Though the decision in the Ascendi case (C-377/13) on June 12 was expected, due to the characteristics of the Tax Arbitral Court and the interpretation that has been sustained by the ECJ concerning the preliminary ruling, this decision has clarified an opened issue since the introduction, in 2011, of the Portuguese Tax Arbitration Regime.
The Treaty on the Functioning of the European Union (TFEU) establishes the ECJ’s competence to decide, on a preliminary basis, on the interpretation of the treaties, as well as on the validity and on the interpretation of the acts adopted by the institutions, bodies, offices or agencies of the EU, whenever an issue of this nature is raised before any “jurisdictional body” of one of the member states and such jurisdictional body asks the ECJ to intervene.
The question in the case was whether the Tax Arbitral Court could qualify as a Portuguese “jurisdictional body”, for the purposes of the application of the TFEU provision and, consequently, whether the issues raised before the arbitral tax proceedings could be the object of preliminary rulings sent to the ECJ.
Under the terms of the preamble of the legal act that established the Tax Arbitration Regime, the Portuguese legislature had no doubt about the possibility of presenting preliminary rulings before the ECJ, within the context of arbitral tax proceedings.
Even so, the question remained whether the ECJ would consider itself competent to issue decisions on preliminary rulings presented by the Tax Arbitral Court. This means it was necessary to obtain an answer from the ECJ itself as to whether the Tax Arbitral Court would qualify as a Portuguese jurisdictional body.
Previous case law
In this regard, it should be noted that the ECJ had already ruled on the admissibility of preliminary rulings presented by arbitral courts from member states. Taking into account this case law, and for an entity of a member state to qualify as a jurisdictional body, the ECJ has been considering a number of elements, such as the legal origin of the entity, its permanence, the binding nature of its jurisdiction, the contradictory nature of the procedure, the application, by such entity, of the law (not equity), as well as its independence.
In Ascendi, the ECJ considered that the Tax Arbitral Court meets all these elements, thus qualifying, as such, as a jurisdictional body for the purposes of addressing preliminary rulings to the ECJ.
In fact, the ECJ considered that the Tax Arbitral Court has legal origin within the Portuguese Republic Constitution and the Tax Arbitration Regime, under which the legislature foresees that tax arbitration is an alternative mean of dispute resolution on tax matters.
This decision also sustained the view that the Tax Arbitral Court fulfils the requirement of permanence for the purposes of qualifying as a resolution jurisdictional body, since, though the composition of the court is ephemeral and its activity ceases after a decision is issued, the Tax Arbitral Court has, on the whole, a permanent character as part of the dispute resolution system.
Concerning the binding character of the Tax Arbitral Court, the ECJ considered that, though there is no obligation, either in law or in fact, under which the contracting parties should entrust their dispute resolution to arbitration, and though the composition of the Tax Arbitral Court does not depend on an agreement between parties, the decisions issued by arbitral courts benefit from a binding character, in particular, towards the Tax and Customs Authority, which means that this element is also present (as it was in the Merck Canada Inc decision, of the 13th of February 2014).
In relation to the guarantee of the right to contradiction, the ECJ considered that such guarantee derives, expressly, from the legal diploma which introduced the Tax Arbitration Regime.
On the other hand, the ECJ has also sustained, in Ascendi, that the Tax Arbitral Court issues its decisions in accordance with the existing law and pursues criteria of strict legality, being unable to issue any decision based on equity, under the Tax Arbitration Regime.
In relation to the independence of the Tax Arbitral Court, the Ascendi decision sustained that, not only are the tax arbitrators legally subject to the principles of impartiality and independence, but the Tax Arbitration Regime also foresees cases of impediment of the exercise of the functions as a tax arbitrator, such as any family or business connection between the tax arbitrator and any of the parties in the dispute, thus ensuring that the Tax Arbitration Court is actually a third party in relation to both sides in dispute.
Ascendi also sustains that the decisions issued by the Tax Arbitral Court are jurisdictional, being assimilated to, for feasibility purposes, to the decisions issued by the administrative and tax courts.
This decision makes clear that the Portuguese Tax Arbitral Court meets all the elements deemed as essential by the ECJ for the purposes of qualifying as a jurisdictional body of a member state, thus admitting the ECJ its own competence to analyse and decide on the preliminary rulings that are submitted by this Tax Arbitral Court.
Ascendi clarifies one of the issues raised since the entry into force of the Tax Arbitration Regime, which has just celebrated its third anniversary.
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