Tax Inspection Procedure in Portugal: what you really need to know
A tax inspection may affect any taxpayer, whether a company or an individual, and often arises when least expected. Knowing when, why and how the Tax Authority (AT) acts is essential to protect your rights and avoid serious tax consequences.
What is the purpose of a tax inspection?
The tax inspection procedure aims to verify compliance with tax obligations, confirm the information declared by taxpayers, detect undeclared taxable facts, assess assets, carry out appraisals, technical examinations or specialized studies, and prevent and repress tax offences.
Legal framework
The procedure is governed by the Complementary Regime of the Tax Inspection Procedure (RCPITA), approved by Decree-Law no. 413/98 of 31 December
Scope of the tax inspection
The inspection may be general or partial:
- General, when it covers all taxes.
- Partial, when it concerns only certain taxes (Corporate Income Tax – IRC, Personal Income Tax – IRS, VAT, autonomous taxation, among others).
As a rule, the four previous years may be reviewed, up to the end of the limitation period for the right to assess tax.
It may also be internal or external:
- Internal: carried out at the AT’s premises, based on documentary analysis and data cross-checking;
- External: carried out at the taxpayer’s premises, and may include the accounting records, files and other relevant locations.
Duration of the inspection
The procedure must be completed within 6 months, counted from its commencement.
This period is continuous and may be extended by two additional periods of three months, by means of a duly reasoned decision, where the complexity of the case so justifies.
Adjustments, regularization and taxpayer defense
If the AT proposes adjustments to the taxable base, the taxpayer is notified of a draft inspection report and, as a rule, has 15 days to exercise the right to prior written hearing (Article 60(1) of the RCPITA). This deadline may be extended upon a duly reasoned request.
If the taxpayer agrees with the adjustments, they may proceed with voluntary regularization by filing amended tax returns. Subsequently, additional tax assessments will be issued, which must be paid.
By regularizing, the taxpayer waives the possibility of judicial challenge of the accepted adjustments.
If the taxpayer agrees only partially, they regularize the accepted adjustments and may challenge the contested adjustments through an administrative claim or judicial appeal.
Reduction of penalties
Pursuant to Article 30 of the General Regime of Tax Offences (RGIT), voluntary regularization may lead to a reduction of penalties:
- 50% of the legal minimum (full regularization);
- 40% of the legal minimum (partial regularization).
Final report and remedies
After the prior hearing, the final inspection report is issued and, in most cases, confirms the proposed adjustments.
The report itself is not subject to challenge; however, the taxpayer may contest the additional tax assessments through:
- Administrative claim (deadline of 120 days); or
- Judicial appeal (deadline of 3 months).
In such cases, it may be necessary to provide an appropriate guarantee to prevent asset seizures and ensure the normal continuation of the taxpayer’s activity.
If the taxpayer obtains a favorable decision, in whole or in part, the AT is required to fully restore the situation that would have existed had the illegality not occurred, including the payment of compensatory interest, in accordance with the law.
Belzuz Abogados, S.L.P. provides tax advisory services and legal representation to companies and individuals in tax inspection procedures, particularly in matters relating to impairments and bad debts for Corporate Income Tax purposes, allegedly undue VAT deductions, complex tax adjustments and tax litigation.