Process: 764/2015-T

Date: September 7, 2016

Tax Type: IRC IVA

Source: Original CAAD Decision

Summary

Process 764/2015-T addresses critical procedural issues in Portuguese tax arbitration involving both Corporate Income Tax (IRC) and Value Added Tax (IVA) assessments. The case concerns A... S.A., a consulting and management services company, which challenged tax assessments totaling €316,101.99 arising from a tax inspection triggered by IVA recovery requests covering 2010-2014. The taxpayer provided services to B..., a multinational investment firm, with expenses being questioned regarding their deductibility as business costs. The arbitral tribunal, constituted under CAAD (Centre for Administrative Arbitration) on March 8, 2016, comprised three arbitrators appointed according to LRATM (Legal Regime for Arbitration in Tax Matters) procedures. Key procedural questions emerged regarding the adequacy of the initial petition (ineptidão da petição inicial) and timeliness (tempestividade) of the arbitration request. The case illustrates the intersection of substantive tax issues—concerning the deductibility of expenses for IRC purposes and VAT recovery rights—with fundamental procedural requirements under Portuguese tax arbitration law. The petition notably lacked a specific conclusion or formal request despite extensive factual narrative about the company's business model, expenses incurred, and contractual arrangements with its principal client. This procedural deficiency raised questions about whether the petition met the minimum legal requirements established in Article 10 of LRATM, which mandates specific formal elements for valid arbitration requests. The case demonstrates the importance of proper petition drafting in tax arbitration proceedings and the tribunal's role in examining preliminary objections before addressing substantive tax matters.

Full Decision

ARBITRAL AWARD

The arbitrators Dr. Fernanda Maçãs (arbitrator-president), Dr. Fernando Pinto Monteiro and Dr. Américo Brás Carlos, appointed, respectively, by the Claimant and the Respondent, hereby agree as follows:

I – Report

  1. The taxpayer A..., S.A., with the NIPC ... (hereinafter "Claimant"), filed a request for constitution of a Collective Arbitral Tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter "LRATM"), in which the Tax and Customs Authority (hereinafter "TCA" or "Respondent") is the respondent.

  2. In such request, the Claimant requests the arbitral pronouncement on what it designates as acts of assessment of Corporate Income Tax (CIT), Value Added Tax (VAT) and compensatory interest, assigning to the case a value of €316,101.99.

  3. The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of the Centre for Administrative Arbitration (CAAD) and automatically notified to the TCA.

  4. In the request for arbitral pronouncement, in accordance with the provisions of article 10, paragraph 2, subsection g), of Decree-Law No. 10/2011, of 20 January (hereinafter, Legal Regime for Tax Arbitration or LRATM), the Claimant expressed its intention to appoint an arbitrator in accordance with subsection b) of paragraph 2 of article 6 of the aforementioned LRATM.

  5. Consequently, the constitution of the arbitral tribunal proceeded in accordance with the provisions of subsection b) of paragraph 2 and paragraph 3 of article 6 and paragraphs 2, 4, 5 and 6 of article 11 of the LRATM, with the parties having proceeded to appoint their respective arbitrator, Dr. Fernando Pinto Monteiro, appointed by the Claimant, and Dr. Américo Brás Carlos, appointed by the Respondent, who, in turn, in compliance with the provisions of article 3, paragraph 2, subsection b), of Portaria No. 112-A/2011, of 22 March, appointed the President Arbitrator, Dr. Fernanda Maçãs.

  6. In accordance with and for the purposes of the provisions of paragraph 7 of article 11 of the LRATM, the Honorable President of the CAAD informed the Parties of such appointment on 22/2/2016.

  7. In accordance with the provisions of paragraph 7 of article 11 of the LRATM, as amended by article 228 of Law No. 66-B/2012, of 31 December, after expiry of the period provided for in paragraph 1 of article 13 of the LRATM, it was communicated that the collective Arbitral Tribunal was duly constituted on 08/03/2016.

