Process: 12/2018-T

Date: July 30, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 12/2018-T addressed whether free product deliveries constituted VAT-exempt 'cross bonuses' or taxable gifts under Portuguese VAT law. The claimant, a beverage company, delivered free products (beers, soft drinks, waters) to customers based on purchase volumes between April 2015 and December 2016, self-assessing €107,170.27 in excess VAT. The company argued these were quantity bonuses under Article 16(6)(b) CIVA, excluded from VAT as consideration reductions, not gifts under Article 3(3)(f) and 3(7) CIVA. The Tax Authority contended these were promotional gifts subject to VAT when exceeding statutory thresholds, particularly when different products were delivered (e.g., water given for beer purchases). The Authority emphasized the claimant failed to prove goods had 'the same nature' as invoiced products, a requirement for bonus classification. Additionally, the TA argued the claimant failed to follow proper VAT regularization procedures under Article 78 CIVA, including issuing credit notes and recording adjustments correctly in periodic declarations. The tribunal considered whether cross-category product deliveries qualified as bonuses when commercially linked, the evidentiary burden for establishing excess VAT self-assessment, and whether technical system limitations justified procedural deviations. The case highlights the critical distinction between discounts/bonuses (which reduce taxable consideration) and gifts (which create independent taxable supplies) in Portuguese VAT law, with significant implications for promotional commercial practices and customer loyalty programs in the beverage and retail sectors.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbiters appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 19 March 2018, Dr. Alexandra Coelho Martins (presiding arbiter), Dr. António Nunes dos Reis and Dr. Nuno Maldonado Sousa, hereby agree as follows:

REPORT

A..., S.A., hereinafter referred to as the "Claimant", legal entity number..., with registered office at ..., ..., ...-... ..., filed a request for constitution of a Collective Arbitral Tribunal, pursuant to articles 2, no. 1, subparagraph a) and 10, no. 1, subparagraph a), both of the Legal Framework for Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and articles 1 and 2, subparagraph a) of Ordinance no. 112-A/2011, of 22 March.

In this context, the Claimant challenges the acts of self-assessment of Value Added Tax ("VAT") calculated in excess in the declarations of monthly periods between April 2015 and December 2016[1], in the amount of € 107,170.27, with the Tax and Customs Authority ("TA") as the Respondent. The Claimant requests:

  • The declaration of illegality and annulment of the act of silent dismissal of the Gracious Complaint;

  • The declaration of (partial) illegality of the acts of VAT self-assessment identified;

  • The condemnation of the Respondent to refund the tax amount, plus compensatory interest.

As the basis for the claims made, the Claimant alleges error in the legal premises, resulting from the incorrect classification as "gifts" of the free deliveries of products (beverages) that it made to its customers, within the scope of their respective supplies, which should be configured as bonuses and, as such, excluded from VAT taxation, in accordance with the provisions of article 16, no. 6, subparagraph b) of the Code of this tax.

To support this classification, the Claimant points out that bonuses do not have the spirit of liberality inherent in gifts, as they are granted based on the purchase of certain quantities of products by its customers, within the scope of the commercial relationship maintained, and have a promotional logic aimed at increasing sales, customer loyalty and customer acquisition.

It further states that these are deliveries of goods with the same nature or within the same category as the goods sold, namely beers, soft drinks and bottled waters, which are part of its product portfolio and also the usual purchase portfolio of the customers in question, with the size and/or type of packaging potentially varying.

Thus, it concludes that the bonuses called "cross bonuses" are nothing more than the delivery of "more product for the same price" and constitute a quantity discount, explaining that the incorrect procedure it adopted "was only due to technical reasons related to the information system" that "did not allow the issuance of documents mentioning «cross bonuses»".

It further considers itself entitled to compensatory interest under article 43, no. 1 of the General Tax Law ("LGT"), for having followed generic guidelines from the TA duly published when completing the periodic VAT declarations.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and followed its normal processing, namely with notification to the TA.

The Deontological Council appointed as arbiters of the Collective Arbitral Tribunal the signatories, who communicated acceptance of the assignment within the applicable period, in accordance with the provisions of article 6, no. 2, subparagraph a) and article 11, no. 1, subparagraph a), both of the RJAT.

The parties, duly notified, did not manifest any intention to refuse the appointments and the Collective Arbitral Tribunal was constituted on 19 March 2018, in accordance with article 11, no. 1, subparagraphs b) and c) of the RJAT and articles 6 and 7 of the Code of Ethics.

The Respondent filed a reply and attached the administrative file, not raising any exceptions. It considers that the request for arbitral pronouncement should be dismissed, with the consequent acquittal of the TA from all claims, on the grounds that, in summary:

  • The Claimant did not satisfy the burden of proof that lay with it regarding excess VAT assessment, in accordance with article 74 of the LGT and the general rule contained in article 342, no. 1 of the Civil Code;

  • These are free transfers of goods (gifts) that fit within article 3, no. 3, subparagraph f) and no. 7 of the VAT Code, subject to VAT whenever their unit value exceeds € 50.00 or when the respective total annual value exceeds five per thousand of the turnover in the previous civil year, and not a quantity discount or bonus, regulated by article 16, no. 6, subparagraph b) of the same code, whereby the VAT assessment is due;

  • For the deliveries of products in question to be qualified as quantity bonuses and configured as a reduction of the effective consideration for the purposes of excluding the taxable value, it would be necessary for them to have the same nature as the other goods supplied. However, as they are different products from those invoiced to the customer, as happens, for example, with the gift of 10 bottles of water on the purchase of 5 crates of beer, their classification should be as promotional gifts, equivalent to transfers of goods subject to VAT, provided they exceed the thresholds (unit value and business volume) provided for in article 3, no. 7 of the VAT Code;

  • Even if VAT adjustment were due, the Claimant did not observe the legal requirements relating to VAT adjustment on inaccurate invoices, provided for in article 78, nos. 1, 3, 4 and 5 of the VAT Code, given the change in the taxable value of the transaction and the corresponding tax. The following would therefore be required: – the issuance of credit notes and new invoices; – proof that the acquirer was aware of the rectification, or that it had been reimbursed for the tax; and – the recording of the adjustment in field 40 of the periodic declaration of the month in which the adjustment was made, a procedure appropriate for situations of rectification of inaccurate invoices, rather than the self-assessment complaint procedure, under article 131 of the Code of Tax Procedure and Process ("CPPT"), which was followed by the Claimant;

  • That granting the Claimant's claim would mean obligating the State to reimburse it for tax that would have already been deducted by taxable persons holding the invoices (while acknowledging in article 8 that the Claimant did not pass on the VAT of the "gifts" to its customers, in accordance with the faculty provided for in article 37, no. 3 of the VAT Code);

  • That the Claimant, despite having attached 2,731 documents – invoices and accounting records – for instruction of the Gracious Complaint procedure, did not comply with the request for a list with correspondence – invoice by invoice – between the documents originally issued and those through which it proceeded with the tax adjustment. In this way, the non-presentation of supporting documents that allow validation of the accounting entries made renders it impossible for the TA to validate the legal premises and measure the transactions;

  • That, finally, there is no attribution of any error to the services, and compensatory interest is not due.

