I - Purpose
II - Fundamentals
III - Classifications
IV - Start of the period
V - The case of external inspection procedures
VI - Fundamental principles of the procedure
VII - Opposition and Refusal to Cooperate in Tax Inspections
VIII - Prorogatives of officials within the scope of inspections
IX - Precautionary measures
X - Access to protected information
XI - Right to a Prior Hearing
XII - Conclusion of the Inspection Procedure
XIII - Reactions to the outcome of the Inspection Procedure
XIV - On the retention period of documents
XV - Final note
XVI - Most relevant legislation mentioned here
I - Purpose
The main purpose of tax inspections is to ascertain the taxpayer's actual tax situation.
Simply put, in order for the state to achieve most of its goals, it needs to pay the taxes due.
And in order for the taxes due to be paid, they must be assessed in accordance with the facts.
Therefore, and in accordance with the provisions of Article 1(2) of the RCPITA, tax inspection includes, among other things,
1. Confirmation of the information declared by taxpayers and other taxable persons;
2. The investigation of tax facts not declared by taxpayers and other taxable persons;
3. Inventorying and evaluating assets, whether movable or immovable, for the purposes of monitoring compliance with tax obligations;
4. The provision of official information, in matters of fact, in the processes of complaint and judicial challenge of tax acts or contentious appeal of administrative acts in tax matters;
5. Clarifying and advising taxpayers and other taxable persons on how to comply with their duties towards the tax administration;
6. Providing information on the factual assumptions of tax benefits that depend on being granted or recognized by the tax administration or rights that the taxpayer, other taxable persons and other interested parties invoke before the tax administration;
7. Promoting, under the terms of the law, the sanctioning of tax infringements.
- cfr. als. a) to e), h) and i) of art. 2 of the RCPITA.
II - Grounds
There are various situations and reasons why a tax inspection is carried out;
a) As a result of a complaint or report lodged with the Tax Office;
b) The application of objective criteria defined annually in the National Tax and Customs Inspection Activity Plan; and
c) The verification of significant deviations in the tax behaviour of taxpayers or other taxable persons in relation to the normal parameters that characterize the activity, the patrimonial situation or any acts or omissions that constitute evidence of tax infringement.
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III - Classifications
In terms of purpose, they can be
a) Proof and verification procedures, aimed at ascertaining (in)compliance with the obligations of taxpayers and other obliged parties; or
b) Information procedures, aimed at complying with the legal duties to provide information or an opinion.
In terms of where they are carried out, they may be
a) Internal, when the respective acts take place exclusively in the tax administration services and based on the elements they have; or
b) External, when the respective acts take place, even partially,
In terms of scope, they may be
a) general (or multi-purpose), when it concerns all the taxes and duties of the taxable person, or
b) partial (or univalent), when they concern a specific tax or specific duty of the taxable person, or mere consultation, collection of documents, specific elements and verification of computer systems of taxable persons and other taxable persons, or control of goods in circulation.
As for the extent, they may relate to one or more tax periods.
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IV - Start of the period
Pursuant to Article 36(1) of the RCPITA, the tax inspection procedure may begin up to the expiry of the time limit for the assessment of taxes or the sanctioning procedure, without prejudice to the right to examine documents relating to tax situations already covered by that time limit, which taxpayers and other taxable persons are obliged to keep.
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V - The case of external inspection procedures
V.A) the taxable person must be notified at least five days prior to the start of the procedure, except when
1. The procedure is only aimed at consulting, collecting or cross-checking documents to confirm the tax situation of the taxable person or tax debtor;
2. The procedure originates from a report or complaint and contains evidence of tax fraud
3. The purpose of the procedure is to make an inventory of goods or cash in hand, to collect samples for forensics, to check goods under a customs procedure with economic or suspensive effect, to carry out tests by sampling or any other necessary and urgent acts for the acquisition and preservation of evidence;
4. The procedure consists of checking goods in circulation and the possession of the respective transport documents;
5. The procedure is aimed at investigating the exercise of activity by unregistered taxable persons;
6. The early notification of the start of the inspection procedure is, for any other exceptional reason duly substantiated by the tax administration, likely to jeopardize its success.