  8. In the request for arbitral pronouncement offered by it, the Claimant invoked, in summary, that:

a) The Claimant is a VAT taxable person and was classified under the normal monthly periodicity regime in the tax years 2010 and 2014, while in the period 2012 and 2013 it maintained the normal quarterly periodicity regime. It is subject to CIT classified under the general regime for determination of taxable profit.

b) As a consequence of the request for VAT recovery, covering the period from January to October 2014, subsequently extended to the years 2010, 2011, 2012, 2013 and 2014, the claimant was subject to an external tax audit action, with the audit reaching the conclusions contained in the Report of 30 July 2015, in which certain expenses are flagged that it considered to be of doubtful acceptability as costs of the fiscal years.

c) B... is a multinational dedicated to investment in small and medium-sized enterprises worldwide and represents the principal client of the Claimant, to which practically all of its billing corresponds.

d) A... concluded, on 12 June 2008, with effect from 1 January, with B..., with head office in ..., Brussels, an agreement for the provision of consulting and management services in matters of investment in Europe, it being agreed that, for the services provided to A..., it would receive annually €362,200, plus VAT (if applicable), paid monthly following the receipt of an invoice, within 5 days following the end of each month.

e) It was also agreed that, depending on the results of the business and the services provided by A... (consultant) to B..., success fees (bonuses) would be granted to be paid sporadically throughout the year, and that A... would be reimbursed by B... for all necessary and reasonable expenses incurred in the execution hereof (including but not limited to travel, food, document recovery and postal services), with A... to submit monthly invoices for expenses incurred, with description of the date and nature thereof, as well as copies of all receipts.

f) For adequate execution of the consulting services, A... would be authorized to rent an airplane to be used reasonably by the person providing the services and only for pursuit of such services, as well as to have at its disposal a vehicle, in the name of A... . All expenses would be borne by B..., as provided for in the aforementioned agreement.

g) On 15-05-2015 the Claimant was notified to provide clarifications on the VAT deducted in 2010, 2011, 2012, 2013 which related to goods and services acquired, imported or used and on the indispensability of various goods and services in the tax years 2011, 2012 and 2013. In its response A... informed that for the development of its activity it is fundamental to maintain contact with service providers present in various countries where there is investment interest, as well as in various existing markets, whether in consumer goods, goods and services, new technologies, healthcare, etc. It also attached accounting elements relating to the calculations and completion of tax returns.

h) All expenses that were monthly passed on to B... were accepted. However, some cases that were not directly passed on to B... remained, which the Tax Administration did not consider to meet the conditions to be accepted as tax costs for calculation of taxable income.

i) Being an activity that requires substantial capital and apparent good financial capacity, A... chose to limit the necessary installation costs, making available immediately part of the house of an administrator and relying on the development of the activity to then make other necessary investments, namely in the installation of services.

j) It is essential that the results of interventions be positive for both A... and its clients. One of the difficulties for the activity of A... are overly closed tax systems, particularly in times of contraction, where certain types of limitations should be eased.

k) For the formation of taxable profit, only expenses that meet three elements can (must) contribute: they are effective and proven; for which their indispensability is demonstrated; which serve to realize income or maintain the source of production. Expenses and/or costs that are indispensable for realization of profits, without which there could not be exercise of the activity nor obtain the profits or gains that it obtained or may come to obtain, are indispensable.

l) The taxpayer has the right to define the strategy, organization and other characteristics that it deems most appropriate for its activity with the aim of maximizing its productive capacity. Both the current Portuguese Constitution and the General Tax Law point to the fact that the taxation of companies should focus fundamentally on their income and productive capacity.

m) It is true that the activities of A... continue, although it is reasonable that NOT ALL ACTIVITIES that will be developed in compliance with contracts appear in the records, since it is important to stimulate and use the vanity of potential clients, satisfy their whims (paid by them).

n) All expenses are properly documented, correctly accounted for and were incurred exclusively in the superior interest of the company.

o) Such expenses are listed by the Claimant narratively and by inclusion of tables.

p) The Claimant makes no request.

