Process: 656/2014-T

Date: April 30, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 656/2014-T addresses critical procedural issues arising when the Portuguese Tax Authority partially revokes VAT assessments during pending arbitral proceedings. The taxpayer B...LDA challenged EUR 158,917.60 in additional VAT assessments for all 2012 periods. During the arbitration, the Director-General of Taxes partially revoked the assessments on 14-10-2014, reducing the disputed amount to EUR 70,262.18. The case raises fundamental questions about the legal nature of such revocations and whether they constitute true revocations or mere rectifications. The taxpayer argued that the new assessments were merely rectificatory rather than substitutive, meaning the original assessments remained in the legal order combined with the corrections. A central issue concerned Article 20 of the RCPIT (Tax Inspection Procedures Regulation), specifically whether the same inspector who conducted the original inspection could legally perform the subsequent review leading to partial revocation - the taxpayer characterized this as an improper 'self-inspection' constituting an incompatibility under Article 20(1)(f) RCPIT and an impediment under Article 44(1)(g) CPA. The taxpayer, having paid the original assessments in full, received refunds of EUR 87,498.84 but maintained claims for total annulment, return of all unduly paid amounts, and indemnificatory interest. Procedurally, the case illustrates the interaction between Article 72 CPA (30-day deadline for administrative revocation), Article 13(2) RJAT (continuation of proceedings after partial revocation), and Article 137(4) and 145(2) CPA regarding the retroactive effect of rectificatory acts. The dispute underscores the importance of proper reasoning in tax assessments, inspector impartiality requirements, and taxpayers' rights to challenge both the substance and procedure of VAT corrections even after partial administrative relief.

Full Decision

Case No. 656/2014-T

The arbitrators Dr. Jorge Lopes de Sousa (presiding arbitrator), Dr. Henrique Nunes and Dr. Jorge Carita (panel arbitrators), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 03-11-2014, hereby agree as follows:

1. Report

B…LDA., Legal Entity No. …, with registered office at …, No. …, …, …, hereby challenges the additional VAT assessments and compensatory interest/account adjustments document No. 2013… - assessment No. 2013…; document No. 2013…- assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… - assessment No. 2013…; document No. 2013… – assessment No. 2013…, document No. 2013… - assessment No. 2013 …; document No. 2013… - assessment No. 2013…; document No. 2013... - assessment No. 2013…, relating to the year 2012 (periods of January, February, March, April, May, June, July, August, September, October, November and December), in the total amount of EUR 158,917.60.

The Applicant further requests the refund of improperly paid taxes, recognition of the right to indemnificatory interest and condemnation of the Tax and Customs Authority in the costs of the proceedings.

Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators the undersigned, who communicated acceptance of the appointment within the applicable period.

On 04-09-2014, the Tax and Customs Authority was notified that a petition for constitution of the arbitral tribunal had been filed with CAAD, giving rise to the present proceedings.

On 14-10-2014 the Director-General of Taxes partially revoked the tax acts, therefore, within the period of 30 days, counted in accordance with Article 72 of the CPA, with suspension on Saturdays, Sundays and holidays, in accordance with Article 3-A, paragraph 1, of the RJAT.

On 17-10-2014, the Parties were notified of the appointment of the Arbitrators, having manifested no intention to challenge any of them, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics.

Thus, in conformity with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 03-11-2014.

The Tax and Customs Authority submitted a response in which, in addition to defending the rejection of the claims, stated that the tax acts impugned had been partially revoked, altering, insofar as relevant herein, all assessments relating to the year 2012, which are impugned in the present proceedings, in accordance with the schedule that follows, in the respective part:

[Table content not reproduced in translation]

The Tax and Customs Authority further stated that all assessments would be replaced by new assessments with the new values and that the value of the action should be altered to EUR 70,262.18.

The Applicant replied to these questions raised by the Tax and Customs Authority as follows, in summary:

– the administrative process is incomplete as it does not contain the new assessments;

– the original values of the assessments were only reduced and not annulled, with the requests for total annulment and recognition of the right to indemnificatory interest subsisting;

– the same inspector who conducted the inspection and initial corrections made a "self-inspection" of the inspection that he himself had previously carried out, following the taxpayer's arbitration requests - which, in addition to being unusual, is manifestly illegal;

– meanwhile the Applicant received the "VAT assessment demonstrations" (without any mention of compensatory interest) issued on 29-10-2014, accompanied by the respective "account adjustment demonstrations";

– these VAT assessments and account adjustment demonstrations have different dates and numbers from those initially issued;

– the additional VAT assessments and compensatory interest were paid in full by the Applicant;

– from the latest VAT assessments and account adjustments resulted VAT values to be refunded to the Applicant for the various months of 2012: of a total of VAT paid by the taxpayer for 2012, EUR 157,761.04 (not including the compensatory interest equally paid), from these latest VAT assessments and account adjustments resulted a refund to the taxpayer of VAT in the amount EUR 87,498.84;

