Process: 670/2014-T

Date: May 11, 2015

Tax Type: IRS

Source: Original CAAD Decision

Summary

In Arbitral Decision 670/2014-T, the CAAD Tax Arbitration Tribunal examined a challenge to an IRS assessment for 2006, focusing on three critical issues: the validity of tax notifications, the expiry of the assessment right (caducidade), and the tribunal's material competence. The claimant, a Porto resident, contested additional IRS assessment no. 2014... and compensatory interest following a tax inspection. The central dispute concerned notification validity and timing. The claimant's tax representative resigned after receiving the final inspection report in early April 2014. Subsequently, the Tax Authority attempted notification through an 'appointment with fixed time' mechanism on May 12-14, 2014, leaving notices at the claimant's hotel. The claimant, returning from Spain on May 18, 2014, only received personal notification at Porto-5 Finance Service on May 20, 2014. The claimant argued the hotel notifications were invalid under Portuguese Civil Procedure Code requirements (Articles 232-233), making May 20 the effective notification date. Critically, the assessment stemmed from a criminal inquiry dismissed on May 16, 2013, establishing a one-year assessment deadline of May 16, 2014. Since the claimant considered only the May 20 notification valid, he claimed the assessment right had expired. Additionally, the claimant contested the notification irregularity, arguing that when a representative resigns during pending appeal periods, the Tax Authority must notify the taxpayer directly, especially regarding inspection reports subject to direct judicial challenge under CPPT Article 40(2). The Tax Authority raised a preliminary objection regarding the tribunal's material competence, citing CPPT Article 146-B(5), which establishes specific procedural mechanisms for challenging indirect assessment decisions. This case illustrates the strict procedural requirements governing Portuguese tax notifications and the importance of respecting statutory limitation periods in tax assessments.

Full Decision

ARBITRAL DECISION

The arbitrators Jorge Lopes de Sousa (arbitrator president), Carlos Lobo and Ricardo Rodrigues Pereira, designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, hereby agree as follows:

I. REPORT

  1. On 9 September 2014, A..., Tax ID …, with tax domicile at …, no. …, …, Porto (hereinafter, Claimant), filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality and annulment of the IRS (Personal Income Tax) assessment relating to the year 2006 (assessment no. 2014 …) and respective compensatory interest.

The respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).

The Claimant attached 4 (four) documents, having not enlisted witnesses, nor requested the production of any other evidence.

In essence and in brief summary, the Claimant alleged the following:

For a long time he has fixed his residence in a hotel unit in the city of Porto, which is therefore his tax domicile.

The contested IRS assessment resulted from a tax inspection, in the context of IRS, relating to the year 2006, which was carried out to him, in the context of which he appointed a representative, since AT intended to proceed with corrections to the taxable income contained in the tax return he had timely filed and, therefore, he was notified to exercise the right of prior hearing, which he did through such representative.

The aforementioned representative appointed by him was notified of the final inspection report, probably in the first days of April 2014, after which he resigned from the mandate, considering that he did not have elements that would allow him to maintain his representation, which resignation he communicated both to the Claimant and to the Tax Inspection Services of Aveiro and Porto.

The Claimant absented himself to Spain, as he had previously planned, from where he returned on 18 May 2014. At that time, he was then confronted with a notice, entitled "Verification Certificate – Negative Note", dated 14.05.2014, which a civil servant from the Finance Service of Porto-5 had left at the hotel where he resides.

Following this, he then went, on 20 May 2014, to the aforementioned Finance Service, where he signed the notification and was provided with a copy of the assessment and collection note relating to the additional IRS assessment and respective compensatory interest, relating to the year 2006.

Meanwhile, he found that a document entitled "Notice of Appointment with Fixed Time" had been left at the said hotel on 12 May 2014, dated that same day.

In the collection note attached to the demonstration of the assessment in question, the payment deadline is listed as 11.06.2014, whereas the Claimant was personally notified of that assessment on 20.05.2014, whereby the payment date fixed is illegal, having regard to the provisions of Article 104 of the IRS Code.

The Claimant invokes the nullity of the notification of said assessment, effected on 14.05.2014, through the legal mechanism of "appointment with fixed time", as the requirements provided for in Articles 232 and 233 of the Code of Civil Procedure (CPC) (former Articles 240 and 241) should have been observed, and were not.

Thus, the Claimant considers that only the notification effected personally at the Finance Service of Porto-5, on 20 May 2014, can be considered valid.

In another order of considerations, the Claimant states that the contested assessment was preceded by a criminal inquiry, in which an order for dismissal was issued on 16.05.2013, and it was on the basis of that order that AT sustains its legitimacy to proceed with that assessment and whose deadline would end on 16.05.2014.

Since, in his view, only the notification effected to him on 20.05.2014 can be considered valid, the Claimant argues that on that date the AT's right to proceed with the tax assessment had already expired, which has the consequence of the tax being uncollectable which was assessed to him.

Finally, the Claimant argues the irregularity of the notification of the inspection report, since, in his view, the notification of the final inspection report which incorporates the decision of indirect assessment of the taxable income, liable to direct contentious recourse, cannot be effected only to the representative, having regard to the provisions of Article 40, no. 2, of the Code of Tax Procedure and Process (CPPT).

Thus, AT should have proceeded with notification of the inspection report to the Claimant, all the more so because his representative had resigned from the mandate while the period for filing contentious proceedings of the decision of indirect assessment of the taxable matter was still ongoing; by not doing so, AT restricted the Claimant's right to appeal judicially against the decision of indirect assessment and, to that extent, tainted the tax assessment procedure with illegality, which the Claimant argues subsidiarily.

The Claimant concludes the request for arbitral decision by formulating the following prayers for relief:

"This request for arbitral decision should be judged well-founded and proven, and, as a consequence, the expiry of the IRS assessment 2014 … relating to the year 2006 should be declared, or, if this should not be understood, the illegality of said assessment due to omission of essential formality in the assessment procedure."