  1. In accordance with paragraphs 1 and 2 of article 17 of the LRATM, the Respondent was notified to present its response, which it did, accompanied by the Administrative File, alleging, in summary, the following:

a) The Claimant at no time proceeds to identify the tax acts it intends to challenge, nor formulates a request, which represents a defect of ineptitude of the initial petition.

b) In addition to not proceeding to identify, even minimally, the tax acts placed in question, the Claimant did not even proceed to attach them in the form of documents.

c) The reasoning employed by the Claimant to assign the value of €316,101.99 to its request for arbitral pronouncement is not understood.

d) The Tribunal is incompetent to know of the act which the Claimant designates as "Other acts No. OI2014..., of 2015 (Tax Inspection Services)", since it is not a question of a tax act, but rather, at best, an act in tax matters.

e) The Tribunal cannot pronounce on the external service orders No. OI2015..., No. OI2015... and No. OI2015..., which were not indicated, neither in the request for constitution of an arbitral tribunal, nor in the request for arbitral pronouncement.

f) What the Claimant calls "Other acts No. OI2014..., of 2015 (Tax Inspection Services)" constitutes the tax inspection report and this does not constitute the final act of the tax procedure, and is therefore not susceptible to contentious challenge, and this should not be admitted, under penalty of organic unconstitutionality.

g) The Claimant has not demonstrated that the requirements of identity regarding the circumstances of fact and the interpretation and application of the same rules of law are met, as to the assessments in question. Such conditions are not fulfilled, and therefore the accumulation of requests is illegal.

h) The legally defined deadline for challenging acts of assessment of CIT, VAT and compensatory interest is clearly exceeded.

i) By comparing the list of purely arithmetic corrections made by the Respondent with the list of corrections against which the Claimant objects and considering its partial admission as to the purely arithmetic correction related to the duplication of VAT deduction in the amount of €246.29, it is necessary to conclude that the Claimant did not challenge, or "let fall", in its request for arbitral pronouncement the following remaining questions: a) Detection of a duplication of expenses in CIT in the amount of €1,070.82 (see page 23 of the report); b) Failure to assess VAT on intra-community acquisitions (see pages 36 to 37 of the report); and c) Failure to assess VAT on the sale of a vehicle (see pages 37 and 38 of the report), by which as to these there is partial res judicata.

j) It is the burden of the taxpayer to prove the existence of tax facts which it alleges as the basis of its right. The Claimant has failed to do so.

k) Faced with the conclusions of the Respondent and contrary to what clearly appears in the agreement with B..., the Claimant has come to unilaterally alter the contractual qualification of the costs it incurred and which it could not succeed in having recognized by the Respondent in the procedural phase.

l) From the agreement concluded it results that the variable fees constitute payments of amounts dependent on business results and not expenses (costs).

m) The only "proof" introduced into the case amounts to a set of vague statements and imprecise concepts, containing various internal contradictions throughout its reasoning and distorting the reality of the facts.

n) The supposed expenses incurred in favor of the activity of the Claimant are, in fact, expenses in favor of the personal comfort of its own administrator (namely, expenses regarding the "head office" of the Claimant), in favor of the leisure activities of its own administrator (namely, golf, box at the stadium of...) and in favor of automotive competitions of its own administrator (namely, expenses related to E... vehicles).

o) The corporate purpose and the classification of economic activity of the Claimant do not contemplate the pursuit of automotive activities and advertising activities.

p) The activity of the Claimant is intended (almost) exclusively for compliance with the agreement concluded with B..., an agreement which does not provide for advertising activity or competitive automotive sport.

q) From the analysis of photos of E... competition vehicles (see annex 8 of the inspection report), there is the existence of advertisements displayed on them, namely F..., G..., H..., I..., J..., K..., L..., M..., N... and E... . There is also an absence of any advertisement relating to B... on the vehicles themselves, which is, at the very least, strange if one thinks that the Claimant was supposed to use them to publicize that company and gain it new clients and business opportunities.

r) There is thus no nexus of causality between the activity of the Claimant and the sporting events, nor between the advertising displayed on the competition vehicles and the existence of income in the accounting of the Claimant relating to those very advertisements. On the contrary, the only nexus of causality is that which exists between the administrator of the Claimant and the sporting events or, rather, between the administrator of the Claimant C..., his brother D... and the sporting events.

s) The Respondent has not demonstrated and continues not to demonstrate the separation that should exist between what is the business assets and what is the personal assets of its administrator.

t) The foregoing applies, mutatis mutandis, with regard to depreciation not fiscally accepted in CIT and regarding improper VAT deduction.

u) The Respondent concludes by formulating a request for its acquittal from the instance and, subsidiarily, from the request.