Given the identity of the cause of action in the present case and in those that followed in CAAD under no. 588/2016-T, in which witness testimony was produced, the Tribunal, with the parties notified, decided to use the said testimony, dispensing with a new examination of the same witnesses regarding identical facts. The holding of the meeting provided for in article 18 of the RJAT was also dispensed with, since no exceptions were raised, in light of the principles of the Arbitral Tribunal's autonomy in conducting the proceedings, procedural speed and simplification (cf. articles 16, subparagraphs c) and e) and 29, no. 2, of the RJAT).

The parties were notified for optional submissions and the deadline for issuance of the decision, set for 19 September 2018.

The Claimant submitted arguments on 30 May 2018, maintaining essentially the arguments in the arbitral request, in the sense of declaring partial illegality of the tax acts of VAT self-assessment and annulling the (silent) dismissal of the Gracious Complaint, followed by the Respondent's arguments on 1 June 2018, which refer to the content of the Reply and conclude that the request should be dismissed.

CASE MANAGEMENT

The Tribunal was properly constituted and is competent ratione materiae, given the configuration of the object of the proceedings (cf. articles 2, no. 1, subparagraph a) and 5 of the RJAT).

The request for arbitral pronouncement is timely, as it was presented within the period provided in subparagraph a) of no. 1 of article 10 of the RJAT.

The parties have legal personality and capacity, have legal standing and are properly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities, and no preliminary issues were raised.

GROUNDS

FACTUAL MATTERS

With relevance for the decision, the following facts should be noted:

  • The company A..., S.A., here the Claimant, is engaged in the production, marketing and export of beverages and other products, exercising principally the activity of "beer manufacturing" (CAE 11050) and secondarily "soft drink manufacturing and other non-alcoholic beverages" (CAE 11072), being classified for VAT purposes under the normal monthly regime – cf. administrative file ("AF"), monthly VAT declarations for periods from April 2015 to December 2016, testimony of witnesses (also proved by agreement art. 4 of the reply).

  • In the scope of its beverage marketing activity, the Claimant proceeded with additional deliveries of products it marketed, as well as promotional items, in line with its strategy of sustained increase and diversification of its sales, loyalty of current customers and acquisition of new (potential) customers, promoting its products and own brands with them – cf. testimony of witnesses (also proved by agreement art. 4 of the reply).

  • Beyond such deliveries serving eminently promotional purposes, in reflection of the commercial policy adopted by the Claimant for consolidation and growth of beverage sales and introduction of new beverages to the market, this practice is usual in the sector in which it operates, being commonly followed by competing companies that market and distribute beverages – cf. testimony of witnesses (also proved by agreement art. 4 of the reply).

  • During the period between April 2015 and December 2016, regarding deliveries of products it called "cross bonuses", with value exceeding € 50.00, the Claimant classified them as gifts and, accordingly, self-assessed and supported the VAT calculated on the cost price of the products (e.g. bonus of beer "B..." of 0.25 liters on the purchase of beer "B..." of 0.33 liters; bonus of beer "B..." of 0.33 liters, upon purchase of the same beer in a 50-liter barrel; bonus of soft drinks "C..." on the purchase of soft drinks "D..."), reporting them in the periodic declarations[2] – cf. documents 2 to 7 and 10 attached to the p.i., self-assessment acts (periodic declarations), testimony of witnesses (also proved by agreement arts. 5 and 6 of the reply).

  • The products delivered as "cross bonuses" were normally of the same brand, although with different packaging, and their attribution was made based on the purchase of certain quantities by customers – cf. documents 4 to 7 and 10, attached to the p.i., testimony of witnesses (also proved by agreement art. 5 of the reply).

  • The deliveries of products as "cross bonuses" were mentioned either on the actual sales invoice of the products (cross bonus within the invoice) or on a later issued invoice (standalone invoice), which sometimes made reference to an initial sales invoice "cross bonus outside the invoice" – cf. documents 4 to 7 and 10, attached to the p.i., testimony of witnesses (also proved by agreement art. 6 of the reply).

  • Also regarding products delivered as "cross bonuses", information on the quantity and type of product delivered was mentioned on the invoice sent to the customer – whether the sales invoice of the other products or a standalone invoice – with neither the price of the product delivered as "bonus" nor the respective VAT self-assessed by the Claimant being mentioned in that document – cf. documents 4 to 7 and 10, attached to the p.i., testimony of witnesses (also proved by agreement arts. 6 and 8 of the reply).

  • The products subject to the said deliveries as "cross bonuses" were intended to be sold by the recipients of the deliveries and form part of the portfolio of products marketed by the Claimant – cf. documents 4 to 7 and 10, attached to the p.i. and testimony of witnesses.

  • The Claimant presented, on 8 June 2017, a Gracious Complaint seeking the annulment (partial) of the acts of self-assessment of VAT that it calculated in excess in the periodic declarations for monthly periods between April 2015 and December 2016, in the total amount of € 107,170.27, on the ground of error of law in the classification of the transactions, treated as gifts, when they should have been considered as "bonuses" or discounts – cf. document 1, attached to the p.i. and "AF".

  • Regarding the Gracious Complaint presented, the Claimant has not, to date, been notified of any decision thereon – cf. AF and proved by agreement.

