. ([5])

Possibly, as an exception to this rule, the cases of challenge of acts dismissing administrative complaints could be considered, due to the fact that there is a special rule, which is article 102(2) of CPPT, from which it can be inferred that judicial challenge is always usable. ([6]) Other exceptions to that rule may be found in special rules, subsequent to CPPT, that expressly provide for the judicial challenge process as a means to challenge a certain type of acts. ([7])

But, in cases where there are no special rules, that criterion of division of the fields of application of the judicial challenge process and the special administrative action should be applied.

In light of this criterion of division of the fields of application of the judicial challenge process and the special administrative action, the acts made in official review procedures of self-assessment acts may only be challenged through a judicial challenge process when they involve examination of the legality of these self-assessment acts. If the act dismissing the request for official review of the self-assessment act does not involve examination of the legality of this, the special administrative action shall be applicable to challenge it. This is a criterion of distinction of the fields of application of the aforementioned procedural means of doubtful justification, but the fact is that it is what results from the wording of subparagraphs d) and p) of article 97(1) of CPPT and has been uniformly adopted by the Supreme Administrative Court. ([8])

This finding that there is always an adequate procedural challenge means for contenciously challenging the act dismissing the request for official review of the self-assessment act leads, from the outset, to the conclusion that one is not dealing with a situation in which the action for recognition of a right or legitimate interest could be used in the tax judicial process, since its application in tax disputes has a residual nature, since these actions "may only be brought whenever this procedural means is the most adequate to ensure full, effective and actual protection of the right or legally protected interest" (article 145(3) of CPPT).

Another conclusion that the aforementioned delimitation of the fields of application of the judicial challenge process and the special administrative action allows is that, restricting the jurisdiction of the arbitral tribunals operating at CAAD to the field of application of the judicial challenge process, only the claims for declaration of illegality of acts dismissing requests for official review of self-assessment acts that involve examination of the legality of these acts are included in this jurisdiction.

The legislative concern in excluding from the jurisdiction of the arbitral tribunals operating at CAAD the examination of the legality of administrative acts that do not involve examination of the legality of assessment acts, beyond resulting, from the outset, from the generic directive of creation of an alternative means to the judicial challenge process and the action for recognition of a right or legitimate interest, results with clarity from subparagraph a) of article 124(4) of Law No. 3-B/2010, of 28 April, in which are indicated among the possible objects of the tax arbitral process "the administrative acts that involve examination of the legality of assessment acts", since this specification can only be justified by a legislative intent in the sense of excluding from the possible objects of the arbitral process the examination of the legality of acts that do not involve examination of the legality of assessment acts.

Therefore, the solution to the issue of the jurisdiction of the arbitral tribunals operating at CAAD connected with the content of the acts depends on the analysis of these acts.

In the case at hand, being the immediate object of the claim for arbitral decision the decisions dismissing the hierarchical appeals, it is the content of these decisions that is relevant to assess the jurisdiction of this Arbitral Tribunal.

The reason invoked for the dismissal of the hierarchical appeals was the procedural time limit of the intended correction, in light of article 78 of CIVA, which, obviously, does not imply examination of the legality or illegality of any assessment or self-assessment act.

However, in light of the criterion of division of the fields of the judicial challenge process and the special administrative action outlined by subparagraphs d) and p) of article 97(1) of CPPT, it is not necessary that the examination of the legality of an assessment act be the basis of the procedural decision or that the claim formulated request examination of the legality of an assessment act, it being sufficient that this act involves it, which, in this context, means that in the impugned act there is included a judgment on the legality of an assessment act, even if its legality or illegality is not the basis of the decision.

Now, in the case at hand, judgments on the legality of the self-assessment acts are included in the decisions of the hierarchical appeals, as can be seen from the following points of the decisions of the hierarchical appeals relating to the years 2008 and 2009, to which correspond points 78 to 80 of the decision of the hierarchical appeal relating to the year 2010:

  1. Now, tax deduction, whether total or partial, is subject to registration in the accounting of the taxpayers, such registration serving as the basis for the completion of the respective periodic return. Thus, tax deduction is made, first, by the taxpayer in its accounting (internally).

