Process: 664/2014-T

Date: July 1, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral case (Process 664/2014-T) addresses whether a taxpayer can seek ex officio review of VAT self-assessments alleged to contain errors in applying discount-related legal regimes. The claimant, a company marketing hygiene products, discovered it had self-assessed and paid €162,258.38 in excess VAT during September 2008 to July 2010. The overpayment stemmed from three promotional operations: discount vouchers distributed to consumers, quantity discounts granted in kind, and multipack sales. The company filed a petition for ex officio review under Article 78 of the General Tax Law (LGT) and Article 98 of the VAT Code (CIVA). The Tax Authority dismissed the petition, distinguishing between material calculation errors (which allow revision within four years under Article 78 LGT) and the situation presented, which the AT classified under Article 78(6) CIVA's two-year special limitation period. The AT determined that corrections should have been made through substitute declarations within two years, not through ex officio review. After the hierarchical appeal was also denied, the claimant initiated CAAD arbitration under Decree-Law 10/2011 (RJAT). The central legal issue involves whether misapplication of VAT rules to discount mechanisms constitutes an error in applying legal regimes (subject to the general four-year review period) or merely requires correction through substitute declarations within the special two-year period. The arbitral tribunal accepted jurisdiction under Articles 2(1)(a), 5, and 6(1) of RJAT to review the legality of both the dismissal order and the hierarchical appeal decision. The case highlights critical distinctions in Portuguese tax law between different types of self-assessment errors and their corresponding correction mechanisms and time limits.

Full Decision

ARBITRAL AWARD

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Diogo Feio and António Nunes dos Reis, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:

I – REPORT

On 4 September 2014, A... UNIPESSOAL, LDA., hereinafter referred to as the "Claimant", Legal Entity No. ..., with registered office at ..., Building ... – 3rd floor, ...-... ..., filed a petition for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the order dismissing the petition for ex officio review of the VAT self-assessments relating to the period between September 2008 and July 2010, to which was assigned No. R...., and of the Hierarchical Appeal No. R..., filed against the decision dismissing that petition.

To substantiate its petition, the Claimant alleges, in summary, that the self-assessments whose review it requested are vitiated by error in the application of certain legal regimes and not by material errors or calculation errors in the accounting records or in the periodic declarations.

On 09 September 2014, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the AT (Tax Authority).

The Claimant did not appoint an arbitrator, wherefore, under the provisions of paragraph a) of Article 6(2) and paragraph a) of Article 11(1) of the RJAT, the President of the Ethics Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable period.

On 21-10-2014, the parties were notified of these appointments and expressed no intention to refuse any of them.

In accordance with the provisions of paragraph c) of Article 11(1) of the RJAT, the collective Arbitral Tribunal was constituted on 5 November 2014.

On 10-12-2014, the Respondent, duly notified for this purpose, filed its response defending itself both by exception and by substantive opposition.

On 7-1-2015, following notification for this purpose, the Claimant made written submissions regarding the exceptions raised in the AT's response.

On 20-3-2015, the meeting referred to in Article 18 of the RJAT was held, at which witnesses presented by the Claimant were examined.

Having been granted a period for the submission of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was fixed for the pronouncement of final decision, following the AT's submissions.

Pursuant to Article 21(2) of the RJAT, an order was issued extending by two months the period referred to in Article 21(1) of the same.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

The proceedings are not vitiated by nullities.

Given all the foregoing, it is necessary to pronounce:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

  1. Considering the prerequisites of Article 78 of the General Tax Law (LGT) to be met, the Claimant presented, on 2012/11/09, a petition for review of the tax self-assessment acts, with a view to recognition of the right to proceed with the regularisation of VAT and to correct, in its favour, in the global amount of € 162,258.38.

  2. The petition for review was dismissed by order of the Sub-Director-General for VAT, of 2013/11/15, appended to information No. ..., of 2013/11/04, from the VAT Services Directorate (DSIVA).

  3. The AT, as set forth in point 61 of that information, concluded that VAT assessments are subject to ex officio review, under Article 78(1) of the LGT and Article 98(1) of the VAT Code (CIVA).

  4. And that "the correction of periodic declarations which the claimant now intends to make could only be made under Article 98(2) of the CIVA, by means of the presentation of the appropriate substitute declarations, if there were not a special period provided for in Article 78(6) of the CIVA";

  5. The DSIVA decided that the Petition for Ex Officio Review should be dismissed, on the grounds that the situation in question does not fall within the provisions of Articles 98 of the CIVA and 78 of the LGT but rather falls within Article 78(6) of the CIVA, whereby the corrections of self-assessments could only be made within the special period of two years and not within the period of 4 years.

