Tax arbitration in Portugal and preliminary rulings before the CJEU

Introduction

The introduction of tax arbitration in Portugal as an alternative form of resolving tax disputes pursues three main objectives: reinforcing the protection of taxpayers' rights, speeding up the resolution of disputes between taxpayers and the Tax Authority, and reducing the workload of the administrative and tax courts. This raised a key question: can a Portuguese tax arbitration court qualify as a “court of a Member State" under Article 267 TFEU and, on that basis, refer questions to the CJEU? This article examines how that question has been answered and why it matters.

The RJAT framework and the legal nature of the CAAD

Tax arbitration is a form of dispute resolution in which a neutral and impartial third party (the arbitrator), appointed by the parties or by the Centre for Administrative Arbitration ('CAAD'), decides the case. The arbitrator's decision has the same legal effect as a court judgment. Crucially, tax arbitration does not remove disputes from the judicial sphere: arbitrators cannot decide cases on the basis of equity and must apply the law.

As for procedure, the arbitral process is governed by several core principles: adversarial proceedings, equality of the parties, the tribunal's procedural autonomy, orality and immediacy, free assessment of evidence, cooperation and good faith, and publication of decisions.

As regards independence, arbitrators must comply with the principles of impartiality and independence. They are bound by tax secrecy on the same terms as Tax Authority officials. Any person appointed as an arbitrator must decline the role if there are circumstances that could reasonably raise doubts about his or her impartiality or independence.

A core feature of tax arbitration is that awards are generally final and not subject to appeal. One of the principal advantages of arbitration is precisely that it delivers a final decision within a relatively short timeframe (typically six to twelve months).^[1] When the legislature introduced arbitration as an alternative means of resolving tax disputes, it made a clear choice in favour of finality. Taxpayers may pursue their claim through the ordinary courts or resort to arbitration. If they choose arbitration, they do so in the knowledge that the award cannot be appealed or reversed (except in the limited circumstances set out in Articles 25 and 27 of the RJAT) and accept the risks inherent in that choice.^[2]

Those exceptions are limited. They include annulment by the Central Administrative Court on procedural grounds, an appeal to the Constitutional Court on constitutional grounds, and an appeal to the Supreme Administrative Court to ensure consistent case law. None of these mechanisms allows a review of the merits of the arbitral decision.^[3]

The CAAD as a “court" under Article 267 TFEU

Since Vaassen-Göbbels (Case No. 61/65), the CJEU has taken a functional and autonomous approach to the concept of “court", based on cumulative criteria: (i) a legal basis, (ii) permanence, (iii) compulsory jurisdiction, (iv) adversarial proceedings, (v) the application of rules of law, and (vi) independence.

The CAAD meets each of these criteria. It was created by decree-law and operates as an alternative forum for resolving tax disputes (legal basis). While individual arbitral tribunals are temporary, the institution itself is permanent. The Tax Authority's submission to the jurisdiction of arbitral tribunals under the RJAT depends on a ministerial order, which has been issued. This makes that submission binding and excludes parallel recourse to the State courts (compulsory jurisdiction). The governing procedural principles expressly include adversarial proceedings and equality of the parties. Arbitrators must also apply the law, with no recourse to equity. They are also subject to strict requirements of impartiality and independence, including clear grounds for disqualification, which ensure that the tribunal acts as a genuine third party to the dispute.

The CJEU settled the issue in Ascendi (Case No. 377/13), holding that Portuguese tax arbitration tribunals established under the CAAD qualify as “courts of a Member State" for the purposes of Article 267 TFEU. Practitioners had long expected this outcome, and the preamble to Decree-Law No. 10/2011 had already anticipated it, without resolving the point. The judgment nevertheless settled what had remained uncertain since the regime was introduced in 2011. Since Ascendi, it is no longer disputed that CAAD tribunals may refer questions to the CJEU. As a general rule, the RJAT treats arbitral awards as final. In practice, this means that CAAD tribunals ordinarily act as courts of last instance and are, in principle, required to refer questions under Article 267(3) TFEU, unless one of the CILFIT exceptions applies (Case No. 283/81). This obligation depends on the specific case; however, it only arises where the arbitral tribunal is, in fact, the final instance for resolving the dispute. Where an appeal is available to the Constitutional Court on constitutional grounds, or to the Supreme Administrative Court to ensure consistent case law, the CAAD may not be the final instance for the purposes of Article 267(3) TFEU.

