Process: 757/2015-T

Date: July 15, 2016

Tax Type: IRC IVA

Source: Original CAAD Decision

Summary

Process 757/2015-T addresses critical procedural issues in Portuguese tax arbitration when taxpayers challenge multiple tax assessments arising from a single inspection. The taxpayer challenged additional VAT assessments (€2,317.30), IRC account adjustments (€5,076.37), and compensatory interest (€30.70) for fiscal years 2011-2013, all stemming from a customs inspection that revealed failures to issue invoices. The Tax Authority raised two preliminary exceptions: illegal cumulation of claims (arguing IRC and VAT cannot be combined in one arbitration request under Article 3(1) RJAT) and ineptitude of the petition (claiming the IRC claim lacked proper legal grounds). The taxpayer's substantive argument centered on the Tax Authority's alleged failure to properly substantiate the assessments, specifically failing to examine customer accounts and violating Article 58 LGT obligations to establish material truth and ensure impartial decision-making. The taxpayer's representative countered the procedural exceptions by emphasizing that both tax assessments originated from the same inspection action, suggesting they constitute a unified factual and legal matter. The case illustrates the tension between procedural efficiency (allowing related claims together) and the specificity requirements of tax arbitration under RJAT. Article 58 LGT imposes significant investigative duties on the Tax Authority, requiring thorough analysis and verification of documentation before making assessments. The CAAD appointed a sole arbitrator who ordered preliminary exceptions to be decided first, scheduled hearings, and examined witnesses from both parties. This case demonstrates how Portuguese tax arbitration handles complex procedural questions involving multiple tax types and the substantiation standards required of the Tax Authority when making arithmetic corrections based on inspection findings.

Full Decision

ARBITRAL AWARD

I – REPORT

1 – A…, Ltd., with Corporate Identification Number [1] …, with registered office at…, lot…, …-… –…, submitted on 17/12/2015 a request for the constitution of an arbitral tribunal, pursuant to article 2, paragraph 1, subsection a), article 3, paragraph 1, and article 10, paragraph 1, subsection a), all of the Legal Framework for Arbitration in Tax Matters [2] (RJAT), with the Tax and Customs Authority [3] (AT) being required, for the purpose of annulling the tax assessments for additional VAT [4] assessments, relating to the years 2011, 2012 and 2013, in the total amount of € 2,317.30, as evidenced by the assessment notes contained in the petition and hereby reproduced, and further for the annulment of three assessments for Corporate Income Tax [5] (CIT) account adjustments, relating to the years 2011, 2012 and 2013, in the total amount of € 5,076.37, as evidenced by the account adjustment schedule mentioned in the petition and hereby reproduced, and further for the annulment of one assessment for compensatory interest, relating to the same fiscal years, in the total amount of € 30.70, also as evidenced by the assessment note mentioned in the petition and hereby reproduced.

2 – Such additional assessments were based on an inspection action carried out by the Southern Operational Division of the Anti-Fraud Customs Services Department, which in turn gave rise to an internal tax inspection procedure by the Finance Department of … which resulted in corrections of a purely arithmetic nature in the VAT and CIT assessments, as referred to in the assessments and fiscal years already mentioned.

3 – The request for the constitution of the arbitral tribunal was made without exercing the option of appointing an arbitrator, and was accepted by the Honourable President of the Administrative Arbitration Centre [6] (CAAD) and automatically notified to AT on 17/12/2015.

4 – Pursuant to article 6, paragraph 2 of the RJAT, by decision of the Honourable President of the Ethics Council, duly communicated to the parties within the legally applicable time limits, the sole arbitrator Arlindo José Francisco was appointed, who communicated to the Ethics Council and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly stipulated time limit.

5 – The tribunal was constituted on 16/03/2016 in accordance with the provisions contained in article 11, paragraph 1, subsection c) of the RJAT, in the version introduced by article 228 of Law no. 66-B/2012 of 31 December.

6 – Through its request, the applicant seeks the annulment of the assessments already referred to, on the grounds that they clearly suffer from the defect of lack of substantiation, substantiation to which the AT is legally obliged.