  1. The Claimant exercised its right of reply regarding the exceptions raised by the Respondent in the hearing held under article 18 of the LRATM, arguing for the rejection of those exceptions. With respect to the exception of ineptitude of the initial petition, the Claimant sustained that, having the TCA contested, it understood the response presented, and therefore, in harmony with the provisions of article 186, paragraph 3, of the Civil Procedure Code, the argument of ineptitude should be considered unfounded.

Regarding the untimeliness of the request, the Claimant alleged that the assessments were notified to it on 15 September and that, contrary to what was invoked by the Respondent, it benefits not only from an extension of three days, but rather 25, by virtue of the provisions of article 39, paragraph 10, of the Tax Procedure and Process Code.

In the aforementioned hearing, the Claimant was also granted a deadline for concretization of the factual matter regarding which it intended the production of testimonial evidence.

II - Sanitation of the Case

a) The parties have legal personality and capacity and benefit from procedural standing, in accordance with articles 4 and 10, paragraph 2, of the LRATM and article 1 of Portaria No. 112-A/2011, of 22 March.

b) The TCA proceeded to appoint its representatives in the case and the Claimant attached power of attorney, with the Parties thus being properly represented.

c) The Respondent raised the dilatory exception of ineptitude of the initial petition.

A decision must be made.

The consideration of the merits of the case presupposes that the conditions of a procedural nature are met for such consideration.

The LRATM does not contain its own regime regarding exceptions and procedural nullities; in such matters, the provisions of the Tax Procedure and Process Code, the Administrative Court Procedure Code and the Civil Procedure Code apply, as a subsidiary matter, as follows from the provisions of article 29, paragraph 1, subsections a), c) and e) of the LRATM.

In accordance with the provisions of article 186, paragraph 2, of the Civil Procedure Code, there is ineptitude of the initial petition when the indication of the request or the cause of action is missing or unintelligible; when the request is in contradiction with the cause of action; and when causes of action or substantially incompatible requests are accumulated.

Being at issue, in the present instance, an action in which the Tribunal is asked to pronounce on acts of assessment, the facts corresponding to the identification of the tax acts in question represent essential factuality, and thus form part of the cause of action.

This is, furthermore, content which, by its essential nature, must, in accordance with the provisions of article 10, paragraph 2, b), of the LRATM, necessarily form part of the request for arbitral pronouncement.

The Claimant, however, merely makes reference, in an absolutely vague and imprecise manner, in the initial petition, to "acts of assessment of CIT, VAT", as well as, in the form for constitution of the arbitral tribunal, to "Other acts No. OI2014..., of 2015 (Tax Inspection Services)", thus not identifying, even approximately, the tax acts that are the object of the action.

This represents an omission of an essential formality, as well as an element of essential mention in the context of the cause of action.

To this omission is added the circumstance that, in violation of the provisions of article 10, paragraph 2, c), of the LRATM, the Claimant also omitted the formulation of a request. In fact, the petition culminates with the exhibition of graphics, the formulation of a request for evidence, the appointment of an arbitrator and the indication of the case value, with no request being addressed to the Tribunal.

As Alberto dos Reis observes, in Commentary to the Civil Procedure Code, vol. 2, p. 372, "it is important not to confuse an inept petition with a simply deficient petition... When the petition, being clear and sufficient as to the request and cause of action, omits fact or circumstances necessary for recognition of the author's right, it cannot be taxed as inept".

All of which reveals, in this measure, that, in the present case, it is not a question of mere insufficiency, incompleteness or even unintelligibility of the request, but its total absence.

In fact, if the absence of reference to the tax acts that are the object of the action represents, at least, an omission of an essential part of the cause of action, already as to the request, the omission committed by the Claimant assumes an integral nature, which, in accordance with the stipulation in article 186, paragraph 2, a), of the Civil Procedure Code, constitutes a cause of ineptitude of the initial petition.

