Process: 103/2015-T

Date: October 2, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD tax arbitration case (103/2015-T) concerns the VAT exemption under Article 9(27)(e) of the Portuguese VAT Code (CIVA) for negotiation services related to timeshare rights. The applicants challenged additional VAT assessments totaling €9,126.28 plus €546.85 in compensatory interest for the years 2012-2013, arguing that services provided by the applicant wife to a timeshare company qualified for VAT exemption. The wife worked as a seller for a company marketing tourism usage rights, identifying potential customers, accompanying them through the sales process, and negotiating contract terms, particularly pricing. The applicants argued this activity constituted 'negotiation' under the VAT exemption, relying on CJEU judgment C-435/05 (Volker Ludwig), which defined negotiation as intermediation activity that may consist of indicating contract opportunities and making contact with parties, without requiring formal representation powers. They emphasized that the wife exercised genuine negotiation powers regarding final pricing, beyond mere administrative or technical acts. The Portuguese Tax Authority opposed the claim, arguing the wife merely promoted products without actual negotiation of contract terms, citing CJEU case C-235/00 (CSC Financial Services), which distinguished between mere information provision and genuine negotiation services. The Authority contended the applicants failed to prove the wife did more than recruit customers and disclose products. The case also involved a claim for compensation for guarantee costs incurred to suspend enforcement proceedings. The arbitral tribunal was constituted on April 28, 2015, and held hearings where the applicant husband testified and witnesses were examined. Both parties submitted written arguments and additional documentation during the proceedings.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 103/2015-T

Subject: VAT

Applicants: A… and B…

Respondent: Tax and Customs Authority

I. REPORT

A…, NIF … and B…, NIF …, married to each other, with tax domicile at Urbanização …, …, Apartado …, ..., ... (hereinafter referred to only as Applicants), filed on 17/02/2015, a request for constitution of a sole arbitral tribunal, pursuant to Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to only as RJAT), in conjunction with subparagraph a) of Article 99 of the CPPT, in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as Respondent).

The Applicants request the declaration of illegality of the acts of additional VAT assessment relating to the first, second, third and fourth quarters of the years 2012 and 2013, in a total amount of €9,126.28, and respective compensatory interest, in a total amount of €546.85. They further request the condemnation of the Tax and Customs Authority to pay compensation for the costs incurred by the Applicants with the provision of guarantee aimed at suspending the enforcement procedure.

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD on 19-02-2015 and notified to the Tax and Customs Authority on that same date.

Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, the Ethics Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 13-04-2015 the Parties were duly notified of this appointment, and did not manifest the will to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics.

In accordance with the provision in subparagraph c) of paragraph 1 of Article 11 of the RJAT, the sole arbitral tribunal was constituted on 28-04-2015.

On 02-07-2015 the meeting provided for in Article 18 of the RJAT took place, during which and by agreement of the parties, statements were given by the Applicant husband, witness C… was heard, called by the Applicants, and the examination of witness D…, also called by the Applicants, was dispensed with. The Parties were granted a period for successive arguments, which both made.

Together with their arguments, the Applicants attached new documents to the case file, on which the Respondent commented in her arguments. For its part, the Respondent also proceeded to attach documents with her arguments. By request of 25-09-2015, the Applicants exercised their right to reply with respect to the documents attached with the Respondent's arguments.

The Arbitral Tribunal was duly constituted and is competent.

The parties possess legal personality and capacity and are legitimate (Articles 4 and 10, paragraph 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The case does not suffer from nullities and no obstacle is raised to the examination of the merits of the case.

II. THE REQUEST OF THE APPLICANTS

The Applicants request the declaration of illegality of the VAT assessments for the years 2012 and 2013, and respective compensatory interest, considering that the services provided by the Applicant wife to E… (Branch in Portugal) benefit from the exemption provided for in subparagraph e) of paragraph 27 of Article 9 of the CIVA.

E… (Branch in Portugal) is engaged in the sale of rights of use for tourism but does not directly conduct the sale of its titles, assigning these operations to its sales force composed of various sellers, including the Applicant wife.

For this purpose, E… (Branch in Portugal) sets a minimum sale price that must be respected by the Applicant wife and the other sellers, and may assign an additional incentive - designated profit sharing - which results in a progressive increase in commissions for sales above the minimum price set.

In the years 2012 to 2013, in the context of her activity, the Applicant wife identified potential customers whom she accompanied until the formalization of the contract for the acquisition of the rights of use for tourism of the F range that were marketed by said entity. It was thus her responsibility to indicate to customers the occasions to enter into the contract – clarifying for each product, in particular, its characteristics, structure and term – and she negotiated some of its main aspects, in particular the respective price. The activity of the Applicant wife was not limited, therefore, to the practice of acts or operations of an administrative, material or technical nature, being assigned effective powers of negotiation, above all with respect to the final price of the contract.