Key preliminary rulings and their impact

Barlis (Case No. 516/14) – formal defects in invoices

The Barlis case concerned the Tax Authority's refusal to allow Barlis 06 - Investimentos Imobiliários e Turísticos SA to deduct input VAT paid on legal services, on the basis that the invoices issued did not meet the formal requirements of national law. The CJEU held that descriptions such as “legal services rendered from [a date] until the present date" do not, in principle, meet the requirements of Article 226(6) of Directive 2006/112/EC. However, the tax authorities cannot refuse the right to deduct VAT solely because an invoice does not meet those formal requirements if they have all the information needed to verify that the substantive conditions have been met. The authorities cannot limit themselves to examining the invoice alone and must also consider any additional information provided by the taxpayer.

Allianzgi-Fonds AEVN (Case No. 545/19) – withholding tax on dividends paid to non-resident investment funds

The AllianzGI-Fonds AEVN case concerned whether Portuguese legislation was compatible with Article 63 TFEU. Under that legislation, dividends paid to non-resident collective investment undertakings ('UCIs') were subject to withholding tax, while dividends paid to resident UCIs were fully exempt. The CJEU held that this difference in treatment restricts the free movement of capital and cannot be justified. The ruling led to a surge in cases, with non-resident UCIs filing hundreds of refund claims before the CAAD. This has had a systemic impact on tax litigation in Portugal.

EDP (Case No. 416/22) – stamp duty on capital-raising transactions

The EDP case concerned whether stamp duty on fees that EDP – Energias de Portugal, SA paid banks for financial intermediation services in capital-raising transactions is compatible with Directive 2008/7/EC. In an order of 19 July 2023, the CJEU held that Article 5(2) of Directive 2008/7/EC precludes national legislation that imposes stamp duty on such fees. This applies regardless of whether the company issuing the securities is required by law to make use of a third party or chooses to do so voluntarily.

Vapo Atlantic (Case No. 460/21) – Road Service Contribution ('CSR')

The Vapo Atlantic case concerned the interpretation of Article 1(2) of Directive 2008/118/EC in proceedings on the reimbursement of the CSR paid for 2016. In an order of 7 February 2022, the CJEU held that a charge does not pursue “specific purposes" within the meaning of that provision where its revenue is allocated in a general way to a public undertaking responsible for the national road network and its structure does not show any intention to discourage the consumption of road fuels. The CJEU also ruled that EU law prevents national authorities from refusing reimbursement on the assumption that the charge has been passed on to third parties and that the taxpayer has therefore been unjustly enriched. The ruling created significant legal uncertainty as to whether fuel distributors could recover the amounts paid. It led to a large number of refund claims before both the CAAD and the Supreme Administrative Court and exposed the Portuguese State to financial liability estimated at several hundred million euros. Reform legislation was introduced shortly thereafter.

The CAAD as an active participant in the EU judicial dialogue

The preliminary ruling cases discussed above show that a specialised arbitration body, created as a domestic procedural innovation, has become an active and consequential participant in the EU judicial dialogue. The CAAD has not merely relied on Article 267 TFEU as a formal right; it has used it in a way that has led to rulings of lasting significance for the interpretation of EU tax law, with effects extending well beyond the individual disputes from which the references arose.

The practical impact of these cases has been considerable. Barlis reshaped the Tax Authority's approach to VAT deduction by confirming that substance prevails over form. AllianzGI-Fonds AEVN led to hundreds of refund claims by non-resident investment funds and exposed a fundamental incompatibility between Portuguese withholding tax rules and the free movement of capital. EDP clarified the application of Directive 2008/7/EC to fees for financial intermediation in capital-raising transactions. Vapo Atlantic undermined the legal basis for the CSR and exposed the Portuguese State to potential liability estimated at several hundred million euros.

This also reflects the institutional maturity that Portuguese tax arbitration has reached since the RJAT regime was introduced in 2011. The CAAD tribunals have shown that they can identify genuine questions of EU law and frame references that the CJEU consistently accepts as admissible and well founded. This points to a body of arbitrators that operates with the rigour and legal sophistication required by the preliminary ruling mechanism. In practice, the CAAD has referred questions of real interpretive importance, rather than using the mechanism as a procedural tactic, and has contributed to the uniform interpretation of EU law across the Member States.
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^[1].  Constitutional Court's Decision No. 577/2019, 17 October 2019. 

^[2].  C. Castelo Trindade, Regime Jurídico da Arbitragem Tributária Anotado, Almedina, Coimbra, 2016, p. 472 

^[3].  Ibid, p. 483