Tax Disputes

In Portugal, taxation and tax disputes are governed by a comprehensive framework consisting of various legal acts, laws and decrees. The most prominent include:

• the Personal Income Tax Code;
• the Corporate Income Tax Code;
• the Value-Added Tax Code;
• the Tax Benefit Statute; and
• the Social Security Contributory Code.

In addition, numerous legal acts govern specific taxation over different types of transactions, goods, assets, business activities and economic sectors.

Tax disputes are mainly governed by:

• the General Tax Law;
• the Tax Procedure and Proceedings Code;
• the Tax Arbitration Regime;
• the Administrative Procedure Code; and
• the Administrative Courts Procedural Code.

The Constitution has several provisions that can be materially relevant in tax matters. Articles 103 and 104 establish the fundamental principles for the taxation system in Portugal. They outline:

• the basic rights and principles concerning taxation; and
• the necessity of legal bases for tax obligations.

Portugal’s autonomous regions (Madeira and the Azores) have autonomous tax regimes which allow for certain tax exemptions and special tax rules, mainly related to corporate tax and personal income tax. Both regions have the power to adjust tax rates and establish local tax rules within the framework of Portuguese and European law.

For example, the Madeira Free Trade Zone and Azores have different tax incentives and tax regimes designed to attract investment, including preferential corporate tax rates.

Council fees are regulated by local government authorities (municipalities) and are generally established by city councils. These fees are set at the local level, albeit under a legal framework established by general law.

In addition, Portugal has signed 79 double taxation agreements, of which 78 are in force and one is signed and awaiting entry into force. As a member of the European Union, Portugal must adhere to EU tax regulations, directives and Court of Justice of the European Union case law.

Tax enforcement is primarily the responsibility of the Tax and Customs Authority, which operates under the Ministry of Finance. The authority is tasked with:

• ensuring compliance with tax laws;
• collecting taxes;
• conducting audits; and
• enforcing penalties for tax violations.

Its approach to enforcement focuses:

• primarily on:
• • educating taxpayers on their tax obligations; and
  • cross-checking information to identify possible tax-filing errors; and
• secondarily on:
• • assuring full compliance with tax laws;
  • conducting audits;
  • collecting taxes and recovering taxpayer’s debts; and
  • assisting in the prosecution of tax misdemeanours and tax crimes.

The Tax and Customs Authority cooperates closely with several national authorities, often exchanging information, in some cases automatically. At a national level, the Tax and Customs Authority cooperates with:

• the Ministry of Finance, to implement policies and strategies for tax collection and enforcement. This cooperation is especially relevant when there are significant policy changes or new tax regulations;
• the Public Prosecutor’s Office, to open criminal investigations and prosecute offenders. This is especially important for cases of tax evasion that involve significant amounts of money or fraudulent activities;
• the Judicial Police, to investigate tax crimes. This collaboration includes sharing information and conducting joint operations when needed;
• Social Security and other government agencies, to ensure that:
• • contributions are correctly collected; and
  • tax fraud or evasion in this area is prevented.
• The Tax and Customs Authority also works with other government bodies, such as the National Institute of Statistics and the Institute for the Management of Public Finances, to share data and coordinate on tax-related matters; and
• local authorities, to ensure compliance and, where necessary, enforce tax-relevant laws, especially when there are disputes or overlapping responsibilities.

At an international level, Portugal:

• has entered into several double taxation agreements which provide for the exchange of information on demand;
• has concluded various tax information exchange agreements and mutual assistance protocols, including under the Foreign Account Tax Compliance Act with the United States;
• participates in the instruments established by the Organisation for Economic Co-operation and Development for mutual cooperation, such as the Common Reporting Standard; and
• as an EU member state, exchanges information with other member states, sometimes automatically.

Compliance is predominantly monitored by data matching and cross-referencing tax returns against:

• information from various electronic reporting systems (eg, e-invoicing);
• third-party reports (eg, banks, employers or financial institutions);
• public records; and
• information exchanged with reporting entities.