  • The Claimant attached the following information elements:

    • Two listings containing the identification of invoices issued with mention of "cross bonuses", from April 2015 to December 2016. These listings indicate, invoice by invoice, the respective number (of invoice), the date, the code and name of the customer, the basis for calculating the VAT value and the value of VAT relating to the "bonuses", totaling € 107,170.27 in VAT – cf. documents 2 and 3, attached to the p.i.;

    • A collection of documents, comprising copies of the invoices listed (referred to in the previous subparagraph) and the corresponding accounting entry records [of the transactions and tax mentioned in the invoices] that identify the amounts relating to bonuses granted, by type of product, respective VAT self-assessed by the Claimant, with all such accounting documents mentioning an invoice number, identified in the "Reference" field, allowing the cross-referencing of information with the invoices and the two listings referred to in subparagraph (i) above – cf. documents 10 to 10K, attached by the Claimant;

    • The accounting documents in question include, in addition to the movements relating to bonus deliveries, those relating to the product supply and sales transactions to which those deliveries are associated, where applicable, by product, including the VAT assessed – cf. documents 10 to 10K, attached by the Claimant;

    • In the example below, which is replicated, mutatis mutandis[3], in the remaining accounting documents attached to the case, the accounts affected by the granting of "cross bonuses" are highlighted, for what is relevant here, those relating to inventory exit/adjustment, inventory gift expenses and self-assessed VAT thereon, namely:

      – the value of the inventory adjustment and the inherent expense recorded, VAT excluded – cf. Item 1 # 3841011000 and Item 2 # 6884200001 (beers); Item 7 # 3821021000 and Item 8 # 6884200001 (soft drinks);

      – the value of Special Consumption Tax on Alcoholic Beverages payable and its recording as an expense (beer) – cf. Item 3 #2785200000 and Item 4 # 6884200001;

      – the value of the VAT self-assessed on "cross bonuses" at the applicable rate and its recording as an expense (in the example, it was only self-assessed on soft drinks) – cf. Item 9 #2433230000 and Item 10 # 6884200001,

      – cf. documents 10 to 10K, attached by the Claimant;

    • On 8 January 2018, the Claimant filed a request for constitution of the Arbitral Tribunal in the CAAD computer system.

MOTIVATION – FACTS PROVED AND NOT PROVED

The facts relevant to the adjudication of the case were selected and delimited according to their legal relevance, in light of the plausible solutions to the legal issues, in accordance with articles 123, no. 2 of the CPPT, 596 and 607, nos. 3 to 5 of the Code of Civil Procedure ("CPC"), applicable ex vi article 29, no. 1, subparagraphs a) and e) of the RJAT.

As to the impossibility invoked by the TA of determining the factual premises relating to the quantification of the self-assessed VAT value, it is true that the Claimant attached a block of information, of some 2,700 documents, not accompanied by a summary table linking the invoices and the accounting records of VAT (self-)assessment on "cross bonuses".

However, establishing this connection does not constitute an impossible task, even though it is not synthesized in a table or chart, as would be desirable. Indeed, analysis of the documents (Documents 2, 3 and 10 to 10K) clearly shows the connection, invoice by invoice, of the "cross bonuses" with the accounting movements resulting from their attribution, including VAT self-assessment and the accounting accounts affected.

The accounting documents in question refer to the numbers of the corresponding invoices, so they raise no difficulty in verification, except that of their volume. Moreover, it is a matter of simple arithmetic addition of the VAT values self-assessed on account #2433230000, calculated on the expense value of the products attributed as "cross bonuses", entered, as in the example above, on account # 6884200001.

As regards the facts proved, the conviction of the arbiters was based on critical analysis of the documentary evidence attached to the case and on the testimony given by the witnesses in arbitral proceedings no. 588/2016-T which, in general, answered consistently and objectively and demonstrated direct knowledge of the facts on which they were questioned, resulting from their collaboration with the Claimant for several years in relevant commercial/operational areas and in the financial area, with the essential facts, for the most part, not being controversial (cf. article 16, subparagraph e) of the RJAT).

However, part of the testimony of Dr. Rosa Imaginário, responsible for the tax area of the Claimant, was not accepted regarding the accounting classification of bonuses, as it contradicts the documentary evidence attached by the Claimant itself. Indeed, from analysis of a substantial part of the accounting documents attached to the case, it is verified that the "bonuses" are recorded in expense accounts relating to gifts (# 6884) and not, as mentioned by the witness, classified accountingwise as a discount and "recorded in an account of revenues, under discounts and allowances on sales", so the corresponding allegation is deemed not proved, noting that the testimony was given in another proceeding and with reference to other periods, so it is admitted that there may not, in this point, be parallelism of situations.

As regards specifically the facts not proved and with relevance for the decision, from the evidence produced there emerged no evidence or indication that the Claimant's "erroneous" procedure was due to technical reasons related to its information system (articles 17 and 18 of the p.i.).

The allegation was also not proved that, moreover contradictory to the previous one, the Claimant would have acted in reason of indications published by the TA (article 79 of the p.i.). The incompatibility of the Claimant's allegations is manifest, as it appears that a procedure was followed for technical reasons related to its internal information system, such conduct could not have been due to the guidelines published by the TA. On the other hand, if it were due to these, how can it be claimed that the error was caused by the limitations of the Claimant's information system?

Setting aside contradictions, it is noted that the Claimant itself paradoxically acknowledges that "there is no indication from the TA on what it considers to be «a product different from the one sold»" (article 49 of the p.i.).

Likewise, no proof was made of the reaccounting of these flows as discounts, which would always have to be supported by documents (article 19 of the p.i.).

Regarding the allegation that the taxable basis of VAT was the list price (article 21 of the p.i.), it is found that this results from an error by the Claimant, as it was demonstrated by analysis of the accounting documents, corroborated by the testimony of the witnesses, that the value considered for VAT calculation was that of the corresponding expense, coming from inventory adjustment and not the list price (sales value, already increased by the margin), so in subparagraph D above the allegation was deemed proved, also originating from the Claimant (contained in article 16 of the p.i. and contradictory to that in article 21 of the p.i.) that the VAT self-assessed regarding "cross bonuses" was based on the cost price.

The allegation in article 67 of the p.i. was not proved, as the document in question (Document 4) refers to the attribution of "Caramulo PET" on the sale of the same product which consists of bottled water and clearly does not correspond to "beer of the brand «B...»", a statement which, again, is deemed to be due to error by the Claimant.

Regarding the matters contained in articles 68 to 70 of the p.i., no proof was made that the bonuses contained in a standalone invoice always make reference to the initial sales invoice "cross bonus outside the invoice". Such reference is noted in some cases (Documents nos. 5 and 6 attached by the Claimant) but is not found in other cases (such as in Documents 7 and Document 10 A (doc 272) attached by the Claimant), so in subparagraph F of the factual matters this reference is deemed to be only eventual.

With relevance for the decision, there are no other facts that should be deemed not proved.

ON THE LAW

2.1. Delimitation of the thema decidendum

The question to be examined and decided is substantive and concerns the legal-tax classification of the "cross bonuses" attributed by the Claimant to its customers.

