Constitutional Court

Judgment no. 177/2016, of 29 March 2016, published on 7 April 2016

Case no. 126/15

In this Judgment, delivered in the context of an appeal against a decision of the South Central Administrative Court, the Constitutional Court held unconstitutional Article 28.1(c) of the Tax Arbitration Legal Framework (“RJAT”), when interpreted as meaning that the concept of "undue decision" does not cover the challenge of an arbitration decision on the grounds of substantial lack of jurisdiction of the arbitration court, due to breach of Articles 20 and 209.2, of the Constitution of the Portuguese Republic (“CPR”).

Indeed, although recognising that the right to two levels of jurisdiction is not generally constitutionally guaranteed and acknowledging that jurisdiction to decide on its own jurisdiction is a prerogative of any arbitration court, the Constitutional Court states that the arbitrability of tax disputes has particularities that justify a different treatment of tax arbitration courts in relation to arbitration in general.

Thus, the Constitutional Court decided that decisions rendered by arbitration courts with regard to their jurisdiction – which an own jurisdiction but subtracted from a court of the State and extinguished at the end of the arbitration proceedings - cannot cease to be subject to reappraisal by a court of the State.

Supreme Administrative Court

Judgment of 31 March 2016, published on 14 April 2016

Case no. 0411/15

In this Judgment, the Supreme Administrative Court stated that an implicit refusal is not an administrative act that relieves Tax Authorities from their duty of decision, but instead a legal fiction intended to enable the access to courts by taxpayers in cases where the Tax Authorities are in breach of that duty.

Thus, even if taxpayer has not reacted to the implicit refusal, they may obtain a court decision to which the Tax Authorities are bound, through an injunction to perform.

In this context, the Court ruled that the principle of separation of powers is not breached when a court, upon the request of a taxpayer, orders the Tax Authorities to comply with the duty of decision to which they are legally bound and have voluntarily not complied with.

North Central Administrative Court

Judgment of 10 March 2016, made available on 20 April 2016

Case no. 00958/11.4BEAVR

In this Judgment, the North Central Administrative Court ruled that the coverage of losses of a subsidiary company (regardless of the legal form used or of the recapitalisation instrument adopted) is included on the concept of purchase value of the stakes, for the purposes of assessing capital losses upon winding-up proceedings of the subsidiary company, since it corresponds, from an economic substance point of view, to capital increases.

South Central Administrative Court

Judgment of 31 March 2016, published on 11 April 2016

Case no. 06368/13

In this Judgment, the South Central Administrative Court rules that, pursuant to Article 6.4, of the IRS Code, the legal presumption regarding advance payments on profits may only be applied in cases where the amounts advanced to stakeholders are registered in the stakeholders’ current accounts as per the company’s accountancy.

Thus, if the Tax Authorities intend to make use of this legal presumption, they would have to comply with the burden of proving that the amounts received in the bank accounts held by the stakeholders were recorded (even if without a reference to their origin) in the current accounts of the company’s stakeholders.

If the existence of any entry or accounting record concerning the amounts received by the stakeholders has not been proved, there are no grounds to operate the legal presumption provided for in Article 6.4, of the IRS Code.

Administrative Arbitration Centre

Tax Arbitration Court

Arbitration Decision of 12 January 2016, published on 11 April 2016

Case no. 471/2015-T

In this decision, the Tax Arbitration Court decided that a taxpayer that, in the course of its operations, has purchased accommodation units forming part of a touristic development - and waived the corresponding VAT exemption -, may not, in accordance with Article 19.7, of the VAT Code, deduct the entirety of VAT paid on their purchase, when, under the tourism lease contract, it has reserved for itself the right to use the aforementioned accommodation units for its own purpose, for a period not greater than 90 days a year.

In this situation, the taxpayer shall adopt a proportional deduction by applying the actual use method, subject to any subsequent regularizations in the event of change in the initial terms of use of the asset.

Administrative Arbitration Centre

Tax Arbitration Court

Arbitration Decision of 23 February 2016, published on 21 April 2016

Case no. 604/2015-T

In this decision, the Tax Arbitration Court rules – contrarily to with the decision rendered in Case no. 218/2015-T referred to in our March 2016 Newsletter – that a real estate property with licence of use issued to a “fuel station” and to a “fuel service station with sale of food goods”, in view of the content of the licences, must be deemed, for valuation purposes, as urban properties of the “commercial” type and not of the type “others”.

Administrative Arbitration Centre

Tax Arbitration Court

Arbitration Decision of 15 March 2016, published on 14 April 2016

Case no. 621/2015-T

In this arbitration decision, the Arbitration Court rules that in situations of temporary work whereby an employee is assigned to foreign user, there is a special law that expressly regulates the granting of allowances and establishes their limit (Article 185 of the Labour Code). In other words, there is express acknowledgement in legislation that the payments awarded to these employees are financial awards that do not constitute income for purposes of IRS, since the temporary assignment of the employee to a location far from his habitual residence triggers expenses that they would not have to bear if they had remained at the location of their residence or if their habitual residence had been transferred abroad.

Moreover, the Arbitration Court also states that, in these situations, the use of the concept of "necessary domicile", provided for in Article 2 of Decree-Law no. 106/98, of 24 April, to determine if the amounts paid as per diem allowances comply with "the requirements regarding their provision to civil servants", referred to in Article 2.3(d), of the IRS Code, since this concept is not considered appropriate in cases concerning a provision of service abroad.