7. The procedure is aimed at assessing compliance with exemption requirements that depend on the purpose or use given to the goods.
V.B) The following must be present
The taxable person or tax debtor, their legal and technical representatives and statutory auditors must be present at the time of the external inspection, as well as being accompanied by an expert, when
a) The inspection is carried out on the taxpayer's premises or premises and their presence is considered indispensable for discovering the material truth; and
b) When they wish to.
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VI - Fundamental principles of the procedure
The following stand out:
1. principle of material truth (art. 6 RCPITA);
2. principle of proportionality (art. 7 RCPITA);
3. the adversarial principle (art. 8 RCPTIA);
4. the principle of cooperation (art. 9 RCPITA).
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VII - Opposition and Refusal to Cooperate in Tax Inspections
According to the provisions of no. 4 of article 63 of the L.G.T., “The inspection procedure and the duties of cooperation shall be appropriate and proportionate to the objectives to be pursued, and there may only be more than one external inspection procedure concerning the same taxpayer or taxable person, tax and tax period by means of a decision, substantiated on the basis of new facts, by the head of the service, unless the procedure is aimed solely at consultation, collection of documents or elements or confirmation of the assumptions of rights that the taxpayer invokes before the tax administration and without prejudice to the ascertainment of the taxable person's tax situation by means of inspection or inspections directed at third parties with whom he maintains economic relations. “
In the event of a situation that could violate the above, the inspected person may oppose the inspection and, under the terms of Article 59(1) of the RCPITA, the respective official must notify the head of the department within five days, proposing, if appropriate, a reasoned request to the competent district court for an order to carry out the act.
On the other hand, the principle of cooperation is relevant,
It is true that, according to the provisions of the aforementioned article 9 of the RCPITA, the tax inspectorate and taxpayers or other taxable persons are subject to a mutual duty of cooperation.
Under the terms of Article 48(1) of the RCPITA, the tax administration will seek, whenever possible, the cooperation of the inspected entity in order to clarify any doubts raised during the inspection procedure.
Under the terms of article 10 of the RCPITA, the “lack of cooperation from taxpayers and other taxable persons in the inspection procedure may, when unlawful, constitute grounds for the application of indirect methods of taxation, under the terms of the law.”
In addition, the lack of cooperation, when unlawful, may also result in the police and administrative authorities being asked to provide the cooperation necessary for the officials to carry out their duties (cf. art. 28 h) of the RCPITA).
But more,
It should be noted that, under the terms of Article 32(1) of the RCPTIA, the refusal of cooperation by the taxpayer during the inspection, when unlawful, renders the offender liable to disciplinary, administrative and criminal charges.
To this end, paragraphs 1 and 5 of article 63 of the L.G.T. state that:
“The competent bodies may, under the terms of the law, carry out all the steps necessary to ascertain the tax situation of taxpayers, namely:
a) Freely access the premises or places where there may be elements related to their activity or that of other tax obligors;
b) Examine and inspect their accounting books and records, as well as any other elements that may shed light on their tax situation;
c) Access, consult and test its computer system, including documentation on its analysis, programming and execution;
d) Request the collaboration of any public bodies necessary to ascertain their tax situation or that of third parties with whom they have economic relations;
e) To request documents from notaries, registrars and other official entities;
f) Use their premises when necessary to carry out the inspection.”
Lack of cooperation with these requests is legitimate when they involve
“a) Access to the taxpayer's home;
b) Consultation of elements covered by professional secrecy or another legally regulated duty of secrecy, with the exception of banking secrecy and the secrecy provided for in the Legal Framework of Insurance Contracts, carried out under the terms of no. 3;
c) Access to facts about citizens' intimate lives;
d) The violation of personality rights and other rights, freedoms and guarantees of citizens, under the terms and limits provided for in the Constitution and the law.”
In this case, and in accordance with the provisions of no. 6 of art. 63d of the L.G.T., if the taxpayer objects to the above-mentioned steps being taken, they can only be carried out with authorization granted by the competent district court on the basis of a reasoned request from the tax administration.
