The result has been the introduction last January, of a new Tax Arbitration Regime, the basics of which are similar to others found throughout Europe and the rest of the world. Arbitration procedures may not exceed a term of six months, although this may be extended a maximum of three times, for terms of two months each, with the matters that can be decided encompassing a declaration of the illegality of tax assessments, self-assessments, withholding tax and payments on account, as well as the calculation of the taxable income.
Some commentators of Portuguese legal doctrine have been discussing, for over a decade, the end of the unavailability of the tax credits “dogma”, which was the pillar on which stood the impossibility of submitting tax matters to arbitration.
However, the Portuguese Legal Framework on voluntary arbitration still requires, for the submission of a dispute to voluntary arbitration, that the legal situation behind the dispute to be at the availability (discretion) of the parties involved. As tax credits are not at the discretion of the parties, by a constitutional imperative embodied in the General Tax Law, its submission to voluntary arbitration was excluded.
However, as a result of international tendencies and a proclaimed aim to spare time and costs, as well as to reduce the number of lawsuits currently “congesting” the Administrative and Tax Courts, the Portuguese legislator has been urged to act in this context.
To implement the arbitration on tax matters, there were two options: to change the legal framework on voluntary arbitration, revoking the above mentioned requirement (availability); or to adopt a particular legal framework applicable to tax related disputes. The Portuguese Government chose the latter.
The basic characteristics of this new regime, introduced last January, do not differ significantly from similar regimes throughout Europe and the rest of the world.
The parties agree to submit the dispute to arbitration rather than take a case to court, benefiting from a higher level of expertise (tax disputes are often highly complex and technically challenging) by choosing Referees with extensive knowledge in tax matters. The Referees are not always required to have a Law degree. Although the Chairman must always have such a degree (and at least 10 years’ of documented experience in the field of tax law), in cases of high complexity and that demand a specific knowledge of non-legal matters, the Referees can have degrees in Economics or Management.
The arbitration procedure shall not exceed a term of six months (renewable a maximum of three times, for terms of two months each) and the matters that can be decided in the context of the arbitration are clearly determined, with particular relevance being the ruling on the following claims: declaration of illegality of tax assessments, self-assessments, withholding tax and payments on account, as well as of acts of calculation of the taxable income.
Moreover, this regime foresees, temporarily (for the period of one year), the possibility of submitting to the arbitration procedure, cases that have been pending a decision of the lower tax courts for more than two years and, in these situations, a special incentive is granted – the waiver of payment of the court expenses.
The usual disadvantages are also present, namely the lack of appeals, rendering it difficult to overturn “bad” decisions (although the decision can be appealed to the Constitutional Court or to the Administrative Supreme Court in very specific cases). Furthermore, limitations on the length of the process and reduced cost objectives may cause less information to be revealed in comparison with litigation proceedings – which may benefit parties with unfavorable private information, but will render arbitration less appealing to parties with favorable private information.
As a final remark, it is important to note that it remains to be seen whether this regime will represent an actual alternative means of dispute resolution – first and foremost the Portuguese taxpayers must be made aware (and currently they are still not) of the existence and advantages of such a procedure, especially of the economy of cost and time and the potential termination of many conflicts between taxpayers and Tax Administration, which presently tend to linger on in the courts for far too many years.
Ana Castro Gonçalves is a tax and administrative law Partner with Franco Caiado Guerreiro & Associados in Lisbon. She can be reached via firstname.lastname@example.org.