The activity developed by the Applicant wife is thus subsumed within the concept of "negotiation" referred to in subparagraph e) of paragraph 27 of Article 9 of the CIVA, as this has been framed, both by the Tax Authority – through Tax Authority information No. …, of 07-12-2010, No. …, of 23/12/2010, and No. A… 2008…, of 31-03-2009 – and by the CJEU itself, in particular judgment C-435/05 (Volker Ludwig), of 21-06-2007.

In accordance with the decision issued in said judgment of the CJEU, the activity of "negotiation" corresponds to "an activity of intermediation which may consist, among other things, in indicating to a party to the contract the occasions to enter into a particular contract, in making contact with the other party", emphasizing the fact that "the activity of negotiation may be limited to indicating to a party to the contract the occasions to enter into such contract".

This understanding is not contradicted by the fact that the Applicant wife did not act in the name and representation of E… (Branch in Portugal) to the extent that the law does not require the verification of a specific contractual link, namely a power of attorney with representation. Nor is it relevant that the typical clauses of the contract for the transfer of titles of rights of use for tourism were previously set by said entity in light of the concept of "negotiation" fixed by the aforementioned judgment C-435/05 (Volker Ludwig) of the CJEU.

In light of the foregoing, the Applicants conclude that the contested assessments are illegal due to violation of subparagraph e) of paragraph 27 of Article 9 of the CIVA, and therefore request their annulment and that of the compensatory interest assessed.

Consequently, they further request the condemnation of the Respondent to compensate the Applicants for the costs incurred with the guarantee provided in the respective enforcement procedure.

III. THE RESPONSE OF THE PUBLIC TREASURY

In response, the Respondent considers the request of the Applicants to be entirely without merit, understanding that the activity developed by the Applicant wife is not subsumed within the concept of "negotiation" referred to in subparagraph e) of paragraph 27 of Article 9 of the CIVA.

First and foremost, the Respondent considers that the Applicants failed to demonstrate that the activity developed by the Applicant wife was nothing more than the mere promotion of the titles of rights of use for tourism marketed by E… (Branch in Portugal). In fact, the Applicant wife limited herself to recruiting customers to whom she disclosed the E… (Branch in Portugal) products, without any other type of action in terms of negotiation, concretization and formalization of the business of selling such titles.

In accordance with the concept of "negotiation" delimited in judgment C-235/00 (CSC Financial Services) of the CJEU, of 13-12-2001, "the expression negotiation relating to securities does not refer to services which are limited to providing information relating to a financial product and, possibly, receiving and processing the requests for subscription of the corresponding securities, without proceeding to their issuance".

Furthermore, in light of this judgment, in order to conclude that there is effective negotiation, it is necessary that the taxable person do more than the mere activity of intermediation between the contracting parties, negotiating on behalf and on account of the client the details of the reciprocal performances, the taxable person having no own interest in the content of the contract. Now, in the case at hand, it cannot be concluded that the Applicant wife had no interest in the content of the contract since the commissions to which she was entitled depended on the sale price set.

The Respondent also considers that if the interpretation of the Applicants were to be adopted, the numerous real estate intermediation companies that provide services in the area of prospecting customers and intermediation in the sale and leasing of real estate would also benefit from the exemptions that benefit the main business, which is not the case. Therefore, if in the recruitment of customers for contracts of sale or leasing of real estate no exemption of Article 9 is applicable, then the mere recruiter of potential customers in the acquisition of a title relating to a lesser real right or a merely contractual obligation cannot benefit from the exemption typified in Article 9 of the CIVA.

To this extent, the Respondent considers it not to have been duly demonstrated that the activity developed by the Applicant wife in favor of E… (Branch in Portugal) can benefit from the exemption provided for in subparagraph e) of paragraph 27 of Article 9 of the CIVA because, as far as ascertained by the Respondent, such activity does not fall within the concept of "negotiation".

As a relevant indication of this fact, the Respondent further points out that, if that were the activity of the Applicant wife, it would not be understood why there would be values of commissions as disparate as those declared by the Applicant wife, in particular, commissions of €7.85 or €3.75, which could hardly be considered as resulting from commissions for negotiation of the sale of securities representative of rights of use for tourism with terms exceeding 20 years.

It thus concludes that the request of the Applicants is without merit, considering that the illegality invoked by the Applicants cannot be attributed to the contested assessment acts, that is, the violation of subparagraph e) of paragraph 27 of Article 9 of the CIVA.

IV. FINDINGS OF FACT

A. Findings of Fact Established

The following facts are considered established:

  1. E… (Branch in Portugal), NIPC …, is engaged in the sale of titles of rights of use for tourism over real property, in weekly fractions, concerning "G", in "H" and "I".