7 – It considers that the AT did not proceed, as it is incumbent upon it to do, to a sufficient analysis for the effective determination of the reality of the facts, by failing to verify the necessary documentation, namely the customer accounts of the applicant.

8 – It further considers that the AT did not comply fully with the provisions contained in article 58 of the General Tax Law [7] (LGT), with a view to establishing the material truth and reaching an impartial decision.

9 – In its reply, the AT considers that the assessed liabilities in question should be upheld in the legal order, given that the arithmetic corrections that form their basis constitute a correct application of the law to the facts.

10 – It begins by invoking the dilatory exception of illegal cumulation of claims, on the grounds that it believes the requirements of article 3, paragraph 1 of the RJAT are not met, and therefore the invoked exception should be declared well-founded, absolving the defendant from the instance as to the entirety of the claim, or alternatively, as to the claim that does not proceed for consideration by the tribunal.

11 – It further invokes the dilatory exception of inadequacy of the claim, on the grounds that it believes the cause of action is lacking with respect to the annulment of the CIT assessments, given that therein there is no discernible source of the law invoked which, in the understanding of the defendant, the right proceeds.

II - CASE MANAGEMENT

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal standing and capacity, are shown to be legitimate and are regularly represented in accordance with articles 4 and 10, paragraph 2 of the RJAT and article 1 of Administrative Order no. 112-A/2011 of 22 March.

By order of 28/04/2016, the date of 19 May 2016 was fixed for the tribunal meeting, in accordance with article 18 of the RJAT, followed by the examination of the witnesses called.

On 04/05/2016, the defendant requested that a witness be admitted to be called, which was granted by order of the same date.

On 16/05/2016, the defendant requested that the tribunal rule on the exceptions it had invoked which, in its view, would be preventive of the proceedings, namely the examination of witnesses. The request was dismissed by order of 17 May 2016.

The tribunal met on 19 May without the presence of the applicant nor its legal representative, the CAAD informing that there was no certainty of its notification, and therefore, with the agreement of the representatives of the defendant, the meeting under article 18 of the RJAT was rescheduled for 25/05/2016 at 10:30, followed by the examination of witnesses.

On 25/05/2016 the meeting under article 18 took place with the presence of the parties and the representative of the applicant was given the floor to rule on the exceptions invoked by the AT, who considered that they had no merit given that both the VAT and CIT assessments in question resulted from the same inspection action.

When asked if he intended to correct or alter the petition, he declared he did not intend to make any correction or alteration to the request for arbitral pronouncement.

He dispensed with the examination of witnesses B… and C….

Witnesses D…, called by the applicant, and E…, called by the defendant, were examined.

A period of 15 days was granted for the submission of arguments to the applicant and to the defendant with successive treatment and in that order, fixing 15 July for the purpose of rendering the final decision.

The proceeding does not suffer from any defects. The exceptions already referred to were invoked by the defendant and will be considered first.

III - SUBSTANTIATION

1 – The issues to be decided with relevance to the proceeding are as follows:

a) Whether the exceptions invoked by the AT should or should not be declared well-founded.

b) In the negative, whether the assessments in question suffer from lack of substantiation and, in that event, whether they should be declared annulled, or, on the contrary, whether they should be upheld in the legal order, on the grounds that they are considered sufficiently substantiated and appropriate to the facts proved and the applicable legal rules in force.