There is therefore one of the types of deficiencies "of a substantive character, which irremediably" compromise "the purpose of the initial petition" (Antunes Varela, Sampaio and Nora and Miguel Bezerra, Manual of Civil Process, 1985, Coimbra Editora, p. 244).

This embodies, in turn, irregularity that generates the nullity of the entire process (see article 186, paragraph 1 of the Civil Procedure Code), whose legal provision, as a dilatory exception, appears in article 89, paragraph 4, b) of the Administrative Court Procedure Code.

It represents, on the other hand, an incurable nullity, as follows from the stipulation in article 98, paragraph 1, a), of the Tax Procedure and Process Code, determining, consequently, the acquittal of the Respondent from the instance (see article 576, paragraph 2 of the Civil Procedure Code).

It should be noted, in this regard, that, even if, perhaps, it were sustainable to understand that the ineptitude of the initial petition is not to be judged unfounded when it were verified that the respondent properly interpreted the initial petition (article 186, paragraph 3 of the Civil Procedure Code), the Tribunal understands that such a solution can only apply to elements which, although in an unintelligible manner, actually appear in the petition.

Only as to elements which, although in a gravely ambiguous or obscure manner, are found in the pleading, can it be concluded that, notwithstanding such irregularity, there was a proper interpretation.

What is not contained in the procedural document is not susceptible to interpretation (good or bad).

Now, as stated above, the Claimant completely omitted the formulation of a request, which thus would always keep the vice of ineptitude of the petition and, consequently, the nullity of the entire process subsisting.

On the other hand, the request is an element of the initial petition which, in addition to being important to the respondent (so that it can properly conform its defense), assumes an essential character to the tribunal, in so far as it is on the basis of the request that the tribunal assesses the type of jurisdictional activity requested of it and defines the boundaries and scope of knowledge of the merits that are permitted and owed to it. Conclusions which, in the present case, in view of the tenor of the initial petition, and in particular, of the absence therein of the formulation of a request, the tribunal cannot ascertain, thus not meeting the minimum conditions for it to know the merits.

Terms in which, and even if, in abstracto and in logical incoherence, it could be said that the respondent properly interpreted an element non-existent in the pleading, always the tribunal could not achieve this, when this was so essential for being able to know the substance of the case, thus the ineptitude of the initial petition not being considered cured.

d) Furthermore, the procedural effect of this dilatory exception does not imply, in the present case, the overlaying of formal justice over substantive justice. In fact, even if this vice were considered remediable or could be considered, in the present case, this vice non-existent, always the action would be considered unfounded. For two essential and exemplifying orders of reasons.

d.1) In fact, and on the one hand, the Claimant does not identify which are the tax acts that are the object of the challenge.

The Claimant refers only to the inspection report of 30 July 2015, which it attaches as Doc. 1.

The Claimant invoked, in the hearing held, in reply to the exception of incompetence of the Tribunal (raised by the Respondent), that the object of the challenge it formulates is not the inspection report, but the consequences that gave rise to the assessment. It should be noted that this does not result from the tenor of its pleading and that, being the acts of assessment essential facts, the initial petition would be the proper forum and the correct moment for their allegation and attachment of documentary evidence (article 10, paragraph 2, d) LRATM).

The Claimant came, in a subsequent request, to invoke new facts (corresponding to acts of assessment and identification of the respective assessment notes) and requested the attachment of documentary evidence relating to the new factuality invoked.

Because the new facts corresponded to non-supervening facts, which the Claimant should have alleged in the initial petition - the pleading where, as mentioned, it did not do so, not having therein identified any acts of assessment, the tribunal considered that such pronouncement and allegation of fact were to be considered as not written, because untimely.

With regard to the request for attachment of documentary evidence, the tribunal pronounced that - reporting such evidence to new factuality, of inadmissible invocation at the moment it takes place, and in so far as all evidence must necessarily relate to facts regularly invoked in the process (which is not the case in the present hypothesis) – the said request was denied, with the documents in question to be extracted.