  2. Upon acquiring the title, its holder has the right to enjoy holidays at the facilities operated by E… (Branch in Portugal) for the period, under the conditions and with the services set forth in the contract.

  3. The rights of use for tourism have various ranges with different characteristics, with a basic service, a more elaborate service and a top service corresponding to the F service/client.

  4. The rights of use for tourism of the F range are perpetual rights.

  5. To sell the rights of use for tourism, E… (Branch in Portugal) resorts to independent service providers with no employment relationship.

  6. These service providers are remunerated based on sales made by them, so they only receive if they sell rights of use for tourism.

  7. For each commission received, the service provider issues the corresponding green receipt in the name of E… (Branch in Portugal).

  8. The company has a table of minimum and maximum prices, with the final setting of the price depending greatly on the type of negotiation conducted by the sellers.

  9. Within the minimum and maximum values set, the seller is free to advertise and negotiate the price he wishes.

  10. In some cases, E… (Branch in Portugal) agrees with sellers a profit share modality in which a bonus is assigned to the seller for sales made above the minimum price set.

  11. Sales at a value below the minimum price set must be authorized by E… (Branch in Portugal) or entail a reduction in the commission payable to the service provider.

  12. From this practice, it results that the average sale prices vary from seller to seller.

  13. In addition to the commission due for sales, service providers are entitled to commissions for contractual amendments negotiated with customers that entail a modification of the right initially acquired with additional payment charged to the customer.

  14. The sellers have no powers of representation of E… (Branch in Portugal).

  15. The contracts are signed by the legal representatives of E… (Branch in Portugal) and not by the service providers who negotiate the sale.

  16. The contracts for the sale of rights of use for tourism are standard contracts based on general contractual clauses.

  17. Service providers have powers to negotiate conditions different from those provided in the contractual clauses which shall be subject to approval by E… (Branch in Portugal).

  18. When the proposed amendments are accepted by E… (Branch in Portugal), an addendum or complementary document with the particular clauses agreed upon is prepared which forms an integral part of the contract for the sale of the rights of use for tourism.

  19. During the years 2011, 2012 and 2013, the Applicant wife provided services to E… (Branch in Portugal).

  20. For this purpose, the Applicant wife declared commencement of activity for VAT purposes in the year 2011, being classified under the exemption regime of Article 53 of the CIVA.

  21. On 12-01-2012, the Applicant wife presented a declaration of change of activity, being classified under the activity code of Article 151 of the Personal Income Tax Code 1319 (Commission agent), with exemption under Article 9 of the CIVA, which contains the handwritten mention "Exclusively Real Right of Periodic Housing for more than 20 years".

  22. During the years 2012 and 2013 the Applicant wife collaborated with E… (Branch in Portugal) in the sale of rights of use for tourism of the F range.

  23. In the development of her activity, it was the responsibility of the Applicant wife to contact customers and/or potential customers to whom she disclosed and promoted the rights of use for tourism of the F range.

  24. The Applicant wife negotiated with customers the conditions for the acquisition of the rights in question or the modification of the title of use already held by the customer.

  25. The Applicant wife set the final sale price or modification of title and agreed with the customer the conditions for acquisition, in terms of period for enjoyment of holidays, type of tourist unit, associated services, etc., that best suited the customer's profile, without prejudice to subsequent validation by E… (Branch in Portugal).

  26. The Applicant wife had no powers of representation of E… (Branch in Portugal).

  27. The contracts for the sale of titles were not formalized or signed by the Applicant wife.

  28. The Applicant wife received a commission for each transaction completed, issuing the corresponding green receipt.

  29. For the services provided in 2012, the Applicant wife received commissions paid by E… (Branch in Portugal), in a total amount of €20,578.97.

  30. For the services provided in 2013, the Applicant wife received commissions paid by E… (Branch in Portugal), in a total amount of €19,100.50.

  31. All receipts issued by the Applicant wife to E… (Branch in Portugal) were issued without VAT liability as she considered that the exemption provided for in subparagraph e) of paragraph 27 of Article 9 of the CIVA applied.

  32. The Applicant wife was the subject of an internal tax inspection, of partial scope in VAT matters, relating to the fiscal years 2012 and 2013, which had its origin in Service Orders OI 2014… and 2014….

