Process: 10/2019-T

Date: September 16, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 10/2019-T) addresses VAT regularizations concerning uncollectible credits under Article 78(7) of the Portuguese VAT Code. The claimant, a car trading company, challenged additional VAT assessments totaling €69,181.32 for fiscal year 2013, following a tax inspection that disallowed VAT deductions on credits deemed uncollectible. The Tax Authority argued the taxpayer failed to meet documentary requirements under Article 78(7)(b) and 78(11) of the VAT Code for proving credits were truly uncollectible. The claimant contested the assessments on multiple grounds: misinterpretation of Article 78(7)(b), violation of the inquisitorial principle and material truth (Articles 58 LGT, 69 CPPT), error in applying Article 78(11), breach of proportionality (Article 266 CRP, Article 55 LGT), and violation of EU VAT neutrality under Directive 2006/112/EC. The case involved credits to an insolvent debtor (B... Lda), with insolvency proceedings initiated in February 2013. The claimant submitted additional documentation during the administrative complaint phase, including three credit notes. The Tax Authority partially allowed the administrative complaint before the case proceeded to tax arbitration. This decision illustrates key requirements for VAT credit adjustments in insolvency situations, the scope of documentary proof required under Portuguese VAT law, and the application of EU VAT neutrality principles in Portuguese tax arbitration proceedings, establishing important precedent for bad debt relief claims.

Full Decision

ARBITRAL TAX TRIBUNAL JURISPRUDENCE

Process No. 10/2019-T

Date of Decision: 2019-09-16

VAT

Value of Claim: € 79,471.78

Subject Matter: VAT - Adjustments

ARBITRAL DECISION (consult full version in PDF)

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Magda Feliciano and Catarina Belim, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree as follows:

I – REPORT

  1. On 04 January 2019, A..., S.A., Tax ID..., with registered office at Rua ..., no...., ..., ...-..., presented a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the additional VAT assessment act No. 2017..., in the amount of €34,533.18, embodied in the statement of account adjustment No. 2017... and corresponding compensatory interest assessment No. 2017..., of the additional VAT assessment act No...., in the amount of €10,058.56, embodied in the statement of account adjustment No. 2017... and corresponding compensatory interest assessment No. 2017..., of the additional VAT assessment act No. 2017..., in the amount of €6,451.37, embodied in the statement of account adjustment No. 2017... and corresponding compensatory interest assessment No. 2017... and of the additional VAT assessment act No. 2017..., in the amount of €18,138.31, embodied in the statement of account adjustment No. 2017... and corresponding compensatory interest assessment No. 2017..., as well as of the decision to dismiss the administrative complaint, which had the aforementioned assessments as its subject matter.

  2. To support its claim the Claimant alleges, in summary:

i. Error in the interpretation of Article 78, No. 7, paragraph b) of the VAT Code, as worded on the date of the facts;

ii. Violation of the principles of material truth and inquisitorial procedure, within the scope of the procedure and inspection, provided in Articles 6 of the RCPIT, 58 of the LGT, 69, paragraph e) of the CPPT and 125 of the CPA;

iii. Error in the interpretation of Article 78, No. 11 of the VAT Code as worded on the date of the facts;

iv. Violation of the principle of proportionality provided in Article 266 of the CRP and Article 55 of the LGT;

v. Violation of the principle of VAT neutrality underlying Directive 2006/112/EC;

vi. Error in factual assumptions, with regard to the adjustments relating to VAT contained in credit notes with reference N..., N... and ....

  1. On 07-01-2019, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

  2. The Claimant did not proceed with the appointment of an arbitrator, therefore, in accordance with the provisions of paragraph a) of No. 2 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline.

  3. On 26-02-2019, the parties were notified of such appointments and did not manifest any intention to refuse any of them.

  4. In accordance with the provision in paragraph c) of No. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 18-03-2019.

  5. On 29-04-2019, the Respondent, duly notified for this purpose, presented its reply defending itself by contesting the claims.

  6. In accordance with the provisions of paragraphs c) and e) of Article 16, and No. 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

  7. Given that a deadline was granted for the presentation of written submissions, the same were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

  8. It was indicated that the final decision would be notified by the end of the deadline provided in Article 21/1 of the RJAT.