– from the content of these latest VAT assessments and respective "account adjustments" (here together) it is apparent that they are merely rectificatory assessments of those initially issued;

– legally, the initial VAT assessments impugned were not revoked, in whole or in part;

– furthermore, they were rectified by these latest VAT assessments from whose values, offset against the values of the initial VAT assessments, resulted VAT differentials refunded to the taxpayer (given that the taxpayer had paid the initial assessments in full);

– thus, these latest VAT assessments, rectificatory or reformatory of the initial ones, produced a mere financial effect equivalent to the partial revocation of the initial additional VAT assessments - but did not revoke, in whole or in part, the initial VAT assessments;

– in effect, the initial VAT assessments were not replaced by these latest assessments, that is, the latest VAT assessments did not revoke, in whole or in part, the initial VAT assessments;

– furthermore, the latest VAT assessments merely rectified/reformulated the first ones, so that only from the combination of one and the other results the VAT values still due - corresponding precisely to the VAT values not yet refunded to the taxpayer;

– the initial VAT assessments were not eliminated, in whole or in part, from the legal order, and replaced by these latest VAT assessments;

– the Applicant, by CAAD office letter of 16-10-2014, was notified of the order relating to the rectification of the assessments to give its opinion on the continuation of the proceedings;

– the proceedings should continue in accordance with Article 13, paragraph 2, of the RJAT against: (i) the acts of initial additional VAT assessments, cumulative and combined with the latest VAT assessments (here together) rectificatory of those initial assessments; (ii) against the compensatory interest impugned ab initio, to the extent that these were not subject to partial revocation; (iii) and for consideration of the right to indemnificatory interest equally petitioned in these proceedings.

– the rectificatory assessments are legally integrated into the rectified assessments, not being considered new assessments, in accordance with Article 137, paragraph 4, of the CPA, having retroactive effect, in accordance with Article 145, paragraph 2 of the CPA, by virtue of Article 147 of the same statute;

– alternatively, the Applicant requests the substitution of the impugned acts in accordance with Article 64 of the CPTA, invoking as a new ground the inspection and report of the Tax Inspection Division of the Finance Directorate of …, dated 06-10-2014, which led to the determination of the VAT values allegedly still due, is authored precisely by the same tax inspector who made the inspection report (cf. doc. B attached to the Administrative Record) which was the basis for the assessments initially impugned – D… – which constitutes an incompatibility in accordance with Article 20, paragraph 1, subparagraph f), of the RCPIT and an impediment in accordance with Article 44, paragraph 1, subparagraph g), of the CPA, whereby the new assessments should be annulled for violation of law, in addition to being a breach for disciplinary purposes;

– the new assessments were not based on new facts whereby Article 13, paragraph 3, of the RJAT was violated.

In the meeting provided for in Article 18 of the RJAT, witnesses were examined and party evidence was heard.

Documents relating to the revocation of the acts in question were attached to the proceedings, with new assessments being attached.

The Tax and Customs Authority to give its opinion on the consequences of the issuance of these new assessments.

The parties presented submissions.

The Applicant submitted documents with submissions which, by order of 01-04-2015 were decided not to be admissible, for being presented after the submissions phase had commenced.

The Tribunal is competent, the parties enjoy legal standing and capacity, are legitimate and are duly represented (Articles 4 and 10, paragraph 2, of the same statute and Article 1 of Order No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no obstacle is raised to the consideration of the merits of the case.

2. Matters of Fact

2.1. Proven Facts

The following facts are considered proven:

a) The Applicant is a company engaged in the activity of buying and selling CDs, DVDs, vinyl, merchandise and other items related to music and audiovisuals, which operates in the domestic, intra-community and foreign markets;

b) The quantities and dimensions of the goods sold are highly variable, so their dispatch is carried out either through transport companies or through the Portuguese Post Office (CTT);

c) The Applicant is a VAT taxpayer and was subject to a tax audit carried out by the Finance Directorate of …, relating to the years 2010 to 2012, by means of Service Order No. …

d) In the years on which the present audit focused, B…, LDA, now the Applicant, was subject to the normal regime, with monthly periodicity;

e) The audit commenced on 18-01-2013 and ended on 02-08-2013, the company being notified, on 12-07-2013, of the extension of the audit period, authorised for a period of 3 months, with a scheduled end date of 18-10-2013 (Report of the Tax Audit in the administrative file document "Pages of RG15. part 1", the content of which is hereby reproduced;

f) In the audit, the Tax and Customs Authority understood, in summary, that:

i) the company improperly deducted VAT in the years 2010, 2011 and 2012;

ii) it does not possess supporting evidence that part of the goods invoiced to customers in the European Union in the years 2010, 2011 and 2012 were dispatched or transported by the seller, by the buyer or on their behalf, from the national territory to another Member State with destination to the buyer, and

iii) it did not possess appropriate customs documents, in this case proof of exports, referred to in paragraph 8 of Article 29 of the CIVA, whereby all these transactions, by not meeting the requirements required by Article 14 of the VAT Regime in Intra-Community Transactions (RITI) or by Article 14 of the CIVA, as the case may be, could not benefit from the exemptions provided therein;

g) The Tax and Customs Authority in the Draft Report of the Tax Audit announced to the Applicant the intention to make the following corrections relating to the year 2012, in the total amount of EUR 699,356.24:

