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WG Taxation > Meetings > Ljubljana 2008 - Tax litigation > Tax litigation in Portugal

Tax litigation in Portugal

A) Introduction
B) The Courts and the Judges
C) The Parties
D) The Procedure
E) Practical information

A) Introduction

1) The Constitution establishes the following Courts: a) Supreme Court of Justice and the judicial courts of first and second degree; b) Supreme Administrative Court and the other administrative and tax courts; c) Court of Accounts and d) Constitutional Court.
According to the Portuguese Constitution administrative and tax cases are subject only to the jurisdiction of the administrative and tax courts.
It is up to the tax courts to decide on actions and appeals aiming to settle the disputes resulting from the tax legal relationships.

2) The Constitutional Court decides on all the cases where a matter of constitutional nature is discussed, for example, when the unconstitutionality of the legal texts behind which the tax administration activities were carried out is claimed. But all the courts have the power to refuse to apply/enforce a text that they deem to be unconstitutional, this decision being subject to review by the Constitutional Court.

3) The Constitution in Article 268 (4) and (5) provides as follows:

“4. Users of the public administration are guaranteed effective protection by the courts of their legal rights, including the recognition of their rights and interests, the challenging of any administrative acts, which violate them, whatever the form thereof, order mandating the practicing of administrative acts legally due and the taking of appropriate injunctive relief.
5. Members of the general public are also entitled to challenge administrative rules with external effects, which violate their legal rights or interests.”

and in Article 20 states that:

“1. All persons are entitled to access to the law and to the courts in order to defend their legal rights and interests. Justice shall not be denied by reason of lack of financial resources.
4. All persons have the right that proceedings in which they are involved are decided within a reasonable time in fair proceedings.Manual word wrap
5. The law shall provide members of the general public with legal procedures characterised by speed and priority in order to timely defend their rights, liberties and guarantees against threats to or violations of these rights.”

4) The General Tax Law and the Tax Procedure Code refer that justice must be done in a reasonable time. However, due to the great number of cases pending it is impossible to respect this law provision.

5) At this moment are pending in the Portuguese courts more than 38.000 cases corresponding to an amount of Euros. This number increases every year. The situation is, consequently, chaotic.
The justice statistics show that the procedural delay in the tax cases is one of the causes for the system’s inefficiency insofar as they reveal a tendency of growth of the pending cases with duration between 2 and 5 years.

6) In the last years due to economic pressures and to the need to increase tax revenues, the Government has considerably improved the capacity of the Tax Administration. It has become faster and “aggressive” generating an increase in tax litigation. 
The importance and visibility of the tax courts is, consequently, today, much bigger than 4 years ago.

7) Due to the length of the procedure, many of the debts that are being discussed in the tax courts are subject to the statute of limitation of actions (prescrição extintiva) that meaning that after a certain number of years have elapsed, the taxes in discussion can not be claimed from the taxpayer.

8) Confidentiality
Tax-related information including that contained in tax cases is treated with confidentiality.

9) The principle of fair trial requires the respect of the contradictory principle both in administrative procedures and in the judicial procedures, but the judge has the duty to investigate all the facts in order to obtain material justice and he is not limited to the evidence presented by the parts, he may ex officio order the presentation of the evidence that he deems necessary to the case.

10) The impartiality of the legal proceedings is guaranteed by the procedural provisions related to cases of impeachment – no judge may decide on a case where himself or one of his relatives is a party, or where he has already intervened in another capacity and in cases of a slight possibility of partiality, for example serious enmity or significant enmity between the judge and one of the parties.

B) The Courts and the Judges

11) The Portuguese administrative and tax litigation is governed mainly by:
(I) Lei Geral Tributária - General Tax Law (Decree-law no. 398/98 of the 17th of December 1998) 
(II) ETAF - Estatuto dos Tribunais Administrativos e Fiscais - Administrative and Tax Courts Statute (Law no. 13/2002, of the 19th of February 2002, amended).
(III) Código de Processo dos Tribunais Administrativos – Administrative Courts Proceedings Code (Law no. 15/2002, of the 22nd of February 2002).
(IV) Código de Procedimento e Processo Tributário – Tax Courts Proceedings Code (Decree-law 433/99 of the 26th October 1999)

12) The scope of the administrative jurisdiction is defined by the ETAF – Estatuto dos Tribunais Administrativos e Fiscais (Statute on Administrative and Tax Courts) which empowers the administrative and tax courts to decide cases on administrative and tax matters.