  2. In this way, the errors invoked by the Appellant are prior to the self-assessment and result from its accounting records. It is manifest that the self-assessments made merely reflected the accounting records, not giving rise to a new error.

  3. That is, the error is not in the self-assessment, but rather in the operations carried out upstream, it not being legitimate to extend the concept of error in self-assessment to these situations in which tax self-assessment merely reflects pre-existing errors.

Thus, it must be concluded that the decisions of the hierarchical appeals include examination of the legality of the self-assessment acts.

Consequently, from what has been said above, the adequate means for challenging the decisions of the hierarchical appeals in a tax court would be the judicial challenge process and not the special administrative action and, therefore, the arbitral tribunals operating at CAAD are competent to examine the claims for declaration of illegality and annulment of those acts.

Thus, the exception of material lack of jurisdiction of this Arbitral Tribunal to examine the legality of the decisions of the hierarchical appeals and, by means of them, the examination of the legality of the self-assessment acts underlying them is unfounded.

3.4. Issue of Material Lack of Jurisdiction and Procedural Time Limit for Direct Challenge of VAT Assessment Acts

Having affirmed the jurisdiction of this Arbitral Tribunal to examine the legality of the decisions of the hierarchical appeals, the examination of the exceptions raised by the Tax Authority and Customs Authority regarding the material jurisdiction and procedural time limit of the direct challenge of self-assessment acts becomes prejudicial.

In fact, the self-assessment acts are merely a mediate object of this case, in that they were upheld by the decisions of the hierarchical appeals, with their respective reasoning.

Jurisdiction must be assessed based on the acts that are the immediate object of the case, since, if the Arbitral Tribunal is competent to examine their legality, it is also necessarily competent to examine the legality of the self-assessment acts that were upheld by them, since their maintenance has the consequence that any illegalities of the self-assessment acts come to affect the decisions of the hierarchical appeals.

Therefore, since the self-assessment acts are not directly challenged, the examination of the exceptions that could be raised if they were the direct object of the case becomes prejudicial.

  1. Issue of Procedural Time Limit

The Tax Authority and Customs Authority also raises the exception of procedural time limit of the claim, considering that the present claim for arbitral decision was presented on 04-02-2015 and that by that date the 90-day period provided for in article 10(1), subparagraph a) of the Legal Regime for Tax Arbitration (RJAT) had already expired.

Article 10(1), subparagraph a) establishes the following:

1 - The request for constitution of an arbitral tribunal is presented:

a) Within 90 days, counted from the facts provided for in article 102(1) and (2) of the Code of Tax Procedure and Process, as to acts susceptible to autonomous challenge and also as from the notification of the decision or the end of the legal period for decision of the hierarchical appeal;

It is noted, by the statement of facts fixed, that the decisions of the hierarchical appeals were notified to the Claimant on 03-11-2014, as it itself acknowledges in article 57 of the request for arbitral decision and is proven by documents Nos. 7, 8 and 9 attached to the request for arbitral decision and documents 1, 2 and 3 attached to the Response.

On the other hand, the registered letters with the official letters that communicated the decisions were sent on 31-10-2014, so that date of 03-11-2014 is the date on which notification is considered to have been made, in light of the rule of article 39(1) of CPPT, with reference to article 38(3) of the same Code.

Thus, the 90-day period provided for in subparagraph a) of article 10(1) of RJAT expired on 02-02-2015, the first working day following the 90-day period following the notifications of the decisions of the hierarchical appeals.

Therefore, the Tax Authority and Customs Authority is correct in defending that the request for arbitral decision, sent to CAAD on 04-02-2015, by electronic means, was presented beyond the procedural time limit.

Accordingly, the exception of procedural time limit is upheld, which implies the forfeiture of the right of action.

  1. Issues of Prejudicial Examination

The forfeiture of the right to file the request for arbitral decision constitutes an obstacle to the continuation of the case [article 89(1), subparagraph h) of the Code of Administrative Court Procedure, subsidiarily in accordance with subparagraph c) of article 29(1) of RJAT], so it is necessary to absolve the Tax Authority and Customs Authority from the action, rendering the examination of the other issues raised in the case prejudicial.