  6. Dissatisfied with the decision dismissing the petition for ex officio review, the Claimant filed, on 2013/12/17, Hierarchical Appeal No. R..., which was denied by order of the Sub-Director-General (substituting for the Director-General of the AT) of 2014/05/28, set forth in information No. ..., of 2014/05/19, from the DSIVA.

  7. The Claimant is a company governed by Portuguese law subject to the normal VAT regime which carries on its activity in the sector of marketing oral hygiene, personal hygiene and household cleaning products.

  8. In the context of an internal review of procedures, the Claimant considered that it had self-assessed and paid VAT in an amount greater than that actually due.

  9. The excess tax assessed and paid results from the following operations carried out by the Claimant:

i. Discount vouchers;

ii. Quantity discounts granted in kind; and,

iii. Sale of Multipacks.

  1. One of the promotional activities carried out by the Claimant consists of the grant of discount vouchers directly to final consumers.

  2. The discount vouchers are intended for the purchase of a specific product, which is reflected in the grant of a reduction in the purchase price of that product for the final consumer.

  3. The procedures inherent in the distribution and use of the discount vouchers, as well as the reimbursement of their value are detailed in the table that follows:

  4. The Claimant sells its products to retailers.

  5. In the context of a promotional activity for a particular product of the Claimant, the Claimant distributes discount vouchers to final consumers.

  6. The discount vouchers, when presented to retailers, entitle the final consumer to a discount on the acquisition of the respective product in an amount equivalent to the face value of the voucher.

  7. The retailers effect the sale of the Claimant's product and assess VAT on the retail sale price.

  8. Final consumers deliver the discount voucher to the retailer and the remainder (difference between the retail sale price and the discount voucher) in cash.

  9. In order to manage the collection of discount vouchers and certify the amount that should be reimbursed to retailers, the Claimant uses an external entity called B..., Lda. ("B...").

  10. In order to be reimbursed by the Claimant, retailers periodically send the discount vouchers presented by final consumers to B...

  11. Following the verification of the discount vouchers received, B... informs the Claimant of the total amount to be reimbursed to retailers, issuing it, at the time, a debit note and making the relevant information available.

  12. This information is transmitted by B... to the Claimant in the month immediately following that in which the vouchers presented by the retailers were received.

  13. The amount in question is then delivered by the Claimant to B... and, subsequently, by the latter to each of the retailers.

  14. Sometimes situations occur in which retailers send the discount vouchers directly to the Claimant, together with a debit note indicating the amount to be reimbursed.

  15. In such cases, the reimbursement of the face value of the discount vouchers is effected directly by the Claimant to the retailers.

  16. The amount of the discount vouchers in question does not alter the value of the operation carried out by the retailer, since the latter does not grant any discount, as it receives the full amount of the consideration for the products transmitted by it, although part is paid by the final consumer and the other (corresponding to the face value of the discount vouchers) by the Claimant.

  17. The value of the operation is greater than the value of the consideration actually paid by the final consumer.

  18. The Claimant, in determining the amount of VAT due, in the periods to which the self-assessments subject to the ex officio review petition it presented refer, and which are at issue in the present proceedings, did not take into account the VAT corresponding to the discounts it granted through discount vouchers, under the terms described in the preceding points.

  19. Another type of promotional activity carried out by the Claimant in the periods to which the self-assessments subject to the petition for review it presented refer, and which are at issue in the present proceedings, consisted of the grant of quantity discounts, in cash or in kind, to its customers.

  20. In cases where quantity discounts were granted in kind, the Claimant delivered to its customers a certain additional quantity of goods exactly identical to the goods whose sale gave rise to (or would give rise to) the grant of the discount.

  21. In most cases, these discounts were granted after the sale of the products that gave rise to the discount, but sometimes they were also granted in advance, that is, before the sale of the products that give rise to the discount.

  22. The Claimant, in the periods to which the self-assessments subject to the ex officio review petition it presented refer, and which are at issue in the present proceedings, self-assessed and paid VAT with respect to the products offered as quantity discounts.

  23. Another promotional activity carried out by the Claimant in the periods to which the self-assessments subject to the petition for review it presented refer, and which are at issue in the present proceedings, consisted of the sale of "Multipacks".

  24. The Multipack is a "package" that includes two different products and whose selling price is lower than the sum of the RRP of the two products that comprise it, being as a rule equivalent to the price of the higher-value product.

  25. The Claimant, in the preparation of the self-assessments subject to the petition for review it presented, and which are at issue in the present proceedings, considered that the Multipacks were an indivisible product and assessed VAT at the standard rate.

  26. The Claimant considered that it was in the presence of a gift of the lower-value good and, in addition to having assessed VAT on the RRP of the Multipack, self-assessed in the self-assessments subject to the petition for review it presented, and which are at issue in the present proceedings, VAT relating to the lower-value product as if it were a gift.