  9. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, No. 1, paragraph a), 5 and 6, No. 2, paragraph a), of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Regulatory Order No. 112-A/2011, of 22 March.

The proceeding does not suffer from any nullities.

Thus, there is no obstacle to the examination of the merits of the case.

Having considered everything, it is necessary to render:

II. DECISION

A. FACTUAL MATTER

A.1. Facts Found to be Proven

  1. The Claimant is a limited partnership company that is registered for Corporation Income Tax (IRC) and VAT purposes, with main CAE Code 45110 – Trade in light motor vehicles.

  2. The Claimant was subject to an internal inspection action, of partial scope, in respect of IRC and VAT, with reference to the fiscal year 2013, in compliance with Service Order No. OI2016....

  3. In the draft inspection report, notified for hearing purposes, corrections were proposed in the total amount of €250,334.56.

  4. In timely manner, the Claimant exercised its right to be heard regarding the draft inspection report, submitting documentation.

  5. In the Final Report of said Inspection, the AT did not accept the justification of the Claimant as regards VAT deductions relating to credits considered uncollectible, in accordance with the provisions of No. 7 of Article 78 of the VAT Code.

  6. Following the inspection procedure, the AT made, in respect of VAT, arithmetic corrections in the amount of €146,059.92, corresponding to improperly deducted tax:

• Period 2013/01 – €17,962.15;
• Period 2013/02 – €25,640.21;
• Period 2013/03 – €21,373.17;
• Period 2013/04 – €9,473.97;
• Period 2013/05 – €18,138.21;
• Period 2013/10 – €43,461.29;
• Period 2013/12 – €10,020.92.

  1. The Inspection Report (RIT) contains, among other things, the following:

[Details of the inspection report are referenced but not fully transcribed in the source text]

  1. Furthermore:

[Additional details referenced but not fully transcribed in the source text]

  1. The corrections made concerned the following situations:

[Details not fully transcribed in the source text]

  1. Following the inspection report, the following VAT assessments and compensatory interest assessments were issued:

[Details not fully transcribed in the source text]

  1. On 03-07-2017 and 01-08-2017, the Claimant proceeded to pay the aforementioned assessments.

  2. On 29-11-2017, the Claimant submitted an administrative complaint seeking to annul the additional VAT assessments.

  3. On 04-12-2017, the Claimant sent to the AT new elements relating to part of the adjustments considered not sufficiently documented, namely, three credit notes recorded with reference N..., N... and ....

  4. By way of Official Letter No. ..., from the Finance Office of Lisbon, on 09-07-2018, the Claimant was notified of the draft decision to dismiss the administrative complaint.

  5. Within the 25-day deadline for this purpose, the Claimant exercised its right to be heard regarding the draft decision to dismiss the administrative complaint.

  6. The Claimant was notified of the final decision, to the effect of partial allowance of the administrative complaint, dismissing the amount of tax of €69,181.32, which furthermore contains the following:

[Details referenced but not fully transcribed in the source text]

  1. The Claimant was a creditor of the company B..., Lda.

  2. On 19-02-2013, an initial insolvency petition for the company B..., Lda. was presented to the Commercial Court of Lisbon, giving rise to case No. .../13...TYLSB.

  3. On 06-03-2013, a judgment declaring the insolvency, of limited scope, of said company was rendered and published.

  4. After this date, the insolvent company closed its establishment and no longer carried on business.

  5. The Claimant filed a claim for credits in the context of said insolvency proceedings.

  6. On 31-10-2013, the Claimant deducted the VAT borne on the claimed credit, in the amount of €34,533.18, pursuant to Article 78 of the VAT Code.

  7. On 11-11-2013, a court order was issued ordering communication of the cessation of business to the AT.

  8. On 02-10-2015, an order closing the insolvency proceedings was issued, due to insufficiency of the insolvent estate, and for the cessation of functions of the insolvency administrator.

