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Portuguese tax arbitration and European law – a long overdue regime review

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Solange Dias Nóbrega of Morais Leitão analyses a troubling disconnect between Portugal’s arbitral regime and the supremacy of European law.

Arbitration for tax matters was introduced in Portugal as an alternative form of dispute resolution in 2011. The aims of arbitration are to reinforce the protection of taxpayers' rights and interests, instil a faster resolution of tax disputes and reduce the pendency of cases in the administrative and tax courts, which is particularly high in Portugal.

The legal regime of tax arbitration was approved in 2011. Under this regime, the taxpayer may choose to submit a tax dispute to the arbitral court, which is likely to issue a final decision within one year (as opposed to the administrative and tax courts, where it may take up to ten years for a case to be finally settled).

One of the rules laid down in the regime, which allows for a quick and final outcome of cases, is the general rule of non-appealability of an arbitral tax court’s decisions. The intention is to avoid ordinary appeals, as in principle the discussion should end when the arbitral tax court delivers its decision.

However, other factors were also considered, and exceptions have been made to the non-appealability rule of the decisions of the arbitral tax court.

One of these exceptions allows an appeal to the Supreme Administrative Court for uniformity of case law. Such an appeal can take place if the arbitral decision adopts a solution which differs on a point of law from other decisions issued by the Portuguese higher courts of the ordinary jurisdiction (i.e., the decision contradicts a ruling of the Supreme Administrative Court or the Central Administrative Court about the same matter of law). In addition, since 2019, such an appeal for uniformity of case law is also possible if the arbitral decision differs (on a matter of law) from other decisions delivered by an arbitral tax court.

Another exception introduced in the legal regime of tax arbitration was related to protecting Portuguese constitutional law. As such, the possibility to appeal to the Constitutional Court is also admitted if the arbitral decision refuses to apply any rule on the grounds of its unconstitutionality or applies a rule whose constitutionality has been raised in the proceedings.

These two exceptions show that the Portuguese legislator was not only conscious of the speed of court proceedings but also the harmonisation of the national law and the prevalence of Portuguese constitutional law.

But was the Portuguese legislator concerned about European law? The importance of the Court of Justice of the European Union (CJEU) in the interpretation of European law is indisputable. This extends to tax matters, where the CJEU plays a key role in interpreting VAT law as well as the fundamental rights and freedoms in EU law.

Despite this, the legal regime of tax arbitration has seemingly forgotten the European law and does not allow any appeal if the arbitral decision is in opposition to a judgment of the CJEU. This means that a taxpayer can appeal an arbitral decision that opposes a ruling of a Portuguese higher court or even other arbitral decisions, but cannot appeal to the Supreme Administrative Court in cases where the arbitral court rules against a previous judgment of the CJEU.

This is not a desirable outcome from a legal perspective, and that is why we anticipate an urgent need for a revision of the Portuguese legal regime of tax arbitration.

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