Thus, it is a matter of essential fact not susceptible of allegation at the moments in which the Claimant makes it.

However, even if, by hypothesis, it were considered the inspection report an object susceptible of challenge or if some relevance could be granted to what the Claimant invokes, its challenging intention would still not merit approval.

d.2) In fact, always such a claim would suffer from untimeliness.

If not, let us see.

The Claimant had a period of three months (article 102, paragraph 1 of the Tax Procedure and Process Code) to initiate the challenging action, by offering an initial petition.

The moment the counting of such period begins coincides with the moment of notification.

The notification referred to in the pleadings and attached documents – relating to the inspection report - was effected by registered mail through the office of the Tax Administration of ... No. ... of 13/08/2015 (see 4th part of the PA), which is consistent with the provisions of article 38 of the Tax Procedure and Process Code. The registration of the letter in question took place on 13/08/2015 (see 5th part of the PA) and was received on 14/08/2015, as shown by the document proving the CTT receipt attached by the respondent to its response (see doc. No. 2).

In this hypothesis, and in accordance with the provisions of article 39, paragraph 1 of the Tax Procedure and Process Code, notification is presumed to be effected on the third day following the date of registration or on the first business day subsequent thereto. That is, notification took place on 17 August 2015, with the peremptory period of three months commencing on the following day (18.08.2015).

As results from paragraph 1 of article 20 of the Tax Procedure and Process Code, periods for judicial challenge are counted in accordance with article 279 of the Civil Code (continuous counting, commenced on the day following notification, with its term transferred to the first business day following, if it falls on a Saturday, Sunday or holiday), so the last day for filing the action corresponded to 18.11.2015.

In the same sense, see, by way of example, with doctrinal and jurisprudential references, Carla Castelo Trindade, Legal Regime for Arbitration in Tax Matters Annotated, 2016, Almedina, pp. 263 and 264.

Having the request for arbitral pronouncement been offered only on 18.12.2015, the Respondent did not intervene in time to prevent the running of the period of caducity, even if the act in question were impugnable.

As we have seen, the Claimant sustained, in a hearing, that it would benefit from the extended period of 25 days provided for in article 39, paragraph 10, of the Tax Procedure and Process Code. It argued, for that purpose, that the acts of assessment would have been notified to it, via electronic means, on 15 September 2015 and that it did not have access to the electronic mailbox at any earlier moment.

Now, and in the first place, as was stated, the Claimant refers, in such invocation, to acts of assessment, when, at the appropriate moment (phase of the pleadings), it did not do so. It did not proceed, therein, as was incumbent upon it, to the identification of the acts of assessment, nor did it refer to the date of notification thereof, nor did it make proof as to any of these aspects.

The untimely reference (in a hearing) to the acts of assessment is, furthermore, vague and imprecise, with the Claimant not having even therein proceeded to the proper indication of the identifying elements of the tax acts to which it refers.

In the second place, the Claimant made no proof, neither of the date of notification of the acts in question, nor that such notification occurred by electronic means, nor that it did not have access to the electronic mailbox at any earlier moment.

In the absence of timely allegation there is added, thus, the absence of proof, whereby the period of caducity would always have run, even if, in some way, it could be considered that the present process had had as its actual object acts of assessment.

Should the ineptitude exception prove well-founded (if there were no basis for it), the decision of the action would culminate in the acquittal of the Respondent from the request.

Explanations which are intended to highlight that the procedural effect of the dilatory exception of ineptitude of the initial petition does not represent, in the present action, an undue overlay of form over substance, thus not constituting mere formal and ritualistic obstacle to success on the merits.

IV. Decision

In light of all the foregoing, it is decided to acquit the Respondent from the instance.

V. Case Value

The case value is fixed at €316,101.99, in accordance with the provisions of article 97-A of the Tax Procedure and Process Code, applicable by virtue of article 29, paragraph 1, subsection a), of the LRATM and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Lisbon, 7 September 2016.