The ETAF foresees the existence of a Supreme Administrative Court, the Central Administrative Courts, North and South, and administrative courts of first instance.

13) Normally, administrative and tax courts are aggregated except in Lisbon,where there is an administrative court and a separate tax court.

14) Tax jurisdiction based upon 17 administrative and tax courts of first instance in the mainland, Madeira and Azores, 2 central administrative courts in Oporto and in Lisbon and on one Supreme Administrative Court, located in Lisbon.
The Courts structure comprises specialised sections/divisions for administrative and for tax matters.

15) The Supreme Court of Justice and the Central Administrative Courts no longer function as first instance courts (with a few exceptions provided for in the law). The Central Administrative Courts are now, as a rule, courts of appeal for the decisions taken by the first instance administrative courts, and only decisions of members of the Government are trialled here at first instance. 
The Supreme Administrative Court takes on the role of ruler of the system, with the power to appreciate, in appellate review:

Appeals on the opposition of court decisions;
Appeals of review of Central Administrative Courts decisions pronounced at second instance, whenever the subject at stake is, by its legal or social relevance, fundamental or if the admission of the appeal is required to a better application of the Law;
Per saltum appeal of review of administrative courts (first instance) in matters of law;
Preliminary ruling of pending cases at administrative courts whenever a new question of law is put before these courts that may arise serious difficulties;
Conflicts of jurisdiction between administrative and tax divisions of the Courts.

The appeal of review (supra b) by the Supreme Court aims at allowing the intervention of the Supreme Administrative Court in cases it would otherwise be unable to analyse, once the Central Administrative Courts would have already tried the case at second instance. Ultimately, it is the consecration of a third instance whenever the matter deserves the appreciation of the Supreme due to its importance or relevance to the application of the Law. The confirmation of the admissibility of this review is made summarily, by a group of three judges of the Supreme Administrative Court.

The appeal per saltum (supra c) allows the direct appeal for the Supreme as a second instance. However, in this way only questions of law can be raised.

The preliminary ruling (supra d) in the Supreme Court aims at allowing the intervention of the Supreme Administrative Court in cases of controversial circumstances that may, predictably, appear in numerous future cases, thus allowing the establishment of adequately based case-law, within the shortest delay possible. The Supreme Court shall issue a decision on the preliminary ruling within three months.

16) The ETAF establishes three fundamental rules:

• The administrative and tax courts are sovereign bodies with the power to administer justice in the name of the people, in disputes arising from legal relations in the administrative and tax spheres.
• The administrative and tax courts cannot apply rules, which violate the provisions of the Constitution or constitutional principles, in the matters decided by them.

The administrative and tax courts are independent and are subject only to the law.

17) Judges of the administrative and tax courts cannot be removed from office and cannot be transferred, suspended, retired or dismissed other than in the circumstances provided by law.

The judges of the tax courts are subject in what concerns discipline to the Superior Council of the Administrative and Tax Courts which is an independent body composed by judges and representatives of the Parliament and of the President of the Republic.
The status of the judges of tax courts corresponds to that of the career/professional judges of all courts.
The recruitment of the judges for the courts of first jurisdiction degree generally takes place through a test. The recruitment of the judges for the Supreme Courts requires a professional selection.
In order to be a judge in the administrative and tax jurisdiction, it is necessary to be a Portuguese citizen and have a law degree that in Portugal validates five years of university studies. Special examinations and training are also necessary.
The judges are irremovable and may not be liable for their decisions, subject to exceptions entered in the law.

18) The courts of first instance function on the basis of a single judge sitting alone and deciding alone.

19) Tax courts are the natural judges for all the tax litigation what means that no other courts in Portugal are competent to discuss tax matters. 
The only exception being criminal matters like tax fraud, for which are only competent the criminal courts.