2 – Factual Matters

The relevant facts proved on the basis of the elements attached to the proceeding are as follows:

a) The assessments which the applicant seeks to have annulled relate to 20 additional VAT assessments for the years 2011, 2012 and 2013, 3 CIT assessment acts relating to the same fiscal years and 1 assessment for compensatory interest relating to the same periods.

b) The same originated from an inspection action carried out by the Southern Operational Division of the Anti-Fraud Customs Services Department which communicated to the AT – Finance Department of … which through an internal inspection action made the arithmetic corrections in the VAT and CIT assessments, as per the assessments here impugned.

c) In the customs inspection, the failure to issue invoices or cash sales in the various operations of the applicant was ascertained, which during the prior hearing period came to justify partially, justifications which were accepted.

d) In the witness examination presented, although an attempt was made to explain the regularity of the procedures and the difficulties contained in the entire operational process, it was admitted by the witness of the applicant the impossibility of presenting justifications for the totality of the operations.

e) At the meeting under article 18 of the RJAT, the legal representative of the applicant considered that the defendant's exceptions had no merit, given that they resulted from the same inspection action, and when asked if he intended to correct or alter the initial petition, he declared he did not intend to make any correction or alteration to the request for arbitral pronouncement.

f) The defendant did not submit arguments and the applicant submitted them on 24 June 2016.

3 – Legal Matters

3.1 – Consideration of the exceptions invoked by the AT:

Illegal Cumulation of Claims

The AT, in the first instance, raises the exception of illegal cumulation of claims, on the grounds that it believes the requirements of article 3, paragraph 1 of the RJAT are not met, sustaining its position on the fact that the claims formulated relate to different tax acts, that is to say, CIT and VAT assessments that do not depend on the same principles or rules of law, despite having resulted from the same inspection action. It enumerated some arbitral decisions already rendered in this sense and from the Central Administrative Court [8] (TCA) South, to conclude that the provisions of the RJAT are in line with article 104 of the Tax Procedure and Process Code [9] (CPPT), and that, in the situation in question, we are in the presence of illegal cumulation of claims.

For its part, the applicant considers that there is no illegality in the cumulation of the claims in question, given that they result from the same inspection action and as such did not correct or alter the request for arbitral pronouncement as has already been seen, despite being invited to do so.

In analyzing article 3, paragraph 1 of the RJAT, we find that the cumulation of claims is admissible provided that the merit of the claims depends essentially on the consideration of the same factual circumstances and on the interpretation and application of the same principles or rules of law, a provision that follows from article 104 of the CPPT and which requires the simultaneous verification of two requirements, the consideration of the same factual circumstances and the application of the same principles or rules of law. It should be said that, although we may be faced with the same or similar circumstances of fact for both claims, the fact is that the same principles or rules of law are not applicable to them, in the case of VAT, the provisions of the VAT Code [10] (CIVA) are applicable and in the case of CIT, the Corporate Income Tax Code [11] (CIRC) applies. Therefore, the tribunal understands that the conditions required by the provision under analysis are not cumulatively met, and consequently the cumulation of the claims formulated by the applicant is not admissible.

In light of this understanding, we are in the presence of a dilatory exception provided for in article 89, subsection g) of the Administrative Court Procedure Code [12] (CPTA) which prevents the tribunal from ruling on the merits of the case, as per article 576, paragraph 2 of the Civil Procedure Code, provisions applicable ex vi article 29, paragraph 1, subsections c) and e), respectively, of the RJAT.

Inadequacy of the Claim Relating to the Annulment of CIT

In light of the above regarding the cumulation of claims, the tribunal dispenses with ruling on this point.

3.2 – Lack of Substantiation of the Assessments

By reason of the foregoing in 3.1, the tribunal is prevented from ruling.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare well-founded the dilatory exception of illegal cumulation of claims invoked by the AT, with its consequent absolution from the instance, in accordance with article 4, paragraph 3 of the CPTA, applicable ex vi article 29, paragraph 1, subsection c) of the RJAT.

b) Value of the proceeding: € 7,424.37 in accordance with the provisions contained in article 299, paragraph 1 of the Civil Procedure Code [13] (CPC), article 97-A of the CPPT, and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings [14] (RCPAT).

c) Costs charged to the applicant, under article 22, paragraph 4 of the RJAT, fixing the respective amount at € 612.00, in accordance with the provisions of Table I referred to in article 4 of the RCPAT.

Notify.

Lisbon, 15 July 2016

The sole arbitrator,

Arlindo Francisco

Text prepared by computer, in accordance with article 131, paragraph 5 of the CPC, applicable by reference from article 29, paragraph 1, subsection e) of the RJAT, with blank lines and revised by the tribunal.