The Arbitrators,

Fernanda Maçãs
(President)

Fernando Pinto Monteiro

Américo Brás Carlos

Dissenting Opinion

I voted against the decision of the Collective Tribunal in case No. 764/2015-T of the Centre for Administrative Arbitration (CAAD) - Tax Arbitration, for the following reasons:

Although I acknowledge that the initial petition of A..., S.A. is deficient, due to lack of clear and express indication of request and cause of action, I nevertheless understand that such deficiency does not render it inept, since careful analysis of the Initial Petition, as required in an option with these consequences, seems to leave no doubt as to what the author, now Claimant, intends.

We cannot forget that the legal regime expressly adopted a lighter procedure, which it called a "procedure without special formalities", as appears in the preamble of the Legal Regime for Arbitration in Tax Matters, approved by Decree-Law No. 10/2011, of 20 January.

It is unanimous among specialists, in particular, and for all, Professor JOSÉ ALBERTO DOS REIS, the interpretation, according to which "the petition is inept when by means of it we cannot discover what type of remedy the author proposes to obtain from the Judge, or what legal effect it intends to achieve by way of the action".

In our view, this is the present case.

I grant that the drafting of the petition is not felicitous, but not to the point of being inept, since it makes it perfectly clear what the author intends, which is also deduced from the fact that the request was accepted and not rejected summarily.

On the other hand, and reinforcing the (albeit deficient) legality of the request, the TCA, in its response, demonstrates perfectly that it understood the request, without any doubt, so much so that, consistently, it contested it point by point, whereby article 186, paragraph 3, of the Civil Procedure Code has full application here and prevents the qualification of ineptitude.

In the same sense, among others, the Court of Appeal of the Court of Appeal of Lisbon, Case 24944/10.2T2SNT.L 1-6, "recognizes this to be the only situation of initial ineptitude that is capable of being overcome through procedural actions and, expressly, derives from article 193, paragraph 3 of the Civil Procedure Code." (Currently 186, paragraph 3).

Moreover, the request was initially accepted, which also demonstrates that it was understood.

In our view, the spirit of the law is to "save" requests that are only formally imperfect, whereby the Claimant should have been given the opportunity to improve the request of the petition, where, among others, the question of timeliness of the request should be clarified, which was not demonstrated in the initial petition, although it should have been.

Given that the order for improvement serves to remedy and supply deficiencies, I continue to believe that an order for improvement should have been issued, allowing a reasonable period—15 days—for A... to overcome the deficiencies.

Among the questions to be "improved" would be the timeliness of the request. The Claimant, due to change of the responsible technician, did not have access to the mailbox and, upon "beginning duties" had to start anew and that took some time, which the award did not take into account.