  1. Decision

In these terms, the members of this Arbitral Tribunal agree to:

– Judge well-founded the exception of material lack of jurisdiction of this Arbitral Tribunal to hear the request for VAT reimbursement;

– Judge unfounded the other exceptions of lack of jurisdiction of the Arbitral Tribunal raised by the Tax Authority and Customs Authority;

– Judge well-founded the exception of procedural time limit for presentation of the request for arbitral decision raised by the Tax Authority and Customs Authority;

– Absolve the Customs Administration from the action.

  1. Value of the Case

In accordance with the provision in article 315(2) of CPC and article 97-A(1), subparagraph a) of CPPT and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is set at € 271,987.82.

  1. Costs

In accordance with article 22(4) of RJAT, the amount of costs is set at € 4,896.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 22-06-2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Maria Alexandra Mesquita)

(Filomena Oliveira)

([1]) As was understood in the aforementioned decision of the Supreme Administrative Court of 12-6-2006, handed down in case No. 402/06.

([2]) BAPTISTA MACHADO, Lessons in Private International Law, 4th edition, page 100.

([3]) Essentially in this sense, the decisions of the Supreme Administrative Court of 12-7-2006, handed down in case No. 402/06, and of 14-11-2007, case No. 565/07 may be seen.

([4]) Although in article 165(1), subparagraph i) of CRP, in which the relative legislative competence of the Assembly of the Republic is defined, reference is made to the creation of taxes and tax system, this rule should be integrated with the content of article 103(2) of the same, which refers to the fact that law determines the incidence, the rate, tax benefits and the guarantees of taxpayers, which constitutes an explication of the scope of the matters included in that competence, as has been uniformly understood by the Constitutional Court.

By way of example, the following decisions of the Constitutional Court are indicated in this sense:

– No. 29/83, of 21-12-1983, published in the Bulletin of the Ministry of Justice No. 338, page 201 (especially pages 204-205);

– No. 290/86, of 29-10-1986, published in Decisions of the Constitutional Court, volume 8, page 421 (especially pages 423-424);

– No. 205/87, of 17-6-1987, published in Decisions of the Constitutional Court, volume 9, page 209 (especially pages 221-222);

– No. 461/87, of 16-12-1987, published in the Bulletin of the Ministry of Justice, No. 372, page 180 (especially page 197);

– No. 321/89, of 29-3-1989, published in the Bulletin of the Ministry of Justice, No. 385, page 265 (especially page 281).

The Constitutional Court has also understood that the relative legislative competence of the Assembly of the Republic comprises everything that is legislative matter and not only the restrictions of rights (in this sense, the decision No. 161/99, of 10-3-99, case No. 813/98, published in the Bulletin of the Ministry of Justice No. 485, page 81 may be seen).

([5]) In the concept of "assessment", in the broad sense, all acts that come down to the application of a rate to a certain taxable base are included and, therefore, also the acts of withholding at source (in addition to self-assessment and payment on account acts, which are not of interest for the decision of this case).

([6]) In this sense, the decision of the STA of 2-4-2009, case No. 0125/09 may be seen.

([7]) An example of such a situation is that of article 22(13) of CIVA, in which the use of the judicial challenge process is provided for to challenge acts dismissing reimbursement requests.

([8]) In the sense that the adequate procedural means for examining the legality of an act of decision of a procedure for official review of an assessment act is special administrative action (which succeeded the contentious appeal, in accordance with article 191 of CPTA) if in that decision the legality of the assessment act was not examined, the decisions of the Supreme Administrative Court of 20-5-2003, case No. 638/03; of 8-10-2003, case No. 870/03; of 15-10-2003, case No. 1021/03; of 24-3-2004, case No. 1588/03; of 6-11-2008, case No. 357/08 may be seen.

