CAAD Arbitration on VAT Official Review Request: Tacit Rejection and Timeliness Rules

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Maria Forte Vaz and Nina Aguiar, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree on the following:

I – REPORT

On September 9, 2014, A... - FINANCIAL CREDIT INSTITUTION, SA, with registered office at Rua …., no. … PORTO, holder of the Individual Tax Identification Number and registered with the Commercial Registry Office of Porto …., filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of January 20, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of December 31 (hereinafter, abbreviated as LRAT), seeking the declaration of illegality of the tacit dismissal of the official review request it submitted, relating to the following additional Value Added Tax assessments, in the total amount of €800,188.65:

i. Additional VAT Assessment No. …, relating to the period …, in the amount of €5,085.20, and respective compensatory interest assessment No. … in the amount of €771.28;

ii. Additional VAT Assessment No. …, relating to the period …, in the amount of €7,795.58, and respective compensatory interest assessment No. … in the amount of €1,155.88;

iii. Additional VAT Assessment No. …, relating to the period …, in the amount of €1,951.43, and respective compensatory interest assessment No. … in the amount of €282.93;

iv. Additional VAT Assessment No. …, relating to the period …, in the amount of €6,325.53, and respective compensatory interest assessment No. … in the amount of €894.24;

v. Additional VAT Assessment No. …, relating to the period …, in the amount of €12,138.30, and respective compensatory interest assessment No. … in the amount of €1,678.74;

vi. Additional VAT Assessment No. …, relating to the period …, in the amount of €7,793.93 and respective compensatory interest assessment No. … in the amount of €1,051.43;

vii. Additional VAT Assessment No. …, relating to the period …, in the amount of €11,043.65 and respective compensatory interest assessment No. … in the amount of €1,449.90;

viii. Additional VAT Assessment No. …, relating to the period …, in the amount of €16,545.05 and respective compensatory interest assessment No. … in the amount of €2,121.39;

ix. Additional VAT Assessment No. …, relating to the period …, in the amount of €11,267.91 and respective compensatory interest assessment No. … in the amount of €1,402.78;

x. Additional VAT Assessment No. …, relating to the period …, in the amount of €4,626.35 and respective compensatory interest assessment No. … in the amount of €561.75;

xi. Additional VAT Assessment No. …, relating to the period …, in the amount of €24,437.31 and respective compensatory interest assessment No. … in the amount of €2,886.95;

xii. Additional VAT Assessment No. …, relating to the period …, in the amount of €607,365.33 and respective compensatory interest assessment No. … in the amount of €69,555.81.

The Claimant concludes by requesting the annulment of the tacit dismissal that was formed regarding the official review request and the consequent revocation of the tax acts identified above.

On September 8-09, 2014, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

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

On October 22, 2014, the parties were notified of these appointments, and neither expressed any intention to refuse any of them.

In accordance with Article 11(1)(c) of the LRAT, the collective Arbitral Tribunal was constituted on November 7, 2014.

On December 11, 2015, the Respondent, duly notified for such purpose, filed its answer defending itself by exception and by impugnation.

Notified for such purpose, the Claimant responded to the matter of exception contained in the Respondent's answer.

On February 9, 2015, an order was issued by the arbitral tribunal, which, considering the possibility of assessing ex officio the timeliness of the present action, giving effect to Articles 16(a), (b), (c) and (f) of the LRAT, notified the parties to, if they so wished, issue written statements on the matter raised.

The Claimant exercised the faculty granted and made statements regarding the questions raised ex officio.

On March 23, 2015, an order was issued by the arbitral tribunal, which, considering that all necessary elements were available for the issuance of the final decision, set the period for presentation thereof at 30 days.

The Arbitral Tribunal has material jurisdiction and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the LRAT.

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

The proceeding is free from nullities.

All having been reviewed, it is necessary to render decision.

