It is established in paragraph 4 of article 268 of Constitution of the Portuguese Republic that “citizens are guaranteed effective jurisdictional oversight of those of their rights and interests that are protected by law“. This means that, in a state governed by the rule of law, for all conflicts with a judicial context, there must exist competent courts and procedural means to satisfy the interests worthy of legal protection of citizens.
Portugal, being recognised as a state governed by the rule of law, is subordinated to the fulfilment of this important guarantee for taxpayers – effective judicial protection. However, the question arises as to how to reconcile this idea with the long delays that currently occur in Administrative and Tax Courts. In our opinion, the answer can only be one: in Portugal, the guarantee of an effective judicial protection is not satisfactorily fulfilled.
On a brief examination of “European Judicial Systems CEPEJ Evaluation Report[1]”, we can observe that a case in the Administrative and Tax Courts takes an average of 928 days to reach a sentence, whereas the average of the remaining countries that compose the Council of Europe is 323 days and there are even countries that resolve their administrative and tax cases in about 100 days or less. Now, and considering that a first instance sentence may not be definitive, by admitting appeal to higher courts in most cases, the aforementioned period can easily increase to more than 10 years. Is this admissible, considering the guarantee of effective judicial protection?
The truth is that the slowness of the tax justice system is not a frivolous matter, but has important material consequences for the case itself. How to question witnesses about facts that took place more than a decade ago? How the applicable law can be discussed when the legislation in question may have been amended more than four or five times? How to recover documents that date back more than 10 years? And considering that many of the taxpayers in dispute with the Tax Authority are legal persons, it is often possible to reach the end of a case that is well-founded for the party, but that the taxpayer no longer exists, has entered into insolvency, or has new directors and partners/shareholders. Is this admissible, considering the guarantee of effective judicial protection?
Furthermore, and besides the material consequences of the case itself, having a final and unappealable decision more than a decade after the verification of the taxable facts means that, during that period of time, both the taxpayer and the Tax Authority remain in suspense as to the amounts at stake in the case. For example, if the tax was paid by the taxpayer and he decided to discuss its legality in court, if the decision is favourable to the taxpayer, the Tax Authority, i.e., the State, i.e. all of us, will have, in addition to the reimbursement of the amount unduly paid, to pay compensatory interest, which can amount to many thousands of euros, when the value of the case is high and the slowness of justice assumes unsustainable contours. In other words, each year that a case is not decided, another year is added to the calculation of compensatory interest which, ultimately, are paid by all taxpayers. Is this acceptable, considering the guarantee of effective judicial protection?
Furthermore, a tax justice system as described above, suffers from serious competitiveness problems in relation to other European countries. When a foreign agent wishes to choose the country in which he will implement his investments, he will certainly have many fears about choosing Portugal, when faced with the slowness of the decision on his disputes with the Tax Authority. Is this acceptable, considering the guarantee of effective judicial protection?
Now that we have reached this point, and as this is a problem with very long-term contours, we could be led to think that this is a problem without a solution. However, the greatest proof that it is possible to satisfactorily resolve a dispute between Tax Authority and taxpayers lies in Tax Arbitration, which in Portugal is pursued by Administrative Arbitration Centre (CAAD). If CAAD can satisfactorily resolve a dispute taking between 6 to 12 months[1], why can our tax courts not manage to do so as quickly?
In conclusion, we believe that the current slowness of the tax justice penalises taxpayers and even ends up damaging one of the most important principles of the rule of law – effective judicial protection. Although everyone must be guaranteed a means of resolving their disputes, it is not possible to consider this principle to be satisfactorily fulfilled when, after verifying the tax facts and in the event of a dispute with the Tax Authority, taxpayers have to wait more than a decade to obtain a final decision. Tax justice is one of the most important pillars of the rule of law. Let us know how to preserve and value it before it is too late.
Francisco Ludovino Reis
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[1] https://rm.coe.int/evaluation-report-part-1-english/16809fc058.
[1] Considering Article 21 of the Legal Regime of Tax Arbitration (Decree-Law no. 10/2011, of 20th January 2011).