Adopting the understanding that the judicial challenge process is the adequate procedural means for challenging acts dismissing administrative complaints that have examined the legality of assessment acts, the decisions of the STA of 15-1-2003, case No. 1460/02; of 19-2-2003, case No. 1461/02; and of 29-2-2012, case No. 441/11 may be seen.

Frequently Asked Questions

Automatically Created

Can a tax arbitral tribunal assess a request for VAT restitution under Portuguese law?
Under Portuguese law, the jurisdiction of tax arbitral tribunals to assess VAT restitution requests is defined by Decree-Law 10/2011 (RJAT). In Process 64/2015-T, the Tax Authority challenged this jurisdiction, raising it as a preliminary exception. The tribunal must examine whether its competence extends beyond annulment of administrative acts to include ordering VAT reimbursement. This jurisdictional question is a matter of priority examination under article 13 of the Code of Administrative Court Procedure. The tribunal's authority depends on whether the restitution claim is considered an accessory to the annulment request or a separate substantive claim requiring different jurisdictional grounds.
What is the right to VAT deduction for financial institutions in Portugal?
Financial institutions in Portugal have a specific right to VAT deduction that reflects their mixed operations. They conduct both operations conferring deduction rights (taxed activities) and operations without such rights (exempt activities). To determine deductible VAT, institutions may use: (1) the pro rata method, applying a deduction percentage calculated based on the proportion of taxable versus total turnover; or (2) the direct allocation method, where VAT on inputs exclusively allocated to taxable activities is fully deductible, while VAT on inputs for exempt activities is non-deductible. For mixed-use inputs, the pro rata applies. Financial institutions can combine both methods, applying direct allocation to identifiable business areas with specific inputs (like medallic activities, project finance, leasing, or securities services) while using pro rata for general overhead costs.
How can a taxpayer challenge VAT self-assessments through hierarchical appeal and arbitration?
Portuguese taxpayers can challenge VAT self-assessments through a three-stage administrative and arbitral process. First, they file a request for official review (revisão oficiosa) with the tax authority, presenting the factual situation and claimed amount. If dismissed, the taxpayer may file a hierarchical appeal (recurso hierárquico) to a superior tax authority. If this appeal is also dismissed, the taxpayer can seek arbitration by filing a request for constitution of an arbitral tribunal at CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011. The arbitral request must be filed within the applicable time limits and seeks annulment of the dismissal decisions and, potentially, recognition of the right to reimbursement. The tribunal is constituted by arbitrators appointed by the CAAD Ethics Council, and parties may submit written pleadings.
What are the grounds for claiming incompetence of the CAAD arbitral tribunal in VAT disputes?
The Tax Authority may claim incompetence of CAAD arbitral tribunals in VAT disputes on several grounds. In Process 64/2015-T, the Authority raised lack of jurisdiction specifically regarding the tribunal's competence to assess VAT reimbursement requests, arguing that arbitral jurisdiction may be limited to annulment of administrative acts rather than extending to ordering positive tax restitution. Additional grounds for incompetence claims may include: the nature of the claim falling outside RJAT's scope, procedural time limit violations making the claim inadmissible, lack of prior exhaustion of administrative remedies, or the claim involving matters reserved to tax courts rather than arbitral tribunals. The jurisdictional issue is examined as a preliminary matter before the merits, as it determines whether the tribunal can validly hear and decide the case.
What is the procedure for requesting official review of excess VAT payments in Portugal?
The procedure for requesting official review of excess VAT payments in Portugal follows specific steps under tax procedural law. The taxpayer must submit a written request for official review (pedido de revisão oficiosa) to the competent tax authority, clearly identifying: (1) the tax periods involved; (2) the VAT self-assessments being challenged; (3) the factual and legal grounds for claiming overpayment; (4) the specific amount of excess VAT paid and claimed for reimbursement; and (5) supporting documentation demonstrating the right to deduction or excess payment. The request must be filed within the applicable statutory deadline (typically four years from the tax becoming due). The tax authority examines the request and issues a decision either granting or dismissing the claim. If dismissed, the taxpayer may pursue hierarchical appeal and subsequently arbitral or judicial review.