II. DECISION

STATEMENT OF FACTS

A.1. Facts accepted as proven for purposes of this decision

1. On August 18, 2010, B... - Financial Credit Institution, S.A. (subsequently incorporated into the Claimant) filed a gracious complaint of the additional VAT assessments and compensatory interest resulting from the Tax Inspection conducted by the Directorate of Tax Inspection Services (current UGC), relating to the year 2006, in the total amount of €804,605.67, as follows identified:

i. Additional VAT Assessment No. …, relating to the period …, in the amount of €5,085.20, and respective compensatory interest assessment No. … in the amount of €771.28;

ii. Additional VAT Assessment No. …, relating to the period …, in the amount of €7,795.58, and respective compensatory interest assessment No. … in the amount of €1,155.88;

iii. Additional VAT Assessment No. …, relating to the period …, in the amount of €1,951.43, and respective compensatory interest assessment No. … in the amount of €282.935;

iv. Additional VAT Assessment No. …, relating to the period …, in the amount of €6,325.53, and respective compensatory interest assessment No. … in the amount of €894.24;

v. Additional VAT Assessment No. …, relating to the period …, in the amount of €12,138.30, and respective compensatory interest assessment No. … in the amount of €1,678.74;

vi. Additional VAT Assessment No. …, relating to the period …, in the amount of €7,793.93 and respective compensatory interest assessment No. … in the amount of €1,051.43;

vii. Additional VAT Assessment No. …, relating to the period …, in the amount of €11,043.65 and respective compensatory interest assessment No. … in the amount of €1,449.90;

viii. Additional VAT Assessment No. …, relating to the period …, in the amount of €16,545.05 and respective compensatory interest assessment No. … in the amount of €2,121.39;

ix. Additional VAT Assessment No. …, relating to the period …, in the amount of €11,267.91 and respective compensatory interest assessment No. … in the amount of €1,402.78;

x. Additional VAT Assessment No. …, relating to the period …, in the amount of €4,626.35 and respective compensatory interest assessment No. … in the amount of €561.75;

xi. Additional VAT Assessment No. …, relating to the period …, in the amount of €24,437.31 and respective compensatory interest assessment No. … in the amount of €2,886.95;

xii. Additional VAT Assessment No. …, relating to the period …, in the amount of €607,365.33 and respective compensatory interest assessment No. … in the amount of €69,555.81.

1. Said gracious complaint was partially granted by an order of the Director of the UGC, dated October 31, 2012, with €4,417.02 of the assessed tax being annulled.

2. In said gracious complaint, the following questions were raised, relating to the following subjects:

1. On February 25, 2013, the Claimant filed judicial impugnation of the assessments and the partial grant of the gracious complaint, which is pending decision in the Administrative and Tax Court of Porto, proceeding No. …/13…..

2. In this judicial impugnation, the following questions are raised, relating to the following subjects:

1. On February 7, 2014, the Claimant directed to the Director-General of the Tax and Customs Authority (Tax Authority) a request for official review (filed under No. …/OR/…/14) of the same additional VAT assessments and compensatory interest referred to in 1.

2. In said request for official review, the following questions were raised, relating to the following subjects:

1. On September 9, 2014, the Claimant filed with CAAD a request for arbitral pronouncement, seeking the tacit dismissal which it understood had been formed in the meantime, as well as the assessments referred to in 1.

2. In the request for arbitral pronouncement, the following questions are raised:

1. On September 29, 2014, the Claimant was notified, by Official Letter No. … of September 26, 2014, of the "Filing Decision" by summary dismissal of the official review procedure presented, following Information No. …-…/2014 of August 29, 2014, with Opinion of the Coordinator of the Assistance Team - VAT on September 5, 2014 and ratified by Order of the Head of the Tax Management and Assistance Division of the UGC, by subdelegation of powers, on September 25, 2014.

A.2. Facts accepted as not proven

With relevance for the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the facts proven and not proven

The facts stated above, relevant to the present decision, result from the documentation available in the file.

B. ON THE LAW

Article 10(1) of the LRAT provides:

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

a) Within the period of 90 days, counted from the facts provided for in Articles 102(1) and (2) of the Tax Procedure and Process Code, regarding acts susceptible of autonomous impugnation and, likewise, from the notification of the decision or the end of the legal period for decision of hierarchical appeal;"

Article 101 of the same Code provides:

"1 - Impugnation shall be presented within the period of three months counted from the following facts:

a) End of the period for voluntary payment of tax installments legally notified to the taxpayer;

b) Notification of other tax acts, even when they do not give rise to any assessment;

c) Citation of subsidiary responsible parties in enforcement proceedings;

d) Formation of the presumption of tacit dismissal;

e) Notification of other acts that may be the object of autonomous impugnation under the provisions of this Code;

f) Knowledge of acts prejudicial to legally protected interests not covered in the previous items."

In the present case, the timeliness of the present arbitral action is reported to the, invoked by the Claimant, tacit dismissal of the request for official review of the VAT assessments of the year 2006, identified above, submitted on February 7, 2014.