  33. The inspection was initiated on 02/07/2014 and concluded on 05/08/2014.

  34. In the inspection report prepared by the Tax and Customs Authority the following is stated:

"III – DESCRIPTION OF FACTS AND GROUNDS FOR CORRECTIONS OF A MERELY ARITHMETIC NATURE TO THE TAXABLE AMOUNT (2012 and 2013)

III.1. Failure to assess VAT on receipts issued

Resulting from the inquiry made to the only customer of the taxable person, it was possible to verify that, in the years under analysis, as well as had already occurred in the year (2011), the taxable person exercised the activity of recruitment of potential customers for the company E… Branch in Portugal, NIPC …, which is engaged in the marketing of rights of use over real property, issuing for the commissions received, electronic receipts, which are recorded in our database, from 2011-01-01, that company, whose numbering and value are indicated at the end of this point, for 2012 and 2013.

In terms of Value Added Tax (VAT), the taxable person considered itself exempt pursuant to Articles 53° and 9° (2011 Article 53° - 2012 Article 53° and 9° - 2013 Article 53° and 9°) of the Value Added Tax Code (CIVA), being registered at the Tax Office of ... (code …) for the activity of Other service provision (CAE: 1519), in the receipts above identified, the taxable person marked, with respect to the VAT regime, exempt art.° 9° and exempt art. 53°, thus considering that the activity of recruitment of potential customers for rights of use over real property is exempt under that article, and exempt art.° 53° in 2013.

Although the taxable person considers that the services provided by it benefit from the exemption of Article 9° of the CIVA, this is not the case since they consist of the promotion of the rights of use over real property making them known to the general public and recruiting potential customers who show themselves available to know and purchase them, with no intervention of the taxable person in the negotiation of contracts or in the sale of the same.

Thus in terms of tax classification for VAT purposes, the taxable person appears improperly in Article 9° from 2012-02-01, given that despite receiving by commission, he does not develop in any way any activity classifiable under Article 9° of the CIVA.

Therefore, an inconsistency is observed in the classification of VAT, since if it is a provision of services of recruitment of potential customers for rights of use over real property and which has no place in Article 9° of the CIVA, it would be necessary to ascertain what classification should be considered.

Given that the turnover, in the year 2011, exceeded the exemption limit of Article 53° of the Value Added Tax Code (CIVA) (€10,000.00), the possibility of applying the exemption regime of Article 53° of the CIVA would also be excluded, leaving only the classification under the normal taxation regime with quarterly periodicity, from 2012-02-01, for which an Official Amendment Form (BAO) will be prepared, in order to alter the classification of the taxable person accordingly.

Thus, the amounts earned by the taxable person from 2012-02-01, relating to recruitment of potential customers for rights of use over real property, are subject to VAT, since the services provided fall within the concept of provision of services pursuant to Articles 1°, paragraph 1, subparagraph a), 2°, paragraph 1, subparagraph a) and 4°, paragraph 1 of the CIVA, as the exemption provided for in the CIVA (Article 53°) does not apply.

The said services performed by an intermediary acting in the name and on behalf of another linked to accommodation in the hotel sector (or in sectors with analogous functions) are covered by the general rule for the location of services provided to taxable persons, set forth in Article 6°, paragraph 6, subparagraph a) of the CIVA.

The taxable amount of these service provisions is, pursuant to Article 16°, paragraph 1 of the CIVA, the value of the consideration obtained from the acquirers.

As a result of this procedure, failure to assess VAT results, for the fiscal years 2012 and 2013, pursuant to Article 18°, paragraph 1, subparagraph c) of the CIVA.

To the quarterly known value of the service provisions, the VAT rate in force on the respective dates will be applied.

Due to the failure to assess VAT on the receipts issued, the following amounts of tax in default are calculated:

(…)

IX - RIGHT TO HEARING - GROUNDS

The taxpayer was notified of the draft corrections, and that it could exercise the right to hearing provided for in Article 60° of the L.G.T. and Article 60° of the R.C.P.I.T., by office No. … of 2014-08-12, which was received on 2014-08-26 according to the search of items on the CTT website, and exercised the right to hearing on 2014-08-22, which did not alter the conclusions of the draft corrections, and therefore, after the processing of the BAO, the correction document, single DC, should be prepared, and the respective notices of offense raised, by not having regularized the situation nor made a request for reduction of penalties.

In the right to hearing presented by the taxable person (right to hearing filed in the case), this briefly states that:

It provided services to the company E… (Branch in Portugal) for the recruitment of potential customers of the company, receiving a commission, which it considers (point 10) as a transaction of negotiation of securities, stating that the said services are covered by the exemption provided for in subparagraph e) of paragraph 27 of Article 9° of the CIVA (point 15).

It makes reference to the judgment of 13-12-2001 of the CJEU, 2, to the judgment of 21-07-2007, (Volker Ludwig), and to information No. A…2008… of 31-12-2009, No. … 7-12-2010 and No. … of 23-12-2010, both sanctioned by decision of the Deputy Director General of Taxes.