  9. The credit notes recorded with reference N... and N... have the following correspondence:

Ref. Narrative Debit Document Date Reg VAT Doc. Cancelled Refactored Notes
N... VAT Sales €10,058.56 NC ... 29-01-2013 €10,058.56 FT 10012259 FT 10012282 Change of value
N... VAT Sales €6,451.37 NC ... 26-02-2013 €6,451.37 FT 10012366 FT 10012367 Change of value
A.2. Facts Found Not to be Proven
  1. On 30-07-2018, the Claimant sent to the Insolvency Administrator who had served in case No. .../13...TYLSB, a letter in which it communicated the VAT adjustment to the Insolvency Administrator.
A.3. Reasoning of the Factual Matter Proven and Not Proven

Concerning the factual matter the Tribunal does not need to rule on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish the proven from the unproven facts (cf. Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable by virtue of Article 29, No. 1, paragraphs a) and e), of the RJAT).

In this manner, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (cf. former Article 511, No. 1, of the CPC, corresponding to current Article 596, applicable by virtue of Article 29, No. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the record, the facts listed above were considered proven, with relevance to the decision, bearing in mind that, as stated in the Judgment of the Central Administrative Court of the South of 26-06-2014, rendered in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not contested."

In particular, the fact found to be proven in point 21, contested by the Respondent, is deemed to be sufficiently evidenced by the documentation submitted by the Claimant, specifically by documents 13 and 14 submitted with the initial request.

In fact, document 14 consists of a copy of the list of recognized credits, which the Respondent does not contest as coming from the Insolvency Administrator, who signs and stamps the document in question.

From this document it follows that the credit of the Claimant of €184,677.46 was claimed in the proceedings, with no indication to suggest that this did not occur, therefore the said fact was found to be proven.

Nevertheless, it was not possible to determine the exact date on which the claim was filed, in particular that indicated by the Claimant.

The fact found to be proven in point 25 results from the combination of documents submitted with the initial request Nos. 18, 19, 21 and 22, with the RIT and with the decision on the administrative complaint.

Thus, the documents with the initial request show the elements contained in the following fields: "Document," "Date," "Reg VAT" and "Doc. cancelled."

In the RIT the fields "Reference," "Narrative" and "Debit" were already filled in.

From the decision on the administrative complaint, with reference to pages not contained in the procedural file, the following elements are contained in the field "Refactored," as referred to in point 16 of the proven facts.

The content of the "Notes" field results from the combination of the value of the invoices corresponding to the refactoring indicated in the decision on the administrative complaint, with the value of the cancelled invoices presented by the Claimant.

Regarding the fact found not to be proven, only a copy of a letter was presented, with the notation "REGULAR MAIL," with no evidence whatsoever to corroborate the allegation that the letter was in fact sent.

No assertions made by the parties were found to be proven or unproven, and presented as facts, consisting of strictly conclusive statements, incapable of proof, and whose veracity is to be assessed in relation to the concrete factual matter consolidated above.

B. ON THE LAW

In the present arbitral action the Claimant contests, in summary, two groups of corrections, namely:

i. The correction in the amount of VAT of €34,533.18, embodied in the statement of account adjustment No. 2017..., of 05.06.2017, and the respective interest, relating to the uncollectible credit on the company "B..., Lda.";

ii. The correction in the total amount of VAT of €34,828.14, corresponding to the statements of account adjustment No. 2017..., 2017... and 2017..., all dated 05.06.2017, and respective interest, relating to credit notes with reference N..., N... and ....

Let us examine each of them.

i.

Regarding the first of the issues sub judice, the issue concerns the applicability of Articles 78/7 and 11 of the applicable VAT Code, which provides, insofar as it concerns the case, the following:

"7 - Taxable persons may still deduce the tax relating to credits considered uncollectible:

a) In enforcement proceedings, after the registration referred to in paragraph c) of No. 2 of Article 806 of the Code of Civil Procedure;

b) In insolvency proceedings, when the same is declared of limited scope or after the homologation of the resolution provided in Article 156 of the Insolvency and Business Recovery Code, approved by Decree-Law No. 53/2004, of 18 March;

c) In special business revitalization proceedings, after homologation of the recovery plan by the judge, provided in Article 17-F of the Insolvency and Business Recovery Code;

d) Under the terms provided in the Extrajudicial Business Recovery System (SIREVE), after execution of the agreement provided in Article 12 of Decree-Law No. 178/2012, of 3 August. (...)

11 - In the case provided in No. 7 and in paragraph d) of No. 8, the acquirer of the goods or services, who is a taxable person, is notified of the total or partial annulment of the tax, for purposes of correction of the deduction initially made."