More focused monitoring takes the form of tax audits, which can be concluded according to a risk-based approach, targeting areas or taxpayers that are at a higher risk of non-compliance. Specific departments of the Tax and Customs Authority also monitor taxes that they specialise in, with key taxpayers being monitored by a specific tax unit.

Generally:

• businesses are subject to more frequent scrutiny due to the complexity and higher risk of non-compliance associated with a wider array of tax obligations; and
• individuals are monitored primarily through their annual tax returns and third-party reports.

A tax investigation or audit can be triggered by various factors or signs of potential non-compliance or irregularities, including the following:

• Mismatch with third-party reports: Where the information reported by the taxpayer (eg, income, deductions, expenses) does not match the data received from third parties, such as employers, financial institutions, suppliers or clients.
• Underreporting of income or assets: Where the information reported by the taxpayer does not match the data declared by the taxpayer in other tax filings (eg, invoices, receipts).
• Abnormal or unusual tax deductions and exemptions: Where the taxpayer claims unusual or excessive tax deductions, especially if they deviate significantly from market averages or from typical claims in similar circumstances.
• High-risk sectors or transactions: Certain business sectors, by their nature or because they typically involve a high volume of cash transactions, may face heightened scrutiny. Cross-border transactions, especially those involving tax havens, tend to attract greater scrutiny in connection with issues such as:
• • transfer pricing;
  • double taxation; or
  • tax avoidance schemes.

Reports or complaints filed with public authorities can also lead to investigations, and audits may additionally result from random selection.

Investigations can be initiated until the end of the deadline for the assessment of taxes, which is four years counted from the end of the year to which the tax relates. This deadline is extended to 12 years where the tax assessment relates to undisclosed foreign bank accounts or tax havens.

If an investigation takes the form of an audit, the taxpayer is informed in advance of the investigation and its scope (general audit versus a specific tax and which years are being audited). The taxpayer must comply with all reasonable requests made by inspectors in connection with the scope of the audit, including by providing documents and explanations that may be required to validate the content of its tax returns.

If necessary, the Tax and Customs Authority can:

• request information from third parties, such as banks, employers and business partners; and
• carry out on-site inspections at the taxpayer’s business premises, warehouses or other locations where relevant records are kept.

Once all the relevant evidence gathered has been reviewed, a preliminary report is issued setting out:

• the investigation’s findings; and
• a projection of the effects arising therefrom.

The taxpayers can either:

• respond to this preliminary report; or
• accept the findings and correct its returns, generally benefiting from a reduction in penalties.

The audit ends with a final report in which the findings, the tax qualification, any inherent correction and any detected tax crimes or misdemeanours are identified for subsequent assessment and/or prosecution.

An audit should be concluded within six months of notification of its commencement. This deadline can be extended for an additional six months:

• in especially complex situations;
• if, during the inspection, intentional concealment of facts or income is discovered;
• where this is necessary as a result of the taxpayer presenting new facts in its response to the preliminary report; or
• due to any other reason of an exceptional nature, upon substantiated authorisation from the director-general of the Tax and Customs Authority.

The deadline to close a tax audit can be suspended:

• in cases involving:
• • the lifting of bank or professional secrecy;
  • a criminal investigation; or
  • the use of instruments of mutual assistance and international administrative cooperation; and
• during the period granted for taxpayers to regularise their tax situation in line with the investigation’s findings.

The Tax and Customs Authority has wide-ranging powers when investigating a taxpayer’s financial and business affairs. These include the following:

• In relation to the taxpayer:
• • Access to documents/records: The Tax and Customs Authority has the right to request documents and records from the taxpayer to verify tax compliance. These include, for example:
  • • tax returns;
    • accounting records (balance sheets, profit and loss statements);
    • invoices and receipts;
    • bank statements and financial records; and
    • contracts and agreements.
  • Carry out on-site inspections: The Tax and Customs Authority may conduct on-site inspections of the taxpayer’s premises, such as offices, warehouses or factories. During these inspections, it can:
  • • review and copy relevant documents;
    • conduct physical inspections of assets (eg, stock inventory, property); and
    • ensure that the taxpayer’s operations align with reported activities.
  • Request for information: The Tax and Customs Authority has the power to request information or explanations from the taxpayer and representatives regarding specific transactions, expenditures or income.
• In relation to employees of the taxpayer:

Taxpayers have a legal obligation to comply with the investigation, whenever reasonable. Access to the following requires judicial authorisation:

• the taxpayer’s personal residences;
• facts about their intimate life;
• the violation of personality rights or other rights, freedoms and guarantees set out in the Constitution and the law; and
• privileged information protected by professional or any other form of legal secrecy.