  1. The request for constitution of an arbitral tribunal was accepted and automatically notified to AT on 15 September 2014.

  2. The Claimant did not proceed with the appointment of an arbitrator, whereby, under Article 6, no. 2, letter a) and Article 11, no. 1, letter a) of the RJAT, the President of the Deontological Council of CAAD designated as arbitrators of the collective Arbitral Tribunal Counsellor Jorge Lino Ribeiro Alves de Sousa (arbitrator president), Professor Doctor Carlos Lobo and Doctor Ricardo Rodrigues Pereira (member arbitrators), who communicated acceptance of the appointment within the applicable period.

  3. On 28 October 2014, the parties were duly notified of this appointment, having not manifested intention to refuse the appointment of the arbitrators, under the combined terms of Article 11, no. 1, letters b) and c) of the RJAT and Articles 6 and 7 of the Code of Ethics of CAAD.

  4. Thus, in accordance with the provision of Article 11, no. 1, letter c) of the RJAT, the collective Arbitral Tribunal was constituted on 12 November 2014.

  5. On 18 December 2014, the Respondent, duly notified for that purpose, filed its Answer in which, in addition to having raised the exception of material incompetence of the Arbitral Tribunal, with its consequent dismissal of the instance, specifically contested the arguments put forward by the Claimant and concluded for the dismissal of the present action, with its consequent dismissal of the prayer for relief.

The Respondent enlisted 3 (three) witnesses, having not attached documents, nor requested the production of any other evidence.

On the same occasion, the Respondent attached to the proceedings the respective administrative file (hereinafter, briefly designated PA).

In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its contestation:

The Respondent begins by invoking the exception of material incompetence of the Arbitral Tribunal in that, under Article 146-B, no. 5, of the CPPT, the proper means for the Claimant to react against the decision of indirect assessment of the taxable matter is the procedural means provided for therein.

The assessment decision constitutes an identifiable act of the administrative procedure, whereby, not having the Claimant filed the respective appeal, a decided case or resolved case was formed of that decision, which became consolidated in the legal order, and cannot be put in question in the judicial challenge of the respective assessment.

Under the combined provisions of Articles 2, no. 1, letter a), and 4, no. 1, of the RJAT and 2 of Ordinance no. 112-A/2011, of 22 March, the material jurisdiction of arbitral tribunals does not cover decisions on indirect assessment of the taxable matter, under Article 89-A of the General Tax Law (LGT). Thus, this Arbitral Tribunal is materially incompetent to appreciate and decide the Claimant's prayer for relief in everything relating to the appreciation of the matter contained in the decision of indirect assessment.

In this manner, in the present case, the Arbitral Tribunal should abstain from knowing any matters relating to the appreciation of the illegality of the act of indirect assessment of the taxable matter, namely Articles 7, 8, 14, 18 to 22 and 48 to 58 of the prayer for relief, referring to the notification of the decision of the assessment of the taxable income by indirect methods contained in the final inspection report.

In its contestation, AT came to say that the IRS assessment in question in these proceedings was notified to the Claimant, firstly, by means of registered letters, sent on 05.05.2014 and delivered on 12.05.2014, having subsequently, on 12.05.2014, proceeded with personal notification of the Claimant at his tax domicile. On that date, a notice was left at the door of the Claimant's residence for notification with fixed time for 14.05.2014, at 15:00. On 14.05.2014, at the appointed time, civil servants of the Finance Service of Porto-5 went to the Claimant's residence, and the latter was not present, whereby a notice was then affixed, with the indication that he could obtain duplicates and documents referring to the notification at the Finance Service of Porto-5. By memorandum dated 15.05.2014, the Claimant was notified that he was considered notified, through affixation of a Notification Note, "to within the period of 30 (thirty) days from this notification plus an extension of 5 days, make the payment of the executable amount of 497,832.51 €".

Thus, the Claimant was duly notified of the IRS assessment in question in these proceedings, and there is nothing preventing the notification of the assessment – in this case, of the additional assessment – from being effected through personal service, having AT complied with all the respective legally imposed requirements.

Moreover, the Claimant was duly notified before the expiry deadline whereby the additional IRS assessment is valid and legal, not suffering from the vice of nullity, as the Claimant contends.

  1. On 18 December 2014, an order was issued determining the dispensation of the holding of the meeting provided for in Article 18 of the RJAT, should the parties not object to it, and notifying the Claimant to, within 10 (ten) days, come before the tribunal to pronounce itself regarding the matter of exception alleged by the Respondent.

The Claimant, duly notified, came to pronounce itself as to the dismissal of the exception invoked by the Respondent and requested notification of the latter to attach various documents to the proceedings.

The Respondent, duly notified for that purpose, came to pronounce itself regarding the documents petitioned by the Claimant and manifested the intention to hold the meeting provided for in Article 18 of the RJAT.

Subsequently, there was the presentation of other motions by both parties, on the matter of attaching to the proceedings various documents that the Claimant intended the Respondent to effect.

  1. By order of the President of the Deontological Council of CAAD, issued on 4 February 2015, the mandate of the arbitrator president of this collective Arbitral Tribunal, Counsellor Jorge Lino Ribeiro Alves de Sousa, was declared ended, by virtue of being incapacitated, due to illness, to perform his respective duties, having been designated, in his replacement, Counsellor Jorge Lopes de Sousa.

  2. On 24 March 2015, the meeting provided for in Article 18 of the RJAT was held.

On the same date, 2 (two) witnesses enlisted by the Respondent were examined, the latter having dispensed with a third witness that it had indicated.

Following the examination of said witnesses, a simultaneous period of 10 (ten) days was granted for the parties to present their respective written pleadings.