A.2. Facts Established as Not Proven

  1. The tax associated with the value of the discounts granted by the Claimant to final consumers of its products, included in the face value of the discount vouchers, under the terms described in the foregoing factual matters, as used by them in the period between September 2008 and June 2010, amounted to € 10,558.66, according to the following table:

  2. The tax associated with the quantity discounts granted by the Claimant to its customers, under the terms described in the foregoing factual matters, in the period between September 2008 and June 2010, amounted to € 81,329.26, according to the following table:

  3. From the procedure described in the foregoing factual matters, relating to Multipacks, resulted in the self-assessments subject to the petition for review it presented, and which are at issue in the present proceedings, the assessment and payment of VAT in excess of that actually due, in the amount of € 70,370.46, according to the following table:

A.3. Justification of the Factual Matters Proven and Not Proven

With regard to factual matters, the Tribunal does not have to pronounce itself on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate between the matters proven and those not proven (cf. Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable by force of Article 29(1), paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and delimited in function of their legal relevance, which is established in view of the various plausible solutions to the question(s) of Law (cf. former Article 511(1) of the CPC, corresponding to the current Article 596, applicable by force of Article 29(1), paragraph e), of the RJAT).

Thus, having regard to the positions taken by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the PA attached to the file, as well as the testimonial evidence produced at the meeting referred to in Article 18 of the RJAT, the facts listed above were considered proven, with relevance for the decision.

The facts established as not proven are essentially due to the insufficiency of the evidentiary elements presented in that sense, in such terms that one could fully conclude that they are beyond the threshold of doubt that can reasonably be raised regarding them. Indeed, as the AT notes, "the Claimant failed to identify with precision either the self-assessments or the operations in question, failing to demonstrate the validity of the calculations made with a view to quantifying the amounts demanded." Thus, and having regard to the burden of proof that rested on the Claimant in the matter in question, the facts in question had to be established as not proven.

B. LAW

i. Exceptions

a)

The AT begins, as a preliminary matter to the examination of the merits of the case, by questioning the material competence of the Arbitral Tribunal to examine the Claimant's petition for restitution of VAT assessed in the amount of € 162,258.38.

It should be noted from the outset that the Respondent confines this argument to the said petition which it calls restitution but which, in fact, and as formulated, is a refund[1].

The said Authority argues that it does not fall within the scope of the Arbitral Tribunal's competence to examine petitions for regularisation of tax in favour of taxpayers or for restitution or refund of amounts assessed and paid in excess.

The AT being correct in the abstract statement, it is found that, in concreto, one of those situations is not at issue in the present proceedings.

Indeed, the Claimant formulated a petition for ex officio review of certain tax assessments which it deemed illegal and, subsequently, appealed hierarchically against the administrative decision which dismissed that original petition.

Naturally, the obligation to restore legality, arising from the merits of the petition (for ex officio review) originally formulated, implies the obligation to restitution of the tax (illegally, from that perspective) paid in excess.

And this matter, as is routinely recognised in practically all condemnatory decisions that emerge from tax arbitral jurisdiction, is a matter that falls within the material competence thereof, as results directly from, among other things, paragraph b) of Article 24(1) of the RJAT.

Whether, in concreto, such a petition should proceed or not is another question, which concerns the merits of the case, and not the Tribunal's competence to decide it. But this will be seen further on.

For now, with regard to the exception in question, and for the foregoing reasons, it is held that it should be dismissed.

b)

Next, the AT argues the material incompetence of the Arbitral Tribunal to examine decisions dismissing ex officio review petitions formulated in the present proceedings, on the grounds that, in its view, "In this circumstance, it follows that in the situation sub judice, the mandatory prior requirement of a gracious complaint in accordance with Article 131(1) of the CPPT was always required."

The AT bases its understanding on the provisions of Article 2(a) of Order 112-A/2011, of 22 March, which excludes from the disputes cognisable by arbitral tribunals operating in the CAAD, "Claims relating to the declaration of illegality of self-assessment, withholding and payment on account acts that have not been preceded by resort to the administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code".

The AT understands, in view of this provision, that it should be interpreted in its literal sense, excluding from the scope of tax arbitral jurisdiction claims relating to the declaration of illegality of self-assessment acts that have not been preceded by a gracious complaint in accordance with the said provisions of the CPPT.

All the AT's argumentation on this matter, however, ends up reducing to sustaining that it was the legislator's intention to restrict the competence of tax arbitral jurisdiction, as regards the examination of illegalities in self-assessment acts, solely to situations in which there exists a gracious complaint presented in accordance with Articles 131 to 133 of the Tax Procedure and Process Code, since that is what the text of the interpreted provision states.