20) Some basic principles in tax litigation
the right of access to the courts
the right to a lawyer
the right to a decision within a reasonable delay
the right to a fair trial

C) The Parties

21) Tax administration
One of the parts in tax litigation is always the tax administration. 
Tax administration comprises:

1) The Minister of Finances and other members of the Government which have administrative competence in tax matters;
2) Entities depending from the Ministry of Finances:

the General-Directorate of Taxes (Central Tax Administration) – Direcção-Geral dos Impostos
the General-Directorate of Customs – Direcção-Geral das Alfândegas

3) Hierarchy of the tax administration
The Central Tax Administration has the following hierarchy:

Minister of the Finance
Secretary of State for Tax Matters
General-Directorate of Taxes
District-Directorate of Taxes
Tax services at municipal level

4) Furthermore the Regional Governments of Azores and Madeira have also competence in tax matters
5) Municipalities and Boroughs have also competence in some tax matters.

22) All the decisions of the above mentioned entities are subject to judicial review before the tax courts.

23) Tax Payers 
The taxpayer is normally not required to exhaust his administrative remedies before challenging the government’s assessment of his tax liabilities in court.
The taxpayer has not to pay the disputed tax liability before the court will accept his case. The administration waives the payment requirement of the tax dues if the taxpayer can furnish adequate security in the form of a bond or a pledge. 
The taxpayer, if the furnishes adequate security, is granted a stay of his or her payment obligation pending judicial review.

24) The law stipulates that the court ensures a status of effective equality for the parties in the legal proceeding, both with regard to the exercise of options and use of arguments for defence and to the application of injunctions or penalties. 
The principle of equality of the parties in the tax litigation is of great importance today. The State and other public bodies are required to pay court fees on the same terms as private parties.
Besides the subordination of the public entities to the payment of judicial costs, the law has also foreseen whenever the judicial orders are not carried out within a time limit, a compulsory pecuniary sanction to those in charge of the enforcement of the sentence or in charge of forwarding the case. The sanction applied by the judge may vary between 5 to 10% of the highest minimum salary actually in force, for each day in the delay of the enforcement of the sentence or in the forwarding of the judicial case.

25) Taxpayers and the tax administration may apply to the courts for interim measures in order to protect their respective interests. The tax administration frequently requires in court the preventive seizure of the property of the taxpayer and the examination of the bank accounts.

26) Taxpayers can represent themselves in court up to a certain amount of the value of litigation (9.352,50 Euros at present). If the litigation is above that amount they have to be represented by a lawyer. 
Tax administration is represented by its own officers.

27) Procedural intervention of the State Advocate / Public Prosecutor
In tax matters it is conferred to the State Advocate / Public Prosecutor the power to intervene in order to request the findings of facts and pronounce on the merit of the cause.

28) He intervenes in tax litigation as a representative of the general interest and gives a non binding advice on the points of law in discussion. His advice may be in favour of the taxpayer or in favour of the tax administration. He is not bound to any instructions of the Ministry; he acts in a completely independent way. He is represented in all tax courts.

29) Tax litigation comprises not only the discussion and the judicial review of tax assessment but also the incidents in the collection of tax debts, the so-called tax execution and different types of action are ruled in the law.

The main procedures in tax litigation are:
impugnação – that means judicial review of the tax assessment
oposição/objection – that means that taxpayers may file an opposition seizure of his property to pay tax debts 
and judicial review of the fines imposed by the tax administration

30) We must also refer the special administrative action is used to obtain implementation of due administrative and tax acts, as well as the declarations of the unlawfulness or omission of rulings. 
There is also the possibility of urgent procedures against decisions in debts execution cases.

31) Tax debt collection tax execution is conducted by the tax authorities in a special proceeding for enforcement of task debts. They have the power to seize the property of the taxpayers and to sell it in order to pay the tax debts. However, the taxpayer has the right to oppose and to intervene in this procedure mainly by two means: one is the opposition/objection to the execution/sale of his property. He may object to this execution but the grounds to this objection are strictly indicated in law. He also has the right to require judicial review of any acts of tax administration in this procedure that he deems are violating his rights. This type of objection is considered,normally, as urgent and has to be decided in a very short time.
32) We must refer that according to Portuguese law directors of companies are, in many cases, jointly and severely responsible for the payment of taxes of the companies but they can discuss the matter of their responsibility before the judge when they are called to pay the debts in the procedure of debt collection.