Following this, the parties came to present their written pleadings, maintaining, in essence, the positions previously stated.

II. ADJUDICATION

The Arbitral Tribunal was regularly constituted.

The proceedings do not suffer from nullities.

The parties have legal personality and capacity, are duly represented and are legitimate.

II.1. On the exception of material incompetence of the Arbitral Tribunal

The Respondent, in its answer, raises the question of material incompetence of this Arbitral Tribunal by understanding that the Claimant intends to react against the decision of indirect assessment of the taxable matter, under Article 89-A of the LGT.

It then alleges that, under Article 146-B, no. 5, of the CPPT, the proper means for the Claimant to react against the decision of indirect assessment of the taxable matter is the procedural means provided for therein; therefore, since the assessment decision constitutes an identifiable act of the administrative procedure and not having the Claimant filed the respective appeal, a decided case or resolved case was formed of that decision, which became consolidated in the legal order, and cannot be put in question in the judicial challenge of the respective assessment.

Furthermore, according to the Respondent, under the combined provisions of Articles 2, no. 1, letter a), and 4, no. 1, of the RJAT and 2 of Ordinance no. 112-A/2011, of 22 March, decisions on indirect assessment of the taxable matter are not covered by the material jurisdiction of arbitral tribunals, under Article 89-A of the LGT. Thus, the Respondent argues that this Arbitral Tribunal is materially incompetent to appreciate and decide the Claimant's prayer for relief in everything relating to the appreciation of the matter contained in the decision of indirect assessment.

Consequently, the Respondent proposes that the Arbitral Tribunal should abstain from knowing "any matters relating to the appreciation of the illegality of the act of indirect assessment of the taxable matter, namely Articles 7, 8, 14, 18 to 22 and 48 to 58 referring to the notification of the decision of assessment of the taxable income by indirect methods contained in the final inspection report".

Called upon to pronounce itself on the question of (in)competence of this Arbitral Tribunal, the Claimant came to say that it accepts that the decision of indirect assessment of the taxable income is consolidated, for not having been filed an appeal thereof, although it understands that there was an omission of legal formality in the communication of such decision.

Furthermore, the Claimant continues, it is not that decision which is questioned in this proceeding, but rather the expiry of the assessment act due to timeliness of its notification. As it expressly states, "the prayer for relief is not intended to appreciate the correctness of the assessment or its value; what is accepted could only be discussed in a separate challenge proceeding". The Claimant further argues that although "the act of the decision of the taxable matter is not challenged, this does not invalidate that the taxpayer may appeal its assessment with another ground that does not presuppose the assessment of the taxable matter. Hence, in the very assessment note (fls. 104 of the administrative proceedings attached to the proceedings by AT) it expressly states: 'you may claim or challenge in accordance with the terms and deadlines established in Articles 140 of the IRS Code and 70 and 102 of the Code of Tax Procedure and Process (CPPT)'."

The scope of material jurisdiction of the tribunals constitutes a matter of public order and its knowledge precedes that of any other matter, and it is therefore necessary, before all else, to proceed with its appreciation (cf. Articles 16 of the CPPT, 13 of the Administrative Court Code (CPTA) and 96 and 98 of the CPC, subsidiarily applicable by remission, respectively, of letters a), c) and e) of no. 1 of Article 29 of the RJAT).

Having reviewed the entire text of the prayer for relief, it is not apparent that the Claimant, at any moment and even if indirectly, intends to attack the AT's decision to proceed with indirect assessment of the IRS taxable matter relating to the year 2006, under Article 89-A of the LGT.

Primarily, the Claimant bases the prayer for relief on the nullity of the notification of the IRS assessment in question in these proceedings and on the expiry of the right to assess the tax, for having exceeded the deadline established in Article 45, no. 5, of the LGT. As is evident, neither of these aspects stems from and/or relates to the decision of indirect assessment of the taxable matter; on the contrary, both gravitate around the act of tax assessment, which is downstream of that decision.

Subsidiarily, the Claimant argues the irregularity of the notification of the final decision of the tax inspection report. However, here too the question is not to appreciate the well-foundedness, or not, of the decision of indirect assessment of the taxable matter, since one thing is to discuss the validity/legality of a decision and its respective grounds, and another, quite distinct, is to discuss the validity/legality of the notification of that same decision. Since, "the deficiencies that affect the validity of notification do not affect the validity of the notified act. Indeed, the notification of an act is an act external to this and, therefore, the vices that affect the notification, being able to determine the invalidity of the notification and the consequent ineffectiveness of the notified act, do not affect the validity of this"[1].

This is so despite the efficacy of the decision of the tax procedure depending on notification (cf. Article 77, no. 6, of the LGT and Article 36, no. 1, of the CPPT; this requirement of notification as a condition of efficacy of acts with external efficacy to the AT's services is also embodied in Article 268, no. 3, of the Constitution (CRP)); therefore, in the present case, being a decision of a tax procedure – the tax inspection procedure is a pre-assessment procedure of an informative nature, whose recipient of the information is the AT itself[2] – it should be concluded that the subsequent act of tax assessment cannot be carried out without prior notification, since, before this, that decision is ineffective.

Consequently, it appears absolutely irrelevant everything that AT alleges to this regard, since there is no basis, either factual or legal, to invoke the material incompetence of this Arbitral Tribunal to know and decide this proceeding, since what is at issue here is not the appreciation of any claim relating to "acts of determination of the taxable matter" or "acts of determination of the taxable matter, both by indirect methods".

In these terms, without need for further considerations, the exception of material incompetence of the Arbitral Tribunal to appreciate and decide the present proceeding is judged to be without merit.

There are no other exceptions or preliminary questions that prevent knowledge of the merits and of which it is necessary to know.