Lisbon, 7 September 2016

Fernando Pinto Monteiro

Frequently Asked Questions

Automatically Created

What are the grounds for declaring an initial petition inadequate (ineptidão da petição inicial) in Portuguese tax arbitration?
Under Portuguese tax arbitration law (LRATM), grounds for declaring an initial petition inadequate (ineptidão da petição inicial) include failure to comply with mandatory requirements of Article 10, paragraph 2 of the LRATM. The petition must contain: identification of the parties, description of the contested acts, factual and legal grounds, specification of evidence, express statement of requesting arbitration, value of the case, and crucially, the specific conclusion or request (pedido). In this case, the claimant provided extensive factual narrative but failed to formulate a clear, specific request for relief, stating only 'The Claimant makes no request.' This omission constitutes a fundamental defect that may render the petition inept, as the tribunal cannot determine what specific relief or decision is sought. The absence of a formal request prevents the tribunal from defining the scope of its jurisdiction and the object of the proceeding, making it impossible to render a meaningful decision.
How does the CAAD assess the timeliness (tempestividade) of arbitration requests involving IRC and IVA disputes?
The CAAD assesses timeliness (tempestividade) of arbitration requests by applying the deadlines established in Article 10, paragraph 1, subparagraph a) of the LRATM. For IRC and IVA disputes, the taxpayer must file the arbitration request within 90 days from notification of the contested act (assessment, decision, or omission). When challenging tax assessments resulting from inspections, the deadline runs from notification of the final assessment notice or decision on administrative review if previously filed. The timeliness assessment considers: (1) the date of notification of the contested act; (2) the date of filing the arbitration request with CAAD; (3) whether any suspension periods apply (such as pending administrative review); and (4) proper identification of the specific acts being challenged. In cases involving multiple tax periods or multiple taxes (IRC and IVA), each assessment notice triggers its own deadline, though taxpayers may consolidate related disputes in a single proceeding if they concern connected facts and legal issues, provided all individual deadlines are met.
Can a taxpayer challenge both IRC and IVA assessments in a single arbitration proceeding before the CAAD?
Yes, a taxpayer can challenge both IRC and IVA assessments in a single arbitration proceeding before CAAD, provided the disputes are factually or legally connected and all procedural requirements are met for each tax. Article 2, paragraph 1 of the LRATM allows arbitration of disputes arising from 'legal relationships of a tax nature,' without limiting challenges to a single tax type. Consolidation is particularly appropriate when: (1) both assessments arise from the same tax inspection; (2) they concern the same factual circumstances; (3) they involve the same tax periods; or (4) the legal and factual issues are interconnected. In this case, both IRC and IVA assessments resulted from the same external tax audit triggered by IVA recovery requests, examining expenses for 2010-2014. The disputed expenses affect both VAT deductibility and IRC cost recognition, creating natural overlap. However, the taxpayer must properly identify each contested act, specify the amounts challenged for each tax, and meet the timeliness requirements for each assessment notice. The petition must clearly articulate how each tax assessment is legally flawed.
What procedural requirements must be met when requesting IVA recovery that triggers a tax inspection under Portuguese law?
When requesting IVA recovery under Portuguese law, taxpayers must comply with Article 22 and Article 98, paragraph 3 of the VAT Code (CIVA). Procedural requirements include: (1) filing periodic VAT returns (monthly or quarterly depending on classification) declaring input VAT to be recovered; (2) maintaining proper documentation supporting the right to deduct input VAT, including valid invoices meeting requirements of Article 36 of CIVA; (3) demonstrating that acquired goods/services are used in taxable transactions; and (4) submitting to tax inspection when recovery requests exceed certain thresholds or trigger risk criteria. The Tax Authority may initiate an external inspection to verify: the reality and nature of expenses claimed; proper documentary support; the nexus between input VAT and taxable output transactions; and compliance with formal invoicing requirements. During inspection, taxpayers must provide: accounting records; supporting invoices and receipts; contracts and agreements explaining transactions; and clarifications regarding business necessity of expenses. The inspection may extend to related IRC issues, examining whether expenses meet requirements for tax deductibility (Article 23 of CIRC), as occurred in this case where the authority questioned both VAT deductibility and IRC cost recognition for the same expenses.
What happens when the Portuguese Tax Authority (AT) raises preliminary objections regarding petition adequacy and filing deadlines in CAAD arbitration?
When the Portuguese Tax Authority (AT) raises preliminary objections regarding petition adequacy and filing deadlines in CAAD arbitration, the procedural framework under LRATM applies. According to Article 17, paragraphs 1-2 of LRATM, the AT must submit its response within 30 days of notification, addressing both preliminary and substantive matters. Preliminary objections (exceções) may include: ineptitude of the initial petition (ineptidão), lack of timeliness (intempestividade), lack of jurisdiction, improper party identification, or other procedural defects. The arbitral tribunal must address preliminary objections before examining the merits, as per Articles 278 and 576-590 of the Civil Procedure Code, applicable by reference under Article 29, paragraph 1, subparagraph c) of LRATM. If the tribunal finds the petition inept but the defect is amendable, it may allow the claimant to correct deficiencies within a specified period (Article 590, paragraph 2 of CPC). If correction is impossible or not made timely, the tribunal dismisses the case without prejudice to substantive rights, allowing the taxpayer to file a new compliant petition if deadlines permit. For timeliness objections, if the tribunal finds the request was filed outside the 90-day deadline without suspension or interruption, it must dismiss the case for lack of jurisdiction ratione temporis, with prejudice to arbitration but potentially preserving other remedies like administrative court challenges if those deadlines remain open.