As emerges from the factual matter found to be proven, the correction now being scrutinized was based, among other things, on the lack of "sending of the official letter to the Insolvency Administrator as required by No. 11 of Article 78 of the VAT Code."

On this matter, the Supreme Administrative Court (STA) has already ruled in its Judgment of 25-06-2015, rendered in case 0288/14, in the following terms:

"Now, as regards the communication to the acquirer of the goods or services of the intention to proceed with the VAT adjustment by means of the respective 'annulment,' so that the latter may proceed with the correction of the deduction initially made (operation symmetrical to that made by the creditor), such duty has express legal recognition (cf. No. 11 of Article 78 of the VAT Code), not only for the cases of uncollectible credits in insolvency proceedings but for all those provided in the respective No. 7, as well as in the case provided in paragraph d) of No. 8, not having as its source 'circulating law,' which as such does not bind private individuals, but the law itself, which binds all.

Now, such duty of communication to the acquirer who is a taxable person must be made, if the latter is a legal person, to the person who legally represents it, and in case of insolvency – one of the cases in which such duty of communication is legally imposed – the representation of the insolvent company falls to the insolvency administrator who has been appointed, who assumes his representation for all purposes of a patrimonial nature that concern the insolvency, in accordance with No. 4 of Article 81 of the CIRE.

Hence, the communication made by the appellant, on which, in accordance with the law, depended the legality of the 'adjustment' of VAT that it intended to make, was not duly complied with, and such irregularity cannot be overlooked since the appellant did nothing in the face of the return of the letter, thus preventing the communication from reaching the insolvency administrator and allowing the latter to proceed with the 'symmetrical settlement' called for by the annulment of VAT by the creditor.

The excellent Deputy General Prosecutor to this STA understands that despite the duty of communication mentioned in No. 11 of Article 78 of the VAT Code not having been duly fulfilled, such fact does not call into question the right of the Appellant in the adjustment of the tax in its favor, given the nature of uncollectible credit, pursuant to paragraph b) of No. 7 of the same legal provision (cf. opinion, at pages 218 of the record).

We do not, however, see that the EU case law it cites in support of its thesis is transposable to the case at hand, particularly because the VAT Directive does not impose on Member States adjustments to tax assessments due to non-payment, either in whole or in part (uncollectible or doubtful debts) – cf. ALEXANDRA MARTINS/PEDRO MOREIRA, VAT Adjustments: The Subsequent Alteration of the Elements of the Transaction, the Material Error or Calculation Error and the Error of Classification or Law, pp. 56/59 and SUSANA CLARO/HUGO SALGUEIRINHO MAIA, Recovery of VAT on Uncollectible or Doubtful Debts, pp. 471/472, both in SERGIO VASQUES (Coord.), VAT NOTEBOOKS 2014, Almedina, Coimbra, 2014 – and what is at issue is not the exercise of the right to deduction, but the annulment of tax already assessed and paid.

Thus, the formality improperly fulfilled, which appears to be 'ad substanciam,' prevents the legality of the VAT adjustment made by the creditor and consequently bars the success of the appeal.

And let it not be said, as the appellant argues, that this interpretation violates the principles of legality, proportionality and legal certainty and security, since such duty results directly and immediately from the law and the consequence of its non-compliance – the illegality of the 'adjustment' made – is the appropriate one in case of non-observance of the legal requirements on which the legality of the correction depends, not appearing to be either disproportionate or unexpected, hence we do not find there to be any violation of the aforementioned constitutional principles."

This case law was recently reaffirmed in the Judgment of the STA of 05-06-2019, rendered in case 0939/12.0BEBRG, in a situation similar to that in the present case, where it can be read that:

"In the case at hand, the defendant, now the respondent, did not comply with the requirement established in No. 11 of Article 78 of the VAT Code, of communication to the insolvent debtor of the intention to proceed with the annulment of VAT, in good time; on the contrary, it did so at a date later than the extinction of the debtor which makes such communication legally irrelevant, as noted by the Honorable Public Prosecutor.