III. GROUNDS

III.1. ON THE FACTS

Regarding the factual matter, it is important, first of all, to note that the Tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven facts from the unproven ones (cf. Article 123, no. 2, of the CPPT and Article 607, nos 3 and 4, of the CPC, applicable ex vi Article 29, no. 1, letters a) and e), of the RJAT). Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established with regard to the various plausible solutions of the legal question(s).

§1. FACTS FOUND TO BE PROVEN

Having regard to, in particular, the positions assumed by the parties, the documentary evidence produced, the PA attached to the proceedings and the testimony given by 2 (two) witnesses examined, the following facts are considered proven with relevance to the decision:

a) Following a certificate extracted from the criminal inquiry proceeding no. … – in which the possible commission of tax fraud and money laundering crimes was investigated and which ended with the issuance of an order for dismissal, dated 16.05.2013, by the Prosecutor of the Public Ministry Services of … – a tax inspection procedure was instituted at the Finance Directorate of Aveiro, under Service Order … targeting the Claimant – cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement).

b) The aforementioned tax inspection procedure – which had the purpose of confirming compliance with the obligations of taxpayers and other tax-liable parties – was of internal scope and partial character, having focused on IRS relating to the year 2006 – cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement).

c) On 20 December 2013, the Claimant executed a Power of Attorney to Mr. Dr. B…, attorney, to whom he granted "the broadest powers of attorney in law permitted, including those to compromise or confess, as well as powers to represent him before any official body or public service, namely of the DGCI, therein presenting all types of petitions, requests and claims and filing hierarchical and judicial appeals", said attorney being the Claimant's representative in the context of said tax inspection procedure – cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement).

d) In the respective Inspection Report, the full text of which is hereby reproduced in full, the following is concluded, among others [cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement)]:

"…the taxpayer [the Claimant] did not prove the origin of his increase in assets (…), whereby, having regard to the provisions of no. 3 of Article 89-A of the LGT, the conditions and prerequisites provided for in letter f) of Article 87 of the LGT are met (having regard to the wording in force at the time of the facts, 2006), to resort to indirect assessment of the taxable matter of the taxpayer, through the application of indirect methods, in accordance with the terms defined in the IRS Code and the LGT."

e) On 27 March 2014, at the Finance Directorate of Porto, the note fixing IRS relating to the year 2006 was prepared, in which the total net income of the Claimant was fixed at € 965,990.82 by application of indirect methods – cf. PA (file PA1.pdf) attached to the proceedings.

f) By memorandum no. …, dated 28.03.2014, from the Tax Inspection Division III of the Finance Directorate of Porto, the full text of which is hereby reproduced, sent by registered mail (according to the registry of the CTT no. RM … PT), the Claimant was notified of the following [cf. PA (file PA1.pdf) attached to the proceedings]:

"… on this date, compliance was given to the provisions of Article 62 of the Supplementary Rules for Tax Inspection Procedure (RCPIT) (…). For this purpose, notification of the corrections of the inspection action was sent, relating to the Service Order referenced above [Service Order …], to the Attorney appointed by him, Dr. …"

g) By memorandum no. …/…, dated 28.03.2014, from the Tax Inspection Division III of the Finance Directorate of Porto, the full text of which is hereby reproduced, sent by registered mail (according to the registry of the CTT no. RM … PT) with acknowledgement of receipt, Mr. Dr. B…, attorney, in his capacity as Attorney of the Claimant, was notified of the following [cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement)]:

"… under the provisions of Article 77 of the General Tax Law (LGT) and Article 62 of the Supplementary Rules for Tax Inspection Procedure (RCPIT), of the corrections of the inspection action, the report/conclusions of which are attached as an integral part of this notification, relating to the Service Order referenced [Service Order …].

The set of net income was fixed by indirect methods in accordance with the provisions of no. 2 of Article 65 of the IRS Code and Articles 87 to 90 of the LGT, by remission of Article 39 of the IRS Code, for the following years:

Year(s) of Exercise Income Fixed

2006 965,990.82 €

The decision of indirect assessment is based on the facts, reasons and grounds contained in the Inspection Report, with the values being fixed in accordance with the criteria and calculations mentioned in said report.

From the decision of indirect assessment of the taxable income, appeal lies to the Tax Court, to be filed within the period of 10 (ten) days from the date of signature of the acknowledgement of receipt, under the provisions of numbers 7 and 8 of Article 89-A of the LGT."

h) Mr. Dr. B… received this notification on 1 April 2014, the date indicated on said acknowledgement of receipt – cf. PA (file PA1.pdf) attached to the proceedings.

i) By letter dated 10 April 2014, sent by regular mail and by registered mail (according to the registry of the CTT no. RD … PT), the full text of which is hereby reproduced, Mr. Dr. B… communicated to the Claimant, in particular, the following [cf. PA (file PA2.pdf) attached to the proceedings (factuality accepted by agreement)]:

"Having received, as your attorney, notification in the context of that [inspection] procedure, I tried on several occasions to contact you to schedule a meeting in order to discuss the state of the proceeding so as to enable you to make a decision on the position to take, having in particular regard that a deadline for filing a possible judicial appeal is ongoing.

The only time we managed to establish a telephone contact with your residence we were informed that you are abroad.

(…) I understand your "disappearance" as a lack of cooperation, leaving me no alternative but to resign from the mandate you granted me.

For the foregoing, I communicate to you that I resign from the power of attorney you granted me, a resignation which takes immediate effect."

j) On 14 April 2014, Mr. Dr. B… filed with the Tax Inspection Services of the Finance Directorate of Porto a motion directed to the Tax Inspection Division of the Finance Directorate of Aveiro, the full text of which is hereby reproduced, in which, among others, the following is stated [cf. PA (file PA1.pdf) attached to the proceedings (factuality accepted by agreement)]:

"The petitioner received a memorandum from the Finance Directorate of Porto, informing him of the corrections made as a result of said inspection procedure.