33) The tax administration has the power to impose fines on taxpayers. Taxpayers have the right to appeal, that meaning submit to judicial review the decision concerning fines. If the amount of the fine is over the amount above referred the decision of the First Instance Court may be subject to appeal.

34) In cases where the taxpayer is suspected of a criminal violation of tax law, for instance, fraud or documents falsification, the investigation is conducted by the police and by the tax authorities but the case will be trialled in the common criminal courts. 
However, if there is a dispute concerning the tax assessment then the matter has to be referred, on this specific point, as a previous question to the tax courts. 
The criminal case is suspended until the decision of the tax court on the specific tax assessment.

35) In principle, all the decisions of the First Instance Courts are subject to appeal to the Central Courts.
There is a limitation – no appeal is admitted if the value/amount of the case is very small – 935,25 Euros at present.

36) The tax courts follow an inquisitional, rather than an adversarial approach the court has ultimate responsibility for investigating the facts. This procedure is designed to protect taxpayers who, through inexperience or lack of effective counsel, fail to plead their cause adequately.

37) There is no possibility of an arbitration court to decide tax matters.

38) The Portuguese Ombudsman (Provedor de Justiça) examines, also, the citizen’s claims concerning tax matters and draws up recommendations, but he has not the power of decision of the cases and he cannot interfere with the Courts..

39) To each case an amount is assigned, which represents the request’s economical utility of the case.
The competence rate of the tax courts (alçada) is at present 935,25 Euros; that of the Appeal Courts is 14.963,34 Euros.

40) Before the STA there is a screening procedure in :

Preliminary rulings:
the question’s assessment is immediately dismissed, permanently, when a three-judgepanel, selected among those having the highest seniority in the administrative litigation section of the Supreme Administrative Court, considers that the conditions required for the reference are not combined or that the question’s importance is not of a nature to justify the issue of such an opinion;

Exceptional appeal (review) to the Supreme Court 
“Exceptionally, an appeal for the decisions reached in 2nd resort by the Appeal
Administrative Court may be lodged before the Supreme Administrative Court, when a question, for its legal or social relevance, vests a fundamental importance or when recourse admissibility reveals to be clearly necessary for a better application of law.
The decision related to the question of whether, in this particular case, the necessary conditions are combined lies with the Supreme Administrative Court and must be subject to a summary prior examination, by a three-judge-panel among those with the highest seniority in the administrative litigation section”.

D) The Procedure

41) Tax litigation starts by a claim of the taxpayer where he must refer all the grounds of his claim both in law and in fact and indicate all the evidence he deems necessary, that means that he must file the documents or refer the documents held by the tax administration or third persons. He must also indicate witnesses and experts to be heard. 
A representative of the tax administration is summoned to file an answer. He is also bound to indicate in his reply all the grounds substantiating the well founded of the decision of the administration and to indicate all the evidence he deems adequate. However, even if the representative of the tax administration does not file an answer the case is not automatically adjudicated to the taxpayer. The judge has to continue with the analysis of the evidence and can not decide the case by simply accepting the reasons of the taxpayer. After the evidence is heard, the parts are invited to produce in writing the final allegations. The State Advocate gives his advice after that and it is up to the single judge to give his decision based on the facts and the points of law that have been discussed.

42) The court decisions start with the identification of the parties and the object of the case, as well as the questions that the court must decide. Then the motives and the final decision follow. The motives are drawn up in the form of reasons adduced, with details about the facts established. The judgment must also indicate the applicable legal norms.
The judgment must indicate the grounds of fact and law that were decisive for the decision. It may also be null and void if it does not decide on all the questions that should have been submitted by the parties. 
The jurisprudence establishes a systematic distinction between the questions and the arguments. The court must decide all the questions, but it is not bound to examine in detail all the arguments of the parties.