Thus, under the combined provisions of Article 16(a) of the LRAT, and Article 102(1)(d) of the CPPT, the present action will be timely if presented within the period of 3 months, counted from the "Formation of the presumption of tacit dismissal".

Therefore, in order to assess the timeliness of the present action, it is necessary to first determine whether, and eventually when, the formation of the presumption of tacit dismissal of the request for official review of the tax act, formulated by the Claimant, occurred.

Let us see then.

As His Excellency Counselor Jorge Lopes de Sousa explains, "Tacit dismissal is a legal fiction intended to enable the interested party to access the courts to obtain protection for their rights or legitimate interests, in cases of inertia by the tax authority regarding claims that have been submitted to it."

There can be no doubt, therefore, that the presumption of tacit dismissal is a consequence of the "inertia of the tax authority regarding claims submitted to it", such inertia being assessed by the failure to issue a decision on such claims within the period legally provided for such purpose.

In other words, and in sum, the presumption of tacit dismissal results from the violation of the legal duty to decide incumbent upon the Tax Authority.

As Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa write, "The creation of a legal duty to decide aims to enable the formation of a tacit dismissal act, which depends on the existence of such duty, and the provision for the formation of such an act has as its only possible justification the possibility of its contentious impugnation".

The same understanding is held by António Lima Guerreiro, stating that "When there is no duty to decide, no presumption of tacit dismissal can be formed for purposes of impugnation or contentious appeal, since no legal effects can be derived from the silence of the Administration on the matter discussed. Thus arises the question of defining, once the means of impugnation or contentious appeal based on presumption of tacit dismissal is ruled out, what effects result from the non-compliance with the duty of response, when this is not associated with a duty of procedural decision. Non-compliance with the duty of response provided for in Article 1 can only give rise to disciplinary liability of officials and, possibly, extracontractual civil liability of the Tax Authority, if the respective legal requirements are proven (...)."

It is therefore considered that "A tacit dismissal act is only formed when the entity to whom the claim was directed has competence to know of it and all procedural, subjective and objective requirements are verified."

Among these requirements is, evidently, the verification, in concrete terms, of the legal duty to decide, wherefore "The formation of tacit dismissal presupposes that the Administration body to whom the claim was directed has the legal duty to decide." and "The lack of a legal duty to decide leads to the administered party not having the faculty to presume the claim dismissed after the lapse of the period for pronouncement."

Given the foregoing, it is thus concluded that in order to determine whether, in this case, the formation of the presumption of tacit dismissal of the request for official review of the tax act formulated by the Claimant occurred, it becomes necessary to investigate whether, in concrete terms, the Tax Authority had, or did not have, the duty to decide said claim.

In the present case, it is verified that the Claimant had filed, on October 31, 2012, a gracious complaint regarding all the assessments covered by the official review request and that, subsequently, and encompassing the same assessments, on February 25, 2013, it filed with the competent Court a request for judicial impugnation, a proceeding which was pending both when the request for official review of the tax act was presented by the Claimant and when such tacit dismissal, from that party's perspective, is deemed to have been formed.

Now, Article 68 of the CPPT provides:

"A gracious complaint cannot be filed when judicial impugnation has been presented on the same grounds."

In turn, Article 111(4) of the same Code provides:

"Should, after the receipt of the impugnation petition, a gracious complaint be filed regarding the same act and on a different ground, the latter shall be appended to the judicial impugnation, being equally considered, for all purposes, within the scope of the impugnation proceeding."

As the above-cited Counselor Jorge Lopes de Sousa notes, in annotation to the first of these norms:

"No. 2 of this article, by prohibiting the filing of a gracious complaint when judicial impugnation has already been instituted on the same grounds, is in harmony with what is provided in Articles 111(3) and (4) of this Code.

From all these provisions results an absolute preference of the judicial process over the administrative procedure of impugnation of the same tax act, preventing the legality of a tax act that is the object of judicial impugnation from being appreciated through the administrative route, except through the form and within the period provided in this same proceeding, which is the possibility of revocation under the terms and period indicated in Article 111(1) and 112 of this Code.

As stated in Article 68(2), the prohibition on instituting a gracious complaint only covers the one that has grounds identical to those of the judicial impugnation, wherefore it is possible to file a gracious complaint while judicial impugnation is pending, provided another ground is invoked.

However, even in this case, the preference for the judicial process is maintained, since the gracious complaint is not appreciated by the tax administration, it being the court that will appreciate the questions raised therein, within the scope of the judicial impugnation proceeding, to which the gracious complaint is appended."