Two theses are opposed. According to the Claimant, the deliveries of goods called "cross bonuses" should be classified as discounts in kind or quantity discounts and benefit from the regime excluding the taxable value contained in article 16, no. 6, subparagraph b) of the VAT Code, falling within the concept of discount the attribution of products of the same nature or category, even if not exactly identical, namely beers, soft drinks and waters, all forming part of the products it markets in the development of its activity.

For the TA, such deliveries constitute "gifts" equivalent to transfers of goods, subject to VAT taxation, in accordance with the provisions of article 3, no. 3, subparagraph f), II part and no. 7 of the Code of this tax, as they do not respect products exactly identical to those sold on the invoice or transaction within the scope of which they were granted. The difference may concern the presentation, packaging or labeling of the same beverage, or beverages of the same brand but with different flavors, or beverages of different brands.

Finally, the Tribunal must rule on the request for compensatory interest, submitted under article 43 of the LGT.

2.2. Free transactions and VAT

The principle of proportional taxation on the price of transactions

The common VAT system established by Directive 2006/112/EC[4] ("VAT Directive") is based on the fundamental principle of applying a tax exactly proportional to the price of goods and services transacted[5] and is governed by the principle of neutrality, according to which the tax should be levied in the most general manner possible, cover all stages of production and distribution and subject goods and services of the same type to the same tax burden in all Member States[6].

It is this principle that underlies the distinction of the "onerous" nature of transactions falling within the scope of VAT, implying that they involve a "price" or consideration, whether in money or in kind. The general rule is therefore the taxation of transactions effected on an onerous basis (cf. article 2, no. 1, subparagraphs a), b) and c) of the VAT Directive and article 1, no. 1, subparagraph a) of the VAT Code; Judgment of the Court of Justice – "CJEU" – Naturally Yours, 230/87, of 23 November 1988, 15 to 18).

It is also the aforementioned principle of a "tax exactly proportional to the price" that requires that the taxable value for VAT purposes correspond to the transaction value, i.e., to the consideration obtained or to be obtained from the acquirer, the recipient or a third party, and not to the normal value of the transactions (cf. articles 72 and following of the VAT Directive with correspondence in article 16 of the VAT Code).

Nevertheless, alongside the general discipline described, the VAT system provides for a special regime for taxation of transactions carried out on a free basis, and consequently lacking a "price" or "consideration", equating them to transactions carried out on an onerous basis (cf. article 16 of the VAT Directive, transposed by article 3, no. 3, subparagraph f) of the VAT Code). The fundamental objective of this assimilation is to tax the self-consumptions carried out by taxable persons as final consumptions (as they are), preventing them from benefiting from VAT exemption resulting from the right to deduction.

In these cases, despite the absence of any payment, taxation is imposed as a corollary of the principle of equality and for the benefit of neutrality. The taxable person should be equated to a final consumer when he affects a good or service from his business assets, relative to which he recovered (deducted) the incurred tax, to his private use or that of his staff, or to sectors of non-taxed activity ("external self-consumptions")[7].

In this regard, the CJEU states that the objective "is to ensure equal treatment between the taxable person who affects a good or who supplies services for his private use or that of his staff, on the one hand, and the final consumer who acquires a good or service of the same type, on the other (…). To achieve this objective, the said articles 5, no. 6, and 6, no. 2, subparagraph a) [of the Sixth Directive, current articles 16 and 26 of the VAT Directive], prevent a taxable person who was able to deduct the VAT on the acquisition of a good devoted to his business from evading payment of this tax, when he affects this good from his business assets to his private use or that of his staff, thereby benefiting from undue advantages compared to the final consumer who acquires the good by paying VAT" – cf. Judgment of the CJEU, Hotel Scandic, C-412/03, of 20 January 2005, proceedings C-412/03, 23.

In free transactions, no consideration is agreed, in which case the primary criterion of price is inapplicable, with the purchase price or cost price of the goods serving as a reference for the incidence basis (cf. article 74 of the VAT Directive, transposed by article 16, no. 2, subparagraph b) of the VAT Code).

The regime for taxation of gifts

It is in the context described that the discipline contained in article 16 of the VAT Directive is framed, according to which:

"The following shall be treated as supplies of goods effected for consideration: the appropriation by a taxable person of goods from his business assets for the purposes of his private use or that of his staff, the transfer of goods to a third party free of charge, or in general any other act of appropriation of goods for purposes which are not business purposes, where those goods or the component parts thereof do not come within the normal business operations, as long as the tax was fully or partly deductible for those goods.

However, the following shall not be treated as supplies of goods effected for consideration: the appropriation of small samples or goods and services for the purposes of the business."

This provision of the Directive was received by article 3, no. 3, subparagraph f) of the VAT Code, which considers as transfers of goods: "(…) the permanent allocation of goods from the business to the private use of its owner, staff, or in general to purposes other than the business, as well as their free transfer, where, regarding those goods or the elements that comprise them, a total or partial deduction of the tax has been made".

Excluded from the regime in question, in accordance with the specification in no. 7 of article 3 of the VAT Code, and under the conditions defined by ordinance of the Minister of Finance, "goods not intended for subsequent commercialization which, by their characteristics, or by their different size or format from the product constituting the unit of sale, intend, in the form of a sample, to present or promote goods produced or marketed by the same taxable person, as well as gifts of unit value equal to or less than € 50 and whose total annual value does not exceed five per thousand of the turnover of the taxable person in the previous civil year, in accordance with commercial practice."

The indeterminate concept of small value gift provided for in the VAT Directive is thus specified by internal law in concrete quantitative limits which, in accordance with the CJEU, may be set by Member States, provided certain conditions are observed – cf. Judgment of the CJEU, EMI Group, C-581/08, of 30 September 2010, 44 and 45.

It should be noted that Ordinance no. 497/2008, of 24 June, regulated the terms and conditions under which the exclusion from taxation of samples and small value gifts provided for in the VAT Code occurs, providing, as regards gifts, the following:

"Article 3

Definition of the concept of gift

1 – The gift may consist of goods marketed or produced by the taxable person or goods acquired from third parties.

2 – When the gift consists of a set of goods, the value of € 50, referred to in no. 7 of article 3 of the VAT Code, applies to that set.

3 – The following are excluded from the concept of gift: quantity bonuses granted by the taxable person to its customers."

It is noteworthy that the definition of concepts constituting the elements of tax incidence, such as samples and gifts, through ordinance, may raise questions similar to those discussed regarding the setting of quantitative limits by Circular no. 19/89, of 18 December[8], on which a judgment of material and formal unconstitutionality was rendered determining its non-application, although it was an example of longevity, as, as Xavier de Basto refers, the Circular withstood 18 years of judicial scrutiny (cf. "On the VAT regime of samples and small value «gifts»", Magazine of the Chamber of Official Accountants Technicians, no. 90, September 2007, and the Judgment of the Supreme Administrative Court "SAC", proceedings no. 01180/06, of 21 March 2007[9]).