[Table content not reproduced in translation]

h) After the exercise of the right to be heard by the Taxpayer, the Tax and Customs Authority made corrections, in VAT, totalling EUR 157,761.04 for the year 2012, which are summarised in the schedule that follows:

[Table content not reproduced in translation]

i) The Report of the Tax Audit was prepared by Tax Inspector D...;

j) The Report of the Tax Audit was notified to the Applicant without the annexes identified with Nos. 1 to 5, the Tax and Customs Authority referring at the end of the Report of the Tax Audit the following:

"Note: With regard to the sending of the annexes, since the annexes identified with Nos. 1 to 5 are known to the taxpayer, already notified in the context of the Draft Tax Audit Report, they are not sent together with this report";

k) Subsequently the Tax and Customs Authority issued the following documents of account adjustment and additional VAT assessments and compensatory interest:

– document No. 2013 … and assessment No. 2013 …, relating to the month of January 2012, in the amount to be refunded of EUR 921.32;

– document No. 2013 … - assessment No. 2013 …, relating to the month of February 2012, in the amount to be refunded of EUR 2,008.74;

– document No. 2013 … - assessment No. 2013 …, relating to the month of March 2012, in the amount to be refunded of EUR 10,008.74;

– document No. 2013 … - assessment No. 2013 …, relating to the month of April 2012, in the amount to be refunded of EUR 9,348.07;

– document No. 2013 … - assessment No. 2013 …, relating to the month of May 2012, in the amount to be refunded of EUR 5,316.99;

– document No. 2013… - assessment No. 2013…, relating to the month of June 2012, in the amount to be refunded of EUR 2,056.11;

– document No. 2013… - assessment No. 2013…, relating to the month of July 2012, in the amount to be refunded of EUR 34,506.25;

– document No. 2013… - assessment No. 2013…, relating to the month of August 2012, in the amount to be refunded of EUR 4,570.07;

– document No. 2013 … – assessment No. 2013 …, relating to the month of September 2012, in the amount to be refunded of EUR 1,743.56;

– document No. 2013 … - assessment No. 2013…, relating to the month of October 2012, in the amount to be refunded of EUR 16,809.53;

– document No. 2013… - assessment No. 2013 …, relating to the month of November 2012, in the amount to be refunded of EUR 33,201.91;

– document No. 2013 … - assessment No. 2013 …, relating to the month of December 2012, in the amount to be refunded of EUR 20,991.62;

(documents submitted by the taxpayer on 15-09-2014, the content of which is hereby reproduced)

l) On 17-01-2014, the taxpayer submitted an administrative appeal to the Finance Directorate of …, with which it submitted documents relating to transactions of goods (document "RG5" of the administrative file, the content of which is hereby reproduced);

m) In that administrative appeal, on 01-10-2014, information was issued by Tax Inspector D..., which is contained in document "RG5" of the administrative file, the content of which is hereby reproduced, information in which, having confirmed that customers of the Applicant received the goods contained in some of the invoices, proposed the reduction of the values of the corrections in accordance with the following schedule, with respect to the year 2012:

[Table content not reproduced in translation]

n) The administrative appeal was not decided within the period of 4 months from that date;

o) On 01-09-2014, the Applicant submitted the petition for arbitration which gave rise to the present proceedings;

p) On 14-10-2014, the Director-General of the Tax and Customs Authority issued an order for partial revocation of the original assessments, now considering VAT to be owed for each of the months in accordance with the following schedule:

[Table content not reproduced in translation]

q) The revocation order manifested agreement with information from 14-10-2014, which was attached to the proceedings with it, information which, for its part, based its proposal on "information provided by the Finance Directorate of Porto", containing no independent assessment of the grounds for the partial revocation of the original assessments and maintenance of part of them, merely reproducing entirely the schedule that summarises the alterations prepared in that information from 06-10-2014 prepared at the Finance Directorate of ….

r) The order for partial revocation of the assessments was notified to the Applicant, which made no statement within the 10-day period provided for in Article 13, paragraph 2, of the RJAT;

s) The order for partial revocation was based on Information dated 06-10-2014, issued by Tax Inspector D... (document "Pages of RG1. Part 1", of the administrative file, the content of which is hereby reproduced);

t) On 09-12-2014, the Tax and Customs Authority submitted a Response in the present proceedings, not accompanied by the administrative file, which was only attached on 02-01-2015 (1st part) and 06-01-2015 (2nd part);

u) On 06-01-2015, the Applicant was notified of the attachment of the administrative file;

v) On 16-01-2015, the Applicant submitted a petition and attached various documents, the content of which is hereby reproduced);

w) On 28-01-2015, the Applicant attached to the proceedings copies of the following VAT assessments:

– document No. 2014 … and assessment No. 2014 …, relating to the month of January 2012, in the amount to be refunded of EUR 6,056.04;

– document No. 2014 … and assessment No. 2014…, relating to the month of February 2012, in the amount to be refunded of EUR 4,232.65;

– document No. 2014… and assessment No. 2014…, relating to the month of March 2012, in the amount to be refunded of EUR 15,337.32;

– document No. 2014 … and assessment No. 2014 …, relating to the month of April 2012, in the amount to be refunded of EUR 22,762.15;

– document No. 2014… and assessment No. 2014…, relating to the month of May 2012, in the amount to be refunded of EUR 10,987.69;

– document No. 2014… and assessment No. 2014…, relating to the month of June 2012, in the amount to be refunded of EUR 12,712.01;

– document No. 2014… and assessment No. 2014…, relating to the month of July 2012, in the amount to be refunded of EUR 41,920.67;

– document No. 2014… and assessment No. 2014 …, relating to the month of August 2012, in the amount to be refunded of EUR 13,300.18;

– document No. 2014 … and assessment No. 2014…, relating to the month of September 2012, in the amount to be refunded of EUR 9,499.44;

– document No. 2014 … and assessment No. 2014…, relating to the month of October 2012, in the amount to be refunded of EUR 22,021.22;

– document No. 2014… and assessment No. 2014…, relating to the month of November 2012, in the amount to be refunded of EUR 35,389.88;

– document No. 2014 … and assessment No. 2014…, relating to the month of December 2012, in the amount to be refunded of EUR 34,921.99;

x) On 28-01-2015, the Tax and Customs Authority attached to the proceedings a "list of refunds" with the following content:

[Table content not reproduced in translation]

y) The Applicant self-assessed VAT in the months of January through December 2012, having in all of them presented periodic declarations, indicating in the respective fields 94 the amount of VAT to be recovered in each of the months, in accordance with the terms referred to in the monthly declarations whose copies are contained in document M attached with the petition for arbitration, the content of which is hereby reproduced.

2.2. Unproven Facts

It was not proven that the values indicated by the Applicant in fields 94 of the monthly periodic declarations relating to the year 2012 are those indicated in Article 258 of the petition for arbitration, as those are not the values indicated in the declarations whose copies the Applicant attached as document M.

2.3. Basis for Establishment of Matters of Fact

The proven facts are based on the Report of the Tax Audit and documents attached by the Parties.

3. Matters of Law

Following the partial revocation of the initial assessments, new assessments were issued, the current legal relationships that subsist between the Tax Authority and the Applicant being derived from the facts of the case, those resulting from these acts.

Therefore, it is justified that, prioritarily, the defects specifically attributed to these acts be considered, as the determination of the subject matter of the present proceedings depends on their validity or otherwise.

3.1. Question of New Assessments Following the Partial Revocation of the Initial Ones

As results from the matters of fact established, the Tax and Customs Authority, following the partial revocation of the original assessments, which are indicated in subparagraph k) of the matters of fact established, issued new assessments, all with higher amounts to be refunded to the Applicant than those resulting from the first ones, indicated in subparagraph w) of the matters of fact established.

The Applicant imputes defects to the new assessments in the petition submitted after the attachment of the administrative file, an imputation that is timely with respect to defects of supervenient knowledge, namely those whose knowledge derives from the attachment of the administrative file, as provided for in Article 91, paragraph 5, of the CPTA and is settled case law for a long time. ( [1] )

Besides others, the Applicant imputed to these new assessments the defect for violation of the prohibition of Article 13, paragraph 3, of the RJAT, which establishes that "upon the expiration of the period provided for in paragraph 1, the tax authority shall be prevented from issuing a new tax act in relation to the same taxpayer or tax obligor, tax and taxation period, except on the basis of new facts".

In the case at hand, the new assessments relate to the same tax facts as the earlier ones, but aim merely to execute the revocation order provided for in paragraph 1 of the same article.

Being so, as acts of execution, which have a merely confirmative nature, since they do not cause any alteration in the legal order.

Confirmative acts are not true administrative (or tax) acts insofar as they merely reiterate what has already been decided by the tax act being executed, at the level of the definition of legal situations that it introduced into the legal order.

It is for this reason that acts of execution that do not cause any alteration that did not already result from the act being executed are not subject to contentious challenge and, if they have any innovative content, only in that innovative part can they be the subject of challenge proceedings, that is, insofar as they do not exceed the legal definition previously made by the act being executed [Article 151, paragraphs 3 and 4, of the Administrative Procedure Code of 1991, subsidiarily applicable by virtue of the provisions of Article 2, subparagraph d), of the General Tax Law].