Always with the respect due, no substantial reason emerges from among the reasons offered by the AT that explains the rationality of the understanding it sustains. Indeed, no substantial reason is apparent – and the AT presents nothing in that sense – why, having regard to the conditions and particularities specific to each of the gracious remedies in question, in the same terms as tax tribunals are bound, the legality of self-assessment acts should not be cognisable in arbitral proceedings.

On the other hand, even a literalistic reading of the provision in question, provided it is properly contextualised, does not inevitably lead to the result defended by the AT in the proceedings.

Indeed, the expression used by such provision is parallel to the very provision of Article 131(1) of the CPPT, which should be understood as a concretisation of the assumed, and peacefully recognised, legislative intention that the tax arbitral process constitutes an alternative procedural means to the process of judicial challenge.

The provision of paragraph a) of Article 2 of Order 112-A/2011, of 22 March, should also be understood as explained by the circumstance that, in its absence – and in view of the content of Article 2 of the RJAT – it appears possible to directly challenge self-assessment acts, without the need for prior administrative pronouncement. That is: given that in view of the RJAT it was not configured as necessary any administrative intervention prior to the arbitral challenge of a self-assessment, the content of the order should be interpreted as equating – in this matter – the tax arbitral process to the process of judicial challenge and not, as would follow from the position sustained by the AT, going from 80 to 8, taking a wider challengeability than that possible in Tax Courts, and transmuting it into a more restricted one.

Thus, no reason is apparent – and, once again, no assistance to the AT does it provide in that sense – for a different interpretation to be given to one and the other provision, all the more so because the letter of the provision of Order 112-A/2011, of 22 March, ends up being less restrictive than that of the CPPT, in that it does not include the word "obligatorily", nor does it refer to "gracious complaint" but to "administrative procedure". Hence it is possible to give a reading of the very letter of the law that is confined to the sense that only claims relating to the declaration of illegality of self-assessment, withholding and payment on account acts that have not been preceded by resort to the administrative procedure in terms compatible with Articles 131 to 133 of the Tax Procedure and Process Code are excluded from the scope of tax arbitral jurisdiction.

And this is the reading that is subscribed to, following the Award rendered in case 48/2012T of the CAAD, and subsequent arbitral case law.

The exception of incompetence of the Arbitral Tribunal, invoked by the AT, should thus be dismissed.

c)

The AT proceeds next, seeking to prevent the examination of the merits of the case, by alleging the material incompetence of the Arbitral Tribunal on the grounds that in the ex officio review petition and subsequent hierarchical appeal no examination was made of the legality of assessment acts.

The Respondent sustains that "the Claimant, in the ex officio review petition, did not request the annulment of any self-assessment act, requesting only that the (self-)assessment of VAT and payment made in excess in the period between September 2008 and July 2010 be 'corrected' in the amount of € 162,258.38, by way of the inclusion of this amount in a next periodic declaration as a 'VAT regularisation in favour of the taxpayer'." (cf. the conclusion of the ex officio review petition);

Again, it is held that it is not correct.

Indeed, in the first paragraph of the decision on the ex officio review petition, it reads (emphasis ours):

"Under Article 78 of the General Tax Law (LGT), the taxpayer A..., LDA., with Tax ID No. ..., in a petition presented on 2012/11/09 (at pp. 2 et seq. of the file), requests the ex officio review of the VAT self-assessments, referring to the period between September 2008 and July 2010 with a view to correcting in its favour the global amount of € 162,258.38, which it considers to have self-assessed and paid in excess in those tax periods."

Also at point 3 of the information on which the dismissal of the hierarchical appeal subsequently filed by the Claimant is based, it reads (emphasis ours): "Under Article 78 of the LGT, the here Appellant presented a petition for ex officio review 'of the VAT assessments relating to the periods of September 2008 to July 2010, with a view to correcting the global amount of € 162,258.38, self-assessed and paid in those tax periods'."

The passages transcribed are, it is believed, sufficient to make evident that both in the ex officio review petition and in the subsequent hierarchical appeal, the legality of the VAT self-assessment acts of the Claimant "relating to the period between September 2008 and July 2010" was, indeed, submitted to the AT's examination, which, being acts, notoriously, within the AT's personal knowledge, cannot claim to be unaware of them.

As was written in the Award of the CAAD rendered in case 117/2013T[2], "although the decision part of the order dismissing the request for review of the self-assessment act does not pronounce on the legality of the latter, it ultimately admits, in its grounds, that the Claimant's claim could have been upheld if it had been formulated within the period provided for in Article 78(6) of the CIVA, which entails that the self-assessment act is illegal."