Tax investigations cannot be objected to or challenged, as by themselves they are deemed merely accessory, without any effective impact on the financial situation of the taxpayer. Conversely, tax assessments or penalties arising therefrom can be challenged administratively and/or judicially.

Taxpayers can, as a general rule, object to cooperating with an investigation if such cooperation involves:

• actions to be carried out outside of normal business hours without the consent of the taxpayer or court authorisation;
• access to the residence of the taxpayer;
• access to privileged information protected by either professional or any other form of regulated secrecy;
• access to facts pertaining to the intimate life of the taxpayer; or
• the violation of personality rights and any other rights, freedoms and guarantees of citizens, within the terms and limits provided for in the Constitution and law.

However, in these circumstances, actions within the context of a tax investigation can still be performed if they are judicially authorised, following a reasoned request submitted by the Tax and Customs Authority.

In case of an unjustified opposition to an investigation, the Tax and Customs Authority can request assistance from police and administrative authorities to carry out its duties. Additionally, unjustified lack of cooperation with the investigation can lead to:

• disciplinary, administrative and criminal liability;
• financial penalties; and
• in certain conditions, tax corrections based on assumptions rather than proven facts.

The Tax and Customs Authority can exercise a certain degree of discretion in specific exceptional circumstances, such as insolvency or financial hardship. Although the tax laws in Portugal are generally strict and follow a set process, the Tax and Customs Authority does have some flexibility to accommodate taxpayers facing extraordinary situations, in cases such as the following:

• Payment in instalments: If the taxpayer is unable to pay its tax debt in full due to financial difficulty, the Tax and Customs Authority can allow it to pay in instalments over a set period.
• Suspension of enforcement actions: In case of severe financial distress, the Tax and Customs Authority may suspend collection measures (eg, asset seizures or garnishments) during a tax dispute to allow the taxpayer not to bear the financial effort of the tax assessment being challenged.
• Tax debt amnesty: Under specific legal frameworks, such as tax amnesty programmes, a reduction or partial cancellation of tax debts may be conferred. These programmes are typically offered by the government:
• • during periods of economic hardship; or
  • as part of wider tax reform initiatives.

While the Tax and Customs Authority is typically thorough and rigid in its enforcement of tax laws, in some cases, if a taxpayer cooperates by voluntarily acknowledging tax non-compliance (eg, underreporting income or incorrect deductions) and proceeds to regularise the issue, it can benefit from a reduction in penalties. Penalties can also be reduced if the taxpayer recognises that taxes were underreported and comes forward to correct them before the Tax and Customs Authority discovers the irregularity through an audit or investigation.

If the Tax and Customs Authority concludes that taxes are overdue following an investigation, it has the power to issue a tax assessment which specifies the amount of tax owed, including any accrued interest. The Tax and Customs Authority can also impose administrative penalties for late payment.

If the taxpayer does not pay the overdue taxes voluntarily within the deadline set in the assessment, the Tax and Customs Authority can trigger additional enforcement actions, which can include:

• the seizure of assets;
• the set-off of debt against tax refunds due; and
• the garnishment of bank accounts, wages and payments owed by third parties to recover the debt.

Failure to settle overdue taxes can also lead to:

• the loss of tax benefits;
• the inability to enter into supply contracts, public works contracts or the acquisition of services and goods with public entities;
• the inability to compete for the concession of public services;
• the inability to:
• • list securities representing share capital on stock exchanges and issue public offers for the sale of share capital; or
  • sell participation certificates, debentures or shares through public subscription;
• the inability to benefit from European structural and investment funds and public funds;
• the inability to distribute profits for the year or make advances on profits during the year; and
• inclusion on the public list of tax debtors.