In the case at hand, the final definition of the position of the Tax Authority with respect to the Applicant was made by the act of partial revocation of the assessments and, therefore, it is the configuration that it gave to those assessments (revoking them in one part and reaffirming the maintenance of the remaining part with the reasoning contained in the information with which it manifests agreement and, reflectively with the information of the Finance Directorate of …, to which that information, for its part, refers) that constitutes the subject matter of the appraisal of legality to be made in the present proceedings.

The prohibition against issuing new tax acts on the same grounds provided for in paragraph 3 of Article 13 must be understood as relating to true tax acts, acts that have the nature of administrative acts, by producing legal effects on the individual and concrete situation of the taxpayer that is their addressee (Article 120 of the Administrative Procedure Code), as this prohibition is not justified in relation to acts that change nothing in the previous situation but rather concretise it.

Therefore, the new assessments cannot be considered illegal for violation of Article 13, paragraph 3, of the RJAT, insofar as they concretise what was decided in the revocation act.

If, eventually, one or more of the new assessments exceed what was decided by the act revoking the initial assessments, those new assessments will be, only to that extent, illegal for violation of the said Article 13, paragraph 3, of the RJAT.

In this context, it cannot be overlooked that, although each assessment relates to a month and a schedule was prepared that summarises all the corrections made in the year 2012, the act that decides to maintain them partially contains implicit positions taken on each of the corrections relating to each of the invoices that are analysed in the information of 06-10-2014, whereby it is perfectly divisible, and each of those positions can be the subject of independent judgment, in the appraisal of the legality of the act referred to.

3.2. Defect Relating to the Impediment of the Author of the Report of the Tax Audit in the Proceedings in which the Revocation Act was Issued

As results from the matters of fact established, following the notification of the initial assessments, the Applicant submitted an administrative appeal.

In that administrative appeal, information intended to support the final decision was issued by the same Tax Inspector who prepared the Report of the Tax Audit.

It was also the same Tax Inspector who prepared the information of 6-10-2014, issued at the Finance Directorate of …, which served as the basis for the act of partial revocation of the initial assessments.

The position assumed by that Tax Inspector is the sole substantive ground for the revocation decision.

In truth, the revocation order merely manifests agreement with information from 14-10-2014, which was attached to the proceedings with it, but this information was based solely on "information provided by the Finance Directorate of …", containing no independent assessment of the grounds for the partial revocation of the initial assessments and maintenance of part of them, merely reproducing entirely the schedule that summarises the alterations prepared in that information from 06-10-2014 prepared at the Finance Directorate of ….

The Applicant, in the petition of 28-01-2015, imputes a defect to the revocation act, insofar as "it led to the determination of the VAT values allegedly still due", on the basis that the information which served as its basis was authored by the same Inspector who conducted the tax audit (Article 62 of that petition). "That is, the same inspector who conducted the audit and initial corrections, underlying the initial VAT assessments, himself then conducted a "self-audit" of the audit that he himself had previously conducted, following the taxpayer's arbitration requests" (Article 63 of the petition).

The Applicant contends that "we are ostensibly faced with a specific incompatibility of the inspector, in accordance with Article 20, paragraph 1, subparagraph f) of the RCPIT" and "faced with a case of impediment, in accordance with Article 44, paragraph 1, subparagraph g) of the CPA".

Article 20 of the Supplementary Tax Inspection Procedure Regime addresses specific incompatibilities of officials of the Tax Authority, establishing the following, insofar as relevant herein:

Article 20
Specific Incompatibilities

1 – The officials of the tax inspection, in addition to the incompatibilities applicable to officials of the Tax and Customs Authority in general, are subject to the following specific incompatibilities: ( [2] )

(...)

f) To conduct or participate in audit actions aimed at providing information on matters of fact in proceedings for administrative appeal, challenge or review of any acts of the tax administration in which they have had intervention.

Article 44, paragraph 1, subparagraph g) of the Administrative Procedure Code of 1991 establishes the following:

Article 44
Cases of Impediment

1 – No holder of an office or agent of the Public Administration may intervene in administrative proceedings or in any act or contract of public or private law of the Public Administration, in the following cases:

(...)

g) When it is a matter of review of a decision issued by that person, or with their intervention, or issued by any of the persons referred to in subparagraph b) or with the intervention of these.

This Article 44 of the Administrative Procedure Code of 1991, inserted in a Section headed "Guarantees of Impartiality", aims to ensure the observance of the principle of impartiality, which is imposed on the Tax Authority by Article 266, paragraph 2, of the Constitution of the Portuguese Republic and is reaffirmed by Article 55 of the General Tax Law.

Thus, the impediments provided for in this Article 44 are applicable to the generality of officials of the Tax and Customs Authority, by virtue of the rule of subsidiary application of the Administrative Procedure Code to the activity of the Tax Authority which is established in Article 2, subparagraph c), of the General Tax Law.