The Prosecution is also correct when it states that 'in light of the vicissitudes of the insolvency proceedings which … could not be ignored, it was incumbent upon [the creditor], regardless of the date of the VAT adjustment, to communicate to the insolvent debtor the intention to proceed with the annulment of the VAT contained in the uncollectible credit in insolvency proceedings, at least at a date prior to the closure of the liquidation, that is, before the legal death of the debtor, … which it did not do' being the case 'to say that, if it did not do so, at the proper and legally relevant moment, it is to its own account.'

Communication to the acquirer of the goods or services who is a taxable person of the intention of the creditor to proceed with the annulment of VAT contained in the uncollectible credit in insolvency proceedings constitutes a legal requirement on which the legality of the 'adjustment' by the creditor depends and must be made, in case of insolvency of the debtor, to the appointed insolvency administrator."

This same case law has been adopted by the Central Courts, and the following Judgments may be consulted in this regard:

  • Judgment of the Central Administrative Court of the North of 21-12-2016, rendered in case 01517/08.4BEBRG ("Communication to the acquirer of the goods or services who is a taxable person of the intention of the creditor to proceed with the annulment of VAT contained in the uncollectible credit in insolvency proceedings constitutes a legal requirement on which the legality of the 'adjustment' by the creditor depends and must be made, in case of insolvency of the debtor, to the appointed insolvency administrator");

  • Judgment of the Central Administrative Court of the South of 27-09-2018, rendered in case 428/13.6BECTB ("Communication to the acquirer of the goods or services who is a taxable person of the intention of the creditor to proceed with the annulment of VAT contained in the uncollectible credit in insolvency proceedings constitutes a legal requirement on which the legality of the 'adjustment' by the creditor depends (Articles 78, No. 7 and 11 of the VAT Code.");

  • Judgment of the Central Administrative Court of the South of 17-01-2019, rendered in case 698/04.0BESNT ("The right to the adjustment of tax due, in favor of the taxable person, with reduction of the taxable base, with regard to credits considered uncollectible, requires proof that the acquirer was notified of the correction or that it was reimbursed of the tax.").

In these terms, and the communication in question not being proven to have been made, necessarily the Claimant's claim must fail on this matter.

It should be noted that, given it was found not proven that on 30-07-2018, the Claimant sent to the Insolvency Administrator who had served in case No. .../13...TYLSB a letter in which it communicated the VAT adjustment, the same solution would always be reached if such fact were found to be proven.

In fact, as is proven, on 02-10-2015, an order closing the insolvency proceedings was issued, due to insufficiency of the insolvent estate, and for the cessation of functions of the insolvency administrator.

Hence, on that date of 30-07-2018, the insolvency administrator was no longer in office, making it impossible to carry out any communication.

There is thus no error in the interpretation and application of Article 78, No. 11 of the VAT Code as worded on the date of the facts, nor any of the violations of the principle of proportionality provided in Article 266 of the Constitution of the Portuguese Republic and Article 55 of the LGT, or of VAT neutrality underlying Directive 2006/112/EC, alleged by the Claimant.

In fact, as the STA explains:

  • "And let it not be said, as the appellant argues, that this interpretation violates the principles of legality, proportionality and legal certainty and security, since such duty results directly and immediately from the law and the consequence of its non-compliance – the illegality of the 'adjustment' made – is the appropriate one in case of non-observance of the legal requirements on which the legality of the correction depends, not appearing to be either disproportionate or unexpected, hence we do not find there to be any violation of the aforementioned constitutional principles.";

  • "We do not, however, see that the EU case law it cites in support of its thesis is transposable to the case at hand, particularly because the VAT Directive does not impose on Member States adjustments to tax assessments due to non-payment, either in whole or in part (uncollectible or doubtful debts) – cf. ALEXANDRA MARTINS/PEDRO MOREIRA, VAT Adjustments: The Subsequent Alteration of the Elements of the Transaction, the Material Error or Calculation Error and the Error of Classification or Law, pp. 56/59 and SUSANA CLARO/HUGO SALGUEIRINHO MAIA, Recovery of VAT on Uncollectible or Doubtful Debts, pp. 471/472, both in SERGIO VASQUES (Coord.), VAT NOTEBOOKS 2014, Almedina, Coimbra, 2014 – and what is at issue is not the exercise of the right to deduction, but the annulment of tax already assessed and paid."