43) Court fees
The recent administrative justice reform has deeply changed the system of the judicial costs in the administrative jurisdiction. Both the State and other public entities have to pay judicial costs.
Except otherwise provided for, the parties in the proceeding must pay the expenses. These expenses include the "justice tax" and the legal fees. The justice tax is calculated according to the amount for the case. The legal fees are all the costs engaged by the party who won its point. The amount of the sentence as for the representation expenses (lawyer’s fees) is set by the court between one tenth and one fourth of the justice tax to be paid.
Generally the losing party bears the costs of the procedure. If a party partially wins its point and partially loses, the costs must be proportionally distributed.
The law sets some subjective and objective cost exemptions.

The payment of an initial justice tax is necessary to present the case in court.
Any person without sufficient means may access free to legal proceedings.
The eligibility to legal aid is decided by the social security services manager of the petitioner’s place of residence or head office. In case of a refusal, the person liable may apply to the courts for a review of the decision.

44) The computerization of the administrative and tax courts, settled upon the creation of the Computer System for the Administrative and Tax Courts (SITAF), had the following objectives:

To allow the sending and reception of procedural documents by electronic means, to take procedural steps by computer and to make the digital treatment of the cases, as well as to allow access to them by the Internet;
To create case management workflow applications;
To develop methods for the planning and prevision in the global management of the Administrative and Tax Courts workflow;
To create a website for each court.

However, the development of the Computer System for the Administrative and Tax Courts (SITAF) did not attain, so far, all its objectives.
But in general :
The documents are presented by computer, e-mail or data communications.
The presentation by data communications requires the use of an advanced signature file of the signatory.
The presentation of documents in physical medium implies their scanning by the registry, except in the case where scanning is not required.

E) Practical Information

45) Main laws
Lei Geral Tributária (General Tax Law – contains general taxation principles and of tax procedure);
Código do Imposto sobre o Rendimento das Pessoas Colectivas - CIRC (Corporate Tax);
Código do Imposto sobre o Rendimento das Pessoas Singulares - CIRS (Individual Income Tax);
Código do Imposto Municipal sobre as Transmissões Onerosas de Bens Imóveis and Código do Imposto Municipal sobre Imóveis – (Property Tax) ;
Código do Imposto sobre o Valor Acrescentado - CIVA (Value Added Tax);
Código do Imposto do Selo (Stamp Duty);
Estatuto dos Benefícios Fiscais (Tax Benefits);
Código de Procedimento e de Processo Tributário (Tax Procedure);
Regime Geral das Infracções Fiscais (Tax Infringements)

46) Literature
A. XAVIER - Direito Tributário Internacional - A Tributação das Operações Internacionais
FERREIRA, Rogério M. Fernandes – «As alterações à Lei Geral Tributária e ao Código de Procedimento e de Processo Tributário», Fisco
GONÇALVES, José Manuel – Código de Procedimento e de Processo Tributário Anotado e Comentado
GUERREIRO, A. Barros Lima, e MATEUS, J. Silvério – Código de Processo Tributário Comentado;
GUERREIRO, António Lima – Lei Geral Tributária Anotada; 
J. CASALTA NABAIS, Direito Fiscal
J. L. SALDANHA SANCHES, Manual de Direito Fiscal;
MESQUITA, Maria Margarida Cordeiro - As Convenções sobre Dupla Tributação;
N. SÁ GOMES, Manual de Direito Fiscal, 2 vols.; 
SOUSA, Jorge Lopes de – Código de Procedimento e de Processo Tributário Anotado.

47) Court decisions
The decisions of the Courts are available at: http://eur-lex.europa.eu/lexsiteref/themaref/group_B7DD7245-E6C1-7678-D4DE13A2C68CE2DE_B7DBD212-AD3F-55BA-00C24D2EC353C75E_D607D982-B736-8C9E-8DD1325FFA06BDB2_en.html#Case-lawManual word wrap
The Constitutional Court’s decisions on tax matters are available at http://www.dgsi.pt/atco1.nsf?OpenDatabase and http://www.tribunalconstitucional.pt/tc/index.html).

48) Tax Conventions


49) Tax legislation: http://www.min-financas.pt/ and on http://www.dgci.min-financas.pt/pt