Having analyzed the arguments presented by the taxable person, the following comments are made. Considered relevant for the justification of the decision of the assessment proposal.

The corrections proposed in this inspection report are corroborated by the information provided by the company "E…" in the sense that the income paid results from the intervention of the taxable person in the sale of the "J" product, and the taxable person has not, in the exercise of the right to hearing, provided proof that the income does not result from the simple provision of a service of recruitment of potential customers for the company E.

However, even if the taxable person argues that the commissions earned by it from intermediation in the sale of the securities sold by company E are covered in subparagraph e) of paragraph 27 of Article 9° of the VAT code, and consequently exempt from tax, we will demonstrate that such services are not covered by such legal provision.

In light of the provision of subparagraph e) of paragraph 27 of Article 9° of the VAT code, the commissions earned from intermediation in the purchase and sale of securities representative of operations on real property benefit from the exemption. However, operations related to the "administration and management" of said securities are excluded from the exemption.

In the situation at hand, which relates to the intervention of a third party in financial operations related to the purchase and sale of securities representative of operations on real property, it is necessary to verify the interpretation given to the term "negotiation" contained in said subparagraph.

Thus, the understanding resulting from the assessment of the Court of Justice made in Judgment of 13 December 2001 - Case C-235/00, expressed in points 39 to 41 is as follows:

"39 Without it being necessary to ascertain the exact scope of the term "negotiation", which, moreover, appears in other provisions of the Sixth Directive, namely in Article 13°, a, subparagraph d), paragraphs 1 to 4, it must be concluded that, in the context of paragraph 5, it refers to an activity carried out by an intermediary who does not occupy the place of a party to a contract relating to a financial product and whose activity is different from the typical contractual performances effected by the parties in contracts of that type. In fact, the activity of negotiation is a service provided to a contractual party and remunerated by it as an activity distinct from intermediation. Among other things, it may consist in indicating to it the occasions to enter into a particular contract, making contact with the other party and negotiating on its behalf and on behalf of the client the details of the reciprocal performances. The purpose of this activity is, thus, to effect what is necessary for both parties to enter into a contract, without the negotiator having any own interest in the content of the contract.

40 In contrast, one is not dealing with a negotiation activity when one of the parties to the contract entrusts a subcontractor with part of the material operations linked to the contract, such as the information of the other party, the reception and processing of requests for subscription of the securities which are the subject of the contract. In this case, the subcontractor occupies the same place as the seller of the financial product and is not, therefore, an intermediary who does not occupy the place of one of the parties to the contract within the meaning of the provision in question.

41 Taking into account all the considerations which precede, the reply should be that Article 13°, a, subparagraph d), paragraph 5, of the Sixth Directive should be interpreted to the effect that

  • the expression "operations relating to securities" refers to operations capable of creating, modifying or extinguishing the rights and obligations of the parties regarding securities,

  • the expression "negotiation relating to securities" does not refer to services which are limited to providing information relating to a financial product and, possibly, receiving and processing requests for subscription of the corresponding securities, without proceeding to their issuance."

In these terms, the service provisions performed by the taxable person under analysis are not covered by the concept of negotiation contained in subparagraph e) of paragraph 27 of Article 9° of the CIVA, being considered, within the scope of the CIVA, service provisions, pursuant to paragraph 1 of Article 4°, subject to VAT and not exempt from it, taxable at the rate defined in subparagraph c) of paragraph 1 of Article 18° of the CIVA.

Since these operations relating to Rights of Periodic Habitation for Tourism do not fall within the scope of the exemption contained in subparagraph e) of paragraph 27 of Article 9° of the CIVA, the commissions paid for service provisions linked to their marketing also do not fall within the scope of the exemption contained in subparagraph e) of paragraph 27 of Article 9° of the CIVA.

In light of the foregoing, we can conclude that the arguments presented by the taxable person do not alter the corrections proposed, and therefore the conclusions of the draft corrections are carried forward to this report."

  1. In execution of the conclusions of the tax inspection, the Tax and Customs Authority proceeded to the following assessment acts:

i) No. 2014 …, relating to the VAT of 201203T, in the amount of €549.70;

ii) No. 2014 …, relating to the VAT of 201206T, in the amount of €1,124.70;

iii) No. 2014 …, relating to the VAT of 201209T, in the amount of €2,437.76;

iv) No. 2014 …, relating to the VAT of 201212T, in the amount of €621.00;

v) No. 2014 …, relating to the VAT of 201303T, in the amount of €530.15;

vi) No. 2014 …, relating to the VAT of 201306T, in the amount of €1,076.52;

vii) No. 2014 …, relating to the VAT of 201309T, in the amount of €1,934.30;

viii) No. 2014 …, relating to the VAT of 201312T, in the amount of €852.15;

ix) No. 2014 …, relating to compensatory interest of 201306T, in the amount of €52.25;

x) No. 2014 …, relating to compensatory interest of 201206T, in the amount of €99.87;

xi) No. 2014 …, relating to compensatory interest of 201203T, in the amount of €54.45;

xii) No. 2014 …, relating to compensatory interest of 201309T, in the amount of €74.48;

xiii) No. 2014 …, relating to compensatory interest of 201303T, in the amount of €31.17;

xiv) No. 2014 …, relating to compensatory interest of 201209T, in the amount of €192.02;

xv) No. 2014 …, relating to compensatory interest of 201212T, in the amount of €42.61.