The procedure for revocation of acts which are the subject of petitions for arbitration is, by a declaratory interpretation, encompassed within the concept of "review", as this expression is suitable for referencing any means of challenge of acts of the Administration and in the proceedings referred to aims, in light of what is alleged in the petition for arbitration, to appraise the correctness of the act which is the subject thereof.

Thus, it is manifest that there is a situation covered by this subparagraph g) of paragraph 1 of Article 44 of the Code of Administrative Court Procedure.

The impediments provided for in the aforesaid Article 44 of the Administrative Procedure Code aim to ensure the guarantees of impartiality and transparency of the action of the decision-making activity of the Public Administration, which are imposed by Article 266, paragraph 2, of the Constitution of the Portuguese Republic.

In the specific case of the impediment to intervene in administrative proceedings in which acts are being challenged, the aim is to ensure a double degree of appraisal, through a new analysis of the situation without any psychological predisposition to maintain what was previously decided, which legislatively was understood to be ensured only by preventing the officials who intervened in earlier phases of proceedings from intervening in reviews which, directly or indirectly, aim to appraise their action.

And, if it is true that, in the case at hand, the official who conducted the audit greatly altered the position assumed in the Report of the Tax Audit, it is also true that in another part the official maintained the position assumed, whereby the possibility of the impartiality of the decision having been assured cannot be ruled out.

In any event, impediments operate in the abstract, independently of a demonstration that, in concreto, partial conduct occurred.

In truth, they aim to prevent "situations from being created in which there is a risk or breach of the duty of impartiality, in particular by attributing annulling effect to facts that do not involve an effective violation of that principle, but have inherent the risk or danger of its violation". "Non-declaration of the impediment verified strikes the act practised with the defect of violation of law, determining its voidability (Article 51, paragraph 1 of the CPA), a defect from which equally suffer the consequent acts thereof, in particular the assessment act subject to judicial challenge". ( [3] )

Thus, it must be concluded that the act of partial revocation of the original assessments, insofar as it maintained them partially on the basis of the grounds of the opinion issued by the Tax Inspector who conducted the audit, suffers from a defect of violation of law, which repercusses in the maintained part of the assessments, which justifies their annulment (Articles 51, paragraph 1, and 135 of the Administrative Procedure Code of 1991).

The assessments of compensatory interest depend on the legality of the act of assessment of the tax to which they relate, being integrated in the same tax debt (Article 35, paragraph 8, of the General Tax Law), whereby they are affected by the illegality that affects the VAT assessments, justifying their annulment, for the same reasons.

3.3. Questions of Prejudiced Knowledge

It is thus concluded that all VAT assessments and compensatory interest, insofar as the corrections were maintained by the act of partial revocation of the original assessments, suffer from a defect of violation of law, for violation of Article 44, paragraph 1, subparagraph g) of the Administrative Procedure Code of 1991 and that the new assessments, insofar as they exceed what was decided by the act of revocation regarding the maintenance of the original assessments, will be illegal for violation of Article 13, paragraph 3, of the RJAT.

In accordance with the provisions of Article 124 of the Code of Administrative Court Procedure, subsidiarily applicable by virtue of the provisions of Article 29, paragraph 1, of the RJAT, the illegalities attributed to the assessment not resulting in a declaration of non-existence or nullity, nor the Applicant indicating a relationship of subsidiarity between the defects, the order of appraisal of these should be that which, according to the prudent discretion of the judge, provides more stable or effective protection of the offended interests.

The establishment of an order of knowledge of defects in tax contentious proceedings, in accordance with the provisions of that Article 124, has inherent the legislative understanding that, if some defect judged to be well-founded is handed down which confers stable and effective protection of the taxpayer's rights, knowledge of other defects that are attributed to the impugned act becomes prejudiced, as useless, since if it were always necessary to know of all defects, it would be indifferent the order of their knowledge.

In the specific case of arbitral awards that know the merits, Article 24, paragraph 4, of the RJAT provides for the preclusion of the "right of the tax authority to issue a new tax act in relation to the same taxpayer or tax obligor and taxation period, except where it is based on different new facts from those that motivated the arbitral award", whereby the annulment provides stable and effective protection of the interests of the Applicant.

Consequently, knowledge of the remaining questions raised does not have utility, whereby they are not considered (Article 130 of the Code of Civil Procedure).

4. Refund of Amounts Paid and Indemnificatory Interest

The Applicant indicated in Articles 258 and 259 of the petition for arbitration that it would have self-assessed VAT being left with credits in the following values indicated in fields 94 of the periodic declarations, whose copies it attached as document M.

The values shown in fields 94 of the periodic declarations referred to are not those that the Applicant refers to in Article 258 of the petition for arbitration.

Therefore, it was not proven that the Applicant had indicated in the said fields 94 the values that it indicates in Article 258 of the petition for arbitration.

However, it is certain that the Applicant self-assessed VAT in all months of 2012 and in all of them had VAT to recover, whereby it has the right to be refunded in accordance with what it requested.