As for access to information protected by professional secrecy or any other legally regulated duty of secrecy, this must always be subject to judicial authorization (cf. no. 2 of art. 63 of the L.G.T.):
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VIII - Exemptions for officials in the context of inspections
In order to ensure the effectiveness of the inspection, the respective officials may have access to:
a) Free access to the premises and dependencies of the inspected entity for the period of time necessary to carry out their duties;
b) The provision of adequate facilities to carry out their duties in conditions of dignity and efficiency;
c) The examination, requisition and reproduction of documents, even when in computerized form, held by taxpayers or other taxable persons, for consultation, support or addition to reports, files or records;
d) The provision of information and the examination of documents or other elements held by any services, establishments and bodies, even if personalized, of the State, the Autonomous Regions and local authorities, public associations, public companies or companies with exclusively public capital, private social solidarity institutions and legal persons of public utility;
e) The exchange of correspondence, while on duty, with any public or private entities on issues related to the development of their work;
f) The clarification, by chartered accountants and statutory auditors, of the tax situation of the entities to which they provide or have provided services;
g) The adoption, under the terms of this statute, of appropriate precautionary measures for the acquisition and preservation of evidence;
h) To request from the police and administrative authorities the cooperation necessary to carry out their duties, in the event of unlawful opposition by the taxpayer to the inspection.
- cfr. art. 28 of the RCPITA.
Of the powers through which the “guarantee of effectiveness” is realized, we highlight the fact that, to this end, among others, officials may:
1. examine any elements of taxpayers that are likely to reveal their tax situation, namely those related to their activity, or of third parties with whom they maintain economic relations and request or make, namely on magnetic media, copies or extracts deemed indispensable or useful - cfr. al. a) of art. 29 of the RCPITA;
2. Carrying out a physical inventory, identification and valuation of any goods or property related to the taxpayer's activity, including a physical count of inventories, cash and fixed assets, and carrying out sampling to document inspection actions - cfr. b) of article 29 of the RCPITA;
3. Accessing, consulting and testing taxable persons' computer systems and, in the case of the use of their own data processing systems, examining the documentation relating to their analysis, programming and execution, even if prepared by third parties - cf. article 29(c) of the RCPITA.
For the purposes of point a), the following elements stand out:
a) The compulsory books provided for in commercial and tax legislation;
b) Accounting records and related documents, including programs and magnetic media;
c) Auxiliary accounting records;
d) Documents and records relating to the costing of inventories or cost accounting;
e) Other internal or external documentation relating to economic and financial transactions carried out with clients, suppliers, credit institutions, companies and any other entities, including statements processed by credit institutions and financial companies, contracts entered into, estimates for work carried out or commissioned from third parties, studies carried out or commissioned from third parties and price lists established;
f) Reports, opinions and other documentation issued by chartered accountants, statutory auditors, lawyers, tax consultants and external auditors;
g) Correspondence received and dispatched in connection with the activity.
- cfr. no. 2 of article 29 of the RCPITA.
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IX - Precautionary measures
Within the scope of their duties, officials may adopt the following precautionary measures to acquire and preserve evidence:
a) Seize bookkeeping elements or any other elements, including computer media, proving the tax situation of the taxable person or third parties;
b) Sealing any premises, seizing goods, valuables or merchandise, whenever necessary to prove the existence of a tax offense;
c) Visiting books and other documents, when appropriate.
- see article 30 of the RCPITA
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X - Access to protected information
With regard to accessing and obtaining protected information, there are specific rules for this.