B. Facts Not Established

No other facts with relevance to the arbitral decision were established.

C. Justification of the Findings of Fact

The findings of fact established are based on the documentary evidence presented and not contested, as well as on the statements given by the Applicant husband and the testimony of witness C. The aforementioned testimony was deemed serious and impartial in the eyes of the Tribunal, in that, alongside the characteristics of spontaneity thereof, it was shown to be logically structured and coherent.

The testimony of the indicated witness was, moreover, essential for the clear understanding of the activity developed by E… (Branch in Portugal), an entity with which he maintained a professional relationship until the year 2012, and therefore had direct knowledge of the facts and of the activity developed by the Applicant wife.

V. ISSUES TO BE DECIDED

A. On the Illegality of the VAT Assessments

Tax litigation – through judicial impugnation and the request for arbitral decision – reduces to litigation for the annulment or declaration of nullity of tax acts, and therefore the object thereof is delimited by the tax act challenged and its respective grounds.

Thus, in what concerns the present case, it is incumbent to decide whether the VAT assessment acts contested by the Applicants should or should not be annulled as illegal.

It results from the conclusions of the inspection report attached to the case file and its respective justification that, in the understanding of the Respondent, the activity developed by the Applicant wife will not be subsumed within the concept of "negotiation" referred to in subparagraph e) of paragraph 27 of Article 9 of the CIVA, and therefore the VAT exemption provided therein will not be applicable to the services provided, in the years 2012 and 2013, by the Applicant wife to E… (Branch in Portugal).

It is therefore incumbent to decide.

First, it must be taken into account that, according to extensive case-law of the CJEU, the exemptions provided for in Directive 2006/112/EC of the Council constitute autonomous notions of Union law that should be interpreted strictly as they constitute exceptions to the common VAT system.

However, this requirement for strict interpretation must be in accordance with the objectives of the exemptions provided and respect the principle of fiscal neutrality, lest by emptying them of content, it undermines the legal and economic effects intended.

Thus, taking into account what has been the community case-law on the subject, this tribunal considers that the concept of "negotiation" refers to "an activity carried out by an intermediary who does not occupy the place of a party to a contract relating to a financial product and whose activity is different from the typical contractual performances effected by the parties in contracts of that type. In fact, the activity of negotiation is a service provided to a contractual party and remunerated by it as an activity distinct from intermediation. Among other things, it may consist in indicating to it the occasions to enter into a particular contract, making contact with the other party and negotiating on its behalf and on account of the client the details of the reciprocal performances. The purpose of this activity is, thus, to effect what is necessary for both parties to enter into a contract, without the negotiator having any own interest in the content of the contract" – see judgment C-259/11 (DTZ Zadelhoff vof), of 5-07-2012, and C-235/00 (CSC Financial Services) of 13-12-2001.

The idea of negotiation presupposes the notion of compromising, giving way, disposing of rights or interests to reach an agreement; it presupposes an activity of seeking consensus, joining of interests and contractual positions with a view to achieving a particular legal transaction, for one's own benefit and/or for the benefit of third parties.

Thus, it is considered that the simple provision of information relating to a financial product, receipt and processing of requests for subscription of the corresponding securities, without proceeding to their issuance, do not fall within the concept of "negotiation" – see C-235/00 (CSC Financial Services) of 13-12-2001. The merely administrative and technical services that would enable the parties to enter into a contract, without any interference regarding the content of that same contract, cannot, therefore, be considered as characteristic of a negotiation process.

Now, taking into account the activity actually developed by the Applicant wife, this tribunal concludes that it falls within the concept of "negotiation" of subparagraph e) of paragraph 27 of Article 9 of the CIVA. In fact, and contrary to what has been alleged by the Respondent, in her activity, the Applicant wife not only contacted customers for E… (Branch in Portugal) but also presented the products that this entity had to offer, negotiating with customers the contractual conditions that best suited them, having complete freedom in the setting of the price. Note that, moreover, the existence of a minimum sale price was not an impediment to the Applicant wife, like any other seller, agreeing with the customer a lower price (albeit such was discouraged) or a higher price. There was, moreover, an incentive for sale prices to be higher than the minimum prices set.

