Portugal's commitment to modernising its tax dispute resolution framework led to the implementation of tax arbitration in 2011, under Decree-Law No. 10/2011, of January 20 (in Portuguese). This initiative, which allows the state to submit tax disputes (up to €10 million) to an arbitral panel, signified a crucial shift in approach.
The establishment of the Administrative Arbitration Centre (Centro de Arbitragem Administrativa, or CAAD), a specialised associative entity with private status but of public interest, marked a turning point. This development not only provided a potentially faster mechanism for resolving tax disputes – often achieving final decisions within six months – but also, and perhaps more importantly, opened a unique channel for the direct application and interpretation of EU tax law within the Portuguese jurisdiction.
The CAAD’s role transcends that of a mere alternative dispute resolution method; it acts as a major conduit for the effective reception of European jurisprudence, particularly as it evolves through the decisions of the Court of Justice of the European Union (CJEU).
The CAAD as a conduit for EU law
The significance of the CAAD extends beyond the provision of a more specialised and simplified dispute resolution mechanism, and it lies primarily in its established capacity as a judicial body to submit preliminary references to the CJEU.
A landmark ruling by the CJEU in the Ascendi case (Case C-377/13, Ascendi Beiras Litoral e Alta, Auto Estradas das Beiras Litoral e Alta SA v Autoridade Tributária e Aduaneira, 2014) definitively confirmed the CAAD's functions as a judicial body, recognising its decisions as possessing finality and legal validity equivalent to those issued by Portuguese courts. This recognition was paramount, as it not only legitimised tax arbitration as a valid method for settling tax disputes, but, more profoundly, it also confirmed that arbitration panels operating within the CAAD, due to their procedural and structural characteristics, fulfil the criteria to be qualified as a “national court” for the purposes of Article 267 of the Treaty on the Functioning of the European Union. Consequently, the CAAD, as a “national court”, is authorised to seek preliminary rulings from the CJEU on questions of interpretation of EU law, just like any other Portuguese court.
To meet the CJEU's requirements for a body to be considered a “national court” capable of making preliminary references, the arbitration courts within the CAAD adhere to strict structural criteria. First, their legal basis and the permanence of the tax arbitration courts result directly from their integration within the CAAD, as previously explained. Second, these courts are bound to decide solely based on established law, are explicitly prohibited from resorting to equity, and operate under the principle of adversarial proceedings. Finally, arbitrators are subject to a rigorous duty of impartiality and independence, supported by a comprehensive framework of impediments and recusal grounds that safeguards against any appearance of bias.
The CAAD's role as a conduit for preliminary references to the CJEU has significantly accelerated the development of Portuguese tax jurisprudence. By providing a more accessible pathway for these references, the CAAD has facilitated a greater number of cases being brought before the CJEU, promoting the faster integration of EU doctrines. This has been particularly influential in shaping a dynamic and evolving jurisprudence in areas of taxation where EU harmonisation is advanced, such as indirect taxes, including VAT excise duties, and similar areas.
How the CAAD has helped to clarify several taxation issues
As can be consulted on the CAAD’s website, several emblematic cases – such as the above, related to vehicle tax and road service contributions; Vodafone Portugal (CJEU Case C-43/19, 2020), on the VAT treatment of telecommunication services; and Imofloresmira (CJEU Case C-672/16, 2018), concerning the VAT treatment of real estate – have clearly demonstrated how the CAAD’s action has been instrumental in clarifying these sensitive and important areas of taxation, by enabling a more rapid and effective application of EU law, and therefore of tax harmonisation.
Notably, the CAAD has made over 30 preliminary references to the CJEU since its inception, which, considering the number of cases that it judges annually – fewer than 1,000 cases per year – is an impressive figure that reinforces the significance of the CAAD’s contribution to the harmonisation of Portuguese and European tax law, and that highlights a clear proactiveness on the part of the arbitrators in exploring issues of EU law. Academics have also recognised the importance of the CAAD in the broader context of European tax law, making the CAAD a unique player within the wider scope of European tax disputes.
These preliminary references to the CJEU have spanned a wide spectrum of issues within indirect taxation. The CAAD’s higher rate of referrals can be attributed primarily to two key factors.
First, the specialised nature of the CAAD allows its arbitrators, who often possess expertise in tax law from diverse professional backgrounds, to develop a deeper and more nuanced understanding of indirect taxation. This, in turn, increases their likelihood of identifying issues warranting clarification at the EU level.
Second, the flexible structure and operation of arbitration, which contrasts with the more formal and rigid nature of traditional courts, promotes a more proactive approach to seeking CJEU guidance. This flexibility allows arbitrators to adapt proceedings to the complexity of each case, facilitating a more open exploration of legal issues. Furthermore, the final and binding nature of arbitration decisions, unlike first-instance rulings in conventional courts, incentivises arbitrators to seek preliminary rulings whenever ambiguity in EU law arises. This inherent flexibility and the arbitrators’ expertise thus combine to create an environment conducive to a greater number of preliminary references to the CJEU.
Final assessment of the impact of tax arbitration in Portugal
The establishment of tax arbitration, and specifically the creation of the CAAD, represents a central development in the Portuguese tax system, with its impact resonating far beyond mere administrative efficiency. Indeed, this initiative has profoundly influenced the character of Portuguese tax jurisprudence, particularly within the complex domain of indirect taxation. By legitimising the CAAD as a judicial body empowered to make preliminary references, the CJEU has not only affirmed the validity of arbitration as a method for resolving disputes but has also created a direct channel for the more rapid and effective integration of EU tax law into the Portuguese legal framework.
While the sheer volume of preliminary references emanating from the CAAD, when juxtaposed against traditional national courts, has prompted some academics to question the arbitrators’ independent interpretative capabilities, the tangible benefits of the CAAD system are undeniably substantial. The expedited integration of EU law and the timely clarification of intricate issues related to indirect tax matters far outweigh any potential concerns. Moreover, the unique structural advantages offered by the CAAD – i.e., its flexibility, the specialised knowledge of its arbitrators, and the binding force of its decisions – coalesce to promote an approach to dispute resolution that prioritises the consistent and accurate application of EU tax law.
This has resulted in a more dynamic and robust integration of EU tax harmonisation within the Portuguese legal system, positioning Portugal as a leader in innovative tax dispute resolution. There is no doubt that the Portuguese experience has not only marked a significant advancement in its own tax system but also serves as a valuable model for other jurisdictions considering similar mechanisms for the future.