Thus, and for all the foregoing, this exception should also be dismissed.

d)

Finally, and before proceeding to discuss the merits of the case, the AT argues the material incompetence and lack of timeliness for direct challenge of VAT assessment acts.

The Respondent begins, on this matter, by stating that "the present action has only as its immediate object the decision dismissing the ex officio review and the hierarchical appeal, not having as its mediate object any tax assessment act."

As has already been seen, it is held that this is not the case, clearly resulting from the respective decisions that both the ex officio review petition and the hierarchical appeal had as their object the self-assessments of VAT of the Claimant, relating to the period between September 2008 and July 2010.

Alternatively, the AT suggests that "if it were considered, (...), that the mediate object of the present petition for arbitral pronouncement is constituted by the self-assessment acts, only identified by indication of the periods to which they relate, then it would be necessary to conclude that knowledge of the legality of such matters by the present Tribunal is forbidden to it by virtue of the provision in Article 2 of the RJAT and Article 2 of the cited Order No. 112-A/2011, that is, the possibility to examine such self-assessment acts without there having been prior '(...) resort to the administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code (...)'.

Now, as has already been seen, with regard to the second exception raised by the AT, it is also held that, in the present case, the prerequisite of resort to the administrative procedure, imposed by Article 2 of Order No. 112-A/2011, and by Articles 131 to 133 of the Tax Procedure and Process Code, is fulfilled.

Finally, also on this matter, the AT questions the timeliness of the present action, on the grounds that the 90-day period counted from the expiry of the statutory period for voluntary payment has long since expired.

The AT correctly points out that "the 'timeliness' of the petition could only be based on the existence of some gracious remedy of the self-assessment act where a decision had been rendered denying/dismissing the claims made therein by the taxpayer (which would constitute a second-degree act)."

The AT further understands that the ex officio review petition presented by the Claimant did not concern the legality of any self-assessment, the Claimant having requested only authorisation for the regularisation of VAT for the periods it indicated, whereby it shall be incapable of interfering with the period for challenging the said self-assessments.

Before proceeding, it must be said from the outset that the rules invoked by the AT regarding the limitation of the tribunal's cognisance powers shall not be applicable here, since they are rules that apply – exclusively – to judicial proceedings, and not to the phases of tax procedure that may precede them.

That is: the limitations on the Tribunal's cognisance powers derive from the petition (and the cause of action) as condensed in the initial petition of the tax proceedings (without prejudice to subsequent amendments that may be permitted to them), and not in view of the petition or petitions (or cause/causes of action) formulated in the phases of tax procedure that may eventually have preceded it.

What has just been said does not, however, preclude, as the AT points out, that "the 'timeliness' of the petition could only be based on the existence of some gracious remedy of the self-assessment act where a decision had been rendered denying/dismissing the claims made therein by the taxpayer (which would constitute a second-degree act)," and that, as such, it should indeed be relevant to ascertain whether the ex officio review petition (a gracious remedy) actually concerned the self-assessment acts impugned and their legality or whether, on the contrary, it had exclusively another object, not that one.

Now, the answer to this question cannot but go in the first of the senses indicated, as has been shown already, thus becoming clear that the ex officio review petition not only concerned the self-assessment acts indicated by the Claimant, but also examined their legality, confirming it by, in the AT's view, the period having expired within which it would be permitted to effect the corrections it advocated.

Thus, existing, indeed, and contrary to what the AT suggests, a "gracious remedy of the self-assessment act", in the case the ex officio review petition and the subsequent hierarchical appeal, where "a decision was rendered denying/dismissing, in whole or in part, the claims made therein by the taxpayer", and having the present petition for arbitral pronouncement been filed within the legally prescribed period, by reference to the last of those acts, the present action must be considered timely.

At this point, there is no obstacle to the examination of the merits of the case.

ii. On the Merits of the Case

The substantive question submitted to this Arbitral Tribunal concerns determining whether the AT was correct in the ex officio review petition presented by the Claimant and in the subsequent hierarchical appeal, where it was understood that the situation in question does not fall within the provisions of Articles 98 of the CIVA and 78 of the LGT but rather falls within Article 78(6) of the CIVA.

Let us see, then.

Article 98 of the CIVA provides:

"1 — When, by reasons attributable to the services, tax has been assessed in excess of that due, ex officio review shall proceed in accordance with Article 78 of the general tax law.

2 — Without prejudice to special provisions, the right to deduction or refund of tax paid in excess may only be exercised up to the expiry of four years following the accrual of the right to deduction or payment of excess tax, respectively."