This freedom in setting an essential element of the contract – the price – has as its immediate implication what witness C testified to in the sense that the average sale price varied from seller to seller. This would not occur if the sellers, such as the Applicant wife, limited themselves to providing information relating to the titles of use for tourism, receiving and processing requests for acquisition from customers.

Against this understanding, the allegation of the Respondent that the Applicant wife had no freedom in setting the contractual clauses, limiting herself to selling a final "product", without any possibility of conforming or adapting the will of the parties, shall not hold.

And it shall not hold because, as was considered established above (see points 17 and 25 of the Findings of Fact Established), E… (Branch in Portugal) authorized the negotiation of specific contractual conditions that would always be subject to its final approval. In the opinion of the tribunal, this fact allows the conclusion that the Applicant wife, like the other sellers, had negotiating powers to adapt and conform the contractual content, albeit subject to subsequent approval by E… (Branch in Portugal).

And it should not be thought that this need for final approval of the special conditions negotiated with the customer by E… (Branch in Portugal) does not preclude such activity from the concept of "negotiation". The CJEU reached this same conclusion in Case C-453/05 (Ludwig) of the CJEU cited above, in a case with many similarities to the situation at hand.

In fact, it results from point 10 of that judgment that "If the person opts for a credit, the consultant prepares a binding contract proposal which he transmits, after signature by the customer, to the DVAG, which reviews its regularity. The latter sends the contract proposal to the lending financial institution, which may accept, refuse or alter the respective terms" (emphasis added). Now, also in this case – in which the CJEU concluded that the exemption provided for in subparagraph f) of paragraph 1 of Article 135 of said Directive was applicable, corresponding to our subparagraph e) of paragraph 27 of Article 9 of the CIVA – the intermediary representing the entity granting the credit discussed the credit proposal with the final customer, setting the terms and conditions thereof, within the limits and conditions previously determined by the credit-granting entity itself, for subsequent transmission of the proposal for validation or refusal of the negotiated terms.

In other words, also in this case, the intermediary negotiated credit operations within general conditions previously set by the credit-granting entity and, given that he did not have powers of representation of the credit-granting entity, the proposal submitted – with binding character as to the final customer – was always dependent on approval by that entity.

Nor does the allegation made by the Respondent that the interpretation proposed by the Applicants would imply that the activity of real estate intermediaries would also be exempt from VAT hold good. This is because the exemptions provided for in paragraphs 29 and 30 of Article 9 of the CIVA do not expressly include the activity of "negotiation", unlike subparagraph e) of paragraph 27 of Article 9 of the CIVA; and the exemption provided for in this norm refers to operations on shares, other interests in companies or associations, bonds and other securities, not encompassing operations (of sale or leasing) directly incidental to real property. One thing is operations on shares, bonds or other securities on real property, another is operations directly incidental to real property. The two norms have distinct scopes of application and therefore cannot be confused or conflated.

Finally, the existence of commissions of quite varied values, particularly commissions of only a few euros, is not demonstrative that the Applicant wife does not negotiate in operations relating to securities on real property with terms exceeding 20 years. As explained by witness C, these values would result from commissions paid for the negotiation of operations for modification of the rights of use for tourism (upgrade operations) and not for the sale of such rights (see point 13 of the Findings of Fact Established). Now, these amendment operations are also unequivocally covered by the exemption of subparagraph e) of paragraph 27 of Article 9 of the CIVA, to the extent that they translate into operations capable of creating, modifying or extinguishing rights and obligations of the parties, relating to securities – see judgment C-235/00 (CSC Financial Services).

In light of all that has been set forth, we conclude for the application of the exemption subparagraph e) of paragraph 27 of Article 9 of the CIVA to the services provided by the Applicant wife to E… (Branch in Portugal), in the years 2012 and 2013. Thus, the VAT assessments made by the Respondent with reference to these years and the respective compensatory interest are illegal due to violation of said norm, and therefore should be annulled, as requested by the Applicants.

This tribunal has no doubts as to the interpretation and application of the norm in question and therefore considers that there is no occasion for referral to the CJEU as hypothetically raised in the arguments of the Applicants.

B. On the Request for Compensation for Provision of Guarantee

The Applicants formulate, at the end of the request for arbitral decision, a request for compensation for the costs incurred by them with the provision of guarantee to stay the fiscal enforcement procedure.

However, it was not established that any fiscal enforcement procedure had been instituted for the collection of the assessed amounts, nor that the Applicants provided any guarantee that generated costs.

The arbitral process is the appropriate means for the recognition of the right to compensation for guarantee unduly provided, as Article 171 of the CPPT is applicable on a subsidiary basis, by virtue of the provision in Article 29, paragraph 1, subparagraph c), of the RJAT.