(…) the taxpayer A… did not grant powers to the petitioner to receive, in his name, service of process or notifications, but only powers of attorney as mentioned including that of representing him before the tax administration (having adopted the abbreviation DGCI) presenting all types of petitions, requests and claims and filing hierarchical and judicial appeals.

No powers have been granted to the present petitioner to receive, in the name of his principal, service of process or notifications. (…)

In conclusion, the Claimant refuses that the notification in question may have the effect of being transferred to the scope of what was his represented party, considering himself as notified.

(…)

Given that a deadline is ongoing for filing a judicial appeal (which the petitioner is unaware the petitioner intends to file, paying in particular the due court fee and subjecting itself to the court costs that would result from possible dismissal), the petitioner resigned from the mandate granted to him by A..., taxpayer …, invoking lack of cooperation, as per communication [to the Claimant] that is attached.

Thus, the Claimant comes to notify AT of the resignation of the mandate which it expressly does with the warning that it did not communicate the content of the memorandum received to the taxpayer nor will it now try to do so, for the reasons expressed, applying relative to AT the provisions of no. 3 of Article 5 of the CPPT."

k) In response to that motion from Mr. Dr. B…, on 17.04.2014, a fax was sent to him by the Tax Inspection Division III of the Finance Directorate of Aveiro, with outgoing number …, containing information relating to "Notification of Result of Final Inspection Report", in which the following is concluded [cf. document no. 4 attached to the initial petition and PA (file PA2.pdf) attached to the proceedings (factuality accepted by agreement)]:

"Thus, it cannot be left unattended that the notification relating to Memorandum no. …/… of 28 March 2014, by registered letter with acknowledgement of receipt, having the latter been dated and signed on 1 April 2014, by Ms. C… at the professional address of the attorney, of the corrections made in the context of the inspection procedure carried out by the Finance Directorate of Aveiro, was valid and effective, in that it was made in strict compliance with the legal norms applicable in the case (Articles 38, 39 and 40 of the CPPT)."

l) By memorandum no. …/…, dated 17.04.2014, from the Tax Inspection Division III of the Finance Directorate of Porto, sent by registered mail (according to the registry of the CTT no. RM … PT), that same information relating to "Notification of Result of Final Inspection Report" was sent to Mr. Dr. B… – cf. PA (file PA2.pdf) attached to the proceedings.

m) By memorandum no. …/…, dated 22.04.2014, from the Tax Inspection Division III of the Finance Directorate of Porto, sent by registered mail (according to the registry of the CTT no. RM … PT), the following was communicated to the Claimant [cf. PA (file PA2.pdf) attached to the proceedings]:

"For your information, herewith a copy of the motion filed on 11-04-2014 by your attorney Dr. B…, as well as a copy of the response thereto, sent to the same through Memorandum no. …/… dated 17/04/2014."

n) That memorandum was returned to the Tax Inspection Division III of the Finance Directorate of Porto on 24.04.2014, with the notation made by the CTT of "Changed address" – cf. PA (file PA2.pdf) attached to the proceedings.

o) By electronic mail (email no. …), sent on 24.04.2014, the full text of which is hereby reproduced, the Finance Directorate of Porto requested information from the Administrative and Tax Court of Porto as to "whether any appeal was filed in that Court by the above-identified taxpayer [the Claimant] relating to the matter in question [IRS assessment under Article 89-A of the LGT] and, if so, whether the same has already been subject to decision" – cf. PA (file PA2.pdf) attached to the proceedings.

p) In response to that request for information, the Administrative and Tax Court of Porto sent to the Finance Directorate of Porto on 02.05.2014 a memorandum, the full text of which is hereby reproduced, where it is stated, among others, that "it does not appear in the same [Court's computer system (SITAF)] that any proceeding(s) has/have been filed in this Court by A... (computer registry from 01.01.2004)" – cf. PA (file PA2.pdf) attached to the proceedings.

q) On 25.04.2014, assessment no. 2014 … was issued, relating to the IRS of 2006, which shows total income of € 976,825.00 and a total amount due of € 497,832.51 is calculated – being € 393,408.47 relating to tax and € 104,424.04 relating to compensatory interest – which was sent to the Claimant on 09.05.2014 by registered mail (according to the registry of the CTT no. RY … PT) – cf. PA (file PA3.pdf) attached to the proceedings.

r) On 05.05.2014, the Statement of Account Settlement (compensation no. 2014 …) relating to the IRS of 2006 was issued, with the amount due of € 491,478.14 and having the payment deadline of 11.06.2014, which was sent to the Claimant on 09.05.2014 by registered mail (according to the registry of the CTT no. RY … PT) – cf. PA (file PA3.pdf) attached to the proceedings.

s) The aforementioned IRS assessment and the aforementioned Statement of Account Settlement were delivered on 12.05.2012 at the Claimant's tax domicile (…, no. …, … Porto) – cf. CTT website [www.ctt.pt] (accessed on 27.03.2015).

t) By electronic mail (email no. …), sent on 07.05.2014, the full text of which is hereby reproduced, directed by the Finance Directorate of Porto to the Head of the Finance Service of Porto-5, the following is stated, among others [cf. PA (file PA2.pdf) attached to the proceedings]:

"Given the expiry of the right to assess occurring already on the following 15/05/2014, I request personal notification of the taxpayer(s)

… – A...

relating to the IRS assessment(s) of the year(s) of 2006.