The penalties for not paying overdue taxes are imposed based on specific legal provisions that aim to:

• encourage compliance; and
• penalise the late payment of taxes.

The consequences may include the imposition of default interest, compensatory interest, fines and collection charges, which are calculated based on:

• the amount of the overdue taxes;
• the length of the delay;
• the relevant penalties; and
• the taxpayer’s behaviour.

The grounds for the penalties associated with tax investigations will vary depending on the findings of the investigation. However, they are generally associated with:

• failure to make tax payments, which may be sanctioned with a fine ranging from 50% to 100% of the amount of tax assessed (from 15% to 50% in case of negligence); or
• omissions and inaccuracies in declarations or other tax-relevant documents, which may be sanctioned with a fine ranging from €375 to €22,500.

Fines are generally:

• doubled for legal persons; and
• limited to:
• • €165,000 if the misconduct was intentional; and
  • €45,000 if the misconduct resulted from negligence (unless otherwise provided by law, fines for individuals cannot exceed half of the limits established for legal persons).

Under certain conditions, fines can be:

• waived;
• reduced; or
• especially attenuated.

More serious misconduct may be construed as a criminal offence, depending on the findings of the investigation, as:

• tax fraud (wilfully falsifying information to limit the amount of tax liability); or
• abuse of tax trust (wilfully failing to deliver taxes withheld from third parties above a certain threshold).

Interest levied on overdue taxes serves both to:

• compensate the public purse for the delay in receiving taxes owed (compensatory interest); and
• compel the taxpayer to pay the sum due (late payment interest).

Interest on overdue taxes is not compounded, meaning that it is calculated only on the principal amount of taxes owed, not on the interest itself.

Compensatory interest is payable in case of delay in assessing tax, at an annual rate of 4%. Compensatory interest is calculated daily according to the following formula:

Late payment interest is due where the taxpayer does not pay the tax due within the legal deadline, at the rate generally stipulated for debts to the state and other public entities (as of 1 January 2025, this rate is 8.309%).

Taxpayers have several defences and legal avenues available to challenge or mitigate tax liabilities, penalties and enforcement actions imposed by the Tax and Customs Authority. These defences are typically used:

• in case of disputes over additional tax assessments; or
• when a taxpayer faces penalties for:
• • late payment;
  • non-payment; or
  • other non-compliance issues.

In case of incorrect or invalid assessment of taxes, the main avenues of defence available to taxpayers in Portugal are:

• administrative and judicial challenges;
• administrative appeals; and
• claims for revision of tax assessments on grounds of error attributable to the Tax and Customs Authority’s services.

If an administrative challenge or appeal is unsuccessful, the taxpayer can typically escalate the dispute to an administrative or tax court for further review.

Enforcement actions can generally be challenged in tax courts. Tax penalties (eg, for failure to timely deliver tax payments or for omissions and/or inaccuracies in declarations or other tax-relevant documents) can:

• be challenged administratively; and
• if that is unsuccessful, appealed to the tax courts.

Yes, the results of a tax investigation can have criminal implications for the taxpayer, depending on:

• the nature of the tax violation; and
• the circumstances of the case.

Tax violations can include:

• administrative offences (which typically result in fines or penalties); and
• criminal offences (which can result in more serious consequences, such as criminal prosecution and imprisonment).

The most serious consequences typically arise from deliberate actions to avoid paying taxes, such as:

• tax fraud (wilfully falsifying information to limit the amount of tax liability); and
• abuse of tax trust (wilfully failing to deliver taxes withheld from third parties above a certain threshold).

Although the answers to the above questions would not be different, the shift in the legal framework from tax law (focused on the correct assessment of taxes) to criminal law (focused on prosecution and criminal sanctions) raises one noteworthy problem in particular: how the right to avoid self-incrimination and the duty to cooperate with tax inspections interact with each other.