However, it is only when the guarantee is effectively provided that the right to compensation can be requested.

Thus, as it was not alleged and established that (i) a fiscal enforcement procedure was instituted and that (ii) a guarantee was provided with a view to the suspension thereof, the request for recognition of the right to compensation must be judged without merit, without prejudice to this right possibly being recognized even in execution of judgment, should such provision occur.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

a) To judge the request for arbitral decision well-founded, as to the request for annulment of the VAT assessments of the first, second, third and fourth quarters of 2012 and 2013, and respective compensatory interest, duly identified in point 35 of the Findings of Fact Established;

b) To annul said assessments;

c) To judge the request for arbitral decision without merit as to the part in which compensation is requested for costs incurred with the provision of guarantee in fiscal enforcement procedure, absolver the Respondent from the request in this part.

Value of the Case: In accordance with the provision in Article 306, paragraph 2, of the CPC and Article 97-A, paragraph 1, subparagraph a), of the CPPT and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €9,126.28.

Costs: Pursuant to paragraph 4 of Article 22 of the RJAT, the amount of costs is set at €918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 02-10-2015

The Sole Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

What is the VAT exemption under Article 9(27)(e) of the Portuguese VAT Code (CIVA)?
Article 9(27)(e) of the Portuguese VAT Code (CIVA) provides a VAT exemption for services relating to the negotiation of securities and other financial products. The key requirement is that the service must constitute genuine 'negotiation' rather than mere administrative, technical, or promotional activities. According to CJEU case law, particularly judgment C-435/05 (Volker Ludwig), negotiation encompasses intermediation activities including indicating contract opportunities to parties and facilitating contact between them, without necessarily requiring formal representation powers. However, CJEU case C-235/00 (CSC Financial Services) clarifies that simply providing information about financial products or processing applications does not qualify as negotiation for exemption purposes.
How did the CAAD arbitral tribunal rule on the additional VAT assessments for 2012 and 2013?
The complete decision of the CAAD arbitral tribunal is not fully provided in the excerpt. However, the case file shows that the tribunal was constituted on April 28, 2015, and proceeded to examine the merits of whether the applicant wife's services in selling timeshare tourism rights qualified for VAT exemption under Article 9(27)(e) of CIVA. The tribunal held hearings on July 2, 2015, where testimony was taken and evidence examined. Both parties submitted written arguments with supporting documentation. The applicants sought annulment of VAT assessments totaling €9,126.28 for the first through fourth quarters of 2012 and 2013, plus €546.85 in compensatory interest.
Can taxpayers claim compensation for guarantee costs in Portuguese tax arbitration proceedings?
Yes, taxpayers can claim compensation for guarantee costs in Portuguese tax arbitration proceedings under CAAD. In this case (103/2015-T), the applicants specifically requested, in addition to annulment of the VAT assessments, that the Tax and Customs Authority be condemned to pay compensation for the costs incurred with the provision of the guarantee that was required to suspend the enforcement procedure. This demonstrates that CAAD arbitration allows claims for reimbursement of expenses related to providing securities or guarantees necessary to halt tax collection during the dispute resolution process, recognizing these as recoverable damages when taxpayers successfully challenge illegal assessments.
What is the procedure for challenging additional VAT assessments through CAAD tax arbitration in Portugal?
The procedure for challenging additional VAT assessments through CAAD tax arbitration in Portugal follows the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011). Taxpayers file a request for constitution of an arbitral tribunal under Articles 2 and 10 of RJAT in conjunction with Article 99(a) of the Tax Procedure Code (CPPT). The CAAD President accepts the request and notifies the Tax Authority. The Ethics Council appoints an arbitrator for sole arbitral tribunals, and parties have the right to refuse the appointment. Once the tribunal is constituted, hearings are held where parties present evidence, testimony, and arguments. The tribunal examines both factual and legal issues to determine the legality of the contested assessments. The process includes opportunities for document submission, witness examination, and written arguments.
How are compensatory interest charges applied on additional VAT assessments by the Portuguese Tax Authority?
Compensatory interest (juros compensatórios) are charges applied by the Portuguese Tax Authority on additional VAT assessments to compensate for the delay in tax payment. In this case, the Tax Authority assessed €546.85 in compensatory interest on top of the €9,126.28 in additional VAT for the 2012-2013 tax periods. These interest charges accrue from when the tax should have been paid until the assessment date. When taxpayers successfully challenge assessments in arbitration, both the principal tax amount and the compensatory interest are annulled. The interest represents a financial penalty for late payment and is calculated based on statutory rates established in Portuguese tax law, serving to discourage delayed compliance and compensate the state for lost time value of money.