Tax Disputes Guide in Portugal

Inspections may arise from various sources – routine control procedures, discrepancies between the values declared and those known by the tax authorities, expiration of an exemption, different interpretations of the law, exchange of information from other countries, etc. During an inspection, taxpayers are always allowed, in accordance with the principle of cooperation, to answer questions posed by inspectors or provide the necessary documents. Even if corrections are proposed, taxpayers can always exercise their right to be heard and thus mitigate or annul the proposed corrections. However, this does not usually happen, especially when there are different interpretations of the law.

4 years is the time limit for the Tax Authorities (TA) to issue an additional tax assessment.

The TA have broad powers of action and may take all necessary steps to verify the tax situation of taxpayers, including carrying out inspections at taxpayers’ premises, seizing assets and accessing bank information and documents in limited situations (for example, when there is evidence of tax crime or unjustified additions to wealth). They may also request the cooperation of any public entities necessary to determine the tax situation or that of third parties with whom the taxpayer has economic relations.

Taxpayers have the right to defend themselves by presenting the documents and justifications they deem necessary, and disclosing or not disclosing the documentation they deem relevant. As a general rule, this defence is initially presented by a company’s accountants, with lawyers only intervening at a later stage (i.e. after corrections have been made). Taxpayers can choose not to provide the requested information, subject to the consequences thereof. For example, if the TA are unable to verify the taxpayer’s tax situation by analysing the documentation provided, they may use indicative methods and approximations of the taxpayer’s income.

If there is tax to be paid to the state, there is always compensatory interest. In addition, tax penalties may be applied for e.g. for late filing of returns, failure to pay tax, failure or refusal to submit tax-relevant documents.

There are also tax-related crimes: tax fraud (related to the concealment of assets or the celebration of simulated transactions that result in a financial advantage equal to or superior to EUR 15,000), or tax abuse (generally related to VAT or withholding taxes not paid to the Treasury).

After the conclusion of the inspection procedure, additional tax assessments will be issued. An administrative claim may be filed within 120 days of the payment deadline. An appeal may be filed against the decision to reject the administrative claim within 30 days. This process is generally completed within 1 year.

At the judicial stage, a judicial challenge may be filed within 3 months before the judicial courts, or an arbitration claim may be filed within 90 days before the arbitration courts. The arbitration courts have a maximum decision period of 1 year. In the courts, it can take several years, and there is no deadline to issue a decision.

It is possible to file an arbitration claim which is faster – the decision will be issued within a maximum period of 1 year – but has very limited possibilities of appeal.

During the challenge to the legality, taxpayers may provide a guarantee to suspend the proceedings, or request an exemption from providing a guarantee by proving that they have no economic means to make payment or provide a guarantee.

The courts are always specialised in tax matters and have their own jurisdiction. Cases in the first instance take 18-24 months, with a further 3-4 years for appeals. These time frames will necessarily be shorter if the case is urgent.

There are two courts of appeal: the Central Administrative Court and the Supreme Administrative Court (SAC). The SAC is the highest court; it only judges questions of law and provides uniformity of case law. There are no time limits, but in our experience, it takes around 5-6 years to reach a final decision by the SAC.

If there are constitutional issues, the taxpayer may, after a decision of the SAC, still appeal to the Constitutional Court. 

A case which has generated a great amount of litigation concerns the recovery of state aid from the Madeira Free Zone. The Portuguese State has been convicted of violating European Union law, in particular the rules on competition.

The Portuguese State is now trying to recover the amounts concerned as corporate income tax, through tax enforcement proceedings brought by the tax authorities. However, in doing so, the Portuguese State has completely disregarded the procedural guarantees of taxpayers.

The proceedings are currently suspended until the Court of Justice of the European Union has given its ruling.

Where possible, resort to the arbitration courts. It is more expensive and the possibilities for appeal are limited, but it is possible to obtain a final decision within 1 year.