The right to avoid self-incrimination and the duty to cooperate sometimes conflict, especially in cases where the Tax and Customs Authority requests information that could potentially implicate the taxpayer in a criminal offence (eg, tax fraud). In such cases, the taxpayer may refuse to answer certain questions or provide information that could be used against it in a criminal context. This refusal is not considered an obstruction of the audit or failure to cooperate, as long as the refusal is based on the right to avoid self-incrimination. This does not hinder the right of the Tax and Customs Authority to assess tax based on presumptions rather than proven evidence, in the absence of cooperation from the taxpayer.

Portugal provides opportunities for voluntary disclosure for taxpayers to report previously undeclared income or assets which may have been unintentionally or intentionally omitted from tax filings, generally allowing for:

• a certain degree of penalty reduction; or
• avoidance of criminal prosecution.

Voluntary disclosure is typically made by submitting an amended tax return to the Tax and Customs Authority.

Portugal has occasionally offered temporary tax amnesty programmes in the form of special regimes that allowed taxpayers to settle tax debts or disclose undeclared assets with certain reductions in interest and/or penalties. There are currently no tax amnesty programmes available. Each programme, however, stipulates a specific regime, determining the conditions and the taxes that fall within its scope.

Tax disputes are generally heard in specific administrative and judicial forums, and there are specific rules governing which forum a taxpayer must use depending on the nature of the dispute. There is a limited choice of forum in tax disputes, as these matters are primarily handled by specialised administrative courts or specific tax tribunals.

Taxpayers have the right to participate in decisions of the Tax and Customs Authority that may affect them, typically by means of prior hearing. New elements raised during the hearing of taxpayers must be considered when justifying the decision.

Before bringing a tax dispute to a court, the taxpayer may first file a preliminary administrative challenge with the Tax and Customs Authority. This is an internal review process in which the authority examines whether there was an error in:

• the tax assessment;
• the imposition of a penalty; or
• any administrative decision.

If the taxpayer is dissatisfied with the outcome of this challenge, it can further appeal:

• hierarchically to the minister of finance; or
• directly to a tax court.

If the taxpayer is dissatisfied with an illegal tax assessment, penalty imposition, administrative decision or the outcome of an administrative challenge or hierarchical appeal, it can file a judicial challenge with a tax court. If the tax court rules against the taxpayer, the decision can still be appealed to a higher court, depending on:

• the value still disputed; and
• the grounds on which the decision was issued.

Depending on the value and subject of the dispute, the taxpayer can opt for arbitration in tax disputes, which is often faster than traditional court proceedings.

In Portugal, the fact-finding role in a tax dispute typically lies with the entity responsible for deciding the dispute, which depends on the venue:

• In administrative proceedings, the entity responsible will typically be the Tax and Customs Authority; and
• In judicial proceedings, it will be the court (judge or arbitrator, depending on the forum).

The limitation period for filing a tax dispute depends on the nature of the dispute. Generally speaking, the deadline is 120 days for filing an administrative challenge is 120 days and three months for a judicial challenge, in both cases counted from the date on which the taxpayer was notified of the decision that is being challenged (if the decision is a tax assessment, the deadline is counted from the end of the deadline to voluntarily pay the tax).

There are several instances in which special deadlines are provided. The most relevant include:

• two years to administratively challenge tax which was self-assessed by the taxpayer (eg, value-added tax and corporate income tax);
• four years to request a revision of taxes assessed on grounds of illegality caused by errors attributable to the tax authorities; and
• three years to request a revision of taxes assessed in cases of severe or notorious injustice, if this did not derive from the negligent behaviour of the taxpayer.

Certain actions or procedures can suspend or interrupt the limitation period, and supervening documents or events may determine its reinitiation. Missing these deadlines can result in the loss of the right to challenge the tax assessment or decision.

When filing a tax dispute, certain formal requirements must be met, depending on whether the dispute is administrative or judicial.

In both cases, the taxpayer must:

• file the dispute:
• • within the applicable deadline;
  • in Portuguese; and
  • typically, in writing (electronic submission is generally encouraged); and
• identify:
• • the taxpayer (name, tax identification number and contact details);
  • the tax assessment or decision being challenged (eg, the type of tax, the amount and the assessment period);
  • the grounds for the dispute; and
  • the evidence to be reviewed in the dispute (eg, documents, witnesses, experts).