Without prejudice to the foregoing, and as the ordinance refers, quantity bonuses should be considered excluded from the concept of gift and, consequently from VAT taxation.

One of the points in favor of this understanding relates to the very teleology of the special regime for VAT taxation of free transfers of goods or "gifts", which, as mentioned above, is essentially a technique, used by the Directive and the VAT Code, of assimilation to an onerous transaction of situations of allocation of goods (on the assumption that VAT was deducted with respect to them) to prevent the diversion, to a zone of non-taxation, of goods used for purposes of (final) consumption, which does not fit with the figure of the discount, whether commercial or financial, in value or in kind, granted by taxable persons to their customers within a commercial relationship involving the performance of transactions on an onerous basis, in which reciprocal services are established.

However, beyond the taxation of situations materially equivalent to final consumption, the CJEU, in Judgment Kuwait Petroleum, C-48/97, of 27 April 1999, advises that if the discount is integral, that is, corresponding to 100% of the price, even if it is granted for business purposes, and therefore not classifiable as "final consumption" or for purposes other than the business, we are dealing with a transfer of goods free of charge covered by the assimilation to onerous transactions effected by the VAT Directive (at the date of the judgment, by article 5, no. 6 of the Sixth Directive, which corresponds to the current article 16 of the VAT Directive)[10].

In this case, a promotional system was at issue for the granting of stamps[11] for each refueling of 12 liters of fuel. The accumulation of a certain number of stamps allowed the customer to choose gifts from a catalog, without spending any additional monetary amount. The European Court expressly recognized that the transfer of the gifts fell within the business purposes, as it aimed at increasing fuel sales, but nevertheless maintained that, despite this, the delivery should be qualified as a gift (free transfer) and taxed, if it did not fall within the concept of small value – cf. point 19 of Judgment Kuwait Petroleum.

In this way, the free nature is a property of transactions of goods deliveries qualified as gifts, including within that concept integral discounts of 100%, but no longer mere price reductions. It is noteworthy that gifts, in the VAT sense, do not require an animus donandi, of pure liberality, as it has just been seen that they normally have commercial intentions that share with the figure of discounts and allowances, aiming, in general, to attract customers and, thereby, encourage them to buy.

A transaction is considered to be carried out on an onerous basis, not meeting the prerequisites of the concept of gift and free transfer, if "there exists between the supplier and the buyer a legal relationship during which reciprocal services are transacted, constituting the price received by the supplier the effective countervailing value of the good supplied" – cf. point 19 of Judgment Kuwait Petroleum.

In conclusion, in order to be able to speak of a discount and to exclude the discipline of free transfers ("gifts") it is necessary to first identify a transaction on an onerous basis. In addition, the price reduction must be only partial, otherwise one would be dealing with a free transfer of goods. In this sense, as Mafalda Coelho Moreira states, "it follows from Community case law that the granting of a discount or price reduction presupposes the delivery of a good or the provision of a service on an onerous basis", a point which is then examined in more detail (cf. by the author, "VAT in Promotional Activities with a View to Customer Loyalty and Acquisition", VAT Notebooks 2014, Almedina, p. 247).

The concept of discounts. Reduction of the taxable value of transactions carried out on an onerous basis

The performance of transactions on an onerous basis presupposes a direct nexus ("direct link"), resulting from a synallagmatic bond of reciprocal services, between a transaction configured objectively as a transfer of goods or provision of services and a consideration that constitutes its remuneration – cf. Judgments of the CJEU, Hong-Kong Trade, 89/81, of 1 April 1982, 10; Apple and Pear, 102/86, of 8 March 1988, 12; Naturally Yours, cited above, 11 and 12; and Tolsma, C-16/93, of 3 March 1994, 12 to 20.

In accordance with article 73 of the VAT Directive, seconded by article 16, no. 1 of the VAT Code, "the taxable amount shall include everything that constitutes the consideration which the supplier or the service provider has received or is to receive (…) from the purchaser, the recipient or a third party". Such value corresponds exactly to that of the real and subjectively agreed consideration, which may be paid by the customer or by a third party, and must have pecuniary effect, although it may consist of payment in kind, provided it is convertible monetarily – cf. Judgments of the CJEU, Naturally Yours, cited above; Balkan and Sea, C-621/10, of 26 April 2012; and Orfey Bulgaria, C-549/11, of 19 December 2012.

From the taxable value for VAT purposes, "allowances and bonuses granted to the purchaser or the recipient" are excluded – cf. article 79, subparagraph b) of the VAT Directive and article 16, no. 6, subparagraph b) of the VAT Code, the national act adding to this enumeration the synonym "discounts".

Community case law is, in this domain, extensive, particularly as regards promotional campaigns carried out with discount vouchers or coupons. In summary, the CJEU holds that only the amounts actually received by the taxable person should be included in the taxable amount and not the nominal values contained in the vouchers used/redeemed by customers, relative to which no consideration was received (cf. Judgment of the CJEU, Boots, C-126/88, of 27 March 1990), or payment of less than the nominal value of the voucher was received, in which case the consideration should be the amount actually received by the supplier for the sale of the voucher and not the face value (cf. Judgment of the CJEU, Argos, C-288/94, of 24 October 1996).

The CJEU's understanding remains in the case where the discount (namely via vouchers) is given (borne) by the manufacturer, but only materializes at a later stage, at retail. In the interpretation of Judgment Elida Gibbs, C-317/94, of 24 October 1996, the European Court recognizes the right of the manufacturer to see the taxable matter reduced, through the reduction of the value indicated in the coupon and reimbursed to the retailer, regardless of the number of intermediaries in the supply chain. The CJEU understands that, as regards intermediate transactions, it is not necessary to readjust the taxable matter which remains unchanged, as, regarding these transactions, the application of the principle of neutrality is guaranteed by resorting to the deduction regime (33). This interpretation was recently reiterated by the CJEU in Judgment Boehringer, C-462/16, of 20 December 2017.

Regardless of whether the discount is granted through vouchers and in the case of price reduction after the moment the transaction is carried out, the CJEU continues to uphold the value actually received by the supplier, concluding that the taxable value should be reduced to the extent of the discount or allowance granted to the customer – cf. Judgment Freemans, C-86/99, of 29 May 2001.