Continuing with the same Author, in annotation to the second of the provisions transcribed:

"In Articles 111(3) to (5), the appending to the judicial impugnation proceeding of gracious complaints or hierarchical appeals relating to the tax act impugned is provided for, regardless of whether they were filed before or after the receipt of the impugnation petition and whether or not they have grounds identical to that of said impugnation.

As results from Article 111(3) and (5), the gracious complaint or hierarchical appeal proceeding is appended in the state it is found and, therefore, even if already completed. Thus, it will be the court and not the tax administration that will appreciate the questions raised in the gracious complaint or hierarchical appeal, within the scope of the judicial impugnation proceeding.

There is, therefore, an absolute preference for the judicial means of impugnation over the administrative means, preventing the legality of a tax act that is the object of judicial impugnation from being appreciated through the administrative route, except in the manner and within the period provided in this same proceeding, which is the possibility of revocation under the terms and period indicated in Article 111(1) and 112 of this Code."

In other words, given the norms in question, and relying on the doctrine transcribed, it is not considered subject to relevant doubt that, with judicial impugnation pending:

• A gracious complaint cannot be filed on the same grounds as those in issue in that jurisdictional proceeding;

• A gracious complaint may be filed, provided it is on grounds distinct from those in issue in that jurisdictional proceeding.

Furthermore, it is understood, in the same terms, that, in both situations described, the Tax Authority is legally prohibited from issuing any decision on the gracious complaint, and must, in the first case, simply ignore the complaint filed, and in the second case, remit it to the Court where the impugnation is pending.

Thus, and in sum, it appears that, with judicial impugnation pending regarding certain tax acts, the Tax Authority will not have the duty to decide gracious complaints filed with it regarding such acts, with the opposite being verified, that is, it being legally prohibited for such Authority to pronounce itself on the claims that, in that scope, are presented to it.

Having said all this, it is necessary to note that in the case sub iudice, we are not dealing with a gracious complaint, but with a request for official review of tax acts that are the object of a pending judicial impugnation proceeding.

It is understood, however, that there are no reasons, rather the contrary, for such circumstance to justify a different understanding from what has been stated above.

Indeed, and as the aforementioned Counselor Jorge Lopes de Sousa also states, "In light of the present statute and the LGT there is identity, as to the scope of the procedure, between this means of gracious complaint and what in Article 78(1) of the latter statute is termed 'review of tax acts' at the initiative of the taxpayer"

Thus, and regarding specifically the prohibition on presenting a gracious complaint while judicial impugnation is pending, "The same prohibition should apply, by analogy, to requests for review of the tax act, based on grounds identical to those invoked in judicial impugnation, since the reasons justifying that absolute preference of the judicial process are equally valid regarding that type of procedural means of assessing the legality of the tax act."

There shall be no doubt, therefore, of the existence of an absolute preference of the judicial route over the gracious routes of impugnation (including the request for official review), nor that "This finding allows one to conclude, by evident analogy, that appending should also occur when there is a pending request for review of the tax act, filed under Article 78 of the LGT, in cases where it is not based on facts subsequent to the act impugned. In fact, review requests, in addition to being able to be based on facts that were not considered in the assessment (a situation in which the assessment will not suffer from any vice, since it was prepared based on the facts that should have been considered), can also be based on any illegality of the assessment, as expressly provided in Article 78(1) of the LGT. In these cases where the review request imputates vices to the assessment that is also the object of the judicial impugnation proceeding, the reasons justifying the appending of gracious complaints and respective hierarchical appeals will entirely apply, wherefore the analogical application of the regime provided in Articles 111(3) to (5) would be justified."

It is thus understood, in conclusion, that, also for purposes of the preference of the judicial route of impugnation, relative to the gracious routes, underlying the legal regime embodied in Articles 68 and 111 of the CPPT, the request for official review should be equated with the gracious complaint.

Having reached this point, it is now possible to conclude that, in this case, the Tax Authority did not have the legal duty to decide the request for official review of the assessments already identified above, in issue in the present arbitral proceeding.

Indeed, with judicial impugnation pending concerning such assessments, and even though different questions from those raised in that judicial proceeding are being put forth, the Tax Authority was, in reality, prohibited from deciding the claim of the now Claimant, and should, in that case, limit itself to forwarding the corresponding request to the Court where the judicial impugnation proceeding was pending.

Thus, with the presumption of tacit dismissal of the request for official review of the assessments already identified above, in issue in the present arbitral proceeding, not having been formed, due to the absence of a legal duty to decide it, the present action must be judged untimely, with the consequent absolution of the Respondent from the instance.