For this purpose, herewith attached are the IRS assessment, collection note and respective notification order (w/o password)."

u) On 12 May 2014, at 13:00, the civil servant of the Finance Service of Porto-5, D..., went to the Claimant's tax domicile (…, …, no. …, …, Porto), in order to personally notify him of the aforementioned IRS assessment and Statement of Account Settlement, having then been informed by the receptionist of that hotel – who was not identified – that the Claimant was absent abroad – cf. testimony of witness D... (factuality accepted by agreement).

v) On that same date, the aforementioned civil servant of the Finance Service of Porto-5, in light of the Claimant's absence, left with the hotel reception staff a notice, entitled "Notice of Appointment with Fixed Time", the full text of which is hereby reproduced, in which, among others, the following is stated [cf. document no. 3 attached to the initial petition, PA (file PA2.pdf) attached to the proceedings and testimony of witness D... (factuality accepted by agreement)]:

"Appointing, under the provisions of Article 240, no. 1, of the CPC, the following 14/MAY/2014, at 15 o'clock, at this location, to carry out the notification that today I intended to make.

Being further advised that, if on the day above designated you are not present, the notification will be effected by affixation (Article 240, no. 4, of the CPC)."

x) On 14 May 2014, the same civil servant of the Finance Service of Porto-5, accompanied by two other civil servants of the same Finance Service, E... and F…, went again to the Claimant's tax domicile (…, …, no. …, …, Porto), in order to personally notify him of the aforementioned IRS assessment and Statement of Account Settlement, having then been informed by the receptionist of that hotel – who was not identified – that the Claimant was absent abroad – cf. testimony of witnesses D... and E... (factuality accepted by agreement).

y) On that same date, the aforementioned civil servant of the Finance Service of Porto-5, in light of the Claimant's absence, left with the hotel reception staff a notice, entitled "Notice of Appointment with Fixed Time", the full text of which is hereby reproduced, in which, among others, the following is stated [cf. document no. 2 attached to the initial petition, PA (file PA2.pdf) attached to the proceedings and testimony of witnesses D... and E...]:

"The party to be notified did not appear at the notice left at the door of the residence, with appointment of fixed time.

Further it is stated that the duplicate and documents relating to the notification are available to the party to be notified at the Finance Service of Porto-5."

w) By memorandum no. …/…, dated 15.05.2014, from the Finance Service of Porto-5, sent by registered mail (according to the registry of the CTT no. RM … PT) with acknowledgement of receipt, the full text of which is hereby reproduced, the Claimant was notified of the following [cf. PA (file PA2.pdf) attached to the proceedings (factuality accepted by agreement)]:

"In accordance with the aforementioned in Article 38, no. 6, of the CPPT, hereby and under the provisions of Article 238 of the Code of Civil Procedure, of which YOU ARE HEREBY CONSIDERED NOTIFIED, through affixation of a Notification Note, on 2014/05/14, effected under the provisions of Article 240, no. 3, of the CPC, to within the period of 30 (thirty) days from this notification, plus an extension of 5 days, to effect the payment of the executable amount of 497,832.51 €, of which the below-mentioned executed party is debtor, being aware that if payment is made within the aforementioned period, no default interest or costs will be charged.

Further you are cited that in the same period you may request payment in installment regime under the provisions of Article 196 of the CPPT, and/or payment in kind under the provisions of Article 201, or else you may file opposition under the provisions of Article 204, all of the Code of Tax Procedure and Process.

After that period has elapsed without payment of the executable debt being made, in addition to losing the benefit of the exemption of default interest and costs, and without there being, under the provisions of Article 169 of the CPPT, reason to suspend execution, the same shall continue its legal procedure, namely for the purposes of SEIZURE OF ASSETS and other proceedings prescribed in the Code of Tax Procedure and Process."

z) The Claimant received this memorandum on 20 May 2014, the date he signed the respective acknowledgement of receipt – cf. PA (file PA2.pdf) attached to the proceedings.

aa) On 20 May 2014, the Claimant went to the Finance Service of Porto-5, having there been personally notified of the aforementioned IRS assessment and Statement of Account Settlement (factuality accepted by agreement).

ab) On 9 September 2014, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceeding – cf. computerized case management system of CAAD.

§2. FACTS NOT FOUND TO BE PROVEN

With relevance to the appreciation and decision of the case, there are no facts that were not proven.

§3. REASONING AS TO THE FACTUAL MATTER

As regards the proven factual matter, the conviction of the Tribunal was based on the statements made in the pleadings, the accuracy of which was not put in question, on the documents and the PA attached to the proceedings and also on the testimony given by the witnesses examined, as per references made in relation to the various points.

Regarding the testimony given by the witnesses examined – who testified clearly, objectively and impartially about the facts to which they were examined, revealing unequivocal direct knowledge of the same, whereby their testimony deserved our full credibility – it is important to make here a very brief summary of the same, referring to its essential aspects:

(i) D...

Is a civil servant of the Finance Service of Porto-5.

Was tasked with making to the Claimant the personal notification of the additional IRS assessment at issue in these proceedings.

When, for that purpose, he went to the hotel where the Claimant resides, on 12 May 2014, after being informed that the latter was absent abroad, he left a notice with the hotel reception staff. He did not proceed with the identification of that hotel staff member.

He did not place any notice at the entrance of the hotel as he thought it would not be worthwhile since it was a hotel and, therefore, as soon as he was gone, they would certainly remove it and throw it away.

When confronted with the documents at fls. 99, 100 and 101 of the PA, he recognized them and confirmed the accuracy of their contents.

(ii) E...

Is a civil servant of the Finance Service of Porto-5.

On 14 May 2014, he accompanied his colleague D... to the hotel where the Claimant has his tax domicile, in order to intervene, as a witness, in the diligence of personal notification of the additional IRS assessment in question in these proceedings, to the Claimant.

He stated that, for them, it was not foreseeable that the Claimant would be at the hotel, which indeed proved to be the case, as they were then informed by the hotel reception staff that the Claimant was absent abroad.

They did not prepare any written record of this diligence, having only left a notice with the hotel reception staff, whom they did not identify.

III.2. ON THE LAW

III.2.1. Question of expiry of the right to assess

AT effectively acknowledged that the notification made via postal service was made only with simple registration, and therefore, the first notification by registered letter was not made with acknowledgement of receipt. However, under the law, it did not have to be.