Judicial proceedings in tax disputes are generally subject to court fees, which must be paid at the time of filing the dispute. Fees vary depending on the complexity of the dispute and the amount of tax involved. While it is not always mandatory to have a lawyer for administrative disputes, this is typically required for judicial disputes.

Failure to meet deadlines or to comply with formal requirements may result in:

• the dismissal of the dispute; or
• an unfavourable outcome.

Procedural requirements – the steps and formalities that must be followed when filing a tax dispute, regardless of the substance of the dispute – correspond to the formal requirements mentioned in question 5.2. As for substantive requirements, taxpayers must:

• provide clear, substantive arguments as to why the tax decision or assessment is incorrect (ie, the grounds for the dispute), such as:
• • errors in the calculation of the tax;
  • misapplication of tax law;
  • factual mistakes; or
  • violations of the taxpayer’s rights; and
• submit evidence required to prove disputed facts.

Yes, collective proceedings in tax disputes are possible, particularly in cases involving multiple taxpayers or multiple tax assessments, as long as the proceedings:

• have the same procedural nature; and
• are:
• • based on the same factual circumstances or the same tax inspection report; or
  • likely to be decided on the basis of the same set of rules.

Payment into court is not required before filing a tax dispute. However, the payment or guarantee of the sum in contention is necessary if the taxpayer seeks to avoid enforcement while the dispute is being resolved.

The filing of a tax dispute has a suspensive effect on the collection possibilities of the Tax and Customs Authority regarding the disputed tax, provided that:

• such a suspension is requested; and
• a guarantee (eg, a deposit or bank guarantee) is provided in favour of the Tax and Customs Authority (or waived, which is typically associated with the taxpayer being in a dire financial condition).

Without such a request and guarantee (or a waiver of guarantee), the Tax and Customs Authority can continue with its collection efforts.

If a tax dispute is decided in favour of the Tax and Customs Authority, meaning that the taxpayer must pay the disputed tax, interest on late payment will be due. Interest is calculated from the original due date of the tax until the date on which the tax is paid, at the statutory interest rate set by the government (for 2025, 8.309% per year).

If a tax dispute is decided in favour of the taxpayer and the tax has already been settled (ie, the taxpayer paid the sum in contention before the dispute was resolved), the taxpayer is entitled to receive interest on the amount that was wrongly paid, if the impropriety in the assessment of tax is attributed to the Tax and Customs Authority. Interest is calculated from the date on which the tax was overpaid until the date on which the refund is processed by the Tax and Customs Authority, at the statutory rate of 4% per year.

Both parties (the taxpayer and the Tax and Customs Authority) must provide the information and evidence that is to be considered in the proceedings to support their position in the dispute. There is no formal obligation to disclose, but information or evidence not provided (unless already in the possession of the other party or self-evident) may not be considered in the decision of the dispute.

Both the parties and the court can request documents or the testimony of third parties to produce evidence that may be relevant in the dispute. Although third parties are generally required to cooperate in the discovery of evidence, certain types of information may require explicit legal authorisation to be disclosed (eg, those protected by professional or banking secrecy).

The main privileges relevant to tax disputes include:

• professional privilege;
• confidentiality of certain communications; and
• protection against self-incrimination.

Although this information may generally be withheld, certain exceptions to privilege do exist – particularly when:

• certain types of criminal activity is suspected; or
• the court orders the disclosure of privileged information, which is admissible:
• • only in limited situations; and
  • after hearing the representative body of the profession related to the professional privilege in question.

Although there are exceptions associated with the nature of the dispute and the avenue chosen, generally all types of evidence can be presented in a tax dispute. Expert evidence is accepted and experts can be appointed by both the parties and the court.

The standard of proof is generally the preponderance of the evidence – that is, that something is more likely than not.