On the other hand, the additional VAT assessments issued by the Tax and Customs Authority being illegal, by fact attributable to it, indemnificatory interest is owed, by virtue of the provisions of Article 43, paragraph 1 of the General Tax Law.

The indemnificatory interest is owed at the legal default rate (Articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the General Tax Law, Article 559 of the Civil Code and Order No. 291/2003, of 8 April) and calculated on the basis of the amounts of refunds that were not paid and the periods between the dates on which each of them should have been paid and that on which the respective payment is to be made, taking into account the indemnificatory interest that may have already been paid.

As there are no elements that allow it to be stated with certainty what the values of the refunds are, as well as the amount of indemnificatory interest, their values should be assessed in execution of this award (Articles 609, paragraph 2, of the Code of Civil Procedure and 565 of the Civil Code).

5. Decision

In accordance with the foregoing, this Arbitral Tribunal hereby agrees:

a) To declare the petition for arbitration well-founded;

b) To annul the following VAT assessments and compensatory interest, insofar as they subsisted after the partial revocation effected by the order of the Director-General of the Tax and Customs Authority of 14-10-2014: Nos. 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013…, 2013 …, 2013 …, 2013 …, and 2013 …;

c) To condemn the Tax and Customs Authority to refund to the Applicant the amounts of refunds that are outstanding, together with indemnificatory interest, in accordance with the terms referred to in point 4. of this award.

5. Value of the Proceedings

The Tax and Customs Authority contends that the value of the proceedings should not be that indicated by the Applicant (EUR 158,917.60), because there was partial revocation of the impugned acts, whereby the corresponding sum of the corrections contested and maintained, that is, EUR 70,262.18, for the year 2012.

In accordance with Article 299, paragraph 1, of the Code of Civil Procedure, subsidiarily applicable by virtue of the provisions of Article 29, paragraph 1, subparagraph e), of the RJAT and Article 6, subparagraph a), of the Regulation of Costs in Tax Arbitration Proceedings, "in determining the value of the cause, account should be taken of the moment when the action is brought, except where there is a counterclaim or main intervention".

Therefore, the value of the cause is EUR 158,917.60, in accordance with the provisions of Article 306, paragraph 2, of the Code of Civil Procedure of 2013, Article 97-A, paragraph 1, subparagraph a), of the Code of Administrative Court Procedure and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Lisbon, 30 April 2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Henrique Nunes)

(Jorge Carita)

[1] In this connection, the following judgments of the Supreme Administrative Court can be seen:
– of 3-5-1988, case No. 20210, Appendix to the Official Journal of 20-1-94, page 2194;
– of 9-12-1988, case No. 25459, Appendix to the Official Journal of 23-9-94, page 5949;
– of 26-9-1990, case No. 12010, Appendix to the Official Journal of 15-10-92, page 508;
– of 14-1-1992, case No. 26504, Appendix to the Official Journal of 29-12-95, page 43;
– of the Plenary of the Administrative Litigation Section of 28-6-1994, case No. 26811;
– of 13-10-1994, case No. 25346, Appendix to the Official Journal of 18-4-97, page 6876;
– of 5-12-1995, case No. 35689, Appendix to the Official Journal of 30-4-98, page 9550;
– of 8-2-1996, case No. 37102, Appendix to the Official Journal of 31-8-98, page 957;
– of the Plenary of the Administrative Litigation Section of 20-3-1997, case No. 35689;
– of 17-5-2005, case No. 975/03; of 10-5-2006, case No. 1449/03.

[2] This wording was introduced by Law No. 75-A/2014, of 30 September, whereby it was already in force on 06-10-2014, when the Information at the Finance Directorate of … was prepared.

In any event, the alteration is irrelevant, as it merely replaced the reference to the Directorate-General of Taxes that appeared in the previous wording, which established that "1 – The officials of the tax inspection, in addition to the incompatibilities applicable to officials of the Directorate-General of Taxes in general, are subject to the following specific incompatibilities:".

Thus, the new wording has nothing novel, as the redirection to the Tax and Customs Authority of all references to the Directorate-General of Taxes already resulted from Article 12, paragraph 2, subparagraph a), of Decree-Law No. 118/2011, of 31 December.

[3] Judgment of the Supreme Administrative Court of 13-10-2010, case No. 0218/10.

Furthermore, it is settled case law of the Supreme Administrative Court that the violation of the principle of transparency, which underlies the impediments provided for in Article 44 of the CPA of 1991 which is a corollary of the principle of impartiality, with constitutional recognition, in paragraph 2 of Article 266 of the Constitution, constitutes an autonomous defect, not dependent on a demonstration of actual partial conduct.

In this sense, the judgments of the Plenary of the Administrative Litigation Section of 16-11-95, issued in case No. 31932, published in Appendix to the Official Journal of 30-9-97, page 788, and of the same Plenary of 19-2-97, issued in case No. 28280, published in Appendix to the Official Journal of 28-5-99.