The considerations made by the Claimant, under the legal obligation of due process, do not hinder what has been stated above.

Indeed, contrary to what that party alleges, it is not considered that the Tribunal is "remedying, without any legal basis, the illegality committed by the Tax Authority in the official review proceeding." Indeed, and from the outset, considering that the Tax Authority did not have a legal duty to decide, the illegality to which the Claimant alludes will not be consummated. Moreover, being in issue a decision that affects the procedural relationship (absolution of the defendant from the instance), no effects are produced on the contested material relationship.

Similarly, and contrary to what the Claimant alleges, it is considered that it has "merely exercised, within the legal periods, its power to react against the illegal silence of the Tax Authority", since it is considered that the silence of the Tax Authority was not only not illegal, but was legally imposed, since the only behavior legally required of it is the forwarding of the official review request to the Court where the judicial impugnation is pending.

The Claimant further argues that "At most, the Tribunal could defend the thesis that, by the non-existence of a legal duty to decide, there was also no legal duty to pronounce, circumstance in which the silence of the Tax Authority – even if eternal – would be unassailable. But, even in this absurd hypothesis, the question that would arise would not be that of the untimeliness of the Respondent's reaction, but of the lack of subject matter of the dispute, by no act (tacit or express) having been performed on which the present proceeding could turn."

Here too, with due respect to the stated assertion falling short, it is considered that the Claimant's arguments lack merit. Indeed, understanding that the only action legally required of the Tax Authority (in the event that questions distinct from those on which the judicial impugnation turns have been presented to it), would be the forwarding of the official review request to the Tax Court where the judicial impugnation is pending, naturally the appropriate procedural means would be available in tax litigation to achieve that objective. Such means do not include, naturally and certainly, the present arbitral action.

Moreover, the Claimant will not be correct either, when it affirms that "the question that would arise would not be that of the untimeliness of the Respondent's reaction, but of the lack of subject matter of the dispute". Indeed, and from the outset, this would only be sustainable if the subject matter of the present arbitral action were solely the tacit dismissal of the official review request. However, that is not the case, since, as the Claimant itself acknowledges, what is at issue in the present proceedings are, indirectly, the VAT assessments for the year 2006, already previously identified.

Moreover, and in any case, regardless of whether lack of subject matter of the dispute can be verified, the fact is that, under Article 10(a) of the LRAT, the action would always fail as regards timeliness, since, in the absence of tacit dismissal, the period for exercise of the right of action did not have its starting point, and it is certain that "The untimeliness of the impugnatory means used by the interested party implies the non-pronouncement of the court regarding the questions that have been raised in the initial petition, even if of ex officio knowledge, to the exact extent that the impugnatory dispute does not come to have its beginning."

The jurisprudence cited by the Claimant will obviously not apply here, first of all because it is not issued within the legal regime of the LRAT, which frames the present decision. Then, because the judgment cited is issued within the scope of administrative litigation, and not tax litigation, notably of the provisions of Articles 68 and 111 of the CPPT, which are equally underlying to the present decision. Finally, because the situation in the case is distinct from that judged in the ruling brandished by the Claimant, namely because in the present case, contrary to what happens in that judgment, the pendency of a judicial impugnation proceeding regarding the same tax assessments is in issue.

By all the foregoing, and in light of what has been decided, which prevents the hearing of the merits of the case, the hearing of the remaining questions put forth by the parties is prejudiced.

C. DECISION

For all these reasons, this Arbitral Tribunal hereby decides to judge untimely (as regards the presumed tacit dismissal) and extemporaneous (as regards the assessments that constitute its indirect subject matter) the present action, absolving the Tax Authority from the instance, and consequently condemning the Claimant to pay the costs of the proceeding, in the amount of €11,628.00, as it gave rise thereto.

D. Value of the Proceeding

The value of the proceeding is fixed at €800,188.65, under Article 97-A(1)(a) of the Tax Procedure and Process Code, applicable by virtue of Articles 29(1)(a) and (b) of the LRAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €11,628.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since it gave rise to the present arbitral action, under Articles 12(2) and 22(4) of the LRAT, and Article 4(4) of the aforementioned Regulation.

Let it be notified.

Lisbon

April 21, 2015

The President Arbitrator

(José Pedro Carvalho - Reporter)

The Arbitrator Member

(Maria Forte Vaz)

The Arbitrator Member

(Nina Aguiar)