The general principle is that the party making a claim has the burden of proving its validity. However, as the taxpayer’s tax returns, accounts and commercial writing are presumed to be true when organised and filed in accordance with commercial and tax legislation, the Tax and Customs Authority often bears the primary responsibility for proving the taxpayer’s liability. This presumption is not applicable:

• to tax benefits;
• where the findings of a tax investigation or information provided by a foreign tax administration under an international mutual assistance agreement rationally and objectively shows that the tax return, accounts or commercial writing is incorrect;
• where the taxpayer fails to comply with its obligations to clarify its tax situation (except where this refusal to provide information is legitimate); or
• where taxable income is significantly lower, without any justification, than market standards or averages.

Although court proceedings are generally public, as tax disputes imply data protected by tax secrecy and the examination of proceedings by anyone who is not a party requires a justifiable interest, tax disputes are typically private. Court hearings are generally public, but parties can request that they be privately held to:

• protect the dignity of individuals and public morals; or
• ensure the normal functioning of the hearing.

Court decisions are published, but personal information such as names, addresses and other information that could allow parties, witnesses or experts to be identified is redacted before publication.

Tax proceedings unfold in a structured manner, generally comprised of the following steps:

• The taxpayer files its claim, in which it must:
• • state the grounds for the claim; and
  • submit the evidence that is to be considered in the proceedings.
• The court notifies the claim to the Tax and Customs Authority and informs it of the deadline to submit a defence.
• The Tax and Customs Authority may file a defence, refuting the claim and submitting evidence that is to be considered in the proceedings, in addition to all documents in its possession relating to the subject matter of the dispute.
• The court notifies the parties to correct amendable errors in their claims and, if applicable, informs the parties of:
• • the dates for probatory diligence; and
  • the deadline for filing closing arguments.
• Probatory diligence takes place (eg, hearing witnesses and experts).
• The parties file their closing arguments.
• The proceedings are submitted for review to the Public Prosecution Office.
• The court issues its decision.

Depending on how the case unfolds, the losing party may appeal the court’s decision. Once the decision has become res judicata, if it is not complied with, the winning party may initiate enforcement actions.

The timeframe for tax proceedings varies depending on the venue. Administrative challenges should be decided within four months, counted continuously from the date on which the taxpayer’s claim reaches the competent services. If not decided within that period, the taxpayer can presume that the claim was denied by the Tax and Customs Authority, to appeal it judicially.

Judicial challenges do not have a typical timeframe; this can vary significantly, depending on the nature and complexity of the case. On average, according to the latest statistics of the Ministry of Justice (ie, for 2023), the average turnover period for tax proceedings at the first level of courts was 41 months.

Tax arbitration requires arbitrators to issue a decision within six months of the appointment of the arbitration panel. The arbitration panel may extend this deadline by successive periods of two months up to a limit of six months (ie, maximum three extensions), informing the parties of the extension and the reasons for its need.

Settlements in the strict legal sense are not possible in tax disputes.

Courts can review facts and legal questions and typically are not limited to the arguments or evidence submitted by the parties. However, courts do not have the power to reassess or reinterpret the tax assessment, act or decision of the Tax and Customs Authority under contention, as that would collide with the constitutional principle of separation of powers (ie, administrative versus judiciary).

Remedies vary depending on:

• the claim made;
• the nature of the dispute; and
• the impropriety found in the tax assessment, act or decision under contention.

If the dispute regards a tax assessment, the Tax and Customs Authority is typically required to reimburse either the excess tax paid together with compensatory interest or the costs incurred with guaranteeing the amount in contention, depending on whether the sum was either paid or guaranteed by the taxpayer.

Overall, if the court’s decision is in favour of the taxpayer, the Tax and Customs Authority will be required to fully restore the situation that would have existed had the impropriety that was disputed never occurred.

The courts will consider:

• the legal merits of the claim;
• the factual evidence;
• procedural compliance; and
• (although not typically binding) precedent.

The possibility of appealing a decision depends mostly on the venue and the value of the dispute.

The grounds for appealing a decision in tax arbitration are generally limited to:

• procedural aspects such as:
• • breach of the principles of adversarial proceedings and equality of the parties;
  • failure to specify the grounds for the decision;
  • contradiction between the reasoning and the remedies of the decision; and
  • excess or omission in deciding aspects submitted to the arbitration panel;
• contradiction with other decisions of higher courts on the same fundamental question of law; or
• constitutional aspects.

