The Fiscal Ouroboros: Tax litigation, new conflicts and trust in the system

Published in the Revista da Ordem dos Advogados (Year 85, Vol. III/IV, Jul.–Dec. 2025, pp. 455–490) and originating from an invited address at the ACONCARF Itinerante conference at NOVA School of Law, this study analyses tax litigation through the classical metaphor of the ouroboros — the mythical serpent devouring its own tail in a perpetual cycle of destruction and renewal — linking the self-referential dynamics of contemporary tax disputes to the ongoing digital transformation of the relationship between the tax administration and taxpayers.

The research is structured around five core doctrinal and empirical contributions:

1.Constitutive vs. Pathological (Intra-Systemic) Tax Litigation: As a first methodological step, the paper distinguishes between constitutive litigation — which is indispensable to the Rule of Law, transforming controversies into public, verifiable communication and testing parliamentary legality (Articles 103(2) and 165(1)(i) of the Portuguese Constitution) and distributive justice — and pathological or intra-systemic litigation, understood as excessive and undesirable conflict endogenously manufactured by institutional design flaws.

2.Empirical Diagnosis of Portugal's "Inverted Pyramid" of Tax Justice: Drawing on empirical assessments of the Supreme Administrative Court (STA) and administrative tax statistics — revealing that 73% of STA tax appeals had no prior administrative review, 31% of pending hierarchical appeals exceed two years despite a 60-day statutory limit (Article 66(5) CPPT), and average judicial proceedings exceed four years (1,770 days, reaching 13–15 years in complex cases) — the author diagnoses five endogenous drivers of excessive litigation:

Legislative instability and complexity (59 amendments to the General Tax Law [LGT] and 46 amendments to the Tax Procedure Code [CPPT] since 1998);

Interpretative uncertainty and absence of pre-litigation dialogue (exemplified by the Tax Authority's persistent refusal to follow settled CJEU Hollmann and STA case law on non-resident capital gains or Article 6(4) CIRS presumptions);

Adversarial conception of the public interest, operating in "cognitive closure" where revenue maximisation overrides objective legality (compounded by statutory staff bonuses tied to coercive tax collections under Decree-Law 335/97);

Chronic procedural and judicial delays;

Perceptions of structural partiality and distrust.

3.Transition to the Tax Compliance by Design Model in Portugal: The study maps the four pillars of the Portuguese Tax and Customs Authority's (AT) digital governance model, showing how these instruments can reduce litigation arising from errors or omissions and enhance the selectivity and proportionality of administrative action, provided they are framed by adequate safeguards:

Pillar 1 — Digital reporting and transparency: certified invoicing software (Article 123(8) CIRC), SAF-T (PT) accounting files, the e-Fatura platform (6.52 billion invoices recorded in 2024), QR codes (used in 72% of consumer submissions), and automated pre-filling of 6.63 million IRS returns and 6.4 million VAT returns;

Pillar 2 — Advanced data analytics and risk management: the Divergence Management System, national audit selections, and VAT refund Risk Matrices;

Pillar 3 — International cooperation and transparency: CRS automatic exchange of information (4.27 million outbound and 3.23 million inbound records across 101 jurisdictions in 2024), Directives DAC3, DAC4, DAC6, DAC7 (Law 56/2024), DAC8, CARF, MiCA, and ViDA;

Pillar 4 — Digital interaction and tax justice: the e-Balcão messaging portal, the cATia virtual assistant, and the ATGO mobile application.

4.New Sources of Digital Conflict: Algorithmic Opacity and De-Proceduralisation via e-Balcão: Because new digital tools have been primarily designed to maximise administrative efficiency without sufficient procedural safeguards, digitalisation risks replacing traditional disputes with new digital conflicts:

Opacity of automated instruments and decisions: the inadequacy of traditional legal remedies to challenge algorithmic or data-driven acts (predictive audit selection, VAT refund holds, and automated IRS assessments) forces taxpayers into reactive litigation merely to uncover the underlying calculation criteria;

Digital de-proceduralisation in e-Balcão: the replacement of in-person tax offices with the e-Balcão ticketing system has created an informal procedural limbo where taxpayer queries are silently converted into administrative claims, triggering hidden tacit rejections or summary denials stripped of the right to a prior hearing (Article 60(7) LGT) and proper statement of reasons.

5.Conclusions and Proposals for Procedural Triage and Algorithmic Oversight: The study concludes by emphasising the need for minimum levels of transparency on algorithms and automated decisions, effective mechanisms for early correction and participation upstream, and effective judicial protection as the ultimate anchor of legality and trust. Specifically, the author proposes: (i) a formal 60-day pre-litigation remedial procedure (suspending coercive collection following a replacement return) to settle factual and documentary discrepancies upstream; (ii) replacing the redundant hierarchical appeal (which accounts for only 3.78% of administrative annulments) with a mandatory pre-contest review at Senior Directorate level (mirroring Article 13 of the Tax Arbitration Regime — RJAT); and (iii) establishing independent algorithmic audits and a bipartisan oversight body for automated tax administration.

Keywords: tax litigation; rule of law; fiscal trust; compliance by design; tax digitalisation; effective judicial protection; algorithmic transparency.

Institutional Note: José Avilez Ogando heads the Tax Law and Tax Litigation practice at Seabra, Cunha, Távora e Associados, S.A., R.L., and is a researcher and coordinator at the NOVA Tax Research Lab (NOVA School of Law), serving on the Editorial Board of the NOVA Tax Research Series. For strategic counsel on high-stakes tax litigation, ex officio review procedures, or proactive tax risk management, please reach out via our Contact (/contact) page or explore our dedicated Research (/research) and Cases (/cases) sections.