Under the provisions of no. 3 of Article 149 of the IRS Code, where the notification of an additional IRS assessment is not covered by the situations referred to in the previous numbers of said article, the notification thereof may be effected by simple registered letter, the notification being considered effected on the 3rd day following the date of registration or on the 1st useful day following that, if that day is not useful. An identical solution would be obtained under the provisions of no. 3 of Article 38 of the CPPT, since the present assessment was preceded by a procedure in which the taxpayer was notified for the purposes of exercising the right of prior hearing (and which he indeed came to exercise).

In this context, being the date of the registry of the sending of said assessment 9 May 2014, it should be considered that the same was notified to the taxpayer on 12 May 2014, i.e., before 16 May 2014, the date on which the right to assess would expire under the provisions of no. 5 of Article 45 of the LGT.

Even so, AT chose to proceed with personal notification of the act of additional assessment. This possibility is provided for in the law and within its discretionary powers.

Indeed, in this sense, see Supreme Administrative Court Decision no. 0305/11, of 21.09.2011:

"I - The additional IRS assessment must be notified to the taxpayer by registered letter with acknowledgement of receipt (Article 38, no. 1 of the CPPT and Articles 65, no. 4, 66 and 149, no. 2 of the IRS Code), but the entity that directs the procedure may order personal notification when it deems it necessary (no. 5 of Article 38 of the CPPT).

II - The choice of personal notification by the competent entity of the tax administration, to transmit to the recipient the content of the tax act, constitutes a manifestation of the exercise of a discretionary power that must weigh the effectiveness in fulfilling the intended objective and there is no failure of notification when such choice is made without the indication of the specific or concrete necessity intended to be achieved.

III - Personal notifications of tax acts, to be carried out in accordance with the rules of personal service of process, may be effected in accordance with any of the modalities of personal service of process provided for in the CPC, in particular personal service through contact by the civil servant with the party to be served and service with fixed time or through affixation with subsequent notice (Articles 239, 240 and 241 of the CPC).

IV - The subsequent sending of registered letter, within the period of 2 useful days, is a complementary and precautionary diligence subsequent to notification, communicating to the notified party the date and the manner in which the act is considered effected, as well as the period for filing a defense and the communications applicable to failure thereof, as well as the disposition given to the duplicate (Article 241 of the CPC). Sending the letter only on the 3rd useful day constitutes mere procedural irregularity which only produces nullity of notification if it is shown that this delay prejudiced the defense of the notified taxpayer."

See also Supreme Administrative Court Decision no. 0674/11, of 31.01.2012:

"AT may determine notification of an additional IRS assessment by direct personal contact by the civil servant (Article 38, no. 5, of the CPPT), which must be effected with the formalities provided for in the CPC, and personal contact is dispensable if the conditions of Article 240 of this Code are verified, that is, if the party to be notified is not found nor a person who can receive the notification.

For reasons of security, the law makes the validity of that notification dependent on compliance with various formalities: the civil servant shall leave an indication of the fixed time to carry out the diligence to the person encountered who is in the best position to transmit it to the party to be notified, or, when that is impossible, shall affix the respective notice at the most suitable location; on the appointed day, finding neither again the party to be notified nor a person to receive the notification, the civil servant shall affix at the most suitable location the respective note, in the presence of two witnesses; thereafter, a registered letter shall be sent to the party to be notified within the next two useful days.

Observed that said formalities are, the notification is considered effected on the date of affixation of the note referred to in Article 240, no. 3, of the CPC(…)."

In light of all the foregoing and as results from the documentary evidence attached, it appears that the Claimant was duly notified before the expiry deadline whereby the additional IRS assessment is valid and legal, not suffering from the vice of nullity as the Claimant contends, whereby all that has been alleged by the Claimant is without merit.

III.2.2. Question of irregularity of the notification of the Tax Inspection Report

The Claimant argues, subsidiarily, the irregularity of the notification of the final decision of the tax inspection report and of the implicit decision of indirect assessment was effected to the attorney whom the Claimant had appointed and who came to resign from the mandate granted.

Article 40, no. 1, of the CPPT states: "Notifications to interested parties who have appointed a representative shall be made to the person of such representative and at his office".

No. 2 of the same article provides that "when the notification is intended for the interested party to perform a personal act, in addition to notification to the representative, a letter shall be sent to the interested party, indicating the date, place and reason for the appearance".

As follows from the text of that no. 1, the interested party is notified in the person of the representative, whereby the former is considered notified, for all purposes, with the notification effected to the representative. This is the manner of notifying the interested party when there is a constituted representative.

The sending of a letter addressed to the interested party itself is only necessary in cases where notification is intended for the performance of a personal act requiring his appearance, as is evident from the final part of no. 2.

In the case at hand, there was no need to send a letter to the taxpayer himself, since the notification of the Tax Inspection Report is not intended to communicate the need to perform a personal act, understood as an act requiring his appearance.

On the other hand, in the event the representative resigns from the mandate, the resignation only produces effects vis-à-vis the Tax Administration after it has been notified thereof (Article 5, no. 3, of the CPPT).

Therefore, the notification that was effected to the representative, prior to the resignation, constitutes notification made to the Claimant.

Thus, there is no deficiency as to this notification, whereby the subsidiary vice alleged is without merit.

IV. DECISION

In the terms set forth above, this Arbitral Tribunal decides:

a) Judge the exception of material incompetence of the Arbitral Tribunal to be without merit;

b) Judge the prayer for relief to be wholly without merit and, as a consequence, not declare illegal the IRS assessment no. 2014 … relating to the year 2006, and respective compensatory interest;

c) Dismiss the Respondent from the prayer for relief; and

d) Condemn the Claimant for the costs of the proceeding.