[1] Acronym for Corporate Identification Number
[2] Acronym for Legal Framework for Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Value Added Tax
[5] Acronym for Corporate Income Tax
[6] Acronym for Administrative Arbitration Centre
[7] Acronym for General Tax Law
[8] Acronym for Central Administrative Court
[9] Acronym for Tax Procedure and Process Code
[10] Acronym for Value Added Tax Code
[11] Acronym for Corporate Income Tax Code
[12] Acronym for Administrative Court Procedure Code
[13] Acronym for Civil Procedure Code
[14] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What happens when IRC and IVA claims are combined in a single tax arbitration request in Portugal?
When IRC and IVA claims are combined in a single tax arbitration request, the Portuguese Tax Authority may raise a dilatory exception of illegal cumulation of claims under Article 3(1) RJAT. However, if both assessments originate from the same inspection action and share common factual and legal grounds, the taxpayer can argue they constitute a unified matter appropriate for combined adjudication. The CAAD arbitrator must decide this procedural exception before proceeding to substantive issues, balancing procedural efficiency against the requirement that each tax type may have distinct legal frameworks and assessment procedures.
What constitutes ineptitude of a petition (ineptidão do pedido) in Portuguese tax arbitration proceedings?
Ineptitude of a petition (ineptidão do pedido) in Portuguese tax arbitration occurs when the request fails to meet essential procedural requirements, such as lacking a discernible legal basis for the claim, failing to identify the specific legal provisions allegedly violated, or not establishing a clear cause of action. In Process 757/2015-T, the Tax Authority argued the IRC portion of the claim was inept because no identifiable legal source was invoked to support the taxpayer's rights. This exception, if sustained, could result in absolution from the instance for the inadequate portion of the claim while allowing properly formulated claims to proceed.
Can a taxpayer challenge additional IVA and IRC assessments based on lack of substantiation by the Tax Authority?
Yes, a taxpayer can challenge additional IVA and IRC assessments based on lack of substantiation by the Tax Authority. Portuguese law requires the Tax Authority to properly substantiate all tax assessments, including providing sufficient factual analysis and legal reasoning. Taxpayers can argue the Authority failed to examine necessary documentation (such as customer accounts), conduct adequate investigation to determine factual reality, or provide sufficient explanation for arithmetic corrections. However, the Tax Authority will typically defend by demonstrating that assessments constitute correct application of law to proven facts, and that any corrections were based on inspection findings showing specific irregularities like failure to issue invoices.
What are the obligations of the Portuguese Tax Authority under Article 58 of the LGT regarding discovery of material truth?
Article 58 of the General Tax Law (LGT) imposes fundamental obligations on the Portuguese Tax Authority to establish material truth (verdade material) and reach impartial decisions in tax proceedings. This requires the Authority to: conduct thorough investigations beyond superficial analysis; verify all necessary documentation relevant to determining the true facts; actively seek evidence that may favor either the taxpayer or the State; and avoid relying solely on formal deficiencies without examining substantive reality. These obligations ensure administrative proceedings are not merely adversarial but inquisitorial, with the Authority duty-bound to discover objective truth rather than simply accepting the most convenient interpretation of available evidence.
How does the CAAD handle arbitration requests involving multiple tax types and fiscal years?
The CAAD handles arbitration requests involving multiple tax types and fiscal years through a structured procedural framework. Upon receiving the request, the CAAD President appoints a sole arbitrator (or panel if requested) who must address preliminary exceptions before substantive issues. When the Tax Authority raises exceptions like illegal cumulation of claims or petition ineptitude, the arbitrator orders these decided first, potentially after hearing parties at the Article 18 RJAT meeting. If multiple tax years and types arise from a single inspection action, the tribunal may accept unified proceedings for efficiency. The process includes witness examination, written arguments with successive submissions, and a final decision addressing both procedural and substantive issues in sequence, ensuring each claim component receives appropriate legal analysis.