The intangibility of the principle of VAT incidence on the price actually received, which permeates the model of taxation proportional to the (value of) consumption, has repercussions in various solutions of the common VAT system, such as, for example, the reduction of the taxable value and consequent refund to taxable persons of the value of tax assessed in excess, when, after the performance of the transactions, vicissitudes occur that determine their annulment, termination, resolution, or the non-receipt of the price, as stipulated in article 90 of the VAT Directive, although it refers to the conditions to be set by Member States, which, in the Portuguese case, refer us to articles 98 and 78 of the VAT Code.

It is important to note that the Community provision invoked by the Claimant as the legal basis for the claim made – article 87, subparagraph b) of the VAT Directive – although it also refers to the exclusion of allowances and bonuses from the calculation of taxable value, has no applicability to the situation in question, as it refers only to imports and not to transfers of goods carried out on the domestic market ("internal transactions"). This Community provision, contrary to what the Claimant asserts, was not transposed to article 16, no. 6, subparagraph b) of the VAT Code, but rather to article 17, no. 4.

Returning to article 79, subparagraph b) of the VAT Directive and the provision of article 16, no. 6, subparagraph b) of the VAT Code, both cash bonuses and bonuses in kind are excluded from the taxable value. However, in the case of bonuses in kind, their treatment as discounts or allowances to the taxable value has traditionally been conditioned by the fact that the goods attributed "free of charge" have a nature identical to that of the goods sold, as drawn from the reasoning of the Judgment of the SAC, in proceedings no. 020365, of 10 November 1999, which considers as "gifts and not discounts, allowances or bonuses, products delivered free of charge at the time of the sale of another different one." In the same sense it is possible to find various Notices from the Tax Authority[12].

In this context, it appears that the decisive criterion for classifying bonuses in kind in the discipline of determining taxable value, in the sense of their non-inclusion and consequent non-taxation in VAT, is that of their indispensable connection – direct link – with the supply of goods to which they are (should be) associated, so that they can be classified in the same onerous transaction relative to which the taxable matter is calculated. In other words, the bonus is dependent on and conditioned by the sale of other goods.

For this to be the case, as stated above, the transaction cannot be entirely free, as, in that case, the entirety of the supply of goods is treated as a "gift", in accordance with the interpretation advocated in Judgment of the CJEU, Kuwait Petroleum, cited above.

It thus appears that the central question is not so much that bonuses should be products with identical nature, but rather their relationship with the supplies effected on an onerous basis by the taxable person and the context and conditions under which they are granted[13]. However, for those who understand that the nature of the products must be similar, this cannot mean a restriction to products exactly identical, which would prove disproportionate, and should be satisfied with the same category or typology of products sold.

Assessment

The products delivered as "cross bonuses" by the Claimant to its customers were so within the scope of commercial relationships established with them, within the scope of the continued supply of beverages – beers, bottled waters and soft drinks – and dependent on these supplies, based on the purchase of certain quantities of beverages, a practice generalized in companies operating in the beverage distribution sector.

It should also be noted that the bonuses attributed are beverages marketed by the Claimant and normally of the same brand as those sold, although with different packaging or flavors, as, for example, the granting of bonuses of "D..." on the purchase of "C...". These products are intended to be sold by retailers to consumers.

In this factual framework, it cannot be but understood that we are dealing with quantity discounts, granted within the scope of transfers of goods carried out on an onerous basis and which, accordingly, are provided for in the regime for determining the taxable matter of VAT, which stipulates their exclusion from the calculation basis of this tax, in accordance with the cited article 16, no. 6, subparagraph b) of the VAT Code, in harmony with article 79, subparagraph b) of the VAT Directive.

It is noteworthy that, even following the restrictive view of the TA in the sense of requiring, as a requirement or assumption for the application of this regime, that the products delivered as bonuses have the same nature, it cannot but be concluded that this criterion is observed, as the mere alteration of the product's packaging or flavor is, in our understanding, not capable of characterizing the identity of the nature of the products.

In this context, we refer to the reasoning of the Arbitral Judgment of CAAD issued in proceedings no. 141/2012, of 5 February 2014, to which we cannot but adhere:

"Bonuses, by their characteristics, do not differ from small value gifts: in the case of bonuses, we are within the scope of a transaction of transfer of goods or provision of services to a customer in which goods or services of equal nature are attributed free of charge; in the case of small value gifts […], (i) the scope is broader as regards their recipients, which may be customers or third parties, (ii) there is no direct connection with a specific sales transaction and (iii) their value should, according to commercial practices or legal dictates, be reduced.

Despite the existence of a relationship between the bonus and a specific transaction, there may not be a direct correlation between its value and the customer's sales balance. Indeed, reasons of a commercial nature may dictate, for example, the need for a more aggressive commercial policy towards a specific customer or group of customers.

Notwithstanding, common to both figures is the objective of promoting a product and increasing sales or provision of services. It is up to the taxable person, in the freedom of exercising a commercial activity, to choose the means he considers most suitable and effective to achieve those objectives. […]

As we have stated, the concepts of bonuses or small value gifts, despite the classification in VAT being similar, are not synonymous and must take into account the underlying "animus": was it the intention of the taxable person to attribute free of charge goods of equal nature within a determined transaction or, in a different sense, was it a gift of reduced value intended to promote a specific product, without any relationship of direct dependence with the products sold to the recipient of the gift? Now, from the documentation attached to the request for arbitral pronouncement […] the connection between the free gifts and the sales made to customers is proved, so we cannot but conclude that the requirements for the classification as bonuses are met.

In a similar sense as to the classification as bonuses, the Arbitral Judgment no. 539/2015-T, of 21 March 2016, ruled:

[…] where, as in this case, there are free deliveries that are justified by the acquisition of certain quantities of product, and which are intended, not to be consumed, nor to be the subject of free gift, it must be concluded that, what actually occurs – regardless of the commercial presentation that may be given […] – is that the purchase price of the set (base product plus gift product) is discounted, for compliance with certain conditions.

In other words, what is found to underlie the situation sub iudice, is that the Claimant, to its customers, makes the following offer: if a certain quantity of product A is purchased, I will sell you, at the same price, that quantity of that product, plus an additional quantity of product B.

It is thus verified that the final price fixed is not the price solely of the quantities of product A transacted, but rather the discounted price of the quantity of product A, plus the quantity of product B, and it is not understood how the different nature of the products covered can reasonably prevent, as the TA intends, the fixing of an overall discounted price.