VALUE OF THE PROCEEDING:

In accordance with the provisions of Articles 306, no. 2, of the CPC, 97-A, no. 1, letter a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 497,832.51 (four hundred ninety-seven thousand eight hundred thirty-two euros and fifty-one cents).

COSTS:

In accordance with Article 22, no. 4, of the RJAT, the amount of costs is fixed at € 7,650.00 (seven thousand six hundred fifty euros), under the terms of Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Claimant.

Lisbon, 11 May 2015.

The Arbitrators,

(Jorge Lopes de Sousa)

(Carlos Lobo)

(Ricardo Rodrigues Pereira)

[1] Jorge Lopes de Sousa, Code of Tax Procedure and Process, Annotated and Commented, Volume I, 6th Edition, Lisbon, Áreas Publisher, 2011, p. 345.

[2] In this sense, Joaquim Freitas da Rocha, Lessons on Tax Procedure and Process, 3rd Edition, Coimbra, Coimbra Publisher, 2009, pp. 138, 139 and 145 et seq.

Frequently Asked Questions

Automatically Created

What is the statute of limitations (caducidade) for IRS tax assessment in Portugal?
In Portugal, the statute of limitations (caducidade) for IRS assessment varies depending on circumstances. The general limitation period is four years from the year following the tax year in question (Article 45, LGT). However, when a criminal tax proceeding is initiated, the limitation period is suspended and extends to one year after the criminal case concludes (dismissal, archiving, or final judgment). In Process 670/2014-T, the assessment concerned the 2006 tax year, with a criminal inquiry dismissed on May 16, 2013. The Tax Authority argued it had until May 16, 2014, to complete the assessment. The claimant contested that the valid notification occurred on May 20, 2014, after this deadline, rendering the assessment time-barred and uncollectable. This case demonstrates that precise determination of when notification becomes effective is crucial for calculating whether the assessment right has expired.
How does the CAAD Tax Arbitration Tribunal handle disputes over the validity of tax notifications?
The CAAD Tax Arbitration Tribunal has jurisdiction to resolve disputes concerning the validity of tax notifications as they directly impact the legality of tax assessments. In Process 670/2014-T, the tribunal examined whether notification through 'appointment with fixed time' (appointment left at the taxpayer's hotel residence) complied with Portuguese Civil Procedure Code requirements (Articles 232-233, formerly 240-241). The claimant argued this notification method was invalid because mandatory procedural formalities were not observed. The tribunal must determine whether the May 14, 2014 hotel notification was valid or whether only the May 20, 2014 personal notification at the Finance Service constituted effective notice. This determination has critical consequences for assessing whether the Tax Authority's assessment right had expired. However, the Tax Authority raised a jurisdictional objection under CPPT Article 146-B(5), arguing that challenges to indirect assessment decisions require specific procedural mechanisms, potentially excluding arbitral tribunal competence for certain aspects of the dispute.
What are the legal requirements for valid notification of a tax assessment by the Portuguese Tax Authority (AT)?
Portuguese law establishes strict requirements for valid tax notification. Under the Code of Tax Procedure and Process (CPPT), notifications can be made by various methods including registered mail, personal delivery, or through tax representatives. The 'appointment with fixed time' mechanism, governed by Civil Procedure Code Articles 232-233, requires: (1) the taxpayer's absence when delivery is attempted; (2) leaving notice with indication of appointment date, time, and place; (3) proper documentation of delivery circumstances. In Process 670/2014-T, the claimant challenged notification validity because the Tax Authority left a 'Notice of Appointment with Fixed Time' at his hotel on May 12, 2014, and a 'Verification Certificate – Negative Note' on May 14, 2014, while he was absent in Spain. The claimant argued these procedures failed to comply with legal requirements. Payment deadlines depend on valid notification, as Article 104 of the IRS Code establishes specific timeframes. Invalid notification renders subsequent procedural acts irregular and may affect the assessment's legality.
Can a taxpayer challenge an additional IRS tax assessment and compensatory interest through arbitration in Portugal?
Yes, taxpayers can challenge additional IRS assessments and compensatory interest through the CAAD arbitration system under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). In Process 670/2014-T, the claimant filed a request for arbitral tribunal constitution on September 9, 2014, seeking declaration of illegality and annulment of IRS assessment no. 2014... for 2006 and respective compensatory interest. The arbitration provides an alternative to judicial courts for resolving tax disputes. However, the Tax Authority raised a preliminary exception of material incompetence, arguing that under CPPT Article 146-B(5), challenges to indirect assessment decisions require specific procedural mechanisms distinct from general arbitration. This jurisdictional question addresses whether certain types of assessment challenges—particularly those involving indirect assessment of taxable income—fall outside the arbitral tribunal's competence and must follow the specialized procedure established for contesting such administrative acts. The tribunal must first resolve this competence issue before examining the merits of the assessment challenge.
What happens when a tax representative renounces their mandate during a Portuguese tax inspection procedure?
When a tax representative renounces their mandate during a Portuguese tax inspection procedure, significant procedural consequences arise regarding notification requirements. In Process 670/2014-T, the claimant's representative was notified of the final inspection report in early April 2014, then resigned from the mandate, communicating this to both the claimant and Tax Inspection Services of Aveiro and Porto. The claimant argued that under CPPT Article 40(2), when the final inspection report incorporates an indirect assessment decision subject to direct judicial challenge, notification cannot be made solely to the representative. The claimant contended that the Tax Authority should have notified him personally, especially since the representative resigned while the period for filing contentious proceedings against the indirect assessment decision was still running. Failure to provide direct notification to the taxpayer after the representative's resignation allegedly restricted the claimant's right to judicial appeal against the indirect assessment decision, tainting the tax assessment procedure with illegality. This argument was presented subsidiarily, should the tribunal reject the primary statute of limitations defense.