For its part, Article 78 of the same Code provides, among other things, that:

"(...) 2 — If, after the entry referred to in Article 45 has been made, the operation is annulled or its taxable value is reduced as a consequence of invalidity, resolution, rescission or reduction of the contract, by return of goods or by the grant of rebates or discounts, the supplier of the good or provider of the service may effect the deduction of the corresponding tax until the end of the tax period following that in which the circumstances occurred that determined the annulment of the assessment or the reduction of its taxable value.

(...) 6 — The correction of material or calculation errors in the entry referred to in Articles 44 to 51 and 65, in the declarations mentioned in Article 41 and in the documents or declarations mentioned in paragraphs b) and c) of Article 67(1) is optional when it results in tax in favour of the taxpayer, but may only be made within the period of two years, which, in the case of the exercise of the right to deduction, is counted from the accrual of the respective right in accordance with Article 22(1), being mandatory when it results in tax in favour of the State."

As results from the transcribed provisions, national legislation allows that, in particular, when a material or calculation error occurs to the detriment of the taxpayer, the same may be corrected within the period fixed in Article 78(6) of the CIVA.

Other types of errors may be corrected by means of the presentation of a substitute declaration[3], if such is still, under legal terms, possible, or, if not, by means of a petition for ex officio review, under Article 78 of the LGT, provided that the corresponding prerequisites are also met, which, moreover, results directly from the provision in Article 98 of the CIVA, transcribed above.

The thesis is thus not subscribed to that a petition for ex officio review, under Article 78 of the LGT, with regard to error of law or fact in VAT self-assessments, may only be effected within the period fixed in Article 78(6) of the CIVA[4]. Indeed, in the situation regulated by such provision – correction of material or calculation errors – it shall not be at all necessary to formulate any petition for ex officio review, since that provision of Article 78(6) of the CIVA integrates its own provision for error correction, motivating the corresponding procedure, with no relationship between this and the petition for ex officio review regulated in Article 78 of the LGT, to which Article 98 of the CIVA expressly refers.

In addition to the correction of material or calculation errors, supervening facts shall also be given consideration, in accordance with the terms regulated by Article 78(2) of the CIVA. It must, however, always be borne in mind that one thing is an error (a divergence between the reality represented in the periodic declaration and reality – an error of fact – or the law) and another thing is the supervening occurrence of a fact (a change in reality), which entails a change in the tax to be borne or deducted, and it is these latter situations that the said provision of Article 78(2) of the CIVA refers to.

In the present case, manifestly, what occurred was, not the supervention of any fact, but rather an error – not material or calculation – but of fact, and consequently, of applicable law, which would have been translated into the failure to determine the taxable matter in accordance with the terms in which, in view of the facts that, in reality, occurred, and the applicable law, it should have been.

The AT itself, moreover, in the Response presented in these proceedings (cf. Article 173), recognises that we are in the presence of an error of fact.

What occurred was that the Claimant subsequently became aware that in the self-assessments which it carried out, it had not taken into account certain facts (such as the reimbursement of vouchers), or had considered, incorrectly, others (such as the gift of products), that is, that it had committed an error in the determination of the legally relevant facts, and, consequently, of the rules to be applied in the calculation of the taxable matter to be included in the declaration.

Thus, the error in question shall not be correctable under Article 78(6) of the CIVA of the same article, since it is not a calculation error (it is not translated into the incorrect articulation of items forming arithmetic operations), nor of a material error (a divergence between what was written and what, manifestly, it was intended to have written at the moment it was written).

The correction of the situation in the proceedings (error of fact and of law in self-assessment), in view of all the foregoing, would always have to occur by reference to the periodic declaration in which the tax to be deducted was borne, if, and in the conditions in which legally the rectification thereof – by the taxpayer's initiative or, ex officio, by the AT, even at the taxpayer's request – may legally occur.

And that is precisely what happened, with respect to the Claimant's self-assessments, relating to the period between September 2008 and July 2010, with respect to which a petition for ex officio review was presented, under the legally admitted conditions, as was seen above.

Thus, the AT's statement that "the error in self-assessment referred to in Article 78 of the LGT, which is considered attributable to the services, is the error that occurs only in the operation of self-assessing tax, not being the concept extensible to prior errors that come to be reflected in the completion of the periodic tax declaration presented by the taxpayer" (cf. Article 213 of the response), and that "Errors in self-assessment are those that occur only in the periodic declaration, as is the typical case of errors in transcription of entries to the fields of periodic tax declarations" (cf. Article 210 of the response), is not agreed with. Indeed, this transcription error that the AT presents as typical of the provision of Article 78 of the LGT, would rather integrate the material error, to which Article 78(2) of the CIVA refers, and which, precisely by virtue of the speciality of the latter, cannot be considered within the scope of the procedure to which the first article of the response refers.