Moreover, as the products which constitute the said bonuses are intended to be sold to the final consumer, and not transferred free of charge to them, their taxation separately from the overall transfer in VAT, as results from the understanding adopted by the TA in the decision of the gracious complaint, would lead to an unjustified patrimonial gain for the Treasury, in that it would be receiving VAT on the entirety of the value of the products offered, both from the part of the offeror (in the case of the Claimant), and later from the part of the recipient of the gift, when selling the products to its customers, which, besides everything else, would be directly contrary to the principle that structures VAT neutrality."

The legal-tax classification of the "cross bonuses" attributed by the Claimant to its customers is not affected by the fact that these were incorrectly classified and recorded as gifts. Not constituting the accounting a legal prerequisite shaping the tax type applied, it is only a consequence, one might even say inevitable, of the error of law in which the Claimant incurred by applying the regime of "gifts" to "cross bonuses", with VAT self-assessment that was not due, and which in obedience to the principle of tax legality must be corrected.

Contrary to what was sustained by the Respondent, the proof of VAT self-assessment on "cross bonuses" was conclusive, clearly self-explanatory and perceptible, with the periodic declarations of the months in question and all the invoices and accounting movements relating to them being attached, allowing the confirmation, invoice by invoice, movement by movement, of all VAT values for which refund is claimed.

With the tribunal having all the factual and legal elements, and these being acts (of tax self-assessment) unquestionably binding in all their aspects, their judicial verification does not exceed the tribunal's investigatory powers, nor invades the administrative sphere of action. A different position would compromise, moreover, the principle of effective judicial protection and would allow the TA to have a mechanism that would benefit it in cases (reprehensible) of omission of the duty to decide within the legal period in the administrative phase, preventing the tribunal from issuing a substitute pronouncement and settling the dispute.

2.3. The correction of assessed VAT: requirements

It is an established fact that the VAT self-assessment on "cross bonuses" remained within the Claimant's internal sphere, a circumstance recognized by the Respondent itself when it states in article 8 of the reply that the Claimant "did not pass on the assessed tax to its customers, in accordance with the provisions of no. 3 of article 37, combined with subparagraph f) of no. 3 and no. 7 of article 3, both of the VAT Code".

Indeed, no error is found in the issuance of invoices by the Claimant, whose taxable value, assessed VAT, products and quantities supplied are correctly mentioned, so the invocation of the regime for correction of taxable value or tax mentioned in invoices (article 78, no. 1 of the VAT Code) or correction of inaccurate invoices (no. 3 of the same article) is not appropriate.

The VAT self-assessed by the Claimant was so in an internal document and in its accounting records and had no repercussion on customers, as is, moreover, usual in free transactions, so that the latter could never have deducted such tax, omitted from the documents (invoices) received and recorded by them.

Thus, the Respondent cannot be followed when it invokes that the invoice(s) mention assessed VAT, as regarding "cross bonuses" no invoice mentions tax thereon and the case file contains copies of all invoices.

As for the fact that there is no proof in the case file of the recipients of the invoices' knowledge of the tax adjustment, this indeed does not exist, nor could it exist, as, dealing with assessment in an internal document of the Claimant, of VAT not passed on to third parties (customers), how could they have knowledge of the adjustment or refund of tax that is completely alien to them. Moreover, such a procedure, which is provided for in article 78, no. 5 of the VAT Code is entirely inapplicable in this case, as we are not in the field of invoice correction, with no place for the issuance of credit notes and new invoices.

It is also incomprehensible that the Respondent asserts that the proceeding of the Claimant's request would mean obligating the State to refund VAT that was deducted by taxable persons holding the invoices, when the Respondent itself knows that the tax in question was not passed on to customers, under the faculty provided for in article 37, no. 3 of the VAT Code, and that for this reason it cannot have been deducted by them.

Finally, as to the form of recording the adjustment, the TA is not right in limiting access to the self-assessment complaint procedure, under article 131 of the CPPT. It is not, contrary to what the TA states, a matter of correction of inaccurate invoices and, on the other hand, such procedure is a condition of access to the contentious route in the case of self-assessed tax, and a restrictive interpretation of the guarantees of taxpayers cannot be admitted in this field.

As stated in Arbitral Judgment no. 588/2016-T, of 2 May 2017, regarding an identical situation "it follows from the facts proved that the errors in the Claimant's accounting records – which constitute errors of law […], with effects on the periodic declarations relating to the months […], are of a merely internal character, that is, they had no interference in the sphere of third parties, so that their correction can be effected in the same manner as the challenge of the periodic declaration, provided for in article 97 of the VAT Code, without need for prior correction of invoices and accounting records under article 78 of the VAT Code; furthermore, the rule provided for in no. 5 of this article 78 does not apply here, as it is of transversal application to all categories of adjustments that may entail a deduction of tax by the acquirer of goods or services of value greater than the corresponding assessment by its transferor or service provider, which is manifest does not occur in the specific case."

In view of the foregoing, it is concluded that there is a material defect vitiating the silent dismissal of the gracious complaint object of this action and the VAT self-assessments, (by declaratory means), due to error in the legal premises, so that their annulment is required in accordance with and for the purposes of article 163 of the Administrative Procedure Code, with the consequent refund of the VAT tax paid in excess.

2.4. On the request for compensatory interest

As noted above, regarding the reasoning of the factual matter, the Claimant alleges simultaneously two reasons for having incurred the error of law that led to the VAT self-assessment in excess.

The first reason concerns technical reasons related to its information system, which, however, it does not specify or demonstrate and which, in any case, would not be suitable to configure an error attributable to the TA's services, constitutive of the right to compensatory interest, in accordance with article 43, no. 1 of the LGT.

The second reason, distinct from the first and with no relationship to it, is in the sense that the erroneous procedure would have been followed due to indications published by the TA (article 43, no. 2 of the LGT).

However, apart from the manifest inconsistency and incompatibility of the Claimant's allegations, as if the error was due to limitations of its information system, it would have nothing to do with compliance with indications published by the TA, the Claimant failed to prove that it followed TA guidance and which, even admitting that "there is no indication from the TA on what it considers to be «a product different from the one sold»" (article 49 of the p.i.).

Thus, the request for the TA to be condemned to pay compensatory interest fails, due to lack of proof of the corresponding prerequisites.

Finally, it is important to note that the relevant questions submitted to the consideration of this Tribunal were known and examined, with those whose decision was prejudiced by the solution given to others not being so.

DECISION

In view of the foregoing, the arbiters of this Arbitral Tribunal hereby agree as follows:

  • To judge the request for annulment of the silent dismissal of the Gracious Complaint as granted;

  • To judge the request for declaration of illegality and consequent partial invalidation of the VAT self-assessments for the months of April 2015 to December 2016, in the part relating to "cross bonuses", in the total amount of € 107,170.27, with the legal consequences, namely refund of the same to the Claimant, as granted;

  • To judge the request for the TA to be condemned to payment of compensatory interest as dismissed.