Decisions based on merit from the first level of judicial courts can be appealed:

• only if the disputed value exceeds the threshold provided for that level of court; and
• only by a party whose loss in the decision exceeds half of that threshold.

Further appeals (ie, from appeal courts to the Supreme Court) are generally exceptional in nature.

Grounds for appeal typically correspond to:

• errors of law;
• errors of fact;
• violation of procedural rules; or
• a combination of the above.

The appellant must:

• file the appeal within the specified timeframe (typically 30 days); and
• specify the grounds for challenging the decision.

Once notified of the appeal, the other party should be granted the same deadline to rebut the appeal. Thereafter, the appellate court should issue a ruling based on its review, upholding, modifying or annulling the appealed decision.

Tax disputes may involve several different types of costs and fees:

• Court fees: Paid to courts and based on:
• • the sum in contention; and
  • the complexity of the dispute.
• Legal fees: Paid to lawyers for legal representation.
• Expert fees: Paid to experts for providing expertise or testimony in the dispute.
• Administrative fees: Paid to obtain certified documents, translation services or other administrative expenses necessary for case preparation and presentation.
• Arbitration fees: Paid to arbitration bodies, similarly to court fees.

The winning party can usually only recover:

• court fees; and
• a portion of its legal fees.

The court should rule on this matter when handing down its decision.

Contingency fee arrangements, where lawyers’ fees depend solely on the outcome of the case, are generally prohibited. However, other fee arrangements – such as hourly fees, flat fees and success fees (under certain conditions) – are permitted.

Third-party funding is a relatively new concept in Portugal and is not explicitly regulated. It is widely considered to be admissible if ethical rules, guidelines and transparency are observed.

Portugal’s approach to solving international tax disputes is predominantly aligned with Organisation for Economic Co-operation and Development (OECD) guidelines and EU regulations. Portugal:

• allows for both unilateral and bilateral/multilateral advance pricing agreements, enabling taxpayers to agree in advance with the Tax and Customs Authority on the appropriate transfer pricing method for their transactions;
• is a signatory to 79 double taxation treaties (the majority of which contain provisions for mutual agreement procedures);
• is a signatory to the Multilateral Instrument, having opted into the arbitration provisions contained in the convention; and
• is bound by the EU Arbitration Convention (Council Directive 90/436/EEC).

Yes, Portugal has actively implemented the OECD minimum standards on international tax dispute resolution, as it is a signatory to the Multilateral Instrument and the EU Arbitration Convention.

Portugal’s position on international tax dispute resolution aligns closely with Article 25 of the OECD Model Tax Convention (including commentary).

Generally speaking, there is little interplay between domestic and international tax dispute resolution mechanisms, unless international rulings need to be enforced or challenged within the Portuguese legal system.

Increased scrutiny of compliance, facilitated by the constant development of control mechanisms, has allowed for easier fulfilment of tax obligations; but it has also led to increased litigation – for example, in cases where there are mismatches in the information exchanged between tax authorities.

Rising trends in tax disputes concern:

• the validity of:
• • certain national rules considering EU freedoms; and
  • commutative taxes in specific sectors; and
• the application of tax incentives and tax benefits, with audits increasingly scrutinising taxpayers’ claims for tax credits and deductions under Portugal’s investment and R&D incentive programmes.

A commission tasked with proposing changes aimed at promoting the speed, simplicity and effectiveness of tax proceedings was established in 2024, but so far, its works have not been made public.

Parties that face a tax dispute in Portugal should adopt a careful and strategic approach, given the complexity of the tax system and the potential consequences of unresolved issues, which may extend beyond the tax assessed. It is highly advisable to engage a tax professional even in the early stages of a tax investigation, to:

• help navigate the dispute and ensure that all procedural requirements are met; and
• take a proactive and properly substantiated approach to the proceedings.

All too common pitfalls that taxpayers can generally avoid with proper assistance include:

• failing to meet procedural requirements such as deadlines or to pursue proper avenues; and
• underestimating the complexity of tax law