Given the inadmissibility, on the terms set forth, of the adjustment sought by the Claimant, the examination of the remaining questions formulated by it on this matter is moot, in particular those concerning the error in the interpretation of Article 78, No. 7, paragraph b) of the VAT Code, and the violation of the principles of material truth and inquisitorial procedure, within the scope of the procedure and inspection, provided in Articles 6 of the RCPIT, 58 of the LGT, 69, paragraph e) of the CPPT and 125 of the CPA.

ii.

Regarding the correction in the total amount of VAT of €34,828.14, corresponding to the statements of account adjustment No. 2017..., 2017... and 2017..., all dated 05.06.2017, and respective interest, relating to credit notes with reference N..., N... and....

As emerges from the RIT (cf. page 18 et seq.), the VAT in question was subject to correction because the Claimant "did not make available the supporting documents."

Also in accordance with the RIT, particularly the table contained at page 25, the elements that the AT considered deficient were those necessary to fill the following fields: document, date, Reg/VAT, cancelled document, refactored, and Notes (reason for cancellation).

Having examined the documents in question and the procedural file, in particular the decision on the administrative complaint, it is verified that the necessary documents were made available to the AT for the knowledge of the fields in question in the following terms:

Ref. Narrative Debit Document Date Reg VAT Doc. Cancelled Refactored Notes
N... VAT Sales €10,058.56 NC ... 29-01-2013 €10,058.56 FT 10012259 FT 10012282 Change of value
N... VAT Sales €6,451.37 NC ... 26-02-2013 €6,451.37 FT 10012366 FT 10012367 Change of value

Thus, bearing in mind the reasoning for the correction at issue and the factual elements established, it must be concluded that, in this part, the same suffers from error in factual assumptions and should therefore be, to that extent, annulled, with the arbitral claim being upheld to the same extent.

As for the credit note corresponding to reference ..., it is not possible to ascertain some of those elements, since they do not result from the documents presented by the Claimant, nor does it allege any facts in this regard, limiting itself to stating that the documentation submitted corresponds to all that was requested by the AT.

However, such understanding is based on the understanding that the AT only stated that photocopies of the cancelled documents should be submitted, when it also intended justification for the issuance of the credit notes.

Furthermore, it is also added that the invoice presented as having been cancelled by the credit note underlying the credit note corresponding to reference ... does not mention VAT.

Hence, in this part, the arbitral claim cannot succeed.

Regarding the request for compensatory interest formulated by the Claimant, Article 43, No. 1, of the LGT establishes that compensatory interest is due when it is determined that there has been an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due.

In the case at hand, the error affecting the partially annulled assessments is attributable to the Tax Authority and Customs Authority, which issued them without the necessary legal support.

The Claimant therefore has the right to be reimbursed the amount paid (in accordance with Articles 100 of the LGT and 24, No. 1, of the RJAT) by virtue of the partially annulled act and, furthermore, to be indemnified for the improper payment through the payment of compensatory interest, by the Respondent, from the date of such payment, until its reimbursement, at the legal default rate, in accordance with Articles 43, Nos. 1 and 4, and 35, No. 10, of the LGT, Article 559 of the Civil Code and Regulatory Order No. 291/2003, of 8 April.

C. DECISION

In these terms, this Arbitral Tribunal hereby renders a partially favorable decision on the arbitral claim formulated and, in consequence:

a) Annul the correction relating to credit notes with reference N... and N..., in the total amount of VAT of €16,509.93, included in the statements of account adjustment No. 2017..., in the amount of €10,058.56, and 2017..., in the amount of €6,451.37, both dated 05-06-2017, and respective interest, as well as, to that extent, the decision to dismiss the administrative complaint which had those tax acts as its subject matter;

b) Condemn the AT to payment of compensatory interest, in accordance with the terms set forth above;

c) Condemn the parties in the costs of the proceedings, in the proportion of their respective non-prevailing claims, fixing the amount of €1,863.00 at the charge of the Claimant, and €585.00 at the charge of the Respondent.

D. Value of the Proceeding

The value of the proceeding is fixed at €79,471.78, in accordance with Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of No. 1 of Article 29 of the RJAT and No. 3 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the parties in the proportion of their respective non-prevailing claims, as set forth above, since the claim was entirely successful, in accordance with Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 5, of the cited Regulation.

Let notification be made.