The value of the case is fixed at € 107,170.27 in accordance with the provisions of articles 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, no. 1, subparagraph a) of the CPPT and 306, nos. 1 and 2 of the CPC, ex vi article 29, no. 1, subparagraphs a) and e) of the RJAT.

Costs in the amount of € 3,060.00, with 19/20 to be borne by the Respondent and 1/20 to be borne by the Claimant, in accordance with Table I attached to the RCPAT, and with the provisions of articles 12, no. 2 of the RJAT, 4, no. 5 of the RCPAT and 527, nos. 1 and 2 of the CPC, ex vi article 29, no. 1, subparagraph e) of the RJAT.

Lisbon, 30 July 2018

[Text produced by computer, in accordance with article 131, no. 5 of the CPC, applicable by referral from article 29, no. 1 subparagraph e) of the RJAT]

The Arbiters,

Alexandra Coelho Martins

António Nunes dos Reis

Nuno Maldonado Sousa

Frequently Asked Questions

Automatically Created

What is the difference between cross bonuses (bónus cruzados) and gifts (ofertas) for VAT purposes under Portuguese tax law?
Under Portuguese VAT law, cross bonuses (bónus cruzados) and gifts (ofertas) differ fundamentally in their tax treatment. Cross bonuses are free product deliveries linked to purchase volumes that constitute quantity discounts under Article 16(6)(b) CIVA, reducing the taxable consideration without creating a separate VAT liability. They lack the liberality spirit of gifts and serve promotional purposes for customer acquisition and loyalty. Gifts, regulated by Article 3(3)(f) and 3(7) CIVA, are gratuitous transfers subject to VAT when unit value exceeds €50 or annual total exceeds five per thousand of prior year turnover. The key distinction lies in whether the free delivery represents 'more product for the same price' (bonus) or an independent liberal act (gift). In Process 12/2018-T, the claimant argued their free beverage deliveries were cross bonuses excluded from VAT, while the Tax Authority classified them as promotional gifts triggering VAT liability when statutory thresholds were exceeded.
How does Article 16(6)(b) of the Portuguese VAT Code (CIVA) apply to quantity discounts and bonus product deliveries?
Article 16(6)(b) of the Portuguese VAT Code (CIVA) provides that bonuses granted by suppliers constitute reductions in the taxable consideration, effectively excluding them from VAT taxation. For this provision to apply, the free deliveries must: (1) be granted based on contractual or commercial relationships tied to purchase volumes; (2) involve goods of the same nature or category as the purchased products; and (3) lack liberality spirit, serving instead as commercial incentives. The Tax Authority in Process 12/2018-T challenged whether cross-category deliveries (e.g., water given for beer purchases) met the 'same nature' requirement. The claimant argued all products were beverages within its portfolio and customers' usual purchases, constituting quantity discounts. The application of Article 16(6)(b) is critical because proper classification as bonuses avoids the VAT regularization complexities under Article 78 CIVA and the gift taxation thresholds of Article 3(7) CIVA, making it essential for businesses implementing promotional strategies with free product deliveries.
Can free product deliveries to clients be excluded from VAT taxation when linked to commercial purchase volumes?
Free product deliveries to clients can be excluded from VAT taxation when properly classified as quantity bonuses under Article 16(6)(b) CIVA rather than gifts under Article 3(3)(f) and 3(7) CIVA. The exclusion requires demonstrating: (1) a direct commercial link to purchase volumes rather than liberality; (2) delivery of goods having the same nature as purchased products; and (3) a promotional purpose aimed at increasing sales and customer loyalty rather than gratuitous transfer. In Process 12/2018-T, the claimant argued their beverage deliveries constituted 'more product for the same price,' representing consideration reductions rather than independent taxable supplies. However, the Tax Authority contended that when different products were delivered (water for beer purchases), they failed the 'same nature' test and became promotional gifts subject to VAT when exceeding €50 unit value or five per thousand of annual turnover. The burden of proof under Article 74 LGT and Article 342(1) Civil Code rests with the taxpayer to establish that deliveries qualify as VAT-exempt bonuses rather than taxable gifts.
What are the VAT regularization rules under Articles 78(1) and 78(5) of the CIVA for incorrectly classified bonus products?
The VAT regularization rules under Articles 78(1) and 78(5) CIVA establish strict procedures for correcting incorrectly classified bonus products or inaccurate invoices. When the taxable value or corresponding tax requires adjustment, taxpayers must: (1) issue credit notes for original invoices and new corrected invoices; (2) prove the acquirer was notified of the rectification or reimbursed for excess tax charged; and (3) record adjustments in field 40 of the periodic VAT declaration for the month when rectification occurred. In Process 12/2018-T, the Tax Authority argued the claimant failed these requirements by using the self-assessment complaint procedure under Article 131 CPPT instead of proper invoice rectification procedures. The Authority raised concerns that granting the claim would reimburse the company for tax potentially already deducted by customers holding the original invoices, despite the claimant's assertion under Article 37(3) CIVA that VAT on gifts was not passed to customers. The Authority also noted the claimant failed to provide invoice-by-invoice correspondence between original documents and adjustments, preventing validation of accounting entries and transaction measurement, demonstrating the evidentiary requirements accompanying VAT regularizations.
How did the CAAD arbitral tribunal rule on the self-assessment of excess VAT on cross bonus product deliveries in Process 12/2018-T?
While the excerpt provided does not contain the final ruling of the CAAD arbitral tribunal in Process 12/2018-T, the decision would have addressed whether free beverage deliveries constituted VAT-exempt cross bonuses under Article 16(6)(b) CIVA or taxable gifts under Article 3(3)(f) and 3(7) CIVA. The tribunal needed to evaluate: (1) whether cross-category product deliveries (water for beer purchases) satisfied the 'same nature' requirement for bonus classification; (2) whether the claimant met its burden of proof under Article 74 LGT for demonstrating €107,170.27 in excess VAT self-assessment; (3) whether proper VAT regularization procedures under Article 78 CIVA were followed; and (4) whether the claimant's technical system limitations justified procedural deviations. The tribunal considered witness testimony from related case 588/2016-T regarding identical facts. The ruling would significantly impact how beverage companies and retailers structure promotional programs involving free product deliveries, determining whether such practices constitute consideration reductions or create independent VAT liabilities, with implications for customer loyalty programs and cross-promotional commercial strategies throughout Portuguese commerce.