We restrict ourselves here, rather, to the concept of error for purposes of Article 78 of the LGT, which has been recurrently affirmed by case law, as encompassing the error of fact, and the error of law, which is not compatible with the AT's understanding, according to which there would be no error in self-assessment, for purposes of Article 78 of the LGT, since "even if the tax had been assessed by the State and not self-assessed by the taxpayer, it would, in the same way, reflect the (allegedly erroneous) accounting entries of the Claimant."

Indeed, and from the outset, the Claimant is, in the case, taxed, not by having made certain entries in its accounting records, but by having actually carried out transactions subject in volume superior to the transactions deductible. Hence the error of fact in the assessment is measured, not against the Claimant's accounting, but against reality as it occurred.

On the other hand, the circumstance that, objectively, the error in self-assessment may not, concretely, be attributable to the Tax Administration, which is, in essence, what the AT seeks to demonstrate with the phrase transcribed, shall not be relevant, since the law, in Article 78(2) of the LGT, deems the error in self-assessment to be attributable to the services.

Thus, for example, in the Award of the STA of 14-12-2011, rendered in case 0366/11[5], it can be read that "Although no complaint against the self-assessment act was made within the period provided for in Article 131 of the CPPT, the interested party could still request the tax administration to carry out the ex officio review of the act under the provision in Article 78(4) of the LGT, since the law deems that errors in self-assessment are attributable to the administration".

Thus, it not being corroborated that the understanding is, in casu, that there is a special rule generically fixing the limit of two years for the exercise of the deduction right, but rather that that limit is situated in the general period of 4 years prescribed by the provision of Article 98(2) of the CIVA, and it being the case that there is no situation of speciality (namely calculation or material error), it is concluded that the decisions, based on that understanding, of the ex officio review petition and the hierarchical appeal, which are the object of the present proceedings, are illegal, and to that extent, the corresponding arbitral petitions should proceed.

The Claimant further petitions in the proceedings the condemnation of the AT to refund the tax improperly paid, in the amount of € 162,258.38 and the payment of the respective compensatory interest.

This part of the petition, however, cannot proceed.

As results from the facts proven and not proven, it was not determined that the amount of tax to be refunded to the Claimant was that which it claims, or any other.

Thus, the Tribunal not being able to determine the concrete value of the tax improperly paid by the Claimant, the petition for refund formulated cannot proceed, and it must be concluded, as the AT suggests in its Response, that "in view of the annulment of the administrative decisions [of the hierarchical appeal and the ex officio review petition], the Tribunal must determine that the proceedings be returned to the Tax Authority and that it pronounce itself on the requested regularisation."

Indeed, this follows, from the outset, from the AT's obligation to "Effect the tax act legally due in substitution for the act which is the object of the arbitral decision", established in paragraph a) of Article 24(1) of the RJAT, as well as from the very annulling effect of the present decision, which, removing from the legal order the decision acts of the ex officio review petition and the subsequent hierarchical appeal, and those that depend on them, causes the procedure to return to the phase immediately prior to the decision of that petition, the AT having the legal duty to decide it.

C. DECISION

On these grounds, this Arbitral Tribunal decides to render the arbitral petition partially upheld and, in consequence,

a) Annul the Order Dismissing the Ex Officio Review, of 15 November 2013;

b) Annul the Order Dismissing the Hierarchical Appeal, of 25 May 2014;

c) Dismiss the remaining arbitral petitions formulated;

d) Condemn the parties to pay the costs of the proceedings, in the amount of € 3,672.00, in proportion to their respective loss, fixing at € 1,224.00 the portion chargeable to the Claimant and € 2,448.00 the portion chargeable to the Respondent.

D. Case Value

The case value is fixed at € 162,258.38, in accordance with Article 97-A(1)(a) of the Tax Procedure and Process Code, applicable by force of paragraphs a) and b) of Article 29(1) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 3,672.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the parties, in proportion to their respective loss, as fixed above, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the cited Regulation.

Let notification be made.

Lisbon

1 July 2015

The Presiding Arbitrator

(José Pedro Carvalho - Rapporteur)

An Arbitrator Member

(Diogo Feio)

An Arbitrator Member

(António Nunes dos Reis)

[1] In accordance with the petition: "Condemnation of the AT to refund the tax improperly paid in the amount of € 162,258.38".

[2] Available at www.caad.org.pt.

[3] Cf. in this sense the Award of the STA of 02-10-2010, rendered in case 0256/10, available at www.dgsi.pt.

[4] In this sense, cf. the Awards rendered in cases 117/2013T, 185/2014T and 277/2014T, all of the CAAD, available at www.caad.org.pt.

[5] Available at www.dgsi.pt, as with the remaining case law indicated without special mention.

