Pedro Braz and Fernando Silva, of Garrigues - Taxand, offer
International Tax Review's readers their dispute
International Tax Review
(ITR): What advice would you give to
companies about how to reduce the risk of becoming involved in
a tax dispute with the Portuguese tax authorities?
Pedro Braz (PB)(right): Taxpayers in Portugal can greatly reduce
the risk of becoming involved in disputes with the authorities
if they comply with the deadlines for filing all the
declarations, since this is one of the main indicators used by
the Portuguese tax authorities to identify inspection
Different criteria are used for selecting
taxpayers for inspections, such as: significant tax deductions
or capital losses; certain mentions in the certification of
accounts; discrepancies in the VAT and corporate
Another important aspect is compliance with the safekeeping
of files and records.
Additionally, the assistance of a tax adviser from an early
stage - before and during a tax inspection - is often
Requesting an advance binding ruling from the tax
authorities before an inspection might be the best option to
avoid risk in some dubious tax matters when it is not possible
to rely on case law or administrative rulings to dissipate the
The recent possibility of presenting this request with
urgency and its tacit deferral make it an even more useful
ITR: What options do
Portuguese taxpayers have to resolve disputes with the
authorities other than litigation? What are the positives and
negatives of these options?
Fernando Silva (FS)(below): Portugal's parliament recently approved a
tax arbitration regime (Decree-Law nr. 10/2011, of January 20)
as an alternative to litigation in judicial courts.
The main advantages of arbitration are the simplified
procedure and the chance of obtaining a quicker decision -
usually in no more than six months.
The taxpayer might also nominate an arbitrator that will be
part of the arbitral court. However, the arbitration regime
does not cover all kinds of litigation as some matters remain
outside the scope of Decree-Law nr. 10/2011 and the authorities
are not bound to arbitral proceedings in disputes relating to
amounts of €10 million ($12.75 million) or more.
According to the Decree-Law, the Arbitral Court is not
allowed to decide each case on grounds of fairness, which means
that a decision must not, under any circumstance, violate the
Another disadvantage is the reduced possibility to appeal
arbitral decisions. In fact, the only appeals allowed are those
to the Constitutional Court, in the case of application of an
unconstitutional ruling, and to the Supreme Court, in case of
inconsistency with other decisions.
The arbitral decision can also be objected to
under certain conditions, such as inconsistency between the
arbitral court's reasoning and the decision or the omission of
Despite being an alternative to litigation in judicial
courts, taxpayers must also pay fees when going to arbitration.
Nominating an arbitrator is expensive.
Taking into account the limitations on the right to appeal
arbitral decisions, taxpayers should be cautious in opting for
arbitration. A detailed analysis of each case and defence
strategy must be made before doing so.
ITR: Are you seeing any
trends in the types of dispute cases the Portuguese tax
authorities are taking up, and those where they are succeeding
in the courts?
PB: The Portuguese tax authorities have
been increasing the inspection of large taxpayers, analysing
the tax declarations presented, asking for presentation of
additional documentation and checking the accounting of
These inspections are mainly focused on VAT and corporate income tax,
but international aspects of transactions and taxes under
vehicles are also being subjected to further intense
The tax authorities have also increased the application of
executive measures to recover tax debts.
In the Portuguese courts, the majority of litigation,
following the tax authorities' recent approach, has not been
The courts are not recognising the prescription of taxpayer
debts. Taxpayers are arguing that despite suspension and
interruption causes, the period of limitation is finished and
payment is no longer due. However, the courts are not
recognising that the period of limitation is finished,
considering that the causes of suspension and interruption of
the period of limitation are more durable than taxpayers
realise, and prevent the period of limitation from ending.
In line with the Portuguese tax authorities' view, the
courts are also recognising the possibility of extending
responsibility for the payment of fines from a debtor company
to the company's respective managers and directors.
These areas are however, still being debated. The position
of the judicial courts is sometimes reversible and further
decisions might adopt the taxpayers' position.
ITR: What do you think
multinationals in Portugal can expect from the tax authorities
in the future?
FS: In the next couple of years intra-group
transactions will probably undergo further scrutiny not only
regarding transfer pricing policies but also in the context of
of the Portuguese tax authorities seems to be a significant
increase in human resources and the implementation of different
mechanisms to facilitate tax audits, namely through the
mandatory use of certain software programmes.
should continue to target certain sectors of the economy and
large taxpayers, which are subject to permanent audits, with
the creation of the Large Taxpayers Unit.
probably continue addressing VAT reimbursements and withholding
taxes and we also expect the authorities' focus to be on the
detection of abusive transactions, looking closely at the
transfer of income from and to tax havens and any transactions
involving tax havens or trusts.
The use of
specific anti-abuse provisions such as controlled foreign
company rules is foreseen and the general anti-avoidance rule
is expected to enter into action more frequently.
increased complexity of issues drawing the focus of the
authorities we will probably see the rise of the alternative
dispute resolution mechanism due to its swiftness and the
possibility of the taxpayer appointing its own expert to take
part in the dispute decision.
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