The statute of limitations for tax debts under Portuguese case law: a never-ending story

Nuno Cunha Barnabé

Abreu Advogados, Lisbon

nuno.c.barnabe@abreuadvogados.com

Sara Soares

Abreu Advogados, Lisbon

sara.soares@abreuadvogados.com

Tax administrations all over the world face time limitations to recover tax debts because of a legal certainty concern: understandably, taxpayers cannot be called upon to pay their tax debts without a time limitation. 

In theory, it should be no different in Portugal if one considers national tax law.

The Portuguese General Tax Law provides that tax debts can only be collected by the Portuguese tax authority for a period of eight years, as of:

• the end of the year in which the taxable event occurred (for periodic taxes such as individual income tax and corporate income tax); or
• the date the taxable event has occurred (for one-off taxes, such as stamp duty).[1]

This period is extended to 12 years in cases where tax assessments result from tax events related to:

• tax havens where, although the event should have been reported to the tax authorities at the time, it was not;
• deposit and securities accounts with financial institutions that are non-resident in a EU Member State, or with branches of resident financial institutions based outside the EU, whose existence and identification was not reported by taxpayers in the tax return of the year in which tax event occurred.[2]

This period can also be interrupted by certain events, such as serving a notice to the taxpayer in a tax enforcement proceeding, an administrative claim, an administrative appeal, a judicial claim and an exceptional review of the tax assessment. On the other hand, the statute of limitations is suspended if, for instance, a criminal proceeding is initiated (up until it is closed or a final ruling is issued) or in the case of payment of a tax debt in instalments.[3]

Other than these circumstances, the limitation period of tax debts in Portugal is typically eight years counting from the end of the year in question or the taxable event. However, a different conclusion has emerged from Portuguese Supreme Administrative Court case law.

As the law does not expressly regulate the effects of the limitation period interruption causes, higher tax courts have been applying provisions of the Portuguese Civil Code and stating that such events have two separate effects on the counting of the statute of limitations.

Besides entailing that all the elapsed time be disregarded and that the limitation period restarts (with immediate effect), such facts also imply that the interruption will cease only when a final decision on the proceeding in question is issued (lasting effect). If, for example, the fact interrupting the limitation period is the service of a notice to the taxpayer in a tax enforcement proceeding, the count will not restart until the final decision in that proceeding. 

Adopting that interpretation in a real-life example, the Court ruled as follows:[4] an additional tax assessment regarding the fiscal year of 1999 was issued in 2003 and the tax allegedly due was payable until the end of 2003. The tax was not paid and the taxpayer was served a notice of the tax enforcement proceeding at the beginning of 2004. In 2005, an immovable property was seized by the Portuguese tax authority to secure said tax debt.

Further to an administrative claim, an administrative appeal and a judicial claim, a final decision was issued in 2011 by the Appeal Tax Court determining that the 2003 tax assessment was illegal and was therefore annulled. In 2019, the taxpayer asked the Tax Authorities to recognise that the time limitation of the tax debt had elapsed but their request was rejected. A judicial claim was submitted to challenge this decision; in 2020, the Appeal Tax Court ruled definitively that, considering that service in the tax enforcement proceeding interrupted the limitation period and that no final decision had been issued in such proceeding, said period had not yet restarted and the tax debt could still be collected by the Portuguese tax authority.

Briefly, the Appeal Tax Court deemed lawful that a tax debt from 1999 had not been time barred in 2020, due to the taxpayer having been served in the enforcement proceeding and no final decision having yet been issued in that proceeding.

The same effect may result from:

• the submission of an administrative claim/appeal;
• a request for an exceptional tax assessment review (that may, according to the law, be filed within a four-year period as of the tax assessment or at any time if there is an outstanding tax debt); or
• a judicial claim.

Considering the average time for a tax judicial claim to be definitively decided (which can take more than ten years, if appeals are filed), a tax debt’s time limitation may easily double. 

Although the combined interpretation of the legal provisions of the Civil Code and the General Tax Law may lead to such conclusions, the result of such interpretation (ie, the lack of certainty as to the statute of limitations’ expiry) is out of balance with a law whose purpose is to ensure tax debts have a limitation period. Furthermore, it heightens the imbalance in the relationship between the tax authority and taxpayers. 

After all, there are no circumstances under which taxpayers can have deadlines to comply with tax obligations extended in an identical manner, irrespective of whether it is reporting taxable events or paying taxes. Not even in the context of the pandemic[5] or in cases where taxpayers demonstrably lack means to pay tax debts in one sum,[6] does the law allow for such a time extension for taxpayers to meet their tax obligations.

Additionally, if the Portuguese tax authority does not decide an administrative claim or appeal within the legal deadline, the only consequence is that the law assumes that the taxpayer’s request has been rejected and the taxpayer may, if they wish to, proceed with a judicial claim to challenge such presumed rejection of his or her request.

In a nutshell, despite cooperation duties, as well as the fact that there are several binding rulings published by the Portuguese tax authority on tax matters, the truth is that the relationship between tax administrations and taxpayers is unbalanced. The fact that tax debts may be collected within a theoretical eight-year period – which is actually a no-end-in-sight period – illegally aggravates the unbalance in this relationship and jeopardises taxpayers’ basic rights to legal certainty under the Portuguese Constitution.

With due respect for different views, ours is that such rights are not covered by the interpretation currently being made by the case law on this matter, as an average of ten to 15 years may elapse until a taxpayer who has filed a judicial claim to challenge an additional tax assessment receives a final judicial decision. Only after that decision is ruled will the eight-year limitation period restart; in the light of this position, 30 years may go by between the date the taxable event occurs and the date the limitation period expires.

Most importantly, if it is not possible to cap the time that may elapse until the tax debt can no longer be collected, one may only conclude that the legal reason behind a limitation period for tax debts is exactly the one set aside by the described interpretation: legal certainty.