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority partially revokes VAT additional assessments during arbitral proceedings?
When the Tax Authority partially revokes VAT additional assessments during arbitral proceedings, the arbitration continues under Article 13(2) RJAT for the remaining contested amounts. The revocation must occur within 30 days under Article 72 CPA. The taxpayer receives notification and must decide whether to continue proceedings. Critically, Portuguese law distinguishes between true revocations (which eliminate original acts from the legal order) and mere rectifications under Article 137(4) CPA, which integrate into and retroactively modify the original assessments per Article 145(2) CPA. If assessments are only rectified rather than revoked, taxpayers may challenge both the original and rectificatory acts cumulatively. The partial revocation typically results in refunds of amounts paid on the revoked portion, but doesn't preclude claims for indemnificatory interest or complete annulment if the taxpayer believes the remaining assessments are also unlawful.
What constitutes insufficient or unintelligible reasoning in Portuguese VAT assessment notices?
Insufficient or unintelligible reasoning in Portuguese VAT assessment notices constitutes a fundamental procedural defect under administrative law principles. Assessment notices must clearly identify: (1) the factual basis for the correction, (2) the legal provisions violated, (3) the calculation methodology for additional VAT and compensatory interest, and (4) how inspector conclusions were reached. Reasoning is insufficient when it fails to enable the taxpayer to understand why corrections were made or to mount an effective defense. It is unintelligible when contradictory, internally inconsistent, or lacking logical connection between facts found and conclusions reached. In Process 656/2014-T, issues arose regarding whether new assessments contained adequate reasoning distinct from original assessments. Defective reasoning may render assessments voidable and violate taxpayers' constitutional rights to effective defense and administrative due process, potentially warranting complete annulment regardless of substantive tax liability.
How does Article 20 of the RCPIT apply to the validity of tax inspection procedures in IVA cases?
Article 20 of the RCPIT establishes incompatibility rules ensuring impartiality and objectivity in tax inspections. Article 20(1)(f) RCPIT prohibits inspectors from participating in procedures where they have conflicts of interest or prior involvement that compromises independence. In Process 656/2014-T, the taxpayer invoked this provision arguing that Inspector D..., who conducted the original inspection and authored the initial assessment report, could not legally perform the subsequent 'self-inspection' reviewing his own prior work that led to partial revocation. This dual role allegedly violated both Article 20(1)(f) RCPIT (incompatibility) and Article 44(1)(g) CPA (impediment grounds). Such violations can invalidate the entire inspection procedure and resulting assessments. The principle prevents inspectors from reviewing, correcting, or validating their own determinations, as this undermines the independent oversight necessary for taxpayer protection. If incompatibility is established, all acts performed by the disqualified inspector are null, requiring reassignment to different personnel.
Can a taxpayer claim compensatory interest and refund of unduly paid VAT after partial revocation of assessments?
Yes, taxpayers retain comprehensive rights to claim compensatory interest and refunds of unduly paid VAT even after partial revocation of assessments. Under Portuguese tax law, when assessments are revoked (wholly or partially), amounts paid on the revoked portions must be refunded with indemnificatory interest from payment date until refund, compensating taxpayers for improper deprivation of funds. In Process 656/2014-T, the taxpayer paid EUR 157,761.04 on original assessments, received EUR 87,498.84 in refunds after partial revocation, but claimed entitlement to: (1) return of all remaining amounts paid on assessments it considered totally unlawful, (2) compensatory interest on late refunds, and (3) indemnificatory interest under general administrative liability principles. Critically, partial revocation doesn't preclude challenging remaining assessments' validity. If subsequent proceedings determine that even the reduced assessments were unlawful, full refunds plus interest are required. Taxpayers need not accept partial administrative relief as final if they believe complete annulment is warranted.
What are the procedural requirements and deadlines for revoking tax acts under the RJAT and CPA framework?
The procedural framework for revoking tax acts under RJAT and CPA involves strict deadlines and formalities. Article 72 CPA grants the Tax Authority 30 days from notification of arbitration proceedings to revoke unlawful acts, counted excluding Saturdays, Sundays, and holidays per Article 3-A(1) RJAT. Revocation must be communicated to both the taxpayer and arbitral tribunal. Under Article 13(2) RJAT, proceedings continue for amounts remaining in dispute unless the taxpayer accepts the revocation as complete satisfaction. Revocations may be total or partial. Critically, Article 137(4) CPA governs rectificatory acts, which aren't true revocations but corrections integrating into original acts with retroactive effect under Article 145(2) CPA. The Tax Authority must issue new assessment notices clearly stating whether prior acts are revoked/substituted or merely rectified. Failure to properly revoke within the 30-day window means arbitration proceeds on original assessments. Process 656/2014-T illustrates disputes over whether new assessments constituted valid revocations or impermissible rectifications failing to eliminate original acts from the legal order.