Frequently Asked Questions

Automatically Created

What constitutes a VAT self-assessment error (erro na autoliquidação) under Portuguese tax law?
Under Portuguese tax law, a VAT self-assessment error (erro na autoliquidação) can be either a material/calculation error in accounting records or periodic declarations, or an error in applying legal regimes to specific transactions. Article 78(1) of the General Tax Law (LGT) and Article 98(1) of the VAT Code (CIVA) govern ex officio review of self-assessments containing material errors. However, the Tax Authority distinguishes these from situations where taxpayers incorrectly apply VAT legal regimes to commercial operations (such as discount mechanisms), arguing such errors fall under Article 78(6) CIVA's special two-year limitation period rather than the general four-year review period. The critical distinction lies in whether the error involves miscalculation of correctly identified tax obligations versus misunderstanding which legal regime applies to determine the tax due.
Can a taxpayer request official revision (revisão oficiosa) of VAT self-assessments related to discount calculations?
Portuguese taxpayers can request official revision (revisão oficiosa) of VAT self-assessments, but the applicable legal framework depends on the nature of the error. For material calculation errors in self-assessments, Article 78 of the LGT allows ex officio review within four years. However, the Tax Authority interprets discount-related adjustments differently. When taxpayers seek to correct VAT previously self-assessed on operations involving discounts, the AT argues this falls under Article 78(6) CIVA, which limits corrections to a two-year special period and requires submission of substitute declarations rather than ex officio review petitions. In Process 664/2014-T, the AT dismissed the claimant's revision request for €162,258.38 in overpaid VAT on discount operations, concluding the corrections could only be made through substitute declarations within two years, not through the four-year ex officio review procedure the taxpayer attempted to use.
What is the procedure for challenging a denied hierarchical appeal (recurso hierárquico) of a VAT revision request at CAAD?
To challenge a denied hierarchical appeal (recurso hierárquico) of a VAT revision request at CAAD, taxpayers must file a petition for constitution of an arbitral tribunal under Decree-Law 10/2011 (RJAT). The procedure involves: (1) filing the petition within 90 days of notification of the hierarchical appeal decision (Article 10 RJAT); (2) the CAAD automatically notifying the Tax Authority; (3) appointment of arbitrators—either by the claimant or, if none is appointed, by the CAAD Ethics Council President who designates a collective tribunal; (4) parties have the opportunity to refuse appointed arbitrators; (5) the tribunal formally constitutes itself; (6) the Tax Authority files its response raising exceptions and substantive defenses; (7) the claimant responds to exceptions; (8) a hearing may be held for witness testimony; (9) parties submit written final arguments; and (10) the tribunal issues a decision within the statutory period, which may be extended.
How does CAAD arbitral jurisdiction apply to disputes over IVA autoliquidação errors under Decreto-Lei 10/2011 (RJAT)?
CAAD arbitral jurisdiction applies to disputes over IVA autoliquidação errors under Article 2(1)(a) of Decreto-Lei 10/2011 (RJAT), which grants competence to review the legality of administrative acts in tax matters, including decisions dismissing ex officio review petitions and hierarchical appeals. In Process 664/2014-T, the arbitral tribunal confirmed its material competence and regular constitution under Articles 2(1)(a), 5, and 6(1) of RJAT to adjudicate whether the Tax Authority correctly dismissed the claimant's petition for review of VAT self-assessments. The RJAT framework enables taxpayers to challenge AT decisions that distinguish between errors subject to four-year ex officio review (Article 78 LGT) and those requiring correction through substitute declarations within two years (Article 78(6) CIVA). CAAD jurisdiction encompasses reviewing whether the AT properly classified the taxpayer's claimed errors and correctly applied the limitation periods and procedural requirements for VAT self-assessment corrections.
What is the legal distinction between material calculation errors and errors in applying legal regimes in VAT self-assessments?
The legal distinction between material calculation errors and errors in applying legal regimes in VAT self-assessments determines which correction procedure and time limit applies. Material errors or calculation errors (erros materiais ou de cálculo) involve mistakes in arithmetic, data entry, or transcription in accounting records or periodic declarations—these qualify for ex officio review under Article 78(1) of the LGT within four years. Errors in applying legal regimes (erros na aplicação de regimes jurídicos) occur when taxpayers misunderstand or incorrectly apply substantive VAT rules to classify transactions or determine tax treatment—for example, miscalculating the taxable base for discount operations. The Tax Authority in Process 664/2014-T argued that the claimant's situation involved not material errors but incorrect application of VAT discount regimes, which falls under Article 78(6) CIVA's special two-year period requiring correction through substitute declarations. This distinction is critical because it affects whether taxpayers can seek four-year ex officio review or must use the more restrictive two-year substitute declaration procedure.