On this point, we would like to highlight the fact that, under the terms of Article 63b(1) of the L.G.T, and in relation to bank information and documents:
“The tax administration has the power to access all bank information or documents, as well as information or documents of other financial entities provided for as such in article 3 of Law no. 25/2008, of June 5, amended by Decree-Laws no. 317/2009, of October 30, and no. 242/2012, of November 7, without dependence on the consent of the holder of the protected elements:
a) When there is evidence that a tax crime has been committed;
b) When there are indications that what has been declared is not true or a legally required declaration is missing;
c) When there is evidence of unjustified increases in assets, under the terms of Article 87(1)(f);
d) When checking the conformity of documents supporting the accounting records of IRS and IRC taxpayers who are subject to organized accounting or VAT taxpayers who have opted for the cash VAT regime;
e) When there is a need to control the assumptions of privileged tax regimes enjoyed by the taxpayer;
f) When it is impossible to prove and quantify the taxable amount directly and exactly, under the terms of article 88, and, in general, when the conditions for using an indirect assessment are met.
g) When there is a proven existence of debts to the tax authorities or social security.
h) In the case of information requested under the terms of international tax agreements or conventions to which the Portuguese state is bound.
i) The communication of suspicious transactions sent to the Tax and Customs Authority by the Central Department of Investigation and Criminal Action of the Attorney General's Office (DCIAP) and by the Financial Intelligence Unit (UIF), within the scope of legislation on the prevention and repression of money laundering and terrorist financing, also constitutes grounds for derogating from banking secrecy in the context of administrative tax inspection procedures.”
To this end, it should be noted that, under the terms of paragraphs 1 and 4 of article 63-C of the L.G.T., regarding bank accounts exclusively allocated to business activity
“IRC taxpayers, as well as IRS taxpayers who have or must have organized accounting, are obliged to have at least one bank account through which payments and receipts relating to the business activity carried out must be handled exclusively,” and that
“The tax authorities may access any information or bank documents relating to the account or accounts referred to in paragraph 1 without the consent of the respective holders.”
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XI - Right to a Prior Hearing
According to Article 60(1) of the RCPITA, “- Once the inspection has been completed and if it could lead to tax or tax-related acts unfavorable to the inspected entity, it must be notified within 10 days of the draft conclusions of the report, identifying these acts and their grounds.”
Once notified to do so, the inspected entity must give its opinion, in writing or orally (in the latter case reduced to writing), within a time limit of between 10 and 15 days, after which a report will be drawn up, the 10-day time limit being merely indicative.
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XII - Conclusion of the Inspection Procedure
Following on from the above, and in accordance with articles 62 and 63 of the RCPITA, a duly substantiated final report will be drawn up with a view to identifying and systematizing the facts detected and their legal and tax classification.
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XIII - Reactions to the outcome of the Inspection Procedure
It may happen that, at the end of the procedure, according to the report drawn up, tax assessments are made or it is referred to the competent authorities for the purpose of initiating administrative offense or criminal proceedings.
To this end, the taxpayer may, as an indication, and without prejudice to the exercise of the right to a prior hearing, id. in XI above,
a) complain about the assessment within 120 days of the facts set out in article 102(1) of the C.P.P.T. (cf. article 70 of the C.P.P.T.);
b) challenge the decision in court within three months of the facts set out in article 102(1) of the C.P.P.T. (cf. article 120 of the C.P.P.T.);
c) Request a review of the taxable amount by indirect methods within 30 days of notification of the decision (cf. article 91(1) of the L.G.T.);
d) Present a defense, in the case of an administrative offense, under the terms of article 70 of the RGIT;
e) Intervene in the investigation phase, request the opening of the investigation and present a defence, in the case of a crime.
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XIV - Regarding the retention period of documents
we would like to highlight what was said in 6. of the article published in
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XV - Final note:
If a fine is imposed on the basis of the facts set out in the draft and conclusions of the report id. in supra XI, the subject may request payment of the fine in the amount of 50% of the minimum legal amount (in cases of negligence), provided that he does so by the end of the period for exercising the right to a prior hearing and that he regularizes his tax situation within the same period. (cfr. art. 30 of the RGIT).
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XVI - Most relevant legislation mentioned here
General Tax Infringement Regime (RGIT), approved by Law no. 15/2001 of June 5;
Code of Procedure and Tax Procedure (C.P.P.T), approved by Decree-Law no. 433/99, of October 26;
Complementary Regime of the Tax and Customs Inspection Procedure (RCPTIA), approved by Decree-Law no. 413/98, of December 31;
General Tax Law (L.G.T.), approved by Decree-Law no. 398/98, of December 17th.
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