Lisbon, 16 September 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator-Rapporteur

(Magda Feliciano)

The Arbitrator-Rapporteur

(Catarina Belim)

Frequently Asked Questions

Automatically Created

What are the rules for VAT regularizations under Article 78 of the Portuguese VAT Code (Código do IVA)?
Article 78 of the Portuguese VAT Code governs VAT regularizations, particularly regarding uncollectible credits. Under Article 78(7)(b), taxpayers may deduct VAT on credits proven uncollectible, subject to strict documentary requirements. Article 78(11) establishes specific conditions including proof the credit is definitively uncollectible, proper documentation of collection efforts, and notification to the debtor. The Tax Authority requires evidence such as insolvency proceedings, court decisions, or failed enforcement actions. In this case, the inspection rejected deductions where the taxpayer allegedly failed to demonstrate credits met these legal requirements, highlighting that mere debtor insolvency is insufficient without proper supporting documentation.
How does the principle of VAT neutrality under EU Directive 2006/112/EC apply to additional VAT assessments in Portugal?
The principle of VAT neutrality under EU Directive 2006/112/EC ensures businesses are not burdened by VAT costs in their economic activities. Portuguese courts and CAAD tribunals must interpret domestic VAT provisions, including Article 78 regularizations, consistently with this fundamental EU principle. In additional assessment disputes, taxpayers argue that denying bad debt relief violates neutrality by forcing them to bear VAT on amounts never collected. However, neutrality must be balanced against preventing tax evasion and abuse. The principle requires that where credits are genuinely uncollectible and proper documentation exists, VAT deductions should be permitted to avoid businesses bearing definitive VAT costs, making EU law arguments relevant in Portuguese tax arbitration proceedings.
Can a taxpayer challenge additional VAT assessments through tax arbitration (CAAD) in Portugal?
Yes, taxpayers can challenge additional VAT assessments through the CAAD (Centro de Arbitragem Administrativa) under the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Article 2(1)(a) grants CAAD jurisdiction over VAT assessment disputes. The process involves filing an arbitration request within 90 days, appointment of arbitrators by the Deontological Council, submission of Tax Authority's reply, and potential hearing. In this case, the claimant challenged assessments totaling €69,181.32 after exhausting the administrative complaint procedure. Tax arbitration offers advantages over judicial courts including faster resolution (typically 6 months), specialized arbitrators with tax expertise, and lower costs. The CAAD has become an increasingly popular alternative dispute resolution mechanism for Portuguese VAT controversies.
What are the grounds for claiming violation of the inquisitorial principle and material truth in Portuguese tax inspections?
The inquisitorial principle (princípio do inquisitório) under Article 58 LGT requires tax authorities to actively investigate and establish material truth, not merely rely on taxpayer submissions. Violations occur when: (1) the Tax Authority fails to consider relevant evidence submitted by taxpayers; (2) inspectors ignore documents proving taxpayer compliance; (3) authorities make insufficient efforts to verify facts; or (4) assessments rest on incomplete factual investigation. Article 69(e) CPPT reinforces this duty. In VAT regularization disputes, taxpayers argue violations when inspectors reject bad debt claims without adequately investigating insolvency proceedings, creditor efforts, or documentation submitted during right-to-be-heard procedures. The principle of material truth (Article 6 RCPIT) requires decisions to reflect actual economic reality, making formalistic documentary rejections potentially illegal when substance demonstrates compliance.
How does the principle of proportionality under Article 266 of the Portuguese Constitution apply to VAT regularization disputes?
The principle of proportionality under Article 266 of the Portuguese Constitution and Article 55 LGT requires tax measures to be suitable, necessary, and proportional to their objectives. In VAT regularization disputes, disproportionality claims arise when: (1) the Tax Authority demands documentation impossible to obtain; (2) penalties or interest are excessive relative to infractions; (3) formal deficiencies trigger full denial of substantively valid claims; or (4) alternative, less burdensome verification methods exist. Taxpayers argue that refusing bad debt relief based on minor documentary gaps is disproportionate when core requirements (genuine insolvency, collection impossibility) are proven. Courts examine whether tax authorities balanced revenue protection against taxpayer rights, whether interpretation was excessively formalistic, and whether outcomes align with VAT neutrality principles, making proportionality a critical defense in assessment challenges.